Q2 2024 CECO Environmental Corp Earnings Call

Good morning and welcome to the SECO Environmental Second Quarter 2024 conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions.

Operator: All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star 1-1 on your touchtone phone. To withdraw your question, please press star 1-1 again. Please note, this event is being recorded. I would now like to turn the conference over to Steven Hooser, Investor Relations. Please go ahead.

To ask a question, you may press star 1 1 on your touchtone phone.

To withdraw your question, please press star 11.

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

Steven Hooser: Thank you, Gigi, and thank you for joining us for the SECO Environmental Second 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 secoinviro.com. Presentation materials can be accessed through the Investor Relations section of the website.

Steven Hooser: Thank you, Gigi, and thank you for joining us for the SECO Environmental Second Quarter 2024 Earnings Call. On the call with me today is Todd Gleason, Chief Executive Officer, and Peter Johansson, Chief Financial and Strategy Officer.

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

Speaker Change: The call will be webcast along with our earnings presentation, which is on our website at www.secoenviro.com.

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. The actual future results may differ materially from those expressed or implied by the forward-looking statement.

Speaker Change: The presentation materials.

Speaker Change: can be accessed through the Investor Relations section of the website.

Speaker Change: 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.

Speaker Change: Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties. Actual future results may differ materially from those expressed or implied by the forward-looking statement.

Steven Hooser: I encourage you to read the risks described in our SEC filings included on Form 10-Q for the quarter ended June 30, 2024. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that we make here today, whether as a result of new information, future events, or otherwise. Today's presentation will also include references to certain non-GAAP financial measures. We've provided 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 Chief Executive Officer Todd Gleason. Thanks, Steven.

Speaker Change: We encourage you to read the risks described in our SEC filings included on Form 10-Q for the quarter ended June 30, 2024.

Speaker Change: Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that we make here today, whether as a result of new information, future events, or otherwise.

Speaker Change: Today's presentation will also include references to certain non-GAAP financial measures. We've provided a 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.

Todd R. Gleason: And to our audience, thank you for your interest and continued support. We are a little more than halfway through the year and are very pleased we continue to meet or exceed the needs of our customers while making a positive impact on our communities and creating above-market shareholder value. As outlined in today's press release, we delivered another strong quarter while maintaining our strategic investments to further advance our operating model as we pursue exciting growth opportunities across industrial air, industrial water, and the energy transition.

Speaker Change: And with that, I'd now like to turn the call over to Chief Executive Officer Todd Gleason. Todd?

Todd R. Gleason: Thanks, Steven, and to our audience, thank you for your interest and continued support.

Speaker Change: We are a little more than halfway through the year and are very pleased we continue to meet or exceed the needs of our customers while making a positive impact on our communities and creating above market shareholder value.

Speaker Change: As we outlined in today's press release, we delivered another strong quarter while maintaining our strategic investments to further advance our operating model as we pursue exciting growth opportunities across industrial air, industrial water, and the energy transition.

Todd R. Gleason: In the quarter, we delivered several impressive financial records, including our highest second quarter sales, gross profit, adjusted EBITDA dollars, and excellent year-over-year margin expansion, all of which reflect the operating model we have developed and continue to advance to drive sustainable results. Now, please turn to slide number three, entitled Executive Summary, and I will highlight some key takeaways related to our second quarter performance.

Speaker Change: In the quarter, we delivered

Speaker Change: Several impressive financial records, including our highest second quarter sales, gross profit, adjusted EBITDA dollars, and excellent year-over-year margin expansion, all of which reflects the operating model we have developed and continue to advance to drive sustainable results.

Speaker Change: Now, please turn to slide number three, entitled Executive Summary, and I will highlight some key takeaways related to our second quarter performance.

Todd R. Gleason: We delivered sales of $138 million in the quarter, a 6% improvement over last year, overcoming the impact of timing delays associated with a few customer-driven projects and the more drawn-out process finalizing bookings in large project opportunities. If you recall, we signaled this in our first quarter earnings call, and although we grew sales approximately 9% sequentially, we expect to grow sequentially in the third quarter. These timing issues have had a modest impact on sales year to date.

Speaker Change: We delivered sales of $138 million in the quarter, a 6% improvement over last year, overcoming the impact of timing delays associated with a few customer-driven projects, and the more drawn-out process finalizing bookings in large project opportunities.

Speaker Change: If you recall, we signaled this in our first quarter earnings call, and although we grew sales approximately 9% sequentially, we expect to grow sequentially in the third and we expect to grow sequentially in the third quarter. These timing issues had a modest impact on sales year to date.

Todd R. Gleason: Gross profit of $49 million was an increase of 23% over Q2 last year, and gross margins of almost 36% were up about 500 basis points year over year, further demonstrating the benefits we are realizing from our operational excellence efforts and our strong project execution. We expect that the benefits we are seeing from our sourcing and productivity initiatives will continue in subsequent quarters. Continuing with Q2 financial metrics, adjusted EBITDA of $16.1 million was up 18%, and EBITDA margins of 11.7% were up approximately 120 basis points year over year. Margin expansion was attributable to higher volumes, positive mix, and G and A efficiency. Finally...

Speaker Change: Gross profit of $49 million was an increase of 23%.

Speaker Change: over Q2 last year, and gross margins of almost 36% were up about 500 basis points year over year, further demonstrating the benefits we are realizing from our operational excellence efforts and our strong project execution.

Speaker Change: We expect that the benefits we are seeing from our sourcing and productivity initiatives will continue in subsequent quarters.

Speaker Change: Continuing with Q2 financial metrics, adjusted EBITDA of $16.1 million was up 18%. And EBITDA margins of 11.7% were up approximately 120 basis points year over year.

Speaker Change: Margin expansion was attributable to higher volumes, positive mix, and G and A efficiencies.

Todd R. Gleason: Adjusted EPS of $0.20 was up 33% year-over-year, benefiting from our continued improvements in operational performance and improving interest rates. So overall, I am very pleased with the financial results in the quarter and the balanced performance. Now please turn to slide number four.

Speaker Change: Finally,

Speaker Change: Adjusted EPS of 20 cents was up 33% year-over-year, benefiting from our continued improvements in operational performance and improving interest rates.

Todd R. Gleason: We will quickly review our first half of year results and how they set up SECO for a strong finish to 2024. Peter will add some commentary on these points as well. Let's start with orders and sales, the top line, so to speak. Orders for the first half were $286 million, which produced a positive book-to-bill of 1.08. But order volumes were down about 7% year over year.

Speaker Change: So overall, very pleased with the financial records in the quarter and the balanced performance.

Speaker Change: Now please turn to slide number four. We will quickly review our first half of year results and how they set up SECO for a strong finish to 2024. Peter will add some commentary on these points as well.

Peter: Let's start with orders and sales, the top line, so to speak. Orders for the first half were $286 million, which produced a positive book-to-bill of 1.08.

Todd R. Gleason: While we are pleased to have booked a bill of almost $1.1 million, we are disappointed that our first half 2024 orders were down. However, our order pipeline has never been stronger, and we continue to do a great job winning and booking small to medium-sized projects. But we have witnessed a longer booking process associated with large customer opportunities. In the first half of the year, In the first half of last year, we were not seeing this long duration time in the notification to order process, and we booked one large industrial air order and one large energy order, each exceeding $25 million.

Speaker Change: but order volumes were down about 7% year over year. While we are pleased to have booked a bill of almost 1.1, we are disappointed that our first half 2024 orders were down.

Speaker Change: Our order pipeline has never been stronger.

Speaker Change: and we continue to do a great job winning and booking small to medium-sized projects, but we have witnessed a longer booking process associated with the large customer opportunities. In the first half of the year,

Speaker Change: excuse me in the first half of last year we were not seeing this long duration time in the notification to order process and we booked one large industrial air order and one large energy order each exceeding 25 million dollars

Todd R. Gleason: We have similar opportunities in our current pipeline, and had just one or two of these jobs booked this year, our year-to-date orders would have been up double digits. Instead, those large pending orders remain in our pipeline, and we are confident that our second half orders will reflect some of these large orders. As we look at our pipeline over the next 6 to 18 months, we see a significant number of large jobs, especially in the energy transition and power markets, as the demands associated with electrification, data centers, and general power consumption continue to ramp up.

Speaker Change: We have similar opportunities in our current pipeline, and had just one or two of these jobs booked this year, our year-to-date orders would have been up double digits.

Speaker Change: Instead, those large pending orders remain in our pipeline and although we are confident our second half orders will reflect some of these large orders.

Speaker Change: As we look at our pipeline, over the next 6 to 18 months, we see significant number of large jobs, especially in the energy transition and power markets, as the demands associated with electrification, data centers, and general power consumption continue to ramp.

Todd R. Gleason: So, we remain optimistic in our full-year bookings outlook and confident that we are well positioned for some large, exciting project wins. Sales in the first half were $264 million, up 9% year-over-year, which is at or near the midpoint of our four-year growth rate expectation. Additionally, if you look at our guidance for the full year, this first half sales level represents about 43% of that full year expectation. This is similar to last year's run rate for the first half of the year.

Speaker Change: So, we remain optimistic in our full year bookings outlook and confident that we are well positioned for some large, exciting project wins.

Speaker Change: Sales in the first half were $264 million, up 9% year over year, which is at or near the midpoint of our four-year growth rate expectations.

Speaker Change: Additionally, if you look at our guidance for the full year, this first half sales level represents about 43% of that full year expectation.

Todd R. Gleason: We expect stronger year-over-year sales levels in the second half as our near-record backlog produces more volume and project timing is more favorable. First half adjusted EBITDA of more than $29 million was up 26% over prior years, first half, and margins were up over 150 basis points. We had very strong income generation on our sales growth, which demonstrates the benefits we are getting from improving mix and our productivity initiative. Adjusted EPS of $0.32 is up 28% year over year, benefiting from improving operating leverage and the positive trends we're starting to see from lower interest rates.

Speaker Change: This is similar to previous year's run rate for the first half of the year. We expect stronger year-over-year sales levels in the second half as our near record backlog produces more volume and project timing is more favorable.

Speaker Change: First half of year adjusted EBITDA of more than $29 million was up 26% over prior years, first half, and margins were up over 150 basis points.

Speaker Change: We had very strong income generation on our sales growth, which demonstrates the benefits we are getting from improving mix and our productivity initiatives.

Speaker Change: Adjusted EPS of 32 cents is up 28% year-over-year, benefiting from improving operating leverage and the positive trends we're starting to see from lower interest rates.

Todd R. Gleason: Free cash flow generation was up nicely when compared to last year, as we continue to benefit from higher margins, or excuse me, higher volumes, and our drive associated with working capital management improvement. And while we didn't deploy capital for acquisitions in the first half of 2024, we did maintain balance sheet health with a low debt to EBITDA leverage ratio and repurchased $2 million of shares in the second quarter. Year to date, we have repurchased $5 million of our stock through opportunistic price targeting. We have approximately $8 million remaining on our multi-year stock buyback authorization.

Speaker Change: Free cash flow generation was up nicely when compared to last year as we continue to benefit from higher margins, or excuse me, higher volumes and our drive associated with working capital management improvements.

Speaker Change: And while we didn't deploy capital for acquisitions in the first half of 2024, we did maintain balance sheet health with low debt to EBITDA leverage ratio.

Speaker Change: and repurchased $2 million of shares.

Speaker Change: in the second quarter. Year-to-date we have repurchased five million dollars of our stock through opportunistic price targeting. We have approximately eight million dollars remaining on our multi-year stock buyback authorization.

Todd R. Gleason: So, a solid first half of 2024, with a lot of great progress building our sales pipeline, executing on projects to deliver for our customers, and, of course, very strong margin expansion and EPS growth. Please turn to slide number five, and let's review our four-year outlook. Typically, companies save guidance commentary for the end of their earnings reports, but we felt it was important to incorporate our key themes in this first section. We are pleased to raise our full-year guidance for both revenue and adjusted EBITDA. This is the second time we are raising full-year guidance since we first introduced our 2024 Outlook.

Speaker Change: So, a solid first half of 2024 with a lot of great progress building our sales pipeline, executing on projects to deliver for our customers, and of course the very strong margin expansion and EPS growth.

Speaker Change: Please turn to slide number five and let's review our full-year outlook.

Speaker Change: Typically, companies save guidance commentary for the end of their earnings report, but we felt it was important to incorporate our key themes in this first section.

Speaker Change: We are pleased to raise our full year guidance for both Revenue and Adjusted EBITDA. This is the second time we are raising full year guidance since we first introduced our 2024 Outlook.

Todd R. Gleason: You can see the initial guidance range in the column on the left side and how we have increased the guidance range over the past six months. With respect to full year revenues, we now expect a range of $600 to $620 million, up about 12% at the midpoint. This compares to our previous sales range of $590 to $610 million. With respect to adjusted EBITDA, we now expect a range of $68 to $72 million, up about 21% at the midterm. This compares to our previous adjusted EBITDA range of between $67 to $70 million, and we continue to seek free cash flow of approximately 50% to 70% of EBITDA for the full year.

Speaker Change: You can see the initial guidance range in the column on the left side and how we have increased the guidance range over the past six months.

Speaker Change: With respect to full-year revenues, we now expect a range of $600 to $620 million, up about 12% at the midpoint. This compares to our previous sales range of $590 to $610 million.

Speaker Change: With respect to adjusted EBITDA, we now expect a range of $68 to $72 million, up about 21% at the midpoint.

Speaker Change: This compares to our previous adjusted EBITDA range of between $67 to $70 million.

Speaker Change: And we continue to seek free cash flow of approximately 50% to 70% of EBITDA for the full year.

Todd R. Gleason: Our updated guidance range incorporates a few key factors. As I already mentioned, we enter the second half with a near record backlog as well as a tremendous sales pipeline. These two top line factors give us visibility and confidence to deliver second half sales performance in line with this outline. Our diverse and global sales pipeline includes meaningful project opportunities in a variety of energy-related sectors, as well as ongoing strength in general industrial markets.

Speaker Change: Our updated guidance range incorporates a few key factors.

Speaker Change: As I already mentioned, we enter the second half with a near-record backlog as well as a tremendous sales pipeline.

Speaker Change: These two top-line factors give us visibility and confidence to deliver second-half sales performance in line with this outlook.

Speaker Change: Our diverse and global sales pipeline includes meaningful project opportunities in a variety of energy related sectors, as well as ongoing strength in general industrial markets.

Todd R. Gleason: And with respect to adjusted EBITDA, we expect to continue to produce solid margin expansion driven by more gains associated with productivity and improved business mix. We are balancing these positive items with a clear-eyed focus on items that could be challenges, such as ongoing timing delays associated with larger projects and, of course, some unknown economic and political factors. Net-net, we feel good about raising guidance for the full year and continuing to invest for future growth. In addition to the items I just mentioned, I want to touch on M&A.

Speaker Change: And with respect to adjusted EBITDA, we expect to continue to produce solid margin expansion driven by more gains associated with productivity and improving business mix.

Speaker Change: We are balancing these positive items with a clear-eyed focus on items that could be challenges, such as ongoing timing delays associated with larger projects, and of course, some unknown economic and political factors.

Speaker Change: Net-Net, we feel good about raising guidance for the full year and continuing to invest for future growth.

Todd R. Gleason: As many of you know, we have been programmatic with respect to acquisitions over the past few years. While we did not complete a deal in the first six months of this year, we advanced several attractive business transactions that fit our strategic focus on acquiring niche leadership businesses with outsized growth potential. As we shared in our press release today, I am pleased to announce we completed an acquisition this week, which is incorporated in our outlook.

Speaker Change: In addition to the items I just mentioned, I want to touch on M&A. As many of you know, we have been programmatic with respect to acquisitions over the past few years.

Speaker Change: While we did not complete a deal in the first six months this year, we advanced several attractive business transactions that fit our strategic focus on acquiring niche leadership businesses with outsized growth potential.

Todd R. Gleason: While the business will have a small financial impact on our full year 2024, we are very excited about the opportunities the acquired business brings to our portfolio. And while this is the only transaction incorporated in our guidance, we continue to advance our M&A pipeline and remain committed to adding winning businesses to advance our leadership position. Please turn to slide number 6.

Speaker Change: As we shared in our press release today, I am pleased to announce we completed an acquisition this week, which is incorporated in our outlook. While the business will have a small financial impact to our full year 2024, we are very excited with the opportunities the acquired business brings to our portfolio.

Speaker Change: And while this is the only transaction incorporated in our guidance, we continue to advance our M&A pipeline and remain committed to adding winning businesses to advance our leadership positions.

Todd R. Gleason: Well, I will brief you on the recently acquired business of Envirocare International. Yesterday, Monday, July 29th, we completed the acquisition of California-based Envirocare International. EnviroCare has annualized sales of approximately $13 million, and we believe, as does the EnviroCare leadership, that with focused investment and utilization of our established global sales and operations teams, we can significantly increase their growth and profitability. The company has an established industrial air niche leadership position in markets including chemicals, food, mining and metals, cement products, and municipal solid waste applications.

Speaker Change: Please turn to slide number six, where I will brief you on the recently acquired business of EnviroCare International.

Speaker Change: Yesterday, Monday, July 29th, we completed the acquisition of the California-based EnviroCare International.

Speaker Change: EnviroCare has annualized sales of approximately 13 million dollars and we believe, as does the EnviroCare leadership,

Speaker Change: that with focused investment and utilization of our established global sales and operations teams, we can significantly increase their growth and profitability.

Speaker Change: The company has an established industrial air niche leadership position in markets including chemicals, food, mining and metals, cement products, and municipal solid waste applications.

Todd R. Gleason: As you can see on the slide, the business has 30% of sales in the aftermarket, and we believe this is a growth opportunity within their installed base of over 1,000 systems. We also like the strong patent portfolio and decades of market and technical knowledge. In fact, we might suggest some of these smaller acquisitions could be considered or could be called aqua resources, where you are acquiring resources.

Speaker Change: As you can see on the slide, the business has 30% of sales in aftermarket, and we believe this is a growth opportunity within their installed base of over 1,000 systems. We also like the strong patent portfolio and decades of market and technical knowledge.

Speaker Change: In fact...

Speaker Change: We might suggest some of these smaller acquisitions could be considered or could be called

Todd R. Gleason: We believe the financials and growth profiles are very attractive on their own, but the resources are very strong, and we look forward to working closely with the team. So with that, I'll hand it over to Peter, who will walk us through additional information on our financial performance for the quarter.

Speaker Change: AQUA Resources, where you are acquiring resources.

Speaker Change: We believe the financials and growth profiles are very attractive on their own, but the resources are very strong, and we look forward to working closely with the team.

Speaker Change: So with that, I'll hand it over to Peter, who will walk us through additional information on our financial performance for the quarter. Peter?

Peter Kurt Johansson: Thank you, Todd, and good morning, everyone. Thank you for attending our rings call today. Let's turn to slide 8, where I'll cover orders and backlog. Orders for the quarter of $141 million, while still significant and reflecting a book to bill ratio greater than one, are down year over year approximately 13% on a tough comp, impacted by two significant orders, one in industrial air and one in energy transition, worth over $70 million in aggregate that did not repeat. The result of the absence of such orders was that year-over-year TTM orders were flat, and sequential TTM orders declined from the first quarter of 2024.

Peter: Thank you, Todd, and good morning, everyone.

Speaker Change: Thank you for attending our AIMS call today. Let's turn to slide 8 where I'll cover orders and backlog.

Peter: Orders for the quarter of $141 million, while still significant and reflecting a book-to-bill ratio greater than 1, are down year-over-year approximately 13% on a tough comp.

Peter: impacted by two significant orders, one in industrial air and one in energy transition, worth over 70 million dollars in aggregate that did not repeat.

Peter: The result of the absence of such orders was that year-over-year TTM orders were flat and sequential TTM orders declined from the first quarter of 2024.

Peter Kurt Johansson: Our commercial teams are pursuing a large number of large projects that we expect to realize in the second half of 2024. And as we have communicated in our prior calls, we don't measure SECO bookings on a quarter by quarter basis because they can be lumpy. And we prefer to use the trailing TTM metric and active pipeline size as KPIs, both of which are trending positive. Shifting to the right-hand side of the slide, backlog has remained steady at near-record levels of $391 million, similar to the prior year and prior quarter, with the book-to-bill ratio in the quarter of approximately 1.1 and strong as-booked margins underpinning our confidence for continued strong gross profit performance in the second half of the year.

Peter: Our commercial teams are pursuing a number of large projects that we expect to realize in the second half of 2024.

Peter: And as we have communicated in our prior calls, we do not measure CCO bookings on a quarter by quarter basis because they can be lumpy, and we prefer to use the trailing TTM metric and active pipeline size as key PIs, both which are trending positive.

Peter: Shifting to the right-hand side of the slide.

Peter: Backlog has remained steady at near-record levels of $391 million, similar to prior year and prior quarter, with a book-to-bill ratio in the quarter of approximately 1.1.

Peter: and strong as-booked margins underpinning our confidence for continued strong gross profit performance in the second half.

Speaker Change: of the year. We also expect that a large share of this backlog will be realized as revenue in the second half of the year, including a fair portion of the two very large jobs that Todd previously mentioned that booked last year in the second quarter.

Peter Kurt Johansson: We also expect that a large share of this backlog will be realized as revenue in the second half of the year, including a fair portion of the two very large jobs that Todd previously mentioned that were booked last year in the second quarter. Now, let's talk about sales, as we turn to slide nine. Sales for the quarter of $138 million are a new second quarter sales record of 6% year over year and up approximately 10% sequentially.

Speaker Change: Now let's talk about sales as we turn to slide 9.

Speaker Change: Sales for the quarter of 138 million dollars is a new second quarter sales record of 6% year-over-year and up approximately 10% sequentially.

Peter Kurt Johansson: While we are pleased with our sales performance in the quarter, the results could have been even stronger had we not experienced certain order booking delays as customers are taking longer to move from notification to formal purchase order placement and select delays in revenue recognition on projects currently underway. With our sales performance in the second quarter and for the first half of 2024, Seco's TTM sales are up $100 million from the year-ago period, approximately 22%.

Speaker Change: While we are pleased with our sales performance in the quarter, the results could have been even stronger had we not experienced certain order booking delays.

Speaker Change: As customers are taking longer to move from notification to formal purchase order placement and select delays in revenue recognition on projects currently underway.

Speaker Change: With our sales performance in the second quarter and for the first half of 2024, Seco's TTM sales are up $100 million from the year-ago period, approximately 22%.

Peter Kurt Johansson: With $264 million in first half sales, we have delivered approximately 47% of our total year results, which is in line with our 2022 and 2023 performance. I am very pleased with the strong double-digit TTM growth we have experienced and it is certainly a great way to enter the second half of the year. Now please turn to page 10, where I will cover earnings and margins, which is a story of continuous and steady improvements, keeping SECO on track for our mid-teens EBITDA margin target, which we have signaled we will achieve in the 2025-2026 timeframe.

Speaker Change: With $264 million of first half sales, we have delivered approximately 47% of our total year results, which is in line with our 2022 and 2023 performance.

Speaker Change: I am very pleased with the strong double-digit TTM growth we have experienced, and it is certainly a great way to enter the second half of the year.

Speaker Change: Now please turn to page 10, where I will cover earnings and margins, which is a story of continuous and steady improvements, keeping SECO on track for our mid-teens EBITDA margins target, which we have signaled we will achieve in the 2025-2026 timeframe.

Peter Kurt Johansson: Starting with gross profit, margins in the quarter were 35.6%, a record level for any second quarter, continuing a trend of mid-30s margins started in the fourth quarter of 2023, which reinforces that we are on the right path. The improvement year over year has been largely the result of improved project execution, improved book margins, and the early benefits of our sourcing and operational efficiency initiatives. Also in the second quarter and the first half periods are short cycle brands and recent acquisitions, both of which tend to have higher margins and are contributing higher volumes and a greater share of revenue.

Speaker Change: Starting with gross profit, margins in the quarter were 35.6%, a record level for any second quarter, continuing a trend of mid-30s margins started in the fourth quarter of 2023, which reinforces that we are on the right path.

Speaker Change: The improvement year over year has been largely the result of improved project execution, improved book margins, and the early benefits of our sourcing and operational efficiency initiatives.

Speaker Change: Also in the second quarter and the first half periods are short cycle brands and recent acquisitions, both which tend to have higher margins, are contributing higher volumes and a greater share of revenues.

Peter Kurt Johansson: Sequentially, gross profit is increased approximately $4 million to $49 million on $12 million of additional sales, realizing an incremental margin rate of 33% and a 9% improvement on a dollar basis. Year over year, gross profit increased approximately $9 million on 9 million of incremental sales for a fantastic conversion result of nearly 100%. On a TTM basis, gross profit of $190 million is an increase of approximately $46 million, delivered on 100 million of additional sales, for incremental conversion margins of 46%, and a 32% increase on a dollar basis, resulting in a margin increase of 260 basis points to 33.6%, a number which is quite near our historical highs, and as you will recall from our first quarter conversation and fourth quarter results that that's where we expected to get back to a level in this year.

Speaker Change: Sequentially, gross profit is increased approximately $4 million to $49 million on $12 million of additional sales.

Speaker Change: realizing an incremental margin rate of 33% and a 9% improvement on a dollar basis.

Speaker Change: Year over year, gross profit increased approximately $9 million on $9 million of incremental sales for a fantastic conversion result of nearly 100%.

Speaker Change: On a TTM basis, gross profit of $190 million is an increase of approximately $46 million.

Speaker Change: delivered on 100 million of additional sales for incremental conversion margins of 46% and a 32% increase on a dollar basis, resulting in a margin increase of 260 basis points to 33.6%.

Speaker Change: a number which is quite near our historical highs.

Speaker Change: and as you will recall from our first quarter conversation and fourth quarter results that that's where we expected to get back to a level in this year.

Peter Kurt Johansson: Moving to adjusted EBITDA, second quarter 2024 delivered $16.1 million, a record for any second quarter, benefiting from our record sales in the quarter and strong operational performance. This resulted in margins expanding by 120 basis points to 11.7%. The incremental conversion in the period was approximately 24% sequentially and 28% year over year, respectively.

Speaker Change: Moving to adjusted EBITDA.

Speaker Change: Second quarter 2024 delivered $16.1 million, a record for any second quarter, benefiting from our record sales in the quarter and strong operational performance. This resulted in margins expanding by 120 basis points to 11.7%.

Speaker Change: The incremental conversion in the period was approximately 24% sequentially and 28% year-over-year, respectively.

Peter Kurt Johansson: Our EBITDA conversion on higher sales was partially offset by continued investment in our sales, engineering, and project resources necessary to drive growth and operating excellence resources and information systems to drive back-office efficiencies and productivity, and to allow us to accelerate the integration of our acquisitions. Also, I'd like to bring to your attention that in the second quarter, SECO's annual merit adjustments become active, providing a little upward pressure on G&A expense. On a TTM basis, adjusted EBITDA of $64 million is an increase of approximately 40%, or $18.2 million, which resulted in an 18.2% incremental margin rate, certainly on trend to achieve the 20% margin target on incremental sales that we are targeting as we start to see accelerated benefits from our investments in our G&A processes, business system upgrades, and functional resources from prior periods.

Speaker Change: Our EBITDA conversion on higher sales was partially offset by continued investment in our sales, engineering, and project resources.

Speaker Change: necessary to drive growth.

Speaker Change: and operating excellence resources and information systems to drive back office efficiencies and productivity and to allow us to accelerate the integration of our acquisitions.

Speaker Change: Also, I'd like to bring to your attention that in the second quarter, SECO's annual merit adjustments become active, providing a little upward pressure on G&A expense.

Speaker Change: on a TTM basis adjusted EBITDA of $64 million.

Speaker Change: is an increase of approximately 40%.

Speaker Change: for $18.2 million.

Speaker Change: which resulted in an 18.2% incremental margin rate, certainly on trend to achieve the 20% margin target on incremental sales.

Speaker Change: that we are targeting as we start to see accelerated benefits from our investments in our G&A processes, business system upgrades, and functional resources from prior periods.

Peter Kurt Johansson: The resulting TTM margin of 11.2% is an increase of about 140 basis points year over year and 20 basis points sequentially. Now moving to slide 11, we'll quickly review our cash position and liquidity. SECO finished the quarter with gross debt of $125 million, lower by $8 million from year-end 2023, with net borrowings in the quarter of approximately $8 million.

Speaker Change: The resulting TTM margin of 11.2% is an increase of about 140 basis points year over year and 20 basis points sequentially.

Speaker Change: Now moving to slide 11, we'll quickly review our cash position and liquidity.

Speaker Change: CECO finished the quarter with gross debt of $125 million, lower by $8 million from year-end 2023, with net borrowings in the quarter of approximately $8 million. Net debt was $83 million at quarter-end.

Peter Kurt Johansson: Net debt was $83 million at quarter end, higher by $10 million from year in 2023 and flat year over year, with Seco's leverage ratio moving up a 10th of a turn to a modest 1.5 times from year in 2023, as our bank EBITDA metric adjusted slightly downwards in the quarter. Leverage moved down by four-tenths of a turn year over year, with our capacity increasing slightly on a sequential basis to $120 million, a level that fully covers our planned capital deployments for the balance of the year, including M&A and capital investment.

Speaker Change: Higher by $10 million from year in 2023 and flat year over year, with Seco's leverage ratio moving up a tenth of a turn to a modest 1.5 times from year in 2023, as our bank EBITDA metric adjusted slightly downwards in the quarter.

Speaker Change: Leverage moved down by four-tenths of a turn year over year, with our capacity increasing slightly on a sequential basis to $120 million, a level which fully covers our planned capital deployments for the balance of the year, including M&A and capital investment.

Peter Kurt Johansson: SICO finished the quarter with $37 million of global cash, reflecting a decrease of approximately $18 million from year-end 2023 and a decrease of $12 million year-over-year. The lower balance was the result of accelerated debt repayments in the quarter and the aforementioned stock buybacks we executed in the first half.

Speaker Change: SECO finished the quarter with $37 million of global cash reflecting a decrease of approximately $18 million from year-end 2023 and a decrease of $12 million year-over-year.

Speaker Change: The lower balance was the result of accelerated debt repayments in the quarter and the aforementioned stock buybacks we executed in the first half.

Peter Kurt Johansson: In the quarter, we implemented our international cash pooling structure, which reduces structurally the amount of net cash that we believe we need to hold to support operations and meet our liquidity needs. This frees up cash for other corporate uses. Cash generated from operations was $8 million for the quarter and up approximately $9 million year-over-year, benefiting from improvements in working capital management. In the quarter, we funded CapEx investments of approximately $4 million to support continued growth, IT system upgrades, and cyber upgrades. Cash taxes and cash interest paid in the first half totaled $10.4 million versus $13 million in the year-ago period.

Speaker Change: In the quarter, we implemented our international cash pooling structure, which reduces structurally the amount of net cash that we believe we need to hold to support operations and meet our liquidity needs. This frees up cash for other corporate uses.

Speaker Change: Cash generated from operations was $8 million for the quarter and up approximately $9 million year-over-year, benefiting from improvements in working capital management.

Speaker Change: In the quarter, we funded CapEx investments of approximately $4 million to support continued growth, IT system upgrades, and cyber upgrades.

Speaker Change: Cash taxes and cash interest paid in the first half total $10.4 million versus $13 million in the year ago period.

Peter Kurt Johansson: That concludes my summary of SECO's second quarter 2024 financial results. The results in the quarter and the first half give me high confidence that we will sustain and improve on this level of performance sequentially throughout the remainder of 2024 based on higher revenue generation and order rates, delivering on our commitments and the improved full year outlook. And now I'd like to turn the stage back over to Todd for his concluding remarks. Thanks, Peter.

Speaker Change: That concludes my summary of SECO's second quarter 2024 financial results.

Speaker Change: The results in the quarter and the first half give me high confidence that we will sustain and improve on this level of performance sequentially throughout the remainder of 2024 on higher revenue generation and order rates, delivering on our commitments and the improved full year outlook. And now I'd like to turn the...

Todd R. Gleason: A lot of good details with respect to our financials and other insights into our performance. Now we're going to go to the final section and then also our final summary slide. Please turn to slide 13.

Speaker Change: stage back over to Todd for his concluding remarks.

Todd R. Gleason: Thanks, Peter. A lot of good details with respect to our financials and other insights into our performance.

Todd R. Gleason: We're going to go to the final section and then also our final summary slide. Please turn to slide number 13.

Todd R. Gleason: Overall, our second quarter and year-to-date results produced the sustainable top line and bottom line growth we have been delivering for a number of quarters and also signaling in our guidance. We have managed some delays in bookings and project deliveries, we continue to produce record financial results, and we are really, really demonstrating strong margin expansion, which is a major focus for our leadership team. We feel great about our sales pipeline.

Speaker Change: Overall, our second quarter and year-to-date results produced the sustainable top line and bottom line growth we have been delivering for a number of quarters and also signaling in our guidance.

Speaker Change: We have navigated some delays in bookings and project deliveries. We continue to produce record financial results, and we are really demonstrating strong margin expansion, which is a major focus for our leadership teams.

Todd R. Gleason: There are tremendous opportunities in energy markets associated with what is proving to be a power super cycle, which is still far off. But we're definitely closer to many of the jobs in our pipeline. And we have large project opportunities in industrial water and industrial air. We look forward to sharing more in the coming months and quarters as we believe the timing for these jobs is imminent. We are pleased to share the recent acquisition of EnviroCare, and we are excited about how our M&A pipeline is advancing.

Speaker Change: We feel great about our sales pipeline. There are tremendous opportunities in energy markets associated with what is proving to be a power super cycle, which is still on the horizon, but we're definitely closer to many of the jobs in our pipeline.

Speaker Change: And we have large project opportunities in industrial water and industrial air. We look forward to sharing more in the coming months and quarters as we believe the timing on these jobs is imminent.

Speaker Change: We are pleased to share the recent acquisition of EnviroCare and we are excited how our M&A pipeline is advancing.

Todd R. Gleason: We believe we have a proven track record of acquiring strategic growth businesses at accretive prices and then accelerating the growth and profitability of these acquired businesses. We look forward to investing in EnviroCare, working with their leadership team, and maximizing its full potential. As a result of these factors, coupled with our view of the markets, we are pleased to have raised guidance for the second time this year, and we believe our revenue range of between $600 to $620 million, or up 12% at the midpoint, and our full-year adjusted EBITDA range of between $68 to $72 million, up 21% at the midpoint, each reflect our commitment to strong performance while we invest for future growth. And a special thank you to all our SECO team members around the world who are working hard to deliver for our customers by providing solutions that protect people, protect the environment, and protect industrial equipment.

Speaker Change: We believe we have a proven track record of acquiring strategic growth businesses at accretive prices and then accelerating the growth and profitability of these acquired businesses.

Speaker Change: We look forward to investing in EnviroCare, working with their leadership team, and maximizing its full potential.

Speaker Change: As a result of these factors, coupled with our view of the markets, we are pleased to have raised guidance for the second time this year.

Speaker Change: And we believe our revenue range of between $600 to $620 million, or up 12% at the midpoint, and our full year adjusted EBITDA range of between $68 to $72 million, up 21% at the midpoint.

Speaker Change: Each reflect our commitment to strong performance while we invest for future growth.

Speaker Change: And a special thank you to all our SECO team members around the world that are working hard to deliver for our customers and providing solutions that protect people.

Operator: And with that, we are now happy to open it up to any questions. I'll hand it back over to the operator, and then I will conclude with a few remarks. We will now begin the question and answer session. To ask a question, you may press star 1 1 on your touchtone phone.

Speaker Change: Protect the environment and protect industrial equipment.

Speaker Change: And with that, we are now happy to open it up to any questions. I'll hand it back over to the operator and then I will conclude with a few remarks.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star 1 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star 1 1. At this time, we will pause momentarily to assemble our roster. Our first question comes from the line of Aaron Spychalla from Craig Hallam Capital Group. Yeah, good morning, Todd and Peter.

Speaker Change: To withdraw your question, please press star 11.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Aaron Michael Spychalla: Thanks for taking the question. Maybe first for me, just on the pipeline expansion to 4 billion, you know, up 40% year over year, can you talk about any areas in particular driving that strength? Sounds like there are still some large energy transition opportunities out there. And then maybe a little bit more detail on some of the order delays and some kind of confidence in some of those converting to orders here in the back. Yeah, a good question, Aaron.

Speaker Change: Our first question comes from the line of Aaron Spychalla from Craig Hallam Capital Group.

Aaron Michael Spychalla: Yeah, good morning, Todd and Peter. Thanks for taking the question. You know, maybe first for me, just on the pipeline expansion, the $4 billion, you know, up 40% year over year, can you talk about any areas in particular, you know, driving that strength?

Speaker Change: Sounds like there's still some large energy transition opportunities out there. And then just maybe a little bit more detail on some of the order delays and kind of confidence in some of those converting to orders here in the back half of the year.

Todd R. Gleason: You know, look, for us, we talk about it each quarter pretty consistently, that, you know, certainly the quarterly performance of bookings is important and a focus of our organization. But growing our pursuits and our sales pipeline, in our minds, is really the best factor for us to drive that future growth. Look, I would say the largest opportunity set for us in the next six to 18 months, no doubt in terms of the big projects are in the energy and energy transition space. But that doesn't mean that there aren't extremely important and large industrial water and industrial air opportunities of, you know, between 15 to $30 million each. But those are fewer large jobs, but they are attractive.

Speaker Change: Yeah, good question Aaron.

Speaker Change: You know, look, for us, we talk about it each quarter pretty consistently, that, you know, certainly the quarterly performance of bookings.

Speaker Change: important and a, you know, and a focus of our organization. But us growing our

Speaker Change: pursuits in our sales pipeline, in our minds, is really the best factor for us to drive that future growth. Look, I would say the largest...

Speaker Change: The largest opportunity set for us in the next 6 to 18 months, no doubt, in terms of the big projects.

Speaker Change: are in the energy and energy transition space. Doesn't mean that there aren't extremely important and large industrial water and industrial air opportunities of between 15 to $30 million each.

Speaker Change: But those are fewer large jobs and but attractive. But in the energy space

Todd R. Gleason: But in the energy space, We have been mentioning now for the last, you know, quarter, maybe quarter and a half, that we are seeing many larger multiples of what we have seen in 2021, 2022, and 2023 of, again, mostly power-related opportunities, whether it be in natural gas or other power sources. And I would also say the reason we've continued to refer to it as a super cycle, potentially, is that we're not seeing a slowdown in investments in renewables or in opportunities that could be down the pipeline, like geothermal or nuclear.

Speaker Change: We have been mentioning now for the last, you know, quarter, maybe quarter and a half, that we are seeing

Speaker Change: many larger multiples of what we have had seen in 2021, 2022, and 2023.

Speaker Change: of, again, mostly power-related opportunities, whether it be in natural gas or other power sources. And I would also say the reason we continue to refer to it as a super cycle, potentially, is that we're not seeing a slowdown in investments in renewables or in opportunities that could be down the pipeline, like geothermal or nuclear. We would say...

Todd R. Gleason: We would say everything's on the table to satisfy the demands of power globally, but for gas turbine power, we are in constant dialogue with our end customers with respect to jobs that they are booking, announcing, or have already been receiving but haven't yet announced. These are jobs that generally go on for months and months of analysis, discussion, negotiation, and review. So those are the areas where, in our $4 billion sales pipeline, we would suggest probably having the largest big project impact for us. All right, thank you for the color there.

Speaker Change: everything's on the table to satisfy the demands of power globally, but for gas...

Speaker Change: Turbine Power, we are in constant dialogue with our end customers with respect to jobs that they are booking, announcing, or already been receiving but haven't yet announced.

Speaker Change: These are jobs that generally go on months and months of analysis, discussion, negotiation, and review. So those are the areas where, in our $4 billion of sales pipeline, we would suggest probably have the largest big project impact for us.

Todd R. Gleason: And then, you know, another solid quarter of gross margin. You know, anything particular to note there, you know, once, and then could you maybe talk about just the split between, you know, project execution, some of the initiatives that you're early in, and just the short cycle mix there, and then how you're thinking about margin kind of cadence over the next few quarters as you execute on some of those larger projects. Yeah, I'll make a couple of comments, and Peter will provide a little more certainly more color.

Speaker Change: All right. Thank you for the color there. And then, you know, another solid quarter of gross margin.

Speaker Change: You know, anything particular to note there, you know, one time, and then can you maybe talk about just the split between, you know, project execution, some of the initiatives that you're early in, and just the short cycle mix there, and then how you're thinking about margin kind of cadence over the next few quarters as you execute on some of those larger projects you kind of talked about too.

Todd R. Gleason: So we're, we're, we're pleased. And we've been again, signaling our investment in operating excellence, project management, and, of course, both acquisitions and organic growth, better positioning our portfolio for higher gross margins and EBITDA margin results as just a, as just a core part of our portfolio. So all of those things are starting to really now produce great quarterly gross margins and EBITDA margins. We expect, certainly, to be expanding our EBITDA margins consistently on our path to mid-teen EBITDA margins.

Speaker Change: Yeah, I'll make a couple comments and Peter will provide a little certainly more color.

Peter: So, we're pleased, and we've been, again, signaling our investment in operating excellence, project management, and, of course, both acquisitions and organic.

Peter: better positioning our portfolio for higher gross margins and EBITDA margin results.

Peter: as just a core part of our portfolio. So all of those things are starting to really now produce.

Peter: We expect certainly to be expanding our EBITDA margins consistently on our path to mid-teen EBITDA margins. And that's the most important of the margin discussion topics for us and we think for the investment community. That doesn't mean the gross margins, you know, we expect them to have a huge drop-off, but as revenue goes higher,

Todd R. Gleason: But as revenue goes higher, and the business mix of our, of our gross margins in that revenue, we certainly expect gross margins to come down a little bit but still produce a very attractive year over year EBITDA margin expansion because of our ability to leverage the volumes and the G&A that those volumes can absorb. So for us, again, having higher gross margins year over year is a great driver of bottom line performance.

Peter: and the business mix of our gross margins in that revenue.

Peter: We certainly expect gross margins will come down a little bit, but still produce a very attractive year-over-year EBITDA margin expansion because of our ability to leverage the volumes and the and the G&A that those volumes can absorb. So for us, again, having higher gross margins year-over-year is a great driver of bottom line performance.

Todd R. Gleason: And we're going to continue to keep the focus on productivity and business mix. But as our sales go higher in the second half of the year, we do expect gross margins to come down a bit versus the first half, but they will continue to drive good EBITDA margin expansion. Aaron, what we historically see is the very large project, book with lower aggregate or lower average, excuse me, gross profit margins, but they come with very little fixed cost addition.

Peter: and we're going to continue to keep the focus on productivity and business mix. But as our sales go higher in the second half of the year, we do expect gross margins will come down a bit versus the first half, but we'll continue to drive good EBITDA margin expansion.

Aaron Michael Spychalla: Aaron, what we historically see is the very large projects...

Aaron Michael Spychalla: book with lower aggregate, or lower average, excuse me, gross profit margins, but come with very little fixed cost addition.

Todd R. Gleason: And so they have a powerful volume component in terms of delivery margin enhancement. We do track gross profit margins. But actually, we talk more about contribution margins internally because that is, to a great degree, what our project teams are seeing as they roll up their numbers, because that takes all their project costs into consideration.

Aaron Michael Spychalla: And so they have a powerful volume component in terms of delivery margin enhancement.

Speaker Change: We do track gross profit margins. Actually, we talk more about contribution margins internally, because that is to a great degree what our project teams are seeing as they roll up their numbers, because that takes all their project costs into consideration.

Peter Kurt Johansson: And that's where we're seeing operational efficiencies from buying better and executing faster, where and when our customers are allowing us to move as fast as we would like to. And we're seeing those contribution margins typically and across most of our regions expand sequentially and year over year. Right. Okay. That makes sense. Thank you for the call. And for taking the questions. I'll turn it over to you.

Speaker Change: And that's where we're seeing the operational efficiencies from buying better and executing faster, where and when our customers are allowing us to move as fast as we would like to.

Speaker Change: and we're seeing those contribution margins typically and across most of our regions expand sequentially and year-over-year.

Aaron Michael Spychalla: Yeah. But mix is a powerful driver for us, Aaron, when we talk about, you know, large versus typical projects and short versus long. And it's that mix that converts to, to, revenue that, in these last two periods, has been a tailwind for us. Thank you. Our next question comes from the line of Rob Brown from Lake Street Capital Markets. Good morning. Hey, Rob.

Speaker Change: Right, okay, that makes sense. Thank you for the caller and for taking the questions. I'll turn it over. Yeah, but MIX is a powerful driver for us, Aaron, when we talk about, you know, large versus typical projects and short versus long.

Speaker Change: And it's that, you know, it's that mix that converts to revenue that, you know,

Speaker Change: that in these these last two periods has been a tailwind for us.

Speaker Change: Thank you. Our next question comes from the line of Rob Brown from Lake Street Capital Markets.

Robert Duncan Brown: I want to touch a little bit more on the project delays. I guess, did you, are you seeing kind of any sort of progress on each project? So, we understand, and I think it's confirmed by the fact that small, and when we say small, we're still talking about over a million dollar projects, and medium would be, you know, in the three to five, maybe six million dollar range. We're not seeing a slowdown in those.

Robert Duncan Brown: All right, good morning.

Rob: Hey, Rob.

Robert Duncan Brown: I just want to touch a little bit more on the project delays, I guess, did you, are you seeing kind of any sort of secular activity that's causing the delay, or is this just the particulars of each project and the timing relative to maybe what you'd hope?

Speaker Change: So we understand and and I think it's confirmed by the fact that small and for when we say small We're talking still over a million dollar projects and medium would be you know in the three to five three to five Maybe six million dollar range

Todd R. Gleason: We're seeing a pipeline for this growing. We're seeing them moving through the bid review, the notification, and then the purchase order issuance very much at the same pace, and a brisk, good pace as before. And these are big customers that are doing important expansions that are doing, you know, even new builds, very similar to what we were seeing last year. And so, economically speaking, we're not seeing a lot or anything in the general industrial markets that would signal a sea change or a change or, you know, a different view of the type of investment that businesses are taking to support global and, of course, reshoring and other, you know, ongoing thematic industrial expansion.

Speaker Change: We're not seeing a slowdown in those. We're seeing a pipeline growing. We're seeing those moving through.

Speaker Change: The bid review, the notification, and then the purchase order issuance, very much at the same pace.

Speaker Change: and a brisk good pace.

Speaker Change: as before. And these are big customers that are doing important expansions, that are doing, you know, even new builds, very similar to what we were seeing last year. And so we would say, economically speaking, we're not seeing a lot or anything in the general industrial markets that would signal a sea change or a change or, you know, a different view of what, of the type of investment that businesses are taking to support global and, of course, reshoring and other, other, you know, ongoing thematic industrial expansion.

Todd R. Gleason: However, for larger projects, I think what we're hearing and seeing, and fortunately for us, we have a very good resource plan. And while, you know, keeping people and recruiting people is a challenge, we're ready to go.

Speaker Change: However, in larger projects...

Speaker Change: I think what we're hearing and seeing

Speaker Change: And fortunately for us, we have a very good resource plan.

Todd R. Gleason: However, that's not always the case for some of these larger projects. EPC firms, big customers, lots of suppliers, getting their resources in, you know, I guess, in their camps, ready to go for these larger projects is what we're hearing is creating a little bit of the delays. These large projects are waiting for all of their suppliers, maybe even including themselves, to be ready to be deployed to go and install and do the heavy work associated with these projects.

Speaker Change: You know, keeping people and recruiting people is a challenge.

Speaker Change: We're ready to go. However, that's not always the case for some of these larger projects. EPC firms, big customers, lots of suppliers getting their resources in and you know I guess in their in their camps ready to go for these larger projects is what we're hearing is creating a little bit of the delays is that these large projects are you know waiting for all of their suppliers maybe even including themselves to be ready to be deployed to go and install and do the heavy work associated with these projects. So if there's one area that I guess we would say and I think we've been saying this now for you know several months maybe you know certainly this year is that certain resource delays and availability are causing a little of

Todd R. Gleason: So, if there's one area that I guess we would say, and I think we've been saying this now for, you know, several months, maybe, you know, certainly this year, is that certain resource delays and availability are causing a little pause in these larger projects. Now, you know, that probably means that there's going to be a quarter where there's oversized bookings for a number of companies, and potentially including our And you know, time will tell because we still have very good visibility on these large projects.

Speaker Change: little pause in these larger projects now.

Speaker Change: You know, that probably means that there's going to be a quarter where there's an oversized bookings for a number of companies, and potentially including ours, and you know, time will tell because we still have a very good visibility to these large projects.

Todd R. Gleason: Like I said, this year and as we head into 2025, we see, you know, a number of jobs that we feel well positioned to win. So, look, we don't think there's a lot of economic change; in fact, maybe there could even be a pause associated with people waiting to see what happens on the regulatory front associated with the election. There could be a pause related to interest rates coming down and commodity costs coming down.

Speaker Change: Like I said, this year and as we head into 2025, we see a number of jobs that we feel well positioned to win. So look, we don't think there's a lot of economic change. In fact, maybe there could even be a pause associated with people waiting to see what happens on the regulatory front associated with the election, could be a pause related to interest rates coming down and commodity costs coming down. So

Todd R. Gleason: So, you know, I think you bring all those things into the mix, and these large projects are just taking, they're more complicated, and they're taking the right amount of time to get everything organized. Yeah, that makes sense. Thank you.

Speaker Change: You know, I think you bring all those things into the mix and these large projects are just taking, they're more complicated and they're taking the right amount of time to get everything organized.

Robert Duncan Brown: And then I think you've talked before about sort of the size range of these projects. Could you remind us, how do we do it, Rob? We're seeing in our pipeline now the size of large jobs growing. We used to think 20 to 30 million was big.

Speaker Change: Yeah, makes sense. Thank you. And then I think you've talked before about sort of the size range of these projects. Could you remind us what the sizes are for these projects in a range, I guess, and how, how do those flow through over what period of time does that drive revenue for you?

Speaker Change: Rob, we're seeing in our pipeline now the size of large jobs growing. We used to think 20 to 30 million.

Todd R. Gleason: We're now talking about opportunities in the 60 to 100 million dollar range. The scope and scale of a lot of what we're beginning to talk about with energy customers and coal-to-gas conversions, data center backup power supply build-out, hydrogen supply opportunities, and supporting Electrolyzer Plant are just becoming eye-wateringly large.

Speaker Change: We're now talking about opportunities in the $60 to $100 million range.

Speaker Change: The scope and scale of a lot of what we're beginning to talk about with energy customers and coal-to-gas conversions, data center, backup power supply build-out, hydrogen supply opportunities.

Speaker Change: supporting electrolyzer plants are just becoming eye-wateringly large.

Todd R. Gleason: And so I'd say the median is moving up on us quarter over quarter as we think about what large needs, but the impact has historically been, a nice book, a nice project runs for anywhere from, you know, four, six, sometimes eight quarters, depending on how quickly that the plant gets commissioned and is running. And we recognize revenue consistently, and generate cash consistently over a multi-quarter period. These projects generally follow a similar milestone progression, and you know we manage them with our teams across regions. Okay, thank you. Thank you.

Speaker Change: And so I'd say the median is moving up on us quarter over quarter as we think about what large needs, but the impact.

Speaker Change: has historically been

Speaker Change: Book A Nice Project runs for anywhere from four, six, sometimes eight quarters, depending on how quickly the plant gets commissioned and is running. And we recognize revenue consistently.

Speaker Change: and generate cash consistently over a multi-quarter period.

Speaker Change: These projects generally follow a similar milestone progression, and we manage them with our teams across regions.

Speaker Change: Okay, thank you. Great. I'll turn it over.

Operator: One moment for our next question. Our next question comes from the line of Jerry Sweeney from Roth. Good morning, Todd, Peter, and Steven.

Speaker Change: Thank you. One moment for our next question.

Gerard J. Sweeney: Thanks for taking my call. Hey, sticks with power since everybody else has a slightly different question, just curious. Maybe how many projects are out there, and maybe it would be good to even understand what they really are. I'm not surprised.

Speaker Change: Our next question comes from the line of Jerry Sweeney from Roth.

Gerard J. Sweeney: Good morning, Todd, Peter, Steven. Thanks for taking my call.

Gerard J. Sweeney: Hey, I'm just going to stick with power since everybody else is, but slightly different question. Just curious as to...

Speaker Change: Maybe how many projects are out there, and maybe it would be good to even understand what really differentiates you.

Speaker Change: And then finally, not surprised, there's probably some resource delays there, etc. But are you seeing actual margin opportunities since there are so many projects out there? Maybe you can start ratcheting up the margins on these projects.

Todd R. Gleason: Yeah, a couple questions there. We'll start, I'll start with the "yeah," no, that's great. We it's all we get it. We'll start, I guess, with the volume of projects. And then we'll kind of maybe try to blend in and the answer associated with, do we feel that there's maybe some pricing or margin opportunity, which, of course, any company would want to make sure that we're taking advantage of our leadership position and defending our pricing and maximizing our ability to utilize productivity as we go through this. So look, I think over the last few years, our energy-related projects with respect to power have been good.

Speaker Change: Yeah, a couple questions there. We'll start, I'll start with the, yeah, no, that's great. We, it's all, we get it. We'll start, I guess, with the volume of projects.

Speaker Change: and then we'll kind of maybe try to blend in the answer associated with it. Do we feel that there's maybe some pricing or margin?

Speaker Change: opportunity, which of course, you know, any company would want to make sure that we're taking advantage of our leadership position and defend our pricing and maximize our ability to utilize productivity as we go through this.

Speaker Change: So, look, I think over the last few years, our energy-related projects with respect to power have been good. They have grown, and we have benefited from those healthy markets. But over the last few years, we would maybe typically look at

Todd R. Gleason: They have grown, and it has been that we have benefited from those healthy markets. But over the last few years, we would maybe typically look at three to four project opportunities of large size and pursue those, and, you know, and be rewarded, the appropriate number for us as a well-positioned supplier of the types of emissions, or separation filtration solutions, or acoustic silencing noise management solutions that we and only a few competitors can provide for these very large, complicated, important power projects.

Speaker Change: You know, three to four project opportunities of large size and pursue those and, you know, and be rewarded.

Speaker Change: The appropriate number for us as a well-positioned provider of the types of emissions or separation filtration solutions or acoustic silencing noise management solutions that we and only a few competitors can provide for these very large, complicated, important power projects.

Todd R. Gleason: We would probably say now that we could be looking at, over the next 12 months, a dozen jobs that we would consider large. So, you know, three to four times the number. And like I said, we're seeing more activity, not less, in other areas like nuclear and geothermal, where you need very specific certifications and experience reference sites. Not many nuclear facilities are looking for unproven suppliers.

Speaker Change: We would probably say now, we could be looking at, over the next 12 months,

Speaker Change: a dozen jobs that are we would consider large so you know three to four times the number and like I said we're seeing more activity not less

Todd R. Gleason: They're looking for the relationships that they've already had for decades, that have proven pieces of equipment, service models, solutions, and, of course, you know, the resources to do those types of work. So, you know, we are again, and specifically in power, the magnitude of it has gone up multiple times in terms of the pipeline. And that looks to be a sustainable level. I think that others in the power space are talking about it a fair amount.

Todd R. Gleason: GE, Vernova, Siemens Energy, et cetera, are certainly indicating their well-positioned portfolio as the power investments are coming online. And then, you know, our acquisition of Wakefield a year and a half ago or so has also extended and expanded our position in providing industrial solutions for data centers and for other power-related backup power, and acoustic management solutions. And that's a business that we have more than doubled in 18 months, expect to, and are optimistic that we have tremendous growth and opportunities associated with our ability to expand its footprint with a smart, you know, investment with respect to capital and hiring resources.

Speaker Change: Acoustic management solutions, and that's a business that we have more than doubled in 18 months expect to and are optimistic that we have tremendous growth and opportunities associated with our ability to expand its footprint.

Speaker Change: With with the.

Speaker Change: Smart.

Speaker Change: Investment with respect to capital and hiring resources and we see opportunities in other international regions with that business now that we wouldn't have seen a year and a half ago.

Todd R. Gleason: And we see opportunities in other international regions with that business now that we wouldn't have seen a year and a half ago. So, you know, I would say, you know, we're seeing multiples of the market versus a year ago or two years ago. And yeah, look, I think, will pricing and gross margins be vastly different from before? I think they'll be healthy.

Speaker Change: <unk>.

Speaker Change: Would say.

Speaker Change: We're seeing multiples of of the market versus a year ago or two years ago, and yes look I think what will pricing and will gross margins be vastly different than before I think there'll be healthy I don't think that we.

Todd R. Gleason: I don't think that we, you know, have an opportunity here. We're not certainly planning to try to have an opportunity where price is our focus. We want to be a great partner with our customers. We want to be on the right projects for us, where our expertise is valued, and we can price accordingly. And then, but we do think that as we get these large projects, our ability to leverage that scale to do very good things around project management, execution, productivity, sourcing, logistics management, you know, we can get productivity if we know the jobs are ours and we can start to position ourselves for it.

Speaker Change: I have an opportunity here, we're not certainly planning to try to have an opportunity where price is our focus we want to be a great partner with our customers we want to be in the right projects for us where our expertise is valued and we can price accordingly, and then but we do.

Speaker Change: Think that as we get these large projects our ability to leverage that scale to do a very good areas around project management execution productivity sourcing logistics management, we can get productivity. If we know the jobs are ours and we can start to position for it. So I think for our customers are going to see similar price.

Todd R. Gleason: So I think for our customers, they're going to see similar pricing, which is always appropriate for us and for them, but for our ability to execute and deliver additional margin expansion versus maybe, you know, years past, we're just, I think, a better, more efficient operating organization. And we expect to generate some benefits through our own productivity. And Jerry, one area that Todd didn't include in his summary of the project pipeline is the addition of numerous nuclear opportunities.

Speaker Change: <unk>, which is always appropriate for us and for them, but for our ability to execute and deliver additional margin expansion versus maybe years past, where just a I think a better more efficient operating organization and we expect to generate some benefits through our own productivity initiatives.

Speaker Change: Gotcha.

Speaker Change: And Jerry one area that Todd.

Gerard J. Sweeney: Didn't included is the summary of the project pipeline is the addition of numerous nuclear opportunities.

Peter Kurt Johansson: Nuclear has rebounded or recovered, shall I say, in the last three to four quarters, where it's now on many companies in many countries. RadarScreen, as they're looking to tap all potential sources of electricity to support electrification goals, decarbonization goals, and support, you know, reindustrialization. Todd, you mentioned earlier, you know, when you're talking about pipeline, I think specifically around power, the size group from maybe 20 to, Is that project size, the size of the project getting larger?

Speaker Change: Nuclear.

Gerard J. Sweeney: Has rebounded a recovered shall I say in the last three to four quarters.

Gerard J. Sweeney: It is now on many companies and many countries.

Gerard J. Sweeney: <unk>.

Gerard J. Sweeney: Radar screens as.

Gerard J. Sweeney: They are looking to tap all of potential sources of electricity.

Gerard J. Sweeney: City to support electrification goals decarbonization goals and support Reindustrialization.

Gerard J. Sweeney: Got it.

Gerard J. Sweeney: Todd you mentioned earlier, when Youre talking about pipeline I think specifically around power.

Todd R. Gleason: The size grew from maybe 20% to $30 million to now $60 million to $100 million in terms of what your definition of a large project.

Speaker Change: Is that project size the size of the project getting larger or is that more of a function of maybe some recent acquisitions bolt ons that you were able to gain more wallet share or share of the project size.

Peter Kurt Johansson: It's the scope of the project. They're just bigger, bigger machines, more of them producing more gigawatts. It's all, I said it last quarter, I'll say it every quarter until I'm probably at the end of the decade. It's all about the electrons. All about the electrons, however they're being produced. Bumper sticker waiting to happen.

Speaker Change: Its scope of project, they're just bigger.

Speaker Change: Bigger machines.

Speaker Change: More of them producing more gigawatts.

Speaker Change: It's all I said, it last quarter I'll say it every quarter until.

Speaker Change: Probably the end of the decade, it's all about the electrons.

Speaker Change: Well about the electrons.

Speaker Change: All of that the electronic however, they are being produced to bumper sticker wait to happen, but we're but we're confident.

Todd R. Gleason: But we're confident. Look, you know, we do think as we have invested and grown our resources in India, as we have invested and grown our resources in the Middle East, with great teams, great leadership, very dedicated employees, as we now have capabilities in Korea and East Asia and Southeast Asia that we never had before, as we continue to add Wakefields and more European, Western European capabilities. And so we've always been well positioned in a few of those markets, especially North America, US power, etc.

Speaker Change: Look we we do think as we have invested and grown our resources in India as we have invested and grown our resources in the middle East are great teams, great leadership very dedicated employees as we now have capabilities in Korea, and East Asia and South.

Speaker Change: In East Asia that we never had before as we continue to add Wakefield and more European Western European capabilities, and so we've always been well positioned in a few of those markets, especially North America U S power et cetera.

Todd R. Gleason: So yep, acquisitions do expand our overall pipeline. But for these big jobs, these, you know, jobs that used to be 40 million, 50 million would have been their max. Now they're 60 to 100 million. It's really the scope of the job. It is, you know, converting coal-fired power plants to natural gas but then expanding that to also have solar and wind power and other, you know, backup power and peaker power and other applications that might not have been in a singularly focused power application.

Speaker Change: Yes acquisitions do expand our overall.

Speaker Change: Pipelines, but for these big jobs. These jobs that used to be $40 million $50 million would have been their Max now theres $60 million to $100 million, it's really the scope of the job it is converting.

Speaker Change: Coal fired to natural gas, but then expanding that to also have solar and wind and other backup power and peak or power and other applications that might not have been in a.

Todd R. Gleason: Now they're doing sort of multifaceted, these are bigger, more complicated jobs. And, and look, there's a need for them. Data centers and, you know, and indigenization.

Speaker Change: In a singularly focused power application now theyre doing sort of multifactor. These are bigger more complicated jobs and and look there is there is a need for it.

Todd R. Gleason: And of course, just more, more, more need for comfort, air conditioning, heating, etc. It's, it's a tremendous demand cycle. I've probably taken up too much time as it is, but we have a follow-up, so thanks, guys. Thank you.

Speaker Change: Ada centers.

Speaker Change: And Digitization and then of course, just more more and more need for.

Speaker Change: For comfort air conditioning heating et cetera.

Speaker Change: It's a tremendous demand cycle.

Speaker Change: Got it okay.

Speaker Change: It'd probably be taken up too much time as it is.

Speaker Change: We have a follow up so thanks guys.

Operator: One moment for our next question. Our next question comes from the line of Jim Raschuti from Neatham and Company. Hi, thanks, morning.

Speaker Change: Thanks.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of Jim <unk> from Needham and company.

James Andrew Ricchiuti: Maybe moving to some of the more mundane aspects. You talked about customer-driven delays. I'm wondering if you could maybe resize that for us. Do you expect these delays to catch up on some of these delays in Q3, or does that potentially slip into Q4? Revenue recognition related delays that are due to principally either customer review, customer approvals, or reaching a level of design freeze that's necessary to issue purchase orders to our suppliers are merely revenue postponements, and that then rolls into the third quarter, fourth quarter, and subsequent periods.

Jim: Hi, Thanks, Good morning, maybe moving to the some of the more mundane.

James Andrew Ricchiuti: Aspects, you talked about customer driven delays and I'm wondering if you could maybe.

Speaker Change: <unk> core sand do you expect these delays to.

Speaker Change: Good catch up on some of these delays in Q3 or is that potentially slip into Q4.

Speaker Change: Revenue recognition related delays that are due to principally either customer review customer approvals.

Speaker Change: Or.

Speaker Change: Reaching a level of design freeze that's necessary to issue purchase orders to our suppliers are merely <unk>.

Peter Kurt Johansson: So that's not revenue loss, it's revenue deferred, and Jim. So we do expect that will be a benefit to the third quarter and potentially the fourth quarter, in terms of customers taking longer to move from notification to formal award.

Speaker Change: Revenue postponements and that then rolls into the third quarter fourth quarter or subsequent periods. So that's not revenue losses revenue deferred.

Speaker Change: And Jim So those that we do expect that will be a benefit to the third quarter and potentially the fourth quarter.

Jim: In terms of customers.

Jim: Taking longer to move from notification to formal award.

Peter Kurt Johansson: That dynamic does... produce, and then we're going to see a much larger back end of the year in terms of revenue this year. Now, we recognize 43% of the full year outlook in the first half. That implies 57% of our outlook will be in the second half, and these customer dynamics are a portion of that, not all of it, by any means. We have projects that were naturally planned that way.

Jim: Okay.

Jim: That dynamic does.

Jim: Produce and then we're going to see in this year.

Jim: A much more.

Jim: A much larger back end of the year in terms of.

Jim: Revenue, we recognized 43% of the full year outlook in the first half that implies 57% of our outlook will be in the second half and these customer dynamics.

Jim: There are a portion of that.

Jim: Not all of it by any means we have projects that we're naturally plan that way.

Peter Kurt Johansson: And Peter, just the way you're seeing the business, is there the potential that it's even more weighted into Q4 this year, just given what you've seen in the market? Historically, our business has had large Q4s. Q1 is typically our lightest, Q4 our heaviest, and Q's two and three, they kind of know that maybe they ping-pong back and forth.

Jim: And Peter just the way you are seeing the business is there the potential that.

Peter: It's even more weighted into Q4.

Peter: This year, just given what so historically our business has had large Q4s.

Speaker Change: Q1 is typically our lightest Q4, our heaviest in Qs two and three they cannot maybe they ping pong back and forth.

Peter Kurt Johansson: But we do have that operating norm in our business with Q1 being lighter and Q4 being heavier. It also leads us to have heavier EBITDA delivery in the fourth period and ViroCare. Congratulations on that.

Speaker Change: But we do have that.

Speaker Change: Operating norm in our business with Q1 being lighter and Q4 being heavier.

Speaker Change: It also leads us to have heavier EBITDA delivery in the fourth period.

Speaker Change: And direct care.

James Andrew Ricchiuti: This is about $13 million of annualized revenue. Is that mix similar to your mix where, you know, 55-60% of the revenue is coming to the backup, or is it less? No, that's that business as we understand it now is, you know, more evenly distributed, as we diligenced that business and came to understand kind of their project and revenue recognition processes. With a 30% weighting to aftermarket, that's very steady, and they've got a small service component which tends to be steady as well.

Speaker Change: Congrats on that is about $13 million of annualized 24 revenue is that mix similar to your mix where.

Speaker Change: <unk>.

Speaker Change: 60% of the revenues come in the back half or is it more linear.

Speaker Change: No thats in that business as we understand it now is.

Speaker Change: It is.

Speaker Change: More evenly distributed.

Speaker Change: Yes.

Speaker Change: As we diligence that business and came to understand kind of their project and revenue recognition processes.

Speaker Change: With a 30% weighting to aftermarket that is very steady.

Speaker Change: And they've got a small service component, which tends to be steady as well. So we're talking about 65% of their revenue and Thats. We felt that was evenly balanced across the year can swing up or down a few points by quarter, but it's not going to drive.

Peter Kurt Johansson: So we're talking about 65 percent of their revenue, and we felt that was you know evenly balanced across the year. It can swing up or down a few points by quarter, but it's not going to drive, It's not going to change our overall quarterly balance of revenue significantly. What it will contribute, though, is revenue in the third and fourth quarters, where we didn't have revenue from EnviroCare in the first seven months of the year. So that will exacerbate the shift. But next year, it won't have a demonstrable impact.

Speaker Change: It's not going to change our our overall.

Speaker Change: Quarterly balance of revenue significantly when it will contribute though as revenue in the third and fourth quarter, where we didn't have revenue from <unk> in the first seven months of the year.

Speaker Change: So that will exacerbate this shift but.

Speaker Change: But next year.

Speaker Change: It won't have a demonstrable impact.

James Andrew Ricchiuti: And last question, just in general, the M&A pipeline, it's been kind of quiet. Things are picking up with this, what's your... How would you characterize the environment right now and the potential for more of these smaller deals that look like they could be quite attractive? The environment's very active, whether it's private businesses or sponsor-owned businesses or corporate carve-outs; the activity in the markets is very, very high, much higher than a year ago, even higher than the first quarter. We're very selective.

Speaker Change: And last question just in general the M&A pipeline, it's been kind of quiet things ticking.

Speaker Change: Picking up with this what's your.

Speaker Change: How would you characterize the environment right now and the potential to do more of these smaller deals that looked like they could be quite attractive.

Speaker Change: The environment is very active whether it's private businesses are sponsor owned businesses or corporate carve outs the activity in the markets very very.

Speaker Change: High much higher than a year ago, even higher than the first quarter.

Peter Kurt Johansson: We work on, we feel a lot of inbounds, but we work on very few, narrowing them down through our evaluation process. But the pipeline's active, the pricing environment is positive, and the asset quality continues to impress us. And we remain, so all of that is positive.

Speaker Change: We're very selective we work on we feel a lot of inbounds, but we work on very few as we.

Narrow them down through our valuation process, but the pipeline is active the pricing environment is positive and the asset quality continues to impress us.

Speaker Change: And we remain.

Todd R. Gleason: And we have said and will continue to say, we've done a great job, and our business leaders have done a great job of building these relationships. We then advance those discussions. We have very exciting opportunities that we believe, if it makes sense for them, the company that we look to acquire, and us, if it fits our operating model, if it fits our culture, and we can obviously find a win-win transaction, then we'll create a win-win transaction, and we'll win together going forward.

Speaker Change: So all of that is is the positive end.

Speaker Change: We have said and we'll continue to say we've done a great job and our business leaders have done a great job of building. These relationships. We then advance those discussions.

Speaker Change: Have very exciting opportunities.

Speaker Change: Opportunities that we believe if it makes sense for them the company that we look to acquire and us if it fits our operating model if it fits our culture and we can obviously find win win transaction. Then we will create a win win transaction and will win together going forward and we will invest in all of our businesses that we've acquired we've invested in growth.

Todd R. Gleason: And we'll invest in all of our businesses that we've acquired. We've invested in growth, we've grown, we are excited about those opportunities, but we're also very consistent with the fact that if it isn't a win-win or if it's not a good cultural fit, we'll walk away, and we'll walk away as friends. And we've had a number of those in the last year, which is why it's taken us a little bit of time to, I think, get to the place in our pipeline where we have win-wins going forward.

Speaker Change: As we've grown we are excited about those opportunities, but we're also very consistent with the fact that if it isn't a win win or if it is not a good cultural fit we'll walk away and we will walk away as friends.

Speaker Change: And we've had a number of those in the last year, which is why it has taken us a little bit of time to I think get to the place in our pipeline, where we have win wins going forward and so that's our focus and we're not going to deviate from our strategy.

Todd R. Gleason: And so that's our focus. We're not gonna deviate from our strategy just to make an acquisition, as you can imagine. I'm not suggesting that other companies do that, but let's just say that it happens when people feel the pressure to close transactions, and we feel that we can be selective. Okay, thank you.

Speaker Change: Just to make an acquisition.

Speaker Change: As you can imagine.

Speaker Change: Suggesting that other companies do that but let's just say that it happens where people feel the pressure to close transactions and we feel that we can be selective.

Speaker Change: Okay. Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Bobby Brooks from Northland Capital Market. Hey, good morning, guys.

Speaker Change: Thank you one moment for our next question.

Our next question comes from the line of Bobby Brooks from Northland Capital markets.

Robert Thornton Brooks: So you call in the prepared statement that an improving business mix is going to be a tailwind. But it seems like the mix would tilt more towards long-cycle stuff going forward, just given the commentary, and I know that, traditionally, Bobby, I think the statement was that it benefited us in the first half. Well, but if you do look year over year, you know, I think so.

Robert Thornton Brooks: Hey, good morning, guys. So you call in Bob's remarks, Hey, So you guys called out in the prepared remarks, improving that an improving business mix is going to be a tailwind for margins going forward could you just discuss what that improving mix contains I know short cycles, a tailwind for margins.

Speaker Change: But seems like the mix would tilt more towards the long cycle stuff going forward, just given the commentary and I know that that tradition.

Speaker Change: The statement was that had benefited us in the first half well, but if you do look year over year.

Todd R. Gleason: So sequentially, if we're it, well, let's just answer the question, I guess, you know, with respect to the improving mix: yes, you're, you're, you're on to all of the right themes, Bobby. So first of all, the comment was associated with year over year. And so if you look at the third and the fourth quarter, our expectation is and remains that the investments and the productivity that we have been generating in the first half of the year, that mix year over year will continue to be a benefit.

Speaker Change: I think so so sequentially.

Speaker Change: Well, let's just answer the question I guess with respect to the improving mix. Yes, you are onto all of the right themes. Bobby So first of all the comment was associated with year over year and.

Speaker Change: And so if you look at the third and the fourth quarter, our expectation is and remains that the investments and the productivity that we have been generating in the first half of the year that that mix year over year will continue to be a benefit.

Todd R. Gleason: And so, you know, yes, you're also right in the question that, you know, we might have, you know, still a larger percentage of long cycle versus short cycle, which typically is not the mixed benefit. But, we are going to have more short cycle year over year, in terms of dollars. And we also would say that our long-cycle businesses have higher margins in them, and that's a factor of a number of discrete things.

Speaker Change: So.

Speaker Change: Yes, you are also right in the question that we might have.

Speaker Change: A larger percentage of long cycle versus short cycle, which typically is not the mixed benefit, but but we are going to have more short cycle year over year in terms of dollars and we also would say that our long cycle businesses have higher margins in them and that's a factor of a number.

Todd R. Gleason: So as you think about jobs in, let's say, separation filtration now with transcend and a great aftermarket, when you look at some of the industrial water businesses that we've been building organically and inorganically over the last few years, higher margins in our industrial water business, and more consumables and more replacement for parts and etc., that are just ongoing. All of those things trend upward; you look at even areas that might be small for our entire P&L but are a little bit more weighted in the second half, like applications for the US Navy, Department of Defense, etc.

Speaker Change: Of discrete things so.

Speaker Change: As you think about jobs in let's say separation filtration now with transcend.

Speaker Change: With great aftermarket when you look at some of the industrial water business as <unk> been building organically and Inorganically over the last few years higher margins in our industrial water and more consumables and more replacement parts et cetera that are just ongoing.

Speaker Change: All of those things trend up if you look at even areas that might be small for our entire P&L, but are a little bit more weighted in the second half like applications for the U S. Navy Department of defense et cetera, those are higher margin some of the energy jobs that we have been winning.

Todd R. Gleason: Those are higher-margin, some of the energy jobs that we have been winning, and that are smaller or higher-margin in our thermal acoustics business, for example. And then, and, you know, in other applications, while they're somewhat long cycle, they're in that sweet spot of size for us that is still higher-margin versus the average long cycle job. So, you know, it's not one thing, Bobby. I guess my bit long answer here.

Speaker Change: And in our smaller or higher margin and our thermal acoustics business for example, and then in.

Speaker Change: In other applications, while theyre somewhat long cycle. They are in that sweet spot of size for us that is still higher margin versus the average long cycle jobs. So.

Speaker Change: It's not one thing Bobby I guess is my long answer here, it's a number of modestly sized factors that each of them contribute a little bit more to margins year over year, and I think thats our focus.

Todd R. Gleason: It's a number of modestly sized factors that each of them contribute a little bit more to margins year over year. And I think that's our focus. You know, again, we're not a quarterly company. We know what, you know, we certainly produce quarterly revenues and quarterly results. But we don't think sequential is our, you know, main driver and our main value creator. It is a six to 12 month, you know, cycle organization still, but we are, you know, we're very keen on margin expansion year over year as it's still very much in our wheelhouse. That's a great caller, and then I was just kind of piggybacking on that.

Speaker Change: Again, we're not a quarterly company.

Speaker Change: We certainly produced quarterly revenues and quarterly results, but we don't think of sequential as our main driver in our main value creator. It is six to 12 month cycle organization still but we are very keen to the margin expansion year over year as still being very much in.

Speaker Change: Our wheelhouse.

Speaker Change: Understood Thats, great color and thanks for the clarification and then just kind of.

Robert Thornton Brooks: You mentioned in one of your answers to Aaron's question on gross margin that better positioning the portfolio for higher margins is key. That's just kind of the stuff we touched on, or could you maybe just explain what that means? Yeah, so I think, Well, look, I think we'd probably be saying that to you, and you even asked it as if we might give a redundant answer.

Speaker Change: Piggybacking on that.

Speaker Change: You mentioned in one of your answers to Aaron's question on gross margins that.

Speaker Change: You guys are better positioning the portfolio for higher or better positioning the portfolio for higher margins is key is that just kind of the stuff that you just touched on or could you. Maybe just explain what does that what is better positioning the portfolio mean in terms of higher margins and how does ctrip plan on <unk>.

Doing so.

Speaker Change: Yes, so I think.

Speaker Change: Well look I think we'd probably be and you even ask that is if we might give a redundant to answer and I think the I think our short answer is yes look.

Todd R. Gleason: And I think the short answer is, yeah, look, it is it is all part of our operating model that's going to continue to drive that margin expansion. We, you know, we signaled that over the last year we've been investing in our platforms and in key corporate resources to get after opportunities for operating excellence. And it's the classic components of supply chain purchases, making sure that we're getting pricing, adding people, and resources to a lean enterprise.

Speaker Change: It is.

Speaker Change: It is all of the.

Speaker Change: It's all part of our operating model, that's going to continue to drive that margin expansion.

Speaker Change: We we signaled that over the last year, we've been investing in our platforms and key corporate resources to get after opportunities and operating excellence and it's the classic components of supply chain.

Speaker Change: Purchases.

Speaker Change: Making sure that we are getting pricing.

Todd R. Gleason: We've had more lean boot camps over the last six months than we did at any time in the company's history prior to that, probably. And these are getting out to all of our facilities, looking at safety, quality, delivery costs. You know, the playbook of lean is now being adopted much more consistently across our operating model. And so, you know; it's the small wins. If you're improving the cost of poor quality and you're eliminating that scrap, you're eliminating that rework.

Speaker Change: Adding people resources to lean enterprise, we've had more lean boot camps over the last six months than we did in anytime in the company's history prior to that probably and these are getting out to all of our facilities looking at safety quality delivery cost.

Speaker Change: The playbook of lean is now being adopted much more consistently across all our operating model and so it is these small wins, if youre improving the cost of poor quality and you're eliminating that scrap you're eliminating that rework. These things just show up in margin because we have higher delivered margins than even we anticipated in our.

Todd R. Gleason: These things just show up in margin because we have higher delivered margins than even we anticipated in our bookings, et cetera. So, you know, for us, it's about a whole bunch of singles and doubles, not home runs, including the acquisitions. It is incentivizing people differently this year for more margin expansion. We said that over the last few years, the pendulum, and I like to use that as a visual metaphor, has been leaning a little bit more on growth organically and growth inorganically.

Speaker Change: And our bookings etcetera so.

Speaker Change: For us, it's about a whole bunch of singles and doubles, not homeruns, including the acquisitions.

Speaker Change: It is incentivizing people differently. This year for more margin expansion, we said that over the last few years depend alumina I would like to use that as a visual was leaning a little bit more on growth organically and growth Inorganically still heavily incentivized on growth, which is why our outlook is low double digit growth.

Todd R. Gleason: Still heavily incentivized on growth, which is why our outlook is for low double-digit growth, which is mostly organic, you know. But this year we have slightly more weighting towards driving margin expansion, and we have more people incentivized specifically on productivity and margin expansion. So it is a playbook that for us, Bobby, and for everyone out there, it evolves, it advances, it doesn't radically change. And so the evolution and the advancement of our playbook this year is to just apply more incentivized pressure on our ability to go after those 15 percent EBITDA margins, which we believe are inside our organization today and will continue to do organic and inorganic activities to ensure our delivery of those mid- But we're not going to try to do it overnight. It's going to be a slow, steady, sustainable race that we expect to win. And those are the types of things that we build on every quarter.

Speaker Change: Which is mostly organic.

Speaker Change: But this year, we have a slightly more weighting towards driving margin expansion and we have more people incentivize specifically on productivity and margin expansion. So it is a playbook that for us Bobby and for everyone out there.

Bobby: False it advances it doesn't radically change and so the evolution of the advancement of our playbook. This year is to just apply more incentivize pressure.

Speaker Change: On our ability to go after that was 15% EBITDA margins, which we believe are inside our organization today, and we'll continue to do organic and inorganic activities to ensure our delivery of those mid teen EBITDA margins, but we're not going to try to do it overnight, it's going to be a slow steady sustainable race that we <unk>.

Speaker Change: To win and those are the types of things that we build on every quarter.

Robert Thornton Brooks: Okay. And just last one for me, so, He has mentioned four billion; the pipeline is now at four billion. 500 million increase from the last call. I was just curious how much of that increase is new jobs entering the pipeline? And how much of that is due to the delays in projects that you guys have called out that, in normal circumstances, likely would have already been booked? Well, we've had at least $50 million worth of jobs that we hoped and expected might have been, you know, would have been very unlikely to have been in the beginning of the year, but we had an expectation set that they could have been in the second quarter.

Speaker Change #103: Understood and just last one for me so you.

Speaker Change: You guys mentioned 4 billion the pipelines now 4 billion.

Speaker Change #100: $500 million increase from last call I was just curious on how much of that increase as new jobs entering the pipeline and how much is that how much of that is due to delays the delays and projects that you guys have called out that in normal circumstances like we would have already been booked or just.

Speaker Change: Just decided.

Speaker Change #101: Well, we've had at least let's just go with we've had at least $50 million worth of jobs that we hoped and expected might've been a.

Speaker Change #102: Would have been very unlikely to have been in the beginning of the year, but we had an expectation set that they could have been in the second quarter and it could be much higher it could be $100 million of the jobs.

Robert Thornton Brooks: And it could be much higher; it could be $100 million worth of jobs that have now, you know, extended into the second half of the year. So that's a number that we can point to, because we know the project specifically on those.

Speaker Change #102: They have now.

Speaker Change #102: <unk> turned it into the second half of the year.

Speaker Change #102: So thats a number that we can point to because we know the projects specifically on those.

Todd R. Gleason: But, you know, getting from, you know, $3.5 billion less than a year ago to $4 billion, that is also just our reference sites now in industrial water, which we didn't have before, and us having global expansion in markets like India that opens up another $50 million worth of pipeline for us to go and pursue. And frankly, you know, I think we would say that there are some end markets that we've mentioned that had a great 2021, but then 2022 and 2023 things sort of paused, and they're coming back a little bit in various general industrial.

Speaker Change #102: But I think getting from.

Speaker Change #102: $3 5 billion less than a year ago to $4 billion that is also just our reference sites now in industrial water, which we didn't have before us having global expansion in markets like India that open up another $50 million worth of pipeline for us to go and pursue.

Speaker Change #102: And frankly.

Speaker Change #102: I think we would say that there are some end markets that we've mentioned that had a great.

Speaker Change #102: 2021, but then 2022 and 2023 things sort of pause and Theyre coming back a little bit in various general industrial so theres ebbs and flows here, but I'd say $50 million to $100 million associated with jobs that just pushed out the rest is us just continuing to expand into new markets geographically or kind of now some.

Todd R. Gleason: So you know there's ebbs and flows here, but I'd say 50 to 100 million dollars are associated with jobs that just got pushed out. The rest is us just continuing to expand into new markets geographically or, kind of now, some other markets coming back into favor in what could be the second half of the year but certainly as we roll into 2025. Terrific. Thank you for the call. I appreciate the time. I'll return to the queue.

Speaker Change #102: Other markets coming back into favor in what could be the second half of the year, but certainly as we roll into 2025.

Speaker Change #104: Terrific. Thank you for the color appreciate it.

Speaker Change #108: Time return back thank you.

Bobby: Hey, Bobby Thanks.

Speaker Change #105: Thank you one moment for our next question.

Operator: Thank you. Okay, Bobby, thanks. Thank you. One moment for our next question. Our next question comes from the line of Amit Dayal from HC Wainwright. Thank you. Good morning, guys.

Speaker Change #106: Our next question comes from the line of Amit Dayal from H C. Wainwright.

Amit Dayal: With respect to this lower interest rate environment you're anticipating, you know, how should we think about the sales cycle maybe accelerating for you? Like, how does the business change? You've done very well through this higher interest rate environment, you know, but with interest rates potentially hitting lower, you know, is that opportunity set even bigger for you? Like, what should we think about it? You know, it's a great question. I don't know if I would circle yes or no to just that question. Yes, it's going to be a driver.

Amit Dayal: Thank you good morning, guys.

Amit Dayal: And the expected lower interest rate environment, Youre anticipating how should we think about.

Speaker Change #109: Seen cycles, maybe accelerating for you like how does the business change has done very well through this hiring constrained environment.

Speaker Change #112: Interest rates potentially heading lower.

Speaker Change #110: Is that opportunity set even bigger for you how should we think about it.

Todd R. Gleason: No, it's not. I'm tempted to circle no more because I don't think that our customers' purchasing decisions, their CapEx, their growth investments, or the regulatory or just their commitment to safety and the environment and their, you know, and their protection of their industrial equipment has much, if anything, to do with the higher interest rate, you know, or the lower interest rate situation. If interest rates went up a lot or were rapidly declining, then yeah, I think there would be some of that.

Speaker Change #114: It's a great question I don't know that.

Speaker Change #111: If I had to circle, yes, or no suggests that question, yes. It is going to be a driver no. It's not.

Speaker Change #113: Im tempted to more circle know because I don't think that our customers' purchasing decisions there capex their growth investments or the regulatory or just their commitment to safety and the environment and there.

Todd R. Gleason: So I think the answer is not a lot of change in our markets as a result of interest rates at the moment. That said, there are certainly some delays, and maybe some of the future opportunities that have not yet materialized are of a little bit of interest. I hate to use the word interest and interest rates, but there's a confidence that interest rates are going to come down. I also think that there are some topics associated with the presidential election that could be creating budgetary pauses to see what happens with various decisions that could be associated with the change or the stability of an administrative policy program, etc. And so there are factors in the moment that are modestly affecting at least certain projects and certain decisions. They're not incredibly material, but they're out there, and we see them, and we hear them.

Speaker Change #113: And our protection of their industrial equipment has much if anything to do with a higher interest rate.

Speaker Change #113: Or the lower interest rate situation.

Speaker Change #113: Interest rates went up a lot.

Speaker Change #115: We're rapidly declining then yes, I think there would be some of that so I think the answer is not a lot of change in our markets as a result of <unk>.

Speaker Change #115: Interest rates at the moment that said.

Speaker Change #116: There are certainly.

Speaker Change #117: Some of the delays.

And maybe some of the future opportunities that have not yet materialized are a little bit.

Speaker Change #117: Of an interest I hate to use the word interest in interest rates.

Speaker Change #117: There is a confidence that interest rates are going to come down I also think that there is some.

Speaker Change #117: Topics associated with the presidential election that could be creating budgetary pauses to see what happens with with various decisions that could be associated with the change or the stability of an administrative policy program et cetera, and so there are fact.

Speaker Change #118: And in the moment that are influencing modestly at least certain projects and certain decisions, they're not incredibly material, but they are out there and we see them and we hear them. So look for us I always say as the CEO.

Todd R. Gleason: So look, for us, I've always said as a CEO, if you give us high interest rates, but they're stable, we'll figure out what to do with that. You give us high commodity costs, but they're stable, we'll figure out what to do with that. If you give us lower interest rates or lower commodity costs, great, that's even better, it feels, and we'll figure out what to do with that. It's when things are moving around a lot, and that uncertainty creates the pause. It isn't high or low typically that creates the pause.

Speaker Change #118: If you give us high interest rates, but stable, we'll figure out what to do with that you gave us high commodity costs, but they are stable, we will figure out what to do with that if youll give us lower interest rates or lower commodity costs, great. That's even better it feels and we'll figure out what to do with US. It's when things are moving around a lot and that uncertainty creates the pause.

Speaker Change #119: It isn't high or low typically that creates the pause. It is all of us waiting to see what's going to happen as a result of things and so if we're anxious for anything it is just for decisions announcements and things to become more finalized.

Todd R. Gleason: It is all of us waiting to see what's going to happen as a result of things. And so if we're anxious for anything, it is just for decisions, announcements, and things to become more finalized. And so if the Fed wants to tell us exactly what they're going to do with interest rates, that would be great because then we can start to plan for that. If we all know the outcome of various policies and restrictions, etc., that are going to come down the pipeline, that would be great.

Speaker Change #119: And so if the fed wants to tell us exactly what they're going to do with interest rates that'd be great. Because then we can start to plan for that if we all know the outcome of various policies and restrictions et cetera are going to come down the pipeline that would be great. So I think for most of us.

Peter Kurt Johansson: So I think for most of us, the knowledge of what's going to end up being a more stable market over the next six to 12 months is probably the more interesting factor. Amit, lower interest rates that are stables of positive. Todd talked about the market impact. I'll talk about the impact on SECO. We have 100% of our credit is burial rate debt.

Speaker Change #119: The knowledge of what's going to end up being a more stable market over the next six to 12 months is probably the more interesting factor.

Yes.

Speaker Change #119: <unk>.

Speaker Change #119: The lower interest rates.

Speaker Change #119: That are stable as a positive.

Todd talked about the market impact I will talk about the impact on CECO.

Speaker Change #120: We have 100% of our credit is variable rate debt.

Peter Kurt Johansson: Every reduction in the interest rate is an improvement in our cash generation. The more cash we have, the lower the interest burden we have, the more likely we are to consider new investments or additional acquisitions.

Todd R. Gleason: Every reduction in interest rate is an improvement in our cash generation.

Speaker Change #121: The more cash we have and the lower the interest burden we have.

Speaker Change #121: The more likely we are to consider.

Speaker Change #121: New investments additional acquisitions.

Peter Kurt Johansson: Investments in growth or alternate uses of that cash certainly make the EPS environment more positive for us as a company. So we have our micro impact, which I can define. The macro impact is positive, but I don't think, to Todd's point, it's a big swinger.

Speaker Change #121: Investments in growth.

Speaker Change #121: Or alternate uses of that cash it certainly makes the EPS environment more positive for us as a company.

Speaker Change #121: So we have our micro impact I can define the macro impact positive, but I don't think to Todd's point, it's a big swinger.

Amit Dayal: I understand. Appreciate the call, guys. That's all I have.

Speaker Change #121: Understood.

Speaker Change #122: Appreciate the color guys Thats all levels. Thank you so much.

Operator: Thanks a lot. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Todd Gleason for any closing remarks. Thank you, and I'd like to thank everyone for your great questions and, of course, your interest in our information today. Also, importantly, thanks to our SECO global teams; they continue to deliver incredible value for our customers as we protect people, protect the environment, and protect our customers' investment in their industrial equipment.

Helane: Thanks Helane.

Helane: Thank you. This concludes our question and answer session I would like to turn the conference back over to Todd Gleason for any closing remarks.

Todd R. Gleason: Thank you.

Todd R. Gleason: I'd like to thank everyone for your great questions and of course, the interest in our information today.

Also importantly, thanks to our CECO global teams they continue to deliver incredible value for our customers as we protect people protect the environment and protect our customers' investment in their industrial equipment.

Todd R. Gleason: Also, once again, I'd like to welcome the great team at Envirocare International to Team Seco. I look forward to getting to know each of you and working with you closely. We're going to continue to be active in the working world and be out and available to investors. So we hope to see you as we present and have one-on-one meetings at the Midwest Ideas conference in Chicago in late August, as well as the Jeffries Industrial and Lake Street conferences in September.

Todd R. Gleason: Also once again I'd like to welcome.

Todd R. Gleason: Great.

Speaker Change #124: <unk> and viral care international two team CECO looking forward to getting to know each of you and working with you closely.

Speaker Change #125: We're going to continue to be active and working and being out and available with investors. So we hope to see you as we present and have one on one meetings at the Midwest ideas conference in Chicago in late August as well as the Jeffries Industrial and Lake Street conferences in September.

Todd R. Gleason: We'll be out and about other opportunities to meet with investors across the country at various times, so we hope to see you if we're in your town. If you'd like to meet, please contact your representative at those conferences or reach out to Austin; we'd be happy to set up a discussion.

Speaker Change #125: We'll be out and other opportunities to meet with investors across the country at various times. So we hope to see you if were in your town if you'd like to meet or please contact your representative at those conferences.

Speaker Change #125: Reach out to us and we'd be happy to set up a discussion.

Operator: With that, I hope you have a great day, a great week, and we appreciate, again, your time on the call. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thanks for watching!

Speaker Change #125: With that I hope you have a great day, a great week and we appreciate again your time on the call.

Speaker Change #126: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change #126: [music].

Speaker Change #126: Okay.

Speaker Change #126: Okay.

Speaker Change #126: Okay.

Speaker Change #126: Okay.