Earnings Call Transcript - CECO Q1 2022

Operator, Operator

Good morning, and welcome to the CECO Environmental Corporation First Quarter 2022 Earnings Call. I would now like to turn the conference over to Steven Hooser, Investor Relations. Please go ahead.

Steven Hooser, Investor Relations

Thank you for joining us on the CECO Environmental first quarter 2022 earnings call. On the call with me 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 that slide presentation, which is on our website at cecoenviro.com. 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, 2021. 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 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. With that, I'd now like to turn the call over to Chief Executive Officer, Todd Gleason.

Todd Gleason, CEO

Thanks, Steven, and good day, everyone. We're going to start with Slide #3 of the presentation that Steven mentioned to follow along with our prepared remarks. We look forward to discussing our first quarter 2022 results in detail as well as reviewing our full year outlook, which was highlighted for the first time in our earnings release. We will also discuss this morning's announced $20 million share repurchase program and our recent acquisition of Compass Water Solutions, which we closed last week. We issued separate press releases regarding both of these earlier today, and we encourage you to read those releases as they do provide additional information. Let's talk about the first quarter. We are off to a great start in 2022, headlined by a few records. I'll start with our fantastic orders growth, which came in at $161 million, up 75% when compared to the first quarter of 2021. And don't forget, the first quarter of 2021 was up over 20% when compared to the first quarter of 2020. And that quarter in 2020 was only modestly impacted by COVID, so it wasn't a weak quarter. Now back to the Q1 2022 record orders of $161 million. That level is over $40 million higher than our previous record quarterly bookings. Additionally, our orders growth came in broadly across our portfolio. Matt will cover our backlog levels in detail, but the highlight is that Q1 orders created the largest backlog in company history as well. We are well positioned for future revenue growth as a result. Speaking of revenues, first quarter 2022 revenues were $92 million, up 29% year-over-year. We have been signaling that our revenue would start to grow in 2022 given we had strong double-digit orders growth throughout each quarter of 2021. We are pleased to deliver such strong organic growth as we kick off 2022 and are confident in our ability to drive this momentum throughout the year and beyond. Gross margins were just under 30%. We have seen new project orders coming in at higher margins than what we produced in the first quarter. So this will help us steadily improve gross margins. Of course, many companies have experienced declines in gross margins, given the challenges in global supply chains, logistics and inflation. We have strategically focused on this and are getting price across the board, especially in our shorter-cycle businesses. So again, gross margins throughout our backlog, including recent orders are at or above current gross margin levels. We will continue to focus on protecting margins by strategically focusing on driving price, performance, productivity and growth. Now regarding EBITDA. We are very pleased we produced $9.5 million in the first quarter of 2022. EBITDA was up over 50% versus the same period a year ago. So a great, great start to 2022, orders, backlog, revenue, EBITDA, all very strong. As I mentioned earlier, and you saw in our earnings release, we will be providing details on our full year 2022 outlook. Historically, we have provided certain frameworks for how investors can think about our yearly performance. But starting this quarter and moving forward, we felt it was important to provide a full year guidance range. The last section on this slide highlights capital allocation, which notes the actions we are taking to deploy capital across accretive M&A transactions and our just announced share repurchase program. Let's talk about each, so please turn to Slide #4. Today, we announced a $20 million share repurchase program. The authorization goes into effect immediately and is good for 3 years or until we complete the approved $20 million level. This is the largest share repurchase authorization in CECO's history and it builds on the $5 million stock buyback we did last year. It reflects the Board's confidence that we will continue to execute on organic growth, drive higher levels of profitability and deliver outstanding free cash flow. We hope investors appreciate that we see the same opportunity in our current share price and that this multiyear authorization gives management the opportunity to remain proactive in this area. Now on the right side of the slide, we highlight the acquisition of Compass Water Solutions. We identified Compass Water Solutions a number of months ago and began to evaluate their niche leadership position in the industrial water treatment market, which we believe is a mid- to high single-digit growth market. The business fits very well within our growing industrial water portfolio, and we are pleased that we closed the transaction last week. Compass produced $11 million in sales and double-digit EBITDA margins in 2021. And we believe we can accelerate growth by utilizing CECO's existing global footprint and adding our strategic resources. Compass expands our addressable water market by almost $0.25 billion and adds our third industrial water business to CECO in less than a year. We are pleased to welcome the great Compass employees and leadership team to CECO. 2022 represents a year in which we will pick up the pace a bit with respect to strategic acquisitions. As I mentioned, we've already closed multiple transactions. While CECO has a long history of making acquisitions, we only made a few transactions over the past few years as we wanted to navigate the challenges associated with COVID. The acquisition of EIS in 2020 has been a home run with significant sales growth and the maximization of their earnout associated with driving higher income. We aim to deliver exceptional returns on our acquisitions and believe we have a nice playbook to drive operational excellence. We have also maintained very consistent debt levels and balance sheet health over the past few years despite the acquisitions of EIS, GRC as well as share repurchases last year, and we intend to maintain appropriate debt levels. I will now hand it over to Matt, and he will walk you through more detail on our first quarter 2022 results.

Matthew Eckl, CFO

Thanks, Todd. Let's dive into Slide #6 and our Q1 performance. Todd suggested orders were up over 75% year-over-year as well as sequentially. This was a balanced effort across CECO as customers continue to invest in sustainability and place their trust in our air quality and water treatment solutions. Sales came in slightly better than expected at $92 million, which was up nearly 30% year-over-year and flat sequentially as the teams executed for customers in the month of March and following the unfreezing of our backlog. Gross margins remain compressed versus historical averages as we continue to navigate supply chain challenges, inflation and continue to execute on long-cycle projects booked during the peak of COVID. We continue to execute price discipline in markets where elasticity exists. In our short-cycle businesses, we are seeing price increases stick with customers. There are margins improving as we look ahead. More to come here. Reported operating income and EBITDA metrics each improved 50-plus percent year-over-year on improved volume, lower project margins and lower operating expenses, aided by a one-time insurance settlement of $2.5 million. Excluding this benefit, EBITDA was up 12% year-over-year in the quarter. Adjusted EPS was a clean story at $0.14, up $0.05 year-over-year, predominantly on operations with no FX impact. To summarize, this is a very good quarter for CECO. Now let's move to Slide #7. Coming out of the gate, Q1 was a fantastic start to 2022. Market demand was strong across all end markets. Platforms that serve air quality such as emissions management, thermal acoustics and industrial air were exceptionally strong as customers came to us for their sustainability needs. Each of these platforms saw 100-plus percent growth year-over-year. New double-digit headline orders demonstrate our leadership in air, water and energy transition. First was a Peerless emission control system for our 500-megawatt utility provider that is converting from coal to clean burning natural gas and solar power. Second, EIS booked a large multi-unit RTO for a leading can manufacturer that is expanding the coding line and wants to protect their employees and the environment from toxic DOCs. Put EIS into context, we acquired it in June of 2020 with a backlog of $8 million. Today, the backlog is nearly 3x in size. We exceeded our first 2 years investment case considerably and believe that sustainable beverage can manufacturing market shows no signs of slowing down. Todd highlighted, while we haven't integrated many acquisitions in a few years, this is a nice proof point of CECO driving value via M&A. Other platforms such as separation and filtration saw a 50-plus percent growth on water treatment orders and our shorter cycle platforms like Fluid Handling, Ductfab and expansion joints also enjoyed high single-digit growth year-over-year on infrastructure spend. In total, $161 million of orders marked an all-time high for CECO by a margin of greater than $40 million. Regarding revenue, our backlog continues to turn and nearly all platforms grew with the exception of separation filtration that just started to grow their backlog in Q1. No single platform stood out in the quarter as all grew relatively proportionate to their size. Our short-cycle sales continue to grow with $22 million in the quarter, up 24% year-over-year. With the acquisitions of GRC and Compass, short-cycle sales will top out at nearly $100 million or approximately 30% of total CECO sales. We continue to make progress on our transformational journey. Please turn to Slide #8 and our backlog. $283 million, this is a record for CECO with the previous one to market of $228 million in Q1 of 2016. Most impressive is that 60% is weighted towards broad industrial markets as opposed to 70% weighted towards power generation in 2016. This demonstrates the healthy diversification we've taken at CECO over the last few years. Slide 9. Gross margins remain pressured down nearly 2 points sequentially and 5 points year-over-year. We feel very good about our project execution, but still see supply chain challenges in material receipts, subcontractor logistics and on-site commissioning. We keep a close watch on executed project margins versus as-sold margins. And since Q3 of last year have seen noticeable improvement in our performance. Continues to weigh most on our gross margins is the inflationary cost of materials and executing on a backlog that was priced in prior years. Today, we see our backlog margins improving and expect them to trend up in the second half. Nearly all platforms we are pushing price where elasticity exists. As an example, our pumps business has initiated a second price increase this year and orders have not slowed. In fact, they've actually increased. In our larger project businesses, we continue to push our price and are winning in select end markets like beverage cans and automotive, but less or so in energy-oriented end markets. We anticipate an improvement in margins in late second half and into 2023, but continue to monitor ISM data and the mix of our backlog. As for EBITDA, CECO delivered $9.5 million in the quarter. Year-over-year volume increases were able to overcome lower project margins and deliver significant EBITDA dollar increases year-over-year. First quarter SG&A on an adjusted basis was approximately $20 million, which was essentially flat year-over-year and up modestly versus the fourth quarter on seasonal expenses. SG&A costs were up approximately $1.9 million year-over-year on increased headcount to support growth, higher salaries and higher management incentive compensation. These increases were offset by an insurance settlement that we booked in the first quarter after many quarters of hard work by our legal team to resolve. All in, we are pleased with our operating results for Q1. Turning to the balance sheet on Slide 10. We had a $1 million use of free cash flow in the quarter, predominantly driven by a healthy build of $20 million in receivables. Outsized orders growth means an increase in customer milestone billings, and we anticipate improved cash flows in the coming quarters. Following the GRC acquisition, our balance sheet stands at 2x leverage and in great shape to support growth. Slide 11 outlines how we think about recent capital allocation decisions. First priority beyond organic investments is M&A. Compass Water is a great bolt-on acquisition that adds reverse osmosis technology to our industrial water platform, improves our short-cycle sales metric and with similar economics to GRC is accretive to CECO shareholders. We will continue to target small bolt-on acquisitions, size USD2 million to USD5 million in EBITDA with favorable valuations and a focus on strengthening our industrial air and water platforms. To add to our capital allocation program, we've announced a 3-year $20 million share repurchase authorization. With a $2 billion sales pipeline, record backlog and anticipated improved cash flows, we believe a healthy balance of M&A and stock buybacks will reward shareholders appropriately. The buyback is the largest in CECO's history and meaningful enough to offset annual dilution and shrink our share count over time. We make these decisions based on the confidence we have in our team and the position our products have in a growing market. With that confidence, we've introduced guidance for 2022 on Slide 13. So here's how we're thinking the year plays out. With a robust pipeline and a great start in Q1, we are providing full year's order guidance of USD410 million to USD430 million. At the midpoint, this would be up around 17% versus 2021, which was up 29% in orders versus 2020. For revenue, we are introducing a range of USD360 million to USD380 million. We expect to see our backlog turn and supply chain constraints stabilize as we navigate 2022. And we hope to deliver at the upper end of our range or better. But this is our current outlook. Acquisitions will be an additional benefit, of course. Q1 gross margins are currently at the bottom end of our guided range. And while we expect the second half to left on improved backlog margins, pricing and slowing inflation, we are cautiously optimistic to achieve the midpoint of 30% by year-end. We see upside in sales volume as a conservative option on our gross margins. So by assuming 30% full year gross margins, $20 million of run rate non-GAAP SG&A and layering in modest incremental investments, we organically arrive at the midpoint of $35 million of EBITDA. Acquisitions likely push us to the higher end of our range, but also provide an option for project margins and backlog timing, 2 key variables in our guidance framework. Todd, would you like to elaborate further on our guidance for 2022 and take us into Q&A.

Todd Gleason, CEO

Thanks, Matt. Yes, let me expand on a few areas around our guidance, and then we'll wrap up our prepared remarks and take questions. As the slide highlights, we are making more investments to advance CECO. These are investments in people, process, systems, and of course, acquisitions and business development. We're excited to share how far CECO has come over the past few years with respect to our more balanced portfolio that can deliver strong growth across many industrial and energy transition markets. These investments are important to develop the sustainable business results we aim to achieve in the long term. So our guidance reflects these costs. As with any guidance or opportunities to exceed but also unforeseen challenges, none of us think we are out of the woods with respect to inflation and certain supply chain and logistics challenges, but we have a lot of good momentum. We hope you find this guidance helpful. Let's go to our last slide, please turn to Slide #14. As we have repeatedly said today, CECO is off to a fast and strong start to 2022. With our large backlog and pipeline of over $2 billion in opportunities we are pursuing, we expect to continue to gain traction around growth. We are pleased to announce our new share repurchase program, which we believe is a great use of capital for shareholders. And in just a week or 2, we will announce our inaugural ESG report. This is the culmination of a lot of hard work by a cross-functional team, and we look forward to sharing our ESG story with you this month. None of this would be possible without our incredible team. I want to thank all of our CECO associates for everything that you do to deliver excellence for our customers and to assure our communities benefit as well. And with that, I'd like to open the line to questions.

Operator, Operator

The first question comes from Amit Dayal with H.C. Wainwright.

Amit Dayal, Analyst

Thank you. Good morning, everyone. Really strong results, congratulations on the execution. And just to begin with respect to acquisitions, could you maybe elaborate a little bit on sort of the growth strategy for some of these recent acquisitions? Are you taking these products to your existing customers? Or are you finding new customers for these new portfolio add-ons?

Todd Gleason, CEO

Thank you for the question, Amit. I appreciate your comment. Regarding our current mergers and acquisitions strategy, we have completed several transactions this year, all of which share a common theme of concentrating on broader industrial markets. So far, these transactions have primarily been within our established area of expertise, which is industrial water, where we have been successfully growing our presence globally. These acquisitions enhance our access to new markets and provide additional products for our existing customers, allowing us to reach global markets they previously could not access. Our acquisition strategy focuses on our three core areas: industrial air, industrial water, and the energy transition. We aim to continue adding broad industrial platforms, products, and services with a shorter cycle profile, which will help us balance our longer project revenue businesses. All acquisitions this year align with this strategy, and you can expect future transactions to have a similar foundation. While these acquisitions may not always specifically target our current customers and markets, we will remain committed to this core focus.

Amit Dayal, Analyst

And then on the margin side, I know you have some inflationary pressures, et cetera. And you're not too far off from sort of historical levels. But do you see margins reverting to the low 30% levels by the end of the year eventually?

Todd Gleason, CEO

Yes. Matt mentioned this briefly in our prepared remarks. We're currently just under 30%, which, considering the ongoing challenges with inflation, supply chain, logistics, etc., is below our long-term average of 30% to 34%. We believe we will recover to that level. In the upcoming quarters, we are still seeing the effects of price adjustments in our backlog. Right now, there's a bit of a timing mismatch that's keeping us below 30%. However, we expect to be back above 30% in the second half of this year. Fundamentally, our business remains unchanged aside from the market challenges that all industrial companies, including ours, are facing. Overall, companies are effectively managing these challenges and controlling costs, and we will continue to do so.

Matthew Eckl, CFO

Yes. The only thing I'd add was we're probably at about 26% margin in the backlog this time last year, we're definitely looking at 28% now and then we just got a job that came across something like 40%. So we're seeing an improvement in our backlog margins. It's going to take some time for the long cycle projects to funnel through the P&L.

Amit Dayal, Analyst

Understood. And then, Matt, maybe from a sort of sequential expectation, I know you've provided annual guidance for the first time. Should we expect sequential improvements through 2022? Or is there any seasonality with respect to some of these backlog and orders that may cause variability in how the quarter has come through?

Matthew Eckl, CFO

No, there's no real seasonality. It's really about timing of individual projects and when they land and the mix of our business. But we are working on productivity. We are seeing the blended margins creep up. We do expect sequential increases, but modestly. We see a real improvement in our margins in the late second half of this year and early 2023.

Todd Gleason, CEO

Yes. And just to double down on one thing there. We appreciate that you're asking a question about sequential, that's important to us. Obviously, ongoing improvement, ongoing productivity, ongoing performance. But just kind of given the current profile of CECO, we would be reluctant to currently give quarterly guidance just because things can be a little choppy in the quarters, like a lot of companies. And so look, we're very comfortable with the full year outlook. That's an easier, if you want to call it, that sort of number for us to get our head around because it takes out a little bit of the variability and the noise that exists in the month or in a couple of months that could be influenced by a handful of larger projects. But as Matt already answered, we feel good about the kind of ongoing productivity and momentum we have.

Amit Dayal, Analyst

I can appreciate that, Todd. Just one last one maybe. With respect to the backlog strength you're seeing, has that come mostly from domestic orders on backlog? Or is there some international in it as well?

Todd Gleason, CEO

50-50.

Amit Dayal, Analyst

All right. Yes, that's all I have missed. I will take my other questions off-line.

Operator, Operator

The next question comes from Rob Brown with Lake Street Capital Markets.

Rob Brown, Analyst

I just want to get a little more detail on the Compass acquisition. How much of that business is all short cycle? Does it have sort of a recurring kind of razor-razor played model? How does the business work and the customers for that business?

Matthew Eckl, CFO

Sure. We're pretty excited about this business. I'd tell you that 60% is systems. So RO and slop water systems or the water separation, the end market is typically going to be naval ships, U.S. Coast Guard or potentially marine vessels like Maersk etc., anywhere where you're going to have water on a ship's vessel that needs to be discharged back in the ocean, but needs to be in compliance with whatever the standards are by the Spanish military or the U.S. Coast Guard whoever is responsible for that is where we're going to serve internationally. We have an international footprint all over the globe to help pull more of their business through. And when we think about the aftermarket content of that business, it's something like 40% to 45% super rich gross margins. Why? Because the product has to be certified by the Spanish military or the Nordic Army or the U.S. Coast Guard. And so you can't just plug in some other filter business or some other pirated product, you have to use the Compass brand. And so that's what makes me really excited. When we think about short cycle, they will have occasionally a job here or there that's maybe $1 million or $2 million max, and that's just because it's several RO units that are being sold. But for the most part, I'd tell you that their average is about $200,000 per order size. So we consider the entire thing short cycle in nature because everything ships out within a few months.

Todd Gleason, CEO

We also see, Rob, real opportunity to bring investment at an appropriate level into the organization. When you're a somewhat small company like Compass is, they've been doing a great job of growing and advancing the product line, getting this very nice balance of systems and then replacement, certified replacements, locking in their market access there. But there's opportunities outside of what Matt suggested around vessels. There's other opportunities that we feel and we'll be talking about that in the future that we feel we can bring their expertise and their product line into again with just a modest investment for real strong growth because their margin profile, especially on the aftermarket replacement is so rich.

Rob Brown, Analyst

And then kind of back to gross margins, on your longer-cycle projects, how do you protect gross margins there? Are you sort of fixed price upfront and then you take the risk on inflation or are there escalators built...

Matthew Eckl, CFO

Yes. So there's a number of different approaches depending on sort of maybe even the market, the business, the project. But generically speaking, we'll have typically a fixed-price bid. We'll have locked in or also received fixed-price contracts with our suppliers. And we'll, at times, especially now over the last 6 or so months, ensured that we have appropriate language in our contracts that protect us and our supply chain and our customers from escalating materials. So we'll have escalation clauses around key components. It could be metals, if it's a heavy metal product that we are providing. It could even be logistics if it is something that includes a fairly extensive transportation-related area of the contract. So our customers understand it. These aren't small products that are off the radar screen. These are very fundamental to the success of their operation. There's only a handful of companies that can do what we do in these very mission-critical areas of industrial air, water and the energy transition. So they understand that some of the new language that is associated with escalation clauses, etc., are just going to be at least standard for now.

Operator, Operator

Next question comes from Gerry Sweeney with ROTH Capital.

Gerard Sweeney, Analyst

Just wanted to talk about orders, obviously up significantly. And I'm just curious as to how much of that is maybe end market-driven versus maybe some changes you made internally? Obviously, there's been a lot more focus. One, have you made any sort of changes on going to market strategy? Or do you see any...

Todd Gleason, CEO

Yes, that's a great question. You don't achieve $160 million in orders with our size without some strong market dynamics at play. We feel well positioned to benefit from any rising trends in the market. CECO has made significant strides in recent years to capitalize on these opportunities. We've expanded our focus on more markets, adjacent sectors, short-cycle initiatives, and general industrial sectors, which has been an organic effort along with some strategic acquisitions and investments in service areas. This diversification has been critical. In the past, a majority of our strong order quarters, between 60% to 70%, came from energy-related sectors like power and oil and gas. However, that ratio has changed, and now around 60% to 70% of our strong growth is in the general industrial space. Our teams have dedicated themselves to identifying and pursuing the best opportunities, moving quickly to address them. It's a testament to the hard work of our associates worldwide, who are committed to serving our customers effectively.

Gerard Sweeney, Analyst

That's really helpful, actually. I appreciate that. The other question I had is obviously making acquisitions. But as you look at CECO as a whole, at your portfolio, are there opportunities maybe even to divest, to get smaller to get bigger.

Todd Gleason, CEO

Yes. Look, we certainly understand that companies that are diversified like CECO have options in their portfolio. Right now, we feel like we're clicking on a lot of really good cylinders. We're really excited about our growth profile as a company. We're really excited about our ability to continue to add pieces to our organization through smart, strategic accretive M&A that adds again, more balanced to industrial air, industrial water and energy transition, more short cycle. And as we look at our portfolio over time, if we feel that there is a piece of it that doesn't continue to add that same value to our longer strategy, then we'll evaluate that. But right now, again, we feel like we've got a lot of momentum as an organization, and we want to maximize those returns for our shareholders.

Matthew Eckl, CFO

The answer is up. It's going up.

Todd Gleason, CEO

That's a specific up, Gerry. If you will look at our balance sheet, you could see that the billings in excess are growing greater than cost in excess, which is a good sign that we're billing customers early. Those are called advanced billings or advanced payments and our receivables are growing, and these are good receivables. So cash flows will roll through. This is exactly what I said for the last 3 to 4 years when the business grows, cash flow grows. It's going up.

Matthew Eckl, CFO

We thought about just giving guidance; it says everything is going up, but we thought that might not be specific...

Operator, Operator

The next question comes from Bill Dezellem with Titan Capital.

William Dezellem, Analyst

First of all, relative to the accounts receivable being up, does that indicate that there was sales strength late in the quarter? How do we read that?

Matthew Eckl, CFO

Yes, they're not correlated. There is receivables is based on milestone billings and not tying to revenue. So it's just timing of when we actually build the customer that starts the clock further 30-, 60- or 90-day terms, whatever they might be of when they actually need to pay us.

William Dezellem, Analyst

And since AR then is not an indication of pace throughout the quarter, maybe you could highlight kind of what was the pace of sales and separately orders through Q1 and into April, if you would, please?

Todd Gleason, CEO

Yes. Well, I was going to say one thing, and I'll let Matt, he's got all the data, obviously, he's ready to dying to tell you. When we announced our fourth quarter results, you may remember, Bill, we talked about at that point in the quarter, we had already seen very strong January and February orders. So I would just remind you that we shared sort of pretty publicly that in the first quarter, when we gave our fourth quarter earnings release that we were already seeing very strong January and February, and I'll let Matt kind of talk about how that continued.

Matthew Eckl, CFO

Orders appeared to yield positive results. January and March were strong months, while April was quite decent, comparable to February, so overall, it was not bad. Revenue saw a slight increase from January to February to March, with February seeing more revenue due to the longer month, but it wasn’t significantly different.

William Dezellem, Analyst

Yes. given that, I'll call it up and down, is there anything that we can read into that or that you all read into it? Or is this truly a little bit just lumpy?

Matthew Eckl, CFO

It's just lumpy. We have projects sometimes that are double digits, sometimes $10 million to $15 million, I mentioned some headline orders that came in. We didn't have a ton of those, but our history is marked by those. It's what we do. We do have projects, and they come in. But that's why we want to grow short-cycle sales. Why? Because it's more predictable and ease and those are gravy on top.

Todd Gleason, CEO

One way to evaluate our quarter, Bill, is by looking at the $160 million in orders. We have the insights to consider what level of bookings could have been achieved last year if the customer had decided to proceed at that time. We have a significant portion of our pipeline under observation, and it often comes down to whether orders are booked at the end or the beginning of the quarter. In this particular 120-day timeframe I’m discussing, let's estimate that about $15 million could potentially have been delayed to Q2. It’s possible that our first quarter could have been as low as $130 million or even surpassed $160 million, but it ultimately landed at $160 million. Both figures would have marked record quarters and created record backlogs. Even if some orders were pushed from the fourth quarter or deferred to the second quarter, affecting Q1 negatively, we still believe it would have been a record quarter well beyond our previous best. This did not happen because we pulled in orders from last year; rather, it did enhance our quarter in terms of bookings, but perhaps not as significantly as one or two large orders would have.

William Dezellem, Analyst

That's helpful. And finally, relative to the step-up in orders this quarter, just given the long-cycle nature of some of those, is there going to be a quarter in the future where we're going to see a significant step up in revenues? Or as you had stated earlier in comments to another question, do you really feel like you can try to manage that to be a bit smoother?

Matthew Eckl, CFO

Well, it won't be one quarter we probably won't pop up to this number. I mean, just who we are as a company today. But yes, there will be a period of time, we believe that orders clearly translate to revenue. These are solid orders. We have a very, very low debooking rate. It would be akin and maybe even less than most industrial companies' bad debt rate. I mean, we're talking lower than 1% or 2% on average and if even that. So look, you can do the math and just make a determination that if we're running at $90 million, $95 million of revenue this quarter, which we did $93 million, well, it's hard to believe that we're not going to have a few quarters that reflect much higher revenues when this turns through our backlog.

Todd Gleason, CEO

They will flow through over the course of 4 to 5 quarters, and the pop-up in revenue that you might expect isn't going to be some $20 million order just shows up. It will be the compiling of several projects plus our base business on top of each other. And so yes, you will see an increase at some point in time. My bet is late this year, early next year, but it's not like it's going to be a major one-time blip, $40 million revenue and drop back down. It's pretty smooth, Bill.

Operator, Operator

The next question comes from Thomas with Graham Partners.

Unidentified Analyst, Analyst

Sorry for the company change. I went from thinking I own too much stock to maybe not owning enough. The energy cycle looks really positive to me. Has there been anything breaking loose in the pipeline? Are we still super early on that and still a lot of resistance out there. I was just curious if you have any color on what the interest in orders looks like in that area? I know it's still probably early, but I keep thinking that somebody is going to flip on this ESG environmental stuff to get energy out, but let me know what you guys think.

Todd Gleason, CEO

Yes. So I think the question is specifically on the midstream on the pipeline side. That's our...

Unidentified Analyst, Analyst

Yes.

Todd Gleason, CEO

Thanks, Thomas. So yes, that was our one platform for those of you that have been tracking CECO that it was really our only platform that didn't show orders growth last year. It showed nice orders growth this quarter. We expect that to continue. We see investment in midstream pipeline, at least in our space, where more capital is now being applied. We also would say that David Taylor and the business leaders within separation filtration are doing a fantastic job of not only being in position for tides to rise in the midstream capital investment side, but really doing a fantastic job of maintaining and developing relationships in other markets, we talk about Navy and other end markets that they have an opportunity and have long supplied, very good margin business, great relationships with those customers. There are cycles in the Department of Defense spending as we all understand, when those cycles come back, those are great for us. The other I would suggest is they are getting in better and better positioned for what we're calling this energy transition, especially carbon capture and other gases. So we look forward to talking about some of those projects over the next few quarters as we are solving along with other suppliers and partners of ours, really some really unique carbon CO2 capture sequestration solutions for a variety of different industries, and we look forward to talking about that. So again, finding adjacent markets doesn't mean our current markets aren't still strong, appealing and worthy of investment that finding new adjacencies organically, marketing ourselves, creating business development relationships, and we expect to be talking about large orders in CO2 capture and other areas that are exciting.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Todd Gleason, CEO, for any closing remarks.

Todd Gleason, CEO

Thank you for the questions and for everyone's interest. We look forward to continuing today to connect with our investors and analysts to answer questions and to be helpful. I'd also like to once again acknowledge our appreciation for the great associates around the world at CECO, delivering for our customers every day, working hard to make sure that we are at the right place at the right time for all of our stakeholders, staying safe and healthy as always. And so look, we're excited about the year. We feel great about the start to the year as we've already articulated multiple times. And with that, we hope to speak with you soon. See you soon at an event and best of luck out there.

Operator, Operator

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