CECO Environmental Corp (CECO) 2014 Q1 法說會逐字稿

Good morning, my name is Charisse and I will be your conference operator today. At this time I would like to welcome everyone to the 2014 CECO Environmental Q1 earnings release conference call. (Operator Instructions). And also as a reminder, this conference is being recorded for replay purposes. I would like to turn today's presentation over to your host, Mr. Shawn Severson of the Blueshirt Group, CECO's Investor Relations firm. Please go ahead, sir.

Thank you, good morning, everyone. Thank you for joining us on CECO Environmental's conference call and webcast to discuss the financial results for the three months ended March 31, 2014. On the call with me today are Jeff Lang, CEO and President, and Ed Prajzner, Chief Financial Officer. Jeff and Ed will be reviewing the quarter and will also provide an update on the Company's strategy and outlook.

Please note that in addition to traditional reported GAAP earnings we provide non-GAAP financial measures in our press release today to enable better assessment of the ongoing nature of CECO's core operations. Jeff Lang's comments will primarily focus on these non-GAAP financial measures and Ed will address differences between GAAP and non-GAAP financial measures in his remarks. Following our prepared remarks we will open the call for questions.

This call is being webcast and can be accessed at CECO's website at www.cecoenviro.com. The webcast will be posted on CECO's website for replay approximately 2 hours following the end of this call. The replay will stay on the site for an on-demand review over the next several months.

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, 2013. 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. And with that I'd like to turn it over to Jeff to begin the discussion.

Thank you, Shawn. Good morning, everyone. We appreciate your continuing interest in CECO Environmental as we continue to build a world-class company. I'll provide some overview and some brief financial information and Ed, our CFO, will discuss financial results in much more detail. I'll then close with an update and some strategic comments and question and answering session.

First, I'm excited to report that the CECO Board of Directors approved a 20% increase in the dividend to $0.06 per share today as a result of our team's continuing focus on improving operating margins and cash flow activities. Now let's begin with a few financial highlights for the quarter.

Revenues in the quarter increased almost $23 million to $57 million, or 66% better than last year's first quarter. Recent acquisitions contributed $25 million to the quarter. On a consolidated basis bookings were around $63.6 million for the quarter versus $37 million last year, an increase of roughly 70%. All in all bookings were flat to last year, roughly speaking.

Book to bill was positive, greater than 1, by over 11%, which is a very positive signal. Of the $63.6 million bookings, acquisitions contributed $25 million.

Our backlog remains strong reaching roughly $105 million in Q1, up from $76 million a year ago and up from $98 million at the end of Q4 2013. We were excited as we billed backlog in Q1. Several projects completions -- many project completions will finish up in Q2 and Q3. Of note, a few projects actually slipped from Q1 and hope to move into Q2 as is normal with engineered fabrication month-to-month, quarter-to-quarter and so on.

Non-GAAP operating income increased to $8.3 million for the quarter, up from $4.5 million a year ago. Operating margins on a non-GAAP basis reached 14.5% for the first time in our Company's history as compared to 13.4% a year ago.

The operating income and leverage from the CECO and Met-Pro combination is now coming through to the P&L as we have been projecting. 4.5% operating margin is a good start and a good position to be in given the challenging revenue environment for Q1. We are excited about our operating margin model with built-in operating leverage for the future and EPS generation capabilities.

In summary, we reached record gross profit and record operating margins on a non-GAAP basis, which was a result of our continued focus on high-margin revenues, operational excellence, manufacturing optimization and overall lean business process cost control type of activities.

Revenues were lower than we expected in the quarter, which was a result of timing, customer scheduling and delayed project orders as evidenced by our nice backlog growth of $7 million. It would've been nice to get that $7 million processed in Q1, but it has moved into Q2. That being said, we continue to show solid year-over-year growth and progress towards our financial operating metrics while positioning the Company for forward growth.

Note we also had a relatively high effective tax rate of 35% in Q1. Many of the observations and consensus was around 27% effective tax rate. In any event the higher tax rate impacted our EPS coupled with revenue shifting out of Q1 and again lowering the EPS than we anticipated. As we progress through the year we are expecting a slightly lower effective tax rate on a much higher revenue base.

Let me reiterate, we are very focused -- the team is very focused and serious around organic growth aspirations and our sales excellence activities. I will now turn the call over to Ed for a more detailed review of our financial results for the quarter.

Thank you, Jeff, and good morning, everyone. As mentioned earlier, I will highlight both the GAAP and non-GAAP performance for the quarter. Non-GAAP adjustments include acquisition and integration expenses, the impact of acquisition asset valuation adjustments on the income statement which results in higher levels of depreciation and amortization and the earn out payments to the principals of Aarding.

Our non-GAAP financial presentation is intended to provide better trend analysis and assessment of our core business performance. Let's turn to Q1 now.

Revenue in the quarter was $57.2 million, a $22.8 million increase, or 66.4% improvement from the same period last year. Recent acquisitions contributed $25.2 million of revenue for the quarter. Note some of our legacy businesses are now interwoven with the acquired businesses.

Gross margin grew to 34.5% from 32.6% in Q1 last year, a nearly 200 basis point improvement and a record high for CECO Environmental. Gross margin dollars grew from $11 million to $20 million in the year-over-year period. Gross margin was also up strongly from 32.4% in the fourth quarter of last year and we expect incremental improvements as we leverage our operating model.

Selling and administrative expenses, excluding the non-GAAP expenses set forth in our press release today, increased $5.1 million to $11.7 million and increased as a percentage of revenue to 20.5% compared to 19.2% in the first quarter last year. On a sequential basis, however, total SG&A dollars on a non-GAAP basis declined in Q1 2014 from $13 million in Q4 of last year, which is a reduction of $1.3 million, or slightly in excess of 10% in absolute terms.

Operating margin was 9.6% in the quarter, down slightly from 9.7% last year. Non-GAAP operating margin, adjusted for the items mentioned earlier, was 14.5%, up from 13.1% last year. We expect continued improvement in operating margins going forward given our operational excellence and consolidation and simplification initiatives.

Net income per diluted share was $0.12, essentially flat with Q1 2013. Non-GAAP net income per diluted share, adjusted as previously noted, increased to $0.19 for the quarter compared to $0.18 in the prior year period. Non-GAAP net income increased to $5 million in Q1 compared to $3.3 million in the prior period.

Now let's turn to the balance sheet and cash flows. We paid down $7 million of debt during the quarter. We also sold noncore assets netting approximately $5 million of proceeds during the first quarter. We also have four additional noncore asset facilities being divested, two of which are close to being finalized and we expect to close these in Q2.

Outstanding borrowings under our credit facility and term loans was $82.2 million as of March 31, 2014, compared to $89.1 million at December 31, 2013. Cash and cash equivalents at March 31, 2014 was $19.2 million versus $22.7 million at year end, a decrease of $3.5 million.

As Jeff noted earlier, our effective tax rate was 35% for the quarter, consistent with Q1 of 2013 but higher than we anticipated. We expect a slightly lower effective tax rate as the year progresses particularly if the US R&D tax credit is extended by Congress for 2014, as we expect.

Before turning call back over to Jeff I wanted to mention a few words about our new external reporting segments, which became effective at the beginning of this year. It is important to note that our segment information will not be comparable year over year as it will be presented on an as reported not pro forma basis. Nevertheless, to give a sense of scale and relative size, bookings recorded in Q1 were as follows for the new reportable segments.

In the air pollution control segment we recorded $30.9 million of bookings. In the energy segment we recorded $17.6 million of bookings. And in the fluid handling filtration segment we recorded $15.1 million of bookings.

Note that the fluid handling filtration segment typically carries a smaller percentage of revenue in backlog as compared to the other reporting segments primarily due to the fact this segment has shorter lead times relative to the other segments.

Prospectively we will disclose bookings by segment and as the year progresses we may expand our segment related disclosures on the call as necessary. Again, financial measures by the new reporting segments will not be fully comparable until Q4 of this year where in the trailing 12-month period will become fully loaded for the acquisitions that took place in 2013.

You will see the 2014 financial results by the new reporting segments as well as for each of the quarters in 2013 in the new segment structure in the Form 10-Q to be filed by tomorrow. And with that I will turn the call back over to Jeff before we open it up to your questions.

Thanks, Ed. We are pleased with CECO's operating margin results in Q1 as we get started into 2014 and continue to grow our backlog and execute on our core objectives, including sales excellence, profitable growth and margin expansions. However, we are looking for and expecting more revenue growth as a top priority for the business.

We continue to implement on our strategic initiatives and build a great foundation to increase shareholder value in 2014 and beyond. As we discussed in our last call and the call before that, we now have a broader, stronger portfolio today than we did a year or two years ago. In addition, we have a substantial platform with which to take our business to higher levels and reach our target aspirations of a $100 million EBITDA company.

I would like to take a few moments to update everyone on some of the key initiatives that we are focused on and our three-year plan to create shareholder value and then we'll open up for any questions you may have today.

First and foremost, sales excellence. We continue to make strides in our sales initiative to grow our business and expand our global market coverage. The team has established the 10 best practices over the past few months around sales excellence for all the teams and all the businesses to boost sales productivity and deliver on our 2014 growth aspirations.

Second, operational excellence. Every day we continue to create leaner, smarter, faster processes with continuous improvement and razor like focus at CECO, which has been the enabler behind increased margins over the past few years.

As you can see in Q1, this did continue to drive margins towards our aspirational operating margin goal of 15% and provide a structural discipline process as we grow revenues going forward, along with fully loading our core manufacturing plant base and expanding our asset light fabrication model to enhance margins.

Our business has above average operating leverage built into it, as you can see, and we had a strong operating income quarter on flat revenues. We're excited about what the future income of higher revenues will bring to our shareholders in the future.

Third, our One-CECO air pollution control sales initiative, which was the foundation of the CECO/Met-Pro merger. As we move ahead to build and grow the CECO platform, it is critical we create more value and extract even more value out of our strong and diverse air pollution control technology portfolio and our excellent customer base, which is growing.

We have consolidated our air pollution control products under a single focus in order to become a unified front end solution provider to our customers. I believe this will provide us with a growth driver, a competitive advantage in the industry and a way for us to capture market share.

Our One-CECO air pollution control quotation log is growing to big numbers. We've generated 151 new quotations, incremental quotations, as a result of the merger over the past four or five months. Our business and sales focus has been simplified into three core technology areas: one, energy; two, air pollution control; and three, fluid handling with filtration.

Fourthly under our initiatives is China. CECO China continues to evolve as an important factor in our growth strategy. Through April we had strong bookings in the neighborhood of $10 million from China, the beginning of many strong bookings years. We are exploring every opportunity of growth, products, sales excellence, new resources, in-country sales, alliances and JV partnerships along with acquisitions to ensure China is a pillar in our future growth strategy.

We've launched new products, new air pollution control products in China. We've added sales engineering resources. We've expanded our manufacturing facility twice and our team is doing very well. Our leadership team in China has positioned as well and I'm very excited about the future.

Fifth is growing our reoccurring revenue base. We have well over $3 billion of installed base and we will continue to target this opportunity to expand our presence and grow our business. Today roughly a third of our businesses in the reoccurring nature and we want to grow that to 40% and then to 45% and aspirationally our goal is 50%.

As many of you know, reoccurring revenues expand our margins, improves the smoothing effect in our business and generates high free cash flow. And we're very excited about that opportunity. We continue to invest in aftermarket sales captains and aftermarket sales engineers in our business to grow aftermarket services.

And lastly, acquisitions. Given our hyper fragmented markets we continue to believe the acquisition market is fertile and attractive and one key strategic opportunity for CECO. We've built a great platform on which to be an industry leader and we will continue to look for attractive, accretive, smart acquisitions as one element for our long-term strategy.

The One-CECO team has become very efficient at successfully integrating and simplifying acquisitions faster and managing those businesses very well. Our total team has never been stronger as I begin my fifth year at the helm.

In conclusion, I would like to say I'm very excited about the CECO team. Our senior leadership team has never been stronger. And our platform for future opportunities to create shareholder value is rock solid. I would now like to open up for any questions you may have.

(Operator Instructions). Pete Skibitski, Drexel Hamilton.

Good morning, guys. I just wanted to ask about the strong gross margin. Obviously, very nice there. It sounds like you guys think it can actually rise going forward and I want to get a handle on why you think that. Do you think you can get incremental pricing power going forward, or there's more cost takeout or some sort of mix change? Can you just give us some color on the gross margin outlook?

Sure. First off, for the past few years we've been very consistent about growing our gross profit and our operating margins 100 to 150 basis points a year. And as we wrapped up Q4 we messaged the same thing. So, we went to grow gross profit operating margins 100 to 150 basis points every year and we will do that.

The whole organization is geared up to improve margins. However, having said that, the most important thing we are focused on right now while expanding our margins is driving higher revenues, so going through the year we have some very big aspirations for revenue growth, sales excellence, market expansion.

So, as we grow the top-line to a more attractive level you might see a little moderation in that 34% to 35% range. So we're balancing order intake with our gross profit. So in summary, Peter, we are focused on growth and I would say you're going to see some nice gross profit and operating margin growth this year versus last year and that's kind of how we are looking at it.

Okay. One other thing I wanted to ask you, Jeff, just from my perspective not being a utility analyst or a power analyst. Everything I do read out there about the power utilities seems to indicate that they are kind of struggling and kind of going through maybe even some fundamental kind of operating changes as you get these rooftop solar systems coming in and whatnot.

And I know they're kind of a fairly sizable customer base for you guys, so I'm just wondering if you are seeing the same thing with the power utilities. If they are kind of struggling and if that is impacting your organic revenue, or if there is something else going on with other end markets? Anything you could talk about there would be super helpful.

Yes, actually we are very excited about the energy sector. We have a great team, a great business and an excellent technology. A couple things -- the natural gas business is doing well, we're seeing some nice activity globally on our natural gas turbine activities, which is part of the Aarding and EFFOX mission.

And our global coal markets are doing well. We are getting business in China on coal activity. Our EFFOX business continues to improve revenues in sales and margins with the traditional coal markets. They've been a leader in North America and they're now focused on growing the China, India and global markets which Aarding and EFFOX are partnering to do that.

So I envision our energy sector having a good year and continuing for a while. That's how we are kind of looking at the energy. I hear your comments about solar or wind. Those are potential niche markets, but the big gigawatt expansion in the next 20, 30 years of growth is going to be around natural gas and to a large degree coal.

Okay. And just in terms of getting back to organic revenue growth the balance of the year, are you seeing an increase in RFI levels out there in request for information or RFPs? Is that kind of what's giving you confidence?

There's a lot of things giving us confidence. First off, we have a great team. Our RFQs are strong. Just last night I was looking at the One-CECO air pollution control dashboard that was created just to measure new leads generated from the CECO/Met-Pro merger and we are up to 150 new incremental leads and those are major, major dollars. We just have to close them. Some of those are funded. Some of those are budgeted.

And plus, our focus on sales excellence is as sharp today as it's ever been. We spent the last few years on operational excellence and now we are turning the battleship towards sales excellence and bringing in more business.

We're doing terrific in China. And I think a lot of our markets we're seeing the polycyclone, petrochem, metal plating, chemical markets doing much better today than perhaps six months ago. So there's a few things that we were excited about to grow revenues, Peter.

Got it. Thanks very much, guys.

Sean Hannan, Needham & Co.

Yes, thanks, good morning. So a number of questions here. So first, just from a revenue standpoint, I understand you have some of these slips that move from the first quarter to second quarter. I want to address that in a moment. First organically, it looks like you were actually down something closer to about 7% year-over-year. Is there anything to elaborate on there, or is that due entirely to those slips that you had referenced?

On viewing bookings as flat (multiple speakers).

I'm talking on a revenue basis.

Yes, I'm viewing bookings as flat. I'm viewing legacy CECO business as flat but think if you look at some of the legacy acquisitions, which we didn't own a year ago, they had a little bit of decline. We did have a divestiture in one of those businesses and we saw a slight decline in Aarding in Q1 and a slight decline in Met-Pro in Q1, as well.

But we're also seeing some of the pruning taking place to shift some of those businesses to a higher-margin. So yes, there was a little bit of decline in some of the legacy acquisitions, but legacy CECO is flat, bookings are flat and we are not changing our outlook for 2014, Sean. But good point.

Okay. Yes, so it seems like what probably reconciles that is really that divestiture there?

Yes, that was a piece of it. That was definitely a piece of it. Yes.

Okay. And then in terms of the slips, I wanted to get a sense how large are these projects? What would they have impacted from a revenue standpoint? Should we explicitly size that at $7 million? I think that's what you may have referenced a little bit earlier.

And then following on, what is your visibility now into those projects? Not sure why they may have slipped and was there any sense that you may have had when you last reported in early March? Thanks.

Yes, sure. Fundamentally we are expecting more business appeared our annual operating plans suggest more business. Our business unit plans suggest more business. So make no mistake, we're looking for more revenue.

Number two, you have followed CECO quite a bit, Sean, our book to bill is typically around a 1 and our book to bill for the quarter was 10% to 12% higher. So the good news is we picked up $7 million of backlog and typically we are a 1. That's the good news. The challenging news is I would have liked to have seen that get digested in Q1 and fallout in the revenues to drive higher margins and EPS for our shareholders.

So it is what it is. So we going to digest those and process those in Q2 and go forward. That's kind of how we are looking at Q1 and Q2. We could talk about individual jobs a little bit, which jobs could've rolled into March, moved into April. But I think I'd like to just leave it at we grew backlog $7 million and typically we're at a 1 to 1 with book to bill, or around a 1. So we'll get that processed in Q2 and driving the revenues forward.

Okay. And then from a broader perspective, when you think about the current environment, when you consider that you had slippage in the first quarter into the second quarter, when you also consider that you're not backing off your broader outlook for the year, what is your feel of the demand environment right now?

And I certainly appreciate the comments that you have and the momentum within your bookings and backlog. But I feel like we're getting some mixed data points and just want to understand kind of a summary viewpoint of the demand environment for you today and how that may have changed. Thanks.

Yes, the demand data points are kind of spotty as you look across the business. Some of the traditional businesses are flat. Our quotation activity on the natural gas business is really good. Our quotation activity on the petrochemical and chemical activities are real strong. And so -- but as a data point our bookings year-to-date April were flat -- relatively flat.

And -- but we still have aspirations to grow the business. Our China business is up. Our China activity is up. The One-CECO air pollution control sales dashboard that we measure quite frequently to drive as a growth driver is way up. And we didn't have that six months ago and that is incremental business. So yes, the data points are mixed.

We're seeing some nice activity in the polysilicon and the metal plating in the pharmaceutical industry that we didn't see last year. Our Cyclone business, which came into this year with a very good backlog, saw a little bit of slowness in the refinery and slowness in some of their end markets, but their quotation logs are strong.

So yes, there is some mixed data points, but our bookings were flat for the first four months. We picked up about $7 million of backlog and we're doing all we can to bring in nice, high quality business. And we're maintaining our outlook for 2014 as we talked about a quarter ago.

Okay. That's actually very helpful perspective, Jeff. Then last question here is -- and I'll jump back in the queue. Now that you have a new segment breakdown can you provide a revenue breakdown and color on each of those businesses at a segment level?

Yes, we are going to do that in the future. This was our first segmentation message that Ed put together. You have the bookings for those three segments and you'll see more of that in the Q. But going forward we are going to be providing a lot more color around those three segments.

Whatever we do is to bolster and grow organically and inorganically those three excellent technology sectors. And you'll be seeing more detail around revenue bookings and the like as we go through the year. And that was our commitment to everyone about six months ago.

Okay, great. Thanks for all the feedback.

Rob Stone, Cowen and Company.

Good morning, Jeff and Ed. Couple of questions. Jeff, you mentioned that your aspiration for the year is the same as a quarter ago. Can you just remind folks who might not have those details handy what that is?

Sure. Good morning, Rob. We've always messaged we're trying to grow 10% to 15% year-over-year revenue and that's a mix of organic and inorganic activity. And that's kind of how we're thinking about the year.

So, I think there might have been a $300 million figure out there somewhere. Is that an explicit or an aspirational target?

So our next hurdle is to get to $300 million and above. Aspirationally that's with the management team is focused on. Some of that will be organic, perhaps a little inorganic, but we've messaged the past couple of quarters, Rob, that yes, that is our next aspiration is to reach $300 million.

I know if you study a lot of the research analysts, you know you'll see many of them have us at $280 million in revenue and the like, which is probably middle-of-the-road of that 10% to 15% growth. So, we're very focused on achieving that.

Okay. A question for Ed on operating expenses. (Technical difficulty) already mentioned that gross margins may move up and down a little bit in this sort of 34% to 35% range as you go after more revenue. How much of the OpEx is going to be variable with sales? Can you continue to improve the OpEx as a percentage in the next few quarters?

Very small. We believe the -- on the SG&A line we believe we'll maintain the 19%. It popped up a little higher this quarter with the revenue miss but the SG&A trend rate is there. We have the synergy savings in there so we'll maintain that under 20%. 19% is very achievable. As Jeff mentioned earlier, the gross margins are going to be balanced as we grow the top-line aggressively, but the SG&A is definitely locked down.

So thinking about SG&A in dollar terms, and this is on a non-GAAP basis, it was better than we expected and down nicely sequentially. Would you expect to be growing non-GAAP SG&A dollars through the rest of the year some with revenue, or is this level sustainable?

Yes, good point, Rob. We focus on that quite meticulously. As you pointed out, we had around $13 million for Q4 in SG&A and that showed a lot of cost out from the merger. And in Q1 we ended up at 11.7%, which was a very low number. We're going to be in that 19% range, but I also think that 19% was slightly low for a few reasons -- or that 11.7% was slightly low.

So I see us probably in that $12 million range for the year, maybe give or take a couple few points -- 12%, 12.1%. [Definitely] 19% is our target. As revenues grow that number will come down as a percentage, but that should give you some range.

A balance sheet question for Ed, if I may. You paid down some debt. You had one asset divestiture. There's a couple more coming. How should we think about a potential debt pay down this quarter and the relative impact on interest expense?

Well, we're on the course as promised. We had the aspiration of getting the debt to EBITDA down to a 1 to a 1.5 range. We believe that's very achievable based on the current net debt of about $65 million with our continuing EBITDA contributions and cash flow. We believe we can get down to very comfortably a 1 to a 1.25 by the end of the year, as planned.

But you mentioned a couple of things that are close to being divested this quarter. Roughly how much cash is that going to free up?

There will be another few million there per quarter from the non-core asset sales in addition to free cash flow that we will be generating.

Okay. And finally, you mentioned that the tax rate was a little higher than expected. Do you think it's going to be lower for the rest of the year. Can you be a little more specific on a range of a potential tax rate?

Sure. We believe 30% -- 29% to 30% would be the aspirational rate. 35% in the quarter was higher for a couple reasons. One, the R&D tax credit has not been renewed by Congress yet, so that's not a rate nor can it be yet until that's been approved. As well as we had a [subtly] adverse jurisdictional mix here in Q1. But we believe that 30% would be a good rate to use going forward as we had messaged earlier.

Okay. My last question is on China. Can you say how much of revenue China contributed in Q1?

You know, I don't have that in front of us, Rob, but that will be out in the Q tonight or tomorrow.

Great. Thank you very much.

Scott Graham, Jefferies.

I was hoping you guys would be able to give us the bookings by the new segments for last year as well.

Yes, we haven't published that. That will be in the Q, but we do have that for Q1. But we don't have that (multiple speakers).

You're saying you only have it for 1Q 2014?

Correct.

Okay, that'll be in the Q, okay. And so, the Q will not have the new segment format? Is that what I am hearing you say?

It will, but the Q, the segment out in the Q will be on an as reported basis, it will not be pro forma. We only issue pro formas on a consolidated basis. But the Q will have the new segments being presented for the current year as well as you'll have all four quarters of 2013 be presented in the Q as well in the new segment structure.

Oh, great. Oh, okay. I misunderstood. And the Q will be out, I assume, well, fairly shortly, I assume?

Yes, by tomorrow. No later than tomorrow.

Very good. Okay. I wanted to also ask about some of the sales initiatives, the dashboard that you're referring to, Jeff. In light of the fact that this is a new sort of modus operandi for you on sales, what is the next step other than just identifying these 150 plus opportunities?

I mean, is there training taking place to sort of close the deal kind of thing? What is the experience on that front? Because it seems like this is kind of new for some people in terms of having to generate a lead and then input it. So I guess I'm just kind of wondering what the next step is with the people that are at the front line in trying to close some of this stuff.

Yes, good question, Scott. First off, we've been focusing on sales dashboards for many years across the businesses. Most of our businesses use salesforce.com to manage all sales activity, CRM management and growth opportunities. So we've been focusing on sales dashboards and growth initiatives for a while.

What we have started was knowing that we need a higher number of revenue growth by division, what we did was we launched a 10 process sales excellence initiative across the divisions and our sales leaders, our sales managers and our general managers put this -- to refresh what are the best-in-class companies doing to grow revenues, to manage their sales engineers and to grow their business.

We launched that a few months ago. It's called the CECO Environmental Sales Excellence, the top 10 sales process guidelines and every month we train our teams around that. We've also added additional sales engineers and upgraded some sales positions and it's a big priority for us on the sales side of --.

Now, what I was referring to before was given the Met-Pro and CECO merger, we are generating a lot more leads amongst the new technology businesses that we have where we didn't have those before. So those new -- the APC sales dashboard is just around incremental leads that we're generating as a result of the merger.

That's a separate sales dashboard. We are calling that the One-CECO APC and we're using that as a growth driver to drive new leads and bring all the air pollution control technology businesses together to sell solutions on a broader base.

The good news is it's generating a lot of activity and a lot of new quotations. Now we've got to work with the sales engineers on sales techniques, consultative selling, solution selling to close those orders.

Got it. Okay, thank you. I guess my next question is around the organic growth thinking for the rest of the year. I'm kind of still working through the impact of acquisitions. I know that you, on your first page, refer to a couple of acquisitions and their impact. I guess my first question is, A, what was the dollar impact of the divestiture in the quarter?

$1 million.

$1 million. So I know that there was a previous discussion about organic being down, but maybe I'm just not calculating this correctly. It looks to me like your organic was flat?

Right.

Correct.

Because Aarding and Met-Pro and maybe a little bit of tale from Adwest -- I'm not even sure of that -- those were the two acquisitions that impacted the quarter. So, it looks to me like your organic was flat, which is a nice change from what we saw last year. Do you expect organic sales growth to improve on a year-over-year basis as we progress through the quarters?

Yes, we do. And all our goals and aspirations and annual operating plans are based on solid organic growth.

Okay, thank you. And my last question is regarding the SG&A, which was down sequentially but so were sales, so there's an impact there. Could you maybe split out for us what the incremental, this sort of if we take out -- if we adjust the SG&A for one timers it looks like about a $1.4 million decline in dollars. How much of that was synergy?

Most all of it. Most all of it was synergy and we are going to see that fallout in the businesses. Probably 97% of that -- 96%, 97% of that was synergy, Scott, from the CECO Met-Pro cost out initiative. So, we were around $13 million in Q4. We ended up at 11.7%, and that will continue.

So that's kind of the things we've been on with the integration and the occupational excellence and the consolidation of the main offices into one leaner model in the consolidation of several manufacturing plants into a smaller number of manufacturing plants. So we're pretty proud of that.

But now we are turning our sites on organic revenue growth and we're more excited about what kind of operating margins we can generate with another $10 million or $15 million of revenue per quarter falling through the P&L. That's kind of what we are chasing.

Understood. Thank you. And here is my last question for you. As your end markets split out I certainly understand the question early on power being about 25% of your sales. But my calculations have you kind of much bigger in the factory, sort of general-purpose factory markets, clean air and what have you.

So I guess my question is, aside from your sales initiatives could you talk about what your customers are seeing in those markets? Was there a weather impact in the first quarter at all? Were there any customer closures that may have restrained sales a little bit? And more importantly is what is the tone of your customers in those markets, the factory, your basic factory markets?

Pretty solid. Pretty solid and we just finished up a management business review and the tone of what we're hearing from our customers, which comes through to our general managers and sales managers, was pretty solid and relatively upbeat.

The one thing that I kind of measure is the general large industrial manufacturing sector showed some nice pickup. Our contract services business showed some nice pickup in the first three or four months of bookings activity versus last year. And that's kind of like the bellwether of North America. That's my first data point.

We are seeing a lot more engagement and a lot more productivity in China so that's very important. Our basic traditional power business is doing solidly in the USA, but a lot of their orders are coming in from outside the USA right now and maintaining their position in the USA. And then we're seeing our natural gas turbine plant activity being slightly up from last year in terms of RFQ activity.

So, those are a few data points and I'm -- in talking with the salespeople, I'm seeing a lot more quotation activity in the wood industry and the paper industry. And then petrochemical is seeing a nice uptick. So, those are the kind of sound bites we are hearing from the sales organization and the quotation dashboards.

That's very good, Jeff. Thank you.

Gary Sweeney, [Bounty].

Good morning, guys. A quick question on that $7 million I think you said slipped in the quarter. Was that from the traditional Met-Pro business? I know their product recover pollution control business can be a little bit lumpy. Just was that the area that it was coming from?

No, Gary, that was just across the board. As I kind of messages before, we picked up $7 million of backlog, which is positive because we normally are around a book to bill of 1. So it would've been nice to move some of that into Q1, but it is what it is. So, no, it would be across the board. That $7 million of backlog growth was across all the businesses and I couldn't pin it down to one or two.

Okay. And then I also wanted to focus a little bit on the sales side. You've talked about the CECO sales initiatives or excellence, the 10 points there, but can you give a little bit more detail? Are you -- the number of sales engineers you've added over the last couple quarters, where you're at, where your goals are in terms of that, and what areas they're going to be? And as you bring these guys on there's a ramp time from them coming on board to accelerating. How does that fit into your projections for this year and into 2015?

Yes, sure. Adding sales engineers is something we continually do. And each business has their annual operating plan and you need the optimal number of sales engineers to achieve your annual operating plan. And so, we have a green light in hiring high quality sales engineers.

Many times you can recruit a very talented sales engineer that hits the deck running. Sometimes you bring in an application engineer to train for a while to move into sales engineering. And yes, there is a gestation period before they hit full stride and bring in a couple million dollars of revenue, but it's a mix. Depends on the recruiting of the talent and the situation.

But on average we are pretty excited about the talent we are bringing into the organization and we think we have -- we are going to add additional sales capacity this year in North America. We have done quite a bit in Q1 and we think we have the right number of sales professionals in the field now to achieve our growth strategy.

Okay, and then staying on the sales side, as you move into the One-CECO sales plan and you're looking for orders maybe with combined products or multiple products, does this change the sales dynamic? Does the sales time become longer? I mean, obviously the order could be bigger, but does it become more complicated? Does it take a longer period of time to set the sales? How does that affect things?

Good question. It doesn't change the gestation period from quoting to closing, but what it does do, it makes us a very collaborative organization. So we have more people involved in the selling process. We have -- every Friday morning we have a One-CECO air pollution control sales dashboard call where many salespeople and sales leaders join the call to talk about the strategies.

Because we are selling multiple technologies into a common solution now. Whereas in the past it was one solution or one product, now it's multiple product technologies to have a better selling impact with the customer and hopefully expand our margin in the process. I would say it's adding -- we are becoming a better collaborative sales organization on a solution consultative selling basis.

Okay. And then, one more question somewhat one-off -- noticed the dividend increase. Just curious as to why the dividend increase. You've talked about having a very fragmented industry. Acquisitions are key to your growth strategy. You're a $400 million market cap company. Wouldn't it be a little more prudent to keep some of that money in-house for the acquisition front? I'm just curious as to some of the thought process behind that.

Sure. No, it's a great question. The Board does a great job studying these things and we go through a lot of process and a lot of discussions. But I think number one, our Board has a lot of confidence in our future, in what we're doing, and what we're doing to drive operating income and free cash flow and our ability to continue that and expand that over the next few years.

And number three, we certainly -- one of our objectives, one of our many objectives is to -- for shareholder value. So, we want to make sure our shareholders are very satisfied with where we've been and where we're going.

And then fourthly, $0.01 is -- given what we're generating in income and operating income, $0.01 is around $270,000 and we can digest that reasonably. And it was probably a year and a half since we've done anything like this before. So those are our thoughts and that's kind of how the Board views the dividend increase.

Okay. I appreciate it. Thanks a lot. That's all from my end.

(Operator Instructions). There are no further questions. I would now like to turn the call back over to Jeff Lang.

Thank you all for participating in our call today. We appreciate that.

Ladies and gentlemen, thank you for joining today's conference. Thank you for your participation. This does conclude the conference. You may now disconnect.