CECO ENVIRONMENTAL Q4 FY25 earnings call CECO

CECO delivered record Q4 and full year results, with backlog reaching an all-time high of $793 million, up 47% year-over-year and 10% sequentially. Q4 orders were $329 million, a 50% increase over the prior year, resulting in a book-to-bill of 1.5x. Full year orders surpassed $1 billion for the first time, reaching $1.064 billion, a 60% increase over FY24. Revenue for Q4 was $215 million and $774 million for the full year, both company records. Adjusted EBITDA grew 57% in Q4 to $29.8 million (13.9% margin) and 44% for the full year to over $90 million, with 40 basis points of margin expansion.

CECO announced a stock and cash merger with Thermon, valued at approximately $2.2 billion. This combination aims to create a global industrial leader in environmental and thermal solutions. The pro forma combined entity is expected to have revenues of $1.5 billion and adjusted EBITDA of $295 million, including $40 million in run-rate synergies by year 3. CECO shareholders will own approximately 62.5% of the combined company, with the transaction anticipated to close in mid-2026.

The company continues to experience robust demand across power generation, industrial reshoring, industrial water, and natural gas infrastructure customer segments. Quarter-to-date in Q1 FY26 (as of Feb 24), CECO has booked over $270 million in orders, including two large natural gas power generation orders exceeding $175 million in aggregate value. The total sales pipeline now exceeds $6.5 billion, with the power vertical alone presenting a short-to-medium term opportunity of $1 billion to $2 billion.

Gross profit margin rebounded above the 35% target level in Q4, showing a sequential improvement of approximately 240 basis points from Q3 seasonal headwinds, driven by strong short-cycle volumes and effective project execution. CECO is implementing a multi-year 80/20 deployment strategy, expected to deliver significant business cost and performance benefits, alongside ongoing efforts in sourcing and productivity management.

CECO achieved a positive full year cash flow of approximately $10 million in 2025, representing a 30% increase year-over-year, with the second half delivering $30 million at a 52% cash conversion rate. The company ended the year with lower gross and net debt, a comfortable leverage ratio of 2.2x, and $124 million in liquidity. A 50 basis point step down in interest rates is anticipated, following a 25 basis point reduction in Q4, projected to save approximately $1.1 million annually in interest expense.

The Thermon merger is viewed as a powerful strategic fit, extending CECO's leadership in industrial, environmental, and thermal solutions. The combination creates a balanced revenue cycle, blending CECO's longer-cycle project work with Thermon's recurring short-cycle business. Both companies share similar values and operating styles, which is expected to facilitate a smooth integration and drive significant value creation through expanded customer relationships, global reach, and innovation leverage, such as Thermon's Genesis controls platform.

CECO is bullish on the industrial water and wastewater treatment sector, particularly international water infrastructure projects focused on water reuse and recycling. The company has its most active and largest pipeline of opportunities in this area, with individual projects ranging from $10 million to $50 million. Management expects to announce exciting produced water treatment opportunities throughout 2026, especially in the Middle East.