Good morning. And welcome to CECO Environmental Conference Call. Please note that this event is being recorded. I'd like to turn the conference over to Matt Eckl, Chief Financial Officer. Please go ahead.

Thank you for joining us on the CECO Environmental fourth quarter and year-end 2021 earnings call. On the call with me today is Todd Gleason, Chief Executive Officer; and myself, Matt Eckl, Chief Financial 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 cecoenviro.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 facts 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 on Form 10-K for the year ended December 31, 2021. 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 have reconciled the comparable GAAP and non-GAAP numbers in today's press release as well as the supplemental tables in the back of the slide deck. And with that, I'll turn the call over to Chief Executive Officer, Todd Gleason. Todd?

Thanks, Matt. And good day everyone. We're going to start with Slide 3 of the presentation Matt mentioned to follow along with our prepared remarks. As we highlighted in this morning's earnings release, CECO had a strong finish to 2021. We previously forecasted in our third quarter earnings material that our growing backlog would start to show up in the financials and deliver solid revenue growth both year-over-year and sequentially, and it is. With our continued strength in orders and strong backlog levels we expect to maintain revenue growth year-over-year for the foreseeable future. No doubt there remains uncertain and challenges in the global supply chain, overall inflationary pressures and the continued labor shortage. However, we remain strategically focused on project execution, cost and change order management, and of course, taking price as appropriate. Down cash flow generation to finish the year was an additional highlight in the quarter. Matt will provide additional details around our cash generation and our utilization of cash to repurchase CECO stock and paydown debt. Turning to Slide Number 4, let's review fourth quarter financials in more detail. Orders of $91 million grew 17% year-over-year. This marks the fourth consecutive quarter with orders right around $90 million. We will discuss how balanced our orders growth was across the majority of our platforms in just a minute. Q4 sales of $94 million were up double digits, both sequentially and year-over-year. We forecasted during the third quarter earnings report that we expected our backlog to produce revenues in the range of $85 million to $100 million, which I am proud to report we delivered in Q4. Importantly, we continue to sustain near record level backlogs and expect that will deliver continued year-over-year revenue growth. Gross margins of 30.5% were significantly better than the third quarter of 2021.…

Thanks, Todd. Starting with Slide 9 in orders, we are pleased that all three segments grew year-over-year with sequential growth in both Fluid Handling and Engineered Systems. Sequentially, Engineered Systems grew 7% as we were awarded several wins for our water treatment and thermal acoustic solutions throughout the Middle East. Our Fluid Handling platform was up 33% versus Q3 as we saw a significant increase in quotes and bookings for our Dean pumps and Mefiag filters that serve the surging U.S. petrochemical and automotive markets, respectively. Both these markets are experiencing growth, we haven’t seen in years, and we are pleased with the CapEx investments made to improve our cost position and cut our lead times by 30% of that of the competition. It’s showing up in the results. Industrial Air was down sequentially against tough comparisons, but up 3% versus same quarter last year. Fourth quarter is seasonally this platform’s slowest given our customers’ CapEx spend cycles. On the right, revenue moved up into the right in a big way, up 13% year-over-year and 70% sequentially as we start to see the fruits of all our labors pay off. As Todd highlighted, our long-cycle, backlog-based business takes time to turn to revenue. But once it does, the flow-through to EBITDA is significant. Most of the sequential increase came from Engineered Systems where approximately $10 million of revenue slipped out of Q3 and into Q4 as supply chain challenges with our subcontractors started to loosen. While inbound material receipts are still slow, customers are signing off on technical drawings quicker, which is allowing us to procure materials sooner, driving faster revenue recognition. This is a clear correlation between countries opening up as COVID cases subside and customers and our subcontractors getting back to work. For our long-cycle platforms, this is…

Thanks, Matt. I agree. I am pleased with our 2021 results and excited for 2022 and beyond. Now let’s go to Slide number 17. On the left side is a summary of the general outlook we provided back in November of 2021. The concept, which is highlighted here, is that our average quarterly orders of $90 million, which start to produce around $90 million of revenue in future quarters. And as we have been highlighting today, fourth quarter 2021 reflected that level of sales. We also expected to return to gross margins in the greater than 30% range, which we also did in the fourth quarter. The balance of this slide reiterates that we continue to feel confident about this directional outlook. Certainly, we are aware there are quarterly puts and takes that relate to in-period costs, which do ebb and flow in any given quarter. Additionally, we acknowledge persistent challenges in supply chains and with short-term inflation. But we aim to offset many of these challenges with good cost management, M&A and other strategic actions. We remain committed to growth and feel very confident in our ability to deliver. Turning to Slide number 18. Here, we show some additional snapshots of several press releases CECO distributed already in Q1 of this year. To tie this slide back to the thematic reason for showing Slide 5 earlier in this presentation, we are demonstrating traction on strategic areas we have discussed regarding CECO’s transformation. We have publicly stated that when we were ready, we would start to action strategic, accretive M&A. As Matt already covered, we announced and then completed the accretive acquisition of GRC. We have a robust pipeline of M&A targets, and we’ll continue to provide transparent updates on our progress. Another snapshot on this slide relates to a…

Our first question comes from Jim Ricchiuti with Needham & Company. Please go ahead.

Thank you. Good morning. Congratulations, by the way, on the improved results Q4. Question – a couple of questions. First on GRC. I’m wondering if you could talk a little bit more about that business from the standpoint of how much customer overlap there might be potential opportunities that you see for cross-selling. And I wonder if you could also share with us what kind of backlog they have recognizing. It sounds like they’re more skewed towards short-cycle business.

Yes. Thanks, Jim. I appreciate the comments on the quarter. Couple of comments and I’ll hand it over to Matt. He’ll provide additional color as well. So first of all, there’s always some overlap in customers. But our big opportunity here, we think, is utilizing both channels, I suppose, but especially the CECO international channel and a lot of our larger projects as well to bring the GRC product line through our projects, our infrastructure projects. We’ve got a large and developed sales force in the Middle East and other parts of the world. They just haven’t had a chance to branch out internationally as aggressively. So, we’ll be able to leverage that. And they’ve got a really good, strong distribution themselves. So our ability to bring, whether it’s our flow control products through expanding our distribution, they see projects we don’t. Historically just really well established in infrastructure water, which is an area that we’ve been investing. We’ll continue to invest. So, I think it’s a really nice balance between the two. Obviously, we’re a much larger organization. So, we’ve got certain areas of scale and balance sheet strength to help also accelerate some investments. Matt, if you want to add anything to that?

$2 million of backlog, Jim.

Yes. Thank you.

Got it. Thanks. And I wonder if you could talk a little bit about the revenues that you already alluded to that slipped from Q3 to Q4. How much of that? Were you able to ship all of that? And to what extent have you seen additional slippage just in light of the ongoing supply chain issues that we’re all hearing about the material shortages.

Yes, we’re seeing – it seems like every quarter, we have projects that move around. So, we mentioned in the third quarter, we had approximately $10 million of revenue that just got pushed around – pushed out of the third quarter. I would say we captured – we captured that and then we probably lost a few million from the fourth quarter. And that that, I mean, when I say lost, I mean, just got pushed out as well. So it's choppy Jim. We're still experiencing it in the first quarter. That doesn't mean that these projects are going away. We have a tremendous amount of confidence in our project teams and the year, but every quarter it has dynamics, right? Every quarter seems to have, whether it's $5 million, $10 million worth of revenue. And we are – when you're a project business, you have to wait not just for your products to come in, in your supply chain but then when we're ready to go we have to wait for those customers, and all of their other suppliers to have everything in. So there's a lot of variables at play. We really like the momentum we have in the marketplace, but it's choppy.

Got it. And I'll jump back into queue. One final question if I may though before I do. Nice improvement at gross margin. How should we be thinking about gross margins in the near term? You're obviously you're beginning to get some benefit presumably from some of the pricing actions you've taken and some of the other initiatives you have underway any way to think about gross margins?

Yes. I think that's going to continue to be a little choppy, too, just because of, like you said, but the market continues to – the market continues to throw new challenges at us in terms of cost increases, whether it's – how much we're paying at the pump. We all saw what happened in nickel in just a very short period of time. So we have to adjust for that, work with our suppliers, work across our logistics. So I think we're in an environment right now where we're doing a nice job of getting price, has to flow through our backlog, of course, which creates a little bit of an imbalance at times. So think of it as being flat. Could be slightly down a little bit if you want to think about where we're currently at. But again, our long-term aspirations and experience is that we'll get those gross margins back up as we work our way through the year. But it was a nice improvement sequentially. So we appreciate the comment.

Thanks a lot.

Our next question comes from Sameer Joshi with H.C. Wainwright. Please go ahead.

Yes. And good morning and thanks for taking my questions. Again, congratulations for the good progress. For the near-term in 1Q, historically it is sort of a low-quarter of the year. And add to that that you had some spillage from 2Q that you recognized in 4Q. Should we expect 1Q to be significantly lower to the 4Q numbers?

Yes. I think your point around our first quarter, like a lot of companies first quarters are sometimes or have proven to be a little bit of a lower quarter. There's a bit of an increase in first quarter costs as we sort of reset the year from an SG&A. There's a lot more accruals that happened in the first quarter as you start through the year. And again, like we just said, it's going to be a little choppy out there in terms of our ability to execute on all of our projects and the supply chain inflation. We're working through these things. And we feel, like I said, great about 2022. But the first quarter will certainly reflect a trend that we've probably had historically, which is sequentially, if you go from the fourth quarter to the first quarter, we just have – we have some pressures at every company or I should say every, but a lot of companies, and we certainly have. They just – there's going to be a little bit more cost sequentially, but nothing that's different than probably a historic trend has proven.

Understood. And then just a quick question on QRC – the GRC, the acquisition. Is there in that business a sequential and year over improvement that you have seen, is there any granularity you can share on that – that trend?

There is sequential improvement that's expected is a pretty flat based business every single quarter. No seasonality really associated with it. Year-over-year, we are expecting growth out of that business. They're ending the year with a pretty decent backlog and orders are strong, especially with the infrastructure bill coming through and spending happening in the water market.

Great. And then just one on the M&A front. You reiterated you're looking at small to midsized opportunities. Do you have any active discussions that may materialize in the next couple of quarters? Or are these longer term – mid- to longer-term aspirations?

Yes. We're probably not going to give a huge description of what we're looking at in our pipeline. But other than to say, we will be programmatic. We are looking at transactions that are accretive from a margin perspective, we expect give us more short-cycle sales; expand in the areas of industrial air, industrial water and the energy transition. Those are our focus areas. We think that's where we already have a seat at the leadership table. We're going to continue to invest in our seat at that leadership table. All of the things we're looking at just also continue to bolster our sort of our strong commitment to protecting people, protecting the environment and protecting industrial equipment. So we're staying true to our swim lane, so to speak, on M&A. These are small to medium-sized deals at the moment just because we like that size of transaction for us as we just kind of continue to shape our portfolio in the right direction in a steady fashion. We'll look at larger transactions, but that's really where we're looking right now.

Got it. Thanks. I’ll take another questions offline. Thanks.

Our next question comes from Bill Dezellem with Tieton Capital. Please go ahead.

Thank you. Let's begin, if we could, with the strength of January and February orders this year. Would you please provide a little more detail behind that?

Broad-based, Bill, good to speak with you. Thanks for the question. This is Todd. Pretty balanced across most of our platforms. As we've demonstrated throughout 2021, so Q1 maintains that. We've been talking about our pipeline stayed strong. So I would say two or three things balanced across most of our platforms. Starting to see in the quarter some larger energy and energy transition jobs that we think are proof of the patience that we've had to stay focused in certain areas, starting to really show up in our order bookings. And we would suggest that the first quarter is – the first two months of the first quarter is as strong as we've seen in the first two months of the quarter in a number of years from a bookings perspective.

Great. Thank you. And then what more would you like to add relative to GRC and that acquisition and what it brings to you all in the near term and longer term?

I think it's a great growth opportunity. They are well positioned in the market. We feel that their size is, and their position in the market is something that we can both work and take advantage of in the sense that, there's a lot of opportunities there for both of us to partner across projects. But we think that it's a business that could be 2x its size and with the right investment and the right focus. And their leadership team is fantastic. They really understand their operations, their markets, the opportunities and the challenges. So whenever you make an acquisition, you bring in strong leadership, that's a double plus.

Great. Thank you.

Thanks, Bill.

Our next question is a follow-up from Sameer Joshi with H.C. Wainwright. Please go ahead.

Yes. Thanks. I'm sorry for missing this question earlier. But just a quick question on the short cycle margins and the sales cycle, can you – like I know the longer cycles are nine to 18 months and maybe upwards of two years, but short cycle, should we consider it two to three months or less than six months? Or how should we look at it? And then you mentioned margins will be – because you can price it not at historical levels, but at current levels, the margins are better. But how much better, if you can quantify?

We would – we quantify short cycle sales of less than four months. It's typically right around 1.5 to two. So pumps, filters, aftermarket services, gathering going out and turning something, we build them. As far as pricing goes and how we measure it, we've had multiple price increases where we've sent letters to customers, and we've seen anywhere from the range of 5% to 7%. When we actually look at realized probably around 3% to 4%. So it's been very strong on the short cycle acceptance of price increases.

Got it. Thanks.

This concludes our question-and-answer session. I would now like to turn the conference back over to Todd Gleason for any closing remarks.

Thanks, Sarah, and thanks to everyone for the questions, participation this morning to our team at CECO. Again, as always, we appreciate your focus and leadership to navigate a lot of the choppiness and challenges that continue to be in the marketplace. We've got a great organization of dedicated professionals here to serve our customers and our communities and each other. We look forward to continuing to share our progress as we enter 2022. Again, like Matt and I have articulated, the pipeline remains really strong. That, coupled with now us starting to be a little bit more active M&A, we think – just continues to support a good growth trajectory for us for the short, medium and hopefully longer term as well. So with that, we'll end today, and we look forward to speaking with many of you throughout the next few days. Thanks a lot.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.