This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Good morning and welcome to the Seco Environmental Corporation first quarter 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Stephen Hoosier, Investor Relations. Please go ahead.
spk01: Thank you for joining us on the SECO Environmental First Quarter 2022 Earnings Call. On the call with me today is Todd Gleason, Chief Executive Officer, and Matt Echol, Chief Financial Officer. Before we begin, I'd like to note that we have provided a slide presentation to help guide our discussions. The call will be webcast along with that slide presentation, which is on our website at secoenviro.com. Presentation materials can be accessed through the investor relations section of the website. I'd also like to caution investors regarding forward-looking statements. Any statements made in today's presentation that are not based on historical facts are forward-looking statements. Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties. Actual future results may differ materially from those expressed or implied by the forward-looking statements. We encourage you to read the risks described in our SEC filings, including on Form 10-K for the year ended December 31st, 2021. 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, as well as the 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?
spk09: Thanks, Stephen, and good day, everyone. We're going to start with slide number three of the presentation that Stephen mentioned to follow along with our prepared remarks. We look forward to discussing our first quarter 2022 results in detail, as well as reviewing our full year outlook, which was highlighted for the first time in our earnings release. We will also discuss this morning's announced $20 million share repurchase program and our recent acquisition of Compass Water Solutions, which we closed last week. We issued separate press releases regarding both of these earlier today, and we encourage you to read those releases as they do provide additional information. Let's talk about the first quarter. We are off to a great start in 2022, headlined by a few records. Let's start with our fantastic orders growth, which came in at $161 million, up 75% when compared to the first quarter of 2021. And don't forget, the first quarter of 2021 was up over 20% when compared to the first quarter of 2020. And that quarter in 2020 was only modestly impacted by COVID, so it wasn't a weak quarter. Now, back to the Q1 2022 record orders of $161 million. That level is over $40 million higher than our previous record quarterly bookings. Additionally, our orders growth came in broadly across our portfolio. Matt will cover our backlog levels in detail, but the highlight is that Q1 orders created the largest backlog in company history as well. We are well positioned for future revenue growth as a result. Speaking of revenues, first quarter 2022 revenues were $92 million, up 29% year over year. We have been signaling that our revenue would start to grow in 2022, given we had strong double-digit orders growth throughout each quarter of 2021. We are pleased to deliver such strong organic growth as we kick off 2022 and are confident in our ability to drive this momentum throughout the year and beyond. Gross margins were just under 30%. We have seen new project orders coming in at higher margins than what we produced in the first quarter, so this will help us steadily improve gross margins. Of course, many companies have experienced declines in gross margins given the challenges in global supply chains, logistics, and inflation. We have strategically focused on this and are getting price across the board, especially in our shorter cycle businesses. So again, gross margins throughout our backlog, including recent orders, are at or above current gross margin levels. We will continue to focus on protecting margins by strategically focusing on driving price, performance, productivity, and growth. Now, regarding EBITDA, we are very pleased we produced $9.5 million in the first quarter of 2022. EBITDA was up over 50% versus the same period a year ago. So, a great, great start to 2022. Orders, backlog, revenue, EBITDA, all very strong. As I mentioned earlier and you saw in our earnings release, we will be providing details on our full year 2022 outlook. Historically, we have provided certain frameworks for how investors can think about our yearly performance, but starting this quarter and moving forward, we felt it was important to provide a full year guidance range. The last section on this slide highlights capital allocations. which notes the actions we are taking to deploy capital across accretive M&A transactions and our just announced share repurchase program. Let's talk about each, so please turn to slide number four. Today we announced a $20 million share repurchase program. The authorization goes into effect immediately and is good for three years or until we complete the approved $20 million level. This is the largest share repurchase authorization in SECO's history, and it builds on the $5 million stock buyback we did last year. It reflects the board's confidence that we will continue to execute on organic growth, drive higher levels of profitability, and deliver outstanding free cash flow. We hope investors appreciate that we see the same opportunity in our current share price and that this multi-year authorization gives management the opportunity to remain proactive in this area. Now on the right side of the slide, we highlight the acquisition of Compass Water Solutions. We identified Compass Water Solutions a number of months ago and began to evaluate their niche leadership position in the industrial water treatment market, which we believe is a mid to high single digit growth market. The business fits very well within our growing industrial water portfolio, and we are pleased that we closed the transaction last week. Compass produced $11 million in sales and double-digit EBITDA margins in 2021. And we believe we can accelerate growth by utilizing SECO's existing global footprint and adding our strategic resources. Compass expands our addressable water market by almost a quarter of a billion dollars and adds our third industrial water business to SECO in less than a year. We are pleased to welcome the great Compass employees and leadership team to SECO. 2022 represents a year in which we will pick up the pace a bit with respect to strategic acquisitions. As I mentioned, we've already closed multiple transactions. While Seco has a long history of making acquisitions, we only made a few transactions over the past few years as we wanted to navigate the challenges associated with COVID. The acquisition of EIS in 2020 has been a home run with significant sales growth and the maximization of their earn out associated with driving higher income. We aim to deliver exceptional returns on our acquisitions and believe we have a nice playbook to drive operational excellence. We have also maintained very consistent debt levels and balance sheet health over the past few years, despite the acquisitions of EIS, GRC, as well as share repurchases last year. And we intend to maintain appropriate debt levels. I will now hand it over to Matt and he will walk you through more detail on our first quarter 2022 results.
spk04: Matt?
spk09: Thanks, Todd.
spk08: Let's dive into slide number six in our Q1 performance. Todd suggested orders were up over 75% year-over-year as well as sequentially. This was a balanced effort across SECO as customers continued to invest in sustainability and place their trust in our air quality and water treatment solutions. Sales came in slightly better than expected at $92 million, which was up nearly 30% year-over-year, and flat sequentially as the teams executed for customers in the month of March and saw an unfreezing of our backlog. Gross margins remain compressed versus historical averages as we continue to navigate supply chain challenges, inflation, and continue to execute on long-cycle projects booked during the peak of COVID. We continue to execute price discipline in markets where elasticity exists. In our short-cycle businesses, we are seeing price increases stick with customers. There are margins improving as we look ahead. More to come here. Reported operating income and EBITDA metrics each improved 50-plus percent year-over-year on improved volume, lower project margins, and lower operating expenses, aided by a one-time insurance settlement of $2.5 million. Including this benefit, EBITDA was up 12% year-over-year in the quarter. Adjusted EPS was a clean story at $0.14. up $0.05 year over year, predominantly on operations with no FX impact. To summarize, this is a very good quarter for Seco. Now let's move to slide number seven. Coming out of the gates, Q1 was a fantastic start to 2022. Market demand was strong across all end markets. Platforms that serve air quality, such as emissions management, thermal acoustics, and industrial air, were exceptionally strong as customers came to us for their sustainability needs. Each of these platforms saw 100-plus percent growth year-over-year. A few double-digit headline orders demonstrate our leadership in air, water, and energy transition. First was a peerless emission control system for a 500-megawatt utility provider that is converting from coal to clean-burning natural gas and solar power. Second, EIS booked a large multi-unit RTO for a leading can manufacturer that is expanding coating lines and wants to protect their employees and the environment from toxic VOCs. Put EIS into context, we acquired it in June of 2020 with a backlog of $8 million. Today, the backlog is nearly 3x in size. We've exceeded our first two years investment case considerably and believe the sustainable beverage can manufacturing market shows no signs of slowing down. Todd highlighted, while we haven't integrated many acquisitions in a few years, this is a nice proof point of SECO driving value via M&A. Other platforms such as separation and filtration saw 50 plus percent growth on water treatment orders, and our shorter cycle platforms like fluid handling, duct fab, and expansion joints also enjoyed high single-digit growth year-over-year on infrastructure spend. In total, 161 million of orders marked an all-time high for Seco by a margin of greater than 40 million. Regarding revenue, our backlog continues to turn, and nearly all platforms grew, with the exception of separation and filtration that just started to grow their backlog in Q1. No single platform stood out in the quarter as all grew relatively proportionate to their size. Our short cycle sales continue to grow, with $22 million in the quarter, up 24% year-over-year. With the acquisitions of GRC and Compass, short cycle sales will top out at nearly $100 million, or approximately 30% of total SECO sales. We continue to make progress on our transformational journey. Please turn to slide number eight in our backlog. $283 million, this is a record for SECO, with the previous water market $228 million in Q1 of 2016. Most impressive is that 60% is weighted towards broad industrial markets, as opposed to 70% weighted towards power generation in 2016. This demonstrates the healthy diversification we've taken at SECO over the last few years. Slide 9, gross margins remain pressured down nearly 2 points sequentially and 5 points year-over-year. We feel very good about our project execution, but still see supply chain challenges in material receipts, subcontractor logistics, and on-site commissioning. We keep a close watch on executed project margins versus as-sold margins, and since Q3 of last year have seen noticeable improvement in our performance. It continues to weigh most on our gross margins is the inflationary cost of materials and executing on a backlog that was priced in prior years. Today, we see our backlog margins improving and expect them to trend up in the second half. Nearly all platforms we are pushing price where elasticity exists. As an example, our pumps business has initiated second price increase this year, and orders have not slowed. In fact, they've actually increased. In our larger project businesses, we continue to push our price and are winning in select end markets like BevCannon Automotive, but lesser so in energy-oriented end markets. We anticipate an improvement in margins in late second half and into 2023, but continue to monitor ISM data and the mix of our backlog. As for EBITDA, SECO delivered $9.5 million in the quarter. Year-over-year volume increases were able to overcome lower project margins and deliver significant EBITDA dollar increases year-over-year. First quarter SG&A on an adjusted basis was approximately $20 million, which was essentially flat year-over-year and up modestly versus the fourth quarter on seasonal expenses. SG&A costs were up approximately $1.9 million year-over-year on increased headcount to support growth, higher salaries, and higher management incentive compensation. These increases were offset by an insurance settlement that we booked in the first quarter after many quarters of hard work by our legal team to resolve. All in, we are pleased with our operating results for Q1. Turning to the balance sheet in slide 10, we had a $1 million use of free cash flow in the quarter, predominantly driven by a healthy build of $20 million in receivables. Outsized orders growth means an increase in customer milestone billings, and we anticipate improved cash flows in the coming quarters. Following the GRC acquisition, our balance sheet stands at two times leverage and in great shape to support growth. Slide 11 outlines how we think about recent capital allocation decisions. First priority beyond organic investments is M&A. Compass Water is a great bolt-on acquisition that adds reverse osmosis technology to our industrial water platform. improves our short cycle sales metric, and with similar economics to GRC, is accretive to SECO shareholders. We will continue to target small bolt-on acquisitions sized $2 to $5 million in EBITDA with favorable valuations and a focus on strengthening our industrial air and water platforms. To add to our capital allocation program, we've announced a three-year $20 million share repurchase authorization. With a $2 billion sales pipeline, record backlog, and anticipated improved cash flows, we believe a healthy balance of M&A and stock buybacks will reward shareholders appropriately. The buyback is the largest in Seco's history and meaningful enough to offset annual dilution and shrink our share count over time. We make these decisions based on the confidence we have in our team and the position our products have in a growing market. With that confidence, we've introduced guidance for 2022 on slide 13. So here's how we're thinking the year plays out. With a robust pipeline and a great start in Q1, we are providing full year's order guidance of $410 to $430 million. At the midpoint, this would be up around 17% versus 2021, which was up 29% in orders versus 2020. For revenue, we are introducing a range of $360 to $380 million. We expect to see our backlog turn and supply chain constraints stabilize as we navigate 2022. And we hope to deliver at the upper end of our range or better. But this is our current outlook. acquisitions will be an additional benefit, of course. Q1 gross margins are currently at the bottom end of our guided range. And while we expect a second half lift on improved backlog margins, pricing, and slowing inflation, we are cautiously optimistic to achieve the midpoint of 30% by year end. We see upside in sales volume as a conservative option on our gross margins. So by assuming 30% full year gross margins, 20 million of run rate non-GAAP SG&A, and layering in modest incremental investments, we organically arrive at the midpoint of $35 million of EBITDA. Acquisitions likely push us to the higher end of our range, but also provide an option for project margins and backlog timing, two key variables in our guidance framework. Todd, would you like to elaborate further on our guidance for 2022 and take us into Q&A?
spk09: Thanks, Matt. Yes, let me expand on a few areas around our guidance, and then we'll wrap up our prepared remarks and take questions. As the slide highlights, we are making more investments to advance SECO. These are investments in people, process, systems, and, of course, acquisitions and business development. We're excited to share how far SECO has come over the past few years with respect to our more balanced portfolio that can deliver strong growth across many industrial and energy transition markets. These investments are important to develop the sustainable business results we aim to achieve in the long term. So our guidance reflects these costs. As with any guidance, there are opportunities to exceed, but also unforeseen challenges. None of us think we are out of the woods with respect to inflation and certain supply chain and logistics challenges, but we have a lot of good momentum. We hope you find this guidance helpful. Let's go to our last slide. Please turn to slide number 14. As we have repeatedly said today, SECO is off to a fast and strong start to 2022. With our large backlog and pipeline of over $2 billion in opportunities we are pursuing, we expect to continue to gain traction around growth. We are pleased to announce our new share repurchase program, which we believe is a great use of capital for shareholders. And in just a week or two, we will announce our inaugural ESG report. This is the culmination of a lot of hard work by a cross-functional team, and we look forward to sharing our ESG story with you this month. None of this would be possible without our incredible team. I want to thank all of our Seco associates for everything that you do to deliver excellence for our customers and to assure our community's benefit as well. With that, I'd like to open the line to questions. Operator?
spk06: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Amit Dayal with HC Wainwright. Please go ahead.
spk03: Thank you. Good morning, everyone. Really strong results. Congratulations on the execution. Just to begin with, with respect to acquisitions, could you maybe elaborate a little bit on sort of the growth strategy for some of these recent acquisitions? Are you taking these products to your existing customers or are you finding new customers for these new portfolio add-ons?
spk09: Yeah, thanks for the comment, Amit, and I appreciate the question on our current M&A, not only strategy, but the transactions we've completed so far this year. You know, so far the transactions have all sort of had this following component in common in that, yes, they fit a, and as they all will fit a specific theme of focusing on more broad industrial markets. The transactions this year thus far have been in one of our comfort zones of that, which is industrial water, where we have been growing organically, well-positioned globally in industrial water for quite some time. So these transactions add to customer access for us, to new markets for us, And similarly for the acquisition targets, adds more products to our existing customers, we believe, and to global markets that they did not have access to as well. So our acquisition strategy is to stay focused on sort of our three core areas of industrial air, industrial water, and the energy transition first and foremost, and continue to add sort of broad industrial platforms, products, services that have more of that shorter cycle profile to give us a better business mix to balance out our longer project revenue businesses as well. So all of the acquisitions year-to-date have fit that. You can expect if we're looking at future transactions for them to have a similar profile fundamentally. And they don't all have to necessarily double down on current customers and current markets per se, but we're going to stay true to sort of that core.
spk03: Thank you for that. And then on the margin side, I know you have some inflationary pressures, et cetera, and you're not too far off from sort of historical levels, but do you see margins reverting to the low 30% levels by the end of the year potentially? Yeah. Yeah.
spk09: Matt highlighted a little bit in our prepared remarks. So look, we're just below 30%, which would have, you know, ignoring the current challenges of inflation, supply chain, logistics, et cetera, being below 30% would have been certainly below our low point average, which is 30% to 34% over a long period of time. We believe we're going to get back there. We think that the next few quarters, certainly we're still experiencing our ability to get price going through our backlog. So there's some timing of price and price actions, our ability to get productivity, again, through our backlog. So right now we're in a little bit of a timing imbalance, so to speak, which is why we're still below 30%. We believe we're going to get back up above 30% as we get into the second half of this year. And look, there's nothing that's really fundamentally changed in our business other than, you know, the thing, the ramifications of the market challenges that all industrial, all companies, frankly, but certainly in our space, we're all facing. And, you know, look, I think broadly speaking, companies are doing a great job of overcoming the challenges and the costs, getting price where appropriate, and we're going to continue to do that.
spk08: Yeah, the only thing I'd add was we're probably at about 26% margin of the backlog this time last year. We're definitely looking at 28% now. And things that we're quoting right now, I mean, we just got a job that came across something like 40%. So we're seeing an improvement in our backlog margins. It's going to take some time for the long cycle projects to funnel through the P&L.
spk03: Understood, understood. Thank you. And then, you know, Matt, maybe from a sort of sequential expectation, I know you've provided annual guidance for the first time. Should we expect sequential improvements through 2022 or is there any seasonality with respect to some of these backlog and orders that may cause variability in how the quarters come through?
spk08: No, there's no real seasonality. It's really about timing of individual projects and when they land in and the mix of our business. But we are working on productivity. We are seeing the blended margins creep up. We do expect sequential increases, but modestly. We see a real improvement in our margins in the late second half of this year and early 2023.
spk09: Yeah, and just to double down on one thing there, We appreciate that, you know, asking a question about sequential. That's important to us. You know, obviously, ongoing improvement, ongoing productivity, ongoing performance. But, you know, just kind of given the current profile of Seco, we would be reluctant to currently give quarterly guidance just because things can be a little choppy in the quarters, like a lot of companies. And so, look, we're very comfortable with the full-year outlook. You know, that's an easier, if you want to call it that, you know, sort of number for us to get our head around because it takes out a little bit of the variability and the noise that exists in the month or in a couple months that could be influenced by, you know, a handful of larger projects. But as Matt already answered, we feel good about kind of the ongoing productivity and momentum we have.
spk03: I can appreciate that, Todd. Thank you for that. Just one last one, maybe. With respect to the backlog strength you're seeing, has that come mostly domestic orders or backlog, or is there some international in it as well?
spk02: 50-50.
spk03: All right. Yeah, that's all I have, guys. I will take my other questions offline. Thank you. Thank you. Thanks a lot.
spk06: The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.
spk02: Good morning. Thanks for taking my call, and nice to have you on the quarter. I just want to get a little more detail on the Compass acquisition. How much of that business is all short cycle? Does it have sort of recurring kind of razor, razor blade model? How does the business work and the customers for that business?
spk10: Sure. We're pretty excited about this business.
spk08: I'd tell you that 60% is systems, so RO and slop water systems, only water separation. The end market is typically going to be naval ships, U.S. Coast Guard, or potentially marine vessels like Maersk, et cetera, anywhere where you're going to have water on a ship's vessel that needs to be discharged back into the ocean but needs to be in compliance with whatever the standards are by the Spanish military or the U.S. Coast Guard, whoever's responsible for that, is where we're going to serve internationally. We have international footprint all over the globe to help pull more of their business through And when we think about the aftermarket content of that business, it's something like 40% to 45% super rich gross margins. Why? Because the product has to be certified by either the Spanish military or the Nordic Army or the U.S. Coast Guard. And so you can't just plug in some other filter business or some other pirated product. You have to use the Compass brand. And so that's what makes me really excited when we think about Short cycle, you know, they will have occasionally a job here or there that's maybe in a million or two max, and that's just because it's several RO units that are being sold. But for the most part, I'd tell you that their average is about 200K per order size. So we consider the entire thing short cycle in nature because everything ships out within a few months.
spk09: We also see, Rob, real opportunity to bring investment at an appropriate level into the organization. When you're a somewhat small company like Compass is, they've been doing a great job of growing and advancing the product line, getting this very nice balance of systems and then replacement, certified replacements, locking in their market access there. But there's opportunities outside of what Matt suggested around vessels, there's other opportunities that we feel, and we'll be talking about that in the future, that we feel we can bring their expertise and their product line into, again, with just a modest investment for real strong growth because their margin profile, especially on the aftermarket replacement, is so rich. Thank you for the color in there.
spk02: And then kind of back to gross margins, on your longer cycle projects, how do you protect gross margins there? Are you sort of fixed price up front and then you take the risk on inflation or are there escalators built in?
spk09: Yeah, so there's a number of different approaches depending on sort of maybe even the market, the business, the project. But generically speaking, you know, we'll have typically a fixed price bid. We'll have locked in or also received fixed price contracts with our suppliers. And we'll at times, especially now over the last six or so months, ensured that we have appropriate language in our contracts that protect us and our supply chain and our customers from escalating materials. So we'll have escalation clauses around key components. It could be metals if it's a heavy metal product that we are providing. It could even be logistics if it is something that includes a fairly expensive transportation-related area of the contract. So our customers understand that these aren't small products that are off their radar screen. These are very fundamental to the success of their operation. there's only a handful of companies that can do what we do in these very mission-critical areas of industrial air, water, and the energy transition. So they understand that some of the new language that is associated with, you know, escalation clauses, et cetera, are just going to be at least standard for now.
spk10: That would be great. Thank you. I'll turn it over. Thanks, Rob.
spk06: The next question comes from Jerry Sweeney with Roth Capital. Please go ahead.
spk05: Hey, good morning, Matt and Todd. Thanks for taking my call. Hey, Jerry, good morning. I just wanted to talk about orders, obviously, up significantly. And I'm just curious of how much of that is maybe end market driven versus maybe some changes you made internally. Obviously, there's been a lot more focus.
spk10: One, have you made any sort of changes on going to market strategy or do you see any opportunities? Yeah, good question.
spk09: So, look, you don't get $160 million in orders at our size and without there being some decent market dynamics out there, certainly. So I'd like to acknowledge that we certainly feel we're well positioned. If there's a tide that rises, you want to have boats in those harbors, right? And I would say Seco, we feel, has done a great job over the last few years of of a few things though to be in better position as the tides rise. For example, over an extended period of time we have been not only talking about externally but certainly focusing on internally this focus on more markets, more adjacencies, more short cycle, more general industrial. And that has been an organic theme internally, but also a little bit of an inorganic theme as we've made some small acquisitions over the last few years or we've made some new investments to go after service businesses, etc. So the point is I feel like it's a combination certainly of market strength in a lot of areas, but how much we've really diversified Sequel over the last few years. mentioned in his prepared remarks, if you look back four or five years ago, and maybe we didn't give these exact numbers, but if you would have looked back four or five years ago, if we would have had a quarter over $100 million of orders, I would say 60% to 70% of that strong quarter would have been energy-related orders, power, oil, and gas, etc., And it's sort of flipped now. It's more 60%, 70% of our strong growth has been general industrial. So again, I just want to acknowledge that our teams, the organization, the platforms has really internally and certainly with our customers put a spotlight on where we see the best opportunities. We'll run into those faster. And so again, it's just a lot of hard work by our organization. Our associates all over the planet are working hard to serve our customers.
spk05: That's really helpful, actually. I appreciate that. The other question I had is obviously you're making acquisitions, but as you look at Seco as a whole, at your portfolio, are there opportunities maybe even to divest, to get smaller, to get bigger?
spk09: Look, we certainly understand that companies that are diversified like Seco have options in their portfolio. Right now, we feel like we're clicking on a lot of really good cylinders. We're really excited about our growth profile as a company. We're really excited about our ability to continue to add pieces to our organization through smart, strategic, accretive M&A. that adds, again, more balance to industrial air, industrial water, and energy transition, more short cycle. And as we look at our portfolio over time, if we feel that there's a piece of it that doesn't continue to add that same value to our longer strategy, then we'll evaluate that. But right now, again, we feel like we've got a lot of momentum as an organization, and we want to maximize those returns for our shareholders.
spk05: That's helpful. And then, Matt, there's maybe a little bit more for you. Free cash flow, I know working capital is probably up, probably some inventory, all that stuff. How do we look at that? Do you have any projections for that for this year, or is it still a little bit nebulous, a little bit too early to sort of get?
spk10: Up. The answer is up. It's going up. Okay. That's a specific up.
spk08: If you go look at our balance sheet, you can see that billings in excess are growing greater than costs in excess, which is a good sign that we're billing customers early. Those are called advanced billings or advanced payments, and our receivables are growing, and these are good receivables, so cash flows will grow through. This is exactly what I've said for the last three to four years. When the business grows, cash flow grows. It's going up.
spk09: We thought about just giving guidance that says everything's going up, but we thought that might not be specific enough.
spk05: I got my report title up.
spk09: Thanks.
spk05: Thanks, guys. I appreciate it. Thanks, Matt. Thanks, Jerry.
spk06: Again, if you have a question, please press star then 1. The next question comes from Bill Zellum with Titan Capital. Please go ahead.
spk07: Thank you. First of all, relative to the accounts receivable being up, Does that indicate that there was sales strength late in the quarter? How do we read that?
spk08: Yeah, they're not correlated. Receivables is based on milestone buildings and not tied to revenue. So it's just timing of when we actually bill the customer. That starts the clock for their 30-, 60-, or 90-day terms, whatever they might be, of when they actually need to pay us.
spk07: And since AR then is not an indication of pace throughout the quarter, maybe you could highlight what was the pace of sales and separately orders through Q1 and into April, if you would, please.
spk09: Yeah, well, I was going to say, one thing, and I'll let Matt, he's got all the data, obviously, he's ready, dying to tell you. When we announced our fourth quarter results, you may remember, Bill, we talked about At that point in the quarter, we had already seen very strong January and February orders So I would just remind you that we shared, you know, sort of pretty publicly that, you know, in the first quarter when we gave our fourth quarter earnings release that we were already seeing very strong January and February. And I'll let Matt kind of talk about how that continued.
spk08: Yeah, orders look like a U. So January and March were strong. April was pretty decent. It was probably more on par with February. So not bad whatsoever. And then I would say that revenue was more like a slight ramp from January to February with March being, obviously, because of a little bit longer month in February, more revenue than February. But not hockey stick.
spk07: Yeah, but given that, I'll call it up and down, is there anything that we can read into that or that you all read into it or... Is this truly a little bit just lumpy?
spk08: It's just lumpy. You know, we have projects sometimes that are double digits, sometimes 10 to 15 million. I mentioned some headline orders that came in. We didn't have a ton of those, but our history is marked by those. It's what we do. We do have projects and they come in, but that's why we want to grow short cycle sales. Why? Because it's more predictable and easier and those are gravy on top.
spk09: One way to look, Bill, at our quarter also from the $160 million of orders is I always sort of, again, we have the inside information, right? So we can sort of look and go, okay, what dollar level could have booked last year had just the customer, if you want to call it that, kind of pulled the trigger at that time? And we have a lot of our pipeline on our radar screen, and it's coming down to a matter of days. you know, at times. You know, does it book at the end of the quarter or the beginning of the quarter? Let's call that, in this particular 120-day window that I'm discussing here, the current window, $15 million. Let's just be, you know... And let's also say, could $15 million worth of orders have, quote-unquote, slid to Q2? Sure. In this quarter, our first quarter could have been $130 million at the low, give or take, or... higher even than 160 million, but let's just say it landed at 160, both of those numbers would have been record quarters and would have produced record backlogs. So even if some of our orders had been placed in the fourth quarter or moved to the second quarter, therefore, I guess you would call it negatively impacting Q1, we feel that it would have still been a record quarter by a good distance over our previous record. So This wasn't because we pulled in or we got things that slid out of last year. Fundamentally, it did help our quarter from a bookings perspective, but it wasn't as pronounced maybe as one or two big orders.
spk07: That's helpful. And finally, relative to this step up in orders this quarter, just given the long cycle nature of some of those, Is there going to be a quarter in the future where we're going to see a significant step up in revenues? Or as you had stated earlier in the comments to another question, do you really feel like you can try to manage that to be a bit smoother?
spk09: Well, it won't be one quarter. It probably won't pop up to – you know, to this number. I mean, just who we are as a company today. But, yes, there will be a period of time, we believe, that, you know, orders clearly translate to revenue. You know, these are solid orders. We have a very, very, very low de-booking rate. It would be akin and maybe even less than most industrial companies' bad debt rate. I mean, we're talking, you know, lower than 1% or 2% on average, and if even that, So, look, you can do the math and just make a determination that if we're running at 90, 95 million of revenue this quarter, which we did 93, well, it's hard to believe that we're not going to have a few quarters that reflect much higher revenues when this turns through our backlog.
spk07: And so I guess maybe then the question is, when does this big order push, when does that flow through revenues?
spk08: They will flow through over the course of four to five quarters. And the pop-up in revenue that you might expect isn't going to be some $20 million order that shows up. It'll be the compiling of several projects plus our base business on top of each other. And so, yes, you will see an increase at some point in time. My bet is late in this year, early next year. But it's not like it's going to be a major one-time blip, $40 million revenue and drop back down. It's pretty smooth, though.
spk07: Great, thank you, and congratulations on a fantastic order and taking the questions. Thank you. Thank you, Bill. Great questions.
spk06: Again, if you have a question, please press star, then 1. The next question comes from Thomas Cleggis with Graham Partners. Please go ahead.
spk04: Hi, guys. Sorry for the company change. I went from thinking I owned too much stock to maybe not owning enough. The energy cycle looks really positive to me. Has there been anything breaking loose in pipeline? Are we still super early on that and still a lot of resistance out there? I was just curious if you have any color on what the interest in orders looks like in that area. I know it's still probably early, but... I keep thinking that somebody's going to flip on this ESG environmental stuff to get energy out. Let me know what you guys think.
spk09: I think the question is specifically on the midstream, on the pipeline side. Thanks, Thomas. That was our one platform. For those of you that have been tracking SECO, It was really our only platform that didn't show orders growth last year. It showed nice orders growth this quarter. We expect that to continue. We see investment in midstream pipeline, at least in our space, where more capital is now being applied. We also would say that David Taylor and the business leaders within separation and filtration are doing a fantastic job of not only being in position for tides to rise in the midstream capital investment side, but really doing a fantastic job of maintaining and developing relationships in other markets. We talked about Navy and other end markets that they have an opportunity and have long supplied, very good margin business, great relationships with those customers. There are cycles in the Department of Defense spending, as we all understand. When those cycles come back, those are great for us. The other I would suggest is they are getting in better and better position for what we're calling this energy transition, especially carbon capture and other gases. So we look forward to talking about some of those projects over the next few quarters as we are solving, you know, along with other suppliers and partners of ours, really some really unique carbon CO2 capture sequestration solutions for a variety of different industries, and we look forward to talking about that. So, again, finding adjacent markets doesn't mean our current markets aren't still strong, appealing, and worthy of investment, but finding new adjacencies organically, marketing ourselves, creating business development relationships, and we expect to be talking about large orders in CO2 capture and other areas that are exciting.
spk10: Thank you.
spk06: This concludes our question and answer session. I would like to turn the conference back over to Todd Gleason, CEO, for any closing remarks.
spk09: Thank you for the questions and for everyone's interest. We look forward to continuing today to connect with our investors and analysts to answer questions and to be helpful. I'd also like to once again acknowledge our appreciation for the great associates around the world at SECO, delivering for our customers every day, working hard to make sure that we are at the right place at the right time for all of our stakeholders, staying safe and healthy, as always. And so, look, we're excited about the year. We feel great about the start to the year, as we've already articulated multiple times. And with that, we hope to speak with you soon, see you soon at an event. And best of luck out there.
spk06: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer