CECO Environmental (CECO) Q1 2025 Earnings Call April 29, 2025 02:13 PM ET Speaker0 Good day, and thank you for standing by. Welcome to the CECO Environmental First Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Steven Hoosier, Investor Relations. Please go ahead. Speake ...

Financial Highlights - The company's backlog reached a record of $602 million[7], a 55% increase year-over-year[24] - Orders also hit a record of $228 million[7], representing a 57% increase year-over-year[6, 24] - Revenue was $177 million[7], above consensus estimates[7], and up 40% year-over-year[24] - Adjusted EBITDA was $14 million[7], above consensus estimates[7], but up only 6% year-over-year[24] - Adjusted EPS was $0.10[7], above consensus estimates[7], but down $0.01 year-over-year[24] Strategic Actions and Outlook - The company completed the acquisition of Profire Energy and the divestiture of the Global Pump Solutions business in Q1[7] - The sales pipeline is strong and growing, now over $5 billion[6, 11, 14] - The company is maintaining its FY2025 outlook, with revenue guidance of $700-$750 million and adjusted EBITDA of $90-$100 million[6, 22] Tariff and Inflation Management - The company is taking price and cost actions to address tariffs and expected inflation impacts[6] - The estimated gross impact of tariffs is $3-$10 million, with mitigation actions identified to offset $3-$6 million[21]

Financial Data and Key Metrics Changes - CECO Environmental reported record bookings of approximately $228 million, up 57% year-over-year, with a sales pipeline exceeding $5 billion for the first time [7][8][12] - Revenue for Q1 2025 was $177 million, representing a 40% increase year-over-year, with adjusted EBITDA at $14 million, slightly above expectations [12][39] - The company exited the quarter with a backlog of $602 million, up 55% year-over-year, marking the first time the backlog exceeded $600 million [11][37] Business Line Data and Key Metrics Changes - The recent acquisitions contributed approximately 28% of the revenue growth, while organic growth was driven by project execution against the record backlog [12][39] - The company divested its Global Pump Solutions business, which contributed about $10 million to revenue in the quarter [39][34] Market Data and Key Metrics Changes - CECO's sales pipeline has grown significantly, with nearly a dozen opportunities each valued over $50 million, indicating strong future potential [8][12] - The company noted continued strength in various sectors, including gas infrastructure and nuclear, despite not booking large orders in the power generation market [71][76] Company Strategy and Development Direction - CECO is maintaining its full-year 2025 guidance, focusing on price and productivity measures to offset tariff impacts [10][33] - The company is committed to expanding its portfolio with a focus on reshoring, power generation, and water infrastructure, aligning with macroeconomic trends [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience amid market uncertainties, emphasizing the importance of geographic and vertical market positioning [17][20] - The company remains optimistic about future order bookings in the power sector, anticipating significant contract awards in the coming quarters [56][57] Other Important Information - CECO's gross profit margin for Q1 2025 was approximately 35.2%, consistent with recent quarters, attributed to operational excellence and improved project execution [43][42] - The company is focused on IT infrastructure investments, particularly in a unified ERP system, while maintaining a capital-light approach [85][86] Q&A Session Summary Question: How does the power-related pipeline look at this point? - Management indicated a strong pipeline exceeding $1 billion, with various solutions including emissions and gas infrastructure, and expects large contract awards in the power sector soon [56][57] Question: How does the company handle cost changes and tariff impacts after booking a contract? - Most contracts allow for pass-through of tariff-related increases, and the company is actively working with suppliers to manage costs and maintain visibility [59][60] Question: Can you discuss the mix of the $228 million in orders? - The orders were balanced across various platforms, with notable strength in gas infrastructure and nuclear projects, despite no large orders from the power sector [70][71] Question: What areas of investment are planned for the rest of 2025? - The primary investment focus is on IT infrastructure, specifically a unified ERP system, with modest capital expenditures expected for traditional equipment [85][86] Question: What impact might defense spending have on the business? - While not a direct defense contractor, CECO expects indirect benefits from increased factory construction and power infrastructure investments in response to geopolitical situations [87][89]

Group 1: Earnings Performance - CECO Environmental reported quarterly earnings of $0.10 per share, matching the Zacks Consensus Estimate, but down from $0.11 per share a year ago [1] - The company posted revenues of $176.7 million for the quarter ended March 2025, exceeding the Zacks Consensus Estimate by 16.81% and up from $126.33 million year-over-year [2] - Over the last four quarters, CECO has surpassed consensus EPS estimates two times and topped consensus revenue estimates twice [2] Group 2: Stock Performance and Outlook - CECO shares have declined approximately 36.5% since the beginning of the year, compared to a 6% decline in the S&P 500 [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.24 on revenues of $165.98 million, and for the current fiscal year, it is $1.20 on revenues of $701.16 million [7] Group 3: Industry Context - The Pollution Control industry, to which CECO belongs, is currently ranked in the bottom 23% of over 250 Zacks industries, indicating potential challenges ahead [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5] - The current estimate revisions trend for CECO is mixed, resulting in a Zacks Rank 3 (Hold), suggesting the stock is expected to perform in line with the market in the near future [6]

[CECO Environmental Q1 2025 Results](index=1&type=section&id=CECO%20ENVIRONMENTAL%20REPORTS%20FIRST%20QUARTER%202025%20RESULTS) [Financial & Operational Highlights](index=1&type=section&id=First%20Quarter%20Summary) CECO achieved record orders, backlog, and revenue in Q1 2025, demonstrating strong market demand despite a decline in non-GAAP profitability and negative free cash flow - The company achieved record orders of **$228 million** and a record backlog exceeding **$600 million** for the first time, driven by strong demand in industrial reshoring, electrification, and power generation[4](index=4&type=chunk) Q1 2025 Key Performance Indicators (vs. Q1 2024) | Metric | Q1 2025 | Change (YoY) | | :--- | :--- | :--- | | Orders | $227.9 million | +57% | | Backlog | $602.0 million | +55% | | Revenue | $176.7 million | +40% | | Gross Profit | $68.0 million | +28% | | GAAP Net Income | $36.0 million | +$34.5M | | Non-GAAP Net Income | $3.5 million | -$0.5M | | GAAP EPS (diluted) | $0.98 | +$0.94 | | Non-GAAP EPS (diluted) | $0.10 | -$0.01 | | Adjusted EBITDA | $14.0 million | +6% | | Free Cash Flow | $(15.1) million | -$13.2M | [Management Commentary & Strategy](index=1&type=section&id=Management%20Commentary%20%26%20Strategy) Management expressed confidence in growth, attributing Q1 Adjusted EBITDA decline to strategic investments and planning Q2 cost-saving initiatives for margin expansion - Strategic actions in Q1, such as price increases for tariffs, pulling in inventory purchases, and adding key personnel, negatively impacted short-term Adjusted EBITDA but were deemed necessary to manage the record backlog[5](index=5&type=chunk) - The company plans strategic cost actions starting in Q2 2025, focusing on eliminating redundant G&A expenses and expanding productivity initiatives, which are expected to support operating margin expansion[5](index=5&type=chunk) - Management believes the company is well-positioned to handle potential tariff impacts because it manufactures a majority of its products in the same regions where they are sold[8](index=8&type=chunk) [2025 Full Year Guidance](index=1&type=section&id=2025%20Full%20Year%20Guidance) CECO maintained its full-year 2025 guidance, anticipating significant year-over-year growth in revenue and Adjusted EBITDA despite Q1's mixed profitability Full Year 2025 Guidance | Metric | Guidance Range | Midpoint YoY Growth | | :--- | :--- | :--- | | Revenue | $700 - $750 million | ~30% | | Adjusted EBITDA | $90 - $100 million | ~50% | - The company expects its 2025 adjusted free cash flow to be between **60% and 75%** of Adjusted EBITDA[6](index=6&type=chunk) [Financial Statements](index=5&type=section&id=Financial%20Statements) [Consolidated Balance Sheets](index=5&type=section&id=CECO%20ENVIRONMENTAL%20CORP.%20CONSOLIDATED%20BALANCE%20SHEETS) CECO's balance sheet expanded significantly as of March 31, 2025, with total assets and liabilities increasing, driven by higher cash and long-term debt Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $146,471 | $37,832 | | Total current assets | $476,101 | $330,971 | | Total assets | $957,095 | $759,699 | | Debt, less current portion | $338,037 | $217,230 | | Total liabilities | $667,044 | $507,806 | | Total shareholders' equity | $290,051 | $251,893 | [Consolidated Statements of Income](index=6&type=section&id=CECO%20ENVIRONMENTAL%20CORP.%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) CECO reported a 40% increase in Q1 2025 net sales, with GAAP net income surging to $36.0 million primarily due to a significant gain on a business sale Q1 Income Statement (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net sales | $176,697 | $126,332 | | Gross profit | $62,162 | $45,132 | | Income from operations | $61,870 | $7,686 | | Gain on sale of business | $64,502 | $0 | | Net income attributable to CECO | $35,984 | $1,508 | | Diluted EPS | $0.98 | $0.04 | [Consolidated Statements of Cash Flows](index=7&type=section&id=CECO%20ENVIRONMENTAL%20CORP.%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Q1 2025 operating cash flow was negative, while investing activities were positive from a business sale, and financing activities provided significant cash from new borrowings Q1 Statement of Cash Flows (in thousands) | Cash Flow Category | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(11,696) | $1,224 | | Net cash provided by (used in) investing activities | $4,829 | $(2,694) | | Net cash provided by (used in) financing activities | $115,756 | $(6,528) | | Net increase (decrease) in cash | $108,475 | $(8,420) | [Non-GAAP Financial Measures & Reconciliations](index=8&type=section&id=Non-GAAP%20Financial%20Measures%20%26%20Reconciliations) [Reconciliation of GAAP to Non-GAAP Measures](index=8&type=section&id=CECO%20ENVIRONMENTAL%20CORP.%20RECONCILIATION%20OF%20GAAP%20TO%20NON-GAAP%20MEASURES) After adjustments, CECO's non-GAAP operating and net income declined year-over-year, though Adjusted EBITDA increased by 6% to $14.0 million GAAP to Non-GAAP Reconciliation Highlights (in millions) | Metric | Q1 2025 GAAP | Q1 2025 Non-GAAP / Adjusted | Q1 2024 Non-GAAP / Adjusted | | :--- | :--- | :--- | :--- | | Operating Income | $61.9 | $8.6 | $10.2 | | Net Income | $36.0 | $3.5 | $4.0 | | Adjusted EBITDA | N/A | $14.0 | $13.2 | | Free Cash Flow | N/A | $(15.1) | $(1.9) | - The largest adjustment from GAAP to Non-GAAP operating income was the exclusion of a **$64.5 million** gain on the sale of the Global Pump Solutions business[22](index=22&type=chunk) [Note Regarding Non-GAAP Financial Measures](index=9&type=section&id=NOTE%20REGARDING%20NON-GAAP%20FINANCIAL%20MEASURES) CECO uses non-GAAP measures to assess core operational performance by excluding non-recurring items, emphasizing they are supplemental and not comparable across all companies - Non-GAAP measures are used by management to better compare results over multiple periods by excluding items not considered indicative of ongoing operations[25](index=25&type=chunk) - Forward-looking non-GAAP measures are not reconciled to GAAP because the company cannot reasonably predict certain excluded items, such as acquisition expenses or restructuring costs[28](index=28&type=chunk) [Additional Information](index=4&type=section&id=Additional%20Information) [Earnings Conference Call](index=4&type=section&id=EARNINGS%20CONFERENCE%20CALL) A conference call and webcast were held to discuss Q1 2025 results, with a replay available on the company's investor relations website for one year - A conference call was held at **8:30 a.m. ET** on **April 29, 2025**, to discuss the financial results[10](index=10&type=chunk) - A replay of the conference call will be available for one year on the company's website[11](index=11&type=chunk) [Safe Harbor Statement](index=10&type=section&id=SAFE%20HARBOR) This legal disclaimer identifies forward-looking statements, cautioning investors about risks and uncertainties that may cause actual results to differ materially - The press release contains forward-looking statements based on management's current views and assumptions, which are subject to risks and uncertainties[30](index=30&type=chunk) - Key risks include economic conditions, inflation, supply chain challenges, integration of acquisitions, and the ability to realize synergies from transactions[30](index=30&type=chunk)

Core Insights - CECO Environmental Corp. reported record orders of $228 million in Q1 2025, leading to a backlog exceeding $600 million for the first time in company history, indicating strong demand and growth potential [4][6][8] - The company achieved an operating income of $61.9 million, significantly up from $7.7 million in Q1 2024, while net income rose to $36.0 million from $1.5 million in the same period [4][6][20] - CECO maintains a full-year revenue guidance of $700 to $750 million, representing a 30% increase at the midpoint, alongside a backlog growth of 55% [6][8] Financial Performance - First quarter revenue was $176.7 million, up 40% from $126.3 million in Q1 2024, with gross profit margin at 35.2% [6][16] - Non-GAAP operating income for Q1 was $8.6 million, down 16% from $10.2 million in Q1 2024, while adjusted EBITDA increased by 6% to $14.0 million [4][20] - Free cash flow for the quarter was $(15.1) million, a decline of $13.2 million compared to $(1.9) million in Q1 2024 [4][6][20] Strategic Actions - The company implemented strategic price actions to mitigate tariff impacts and proactively managed its backlog by adjusting inventory purchases and hiring key personnel [5][8] - CECO plans to take cost actions in Q2 2025 to eliminate redundant roles and enhance productivity, expecting these measures to support operating margin expansion [5][8] - The company is monitoring economic conditions and supply chain dynamics to manage potential cost increases effectively [8][29] Market Position and Outlook - CECO's portfolio is aligned with long-term growth themes such as industrial manufacturing reshoring, electrification, and energy transition, positioning the company favorably for future growth [4][8] - The order pursuit pipeline exceeds $5 billion, reflecting strong confidence in continued growth [4][6] - The company recognizes the dynamic economic environment but believes its operational model mitigates direct exposure to tariff-related imports [8][29]

Core Viewpoint - CECO Environmental Corp. will report its first quarter financial results for 2025 on April 29, 2025, before the market opens, and will host an earnings call at 8:30 a.m. Eastern Time [1] Group 1: Financial Reporting - The earnings call will take place on April 29, 2025, at 8:30 a.m. Eastern Time [2] - Financial results and presentation will be available on the company's website [1] Group 2: Company Overview - CECO Environmental is a diversified industrial company focused on environmentally friendly solutions, serving 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's solutions aim to improve air quality, optimize energy value chains, and offer custom solutions across various industrial applications, including power generation and battery production [3]

Company Overview - May River Capital, a Chicago-based private equity firm, has acquired the Global Pump Solutions business of CECO Environmental Corp, including the Dean, Fybroc, and Sethco pump brands [1] - The acquired brands will be organized under a new parent company, Tusk Industrial, which focuses on high-performance pumping and fluid handling solutions for rugged environments [1][4] Tusk Industrial Details - Tusk Industrial designs, manufactures, and services pumps made from metallic, fiberglass, and thermoplastic materials for high-temperature, corrosive, and caustic industrial applications [2][4] - The company operates with over 100 employees and serves more than 1,500 customers globally from its locations in Telford, Pennsylvania, and Indianapolis, Indiana [2] Leadership and Growth Potential - Ming Cheung, President & GM of Tusk Industrial, emphasizes the partnership with May River as a significant opportunity for growth and enhanced capabilities [3] - May River's Managing Director, Pat St. John, highlights Tusk Industrial's substantial growth potential and the firm's commitment to investing in new products, market expansion, and strategic acquisitions [3]

Core Viewpoint - CECO Environmental Corp. has successfully completed the divestiture of its Fluid Handling business, known as Global Pump Solutions (GPS), to May River Capital for an enterprise value of approximately $110 million, effective March 31, 2025 [1][2][4]. Group 1: Transaction Details - The transaction was executed for a cash payment of approximately $110 million at closing [2]. - Proceeds from the divestiture will be utilized to pay down debt and fund future strategic growth investments [2]. Group 2: Business Overview - The GPS business includes three niche brands: Dean, Fybroc, and Sethco, specializing in severe service industrial pumps [3]. - GPS operates from locations in Indianapolis, Indiana, and Telford, Pennsylvania, serving over 1,500 customers globally [3]. Group 3: Strategic Implications - The divestiture allows CECO to better align its portfolio with high growth opportunities in energy and industrial markets [4]. - The sale follows recent acquisitions of Verantis Environmental and Profire Energy, creating additional capacity for further investments in CECO's growth and business expansion [4]. Group 4: Company Background - CECO Environmental is a diversified industrial company focused on environmentally friendly solutions across industrial air, water, and energy transition markets [5]. - The company provides innovative technology and application expertise to improve air quality and optimize the energy value chain [5]. Group 5: Buyer Information - May River Capital is a private equity firm based in Chicago, focusing on lower middle-market industrial growth businesses [6]. - The firm invests in advanced manufacturing, engineered products, specialized industrial services, and value-added industrial distribution services [6].

Core Insights - CECO Environmental Corp. is participating in the 37th Annual ROTH Conference on March 17, 2025, hosting one-on-one meetings throughout the day [1] - The company focuses on providing environmentally friendly solutions across various industrial sectors, including air and water quality improvement, emissions management, and energy efficiency [3] Company Overview - CECO Environmental is a diversified industrial company established in 1966, headquartered in Addison, Texas, and listed on Nasdaq under the ticker symbol "CECO" [3] - The company serves multiple markets, including power generation, hydrocarbon processing, electric vehicle production, semiconductor manufacturing, and water treatment [3] Investor Relations - The presentation from the investor conference will be accessible on CECO's Investor Relations website [1] - Key contacts for investor relations include Peter Johansson, Chief Financial and Strategy Officer, and the team at Three Part Advisors, LLC [4]