Release Date: April 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: On the energy transition order opportunities, can you give a little more detail on what's driving that, how big some of those order opportunities could be? And then I saw the EPA emissions rules here recently, just wanted to better understand how that might be a driver for your business.
A: Todd Gleason, CEO, highlighted significant global investments in upgrading or adding new power capabilities, including conversions from coal to natural gas and investments in grid and backup power for renewable sources. He noted potential for very large orders, some possibly exceeding $40 million. Peter Johansson, CFO, added that the demand for clean power generation is driving these opportunities, with the EPA's new rules reinforcing a shift towards less polluting power sources.
Q: On the margin performance, it sounds like those are pretty balanced across operational initiatives. Just wanted to understand more, it sounds like that's sustainable, and just how you're thinking margins progress from here as we look towards the rest of the year.
A: Todd Gleason discussed sustainable margin expansion, noting that while Q1 had some beneficial timing, normalized gross margins would still be near record levels. He expressed confidence in continued margin expansion through operational and supply chain improvements, supporting a path to mid-teens EBITDA margins in the coming years.
Q: Wanted to follow up again on the sales pipeline. I guess the large order activity around the air area and the DC, data center area, maybe just color on what's in that pipeline and what do you see there?
A: Todd Gleason explained that the industrial air segment continues to show strength across various industries, with investments in infrastructure and renewable energy components. He also highlighted the growth in industrial water through acquisitions and organic growth, contributing to a robust and diversified pipeline.
Q: On the long-term targets of mid-teens EBITDA, from here, you had great results in the quarter, but going from here, what are the main drivers to go? Is it mostly operating leverage from here? Do you see more gross margin expansion as well?
A: Todd Gleason and Peter Johansson discussed expectations for continued gross margin expansion and volume leverage on SG&A, contributing to EBITDA margin expansion. They anticipate sequential improvements and a balanced approach to achieving mid-teens EBITDA margins through operational efficiencies and portfolio improvements.
Q: Just a question on the markets. Obviously, you're very excited about pipeline, order book, et cetera. Are you seeing strength across the board? Are there any other weaker areas? Or I think even more importantly, are there some areas that are even turning around where maybe you could see additional strength as we go through the year into next year?
A: Todd Gleason noted consistent demand across general industrial sectors, with cycles in specific industries like semiconductors and EV batteries showing short-term fluctuations. He emphasized the strength in energy markets, both legacy and new energy transitions, indicating a robust and growing demand environment.
Q: Just with respect to the outlook for 2024, is there any one particular quarter where you could see a larger portion of that outlook coming through for you guys? Just want to understand the cadence for the rest of the year with respect to how revenues might play out.
A: Todd Gleason and Peter Johansson indicated that Q1 is typically the smallest quarter, with expectations for a significant step up in Q2 and relatively consistent performance in Q3, followed by a historically strong Q4. They suggested that more than half of the total sales and earnings are expected in the second half of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
