Greetings, and welcome to the CECO Environmental Corporation First Quarter 2017 Earnings Release. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ed Prajzner, Executive Vice President of Corporate Development. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining us on the CECO Environmental first quarter 2017 conference call. On the call with me today are Dennis Sadlowski, Interim Chief Executive Officer; and Matt Eckl, Chief Financial Officer. Before we begin, I would 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 Web site at cecoenviro.com. The presentation material can be accessed through the Investor Relations section of the Web site under the Upcoming Events tab. I would 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 vary materially from those expressed or implied by the forward-looking statements. We encourage you to read the risks described in our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2016. Except to the extent required by applicable securities laws, we undertakes 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 have reconciled the comparable GAAP and non-GAAP numbers in today’s press release as well as in the supplemental tables in the back of the slide presentation. And now, I would like to turn the call over to Dennis.

Thank you, Ed, and good morning, everyone. I’m now in my fourth month as Interim CEO at CECO Environmental and I have to say I like our business more and more with each passing day. The customers that I’ve met with let me know clearly that they value our solutions, products and services. Our employees are energized and enthusiastic about our pivot towards a greater external focus to drive organic growth. And our operational execution, which has of course strengthened CECO, continues to deliver strong growth in operating income margins. We’re making significant strides to achieve our great potential and we’ll need to invest in some further technical depth to fuel our growth as we cultivate the passion for teamwork and valuable customer outcomes as a part of our path forward. CECO is a great business. It serves a number of attractive end-used customer markets; power generation, gas pipeline, refineries, along with both manufacturing and process industries within the diversified industrial category. Our solutions, services and product applications enable customers to optimize their process safety and efficiency, while also improving our shared environment by addressing nitrogen oxide emissions, contaminant such as volatile organic compounds, particulate and hazardous gases. We’re an important part of our industrial customers’ plans for growth, as we provide them more efficient solutions that simultaneously provide for a clean and safe work environment for their employees. CECO and its brands have built a reputation for delivering highly reliable, technically strong products. So our ongoing challenge is to continue and enhance and propel our organic growth engine. One important element of value to our customers is that we can provide lifetime support and service solutions to keep our customers at the forefront of competitiveness. To this end, our recurring revenue aftermarket service teams continue to make progress and…

Thanks, Dennis, and good morning, everyone. I’ll now discuss highlights of our recent performance adding color as we walk through the slides. Detail will include both GAAP and non-GAAP performance for the first quarter of 2017 for our consolidated CECO results and three segments. As a reminder, our non-GAAP adjustments include but are not limited to executive transition expenses, facility exit expenses, acquisition and integration expenses, earn-out expenses and goodwill and intangible asset impairments. Our non-GAAP presentation is intended to provide trend analysis and assessment of our core business performance. Our bridge of non-GAAP items is referenced in the appendix of today’s presentation. On Slide 9, you’ll see our headline performance comparable for the first quarter of 2017 year-over-year stated on a GAAP and non-GAAP basis. We had a solid operating quarter despite macroeconomic headwinds which led to reduced revenues and bookings. Revenue was down 10.2% in the quarter year-over-year due to lower opening backlog and lower aftermarket sales, primarily due to a few large service contracts executed in Q1 of last year. Aftermarket revenue did improve sequentially in Q1 versus Q4 of 2016. Gross margin was up 3.9 percentage points year-over-year for the first quarter driven primarily by a more favorable project mix in the current year. Operating profit was 1.4 million in the first quarter, down 4.4 million year-over-year due to increased SG&A expense and increased amortization and earn-out expenses. SG&A on a GAAP basis was up 2.4 million year-on-year from 20.9 million to 23.3 million in Q1. Approximately 1.1 million of spend is related to one-time executive transition and facility exit expenses called out in our non-GAAP reconciliation tables. The remaining SG&A increase year-over-year is both 50% transient costs associated with strategy refresh and approximately 50% structural as we invested in our back office team to ensure…

Thank you, Matt. Let me wrap up by saying that the Board and I believe in CECO, our financial strength and most of all in our people. CECO has great operating metrics and asset-light business model and a deep bench of disciplined operators. Together with a better focus on delivering top line growth and value to our customers, we should be able to build a stronger, more effective CECO. With that, I would now like to turn the call over to the operator to take your questions.

Thank you. The floor is now open for questions. [Operator Instructions]. Our first question is coming from Ryan Cassil of Seaport Global. Please go ahead.

Good morning.

Good morning, Ryan.

I was wondering just based on where the bookings were and the current backlog I’m trying to partner that with you commentary that things are looking up, I was wondering if you could give us a sense for how do you think the year plays out in terms of the top line? Should we be thinking about a decline similar to what we saw in Q1 for the second quarter and do you think that growth can turn positive or flat now here in the second half? Any color there would be great. Thanks.

Thanks, Ryan, and thanks for spending the time with us this morning. It all starts with new bookings and I think I spoke last call as well that last year in 2016, we started out with great strength on the bookings and went through a period that was much weaker. And this year we started out a little weak in the bookings and we anticipate as the year goes on, building strength and building momentum. That’s what our pipeline shows right now, that’s what our team is anticipating and that’s what I would give you in terms of what we’re thinking as the year goes on. We see kind of a reverse of the trend that we saw in bookings last year. How that translates to sales is always a little dependent than on how quickly customers want us to get started in the project business and as well the mix of short cycle to long cycle that we have.

Yes, okay. But it seems like I guess just based on the start, the bookings trend shifted at first half. It’d be tough to have growth for the full year. But you may see an exit rate at a positive organic growth level if things continue to pick up I guess from here. Is that a fair way to think about it?

I’d say that’s probably a reasonable look right now considering the past three quarters of bookings that we generated. Again, a lot of momentum coming into new bookings and what we’re looking at. We’re seeing a lot of larger projects right now in the forward RFQ look, especially in energy and those tend to be digital. We got a lot of optimism in the team and the global teamwork is really starting to function.

Okay. In the environmental, that’s where you’ve seen that step down and it’s been actually stable over the last few quarters. Are we thinking that’s more of a slower kind of gradual drift higher sort of at this new level, or do you see a bounce back there potentially in demand as we move forward?

Well, honestly, the single largest headwind across the entire business is in our FCC cyclone business. We are absolutely the number one share player. It’s a global market. And we don’t believe we’re losing any market share. If anything, we have a few activities that might suggest we’re even gaining share. But after two very strong years, we’re experiencing a downturn in new projects that hasn’t been seen since the 1980 oil crisis. So year-over-year, bookings just in that field alone could be down as much as 30 million but we do come into the year with a good backlog, but at the same time, as I say, a harsh downward outlook in the near term. We see that same outlook coming back in '18 and beyond. And so it’s still a very good business and promising in the outward periods. This year is going to generate a lot of headwind for us.

Okay, understood. And bigger picture thought here. You mentioned you still need to implement some resources in order to drive organic growth. Perhaps indicative of just your thoughts on where the business is today and where it needs to be and now that you’ve been there for a couple months, I wonder if you could just kind of give us your thoughts on what those resources might be and how long it might take to implement that strategy to kind of get things where you want it to be?

Yes, well, I would tell you that armed with the extra time in the period that I’ve been here, I’d say we have still lots of potential. That would be the number one description of what I see and gets me excited about the business. There’s potential across the people in the markets. For example, in our air pollution control business, we’re still largely competing as a fragmented set of very strong application-focused friends rather than really leveraging that broad case of we have expertise across the gamut of industrial air quality solutions. And so that’s an area that we’re looking at for improving investing. In energy, Peerless, Aarding, Zhongli, Emtrol-Buell added to that as far as environmental. These are strong market-leading positions, great application providers. And across that, we’re finding very good synergy and very good building on the global teamwork and that’s having a good impact. So those are some of the areas. In terms of where we’re making our adds; today, we are embedded in prioritization through the strategic refresh process. But as that goes on, everywhere we find rainmakers and we’ve found a few guys that love the ethos that they’re seeing in the company and wanting to come back to the company and really bring that focus to the market or from the customers into the market. And so we’re making spot additions as we go and we’ll really look at how we perhaps shift and make the tradeoffs as we complete our strategic refresh process. I hope that helps. It’s the blend of kind of short term and a little bit of the outlook work that’s underway.

Yes, it sounds like I could summarize adding some strategic sales leadership and perhaps shifting the go-to-market strategy in some of the verticals. Is that a fair summarization?

Yes. And one of the other things that I would characterize is when I talk about outside-in, that whole philosophy is really being embraced well across the leadership. If I compare the last three months with the fourth quarter of 2016, we have twice the number of direct face-to-face customer touch points from our senior leadership team that we did again in the prior fourth quarter. So it’s being embraced. The leaders are getting out more often, more regularly and we’re finding that that also will create momentum and headroom for our sales people individually who were working the transactional side.

Okay, great. Thank you. I’ll pass it on.

Thank you. [Operator Instructions]. Our next question is coming from Sean Hannan of Needham & Co. Please go ahead.

Yes. Thanks for taking my questions here this morning. So just a follow up on some of the commentary around bookings now. It’s nice to see the bookings up quarterly and I realize you folks are seeing good activity at present. But I think that the first quarter over the last good number of years it’s a typical uptrend that you’re going to see in that first quarter. So I just am looking to see if I can understand maybe a little bit better anything specific in there that’s encouraging or unique that makes it stand out more supportive of the transition that you are trying to put into place here from an overall effort perspective? Thanks.

Thanks, Sean. And I’m not sure I followed completely your question. What we --

I think that the last good number of years, your first quarter of bookings, it’s always up. So I’m trying to understand a little bit better of what is supportive in the uniqueness that we’re seeing here. And anecdotally you’ve mentioned that you’re seeing good activity here but I’m just really trying to understand this a bit better, because quantitatively it seems to mirror what we’ve done in the past? And I’m not saying that in a negative fashion. I’m just trying to get a little bit more color.

So I think I understood the question and it would be hard for me to put into context that we have a seasonal first quarter that is stronger than other parts of the year. With the project nature of our business, I don’t know that the project side has had any real seasonality to it from what I can see. And we started off the year still a little slow coming out of the fourth quarter of 2016 and we’re seeing that momentum pick up kind of month-to-month and week-to-week. I guess anecdotally what I would add and I think I might have mentioned that already was one of the interesting things were seeing particularly in the energy segment business is quite a number of larger projects. So the project size is growing. Certainly these are digital. But knock on wood, I think we were pretty successful in what we were looking at in the first quarter. This one project that was on the cusp of being rewarded, and through some customer reorganization, would fall into then the following quarter, into the second quarter. But other than that, we didn’t see a lot of project losses on things that we were tracking towards the first quarter. As we move forward, I think we’re seeing a similar picture. A lot of good activity, because they’re larger projects, they tend to have a little more – take a little more time before the customers’ commit and get things going. But we’re pretty optimistic that again we’ll see kind of a reversal of the trend on bookings that we saw last year.

Okay. And then earlier you also had mentioned that there was an issue that was encountered with a significant customer in terms of the product and/or quality. I’m not sure if I fully understand what the product or the nature of the problem may have been. And I suppose part two to that in resolving that, can we understand that a little bit better? And what products are you typically supplying into them? Thanks.

Yes. This was in the air pollution control in one of our applications arena. And what – the issue was blend of a technical issue where they were applying our products into a much more difficult operating environment in terms of temperatures and pressures. And so we found an issue that needed to be addressed and we’re addressing it, but it was going a little too slowly. So the team jumped on that. We got some engineering talent to reassess their process, to look at what the triggers were, what the transient temperatures might be and have addressed that. We applied that and subsequently we got a couple of small follow-on orders. So I don’t think it’s material in the context of outlook but it does heighten the intensity that we need to place in managing these things through as we look to build value for our customers. And so it was also I believe mentioned, we are translating that back into a much more robust process in terms of how we look at executing the ongoing orders and any issues that pop up, so they get visibility earlier.

Okay. And then last question here, a little bit more model specific. The strong gross margins that you had in the first quarter I think you had commented this was primarily a function of mix. So just trying to understand how sustainable is that as we look to the next quarter and a little bit forward? And then what type of mix perhaps with some margin perspective are you seeing within the business that you’re currently winning or that is coming to you via RFQ? Thanks.

I’ll take that one. We did mix and project execution in Q1. I think that there could be some moderation in 2017 as a result of our OE orders growing, which we are expecting. And you should still expect 2017 to approximate 2016’s year-to-date average is what I’d say for right now. As far as mix goes, if you looked at the sequential improvement in our fluid handling and filtration business, if that continues down that path and grows as a larger percentage of our total sales, we should see margin rate accretion. And we’re also continuing to grow aftermarket and that should help to boost the mix as well. So hopefully that answers your question as far as the two items that we’re seeing moving our mix profile upwards.

Wonderful. Thanks so much for addressing the questions and all the color, folks.

You bet. Thanks a lot.

Thanks, Sean.

Thank you. We’re showing no additional questions in queue at this time. Gentlemen, do you have any closing comments?

Yes. I’m Dennis Sadlowski and I want to thank all of you for joining us this morning on our call for CECO Environmental. As we look forward, I think we just have a great business, fantastic core operating foundation within our business model. We have invested some energy within the company to pivot and build a growth engine, deliver organic growth and we’re seeing some good momentum on that. We’re very pleased that the progress we’re making with a lot of potential and see translating that into continued long-term value creation for our shareholders. Thanks again for joining us and we’ll talk to you again in 90 days.

Ladies and gentlemen, thank you for your participation. Today's conference has concluded. You may disconnect your lines and have a wonderful day.