CECO Environmental Corp.

Good morning and welcome to the Seco Environmental Conference Call. All participants will be in 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 touch-tone phone. To answer 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 Echol, Chief Financial Officer of Seco Environmental. Please go ahead.

Thank you for joining us on the Seco Environmental fourth 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 statements. we encourage you to read the risk described in our SEC filings on Form 10-K for the year ended December 31st, 2020. 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 Tom.

Thanks, Matt. Throughout much of 2020, we started our earnings calls by thanking our dedicated employees, their families, and our great customers and operating partners. It has been a challenging time as the entire world has been forced to navigate the global pandemic and adjust how we work and interact. We are very pleased with how Team SECO has come together to embrace new technologies, processes, and adhere to rigorous COVID policies to ensure health and safety. So once again, thank you for all you do to ensure we deliver for our customers and drive value for all constituents. As is highlighted on slide three and in our press release this morning, SECO delivered strong results in the fourth quarter of 2020. Let's quickly review the facts and figures, and later Matt will provide more color around some of these numbers. Orders were up mid-teen levels, both sequentially and year over year, as we booked $77 million in the fourth quarter. Getting back on the orders growth trajectory is always a positive, but even more important as we saw reductions in our backlog. We look to turn the corner on this trend early in 2021, as we believe our orders growth will continue. Sales were $83 million, which did reduce backlog because it was obviously higher than new orders. The fourth quarter sales results were down 7% versus 2019, but they were up sequentially 7% over Q3 2020. Our project teams continue to execute very well despite the challenges of COVID restrictions. Gross margins came in at 31.6%, which is a little higher than we originally expected, because of the mix of projects that drove our fourth quarter sales growth. Of course, margin rates have been steady throughout 2020, but year over year, we are down almost 200 basis points. A year ago, we had a very attractive margin rates in our backlog because of some large high margin projects, and those jobs have been fully executed. Unfortunately, replacing those higher margin projects with new orders was stifled in early to mid 2020, because of the COVID related market softness. As we enter 2021, we expect to see more higher margin project opportunities. Adjusted EBITDA of almost $10 million produced margins of 12%. This was up approximately 70 basis points year over year. So pause on that for just a second. Gross margins were down 200 basis points versus Q4 2019, but EBITDA margins were up, which means we have reduced SG&A as a percent of sales by approximately 270 basis points on a period comparison basis. Now, not every quarter will show that level of year-over-year margin expansion, but it does demonstrate the amount of cost we have reduced to better position SECO for strong margin conversion going forward. A lot of great work has gone into our productivity. thanks to the team for their focused efforts. Non-GAAP earnings per share were down year over year, as certain tax benefits in Q4 2019 did not repeat in Q4 2020. EPS of 16 cents was up significantly quarter over quarter, which shows the steady improvement in our income from sales. On the bottom half of slide three, we provide some commentary around how we continue to position Seco for sustainable performance. We have reduced costs in various functions and specific areas, but we have maintained key growth resources to take advantage of improving markets. We are seeing stronger bid proposals in engineering work in a majority of our end markets, so we expect continued growth in orders. As I just articulated, SECO's cost structure is more efficient. As volumes come back, we expect to reach new heights with respect to EBITDA margin rate levels. Since my arrival in the second half of 2020, we have been evaluating our best growth strategies. We will be articulating our longer term strategic focus in the coming quarters, but we continue to make very good progress with our shorter term investments in new technologies and service to enable growth. Lastly, as we announced a few months ago, we have commissioned an internal group to pull together our first sustainability report. We are proud of the work we do to serve our customers and communities to provide advanced environmental solutions. So that will be a great story to tell. And we also have a very good internal risk management framework, including environmentally sustainable operations, high social standards, and strong governance controls and policies that we look forward to more fully disclosing. Let's turn to slide number four. This is one of our regular earnings slides. On the left side of the slide, we highlight end markets that are predominantly related to certain energy markets. And on the right side, we provide detail on our broad and diversified industrial markets. Let's review the details. Walking down the left side of the slide, you can see we had $9 million in order bookings associated with projects in oil and gas refining space. While this level would typically be lower than average, The $9 million is up well over 100% both year over year and sequentially versus Q3 2020. We expect continued orders growth in this area as we have seen a very depressed refining environment for over a year. We are now seeing more CapEx dollars allocated to maintenance operations. Moving on, midstream of $16 million is up double digits year over year, but we expect this market to remain somewhat choppy over the coming periods. Next, power generation natural gas is steadily improving. We have a very good and active pipeline of opportunities, and our $18 million of orders is strong double-digit growth versus Q4 of 2019 and represents over 70% growth sequentially. And at the bottom of the left side is power generation solid fuel, which is our smallest market segment. We believe this market has bottomed and we should start to see orders rebound in 2021. On the right side of the slide, let's start up top with industrial solutions. The $22 million of orders provides nice growth versus 2019 and sequentially. Like much of power generation, we are seeing a very healthy pipeline of engineering and project opportunities. We have seen continued progress in general industrial segments for a few quarters, and we expect this to continue, especially with our pipeline visibility, which Matt will highlight more in just a minute. And in our industrial fluid handling areas, we booked $9 million of orders in the fourth quarter, which is flat year over year, but up 5% sequentially. We expect continued expansion in this area. We have worked very hard to drive improvements in our on-time delivery and continued quality. Our Fibroc DEEN and CESCO brands are well respected and we are investing in more growth resources to take advantage of opportunities and add new channel partners. Examples include the recent launch of IntelliQuip, an online DEEN pump configuration tool for both pump sizing and order placement and the addition of new territory sales managers, including some strictly responsible for upgrading our international distribution channel where we have not seen the results we should otherwise expect with a fantastic brand name like Dean Pumps. I will now hand it over to Matt and then wrap up with some final comments in a bit. Matt? Thanks, Todd.