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 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 Hooser, Investor Relations. Please go ahead.

Thank you. And thank you, everyone, for joining us on the SECO Environmental Second Quarter 2023 Earnings Call. On the call with me today is Todd Gleason, Chief Executive Officer, and Peter Johansen, Chief Financial and Strategy Officer. Before we begin, I would like to note that we have provided a slide presentation to help our discussion on our website. The call will also be webcast along with the earnings presentation, which is also on our website at secoinviro.com. The presentation materials can be accessed through the investor relations section of that website. I'd also like to caution investors regarding forward-looking statements. Any statements made in today's presentations that are not based on historical fact 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 the Form 10-K from the year ended December 31, 2022. 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 provided the comparable GAAP and non-GAAP numbers in today's press release and provided non-GAAP reconciliations in the supplemental tables in the back of the slide deck. And with that, I'd now like to turn the call over to Chief Executive Officer Todd Glees. Todd?

Thanks, Stephen, and thank you for your continued support and interest in SECO. I'm going to start with slide number three, which is entitled Q2 2023 Earnings Highlights. As we highlighted in today's press release, SECO delivered multiple financial records during the second quarter. Over the past several quarters, we have communicated that our sales pipeline was strong and growing, and throughout the second quarter, we continued to add to our sales pipeline, which is now well over $2.5 billion worth of global opportunities. The growth of our target markets is a positive result of the focused investment we strategically made to add sales and business development capabilities across our existing platforms. And these investments continued to produce outstanding growth in the second quarter, as we reported the highest-ever quarterly bookings in our company's history. We continue to have high confidence in our sales pipeline, which remains strong across our diversified industrial end markets. Bookings weren't the only record in the quarter. I am pleased to also highlight that our second quarter revenues represented the highest quarterly sales in the company's history as well. And with our record backlog, we expect future sales growth to remain very robust. Sequel also delivered the highest gross profit dollar level in our history, benefiting from enhanced productivity, growth, and product mix. We look forward to more record levels of profitability in the future. Expanding further on our sales pipeline, the strategic investments into each of our platforms and commercial capabilities has done more than just build a large sales opportunity funnel. We have also been steadily transforming the overall Sequel portfolio book of business. This transformation started approximately three years ago with a comprehensive redesign of our organizational structure and focus towards a more diversified, micro-aligned and balanced business mix with the purpose of driving sustainable financial results. And we are seeing the results of this shift in focus and strategy. Over the past 18 months, which many of you already know, we have also added programmatic M&A to the transformation playbook. In the quarter, we close on our most recent acquisition, adding Transcend Solutions, which is a leader in liquid separation and filtration solutions for the energy transition. We shared some of the details of the Transcend acquisition when we announced Q1 earnings back in May, and Peter will provide some additional commentary around this acquisition in just a few minutes. We have now completed two acquisitions in 2023, and we continue to look for strategic and accretive businesses that can advance our leadership in industrial air, industrial water, and the energy transition, and further enhance our business mix balance and earnings growth. When I started at Seco in mid-2020, the company's financial results were much more cyclical, and investors view the company as significantly tied to legacy oil and gas and power generation end markets. Well, some of those markets remain very important to SECO. We have built a better SECO where we are much more balanced with greater exposure to diverse industrial end markets, including more industrial air, industrial water solutions to our portfolio, which both of those now represent a majority of our orders and revenues in 2023. But don't just take my word for it with respect to transforming our portfolio. I am also pleased to highlight that even with record sales in the quarter, we still drove a higher than 1.25 book to bill for the third consecutive quarter. So with our growth investments and more balanced portfolio driving backlog gains to record levels at quarter end, we have high confidence in our future outlook. And this confidence in future outlook is why we are announcing an increase to our full year guidance, which we have also shared in our earnings press release today. We will come back to this updated guidance a little later, but I want to point out Now, that this is the third time we have exceeded and increased our guidance since we introduced our full year 2023 outlook late last year. As the takeaway on the slide suggests, we have delivered a very solid first half of 2023, and we remain optimistic that we will drive sustainable high performance in the second half of the year as well. Now, please turn to slide four, and let's review our summary second quarter and trailing 12 months financials. Peter will cover many of these key financial figures and metrics in more detail in a few minutes. However, let me just focus on a few key areas. I will mostly stick to the left side of the slide, which covers second quarter results. The panel on the right side of the slide provides a snapshot of SECOs trailing 12-month financials, all of which are very strong. TECO's orders of $163 million in the quarter represent the highest quarterly bookings level in our company history, just an outstanding result. When we announced Q1 results, we mentioned that a few orders had just missed booking in that quarter. And you can see from our record results that we secured many of these projects in Q2. This record quarterly bookings drove year-over-year growth of 43%. And on a trailing 12-month basis, orders are up 23%. As a reminder to our audience, we have been consistently growing orders steadily since the second half of 2020. So this is definitely not just a 12-month phenomenon, but rather a relatively stable growth trajectory. Sales of $129 million were a record for any quarter for SECO. And our sales growth of 23% in the second quarter reflects the great execution our global teams are driving to deliver solutions for our customers. Of this 23% growth, approximately 16 points was organic. Adjusted EBITDA of almost $14 million in the second quarter was up 29% over the prior period. This result produced adjusted EBITDA margins of 10.6%, an increase of almost 55 basis points year over year. And while our investments in growth and operating excellence resources is up over the past year, we expect our SG&A to maintain steady levels going forward, which will translate into higher EBITDA margins as we continue to experience top-line growth. Our adjusted EPS in the quarter of 15 cents met our expectations. On a trailing 12-month basis, our adjusted EPS of 67 cents is up significantly over the preceding 12-month period, which we believe is more indicative of long-term value that we are creating. We will continue to manage debt and interest payments to deliver higher EPS, and as our guidance suggests, our expected higher EBITDA will also deliver bottom-line growth. Finally, with respect to free cash flow, SECO rebounded nicely from a slower cash generation in the first quarter as we generated $10 million of free cash flow in the second quarter. We had operating cash of approximately $11.4 million. And this could have been even better, but not for a $9 million of customer payments that we received shortly after quarter end cutoff. With so, with the strong start to Q3 collections and continued strong milestone achievements and billings, we expect cash flow to remain healthy in the foreseeable future. With so many financial records in the quarter and year to date, I would once again stress how pleased I am with our operating and financial performance, thanks to our global teams as they continue to deliver for our customers every day. Now please turn to slide number five. I'm going to reiterate a few things we have shared when we highlight the slide in investor presentations as well as when we showed it last quarter. As the title of the slide suggests, SECO is more balanced in pursuing more opportunities than ever before. Across everything we do, our focus is to protect people, protect the environment, and protect our customers' industrial equipment. In previous quarters, we have outlined how we are advancing our leadership position in industrial air. And the three acquisitions highlighted in the middle column, which is entitled newly acquired brands, are yielding great results towards helping us advance that leadership position in industrial air. We have also discussed how we are building our position in industrial water. The four water-focused acquisitions highlighted in the center column add important building blocks to our growing water niche leadership positions. And finally, as SECO shifts its commercial and customer focus to support the applications and opportunities presented by the energy transition, the recent Transcend acquisition positions SECO to provide new and enhanced solutions to improve the efficiency and lower the cost of gas and liquid separation and filtration in legacy natural gas liquids transport and hydrocarbon processing infrastructure, and to benefit from new and emerging applications in renewable natural gas, carbon capture, and other low-carbon opportunities. The Transcend acquisition also opens additional doors to high-margin opportunities in business models and engineering services, equipment rental, in-field customer process diagnostics, and emergency services. Now staying with slide five, we really like to share that this slide, excuse me, we really like to share this slide as it highlights the diversity of SECO and what we are doing to grow leadership positions and add portfolio balance. Before we move on to the financial details for the second quarter, I'd like to highlight a few operational items that actually aren't included in the deck but we think are important to mention as they speak to our growing capabilities and more balanced portfolio. The first item I'm going to mention is that we just booked our largest ever aftermarket order, totaling almost $9 million at very good gross margins. This is significantly higher than any aftermarket or services order in our company history. This order is in the industrial water segment, supporting a large customer in the Middle East. This win highlights a great example of why we have been investing in industrial water market capabilities. Between industrial water and our growing separation and filtration solutions install base, we look forward to many more of these large aftermarket orders in our future. The second item is that we expect to end 2023 with approximately $100 million of revenue generation in high growth markets, which is comprised of the Middle East, India, China, and Southeast and East Asia. This is up more than two-fold from just a few years ago and we are maintaining strong growth. We continue to add resources throughout those regions with a particular focus on India to support global operational capabilities and also to support local projects and Indian-related sales opportunities. Finally, a third item I would also highlight, that of the approximately half-dozen acquisitions we have completed since Q1 of last year, we expect at least four have or will double in size in their first 18 to 24 months of ownership by Segal. This is a tremendous track record of us identifying growth businesses and properly investing in and incentivizing great leadership teams. Our other three acquisitions are definitely on track to hit or exceed their deal financials that underpinned our investment thesis. I am very pleased with the results of our investments and our journey of advancement at SECO. Of course, not everything goes as planned, and I can assure you we see opportunities to improve every day, exclamation point. But overall, we are very excited about our improving ability to deliver strong operating results. I'm now going to hand it over to Peter, and he will walk you through more detail on our financials and some additional color on our strategic programs. Peter? Thank you, Todd.