CECO ENVIRONMENTAL CORP Q3 FY2025 earnings call

• Delivered a high-performance quarter with record top-line and bottom-line growth, exiting Q3 with a new record backlog even after the highest quarterly revenue.
• Backlog grew to $720 million, up ~$280 million (64%) year-over-year and ~$30 million sequentially, driven by robust order intake of $233 million in new bookings (+44% vs Q3 2024).
• Reaffirmed full-year 2025 outlook and introduced full-year 2026 outlook with strong growth in sales and adjusted EBITDA.
• Positive market dynamics in power generation, energy transition, industrial water, and natural gas infrastructure sectors. Active M&A pipeline with focus on sustainability and building a world-class industrial company.
• Investments in operating excellence, including 80/20 process, to drive efficiency and margin expansion.

CECO Environmental had a strong third quarter. The backlog grew to a record $720 million, up 64% year-over-year and $30 million sequentially. Quarterly revenues reached $198 million, a new record high, up 46% year-over-year. Adjusted EBITDA was $23.2 million, a 62% increase year-over-year. The sales pipeline stood at over $5.8 billion, indicating strong future growth. Approximately 30% of the year-over-year revenue increase was from recent acquisitions, with the balance from organic growth.

• Reaffirmed 2025 outlook: full-year revenue between $725 million to $775 million, adjusted EBITDA between $90 million to $100 million, and free cash flow around 60% of adjusted EBITDA.
• 2026 outlook: targeting orders to exceed $1 billion, full-year revenue between $850 million to $950 million, adjusted EBITDA between $110 million to $130 million, and adjusted free cash flow to convert between 50% to 60% of adjusted EBITDA.

• Monitoring tariffs and their impact on inflation.
• Keeping an eye on the U.S. Government shutdown and its potential impact on operations.
• Monitoring regulation changes and resource availability as potential challenges.

Q: Rob Brown asked about the project pipeline in industrial water and power.

A: Todd Gleason stated larger industrial water projects are mostly in the Middle East related to produced water or water reuse, and power projects' timing is important with positive partnerships but noting timing is key.

Q: Aaron Spychalla inquired about the power generation pipeline.

A: Todd Gleason mentioned a robust power generation space with positive partnerships and a pipeline over $1 billion, with sustainable pace.

Q: Aaron Spychalla asked about EBITDA margin expansion.

A: Todd Gleason detailed a 3-pronged approach including volume-driven margin expansion, G&A leverage, and operating excellence initiatives like 80/20.

Q: Gerard Sweeney asked about AI and power generation.

A: Peter Johansson and Todd Gleason discussed AI power solutions' opportunities and elongated build-outs due to supply constraints.

Q: Robert Brooks questioned the 2026 guide and macroeconomic backdrop.

A: Todd Gleason noted a stable macro backdrop with little sensitivity to short-term economic shifts and progress in cross-selling with Profire.

Q: James Ricchiuti asked about gross margin.

A: Peter Johansson and Todd Gleason discussed seasonal gross margin decline, mix impact from large projects, and offsetting factors like nuclear and defense aftermarket.

Q: Chris asked about water infrastructure funding and short-cycle business.

A: Todd Gleason stated no impact from infrastructure act on large projects and short-cycle business is steady with growth goals.