CECO - NASDAQ

Good day, and thank you for standing by. Welcome to the CECO Environmental First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Steven Hooser, Investor Relations. Please go ahead.

Thank you, Liz, and thank you, everyone, for joining us for the CECO Environmental first quarter 2025 earnings call. On the call with me today is Todd Gleason, Chief Executive Officer, and Peter Johansson, Chief Financial and Strategy Officer. Before we begin, I'd like to note that we have provided a slide presentation to help guide our discussion. This call will be webcast along with that earnings presentation, which is on our website at cecoinviro.com. The presentation materials can be accessed through the Investor Relations section of our 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 31st, 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 a comparable GAAP to non-GAAP numbers in today's press release and provided a non-GAAP reconciliation 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 joining. Let's go ahead and please turn to Slide number 3. These are some of the highlights we're going to cover on today's call. We're pleased to share that we delivered multiple financial records in the first quarter. Perhaps the most impressive of our Q1 achievements was our record bookings of approximately $228 million, up 57% year-over-year. We generated these tremendous bookings without a large order in either the power generation or produced water treatment markets, and these records reflect the continued strength of our entire portfolio. We still see very large opportunities in these water and power sectors, and we anticipate very exciting order bookings related to these opportunities in the coming periods. Overall, our sales pipeline, which tracks future potential orders looking forward up to 18 months, remains very strong and continues to grow sequentially. Just six months ago, our sales pipeline was roughly $4.5 billion and now tops $5 billion for the first time ever. In that new level of note are almost a dozen opportunities that are each greater than $50 million in value. As we will discuss in a few minutes, the key growth themes we have been discussing for over a year all remain very much intact, and while there is a lot of noise and uncertainty related to tariffs and the potential impact on supply chain costs and the economy, we have not seen a material slowdown in our market and customer activity. I would suggest that the same themes that we have been driving CECO's growth over the past year or more are only reinforced by the stated goals of the current administration, and we remain bullish on these themes regardless of how they are promoted. The need for more industrial manufacturing or reshoring remains critical. More natural gas infrastructure is required to deliver the fuel to power this new manufacturing activity. More power generation for the electrification to satisfy growing consumer and commercial applications. And more investment in water and broader infrastructure is required on a global basis. These are just a few examples of the powerful trends in our very broad and highly diversified opportunity set that remain front and center on our agenda. As a result of all these highlights, we are maintaining our full year 2025 guidance. We have initiated price and productivity measures to help offset the known impacts from the current tariffs, and we are monitoring this very dynamic situation as well as any impacts to the overall economy. CECO does benefit from a vast majority of our supply chain being geographically aligned with our customers and projects, which does help to minimize our exposure. More on this topic in just a few minutes. Now please turn to Slide number 4 for a quick summary of the highlights of the quarter. Before diving in, please note that our first quarter results include a full quarter of Profire’s impact as well as our fluid handling or global pump business being removed because we did not divest that business until the very end of Q1. Starting with backlog, we exited the quarter with $602 million, which is up 55% year-over-year, and approximately $60 million higher sequentially driven by another record quarter of new orders. Our Q1 orders, again, is an exclamation point to the diversity of our business and well-positioned leadership and growth sectors. And the $5 billion pipeline that I just mentioned continues to reinforce our confidence that we will continue to deliver very high bookings levels. Of note, over the past three quarters, we have booked over $600 million in orders, which we expect will yield a near-term quarter that will produce sales over $200 million for the first time ever. Now moving to revenue, we recorded a $177 million for the quarter, up about 40% year-over-year, of which 28% was driven by our most recent acquisitions. If you recall, in the second half of 2024, our execution was impacted by a handful of significant projects that were delayed due to customer timing. And although we saw some recovery in the quarter, we're expecting to accelerate and recover entirely from those delays over the next handful of months. Moving to adjusted EBITDA at $14 million, a result slightly above expectations driven by volume drop-through and gross margins in the mid-30s, which are in line with recent quarters. Our EBITDA was modestly depressed by timing of resource investments in the business related to the significant increase in our backlog and pipeline. We also had some transaction headwinds related to integration and an increased level of process normalization, which we accelerated in the quarter. An adjusted EPS of $0.10 is above consensus as well. Finally, the first quarter was also about executing on our strategic transactions with the acquisition of Profire Energy and the divestiture of our Global Pump Solutions business. I want to take a moment to thank the great team at the Global Pump Solutions business for their dedication to CECO and to their customers. We wish the newly branded Tusk Industrial much success as they embark on an exciting new journey. I am also pleased to report that Profire is off to a very strong start as part of CECO. The business produced very, very high levels of bookings in the first quarter, as well as revenues, and are delivering on the integration synergies that we've identified. We are very energized by the addition of Profire, pun intended, and look forward to sharing additional updates in the future. So, to wrap up this slide, CECO had a strong start to the year, especially given all the noise in the market at the moment. And we head into Q2 with a strong backlog and lots of momentum. Now, please turn to Slide number 5. I just mentioned the noise in the market. Every day we are confronted by new headlines associated with tariffs, potential impacts around the economy, trade wars, international negotiations, just so much noise and new headlines every day. Granted, it can be a little exhausting, but it is also an opportunity to remind our audience of CECO's business resilience and how we believe we can and will navigate this uncertainty. How is CECO able to drive 57% orders growth in the midst of so much potential turmoil? I suggest it is because over the past three to four years, we have steadily invested to position our niche leadership businesses in geographic and vertical markets with the highest potential growth profile. As this slide highlights, we enter 2025 with our diverse portfolio of leading niche businesses in industrial air, industrial water, and energy transition, and had established a truly global capability to serve our customers' most demanding environmental challenges. Additionally, we entered the year with a very strong financial profile with a then-record backlog, a significant sales pipeline, and a track record of delivering multiple straight years of solid organic and inorganic growth, as well as margin expansion. And in each of these areas, we have hit the ground running in 2025. We added more diverse leadership, including the Profire business, and expanded our footprint and resources in Southeast Asia, India, and Europe. Our sales pipeline has grown to exceed the $5 billion, and we have taken early action to address our preliminary assessment of tariff-related inflation and costs. Essentially, our portfolio and financial profiles are stronger and more diverse than even 90 days ago. And perhaps most importantly, we have been talking about the same focus growth theme for many quarters, if not several years, and these same growth themes remain our focus today. The more reshoring, more power, more electrification, and so on, all the points I highlighted just a minute ago with respect to our $5 billion sales pursuit. These are all powerful trends, important investments that need to occur, and this agenda is clearly the focus of the U.S. administration and, we believe, leading economies around the world. Suffice it to say, we aren't changing our focus. Yes, there's a fair amount of uncertainty at times, and yes, it's a dynamic environment. But what we think the market liked about CECO as we entered 2025, we believe we should be even more powerful today. So, we appreciate your interest, and we feel we are very well positioned for tomorrow. Now, please turn to Slide number 6. I've shown this slide in various investor presentations and also in previous earnings. The reason for revisiting it is just to reiterate some of the data and also, of course, to continue to highlight our $5 billion sales pipeline, which was only $1.5 billion four years ago. On the left side of the slide, you can see that our sales are balanced across short, medium, and longer cycle mixes of business. Starting with 30% of our sales, which are shorter cycle in nature, they provide a relatively consistent flow of sales from aftermarket, service, and standard product shipments. As we have stated in prior calls, we continue to evolve the portfolio to a greater shorter cycle mix of business with a goal that this 30% reaches 50% in the next few years. A similar amount of revenue is generated from what we consider to be lightly configured, engineered solutions. This mix of revenue that we often reference as mid-cycle, because from the minute we book the order to when we're generating revenue, these projects usually last somewhere between six to nine months in backlog. And finally, the balance of our sales is from larger or longer cycle projects. These are highly engineered, and CECO has a world-class reputation for engineering and delivering these complex, very custom-built solutions. These projects start to turn to revenue approximately three to six months after entering backlog, and they might stay in backlog up to 18 months. On the right side of the slide is a fairly self-explanatory sales pipeline visual with supporting information. This sales pipeline is a combination of replacement systems from our large install base through to the ability to enter new markets and support existing or new customers. Peter is going to highlight our very successful track record of orders growth and book-to-bill expansion in just a few minutes, but it is important to understand that not only is our portfolio diverse, but our business generates revenue through a relatively balanced mixture of short, medium, and longer-term revenue streams. Now, please turn to Slide 7. I'm going to walk you through our view and evaluation of the current tariff environment. I'm going to be brief on this chart, but we wanted to outline the current state of exposure relative to tariffs by region, as well as some corresponding operational actions. Again, I'm not going to read through this slide, but the key points here are, one, we are working with our customers and fabricators to ensure contractual language is understood and protections are sufficient. Second, we have identified direct inflationary and tariff impacts that we are working to mitigate. And third, we are naturally prepared to weather a bulk of the current or known turbulence associated with tariffs given our operating model of managing our supply chain in the same region as the customer or project location. In essence, much of our costs are just not imported. Now, let's move to Slide 8 so we can talk about the estimated financial impacts associated with these tariffs. Everything shown on this slide and modeled here is based on current tariff rates and public data as of April 28. As we have already mentioned, this is a pretty fluid situation, hard to predict what tomorrow might bring. That said, let me start with the key assumptions baked in our estimates. Under the current tariff policy, most of our goods and services are compliant with the USMCA agreement between the U.S., Mexico, and Canada. We are also modeling a 25% tariff rate on raw steel and aluminum that remains in place throughout the rest of the year, as well as an additional 10% reciprocal tariffs as we understand it today. The current tariff rates include a 90-day pause on incremental reciprocal tariffs, and our analysis assumes these remain in place through the balance of 2025. Talking about the impacts as we see them percolating in three sourcing areas, as you can see on the left side of the slide, the first area is listed as materials and is essentially directly imported purchases and largely reflect the impact of our steel and aluminum purchasing impacts. Current estimates have our exposure at somewhere around $2 million to $3 million. The next on the list is what we call components, which you should think about as finished goods such as pumps, valves, and similar. These are products we buy to help complete the package solutions we are selling to our customers with minimal work for us or our fabricators. This category is mostly exposed to the global reciprocal tariffs being applied across the different geographies, and if we see the cost increases, it will simply be supplier price rising. We estimate this could be up to $2 million in the full year of 2025. The final item on this list is our fabrication exposure, which is exactly what it sounds like. We partner with fabrication companies in regions around the world, and they help us fabricate a portion of our finished product. Fabrication exposure can be up to $5 million, we expect, and is made up of two categories. The first level is direct fabrication exposure associated with ongoing projects or very recent order awards. Either way, these are currently in our backlog, and we can quantify if there is tariff exposure. This category is a minimal tariff impact because many of these imported products are from Canada and Mexico, and we believe are USMCA compliant. The second category with fabricators is inflation risk associated with our fabricators being forced to raise their prices given other tariffs or inflationary items. This is how we get to a potential exposure that could be up to $5 million or potentially even slightly higher. The element of risk is hard to quantify, as you can imagine, and we are forced to speculate a little bit. We are working closely with our supply chains to understand the risks and, of course, drive productivity and associated price actions. All-in we estimate a gross tariff exposure to be between $3 to $10 million. We aren't just sitting idly by and keeping our fingers crossed. We are implementing mitigation programs and evaluating additional actions. As I already said, we believe most of our contracts enable us to price through cost increases associated with these impacts. And many of our purchases are in region for region, so in those cases, little to no impact. However, we are taking proactive steps to mitigate the current estimated tariff impact. As I mentioned earlier and in our press release, we have taken some Q2 cost actions to reduce certain redundancies in our G&A structure, and we are driving additional productivity actions in our supply chains, and we have raised prices and likely will be raising prices where possible and applicable to these tariff increases. Each of these actions will help protect our bottom line, and we will monitor the situation to determine if more actions are necessary. With that, please turn to Slide number 9, and we can walk you through what all this means to our 2025 outlook. As today's press release highlighted, we are maintaining our full year 2025 guidance, but we are obviously monitoring closely how the situation around tariffs and the overall economy evolves. Starting top to bottom, we are reaffirming our 2025 orders guidance to exceed full year revenues, thus delivering a positive book-to-bill for the year, extending our multiyear run of book-to-bill greater than one. This is supported by a strong start to the year and the pipeline growth discussed in my previous slides. For revenue, we are reiterating our outlook for a range of between $700 million to $750 million, which is a 30% growth rate year-over-year. If you take the midpoint of that range, about half of the growth is organic and half is from the acquisitions we have already completed. If you recall, this outlook already considered the divestiture of our Global Pump Solutions business. Therefore, no change is required from a strategic transaction standpoint. For adjusted EBITDA, we are also maintaining that range between $90 million to $100 million up approximately 50% at the midpoint versus prior year. And for adjusted free cash flow, we are maintaining our conversion guidance of 60% to 70% of adjusted free cash of adjusted EBITDA. CECO is committed to driving high performance, and while there is a lot of noise in headlines in markets today, we believe our guidance reflects a solid outlook for the year. I'll now hand it over to Peter, and he'll walk you through some additional details on the quarter and more color on the state of the business. Peter?

Thank you, Todd. Good day, everyone. Thank you for attending CECO's first quarter 2025 earnings call. Please turn to Slide 11, where I'll provide some additional color and insight into CECO's financial results for the quarter. I'll start with backlog. As Todd mentioned, we closed the quarter with a record backlog of $602 million, up 55% versus prior year, and which represents an 11% increase sequentially. I'd like to point out this is the first time in company history with a backlog with a six handle, quite an impressive result. Of the total, approximately $65 million is related to the recent acquisitions of Profire Energy, Verantis Environmental, the WK Group, and EnviroCare International, all concluded in the second half of 2024 and early in January of this year. And quarter one represents the ninth of 10 quarters where we realized a backlog increase, quite a run of results setting us up well for future growth. For the second consecutive quarter, CECO delivered orders in excess of $200 million, with our first quarter orders results of $228 million, a figure of 57% versus prior year, and a 4% sequential increase from the fourth quarter of 2024, delivering a book-to-bill of approximately 1.3 times. On a trailing 12-month basis, orders totaled $750 million, up 29%, representing a book-to-bill for the trailing 12-month period of nearly 1.25, and a record for any 12-month period in customer history. I'd like to point out that for the past six months, we have booked approximately $450 million of new orders, an amount that exceeded our annual total for each of 2020 and 2021, respectively. This performance, along with our recent TTM results, give us a great deal of confidence in our future revenue generation capacity that Todd just briefed you on relative to 2025 outlook. Revenue in the quarter of $177 million was an increase of 40% year-over-year, and up 11% sequentially. This is by far the best revenue quarter in company history. Of the 40 points of growth year-over-year, approximately two-thirds, or 28 points of that growth, was generated by the company's three recent acquisitions. And approximately one-third was organic growth, due to project execution against our record backlog, and book-to-ship in the quarter, including approximately $10 million from the now-divested Global Pump Solutions business. TTM revenue of $608 million was a record for any 12-month period in company history, and an increase in the high single-digit range over prior year period. The $14 million of adjusted EBITDA delivered in the first quarter, and the approximately $64 million adjusted EBITDA on a TTM basis, were an increase of 6% and 9%, respectively, over prior year periods. Adjusted EBITDA margins in the quarter of approximately 8% fell short of our expectations, due to higher selling, engineering, and project execution expenses that were added to the business over the past two to three quarters, to allow us to continue to execute on the growing opportunity pipeline, and to set us up well to execute against our growing backlog. We have added technical and commercial resources in key spots globally, to support our growing bid and proposal activity, as we see the acceleration of interest in CECO solutions that are underpinning the key growth trends and macro drivers previously highlighted by Todd. To put this activity in context, over the past six months, we booked $450 million of new orders. In order to handle this level of activity and deliver a sustainable rate of growth in orders, it was required that we added additional resources to generate the additional sales and perform the front-end engineering work. And with these additional resources, of course, we added salaries, travel expenses, and sales incentive compensation. Adjusted EPS in the quarter was essentially flat year-over-year, primarily driven by an increase in interest expense and higher share count, and was down five pennies on a trailing 12-month basis. Now let's turn to Page 12, where we'll discuss briefly backlog. As you can see on this chart, our backlog continues its steady upward climb as we convert on the growing opportunity pipeline. At $602 million, backlog is up approximately three-fold since the end of 2021. We expect our $600-plus million of backlog to fully convert to revenue over the next 30 months, with the majority scheduled to deliver over the next 18 months. What is not reflected in this backlog figure is the book and ship revenue that we generate in each quarter and generated in the first quarter from our brands that have a shorter cycle revenue profile, which includes sales by Profire, CECO filters, and our Transcend Solutions business. And includes in that book and ship profile are the aftermarket and consumable sales we generate from the installed base of our many previously executed industrial air and industrial water brands. Now, let's flip to Page 13 and we'll briefly discuss gross profit and gross margin. This slide is similar to previous earnings decks where we presented CECO's gross profit and gross margin results by quarter since the fourth quarter of 2022 on a trailing 12-month basis, which allows us to normalize for quarter-to-quarter fluctuations and to provide a look back of two-plus years of continued improvement and expansion from the point where our sourcing and productivity initiatives were initially launched. Since the fourth quarter of 2022, CECO has expanded gross profit margins by approximately 500 basis points, with the gross profit dollar impact of approximately 67%. Todd and I and our platform business leaders feel that we have now reached a steady state gross margin level in the 34% to 36% range where we feel comfortable our portfolio businesses and their respective end markets and customer mix can comfortably and sustainably operate. And this was borne out in the first quarter of 2025, where our businesses delivered gross profits of $68 million and a gross margin of 35.2%. On a TTM basis, our gross profit margin was also 35.2%, a figure firmly within that range in the mid-30s. This improvement over the past two-plus years is principally attributed to our operational excellence efforts that have realized the annualized savings in the range of $10 million, to a sustained focus on better project execution, and to an improving business mix with a greater share of short-cycle sales and the inclusion of acquisitions with accretive gross profit margins. As we move through 2025, we will continue our cost savings pursuit through additional sourcing opportunities that we have identified, and by increasing our focus on G&A productivity and continuing our efforts to further improve project planning and execution. Now let's move to Slide 14, we'll quickly discuss cash flow and indebtedness. Starting on the left side of the slide, we present a schedule of free cash flow, walking down from GAAP net income to free cash flow on a year-to-date basis. In this schedule, we have the non-cash event related to the gain on the sale of our Global Pump Solutions business in the quarter. If we adjust GAAP net income for the sale, we would have been in a negative net income position in the quarter, largely driven by higher integration and M&A expenses, as well as higher interest payments resulting from the recent acquisitions of Profire Energy and Verantis Environmental. The impact of these items are a headwind of approximately $12 million to operating cash flow in the quarter. Working capital was a positive contributor in the quarter, and we continue to see positive cash generation from higher billings and collections from our customers that are partially offset by inventory. Capital expenditures were essentially flat year-over-year at $3.4 million in the quarter, as we continue to invest in upgrades and harmonizations of our global IT systems, platforms, and solutions. On the right side of the slide is a schedule summarizing CECO's gross indebtedness position, with the primary drivers of change from year-end 2024. We ended the quarter with gross debt of approximately $337 million, which was driven primarily as a function of the timing around the closing and funding of the Global Pump Solutions business sale. Net debt at the quarter end was approximately $190 million, an increase of $10 million from our position at the end of 2024. Due to the timing of the closing and the receipt of funds from the Global Pump Solutions sale, we used those proceeds early in April to reduce our gross debt balance to approximately $238 million, and we intend to prioritize our capital deployment in the second quarter towards further reducing our debt and leverage levels to further strengthen our balance sheet and improve liquidity and optionality. I have one final chart in my section to share with you before I include. Please turn to slide 15. I do not intend to spend much time on this page, but because of the many moving pieces in the most recent quarter, I felt it may be helpful to incorporate a page with additional items for your review and place them onto a single page so that these items, which are spread throughout our queue for the quarter, would be positioned for you in one simple chart. I would like to highlight for you one item on the page, and that is the leverage we exited quarter 1, 2025, with. It was approximately 2.7 times. Our target range is slightly lower than that, and we will continue to work on deploying operating cash flow and our other cash management efforts towards returning to that leverage level. And that concludes my review of CECO's first quarter 2025 financial results. And now I would like to return the discussion back over to Todd.

Thanks, Peter. So, let's turn to Slide 17. This is our last page before the Q&A section. To conclude, as you know, we are proud to have generated back-to-back record bookings quarters by a wide margin versus our previous record level. This continues to demonstrate our leadership position in niche growth industrial markets. We continue to invest to support growth, drive growth margin expansions through productivity and quality, and we are committed to EBITDA margin expansion, which is why we are taking additional actions on our G&A cost structure. We are pleased to maintain our four-year outlook, even in the face of so much uncertainty. And not every three- to six-month period will be as busy as the last few quarters, with multiple acquisitions, a large divestiture, and navigating these unique times. As always, I want to thank Team CECO for delivering for our customers, navigating these challenging markets. You inspire me every day, and every time we meet with customers, they talk about the great professionalism and quality that we deliver for them. So with that, I'd like to open it up for questions. I'll hand it over to the operator, and then I'll conclude with some final remarks.

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

Hi, good morning. Congratulations on a good quarter.

Thanks, Rob. Morning.

You talked a little bit about your bookings really didn't include a lot of the power projects that are out there. How does the power-related pipeline look at this point, and in terms of timing and visibility?

I mean, it looks as strong as previous comments. I mean, there's a dollar figure associated with it, certainly over a billion, in terms of the pipeline. And that can include emissions that probably represent the largest dollar level for projects, but it also incorporates a variety of other solutions that we sell, and thermal acoustics, and even some of the gas infrastructure. Powers also expands from natural gas power, includes a growing momentum that we're seeing in nuclear, continued support for alternative power, wind, and solar, for backup power solutions and peaker power. So it's a busy space, still associated with just getting baseload power up to the required needs, continue to support data center expansion, the AI topic, while it kind of moves around a little bit, continues to be real. And look, the timing is just – these are big projects that we're involved in. A lot of approvals need to be in place, whether it's permitting or other. So we didn't anticipate a Q1 booking. We're very close, we think, to several awards that we are well-positioned for. We expect that the second quarter could reflect some of that. Certainly in the next few quarters, we see some large contract awards coming our way in the power sector.

Great, and you laid out a lot of good information about tariffs. I know there's a lot of uncertainty, but when you book a project, are you at risk then for cost changes or how do you deal with sort of cost changes and tariff impacts that happen after you book a contract?

Most of our contracts allow for pass through of these types of increases that are related to tariffs. We were working with all of our suppliers to revisit any of their quotes that are firm to us as well. So we continue to work to ensure that we have visibility. There's a -- look, the supply chain is complicated, right? I would say from a contractual perspective, when we have a firm bid with our customer, they understand that the price could still change as a result of tariffs. We go back to our fabricators and our suppliers and we revisit our cost structure. We learned a lot coming out of COVID in 2021 about contract language management associated with ever-changing supply chain costs. And so I feel, we feel good as a team in terms of that level of, let's call it protection. But we buy a lot of systems and components for a variety of our constant flow business as well. That inflation is a little bit more uncertain. And I think we're trying to bake that into our analysis. That's why we're saying the range is, the things that are known around our fabricators and our component suppliers and the contracts we have, that's a number that we know. And we feel comfortable offsetting with either productivity or passing it through from a price perspective. Now it's a pass through, right? I mean, our customers are going to demand to understand the pass through. So we're not getting margin on that pass through. If anything, it's kind of almost a modest margin contraction because we're just passing through the costs. We do the math on that. It's when we're going to, we're buying related products for pumps and motors and electronics, et cetera, just through general distribution. That's the inflation that we're uncertain of. Everyone's talking about raising prices. Maybe that's a generic statement when I say everyone. But if you listen to earnings calls on industrial companies and commercial companies, many of them are articulating a price increase associated with the higher costs. So look, we think that we haven't seen yet the impacts of the inflation per se. We're sensitive to it. We can model in what we can model in today. We're just, we're going to keep our eyes on supply chain costs like everyone is and continue to react accordingly.

Okay, thank you. I'll turn it over.

Thanks, Rob.

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

Hey, good morning, guys. Thank you for taking the question. I first just want to ask, could you discuss the mix you saw in the 228 million of orders a bit more? I know you mentioned that no large orders from Power Water were baked into that. So curious to hear what markets were seeing strength and was there any kind of pull forward demand with upcoming tariffs where people wanted to send you the orders prior to those? That's the first question, then I have a follow-up.

Yeah, well, let's go with that first. We had such a large pipeline coming into the year and our orders have been pretty steady from January, February, and March in Q1 that we don't think there was a pull forward. Our prices and these contracts take quite a while and in most cases to do the bids, the engineering approvals, and to get things finalized from a T's and C's. So the pull-in isn't something that we think had a material impact on the quarter. And we're seeing a very nice start to Q2, also not hearing or feeling that people are pulling things in or pushing things out there. Good news is there's no movement there that we can see and hear. And we asked the question. Balanced across most of our platforms, frankly, in terms of orders, I think it's because the themes are balanced, to reiterate the reshoring of in general industrial, the power, even though we didn't have a large power job, we continue to have good power jobs. We might not have booked a big one, but we booked many medium-sized jobs that are still important for us. We might not have booked a large water project, but we continue to book nice water projects. I guess I'd say if there was one or two highlights in the quarter that would be stronger than the rest, I might suggest gas infrastructure, natural gas pipeline, maybe even just the momentum that we're seeing, the activity I'd say we're seeing on nuclear and on just the infrastructure associated with power where we do separation and filtration. That is probably -- was our strongest pocket of Q1.

Got it, excellent color. And then just to follow up, and I think you kind of already answered that, but those ordering trends you saw in January, February, March kind of continued so far through the first four weeks of 2Q.

Yeah, yeah, we feel good about how Q2's starting. I mean, obviously we haven't closed April yet, but we see our bookings, we're in constant communication with our businesses on their pipeline. I don't know, Peter, if you want to add anything to what we're hearing and seeing. We're reviewing with our businesses more and more contracts that hit our radar screen than we have probably ever, and that continues to give us a lot of visibility to our customer activity. Again, CECO's uniquely positioned versus a lot of industrial companies because we don't sell a lot through distribution. We sell a lot direct to the end customer or potentially to the EPC firm that basically is the end customer in essence. And so we're in regular dialogue with our businesses on projects that require our review and approval.

And Bobby, one thing I'd ask everyone listening to consider is our portfolio is not a North American portfolio. We're getting to the point where we'll soon be, half of our business will be non-U.S. And the dynamics outside of the U.S. are different and they tend to be less politicized and more focused around industrial development and economic development. Our high growth region businesses, which we consider the Middle East, India, Southeast Asia, parts of East Asia, still in developing mode, continue to have exceptional and accelerating demand profiles. What's happening in India looks like China at the turn of the century. So we've got at least 30 years in India to continue to harvest and grow in opportunities.

Yeah, that's excellent color. I appreciate it. And it's very exciting with the non-U.S. opportunity set just expanding. And so kind of tying into that a little bit, I was just curious if we could get an update, a little bit more of an update on the integration of profile. I know you touched on a little bit of prepared remarks, but I was really curious about how the cross-selling opportunities into first the industrial customers, and then secondly, the international oil and gas customers have kind of developed so far.

Yeah, Bobby, I would say functionally, I'll let Todd talk about the commercial side. Functionally, the integration is going as well as can be expected, probably better. And we bought a company that already had a strong processing. It had strong governance and compliance. We didn't have to take a founder or a private company mindset and help them understand what it means to be part of a public company and the expectations. And so I look across accounting and IT and HR and finance and all the aspects of integrating a platform into CECO, it's going very, very well. Public company costs have been eliminated. Corporate redundancies are being evaluated and we're taking actions on those. And the ambition that the business has for growth and to make this integration positive is very, very strong. And it's a cultural fit is fantastic.

Yeah, I'd also just add one powerful data point, I think, because data is always helpful. They had record first quarter bookings and profile, right? And I'm not suggesting that that is just because of the opportunities that we're already bringing to the table in just 90 days, but it speaks to a team that's focused, a team that's well-positioned, a market that they're in that's strong. You know, we saw really good results in several of our recent acquisitions, but since we're talking about Profire, I mean, maybe they're still all in a very good mood up in Edmonton because the Oilers are hanging in there, and that'll continue. But, certainly in Q1, their record bookings was just an example of the strength of the business.

Thank you very much. I agree with that. And I'll return back to the queue. Congrats on the great quarter, guys. Thank you.

And Bobby, you're wild. They're doing well too.

Our next question comes from Aaron Spychalla from Craig-Hallum.

Yeah, good morning, Todd and Peter. Thanks for taking the questions and for all the good color on the call and in the deck. First, for me at a high level, can you just kind of talk about CapEx and kind of areas of investment in the business as we kind of look for the rest of 2025 and just for the next couple of years, just given backlog and kind of early stages of this power super cycle that you've kind of talked about, just where might we see the focus of investment there?

Well, currently our largest single investment is in IT infrastructure. And that'll continue through this year and into 2026. Our focus there is to get a majority, if not all of the company, on a single ERP and data infrastructure. And we've made the decision that it'll be the Microsoft D365 platform, which has a lot of power and is equally, and it's equally, it works equally well in a project business or a manufacturing business, which was one of the reasons we selected the tool. And that'll continue for to get another seven, eight quarters. As far as traditional capital expenditures and plans or equipment, we still have a very modest demand, modest requirement. And with the sale of the global pump business, that, who is the largest consumer or shall I say, spender of capital equipment, dollars, we'll see that capital spend moderate. We have a couple of needs that arise. And I think, Profire will probably need some spending as we expand capacity and improve operations and our separation and filtration activities in Houston. They continue to see increased demand and we're looking at putting in some process automation equipment there to help with accelerating or reducing lead times and increasing capacity. But we still continue to be a capital investment light firm. Majority of our operating asset investments will be in working capital and growing our businesses with customers.

Understood. Thanks for that. And then maybe second for me, just with defense spending, the news around there on the budget and things like that. Can you just talk about what that might mean for your business areas that you focus today and kind of the outlook there?

I don't know if there's any direct impact since we're not a defense contractor. We do supply technology to the Navy and for both combat and non-combat vessels. And we expect the supplemental bills and the ships that they anticipate building more of to benefit us. An indirect benefit is likely to be from factory construction. We're going to see more factories built in the U.S. to produce more armament or produce more smart weapons. They're going to need CECO solutions in those facilities. In Europe, they're making substantial investments as they raise their spending substantially to the 2% plus or greater target that NATO members are supposed to achieve. And that will benefit our industrial air business in Europe, in the UK and Germany. Principally, we're also seeing investments in power infrastructure in Europe as they further -- they move further and further away from dependence on Russian gas. And we've got some interesting investments that we're supporting in Romania, Poland, and elsewhere on nuclear capacity and on new LNG import capacity. Those are all indirect benefits of kind of a geopolitical situation that will provide Europe with a more stable situation.

And one of the reasons, Peter, that can naturally flow to, let's go with nuclear, is the certifications and the engineering and the experience, the reputation required is very related to the defense space for us. The separation, filtration, the components, the manufacturing all need to be in approved, certified locations, all need a lot of experience. No one's in the defense, in the naval shipyards is gambling with their contracts. Same thing with nuclear. And it's not the same team, it's the same leadership team that has got a lot of sophistication and knowledge about that. And we benefited from that in the first quarter. So while naval might not be a direct DOD budget item per se, we are seeing more volume in that space and it's good margin.

Right, understood. Thanks for taking the questions. I'll turn it over.

Thanks, Aaron.

Our next question comes from Gerry Sweeney with Roth Capital.

Hey, good morning, guys. Congrats on a good quarter. It wouldn't be an earnings call without more and more tariff questions. So I'm going to give you one more. I'm not really so much worried about CECO per se, but I am just interested if you're able to talk to some of your companies and maybe some of the impacts they're seeing. And is there a potential for a derivative sort of follow-on impact later in the year? That's, I think, my main concern, not so much Q2, Q3, but as we look a little bit further out on the curve with some of this uncertainty.

Yeah, well, look, Jerry, I think I might start by answering by saying I think most companies, and we're not dissimilar, would have the same concern. Meaning it's not so much what we know, because first of all, what we know is that things change quickly from day to day. Things are in place and they're reversed. And so look, it is important to just sort of understand that it's a dynamic situation, which is fine. And frankly, an interesting situation because I think we like, as we've articulated, the goals and objectives of much of this is to drive investment in areas that we've been saying for years, CECO's well-positioned for that investment. So this is just another potential exclamation point on the investment that could be delivered as a result of some of this noise, more reshoring, more power, and similar. And so as far as kind of just sort of sifting through this dynamic situation, I would say we continue to see great pipeline, great orders, not a lot of change in the market activity associated with our customers. And so that all seems to be either a positive of all this somehow or not a negative. Now, look, from an inflation perspective, I think that's our concern as well, is that it's the ramifications of the supply chain, which we've seen in recent years. It can sometimes happen quickly. It can sometimes take a while to work through if there's a lot of price increases going through distribution, and then distribution's going to raise prices. At some point that hits consumers, that hits companies' supply chains, that hits logistics. And so we're monitoring it. Our bigger concern, if we are concerned, Jerry, is it the sort of what we know today and how our contracts protect us? It is, is there going to be a real economic impact? And is there going to be more inflation than it's possible to model in? We could be, we could speculate, and we are a bit, which is some of the price actions and cost actions and things that we're trying to be proactive with. We just don't know. And I think that's an honest statement.

Yeah.

Gerry, one thing to keep in mind is many of our customers look at this as a transient event because they're investing in buildings, building infrastructure, putting in productive capacity that they'll utilize for the next 30 to 50 years. And they're accustomed to planning through some of these disruptions. These are not consumer companies. These are not dot com companies. These are companies like Exxon. Companies like TSMC that are planning for many, many decades. Or they're outside of the U.S. There are companies that have been given a lot of money by their respective governments to ensure that they're building infrastructure and manufacturing and industrial capacity to employ the many people in their countries. And so their motivations are different than will I see 1% increase in my cost of steel.

Yeah. Got it. That's fair. Power sites. I think you talked a little bit about it on the call, some larger opportunities. Fair to say that some of those opportunities are more 2026-oriented by the time you get the orders and then get them…

Yeah, there's majority of our power jobs that we'll be booking will be revenue in ‘26 and ‘27. There's a few that we're still in discussion. There could be some modest positive impact to 2025's forecast as a result of a handful of projects. And there's always a little bit of revenue that's associated with some upfront engineering and various items. But what we're -- yeah, if we, let's say, booked a large set of power-related projects in Q2 or Q3, the majority of that revenue starts next year and into ‘27 depending on the project and depending on the size.

In the past, you've sort of given some stats on, I think, the power pipeline. And I apologize, lots of information in the call today. I mean, do you have any sort of stats on how big that pipeline is or how many orders you're pursuing? I think you're, in my words, not yours, pursuing 20 power jobs, I think, last quarter, which was maybe four to five X historical norms.

That's still fair. I think that's still fair.

So a lot?

A lot. Yeah, that's right. And we're beginning to see international projects fill in as well. It's not just the domestic surge of opportunities. Yeah.

On the international side, is that AI-driven or is that just AI-driven plus sort of economic development?

It's less data-centered, it's more they need power. Yeah. India is an interesting example. Saudi Arabia, other parts of the Middle East, where they're making investments in industry and modernization and gas power is the electronic choice.

Got it.

We think of a large sustainable theme and power. I'm not here to discount or to reduce the excitement around data center or AI, for sure. Seems like that is top of mind on power. But industrial manufacturing, reshoring, I mean, these are data centers now almost, right. I mean, the automation and the mechanical needs associated with manufacturing facilities, I mean, these are fairly large, complicated systems now and they demand a lot of power and the people that are working there demand a lot of power. So it's a power-hungry environment at the moment.

Got it. That's fair. One more question, SG&A. I think $58 million in the quarter, 30% plus of revenue. I know there's Profire in there. I think you touched upon it. There's probably some integration opportunities in there, maybe to cut a little bit, grow into some of that as well. But what should we be thinking along those lines? Because historically, we've been thinking trying to get up into the sort of mid-teens EBITDA margin. So maybe a little thoughts, roadmap on that front.

Yeah, I think still our goal is to get into the mid-teens EBITDA margins. It's interesting with our business model when we have such a large backlog, we do have costs in advance of recognizing some of those revenues and margins. So as great as our revenues were in the first quarter, I would argue that when you book multiple quarters in a row over $200 million, that means there's a future quarter of those bookings turned to revenue of over $200 million and we sort of start to get our cost structure in line with that ahead of maybe being at that volume level. And I think it's not every day that you have a company that can sort of say, look, our backlog, unless something dramatically changes, is presenting future growth that is double digits, sequentially potentially, maybe not Q1 to Q2, but coming up, right. So we have to ready ourselves for that with resources, project management, et cetera. So it is the trickiest part of our EBITDA margin expansion journey is when your growth can kind of work against us in a short-term and then yield the long-term benefits. It's why we don't give quarterly guidance because explaining this quarterly can be a little choppy. We like staying with annual guidance because we believe that these things smooth out over a multi-quarter period.

Got it, that's fair. All right, guys, I appreciate it. I'll jump back in line.

Thanks.

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

Hi, thanks. So I know you don't like to talk about quarterly guidance, but it does seem to suggest you're anticipating a pretty significant step-up in adjusted EBITDA margins for the Q2. I'm just wondering how we might think about the cadence of revenues in adjusted EBITDA over the course of ‘25.

Yeah, there's a step-up, we expect. Q1 is always a softer quarter, typically. Then there's a nice step-up historically. We think, we know that that's going to happen in the coming quarter sequentially. Look, it's a ramp throughout the year, I think, is the way I would look at it. Q2, a nice step-up from Q1. And Q3 isn't always that step-up. I expect it to be this year. And then going up to Q4, again, it has to do with just our probably volume step-up as well throughout the year, productivity, and getting some of these actions through that we're taking in Q2. So, you know, still a busy Q2 balance, I guess I'd call it, as we step up sequentially. We'll show margin expansion, I think, nicely. But then the second half of the year, we expect to be very strong.

And then one quick one, just on bookings. Did you say how much of the bookings came from acquisitions in the quarter?

We did not say it, but I, do we have, we -- I want to say, we'll get you the data. Somehow I want to -- in fact, I have the data. Give me a second here. I have the data. Because we did the work, let's -- yeah. We did the work on this, and it is, it's a little less than $50 million in the quarter that was, that we would consider to be orders from the acquisitions over the last 12 months. Call it 45 to 50. $45 million to $50 million. So if you back that out, if you back that out, obviously you're at one, call it 185-ish or so, you know, 180 to 185 of orders, which would have been a record under most circumstances. And, but again, that's, I'm pulling data here that on the way we're looking at it. So 24% organic, give or take 25% organic. So again, very similar to our guidance for the year where we said about half of our top line will be from acquisitions and half will be from our base organic business. That's also similar to our orders growth in the quarter. About half of it was from the acquisitions and half was from our base business without a big power or water job, which would come from our base business. That's a good question.

Thanks, guys.

Thanks.

Our next question comes from Sameer Joshi with H.C. Wainwright.

Hey, good morning, Todd, Peter. Thanks for taking my question.

Hey, Sameer.

First, congrats on a good quarter. So now, over the last three, four quarters, acquired some good amount of companies. I think you might have post the repayment around $47 million on the balance sheet. Are you still going to be looking at acquisitions in the coming quarters? Or are you first going to try to digest and like integrate these companies going in the next couple quarters?

Yeah, part of the answer is probably, as it should be related to our debt and our balance sheet and just making sure that we're managing that as we always do. The other part of the answer is, look, we've been very active with our acquisitions in the last six months. It's been a busy time for a lot of our resources inside of CECO as well as the businesses we've acquired. Not only that, but you're obviously entering a new calendar year. There's a lot of noise in the marketplace, probably some uncertainty. You bundle all that together. My point is, it's not about a pause because of a balance sheet. It's not about a pause because of the number of acquisitions we did. It's a collection of, it's a good opportunity for us to digest. It's a good opportunity for us to tighten up our balance sheet appropriately to the level where we're usually comfortable operating. It's an opportunity for us to rebuild our pipeline with what we know is some very attractive opportunities that could happen this year, could move into next year. Timing isn't a goal. It's an outcome of finding a transaction that is strategic, that is accretive, that helps us advance our strategies in air, water, and energy. And obviously a cultural fit for us where we know that we have a business that wants to grow and CECO can help enable that growth. So as we rebuild our pipeline, which we're doing, the timing will answer itself. But it's, I would say, for sure our view is it's, if we're starting to do acquisitions, it's not a Q2 item. It's a second half of the year. And as we head into 2026.

Understood. And then this next question is about Slide 12. What we see in that is that the green line, which is orders, is diverging away from the revenue line. And I understand it's because of some short-term projects being executed. But in terms of going forward margin impact, which will be margins of short-term projects versus long-term projects. How should we look at sort of 2025, later half, and 2026 gross margins impact of this phenomenon?

I think Peter said that we're really pleased with the both, how we've been sequentially growing our gross margins. In fact, that's highlighted obviously on the next Slide 13. We're really pleased, I believe it is at least, we're really pleased with the productivity quality, the efforts in our global supply chain group. So, there is opportunity to continue to increase gross margins, but keeping it stable in the mid-30s range of between 34 and 36, I think Peter said is sort of how we're modeling the year. My point is if it goes down to the mid-34, 34.5, there's nothing to see here. That's just the profile of the business, of the profile of the projects. In fact, some of our larger future bookings and projects associated with power have lower gross margins, but actually higher EBITDA margins. Just the nature of those business, of those projects and those profiles. So I would probably keep gross margins relatively steady in that range of where we're currently at for the year. And the goal is to step up sequentially EBITDA margins throughout the year.

Understood. And this one last one, the top line guidance has been kept steady, but there is also discussion about price action to mitigate any margin impact. Does that mean that your outlook includes likely lower volume of sales in terms of like with a higher price?

Yeah, we probably just decided not to touch anything with respect to guidance because it's early in the year. Price actions are not super material for us. And I know some companies that's a different dialogue for us. It's, again, we're more passing through prices on our projects. And those might be in our backlog as we go through the year, not necessarily something that we recognize revenue on in the year. So the dynamic of price might be, well, we are raising price on a project that we won, but we're not going to recognize the revenue on that price until maybe even Q1 of next year. So we have to get that modeled through. The fact is we gave a range on our guidance to start, our guidance projections for 2025. We're just going to keep that range. There is certainly a great start to the year in not only in terms of revenue in Q1, which demonstrates a good growth company, but the bookings that we've generated in the last three quarters give us confidence that our revenue range is very much in good shape. And I think, we just felt it was too early in the year to make any changes to our outlook.

Understood. Thanks for taking my questions and good luck.

Thank you, Sameer. I think we might be a little over time. Is there any other questions in the queue? Otherwise, we'll wrap up.

No further questions at this time.

Okay, then thank you for that. Well, look, great questions. We appreciate your interest in our information today. Once again, thanks to Team CECO, our global resources. They work incredibly hard to deliver value for our customers around the world. And we are pleased that we continue to protect people, protect the environment, and protect our customers' investments in their global industrial equipment. We're going to continue to be active in the second quarter with getting out and meeting with investors. For example, we're going to be at certain well-attended investor conferences. We hope to see you in May at the Craig-Hallum Conference in Minneapolis, followed by the East Coast Ideas Conference and the Northland Conference in June. Lastly, we look forward to speaking with you likely in late July when we release our second quarter earnings results. So thank you, appreciate your interest. Have a great day.