CECO Environmental Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 29, 2025

Key Takeaways

  • Positive Sentiment: In Q2, CECO delivered a record backlog of $688 million, up 75% year-over-year and $80 million sequentially, driven by a quarterly record $274 million in new bookings (95% YoY growth).
  • Positive Sentiment: Revenue reached $185 million (up 35% YoY) for the quarter, while adjusted EBITDA of $23.3 million (+45% YoY) and EPS of $0.24 (+35% YoY) reflect sustained margin expansion.
  • Positive Sentiment: The company raised its 2025 guidance, now expecting $870–930 million in orders (1.2× book-to-bill) and $725–775 million in revenue, while reaffirming its adjusted EBITDA and free cash flow outlook.
  • Positive Sentiment: CECO’s sales opportunity pipeline has grown to over $5.5 billion—rising nearly 40% CAGR since 2021—with strong visibility into power generation, semiconductor, natural gas infrastructure, and industrial water projects.
  • Positive Sentiment: The firm is expanding its global footprint—launching a Saudi Arabian office and deepening presence in the Middle East, India, and Southeast Asia—to capture accelerating demand for environmental solutions.
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Earnings Conference Call
CECO Environmental Q2 2025
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good day,

Speaker 1

and thank you

Operator

for standing by. Welcome to the CECO Environmental Second Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that this conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Steven Hoosier, Investor Relations. Please go ahead.

Speaker 2

Thank you, Kevin, and thank you all for joining us on the CECO Environmental second quarter twenty twenty five 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 secoenviro.com. The presentation materials can be accessed through the Investor Relations section of the website.

Speaker 2

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 ks for the year ended 12/31/2024.

Speaker 2

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 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?

Speaker 2

Thanks, Stephen. 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.

Speaker 3

Our q two 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 number three for a summary of the highlights of the quarter. In the quarter, we grew backlog to a new record, exiting the quarter at $688,000,000. Year over year, our backlog is up almost 300,000,000 or more than 75%.

Speaker 3

Sequentially, our backlog rose an approximate $80,000,000. This was made possible by another quarter of record orders. In q two, we generated 274,000,000 in new bookings. This is up 95% versus q two last year. We booked our largest ever order in environmental selective catalytic reduction or SCR emissions management solution for a major project in The US power generation market.

Speaker 3

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 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 $200,000,000 for a of approximately seven and twenty million dollars in new orders in the past three quarters. This level of orders is a direct result of seven 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.

Speaker 3

Revenue of $185,000,000 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 $23,000,000 was up 45% year over year driven by volume, strong gross margins, and an improving SEG and A cost profile. A few months ago, when we discussed our q one earnings, we articulated we had taken g and a related cost actions. We're 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 24¢ in q two.

Speaker 3

This is up approximately 35% year over year. So overall, just great record results with solid performance. We exit q two with an incredible backlog and strong orders and margin momentum. Now let's turn to slide number four. 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 one quarter phenomenon.

Speaker 3

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 $500,000,000 are up 76% when compared to the 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.

Speaker 3

And our continued multiyear growth of our sales opportunity pipeline is now over $5,500,000,000. 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.

Speaker 3

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've been able to offset early supply chain cost increases with either productivity, price, or overall project execution. Now please turn to slide number five. 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.

Speaker 3

Starting top to bottom, we are raising our twenty twenty five 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 1.2 times revenue resulting in a bookings range of between $870,000,000 and $930,000,000 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 nine to twelve months of sustainable orders growth. For revenue, we are raising our outlook to 725 to $775,000,000, up from a previous range of 700 to $7.50. The $25,000,000 increase on both the lower and the upper ends reflects the strong first half performance in bookings and revenue, coupled with the 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.

Speaker 3

With respect to full year adjusted EBITDA and free cash flow, we are maintaining our previous outlook. The adjusted EBITDA range of 90,000,000 to $100,000,000 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.

Speaker 3

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 number six. We often talk about the strength and size of our sales opportunity pipeline, but I wanted to spend a couple minutes here to describe two key important items. First, that the pipeline is our best indicator of short and medium term organic revenue growth.

Speaker 3

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 two periods that we present. On the left hand of this on the left side of the slide for the period 2015 to 2020, you can see the pipeline was essentially flat over those five 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.

Speaker 3

The second point I wanna 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. Five years ago, when I joined CECO, I knew it would not be easy to break out of the company's historic revenue range of of 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.

Speaker 3

As we approach our new revenue outlook of roughly $750,000,000 for the year, and we expect on our way to a billion dollar 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 five years. I will now hand it over to Peter, who will go through more detail on our financial results.

Speaker 3

Peter?

Speaker 4

Thank you, Todd, and good day, everyone. Thank you for joining Todd and I for CECO's second quarter twenty twenty five earnings call. I'd like to start on slide eight, and I'll provide some additional color on our financial results for the quarter. CECO finished the second quarter with a record backlog of $688,000,000. This is up 76% versus prior year and a 14% increase sequentially.

Speaker 4

Of the total, approximately 70,000,000 is related to the recent acquisitions, with the balance of the increase coming from organic orders growth. The 2025 represents the tenth of the last 11 quarters showing a backlog increase. The increase was helped along by strong orders in the power generation, semiconductor, industrial water, 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 200,000,000 with our second quarter orders of $274,000,000, up 95% versus prior year and 20% sequentially, for that book to bill of approximately 1.5 times in the first half of the year.

Speaker 4

On a trailing twelve month basis, orders totaled $883,000,000, up 58%, representing a robust book to bill of 1.35 times, and a record for any twelve month period in customer his company history. Driven by demand in power, natural gas, semiconductor, and industrials produced in wastewater separation applications, CECO booked over 1 half a billion dollars of orders for the first six months of 2025. As mentioned in our press release this morning, the company booked our largest ever order in a 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 $140,000,000 of our total bookings in the quarter, with the remaining one half coming from industrial air and industrial water customer segments and applications. Quite a diverse and well rounded order book for the quarter.

Speaker 4

Revenue in the quarter of $185,000,000 was an increase of 35 year over year, with approximately 20 points generated by the company's most recent three 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 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 2025 and for the full year. Adjusted EBITDA was $23,300,000 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% up 50 basis points year over year.

Speaker 4

Mix due to higher short cycle revenue was a tailwind to gross profit margins in the quarter and mainly attributable to our recent acquisitions. SEG and A spending in the quarter benefited from the absence of quarter one expenses that do not repeat in subsequent periods and the initial impact of our g and 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 q one. On a TTM basis, adjusted EBITDA grew 11% with margins down slightly, impacted by largely by the results of q one of this year. Adjusted EPS in the quarter was up 4¢ or 20% on similar dynamics that impacted adjusted EBITDA, partially offset by higher interest expense in the period.

Speaker 4

Before I leave this page, I would like to thank the global CECO team for a robust 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 $502,000,000 were up 76%. Revenue delivery of $362,000,000 were up 37%. Adjusted EBITDA of 37,300,000.0 in the first half of the year was up 27%. We have made excellent progress on the integration of our three most recent acquisitions.

Speaker 4

We executed on the separation of the Global Pump Solutions businesses and systems and are transitioning support functions, reaching conclusion at the '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 nine, 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 two, our backlog is continuing its steady upwards climb as we convert on the growing sales opportunity pipeline.

Speaker 4

Our $688,000,000 backlog has more than tripled since the 2021, and we expect this backlog to fully convert to revenue within the next twenty four months, with the majority converting over the next eighteen. 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 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.

Speaker 4

Since the first quarter 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 2025 that most recently concluded, our business delivered gross profit of 73,000,000 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 two plus years is attributable to the progress our teams have made implementing our operational excellence agenda, capturing annualized savings in the range of over $10,000,000 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.

Speaker 4

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 and 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 is 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 $3,000,000 which represents a sequential improvement of $12,000,000 versus the first quarter of the year. The improvement was due in large part to higher operating income and net favorable cash payments on on projects booked that were then offset by working capital requirements supporting CECO's substantial revenue growth.

Speaker 4

On a year to date basis, the outflow of approximately $18,000,000 is due to elevated working capital funding needs in support of CECO's revenue growth. Capital expenditures of approximately $4,500,000 is largely due to investments in our ongoing ERP system migration. On the right side of the slide is a brief summary of CECA's gross indebtedness position with the primary drivers of change in the quarter shown for you. We we ended the second quarter with gross debt of approximately $236,000,000, a modest increase from the 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.

Speaker 4

Net debt at quarter end is approximately $199,000,000, an increase of 19,000,000 from year end 2024. Net debt balance of 180,000,000, 9,000,000 of the addition, which came from the second quarter of the year. At this level of net debt, CECO's leverage ratio is approximately 2.7 times our bank EBITDA of $74,200,000, leaving us with an investment capacity of 104,000,000, an increase of 35,000,000 from the 2024. This is more than adequate to fund our growth needs, our investment needs, and the support of a future m and a in the back half of the year, in which we remain active in cultivating various m and 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 our reduce cash interest payments.

Speaker 4

I've now concluded my remarks on CECO's quarter two twenty twenty five financial results, which I consider to be very solid and a strong recovery from a slow 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.

Speaker 3

Thanks, Peter. So as Peter said, let's go ahead and wrap up with slide number 13, and then we'll welcome the Q and A session. As we enter the 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 $5,500,000,000 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.

Speaker 3

I am very pleased with our q two 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 3545% respectively is just outstanding. As always, I wanna thank team CECO for your customer first dedication and outstanding teamwork.

Speaker 3

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 Varantus Environmental and WK 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?

Speaker 1

Thank you.

Operator

Our first question comes from Rob Brown with Lake Street Capital Markets. Your line is open.

Speaker 1

Good morning, and congratulations on a great quarter.

Speaker 3

Thanks, Rob. Good morning.

Operator

First question is on

Speaker 1

the pipeline in 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?

Speaker 3

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

Speaker 3

The market continues to be excellent. Our order in the quarter and and 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 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, etcetera. We we're we're we're later in the in in that cycle. Meaning, they then work with supply with their supply chain of which we're a strategic partner to to finalize the overall project, you know, design and and system.

Speaker 3

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 a billion dollars of power gen related projects for our solutions. And, Peter, I don't know if you wanna add any additional color to that.

Speaker 4

The active pipeline's well over a billion. We see that billion coming to a decision in the next twenty four months. You know, that's across the the large suppliers and some smaller end users who are gonna self perform work. We don't and have not seen any signs of this market slowing down.

Speaker 3

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

Speaker 1

Okay, great. Thank you. 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 but I guess, what's the what's sort of the environment around some of the other verticals you're you're tracking? What are the drivers there?

Speaker 1

And and what do you kinda see the length of of the demand curve curve in those markets?

Speaker 3

Yeah. I Peter will expand on each of these, but there's there's there's multiple markets. You know, semiconductor has had, you know, some some increases, and then it sort of settles back down over the last eighteen or twenty four months. But semiconductor certainly looks and and new new fabrication capacity is is back on in terms of a market, we would say. Over the last six to nine months, certainly, natural gas infrastructure has been a very, very high growth market.

Speaker 3

And we've benefited significantly from our leadership position providing separation and filtration solutions and other key environmental solutions for natural gas infrastructure. And then, you know, we've invested heavily over the last few years to better position CECO and our key brands in industrial water. In 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's healthy, but we feel that we're uniquely positioned now to 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.

Speaker 3

And then the last is, you know, 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, you know, 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 is one great example, which that theme continues to have really good visibility for us and and some really good momentum still. So a lot a lot there that, you know, that we're excited about. Power gen is certainly the biggest associated with the data centers and AI and, you know, and all the, you know, electrification and digitization needs and automation.

Speaker 3

So power gen is certainly the, I'd say, the the healthiest or the the fastest growing of the markets. But the other ones I mentioned are, they're A plus in our book.

Speaker 1

Great. Thank you. I'll turn it over.

Speaker 3

Thanks, Rob.

Operator

One moment for our next question. Our next question comes from Aaron Spachala with Craig Hallum Capital Group. Your line is open.

Speaker 5

Good morning, Todd and Peter. Thanks for taking the questions. 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, etcetera, that be in?

Speaker 5

And just, you know, is that something you expect this year? Is that more, into 2026?

Speaker 4

Thanks, Erin. Good morning. We have a 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 $50,000,000 that are active that 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.

Speaker 4

Not your traditional steel, aluminum, titanium, nickel that we've historically served, but as The US and and other non Asian markets begin to invest in securing supplies around rare earths, copper, and other materials, that's beginning to ensure, you know, the I call it an order window in a year or two 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'll we expect that to accelerate as well. So there's just a lot of very positive tailwinds, if you will, that we're experiencing.

Speaker 4

And as as you see demand for manufacturing grow in The United States, whatever form that might be, it's gonna require energy. It's gonna require logistics and transportation. And those investments then require, you know, materials to produce them, which will get produced in, you know, quarries and in cement plants and other areas where we supply equipment. So it it seems to be a very, you know, now a very I dare use the term, you know, kind of mega cycle around all things that require industrial performance, and that's where we're focused.

Speaker 5

Great, Peter. Thanks for the color. 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.

Speaker 5

You know, is that something that can help, move some of these projects forward as well and benefit you?

Speaker 4

It yeah. It 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're receiving, you know, orders. No one held off waiting for the results.

Speaker 4

You know, aerospace is gonna benefit. Anyone who buys or builds, you know, large pieces of machinery is gonna benefit. So it can't hurt.

Speaker 6

Yeah.

Speaker 4

One thing we haven't talked about, and it just was announced, you know, in in recent days, is what's likely to be a very large export wave from The US in munitions, armaments, and defense equipment. That'll start rolling through the you know, through our economy. New plants have to be built. New sources of raw materials have to be developed. Yeah.

Speaker 4

Yeah. And so anytime government steps back and says, we're gonna do the minimum to enable industry, to enable the markets to do their job, that's a good thing. And and and while we're not taking a political position here, we're certainly not opposed to that.

Speaker 3

We're not sure, to Peter's point, that there's any specifics with any bill either way that, you know, slows down the need for power, that impacts the need for more automation and new industrial investment. These things are gonna 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.

Speaker 5

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

Operator

One moment for our next question. Our next question comes from Jim Ricchiuti with Needham and Company. Your line is open.

Speaker 7

Hi, thanks. Good morning. 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.

Speaker 3

It doesn't yeah. Thanks. It's a great question. I would say it is it it it doesn't capture the maximal 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, you know we're not batting a thousand here on all these things happening in the second half.

Speaker 3

So, you know, I I think we we take a very normalized view of how and when the timing of these orders come in. We we would say, you know, that yeah. That, you know, it's it's slightly it's slightly less than maybe the last couple quarters, but but still at a healthy level in terms of the in terms of the gross dollar amount. That could prove to be, you know, 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.

Speaker 3

So we we don't know always when our customers are gonna finalize the purchase order agreements with us.

Speaker 7

Got it. And I wanted to go back to the comment you made in the in the release and I think in 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?

Speaker 3

Yeah. Maybe maybe maybe it's a little more challenging to pass through on some of the larger projects. You know, we have very good contracts, and we have very good execution on our with our supply chain. When we have a fixed price contract with a customer, we have similarly fixed price contracts with our supply chain. But you can't you can't pre buy or fix everything.

Speaker 3

And I've said it on the first quarter call when we articulated our view of tariffs and inflation, and and we're just reiterating it again, I guess, now. And that is if 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 if those prices are up five, six, 8%, you know, I'm just using that as an example.

Speaker 3

Well, those are 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 the now in the third quarter and in the fourth. The combination of that expected inflation, which, you know, we certainly work hard to pass along or absorb in our productivity initiatives. And, you know, I feel good about our ability to do that.

Speaker 3

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, you know, when you have the backlog of 300 ish million, not quite, but almost And we expect that that could continue to grow. You know, we're adding a handful of resources to prepare for that execution, to manage our ability to deliver on time, on schedule, and even a better than budget. So we these investments are smart.

Speaker 3

We get out ahead of it. We get out ahead of, you know, 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 our guidance really reflects the combination of of those two components.

Speaker 7

Got it. And then just last question, quick one, just on, had your thinking about the impact of tariffs on the business change at all? And No. And congrats on

Speaker 3

the No. Quarter, by the

Speaker 6

Okay.

Speaker 3

No. Thanks. Yeah. No. Our our our thinking remains fundamentally unchanged.

Speaker 3

It's a you know, it continues to be a bit of an evolving headline and topic as policies and relationships and agreements change. But, you know, we believe overall that what we talked about at the first quarter and the analytics that we provided fundamentally hold true still.

Speaker 4

Thank you. Thanks.

Operator

One moment for our next question. Our next question comes from Gerry Sweeney with ROTH Capital. Your line is open.

Speaker 8

Good morning, guys. Thanks for taking my call and congrats on a great quarter.

Speaker 1

Thanks, Gerry.

Speaker 8

A lot of questions have been asked. And to be honest with you, I'm multitasking here. But just want to touch again on margins. These are my words, think, aspirationally, or I should say, I would always think CECO could get it to sort of mid teens EBITDA margins. And we have SG and A moves, process improvements, I think there's mix, there's also leverage as you continue to drive gross profit dollars.

Speaker 8

Is something in the mid teens obtainable over, I don't know, twelve, eighteen, twenty four months, and how should we think of that?

Speaker 3

Yeah. I mean, look, we've 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, you know, we are, you know, I would maybe suggest we've been pleasantly surprised with the growth and the opportunities in the marketplace.

Speaker 3

When we see that 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, you know, our pipeline of of of not only sales, but but great talent to go and execute on that. So, you know, our investments have probably been a little bit higher than we anticipated twelve, eighteen months ago, But so has our growth rate. Right? So we're door we're driving that. And, you know, I would say we're we're we're maybe if you if you told me we had to have mid teens margins, we you know, to to, you know, to to whatever, to win gold medal, then, you know, I suppose we certainly see a plan to get there.

Speaker 3

However, we like the investments, what they're yielding. We believe in the returns over the long term. And so, yes, our it might be your words. It's also mine, Jerry. That as we continue to grow, we believe that volume leverage and productivity will get us to those mid teen EBITDA margins.

Speaker 3

We're still committed to them. We're we're probably, you know, a 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 investment. So we're still committed to those mid teens margins, and we'll get there.

Speaker 8

I get it, and that's fair, right? So what we should be thinking here is, right, this is not growth is, again, maybe a little bit ahead of schedule, have to invest in that. I would take growth over margin tweaking any day of the week, and it's a little bit of 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?

Speaker 3

That's right. That's right. And I mean, you know, this 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 and could take to probably and 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, you know, in in in 95% orders growth year over year. Right?

Speaker 3

And so Yep. 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 to invest appropriately to maximize our growth versus slowing down that investment to maximize our margins. Now we're not trying to to, you know, you know, 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.

Speaker 3

And as as we said, the second quarter shows a stronger conversion of our SEG and 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.

Speaker 8

One other maybe housekeeping, or one or two other housekeeping items. Any forex impact in the quarter? Or I didn't go through it with a fine tooth to be quite honest with you.

Speaker 3

De minimis, it's small. Small Forex,

Speaker 6

yeah.

Speaker 8

And then, Curiosity is an occupational hazard of an analyst. What is the gap between maybe Siemens, GE, Vernova, you know, getting an order for a turbine, when you see the follow on order for your equipment or your portion of the project?

Speaker 3

Half a year. Half a year would we be we so typically, we and and the balance of the supply chain are certainly deeply involved in conversations with them, including even some preliminary budgetary proposals, etcetera, 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 we're right there with them many times. But from when they announce, let's say, a large win, we're six to twelve months away from securing a PO.

Speaker 3

Now, sometimes they announce a win and they say that this is five years out. Well, then we're we're longer than than that because they're not going to necessarily have to give us an order for something that we can certainly deliver in twelve months. They don't need us to sit on it for four years. But for the most part, they're announcing orders that they're planning to deliver in that eighteen to twenty to thirty six months. We'll announce an order, or we'll get an order six to twelve months after their announcement.

Speaker 3

Just to be, that's the typical.

Speaker 8

Got it. Understood. All right. I really appreciate it. Congrats again on a great quarter.

Speaker 8

And thanks for taking my call.

Speaker 4

Thanks, Jared.

Operator

One moment for our next question. Our next question comes from Bobby Brooks with Northland Capital Markets. Your line is open.

Speaker 6

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

Speaker 4

Bobby, it's very hard to hear you. Your line is very staticky.

Speaker 3

But yeah. We can hear you. But just so you know, your line's a little staticky. But go ahead.

Speaker 6

Yeah. I can yeah. You guys can hear me better now?

Speaker 3

Yeah. That's go ahead.

Speaker 6

Yep. So yeah. Just about a month ago, 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 in, I think, the Q and 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.

Speaker 6

And and maybe you can just dovetail that with how, selling Profire solutions to international customers has gone thus far.

Speaker 3

Yeah. So, you know, look, we're we we love all of our regions. And, you know, certainly, we see key opportunities in North America. But we've also been growing steadily over the last four years internationally. In fact, our high growth regions, which is which are the countries or the regions that you would expect, you know, from The Middle East and India, Southeast And East Asia, China, and similar.

Speaker 3

We have expanded our sales over the last four years from around $30,000,000 to well over a $100,000,000. And The Middle East represents a very strategic region for us. We have a great group headquartered in The Middle East and Dubai that 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 and growing in that space. We've been intentional, including an acquisition of DS twenty one 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.

Speaker 3

And then you sling back to The Middle East. We have, you know, certainly sold into Saudi and worked with the major Saudi companies and and the economic leaders there. It is it's more efficient if you have a local presence. And over time, as we think about investing, you know, in Saudi and in other countries, we want to make sure that we're able to maximize those relationships. So having, you know, having a local presence, having a local team, having a local office, an entity, over time potentially adding assembly manufacturing and more distribution into a country aids and and and helps accelerate the growth in those relationships as well, especially in a country like Saudi that's that's certainly very appropriately focused on on Saudi for Saudi and things of that nature.

Speaker 3

So you wanna crawl crawl, walk, run into these countries. I think we do a good job of that. And we're gonna do that same thing in in countries like Saudi where we see a long term growth rate that, you know, and opportunities that's that's that aligns with our with our products.

Speaker 4

Bobby, a way to think about it is that we've positioned our global footprint to be in the eight largest industrial trading zones in the world. We talk a lot about North America because CECO was at one point five six years ago, 80 plus percent North American in its businesses. We're rapidly approaching a balance 50% North America, 50% outside of the region. And that'll vary by quarter, and it'll 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.

Speaker 4

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, The Middle East, and Southeast Asia developing projects for large local op end users and national national energy companies. We're also seeing a more attractive market for our solutions as these regions begin to spend more, more time thinking about environmentally sustainable outcomes. You know, 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.

Speaker 4

I wouldn't 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 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 in a domestic solution, one that's very viable and is the standard in The US, is not yet the standard outside of The US in many markets.

Speaker 4

But we're moving towards a a reality by the 2030, where what we're supplying in The US will look very similar to what we're supplying in Saudi Arabia, for instance, in India, in in Malaysia, in Indonesia. And that's a good thing. Good for us, good for the planet, Good for the the people who live in those regions.

Speaker 6

That 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. Can you maybe just discuss, a little bit deeper why those have relieved?

Speaker 4

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

Speaker 3

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 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 trend 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.

Speaker 3

Those projects have now turned to a normalized operational schedule. They got their stuff together. And we have not seen that same dynamic. You know, 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.

Speaker 3

But that dynamic was unique last year, and we're no longer seeing that unique aspect this year. It's it's now, quote, unquote, back to normal, Bobby. And so we right now, we don't see a project that we that we're that we that we anticipate being delayed, nor do we necessarily see such large projects in the second half of the year that even if one or two of them were delayed would necessarily create a moment of pause or concern for us. The the the breadth of our projects is is certainly pretty spread out across our second half delivery. So right now, we feel like we're in a pretty good shape.

Speaker 3

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.

Speaker 6

Fair enough. I appreciate the color, guys. Again, Craig, congrats on a quarter. I'll turn it to you.

Speaker 3

Thank you.

Operator

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.

Speaker 3

Thank you very much. Well, thanks for the great questions and, of course, all the interest and 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.

Speaker 3

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.

Operator

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

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