CECO Environmental Corp.

Good morning and welcome to the SECO Environmental Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. 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 Matt Eckel. Chief Financial Officer of SECO Environmental. Please go ahead.

Thank you for joining us on the SECO Environmental second quarter 2020 conference call. On the call today is Todd Gleason, Chief Executive Officer, and myself, Matt Echol, Chief Financial Officer. Before we begin, I'd like to note that we have provided a slide presentation to help guide our discussion. The call will be webcast along with our earnings presentation on our website at secoenviro.com. The 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 vary materially from those expressed or implied by the forward-looking statement. We encourage you to read the risks described in our SEC filings on Form 10-K for the year ended December 31, 2019. 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. And with that, I'll turn the call over to Todd.

Thanks, Matt, and I'm excited to be here today. So, it has been approximately one month since I joined as the company's CEO. It is a privilege to lead SECO. We have a talented team, and as I get to better understand our opportunities, my enthusiasm definitely builds. Before we jump into the prepared remarks, and on behalf of SECO, We hope everyone is healthy in navigating the challenges associated with the COVID-19 pandemic. No doubt the impact to our personal lives has been profound. And of course, the global business environment has been jolted in ways not often felt. In many ways, we're all in this together. So please stay safe. Now let's review the material. Please turn to slide number three. Given my recent appointment as CEO, we felt it was appropriate that I share a little about my background as well as what drew me to SECO. It is hard for me to believe sometimes that it has been over 25 years since I began my professional career. Time flies and here we are and I am grateful for the many people that have provided support for my development and the positions that added to my preparedness. I think if there are really three main takeaways I'd like to share about my background, I would highlight the following. I've been fortunate to have a diverse background with respect to various business functions and P&L management roles. This diversity has provided both breadth and depth with respect to growth strategies, execution, and how financials speak to the truth of a company's performance. I continue to learn and I look forward to continue to expand my skill set here at SECO. A significant portion of my career has been spent in multi-industry organizations such as Honeywell, Trane, which was American Standard Trane at the time, and Pentair. So, Seco Environmental has a very natural feel for me as I have quickly immersed myself into business and operational discussions and opportunities. On top of that big company experience, I've been fortunate to lead and advance a private equity venture-backed company. Anyone that has ever been in that more entrepreneurial environment will agree you develop a certain scrappiness and some new business muscles that more mature companies don't necessarily provide. What all of that means is that I will apply the appropriate processes associated from the academy companies while also implementing some of the entrepreneurial muscle to SECO's capabilities and strategies. And third, I've defined a significant portion of my career success being associated with companies that create above market shareholder value. My compensation structure should be and is aligned with shareholders. Our stock will reflect how well we perform as a company, so I'm anxious to make an impact. In some early conversations with external stakeholders, the question was presented, why did I join SECO? I'd summarize it as about fit and opportunity. As I did my analysis of the company, I came to the conclusions listed on the slide. and each has been reinforced in my first month at SECO. First, the company is financially healthy, in good shape and ready for its next chapter of growth. This is not a turnaround story, but a great platform from which we can continue to build. I like our products and our end markets. I also like the size of SECO. I can make a real impact on the strategy and operations. And over the past month, I have gotten to know many of our 800 plus employees with almost half being engineers with a tremendous passion and enthusiasm to solve complex customer and market challenges. Additionally, the company's board of directors is very aligned and focused on recurring revenue and high value growth. We have a great portfolio to drive heightened financial returns and a balance sheet that enables SECO to make appropriate investments to win. In summary, I feel the best days are definitely ahead of SECO. The team is fantastic, energized, and ready to write SECO's next chapter. So let's keep moving. Please turn to slide number four. This slide highlights three main focus areas. Despite the challenging environment, we made smart and strategic moves to better position our company in the markets we serve and also our cost structure. Our second quarter results were solid. We took appropriate action to protect the health and safety of our employees while also protecting the financial results of our organization. Let's discuss each in a little bit more detail. As noted toward the top of the slide, late in the quarter, we announced the acquisition of Environmental Integrated Solutions, or EIS for short. The acquisition further increases SECO's solution capability, application depth, and Knowledge Expertise. It also provides greater reach into various European markets. It may have been a small bullpon from a financial perspective, but we are excited for the opportunities it presents. This week, we announced a joint venture between our Epochs Flexster brand damper product line and Mater Machine Company. The combination of the two businesses' damper products and entities will deliver cost synergies, plant efficiencies and market leadership for growth. It also gives SECO added strategic optionality. We will be the majority owner. We also took action to align leadership across our industrial and fluid handling businesses. This new leadership structure enables more efficiencies and collaborative activities for growth and talent development. Each move is important to advancing SECO's portfolio, cost structure, and growth capabilities. In the middle section of the slide, we provide high level highlights on Q2 2020 operating results. Matt will definitely spend more time on this, but I am proud of our 800 plus associates and how great they performed in a very challenging and uncertain market. By almost any measure, the market environment was very soft. The significant pause in late Q1 and early Q2 drove orders down approximately 40% as we booked $60 million in the quarter. Trends did improve late in the quarter, especially in industrial and fluid markets, and we did not have any cancellations in backlog, which remains robust. Sales were down 7% year over year, but gross margins and EBITDA were both up. Earnings on an adjusted basis were $0.14 per share, up 75% year over year. Free cash flow was negative $6 million in line with what we predicted on the Q1 earnings call. Of note, the company has produced almost $20 million more in free cash flow over the past four quarters than we did in the preceding period of similar time. Cash generation is critical to our investments and growth, and we will continue this focus. We took decisive action in the first half of the year, which bolstered our results. I am proud of how well our teams executed in the challenging environment to deliver for our customers and produce these very solid financial results. Now let's go ahead and please turn to slide number five. The new challenges brought on by the global pandemic no doubt forced a pronounced pause in many industrial markets and in each of our lives. Good news is that SECO has been deemed an essential business to supply these critical markets. We have instituted a variety of important health and safety protocols. I would like to thank our cross-functional COVID task force for jumping to action and ensure all our employees are well informed and most importantly, very safe. We have also accelerated new solutions and technologies to ensure we can work remotely in productive and collaborative ways. On the right side of the slide, we highlight various proactive measures we implemented in the first half of 2020. Given the uncertain markets, sudden impact to our businesses, we are taking decisive actions to drive more than $10 million in annualized cost reductions. These actions are important to maintain our financial health and ensure SECO's strengthened position for the future. One additional note, the $40 million we drew down from our credit revolver in March was paid back in full during Q2. We have a very good cash position and a strong balance sheet. So, the health and safety of our employees and customers is of the utmost importance and the health of the company's financial position is on solid ground too. Let's turn to slide six, which provides detail on orders by market. On the left side of the slide, you can see the markets associated with our energy segment products and solutions. And on the right side, you will see the industrial and fluid handling order numbers. I won't read all the numbers by sub-market, but the double-digit declines in orders in almost every market do reflect the dramatic reduction in capital expenditures in various energy markets and the pause most industrial companies witnessed in late Q1 and early Q2. We did see improved orders in many of these sub-markets, especially in industrial and fluid handling, as the quarter progressed. And again, we have not had any cancellations in our backlog. We did start to see pockets of strength in food and beverage, defense, and certain process water solutions sales. So, in Q3, we're happy to report that we continue to see a steady improving orders trajectory and will continue to execute well. I will now hand it over to Matt, who will give more detail on our financial results and specific market commentary. Matt?