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]

Financial Data and Key Metrics Changes - In 2024, the company achieved a 15% increase in oil production and a 22% increase in total production, while upstream cash capital expenditures declined by 27% [6][14][25] - The company reduced debt by $90 million year-over-year, achieving a leverage ratio of one times at year-end [25][30] - The average daily net production for Q4 2024 was 15.91 thousand barrels of oil per day and 25.03 thousand barrels of oil equivalent per day [14] Business Line Data and Key Metrics Changes - The company drilled 30 wells, completed 20, and turned in line 22 gross operated wells in 2024 [11] - The cost per foot for drilling decreased by 11% year-over-year, with an average of approximately $520 per foot in Q4 2024 [12][56] - The company maintained low operating costs, with lease operating expenses per BOE for 2024 at $8.66, roughly flat compared to 2023 [17] Market Data and Key Metrics Changes - The company captured and sold more produced gas in Texas, resulting in a lower percentage of oil in the overall production mix [15] - The company is focusing on developing its New Mexico assets, which are expected to provide significant long-term growth potential [7][46] Company Strategy and Development Direction - The company plans to shift more development activity to New Mexico in 2025, with a focus on midstream projects to enhance operational control [7][8] - The strategic development includes a 15-year gas purchase agreement and a high-pressure natural gas pipeline capable of transporting up to 150 million cubic feet per day [8] - The company aims to build complementary assets across upstream, midstream, and power sectors to create multiple revenue opportunities [33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the capital efficiency of the asset base and the ability to generate positive free cash flow [26][30] - The 2025 plan includes a total production growth range of 9% to 14%, with oil production growth of 5% to 8% [26] - Management highlighted the importance of maintaining balance sheet flexibility and access to capital markets for future opportunities [10][30] Other Important Information - The company achieved a total recordable incident rate of zero for 2024, demonstrating excellence in operational safety [11] - The company is expanding its power joint venture to reduce reliance on the grid and capitalize on market fundamentals within the Texas power grid [9] Q&A Session Summary Question: Can you provide updates on the ERCOT project and potential upside? - Management confirmed that the ERCOT project is progressing well, with construction expected to start soon and potential for additional projects being explored [41][70] Question: What are the benefits of the New Mexico Gas Midstream project? - Management explained that building the midstream project allows for better control over gas transportation and processing, addressing the regional lack of takeaway capacity [51][52] Question: How did D&C costs progress throughout 2024? - Management noted a continued improvement in D&C costs, with a decrease of 11% year-over-year, and plans to maintain this trend in 2025 [56][57] Question: What is the status of the ERCOT deals? - Management indicated that they are deep into Phase 2 of the ERCOT project and are exploring various opportunities, with updates expected in the near future [70][72] Question: Are there concerns regarding service availability or cost pressures? - Management stated that service availability is good, with slight improvements in drilling costs, and they are modeling a slight increase in well costs for 2025 [76][77]