CECO Environmental Corp

NASDAQ:CECO

Earnings Call Transcript 2021-Q2

[Operator]

Good morning and welcome to the CECO Environmental Second Quarter 2021 Conference Call. [Operator Instructions].

I would now like to turn the conference over to Steven Hooser, Investor Relations representative. Please go ahead.

[Steven Hooser, IR]

Thank you for joining us on the CECO Environmental Second Quarter 2021 Conference Call. On the call today is Todd Gleason, 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, which is on our website at cecoenviro.com. The presentation materials can be accessed through the Investor Relations section of the website.

I'd also like to caution investors regarding forward-looking statements. Any statements made in today's presentation that are not based on historical facts are forward-looking statements. Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties. Actual future results may differ materially from those expressed or implied by the forward-looking statements. We encourage you to read the risks described in our SEC filings, including on Form 10-K for the year ended December 31, 2020. Except to the extent required by applicable securities laws, we undergo 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've reconciled the comparable GAAP and non-GAAP numbers in today's press release, as well as the supplemental tables in the back of the slide deck.

And with that, I'd now like to turn the call over to Chief Executive Officer, Todd Gleason. Todd?

[Todd Gleason, CEO & Director]

Thanks, Steven, and good morning, everyone. We appreciate your support and interest in CECO Environmental.

I would like to start by thanking our CECO employees for their dedication and contributions to ensure we continue to deliver for our stakeholders. We would also like to thank our suppliers and partners around the world for helping us to continue to navigate these uncertain times. We appreciate all your efforts.

Today, we will hit on a few topics. First, I will share my perspective on the second quarter as well as certain key takeaways from the first half of 2021. Then Matt will go through the financials and several operational items. I will outline our enterprise strategy and aspirations over the next 3 to 5 years. Then we will wrap up and take your questions. Let's go ahead and get started.

Please turn to 3. Continuing the momentum from the past few quarters, we once again had great growth in order bookings. Orders were approximately $86 million, up 43% year-over-year. We will discuss the details of our orders in a few minutes, but we are pleased with the balanced contribution from many of our businesses and end market momentum. Orders were down sequentially, but that is completely associated with timing and not an indication of any softening. Sales of $79 million were up 5% year-over-year and 9% sequentially. It has been over a year since we had revenue growth, and this trend will accelerate as our backlog continues to grow at a healthy pace. With a book-to-bill of 1.1x, our backlog is above $210 million.

Importantly, the first half of 2021 is in the review mirror because, as we said previously, our top line would dip in the first half of 2021 as a result of COVID market challenges experienced throughout 2020. We have navigated these challenges and believe we are back on track for growth.

Q2 gross margins were 32.1%, which were down approximately 220 basis points on project mix and some modest in-the-quarter inflation. We continue to see very good project execution and have raised prices to protect margins. Matt will talk about this more in just a minute. Adjusted EBITDA was $6.4 million in the quarter, down $1.8 million year-over-year. Last year's second quarter benefited from certain onetime cost actions in that period, such as a workforce furlough and other onetime items. So the comparison is somewhat tough versus Q2 2020. Adjusted earnings per share of $0.09 was down year-over-year for the same reasons I just mentioned. But with our growing orders, future revenue growth and streamlined cost structure, we expect improved EPS results in the coming periods. Free cash flow was negative in the quarter, but year-to-date we are positive and we expect to have a good second half free cash flow generation.

Something that isn't highlighted on this slide, but I'd like to take a minute to comment on, is the share repurchase authorization we announced today. Our board has approved a $5 million stock buyback program, which we intend to fully utilize before the end of this year. We are confident in our current business trajectory, our ability to generate strong free cash flows and our growth and strategic prospects. This $5 million level does not impact our ability to deploy capital towards strategic acquisitions. It is simply an action we are taking to reduce the number of shares and reward shareholders.

Let's please turn to 4. The key takeaway from the first half of 2021 is our outstanding orders growth. With year-to-date orders up over 30% and backlog over $210 million or up 15%, we believe we are very well positioned for strong growth. Our pipeline remains active and at high levels. I am proud of our team's focus to drive growth while maintaining solid margins. This momentum and growth will produce stronger earnings in the coming periods and allow us to invest in our key growth initiatives.

Let's go to 5. Last quarter, we highlighted we were in the midst of aligning our business platforms by technology to drive growth in core markets where we are already leaders and expansion into adjacent markets. We will continue to report our platform results into 2 segments -- Industrial and Process Solutions and Engineered Systems. This alignment process was completed in the second quarter. Our leadership teams are very focused and engaged. It has been a well-received structure and our people are energized to drive higher growth and profitability.

We are also pleased that it's already delivering real and exciting results. The direct line of sight to business opportunities is more efficient. The platform design allows our leaders to go after short- and medium-term adjacent opportunities much more quickly. And within several platforms, we are seeing some very important international wins in growing sustainable energy spaces. One example is a recent renewable power project in our Southeast Asia region. In our role, CECO's peerless cyclone separation technology will remove moisture from geothermal steam generated as it is extracted from the subsurface of the earth, which, in turn, will sustainably power the grid. We are also seeing immediate impacts in industrial air, which has shown extremely good bookings year-to-date. Our platform leadership is positioned to drive faster decisions and surface opportunities to pursue, which, of course, has fewer layers of decision-making.

We are also able to identify gaps in our operating performance so we can apply the right resources to address these areas. Every company has opportunities to improve productivity, delivery, customer service and similar. The platforms will enable these opportunities to be addressed more rapidly. Additionally, by having a leadership platform focused on emerging markets, we can coordinate international activities across important growth markets, such as the Middle East, India, China, Southeast Asia and others. The peer-to-peer connections are important to embrace collaboration.

I will now turn it over to Matt, and he will provide more detail on our financial results and key metrics. Matt?

[Matthew Eckl, CFO]

Thanks, Todd. I'll kick off with Slide 7. At $86 million of orders, we are pleased with the year-over-year growth and exceptionally happy with the excellent performance in industrial air, which grew 41% sequentially. Wind includes several electric vehicle production orders and our EIS acquisition contributed nearly $10 million of bookings in the quarter, incredibly strong. Fluid handling was basically flat on a sequential basis, but experienced 40% growth year-over-year as European and Chinese automotive markets sought out our Mefiag-branded filtration products, a great sign of our end markets returning in a big way.

Engineered systems orders were impacted by timing in Q2 as refinery and midstream markets saw several awards slip to the second half of the year. This produced a sequential decline, but we remain confident this is simply timing and are excited about our overall opportunity funnel. Speaking of which, our sales pipeline continues to reach new record highs for us with verified pursuit solidly above the $2 billion level.

One of the strengths of CECO's portfolio is in our end market and customer diversification. While some markets remain sluggish or have yet to recover, others such as the growing aluminum beverage can, electric vehicle, semiconductor and engineered wood markets are propelling our orders very nicely.

Turning to the right side of the slide, revenue was up both year-over-year and sequentially. When compared to Q1, sales grew 9%, or $7 million. You can see that we grew in the 3 reported segments. Industrial process, which is our short to mid-cycle businesses, highlighted in green, grew the most as the general industrial markets remained healthy. Engineered Systems in blue was up 3% sequentially, but we believe this was held back as a bit of those projects being executed across the Middle East and India were slower to progress.

As a reminder, Engineered Systems provides a wide variety of highly engineered solutions such as emissions and thermal acoustical management, product recovery and separation equipment to large-scale utility providers, petrochemical refineries, LNG facilities and more. In all instances, we are a small percentage but a critical component to the balance of the plant or overall project. As the larger project progresses, so too will our projects. This is especially important for CECO because the incremental EBITDA margins from Engineered Systems is healthy at 2x our standard EBITDA margins.

As for short cycle, we delivered nearly $18 million of revenue in Q2, flat to up 1% year-over-year and 2% sequentially. Short-cycle continues to represent an approximate 1/4 of CECO's revenue mix. I'm most pleased to see our order volumes in our Kirk & Blum branded duct and ventilation jobs picking up. It is a great leading indicator of future revenue growth as we see U.S. customers relaxing vendor restrictions, which drives our field service and commissioning revenue higher.

We are also quite pleased with our actions to grow, and those can be seen firsthand on our website at cecoenviro.com, where you can learn more about our Kirk & Blum products on the homepage. In addition, we launched a continuing education series last year, cecocertified.com and have seen significant participation and service leads being generated from the website. Even if you're not an engineer seeking PE certification, but an inquisitive nerd like me, you can attend live webinars or watch training videos on how our products solve your environmental problems. New classes will resume in September, so I encourage you all to bookmark the site.

Lastly, while on the topic of growth and the website, I urge everyone to click on Peerless Water Treatment. It's about halfway down in the featured section. A view of the vast array of water and gas treatment packages we offer, we just launched this page to spell out our technical offerings in water. If it's dirty or polluted, we'll fix it. At CECO we're not just air pollution experts, we protect all elements of the environment.

To wrap up this slide, all signs point to growth, and we are excited to carry the momentum into the second half of 202 and expectedly into 2022.

On Page 8, we provide detail on orders by end market, and we'll comment on each. Industrial Air markets remained strong in Q2 as U.S. manufacturing continues to expand and corporate social responsibility demands are growing. We are really pleased to see that our orders growth exceeded levels that have been publicly stated by others in our space. We are proud of our winning solutions, and it is great to drive higher-than-expected market growth. We are also interested in the U.S. infrastructure bill. That would certainly serve this end market and our air filtration technology as well.

Fluid Handling markets remain buoyant, driven by automotive markets. This is the first back-to-back quarter of $10-million-plus in orders since 2017. If any combination of hospitality, aquaculture and oil and gas consistently turns the corner, our Fluid Handling businesses will be eclipsing record bookings. Through the first half, we're already up 19% year-over-year.

Power Gen markets were down 17% sequentially, yet up 40% year-over-year. We believe a quarterly snapshot for this market is too shortsighted, so we evaluate on a TTM basis. In that TTM view, our orders remained down 13%. However, the trends are improving. At the end of Q1, the TTM metric was down 22% and the TTM was down 36% the quarter before that. What we are seeing is a third consecutive quarter of TTM acceleration. So we do believe that market is in a favorable position.

For Midstream, we saw fewer large orders, typically measured at $5 million or plus, in the quarter, driving low double-digit decline year-over-year and sequentially. This is a market that we believe will continue to be the slowest to recover as pipeline operators currently remain focused on deleveraging their balance sheet over future CapEx investment.

Lastly, with respect to Refinery, we are very pleased with the first half 2021 order bookings. Unfortunately, the timing of these large orders can be difficult to always book in the quarter. As a result of timing, we did experience declines in bookings for our FCC Cyclone solution. Our market position remains strong with no lost bids, and we know the market for our product is improving. So we do anticipate some larger bookings to come in the second half of 2021.

Touching on Slide 9, our backlog sits at $210 million, which grew for the second straight quarter. Our book-to-bill ratio remains positive on a TTM basis and, most importantly, our 12-month pipeline remains above $2 billion. Last quarter, we commented on our 18-month funnel outlook and added some measurement to the content. Just in the last 3 months, our extended pipeline is up $300 million and at or above $2.5 billion. Tons of opportunities out there. Now it's all about conversion.

On Slide 10, our gross margins were 32.1% in the quarter, which is down sequentially and year-over-year, primarily on project mix within our Engineered Systems segment. We did experience modest commodity inflation, mostly notably in steel prices. To offset these cost increases, we have increased our prices several times in certain businesses this year. We've also implemented surcharges, as well as reduced the window of customer quote validity to protect our bid margins. We feel good about our strategic measures and are confident in our ability to protect margins.

As for non-GAAP operating income and adjusted EBITDA, both were flat sequentially. On a year-over-year basis, EBITDA was down $2 million. Incremental volume was negated by lower gross margin, having limited impact to EBITDA. The primary driver of lower EBITDA was strictly driven by the onetime furlough and wage reduction taken in Q2 of '20 that did not repeat this quarter. We remain vigilant in our cost structure and committed to strong EBITDA margin expansion as volumes recover.

Slide 11 summarizes the quarter in total, a quick set of highlights. First, 43% year-over-year orders growth is a leading indicator of future revenue growth. As expected, revenue from our short to mid-cycle businesses, like Industrial Air and Fluid Handling, are driving revenue higher. As engineered system backlog starts to turn at a more sustainable pace, the flow-through on operating leverage will be meaningful for CECO's earnings.

Second, non-GAAP EPS was $0.09 in the quarter, down $0.05 year-over-year and flat sequentially, but in line with consensus estimates for the quarter. We continue to anticipate a 25% non-GAAP effective tax rate throughout 2021.

Flipping to Slide 12, free cash flows went the opposite direction in Q2 with a $6 million use of cash in the quarter. Timing of AR collections and project milestones on some of our larger projects was the culprit this quarter. As always, I reiterate, we see no risk to the collections of our AR. It's strictly the lumpiness of our project-based business model. Despite the underperforming Q2, we are driving towards a 40% free cash flow to EBITDA target by year-end.

Finally, on Slide 13, our balance sheet remains in great shape. We paid down $2 million of debt in the quarter to $69 million. Our bank defined leverage ratio sits at 2.1, and our net leverage ratio sits at 1.1, with plenty of capacity available. With orders and backlog growing and a second half EBITDA moving in the right direction, our capacity will grow, providing us ample opportunity for capital deployment. This will include M&A and other options such as share repurchases.

The share buyback program we announced today is a great example of utilizing our healthy financial position while we are revving up our engine for additional growth. We hope all our shareholders appreciate the alignment to be buyers of our stock for all the right reasons, including offsetting approximately 5 years of dilution associated with stock compensation.

As Todd will expand on next, over the next 3 months, as we've narrowed in on our enterprise strategy, we've also been building out our M&A funnel. Our internally harvested list already represents a significant number of prospects. We have engaged and are assessing bank advisory relationships and are planning to add business development talent to help us execute on our deal pipeline and position us for programmatic M&A.

While we are never done driving productivity and streamlining our operational processes, I am personally excited to turn towards more growth investment and M&A. The last 4 years have been focused on stabilization and simplification, and I know CECO is ready for its next phase of high-performance growth and delivering more shareholder value.

With that, I'll hand it back to Todd.

[Todd Gleason, CEO & Director]

Thanks, Matt. Let's move to 15. Over the past few quarters, we shared that we are making progress with our enterprise strategy. This strategy encompasses several components, but in its simplest description, it is all about driving growth, steadily transforming our portfolio towards a more sustainable and less cyclical set of businesses and delivering strong shareholder returns. Over the next few slides, we will expand on our focus areas, goals and objectives.

Let me start by stating I am confident CECO is in great position to execute on strategic transformation. Why? Because we can and we will leverage 3 important attributes. First, we have accomplished a number of critical foundational components from which we can build an execution-rich program. Our organization structure is smartly in place. We are market focused, and our niche leadership is a real strength. We also believe our orders and backlog growth point to how well we have emerged from the major impacts of COVID. I am proud of our team and how we have adapted to the new challenges and demands. And along the way, we have streamlined our cost structure and system and process complexities. Simply put, we are leaner, more focused and confident. I see it and feel it in our leadership discussions every day.

Second, we will leverage the momentum we have with our current and future market growth. Our strategic actions will not interrupt our ability to execute during this period of momentum, but we know that this is the right period for us to get after transformational and focused initiatives. And even driving our ESG initiative will produce internal and external benefits. No doubt, it feels good to build a bigger, more sustainable CECO during a period of growth. And during this time, it is critical we continue to expand our EBITDA dollars and EBITDA margins. We are committed to increasing EBITDA from less than 10% margins to low to mid-teens and maintaining a solid free cash flow generation is also important. We must drive shareholder value in this way.

And finally, my confidence in executing our strategy is bolstered by the fact that we have appropriate optionality. We have a number of bullets in our gun, so to speak. One example was the formation of our joint venture, which created the Effox-Mader JV. This provides us with opportunities to advance a business that we continue to consolidate, but we have more options strategically because of the combination. With a healthy balance sheet and a targeted M&A program, we can make good accretive acquisitions. Given our portfolio balance and focus on sustainable growth and profitability, we can evaluate if and when to move in a different direction with a piece of our current portfolio, such as the JV I just mentioned. And we are already deploying capital with the share buyback to drive shareholder value, yet another piece of optionality we can leverage. So we are in good shape to execute our enterprise strategy. And I always believe the execution of a strategy is often equal to or greater than the strategy itself.

Now let's look at a high level plan so we can provide future updates. Let's go to Slide 16. As the headline reiterates, we are in great position to leverage the items I just outlined. If you look at the slide, it is set up in 3 stages or phases, moving from left to right.

Over the next 3 to 6 months, we expect to continue to put our current portfolio in great shape for growth and expand profitability. Our orders growth and larger backlog are key to how we will start and drive 2022 performance. We have a good M&A pipeline in process. We expect to identify right-sized, actionable and attractive transactions. We will have a series of options at the right time. Within the same period, the publication of our first ESG report will address an existing gap. We expect our disclosures, coupled with targets for improvement, will drive a meaningfully higher ESG score. Finally, we expect to complete our just announced stock buyback. All told, we expect good progress in to be in solid position for 2022.

As we head into next year and look forward over the next 6 to 18 months, we expect to ramp up more activity to drive growth and transformation. It will always be critical that we deliver on our financial commitments during the strategic journey. Growing our EBITDA margins and profits is key to driving higher cash flows. So during this period, we expect to invest to organically build up strong leadership positions in our platforms, while also making the right inorganic moves to transform our portfolio mix, all the while continuing to evaluate shareholder-friendly actions such as additional buybacks.

Importantly, over this entire period, we aim to outperform our peer group with respect to shareholder returns. Our entire management team is incentivized and aligned with our shareholders as we should be. By executing an accretive programmatic M&A process, we believe we can steadily move our portfolio forward and deliver sustainable results. We have several focused market areas such as the secular growth spaces of industrial air management and environmental solutions. To build our pipeline of opportunities in this arena and more depth of knowledge, we spent several quarters working across our various related businesses and engaging outside consultants, such as L.E.K. to help us target best fit opportunities for CECO. We hope this high-level view provides some specifics as to our stated goals.

We have just a few more slides, so please turn to #17, which is an illustration of how we could expect the CECO portfolio to transform and grow over the medium to longer term. On the left side of the slide, the bar graph represents CECO Environmental today, approximately $325 million in sales, with 55% coming from product-category solutions and services that sell into long-cycle projects in various energy-related sectors. These are important markets and will continue to be for CECO. We have approximately 25% of our sales in industrial-air related markets, which is more mid-cycle or medium length project-driven revenue profile. And finally, a little over 20% of our sales is diversified industrial products such as filters, pumps and certain services and replacement equipment. This is truly short-cycle for book-and-ship businesses.

On the right, you can see we aspire to be larger and more balanced, and we believe we have the plans, the people and financial strength to accomplish this goal. The net effect will drive greater shareholder value along the way. Clearly, these are somewhat directional percentages and aspirations, but we want to be clear about what we will drive. We will continue to have a set of platforms and investments in the energy space. By investing in services, like we have done recently in our advanced analytical services team and expanding our product offering in sustainable energy markets, we believe we can have a less cyclical portfolio in this area. We have optionality with several of our platforms, and we would explore strategic considerations as we make our investments. We have a strong core leadership position in industrial air, emissions management and a good brand reputation as an advanced application engineering company for environmental solutions, including water systems. This will be a major focus of our M&A deployment. And third, we like short-cycle revenue businesses that provide meaningful balance and repeatable results. Our leadership team has tremendous experience and capabilities building and leading diversified industrial companies. This will continue to be an organic and inorganic focus for team CECO.

We hope you found this content informative. We've repeatedly said that we are committed to shareholder value and we expect to execute to deliver greater returns. The market will judge how well we do to create a high-performance company, but we have set our sights and we have plans and structure in place to execute. I can assure our investors that we are aligned and that our businesses are engaged, especially in the midst of our growing momentum.

Please turn to our last slide, #18. In summary, we thank all our great employees and incredible partners around the globe. We are all anxious for a post-COVID environment, which sometimes does seem elusive. Whatever is in front of us, I am confident we will navigate.

We are all very pleased with our first half performance. Our backlog is in good shape. Our orders momentum and future pipeline is robust. We expect a good period of organic growth. I and the board are pleased to buy back shares, starting very soon. We expect to complete the $5 million authorization before the end of the year, and we will continue to update you on our progress toward our key initiatives, including ESG reporting and, of course, executing our strategic growth plans.

Thank you all for your support and interest. And with that, we will now open the line for questions. Operator?

[Operator]

[Operator Instructions]. Our first question today comes from Amit Dayal with H.C. Wainwright.

[Amit Dayal, H.C. Wainwright & Co.]

So on the energy side, I know there was a little bit softness, I guess, with the order flow. Do you expect this to pick up in the second half of '21? Or will this get pushed out into 2022?

[Todd Gleason, CEO & Director]

No, we do expect it to pick up in the second half. In fact, within our energy businesses, we certainly had in the first half of the year some good -- in the first quarter or the second quarter, some really good pickups already. And our pipeline is significant. I think in the -- the midstream is probably the area that we would say is later in the year and in heading into next year. But we're seeing good momentum still across the board. It's just timing, sometimes, of orders in refining and some of our other energy-related segments that you're not going to always obviously be able to get that nailed down in a quarter. It's a first half, second half story a little bit. But we feel good about our energy pipeline for the second half.

[Amit Dayal, H.C. Wainwright & Co.]

And then it seems like there is some good traction on the international side. How much of the backlog is international versus domestic?

[Matthew Eckl, CFO]

Yes. Outside of the U.S., I would say today it's -- probably about 40% is international.

[Amit Dayal, H.C. Wainwright & Co.]

Interesting. Do you expect the international side to continue sort of growing or maybe flatten out from here a little bit?

[Matthew Eckl, CFO]

Yes. I actually believe it will. We think that India, as we look at our pipeline, it continues to grow. China has been up since, let's call it, the doldrums of Q1 of 2020. Middle East is still a little bit slow for us. Where we are in Asia Pacific or the Middle East is still in energy-based markets, and those are starting to pick up. So I would say that it is growing [indiscernible].

[Todd Gleason, CEO & Director]

Yes, and I'll add to that. Over the last little over a year, as you know, Amit, we've also been focused on our investment to grow internationally, including the acquisition of EIS a year ago, which we know gave us access to some really attractive European and other international markets. In fact, in the year, we continued to do a very nice job of booking Industrial Air orders. You've seen the Industrial Air number up. A good percentage of that is international orders, which was part of our focused investments to go after shorter, sort of more mid-cycle projects that turn faster, but also in growing international markets.

[Amit Dayal, H.C. Wainwright & Co.]

Interesting. And in terms of delivering orders and deploying orders, et cetera, did you face any supply chain issues? Or are those more or less behind you now and it's an easier execution environment going forward?

[Todd Gleason, CEO & Director]

Yes. I'll let Matt build off this. We did. And I think we're still seeing, like everyone is, that there are some small hiccups out there in the supply chain. There's some price pressure with certain materials -- steel, resins, et cetera. And some of that has to do with that supply chain delays, et cetera, that just sort of drive everyone to the sellers that have the product, right? And that's just general economics, obviously.

So we think things are smoothing out, though. We're still able to get the components that we need for the most part. So I think from a supply chain perspective, it's -- you're always navigating challenges in business. I think in the first half and in the second half of last year, this has just been such an unusual time as the world started to sort of turn back on in supply chains. And of course, there's been some -- much headline issues in supply chain around the world, whether it be semiconductors or at times even logistics associated with the supply chain. But again, I think we've done a great job. Our suppliers have done a great job and our partners.

Matt, do you want to expand on that at all?

[Matthew Eckl, CFO]

Yes. If you're thinking about computer chips and what the automotive industry is looking at facing from a supply chain standpoint, we don't see any of that. The 2 areas where we're seeing a little bit of disruption is resin, which we talked about last quarter, which impacts our pumps business. It's about $30 million to $40 million of revenue a year in this business. And we've found other suppliers. So that's the petrochemical business. Plants in Houston start to pick up. Things are going to be better in the second half. But again, it's not a large percentage of our business that we're seeing.

The second area around supply chain disruption is really just projects, balance of plants over in the Middle East, so Qatar, Abu Dhabi, some of our larger projects. Those have been slowed down as labor just can't get to site. And, again, this is a smaller percentage of our total business as well. The beauty of CECO is we're extremely diversified and we're working through all those problems.

[Amit Dayal, H.C. Wainwright & Co.]

Understood. And also a lot of emphasis on M&A on today's call. Is there any particular area that you are looking to sort of strengthen the portfolio, whether it's water or air -- where can we expect sort of early efforts on that side?

[Todd Gleason, CEO & Director]

Yes. So I think you can see on our slides, we tried to be somewhat very directional in terms of how we're thinking about our M&A approach. I would point towards sort of industrial air and environmental management. Obviously, that's a broad category, but we know that there are some spaces that we really believe we can build off of our core leadership, whether we're already in the market with our industrial air and emissions management solutions that we know that there's a really attractive market out there internationally for us to be able to both organically and inorganically grow more and faster and it's secular, we believe, over the longer period for us.

And then, good industrial businesses that we know have a good fit with us as well to provide us with more shorter-cycle, more repeatable revenue and free cash flow mix. We're not trying to be super specific right now until we're obviously in a place where we're announcing something. But that's really the areas of focus. Look, we love our portfolio. We have a lot of options within our portfolio for us to focus on. But those would be the areas that, right now, we feel we still have a good rich target zone for us.

[Operator]

[Operator Instructions]. Our next question comes from Tate Sullivan with Maxim Group.

[Tate Sullivan, Maxim Group]

And going into a little follow-up questions with -- so it's been almost a year since Environmental Integrated Solutions. And I think you mentioned a $10 million number related to EIS and EIV. In the quarter was that split between the 2? And can you just comment on how EIS has done since the acquisition? It seems like maybe this is one of its best quarters.

[Matthew Eckl, CFO]

Yes. EIS [indiscernible] -- yes, year-to-date and I wouldn't say it's one of the best quarters, but it was a very good quarter for sure. The business has outperformed our expectations. You'll see that there is an earn-out associated with it. And the previous owners that still work with us, they're fantastic guys, are great leadership, been a great addition to the company, and they're hoping to max on, and that's obviously super beneficial for CECO shareholders if they do that. And so it's great alignment. And we're very pleased with how the business is performing, not only from an orders perspective, but also from an EBITDA and cash flow perspective.

[Todd Gleason, CEO & Director]

And if you look back at the history of CECO's acquisitions, a lot of the acquisitions have been made, smartly so, to help diversify and expand the organization, but weren't necessarily a double down theme, so to speak, in terms of -- we already had a good industrial air set of properties and businesses, et cetera, from within CECO -- Adwest and others. And then EIS just provides a nice partnership complement internationally, expanding into new markets that hadn't necessarily been CECO's history. Now that's something that we can do more and more of is build off our growing platforms. And that's another reason why you look at industrial air and you say, look, we're really learning and we're getting a good balance of how we can make acquisitions in spaces where we already have a good foundational footprint.

[Tate Sullivan, Maxim Group]

Can you remind -- was EIS at the time of the acquisition, still mostly industrial air? And it sounds like it's helping you enter other industrial air markets. Is that fair to say?

[Todd Gleason, CEO & Director]

That's right. Like from a -- I mean, there's lots of reasons to do an acquisition. But if you're going to build off a core, I always say there's 2 really good reasons, and that is -- it's about market access. You're either expanding into new adjacent markets with a niche leader in those adjacent markets or it's a geography from an expansion perspective. So EIS checked several of those boxes, helped us really expand into several end markets, one being aluminum bev can, for example. And then it obviously helped us with international being a strong leader in Europe. So a good reason to do an acquisition when you're building up your core. There's other reasons, of course -- accretive earnings, et cetera. But I would say, geographic or market adjacencies are darn good ones.

[Tate Sullivan, Maxim Group]

Okay. And last for to me, I think I mentioned you mentioned some wood markets. Is that what -- did you mention what end market is that? Or what did you say? [indiscernible] missed it.

[Matthew Eckl, CFO]

If you think of big customers like Mohawk or Ruco, people that are putting down your residential and commercial flooring, VEKA, anybody that's doing construction in and around homes and buildings. That's been a booming market during the COVID pandemic. And so as those grow, you need dust collection, you need VOC concentration. Why? Because you need to protect the employees and you need to protect their neighbors. That's what we do.

[Tate Sullivan, Maxim Group]

Okay. Great. A great example of industrial air work, it sounds like.

[Operator]

Our next question comes from Jim Ricchiuti with Needham.

[Tyler Bailey, Needham]

This is Tyler Bailey calling for Jim. So this might be a question for Matt. Matt, you had mentioned -- and it's regarding sort of the end market. You talked about sort of the infrastructure bill being a potential catalyst for industrial air. Just kind of wondering what your guys' thoughts are on that. Where's the latest? How do you sort of assess the potential impact in that segment?

[Matthew Eckl, CFO]

Yes. We're excited about water and batteries. Those are the 2 biggest plugs that I see funding going towards. We have a complete portfolio. Please go to www.cecoenviro.com, halfway down the page. And you'll see our water offering is a plethora of technologies. In the battery space, obviously, you've seen where Biden -- the administration has said they want to do to protect that business. And you see automotive; we are a big player there. The third one, which I'd be remiss not to mention is semiconductors. I believe a majority of chips are made overseas. They want to bring that home. If they do, we are a big player in that space with our RTO technology. We absolutely want to make sure that we protect the employees, the process, the efficiency of the plant and the enablers around us.

[Tyler Bailey, Needham]

Great. And sorry, just one more for the end market. There's another catalyst you mentioned for fluid handling as well. I missed that. Can you just remind me what you mentioned there?

[Matthew Eckl, CFO]

Tyler, I couldn't understand your question about fluid handling. Could you restate it, please?

[Tyler Bailey, Needham]

Yes. Sorry about that. You had mentioned another catalyst for fluid handling, and I missed that. I wonder if you could just remind me what that was.

[Matthew Eckl, CFO]

In the prepared remarks, yes. So we serve hospitality, aquaculture, which would be aquariums, and we also serve midstream oil and gas with our hot oil pumps. Any combination of those 3 starts to pick up. This business is more like a $14 million-to-$15 - million - a - quarter business. So those have been in the doldrum since COVID, obviously, all of those 3 industries.

[Todd Gleason, CEO & Director]

Yes. We've had some large pipeline opportunities that have just continued to push out. We know that we're well positioned to secure those. So we're still very -- again, that's another good example. It's not just certain energy markets like midstream or refining. There's other markets that have just kind of continued to be soft in a way, but they're in front of us still. And that would be a market that we've done a nice job in the first half of the year, but we believe in the second half and when we head into next year, we'll continue to grow.

[Tyler Bailey, Needham]

Okay. And one last question. You mentioned, too, sort of a price increase that you kind of passed on to some of your customers. I think that was just related to steel prices. But I guess, any feedback from customers on this? I mean, obviously, bookings were great this quarter again. So just wondering what you guys are anticipating. You think you can maybe pass on additional price increases later this year?

[Matthew Eckl, CFO]

Yes. I mean we've been totally transparent on the project side of the business. We've line-itemed it out. We make sure that they understand and they know exactly where it is and it's no surprise. Our competitors are doing that as well. On the pumps or flow-based businesses, we've done 2 price increases. Fact is our competitors are doing it as well. It's the right thing to do in the market because of the supply challenges. So we've gotten no feedback. But these are extraordinary and they're in line with market.

[Tyler Bailey, Needham]

Okay. And sorry, one last question. I know, I just wanted to -- I thought it was interesting, the sort of the projects. I think it was a geothermal project you had mentioned, Southeast Asia. Is that a new sort of a win for you got, new area? I just haven't seen it too often. Is there really any competition in that space for that application?

[Todd Gleason, CEO & Director]

It is a new win. I mean, maybe we've done some things in the space before, but it's an almost $2 million project in terms of size. That's not insignificant. I believe it's a very good business, a very good project for us. And obviously, another international region that we've invested to expand into. Look, any time you get a new sustainable energy solution in an international market that we believe is going to continue to grow. That's not the only sustainable energy project that we look forward to highlighting in the future as we continue to invest to expand there.

And geothermal, there's not a ton of geothermal projects. So it's not like I would suggest that you're probably not going to hear just a lot of these, but it's just a category that you're going to continue to hear from us as we invest to grow in additional sustainable energy solutions.

[Tyler Bailey, Needham]

Yes, that's great. Yes. I understand it's not material now, but yes, just kind of thinking about you guys, it seems like you're just in a great position of sort of how the transition from traditional energy generation to more renewables. And geothermal is a nice one, too. It's going to be a small segment, but it could be meaningful 10 -- 5, 10 years from now. And congrats on the quarter.

[Operator]

[Operator Instructions]. Our next question comes from Bill Dezellem with Tieton Capital.

[William Dezellem, Tieton Capital Management]

Relative to the engineering systems bookings being soft, you'd mentioned it was simply timing of orders. Can you talk in more detail about the timing issues and the opportunities that you see here in the second half now, please?

[Todd Gleason, CEO & Director]

Yes, Bill, thanks. Good question. And you called -- I wouldn't call it issues, right? I think for us, it is about some of these fairly large orders, just -- obviously, we're waiting for the customer to finalize their budgets and finalize their approvals. It's -- some of it could even be supply chain that they're waiting for making sure everything is teed up before they start to spend the capital or before they start to approve the final purchase orders. We feel really good about the second half. And I honestly -- I think the second quarter could have even been stronger, had some of those -- again, I'm not going to call them timing issues. It's just timing. We -- a good chunk of our business is large project order bookings. And those -- the timing of which often happens towards the end or the very beginning of a quarter because that's just when the chips fall, so to speak. So I don't think that we saw a lot of issues. I think we just always are dealing with certain order timing.

It's interesting. We started the quarter even stronger this quarter than in the first quarter despite the fact that the first quarter was slightly higher in terms of how it ended up, $92 million versus $86 million. So you would say, well, the first quarter was stronger. Ironically, the second quarter, just the timing of some of those orders happened in early part of the second quarter, stayed very consistent. We really like -- anything between, obviously, 80s, 90s is a really good quarter. We expect that to continue. We'd like to believe the third quarter could be stronger, and it will probably come out of the Engineered Solutions side.

[William Dezellem, Tieton Capital Management]

That's helpful. I'm actually going to key off of something you just said there. Are you -- I mean, I recognize that $86 million is a number that's lower than $92 million. But just in terms of the feel of the activity, are you really inferring that you felt like the second quarter was stronger than the first quarter and that momentum was building?

[Todd Gleason, CEO & Director]

Yes. I would simply say yes. And the reason for it, to give a little more color to you and to the audience, is we believe our pipeline in our -- a lot of our businesses. But since we're talking about what didn't happen in the second quarter, our pipeline continues to be very strong. It's a qualified pipeline in our Engineered Solutions business. And you saw that our Engineered Solutions wasn't as strong in the second quarter maybe as it was in the first or it could be going forward. So really, our industrial side, especially industrial air, we're strong. We believe that there's a lot of momentum across the board. So we feel really good about the second quarter. And like I said, the slight step-down in orders between the first and second quarter was really just timing. It has nothing to do with any perceived slowdown in our markets.

[William Dezellem, Tieton Capital Management]

And then allow me to shift to the refining market, if we may. Geographically, I think you inferred that outside the U.S. was improving. So 2 questions -- as much detail as you can on which countries outside of the U.S. are demonstrating strength would be helpful.

And then secondarily, in the U.S., with gasoline and diesel inventories in much better shape, and I think refinery runs are in decent shape, we have the jet fuel, which is certainly down. How does all that shake out? And what are you hearing from your domestic refinery customers?

[Matthew Eckl, CFO]

Domestically, we're seeing things a lot slower. If I were to talk to you about in the Middle East and Africa and India, we're seeing tons of bids. If you were just to Google a list of all the refineries around the globe on a map, you would see that most of the growth is occurring in the countries I just mentioned to you. Within the U.S. -- so, I'll answer your specific question to what's happening here in North America. I mentioned it in nearly every call, but jet fuel demand is 20% below July of last year. So we're not seeing -- or 20% below 2019 level, sorry. And so we're starting to see it climb back up, but it's up 250% from COVID. So we're not back up to 2019 levels as mobility grows. And utilization isn't that high either. I want to say that U.S. refineries are moving at something like 75% to 85% utilization.

And so until that climbs back up, Bill, you're not going to see them spending a bunch on CapEx. You could see, whether Exxon posts or Chevron posted, all of these refiners are trying to increase their share buybacks, be more prudent with their capital in the short-term as they see what happens here in the market. So we feel like it's only upwards, and that's why we mentioned on the one page on orders by end market. We think that market is improving. Just in this quarter, we didn't have a big job come through in the quarter. In this business, our projects typically range from anywhere from $3 million to $10 million. And so -- but when I look at our funnel, Bill, Saudi Arabia, Qatar, Abu Dhabi, India, the pipeline is rich.

[Operator]

This concludes our question-and-answer session. I'd like to turn the call back over to Todd Gleason for any closing remarks.

[Todd Gleason, CEO & Director]

Thank you very much. And, once again, thanks to everybody for your interest and your participation on today's call. Good questions. We look forward to continued dialogue throughout the day and in the future with all of our investors. And with that, again, I'd like to thank our CECO employees, all of our partners around the world. To continue to deliver for our customers is our #1 priority. And we're doing so in a very safe and healthy way. Obviously, all of us are anxious to get the environment stabilized, and I think we're hopefully going to be heading in that direction. But in the meantime, we continue to put all of our focus on health and safety for our employees, our customers and all of our partners.

And with that, thanks, everyone. Have a great day.

[Operator]

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