CECO Environmental Corp (CECO) 2017 Q4 法說會逐字稿

Good morning, and welcome to the CECO Environmental Corp.

conference call.

(Operator Instructions) Please note, this event is being recorded.

I would now 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 2017 Conference Call.

On the call today is: Dennis Sadlowski, Chief Executive Officer; and 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 on our website at cecoenviro.com.

The presentation materials can be accessed through the Investor Relations section of the website.

I would also like to caution investors regarding forward-looking statements.

Any statements made in today's presentation that are not based on historical fact are forward-looking statements.

Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties.

Actual future results may vary materially from those expressed or implied by the forward-looking statements.

We encourage you to read the risks described in our SEC filings on Form 10-K for the year ended December 31, 2017.

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 now I'll turn it -- the call over to Dennis.

Thanks, and good morning.

I want to kick off today's call by summarizing our fourth quarter results and offering some thoughts on our overall 2017 results as we faced challenges, made tough choices and undertook aggressive actions, which have already begun to show positive returns.

I'll then review our go-forward strategy that we discussed on last quarter's call aimed at transforming the company, and I'll add some specifics regarding the most significant actions and results we have already achieved down that path.

Matt will then go into the financial details for the fourth quarter and full year 2017.

Turning to Slide 3. It's clear that CECO continued to struggle in the fourth quarter as it did throughout 2017.

Revenue declined to $73.5 million and was off about 27% year-over-year.

Correspondingly, non-GAAP operating income also declined to $3.5 million with a drop of 76%.

On the positive side, our orders increased to $91 million during the fourth quarter.

This represents a significant inflection point because it's the first time in 7 quarters where our book-to-bill ratio is greater than 1. For the total year 2017, our revenue was $345 million, which was down 17% from 2016.

Clearly, these results were disappointing but not at all unexpected given the challenges that CECO faced throughout the year.

First off, the end markets in power generation and the niche refinery segment that we serve experienced increasingly steeper cyclical downturns.

Coming into the year, we foresaw the downturn in FCC cyclone demand after a couple of strong years.

The downturn reached historical lows as oil and gas refinery operators continued to maximize their capacity utilization and defer maintenance investment.

Fortunately, we're seeing indications that this slump may have bottomed out and is now recovering.

On the other hand, the power generation segment, which hit us hard in mid-2017, will continue to be a challenge, at least through 2018, because of dampened near-term demand for new construction and major retrofit projects.

We did achieve pockets of growth in the general industrial and midstream oil and gas segments, and the outlook there continues positive.

We're moving aggressively with our investments to target market-share wins in each of these segments.

The year's financial performance was also challenged by several internal adjustments undertaken during 2017 to assure disciplined and transparent financial processes.

The most significant adjustments included warranty charges on a couple of legacy projects, bad debt provisions taken against aging receivables, along with both a goodwill impairment and an earn-out liability write-down.

In 2017, we also upgraded the standards we use for determining firm orders in active backlog, resulting in the removal of dormant projects and a reduction in reported backlog.

One of the most important and pivotal accomplishments in 2017 was the completion of our comprehensive strategic assessment and planning process.

We began this effort in late spring to objectively evaluate our markets, geographies, organizational capabilities and opportunities for growth.

This assessment concluded that too many disparate acquisitions, our primary source of growth for a number of years, suffered from underinvestment and a predominantly inward focus resulting in declining organic revenue.

The strategic assessment also defined the way forward, and we are well on our way with key decisions that support positive momentum into 2018.

First, as shown on Slide 4, it affirmed our value proposition, specifically that we enable our industrial customers' growth with clean, safe and more efficient solutions that help protect our shared environment.

This is our compass setting for consistently winning market share and creating value.

Second, it defined what we have come to call our 4-3-3 Operational Strategy.

I'll take a few minutes to share some thoughts on how it represents a fundamental change in our focus to prioritize investments going forward.

The 4-3-3 Operational Strategy supported a range of important decisions we made targeting lucrative and winnable end markets, portfolio adjustments and capital reallocation.

We initiated a wide range of actions, beginning in the fourth quarter, to catalyze progress, and we're already seeing some early wins and experiencing positive momentum.

We know we still have much to prove, but I remain confident in our strategy and direction, positive about our progress and excited about our prospects.

Slide 5 shows how we intend to lead in air quality and fluid handling solutions through our 4-3-3 Operational Strategy.

This strategy has a framework of our 4 value-creation enablers, 3 compelling end markets and 3 core growth platforms.

The concept of 4-3-3 as the name of our operational strategy's important to me for 2 reasons.

First, many of you know that I'm a lifelong soccer player and fan, and in this global team sport, the 4-3-3 formation is an offensive-minded setup to winning matches.

And that's what we're playing at CECO, offense.

Second, 4-3-3 quickly resonates and focuses our priorities and efforts throughout our entire 1,000-person workforce and organization.

Moving on to Slide 6. The long-term success of this operational strategy is based on the implementation of 4 value-creation enablers: outside-in leadership, portfolio management, simplification and innovation.

Outside-in leadership is all about an increased focus on listening to our customers, driving a positive cultural shift throughout the company and investing in the sales enablement and process excellence training as we build our brand.

It's an ambitious undertaking that's hard to measure, but it's easy to recognize through the response of our customers.

Outside-in is about building behaviors and norms that produce an organization committed to generating value for customers each and every day.

So this is an area amplified and reinforced through the actions of our senior leadership team.

And as you know, we've substantially reshaped and upgraded the team throughout 2017.

The effort to invest in an experienced, capable and decisive leadership team is well underway, and it'll be supplemented as we progress with leaders who share our passion for winning in the markets.

Active portfolio management is essential for allocating capital to the highest-yielding returns as well as bringing clarity to targeted and winnable markets.

We don't want to become complacent given the competition and our clear objective to win market share in focused areas.

That means that we must have the mindset of continual renewal in our offerings by regularly and seriously evaluating business units for market attractiveness versus the investment required to win market share.

I've already mentioned today and certainly covered in some detail last quarter that our acquisition history has led us to own a few business units where we're either simply not the best owner or the asset no longer fits within CECO.

And thus, we found a better match for the Keystone Filter unit, which represents a small filtration product line with about $4 million in annual revenue that serves the residential and niche industrial customers, we closed on the sale of Porvair plc on February 28 and, in accordance with our banking agreements, all net proceeds have been directed towards debt reduction.

It's a small transaction but a win-win for us and the acquirer, and it represents an important initial step in our active portfolio management.

I'll add that we're well along in discussions on another larger unit that may also fit to a strategy outside of CECO Environmental.

Hopefully, we can discuss more on that transaction on our next quarterly call.

We're still open to and interested in strengthening CECO through future acquisitions, and we're going to be very selective in terms of criteria and timing.

But right now, our focus is on delivering organic growth by winning market share.

Simplification is the next value-enabling area of action to reduce inefficient complexity within our organization.

Our biggest target is to reduce the 64 legal entities and 13 ERP systems within CECO, which are not only inefficient but also a barrier to productive interactions with customers.

Our goal is to cut the number of entities by at least half.

We've made some solid progress here, eliminating 10 entities during the fourth quarter.

On the system side, we have eliminated one less efficient ERP and are making good progress to achieve 2 more by the end of 2018.

Finally, there's innovation.

This isn't a theme but a necessary investment action.

As I mentioned on last quarter's call, we've fallen behind in this area by becoming overly dependent on acquisitions to gain an innovative edge.

Innovation as an enabler of growth will likely require the most time to gain traction and produce results until a pipeline of valuable ideas are fully quantified.

We're committed to making the investments in innovation even with some of our end markets like power gen in a prolonged slump.

And as the markets rebound, our goal is to be positioned to seize the initiative to win share and create value.

With Slide 7, I'll discuss our 3 compelling end markets: clean energy, industrial air pollution control and fluid handling.

We've identified competitive and winnable space in each of these attractive end markets.

Combined, these 3 end markets represent a sizable $6 billion, of which we currently have about 6% share.

So it's clear there's plenty of opportunity for a company with a winning proposition like CECO Environmental.

Moreover, our 4-3-3 Operational Strategy better positions us to gain share if we execute at our potential.

Clean energy represents our biggest end market, where we are focused on assisting our customers to keep their fossil energy production clean and safe.

We like the prospects and our positioning in spite of the current micro-recession over the power gen segment.

And there's some good news.

Our win rates have been increasing during this significant downturn.

I'll also reiterate that the refinery segment appears to be rebounding, giving us optimism that 2017 was clearly an anomalous year.

We remain strong in this area and are poised to take advantage of the uptick in demand.

That industrial air pollution control market is, for me, even more exciting.

In the second half of 2017, we increased our focus on the opportunity with our industrial customers.

And while we have much work ahead, the market should continue with positive dynamics over time.

A brief reminder of these dynamics is perhaps worthwhile.

In developed countries, air quality standards and worker safety requirements are becoming more stringent, and many of our customers are working to exceed regulatory standards because of corporate, EHS and social responsibility initiatives.

It just makes good sense, and we help them remain clean, safe and efficient.

In the more developing world, major economies, such as China and India, are under extreme pressure to continue achieving economic growth while simultaneously making significant air quality improvements.

So we're making incremental investments to help industrial customers outside the U.S. as well.

Our third target market in fluid handling remained fairly robust with strong industrial indicators.

Turning to Slide 8. Our final 3 represents the growth platforms being built out to create value and win market share against the competitive market space that I just identified.

Engineered equipment is our largest and most global platform.

We have blue-chip customers and our superior products and applications producing robust cash flows.

In fact, we're one of the top 2 players in silencers, separators and cyclones as well as SCRs for NOx reduction, and we're able to back that up with strong engineering and execution.

It's not surprising then that in Q4, we had several major wins in both refinery and the soft power generation market.

Going forward, we're taking a number of steps to strengthen our market penetration and brand differentiation, but the most important one involves a realignment of our sales organization to better address global accounts with a regional aftermarket focus.

Within engineered equipment, we have an opportunity to expand our market position by exploiting leading brands, such as CECO Peerless, which offer solutions based on SCR for the removal of ozone-depleting NOx.

This leading brand position allowed CECO to win several significant SCR projects awarded in 2017.

In Industrial Air Quality, we have a best-in-class portfolio of solutions, exceptional expertise and customer service to outperform against small, fragmented competitors.

We're also taking several steps to ensure improved customer loyalty: first, our quality teams are steadily building lifetime value through aftermarket support and qualified field service technicians; second, we're helping make maintenance quicker and easier through eParts catalogs and digital upgrades; and lastly, we're working towards providing a 24/7 technical call center.

Finally, Specialty Pumps.

We have a niche position in mission-critical specialty pumps, where timely delivery and high quality are necessities for customers in the end markets like petrochemical and water desalinization.

Our capital plan is well underway as we invest in manufacturing equipment that helps us consistently deliver high-quality pumps on reduced lead times, and we'll be rolling out a new configurator that aids customers in pump selection later this year.

In summary, while our performance in 2017 was quite disappointing, it wasn't surprising given the headwinds we faced in several of our end markets and the internal adjustments that we made.

However, we've dialed in a new course with our 4-3-3 strategy that we're both confident in and excited about to transform CECO Environmental to better deliver value to customers and win market share.

And with that, I'll turn it over to Matt, who'll discuss our financial results.

Thanks, Dennis.

As I walk through the financials, I'll highlight some of the finer points that'll include both GAAP and non-GAAP performance for the third quarter of 2017 as well as the full year.

As a reminder, our non-GAAP adjustments include, but are not limited to, expenses associated with executive transition, facility exit, acquisition and integration, earn-outs, legacy design repairs, restructuring and goodwill and intangible asset impairments.

Our non-GAAP presentation is intended to provide trend analysis and assessment of our core business performance.

A bridge of non-GAAP items is referenced in the appendix.

Starting with Slide 10, I'll restate that Q4 results were below last year and continued to be impacted by strong headwinds in the markets we serve.

But as Dennis outlined, we initiated decisive actions last quarter, and our execution on restructuring is already yielding positive financial results.

Our orders were at $91.4 million, which is up 18% year-over-year based on power generation, refinery and air quality growth.

Moreover, it was up 29% sequentially as our team executed in the rebounding refinery market and achieved share-gain wins in the depressed power generation market.

Revenue at $73.5 million was down 26% year-over-year, primarily because of lower backlog resulting from slower orders during the first half of last year.

Our GAAP operating profit reflects a loss of $8.2 million.

I'll note that this loss reflects a $7 million goodwill impairment, mostly on Zhongli; a $2 million restructuring charge; and a $1 million liability earn-out reduction.

Cash flow from operations in the quarter of $7.7 million was significantly improved versus Q3 on aggressive accounts receivable collections.

This is certainly good news, and we remain confident that our business model and team can continue to produce solid cash conversion from earnings.

Non-GAAP gross margins of 35% were strong in the quarter while down 80 basis points year-over-year.

Overall, we have maintained a solid project mix in the face of pricing pressure in the soft power generation segment.

Q4 non-GAAP operating margin was down 9.9 points year-over-year on lower volume.

As I mentioned during our last call, we executed on our restructuring to resize our power generation business in alignment with the outlook of our customers.

GE, Siemens and Mitsubishi are all taking cuts, and we need to follow suit.

This resizing included a reduction of workforce and several site closures.

Accordingly, we took a charge of $1.9 million during that period that will generate $6 million in annualized savings.

Finally, our non-GAAP diluted earnings per share was a loss of $0.05.

Tax reform contributed $0.05 to that loss in the quarter but will be positive to our cash flow in 2018.

Next, Slide 11 summarizes our full year financials, which reflects both the sustained headwinds from some of our end markets and the necessary actions that we initiated in Q4 as part of our 4-3-3 Operational Strategy.

In 2017, orders were down 17% or $69 million year-over-year, with about $40 million driven by the refinery market softness over the first three quarters.

I want to add that this market appears to be recovering from the deep trough in the fourth quarter.

And on an additional positive note, fluid handling and filtration segment orders were up 8% or $5 million year-over-year as U.S. markets improved and international pump sales increased.

GAAP operating profit of $8 million was below our expectations due to a combination of volume and several noncash and onetime adjustments taken throughout 2017.

We've outlined some of the more significant adjustments specific to Q4 later in the deck.

Our non-GAAP gross margin has improved 1.1 points year-over-year to 33.6%, mostly on the improvement in our fluid handling and aftermarket services business mix.

As a side note, I'm really pleased with the operational excellence improvements being made at our fluid handling plant in Telford, Pennsylvania.

We've added fresh new talent to our roster here in '17, with [Lisa Rocky] as VP of Ops and Anthony Carbo as production manager, that both have a wealth of experience coming from the automotive and manufacturing industry.

The deployment of visual management, new equipment, field trips to world-class manufacturing plants and Lean adoption are in their infancy, but the improved metrics are encouraging.

Adjusted EBITDA was down 43% or $26 million year-over-year, primarily influenced by compression on reduced revenue.

Non-GAAP diluted earnings per share were $0.27 compared with $0.99 in the prior year.

I want to wrap up this slide by touching on our tax rate.

CECO will benefit from the tax act signed in the law in December.

In Q4, we booked a $1.6 million net charge driven by 2 factors.

First is a $6 million charge related to the transition tax on foreign earnings.

This is payable over 8 years.

Second is an offsetting $5 million reduction to our U.S. tax-deferred liability as we remeasured down to the new 21% corporate tax rate.

There's more work to perform in our tax strategy, but we initially estimate CECO will yield $1 million to $2 million of tax savings starting in 2018.

This is certainly good news.

On Slide 12, we break out orders and revenue by segment, and like last quarter, have specifically split out our refinery business to show materiality.

Unlike last quarter, the news is different because it's positive.

In Q4, we saw the strongest quarter since Q1 of 2016 as deferred maintenance is beginning to be addressed.

In fact, Emtrol-Buell orders in Q4 were higher than the 3 other quarters of 2017 combined.

The largest refiners like Marathon, Phillips 66 and Valero are offering guidance of double-digit growth in CapEx programs for '18, and our team will be ready to support them with top-quality products and service.

Despite the fact that the slump in demand for natural gas power generation is expected to remain soft through 2018, orders were up sequentially.

In early Q4, we were awarded a double-digit size contract to provide a CECO Peerless SCR exhaust system for what will be the largest simple-cycle, natural-gas-fired turbine ever built in the U.S. This is a great technical win for Brent Thompson and the Peerless team, and we're excited about the future add-on work we can provide to the customer.

Fluid handling's Q4 orders were essentially flat year-over-year and sequentially, however, total year orders for 2017 increased by 8% on the strength of U.S. markets.

Another bright spot was air quality, where orders increased 17% in Q4, both sequentially and versus Q4 2016.

We're starting to see capital spending break free, where under the new tax act, investment paybacks for our equipment are becoming very enticing.

The bottom line for Q4 was that there was sequential orders growth in all segments, reflecting a combination of rebounding markets and increased market share, all positive signs.

Turning to Slide 13.

We outlined our backlog, orders and revenue.

There's 2 key points here.

First and most notable is that we realized our first book-to-bill ratio greater than 1 since the first quarter 2016.

So we broke a slide that has lasted 7 quarters.

As a CFO, you're always pleased to see growth.

I believe CECO's 4-3-3 strategy with our outside-in focus is underpinning this inflection point.

Second is that we had $3 million in cancellations in Q4, driven by a deceleration in China and evidenced in our Zhongli goodwill impairment.

The power generation market in China is challenged, so we'll shift our focus to solving that country's air pollution control needs.

Slide 14 shows the trends of our gross profit, operating income and adjusted EBITDA.

Volume, as it has been throughout 2017, is the culprit here, but there is some good news.

Full year non-GAAP gross margins were at 33.6%, which was up 1.1 points year-over-year and above our prior estimate of 32.5%.

The sequential improvement in gross margins to 35% are the result of managing costs and pricing pressure throughout the downturn.

However, as you look at operating and EBITDA margins, this data clearly supports the need to invest for growth while rightsizing our challenged business units.

Our Q4 restructuring efforts did just that, as we executed them swiftly and have put in place additional contingency plans as we monitor the power gen market closely.

On Slide 15, we show that free cash flow is better sequentially, and we know that there is room for more improvement.

Accounts receivable in China and inventory reduction actions in Specialty Pump continue to be areas of opportunity for CECO.

The significant improvement in adjusted free cash flow in Q4 demonstrates the strength of our asset-light model and the team's consistent focus on receivable collections.

On the right, we highlight our working capital rate, which has increased in '17 as our top line has declined.

However, on a gross dollars basis, trade working capital did decline $4 million sequentially versus Q3.

That's an improved sign of our capital efficiency.

Turning to Slide 16, I'll touch on debt and liquidity.

On the left, you'll see we've made considerable strides to reduce our debt.

We'll continue this effort into the future.

Dennis mentioned earlier, the proceeds from our sale of the Keystone unit last week went directly to debt reduction and now will show up in next quarter's call.

On the right side of the slide, our leverage ratio has increased to 3.2x.

That being said, we're confident that with the sale of Keystone, restructuring complete, further advancements in our portfolio management strategy and improving bookings outlook, that we'll maintain ample margin for our banking covenant.

Before I turn it back to Dennis, I briefly want to wrap up 2017 with some housekeeping items related to our GAAP performance on Slide 17.

Acknowledging our end markets in China are structurally challenged, we've booked an impairment at Zhongli's goodwill, booked a partially offsetting reduction to the Zhongli earn-out liability on underperformance and increased our bad debt provision.

With the variability in our GAAP results, we still believe non-GAAP is a preferred measure and want to maintain the clear transparency and context for our investors.

Obviously, CECO underperformed in 2017 on what we set out to do at the outset of the year.

Our Q4 showed several positive areas in terms of increased orders in all segments, improved cash flow and actions taken on key initiatives.

We still have a long way to go, but I'm confident in the course we have charted and excited about our 4-3-3 Operational Strategy and the prospects of improving markets.

With that, I'll turn it back to Dennis.

Thanks, Matt.

In closing, there's no sugarcoating our poor results during 2017.

Despite the end market headwinds, we have to do better, and we intend to.

With Slide 19, I'd like to reinforce the early wins and positive momentum that took place since our last update, and then highlight the outlook of our end markets as 2018 began.

Guided by our 4-3-3 Operational Strategy, we either continued or kicked off a range of actions and investments to enhance our value-creation enablers.

We substantially reshaped and strengthened our senior leadership team to enhance our capability to execute, to win market share and create value.

Our aim to sharpen the focus of CECO through active portfolio management is underway and resulted in the recent sale of the Keystone Filter unit, with proceeds applied to reducing our debt.

And we have the potential for an additional transaction involving a larger unit in the near future.

We began streamlining our organization to be more efficient and responsive to customers and new opportunities by eliminating 10 legal entities and 1 ERP.

And we implemented the downsizing of people in several locations to adapt to current market conditions.

Investment in our growth platforms is now prioritized and designed to gain advantages in our 3 end markets.

The common investment thread across the platforms was extending our brands and their differentiation, improving our customer service by realigning sales teams, offering more lifetime value through aftermarket support and technical expertise and making capital investments to improve quality and lead times in our manufactured products as sales volumes pick up.

The fourth quarter also serves as a positive inflection point in our performance that points to improved results going forward.

Specifically, orders increased by more than 28% during the fourth quarter.

This helped drive the first favorable book-to-bill ratio in more than 7 quarters.

Finally, turning to Slide 20.

Let me conclude with a few remarks on our end market outlook, as we began 2018 with a mixture of positives and headwinds.

As we anticipated, the niche refinery sector appears to be rebounding.

As Matt mentioned, refinery-based Emtrol-Buell saw the strongest orders since early 2016 as customers began to prepare for upcoming turnarounds.

I've already discussed the natural gas power generation market.

So I'll just say that we expect it to remain hard-pressed throughout 2018.

Our objective will be to gain share as we did in 2017 with our silencer and SCR emission-reduction products.

Midstream oil and gas operators continue to be growth-oriented, and it's likely to continue through 2018.

The same goes for the general industrial segment as there are significant underlying strengths in the air quality and specialty pump market segments.

Moreover, U.S. tax policy should bode well for our industrial customers.

To wrap up with Slide 21.

There's no doubt that 2017 was a challenging year, but the fourth quarter was pivotal as our 4-3-3 Operational Strategy kicked off and gained traction, and some of our end market segments began to rebound.

We have a lot of work to do, but I'm certain that CECO is up to the challenge.

Thank you.

And now we'd like the operators to open it up for questions.

(Operator Instructions) Our first question comes from Sean Hannan with Needham & Company.

Can you folks hear me?

Yes, Sean.

So first question I have for you is if I look at this slide that you just put out at the end of presentation, it looks like as you break down different market segments, you guys are actually looking for a revenue rebound here in '18, that '18 should be an up year.

And so I know you're not going to guide towards that, but at least directionally, does that seem like something that we should all be kind of thinking about and considering in the models?

Yes.

So Sean, first off, let me say thanks for joining us.

And I hope you're getting through the weather trouble you're having there in the Northeast safely, weather and power, both.

I'm actually stranded in Toronto as a result, but in any case.

Oh, Sorry to hear that.

And I know we have others in the Northeast as well, along with some of our own colleagues being stranded through the tough weather the last couple of weeks.

But as far as our outlook, I would say that when we look at the bookings outlook between the rebounding area of refinery, the strength that we see in industrial and the ability to pick up share in some of the other segments, I would say, yes, we are looking for a bookings increase as we go throughout the year relative to last year's numbers, last year's markets and last year's outlook.

That said, I would say -- also tell you that last year we came into the year with a stronger starting backlog position.

And so it always takes time before revenue catches up with our bookings, in that I think you understand that a good portion of the company has relatively longer-cycle product areas.

And so from the standpoint of how quickly those bookings increases start to turn to revenue increases, that will be something that I think in the first half, we will still have higher comparables than the backlog supports.

Hopefully, in the second half, we will absolutely be ahead and lapping some of last year's performance.

Okay, so is this slide -- should we interpret this slide in terms of -- where it's titled mixed market dynamics.

Is this a viewpoint for -- or a set of viewpoints for '18 that are more relevant to bookings?

Or is it specific for revenues?

Just trying to make sure I understand this here.

Yes.

So what we attempted to do here for you and all the others who follow the company is to better give you a depiction of where are we linked to the end markets and what's our viewpoint of what's happening in those end markets.

So this would be our view of how we see the end market activity in the aggregate.

And that would then be an indicator of where our bookings and our new orders should follow, provided we're either even or gaining market share, and we can even outperform some of that directional information.

And so yes, this is something about outlook, which then first translates to bookings before it translates to sales.

Okay.

So that being said, maybe Dennis, if I can ask it in a -- looking through some of the end markets here, when does -- when do you sense bookings within power generation could hit an inflection point?

Do you feel that you have a handle on when that perhaps: a, either stabilizes; or b, has an opportunity for pick-up?

Or what are some of your thoughts on that?

Yes.

So the power gen market in aggregate, I would tell you that our pipeline of opportunities has resembled kind of what we are hearing from the bigger OEMs in the market and from what we are seeing.

So it's down starting mid-year, late spring last year, and it's continued to be a lot softer.

Now that said, you can see in the fourth quarter, our bookings were actually up.

So that is in part because of the -- what we're experiencing is customers needing people who can absolutely deliver even in tough conditions, who will stand behind what they do, who have great technology and who understand the applications to really dial in the best solution on a variety of applications.

And so we're confident that in the fourth quarter, we're picking up share.

That subdued pipeline, however, is likely to continue in the power gen segment through much of 2018.

That's what we're anticipating.

Our actual bookings, therefore, will be a result of our ability to execute and continue to gain share.

But we do have some sizable projects, that if they get funded, could bode well for the company.

But overall, the pipeline is matching what we're showing on the chart and likely to be fairly subdued in the aggregate.

Okay, that's helpful.

All right, two more questions here, and then I'll hop out of the way.

So last -- well, first of the 2 on the bookings front.

What are you seeing thus far, 2 months now into the March quarter?

What are you seeing thus far?

Is there a continued trend or anything to glean off of that activity?

And then the second question is based on understanding the lag that we can go through from bookings to revenue activity, do you have a sense in terms of when the inflection point could be?

Not necessarily holding you to this, but is there an opportunity where, say, the June quarter could be a revenue inflection point and we start our uptick again?

Yes.

So I might let Matt comment on the second part of your question as best as we can at this juncture.

Normally, we don't talk about the quarter we're in and the like, but since you asked, we are 2 months into the new year, and all I can say is the momentum is positive.

The segments that I outlined on the market dynamics page that you asked about are showing a decent amount of support.

They are showing activity, both domestic, and we're seeing some oil and gas projects picking up in the Middle East that -- where we have a very good team and a very good focus on.

Power gen, I already mentioned is not in the best shape, but still there is work going on, and there are people coming to us in support of the great work that our team can do in support of the reliability and trust they have through our organization.

And the refinery segment, I mentioned again, against a year ago, we're seeing a pick-up in expectations across the board there as well.

And so we have muted expectations there to a degree, but a lot of activity is picking up.

So on with that, I could say, yes, momentum is in our favor.

There are a few areas that they could create significant movement.

The 232 tax on metals or -- actually, has a mixed bag.

We have a number of metals customers planning investments, and I think some of those, the payback could get immensely improved, and therefore, perhaps, move the pace forward on investments.

And at the same time, there is at least one project, I think it is -- sorry, I -- NLMK, a Russian subsidiary who is planning on investing $600 million, but their whole premise is based on bringing in slabs from their Russian parent.

Those are subject to the 25% tariff.

And so that, too, could create a little bit of a mixed bag.

It's way too early to say where that will settle and how it will impact us, but that's an important segment when it's -- when they're investing.

That we -- I think there was a question about the ability to translate bookings to revenue.

And what, if anything, we can help Sean with.

Sure.

So we'd like to think of it that we can start recognizing revenue on orders booked anywhere from 3 to 9 months, basically, depending upon the mix of which businesses those orders are placed on.

If you were to look back at Q4 and say, "Hey, were these orders booked in early Q4?" Then you would argue that maybe we can start to see the revenue recognized in Q1 and Q2.

So I would say the inflection point is probably in the middle of the first half, Sean.

(Operator Instructions) Our next question comes from Gerry Sweeney with Roth Capital.

I apologize, I -- late addition due to some other calls, but -- so if anything's redundant, I apologize in advance.

Dennis, maybe just jumping back to the Slide 20, the dynamics -- the market dynamics slide.

Obviously, we're starting to see some end markets improvements, but I was just curious as to -- a lot of changes going on at CECO, and then historically CECO, a little bit challenged on sort of the organic sales front.

Do you have the right people in place to capture some of this uptick?

And then also can you add, improve on those sort of sales to maybe increase some of this opportunity that's starting to develop?

Yes.

So thanks, Gerry.

So the question really about organic sales growth is both: a, do we have the people on the front end, do we have the coverage, do we have the right talent pool and the like; as well as, are we positioning that properly and the like.

And so I would tell you that on the -- absolutely, we have a great team in our engineered equipment platform who have really come together globally, a lot better than the past, utilizing the depth of expertise that's behind them and really demonstrating a number of team wins.

A project that Matt referred to and that we had a brief commercial announcement on, what was a Peerless-led SCR project to help make sure that we control and reduce ozone-depleting NOx.

But it was really the entire exhaust chain that we are supplying for this particular client, in that it uses a depth of expertise on dampers from -- and expansion joints from Effox, the stack-silencer expertise that we have within the Aarding unit.

And so really it was an integrated win for the company, but with Peerless at the front end because the core technology was in NOx reduction.

So those kind of things and that kind of teamwork is -- gives me a lot of optimism that we can continue to gain share within the market.

When we go across the industrial air quality solution set, we have a variety of very talented application-oriented people, and what we're doing is continuing to invest and build that out so that we can be recognized in key industries and in key customers as not only an oxidizer leader with our Adwest line, not only a dust-collector leader with our Flex-Kleen line, but really as the experts in industrial air quality solutions with the ability to apply the right product and understand the customers' process for whatever those air quality needs are.

And that's where we are supplementing our team.

Right now, I'm still leading that segment, and that's an area where we're going to be upgrading and adding to both the commercial team, but ultimately, I'll be turning that over to another leader in the near future as well.

Got it.

And then I apologize if this was talked about, but the -- obviously, the Emtrol business was under a lot of pressure last year.

Refinery turnarounds were down, and it sounds like [data] certainly could come out, but I think you even announced a couple of wins.

What -- can you remind me -- I think that business went from $15 million to $10 million or some type of cadence like that.

Could you maybe give us an idea of how much that business could come back this year?

Could it be on an annualized run rate back to the historical levels, which would maybe around $50 million?

Maybe a little bit of detail around that, if possible.

Yes, let me just make a couple of comments there quickly.

I think the understatement of the call would be that Emtrol was under pressure because we were experiencing a 30-year low in new demand.

And so we -- I believe we're in the neighborhood of $60 million in bookings in '15 and '16 and went to a period where we had 4 -- in 4 straight quarters I think we had $10 million of bookings.

So it was an enormous drop, and our data would suggest, even with that enormous drop, we actually gained a few points of market share.

So this was very much a market issue and not a performance issue.

That said, if you look over a longer-term history, the business has operated in the neighborhood of $50 million annually.

And we think that gradually, over an 18-month to 2-year period, that will work its way back up to those levels.

And so right now, we're seeing some pretty good demand and really strengthening as we did in the fourth quarter.

And we hope that, that is something that can continue into the quarter and into the rest of '17.

-- '18, excuse me.

I really appreciate it.

Again, the only thing that I have to caution all of that optimism on is that last year, we did ship quite a few projects early in the year and quite a lot of backlog.

And so that is one of the areas where we will be in -- rebuilding that before it translates to revenue.

Most of our projects execute over at least a 12-month period.

(Operator Instructions) At this time, I'm seeing no further questions, so I'd like to turn the conference back over to Dennis Sadlowski for closing remarks.

Okay, well, thank you all again for joining us, and especially those of you in the major storm-hit and affected areas.

I look forward, again, to sharing our further progress as we talk you again on our next call.

But we're experiencing some pretty good momentum.

We are investing behind our 4-3-3 strategy.

And again, I look forward to giving you an update in 90 days or so.

Thank you.

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