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CE

CECO ENVIRONMENTAL CORP (CECO)·Q2 2025 Earnings Summary

Executive Summary

  • Record quarter with revenue $185.4M (+35% YoY; +5% QoQ), adjusted EBITDA $23.3M (+45% YoY), and diluted EPS $0.26 GAAP / $0.24 non-GAAP; orders hit $274.1M and backlog reached an all-time high $688.1M .
  • Results beat Wall Street consensus: revenue $185.4M vs $178.7M*, EPS $0.24 non-GAAP vs $0.18*, EBITDA $23.1M vs $20.6M*; gross margin expanded to 36.2% .
  • Guidance raised: FY25 revenue outlook increased to $725–$775M (from $700–$750M); adjusted EBITDA maintained at $90–$100M; FCF conversion guided “>60%” (Q1: 60–75%) .
  • Near-term stock reaction catalysts: largest-ever power generation emissions order, record backlog, stronger sequential margins, and a robust $5.5B pipeline; watch for H2 inflation/tariff pass-through and incremental hiring investment discussed on the call .

What Went Well and What Went Wrong

What Went Well

  • Record bookings and backlog: “We booked CECO's largest-ever order… for a large power generation project,” driving orders to $274.1M (+95% YoY) and backlog to $688.1M (+76% YoY) .
  • Margin expansion and cost actions: Q2 gross margin 36.2% (+~50 bps YoY) and sequential adjusted EBITDA up ~65%, buoyed by volume, favorable mix from recent acquisitions, and initial G&A cost reductions .
  • Strategic positioning: Management highlighted strong demand across power generation/data centers (AI), natural gas infrastructure, industrial water, and semiconductors; “we are energized to maintain our top-quartile growth” with a $5.5B pipeline .

What Went Wrong

  • Free cash flow negative: Q2 FCF was $(3.0)M (vs $2.6M LY), with YTD FCF $(18.0)M, reflecting working capital funding for growth and tax payments linked to the Q1 asset sale .
  • Higher interest expense and expected H2 inflation: Interest expense rose to $4.9M; management modeled component cost inflation in H2, partially offset by pricing/productivity .
  • Europe softness and continued investment needs: Management flagged softness in Europe and incremental resource additions ahead of 2026 growth and backlog execution, tempering near-term margin expansion pace .

Financial Results

Income Statement Highlights (YoY and QoQ)

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Millions)$137.5 $176.7 $185.4
Gross Profit ($USD Millions)$49.0 $62.2 $67.1
Gross Margin %—35.2% 36.2%
Net Income ($USD Millions)$4.5 $36.0 (includes gain on sale) $9.5
Diluted EPS (GAAP, $)$0.12 $0.98 $0.26
Diluted EPS (non-GAAP, $)$0.20 $0.10 $0.24
Adjusted EBITDA ($USD Millions)$16.1 $14.0 $23.3
Adjusted EBITDA Margin %—7.9% 12.6%

Notes:

  • Q1 2025 GAAP results include a gain on sale of the Global Pump Solutions business, inflating GAAP net income/EPS .
  • CFO confirmed sequential margin expansion and abatement of 2024 project delays .

Operating KPIs and Cash Flow

KPIQ1 2025Q2 2025
Orders ($USD Millions)$227.9 $274.1
Backlog ($USD Millions)$602.0 $688.1
Book-to-Bill (Quarter)—~1.5x
Free Cash Flow ($USD Millions)$(15.1) $(3.0)
Cash And Equivalents ($USD Millions)$146.5 $36.8
Total Debt ($USD Millions)$339.7 (gross debt less current portion + current portion) $238.7 (gross debt less current portion + current portion)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2025$700–$750 $725–$775 Raised
Adjusted EBITDA ($USD Millions)FY 2025$90–$100 $90–$100 Maintained
Free Cash Flow Conversion (% of Adj. EBITDA)FY 202560–75% >60% Maintained (floor reiterated)

Additional guidance commentary:

  • Orders guidance raised on the call: bookings targeted at ~1.2x revenue ($870–$930M), supported by pipeline strength and momentum .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
Power generation & AI/data centersHighlighted as growth driver; record Q4 orders Strong demand continuing; pipeline >$5B Largest-ever SCR emissions order; power gen pipeline >$1B decisions in 24 months Accelerating
Supply chain & project delays2024 delays noted, impacting results Pricing actions for tariffs; proactive inventory and staffing Delays have abated; execution normalized Improving
Tariffs & inflationTariff cost risk noted Strategic pricing actions; maintained FY outlook Modeled H2 inflation; pass-through/productivity offsets Manageable headwind
Regional expansionInternational sales centers expanding —Saudi office; focus on Middle East/India/SEA/Korea; international mix rising Expanding
Industrial water & NG infrastructurePortfolio upgrades (M&A) —Multiple $50M+ water opportunities; NG infrastructure strong Strengthening
M&A & integrationThree deals in 2024; upgraded credit facility Profire acquisition closed; integration progress Synergy capture ongoing; capacity to pursue M&A as leverage ~2.7x bank EBITDA Ongoing
ERP & cost actions—ERP investments; planned G&A reductions Initial G&A benefits showing; continue SG&A optimization Beneficial

Management Commentary

  • CEO: “We delivered another record quarter… booked CECO's largest-ever order… highest ever quarterly revenue… backlog to an all-time high of $688 million” .
  • CEO: “We are energized to maintain our top-quartile growth… increase our full-year revenue outlook to between $725 and $775 million… very bullish on our full year adjusted EBITDA outlook – roughly 50% growth rate” .
  • CFO: “Gross profit margin was slightly over 36%, up 50 basis points year-over-year… sequentially, adjusted EBITDA was up ~65% with 470 bps of margin expansion” .
  • CEO on markets: “Power Gen is… associated with data centers and AI… the healthiest… natural gas infrastructure and industrial water also very attractive” .

Q&A Highlights

  • Power generation pipeline and capacity: Active pipeline well over $1B with decisions expected over 24 months; supply chain capacity sufficient; CECO positioned for large frame/aero-derivative systems .
  • Other verticals: Semiconductor inquiries rebounding; beverage can and metals (incl. rare earth/copper) entering order windows; industrial reshoring momentum continues .
  • Guidance/inflation mechanics: H2 inflation in components modeled; pass-through/pricing/productivity offset; incremental hiring ahead of backlog execution reflected in margin outlook .
  • Margin ambition: Path to low-teens EBITDA margins sustainably before mid-teens; management prioritizes growth investments vs. near-term margin maximization; cost levers ready if growth moderates .
  • Regional strategy: Saudi office and broader Middle East/India/SEA/Korea expansion to localize presence, improve access to EPCs, and align with rising environmental standards .
  • Project delays: 2024 delays have normalized; breadth of H2 projects reduces risk from any single delay .

Estimates Context

MetricQ2 2025 ActualQ2 2025 Consensus*Surprise ($)Surprise (%)
Revenue ($USD)$185,391,000 $178,656,330*$6,734,670+3.8%
Primary EPS (non-GAAP, $)$0.24 $0.1767*$0.0633+35.8%
Adjusted EBITDA ($USD)$23,135,000 $20,628,500*$2,506,500+12.2%

FY25 context:

  • FY25 revenue guidance midpoint $750M vs consensus $765.1M*, with range $725–$775M bracketing consensus; adjusted EBITDA guidance $90–$100M is slightly above consensus $91.2M* at the midpoint .

Values with asterisks were retrieved from S&P Global.

Key Takeaways for Investors

  • CECO delivered broad-based beats vs consensus on revenue, EPS, and EBITDA, underpinned by record orders, backlog, and margin expansion; evidence of improving execution vs 2024 project delays .
  • Raised FY25 revenue outlook to $725–$775M while maintaining EBITDA $90–$100M indicates confidence in backlog conversion and pipeline; watch H2 inflation impact on mix/margins .
  • Power generation linked to data center/AI electrification is the principal growth engine; sizable water infrastructure opportunities and NG infrastructure provide diversification across cycles .
  • Near-term cash flow is pressured by working capital funding and tax timing from divestiture; improving sequential FCF and strong receivables trajectory suggest normalization through 2H .
  • Strategic M&A integrations (Profire, Verantis, WK Group) and international expansion (Saudi, Korea, SEA/India) are enhancing short-cycle revenue mix and margin profile .
  • Valuation context: Consensus FY25 revenue ~$765M* vs guidance midpoint $750M implies potential for estimate adjustments upward if orders strength persists; EBITDA guidance supports margin progression narrative .
  • Trading setup: Catalysts include additional large power gen awards, conference visibility in Q3, and continued margin/FCF improvement; monitor tariff/inflation pass-through and interest expense trajectory .