CECO Environmental Corp.

Good day, and thank you for standing by. Welcome to the Seco Environmental first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Stephen Hoosier, Investor Relations. Please go ahead.

Thank you, Liz, and thank you, everyone, for joining us for the SECO Environmental First Quarter 2025 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. This call will be webcast along with that earnings presentation, which is on our website at secoinviro.com. The presentation materials can be accessed through the investor relations section of our 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 SEC filings included on Form 10-K, the year ended December 31st, 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 provided a comparable GAAP to non-GAAP numbers in today's press release and provided a non-GAAP reconciliation in the supplemental tables in the back of the slide deck. And with that, I'd now like to turn the call over to Todd Gleason, Chief Executive Officer. Todd?

Thanks, Stephen. Good day, everyone, and thanks for joining. Let's go ahead and please turn to slide number three. These are some of the highlights we're going to cover on today's call. We're pleased to share that we delivered multiple financial records in the first quarter. Perhaps the most impressive of our Q1 achievements was our record bookings of approximately $228 million in up 57% year over year. We generated these tremendous bookings without a large order in either the power generation or produced water treatment markets, and these records reflect the continued strength of our entire portfolio. We still see very large opportunities in these water and power sectors, and we anticipate very exciting order bookings related to these opportunities in the coming periods. Overall, our sales pipeline, which tracks future potential orders looking forward up to 18 months, remains very strong and continues to grow sequentially. Just six months ago, our sales pipeline was roughly $4.5 billion and now tops $5 billion for the first time ever. In that new level of note are almost a dozen opportunities that are each greater than $50 million in value. As we will discuss in a few minutes, the key growth themes we have been discussing for over a year all remain very much intact. And while there is a lot of noise and uncertainty related to tariffs and the potential impact on supply chain costs and the economy, we have not seen a material slowdown in our market and customer activity. I would suggest that the same themes that we've been driving SECO's growth over the past year or more are only reinforced by the stated goals of the current administration, and we remain bullish on these themes regardless of how they are promoted. The need for more industrial manufacturing or reshoring remains critical. More natural gas infrastructure is required to deliver the fuel to power this new manufacturing activity. More power generation for the electrification to satisfy growing consumer and commercial applications. And more investment in water and broader infrastructure is required on a global basis. These are just a few examples of the powerful trends in our very broad and highly diversified opportunity set that remain front and center on our agenda. As a result of all these highlights, we are maintaining our full year 2025 guidance. We have initiated price and productivity measures to help offset the known impacts from the current tariffs, and we are monitoring this very dynamic situation as well as any impacts to the overall economy. SECO does benefit from a vast majority of our supply chain being geographically aligned with our customers and projects, which does help to minimize our exposure. More on this topic in just a few minutes. Now, please turn to slide number four for a quick summary of the highlights of the quarter. Before diving in, please note that our first quarter results include a full quarter of pro-fires impact, as well as our fluid handling or global pump business being removed because we divested that business, or being included, excuse me, because we did not divest that business until the very end of Q1. Starting with backlog, we exited the quarter with $602 million, which is up 55% year over year, and approximately $60 million higher sequentially, driven by another record quarter of new orders. Our Q1 orders, again, is an exclamation point to the diversity of our business and well-positioned leadership and growth sectors. And the $5 billion pipeline that I just mentioned continues to reinforce our confidence that we will continue to deliver very high bookings levels. Of note, over the past three quarters, we have booked over $600 million in orders, which we expect will yield a near-term quarter that will produce sales over $200 million for the first time ever. Now moving to revenue, we recorded $177 million for the quarter, up about 40% year-over-year, of which 28% was driven by our most recent acquisitions. If you recall, in the second half of 2024, our execution was impacted by a handful of significant projects that were delayed due to customer timing. And although we saw some recovery in the quarter, we're expecting to accelerate and recover entirely from those delays over the next handful of months. Moving to adjusted EBITDA at 14 million, a result slightly above expectations, driven by volume drop-through and gross margins in the mid-30s, which are in line with recent quarters. Our EBITDA was modestly depressed by timing of resource investments in the business related to the significant increase in our backlog and pipeline. We also had some transaction headwinds related to integration and an increased level of process normalization, which we accelerated in the quarter. An adjusted EPS of 10 cents is above consensus as well. Finally, the first quarter was also about executing on our strategic transactions with the acquisition of Profire Energy and the divestiture of our Global Pump Solutions business. I want to take a moment to thank the great team at the Global Pump Solutions business for their dedication to SECO and to their customers. We wish the newly branded Tusk Industrial much success as they embark on an exciting new journey. I am also pleased to report that Profire is off to a very strong start as part of Seco. The business produced very, very high levels of bookings in the first quarter, as well as revenues, and are delivering on the integration synergies that we've identified. We are very energized by the addition of Profire, pun intended, and look forward to sharing additional updates in the future. So to wrap up this slide, SECO had a strong start to the year, especially given all the noise in the market at the moment. And we head into Q2 with a strong backlog and lots of momentum. Now please turn to slide number five. I just mentioned the noise in the market. Every day we are confronted by new headlines associated with tariffs, potential impacts around the economy, trade wars, international negotiations, just so much noise and new headlines every day. Granted, it can be a little exhausting, But it is also an opportunity to remind our audience of SECO's business resilience and how we believe we can and will navigate this uncertainty. How is SECO able to drive 57% orders growth in the midst of so much potential turmoil? I suggest it is because over the past three to four years, we have steadily invested to position our niche leadership businesses in geographic and vertical markets with the highest potential growth profiles. As this slide highlights, we entered 2025 with our diverse portfolio of leading niche businesses in industrial air, industrial water, and energy transition, and had established a truly global capability to serve our customers' most demanding environmental challenges. Additionally, we entered the year with a very strong financial profile, with a then-record backlog a significant sales pipeline, and a track record of delivering multiple straight years of solid organic and inorganic growth, as well as margin expansion. And in each of these areas, we've hit the ground running in 2025. We added more diverse leadership, including the profile business, and expanded our footprint and resources in Southeast Asia, India, and Europe. Our sales pipeline has grown to exceed the $5 billion, and we have taken early action to address our preliminary assessment of tariff-related inflation and costs. Essentially, our portfolio and financial profiles are stronger and more diverse than even 90 days ago. And perhaps most importantly, we have been talking about the same focus growth theme for many quarters, if not several years, and these same growth themes remain our focus today. The more reshoring, more power, more electrification, and so on, all the points I highlighted just a minute ago with respect to our $5 billion sales pursuit. These are all powerful trends, important investments that need to occur, and this agenda is clearly the focus of the U.S. administration and, we believe, leading economies around the world. Suffice it to say, we aren't changing our focus. Yes, there's a fair amount of uncertainty at times, and yes, it's a dynamic environment. But what we think the market liked about SECO as we entered 2025 We believe we should be even more powerful today. So we appreciate your interest, and we feel we are very well positioned for tomorrow. Now, please turn to slide number six. I've shown this slide in various investor presentations and also in previous earnings. The reason for revisiting it is just to reiterate some of the data and also, of course, to continue to highlight our $5 billion sales pipeline, which was only $1.5 billion four years ago. On the left side of the slide, you can see that our sales are balanced across short, medium, and longer cycle mixes of business. Starting with 30% of our sales, which are shorter cycle in nature, they provide a relatively consistent flow of sales from aftermarket, service, and standard product shipments. As we have stated in prior calls, we continue to evolve the portfolio to a greater shorter cycle mix of business with a goal that this 30% reaches 50% in the next few years. A similar amount of revenue is generated from what we consider to be lightly configured engineered solutions. This mix of revenue that we often reference as mid-cycle because from the minute we book the order to when we're generating revenue, these projects usually last somewhere between six to nine months in backlog. And finally, the balance of our sales is from larger or longer cycle projects These are highly engineered, and Seco has a world-class reputation for engineering and delivering these complex, very custom-built solutions. These projects start to turn to revenue approximately three to six months after entering backlog, and they might stay in backlog up to 18 months. On the right side of the slide is a fairly self-explanatory sales pipeline visual with supporting information. This sales pipeline is a combination of replacement systems from our large install base through to the ability to enter new markets and support existing or new customers. Peter is going to highlight our very successful track record of orders growth and book-to-bill expansion in just a few minutes, but it is important to understand that not only is our portfolio diverse, but our business generates revenue through a relatively balanced mixture of short, medium, and longer-term revenue streams. Now, please turn to slide seven. I'm going to walk you through our view and evaluation of the current tariff environment. I'm going to be brief on this chart, but we wanted to outline the current state of exposure relative to tariffs by region, as well as some corresponding operational actions. Again, I'm not going to read through this slide, but the key points here are, one, we are working with our customers and fabricators to ensure contractual language is understood and protections are sufficient. Second, we have identified direct inflationary and tariff impacts that we are working to mitigate. And third, we are naturally prepared to weather a bulk of the current or known turbulence associated with tariffs given our operating model of managing our supply chain in the same region as the customer or project location. In essence, much of our costs are just not imported. Now let's move to slide eight so we can talk about the estimated financial impacts associated with these tariffs. Everything shown on this slide and modeled here is based on current tariff rates and public data as of April 28th. As we have already mentioned, this is a pretty fluid situation, hard to predict what tomorrow might bring. That said, let me start with the key assumptions baked in our estimates. Under the current tariff policy, most of our goods and services are compliant with the USMCA agreement between the US, Mexico, and Canada. We are also modeling a 25% tariff rate on raw steel and aluminum that remains in place throughout the rest of the year, as well as an additional 10% reciprocal tariffs as we understand it today. The current tariff rates include a 90-day pause on incremental reciprocal tariffs, and our analysis assumes these remain in place through the balance of 2025. Talking about the impacts as we see them percolating in three sourcing areas, as you can see on the left side of the slide, the first area is listed as materials and is essentially directly imported purchases and largely reflect the impact of our steel and aluminum purchasing impacts. Current estimates have our exposure at somewhere around $2 to $3 million. The next on the list is what we call components, which you should think about as finished goods such as pumps, valves, and similar. These are products we buy to help complete the package solutions we are selling to our customers with minimal work for us or our fabricators. This category is mostly exposed to the global reciprocal tariffs being applied across the different geographies, and if we see the cost increases, it will simply be supplier price rising. We estimate this could be up to $2 million in the full year of 25. The final item on this list is our fabrication exposure, which is exactly what it sounds like. We partner with fabrication companies in regions around the world, and they help us fabricate a portion of our finished product. Fabrication exposure can be up to $5 million, we expect, and is made up of two categories. The first level is direct fabrication exposure associated with ongoing projects or very recent order awards. Either way, these are currently in our backlog and we can quantify if there is tariff exposure. This category is a minimal tariff impact because many of these imported products are from Canada and Mexico and we believe are USMCA compliant. The second category with fabricators is inflation risk associated with our fabricators being forced to raise their prices given tariffs or inflationary items this is how we get to a potential exposure that could be up to five million dollars or potentially even slightly higher the element of risk is hard to quantify as you can imagine and we are focused and we excuse me we are forced to speculate a little bit we are working closely with our supply chains to understand the risks and of course drive productivity and associated price actions all in we estimate a gross tariff exposure to be between $3 to $10 million. We aren't just sitting idly by and keeping our fingers crossed. We are implementing mitigation programs and evaluating additional actions. As I already said, we believe most of our contracts enable us to price through cost increases associated with these impacts. And many of our purchases are in region for region. So in those cases, little to no impact. However, We are taking proactive steps to mitigate the current estimated tariff impact. As I mentioned earlier and in our press release, we have taken some Q2 cost actions to reduce certain redundancies in our G&A structure. And we are driving additional productivity actions in our supply chains. And we have raised prices and likely will be raising prices where possible and applicable to these tariff increases. Each of these actions will help protect our bottom line and we will monitor the situation, determine if more actions are necessary. With that, please turn to slide number nine, and we can walk you through what all this means to our 2025 outlook. As today's press release highlighted, we are maintaining our full year 2025 guidance, but we are obviously monitoring closely how the situation around tariffs and the overall economy evolves. Starting top to bottom, We are reaffirming our 2025 orders guidance to exceed full-year revenues, thus delivering a positive book-to-bill for the year, extending our multi-year run of book-to-bill greater than one. This is supported by a strong start to the year and the pipeline growth discussed in my previous slides. For revenue, we are reiterating our outlook for a range of between $700 to $750 million, which is a 30% growth rate year over year. If you take the midpoint of that range, about half of the growth is organic and half is from the acquisitions we have already completed. If you recall, this outlook already considered the divestiture of our global pump solutions business. Therefore, no changes required from a strategic transaction standpoint. For adjusted EBITDA, we are also maintaining that range between $90 to $100 million, up approximately 50% at the midpoint versus prior year. And for adjusted free cash flow, we are maintaining our conversion guidance of 60% to 70% of adjusted EBITDA. SECO is committed to driving high performance. And while there is a lot of noise in headlines and markets today, we believe our guidance reflects a solid outlook for the year. I'll now hand it over to Peter, and he'll walk you through some additional details on the quarter and more color on the state of the business. Peter?