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Operator
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Q1 2012 CECO earnings conference call. My name is Teresa, and I will be your operator today. During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded. I would now like to hand the call over to the host for today's call, Mr. Benton Cook, Interim Chief Finance Officer.
- Interim CFO
Thank you. Good morning, everyone. Also joining us on the call this morning will be our Chairman, Phillip DeZwirek and our CEO, Jeff Lang. Before we begin, I would 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, 2011. 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 you may hear today, whether as a result of new information, future events, or otherwise.
Before I turn the call over to Jeff, I want to make a few brief comments on the quarterly results. As you can see from our earnings release, our results on a quarter to quarter basis continue to be favorable. Gross margins, operating margin and net income continue to trend upward. And now, a brief review of a few key results for the first quarter of 2012. Net sales were $33 million as compared to $36 million, in the same period of 2011. The decline in revenues was a result of some customer project delays and the previously communicated product portfolio improvements and divestitures.
Gross profit increased by 20% to $10.2 million as compared to $8.5 million in 2011. Gross margin increased to 30.9% compared to 23.6% for the same quarter in 2011. Operating income increased to $3.7 million in 2012 as compared to $2.4 million in 2011, a 54% improvement. Operating margin increased to 11.2% from 6.7%, net income increased $2 million in 2012 as compared to net income of $1.3 million in 2011. Net income per diluted share increased to $0.12 per share in 2012 as compared to $0.08 per share in 2011. Bookings were $30.7 million compared to 33.3 million in the first quarter of 2011. Cash and cash equivalents increased to $19.9 million compared to $12.7 million as of December 31, 2011, with no existing bank debt. Backlog as of March 31, 2012, was $52.6 million compared to $54.9 million as of December 31, 2011 and $51.6 million as of March 31 of 2011. And now, I will turn the call over to our CEO, Jeff Lang.
- CEO
Thank you, Ben. Good morning, everyone, and thank you for joining the CECO earnings call for Q1 2012. As you can see in our press release, CECO had another good quarter. Our operations continued to improve, and we achieved our internal operating income, gross profit and net income goals for Q1. We remain very focused on improving our domestic and global sales bookings and revenues in Q2 and as we go through the rest of 2012 while maintaining our strategies on gross profit and operating income targets at CECO.
It is also important to note that our numerous product mix changes, improvements and divestitures over the past two years have delivered favorable operating income results for our Company. Given our product portfolio changes, revenues were probably closer -- equal, from quarter to quarter. We continue to make substantial progress to diversify and expand the CECO's technology in the global end markets such as refinery, mining, utility plants, natural gas, petrochemical, steel, and automotive in some of the largest industrial plants in the world. We're -- going forward, we will probably be less reliant on some of the utility regulations as we diversify the CECO end markets.
Some comments about the quarter. CECO's overall activity in China was a little slower than we expected, but we're seeing Q2 improvements already. China is a major focus within the air pollution control segment and product recovery markets. We saw a few delays in some projects and some bookings and a little shifting of some markets as perhaps you've read about, but we're looking for improvements in Q2 and full-year 2012 in China. Regardless, we continue to expand our China operations. We've added two core products to China this year, and we've added several sales engineers in the last few months into the China -- into the CECO China operation. 2012 will be CECO's seventh full year into China, and we're very committed to those organic and inorganic growth opportunities there.
Domestically, our contract engineering services business, Kirk & Blum, has transformed itself successfully over the past couple years to a higher gross profit and higher operating income model, while moving away from the low margin projects. We're very pleased with the gross margin operating income progress from this group. They've made significant improvements in their operating income and perhaps have given up some revenue, some slight revenues in their transformation process. But as a footnote, it is good to see this 100-year-old North American Company achieve significant operating improvements and gross margin improvements and set record highs for that business.
Our global refinery business, Buell, their cyclone business has been quite positive. We're seeing refinery upgrades, expansions in the global end markets, and we're seeing some new refineries go up in the Pacific Rim Indonesia area.
Our domestic utility business Effox, which sells and manufacturers damper, diverters and expansion joints, is doing quite well. We're seeing the larger, stronger utility plants are spending in advance of the new regulations, and our related business is very strong, both in revenues and in bookings. The dampers, diverters and expansion joint business for the utility upgrades are trending favorably. And on the environmental side, these utility plants are spending on FGD, SCR, fabric filter retrofits, and so we're seeing some nice trends and we're very positive -- very excited about damper's outlook for this year.
Our component parts business, which I refer to as our recurring revenue group, is on pace for a good year. They're showing solid revenue growth and operating income in the industrial air systems markets in the US. The components parts business, services, the medium to large industry in North America. Our CECO filters business is seeing chemical manufacturing plants expand, asphalt, sulfuric acid, chloro-alkali and plasticizer markets picking up. Our outlook for CECO filters is good, and they sell and manufacture principally in Asia and in North America. So, we're pretty excited about the outlook for our CECO filter technology business this year.
Our RTO regenerative thermal oxidizer business started off slow this year with some project delays and tracking behind in bookings. We're focused on their activity. It seems to be picking up, and we're looking for a better Q2 and Q3 in our regenerative thermal oxidizer business. We're seeing some steel industry plants spending. We have several projects in the steel industry for cyclone and scrubbers. We're seeing some lead plant activity for the manufacturing of batteries are up and also, we have several projects in the aluminum sheet metal sector for the automotive sector. Our overall sales engineers continue to pursue attractive opportunities that enhance gross margin while creating end user value. Product differentiation, technology and competitive advantage drive our end market solutions and at the same time, we focus on high quality gross margin bookings.
As we have talked about over the past couple of years, we're remaining very focused on our strategic areas, profitable growth, operational excellence, acquisitions and developing our talent, good cash flow generation, and working capital management. And lastly, we continue to remain focused on our after-market parts and service and recurring revenue side of our business, given CECO has a very favorable install base of over $2 billion.
I would like to mention a few orders that we have pulled in here in the last few months that we're very excited about. We received a $1.3 million cyclone order for a US refinery, a $1.2 million engineered ventilation system order for a US automotive plant, a $1.1 million damper diverter order for US power utility plant. An $880,000 engineered ventilation system order for a US automotive plant, a $755,000 damper diverter order for a US power plant, a $620,000 engineered ventilation system for a US metals plant, a couple of $400,000 damper diverter order for a power plant in Canada, a $570,000 engineered ventilation system order for a US aluminum plant. And in the last couple of months, we received roughly four $350,000 to $$400,000 scrubber orders for chemical plants in China. We're very excited that these large customer plants placed their confidence in CECO regarding our reliability and our excellent technology.
Going forward, the CECO management team and our sales leaders are keenly focused on our quotation activity to bring in more orders. We continue to add sales engineers around the world and domestically to boost revenues and to build backlog. We're tracking our sales quotation dashboards weekly to provide the sales management intensity in all regions, and we continue to upgrade and add high quality sales talent into CECO.
Relative to bookings, since March 31, our bookings have increased and as of today, our year to date bookings are slightly greater than last year's total bookings at this time which shows the increase in our collective sales efforts. And again, sales operational excellence, product mix, price management and streamlining contributed to our 50% performance over the year. And I would like to touch on a few key financial highlights that we're excited about. Again, as Benton had mentioned, EPS was at $0.12 fully diluted versus $0.08 a year ago. Operating margins reached 11% in Q1 versus 6% one year ago. Gross profit hit 30%, we've had two quarters in a row now where we reached 30% at gross profit. A year ago, we were at 23% and full year '11, we were at 27%. So, excellent improvement by the team. We continue to show strong cash generation, cash and cash reserves grew to just under $20 million versus $12.7 million at year-end and $5 million a year ago. So, in summary, strong balance sheet, good cash reserves, no bank debt, a $20 million-plus revolver with Fifth Third has positioned CECO ideally for value enhancing, accretive M&A opportunities and other business development opportunities.
We continue to execute on our objectives that we've communicated. Our aspirations have become the global leader within the air pollution technology sector. Continue delivering significant gross profit operating income and revenue growth for our shareholders, and CECO is positioned well globally and domestically. As we go through 2012, we're continually focused on growing our bookings year-over-year, with above average margins. Expanding globally building our recurring revenue base and enhancing the excellent CECO brands and their technology. So, with that, I would like to open it up for any questions you may have.
Operator
(Operator Instructions) We got first question from Rob Stone from Cowen and Company. Go ahead, please.
- Analyst
Good morning, gentlemen. Congratulations on the great results, and thanks for taking my question. Jeff, I wanted to focus a little bit more on gross margin. If you could, could you unpack that for us a little bit more in terms of how much this has been influenced by pruning underperforming parts of the portfolio versus getting better pricing discipline in the existing business or mix towards higher margin segments like parts and service?
- CEO
Good morning, Rob. The answer to that is probably all of the above. The pruning helped, but the sales engineering organization has done a very good job selling more from a consultative value-add perspective, which drives price up. That would be number one.
Number two, I think our cost model is better today than it was a few years ago, and we're very focused on project execution. I think for the past six months, we've achieved 30%. A lot of it has to do with the business that we're in taking. There is meticulous focus on project management that has improved the actual gross margin when the project is completed, so there are probably three or four dynamics that are impacting gross margin favorably.
- Analyst
And my second question is on -- you mentioned some project delays. Any general theme there? And I would have thought vis-a-vis China that the March quarter would be a little lower in terms of activity just because of holidays over there.
- CEO
Yes, China had some delays, and just as you suspected, it picked up -- it is picking up in Q2. We're already seeing a couple of strong months in bookings in China. So, your analysis is correct. Regarding a few project delays domestically, we had a couple in-house projects that were pushed to Q2 that impacted some revenue. And then on the bookings side, we saw some Q1 projects pushed into Q2. So nothing, no trends, but I'm also very optimistic about Q2 and Q3.
- Analyst
Okay. My final question is about CECO's position in the industry. Obviously, a long history, as you noted, but doing much better lately. It is a fragmented business. How do you see your adjacent competitors reacting to your more disciplined strategy and improved results?
- CEO
Well, good question. I think the CECO brands, the Buell, the Effox, the Kirk & Blum, CECO filter, those are premiere brands that have been around a long time that have great technology and great talent, and those teams are doing very well, and I think they're taking share away from the competitors. It is a very fragmented market and hopefully over time, some of those strong competitors would like to join the CECO team.
- Analyst
Great. Thank you.
- CEO
Thanks, Rob.
Operator
Thank you for your question. Your next question comes from the line of Dale Pfau from Cantor Fitzgerald. Go ahead, please.
- CEO
Good morning, Dale.
- Analyst
Can you hear me?
- CEO
Yes. Good morning.
- Analyst
Good morning, gentlemen. Nice quarter in spite of the revenues on the top line being slightly less than I would have expected. Can you talk a little bit about what you're doing on the acquisition front? It has been a while since you've done anything, and give us some ideas of what you're thinking about and also, maybe the thought process on your targets. Are they asking too much money? Are they overly optimistic about their outlook? What does the landscape look like out there?
- CEO
Dale, CECO has a very, very strong M&A team, and a very bright board that zooms in on M&A very well. And over the past couple of few years, we've studied dozens and dozens of smart bolt-ons, and perhaps some other types of mergers, and we have several opportunities in the queue. And we have a lot of criteria, too. A lot of conservative criteria and things we want to accomplish during an M&A or a merger. And we're working on those diligently, just as we're working on many of our other strategic initiatives, and we just haven't finalized the process. But there are several the board and the senior management team is very focused on that it would be accretive, it would expand our portfolio, product-wise, it would expand our geographic reach. So,it is -- there is a lot of things that we're studying right now. We just haven't finished any yet.
- Analyst
Okay. Thank you. And then maybe just a thought on the rest of the year. We've seen a little bit of -- you've seen a little bit of softness, maybe some picking up. Now there are concerns about the overall economy in the US maybe slowing down again here. Are you seeing your customers do the same thing? Or are they picking back up after a little bit of a slowness here early in the year?
- CEO
Actually, what we're seeing is some strengthening of the domestic economy. So, our dashboards across the division are strong domestically. We are encouraged about 2012. We're seeing mining activity, we're seeing utility activity, very strong.
Domestic petrochemical and chemical markets are stronger now, given some of the cheap natural gas feedstock that fuels that business. And the large automotive plants are probably spending at a very high rate. So domestically, I think we're in a very good place, or I should say a better place. And given Asia's uptick in Q2, I think we're going to do quite nicely there. So, we feel very confident about 2012. That we're going to show year-over-year improvement in several categories.
- Analyst
Great, thank you very much.
- CEO
Thank you, Dale.
Operator
Thank you for your question. Next question is from Sam Bergman from Bayberry Asset Management. Go ahead, please.
- Analyst
Good morning, Jeff. I guess Benton, and of course Phil, how are you?
- CEO
Good morning, Sam.
- Analyst
A couple of questions. The backlog has gotten stronger going into the second quarter. The increase that you're talking about over last year, is most of it coming from China, or is it a combination from US and other parts of the world?
- CEO
All over the world and domestically it is quite strong.
- Analyst
Okay. And in terms of a comment made on the press release, where it said portfolio improvements in divestitures, I was of the opinion that all of that was completely taken care of in the last calendar year, and I'm just wondering how that affected and in which way the drop in the backlog.
- CEO
Most all that has been done in the past 24 months, you're correct. Regarding the revenue, the revenues in Q1 of 2011 were in the $36 million range, and some of that was fed -- some of the results in Q1 was fed from 2010, some legacy backlog with high revenue and low margin. So those, we worked through that in Q1. And given some of the slight delays in Q1 of 2012, that showed a little bit of a -- the comparable difference between Q1 last year and Q1 this year.
- Chairman of the Board
And this is Phil. I just want to add, Sam, that --
- Analyst
Hi, Phil.
- Chairman of the Board
As of -- hi, Sam. How are you doing? As of like, yesterday's date anyways, our backlog is now higher than it was at this time last year. So, we are back to rebuilding sales and rebuilding backlog.
- Analyst
Okay. Are you hearing any more about mandatory laws going into effect and helping the business of 2012, or do you see a kind of a steady rise from those mandatory rules coming on board?
- CEO
Sam, I think it is the latter. A steady rise. I think domestically, those businesses we have that are tied to the US utility sector are seeing a very nice uptick. I think the large proactive utility facilities and EPC firms are starting to spend to get ahead of the curve on those regulations. And then in Asia, I think we're going to see a steady climb to meet the Ministry of China's 12th 5th year plan on emissions improvement.
- Analyst
And the last question, you had a nice increase in cash. I assume there was no share buyback this quarter?
- CEO
Correct.
- Analyst
And should we as shareholders look forward to perhaps another small increase in the dividend for the end of the year, if there is no M&A activity?
- CEO
That's a question the board will be deciding on, Sam. But we do have plans to continue our dividend, and the finalization of that will be out in a couple of weeks when the board meets next week. We plan to continue that. So, stay in tune. We should have some communication on that shortly.
- Analyst
Thank you very much.
- CEO
Thanks, Sam.
Operator
Thank you. Your next question comes from the line of James Fronda from Sidoti. Go ahead, please.
- Analyst
Hi, guys, how are you?
- CEO
Hey, James.
- Analyst
Most of my questions are already answered. I guess the one question I did have was in terms of the gross margin. Do you think it could stay above this 30% level for the year and into 2013, if everything goes right?
- CEO
Our ambition is always to improve. That's how -- we're always trying to improve. We've had six -- we've had two strong quarters at the 30% level. We finished the year last year at 27%. And during our last call, we said we would improve that 100 to 150 basis points into that 28.5% range. So, first off, I think the team has done a very good job on gross margin enhancement, and we will continue to try and improve that. But we're very focused on growing globally, domestically and taking share away from the competitors. We want to balance those two prudently.
- Analyst
Okay. And I guess in terms of the tax rate going forward, it was a little high this quarter. Your thoughts on '12 and '13?
- CEO
We commented on that on the last call. We thought it would be more normalized in the 35%, 36% range, but that all depends on the mix of our Business. More of our revenues, more of our earnings came from the US in Q1, versus last year, was -- we saw a little more of an increase of earnings coming from China with the lower tax rate or other parts of the world. But I think it will normalize as we go through the year, and as we see the Asian markets pick up and contribute more to the operating income line.
- Analyst
All right. Thanks, Jeff. I appreciate it.
- CEO
Thanks, James.
- Analyst
Bye.
Operator
Thank you. Your next question comes from the line of Larry Schumacher from Morgan Stanley. Go ahead, please.
- Analyst
Yes, hi, guys. I guess my question was actually answered too. But good job on the gross and operating margins getting to your targets.
- CEO
Thank you.
- Analyst
Seemingly faster than I guess we expected, I expected.
- CEO
Thank you.
- Analyst
My question was really, do you have any new goals for operating margins, gross margins, going forward? Or just basically what you just said, I guess? Anyway.
- CEO
Yes, we do have ambition to improve over the next couple of years, some operating margins, some gross margins, as we stated in several investor calls, and as some of our research has stated. Our midterm goal is to get into that the $250 million range in revenue, and when we do that, that's going to provide some leverage -- some upside leverage on the operating income margins and the gross margins. But we want to continue growing the top line this year, and so we're going to balance gross margin, operating incomes, to pull in high quality bookings.
Operator
Thank you for your question. The next question comes from the line of Michael Lew from Needham. Go ahead, please.
- Analyst
Thanks, and good morning.
- CEO
Good morning, Michael.
- Analyst
It is good that the backlog will be up this quarter. But you'd also mentioned push-outs and delays. Do you expect to recover all of that business this quarter? And in other words, how much higher could the bookings have been in the first quarter?
- CEO
That's a good question, and we will probably know more of that answer at the end of Q2, Michael, because some of those bookings are now coming in. We had a few in-house projects that were pushed out into Q2, but no trending or nothing consistent. Just a few that were pushed out. So, I think we will have a better feel for the Q2 booking shortly, and I think that will help answer that question.
- Analyst
Okay. Can you talk about the quotation activity in the British markets? For example, how much has the pipeline increased? You mentioned China was slow, but it has now recovered, right? And it is still pretty strong domestically.
- CEO
Yes, I mean China, China's activity is picking up, and we should see an improved bookings outlook and revenue outlook in Q2, given our slow start there. And in talking to our division general managers over the past couple few weeks to prepare for our call, we're seeing some strong activity in some key areas that we didn't see a year ago.
Utilities, automotive, petrochemical, the global refineries are very strong. So -- and some mining activity and some natural gas turbine activity. I will say that our dashboard and our quotation log continues to improve slowly and surely, quarter over quarter. We're encouraged with our quotation dashboard and our quotation growth.
- Analyst
Okay. You don't have a number like, is it up 14%, 15% year-on-year or anything like that?
- CEO
We know it is up, I probably could pull some metrics on that and get those to you, Michael.
- Analyst
Okay. And how about the deal sizes by region? Getting larger internationally versus domestically? Can you characterize that?
- CEO
In terms of quotation activity or M&A?
- Analyst
The quotation sizes, too, the deal sizes themselves, by region.
- CEO
I think they've been pretty consistent over the past couple of quarters. But I must say, we have a hand -- we have a few larger projects that are on the table that we probably didn't have last quarter. Similar in general, but we have a handful of larger projects that are on the table that we're excited about.
- Analyst
And that would be domestically or internationally?
- CEO
Several domestically and a couple globally.
- Analyst
Got it. Okay. Thank you.
- CEO
Thank you, Michael.
Operator
Thank you for your question. We have no question in queue now.
- CEO
Thank you for joining the CECO earnings call, and we look forward to talking to you in the future.
Operator
Thank you, ladies and gentlemen, for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day. Thank you.