CECO ENVIRONMENTAL CORP Q3 FY2024 earnings call

• Softer than expected third quarter revenues and income due to customer-driven delays in larger projects, but expected to deliver delayed results in Q4 2024 and H1 2025. • New orders of over $160 million in Q3 were a record for Q3 and tied for largest quarter ever, with balanced bookings across small, medium, and large orders, including a large energy transition project. • Backlog reached a new record of $438 million. • Announced two acquisitions: WK Group closed in early October, expanding global reach in industrial air; Profire Energy acquisition expected to close in early 2025, with strategic alignment for long-term value creation. • Strong Q4 start with over $100 million in orders month-to-date. • Progress on operational excellence initiatives with margin improvement.

In the third quarter, revenue was $136 million, down 9% year-over-year due to project delays and booking issues. Orders in the quarter were $162 million, a 12% increase versus prior year. Backlog reached a record $438 million, an 11% increase versus prior year and a 12% increase sequentially. Gross profit margin in the quarter was 33.4%, and adjusted EBITDA was $14.3 million, down 5% year-over-year on lower volumes. The gross profit margin was 33.4% at 450 basis points versus the same period in 2023, and adjusted EBITDA margin was 10.6%, up 50 basis points.

• 2024 outlook: Revised to revenue $575 million to $600 million (up ~10% YOY midpoint) and adjusted EBITDA $65 million to $70 million (up ~17% YOY midpoint), with a book-to-bill of 1.2. • 2025 guidance: Revenue $700 million to $750 million (25% YOY increase midpoint) with organic and inorganic growth; adjusted EBITDA $90 million to $100 million (40% YOY increase midpoint), reflecting 13%-14% adjusted EBITDA margins.

• External project delays beyond CECO's control affecting revenue recognition. • Timing variability in bookings impacting revenue. • Supply chain efficiencies, inflation, and project complexities as challenges to margin improvement. • Uncertainties related to economic factors (e.g., elections, interest rates) affecting project timelines and execution.

Q: On the order environment, could you clarify the large power plant projects booked and potential opportunities?

A: Todd Gleason and Peter Johansson discussed large power plant projects in the energy transition, including natural gas fired plants, solar/wind backup, data center power, etc., with a pipeline of 15-20 active opportunities totaling up to $450 million over eight quarters.

Q: On the Profire acquisition, what about synergies?

A: Todd Gleason mentioned leveraging Profire's North American business into Middle East and Southeast Asian markets, and Peter Johansson discussed capturing public company cost synergies and accelerating product through channels.

Q: Confidence in customer delays closing in Q4 and H1 2025?

A: Peter Johansson explained that project delays are being worked through, with revenue potentially moving from Q4 into 2025, leading to a wider guidance range due to visibility in backlog.

Q: Capacity and investment to capitalize on growth?

A: Peter Johansson discussed the need for rightsized organization to execute on backlog and bookings, with ongoing monitoring of supply chain and qualification of new fabrication sources.

Q: On Profire's revenue profile and cross-selling?

A: Peter Johansson noted Profire's recurring revenue is ~20-25%, and Todd Gleason discussed leveraging Profire's model in new markets and customer bases.

Q: Makeup of $100 million orders in October?

A: Todd Gleason said ~two-thirds diversified across markets and ~one-third associated with a large energy transition project.

Q: WK acquisition products and applications?

A: Todd Gleason mentioned WK's core applications in incineration waste and gas combustion control, bringing new technologies and innovation to CECO's portfolio.

Q: 2025 EBITDA guidance and acquisition financing?

A: Sameer Joshi was told about 2025 EBITDA guidance and Peter Johansson stated sufficient cash and credit facility to finance future acquisitions.

Q: Impact of elections on business?

A: Todd Gleason said elections would bring stabilization, with balanced impacts on future policies and business.