Q3 2024 CECO Environmental Corp Earnings Call
The End
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The New Year's Day
Speaker Change: Good morning and welcome to the Seaco Environmental 3rd Quarter 2024 earnings call. I'll participate in the list and I'll be mode.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star 1-1 on your touch-tone phone. To withdraw your question, please press star 1-1 again. Please note this event is being recorded.
Speaker Change: Thank you Liz, and thank you for joining us on the Seiko Environmental 3rd 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. This call is being webcast along with our earnings presentation, which is on our website at ccoenviro.com. The presentation materials can be accessed through the investor-relation section of the site.
Speaker Change: I'd also like to caution investors regarding our 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.
Speaker Change: Actual Future results may differ materially from those expressed or implied by the four lifting statements.
Speaker Change: We encourage you to read the risks described in our SEC filings included on Form 10Q for the quarter-ended September 30th, 2024.
Speaker Change: Accepted the extent required by applicable securities laws, we undertake no obligation to update any public or publicly revised any of the forward-looking statements that are made 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-gap financial measures.
Speaker Change: We provided the comparable gap and non-gap numbers in today's press release and provided non-gap reconciliation in supplemental tables in the back of the slide deck. With that, I'd now like to turn the call over to Chief Executive Officer Todd Gleason. Todd?
Todd Gleason: Thanks, Steven. Let's dive into our material as we have a number of items to cover. Please turn to slide number three, which summarizes today's earnings report.
Todd Gleason: As the slide highlights, there are 4 key takeaways from today's report. We will spend more time on each of these items throughout our earnings deck, but to summarize.
Todd Gleason: First, we had softer than expected third-quarter revenues and associated income as we could not overcome customer driven delays in a handful of larger projects.
Todd Gleason: Although the delays are frustrating, we expect these projects to begin delivering in Q4 and into the first half of 2025. So, we understand the cause on our third quarter shortfall and we are confident we will deliver these delayed results in upcoming quarters.
Todd Gleason: Second, while our Q3 earnings fell short, new orders of over $160 million in the quarter were a record for a Q3 and essentially tied our largest quarter ever.
Todd Gleason: Our bookings remained balanced across small, medium and large orders. And we booked a very large energy transition project related to a full emission management solution for the gas power industry.
Todd Gleason: These large energy transition projects have been in our sales pipeline for the entire year. So it was great to see these orders start to convert. Additionally, we have similar opportunities in our pipeline and have already secured another large project this month.
Todd Gleason: In fact, we expect October to likely be a record month with over $100 million in orders.
Todd Gleason: Setting this up for a fantastic finish for the year. As a result of these record bookings, our backlog reached a new record level of $438 million. This is the first time we had clipped the $400 million level in company history.
Todd Gleason: with our Q4 bookings and the significant pipeline of global opportunities across the industrial air, water and energy. We expect to continue to set new record backlog.
Todd Gleason: and the levels as we progress forward.
Todd Gleason: Moving to the third item, today we announced two very exciting transactions as part of our continued programmatic M&A process.
Todd Gleason: Each of these transactions will expand our portfolio and unlock new industrial and geographic markets for robust growth.
Todd Gleason: The first transaction is the acquisition of WK Group, which we closed in early October.
Todd Gleason: W.K. is an internationally-based industrial air business that expands our global reach and leadership position in solving customer's critical exhaust air and waste-stream treatment challenges.
Todd Gleason: The company has had courted in Germany and also has a very strong age-a-positive age-a-positive presence led out of Singapore.
Todd Gleason: For further details on WK, please see slide number 17 in the appendix. We welcome WK to the Seiko organization.
Todd Gleason: Also this morning we announced the transaction to acquire Profiore Energy, our largest acquisition in my 10 year with Seiko. And I look forward to describing the deal and the company over the next few slides.
Todd Gleason: and to finish out this slide, we will providing you an updated outlook for 2024 and introducing full year 2025 guides.
Todd Gleason: In summary, what we were never pleased to fall short of expectations, we own it.
Todd Gleason: We continue to execute at a very high level on what we can control, building a robust sales pipeline.
Todd Gleason: Booking record orders, growing our record backlog, expanding operating margins, and executing our programmatic MNA, in support of our portfolio transformation.
Todd Gleason: These are all key elements of delivering sustained long-term value creation. Please turn to slide number four.
Todd Gleason: As today's press release highlighted and I have already mentioned
Todd Gleason: This morning we announced the transaction to acquire Profiore Energy. A NASDAQ listed publicly traded company based in the Salt Lake City area and with operations in Edmonton and various cities in the US.
Todd Gleason: Let me walk through this slide to summarize the strategic alignment and long-term value creation opportunity.
Todd Gleason: This transaction is expected to close in early 2025 and the company currently estimates funding.
Todd Gleason: Net Pro Seeps of approximately $108 million at closing.
Todd Gleason: Pre-Cenergies, the deal has an estimated value of approximately 9 times E.B.D. to Enterprise Value.
Todd Gleason: After Synorges, the deal is expected to be valued at closer to 7 to 7.5 times even though after the elimination of significant company, excuse me, significant public company costs, deployment of operational best practice initiatives and realization of achievable commercial opportunities.
Todd Gleason: and the next episode.
Todd Gleason: Pro Fire has a strong, niche leadership position in combustion management and controls for largely North America customers and predominantly energy margins.
Todd Gleason: This delivers a financial profile consistent with their leadership position.
Todd Gleason: In the past few years, a profile team has made very effective investments and strategic shifts in sales channels to further expand their revenues and broader, diversified industrial markets, which currently represents approximately 15% of their sales.
Todd Gleason: With our International Resources, we expect to accelerate geographic expansion.
Todd Gleason: and we intend to utilize Seiko's leadership positions in various industrial air and water markets to rapidly grow profirs in industrial mix.
Todd Gleason: This business currently operates in a manner very similar to our current platform operating model, which will ease the integration and capture the benefits of the transaction.
Todd Gleason: As the takeaway on the slide highlights, we are adding talent, a tremendous combustion management knowledge base, a world-class R&D facility, market leadership, and a strong financial profile.
Todd Gleason: and with our track record of acquiring good growth businesses and investing in their continued success, we anticipate even more growth in ProFire for years to come. Can't wait to create more value together.
Todd Gleason: Please turn to slide number five.
Todd Gleason: This is our standard acquisition snapshot slide. I won't read all the information, but you can see we provide more insights on profile products and solutions as well as their end markets.
Todd Gleason: We also capture some of their key locations and some detail around their resources.
Todd Gleason: I would highlight the profile has an impressive installed base that is approaching 100,000 systems, many of which are starting to enter a replacement cycle.
Todd Gleason: This installed base is a significant opportunity and we look forward to ensuring we maximize the full potential by utilizing the current field services team and adding resources as growth supports.
Todd Gleason: As I said, this transaction is expected to close in early 2025 and our teams will remain focused on delivering for our respective customers.
Speaker Change: With that, I'll now hand it over to Peter to walk us through additional detail regarding the natural performance for the third quarter. Peter?
Peter Johansson: Thank you, Todd. Good day, everyone.
Peter Johansson: Thank you for attending our third quarter 2024 earnings call today.
Peter Johansson: Please turn to slide number seven, or I'll give you a quick rundown of Seekers financial results for the quarter.
Peter Johansson: Starting with Backlock, Todd previously mentioned we closed the quarter with a record backlog balance of $438 million.
Peter Johansson: This is an 11% increase versus prior year and a 12% increase sequentially versus the prior quarter. With all signs pointing towards this number being higher by a year end.
Peter Johansson: Order's in the quarter of $162 million. Represent a 12% increase versus prior year, up approximately 20 million sequentially.
Peter Johansson: Timing variability impacted the TTM levels with orders down 5% on a trailing 12-month basis.
Speaker Change: I'm pleased to see that the start of the fourth quarter has been the strongest of any quarter since my arrival two and a half years ago with orders in the month to date period exceeding one hundred million dollars.
Speaker Change: Revenue in the quarter was $136 million, which was down 9% year-over-year due to two main factors.
Speaker Change: Lard's project experiencing delays and execution, external to seeko, for which we are instructed by a handful of customers to pause work, until Q4 or next year.
Speaker Change: In the quarter that comprise to approximately 4 to 5 points of our revenue shortfall.
Speaker Change: and the second factor was delays in booking and the year-to-date basis that impacted our ability to recognize revenue as progress in the third quarter was limited.
Speaker Change: The impact of that factor was two to three points of the shortfall, with the balance of the nine points being typical job timing.
Speaker Change: Well, this mission, the third quarter, while this resulted in a third quarter miss, I want to reiterate that this revenue will be made up in subsequent quarters and point out that on a TTM basis, we are still growing at high single digits.
Speaker Change: In the quarter we delivered $14.3 million of adjusted EBITDA, a figure down 5% over year-over-year on lower volumes.
Speaker Change: But Gross Profit margin in the quarter was 33.4% at 450 basis points versus the same period in 2023. As our material sourcing and productivity initiatives continue to deliver, and the benefits of an improving portfolio and business mix are realized.
Speaker Change: Just at EBITDA margin in the quarter of 10.6% is up 50 basis points and approximately 130 basis points on a TTM basis.
Speaker Change: Gross Profit and Adjusted EBITDA margins continue to be in line with our expectations and reflect the progress we continue to make with our operational excellence activities. I feel very good about the strategic focus of our teams.
Speaker Change: Our teams are executing to manage cost.
Speaker Change: and Prove Execution and Secure Projects with Higher Underlying Margins.
Speaker Change: Finishing off with the final two items on the page, adjusted EPS was down eight pennies, as a result of low-rejusted EBITDA and in the quarter tax items, which were partially offset by lower interest-week stance.
Speaker Change: and Cash Flow. Down versus the prior year on a tough comparison driven by working capital timing.
Speaker Change: Now let's turn to page 8 for deeper looking to grows profit.
Speaker Change: On this slide we present Siko's gross profit performance by quarter on a TTM basis to neutralize for quarterly fluctuations, looking back over two years.
Speaker Change: Over that time, we have expanded margins by approximately 500 basis points. With gross profit-dollar growth of approximately 23% on a compounded annual basis.
Speaker Change: The trajectory of margin improvement.
Speaker Change: Reaching in flexion point, approximately one year ago in Q3 of 2023.
Speaker Change: It was in this period when after Todd and I felt we had solidified the organic growth component of our operating model and we completed the chemical acquisition. We shifted forward, we shifted focused towards advancing the operations excellent component of our operating model.
Speaker Change: A result like this doesn't happen by chance.
Speaker Change: It is the result of advancing a number of the initiatives in our operations excellent playbook.
Speaker Change: These include portfolio transformation and anemone integration.
Speaker Change: Project Execution and Economics.
Speaker Change: Materials sourcing and logistics efficiencies.
Speaker Change: This work continues to be a focus of our operating teams with assistance from corporate specialists in HRIT, supply chain and operations excellence.
Speaker Change: As you can imagine, none of this was achieved without overcoming some challenging headwinds, including supply chain efficiencies, various sources of inflation and project complexities and delays.
Speaker Change: In summary, improving profitability and margins is a journey, requiring a balancing of risk and capturing of opportunities. And we feel that Sika was well-positioned with our internal resources and organization to continue to sustain this performance.
Speaker Change: Moving to slide 9 for a quick review of Castle On liquidity.
Speaker Change: Before we start on slide down though, I want to remind everyone that on October 15th, we announced the details of a significant up-sizing to our senior secured revolving credit facility, expanding from approximately $250 million to $400 million of capacity.
Speaker Change: The facility is now all revolver and increases our ability to fund investments in organic and eminegro, business improvements and upgrades to our capabilities and systems. Additional details on the new Creative Facility can be found in the October 15th Press Release and Associated 8K on our website.
Speaker Change: Slide 9, turning to slide 9 now. Slide 9 is a format, is a new format when compared to previous earnings. Starting on the left side is a free cash flow walk down from that income on a year to date basis.
Speaker Change: As of September 30, we delivered less free cash flow in a year-to-date basis through the working capital timing and the higher capital expenses.
Speaker Change: Working capital is lower by approximately $7 million, negatively impacted by customer payment timing. This quarter was also a difficult comparison to prior year's record customer payments.
Speaker Change: CapEx investments were up approximately $6 million a year over year as we continue to earn investments in our ERP migration and consolidations and upgrades to machinery and facilities and select in select locations.
Speaker Change: Film Prove Output, the liver productivity and deployed lean production techniques.
Speaker Change: On the right side of the slide, we are presenting a more streamlined bridge of the sources and uses driving the change to our net depth position.
Speaker Change: We ended the third quarter with a gross death of approximately $129 million, and the resulting net death of approximately $90 million, yielding a leverage ratio of 1.6 times bank EBITDA. Upsilately from year end 2023.
Speaker Change: are available capacity of $97 million. At the end of the quarter is a decrease of approximately $20 million from the year ago period.
Speaker Change: which is a tribunal solely to our max leverage ratio stepping down from 4x to yearn to 3.5x on September 30. A condition built into our prior previous excuse me, credit facility.
Speaker Change: It should be noted that this base capacity, when combined with various additional expansion levers built into our new credit facility, ensure that we will have sufficient capacity.
Speaker Change: To close on the Profire Acquisition Fund additional investments and meet T.C.C. working capital needs.
Speaker Change: And with that, I conclude my summary on C.C.O.s. 3rd quarter, 2024 results and turn the mic back over to Todd.
Todd Gleason: Thanks Peter. So let's turn the page and discuss what we are seeing for the remainder of 2024 and as we had in to 2025. Please go to slide number 11.
Todd Gleason: We are updating our full year 2024 outlook, essentially going back to the 2024 guidance and initially presented prior to the raised guidance that we provided mid-year.
Todd Gleason: We are signaling a higher book to bill of 1.2 which is up from 1.05 to 1.1 as our orders are expected to remain very strong. However.
Todd Gleason: We are adjusting revenue in EBITDAH back to those original outlook levels.
Todd Gleason: For revenue, we forecast $575 million to $600 million, which is up approximately 10% year-over-year at the midpoint.
Todd Gleason: and for adjusted for your EBITDA, we forecast 65 to $70 million up approximately 17% year over year at the midpoint.
Todd Gleason: Unfortunately.
Todd Gleason: The anticipated upside that influenced our meteor guidance rays, stalled as a result of the customer, the driven delays in projects, as well as in booking some of our larger orders.
Todd Gleason: Still, despite the challenges in the operating environment, our full year outlook is one of double digit sales growth in high team EBITDA growth.
Todd Gleason: and our orders are expected to be a full year record producing record backlogs which really tease up 2025 very nicely.
Todd Gleason: Speaking of 2025, let's discuss.
Todd Gleason: How we plan to deliver robust growth for next year. Please go to slide number 12.
Todd Gleason: One of the best indicators for growth is a large and growing backlog.
Todd Gleason: As we have said, we exit it to three with record backlog levels of $438 million and with our outstanding Q4 orders to date bookings. Excuse me, we expect to see a higher backlog heading into 2025.
Todd Gleason: The large energy transition gas power jobs are starting to be realized with more opportunities that are each valued at or above $50 million likely.
Todd Gleason: Closing in either late 24 or 2025.
Todd Gleason: In addition to these exciting gas power projects, we have a robust pipeline, which includes data center, industrial water, industrial air and infrastructure.
Todd Gleason: These order pursuits are well balanced between small, medium and large opportunities.
Speaker Change: On the margin side, as Peter noted earlier, we have demonstrated our ability to expand margins in a consistent manner, and we are confident that our operating excellence programs will continue to deliver great results.
Speaker Change: That productivity coupled with higher volumes should enable meaningful EBITDA margin expansion. A programmatic MNA remains an important aspect of our transformational journey and a boost to financial results.
Speaker Change: With today's announcement, we have added a second business to our industrial air portfolio in WK, and we will add profile and their strong margin profile to our rapidly strengthening portfolio of leading industrial environmental solutions businesses.
Speaker Change: Moving to slide 13.
Speaker Change: Just a very quick exclamation point on the record backlog which provides visibility towards future growth.
Speaker Change: As the slide shows, we have steadily increased our backlog from a little over $200 million a few years ago to now over $430 million at the end of Q3. And we anticipate adding to this backlog throughout the remainder of the year.
Speaker Change: A backlog that rarely experiences debuckings or cancellations.
Speaker Change: So now that we have covered...
Speaker Change: A keys to growth and our backlog position. Let's review our outlook for 2025. Please turn to slide 14.
Speaker Change: Let me start on the top half of the page with revenues.
Speaker Change: We are introducing a range of 700 to $750 million for full year 2025. A 25% year over year increase at the midpoint.
Speaker Change: Top Line Growth is essentially split between organic and inorganic. The organic growth comprises revenues that we expect to push out from 2024 as well as higher organic growth given our large bookings.
Speaker Change: The Interorganic Road comes from the acquisition of Environmental Care in July, WK, which we just closed earlier this month, and a full year of profile sales, assuming that transaction closes at the beginning of the year.
Speaker Change: On the lower half, we are introducing an adjusted EBITDA range for 4 year 2025, between 90 to 100 million dollars, representing a 40% increase year over year, which is equally balanced between organic and the full year benefit of the three acquisitions.
Speaker Change: This guidance also reflects another solid year of margin expansion delivering 13-14% adjusted EBITDA margins at the midpoint, and expansion of more than 150 basis points year over year.
Speaker Change: Now.
Speaker Change: We all know that stuff happens and we don't have a crystal ball, but we'll be do have as we start to close out 2024 and align our teams for 2025 is a good amount of visibility with respect to our backlog. Great visibility to the upside for Mme and strong orders momentum and a growing sales pipeline.
Speaker Change: and those items coupled with the progress we continue to make with large and expansion, it's very encouraging. We look forward to wrapping up a solid 2024 and driving even better performance in 2025.
Speaker Change: Let's turn this slide 15 for some concluding remarks.
Speaker Change: in Summary.
Speaker Change: We are disappointed to have missed expectations in the third quarter, but we remain confident in our overall trajectory and our outlook. We have a great backlog.
Speaker Change: We have strong bookings.
Speaker Change: and a growing sales pipeline.
Speaker Change: We remain confident our programmatic emanable continue to add sustainable value creation and we are excited to welcome these businesses to our leading portfolio.
Speaker Change: Finally, as always, I want to thank Team Seekow for delivering for our customers and navigating complicated and challenging markets.
Speaker Change: You inspire all of us every day. And with that, we'll now open up the call for questions. Operator?
Speaker Change: We will now begin the question and answer session. To ask a question you may press star 1-1 on your touch tone phone. If you're using a speaker phone, please pick up your hands at before pressing the keys. To withdraw your question, please press star 1-1 again.
Speaker Change: At this time we will pause momentarily to assemble our roster.
Speaker Change: The End
Speaker Change: Our first question comes from Rob Brown with the Street Capital Markets.
Speaker Change: Good morning.
Speaker Change: Hey, Rob. First question is on the order environment. I think you talked about one large power plan at Project and that has been booked to get in as a September and then a couple more in October. Can you just clarify kind of the aptitude set in those large projects and what
Speaker Change: You've spoken I guess what is still outstanding.
Peter Johansson: and Peter.
Peter Johansson: and John.
Speaker Change: Yeah, I'll start then Peter can add to it and we'll try to, you know.
Speaker Change: Keep it short, because there's a ton of...
Speaker Change: Material here in this area and we've been highlighting it all year.
Speaker Change: So, look, you know, there's obviously been a much discussed.
Peter Johansson: Need for additional power. There's also an ongoing conversion in the energy, in the energy industry, in energy space, converting coal to natural gas.
Peter Johansson: Firepower Plants, adding more scale with respect to solar and wind, etc. Back up power for those applications, as well as more power for data centers, as well as on-site back up power for data centers. All areas where we have been articulating our real, providing us and a lot of folks in the industry with a lot of opportunities. And we had initially anticipated that those bookings would come earlier in the year and they're starting now.
Peter Johansson: So, you know, the...
Peter Johansson: The project that we booked at the end of the fourth quarter is an Astro Gas Fire Power Plant. The projects that we booked in October are similar. Each of them are, we believe, represent the leading position that we have to solve critical emissions applications for power generation and very complex full systems.
Peter Johansson: So, you know, these projects are anywhere between 25 to greater than $50 million.
Peter Johansson: We think that if you want to call it the, you know, the levy is sort of open to now for things to start moving in a more efficient manner. These jobs have been, started to be permitted and approved. Companies are being notifying suppliers and support partners like us and while we anticipated that maybe one or more of these would have booked in our favor in the first half of the year. We're pleased to see that those are now starting to open up in the fourth quarter and at the end of the third quarter obviously.
Peter Johansson: www.mustwatch.eu
Peter Johansson: between 15 and 20 active opportunities.
Peter Johansson: In total, the total realized value could be as high as $450 million.
Peter Johansson: over the next eight quarters.
Peter Johansson: Now some of that will move in and out based on availability of equipment, permitting, and our ability to, you know, to succeed in capturing that business, but that's the gross opportunity in the U.S.
Peter Johansson: We haven't begun to detail the the Middle East and their requirements in India and their requirements, but we estimate them as equally large.
Speaker Change: Okay, great, thank you for the color. And then on Profire, a good acquisition.
Speaker Change: What's sort of your view on synergies? I think you gave numbers that were more public company cost synergies, but could you describe the sales or revenue synergies that you think you can get there?
Speaker Change: Thank you.
Speaker Change: Yes, so today the business is essentially a North American business with 80 to 85 percent of its revenue in its core traditional markets, which you know well. We anticipate through
Speaker Change: Thank you.
Speaker Change: bringing the business into our Middle East and Southeast Asian energy channels.
Speaker Change: substantial upside, you know, the markets are as large if not larger than the U.S. production markets and transport markets.
Speaker Change: And on the industrial side, as they begin to scratch the surface of new applications, we think that is a
Speaker Change: a substantial opportunity, Rob, probably in the potential to take the mix of industrial to core or traditional business.
Speaker Change: to 40% of overall sales.
Speaker Change: We had, you know, we had, you know, we have known the Profire business and admired their success for a while and you know, had even sort of certainly evaluated opportunities to, you know, look at business development programs where they're, you know, leading solutions around combustion management, could potentially work with ours in a variety of ways. It sort of helped lead to a development of a good relationship with the organization and in a sense, you know, helped to introduce this topic to both of us, which makes a lot of sense, not just from the Synergies perspective, but again, you know, we have a lot of experience and comfort in in acquiring growth companies and helping to unlock that growth even further. So they're Synergies that are
Speaker Change: are certainly associated with both companies being public. And that's, you know, that's an obvious.
Speaker Change: you know opportunity for us to capture as well as now synergies that we've already put in place with the infrastructure in the industrial markets the infrastructure in international markets and we can really accelerate a partnership here to bring their products more quickly through through our channels
Speaker Change: Okay, great. Thank you. I'll turn it over.
Speaker Change: Our next question comes from Aaron Spiccella with Craig Hallam.
Aaron Spiccella: Yeah, good morning, Todd and Peter. Thanks for taking the questions. You know, maybe first for me, can you just talk a little bit about the confidence in the customer delays, you know, closing in kind of fourth quarter in the first quarter, and then just looking at the 2025 guidance, you know, a little wider ranges than typical. Can you just talk a little bit about the puts and takes on that, and just, you know, maybe how you're thinking about kind of that order to delivery timeline in the guide.
Aaron Spiccella: Yeah.
Speaker Change: Well, it's a good question, Aaron, and it's fair, and I certainly would recognize, as we all do, that this has been a bit of a repetitive theme, that things have been a little slow to execute on larger, you know, projects.
Speaker Change: that are in our backlog throughout the year. And again, we have had a decent size, you know, as our slides and as our material has highlighted, you know, somewhere between $15 to $30 million worth of project delays. Now, those projects are starting, and that's good. How fast can we start to work with the customer to execute and do various areas of delivery? You know, the way we recognize our revenues and projects on a percent and complete basis, which is standard, you know, will dictate how fast, you know, we can turn what is in our backlog into our P&L, into our revenue and income.
Speaker Change: So, certainly we would like to see as much as possible in the fourth quarter, which would take some out of next year. But if it doesn't happen in the fourth quarter, then we have a little bit more rolling into next year. So, in a sense, Aaron, that answers your question, like where we sit today, giving guidance,
Speaker Change: in late October for next year, we see there could be, you know, a slightly larger range just based on the visibility that we have in our backlog. And so that, you know, that's essentially why we have a little bit of a wider range. It's either going to be a little bit more in the fourth quarter, which is great, and that's incorporated in the range, or it's going to be a little bit that moves out of the fourth quarter and into the next year, which is incorporated in both ranges.
Speaker Change: All right, that makes sense. Thanks for the color there. And then just, you know, second, with kind of the pipeline continuing to grow and, you know, looking at this guidance and the opportunities you kind of laid out, can you just talk about how you feel about capacity today and some of the areas of investment that you see for the business to make to capitalize on that growth?
Speaker Change: Yeah, you know, again, a good question with respect to capacity and our ability to manage, execute, capture, you know, the growth.
Speaker Change: I will say, and you know, it's one of the, it's an area of operational execution that we believe we're very good at, but it also sort of is reflected a little bit in our third quarter earnings mess, and let me explain.
Speaker Change: as we have record bookings in the third quarter. If we were a different company that might have a majority short cycle sales, those bookings are sales.
Speaker Change: Right? And we would probably start to ship and move quickly to recognize those sales. As they are, they are projects. And so they go into our backlog and we are preparing to execute on those projects. The combination of our backlog that has been delayed...
Speaker Change: as well as the new bookings that now are in backlog, we want to have a right-sized organization to execute on what's in front of us.
Speaker Change: And so, the trick is, of course, not adding too much G&A or too much cost ahead of bookings or ahead of the need for those resources to execute. But the other trick is we can't just willy-nilly, you know, remove costs in a tough quarter and then have to go back a quarter or two down the road and add it all back. You know, getting qualified technicians, engineers, project managers, field service technicians, it is tricky.
Speaker Change: So the third quarter represents both.
Speaker Change: some of the best.
Speaker Change: of SECO, and with respect to our great bookings, it also represents a little of the challenges we have when we have project delays, because we need these resources to ensure exactly the question you're asking, that we have the capacity, we have the capability to go execute, so when timing works in our favor, then we have tremendous leverage on that model. When timing works against us a little bit, we just have to be patient.
Speaker Change: Thank you for watching!
Speaker Change: and Aaron in the supply chain. We're constantly monitoring our suppliers, our fabrication partners' abilities to flex.
Speaker Change: and where we feel there may be challenges.
Speaker Change: We have a conscious effort to add new, add and qualify new fabrication sources.
Speaker Change: That effort is ongoing in Korea, in Vietnam, it's ongoing in India for you know for part of our strategy is to make as close to where we sell.
Speaker Change: We're working with additional fabrication partners in Canada and in the United States.
Speaker Change: We think we're ahead of that. We think we're in a very good position there relative to supply chain and supplier availability.
Speaker Change: Alright, thanks for the color. I'll turn it over.
Speaker Change: Steven Hoos, Todd Gleason, Todd Gleason, Steven Hoos, Todd Gleason, Steven Hoos
Speaker Change: Our next question comes from Jerry Andwini with Roth Capital.
Jerry Andwini: Good morning, Todd and Peter. Thanks for taking my call.
Todd Gleason: Hi, Jerry.
Todd Gleason: Hey.
Jerry Andwini: Just want to dig a little further on the energy side. So, I think you mentioned, Peter, 15 to 20 opportunities, $450 million over eight quarters. I'm assuming that's...
Peter Johansson: maybe bookings over, potentially over eight quarters on those 15 to 20- That's bookings, yeah, that's right. That's bookings, yeah, and with jobs delivering out through the end of the decade. You know, these jobs take three to five years from inception to completion.
Peter Johansson: and you may have recently seen the GE Vernova pronouncements of these constraints they're seeing in the supply chains that feed them.
Peter Johansson: So it's all about getting turbans into the field.
Speaker Change: I don't want to touch back on that in a second, but I think you mentioned 15 to 20 opportunities. And my words, not your words, but I thought you said maybe last quarter or earlier this year you were looking at like 12-ish different opportunities. So I guess the question here is, are we seeing an expansion in opportunities?
Speaker Change: yes we are and those that I'm referring to qualified opportunities there's way more on paper than are going through permitting and execution yeah so yeah you could so our teams are working on a pipeline that's greater than the qualified number
Speaker Change: Got it. And that 450 million, you know, roughly what's the win rate of those 15 to 20 to get to that 450?
Speaker Change: That's the total pipeline. Our historical win rate would put us estimating a lower number.
Speaker Change: but there's two competitors.
Speaker Change: So I'll let you estimate it.
Speaker Change: Okay.
Speaker Change: Got it. That makes sense. Then, okay. Then, super helpful, then switching over to the ProbeFire, I was wondering if we could go in and dig in just for a minute or two, a little bit more about their model, right? So I was curious as to how much of this is sort of a,
Speaker Change: paging through, I mean by the press release, I jumped on the website, etc. And I know that company a little bit, but it's been some time. But how much of it is sort of recurring revenue versus product sales?
Speaker Change: Yes, so if you look at the business today.
Speaker Change: call it recurring revenue and it is defined by replacing themselves, supplying spare parts and service, is about 20%, 20, 20-25 percent.
Speaker Change: Their service teams in the field do a lot of commissioning and startup as well as customer diagnostic. They're not necessarily a repair service organization. They will be critical to this pending replacement and upgrade cycle.
Speaker Change: got it and then we think is just now hitting which we think is now accelerating in in in this and it being the appropriate time for that replacement yeah
Speaker Change: Got it. And then what's a typical unit cell for if you're going to replace it?
Speaker Change: Thank you for your attention.
Speaker Change: We don't have to go into that much detail if you don't want to.
Speaker Change: at this point.
Speaker Change: So.
Speaker Change: Jerry, that's something I would misquote at this time, so we'll take a note and get back to you with that. Compared to our standard Seco sale, these are well-priced products for the market, but certainly much smaller than the average price tag for what we would have.
Speaker Change: These are low thousands of dollars per unit, mostly.
Jerry Andwini: We can scratch that question. I apologize. It just popped into my head when it came up. So I understand Okay, can you then maybe one more question on profile as you look obviously they have a good u.s North America base, but and you sort of touched on it. I think in your in your remarks, but when you look at your
Jerry Andwini: investment base or your customer base outside the U.S. or even inside the U.S. to some degree, you know, how much opportunity is there with existing clients that maybe cross-sell, sell into into that base?
Speaker Change: Well, it's not about a cross-sell, Jerry, it's about taking this model that works so well in the U.S. and supporting midstream and downstream producers.
Speaker Change: and migrating it to other markets that behave similarly, that use the same equipment for which ProFire is yet to be able to tap.
Speaker Change: So if you look at all of the infrastructure that's required to treat, move, and use
Speaker Change: oil and gas in the Middle East.
Speaker Change: in Southeast Asia and to some extent in Africa, they don't have a footprint. We have a very sizable footprint. So it's leveraging our existing infrastructure commercially and existing customer relationships in those regions and bringing them to market through our teams.
Speaker Change: So that's lever one. Lever two is introducing the organization of Profire and their business development specialists to industrial customers that we work with that have a need for this technology.
Speaker Change: and then, to some degree, stepping out of the way. It's making the introduction, it's connecting the right people in the organizations, and then letting them do what they do well, which is sell their applications as a leading provider of the tech.
Speaker Change: And I suspect they were not in.
Speaker Change: Middle East, North Africa, because capital constraints, geographics.
Speaker Change: That's great, Jerry. 97% of the sales in the USA and Canada. We also have in, with our global footprint, we have locations to distribute product and provide service team basing.
Speaker Change: www.mustwatch.eu
Speaker Change: Got it. Okay. Very helpful. I'll jump back in line. Thank you.
Speaker Change: Our next question comes from Jim Rischutte with Needham & Company.
Jim Rischutte: Thank you. Good morning. So you touched on this in terms of the impact of some of these delays. I guess one of the questions I have is, you know, there's a component of this that is
Jim Rischutte: normal course of business type delays that you guys have experienced, I assume.
Jim Rischutte: But I'm also wondering, you know, how much of this is a function of just these larger deals that you've alluded to? And as we think about the impact and appreciate the outlook for 25, does some of that impact the early part of 2025?
Speaker Change: Yeah, it certainly could impact the early part of 2025 where, like you can imagine, we're working through our plans and how the quarterly linearity looks like as we go into 2025. So we'd be happy to kind of work through, you know, sort of a view of that as we go through the year here, Jim, and all. So a couple of things. Yeah, there's always delays.
Speaker Change: That said, I might submit that a year ago, and the last year and a half or so, as we were coming out of COVID and the supply chain issues that had been negatively impacting a lot of companies, as we emerged from that, projects were actually booking faster and moving faster. And maybe it was a bit of a relief factor from, oh, we can actually get caught up here.
Speaker Change: We're seeing a little of the opposite now on what I'll kind of call, you know, meaningfully sized jobs. Either there is delays in multiple factors associated still with supply chain or availability of people resources, which is one of the areas we've heard. We also understand that some projects are sort of waiting for certain known factors to become completed, whether it's the presidential election or where interest rates going. So look, I think, you know, sometimes you have an economic or an industrial environment where there is one factor.
Speaker Change: And you know that there's one factor that is either influencing an acceleration or a deceleration of activity. In this case, I think what we're seeing is a multitude of
Speaker Change: smaller factors that in some projects have a higher weight for one of those, like resource availability. On another project, there's a higher weighted factor associated with, well, we're going to wait till after the election. And then yet another project, it could be a little bit of a delay associated with interest rates and funding or permitting or government, you know, monies that need to go through a much longer, slower process to be allocated and distributed. So that is what we know. And look, these things are outside of our control and at times outside of our customers' control. In no scenario are we seeing debookings. In fact, we received a unanimous, you know, vote of confidence.
Speaker Change: from our customers that these projects are going to happen. It is just.
Speaker Change: We're going to start later in the year, or we're going to start next year. And so there's very little we can do to do pre-work until they give us the approvals of our engineering designs and similar. So here we wait a little bit, and it's been frustrating a little all year because we have two or three jobs.
Speaker Change: that, you know, had they just moved forward at the beginning of the third quarter, we wouldn't have had a gap.
Speaker Change: Just two or three jobs have enough revenue that, you know, we're talking 10 to more, 15, $20 million could have actually executed in the third quarter with deliveries, etc. So look, you know, we're certainly never going to be negative on a customer. We understand that they're working through a number of factors that are in and outside of their control. But it's a complicated environment, and we're patient, and we look forward to executing. These jobs don't go away. They just move to the right.
Speaker Change: Thank you very much.
Speaker Change: Yeah, Jim, I'll just highlight one that's extraordinary to make Todd's point. We have a customer in the Middle East that we work with very frequently, two very nice projects where we were selected and competitively succeeded against one of the largest water services supply company in the world.
Speaker Change: and we were sitting down to finalize contracts.
Speaker Change: when they came to us and said we're still working through our financing on this project.
Speaker Change: We're unable to, at this point, underwrite with bonding this job. We need to be patient. Are you going to hang in there with us? We said yes. We'll extend our bid 30 days.
Speaker Change: They went back to their banks, got recapitalized, and now they've kicked off this month with work starting next month.
Speaker Change: That's an extraordinary instance. We didn't experience that in the last three years.
Speaker Change: This is a company that's suffering growth pains.
Speaker Change: They have so much work that they actually had to go back and get more money, which is a good thing, but it led to a delay.
Speaker Change: That's just an example of some of the external factors that kind of add to the uncertainty that we experienced in the third quarter. You know, we went from receiving verbal communication to an issued P.O. to, guys, you got to stop work because we don't have the ability to start.
Speaker Change: Got it.
Speaker Change: Todd, you touched on the issue of resources, and I'm wondering, just given the backlog that you have, given the pipeline that you guys are chasing and see out there, do you
Speaker Change: to perhaps look at increasing resources as you go after this larger book of business.
Speaker Change: Sure, you know it's something that we constantly and I mean constantly review and discuss in our platforms and I think look it's it's certainly we don't make acquisitions for this purpose but there are
Speaker Change: transactions with respect to some of their great talent. The ability to partner now in a combined way with EnviroCare.
Speaker Change: who has a tremendous amount of knowledge in an industry and a segment and we have a tremendous amount of experience and connections in another segment. The fact now that we have each other's resources versus us
Speaker Change: hiring 15, 20, 30 people to go pursue an industry. We now have, you know, a very talented, established, seasoned group of niche industry leaders that we're able to grab onto. Similarly with WK, we have been steadily growing internationally. And, you know, Western Europe and Southeast Asia and other markets have have provided, we see those opportunities. Now with WK, we have resources.
Speaker Change: So that allows us to turn the lights on faster and to partner. Of course, ProFire is in front of us, but again, we have a lot of respect already for their leadership team, their capabilities, their product management leadership, their R&D. So there's a lot that these acquisitions provide with resources to not only support those businesses, but cross-support each other's growth. So those efficiencies are really important as we execute on our pipeline.
Speaker Change: Got it. Just quickly on ProFire, your revenues have been volatile, particularly during the pandemic, but is that growth rate that they show from 2018 through 2023 all organic? Were there any M&A that contributed meaningfully to those revenues?
Speaker Change: It was organic.
Speaker Change: Okay. Yeah, largely organic. The market recovery product, new product introduction, and the expansion of their business into adjacent markets.
Speaker Change: at Utility and Industrial Markets.
Speaker Change: Got it. Thank you.
Speaker Change: Our next question comes from Bobby Brooks with Northland Capital Markets.
Bobby Brooks: Hey, good morning, guys. Thank you for taking my question. So to start on ProFire, to start on ProFire,
Bobby Brooks: They've seen industrial revenues grow from about 1% of revenues right in 2021 to now 15% of sales as of the last quarter and then I believe you guys mentioned earlier that you think you can grow those industrial revenues to be about 45% of the business.
Speaker Change: Bobby, the number I gave you was approximately 40% of industrial's share of revenue.
Bobby Brooks: Okay, so 40%. So just with that in mind...
Speaker Change: Profire's earnings deck has a whole page of logos for industrial customers.
Speaker Change: But it's a really, it's still a really small base for them, right? So I was hoping you could give us a sense of how big industrial projects usually are for ProFire and maybe how big do you think those could get going forward.
Speaker Change: We'll have to get back to you after we've spent some more time going through the differences in customer profile that they're experiencing.
Speaker Change: Thank you. Thank you.
Speaker Change: The industrial project, the industrial customer is different from their traditional customer and so they've done some product adaptation and the service model is different as well. So we're gonna get our arms around that more fully and that it's an answer that will evolve over the next 90 days.
Speaker Change: Okay, but then maybe going to the, how you guys get, how it, how you grow it to 40% of industrial sales being 40% of
Speaker Change: Revenues could I know obviously you've talked about just bringing their
Speaker Change: bringing their solutions to new geographic areas as well as just being the bridge to introduce them to new customers.
Speaker Change: Could you just maybe give us any more detail on that, or maybe any specific types of customers you think that come to mind that would be clear beneficiaries of you connecting them to Profire?
Speaker Change: we haven't closed on the on the transaction and as we've said it's an early 25 we expect it to be an early 25 you know closure so it would be a little premature for us to start to articulate you know that type of activity because you know frankly it hasn't happened yet and nor should it they're still operating as a standalone public company we're operating as a standalone public company I can tell you that we have a pretty good view of a tremendous amount of industrial applications and relationships and we have products that are going to benefit down the road from working together and bringing solutions to market but until the deal closes we're not really working
Speaker Change: working on customer lists, and we're certainly, you know, we're not there, and nor should we be.
Speaker Change: www.mustwatch.eu
Speaker Change: Yeah, I can appreciate that. I guess I was just asking just off the top of the head, like, oh, the aluminum can business could use these solutions. But I can appreciate that answer. I guess the next question would be.
Speaker Change: You mentioned 100 million of orders this month. Could you maybe sparse out, is that mostly attributable to the one large energy project? Or has it been a couple of different projects? Just kind of curious of the makeup of that.
Speaker Change: It's, I'd say it's two-thirds diversified across a variety of our markets, brands, and platforms, and one-third associated with a large energy transition project to date, in the month. So you look, it's a...
Speaker Change: It's a meaningful project that we booked.
Speaker Change: in October, but you know for already over a hundred million dollars, I'd say that that's you know
Speaker Change: a little more than a third but let's go with about a third of our orders in the quarter today.
Speaker Change: Okay, I understand. And just the last question for me...
Speaker Change: on the WK acquisition. Obviously, it seems that this is kind of to build out your international presence, but I was just kind of curious on what are some example products or applications that WK will now give to your organization? Or is it really more just of a focus of getting entry into new markets?
Speaker Change: I would point you to page 17 where we highlight the core applications of the business. The one area that they excel in is using gas at high temperature to incinerate waste and then capture the incineration byproducts before they're exhausted.
Speaker Change: Right and if you can imagine that there's a control system that we company that we are looking to acquire that manages and combust gas
Speaker Change: they might have something to do with one another.
Speaker Change: They have a very, they also have a very strong position in some areas.
Speaker Change: R&D and new products that we would be acknowledged that we're behind on. And so as we work together, which is a newly acquired business now, we're only a few weeks in, but our teams are already engaged very aggressively on getting to know each other, their product capabilities and their, you know, their variety of, you know, their industrial air portfolio very much fits ours, but it brings some new efficiencies, some new technologies, and frankly, some innovation that we were behind on. And we look forward to capitalizing from their already completed investments.
Speaker Change: Okay, I really appreciate the color guys. Thank you and I'll return to the queue.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Samir Joshi with HC Wainwright.
Samir Joshi: Hey, good morning, Todd, Peter. Thanks for taking my questions.
Samir Joshi: In your 2025 guidance for EBITDA, it seems that even the organic incremental revenue year-over-year is expected to garner 20% EBITDA margins.
Samir Joshi: Should we expect that level of EBITDA margins from your historical revenues as well going forward?
Speaker Change: You know what we did, yeah.
Speaker Change: Yeah, yeah.
Speaker Change: Yeah, thanks. It's a good question, again, because of how we present it on the slide.
Speaker Change: And look, there's at least two ways to do a guidance EBIDTA walk, considering that's what we're showing you. One way is the way we didn't do it, but we could have, where we break out...
Speaker Change: The categories in a different way, including things like price, mix, productivity, you know, so there's a there's an approach where you try to provide as much visibility to maybe how those impact our margins going from, you know, 10% to 15%. If I'm just using that as an example, how do you get that margin expansion sort of by component?
Speaker Change: The other way is to, in a sense, sort of bundle it like we did and say, look, productivity
Speaker Change: Price and Mix.
Speaker Change: and the benefits of certain, you know, other, whether it's synergies or execution, is just embedded in the sales, in the sales growth. And so what we did was when we created the revenue walk to walk through projects that were delayed that could push over into 25.
Speaker Change: as well as the high single-digit organic growth outside of that, as well as the M&A that we've already announced or completed, we said each of those...
Speaker Change: with the components embedded in them for productivity, to synergies, to efficiencies, will deliver, we believe, at or above 20% EBITDA margins.
Speaker Change: and the core.
Speaker Change: which was our guidance for 2024 is our core, is at the margins it's at. So the way we're walking 24 to 25 from an EBITDA margin is...
Speaker Change: You know, we're just leaving that core the same and then every component from there walks up 20 percent, 20 percent, 20 percent to provide you with our implied EBITDA margin outlook for 2025. Now, you know, the future is a potential opportunity for us to improve upon that. Not only will the core gets better, the 24 core that moves into 25 with mix and productivity, but you know, we'll see how the execution goes throughout the year and of course there could be some challenges, inflation, things we don't know that are going to come our way. So we're just trying to account for all that in a fairly simple EBITDA walk.
Speaker Change: Understood. Thanks. Thanks for that color.
Speaker Change: Stepping back, you have a programmatic acquisition strategy and you're executing very well on it. Given that this is like one of the biggest acquisitions during your tenure, should we expect a pause going forward? And if not, do you have enough cash or sources of capital to finance future acquisitions?
Speaker Change: Thank you.
Speaker Change: Yes, Samir, with the new credit facility in place.
Speaker Change: We have more than adequate resources to continue. As well, the businesses we have acquired are nicely, and generate cash flow very nicely, which will continue to help us finance growth. The credit facility itself has some additional levers to help us expand if necessary, so we feel fully covered.
Speaker Change: Todd briefly mentioned the presidential elections, but if you have a crystal ball, how do you see either scenarios work out for your business?
Speaker Change: You know, sorry Good luck predicting this election obviously but we see We see a huge exhale first of all either way with respect to just knowing so there's a big moment that regardless of what you know any Individual or organization would like to happen the knowledge of what has happened move things fall on right? Most
Speaker Change: We believe that there will be a stabilization of concern just moving forward.
Speaker Change: and there are.
Speaker Change: I suppose I could articulate there are some pluses as well as some minuses to either 4, 25, 26, 27, because it's about the future, right? So, that's balanced, is what I would say. We wouldn't, you know, we look forward to this.
Speaker Change: being in the rearview mirror and all of us understanding what, as a result, what is likely going to happen with things that are related to the, you know, either, you know, either, either side with respect to the policies.
Speaker Change: Thanks a lot for that and congrats on all the progress.
Speaker Change: Yep.
Speaker Change: This concludes our question and answer session. I'd like to turn the conference back over to Todd Gleason for any closing remarks.
Todd Gleason: Great, thank you.
Todd Gleason: To all the participants, thanks for your interest, and of course, thanks for the questions today. We know we went through a lot of material.
Todd Gleason: Again, thanks to our global teams that are delivering incredible value to our customers, we continue to protect the people.
Todd Gleason: protect the environment and protect our customers' investment in their industrial equipment and the acquisitions we've made year-to-date and we have announced for the upcoming future all aligned with that exact theme.
Todd Gleason: We will be presenting at the Baird's...
Todd Gleason: Bayard Industrials Conference on November 12th in Chicago, as well as the Southwest Ideas Investor Conference in Dallas on November 21st. So for investors that are participating in those conferences, we hope to see you. If you do want to meet or reach out, please connect with with our team or the conference representatives. And lastly, we look forward to speaking with you when we release our fourth quarter results.
Todd Gleason: in late February of next year. And with that, we'll go ahead and sign off. Thank you, have a great day.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.