CECO Environmental Corp

NASDAQ:CECO

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, and welcome to the CECO Environmental Corp. Conference Call. All participants will be in listen-only mode. [Operator Instructions].

I would now like to turn the conference over to Matt Eckl, Chief Financial Officer. Please go ahead.

[Matt Eckl, CFO]

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 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 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 the call over to Dennis.

[Dennis Sadlowski, CEO]

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 will then review our go forward strategy that we discussed on last quarter's call aimed at transforming the company, and I will 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 is 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 is the first time in seven 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 in 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 deferred maintenance investments. Fortunately, we are seeing indications that this slump may have bottomed out and is now recovering.

On the other hand, the power generation segment, which should have [hardened] 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 mainstream oil and gas segments and the outlook there continues positive. We are 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 [charges] on a couple of legacy projects, bad debt provisions taken against aging receivables along with both a goodwill impairment and an earnout liability write-down. In 2017, we also upgraded the standards we use for determining firm orders and 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 will 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 are already seeing some early wins and experiencing positive momentum. We know we still have much to prove, but 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. The strategy has a framework of our four value creation enablers, three compelling end markets and three core growth platforms. The concept of 4-3-3 is the name of our operational strategy is important to me for two reasons. First, many of you know that I am a lifelong soccer player and fan, and in this global teamsport the 4-3-3 formation is an offensive minded setup to winning matches, and that is what we are planning at CECO, offence. Second, 4-3-3 quickly resonates and focuses our priorities and efforts throughout our entire 1000-person workforce and organization.

Moving on to slide 6, the long-term success of this operational strategy is based on the implementation of four 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 is an ambitious undertaking that is hard to measure, but it is 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 substantially reshaped and upgraded the team throughout 2017. The effort to invest in an experienced, capable and decisive leadership team is well underway, and they will be supplemented as we progress with leaders who share a 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 in 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 have 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 are 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 is 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 will add that we are well along on 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 are still open to and interested in strengthening CECO through future acquisitions, and we are 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. And we 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 two more by the end of 2018.

Finally there is innovation. This isn't a theme but a necessary investment action. As I mentioned on last quarter’s call, we have 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 are 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 will discuss our three compelling end markets; clean energy, industrial air pollution control and fluid handling. We have identified competitive and winnable space in each of these attractive end-markets. Combined these three end markets represent a sizable $6 billion, of which we currently have about 6% share. So it is clear there is 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 executed 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 is some good news. Our win rates have been increasing during this significant downturn.

I've will also reiterate that that 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. The 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 most 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 are making incremental investments to help industrial customers outside the US as well. Our third target market in fluid handling remained fairly robust with strong industrial indicators.

Turning to Slide 8, our final three 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 are one of the top two players in silencers, separators and cyclones, as well as SCRs for NOx reduction. And we are able to back that up with strong engineering and execution. It is not surprising that in Q4 we had several major wins in both refinery and the soft power generation market.

Going forward, we are taking a number of steps to strengthen our market penetration and brand differentiation, but the most important one involves the 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 are also taking several steps to ensure improved customer loyalty. First, our air quality teams are steadily building lifetime value through aftermarket support and qualified field service technicians.

Second, we are helping make maintenance quicker and easier through e-parts catalogs and digital upgrades, and lastly we are working towards providing a 24x7 technical call center.

Finally, for 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 will 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 have dialed in a new course with our 4-3-3 strategy that we are both confident in and excited about to transform CECO Environmental to better deliver value to customers and win market share.

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

[Matt Eckl, CFO]

Thanks, Dennis. As I walk through the financials I'll highlight some of the finer points that will include both GAAP and non-GAAP performance for the fourth 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 exits, 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 continue 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 are at $91.4 million, which was up 18% year-over-year based on power generation, refinery and air quality growth. Moreover, it was up 29% sequentially as our team executes 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 will note that this loss reflects a $7 million goodwill impairment, mostly on Zhongli, a $2 million restructuring charge and $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 margin of 35% was 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 include 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 tax loss in the quarter, [only positive] to our cash flow in 2018.

Next, slide 11 summarizes our full year financials which are flexible to sustain headwinds from similar end market and the reactions that we are initiating in Q4 is part of 433 operation strategy.

In 2017 orders were down 17% or $69 million year-over-year with about $14 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 [drop] in the fourth quarter.

And on addition of positive note, fluid handling and filtration segment orders were up 8% or $5 million year-over-year as U.S. market improved and international pump sale increased. GAAP operating profit of $8 million was below our expectations due to a combination of volume and federal non-cash of onetime adjustments taken throughout ‘17.

With that some of the most 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 active market services business mix. As a final note I am really pleased with the operational excellence improvement being made at our fluid handling plant in [indiscernible] we have added fresh new talent to our roster here in ‘17 with Lisa Roccki as VP of Ops and Anthony [indiscernible] as production manager that both have wealth and experience coming from the automotive and manufacturing industry. The deployment of regional management, new equipment, field trips to world class manufacturing plants and lean adaption are in the rampancy, 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 with $0.27 compared with $0.99 in the prior year. I want to wrap up the slide by touching on our tax rate. Squeal benefit from tax acts signing the law in December. In Q4 we booked 1.6 million net charge driven by two factors. First, it is the 6 million charge related to the transition tax on foreign earnings. This was payable over eight years.

Second, it is offsetting $5 million reduction to our U.S. tax deferred liability as we re-measured down to the new 21% corporate tax rate. It was more work to perform in our tax strategy but we initially estimate [indiscernible] one to two million of tax savings starting in 2018. This is certainly a good news.

On slide 12, we breakout orders and revenue by segment, and like last quarter have specifically split out refinery business to show the materiality. Unlike last quarter the news is different because it is positive. In Q4 we saw the strongest orders since Q1 of 2016 as deferred maintenance is beginning to be addressed in fact Emtrol-Buell orders in Q4 were higher than the three other quarters of 2017 combined. The largest refiners like Marathon, Phillips 66 and Valero are offering guidance of double-digit growth in CapEx program through 2018 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 ordered double-digit size contracts to provide CECO [indiscernible] SCR Glass System for all be the largest simple cycle natural gas fire turbine ever built in the U.S. This is a great technical win for [brand Thompson] and the [indiscernible] team and I am excited about the future add-on work we can provide to customer.

Fluid handing Q4 orders were essentially flat year-over-year and sequentially, however, total year orders for 2017 increased by 8% on the strengthened U.S. markets. Another bright spot was their equality where orders increased 17% in Q4 both sequentially and versus Q4 of 2016. We are starting to see capital spending break free were under the new tax act investment paybacks for our equipment are becoming very enticing. The bottom line for Q4 was there were sequential orders growth in all segments reflecting a combination of rebounding market and increased market share all positive signs.

Turning to slide 13, we outlined our backlog orders and revenue. There is two key points here. First and most notable is that we realized our first book-to-bill ratio greater than [one] since the first quarter of 2016. So we broke a slide that is last in seven quarters. As a CFO we are pleased to see growth. I believe CECO 433 strategy with our outside in focus is underpinning this inflection point. Second is that we had $3 million in cancellations in Q4 driven by deceleration in China and evidence in our [indiscernible] goodwill impairment. The power generation market in China is challenging, so we will shift the focus to solving that country's air pollution is a strong need.

Slide 14 shows the trends of our gross profit, operating income and adjusted EBITDA. Volume as it has been dropped in 2017 is the culprit here. But there is some good news. Full year non-GAAP gross margins were at 33.6% which is up 1.1 points year-over-year and above our prior estimates of 32.5%. The sequential improvement in gross margins to 35% are the result of managing cost and pricing pressure throughout the down turn. However, as you look at operating, in EBITDA margins, this data clearly supports the need to invest for growth while right sizing our challenging business units. Our Q4 restructuring efforts did just that. As we execute them swiftly and put in place additional consistency plan as we monitor the power gen market closely.

On slide 15, we share the free cash flow is better sequentially. And we know that there is room for more improvement. The accounts receivable in China and inventory reduction actions and specially pumps continue to be the areas of opportunity for CECO. The significant improvement in adjusted free cash flow in Q4 demonstrates the strength of our asset like model and the team's consistent focus on receivable collections. On the right we have our working capital rate which has increased in 17 as our top line had declined. However, on a growth [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 will touch on debt and liquidity. On the left you will see we have made considerable strides to reduce our debt. We will continue this effort into the future. Dennis mentioned earlier the proceeds from our sales in Keystone unit last week went directly to debt reduction and now it will show up in next quarter's call. On the right side of slide, our leverage ratio has increased to 3.2 that being said we are confident that with the sale of Keystone restructuring complete further advanced in [indiscernible] portfolio management strategy and improving working its outlook that will maintain ample margins 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 our structurally challenged we booked an impairment Zhongli’s goodwill both partially offsetting reduction to the Zhongli earning liability on under-performance and increased our bad debt provision. With the variability in our GAAP results we still believe non-GAAP is a preferred measure I want to maintain the clear transparency in context for our investors. Obviously, CECO under-performed in 2017 and what we set out to do was the outset of the year. Our Q4 showed several positive areas in terms of increasing orders in all segments, improved cash flow and actions taken on key initiatives. We are still in the long way to go but I am confident of the course we have charted and excited about our 433 operational strategy and the prospects of improving markets. With that I will turn it back to Dennis.

[Dennis Sadlowski, CEO]

Thanks Matt. In closing there is no sugar coating our poor results during 2017 despite the end market headwinds we have to do better. And we intent to. With slide 19, I would like to reinforce the early wins and positive momentum that took place since our last update and then highlight the outlook of our end market as 2018 begins. Guided by our 433 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 [indiscernible] sharp in the focus CECO to 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 one ERP. And we implemented a downsizing the people and several location to adapt to current market conditions. Investment in our growth platforms is now prioritized and designed to gain advantages in our three end markets. The common investment spread across the platforms was extending our brand and their differentiation improving our customer service by realigning the sales team offering more lifetime value to aftermarket supports and technical expertise and making capital investments to improve quality in lead time to the manufactured product as sales volume pick up. The fourth quarter also serves as a positive inflection point in our performance that points to improve 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 seven quarters.

Finally, turning to slide 20, let me conclude with the few remarks on our end market outlook as we began 2018 with a mixture of positives and headwinds. As we anticipated the nit 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 turn around. I have already discussed the natural gas power generation market, so I will just say that we expect it to remain hard pressed throughout 2018. Our objective will be to gain shares we did in 2017 with our silences and SCR mission reduction projects. Midstream gas operators continue to be growth oriented [indiscernible] continue to 2018. The same goes for the general industrial segment as they are significant underlying strength in the air quality and specialty pump market segments. Moreover, U.S. tax policy should board well for our industrial customers.

To wrap up with slide 21, there is no doubt that the 2017 was a challenging year. But the fourth quarter was pivotal as our 433 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 am certain that CECO is up to the challenge. Thank you.

And now we would like the Operator to open it up for questions.

[Operator]

Thank you. [Operator Instructions] Our first question comes from Sean Hannan with Needham & Company. Please go ahead.

[Sean Hannan, Needham & Company]

Good morning folks. Can you folks hear me?

[Dennis Sadlowski, CEO]

Yes. Good morning Sean.

[Matt Eckl, CFO]

Hey Sean.

[Sean Hannan, Needham & Company]

Good morning. Thanks so much for taking the question here. So first question I have for you is if I look at the slide Dennis that you just put out at the end of presentation it looks like as you break down the market segments you guys are actually looking for a revenue rebound here in ‘18, that ‘18 should be appear and so, you know you are not going to guide towards that but if these directionally does that seem like something that we should all be kind of thinking about and considering the model.

[Dennis Sadlowski, CEO]

Thanks Sean. The first stuff let me say thank you for joining us and I hope you are getting through the weather trouble you are having there in the Northeast safely weather and power…

[Sean Hannan, Needham & Company]

I am actually stranded in Toronto as a result. In any case.

[Dennis Sadlowski, CEO]

I am sorry to hear that. And I know you have others in the Northeast as well as long as some of our own colleagues being stranded through the tough weather in 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 areas for 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 bookings increased as we go throughout the year relative to last year’s numbers, last year's markets and last year's outlook. That said I wouldn't say also tell you that last year we came in to the year with a stronger starting backlog position and so it always takes time before revenue catches up with our bookings in that you understand 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 the revenue increases that will be something that I think in the first half what we will still have higher comparables and then the backlog supports hopefully in the second half we will absolutely be ahead in lapping last year’s performance.

[Sean Hannan, Needham & Company]

Okay. So is this slide, do we interpret this slide in terms of mixed market dynamics? Is this a new point for or is there a set of new points for ‘18 that are more relevant to bookings or is it specific for revenues? Just trying to make sure I understand this.

[Dennis Sadlowski, CEO]

Yes. What we attempted to do here for you and all the others who follow the company is to better give you with depiction of where are we linked to the end markets and what’s our view point or what’s happening in those end markets so this would be our view of how we see the end market activity in aggregate and that would then be an indicator of where our bookings and our new orders should follow provided where we either gaining market share and way we can even out perform some of that directional information. And so yes this is something about outlook which then first translates to bookings before it translates to sales.

[Sean Hannan, Needham & Company]

Okay. So that being said maybe Dennis if I can ask looking through some of the end market shares 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 pickups or what are some of your thoughts on that?

[Dennis Sadlowski, CEO]

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 maybe 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 are 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 are confident that in the fourth quarter we are picking up shares. That subdued pipeline however, it's likely to continue in the power gen segment through much of 2018 that's what we are 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 both well for the company but overall the pipeline is matching what we are showing on the chart and likely to be fairly subdued in the aggregate.

[Sean Hannan, Needham & Company]

Okay. That's helpful. All right. Two more questions here and then I will pop out of the way. So last well, first of the two on the bookings front what are you seeing thus far two months now into the March quarter. What are you seeing thus far? Is there a continued trend or anything to green 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 we start our uptake again. Thanks so much for taking time folks.

[Dennis Sadlowski, CEO]

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 are unlike but since you asked we are two months into the new year. And all I can say is that the momentum is positive in the segments that I outlined on the market dynamics page that you asked about are showing decent amount of support. They are showing activity both domestic. We are seeing some oil and gas projects picking up in the middle East that 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 the year ago what we are seeing pickup 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 few areas that they could create significant movement. The 232 tax on metals actually has a mix 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 in NLMK Russian subsidiary who is planning on investing 600 million but their whole premises is based on bringing in slabs from the Russian parent. Those are subject to the 25% tear off and so that too could create a little bit of the mix 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 they are investing. That I think was a question about the ability to translate bookings to revenue and what if anything we can help Sean with.

[Matt Eckl, CFO]

Sure. So we will to think of it that we can start recognize revenue on orders booked anywhere from three to nine months basically depending upon the mix of which businesses those orders are placed on. If you were to look back in Q4 and say hey where these orders booking for early Q4 then you may be argue that maybe we can start to see the revenue recognizing Q1 and Q2. So I would say the inflection point is probably in the middle of the first half Sean.

[Sean Hannan, Needham & Company]

Okay. Very good. Thank you so much. That's very helpful.

[Dennis Sadlowski, CEO]

Okay.

[Operator]

[Operator Instructions] Our next question comes from Gerry Sweeney with ROTH Capital Partners.

[Gerry Sweeney, ROTH Capital Partners]

Good morning Matt and Dennis.

[Dennis Sadlowski, CEO]

Hey Gerry. Good morning.

[Gerry Sweeney, ROTH Capital Partners]

I apologize. I [indiscernible] due to some other calls but so if anything were done I apologize in advance. But Dennis just maybe jumping back to the slide 20 the dynamics the market dynamic slide obviously we are starting to see some end market improvements but I was just curious as to a lot of changes going on at CECO and historically CECO a little bit challenged on some of the organic sales front. Do you have the right people in place to capture some of this uptake and then also can you add improved to sort of sales that maybe increase some of this opportunities that is starting to develop?

[Dennis Sadlowski, CEO]

Yes. So thanks Gerry. So the question really about organic sales growth is both a do we have the people in the front end, we have the coverage to 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 absolutely we have a great team and our engineers, equipment platform who really have 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 peerless led SCR project to help make sure that we control and reduce Ozone [indiscernible] but it was really the entire exhaust chain that we are supplying for this particular client in that it uses the depth of expertise on dampers an expansion joints from [indiscernible] the stack silencer expertise that we have within our unit. So really it was integrated win for the company with peerless hit the front end because the core technology was [indiscernible] reduction. So those kind of things and that kind of team work is gives me a lot of optimism that we can continue to gain shares within the market. When we go across the industrial air quality solution set we have a variety of very talented application unit people and what we are doing is continuing to invest and build that out so that we can be recognized in key industries and key customers as not only an oxidizer leader with their adverse line not only it does collect earlier with our flex clean line but really as the experts in industrial air quality solutions with the ability to apply the right product and understand that the customers process for whatever those air quality needs are. And that's where we are supplementing our team right now I am still reading that segment and that's an area where we are going to be upgrading and adding to both the commercial team but ultimately I will be turning that over to another leader in the near future as well.

[Gerry Sweeney, ROTH Capital Partners]

Got it and then I apologize if this was talked about but obviously the [entire] business was under a lot of pressure last year. Refinery turnarounds were down. And it sounds like that is certainly picking up I think even now with couple of wins. What can you remind me -- I think that business went from 15 million to 10 million or something like that. And 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 round of 15 million maybe a little bit detail around that if possible?

[Dennis Sadlowski, CEO]

Yes. Let me just make a couple of comments there quickly. I think the understatement of the call would be that [indiscernible] was under pressure because we were experiencing a 30 year low in new demand. And so we -- I believe were in the neighborhood of 60 million in bookings in ‘15 and ‘16 and went to a period where we had in four 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 from 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 businesses operated in the neighborhood of 15 million annually and we think that gradually over an 18 months to two year period that will work its way back up to those levels and so right now what we are seeing some pretty good demand and really strengthening as we did in the fourth quarter and we hope that that something that can continue into the quarter and into the rest of ‘18.

[Gerry Sweeney, ROTH Capital Partners]

Got it. Okay. I really appreciate it. Thank you.

[Dennis Sadlowski, CEO]

Yes. Again no [indiscernible] that I have the caution to all of that optimism is 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 to 12 month period.

[Gerry Sweeney, ROTH Capital Partners]

Great. Great. Thank you very much.

[Operator]

[Operator Instructions] At this time I am seeing no further questions. So I would like to turn the conference back over to Dennis Sadlowski for closing remarks.

[Dennis Sadlowski, CEO]

Okay. We thank you all again for joining us and specially those of you in the major storm hit and affected areas. I look forward again to sharing our further progress as we talk to you again on our next call. What we are experiencing some pretty good momentum we are investing behind our 433 strategy and again I look forward to giving you update in 90 days or so. Thank you.

[Operator]

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