CECO Environmental Corp.

Good morning, and welcome to the CEQA Environmental Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask a question. To ask a question, you may press star, then 1-1 on your touchtone phone. To withdraw your question, please press star, 1-1 again. Please note this event is being recorded. I would like to turn the conference over to Stephen Hooser, Investor Relations. Please go ahead.

Thank you, Kevin, and thank you all for joining us on the SECO Environmental Fourth Quarter 2023 Earnings Call. On the call with me today is Todd Gleason, Chief Executive Officer, and Peter Johansson, Chief Financial and Strategy 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, which is on our website at secoinviro.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 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 FCC filings included on Form 10-K and the end of year, December 31st, 2023. 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 provide the comparable GAAP and non-GAAP numbers in today's press release and provide non-GAAP reconciliations in the supplemental tables in the back of the slide presentation. And with that, I'd now like to turn the call over to Chief Executive Officer Todd Gleason. Todd?

Thanks, Stephen. And to our audience, thank you for your interest and continued support. If you would, please turn to slide number three, which is entitled Q4 and full year 2023 earnings highlights. I'm going to start with an overarching comment that we delivered an outstanding quarter and a tremendous full year. We are proud of the financial records in 2023, of course, but even more excited to advance our leadership positions in industrial air, industrial water, and the energy transition. With that, let's review the slide. On the left side of the slide, we list a number of key accomplishments that I will quickly review. The right side of the slide compares our full-year results against our most recent full-year guidance, which we provided in November 2023. As the green checkmarks indicate, we achieved or exceeded each of our key financial targets as we closed the year. As we outlined in today's press release, Segal delivered multiple financial records during the fourth quarter. Our quarterly and full-year financial performance showcased strong continued growth, which is a result of our world-class teams delivering for our global customers every day. We continue to invest in our people, our processes, and our solutions to ensure we meet or exceed customer requirements with respect to their needs. Thank you, Team Seco, for your customer-first focus and accountability for performance. Now let's review some of our fourth quarter and full year highlights. The section on the left of the slide captures some of those achievements that we delivered this year. I am pleased to share that our fourth quarter revenues represent the highest quarterly sales in the company's history. The prior company record for sales was last quarter in Q3 2023, so we continue to maintain steady sales growth. We also delivered the highest gross profit and adjusted EBITDA dollar levels in our history. Backlog as of December 31st was $371 million, up 19% when compared to the same period last year, and is the highest year-end backlog in our company's history. Even as we continue to transition our portfolio to more short and mid-cycle sales, orders for the year yielded a book-to-bill of approximately 1.1. So in short, it has been a solid performance from our businesses, ensuring that we continue to drive great growth. And with our sales pipeline of over $3.5 billion, we expect to maintain our solid bookings trajectory. The combination of our record year-end backlog, as well as the very strong sales pipeline and our overall execution, gives us the confidence and visibility to raise our previously announced full year 2024 guidance, which I will cover in more detail soon. Switching gears to our investment strategy, 2023 was another year of significant steps being taken in Seco's transformational journey. We deployed approximately $60 million in growth capital, with much of it targeted towards the completion of three acquisitions. We are pleased with the transactions we completed in 2023 as they continue to deliver outstanding financial performance while also adding top-notch talent, new technologies, and further round out our very well-positioned market leadership. And given the strong free cash flow we delivered, we maintain a very healthy balance sheet. Now, please turn to slide four, and let's review a snapshot of SECO's fourth quarter and full year 2023 financial results. Peter will cover many of these financial figures and metrics in more detail in a few minutes. However, let me highlight a few areas. I will mostly stick to the right of the slide, which covers full year 2023, as Peter will spend a little bit more time on the fourth quarter results. The panel on the left side of the slide provides a snapshot of SECO's fourth quarter financials, all of which are very strong. SECO's full year orders of $583 million represent the highest annual bookings level in our company's history, continuing a trend of outstanding orders growth, which drove year-over-year growth of 11%. As a reminder to our audience, we have been growing orders steadily since the second half of 2020, so this is definitely not just a 12-month phenomenon. but rather a continuation of positive change to deliberately convert global customer and market demand into SECO bookings. And as always, I caution against focusing on quarterly bookings because there are many factors that influence the timing of an order, including the mixed shift of our long, mid, and short cycle sales. Internally, we focus on full year outlook and results. Sales of $545 million was also the highest annualized levels for SECO, producing a year-over-year growth rate of 29%, which follows full-year 2022 sales of over 30%. Additionally, as I mentioned previously, fourth quarter sales were a record level for any quarter in the company's history. For the full year 2023, organic sales growth was approximately 22%. Full year adjusted EBITDA of approximately $58 million was up 37% year over year. This result produced adjusted EBITDA margins for the year of 10.6%, an increase of approximately 60 basis points year over year. As a reminder, full year margins would have expanded 110 basis points if not for a favorable insurance item in 2022. Additionally, we expect our annual G&A investments to level off a bit, which we expect will deliver higher conversion on future top-line growth. Adjusted EPS in the year of 75 cents was up modestly versus full year 2022, as our 2023 EPS overcame approximately 20 cents of higher interest expense. Finally, we generated $36.2 million of free cash flow in the year. We overcame a slow start to 2023 that, if you recall, saw negative cash in Q1. In the second half, we delivered about $40 million of free cash flow as we managed working capital very well. Our businesses are doing a great job driving that working capital, which allows us to maintain our disciplined capital allocation strategy focused on organic growth and programmatic M&A. So to conclude this slide, just tremendous records and outstanding results. Now please turn to slide number five. In previous earnings and investor presentations, we have articulated how we have transformed our portfolio over the past several years. We introduced this new slide to help capture that ongoing transformation. In 2021, shortly after I joined SECO, We outlined a high-level strategy to transition from a portfolio which had been heavily dependent on long cycle and very cyclical legacy energy markets. Our goal was to increase our percentage of shorter cycle sales mix as well as reduce our percentage of business mix that was tied to cyclical long cycle business. As the slide shows, our current portfolio is exceptionally balanced. Industrial air currently accounts for approximately 40%, while industrial water and energy transition are each around 30%. We have also increased our short cycle sales to approximately 30%. This transition has occurred while we have delivered tremendous growth and performance. Our full-year sales are 72% higher in 2023 when compared to 2020 levels, and our backlog is up an eye-popping 103% over that same period. Importantly, we have delivered outstanding shareholder value. Since mid-2020, which is when I joined the company, Seco has delivered over 250% of shareholder value in both stock price and market capitalization growth. I can assure you that management is very aligned with shareholders. We take this very seriously. It is also rewarding to be recognized by Fortune Magazine as one of America's most successful public companies, as noted on the top right corner of the slide. Our employees and global partners are proud of our success, so this recognition is appreciated. We expect to continue to deliver outstanding growth while we advance our portfolio through deliberate investments, inorganic and programmatic m a i'm not going to read all the comments on slide number six but let's go there i'll make a few points first we introduced a very similar slide a few years ago we articulated that we would drive both tactical and strategic actions to deliver consistent growth and shareholder returns while we steadily transform our portfolio we believe we have been very transparent with our goals and objectives and also feel we have delivered on our commitments While you have to constantly adjust to market trends, headwinds, and other challenges, we did what we said we would do. And this updated slide represents a similar high-level summary of our ongoing goals and intentions. From left to right, we expect to build off our foundational accomplishments as we turn our attention to the key actions we expect to drive in 2024 to maintain our strong growth and long-term shareholder value creation. Our commitment to high performance requires a real balance of initiatives to drive that short to medium term result, as well as longer term capital allocation programs to ensure we are positioning SECO for sustainable future performance. Each of these investments, for lack of a better word, ensures we continue to build commercial excellence, operational excellence, and also we utilize our capital to maximize returns. These initiatives, along with ongoing investments in culture and talent, are the heartbeat of our operating model. As we position for future years, we will provide updates on our progress against these programs and commitments, as well as other details on more granular initiatives. Now please turn to slide number seven and let's review guidance. As I mentioned in my earlier remarks, and as you saw in our press release that we issued earlier today, we are pleased to share an update to our full year 2024 guidance. While we understand there are always unknowns and market dynamics to create pause with respect to forecasting in this environment, we believe SECO is in a unique position with better than average visibility to maintain growth. SECO's leadership in industrial air, industrial water, and energy transition will continue to benefit from investments in reshoring industrial production, sustainable infrastructure growth, global energy transition to new and renewable sources, and specific governmental investments, excuse me, governmental investment programs such as the CHIP Act and others. The combination of these positive market dynamics coupled with our record backlog and great sales pipelines gives us the confidence to raise full year 2024 guidance at this time. With respect to full year 2024 orders, we maintain a consistent outlook for a book to bill greater than one. With our robust sales pipeline being fueled by the mega themes I just articulated, we expect very strong bookings. As we always remind the investment community, our quarterly bookings levels might ebb and flow a bit but for the full year, we expect to drive a positive book to bill. We are increasing our full year revenue guidance to between 590 and $610 million, representing about 10% growth year over year at the midpoint. The updated 2024 full year guidance is compared to previously communicated outlook of between 575 and $600 million, an improvement to both the low and the high end of the range. For adjusted EBITDA, we are updating the range to be between $67 to $70 million for the full year 2024. This outlook would be up over 20% versus 2023 at the midpoint, representing further margin expansion for the year of about 75 to 100 basis points. The current guidance is compared to the previously communicated outlook of between $65 to $70 million. On free cash flow, we reaffirm our expectation to maintain between 50% to 70% of EBITDA as our free cash flow target. So to conclude, we raise our full year 2024 outlook to reflect our expectations given our tremendous backlog coupled with our commercial and operational excellence programs, which will drive robust growth and further operating margin expansion. We also entered the new year with a very healthy balance sheet, which gives us added optionality as we execute on our programmatic M&A capabilities. I will now hand it over to Peter, and he will walk you through more detail on our financials, as well as some additional color on our capital deployment and cash management in the quarter and upcoming periods. Peter?