CECO Environmental Corp. Aktie

Good day, and thank you for standing by. Welcome to the CECO Environmental First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Marcio Pinto, Vice President of Corporate Integration and Investor Relations.

Thank you, Josh, and thank you for joining us today on the CECO Environmental First Quarter 2026 Earnings Call. On the call with me today is Todd Gleason, Chief Executive Officer; and Peter Johansson, Chief Financial Officer.

As a reminder, we're covering CECO Environmental's first quarter 2026 earnings results on a stand-alone basis. This quarter's webcast, earnings release and presentation, which include relevant disclosures and non-GAAP reconciliations are available on our website.

Today's discussion includes forward-looking statements that are subject to risks and uncertainties, including the ones described in our SEC filings, as we have noted in our presentation legal disclosures. As always, we will leave time at the end of the call for analyst questions.

And with that, I'll turn the call over to Todd

.

Thanks, Marcio, and good day, everyone. We are off to a strong start to 2026, and I look forward to sharing our progress. As always, I would like to thank Team CECO for your ongoing commitment to deliver for our customers and, of course, driving such strong results.

Please turn to Slide #4, and let's discuss some of the key takeaways. Starting on the left side of the slide, we delivered another strong quarter with numerous financial records, headlined by tremendous orders, which increased our backlog to new levels. Revenue and EBITDA results were solidly in line with our expectations and position us nicely for the full year with strong continued momentum.

Speaking of momentum, we don't just expect our second quarter to set new records for orders. We know it. The month of April alone is already higher than the record we just set in Q1. I will expand on this more in a few minutes. Even with the backdrop of uncertainty related to the Iran war and modestly higher inflation, we are raising our full year 2026 outlook, not inclusive of Thermon. Our growth trajectory remains robust, and we have nice visibility to our revenue and margin profile in our record backlog as well as larger-than-ever sales pipeline. This is our second guidance raise this year, and we are pleased to highlight our continued high performance.

On the right side of the slide, we note the continued progress we are making with respect to the Thermon transaction. We remain on track for a Q2 close, and our current expectation is sometime in early June. Representatives from each company are working together on integration items and preparing for post-closing activities. We remain highly confident in the $40 million cost synergies we previously outlined, and we are evaluating additional opportunities as well as attractive commercial synergies.

The combination is bolstered by each company's strong momentum and continued growth outlook. The combination into CECO Environmental will create a leading diversified global industrial company, and we are very excited to demonstrate the power of this combination. Additionally, over the past number of weeks, I've had the chance to meet hundreds of Thermon employees. The Thermon operating culture is very similar to how our businesses and operational teams function. And similar to CECO, I am incredibly impressed by their energy, their passion and market knowledge. Across the board, Thermon is a great company and will make for a very powerful combination.

Now please turn to Slide #5, and let's review financials in a little bit more detail. This summary slide captures the main highlights for our first quarter, record backlog, record orders, strong revenue delivery and accelerating earnings. Our backlog is at its highest level ever, now over $1 billion, up almost 72% year-over-year. Revenue growth of 17% and adjusted EBITDA growth of 46% speak to our high-performance results. Our sales pipeline has grown to over $7 billion, which is the outcome of focused investments to best position our portfolio, the addition of diversified talent, the introduction of new commercial programs, our expanded global reach and our passion to advance market-leading engineered solutions.

Now please turn to Slide #6. In the quarter, we continued our bookings momentum with orders of $449 million, an increase of 97%. To put that in perspective, we booked $221 million more in orders this year than we did in Q1 last year. That $221 million would have been a record on its own about a year ago. And when I joined CECO in 2020, we were averaging about $90 million a quarter. We have come a long way since then, and I believe we're just getting started.

Speaking of just getting started, while the power super cycle has been in the headlines for over a year, CECO's participation is starting to hit its stride and gain further momentum. In the first quarter, we had several very nice orders servicing this power generation market. We are also seeing strong activity in natural gas infrastructure, semiconductor sectors, electronics in general, industrial water and U.S. industrial reshoring. We believe these markets remain attractive for the medium to longer term.

And don't just take my word for it. As the right side of the slide highlights, and as I already mentioned, in April alone, we already booked over $400 million in new orders. That's almost $200 million more than we booked in all of Q2 2025, which at the time was a record. Yes, our April bookings alone is already larger than our just announced first quarter record of $449 million. Included in this April number is our largest ever order. This one in the range of $300 million, which also serves the natural gas power generation market as we provide advanced emissions and noise abatement solutions. These are exciting times at CECO. And with our growing pipeline, we are bullish for our full year orders and backlog, which we believe will drive strong double-digit sales for a very sustainable period.

And before I hand it over to Peter, let's move to Slide #7. To be brief, we are raising our full year 2026 guidance again. Our updated revenue outlook now expects sales to be between $940 million and $1 billion. It is exciting for us to highlight an outlook that includes sales of $1 billion for the first time ever. The midpoint of our revenue guidance now calls for organic sales to grow approximately 25% for the full year.

We are also increasing our adjusted EBITDA outlook to $120 million to $140 million. The midpoint of this outlook calls for an approximate 44% EBITDA growth and 170 basis points of margin expansion for the full year. We continue to grow -- excuse me, we continue to invest in growth while delivering sustainable margin expansion and utilizing the results of nice volume leverage. And with the recent implementation of 80/20, coupled with our ongoing excellent operating excellence programs, we are making meaningful progress and expect more margin expansion ahead.

I will now hand it over to Peter, who will go into more detail on our financial results. Peter?

Thank you, Todd. Good day, everyone. Thank you for joining Todd and I for CECO's First Quarter 2026 Earnings Call this morning.

Please turn to Slide #9, and I will provide more color on CECO's financial results for the quarter. CECO started 2026 with very strong results on most of our key metrics, continuing the momentum we built throughout 2025. We finished the first quarter with a record backlog of $1.035 billion, up 72% versus prior year and 31%, equivalent to $242 million sequentially. Backlog has now increased for 11 consecutive quarters and has surged upwards in the most recent 6 quarters, each delivering greater than $200 million in orders across a wide and highly diversified range of end markets, including power generation, liquefied natural gas, midstream gas transport and treatment, hydrocarbon processing, semiconductor and electronics and industrial water applications.

First quarter orders were $449 million, a company record, representing a 97% increase over the prior year period or a book-to-bill of approximately 2.2. On a trailing 12-month basis, bookings reached $1.286 billion, a 71% increase over the prior trailing 12-month period, representing a book-to-bill of nearly 1.6. Revenue in the first quarter was $206 million, an increase of 17% year-over-year, reflecting a strong start to the year following CECO's record revenue quarter in the fourth quarter of 2025, which delivered $215 million.

Revenue in the quarter overcame headwinds from the sale of the Global Pump Solutions business, which represented $14 million of revenue in the first quarter of 2025, a sale which closed at the quarter's end last year. On a TTM basis, revenue was $804 million, a record for any 12-month period in company history, up 32% or $195 million. Quarter 1 is typically CECO's seasonally smallest revenue quarter in the year. And with our growing backlog and strong opportunity pipeline, we are confident to deliver sequential revenue increases throughout 2026.

Gross profit for the quarter and for the trailing 12 months increased 3% and 27%, respectively, on higher volumes. Margins, however, did experience contraction in quarter 1, which was anticipated given last year's sale of the higher-margin but nonstrategic global pump business, combined with the revenue timing of lower-margin jobs booked in early 2025. We expect margins to improve in the second quarter and trend back towards our target gross profit margin level of 34% or greater as we progress throughout the year on improving volume mix dynamics on more recently booked large projects and new projects with faster revenue recognition profiles and improved cost cases.

Adjusted EBITDA was $20.4 million in the quarter, an increase of 46% versus prior year for a margin of approximately 10%, a nearly 200 basis point improvement over prior year. First quarter adjusted EBITDA far surpassed any prior Q1 in company history. For the trailing 12-month period, adjusted EBITDA was $96.7 million, representing a margin of 12%, an increase of nearly 160 basis points, continuing the consistent trend of margin expansion toward our long-term goal of mid-teens adjusted EBITDA margin.

A large part of the improvement came from lower operating G&A expenses as volume from large projects starts to be realized and the initial benefits from our Wave 1 80/20 projects. Corporate G&A spending was lower, reflecting the benefits from cost management actions taken in the middle of 2025.

Please now turn to Page 10 for a quick look at how backlog is trending. Backlog growth continues to accelerate on a sequential basis with a book-to-bill in the quarter of approximately 2.2x, resulting in a record for any quarter ending backlog. Backlog, which reflects future sales has now increased nearly fivefold since the end of 2021. This sustained strong orders performance when combined with our continued success in converting our growing $7 billion opportunity pipeline to new orders, underpins our 25% plus top line organic revenue growth for 2026. Orders in the quarter benefited from strong activity in natural gas power generation and industrial water applications, and this trend has continued into early second quarter. And we now expect to deliver another record quarter that will drive our backlog level even higher.

Now please turn to Page 11 for a look at adjusted EBITDA and margin trends. With the delivery in quarter 1 of $20.4 million of adjusted EBITDA, the trailing 12-month period has reached $96.7 million of adjusted EBITDA and a 12% margin, both company records. We have expanded our TTM adjusted EBITDA margin steadily since 2022, a trend that we expect to continue throughout 2026 as we continue to target reaching a mid-teens adjusted EBITDA margin for stand-alone CECO. And we expect to cross the $100 million level for adjusted EBITDA very shortly.

SG&A spending was down 14% or $7.5 million in the quarter on a year-over-year basis, reflecting an 800 basis point improvement as a percentage of revenue. This result overcame increased spending on seasonal items, including the payment of cash bonuses and sales incentives on our growing order base. For the remainder of 2026, we will continue to utilize the resources of our newly formed business transformation office and operating excellence teams to extend the deployment of our 80/20 strategy across more of CECO and to deliver incremental material sourcing and project execution benefits.

Now please turn with me to Slide 12 for an update on cash flow and indebtedness. Quarter 1 cash flow for CECO is seasonally down to start the year, and this year was no exception. In the first quarter, we consumed approximately $16 million of cash, in line with 2025 on lower sales and order activity. Working capital was a headwind in the quarter as contract assets and customer AR grew while we executed against our growing backlog and issued substantial billings for milestones achieved in the quarter that we expect to collect in the second quarter. We also incurred material costs and cash expenses related to the Thermon transaction.

Cash flow would have been in positive territory, except for a customer payment of nearly $20 million that was delayed but already received here early in the second quarter. We expect cash flow in the second quarter to revert back to a positive state, benefiting from billings in the first quarter, and we've already begun receiving large cash payments in April. Capital expenditure in the quarter was largely driven by our ongoing ERP implementation initiative, which we expect to be essentially completed by the end of 2026.

Gross debt at the end of the first quarter increased by approximately $43 million from year-end 2025 as we used our revolver facility to finance the growth in working capital and expenses related to the Thermon transaction. Net debt increased by $31 million as our quarter ending cash balances grew by approximately $12.5 million, resulting in a comfortable quarter end leverage ratio of 2.3x, a modest increase of 1/10 of a turn from year-end 2025 as our leverage ratio also benefited from the increase in our trailing 12-month adjusted EBITDA delivery.

During the quarter, we amended our credit agreement to increase financial capacity and liquidity and to improve certain covenants in support of CECO's continued strategic investments in organic growth and our programmatic acquisition strategy. We have now up to $975 million in committed funds on our amended credit agreement comprised of $740 million of revolver capacity and $235 million in a delayed draw term loan. With a Q1 ending 2026 gross debt of $252 million, we have $723 million in additional capacity to fund the cash portion of the Thermon acquisition and to use for further organic growth investments and working capital needs post closing.

That concludes my review of CECO's first quarter financial results. I will now pass it back to Todd for wrap-up and final remarks.

Thanks, Peter. Before I close, I want to share some additional thoughts and updates on the Thermon acquisition, a historic transaction for CECO and a major step forward in our strategic transformation.

Please turn to Slide 14. The addition of Thermon will meaningfully extend CECO's leadership in industrial, environmental and engineered solutions by adding Thermon's established position in process heating, heat tracing and temperature management, creating a world-class industrial solutions platform with robust multiyear growth trajectory and a very strong and stable financial profile. This combination brings together 2 highly complementary businesses, creating opportunities to accelerate growth and expand accretive capital deployment.

Bruce Thames, Thermon's CEO and I are aligned in our enthusiasm for the future of the combined company and our respective teams. We expect the combination of CECO and Thermon will create a stronger enterprise, one that is well positioned to be a Rule of 30 or Rule of 40 company. By driving strong double-digit growth and producing enhanced operating margins, we believe we can achieve these levels and sustain very high performance. With our healthy balance sheet and robust free cash flow generation, we can accelerate shareholder value creation across a range of options. I'm excited to continue to lead the combined company with an estimated $1.5 billion in current run rate sales and with tremendous growth and synergy opportunities to take this much higher. I look forward to welcoming key additions across the leadership team as well as Board of Directors. We have a lot to do. We have a lot of value to create.

Now moving to Slide 15. Before we open up the call to questions, we'll conclude with this. CECO is very well positioned for today, very well positioned for tomorrow, and we believe our sustainable operating model makes us uniquely positioned for the long term. The combination with Thermon bolsters our portfolio with additional injection of leading businesses and great talent. More to come as we work towards a Q2 transaction close. Extremely proud of our team and all they do to serve our global customers. The first quarter is just another indication of our fantastic leadership and balance. With 97% orders growth and 17% revenue growth, we continue to demonstrate our investments pay off as we add installed base and advance our market positions.

And finally, while this might be the final quarter as CECO stand-alone ahead of the combination with Thermon, we are once again pleased to raise our full year guidance. The visibility we have in our strong backlog and robust sales pipeline is truly unique and gives us a lot of confidence in the year ahead and years to come. We'll now open the line to questions. Operator?

[Operator Instructions] And our first question comes from Aaron Spychalla with Craig-Hallum Capital Group.

Maybe first for me, good to see the pipeline grow to $7 billion plus even with the strong activity. Can you maybe talk about the drivers of that? And then on Power Gen specifically, last quarter, you talked about a $1 billion to $2 billion kind of medium-term pipeline with visibility beyond that. Can you just maybe give an update there? It really seems like order sizes are starting to pick up. Maybe touch on just delivery time lines of some of these orders and then the supply chain ability to kind of meet everything that seems to be really accelerating for you.

Yes. Thanks, Aaron. So the $7 billion, it's actually about $7.3 billion, I think Peter would say, of sales pipeline. Just to remind you and I guess, the audience, the way we calculate our sales pipeline is actual job pursuits, order pursuits opportunities that we see booking in the next 1 year to 2 years. We kind of average it at around 18 months, but some of the projects might be a little further out. So we don't include things that are beyond that. And then obviously, they work through the funnel to a win-loss opportunity in the current quarter. And so we've been growing the sales pipeline steadily through a range of investments as well as geographic reach and how our markets have been performing, which have been growing for the last few years.

When I joined CECO in 2020, our sales pipeline was closer to $1 billion, $1.5 billion. So to be at $7 billion, I think, really speaks to this intentional expansion of how we look at our markets geographically, how we look at our markets industrially, and that's going to continue. Look, we've been pretty consistent. The -- to get that sales pipeline to greater than $7 billion, the investments are required, the expansion into new markets organically and inorganically is required. And we benefited from those investments. But look, we're also certainly benefiting from the tides rising in some of our most important markets.

Natural gas power, natural gas infrastructure. So power generation writ large is a headline that everyone sees. That's been a significant driver and has certainly probably added about $1 billion to our pipeline over the last few years alone. And not all of that's in our $7 billion, where we're seeing more that we just haven't put in yet because it's a little further out, but we're in conversations about how that power generation market is expanding. And then we have ebbs and flows. We have some markets that 1 year are fantastic, but then they pull back a little bit the next year.

This year, we're looking at still continued strong growth in all things, electrification and digitization. And Thermon has a very large focus themselves on digitization as well as decarbonization, which ties into the electrification theme. So we're very unified and thematic focused on where we see the market. Semiconductor expansion is sort of ripping at the moment as well, and we're well positioned for that in industrial air specifically. Industrial water is a market that we've been investing to expand into, and that might be approaching $1 billion of our pipeline now, where a few years ago, it was very little. So we continue to see just very strong themes across the reshoring U.S. market of industrial, all things digitization and electrification. Semiconductor, like I said, is certainly growing. And then look, I think we're just hitting our stride on some of the larger power projects as it relates to emissions and noise abatement and heat management and gas separation. So look, these are big markets that continue to want to get larger, and we're just participating very nicely in them.

All right. And then maybe just -- I mean, as these are substantial backlog and pipeline, just comfort with the supply chain and just ability to meet everything?

I think that's been one of our more important investments, Aaron, also that we probably don't highlight enough or as much. In order for us to secure some of these larger orders, including jobs that we've won over the last few years and certainly even over the last few quarters, you don't do so without a great supply chain and great partners and a series of redundant capabilities in fabrication and in supply chain. And so we've invested in our teams and our capabilities. Dan Berman and his team at sort of the corporate operating excellence group is continuing to go out and look for sourcing savings and additional sort of redundant supply chain capabilities and really do a great job with logistics and quality. And then across all of our businesses in our Thermal Acoustics and emissions management all the way through, they're constantly out validating new supply chain partners in North America, in East Asia, Southeast Asia, the Middle East, et cetera, India. And so we have a lot of visibility to our supply chain, which gives our customers more confidence in us maybe than in some of the competition because we've invested heavily in that effort.

And so look, I think it's a really important question. We have nice visibility to our ability to secure the materials. Certainly, there's inflation out there. We do as smart a job, I feel is out there to aggressively prebuy or to lock in rates. And sometimes that prebuy shows up sort of negatively in our cash flows, but it's the right transaction for us because it protects margins for the long term. And so look, it's -- I would give Peter and the team in finance. Like I mentioned, the Dan Berman and his team, Martin and Tim Shhippey and their teams in our businesses, I could rattle off a dozen names where our project managers are working closely with our supply chain managers. But we're getting out ahead of this. We did this a year ago. We did this 6 months ago. Again, we could probably continue to sort of geek out on this topic, to be honest with you, because this is one of our major muscles as a company is the supply chain visibility.

Good to hear. And then maybe last for me, just on the Middle East business. Can you kind of talk about impact there that you might be seeing or not? And then just any thoughts on timing for some of the larger water opportunities that you've been targeting there?

Yes. Look, it's obviously an uncertain time and market in the Middle East. There have been certainly some impact to how our teams can travel and navigate and work on certain projects in the region. We don't have a tremendous amount of projects that were tied to our '26 performance that are in the region. We do have some very attractive programs in our pipeline that have been paused a bit until probably the second half of this year. We're opportunistic in thinking that this conflict can be managed in that period of time. But in our guidance, we have already accounted for any of those impacts. Obviously, our first quarter orders of $450-ish million. Our second quarter is already at $460 million. We're not even through April yet, speaks to the strength of our markets even with some pauses that are happening. in the Middle East with respect to some of these larger projects that we're -- that we still feel well positioned for. There will be a rebuild in the region to some extent when it all starts to, we think, stabilize. And there's uncertainty. Right now, we're navigating that uncertainty, and we'll keep everyone posted on sort of what -- just like the rest of our peers in the market on what we're seeing. But we feel comfortable with our guidance and our outlook. And by the way, we look forward to being at your conference, Aaron.

Our next question comes from Gerard Sweeney with ROTH Capital.

So a question on the power side. Obviously, it's great. I'm just curious, when do you get brought into some of these projects? So what I'm looking at is some of the turbine manufacturers saying they're sold out to 2029, et cetera. But if you're brought into the projects later in the cycle, that actually gives you visibility out to 2030, 2031 plus. I'm just curious as to how that all plays out.

Jerry, we begin work with our large gas turbine customers, the engineering firms and the OEMs years before we receive an order. We're today receiving negotiating, working through technical configuration questions for orders that will deliver in 2029 and 2030. We essentially are done for the 2027 and 2028 installs. Now we're working on '29, '30 and beyond. So we're 3, 4 years [indiscernible] ahead of -- we have visibility. Now the interesting sideline to that is the repowering activity, which is taking an existing facility and updating it and upgrading it. That is something that happens much faster. It can happen in months generally not more than a 12-month conversion. That is not something that we typically are involved in years in advance. That happens really quickly.

I would say Entergy is going through a program of updating every single one of their combined cycle plants. That was a unique case where we actually had a 3-year MSA in place to support them over an extended period of time, but that's a rare instance.

Got it. Okay. And then obviously, you talked a little bit about margins, 80/20, et cetera. But even on the power side, hearing that some of the project pricing is going up. That pricing doesn't always flow through to margins, obviously, for inflation and other reasons. But obviously, lots of demand. How much does pricing play into maybe your margins -- margin expansion? Or is it more just keeping it steady with inflation and other aspects?

Price for us is a lever to increase margins. We work with our large customers to ensure that we're capturing the most value on the project that we can. As it relates to natural gas power generation and the duration of the projects themselves, we include estimates in our pricing, in our cost case that accommodate or assume some level of inflation. We also have in our contracts with our customers, escalators that if we have in excess of inflation, we can return back to that client and ask for recovery. There are 2 commodities today that are probably most impacted, and we do a very good job of managing through that. And that is the catalyst, which is utilized in emissions treatment applications and specialty steels.

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

Congrats on the strong quarter. I guess just wanted to dig in a little more on the industrial water side. You noted that as an increasing pipeline strength. Is that a -- I guess, to what degree is that a market kind of trend versus just your expansion in that market and activity? And how do you see that playing out?

We -- it's probably more our participation and entrance into the market. That said, I do -- we do see that there's a lot of investment in infrastructure, industrial water expansion in various geographies. I don't know that it's certainly a better market than potentially a few years ago. And we're not in a position, much like maybe Veolia might be able to say something about a 10-year trend. We're relatively new, although a number of us have decades of exposure and experience with water. It's not always on this industrial water side that we're talking about. And so look, our -- the businesses like Kemco and others that we've acquired, I think they'd say it's a healthy market right now and that they like -- they feel good about their organic growth and our organic growth in those businesses we've acquired. But it's really our entrance into some of the larger industrial water, produced water, water treatment side, where we can now do sort of very medium to large-scale complex skid solutions. And it's that investment for us to enter into that market that we feel that there's the opportunity. So we're confident it's growing. I wouldn't want to make a market call on that. I don't feel like we have the data to support how we would view this market over a long term. But we do see a lot of new investment in various geographies.

Rob, there's two core trends that drive a lot of the demand in industrial water. The first is water scarcity. Water scarcity drives water providers, particularly to raise the water tariffs on industry, thinking they're a lot less susceptible or a lot more elastic to price increases. And as industry is experiencing those price increases on water, they're looking to do two things, cut down on the water they use and reuse as much as possible. It's the reuse trend that we're benefiting from as well as working with them to design less thirsty solutions in their processing applications. So we see 2 opportunities on industry that benefit us. And we do a lot of work in what you might call water scarce regions, North Africa, the Middle East, Southeast Asia, which are in even greater need of being more rational in their use of water.

Okay. Great. And then on the commercial synergies that you had -- I guess, as you've gotten into the Thermon acquisition work, have you -- what's sort of your sense of the commercial synergies? Are you feeling more confident there? And I guess just talk about commercial synergy opportunities you see?

Yes. We're certainly very confident that there's attractive commercial synergies. We really haven't put a number around it yet, Rob. We want to wait until we have combined with Thermon. Our teams that are working on this, both formally on the integration to start to really put together a detailed program to assess and consolidate what a commercial synergy could look like. They're just getting started, and I wouldn't want to front-run the process a little bit. And then separately, we are now identifying already products that when we go out to bid on some of our projects that include heat trace, include immersion heaters, include other controls and other sort of solutions that Thermon is a leader in and has a very attractive both solution and product offering. Now we can certainly think about in the future once we're combined, incorporating a joint sales effort.

We can't do that right now, obviously, but we can certainly start to assess and get proposals from Thermon where we may have not done so before as a supplier, and we've already started those activities where we've won some large projects that include some of their products, and we've reached out, and we've received separate proposals to now bring Thermon into the approved vendor process and approved bid process. So we're already seeing the millions of dollars of opportunity because there's -- we're an industrial company, they're an industrial company and our solutions and their solutions are often found in the exact same footprint of the same projects around the world. So there's going to be no shortage of opportunities for us here, Rob.

If I were to say, can the combination add a couple of points of organic growth? I believe so, yes. We just want to provide the market, you and others with a more detailed analysis of what that looks like after we've combined and started to issue combined company outlook guidance and updates on our cost synergies as well as what we will introduce as updates on our commercial synergies. And until we really have that analysis done, I don't want to put a number around it. But it's -- we're growing -- there's no shortage of confidence and our teams are enjoying getting to know each other, including when we see each other at certain industrial conferences, I know our teams against each other at the Boiler conference, for example, and quite enjoyed comparing notes on the industry and how we can work together in the future. So there has already been a lot of gelling of ideas and thoughts. And when we combine, we'll have a much better answer for this question, but it's a positive number.

Our next question comes from Bobby Brooks with Northland Capital Markets.

Congrats on the fantastic quarter. So obviously, the power gen-related jobs have been fantastic. But I was just curious to hear more broadly, where are the next 2 biggest areas of strength for current orders? And maybe any context or thoughts of how that would evolve going forward? And any perspective of how that's evolved over the past couple of quarters?

I'll start with an answer of 1 or 2, and then I think Peter can either sort of provide more context on those or give his perspective. Look, we're in a very positive market-leading position across a diversified set of industrial categories. So the good news is I have more than one answer. But I would say, and we've already said that the sort of the digitization and electrification of things is such a powerful theme. I'll highlight semiconductor expansion and investments as no doubt, a very strong market. And so that for us is most, if not all, but mostly industrial air, where we have some exciting opportunities that are included in our backlog that we booked, but in our sales pipeline. So I'll say semiconductor, without hesitation, looks like a very good market for the future -- for the foreseeable future. And in our industrial air business, we like how we're positioned there. And certainly, recently, we've seen powerful earnings from Intel and others. So I think it speaks to -- we're not alone in our view of that market.

Industrial water is the other one that while we are seeing certainly a little bit of pause in some geographic regions, mainly the Middle East, those projects aren't going to go away. And we're well positioned for those projects, and they're meaningful for us in the future. And that diversification is also meaningful. You've heard me say, Bobby, to you when we've spoken, but -- and so this has been over many, many quarters. As we look forward to CECO 2030, when we look forward to CECO 2030, we believe industrial water is a major piece of our portfolio, and we're getting after it. And the market is there for us. So while we're talking about power as we should, and we're talking about power generation and natural gas infrastructure, which we should, there are major themes that we're going to take advantage of, and we're well positioned to do so organically over the next few years. So those are the 2 that I'm most excited about in the moment is semiconductor and industrial water. I think Peter probably has a view of gas infrastructure and some other markets. I'll let him expand.

The natural gas infrastructure whole value chain is also a very -- a market of strength globally. Natural gas is the transition fuel, and it looks like that transition is going to be longer than anyone anticipated. From wellhead to consumer, there's a lot of points along the way where CECO Technologies, including from our Peerless and Profire brands and Thermon themselves have large roles to play in ensuring that natural gas gets delivered in a clean, dry and energetic manner. It isn't a day that doesn't pass when there isn't a new project, new pipeline, new spur, new consumer project being announced or highlighted. And we stand with Peerless and 100 years of experience in that market as a principal and critical supplier to those customers. And as we look at other opportunities around the value chain and things we can do together as Thermon and SECO, that's an area of commercial opportunity we continue to explore and expect to find real benefits from.

And you don't have a -- I don't -- I've only been in the industrial space for 30 years, so maybe I need a little more experience on this comment. But you don't have a 2.2 book-to-bill without a number of end markets that we've invested in to achieve that. And especially when last year's book-to-bill in the first quarter was extremely large. I remember off the top of my head, but whether it was a 1.3, 1.4 book-to-bill. So we're not talking about easy comps here. We showed it on the slide. Last year's first quarter was up 50%, 60%. This year's first quarter bookings is up 97%. -- mathematically, and you've got calculators to prove this out, that just means our future sales growth looks when I say double digits, it's a layup to be double digits when you have a book-to-bill of 2.2. And so it's not just power for us, it can't be just one market. It's a diversified -- and we have some markets that are still recovering a little bit. Automotive and Europe geographically are sort of still navigating through some difficult times. And so look, there's some industries and some markets that aren't attractive at the moment in terms of their growth, but we still like where they're going to come out. And when they come out, we'll be positioned for them.

That's super helpful color. I really appreciate it, Peter and Todd. And then just kind of switching back to the merger and talking to some investors since the last print, I don't think folks appreciate enough how Thermon will extend the windows of conversations with customers that you currently are having and how they should also benefit from your own internal network that spans across those dozens of industrial end markets that they have been trying to break into. So just with that in mind, could you expand on this a little bit?

So yes, thanks, Bobby. Look, whether the market understands it or not, our customers understand it. When I say the market, whether the investment community completely appreciates it, they're a leader. Bruce, Tom, the leadership team, the business leaders within Thermon, they have decades of understanding how to navigate and grow into diversified end markets. Thermon has done a very, very solid to a very tremendous job of diversification. And they do that because they're a leader. And they've done a great job of introducing new products, their controls capabilities, which helps them to secure more opportunities.

Us leveraging that and their great relationships with their customers to bring us in to cut to the conversation is in front of us. Their introduction of medium voltage products is starting to gain traction. We have a lot of relationships with customers that we can introduce into that market of medium voltage. So they've invested in new products, and they're learning where the market opportunities are. We may have some of those relationships and market opportunities that we can just help accelerate.

Our ability to understand supply chain alternatives is something that they can benefit from in terms of growth and how we've invested in international expansion where they want to invest in international expansion. So -- we have excess capacity. We have excess resources to go after and do more advanced, faster capabilities that they want to utilize and leverage. Their very attractive investment in their liquid load bank for data centers is an area that we can utilize and understand how they're breaking into a new market and where can we participate in those things. So again, when we talk about commercial synergies, you hit it on the relationship. When you're a leader in a space and you've got good relationships, you can introduce new solutions more sustainably because you already have a trust factor, you're already on the approved vendor list. You already have negotiated how you can get into that market with reference sites, et cetera. So there's already a comfort. And Thermon has done the same thing. So we're going to easily be able to understand that better when we're a combined company, but we're already excited about what we're hearing.

Our next question comes from Jim Ricchiuti with Needham & Company.

Just in the interest of time, I just had one question. Just as you mentioned, probably the last quarter for stand-alone CECO. And given where we're starting the year with gross margins, it sounds like you're expecting fairly significant improvement as you go through the year, mix volume play a role. But can you talk a little bit about stand-alone CECO from a gross margin improvement as you go through the year? Can you maybe help us understand how we drive margins higher? Is it something you see in the backlog?

Yes. There's 3 factors, Jim. There's -- when we talk about volume and mix, we're really referring to is the timing difference between when cost hits the income statement and when revenue is recognized. Upfront in a project as we're getting started, we realize a number of engineering expenses, work with our suppliers, setting up the programs and projects within the -- or the subprojects within a large project, but we recognize very little revenue. We start to start -- but the cost case is growing. And then as we get in second quarter, third quarter of a project, revenue recognition begins to accelerate.

And so when you think about volume and mix, we had projects that we booked last year where we were doing work in the first quarter where we hadn't recognized all the benefits from the revenue. So that's one lift. Second lift will come from the margins of projects that we booked in the fourth quarter last year and the first quarter this year that are at higher margins. The second -- or the third impact, will be from the efforts we're making to continue to improve our G&A cost footprint and the efficiencies we're going to generate from continuing to integrate acquired entities. All of those activities will result in getting back on track and heading towards the 34% or greater target. Now it won't happen all in one quarter, but the full year outlook is near that target range.

Thank you, Jim. What I would point out, though, Jim, I think it's the EBITDA delivery operationally is going to continue to improve from a margin standpoint, even with the large project volume and mix aspects, they come with little to no additional fixed cost. So the operating expenses, what I call operating G&A for those larger projects actually are accretive relative to the business that they're replacing or the business that came before it. And so that's an important component of looking at EBITDA growth and ultimately cash generation.

Our next question comes from Joseph Giordano with TD Cowen.

This is Chris on for Joe. You had cited early benefits from 80/20. And I just was curious what specifically was in Wave 1, if you could discuss that and how we should expect benefits to kind of split along gross margin improvement versus SG&A leverage over the next few quarters?

So 80/20 is a new concept at CECO. We began the implementation in the fourth quarter with our diagnosis and our work plan development. And we launched formally across two of our smaller businesses, both recently acquired. And they are now, I'd say, probably 1/4 of the way into their implementation. There's a number of different projects inside of each of those deployments. And we handle them in a separately by business. So about 10% of CECO's revenue today has been covered by our initial wave or call Wave 1. That will expand in this quarter -- has expanded this quarter and we'll be by end of the summer, somewhere around 20%, 25% of CECO revenue being touched by the 80/20 implementation across the company. That is something that we will accelerate as we develop our internal expertise and we develop subject matter experts internally that can carry the ball forward for us, and we'll grow that penetration across the portfolio by the end of this year, but certainly through 2027. The benefits have been split to date. Generally, they have come from the G&A side. We have had a little bit of gross profit improvement. But as we've looked at customer and product simplification and the zero-up aspects of what we're doing in 80/20 -- in the 80/20 toolbox, they're really focused on getting the organizations that are now deployed with 80/20 rightsized and focused on the priority customers and products.

Great. I appreciate that detail. And with the Section 232 expansion and revisions earlier this month applying to full customs value, is there -- or could you talk about any incremental margin or backlog sensitivity for CECO, especially on projects booked prior to that revision, net of any pass-through clauses or sourcing actions that you're taking there?

We haven't identified any material impact from the change in the tariff posture. Our operating model is to source and fabricate and deliver in region to avoid a majority of any cross-border flows. Very little comes across the border that's tariff. So for instance, if we're delivering to clients in Asia, our suppliers and our fabrication activities go on in Asia. Same in the Middle East and India, same in Europe. In North America, we work with Canadian suppliers. But for the most part, the clear majority of those goods across the border are covered under USMCA exemptions.

I would now like to turn the call back over to Todd Gleason for any closing remarks.

Thanks. Well, thanks for the questions and the interest in our information today. Again, thanks to our global teams that are delivering incredible value to our customers as we continue to protect people, protect the environment and protect our customers' investment in their industrial equipment. We look forward to being active at a handful of investor conferences in the second quarter as well as speaking with some of you today and over the next few weeks with respect to our results. I couldn't be more excited about the pending combination with the great team and organization that is Thermon, and we will keep everyone updated on that as we go forward. And with that, we'll go ahead and close today's call. Thank you.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the CECO Environmental Corp. Q4 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Marcio Pinto. Please go ahead.

Thank you, Danielle, and thank you for joining us on the CECO Environmental Fourth Quarter 2025 Earnings Call. On the call with me today is Todd Gleason, Chief Executive Officer; and Peter Johansson Johansson, Chief Financial Officer.

In today's call, we are covering CECO Environmental fourth quarter earnings results as well as the transaction that will combine CECO with Thermon, a publicly traded global leader and end-to-end solution provider to process heat, temperature management and asset protection with strong aftermarket presence.

As a reminder, this quarter's webcast, earnings release and presentation, which include relevant disclosures and non-GAAP reconciliations are available on our website. Today's discussion includes forward-looking statements that are subject to risks and uncertainties, including the ones described in our SEC filings, as we have also noted in our presentation legal disclosures. As always, we will leave time at the end of the call for analyst questions.

And with that, I'll turn the call over to Todd.

Thanks, Marcio, and welcome, everyone. It is a pleasure to speak about 2 highlights today. We delivered strong quarter and year and full year results with many financial records. Importantly, we are also announcing a transformational transaction between CECO and Thermon.

Please turn to Slide #4, and let's discuss each at a high level. On the left side of the slide, we outline the CECO, Thermon transaction. This is truly a combination of 2 proud and winning organizations. Each company is clicking on so many of the right cylinders. Together, we expect the union will create an even stronger global leader with enhanced financial agility and expanded strategic capabilities.

When we close the transaction, we will continue to trade at CECO Environmental, and I am excited and very much looking forward to leading the future combined company and working closely with the outstanding leadership and employees at Thermon. More on this transaction in just a minute. Now turning to the right side of the slide. We delivered another strong quarter for CECO Environmental with full year results for revenue and adjusted EBITDA largely in line with our final expectations. And we are raising our full year 2026 guidance, not inclusive of Thermon as we have tremendous visibility given our record backlog and growing sales pipeline.

Now please turn to Slide #6, and let's review the financials in a little more detail. This executive summary slide captures the main points from today's financial earnings release. Q4 delivered numerous new records. Our backlog is at the highest level ever, approaching $800 million and up almost 50% year-over-year. Revenue growth of 35% and adjusted EBITDA growth of 57% speak to our high-performance results. In the quarter, we booked our largest ever project valued at approximately $135 million for a large-scale natural gas power generation facility based in Texas.

For the full year, 2025 orders surpassed $1 billion for the first time, which we signaled we would likely accomplish in our December 15, 2025 press release. And as we shared in today's press release, we are raising our 2026 full year guidance to reflect our tremendous visibility in backlog and that record sales pipeline I just mentioned. Our increased 2026 guidance reflects strong full year orders growth as well as full year revenue outlook of between $925 million to $975 million, which is up from our previous outlook of $850 million to $950 million. Our full year 2026 adjusted EBITDA outlook is now between $115 million to $135 million. So again, we feel we are clicking on many of the right cylinders.

Now before I hand it over to Peter, let's move to Slide #7. We continue to enjoy a strong market backdrop in the power generation, industrial reshoring, industrial water and natural gas infrastructure customer segments. In each of the past 5 quarters, we have booked orders in critical infrastructure projects to support domestic power generation and energy delivery investments and our pipeline indicates we have the opportunity to maintain that pace in 2026. In fact, we have already secured 2 large natural gas power generation orders exceeding $175 million in aggregate value at this point in Q1, and we have numerous similarly sized and larger opportunities in our current pipeline.

We remain bullish on the industrial water and wastewater treatment sector and in particular, the international water infrastructure projects where we now have our most active and largest pipeline of opportunities associated with water reuse and recycling applications. Industrial Air will continue to benefit from industrial reshoring programs, semiconductor investments and our international expansion activities. As the slide shows, quarter-to-date on to February 24, which is today, we have booked a little over $270 million in orders. So we are well on pace for another record quarter and obviously, a great start to 2026.

I will now hand it over to Peter, who will go into more detail on our financial results. Peter?

Thank you, Todd. Good day, everyone. Thank you for joining Todd and myself for CECO's Fourth Quarter 2025 Earnings Call. Please turn to Slide #8. CECO finished 2025 with very strong results for both the fourth quarter and full year on all our key metrics.

We finished the fourth quarter with a record backlog of $793 million, up 47% versus prior year and 10% sequentially. Backlog has increased in 8 straight quarters and surged upwards in the most recent 5, each with well over $200 million in bookings, highlighted by nice wins in power generation, LNG, midstream gas transport and treatment, global semiconductor and international water end markets.

Fourth quarter orders were $329 million, a company record increase of 50% over the prior year period with a book-to-bill of approximately 1.5x. On a full year basis, bookings reached $1.064 billion, a 60% increase over full year 2024 levels with a book-to-bill of nearly 1.4x. The results were largely due to strong demand in our power generation, natural gas infrastructure, semiconductor and industrial water applications. And we had strength globally in all our major operating regions.

Revenue in the fourth quarter and full year was $215 million and $774 million, respectively, with both results being company records. On a full year basis, revenue was up 39%, of which 25% of this growth was organic. This result was outstanding when you consider that we overcame $25 million of revenue headwinds related to the sale of our global pump solutions business in late Q1 of 2025. Our second half revenue was higher than 2024 by 40% as the conversion to revenue of our power generation projects booked in late 2024 and 2025 gained speed.

Adjusted EBITDA in the quarter was $29.8 million, an increase of 57% versus the prior year period with margins of 13.9%, representing a 180 basis point improvement over the prior year. For the full year, adjusted EBITDA grew 44% to exceed $90 million for the first time in company history with 40 basis points of margin expansion. A large part of the improvement was due to lower G&A expense rate, partially offset by $800,000 of costs for strategic reductions in our legal entities to support our accelerating ERP migration program and to conclude certain integration steps from the acquisitions completed in 2024.

Let's turn to Page 9 for now, please. On this chart, I want to remind you that we are presenting CECO's gross profit and our gross margin performance by quarter on a TTM basis to normalize for quarter-to-quarter fluctuations. We have started this chart at the point in which CECO's operating excellence initiative was launched in the fourth quarter of 2022, and you can see substantial improvement and steady performance in the 35% gross profit margin range.

In the quarter, we realized a rebound in margins from the third quarter, back above the 35% target level as strong short-cycle volumes and project execution and closeouts provided margin uplift. This sequential improvement was approximately 240 basis points and is a typical recovery from third quarter seasonal headwinds. As we look forward to 2026, we will deepen our focus on sourcing and productivity, remain focused on managing price and cost as we navigate an uncertain economic backdrop and start to realize the benefits from our initial wave of 80/20 deployments, a multiyear journey on which we have embarked that we expect will deliver significant business cost and performance benefits.

I will now move a little faster through the next few slides, so we have ample time to spend on this morning's announcement and leave time for Q&A. Moving to Slide 10. Regarding cash flow, 2025 was truly a tale of 2 halves, with the first half of 2025 consuming approximately $20 million of cash and the second half delivering approximately $30 million of cash for a full year cash flow positive -- that was positive of approximately $10 million, up 30% year-over-year. Our cash conversion in the second half of the year was very good at 52% and within our target range for cash flow conversion, and we expect to remain there in 2026. Gross debt and net debt both ended the year at levels lower than where we started the year with our leverage ratio now at a very comfortable 2.2x and with liquidity well up at $124 million.

With the benefits from the reduction in leverage and the growth of TTM EBITDA and improved pricing in our recently concluded and upsized revolver credit facility, we expect to realize a 50 basis point step down in interest rates following a 25 basis point step down realized in the fourth quarter. This will represent an additional annualized interest expense savings of approximately $1.1 million if we maintain the current gross debt balance.

I will now move to Slides 11 and 12 and move through them quickly to save some time. On Slide 11, the book-to-bill in the quarter of approximately 1.5x on record orders while delivering record revenues was a high. It is the sustained orders -- it is this sustained strong orders performance, resulting in record year-end backlog, combined with our $6.5 billion opportunity pipeline that underpins our 20% plus top line growth in 2026.

We move now to Slide 12. We have increased our outlook for all 4 key metrics, with revenue growth of 23% at the midpoint of our outlook and adjusted EBITDA growth of 38% at the midpoint of our outlook. As Todd stated earlier, we have tremendous visibility given our record backlog and bookings momentum as well as our sales pipeline, which I've stated now exceeds $6.5 billion and is converting quickly. That concludes the earnings presentation portion of our prepared remarks this morning.

And now I turn the mic back over to Todd, who will lead us through the materials describing the exciting strategic combination of CECO Environmental and Thermon.

Thanks, Peter. Now let's transition to review a historic transaction for CECO and a major step forward in our industrial leadership journey. Please turn now to Slide 14. The addition of Thermon will meaningfully extend CECO's leadership in industrial, environmental and thermal solutions by adding Thermon's established position in process heating, heat tracing and temperature management, creating a world-class industrial solutions platform.

This combination brings together 2 highly complementary businesses, creating opportunities to accelerate growth through expanded customer relationships and global reach. And Bruce and I couldn't feel better about what lies ahead for the combined company and our respective teams. I can't wait to meet many more Thermon leaders and employees.

Moving to Slide 15, let's review the key terms of the transaction. Under the agreement, which has been unanimously approved by the Boards of both companies, the transaction will be executed through a stock and cash merger with a total consideration of approximately $2.2 billion. Thermon shareholders will receive $10 in cash and $0.684 of CECO common stock per share, delivering a substantial premium while allowing Thermon shareholders to participate in the upside of the combined company.

The cash component will be funded through existing credit facilities. This leads us to an implied value of approximately 17x adjusted EBITDA or 13x, including synergies. Upon close, which is expected to occur in mid-2026, CECO shareholders will own approximately 62.5% of the combined company and Thermon shareholders will own approximately 37.5%.

From a leadership perspective, I will continue as CEO of the combined company, and Thermon will appoint 2 Board members to serve as directors for the combined company. Each company leadership team will remain in place through the pre-closing process, and I look forward to meeting Thermon leaders and operating teams as we evaluate the most effective and efficient combined company model.

On the right, you can also note the key pro forma financials for the combined organizations with revenues of approximately $1.5 billion, adjusted EBITDA of $295 million, assuming approximately $40 million of run rate synergies, yielding margins close to the low 20s. From a balance sheet standpoint, the company is expected to have a strong balance sheet with pro forma net leverage of 2.5x, giving us ample opportunity to continue to invest in our people, processes, markets and best growth opportunities.

Now please move to Slide #16, entitled Thermon Group at a glance. There is certainly more to see here than a mere glance. Thermon is a leading end-to-end solution provider of process heating, temperature management and asset protection with a strong aftermarket presence. For the current fiscal year, they are delivering over $520 million in revenue with approximately 85% of their sales considered OpEx or what CECO commonly refers to as shorter cycle sales.

Thermon's gross profit margin of 45% reflects their leading products, their great operating and price disciplines and that shorter cycle product mix. Thermon currently has adjusted EBITDA margins of approximately 23%. To be helpful, we provide additional revenue analytics at the bottom of the slide, but I will not go through that here.

Moving to Page 17 for a quick look at Thermon's expansive solution set. Thermon is a leading diversified industrial leader, undeniable. Similar to CECO, they deliver advanced engineered solutions to solve mission-critical environmental challenges. We couldn't be more excited to learn more about their innovations and strategic growth programs. Each company protects people, protects the environment and protects industrial equipment. It's an outstanding match.

The current high-level segmentation of Thermon sales span from heat tracing, which represent approximately half of the company's revenue, heating systems that represent approximately 35% of revenue and the balance of approximately 20 -- or excuse me, 15% in transport heating, tubing and digital solutions. Thermon has announced several important innovative solutions, including great momentum they are enjoying with their Genesis controls and newly launched liquid low bank offering to name just a few. Much to be proud of at Thermon, and we aim to support that pride and strategic growth going forward.

Now let's transition to Slide 18. We are creating a global industrial leader in delivering mission-critical environmental and thermal solutions. We see this combination as a powerful strategic fit that significantly advances our position as a premier engineered solutions provider. This transaction will meaningfully extend CECO's leadership in industrial, environmental and thermal solutions by adding Thermon's established position in the aforementioned process heating, heat tracing and temperature management.

Once again, we expect to create a world-class integrated industrial platform. We will have a vast installed base by bringing together our more than 75 years of combined installation and product deliveries, which will generate substantial high-margin recurring and replacement revenue.

Let me tell you more about why this combination wins, which is outlined on Slide #19. Together, we have an expanded addressable market of over $30 billion across attractive and high-growing industrial end markets. Both companies are well aligned to secular growth tailwinds across electrification, energy transition, data centers, water megatrends. And Thermon operates a recurring short-cycle business model, which balances well with CECO's project-based longer cycle work.

From a financial standpoint, this deal is very attractive. Even before synergies, the combination is accretive in year 1. With our identified annualized synergies of approximately $40 million by year 3, this transaction creates even more shareholder value. We expect to drive strong double-digit growth and margin enhancements through our productivity and 80/20 programs while achieving these synergies. So we believe the next few years will show an even more powerful value creation company.

A cornerstone of our transaction discussions has also been our similar values, cultures and operating styles. Throughout the transaction process, we've gotten to know the Thermon team, and it is clear they have an outstanding group of employees who share many of our same values. We both have a business and culture grounded in disciplined execution and innovative thinking. And I believe that alignment will serve us well for many years to come and support a smooth integration process.

In a nutshell, this is a powerful combination that we believe checks all the boxes, 2 winning Texas-headquartered companies, 2 great operating organizations with shared values and commitment to delivering for our industrial customers. And I believe 1 plus 1 will equal more than 2 when everything is said and done.

Moving to Slide #20 for a view of CECO's pro forma financials and a little more color on synergies. The pro forma numbers tell a powerful story. When we add the $40 million in synergies, the pro forma is even stronger. Combined $1.5 billion in sales, almost $300 million in adjusted EBITDA with close to 20% EBITDA margins, scale, margins and industrial leadership. And while we have months of pre-integration work ahead, the $40 million in identified synergies is a meaningful enhancement to this already accretive transaction.

Now these identified synergies come in 2 main buckets. First, the costs associated with combining 2 public companies and reducing the redundancies as well as SG&A overlap and additional efficiency savings. And the second bucket in the identified synergies comes from operational efficiencies, footprint rationalization and supply chain leverage. We do show a third bucket. Our current model does not yet have commercial synergies assumed, but it is an opportunity, and we will be pursuing those as we start working together.

Okay. Last couple of slides before Q&A. On Page 21, we have an overview of our global presence. The combined company will have operations in more than 15 countries with a combination of engineering and manufacturing sites to better serve our global customers. Our global population will exceed 3,000 employees, many of which are highly skilled engineers, technical resources and thought leaders in their respective markets. Combined, we have the scale and capabilities to deliver the mission-critical environmental and thermal solutions across the globe and solve our customers' most challenging environmental issues.

Moving to Page #22. I'm not going to spend a lot of time on this slide, but you can clearly see the different yet complementary financial profiles of both companies. CECO, as you may know, and I've already mentioned, has about 70% to 80% of our revenues from mid- to longer cycle projects and the balance of our sales driven by shorter cycle product offerings. Thermon, on the other hand, has a relatively small percentage of revenue from longer cycle projects, but a significant percent from shorter cycle sales.

As you can see on the right-hand side of this slide, the combination represents a very balanced company from a revenue cycle standpoint. This is a very attractive mix for any CEO and management team, the right blend of longer-cycle jobs in backlog, which provides nice visibility to what's already been booked as well as a steady diet of shorter cycle sales helping to drive productivity, steady margins and enhanced cash flows.

Now let's pivot to Slide #23. I'm very proud of the progress we have made at CECO over the past 5 years. I've had the luxury and will continue to have the luxury to lead one of the great high-performance industrial companies, and our results speak for themselves. Since 2022, our growth and margin expansion has been steady and it has been impressive. We have also successfully introduced and maintained a programmatic M&A program to add key businesses and brands to our leading niche industrial portfolio.

Since 2022, we have acquired over a dozen companies of various sizes to enhance performance and adjacent market expansion. This proven track record has yielded strong shareholder value creation. We aim to maintain this model of performance and value creation. The combination with Thermon, we believe, will enhance each.

Now in conclusion on Slide 24. I'll wrap up with this before we take your questions. CECO's performance over the past 3 to 5 years has been very strong. CECO's performance in 2025 was very strong. Our outlook for '26 also points to very strong performance. Separately, Thermon's results and outlook are also very strong. Today's announcement, the opportunity to combine CECO with Thermon will make us both stronger. Stronger and more resilient growth, stronger financial profile and scale with agility, a powerful value creation in year 1 and beyond.

I'd now like to open it up for questions, and thank you for your interest.

[Operator Instructions] Our first question will be coming from the line of Aaron Spychalla of Craig-Hallum Capital Group.

Maybe first for me, you kind of talked about industrial water, just the most active and kind of largest pipeline that you've had there. Can you just kind of maybe frame that for us what that business is today and just some of the time lines and sizes and kind of what that opportunity looks like for you in the next couple of years?

Yes. Thanks, Aaron. And I'll start, and then I'll hand it over to Peter to add some additional commentary. So we've been intentional about organically as well as inorganically building what we believe is proving to be a very attractive industrial water aspect of CECO Environmental.

Over the past few years, we've continued to enter into some new markets, both in the United States as well as internationally. And what we're seeing in our position and in these investments is a large pipeline of activity now for us over the -- in 2026 with respect to industrial water treatment and produced water, especially in some international locations associated with energy and heavy industry.

So as we now look at both early in this year and throughout the year, opportunities that could be between $10 million to $50 million in size. We expect to be announcing throughout the year, maybe even each quarter, some pretty exciting produced water treatment opportunities in, let's say, the Middle East, other parts of the world with respect to water treatment for industrial applications.

The acquisitions we've made have been helpful, but I also believe that our engineering capabilities and our relationships with our customers, they've been asking us to help them solve some of these critical areas for a number of years.

Understood. And then on the Thermon acquisition, I appreciate not kind of no commercial synergies outlined kind of yet. But it seems pretty complementary from a product and end market standpoint. But can you just maybe give a little bit of detail on where you kind of see some of the low-hanging fruit as you kind of go to market with just a much broader kind of product set? Any kind of customer overlap? Any other details you can provide there would be helpful.

Yes. No, thanks, Aaron. And we know you know the company well since you obviously cover both CECO and Thermon. So we're happy to talk more about this as we go forward. low-hanging fruit exists. Not only have we known Thermon for a long time as a leader in what they do and certainly their reach and their capabilities, but we have a lot of customers in common. We -- the customers within the customers might be a little different. So if you're looking across energy or industrial organizations, we share a lot of customers, which means we can solve a lot of problems separately or together.

We have a variety of overlap in certain projects where we can see very advanced thermal applications being a part of what could be a combined bid in the future. And certainly, they have relationships that we don't in geographies or in end markets, and we have relationships that they don't. And we have found that to be a powerful growth component in our previous acquisitions where we can introduce a new product or solution offering across a range of geographies or adjacent markets. So it will be an exciting aspect of this combination.

And then look, I'll just say last but not least, and there's many more things I could talk about, but I'll go right to their Genesis controls platform and solution set because we -- in our early dialogue, we certainly see that as a complementary opportunity for us to learn more and to evaluate ways to bring advanced controls and monitoring across more of our portfolio. So that is definitely a low-hanging fruit conversation for us to have, and we'll evaluate that going forward.

And our next question will be coming from Rob Brown of Lake Street Capital Markets.

Congratulations on the progress. Just following up a little bit more on Thermon. The short-cycle business, could you sort of clarify how that business works? What's the sort of installed base that you expect? And how recurring is that business?

Well, they have 75 years of installed base, right? So this is an organization that has long proven their high quality, long proven their ability to deliver for their customers every day around the world in some of the harshest operating environments. They, like CECO are very proud of the durability and the long-lasting aspect of their product and solution set. So -- but at the end of the day, their customers rely on them to help them expand or as they build out their infrastructure or as they replace their infrastructure.

So it's a -- their installed base is in the billions. They enjoy thousands of invoices probably a month as their average sale is much smaller than ours. So they're constantly providing updated product for their customers in their markets, while they're also working with new customers to solve their complex thermal needs in other areas. And with their launch of Liquid Low Bank, and some of their other new product categories, I think they're very excited and so are we that they have a very strong, not just replacement cycle in front of them, but a penetration in some new market categories that their investments are going to yield outstanding results.

I would also point you, Rob, that Thermon has -- and we didn't include -- we wanted to limit the number of slides, but they have some very, I think, good material on their investor presentations, including one from late 2025, where they really show sort of how they break down their segmentation of their revenue. So for our analysts or for our shareholders, not only will we be showing more combined materials going forward, but I would point you to their website and on their Investor Relations section, they have some very good materials for you.

Okay. Great. And then to the base CECO business, the order pipeline, you noted continued very strong into the year here with a couple of power projects. But what's sort of the pipeline activity, I guess, specifically in the power vertical at this point, do you have sort of multiples of these or just characterize the pipeline of the power market at this point?

Yes. Peter certainly has a ton of depth on this as we continue to do operating reviews with our businesses. And let's just say that the current power segmentation of our pipeline is well in excess of $1 billion. We're in regular dialogue with the most important end customers in the power generation space. I believe and we have been saying for quite a number of quarters that CECO is really well positioned for these large gas -- natural gas turbine power jobs that are now coming down the pipeline that really require our advanced solutions.

And so look, we would signal that late last year and already early this year, we're starting to see even more of these larger opportunities. We have a lot of visibility in our pipeline. We're in regular dialogue about these projects. It's certainly well in excess of $1 billion, could even be approaching $2 billion in what we would call a short- or medium-term pipeline with respect to these power jobs.

Peter, I don't know if you want to add more to that.

We've become fond of saying, Rob, and you may have picked up on that in past discussions that it feels like POs are falling from the sky or occasionally, you wake up in the morning and you trip on one. I mean it's such a dynamic environment that all the behind the meter and front of the meter with providers of power are moving very, very quickly to put solutions in place. But the one thing they all have in common regardless of the form of generation is they need emissions treatment.

Having an emissions solution, and we're 1 of 3 companies in the world that can deliver a comprehensive end-to-end solution for emissions management around gas turbines and large gas engine fleets, having that emissions treatment solution gets you permitted faster. And that has become critical to both the utilities that are going to buy the power or the OEMs are going to deliver it.

And so we have that unique position in the ecosystem. Todd mentioned $1 billion to $2 billion is the range where -- of projects we're negotiating, but that's not the total visibility. That's just what we're working on at present.

And our next question will be coming from Gerry Sweeney of ROTH Capital.

Obviously, first question is going to be on Thermon. I wanted to see if you could give a little bit more detail. It sounds as though Thermon is a little bit more short cycle. Obviously, you're long cycle, and that's one of the points you highlighted in your prepared remarks. But how much of this is there an opportunity for maybe wallet share on some projects that you're going after versus maybe just access to new customers or new customers within existing customers?

Yes. Look, we have a pretty consistent track record, Jerry, in our acquisitions of identifying and combining with companies with great growth profiles. So when we look at any transaction, we're more focused on how we invest in those organizations or how they help us rapidly invest in growth pursuits before we're really looking at synergies. This transaction stands on its own before we even talk about the word synergy. And then when you add the early identified synergies that we talked about in the buckets that we talked about, you start to get an even more powerful financial combination.

But back to, I think, the root of your question, look, we enjoy being -- we may be diversified and we enjoy being diversified. We're very focused on continuing to build the, we believe, premier industrial solutions provider with respect to environmental products, services and engineered solutions. And that's exactly what Thermon is doing as well. So if there's an opportunity and there certainly will be opportunities for us to look at customers, customer relationships, markets and growth to go at things together, we will do that.

We are on very large complex projects where heat and thermal management are required, and we don't think of those previously. We'll certainly be thinking about those going forward. We have a need and an interest in advanced controls applications, and we haven't made that investment yet. And Thermon, we know has. So how do we look at opportunities to leverage what they've done and where they're located in their markets with their knowledge and how do we bring that to them as well.

Look, our customers, like I said, rely on Thermon for protective services. to ensure that their environment is clean and safe and that their employees are benefiting from the efficiencies of their processes. So do we. So when you both are solving problems for your customers, unique ways, but in a similar -- for a similar reason, then there's just going to be commercial synergies.

Got that. Yes. I mean I was a little bit more curious on -- obviously, I get the short cycle is great for you, speed of cash conversion. Just from a holistic standpoint, I mean, Thermon -- it sounds as though Thermon does bring you some opportunities to expand some wallet share on project. And then conversely, there's large aftermarket exposure that could probably grow with some of your customers that they may not cover as well. Is that a fair sort of generalization?

Yes. That's a fair generalization. And I think over the next few months, as we start to really now intentionally roll up our sleeves appropriately with Thermon and evaluate the synergies that we're talking about here, Jerry, I think there's going to be some very exciting ones.

Like I said, we've mentioned some of their investments and innovations already, more to come on that. And look, we have incredibly strong relationships with customers and small, medium and large projects that we know require thermal applications. And why wouldn't we make sure that we work together to solve those customer needs.

Got it. And it wouldn't be a Q&A if I didn't ask one more question on the power side. Large turbine makers, manufacturers, they're starting to look at '28, '28 may be sold out, starting to look at '29 and '30. When you discuss your pipeline, how far out on the curve are you looking? And this is more of a question of like, obviously, there's a longevity issue or opportunity here. I'm just curious as to when you look and describe your pipeline, how many years out are you looking in regards to that?

When we describe our pipeline of between $1 billion to $2 billion, those are opportunities that we expect for us, that's our dollar level, we'll book in the next 12 to 18 months, maybe 2 years. That doesn't mean there's not overlap that it could extend a little beyond that. So think of it as a 2-year pipeline for us.

And the pipeline is already expanding beyond that.

Yes, Gerry, we need to see orders in the next 12 months to deliver in '28, and we need them in the next 24 months to meet '29 and '30. So we're aligned with our customers. We do joint planning. We do joint project assessments. Now they move in and out. customers' timing changes as they solidify their investment, they solidify their permits. But what is clear is the demand is exceeding supply in all categories of equipment. And there's no shortage of consumer for this equipment.

So we may reprioritize one project over another based on those dynamics. But ultimately, it comes down to how much capacity do we need to have in place to deliver the solutions that are being demanded of us across thermal, acoustic, emissions and inlet air treatment, and we're in a very good position to supply all that well into the 30s.

Thanks and congratulations on the announcement.

And our next question will be coming from Jim Ricchiuti of Needham & Company.

Just on the full year revenue guidance for the base CECO business, any thoughts on the revenue distribution as you go through the year, first half versus second half, just given the backlog, the timing of some of this?

Yes. Look, thanks, Jim. We'll -- as you know, we don't break down our quarters in terms of guidance. But we have a profile that is typical when we think about our years in terms of the weighting of when projects are at their peak and when projects are not at their peak. So there's a part of me that wants to just sort of indicate that Q1 is typically Q1 is usually one of our smaller quarters and then Q2 really ramps up from there.

I think you just probably similarly weighted to some previous years, you're going to see -- I'm not suggesting it's 55% or 60% in the second half of the year, but it's certainly going to be more in the second half. Q4 is almost always our largest quarter. It's Q4 in a fiscal calendar year. So look, I think you're going to see slightly more in the second half. Our pipeline, some of these larger jobs that we've booked start turning into revenue in the second half, not in the first half. So -- and it gives us confidence though that we know what these schedules are.

As Peter mentioned, one thing on these power-related projects is there's not a lot of wiggle room here for calendar moves. These are jobs that are happening, that are funded, that are prefunded and that are required to meet certain deadlines. So we probably have the tightest backlog that we've had in maybe ever with respect to timing. I'd say it's slightly more in the second half than the first half for sure. We'll think about how we can be more clear on what that breakdown really looks like, but I'd go with at least 55% in the second half.

And just on Thermon. Todd, you characterized them as being a leader in their markets. I'm just wondering if you could give us any color on the competitive landscape or their market share position as it relates to some of the larger markets that they address.

Yes. I think we'll hold off on market share, but they're certainly a leader. We know the space. You work in the industrial arena like we have for just a few years, like 30. And you know who's strong and where they're strong and why they're strong and why you see their names when you walk indoor or outdoor on heavy industrial manufacturing facilities.

So no doubt that both they compete with a variety of smaller private companies when it comes to some of their specific market categories or product categories or solution categories. They also compete with large privately owned organizations that are in that heat tracing space for quite a while. There has been some consolidation here, but Thermon in their many, many decades of leadership has continued to be a top 2 or 3 player in their key markets.

Now they're introducing some new products, and we're excited to continue those investments as they move into some adjacent spaces where that share is sort of emerging because these are new categories. And so -- but look, you're looking similar to CECO and our brands, we believe that we're a top 2 or 3 player in many of our niche markets. Thermon clearly reflects that.

Okay. Did you say what the organic growth rate was in Q4? I may have missed it. I think you gave it for the year.

Sorry, what was the question, Jim? I apologize.

Yes, I apologize. The organic growth rate in the quarter, I think -- and you said it for the year, I may have missed it. What was the organic growth rate?

It's around a little over 25% in the quarter. I might be as accurate as 26%, but I just know it was a little over 25% in the quarter organically.

And our next question will be coming from the line of Bobby Brooks of Northland Capital Markets.

I wanted to ask and hear a little bit more on Thermo's end market splits and how similar that is to you? And also curious, are there end markets as flexible as yours where it can kind of consistently change to where the puck is going. I'm guessing maybe not as much since it's more short cycle focused. But just wanted to hear more on that. And maybe along those lines, what end markets do you feel at this early stage have the best opportunity for cross-selling?

I'll take the high-level distribution of their revenue is one of the charts at the end of the deck. You'll see there's some complementary but also some distinct differences. while cross-selling might be interesting, it is not the fundamental driver of value creation in this opportunity. The end markets that they serve today, and Todd mentioned it earlier, are very similar to ours with the exception of they have a rather substantial rail and transit opportunity that we don't touch. And they've got some unique capabilities that sit inside of renewables in terms of keeping windmills frost-free, keeping solar panels from fogging due to condensation and other things that are quite interesting and will continue to grow.

The mix is very complementary in that they can move and their technology is adaptive, both in heating as well as heat tracing to wherever you have a temperature management or thermal control issue, whether that -- and it doesn't necessarily mean it's cold out. It can be that the process requires a warm fluid to be passed or a dry gas to be moved or the application diversity is immense. And that gives us great confidence that our mix of project and short cycle will continue to deliver resilient revenue growth.

The other one dimension I think you need to consider, Bobby, is that they are typically specified and installed late in a project. And we are typically specified and procured early in a project. So we'll now get to touch clients along a much longer period in the buying window and explore new opportunities.

Bobby, so I'm just going to add a couple of quick things here. So I've been aware, and this touches on some of the previous questions of Thermon for decades. Part of the reason is in a previous organization that I worked, we had a business at the time that was also in the space, well positioned in this space. And at the time, I had -- and most people had a view that this was highly leveraged or positioned with large and important markets, but in cyclical spaces around oil and gas, specifically places like the oil sands in Canada and the cyclicality was somewhat limiting.

Hats off to Bruce and the leadership team and the organization at Thermon because intentionally and successfully similar to what we've done at CECO over the last not just 5 years, but 10 years, they have been diversifying into general industrial, diversifying into new end markets geographically, introducing new innovations and offsetting some of those cyclical markets by growing into new markets. Their diversification is a result of a focused and capable expansion into those new markets.

So when you look at them today, 30% comes from oil and gas, let's say. But if you went back 10 or 15 years, that might have been as high as 75% or 80%. So I would really want to say that they might not have the same opportunities for us in an immediate short term to be quite as nimble and move from industry to industry, but they've certainly proven that over time, they have a lot of athleticism to expand into adjacent markets and to become much more balanced.

That's super helpful color. I really appreciate that, Todd and Peter. And then the produced water that's something that I'm very interested, and I don't think enough people appreciate the large opportunity there when every barrel of oil in the Permian comes with 5 to 7 barrels of produced water. What I was curious to hear from you guys is when you talk about the opportunity, it seems more internationally focused than domestically. I'm just kind of curious as to why is that and...

Yes. Bobby, that's an easy one. Our solution set is designed around large fields and fixed process equipment. The Permian and other basins are around mobile equipment. They drill a well, they produce the well lapses, they move the equipment to the next well pad. It's much more of a gathering process. It's not a fixed installation. At the right time, when you're available, we'll show you the photographs of what we're supplying and you can see you don't want to move it.

We're also treating magnitudes of water that are far greater than what comes out of a frac well. That's generally -- that's the reason. Now you are right that the Permian does produce a large water cut and it's growing, but there are very good suppliers that cover that already.

And our next question will be coming from Amit Dayal of H.C. Wainwright.

So Todd, just on CECO's stand-alone outlook for 2026, does that include any potential small acquisitions? Or is that all organic?

This is all organic. Our current outlook only reflects our aforementioned backlog pipeline inorganic investments.

Awesome. And then for the combined company, how should we think about potential growth rates? You're above 20% as a stand-alone entity right now. I mean, could this accelerate even further as a combined entity on the revenue side?

Look, we're -- so we have a very good visibility to a medium and longer term here with our pipeline. We'll learn more about Thermon's pipeline as we go forward. Their growth has been at a very attractive rate in this market. We believe and certainly from our conversations and our analysis that they have a rich opportunity set in front of them, not just with their installed base, not just because of their exposure to these growth markets, but because of their great innovations that they've been launching, which opens up an ability for them to have points of growth higher than has been their historic average.

We have this incredible super cycle with us right now with power, with natural gas infrastructure on the industrial air side with what we see as a continuous reshoring activity and some of the larger markets that people are grabbing onto the headlines with respect to semiconductor. Those are with us for a while. Those aren't small projects. When we win in semiconductor, we're winning fairly large and long-standing applications and installations and relationships with those customers.

I'm bullish, you can tell. We have an outlook for 2026, which is completely organic, which is, again, at the greater than 20% level. We believe that our outlook into the next few years represents a similar opportunity to maintain that very, very strong double-digit growth. Look, Thermon solidifies that. If it doesn't add to the growth rate in terms of the percentages, it adds to the consistency in the business mix that we'll have quarter-by-quarter.

And look, these adjacent markets and the opportunity to work together with innovation is going to be powerful. This is a growth story here. This is an investment. At the risk of sounding like it's hyperbole, we are 2 companies that are really clicking on a lot of cylinders. And we have an opportunity, much like we've done with the vast majority of our previous M&A activity to maximize growth together. And that's what we plan to do with Bruce and the team.

And I would now like to turn the call back to Todd for closing remarks.

Thank you. I was anticipating that. Well, thanks, everybody, for the questions and the interest. To our new friends at Thermon, we can't wait to meet many of you in the coming period. Thanks again to our global teams that are delivering incredible value to our customers as we continue to protect people, protect the environment and protect our customers' investment in their industrial equipment.

We will be participating at some upcoming conferences in March, both ROTH and Citadel's Small Mid-cap Industrials Conference. So we hope to see you in March at those events or at other opportunities to meet, whether it's in Dallas or on the road. Thanks, everyone. Have a great day, and we'll talk to you soon.

And this concludes today's program. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the CECO Environmental Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Marcio Pinto, Vice President of Financial Planning and Investor Relations. Please go ahead.

Thank you, Tanya, and thank you for joining us on the CECO Environmental Third Quarter 2025 Earnings Call. On the call with me today is Todd Gleason, Chief Executive Officer; and Peter Johansson, Chief Financial Officer.

Before we begin, I'd like to note that we have provided a slide presentation, which is on our website at cecoenviro.com. The 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 fact 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 the Form 10-K for the year ended December 31, 2024. 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've provided comparable GAAP and non-GAAP numbers in today's press release and provide non-GAAP reconciliations in the supplemental tables in the back of the slide deck.

All right. With that, I'll turn the call over to CECO's CEO, Todd Gleason. Todd?

Thanks, Marcio, and good day, everyone. Thanks for your time and for your continued interest in CECO. I'm very pleased to discuss another strong quarter as well as our reaffirmed outlook for 2025, and our initial view of full year 2026.

With that said, please turn to Slide #2. This executive summary slide captures the main points we hope you take away from today's earnings call and our release this morning. We will provide much more detail in later slides, so I will be brief.

We delivered another high-performance quarter with outstanding top line and bottom-line growth. We exit Q3 with a new record backlog even after generating our highest ever quarterly revenue. In the quarter, we expanded EBITDA margin nicely while we continue to invest in long-term growth resources and operating capabilities.

Given the tremendous visibility we have in our backlog and sales pipeline, we reaffirm our full year 2025 outlook and introduce our full year 2026 outlook, which points to another year with very strong growth in both sales and adjusted EBITDA. As you will hear from this call, we remain very bullish as we are encouraged by strong market dynamics in our most impactful sectors and pleased that our proven operating model continues to deliver for our customers and for our shareholders.

Now let's dive into more details. Please turn to Slide #3. Demand for CECO solutions and services continues at a record-setting pace. Our backlog grew to $720 million, a new record; year-over-year, our backlog is up approximately $280 million or 64%. Sequentially, our backlog increased by approximately $30 million. This new record backlog was made possible by another quarter of robust order intake of $233 million in new bookings, which is up 44% versus Q3 of 2024.

We continue to book a nice mix of midsized and large-sized orders, particularly in the power generation and energy transition sectors. While we didn't book any mega jobs this quarter because of timing of those particular jobs, we are very pleased with how those power opportunities continue to develop. We remain well positioned for these larger projects, which we define as greater than $50 million and even greater than $100 million. When combined with orders from the first half, our year-to-date 2025 book-to-bill is nearly 1.3, with $735 million in year-to-date orders. If you expand the bookings across the past 4 quarters, we have now booked approximately $950 million in new orders, with each quarter comfortably above $200 million.

With the investments we have made to position our businesses to capture and capitalize on robust demand in our core markets, we expand into new geographies and offer more new solutions and services. Our sales pipeline is now over $5.8 billion, which adds to our confidence for sustainable growth.

Quarterly revenues came very close to eclipsing $200 million for the first time and produced an all-time record of $198 million in the quarter; this was up 46% year-over-year. Through 3 quarters of 2025, we have already generated more sales than all of last year, which had been a previous record. When we entered 2025, we forecasted strong growth. And I would submit that our year-to-date bookings and revenues are meeting or exceeding the bullish outlook we originally provided.

Adjusted EBITDA was up 62% in the quarter as our sales growth and improving G&A cost profile continues to allow nice EBITDA margin expansion. And Q4 free cash flow of approximately $19 million was in line with the nice cash flow performance we expected and a strong rebound from our first half of 2025. We expect to continue to improve our working capital position as we navigate the balance of the year.

A final metric on this summary slide shows adjusted EPS was $0.26, up approximately 86% year-over-year. So overall, record results and solid performance, and we enter Q4 with an incredible backlog and sustainable momentum in all of our growth programs.

Now please turn to Slide #4. As today's press release highlighted, we are reaffirming our full year 2025 annual outlook across the board. This represents full year revenue of between $725 million to $775 million, which is up approximately 35% at the midpoint year-over-year. For adjusted EBITDA, we are maintaining $90 million to $100 million, which is up approximately 50% at the midpoint and free cash flow at around 60% of adjusted EBITDA for the year is also reaffirmed.

You can see the comments on the right side of the slide. One of the items we highlight is our expectation that Q4 bookings will be above $250 million. And depending on the timing of just a few orders, we might actually deliver our first $300 million-plus quarter.

Now before I hand it over to Peter, let's move to Slide #5 for a quick overview on CECO's prime position to benefit from current market dynamics and also navigate potential challenges.

For the remainder of '25 and our initial 2026 outlook, we have a strong market backdrop in power, electrical equipment, industrial reshoring, industrial water and natural gas infrastructure sectors. Each of the past 4 quarters, we have booked orders in the critical infrastructure projects to support domestic power generation and energy delivery investments. And our pipeline would indicate we have the opportunity to maintain that pace throughout 2026. We see these projects continue to grow in both size and volume as we not only head through that year, but into 2027.

We remain bullish on the industrial water and wastewater treatment sector and in particular, the international water infrastructure projects, where we now have our most active and largest pipeline of opportunities associated with water reuse and recycling applications. We expect substantial orders to be placed over the next 4 to 6 quarters with a sales pipeline that extends also well into 2027.

Industrial reshoring in the global semiconductor and electronic component sectors also remain robust, and CECO's breadth of capabilities in industrial air and energy applications ensure that we are very well positioned to continue to win in these areas.

We remain extremely focused on optimizing our project pricing and margin levels based on constant communication with our extended supply chain, including our fabricators, component suppliers and raw material suppliers. We have seen moderate inflation in select commodities and components that we include in our costing models and work to mitigate our designs and sourcing plans.

Certainly, last but not least, M&A. We have not announced the transaction since we closed the sale of our global pump business in late Q1 as well as the acquisition of Profire Energy in early January of this year. But that doesn't mean we haven't been actively building our M&A pipeline and advancing certain deal-related discussions. We remain focused on the sustainability of CECO's portfolio, building a world-class industrial company with leadership positions in several and meaningful industrial niches. We expect to have more to discuss in the coming quarters.

As far as challenges or uncertainties, at CECO, we believe that proper planning for scenarios is one of the hallmarks of a high-performance company. We remain laser-focused on the things we can control, and we prepare for additional actions if certain headlines turn into headwinds. As such, we continue to monitor tariffs and the impact on inflation.

We are also monitoring the U.S. Government shutdown and what impact that might have on various operational items. So far, nothing that we can point to as far as moving the needle up or down as it pertains to CECO. We will maintain our focus on these potential factors and act accordingly. Best to be proactive when possible, and that's our plan.

I will now hand it over to Peter, who will go into more detail on our financial results. Peter?

Thank you, Todd. Good day, everyone. Thank you for joining Todd and myself for CECO's Third Quarter 2025 Earnings Call.

I would like you to turn to Slide #7 for more details on our recent financial results in the quarter. CECO finished the third quarter with a record backlog of $720 million, up 64% versus prior year and 5% on a sequential basis. This result delivers the 11th of the last 12 quarters with an increase in backlog. The increase was driven by good order rates across a wide range of end markets. Of the total, approximately $60 million is related to the recent acquisitions, with the balance of the increase being generated from organic order growth.

Third quarter orders were $233 million, an increase of 44% over the prior year period, representing a book-to-bill of approximately 1.2x; and as Todd mentioned earlier, the fourth consecutive quarter with orders greater than $200 million for a trailing 12-month level of $954 million, 65% greater than the prior 12-month period. This $954 million level represented a book-to-bill of 1.33x revenue, a record for any 12-month period in CECO company history by a large margin and a 4-quarter average of approximately $238 million. The results were largely due to strong demand in power, natural gas infrastructure, semiconductor, and industrial water applications. I would like to point out that CECO is just shy of reaching $1 billion in orders on a 12-month basis for the first time in company history, a level that we expect to achieve in the coming 12 months.

Revenue in the quarter of $198 million was the highest for any quarter in company history and an increase of 46% or $62 million over prior year. Approximately 30% of the year-over-year increase was generated by the company's most recent 3 acquisitions and the balance was from organic growth. Sequential revenue was up 7%, with a big assist by revenues recognized on large power generation projects booked in prior quarters, as well as strong backlog conversion from industrial air, industrial water projects.

Adjusted EBITDA of $23.2 million was an increase of 62% versus prior year, with margins improving approximately 120 basis points over the year ago quarter. On a trailing 12-month basis, adjusted EBITDA grew 26% to approximately $80 million, with margins down slightly, driven by our Q1 2025 results, which were lower than anticipated. On a sequential basis, adjusted EBITDA was flat on a dollar basis with 80 basis points of margin contraction due to lower gross profit margins in the quarter, partially offset by lower G&A spending.

Gross profit margins of approximately 33% in the quarter was down 70 basis points year-over-year, mainly due to an adverse project mix as well as driven by a medium-sized project closeout with dilutive gross margins. Sequentially, gross profit margins are slightly down, driven by mix and the typical summer seasonal headwind dynamics.

Sales, engineering and G&A expense continued its favorable downward trend with spending in the quarter down 4% sequentially, benefiting from cost-saving initiatives initiated in the first quarter and strong expense management. Adjusted EPS in the quarter was up $0.12 or 86% on higher volumes, operational excellence efforts and G&A expense management, partially offset by higher interest expense.

Now please turn to Page 8 to review our backlog position in more detail. With our strong orders performance in the third quarter, our backlog is continuing its steady upwards climb as we convert on the growing sales opportunity pipeline. At $720 million, CECO's backlog has more than tripled since the end of 2021. We expect the majority of this backlog to convert to revenue within the next 24 months, with a large portion scheduled to convert over the next 18 months. Our 2025 year-to-date book-to-bill is approximately 1.3x, further underpinning future revenue.

Now please turn to Page 9, for a look at gross profit and gross margin performance. This slide, like in previous earnings decks, presents CECO's gross profit and gross margin performance by quarter since the fourth quarter of 2022. We are presenting it on a trailing 12-month basis to normalize for quarter-to-quarter fluctuations and to provide a look back to the start of CECO's operating excellence agenda deployment, which began in the fourth quarter of 2022. Since that point, CECO has expanded trailing 12-month gross profit margins by approximately 500 basis points with gross profit dollar growth of slightly greater than 95%.

In the third quarter of 2025, our business delivered the second highest gross profit dollar performance for the company in a quarter of $64.6 million and a gross profit margin of 32.7%. The decrease of 300 -- with a decrease of 350 basis points sequentially and 70 basis points year-over-year. Project mix and seasonal dynamics drove the quarter-on-quarter decline. I would like to remind the audience that a sequential step down from second quarter to third quarter is normal for CECO. This has occurred annually since 2020, most recently in 2024, where we experienced a 220-basis point sequential reduction before a similarly sized step-up in the fourth quarter.

The seasonal dynamic is mostly due to fewer working days with summer holidays in Europe and the United States, resulting in a general slowdown in business operations. In addition, we chose to accelerate the closeout of an industrial air project with dilutive margins into the third quarter to put that behind us for the balance of the year. Similar to past years, we fully expect gross profit margins to bounce back into the fourth quarter and continue the upward momentum as we maintain long-term profit margins at the gross margin level at greater than 35%.

On a trailing 12-month basis, our gross profit margin was 35% at the end of the third quarter. This improvement over the past 2-plus years is attributable to the progress our teams have made capturing annualized sourcing savings in the range of $10 million, improving project execution, and the impact of our commercial and portfolio transformation initiatives to improve the business mix while making acquisitions with accretive gross profit margins.

For the remainder of 2025 and into 2026, we will continue to implement and expand on our operating excellence agenda, focusing on project execution and sourcing and increasing our focus on G&A expense optimization and process simplification to further benefit adjusted EBITDA delivery. These efforts will be bolstered by the addition of 80/20 to our operating model, a process which we have introduced late in the third quarter and will continue to drive deeper into the organization in coming periods.

Now please move to Slide 10, where I'll review cash flow and indebtedness. Starting on the left side of the page with free cash flow generation. The schedule shows a walk from GAAP net income to free cash flow on a year-to-date basis. Cash flow in the quarter was a net positive of $19 million, a strong improvement of $22 million sequentially versus the second quarter due to strong cash generation from operations due to higher volumes, improved working capital management, and adjustments related to taxes paid on the gain on sale of the GPS business in the first quarter of this year. On a year-to-date basis, cumulative free cash flow is approximately $1 million.

Year-to-date capital expenditures of approximately $8.7 million are largely driven by investments in our ongoing ERP system migration program, operating improvements in select production facilities and office updates and consolidations in Dubai, Shanghai, and Singapore as we integrated our legacy and acquired teams in those respective regions.

On the right side of the slide is a summary of CECO's gross indebtedness with the primary drivers of change shown in the schedule provided. We ended the third quarter with gross debt of approximately $217 million, flat to year-end 2024 and a reduction of approximately $20 million from the end of the second quarter. Cash generated from operations and working capital initiatives was used to reduce our gross debt balance in the quarter to a level that now predates the Profire acquisition concluded in early January 2025.

The reduction in gross debt, combined with the growth of our TTM EBITDA will result in a 25-basis point step down in the fourth quarter for the interest rate we will pay on our outstanding revolver balance, providing CECO with approximately $550,000 of annual savings in interest payments on the current balance. This benefit is exclusive of the benefit we will experience from further Fed rate reductions, of which 2 are expected by the end of 2025.

Net debt at quarter end was approximately $186 million, a decrease of $13 million from the end of the second quarter and a slight decrease -- increase, excuse me, from the year-end net debt balance of $180 million. At $186 million, our net debt-to-EBITDA leverage ratio has been further improved to approximately 2.3x our third quarter TTM Bank EBITDA of $80.4 million. At the end of the quarter, our investment capacity is $109 million, an increase of $40 million from the year-end 2024 level and providing sufficient liquidity for our near-term needs.

While we remain active in cultivating various M&A opportunities and expanding our deal pipeline, our short-term focus for capital deployment remains to further strengthen our balance sheet, accelerate our ERP migration efforts, and fund our double-digit organic growth. However, with our current capacity, we are well positioned to close on one of the tuck-in transactions working its way through our M&A pipeline.

That concludes my remarks on CECO's third quarter 2025 financial performance, a solid result to follow up on an equally strong second quarter performance. And now back to Todd for his final remarks and a wrap-up.

Thanks, Peter. Let's transition to looking ahead, including our initial 2026 outlook. On Slide 12, we summarize positive market and operational items as well as certain challenges that are incorporated in our 2026 outlook. We continue to believe energy transition investments such as more power generation, more natural gas infrastructure and LNG investments, and a business-first friendly policy agenda, which allows investments to flow quickly to create economic benefit. These are all meaningful positives to energy transition, positives to our customers, and positives to CECO.

We also see other positive market dynamics for industrial air and industrial water, each with a set of bullet point items listed in their sections. Each of those has a very large pipeline of opportunities as we navigate -- excuse me, Q4 2025 and throughout our 2026 sales outlook. I can't stress enough how well positioned CECO is for general industrial investment and expansion globally.

Now that we have firmly established a global water platform, we are also very well positioned for large wastewater and produced water projects. It remains a very exciting market dynamic, and we continue to invest to advance our leadership and support our global operations. As for potential challenges or uncertainties, several of these same themes -- several of these are the same themes from earlier in our earnings deck. We continue to monitor tariffs and inflation, regulation changes and resource availability. These aren't new themes and these aren't new potential challenges. So we believe we have a lot of programs and processes in place to navigate these various items.

Now please move to Slide #13, and let me provide our initial full year 2026 outlook. I'm very pleased to share this outlook, as it demonstrates the ongoing strength of our operating model and our leadership position in growing markets. Starting with orders, we are targeting orders to exceed $1 billion and the slide highlights a greater than 1.1 book-to-bill. We have the sales pipeline to overdrive this book-to-bill level, and we are very excited to work with our customers to eclipse $1 billion in bookings. As you know, this bookings level is a preview of revenue levels in outer periods, and we certainly are ready to be a $1 billion revenue company on our way to much more.

Full year 2026 revenue outlook is projected to be between $850 million and $950 million, which is up between 15% to 25% year-over-year when compared to 2025's midpoint. Our estimated 2025 year-end backlog of approximately $750 million, or greater, gives us significant visibility as we start 2026. And depending on how bookings occur in both Q4 '25 and Q1 of '26, we'll know a lot more about this revenue range for next year.

Moving to adjusted EBITDA. Our outlook is between $110 million and $130 million, up between 20% and 40% year-over-year when compared to full year '25. We expect with the revenue execution of major power jobs that gross profit will be slightly down year-over-year, but that will be more than offset by savings in our SG&A. As a result, we expect adjusted EBITDA margins to be up between 110 to 150 basis points year-over-year.

Adjusted free cash flow is expected to convert between 50% to 60% of adjusted EBITDA based on achieving major project billing milestones and continued working capital management improvements. So as we sit here in October and provide outlook for 2026, we have a lot of visibility and a lot of momentum. This gives us the confidence that providing initial guidance with strong double-digit top and bottom-line growth, which comes immediately after what will be a banner year in 2025 is something we are very comfortable doing.

Please turn to Slide #14. This might be my favorite slide. There's a lot to like here. Certainly, a lot of graphics going up and to the right. A lot of great double-digit growth and steady margin expansion. What I like most about the slide is how we have demonstrated and continue to maintain high-performance, sustainable results. The numbers jump out at you. Our 4-year backlog CAGR of 34% growth; our 5-year order and 5-year revenue CAGR each with 23% growth; our 5-year adjusted EBITDA CAGR of 35% growth -- it's just steady, solid performance, and it's not an accident.

We continue to invest in people. We continue to invest in growth programs and global expansion. We continue to invest in operating excellence to drive safety, quality, on-time delivery and cash and working capital management. We continue to deploy capital smartly to generate the best economic returns for our shareholders. In fact, perhaps the best number that's not even on this slide is our shareholder returns that we've generated over the last 4 to 5 years. We look forward to delivering more for our customers and shareholders as we deliver great results for many years to come.

Let's please move to our last slide, which is #15. As we begin to wrap up 2025, we believe CECO remains well positioned to benefit from our diverse end market exposure and key mega themes that remain very strong. Our $5.8 billion and above pipeline -- sales pipeline provides tremendous visibility into many exciting opportunities.

I'm very pleased with our Q3 and year-to-date 2025 performance. Year-over-year, backlog up 64%, orders up 44% and revenue up 46% in the quarter. This level of growth just continues to be sustained, and our 124-basis point margin expansion is something we're pleased with as well.

I'd like to thank team CECO for relentlessly delivering for our customers. And we continue to be bullish with respect to our full year outlook and of course, the 2026 outlook that we just provided, another strong year of double-digit top line and bottom-line forecast.

With that, we'll pause and open up the line for questions. Operator?

[Operator Instructions] Our first question will be coming from Rob Brown of Lake Street Capital Markets.

Congratulations on all the progress. Just first on the kind of the project pipeline. I think you talked about some large kind of projects in the works in terms of the industrial water side, in particular, and I guess, the power gen side. Could you give us a sense of where those are at and sort of what those projects entail?

Yes. I'll start and Peter can add certainly some color to this as well. We'll start with industrial water. The larger projects, and we're really well positioned, we feel globally, and we're excited about a lot of the U.S. domestic applications and growth that we see. But the larger projects are mostly based in either the Middle East or even in various regions around Asia. They relate to produced water or water reuse applications in very large installations.

We believe that our growing reference sites and our relationships with large organizations and EPC firms sort of puts us in a win-win position. If they secure the projects, we're their technology of choice. So we're working through those -- the timing of those items. We're excited. We've had a constant dialogue with them throughout the year. And so really, right now, at this point, it's really all about timing in terms of that. And those larger jobs would be predominantly based in the Middle East.

Then the 2026 outlook, I think you have pretty good visibility there with the current backlog. But are there projects that can come in that can move that up? I guess, what's sort of the ability for that to move up, I guess, in terms of project activity? What would have to happen to kind of hit the high end of that number?

Yes. No. I mean, look, I can -- by the way, I appreciate that we're sitting here a few days before Halloween, and we're already talking about raising guidance next year, Rob, well done. But joking aside, let's be clear, right? Like, look, we have a $5.8 billion sales pipeline. That means these are jobs that over the next 18 months, we have high confidence will move forward, and we will either win or lose our participation on those programs. That is multiple billions higher than it was just a few years ago, and we're growing, obviously, at a strong, sustainable double-digit pace.

As we look at what's in the more nearer term, Q4 of this year, first half of next year -- I might even say Q1 of 2026, certainly, there are a handful of larger projects that we see the revenue profile associated with those projects being something that we can model in '26 and in '27. So it really depends on if those projects -- those specific projects move forward and how many of those do we win in Q4 and in the first half of next year, let's go with Q1. If, let's say, instead of winning 1 of 2, we win 2 of 2 large industrial water jobs; or instead of $75 million to $125 million power job, we win multiple which we can serve in our capacity, then that skews our view because we certainly haven't baked in every one of those jobs in our outlook. So to be fair, we have the visibility in our backlog and in our expected win rate to drive performance relative to the outlook that we just provided. And it's very early, obviously, versus when most companies give a 2026 outlook.

So I'd say we have a high degree of confidence that what we were modeling in based on our expectations is something we're proud of. However, yes, there are always levers that can occur throughout the next few quarters that gives us even more visibility to what looks -- what could be a higher 2026. Where we sit right now, we would say we don't think we're being conservative. We also don't think we're emptying the cupboards on 2026. We think we're in the right place, and we believe this guidance reflects that.

One moment for our next question, which will be coming from Aaron Spychalla of Craig-Hallum Capital Group.

Maybe first for me, just on the pipeline in power generation. Can you maybe give us an update there? It seems like in the market, there's a focus on improving connections at the data center level and just getting to market faster. Are you seeing any acceleration in the pipeline there on the order front? And just maybe give a little more color on the activity levels there.

Yes. I don't know that we're seeing acceleration. I think we're seeing a very robust space with a lot of headlines and a lot of activity. No doubt it's easy and important to read what some of the more larger organizations, like GE Vernova and Siemens and others are talking about, as they clearly are leaders in providing so much of the important power generation equipment, and we love partnering with them. And those conversations continue to be positive.

Yes, there are times when things accelerate and ebb and flow, but they don't seem to be decelerating, I'll say that much. But I would say where we were a few quarters ago, I would say we feel very confident to that pace being pretty sustainable. The pipeline is well over $1 billion for us of just those projects over the next 12 months or so. And so it's a very active set of discussions. Peter?

It's easy to become overwhelmed by all the reporting on data centers. I think we all have to be a little, say, more balanced in our view of how much of that becomes a reality. And if you dig into the large OEM, gas turbine OEM backlog information, you'll see that they are also suggesting that the international demand is every bit as exciting as North America. And that's because there is tremendous needs for power, both for industry as well as for the transition off of coal in those regions as well.

So I think we have to be careful that we -- and we are careful and that we look at our pipeline in a way that ensures that we balance the best of the opportunities with where they are occurring globally. And what Todd was referring to in his remarks earlier was that there's a lot of near term in the U.S. to serve the data center demand, but this is a multiyear cycle that's going to run for at least we view out through 2030, 2032. And so -- and this is somewhat to Rob's point as well, we could get it all today. And if we got it all today, still deliver over the next 3 to 5 years.

So it's a multiyear story, and I just caution everyone on getting overly excited about these headlines because it takes years to build a plant, it takes years to deliver the equipment, it takes years to turn it on.

By the way, Aaron -- and only saying this because we've talked about this with you and others and also have been asked this question and maybe coming up on this Q&A. We, CECO, and our solutions with respect to power are, call it, later in the cycle of the power builds, meaning we're providing the thermal acoustic noise abatement, emissions management. Yes, there are some areas where we're in the gas infrastructure side with separation filtration. But our larger solutions on these power jobs come in the second to later half of a project, not the beginning. We may be in early conversation and bidding and participating in budget assessments and planning, but we don't win the jobs until later in the cycle. So as the cycle continues to mature, we're starting to hit our stride, if you want to call it that.

Then maybe just switching to margins. You talked about 100 bps to 150 bps of kind of targeted EBITDA margin expansion. Can you just maybe talk about the confidence there? It sounds like there might be some mix just from some of these larger projects on the gross margin line, but you also talked about some of the early efforts on 80/20 and other lean initiatives and SG&A reductions. Just maybe help provide some color there, please.

It's really at least a 3-pronged steady approach for us, and we're -- and we have confidence in this approach. In no particular order, think of #1, the volume that we continue to generate is -- allows us to have a lot of visibility, not just through our backlog and margins in our backlog and in the projects. And we're talking about gross margins, which might be a little lower than the current company average of 34%, 35%, but the EBITDA margin from those jobs is higher than the company average. So we like the dynamics, number one, of what the volume represents just in terms of continued steady margin expansion. #2, we have invested throughout the last few years in a lot of areas to support and to drive growth. And those investments will continue. But as we get larger and we approach $1 billion, they sort of modulate, right? They're able to be absorbed with more sales. And so that's prong #2, if you will, is that we're going to just get more G&A leverage and even some S&E leverage as we get growth from resources that are already in place.

Then last but not least, and in fact, this is driving a lot of our nice gross margin expansion over the last few years, and we'll continue to bolster and improve that area. It's that our operating excellence teams and investments in other areas of cost management like 80/20, which we're just now deploying in the fourth quarter in our first set of businesses are really targeted at maximum efficiencies, right? They're targeted at finding ways and then executing on ways to get more logistics savings, to get more cost management savings in our operations.

A lot of our businesses have grown rapidly over the last few years. And 80/20, for example, is one process that really goes back and looks at now that you're twice the size you were 4 years ago, how would you -- how should you design -- redesign your organization for maximal efficiency given your new normal levels of operations. So we believe and know that operating excellence in 80/20 are that third most important prong to really get our gross margins sustained and higher and to get our EBITDA margins to eventually those mid-teen results.

We just like the steady approach of getting it up 100 to 150 basis points next year, maybe higher. Certainly, would depend a little bit on volume and some of the mix. But look, we're on our way to the mid-teens, if not higher margins over time, and we're just having that balanced diet of areas and processes that we think are important.

Our next question comes from Gerry Sweeney of ROTH.

Congrats on a nice quarter. AI topic du jour, so let's stick with it. But just curious on the project side. So some of these data centers, they are switching different power, going a little bit more towards disaggregated power opportunities. Are there any opportunities in those locations for you guys versus the large turbine builds, et cetera?

It depends on how they choose to power the microgrid. If it's reciprocating equipment, the answer is little opportunity. If it's small format industrial gas turbines or aeroderivative gas turbines, there are certainly opportunities, but it depends on how the solution is defined and how many will be -- how many are present. The challenge in answering that question definitively is there's no single standard concept for any of these solutions.

Then just sticking with the AI stuff or the power generation and build-out. At some point, does that expansion for a lack of a better word, stall just because there's just enough -- not enough capacity at some point in some of these build-outs? So instead of it being a higher hump, it's more of an elongated process. And do you have a sense of what that is if that's true?

The answer as we see it is, yes, it will be elongated because there isn't enough supply to deliver what is presently being called for demanded. When you hear numbers being thrown around like $1 trillion of investment in data centers is going to $3 trillion per year, it's eye-watering and it's kind of hard to kind of make sense of it all. But Jensen Huang will be telling us it's going to be $3 billion a year -- $3 trillion a year for the next decade in order to satisfy global demand. That suggests that the amount of megawatts that have to be delivered to power that is well in excess of what industry can supply today, and we'll be providing it for many years to come.

We also can't forget there's 3 other demands being placed on our power grids. We have a demand for new businesses, new manufacturing returning to the U.S. and other developed countries. So that reshoring dynamic is raising the demand on energy. We have the electrification of everything from transport to manufacturing process to heating and cooling to moving goods within warehouses. That's another source of demand.

Finally, you've got -- AI is what people are focused on, but good old-fashioned computing. Cloud computing and more people operating computers for gaming and for crypto mining and for trading all requires electricity, and they're all going to be put on the grid in waves. And there's plenty of analytics that suggests this is going to run to 2040 at some level, going to run to 2030 at an elevated level. We're just at the beginning.

On that front, historically, I think a lot of your M&A has been maybe in the water and industrial side. Do you look at the opportunity on the power side? Are there acquisitions or opportunities for you to expand adjacent to what you're doing or add additional solutions to expand your wallet share?

Sure. Our pipeline is balanced. We like it to be that we push all of our businesses to think of ways organically and inorganically to advance their leadership. That's true in our energy businesses. Look, we -- to your point, our transactions have been more skewed to building and advancing a leadership position in industrial water, certainly doing the same in industrial air. But we've made some smart investments. The Transcend acquisition, separation filtration business, which has a large aftermarket and installed base was -- it was a great investment, high-margin investment for us that we made a few years ago, continues to grow. We've doubled the business as we start to really stretch our legs on that acquisition. There's others that we would look at doing in the space as well.

Our next question will be coming from Bobby Brooks of Northland Capital Markets.

I was just curious to double-click on the 2026 guide. I was just curious what -- and I know you've touched on it a little bit, but just to go a little bit deeper, what sort of macroeconomic backdrop are you assuming in the ranges of your '26 guide?

Yes. Look, I think we're stable, I think, is what I'd start with that word. We're not -- we don't feel we need a significant positive change in the macroeconomics. I think we're reading the same headlines, and we're sensitive to certain things that could influence the economy, whether it's interest rates and tariffs, certainly, we've all become much more accustomed to the dynamics that exist with the direction changes at times around the tariff topics. And I think supply chains have been stable in their management of that.

I think that there's certainly things that could change our view of the macro economy because we certainly aren't on an island if things go completely different. But we certainly don't see a major positive or negative swing over the next 12 months. We think that there are reasons that things could change. But where we sit right now with our pipeline and our backlog, look, for us, Bobby, frankly, it's about the visibility of pretty steady markets, right? Like it's hard for us to sit here today and say that over the next 6 months, these important power jobs are going to care about some of these headline topics, right? I mean, certainly, things can change that, but tariffs and interest rates aren't going to really change these important investments.

Same thing with reshoring. These water projects are somewhat unrelated to the general economy. So we're not -- as you well know and have done a great job of analyzing, we're not super sensitive to short or intermediate changes in, let's say, consumer sentiment or certain geographic-specific shifts. We're probably -- given that 100% of our sales is in industrial with industrial customers that are really in expansion and investment mode in a multiyear theme, it's hard for us to see a major economic shift in that.

Then I wanted to circle back on the cross-selling opportunities with Profire. So you've had Profire under your umbrella for 9, 10 months now. And I know one of the most exciting pieces to that acquisition was the cross-selling opportunities with their applications that historically had only went into U.S. oilfield service -- U.S. oilfield service customers to then cross-sell that into your wide range of industrial customers as well as bringing it to your international OFS customers. So just curious to kind of hear an update on that and how that's progressed so far.

Yes. Look, it's still a huge, we think, opportunity for Profire as a business. And we spent a lot of time with the team, including recently, including, by the way, them being one of the early businesses where we're going to be deploying and utilizing 80/20 to really get a firm grasp of how we can implement it at CECO. So a lot of dialogue with Profire, both in terms of opportunities to cross-sell and to break into new geographic and industrial markets. I think that there's a lot of good progress.

Look, it's still only been 9, 10 months. We always say -- we give it a year. We let our businesses get sort of settled in. We look for ways to invest operationally and commercially. Those programs are being put in place now. The team, I know, is very excited to be part of CECO. Certainly, they're looking at market dynamics within their core markets in the oilfields and energy applications. So they're constantly looking at ways to innovate and to make investments.

So we've had some good discussions about organic and inorganic investments in Profire. I continue to believe it's a business that is a $100 million business in a few years down the road. And some of those are certainly the result of our ability to bring their product into more industrial and international applications.

Then just last one for me. Todd, you quote in the press release saying depending on timing, fourth quarter of this year could be the largest booking quarter ever, which is some really strong commentary and not something you've specifically noted in prior press releases. So I was just curious, aside from the multitude of shots on goal you have, especially with the large power gen and water projects, what else has given you confidence to speak to that? And maybe have you already had strong orders quarter-to-date through October?

So yes, look, it's a good catch. And obviously, we put it in there for sort of a reason. And that reason is quite simple. Bring these two things together, Bobby. One is we just delivered our fourth consecutive quarter of orders over -- well over $200 million. And we're very pleased with orders of north of $230 million. And that this past quarter, the third quarter, while it gave us very nice year-over-year growth and a new record backlog, and it really didn't include any of the large, call them, mega jobs. It certainly had several very important and decently sized jobs. And historically, certainly would have been jobs that we might have called out because they were between $20 million and, let's say, $40 million. But for where we're at now in both power and international industrial water, they're not going to represent some of our larger jobs. And so the fact that, let's say, in our largest quarter year-to-date, we had one mega job. And in the third quarter, we still produced over 230. We didn't have one. And yet we believe we're very close in terms of timing on a purchase order, which is how we book a job. Even if we have a verbal, we don't book anything until we have all of the Ts and Cs and purchase orders and everything completed.

So I think it's a confidence in not just the visibility in our pipeline, but where we're at in several, not just one, but maybe several relationships and dialogues and verbals that we were getting from customers. So look, if the timing in Q4 is it more than one, but several of those occur. Now you're looking at our first quarter with more than 1 mega job, and that will give us -- certainly, that's the confidence that we have, and that's why we're sharing it.

Look, if it doesn't happen, we're still -- we have a lot of visibility to another great quarter of well over $200 million. But if they do happen, then as I said in our prepared remarks in the call, we will see -- what we believe we could see a quarter over $300 million.

Our next question will be coming from Jim Ricchiuti of Needham & Company.

One I'd like to just follow up though.

Jim, we're having a hard time hearing you. The line is choppy.

Okay. Any better, Peter? This any better?

It's a lot better. A lot better. Thank you.

Good. So yes, just a follow-up question just on gross margin. I appreciate the commentary and citing the sequential -- the seasonal issue in gross margin in Q3 of last year. But on the other hand, you had, I think, a sequential decline in revenues in Q3. So I'm just trying to get comfortable with what's happening with gross margin. Peter, you alluded to something I may have missed it. You talked about some issue, a closeout issue that impacted the Q3 gross margin. Wondering if you could size that for me.

It was about -- it contributed 30 to 50 basis points of the reduction. It was a project that we decided we would negotiate with our client to get it closed, get all outstanding change orders recognized, put it behind us, free those teams up and move on. It was a project that started out with a lot of positive vibes. And at the end, it was just one of those where we decided we probably needed to terminate and move on from each other.

And just, again...

I'm sorry, I just want to add to, look, our seasonally -- our softest quarter from a gross margin perspective is historically Q3. So we sort of model in a decline just naturally. There's just certain cost of goods sales costs that get sort of trapped in the quarter, while volumes were solid, just the dynamic of the quarter is typically a lower quarter for us from a gross margin perspective. You'll see it if you look back at most of our Q3s.

It's not a guarantee that it's always going to be the softest of our quarters, but I would be willing to bet that 80% of the time, Q3 for us is the most impacted from a gross margin. If it dips, it's going to dip in Q3. So again, I'm not trying to just say, well, it's a seasonal thing, but we already had modeled in that we were going to have a bit of a decline. There's always some smaller pieces, like Peter mentioned, that could be 30 to 50 basis points of additional contraction. Some inflation did occur in the third quarter, which the timing of which is something we're going to work through, just like we have in other quarters.

So look, we're not -- we were very happy with where our gross margins were year-to-date prior to Q3. Q3 was not different than we had sort of imagined it could be. We believe that we're going to get back to higher gross margins. But certainly, we've seen some impacts in inflation. It's modest.

Again, looking out to 2026, it sounds like you're assuming somewhat lower gross margin or maybe I misinterpreted your comment. And that's really -- if that's the case, that's a function mainly of mix, both industrial air and industrial water, a larger percentage of some of these bigger deals?

Yes. I think it's -- we are just providing a view that if our gross margins in '26 are lower on average than '25, it's mostly because of mix, large power jobs, large water jobs that would just have lower gross margin, but would maintain very good EBITDA margins because the amount of G&A associated with those jobs is minimal. And so -- and they're large jobs. So just the scale, the mix scale size of these large jobs would be hard for us to overcome mathematically in gross margin, but not hard for us to overcome in terms -- in fact, would be beneficial to the EBITDA line.

So it's more an indication that if gross margins are a little lower next year, we don't believe it's a dynamic that's changing in price or inflation. Those are things that we feel comfortable with. In fact, look, there are potential opportunities in nuclear, in defense, and in a few other areas of aftermarket in short cycle that if they occur throughout the year at the volumes that they could, those gross margins are materially higher than the average CECO gross margin and can certainly work to offset any natural gravitational pull down on margins from large power jobs and large water infrastructure jobs.

So look, right now, we're balancing it out. We don't give gross margin outlook for the year. We're just signaling that if it is lower, we're not sure that it's a real headwind as much as it is just the mathematical dynamics of the size of the jobs that are pulling it down.

One moment for our next question, which will be coming from Joseph Giordano of TD Cowen.

This is Chris on for Joe. Have you observed any change in customer sentiment or project timing for water, wastewater infrastructure investments contingent in part or whole on some form of government funding as a result of any changes in pace of disbursements from Infrastructure and Jobs Act?

Yes. We don't. And I think I don't want to sound like we're unique in the fact that we're saying we don't. I would say it's mostly a quick and confident answer that we don't see an impact because in the large infrastructure jobs that we're participating in, they're not U.S.-based programs or even necessarily European-based. They're located in regions where either that dynamic isn't occurring, where there's governmental pauses or large program timing associated with monies. Instead, it's -- there are other investments that criteria altogether.

Can you provide an update on how your short-cycle business trended during the quarter? And it's expected to be a larger share of the mix in the 2026 and what you see contributing to that?

Yes. So the mix of our short cycle is steady. But the short-cycle businesses are growing nicely and continue to add, I think, great results to our performance. Mix is tricky because if we have large power jobs and certainly, those are longer cycle. If we have large water jobs, those can be longer cycle. So the mix, all of a sudden, looks like it's staying steady when, in fact, short cycle could be growing rapidly inside our organization. Just hard to overcome the mix shift. But look, we -- 4 years ago, we had at best 20% as a percentage of sales in short cycle. We continue to be up above 30%. Now again, the mix of that can change depending on the jobs. But our goal over time is through organic and inorganic balance to find 50-50. That continues to be our goal.

It might not be a 2026 dynamic because of how our jobs are going to flow through our P&L. But again, we like the fact that we continue to add applications and businesses with a lot more aftermarket content, more filtration, more aftermarket parts and services. So it is a continued investment for us, but the short cycle has been pretty steady throughout the year.

I am showing no further questions. I would now like to turn the call back to Todd Gleason for closing remarks.

Thank you very much, and thanks, everyone, for the questions and of course, the interest in our information today. Importantly, to our global teams that are delivering incredible value for our customers, thank you very much for all that you do. It's important for our customers that we have the most talented organization to protect people, to protect the environment and to protect our customers' investment in their industrial equipment. We're passionate about that.

We are going to be presenting at several conferences in November and December. The information of those can be found at our Investor Relations website. We look forward to meeting with many of you when we're out on the road as well. So with that, we're going to end the call today. We appreciate it, and have a great day.

This concludes today's conference call. We appreciate your patience. You may disconnect.

Good day, and thank you for standing by. Welcome to the CECO Environmental Second Quarter 2025 Earnings Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steven Hooser, Investor Relations. Please go ahead.

Thank you, Kevin, and thank you all for joining us on the CECO Environmental Second Quarter 2025 Earnings Call. On the call with me today is Todd Gleason, Chief Executive Officer; and Peter Johansson, 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 our earnings presentation, which is on our website at cecoenviro.com. The 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 fact 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 included on Form 10-K for the year ended December 31, 2024. 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 provided the comparable GAAP and non-GAAP numbers in today's press release and provided non-GAAP reconciliations in the supplemental tables in the back of the slide deck.

And with that, I'd now like to turn the call over to Todd Gleason, Chief Executive Officer. Todd?

Thanks, Steven. Good day, everyone, and thanks for your time as well as your continued interest in CECO. As today's press release highlighted, in the second quarter, we delivered a number of financial records. Our Q2 and year-to-date results reflect positive impacts from the investments we have made to build and execute our operating model that continues to yield high-performance results while strategically and sustainably transforming our portfolio. As always, we strive to deliver leading environmental solutions to our global industrial customers, ensuring we protect people, protect the environment and protect our customers' investment in their industrial equipment. Now please turn to Slide #3 for a summary of the highlights of the quarter.

In the quarter, we grew backlog to a new record, exiting the quarter at $688 million. Year-over-year, our backlog is up almost $300 million or more than 75%. Sequentially, our backlog rose an approximate $80 million. This was made possible by another quarter of record orders. In Q2, we generated $274 million in new bookings. This is up 95% versus Q2 last year. We booked our largest ever order in environmental, selective catalytic reduction or SCR, emissions management solution for a major project in the U.S. power generation market. We continue to be very well positioned for future projects of similar or even larger scale and complexity.

When combined with orders from the first quarter, our first half of 2025 book-to-bill is approximately 1.5. If you expand your look back and add just one more quarter, this is the third consecutive quarter with bookings of over $200 million for a total of approximately $720 million in new orders in the past 3 quarters. This level of orders is a direct result of several years of focused strategies to diversify our portfolio, gain access to new vertical markets and geographies and to introduce new products and services. We believe we are well positioned for continued strong order bookings.

Revenue of $185 million in the quarter, up 35% year-over-year, were also a new record as we continue to deliver strong project execution and navigate market dynamics. Adjusted EBITDA at over $23 million was up 45% year-over-year, driven by volume, strong gross margins and an improving SG&A cost profile.

A few months ago, when we discussed our Q1 earnings, we articulated we had taken G&A-related cost actions. We are starting to see the benefits of those actions and our operational productivity initiatives. And in the final metric on this slide, we show EPS was $0.24 in Q2. This is up approximately 35% year-over-year. So overall, just great record results with solid performance. We exit Q2 with an incredible backlog and strong orders and margin momentum. Now let's turn to Slide #4.

While we feel that Q2 was outstanding on many performance metrics, I think it's even more impressive to appreciate this isn't just a 1 quarter phenomenon. On this slide, we capture a few data points and comments that highlight the first half of the year's performance and bolster my comments on our ability to deliver consistent results. First half bookings of over $500 million are up 76% when compared to the first half of 2024. First half revenues were up 37%. Like I said previously, we booked our largest ever order, and we believe we have several similarly sized opportunities in power generation and industrial markets ahead of us.

The Profire acquisition, which we closed in early January this year, is delivering on the various synergies we discussed when we announced the transaction. And our continued multiyear growth of our sales opportunity pipeline is now over $5.5 billion. We feel very good about the key markets we have targeted with our investments and resources. We believe we have a multiyear opportunity with large growth themes. And those growth themes are captured in the far right column on this slide, the market continues to see an unrelenting demand for power generation. We are also seeing a strong uptick in semiconductor inquiries as well as natural gas infrastructure and industrial water solutions. And aside from some softness in Europe, we are seeing steady demand in almost every other region. We are expecting some modest inflation in the second half, but we are pleased with how we have been able to offset early supply chain cost increases with either productivity, price or overall project execution. Now please turn to Slide #5.

As today's press release highlighted, we are raising our 2025 annual guidance for orders and revenue while reiterating our outlook for adjusted EBITDA and adjusted free cash flow. Starting top to bottom, we are raising our 2025 full year orders guidance to exceed full year revenues, thus delivering another positive book-to-bill for the year. We now expect our bookings to be 1.2x revenue, resulting in a bookings range of between $870 million and $930 million. The strength of our full year order outlook is supported by robust underlying markets, a very active and significant pipeline of opportunities and the momentum we have built over the past 9 to 12 months of sustainable orders growth.

For revenue, we are raising our outlook to $725 million to $775 million, up from a previous range of $700 million to $750 million. The $25 million increase on both the lower and the upper ends reflects the strong first half performance in bookings and revenue, coupled with a record sales pipeline and negligible project delays this year. The midpoint of our full year range speaks to revenues growing 35% year-over-year, of which approximately 20 points is driven by organic growth.

With respect to full year adjusted EBITDA and free cash flow, we are maintaining our previous outlook. The adjusted EBITDA range of $90 million to $100 million points to growth of approximately 50% year-over-year. Even with the modest increase in our full year sales outlook, we still like current adjusted EPS range and expected margin expansion that it implies, which we expect to be higher than 12% to up to low teens in the year. This outlook continues to absorb our expectation that we will experience modest inflation in the second half of the year. It also includes an expectation we will add resources later this year to prepare for what we see as 2026 growth. Our record backlog and our full year book-to-bill expectations, we can actually start to model double-digit growth for 2026. So of course, we want to ensure we are prepared to execute on that solid growth. Now let's turn to Slide #6.

We often talk about the strength and size of our sales opportunity pipeline, but I wanted to spend a couple of minutes here to describe 2 key important items. First, that the pipeline is our best indicator of short- and medium-term organic revenue growth. And second, the building and maintaining a large and healthy pipeline does not come without appropriate investments in people, processes and systems.

As you can see on this slide, there is a strong correlation between the size or value or growth of pipeline and the level of bookings when you compare the 2 periods that we present. On the left side of the slide, for the period 2015 to 2020, you can see the pipeline was essentially flat over those 5 years, and therefore, orders and revenue trended flat to down over that same period. By comparison, on the right side of the slide, in 2021 to this year, our pipeline has grown almost 40% annually on a compounded annual growth rate basis. As our pipeline grew, so did the revenue performance with a normal lag time associated with bookings turning to revenue.

The second point I want to make is that maintaining a consistently high level of viable opportunities certainly doesn't come for free. This level comes as a result of sustained investments in talented commercial teams, business systems and processes and market entry that has allowed CECO to penetrate new markets and customers, which in prior years wouldn't have necessarily known our name or our brands. And as long as market conditions are supportive and our global opportunity set is expanding, we will continue to sanction these increased investments to maintain and accelerate CECO's growth.

5 years ago, when I joined CECO, I knew it would not be easy to break out of the company's historic revenue range of limited to no growth. It would take expanding our sales pipeline by focusing aggressively on winning markets, by investing in new geographies, by diversifying our product and service offering. As we approach our new revenue outlook of roughly $750 million for the year, and we expect on our way to a $1 billion company, we are pleased we have the business model in place to continue to grow our sales pipeline. It might not have been easy, but we have certainly -- and we have certainly come up short on a few things. But overall, we are very pleased with our long-term growth and how well we continue to transform the portfolio. I really look forward to the next 5 years.

I will now hand it over to Peter, who will go through more detail on our financial results. Peter?

Thank you, Todd, and good day, everyone. Thank you for joining Todd and I for CECO's Second Quarter 2025 Earnings Call. I'd like to start on Slide 8, and I'll provide some additional color on our financial results for the quarter.

CECO finished the second quarter with a record backlog of $688 million. This is up 76% versus prior year and a 14% increase sequentially. Of the total, approximately $70 million is related to the recent acquisitions with the balance of the increase coming from organic orders growth. The second quarter of 2025 represents the 10th of the last 11 quarters showing a backlog increase. The increase was helped along by strong orders in the power generation, semiconductor, industrial water and natural gas infrastructure end markets, broad growth across a range of applications.

As Todd previously mentioned, this was the third consecutive quarter where CECO delivered orders greater than $200 million with our second quarter orders of $274 million, up 95% versus prior year and 20% sequentially for that book-to-bill of approximately 1.5x in the first half of the year.

On a trailing 12-month basis, orders totaled $883 million, up 58%, representing a robust book-to-bill of 1.35x and a record for any 12-month period in company history. Driven by demand in power, natural gas, semiconductor and industrials, produced in wastewater separation applications, CECO booked over $0.5 billion of orders for the first 6 months of 2025.

As mentioned in our press release this morning, the company booked our largest ever order in the quarter for a project in the Power Generation segment. That order plus a number of small- to medium-sized projects for natural gas infrastructure and power generation yielded over $140 million of our total bookings in the quarter, with the remaining 1/2 coming from industrial air and industrial water customer segments and applications, quite a diverse and well-rounded order book for the quarter.

Revenue in the quarter of $185 million was an increase of 35% year-over-year. With approximately 20 points generated by the company's most recent 3 acquisitions and the balance of the growth driven by organic results. Sequentially, revenue was up 5% despite the natural headwind related to the sale of the Global Pump Solutions business that closed at the end of the first quarter. In the quarter, project-related delays that impacted revenue recognition in the second half of 2024 have abated, and our quarter end backlog and pipeline strength gives us confidence in delivering on the updated revenue outlook Todd recently presented for the second half of 2025 and for the full year.

Adjusted EBITDA was $23.3 million in the quarter, an increase of 45% versus prior year, with margins improving approximately 90 basis points. Gross profit margin was slightly over 36%, up 50 basis points year-over-year. Mix due to higher short-cycle revenue was a tailwind to gross profit margins in the quarter and mainly attributable to our recent acquisitions. SG&A spending in the quarter benefited from the absence of quarter 1 expenses that do not repeat in subsequent periods and the initial impact of our G&A cost actions taken in the quarter.

Sequentially, adjusted EBITDA was up approximately 65% with 470 basis points of margin expansion attributable to higher volumes, favorable mix, the initial benefit of cost actions taken in the quarter and the absence of the aforementioned nonrecurring period expenses from Q1. On a TTM basis, adjusted EBITDA grew 11% with margins down slightly, impacted by -- largely by the results of Q1 of this year. Adjusted EPS in the quarter was up $0.04 or 20% on similar dynamics that impacted adjusted EBITDA, partially offset by higher interest expense in the period.

Before I leave this page, I would like to thank the global CECO team for a robust first half of 2025 and reiterate from my perspective, a few highlights from that first half performance that have positioned CECO very well for an even stronger second half of the year. Orders of $502 million were up 76%. Revenue delivery of $362 million were up 37%. Adjusted EBITDA of $37.3 million in the first half of the year was up 27%. We have made excellent progress on the integration of our 3 most recent acquisitions. We executed on the separation of the Global Pump Solutions businesses and systems and are transitioning support functions, reaching conclusion at the end of quarter 3. And finally, we have continued to advance on our project execution and sourcing initiatives, key elements of our operating excellence agenda. Now let's turn to Page 9, and we'll discuss briefly backlog.

I will not spend much time on this slide because I think it speaks for itself. With the great performance in quarter 2, our backlog is continuing a steady upwards climb as we convert on the growing sales opportunity pipeline. Our $688 million backlog has more than tripled since the end of 2021, and we expect this backlog to fully convert to revenue within the next 24 months, with the majority converting over the next 18. Our book-to-bill for the first half of the year was very strong and is the highest of any recent period, further underpinning our confidence in future revenue growth. Please now turn to Page 10, where we'll briefly discuss gross profit and gross margin.

This slide, similar to previous earnings decks, presents CECO's gross profit and gross margin performance by quarter since the fourth quarter of 2022 on a TTM basis, which we look at to normalize for quarter-to-quarter fluctuations and provide a look back to the start of CECO's operating excellence agenda. Since the first quarter -- fourth quarter of 2022, CECO has expanded TTM gross profit margins by approximately 500 basis points, with TTM gross profit dollar growth of slightly greater than 80%. In the second quarter of 2025 that most recently concluded, our business delivered gross profit of $73 million and a gross profit margin of 36.2%, an increase of 100 basis points sequentially. Our teams continue to execute very, very well, and this trend is continuing to become our baseline.

On a TTM basis, our gross profit margin was 35.2%, well within the range we're targeting for our business. This improvement over the past 2-plus years is attributable to the progress our teams have made implementing our operational excellence agenda, capturing annualized savings in the range of over $10 million and improving project execution and the impact of our commercial and portfolio transformation initiatives to improve the business mix and to deliver acquisitions with accretive gross profit margins.

For the balance of the year and beyond, we will continue to implement and expand on our operating excellence agenda focused on project execution and sourcing and to increase our focus on G&A expense optimization and process simplification to further benefit adjusted EBITDA delivery. Please move to Slide 11, where we'll quickly review cash flow debt and leverage.

Starting on the left side of the page with free cash flow, a schedule prepared that shows you how we walk from GAAP net income to adjusted free cash flow on a year-to-date basis. Cash flow in the second quarter was a net outflow of $3 million, which represents a sequential improvement of $12 million versus the first quarter of the year. The improvement was due in large part to higher operating income and net favorable cash payments on projects booked that were then offset by working capital requirements supporting CECO's substantial revenue growth. On a year-to-date basis, the outflow of approximately $18 million is due to elevated working capital funding needs in support of CECO's revenue growth. Capital expenditures of approximately $4.5 million is largely due to investments in our ongoing ERP system migration.

On the right side of the slide is a brief summary of CECO's gross indebtedness position with the primary drivers of change in the quarter shown for you. We ended the second quarter with gross debt of approximately $236 million, a modest increase from the end of 2024. Excess cash from the divestiture of the Global Pump Solutions business was applied to pay down the revolver credit facility balance early in the second quarter, which was then subsequently tapped to fund working capital increases. Net debt at quarter end is approximately $199 million, an increase of $19 million from year-end 2024. Net debt balance of $180 million, $9 million of the addition, which came from the second quarter of the year.

At this level of net debt, CECO's leverage ratio is approximately 2.7x our bank EBITDA of $74.2 million, leaving us with an investment capacity of $104 million, an increase of $35 million from the end of 2024. This is more than adequate to fund our growth needs, our investment needs and is supportive of future M&A in the back half of the year, in which we remain active in cultivating various M&A opportunities. But in the near term, we continue to focus our capital deployment on further reducing our debt levels and leverage ratios to further strengthen our balance sheet and reduce cash interest payments.

I've now concluded my remarks on CECO's quarter 2 2025 financial results, which I consider to be very solid and a strong recovery from a somewhat slow start to the year. And I now want to hand the mic back over to Todd for his final remarks and a wrap-up.

Thanks, Peter. So as Peter said, let's go ahead and wrap up with Slide #13, and then we'll welcome the Q&A session. As we enter the second half of 2025, we believe CECO remains very well positioned to benefit from our diverse end market exposure and key mega themes that remain very, very strong. Our $5.5 billion or higher pipeline provides tremendous visibility into many exciting opportunities, large and small, and we look forward to continuing to maintain a strong bookings level. I am very pleased with our Q2 and year-to-date performance, records almost across the board. It speaks for itself. But to have 76% backlog growth, 95% orders growth and revenue and adjusted EBITDA up 35% and 45%, respectively, is just outstanding.

As always, I want to thank team CECO for your customer-first dedication and outstanding teamwork. We continue to be bullish with respect to our full year outlook, and we are pleased with the progress we are making on the integrations of the 2025 acquisition of Profire Energy and the acquisitions we made late last year with Verantis Environmental and W.K. Group. We also continue to see opportunities to generate additional synergies with those acquisitions as well as the access that they each provide to new vertical markets and geographies.

So with that, we'll pause, open up the line for questions, and then I'll wrap up with some closing remarks. Operator?

[Operator Instructions] Our first question comes from Rob Brown with Lake Street Capital Markets.

Congratulations on a great quarter. First question is on the pipeline and the power gen market. You've had some good orders there. How would you say the pipeline is sort of for the rest of the year and into next year in power gen? What are the size of the opportunities? And how much capacity do you have there to take on work?

Well, that's -- it's a good question. There's a couple of questions in that. So capacity isn't an issue. We certainly speaks to our need as we've been addressing it to bring on key resources to manage projects, supply chain relationships and obviously be able to execute on the project from a manufacturing or supply chain capacity, we feel good. The market continues to be excellent.

Our order in the quarter and orders that we've had in previous quarters that are also very attractive. We would say we're in the -- CECO continues to feel that we're in somewhat of the earlier innings of our orders being booked. So you think about a large let's say, gas turbine power job that might be announced by one of the large system providers in the marketplace, such as Siemens and GE Vernova, et cetera, we're later in that cycle, meaning they then work with supply -- with their supply chain, of which we're a strategic partner to finalize the overall project design and systems. So we would say our pipeline is still in the earlier innings as it reflects the very large announcements that have been made for power generation. So pipeline looks great, certainly well over $1 billion of power gen-related projects for our solutions.

And Peter, I don't know if you want to add any additional color to that.

The active pipeline is well over $1 billion. We see that $1 billion coming to a decision in the next 24 months. That's across the large suppliers and some smaller end users who are going to self-perform work. We don't and have not seen any signs of this market slowing down.

And I would say to just double down on the capacity question, we are in regular dialogue with the -- with our end customer, sort of the aforementioned power gen suppliers -- and they're very keen on the capacity of the supply chain. So they work closely with all of us to ensure that whether or not somebody is supplying them with, let's say, thermal abatement, noise abatement, thermal acoustic solutions or emissions management solutions, whether it's for an aero derivative or a large frame system that we're not running into capacity issues to deliver.

Okay. Great. And then I guess beyond the power gen market, I think you talked about quite a bit of strength overall across the board. But I guess what's sort of the environment around some of the other verticals you're tracking? What are the drivers there? And what do you kind of see the length of the demand curve in those markets?

Yes. Peter will expand on each of these, but there's multiple markets. Semiconductor has had some increases and then it sort of settles back down over the last 18 or 24 months. But semiconductor certainly looks and new fabrication capacity is back on in terms of a market, we would say. Over the last 6 to 9 months, certainly, natural gas infrastructure has been a very, very high-growth market, and we benefited significantly from our leadership position, providing separation and filtration solutions and other key environmental solutions for natural gas infrastructure.

And then we've invested heavily over the last few years to better position CECO and our key brands in industrial water and industrial water, not only including on-site solutions, but infrastructure associated with water. So that market continues to be very attractive for us. The market is healthy, but we feel that we're uniquely positioned now to break into some new geographies and new markets because of our investments and our relationships and even some of the acquisitions we've made, which give us access to those markets strategically.

And then the last is -- a theme that, Rob, we've talked about for many, many quarters, continues to be very healthy. And that's just the general dynamic of industrial reshoring in North America and in other geographies where globally, I think over the last few years, countries and regions have wanted to have a better control over their supply chain capabilities. And so bringing back industrial production to, let's say, North America is one great example, which that theme continues to have really good visibility for us and some really good momentum still.

So a lot there that we're excited about. Power gen is certainly the biggest associated with data centers and AI and all the electrification and digitization needs and automation. So power gen is certainly the -- I'd say, the healthiest or the fastest growing of the markets. But the other ones I mentioned are -- they're A+ in our book.

Our next question comes from Aaron Spychalla with Craig-Hallum Capital Group.

Maybe first, just to expand on Rob's question maybe a little bit. I think you talked about some similar sized opportunities in the industrial market. Just curious which parts of those end markets, geographies, et cetera, might that be in? And just is that something you expect this year? Or is that more into 2026?

Thanks, Aaron. We have more than a handful, less than a dozen large opportunities in water in the Middle East, India and Southeast Asia that are in excess of $50 million that are active -- we're actively pursuing and are proceeding well through up to an award. It's the greatest number we've seen at any time in our history, and it's mirroring what's happening in power generation. We're seeing a return to the buying cycle now of a number of industrial end markets, including the next wave of semiconductor and electronic plant construction, beverage can, plant, manufacturing build-outs and a new wave in metals processing, not your traditional steel, aluminum, titanium, nickel that we've historically served. But as the U.S. and other non-Asian markets begin to invest in securing supplies around rare earths, copper and other materials, that's beginning to enter, call it, an order window in a year or 2 from now. A lot of activity.

What's also benefiting us and many of our peers is the current administration's view on freeing up the bureaucratic red tape to allow projects to be permitted and financed quickly and get started quickly. Shovels are getting in the ground faster now, and we expect that to accelerate as well. So there's just a lot of very positive tailwinds, if you will, that we're experiencing. And as you see demand for manufacturing grow in the United States, whatever form that might be, it's going to require energy. It's going to require logistics and transportation. And those investments then require materials to produce them, which will get produced in quarries and in cement plants and other areas where we supply equipment.

So it seems to be a very -- now a very -- dare used the term kind of mega cycle around all things that require industrial performance, and that's where we're focused.

Great, Peter. And then maybe on that, some of the red tape, can you just kind of talk about the Big Beautiful Bill and any impacts on the bonus depreciation as some of these projects maybe start to get moving? I mean you've seen really good order growth thus far. Is that something that can help move some of these projects forward as well and benefit you?

Yes, it can't hurt, but we were seeing this orders -- our orders grow, our opportunity pipeline grow and our booking rates grow even before the passage of the bill. Even while it was being debated, we were receiving orders. No one held off waiting for the results. Aerospace is going to benefit. Anyone who buys or builds large pieces of machinery is going to benefit. So it can't hurt.

One thing we haven't talked about, and it just was announced in recent days is what's likely to be a very large export wave from the U.S. in munitions, armaments and defense equipment. That will start rolling through our economy. New plants have to be built. New sources of raw materials have to be developed. And so any time government steps back and says, we're going to do the minimum to enable industry to enable the markets to do their job, that's a good thing. And while we're not taking a political position here, we're certainly not opposed to that.

We're not sure, to Peter's point, that there's any specifics with any bill either way that slows down the need for power that impacts the need for more automation and new industrial investment. These things are going to happen sort of with or without policy. We do believe policies certainly help to open up the speed and acceleration of which things happen. But I think we're more excited and interested in our big beautiful backlog than we are in any particular bills.

Our next question comes from Jim Ricchiuti with Needham & Company.

Just if we look at your guidance for second half bookings, I'm just wondering what does that imply for large orders? I know that's always tougher to predict the timing on some of these.

It doesn't -- yes, thanks. It's a great question. I would say it is it doesn't capture the maximum of what we could book in the second half. I'm not suggesting that we're being uber conservative in our bookings outlook for the second half, but we're certainly not going to -- we're not betting 1,000 here on all these things happening in the second half. So I think we take a very normalized view of how and when the timing of these orders come in. We would say that -- yes, that it's slightly less than maybe the last couple of quarters, but still at a healthy level in terms of the gross dollar amount. That could prove to be one way or another. And as you know, from our history, an order can miss booking the quarter by a handful of days or weeks, and then it might end up in the next quarter. So we don't know always when our customers are going to finalize the purchase order agreements with us.

Got it. And I wanted to go back to the comment you made in the release and I think in the deck about the inflationary pressures in the second half. So I guess the question I have for you, Todd, or Peter, is what flexibility do you have to pass on some of this to the market over time? Or is this also about some of the larger deals and sometimes it's a little bit more challenging to do that?

Yes. Maybe it's a little more challenging to pass through on some of the larger projects. We have very good contracts, and we have very good execution with our supply chain when we have a fixed price contract with the customer, we have similarly fixed price contracts with our supply chain. But you can't prebuy or fix everything. And I've said it on the first quarter call when we articulated our view of tariffs and inflation. And we're just reiterating it again, I guess, now. And that is if most companies are increasing price, which we feel that most have in the industrial space, components, electrical components, pumps, motors, valves, fans, you name it, things we all buy that might not necessarily be negotiated in our supply chain. We're still buying those, if you will, through distribution as and when we need them. If those prices are up 5%, 6%, 7%, 8%, I'm just using that as an example. Well, those are -- that's inflation that we know is coming in the second half.

And we're just suggesting that we've modeled that into our guidance. That expectation that the prices that we've heard and understood have been increased throughout the year, that will start to present itself through distribution in -- now in the third quarter and in the fourth. The combination of that expected inflation, which we certainly work hard to pass along or absorb in our productivity initiatives, and I feel good about our ability to do that. But still, it's an expected inflationary period for a handful of our businesses that are out buying components like that.

And then the other is when you have the backlog of $300-ish million, not quite, but almost $300 million year-over-year, and we expect that, that could continue to grow. We're adding a handful of resources to prepare for that execution to manage our ability to deliver on time, on schedule and even better than budget. So we -- these investments are smart. We get out ahead of it. We get out ahead of the need to scramble on our projects. But as a result, we're sometimes adding a little bit of cost in advance of that revenue. That is a dynamic that we see potentially in the second half. So our guidance really reflects the combination of those 2 components.

Got it. And then just last question, quick one just on -- has your thinking about the impact of tariffs on the business changed at all? And congrats on the quarter, by the way.

Yes. No. Our thinking remains fundamentally unchanged. It continues to be a bit of an evolving headline and topic as policies and relationships and agreements change. But we believe overall that what we talked about at the first quarter and the analytics that we provided fundamentally hold true still.

Our next question comes from Gerry Sweeney with ROTH Capital.

Congrats on a great quarter. A lot of questions have been asked. And to be honest with you, I'm multitasking here. But I just wanted to touch again on margins. These are my words, I think, aspirationally or I should say, I think I would always think CECO could get it to sort of mid-digit -- mid-teens EBITDA margins. And we have SG&A moves, process improvements. I think there's mix. There's also leverage as you drive -- continue to drive gross profit dollars. Is something in the mid-teens attainable over, I don't know, 12, 18, 24 months? And how should we think of that?

Yes. I mean, look, we got to get into the low teens sustainably before we get into the mid-teens. So we want to get there, and we expect to get there in that period. Mid-teens, certainly, I think we are -- I would maybe suggest we've been pleasantly surprised with the growth and the opportunities in the marketplace. When we see them, we want to invest to penetrate those markets and continue to build our industrial water business, for example, continue to build our capabilities internationally, continue to build our pipeline of not only sales, but great talent to go and execute on that.

So our investments have probably been a little bit higher than we anticipated 12, 18 months ago, but so has our growth rate, right? So we're driving that. And I would say we're maybe -- if you told me we had to have mid-teens margins, we -- to whatever to win gold metal, then I suppose we certainly see a plan to get there. However, we like the investments, what they're yielding. We believe in the returns over the long term. And so yes, it might be your words, it's also mine, Gerry, that as we continue to grow, we believe that volume leverage and productivity will get us to those mid-teen EBITDA margins. We're still committed to them. We're probably a little, like I said, a little bit behind in terms of how we thought we'd be because of our investment cycle. But we also like the returns we're getting from our investments. So we're still committed to those mid-teens margins, and we'll get there.

I get it. And that's fair, right? So what we should be thinking here is, right, this is -- growth is, again, maybe a little bit ahead of schedule, to invest in that I take growth over margin tweaking any day of the week. And let's -- it's a little bit of a tactical response to support growth that maybe slows margin expansion a little bit. But again, let's go for growth over absolute margins any day of the week. Is that fair?

That's right. That's right. And I mean, this sounds convenient to say when you're in a high-growth organization. But if we did see moderating growth as a company, we have certainly cost levers that we wouldn't be afraid and could take to probably -- and I have many experiences as does my leadership team and our Board kind of working in for decades and lower growth organizations that as a result of that lower growth environment, low single-digit growth companies really, really go after their cost structure more aggressively because they don't have necessarily or see the opportunities to invest in 95% orders growth year-over-year, right? And so it's a balance that we feel we're -- it's a trade-off, I guess, that we feel we're willing to make to continue to invest appropriately to maximize our growth versus slowing down that investment to maximize our margins.

Now we're not trying to have weak margins. We love what we're doing with gross margins, price, productivity, mix. We're going to continue to work on our portfolio. And as we said, the second quarter shows a stronger conversion of our SG&A. We're going to -- we're still committed to that. We're still looking at costs to prune in our corporate and in our organization where we have redundancies. There's no shortage of levers here. But right now, the focus is on growth.

One other maybe housekeeping -- or 1 or 2 other housekeeping items. Any ForEx impact in the quarter? Or -- I didn't go through a little fine tooth to be quite honest with you.

De minimis. It's small.

De minimis.

Small ForEx.

Yes. And then curiosity as an occupational hazard of an analyst, what is the gap between maybe Siemens, GE Vernova getting an order for a turbine and when you see the follow-on order for your equipment or your portion of the project?

Half a year. Half a year would be -- so typically, we and the balance of the supply chain are certainly deeply involved in conversations with them, including even some preliminary budgetary proposals, et cetera, to give them confidence who they would already have as a short list of suppliers, what the cost on a project would look like. So that helps them secure and have confidence in their ability to deliver on their order. So in a way, it feels like we're right there with them many times. But from when they announce, let's say, a large win, we're 6 to 12 months away from securing a PO.

Now sometimes they announce a win and they say that this is 5 years out. Well, then we're longer than that because they're not going to necessarily have to give us an order for something that we can certainly deliver in 12 months. They don't need us to sit on it for 4 years. But for the most part, they're announcing orders that they're planning to deliver in that 18 to 20 to 36 months, we'll announce an order or we'll get an order 6 to 12 months after their announcement. Just to be -- that's the typical.

Congrats again on the great quarter.

Thanks, Gerry.

Our next question comes from Bobby Brooks with Northland Capital Markets.

Congrats on the excellent quarter. About a month ago, you guys had announced the launch of a new Saudi Arabian office, which is in contrast to the fact most investors focus...

Bobby, it's very hard to hear you. Your line is very staticky. But yes, we can hear you, but just your line is a little staticky, but go ahead.

Yes, you guys can hear me better now.

Yes, that's -- go ahead.

Yes. So yes, just about a month ago, you guys announced the launch of a new Saudi Arabian office, which is in contrast to the fact that most investors focus on the domestic opportunities ahead for you guys given how large it is. But I think it would be helpful for investors to discuss the opportunities you're seeing globally in kind of the key regions. You mentioned it, I think, in the Q&A a little bit earlier and just maybe contrast that versus domestic opportunities because I get the sense that the international opportunity for CECO is a little underappreciated. And maybe you can just dovetail that with how selling Profire solutions to international customers has went thus far.

Yes. So look, we're -- we love all of our regions. And certainly, we see key opportunities in North America. But we've also been growing steadily over the last 4 years internationally. In fact, our high-growth regions, which is -- which are the countries or the regions that you would expect from the Middle East and India, Southeast and East Asia, China, and similar, we have expanded our sales over the last 4 years from around $30 million to well over $100 million. And the Middle East represents a very strategic region for us. We have a great group headquartered in the Middle East in Dubai that thoughtfully expands into new vertical markets like industrial water as well as into new geographies throughout not just the Middle East, but those high-growth regions.

We've been intentional about expanding into Southeast Asia and growing in that space. We've been intentional, including an acquisition of DS21 in South Korea so that we have better and more sustainable access to the East Asian market and the South Korean relationships with the EPC firms there. And then you sling back to the Middle East, we have certainly sold into Saudi and worked with the major Saudi companies and the economic leaders there. It's more efficient if you have a local presence. And over time, as we think about investing in Saudi and in other countries, we want to make sure that we're able to maximize those relationships.

So having a local presence, having a local team, having a local office and entity over time, potentially adding assembly, manufacturing and more distribution into a country aids and helps accelerate the growth in those relationships as well, especially in a country like Saudi that's certainly very appropriately focused on Saudi for Saudi and things of that nature. So you want to crawl, walk, run into these countries. I think we do a good job of that. And we're going to do that same thing in countries like Saudi, where we see a long-term growth rate that and opportunities that aligns with our products.

Bobby, a way to think about it is that we've positioned our global footprint to be in the 8 largest industrial trading zones in the world. We talk a lot about North America because CECO was at one point, 5, 6 years ago, 80-plus percent North American in its business. We're rapidly approaching a balanced 50% North America, 50% outside of the region. And that will vary by quarter, and it will vary by year based on orders booked and revenue generated from those orders. But we see consistent market growth in Korea, in Southeast Asia, India, Saudi Arabia or the Gulf region and North Africa. And we see that business being generated through clients based in Europe, investing outside of Europe. EPCs that are historically European headquartered with teams now in India and the Middle East and Southeast Asia, developing projects for large local end users and national energy companies.

We're also seeing a more attractive market for our solutions as these regions begin to spend more time thinking about environmentally sustainable outcomes, cleaner plants, cleaner energy production, cleaner water, reuse of water. And so the dynamics are, say, the market drivers we've seen in the OECD nations have now made their way into what -- euphemistically we refer to as the developing regions. I would argue they're not developing regions. They're developed markets that are now developing their view on environmental solutions on how to deliver more environmentally sustainable solutions and to be more efficient in their consumption and use of material inputs.

That all favors CECO. And we're making investments in those locations judiciously as we feel those markets are opening and available for our solutions because a domestic solution, one that's very viable and is the standard in the U.S. is not yet the standard outside of the U.S. in many markets. But we're moving towards a reality by the end of 2030, where what we're supplying in the U.S. will look very similar to what we're supplying in Saudi Arabia, for instance, in India, in Malaysia, in Indonesia. And that's a good thing. Good for us, good for the planet, good for the people who live in those regions.

That's excellent color. I really appreciate it. And then my next question is, in the prepared remarks, you guys both indicated that the project delays that kind of hampered results in 2024 have abated. Could you maybe just discuss a little bit deeper why those have relieved?

Yes. Our customers got their s*** together, and now we're moving forward constructively to deliver on the projects as we had initially defined them.

Yes. We had a handful of larger projects that had longer delays than normal. In the few years prior to '24, that was in '24. We may have even seen customers that were accelerating projects. So the dynamic in '22 and '23, where when projects were booked, customers executed at or maybe even a little faster than schedule on average. That changed certainly across a handful of material projects in '24, and that impacted our outlook for the year as well as our performance in the year because they were larger-than-average projects that had longer-than-average delays.

Those projects have now turned to a normalized operational schedule. They got -- they're stuff together. And we have not seen that same dynamic. There's always a handful of projects that are paused for a variety of reasons. That happens every quarter and every year that I've been at CECO and pretty much every company I've ever been at. But that dynamic was unique last year. And we're no longer seeing that unique aspect this year. It's now "back to normal," Bobby. And so we -- right now, we don't see a project that we're -- that we anticipate being delayed nor do we necessarily see such large projects in the second half of the year that even if 1 or 2 of them were delayed, would necessarily create a moment of pause or concern for us. The breadth of our projects is certainly pretty spread out across our second half delivery.

So right now, we feel like we're in a pretty good shape. And that's why in our prepared remarks, we made comment around we don't anticipate any project impact necessarily hurting us in the second half of the year. And we're certainly not experiencing anything positive or negative on the project execution dynamic to speak of.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Todd for any closing remarks.

Thank you very much. Well, thanks for the great questions and of course, all the interest in our information today. Once again, I want to thank our global teams here at CECO for delivering such incredible value to our customers as we continue to protect people, protect the environment and protect our customers' investment in their industrial equipment. As many of you know, we'll be presenting at several upcoming conferences in the third quarter, which you can find on our website or we will be announcing via press releases. We hope to see you there. We're always available to answer any questions you might have.

So with that, I want to thank everyone. Have a great rest of your day, and we'll talk to you soon.

Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect, and have a wonderful day.