Q2 2019 Earnings Call
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I would now like to turn the conference over to Matt Echo CFO . Please go ahead.
Thank you for joining us on the CECO Environmental second quarter 2019 conference call on the call today is Dennis Sadlowski, Chief Executive Officer, and myself, not Eckel Chief Financial Officer before we begin I'd like to note that we provided a presentation to help guide her discussion.
The call will be webcast, along with our earnings presentation on our website at sea go and borrow dot com.
The presentation material can be accessed through the Investor Relations section of the website.
I'd also like to caution investors regarding forward looking statement.
Any statements made in today's presentation that are not based on historical facts are forward looking statements.
Such statements are based on certain estimates and expectations are subject to a number of risks and uncertainties.
Actual future results may vary materially from those expressed or implied by the forward looking statement.
We encourage you to read there were described in our SEC filing on Form 10-K for the year ended December 31 2018.
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 reconciled the comparable GAAP and non-GAAP numbers in today's press release and was a supplemental table in the back of the slide deck.
And with that I talked about.
Good morning.
Thanks for joining us and I hope everybody, it's enjoying their summer months.
I certainly appreciate your participation in today's call.
But the first half of 2019 behind Us I can confidently say that CECO remains on track to meet our 2021 financial targets that deliver top tier shareholder returns.
We continue to keep the bar of expectation high and our execution during the past quarter produced solid results in terms of new orders.
We did however experience to cross winds during the second quarter in the form of customer delays in breaking ground and progressing on projects.
Which dampened the quarter's revenue below our expectations.
I say dampened because our backlog continues to build at a healthy rate, which should translate into increased revenue and profitability over the second half of the year.
Our backlog is based on customer wins.
And I'll mention a few of those today to highlight ficos value proposition and market Differentiators that are helping us to lead in the emerging low carbon economy.
The end markets, we compete in remain large healthy and growing.
And as I'll discuss well well positioned to win share and create value.
I'll now begin to see it goes performance.
Customer wins for the second quarter as well as our near term markets outlook.
And then I'll hand, it over to Matt for the financial details.
After much detailed report and before taking your questions I'll highlight why we're bullish that FICO is on track and well positioned to deliver a 2021 financial targets that should produce top tier shareholder returns.
I'll start with slide three like summarizing our fourth grade three operating strategy.
We watch it strategy in late 2017, with a clear and compelling value proposition to enable the growth of our industrial customers with clean safe and more efficient solutions that protect our shared environment.
I won't go into details of the for the three and that read this morning, but I will remind you that we've used this strategy is a blueprint for execution.
With a greater outside in orientation reduce complexity investment in infrastructure and innovation as well as the strength and leadership team, we're very focused on and very competitive in the large end market for air quality improvement and fluid handling solutions.
Certainly the strength of our organic growth and solid margins are proof points that weve transformed how we operate and are winning share in creating value.
The entire CECO team is proud of our growing reputation with our customers and even competitors I said go to resource for sustainable solutions.
I believe we are well positioned to seize opportunities and the growing in markets that we operate in.
And as I've already mentioned to stay on track to deliver our 2021 targets for top tier shareholder returns.
Moving on to slide four.
I'll cover our second quarter results.
Exceptional execution across most of the business led the way to another strong quarter of organic orders at 103 million, which is an increase of almost 6% sequentially and 4% year over year.
The increase in orders go up our backlog up an additional 18 million during the second quarter to almost 209 million with a strong book to bill ratio of 1.3.
Certainly it's reasonable to expect that the backlog will translate to increased revenue during the second half of 2019.
Our revenue for the second quarter, and 81 million was a bit more challenged.
And while up 2% year over year, it was down 6% sequentially.
It's more frustrating and disappointing to us because revenue would have met our second quarter expectations, but promotable delays in projects getting kicked off and moving because a customer driven design changes or rescheduling associated with other customer side coordination.
This type of a crosswind does come with the territory.
Especially on new plant production related demand and the nature of our P.L.C. revenue recognition.
We recognize revenue primarily on a cost the cost basis, which means that if a customer asked us to slow down and we slowed down our supply chain to accommodate.
Cost of production and revenue are delayed correspondingly.
We always experience some crosswind and then Q2, they were a bit stronger and occurred later in the quarter.
Which slowed our revenue recognition evil on new orders were growing.
We maintained gross margins at a healthy 33% as an indication of both the value of our offering as well as solid execution of our people.
Sequentially, G.M. was flat and down a half point from a year ago.
The healthy result was underpinned and a good mix of aftermarket an original equipment billings.
Our adjusted EBITDA was a disappointing sixmillion.
Driven largely by the revenue coming in short of expectations as I previously mentioned and by investments in a combination of growth initiatives in sales marketing and innovation.
As I've mentioned on past calls, we very much needed to make investments to improve our commercial reach AD sales closures and reinvigorate innovation around new product solutions.
Hi, its customer projects slowed in Q2 revenue development dampened, which in turn pull down EBITDA.
Finally, as we anticipate our last call our free cash flow rebounded coming in at positive 1.7 million.
This is a step in the right direction and Matt will speak to our efforts in the coming second half of the year to improve our cash flow from the modest level delivered in the second quarter.
I'll also highlight here that we completed a few moves to support our longer term growth aspirations, including successfully closing on a new credit facility.
That will cover this in his update as well and I'll only add that we are very pleased with our new banking facility and the growth capital that it provides.
Overall, our second quarter execution.
Organic orders and backlog demonstrate ficos underlying strength and the capability to compete and are growing in markets.
We intend to work, even harder to aggressively exploit our position and seize opportunities across all of our end markets.
Slide five is next and it serves to remind everyone ficos focused mission and broad portfolio of product applications to serve the growing low carbon economy.
In a nutshell, we're building a leading position in the industry air quality in fluid handling Pico is providing solutions for a cleaner safer world with a broad portfolio of application specific products solutions that range from reduced emissions of chemicals in particular, two productive fluid handling and process water treatment designs.
Ultimately our biggest target its clean air.
And we are in the enviable position at the intersection of clean Air technologies, and energy efficiency with massive potential going forward.
Going forward, the company's winning share in creating value will be the ones that are able to provide not just solutions, but sustainable solutions.
Well sure. She goes one of those companies.
Which leads me to slide six and the free market wins that specifically cover customer solutions for reducing emissions processing water and increasing productivity with cleaner air.
These three second quarter customer win serve as a proxy for dozens of others that demonstrate the role we play in sustainability and the low carbon economy.
Moreover, they demonstrate our competitive edge through superior products innovative solution and a team of talented professionals.
The first one I want to call out it's relatively small one but post big challenges and offered significant environmental benefits.
The customer is a large, california based bakery, producing bread and four major retail and foodservice change throughout the United States.
Baking bread would seem pretty innocuous in terms of harmful emissions did environment.
But the reality is on the industrial scale, a bakery can emit significant quantities of volatile organic compounds, where we'll see.
And in this case, they amounted to more than half a million pounds per year.
Now back in 2017, the bakery had purchased the FICO addwest regenerative thermal oxidizer or RTL, but due to a variety of operational tradeoff had delayed putting it into service.
Under increasing pressure from the local air quality management district to reduce the L.C. emissions the company needed a ductwork system design fabrication and installation and it needed it fast.
The work had to be onsite and working within two months and CECO team members from our Kb duct and Fox brands had to do the installation during a tight six hour period on a Friday when the bakery was scheduled for jet down.
He goes ability to meet the demanding schedule and capability to take on a small job proved to be the competitive advantage.
This win also represents how our customer connectedness and supportive services, an aftermarket pays dividends for CECO and its customers.
The second win that's where manufacturing company in Wyoming that produces carbon fiber material is increasingly attractive end uses.
Our customer needed to replace its archeo, which is a critical system for preventing the plants release of thousands of tons of vlccs into the atmosphere every year.
The aim was to eliminate annual downtime for cleaning the archeo, which can be costly and poses safety risks to workers with a design that fit the existing footprint.
He added kick or was it you had to be delivered installed in a narrow window to beat the harsh Wyoming winter.
Our reputation as the go to resource directly led to this win like CECO teams from the Addwest incurred for Bloom Brian .
After trialing some work from a competitor customer became disenchanted over extended downtime and safety risks associated with the competitors execution.
The customer then turn back the CECO team because of our technology capability and reliability to meet a challenging deadline or being price competitive.
The win definitely hit the Bulls eye in terms of the CECO, providing solutions for a cleaner and safer world.
Our third highlight when it's being delivered in China, where our CECO China team was retained by a large energy facility that converged dirty coal to methanol.
The converted methanol burns without harmful emissions, such as nitrous oxides, and sulfur dioxide and has climate change emissions that are considerably less than coal.
Obviously, the Chinese like it as a way to make their abundant coal supply cleaner.
Our winglets, specifically for peerless separate or technology with superior vein design that recover methanol from the process at very high efficiency.
On this side alone the separators enable the customer to recover more than 2000 tons more of methanol per year.
Which in turn generates a savings of more than a million dollars annually.
The China win demonstrates exactly with FICO offered every customer.
Increasing operating efficiency and cost savings with reduced emissions to the environment.
China has been a good market for CECO.
And we're following nearly a dozen additional methanol production facilities being planned for construction over the next three years.
When they move forward, we'll be ready to explain CECO strong technology leadership.
Finally, and before moving on.
I want to mention an important you to win that we announced in a recent media release.
The order is for equipment to create seepage water at a major crude oil storage facility in the middle East.
In short CECO will manage the engineering design and delivery of the treatment system to separate slides from oil production water by removing contaminants such as oil salads and harmful chemicals. So that can safely be injected backward originally came from or discharge do a surface water body.
I want to thank David Barker and pioneer to Darren movie for their commercial and technical leadership in closing this one for CECO environmental again strong competitors.
Beyond the terrific and determine work of the CECO team. This win was only achievable because of our experience in similar applications ability to integrate critical technologies into customer specific solutions and reputation for end to end execution.
Next let's turn to slide seven which covers our end market outlook.
I'll give you the bottom line up front.
Our end markets are large diversified and currently generally healthy and growing.
I want to reemphasize that CECO is a key and growing contributor to low carbon economy that at Compass is our served end markets.
And we'll help like three undeniable trends that are driving our end markets.
One customers need clean safe and cost effective solutions.
Two natural gas is growing as a complimentary enabler of intermittent renewables and three industrial expansion is expected to have sustainable clean air solutions.
I want to begin this morning in the lower right of the Pie chart with fluid handling and then it's in the past move counterclockwise.
I chose to start with industrial fluid handling because this promising sector had a disappointing quarter after having been solid for the past two years.
On the one hand, we remain optimistic the fluid handling end markets will continue to grow and we remain well positioned with our targeted niche offering in the segment.
On the other hand.
We are disappointed in the orders in Q2.
We are making the necessary investments to recommit ourselves to serving customers and remove production constraints. So that this segment can once again be a driver of growth in cash flow for CECO.
Moving counterclockwise industrial solutions is next.
This segment serves the air quality improvement needs across a range of production environment.
We had a breakout first quarter with orders returning to their historical range during Q2.
We like what we're seeing and hearing in this market.
And our project pipeline remains very positive.
Outside the U.S., our new sales adds are seeing solid demand for air quality improvement products and expect to build on a small base.
This sector tends to be a bit lumpy even in a growth period. So trajectory of orders is not always a straight line.
But I still feel good about the outlook.
Next.
At the top of the pie.
The refinery segment outlook continues active and steady and our team continues to maintain the market leading position for FCC cycles.
Moving on.
Our team in the midstream oil and gas market segment had a strong second quarter.
The previously mentioned seepage water treatment. When is included in the bookings Comparables and contributed to the strong Q2 orders.
The midstream oil and gas market offers us good prospects in the areas of gas pipeline LNG processed water and gas separation.
Continuing along to our largest market segment gas power Gen Green shoots continue to push through the surface, albeit at a bit more slowly than what we would prefer.
Coming from a low point the market trend is positive and I'm sure. We'll show success as its new orders are committed.
And finally at the bottom of the Pie chart. Our team continues to focus on successfully supporting the installed base of the coal power Gen market, but damper upgrade.
Even at six Gigawatts or planned to be retired this year in the U.S. alone.
Our exposure to this market is less than 4%.
So in sum.
Our served end markets are large and generally healthy.
We're working very hard to achieve our target of two times the market for growth and I remain confident that we have the team in place to deliver.
And with that I'll turn things over to Matt that take it away.
Thanks, Dennis let's get right to slide nine which breaks down orders and revenue starting with orders for the second quarter, we return to triple digits in topped off at a 103 million on the strength of our energy solutions segment.
Energy orders were up 30% sequentially and 9% year over year, driven by an exceptional quarter in our midstream business.
I've highlighted by data the water secrets treatment when showcases our technical prowess and grows our brand recognition throughout the middle East.
We expect this project to be executed throughout 2020 and 2021.
Industrial order the $20 million were back in their historical range of 18 to 22 million after breakout Q1 and down about 6% year over year as a result of customer delays in awarding project Peos, which is common in the sector. Notwithstanding the current quarter. This segment remains very positive as year to date orders are up 18% and the pipeline remains robust.
Fluid handling segment orders fell below our expectations with a decline of 6% year over year and off slightly from the last quarter by approximately 3%.
The biggest Paul first different cyclical softness in the auto manufacturing and aquaculture market, which impacts our men and Fiberock brands.
Oncotype, however that looking out in time to flow control market, serving our industrial petrochemical and oil and gas segment look healthy and we remain highly competitive.
A second culprit is the ongoing upgrades at our Indianapolis, which are temporarily limited our capacity, we're working expeditiously to remove bottlenecks from the new equipment and Prokofiev to Reengage our customers.
As Dennis mentioned, our revenue moderated in Q2, and then ended up unexpectedly down sequentially at 81.2 million and essentially flat year over year.
Frustrating as it is in the near term. These project delays are inherent in our energy business due to customer design changes or site commissioning delays.
I fear occurred this quarter.
These projects, however will convert to revenue over the next few quarters long term our backlog is robust and markets are healthy, giving me confidence in a revenue ramp up.
Turning to slide 10, our robust and healthy backlog also points to favorable revenue going forward.
In the second quarter, we had an $18 million to organic backlog, which was up 9% year over year.
I'm also really pleased to mention that our book to Bill was quite strong at 1.26 in the quarter and had 1.1 on a TTM basis.
Our strong commercial execution triple digit orders and robust backlogs are all reasons, we remain convinced that we're on track to meet our 2021 financial targets that deliver top tier shareholder returns.
I'll note here that we did have one sizable project cancellation on the core that unfortunately removed $7 million from our backlog.
The order was taken in early 2017, and our power Gen business, where the U.S. utility.
Unfortunately, the customer's project did not repeat funding and then subsequently canceled in Q2.
On a positive note we were fully paid for engineering work and remain in close partnership with the customer as they evaluate the future options.
I'll note that we took on no working capital for this project.
As the power Gen market begins to recover from its record slump FICO tried to turn situations like that is there an opportunity by being a thought leader and consulting to our customers, which puts us in a better position to win share and create value.
We remain confident in the future prospects of the Nat gas power Gen market as projects continue to ripen.
This brings me to slide 11.
With a lower second quarter revenue clearly puts pressure on our profitability metrics. Our gross margins remained flat sequentially at a healthy 33% on strong project execution, and a balanced mix of OE and aftermarket.
Whereas our non-GAAP operating income and adjusted EBITDA were both down sequentially and year on year, primarily on volume, but also on planned investments in SGN today that propel us toward our 2021 financial targets.
Investments there are three main areas marketing product innovation and sales and are already paying dividends it could be exemplified in our orders growth.
A few examples of our marketing investments are the increased brand awareness and digital content that can be evidenced in our FICO website targeted marketing campaigns are significantly improved search engine results and increased media.
We have a great deal of activity in product innovation, we've added fresh legs to our product development teams, including a chief Technology Officer director of product development for industrial solution.
Our VP of engineering for fluid handling and bolstered our China, and Dubai, India designing engineering House.
We've generated hundreds of new ideas to serve our customers better and over a dozen of those ideas, we've committed R&D dollars to explore and develop.
In sales, we got in market based sales managers added territory sales managers across the U.S. Heartland, where a preponderance of our volume comes from and relocate two of our all star sales leaders, the China, India helped grow those platforms for CECO.
This reinvestment as part of our 433 operating strategy. So we can keep pace with our competition and even get ahead of market trying to customers' needs.
Turning to slide 12, our detailed financials reflect the dampened the revenue from the second quarter Ive already touched on most of these metrics well, there's a few areas I'd like to add some color.
First GAAP operating income was down 23% or 600 K. from the second quarter of 2018 through a combination of project mix higher investment spend and restructuring costs from China.
Second GAAP diluted earnings per share was 15 cents and more than doubled from year ago. The primary driver for the increase was due to a $4.4 million favorable tax benefit associated with the 2018 divestiture of John way.
I want to commend our tax director, Mike Murphy for his exceptional work applying a gritty tax treatment to an already complex divestiture the yield exceptional result.
That's over $4 million, the cash and secrets pocket next year after we file a return.
Slide 13 shows that as we anticipated our cash flow rebounded in the second quarter, but still not to the best of our abilities. While positive source of 1.7 million in cash while the results are modest and we know we have more dealing with area.
On the left our trade working capital shows a $4 million sequential improvement over the last quarter, while we remedied our air in the quarter our project whatever.
On the right, we generated 1.7 million of free cash flow in the quarter more specifically cash flow from operations was up $2.5 million, but offset by capex spending our cost facility and on ERP projects totaling eight hurricanes in the quarter.
At a 28% conversion rate in Q2 and negative 7% on a TTM basis, we were making a big push in project billing that were in the second half of this year to achieve our capital expectations.
Next up is slide 14, which highlight the work we've done to substantially reduce our debt and superior acquisition and the strengthening of our balance sheet.
I'm pleased to announce that as of June 11, we closed on our new credit agreement that Rebalances, our terminal revolver debt to provide greater flexibility for the future.
I thought I'd share a few highlights under the new agreement.
The new facility provides for $190 million of available credit at attractive terms for CECO, specifically the agreement reduces our interest margin by 50 Bips extends our turn to 2024 increases our revolver capacity, removing many restrictive covenants and provide for several flexible features for future M&A.
In addition, the Philly as new global banking partners, HSBC, and VML and reduces the red tape in responding to our customers' complex international bonding requirement the new deal exemplifies our 433 operating strategy because it increases the speed at which we can serve customer and simplify Ficos Treasury management.
I personally want to thank our syndicate lending partners and specifically our lead agent Bank of America for their support and collaboration throughout the process to get this deal done.
Wrapping up my comments today, I'll turn to slide 15, which addresses our 2021 financial targets.
I bet. It open we remain committed and on track to achieve the target model sluggish second quarter revenue puts pressure on Q2, our execution backlog investment keep us on track to exceed our 21 on financial targets that deliver top tier shareholder returns.
Starting in the upper left hand quadrant.
Our goal is to organically outgrow our markets to actually over time.
Driven by our outside and leadership, we continue to decisively outgrow our market than orders TTM revenue was also outperforming and above the targeted greenbaum. Despite the dampened Q2 result.
This metric demonstrates that our investments are taking shape that we're taking market share and aggressively implementing our 433 operating strategy.
Moving to the right. Our EBITDA rate is largely driven by revenue and operating leverage achieved on growth with revenue down sequentially, our EBITDA, 7%, but our GTM remains at 9.4% and up two point versus the prior period.
With our solid backlog and healthy market I remain convinced in our ability to achieve our 2021 targets.
Next is return on tangible capital, which continued to be a testament to our asset light operating model, we improved sequentially and are up 20 points year over year to healthy 44%.
The ongoing progress gives me real confident because arc names are staying laser focused on delivering cash earnings on a low asset base.
Finally on the lower left hand side, because our free cash flow conversion rate, which rebounded this past quarter, but a negative 7% TTM basis, we must do better.
While the second half push will be focused on project, where our long term challenges consistently executing on this key metric.
The key to achieving consistency for CECO as project management visibility from contract through completion.
Our simplification efforts are big part such consistency I'm pleased weve eliminated fix ERP and converged on many processing, but we have a ways to go towards the streamline scalable system that manages the process project lifecycle and terms negotiation the design to production through working capital administration.
To wrap up I'm really pleased with the organizations execution, the financial foundation that Weve built to achieve growth and excited about the markets. We serve we are on track to meet our 2021 target and to keep on growing.
With that I'll turn it back over to Dennis.
Thanks, Matt good well done.
Before opening up the call to your questions I want to turn to slide 16, and wrap up our remarks with some thoughts on our market position.
The execution of our fourth grade three operating strategy is well underway and its place CECO environmental in an ideal position to take advantage of growing end markets.
We continue to demonstrate accelerating market success and are becoming the go to resource for our customers as they entrust us on challenging service and mission critical projects.
Our competitive edge is derived at the intersection of superior product technology deep application understanding for end to end solutions and our talented team of responsive professionals.
This team loves to compete.
And win in the market.
Our end markets remain strong and our growing.
Looking to the rising.
They are more likely to experience a tailwind.
And please keep in mind the longer term catalyst of our market is that developing low carbon economy.
Which has created a social and regulatory imperative for customers to seek sustainable clean safe and efficient solutions.
Internally.
Guided by our 433 operating strategy, we continue to root out eliminate complexity.
We've become much more streamlined interconnected and efficient organization.
Legal entities ERP than bank accounts have been significantly reduced and the cash required for working capital has decreased.
In short.
For much more agile and capable of executing with speed and accuracy.
Externally, we have become much more outside in oriented market responsive and we recognize the challenge of doing that in a dynamic marketplace.
This means that we must target staying ahead of our customary requirements.
We're addressing that through our 433 operating strategy by making innovation a priority.
I'm pleased that the steady progress to that end as we see more focus on the connectedness of our products and solutions, we a digital technologies in the so called Internet of things.
We've also reduced and refinanced our debt with a new 190 million credit facility agreement that provides substantial financial capacity and flexibility to support our growth aspirations.
As you know we've placed the premium on organic growth and that's not changing.
And we are now much better prepared to seize high value opportunities that can compound our progress through targeted M&A.
I previously mentioned that we have a more stringent strategic process that aligns any such actions.
Acquisitions have to be a direct complement to our both our mission our value proposition and enhance the long term financial targets.
These are exciting times for CECO and that's why I'm confident that we remain right on track to achieve our 2021 target for top tier shareholder returns.
As Matt discussed the track to top tier returns involves aggressive metrics.
We know what must be done and our entire team is highly motivated to produce results.
We have our sights set on the 2021 targets not at the finish line, but as a milestone for continually improving the organization.
Now, let's open up the call to your questions.
Operator.
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[noise].
And our first question comes from Chris Van Horn of B. Riley FBR. Please go ahead.
Good morning, Thanks for taking my call.
Hey, Chris Good morning, Hey, Chris.
So on the 33% gross margins it looks like you know despite lower revenue you've been able to hold those up.
It sounds like Oh, we aftermarket mix was was part of the driver but also some of your operational controls is that a is that a good run rate to think about as we head through 2019 and into 2020 just given.
That you Havent able operationally withstand some of this revenue headwind.
It is 2018 was 33% Q1 was 33% Q2 was 33% and we try to stay in the range of 32% to 34%, we'd like to push that higher over time, but that is a good good range.
Okay got it and then if I think about the backlog.
You know do you see a generally as some higher margin work relative to historical averages.
We see a mixed bag. So obviously aftermarket has higher content.
Nick at Powergen does have its pricing pressure, but on the average that's why we say a range of 30% to 34%.
Okay got it and then just on the on the project delays.
It sounds like it's mainly due to timing, but I'm. Just curious is there any change in scope any change in dollar amounts and maybe any more specifics on what's driving those delays.
Yes, Thats a great question.
You know the delays no no major change in scope. It so those would often times.
Warrant a change order, which would benefit us of course.
As far as the latest go you know they are mostly timing really tied to thank commissioning delays.
If you have a large balance of plant.
As were a smaller piece of that which were pushed something out and when they flow production. We slow production and then on top of that it could also be engineering design changes some things that they need to work around that maybe have to do a geography or logistics.
And Chris if I can add.
The reality is just a handful of projects that contributed to the delay.
And we did have one or two of them with some design changes and the like that move both the timeline contractually, but also some things we've got change orders for in the process.
So that's kind of typical normally in some of the larger projects.
But in this case.
The fact is it also pushed the timelines out on the customers and.
Okay makes sense. Thanks for the time I'll jump back in the queue.
Thanks, Thanks, Chris.
Our next question comes from on that day, all of H.C. Wainwright. Please go ahead.
Good morning, guys. Thank you for taking my questions.
And with respect to the sequential drop in the energy solutions segment is this due to.
Exposure to one or two customers or.
It is generally.
Across the board for that segment.
Yes, Thanks, Sumit and thanks for joining us what here.
Referring to I'm sure is that the revenue.
Decline there and it was the energy segment, where a number of the customer delays contributed to revenue shortfall, even as backlog has been growing and building once again.
You know that that's one of the things I just mentioned to Chris' question as well. It is a small handful of projects you know in a couple of cases.
I think there are areas, where the industry is tight with people and so if that customer and or other.
Related products are falling off the pace it can delay our overall execution and revenue recognition.
But we're keeping up you know our customer metrics look to be improving on time and the like.
So.
Unfortunately, this gets moved to the backlog a little further out and extend that into the future.
Understood and then with respect to the backlog.
Can you provide some sense of the timeline.
Recognize these backlog as revenues.
Yes, so I would have thought it's about a handful of job totaling around $5 million to $6 million with what out of Q2, and those will be parsed out over the second half and 2020 and that's when we expect to recognize the revenue over the next three quarters.
And for you know the aggregate or are we have currently like to think about the business in the aggregate in short cycle. The fluid handling segment, which means bookings to revenue in a 30 day ish cycle or the industrial segment is a little more mid cycle.
So three to nine months on average, although again that can range from very quick to a little longer and in the energy segment, you know in the nine to 15 months.
The full revenue recognition.
As I think you're aware with our PEO see revenue recognition and in some cases, we can get revenue beginning immediately but it slows and out until the end of the project.
Yes that was what I was actually looking for thank you for that I appreciate it.
Exposure to China in relation to this backlog any other and any other metrics I mean, how are we positioned there.
With this recent headlines that are new to divest et cetera.
Is there some level of risk in meeting some of these metrics et cetera.
Well I think it's a good question because as you saw we chose to highlight one of our key wins today from China.
And China, it's been an important market for CECO. It weve been solidly entrenched for the last 15 years.
And you don't have the teams executed fairly well in the context of what's happening in the local market and as well and what's in the context of what's happening in kind of you as China trade relations.
Having said that most of our business in China.
Is you know made in China for China.
A lot of it engineered as well locally.
And what we do with support from our technical hubs in the key product areas and so we're somewhat.
Have a look of a Chinese company when were in China.
So we haven't seen much.
Impact from any of what's gone on to date.
Yesterday, you know noise and news around currency.
Also directly wouldn't have a huge exposure for us because.
Very constructive on China overall.
Appreciate that and Matt maybe for you.
Are there any other gap benefits expected.
Over the next few quarters.
Could you restate. The question when you say gap I didn't you know you got the tax benefit to their net income this quarter anything like that coming into play over the next few quarters.
No from a tax perspective, we've actually suggested for people to go ahead of modeling that 25% effective tax rate for the next few quarters nothing we think lined up for the full year on a normalized basis, we know that on a pretty regular basis, our tax rate can be somewhat lumpy because of the pre tax income side as well as outstanding items are those men divestitures acquisitions earn outs or in this case. This quarter. This post divestiture action that yielded a nice benefit so for modeling purposes, we always suggest people model and 25% right now.
Understood.
That's all I have thank you so much.
Thanks, Amanda Thank summit.
Hi, Karen if you have a question. Please press Star then one.
And our next question will come from Gerry Sweeney of Roth Capital. Please go ahead.
Hey, good morning tenant demand.
You make money, there, particularly dig in a little bit on the water side.
Obviously, they are increasing and they've been doing quite well, especially in this most recent quarter, but midstream was up about 20 million quarter over quarter and industrial was down but they certainly had a breakout quarter.
In Q1, how much visibility do you have into these orders are these pipelines are you.
Yeah.
It's just a little bit more one time or is this truly breakout should we see some more consistent growth I'm just trying to figure this out a little bit it's a little bit lumpy from.
End market end market over the last couple of quarters.
Yeah, well my my optimism you know in the outlook stems from directly from our sales pipeline.
That throughout the year, you know has been improving even despite uncertainty that's creeping into the market.
Alex not not kind of the same across all product segments, all all reporting segments, but we have seen a steadily improving pipeline throughout the year.
And those projects and tend to gestate, you know what their own rate.
And with that I, I mentioned, powergen, probably four or five months ago with green shoots that we're seeing in the market. We've seen then some awards go to the big OEM players the GE Siemens Mitsubishi and if those work their way through many of them have not been awarded in terms of the emissions control the noise management.
Solution set that we do have not yet been awarded and we think it's those work their way through the market there will be some good activity.
There is pressure developing a you know in the fluid handling segment, where our maffia product line is largely geared towards filtration four plating.
And a lot of the plating has been investment towards automotive in the automotive investment cycle is maybe coming down from the hill, but but other than that we still see a number of favorable conditions that we think we can execute into.
Got it and then I I know your longer term targets I think you're going to exit the market right but.
You know as you.
Make CECO more nimble get rid of some of the friction in the business.
How much of the growth that we're seeing today is may be market growth.
First the CECO being better position to capture more sales.
This figure growing with the market and then there's more upside from trading less friction or.
Just any thoughts on that front.
Hey, it's very difficult to measure the market in terms of a specific quarter, but but the indications that we have.
Our in many of our key segments.
That our hit rate and our execution of having people in the right place having added people into new territory.
India, China, Europe as well as in the key energy segment.
Is that we absolutely are improving our hit rate and improving the note the number of views that we get into the market.
And so while it's always a little bit lumpy as we've mentioned before on the project side of the business I do think that that.
Execution, it's one of the things that I think the team is getting right.
The value selling that team is doing is helping us maintain good margins across a broad mix of the portfolio and those are some of the things that we're using to invest in new product development is beginning to also take shape as well for the future.
So to summarize market growth, but your investments and.
On.
Sales and marketing et cetera are starting to see improved across the board.
Yeah, and I think that that's the case you know the market is.
Still growing but modestly is as you look at our outlook chart.
All of that refers to what we think we see in the context of our outlook.
How our sales pipeline is developing and modest improvement in growth in arm with that.
No we are still executing into that trying to outgrow the market.
Great. Thank you very much I appreciate it.
Yeah. Thanks, Gary.
This concludes our question and answer session I would like to turn the conference back over to Dennis Sadlowski for any closing remarks.
Okay, well. Thank you all again for joining us despite gap in revenue in the quarter I think the team is executing to keep us on track to a strong future I look forward to our next update in about 90 days or so so good day all.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.