CECO Environmental Corp. (CECO) Earnings

Management highlights

### Overall Quarterly Performance - Delivered a record-setting quarter across all key metrics, with 12 consecutive quarters of backlog growth and 7 consecutive quarters of orders over $200 million - First half 2026 total orders reached $1.25 billion, up 150% year-over-year, and already exceed full-year 2025 bookings by 17% - Total sales pipeline across all end markets now exceeds $8.5 billion, up from ~$1.5 billion in 2021; trailing 12-month book-to-bill ratio is 2.0, and Q2 2026 book-to-bill is 2.8 - Adjusted free cash flow generation was $53 million in Q2, representing 132% of adjusted EBITDA; year-to-date adjusted free cash flow is $38 million (up $56 million year-over-year), with a trailing 12-month cash conversion rate of 58% of EBITDA, exceeding the 55% full-year target ### Thermon Acquisition Integration Progress - Thermon acquisition closed June 1, 2026, with one full month of Thermon results included in Q2 2026 reported numbers; cultural fit is strong, and integration is progressing ahead of schedule - Already captured $13 million in annualized net adjusted EBITDA synergies (1/3 of the total $40 million synergy target), with $5 million of these savings expected to be realized in full-year 2026 results; $19 million in total annualized cost synergies have been captured when including non-adjusted EBITDA items - Total year-to-date integration costs are $21 million, primarily related to change-in-control and accelerated equity provisions for former Thermon executives - Target to capture $17-$20 million in annualized net adjusted EBITDA synergies by the one-year anniversary of the acquisition, representing 45-50% of the total $40 million target; the original $40 million synergy target remains unchanged ### Commercial and Strategic Updates - Cross-functional commercial teams have already identified over 100 cross-selling partner-selling opportunities across the combined portfolio, with early wins already realized (over $500,000 in Thermon products already added to SECO power generation projects) - Combined company benefits from expanded scale, broader solution portfolio, expanded geographic and customer footprint, and improved global sourcing; SECO holds niche leadership in environmental solutions for power generation, industrial water, LNG/gas infrastructure, semiconductors, and materials processing, while Thermon brings leading positions in thermal management for mid/downstream oil and gas, nuclear, infrastructure, and rail/transit - SG&A as a percentage of revenue fell 400 basis points year-over-year to 22.4%; prior investments in growth infrastructure are largely complete, so management does not expect the SG&A rate to rise again - Debt leverage was 2.7x trailing 12-month EBITDA at quarter-end, and has already fallen to near the 2.0-2.5x target leverage range after $39.5 million in additional debt paydown by July 31; $220 million in available credit capacity remains for working capital, CapEx, or future M&A

Guidance

- Management raised full-year 2026 guidance to reflect strong first-half performance, record backlog, and accelerating order momentum: - New full-year 2026 revenue guidance: $1.3 billion to $1.375 billion, up $25 million at the low end from prior guidance; represents ~20% year-over-year reported growth - New full-year 2026 adjusted EBITDA guidance: $200 million to $225 million, up $5 million at the low end from prior guidance - Management maintains expectations for mid-teens full-year adjusted EBITDA margins, and adjusted free cash flow conversion of at least 55% of adjusted EBITDA - Full-year 2026 total orders are expected to easily exceed $2 billion - On a pro forma full-year 2026 basis (including Thermon for the full 12 months), management estimates revenue of $1.5 billion to $1.6 billion and adjusted EBITDA of $255 million to $280 million - Management expects revenue growth to accelerate in the second half of 2026 as backlog conversion ramps up, with full quarterly contributions from Thermon starting in Q3; margins are also expected to trend higher in H2 2026 driven by improved project mix, better execution, synergy benefits, and full inclusion of Thermon's higher margin profile

Segment performance

The transcript does not break out separate financial performance for discrete product segments with absolute revenue figures and contribution percentages. Overall consolidated Q2 2026 results are: total revenue of $285 million (up 54% year-over-year), standalone SECO revenue (excluding Thermon's partial month contribution) of $235 million (a new company record); adjusted EBITDA of $40.2 million (up 73% year-over-year), with an adjusted EBITDA margin of 14.1% (up 154 basis points year-over-year); adjusted gross margin of 33.7% (up 264 basis points sequentially from Q1 2026); Q2 new orders of $799 million (up 191% year-over-year, a new company record); ending backlog of $1.82 billion (up 164% year-over-year, up 76% sequentially from Q1 2026). Backlog composition by end market is: 50% power generation, 25% industrial air and water projects, 25% natural gas and NGL infrastructure, hydrocarbon/chemical processing, and other energy activities.

Risks & headwinds

- Large industrial water projects in the Middle East have been delayed due to regional conflicts, though customer dialogue remains positive and these projects are not included in 2026 guidance; delays are expected to continue into the near term, with bookings anticipated to occur in 2027 or later - Supply chain execution remains a ongoing challenge for large industrial projects, though SECO has invested heavily in global supply chain capabilities to mitigate this risk - While current order visibility is very strong, large multi-year infrastructure projects are subject to potential timing changes related to permitting, customer funding, and regional macro disruptions - Leverage is temporarily above the company's 2.0-2.5x target range post-acquisition, though strong cash flow generation is already reducing leverage quickly toward the target

Analyst Q&A

• Q: Can you update on early Q3 order momentum, changes to PowerGen competitive dynamics, and your supply chain ability to support expected PowerGen growth? /

  A: SECO has seen a strong start to Q3 2026 with no slowdown in order activity across all core end markets, and remains confident full-year orders will easily exceed $2 billion. Competitive dynamics are unchanged, with favorable pricing across the industry, and SECO's longstanding experience and built-out global supply chain give it an advantage for large, complex projects. All booked PowerGen orders reflect binding, permitted project commitments from customers that are already executing on their projects, not speculative reservations.

• Q: What drove the sequential improvement in Q2 gross margins, and what should we expect for margins in the second half? /

  A: Q1 gross margins were expected to be temporarily lower, so the Q2 improvement to 33.7% was in line with company expectations. Only one month of Thermon's higher gross margins were included in Q2 results, so full Q3 and beyond contributions from Thermon will lift the consolidated margin profile. Additional H2 margin expansion will come from better project mix, improved operational productivity, and synergy benefits, so management expects gross margins to trend higher in the second half.

• Q: How will you make Thermon cross-selling repeatable, and what is the operating model for these partner-selling opportunities? /

  A: Unlike traditional cross-selling (training teams to sell additional products), the main opportunity here is partner selling: SECO has direct visibility into large, detailed projects in its pipeline and backlog that Thermon would not have otherwise had access to. SECO can now spec Thermon's leading thermal solutions directly into the projects it is already executing, starting with heat trace applications in large power generation projects. Teams are already collaborating globally across all regions to identify and capture these opportunities, building on prior lessons from earlier acquisitions that showed shared project visibility drives successful cross-selling.

• Q: How does the current robust order environment compare to prior energy supercycles, and what is your capacity to deliver on the growing backlog? /

  A: The current market is very different from prior cycles: there is multi-year visibility to a long pipeline of projects, and SECO only books firm, binding purchase orders (with a historical debooking rate of less than 0.5%), unlike the more speculative activity seen in prior cycles. Scale requirements for modern mega projects rule out many smaller competitors, reducing aggressive competitive pricing. SECO invested heavily in engineering, supply chain, and operational capacity over the past five years ahead of the current growth cycle, so it has sufficient capacity to handle current volume and is able to be selective on projects. Large projects typically follow a "design once, build many" model that simplifies execution and supply chain management.