CECO Environmental Corp.

Good morning, and welcome to the SECO Environmental Second Quarter 2024 Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star 1-1 on your touchtone phone. To withdraw your question, please press star 1-1. 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, Gigi, and thank you for joining us for the SECO Environmental Second Quarter 2024 Earnings Call. On the call with me today is Todd Gleason, Chief Executive Officer, and Peter Johanson, Chief Financial and Strategy 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 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 statement. We encourage you to read the risk described in our SEC filings included on Form 10-Q for the quarter ended June 30, 2024. 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 a 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 Gleason. Todd?

Thanks, Stephen. And to our audience, thank you for your interest and continued support. We are a little more than halfway through the year and are very pleased we continue to meet or exceed the needs of our customers while making a positive impact on our communities and creating above market shareholder value. As we outlined in today's press release, we delivered another strong quarter while maintaining our strategic investments to further advance our operating model as we pursue exciting growth opportunities across industrial air, industrial water, and the energy transition. In the quarter, we delivered several impressive financial records, including our highest second quarter sales, gross profit, adjusted EBITDA dollars, and excellent year-over-year margin expansion, all of which reflects the operating model we have developed and continue to advance to drive sustainable results. Now, please turn to slide number three, entitled Executive Summary, and I will highlight some key takeaways related to our second quarter performance. We delivered sales of $138 million in the quarter, a 6% improvement over last year, overcoming the impact of timing delays associated with a few customer-driven projects and the more drawn-out process finalizing bookings in large project opportunities. If you recall, we signaled this in our first quarter earnings call, and although we grew sales approximately 9% sequentially, We expect to grow sequentially in the third and we expect to grow sequentially in the third quarter. These timing issues had a modest impact on sales year to date. Gross profit of $49 million was an increase of 23% over Q2 last year and gross margins of almost 36% were up about 500 basis points year over year, further demonstrating the benefits we are realizing from our operational excellence efforts and our strong project execution. We expect that the benefits we are seeing from our sourcing and productivity initiatives will continue in subsequent quarters. Continuing with Q2 financial metrics, adjusted EBITDA of $16.1 million was up 18%. And EBITDA margins of 11.7% were up approximately 120 basis points year over year. Margin expansion was attributable to higher volumes, positive mix, and G and A efficiencies. Finally, adjusted EPS of 20 cents was up 33% year over year, benefiting from our continued improvements in operational performance and improving interest rates. So overall, very pleased with the financial records in the quarter and the balanced performance. Now please turn to slide number four. We will quickly review our first half of year results and how they set up SECO for a strong finish to 2024. Peter will add some commentary on these points as well. Let's start with orders and sales, the top line, so to speak. Orders for the first half were $286 million, which produced a positive book to bill of 1.08. But order volumes were down about 7% year over year. While we are pleased to have booked a bill of almost 1.1, we are disappointed that our first half 2024 orders were down. Our order pipeline has never been stronger. And we continue to do a great job winning and booking small to medium-sized projects. But we have witnessed a longer booking process associated with the large customer opportunities. In the first half of the year, excuse me in the first half of last year we were not seeing this long duration time in the notification to order process and we booked one large industrial air order and one large energy order each exceeding 25 million dollars we have similar opportunities in our current pipeline and had just one or two of these jobs booked this year our year-to-date orders would have been up double digits instead Those large pending orders remain in our pipeline, and although we are confident our second half orders will reflect some of these large orders, as we look at our pipeline over the next six to 18 months, we see significant number of large jobs, especially in the energy transition and power markets as the demands associated with electrification, data centers, and general power consumption continue to ramp. So we remain optimistic in our full year bookings outlook and confident that we are well positioned for some large, exciting project wins. Sales in the first half were $264 million, up 9% year over year, which is at or near the midpoint of our full year growth rate expectations. Additionally, if you look at our guidance for the full year, this first half sales level represents about 43% of that full year expectation. This is similar to previous year's run rate for the first half of the year. We expect stronger year over year sales levels in the second half as our near record backlog produces more volume and project timing is more favorable. First half of year adjusted EBITDA of more than $29 million was up 26% over prior years, first half and margins were up over 150 basis points. We had very strong income generation on our sales growth, which demonstrates the benefits we are getting from improving mix and our productivity initiatives. Adjusted EPS of 32 cents is up 28% year over year, benefiting from improving operating leverage and the positive trends we're starting to see from lower interest rates. Free cash flow generation was up nicely when compared to last year, as we continue to benefit from higher margins, or excuse me, higher volumes, and our drive associated with working capital management improvements. And while we didn't deploy capital for acquisitions in the first half of 2024, we did maintain balance sheet health with low debt to EBITDA leverage ratio and repurchased $2 million of shares in the second quarter. Year to date, we have repurchased $5 million of our stock through opportunistic price targeting. We have approximately $8 million remaining on our multi-year stock buyback authorization. So, A solid first half of 2024 with a lot of great progress building our sales pipeline, executing on projects to deliver for our customers, and of course, the very strong margin expansion and EPS growth. Please turn to slide number five and let's review our full year outlook. Typically, companies save guidance commentary for the end of their earnings report, but we felt it was important to incorporate our key themes in this first section. We are pleased to raise our first, excuse me, our full year guidance for both revenue and adjusted EBITDA. This is the second time we are raising full year guidance since we first introduced our 2024 outlook. You can see the initial guidance range in the column on the left side and how we have increased the guidance range over the past six months. With respect to full year revenues, we now expect a range of 600 to $620 million, up about 12% at the midpoint. This compares to our previous sales range of 590 to $610 million. With respect to adjusted EBITDA, we now expect a range of 68 to $72 million, up about 21% at the midpoint. This compares to our previous adjusted EBITDA range of between 67 to $70 million. And we continue to see free cash flow of approximately 50% to 70% of EBITDA for the full year. Our updated guidance range incorporates a few key factors. As I already mentioned, we enter the second half with a near record backlog as well as a tremendous sales pipeline. These two top line factors give us visibility and confidence to deliver second half sales performance in line with this outlook. Our diverse and global sales pipeline includes meaningful project opportunities in a variety of energy-related sectors, as well as ongoing strength in general industrial markets. And with respect to adjusted EBITDA, we expect to continue to produce solid margin expansion driven by more gains associated with productivity and improving business mix. We are balancing these positive items with a clear-eyed focus on items that could be challenges such as ongoing timing delays associated with larger projects, and of course, some unknown economic and political factors. Net-net, we feel good about raising guidance for the full year and continuing to invest for future growth. In addition to the items I just mentioned, I want to touch on M&A. As many of you know, We have been programmatic with respect to acquisitions over the past few years. While we did not complete a deal in the first six months this year, we advanced several attractive business transactions that fit our strategic focus on acquiring niche leadership businesses with outsized growth potential. As we shared in our press release today, I am pleased to announce we completed an acquisition this week, which is incorporated in our outlook. While the business will have a small financial impact to our full year 2024, we are very excited with the opportunities the acquired business brings to our portfolio. And while this is the only transaction incorporated in our guidance, we continue to advance our M&A pipeline and remain committed to adding winning businesses to advance our leadership positions. Please turn to slide number six. Well, I will brief you on the recently acquired business of EnviroCare International. Yesterday, Monday, July 29th, we completed the acquisition of the California-based EnviroCare International. EnviroCare has annualized sales of approximately $13 million, and we believe, as does the EnviroCare leadership, that with focused investment and utilization of our established global sales and operations teams, we can significantly increase their growth and profitability. The company has an established industrial air niche leadership position in markets including chemicals, food, mining and metals, cement products, and municipal solid waste applications. As you can see on the slide, the business has 30% of sales in aftermarket, and we believe this is a growth opportunity within their installed base of over 1,000 systems. We also like the strong patent portfolio and decades of market and technical knowledge. In fact, we might suggest some of these smaller acquisitions could be considered or could be called aqua resources, where you are acquiring resources. We believe the financials and growth profiles are very attractive on their own, but the resources are very strong, and we look forward to working closely with the team. So with that, I'll hand it over to Peter, who will walk us through additional information on our financial performance for the quarter. Peter?