CECO Environmental (NasdaqGS:CECO) FY Conference March 23, 2026 07:00 PM ET Company ParticipantsBruce Thames - President and CEOTodd Gleason - CEOConference Call ParticipantsChip Moore - Managing Director and Senior Research AnalystGerry Sweeney - Managing Director and Senior Research AnalystNone - AnalystGerry SweeneyAfternoon, everyone. Gerry Sweeney from Roth Capital. Thanks for joining us for my last fireside chat of the day. It's to 180blu for some beers. Is this being webcast?Chip MooreYes.Gerry Sween ...

Core Insights - CECO Environmental Corp. and Thermon Group Holdings, Inc. will hold a joint fireside chat at the 38th Annual Roth Conference on March 23, 2026 [1] Company Overview CECO Environmental - CECO Environmental is a leading environmentally focused, diversified industrial company that serves various industrial air, water, and energy transition markets globally [3] - The company operates through key business segments: Engineered Systems and Industrial Process Solutions, providing innovative technology and application expertise [3] - CECO aims to improve air quality, optimize the energy value chain, and offer custom solutions across multiple applications, including power generation, petrochemical processing, and battery recycling [3] - CECO is listed on Nasdaq under the ticker symbol "CECO" and was incorporated in 1966, with its global headquarters in Addison, Texas [3] Thermon Group Holdings - Thermon is a diversified industrial technology company and a global leader in industrial process heating, temperature maintenance, and environmental monitoring solutions [4] - The company focuses on delivering engineered solutions that enhance operational awareness, safety, reliability, and efficiency, aiming for the lowest total cost of ownership [4] - Thermon is headquartered in Austin, Texas [4]

Core Viewpoint - CECO Environmental Corp. anticipates full year 2026 orders to exceed $1.5 billion, reflecting a significant increase compared to 2025, and the Thermon acquisition is on track to close in mid-2026 [2][3]. Orders Outlook - The company's full year orders outlook indicates a book-to-bill ratio greater than 1.5, representing an approximate 50% increase compared to 2025 [2]. - CECO's sales pipeline has surpassed $6.5 billion, reinforcing confidence in achieving over $1.5 billion in new orders for the year [3]. Strategic Growth - The CEO emphasized a long-term sustainable growth model driven by strategic investments in high-growth global industrial markets [3]. - Key opportunities are identified in natural gas power generation, industrial water, and reshoring programs, with expectations of receiving the largest-ever order for gas turbine exhaust solutions soon [3]. Thermon Transaction - CECO plans to acquire Thermon at a fixed rate of $10 per share and 0.6840 of a CECO share, with a cash payout capped at approximately $330 million [4]. - The acquisition is expected to yield at least $40 million in run-rate cost synergies by year three, with ongoing discussions for commercial synergies in various markets [4][5]. - The transaction is subject to shareholder and regulatory approvals and is anticipated to close in mid-2026 [4]. Financial Expectations - The combined organization is projected to achieve strong double-digit topline growth and adjusted EBITDA margins of around 20% post-acquisition [5].

Financial Performance - Net sales for the year ended December 31, 2025, reached $774.4 million, a 39% increase from $557.9 million in 2024[201]. - Gross profit margin for 2025 was 34.8%, slightly down from 35.1% in 2024, with gross profit amounting to $269.2 million[201]. - Operating income for 2025 was $105.9 million, representing 13.7% of net sales, a significant increase from $35.5 million (6.3% of sales) in 2024[201]. - Non-GAAP measures indicate a net income attributable to CECO Environmental Corp. of $50.1 million for 2025, compared to $13.0 million in 2024[200][201]. - Consolidated net sales for 2025 were $774.4 million, an increase of $216.5 million or 38.8% compared to 2024, primarily driven by the Engineered Systems segment[205]. - Gross profit increased by $73.1 million, or 37.3%, to $269.2 million in 2025, with a gross profit margin of 34.8%, down from 35.1% in 2024[206]. - Operating income for 2025 was $105.9 million, up $70.4 million from $35.5 million in 2024, with an operating margin of 13.7% compared to 6.3% in 2024[211]. - Non-GAAP operating income was $68.4 million in 2025, an increase of $19.1 million from $49.4 million in 2024, maintaining a non-GAAP operating margin of 8.8%[212]. - Orders booked in 2025 totaled $1,064.3 million, an increase of $397.0 million or 59.5%, with $267.2 million representing organic growth[216]. Segment Performance - The Engineered Systems segment focuses on emissions management and water treatment solutions, addressing the growing demand for environmental protection[196]. - The Engineered Systems segment net sales increased by $160.3 million to $544.3 million in 2025, a growth of 41.7%[220]. - The Industrial Process Solutions segment serves various industries, including semiconductor fabrication and beverage can production, emphasizing contamination control and regulatory compliance[196]. - The Industrial Process Solutions segment net sales rose by $56.2 million to $230.1 million in 2025, an increase of 32.3%[224]. Expenses and Costs - The company incurred $9.5 million in acquisition and integration expenses in 2025, up from $4.2 million in 2024[201]. - Selling and administrative expenses rose to $200.7 million in 2025, an increase of $54.0 million or 36.8%, largely due to higher headcount and strategic initiatives[207]. Cash Flow and Capital Structure - Cash provided by operating activities in 2025 was $5.9 million, a significant decrease of $18.9 million compared to $24.8 million in 2024, primarily due to unfavorable changes in net working capital[241]. - In 2025, cash used in investing activities was $1.1 million, which included $97.6 million for acquisitions and $11.3 million for property and equipment, offset by $108.8 million from the sale of the Global Pump Solutions business[243]. - Financing activities in 2025 resulted in a cash outflow of $11.6 million, mainly due to $7.8 million in net payments under the Credit Facility[245]. - Working capital at December 31, 2025, was $104.4 million, up from $86.3 million at December 31, 2024, with a current ratio of 1.34[229]. - Cash and cash equivalents totaled $33.1 million at December 31, 2025, down from $37.8 million at December 31, 2024[230]. - As of December 31, 2025, total outstanding borrowings amounted to $212.4 million, a decrease from $218.9 million in 2024, reflecting a repayment of $1.7 million on joint venture term debt and net borrowings of $5.6 million on the revolving credit line[231][240]. - The Company entered into an amendment to its Credit Agreement on October 30, 2023, which included an additional term loan of $75.0 million[232]. - The Fourth Amended and Restated Credit Agreement, effective January 30, 2026, provides for a senior secured revolving credit facility with an initial aggregate principal amount of up to $700.0 million[239]. - Total unused credit availability under the Credit Facility as of December 31, 2025, was $167.6 million, slightly up from $166.9 million in 2024[238]. - Material cash requirements as of December 31, 2025, totaled $434.2 million, including $208.6 million for the revolving credit loan and $136.3 million for purchase obligations[249]. - The Company's total long-term debt and current maturities of long-term debt at December 31, 2025, was $214.2 million[273]. Tax and Regulatory Matters - The Company has made an accounting policy election to record the U.S. income tax effect of future global intangible low-taxed income ("GILTI") inclusions in the period in which they arise[267]. - A liability has been recorded for deferred taxes on undistributed foreign earnings, primarily attributable to foreign withholding taxes[268]. - Management assesses the realizability of deferred tax assets, considering future taxable income and tax-planning strategies[265]. - The Company recorded the impact of the HR-1 legislation in the third quarter of 2025, which included the election to fully accelerate all domestic Section 174 expensing into 2025[269]. Market Risks - The Company is exposed to market risks primarily related to changes in interest rates, with a substantial portion of borrowings at variable rates[272]. - Future changes in foreign currency exchange rates may impact the Company's revenues, operating expenses, and earnings[274]. - A hypothetical 10% increase in the estimated weighted average borrowing rate at December 31, 2025, could result in an estimated annual impact of $1.4 million on future earnings and cash flows[273]. - The estimated market risk from a hypothetical 10% change in the borrowing rate is related to the Company's debt indexed to SOFR market rates[273]. - Transaction losses included in "Other (expense) income, net" were $(2.2) million, $(4.3) million, and $1.2 million for the years 2025, 2024, and 2023, respectively[274]. Asset Management - The Company recognized no impairment charges related to long-lived assets during 2025, 2024, and 2023, indicating stable asset valuations[258].

Core Viewpoint - The proposed sale of Thermon Group Holdings, Inc. to CECO Environmental Corp. is under investigation to assess whether the transaction adequately values Thermon and the process leading to this valuation is appropriate [1]. Group 1: Transaction Details - Shareholders of Thermon may choose to receive for each share of common stock: (i) $10.00 in cash and 0.6840 shares of CECO common stock, (ii) $63.89 per share, or (iii) 0.8110 shares of CECO common stock per share [1]. - The transaction is subject to proration and allocation procedures to ensure that the total cash and stock paid does not exceed specified limits [1]. Group 2: Legal Investigation - Kahn Swick & Foti, LLC is investigating the proposed sale to determine if the consideration offered undervalues Thermon [1]. - The firm is open to discussions regarding legal rights related to the proposed sale without obligation or cost to interested parties [2].

Core Viewpoint - The M&A Class Action Firm is investigating Thermon Group Holdings, Inc. regarding its proposed sale to CECO Environmental Corp, questioning the fairness of the deal for shareholders [1]. Summary by Relevant Sections Proposed Transaction Details - Thermon shareholders can choose from three options for their shares: (i) $10.00 in cash and 0.6840 shares of CECO common stock, (ii) $63.89 in cash per share, or (iii) 0.8110 shares of CECO common stock per share [1]. Legal Context - The M&A Class Action Firm, led by attorney Juan Monteverde, has a successful track record in recovering millions for shareholders and is recognized in the 2024 ISS Securities Class Action Services Report [1].

Core Viewpoint - The M&A Class Action Firm is investigating CECO Environmental Corp. regarding its merger with Thermon Group Holdings, Inc., focusing on whether the deal is fair for CECO shareholders who will own approximately 62.5% of the combined company after the transaction [1]. Group 1: Company Overview - CECO Environmental Corp. is involved in a merger with Thermon Group Holdings, Inc. [1]. - Upon completion of the merger, CECO shareholders are expected to hold about 62.5% of the new entity [1]. Group 2: Legal Investigation - The M&A Class Action Firm, led by attorney Juan Monteverde, has a history of recovering millions for shareholders and is recognized in the 2024 ISS Securities Class Action Services Report [1]. - The firm is conducting an investigation to determine the fairness of the merger deal for CECO shareholders [1].

Core Insights - CECO Environmental reported record revenue of $215 million in Q4 and $774 million for the full year, marking a 39% increase in full-year revenue, with 25% organic growth despite a $25 million revenue headwind from the sale of the Global Pump Solutions business [1][5][8] - The company announced a transformational merger with Thermon valued at approximately $2.2 billion, which is expected to close in mid-2026, creating a pro forma company with around $1.5 billion in revenue and $295 million in adjusted EBITDA [7][15][18] Financial Performance - Full-year adjusted EBITDA exceeded $90 million, up 44%, with Q4 adjusted EBITDA at $29.8 million, reflecting a 57% year-over-year increase and a margin of 13.9% [6][9] - CECO ended 2025 with a record backlog of $793 million, up 47% year-over-year, and bookings for the full year reached $1.064 billion, a 60% increase compared to 2024 [3][2] Market Dynamics - The company raised its standalone 2026 guidance to revenue of $925 million to $975 million and adjusted EBITDA of $115 million to $135 million, supported by a pipeline exceeding $6.5 billion [13][8] - CECO continues to see strong market demand across power generation, industrial reshoring, industrial water, and natural gas infrastructure, with significant orders already booked in early 2026 [14][19] Merger Details - The merger with Thermon involves a cash and stock transaction where Thermon shareholders will receive $10 in cash and 0.684 shares of CECO per share, implying a valuation of about 17x adjusted EBITDA [7][15] - The combined company is expected to achieve approximately $40 million in run-rate synergies by year three, primarily through operational efficiencies and cost eliminations [20][18] Business Segmentation - Thermon is recognized as an end-to-end provider of process heating and temperature management solutions, with a strong aftermarket presence, and is projected to generate over $520 million in revenue in its current fiscal year [19][21] - CECO's revenue mix includes approximately 50% from heat tracing, 35% from heating systems, and 15% from transport heating and digital solutions [23]

Financial Data and Key Metrics Changes - CECO Environmental reported a record backlog of approximately $800 million, up nearly 50% year-over-year [5][10] - Revenue for Q4 was $215 million, and for the full year, it reached $774 million, representing a 39% increase year-over-year [11][12] - Adjusted EBITDA for Q4 was $29.8 million, a 57% increase compared to the prior year, with full-year adjusted EBITDA exceeding $90 million for the first time [12][16] - The company raised its 2026 revenue guidance to between $925 million and $975 million, up from a previous outlook of $850 million to $950 million [7][18] Business Line Data and Key Metrics Changes - Orders in Q4 reached $329 million, a record increase of 50% year-over-year, with a book-to-bill ratio of approximately 1.5x [11][12] - Full-year bookings surpassed $1 billion for the first time, marking a 60% increase over 2024 levels [6][11] - The company experienced strong demand in power generation, natural gas infrastructure, semiconductor, and industrial water applications [11][12] Market Data and Key Metrics Changes - CECO is seeing a strong market backdrop in power generation, industrial reshoring, industrial water, and natural gas infrastructure customer segments [8][9] - The company has secured large natural gas power generation orders exceeding $175 million in Q1 2026 [9] - The pipeline for industrial water treatment projects is expected to yield opportunities between $10 million and $50 million in size, particularly in international markets [35] Company Strategy and Development Direction - The merger with Thermon is expected to create a stronger global leader in industrial, environmental, and thermal solutions, enhancing financial agility and strategic capabilities [4][20] - The combination aims to leverage both companies' strengths to accelerate growth through expanded customer relationships and global reach [20][26] - CECO plans to deepen its focus on sourcing and productivity while managing price and cost amid an uncertain economic backdrop [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong visibility provided by the record backlog and growing sales pipeline, anticipating continued growth in 2026 [7][18] - The company is optimistic about the industrial water and wastewater treatment sector, particularly in international water infrastructure projects [9][35] - Management highlighted the importance of emissions treatment solutions in the power generation space, which positions CECO favorably in the market [54] Other Important Information - The transaction with Thermon is valued at approximately $2.2 billion, with Thermon shareholders receiving $10 in cash and 0.684 shares of CECO common stock per share [21] - The combined company is expected to have pro forma revenues of approximately $1.5 billion and adjusted EBITDA of $295 million, assuming identified synergies [22][28] Q&A Session Summary Question: Can you frame the industrial water business and its opportunities? - Management highlighted a large pipeline of activity in industrial water treatment, particularly in international markets, with opportunities expected to be announced throughout the year [34] Question: What are the low-hanging fruit opportunities in the Thermon acquisition? - Management noted that there are many shared customers and potential for combined bids, particularly in advanced thermal applications [36][38] Question: How does Thermon's short cycle business work and its recurring nature? - Thermon has a long-established installed base and provides ongoing product updates, resulting in a strong replacement cycle and recurring revenue [46] Question: What is the current pipeline activity in the power vertical? - The current power segmentation pipeline is well in excess of $1 billion, with significant visibility on upcoming projects [50][51] Question: What is the organic growth rate for Q4? - The organic growth rate for Q4 was reported to be a little over 25% [84]

Financial Data and Key Metrics Changes - CECO Environmental reported a record backlog of approximately $800 million, up nearly 50% year-over-year [5][10] - Revenue for Q4 was $215 million, and for the full year, it reached $774 million, representing a 39% increase, with 25% of this growth being organic [11][12] - Adjusted EBITDA for Q4 was $29.8 million, a 57% increase year-over-year, with full-year adjusted EBITDA exceeding $90 million for the first time, growing 44% [12][16] - The company raised its 2026 revenue guidance to between $925 million and $975 million, up from a previous outlook of $850 million to $950 million [7][18] Business Line Data and Key Metrics Changes - Orders in Q4 reached $329 million, a record increase of 50% over the prior year, with a book-to-bill ratio of approximately 1.5 times [11] - Full-year bookings surpassed $1 billion for the first time, marking a 60% increase over 2024 levels [11][12] - The company continues to see strong demand in power generation, natural gas infrastructure, semiconductor, and industrial water applications [12][18] Market Data and Key Metrics Changes - CECO has secured two large natural gas power generation orders exceeding $175 million in aggregate value in Q1 2026 [9] - The company is optimistic about the industrial water and wastewater treatment sector, particularly in international water infrastructure projects [9][12] - The pipeline for power generation projects is well in excess of $1 billion, with potential opportunities approaching $2 billion in the short to medium term [50][51] Company Strategy and Development Direction - The merger with Thermon is expected to create a stronger global leader in industrial, environmental, and thermal solutions, enhancing financial agility and strategic capabilities [4][20] - The combination aims to leverage both companies' strengths to accelerate growth through expanded customer relationships and global reach [20][26] - CECO plans to deepen its focus on sourcing and productivity while managing price and cost amid an uncertain economic backdrop [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong market backdrop for power generation, industrial reshoring, and natural gas infrastructure [8][9] - The company anticipates continued strong performance in 2026, supported by a record backlog and growing sales pipeline [18][32] - Management highlighted the importance of emissions treatment solutions in securing projects and maintaining a competitive edge [53] Other Important Information - CECO's cash flow for 2025 was positive at approximately $10 million, with a significant improvement in cash conversion in the second half of the year [16] - The company expects to realize a 50 basis point step down in interest rates, leading to annualized interest expense savings of approximately $1.1 million [17] Q&A Session Summary Question: Can you frame the industrial water business and its opportunities? - Management highlighted a large pipeline of activity in industrial water treatment, particularly in international markets, with opportunities ranging from $10 million to $50 million [34] Question: What are the low-hanging fruit opportunities in the Thermon acquisition? - Management noted customer overlap and potential for combined bids in advanced thermal applications as key opportunities [36][38] Question: How does Thermon's short cycle business work? - Thermon has a long-established installed base and provides ongoing product updates, with a strong aftermarket presence [46] Question: What is the current pipeline activity in the power vertical? - The power segmentation pipeline is well in excess of $1 billion, with significant visibility on upcoming projects [50][51] Question: What is the organic growth rate for Q4? - The organic growth rate for Q4 was reported to be a little over 25% [85]