CECO Environmental(US:CECO)2021-11-08 20:18Financial Data and Key Metrics Changes - CECO reported a 39% year-over-year growth in orders for Q3 2021, with a year-to-date increase of 33% [6][18] - Revenue for Q3 2021 was $80 million, reflecting a modest 3% year-over-year increase, but was impacted by approximately $10 million due to COVID-related delays and supply chain issues [13][28] - Gross margins for Q3 2021 were 28.4%, significantly below the historical average of 32% to 34%, indicating operational challenges [14][39] - Non-GAAP EPS was $0.01 for the quarter, down $0.10 year-over-year, primarily due to lower sales and gross margins [49] Business Line Data and Key Metrics Changes - Industrial air orders increased by almost 80% year-to-date, driven by strong demand in various sectors including electric vehicle manufacturing [19] - The emissions management platform saw the largest orders growth year-to-date at 118%, with expectations for continued growth as the power generation market recovers [21] - Fluid handling business experienced a 17% year-to-date orders growth, supported by strong automotive markets [20] - The separation and filtration platform was the only business line with declining orders year-to-date, although signs of improvement are anticipated [22] Market Data and Key Metrics Changes - CECO's sales funnel remains robust at over $2 billion, indicating strong future order expectations [12][26] - The backlog stood at approximately $219 million, reflecting a positive book-to-bill ratio of 1.2x year-to-date [37] Company Strategy and Development Direction - The company is focused on strategic transformation and growth, including investments in sales and marketing, and a successful stock buyback program [11][27] - CECO aims to improve margins and operational execution, with expectations for better performance in Q4 2021 and 2022 [7][60] - The company is exploring M&A opportunities to enhance its portfolio and address environmental challenges, particularly in CO2 and methane solutions [96][100] Management's Comments on Operating Environment and Future Outlook - Management acknowledged unprecedented challenges in Q3 due to supply chain disruptions, inflation, and labor shortages, which impacted financial performance [10][81] - There is optimism for improved gross margins starting in Q4 2021, as the company has begun to address execution issues and pricing strategies [70][81] - Management expects to see a rebound in revenue and margins as the backlog translates into sales over the coming quarters [58][60] Other Important Information - CECO executed a share buyback of approximately $3.7 million in Q3 2021, completing its $5 million repurchase authorization [54][55] - The company has maintained a strong balance sheet, reducing debt to $67 million and having $45 million of capacity available for future growth [52][53] Q&A Session Summary Question: Dynamics of cost pressures and backlog profit profile - Management indicated that while margins were lower than historical averages, they expect to see improvements in gross margins starting in Q4 2021 as pricing actions take effect [67][70] Question: Resolution of supply chain issues - Management confirmed that execution issues were primarily external, but they have made significant progress in addressing these challenges as they enter Q4 [78][81] Question: Backlog adjustments and cancellations - Management noted minor cancellations but emphasized that the backlog remains strong, with no significant weaknesses observed [84][86] Question: Changes in logistics costs and delivery - Management highlighted that logistics costs increased in Q3 due to expedited freight needs and delays in project timelines, which were not present in Q2 [89][91] Question: Industry focus on CO2 and methane solutions - Management expressed confidence that industry demand for solutions addressing CO2 and methane is growing, and CECO is preparing to meet these needs through strategic investments and potential acquisitions [96][100]