Hi everyone, thank you so much for coming. We're delighted to have CECO Environmental. We have Peter Johansson, Chief Financial and Strategy Officer.
Good morning everyone, thank you for your time today. All right, thank you. Okay, so here's our safe harbor statement. There will be some forward-looking and non-GAAP information presented. Please don't hold that against me. I want to start out with a brief overview of the company. I see some familiar faces in here, but there may be some who are new to the story, so I'll move through it relatively quickly. CECO is a company that's focused on delivering environmental solutions to industrial customers. We're in the process of building out a leading global company that's a platform for technologies that solve some of our customers' most pressing environmental concerns. We've built three leading businesses with niche positions and core applications in industrial air, industrial water, and energy transition. We have approximately half our business outside of the U.S. In 2020, this was less than 20%.
We've had strong organic growth in our businesses, averaging 10% per year since 2021, and we have a record backlog across all our businesses that position us for future growth. We've been delivering sustainable value creation during the last five years. We've got a very focused capital allocation model. We start by fully funding our organic growth opportunities domestically and internationally. Then we look to manage the debt levels in our business so we keep ourselves in a nice flexible position so we can take advantage of M&A opportunities when they present themselves. We've executed approximately 13 transactions in the last four years, and so with our track record, we've continued to deliver excellent results, with over half of our acquisitions doubling in revenue within 24 months of closing.
We have a management team that we believe are very aligned with the expectations of our shareholders, and we continue to execute on the best growth opportunities that we find in the market to deliver both meaningful EBITDA growth and stock value appreciation. I'd like to highlight in 2024 we were named by Forbes as one of America's most successful small companies. If you think of CECO, think of three things. We're mission-critical in our customers' operations because we protect people, we protect the environment, and we protect our customers' investment in their industrial equipment and their processes. Some applications we're able to do all three simultaneously, and that for us is a very important aspect of what we do and what our employees come to work to do every day.
As I mentioned earlier, we're a global company headquartered in Dallas, but with operations across the major economies and major regions of the world. We have sales, engineering, and administrative employees in important hubs in Singapore, in Dubai, in Texas, in Canada, and in Europe, and a growing team in Asia. We have approximately 1,600 employees worldwide, and over 40% of those employees are outside of the United States. A truly global footprint and growing every year. We have a focused capital deployment model that underpins growth. As I mentioned earlier, organic growth is our first stop for our capital. Then we move into M&A spend. We continue to keep a close eye on debt management, maintaining a healthy leverage ratio, and if there's capital remaining and we are in a position where we feel the stock is unnecessarily traded down, we will step in and buy our own stock.
Today, after the most recent set of acquisitions and the disposal of our fluid management or Global Pump Solutions business, we're at about two and a half times levered. CECO is 100% environmental and 100% industrial in our approach to markets. We cover diversified industrial segments. Some of the leading segments are shown here on the upper left, and a number of energy and power applications shown in the upper right. We have a balanced solutions delivery model across three large sectors: water, air, and energy, with some of the individual applications highlighted in the green, blue, and orange boxes. Our revenue model is balanced. Our revenue comes from three primary sources. Approximately 30% is what we would consider recurring or short-cycle business. 25% comes from repeat or lightly configured solutions that draw on a library of existing designs and can be delivered quickly to customers.
Approximately 45% of our revenue comes from large customized or highly engineered products and solutions. We have a sales pipeline now that's over $5 billion in size. It's up to $5.5 billion. About 40% of that pipeline is derived from opportunities within our installed base. About 20% comes from new markets based on M&A or international expansion, and the balance comes from growing investment markets in industry and energy focused on or aligned to the macro trends of reshoring, electrification, infrastructure build-out, and industrial expansion. We've been delivering strong results while the company's been going through a rather extensive transformation from an energy-heavy, low-growth business in the last two decades to a business that's delivering substantial orders, revenue, and adjusted EBITDA growth. You can see the three-year CAGRs across the page here: 23% in orders, 20% in revenue, and 34% in adjusted EBITDA.
Our outlook for 2025 is between $700 million and $750 million of revenue, delivering $90 million to $100 million of EBITDA. You see where we started in 2021. That's quite a journey, not only a big lift, but a very value-creative lift. I want to walk you through some recent financials and our outlook for the year. In Q1, we had continued strong demand. We exited the quarter with over $600 million of backlog, a company record. It was our second consecutive quarter of orders greater than $200 million. For those that aren't familiar with our business, we book an order, and for the majority of our revenue, we deliver that revenue through a percentage of completion or project accounting method over anywhere from four to six quarters. An order isn't a sale. An order becomes revenue in subsequent periods.
As that backlog grows, that's a strong leading indicator of future growth in the business. Our book to bill continues to be well above one, even with the delivery of record revenues. If I point to the order and revenue figures on the right-hand side, our orders were $228 million in the period. What I would also point to is we had no large or very large orders. We refer to large as $50 million in size. We've had two of those in prior quarters. In 2024, we expect to have additional large orders in the balance of the year. The first quarter is a very balanced order quarter across businesses, applications, and regions. Revenue was $177 million, exceeded consensus. It was a very strong conversion of backlog, and we continue to see sequentially throughout the year revenue strength.
ESG&A was higher than initially anticipated, which was pressuring our adjusted EBITDA. While it wasn't where we had anticipated it being, it was above consensus, as was EPS. In the first quarter, we acquired Profire Energy, a fantastic business. We're really pleased with the results. Integration is ahead of schedule. Organic growth opportunities that we identified during diligence are coming to be realized, and they're largely anticipated. We concluded the divestiture of our Global Pump Solutions business in the first quarter as well. I like to think of us as trading out of a business while solid wasn't growing. We traded into a higher quality business that has growth at the same or higher margins and will continue to grow at a rate well above what we anticipated our pump business to grow at.
It was a nice asset trade, a higher quality business that's more aligned with our strategy. A little more details on Q1 financials and a trailing 12-month view. I'd like to point to the trailing 12-month actually because I think it's more relevant to where we're headed. We've booked $750 million of orders over the last 12 months. That's a pretty strong indicator we're going to have $750 million of revenue at some point in the next 12 months. Revenue for the last 12 months was $608 million. That's a record. It's balanced between acquisitions and organic. We had really strong starts in the first quarter with the results from Profire and Virantis, our most recent acquisitions. Virantis was an environmental solutions acquisition made in December. It sits within the industrial area, and it's continued to show very strong orders momentum through our ownership period.
Adjusted EBITDA for the 12-month period is almost $64 million, up 9%. It was a step back on margin as our first quarter expenses were higher than anticipated. We expect in the coming quarters to recover that and move the year-over-year results higher. EPS was $0.71. It was negatively impacted by higher interest expense and an increase in share count. This is a chart on gross profit. We've continued to improve our gross profit beginning in the fourth quarter of 2022 from approximately 30% when our CEO, Todd, said, "Look, this is a low point for us.
We expect our portfolio can deliver mid-30s of gross profit margin, and we can sustain it there with our current portfolio. Over this span, you see we've achieved that, and we continue to believe that we have the portfolio that can deliver 35% plus or minus based on order and revenue mix margins. That's a big improvement, 67% dollar improvement over that period, and we continue to grow gross profit. We've seen benefits from sourcing. We've seen improved pricing in the marketplace as customers are willing to spend more for our solutions because of the technical and performance benefits they achieve. Our project execution continues to strengthen. Looking forward from this year into the future, we're going to continue to focus on getting better at execution and source better. We're working to offset any impacts of inflation, and inflation and tariffs kind of run hand in hand.
Our focus is now going to begin to pivot more towards flow-through on revenue growth at the EBITDA margin level as we've got gross profit stabilized, and we believe we've got a very repeatable and strong organic growth model. This is a quick snapshot of our backlog. The record trend continues. Backlog is approximately three times larger than the point where we came out of 2021, which was a relatively low point for us. What I'd like to point you to on this chart is our book to bill ratio continues to be well above one, suggesting that there's more growth in our future. A little bit here on our portfolio transformation moves. Programmatic M&A is an important part of our story. We've had more than 12 transactions that are meaningful in the last four years. These companies tend to join CECO, and we doubled them relatively quickly.
The last three transactions are shown here. In 2024, we closed on three businesses in our industrial layer team. It's part of our strategy to continue to advance leadership in industrial layer applications, and these three businesses certainly do that. They came with international footprints. They filled in portfolio gaps and technology gaps for us and gave us access to new end markets that we find attractive. In 2025, as I mentioned previously, we closed on the Profire transaction early in January, so we had the full first quarter benefit from their performance, which was excellent. At the end of the first quarter, we sold our global pump solutions business consisted of three brands in three locations. There's an error in this chart. The Dutch location and the Meffiag brand did not convey with the sale. We retained those businesses.
How do we set up for the balance of the year? Managing through the tariff and inflation situation. In the blue column, that was our initial view of how we thought 2025 was setting up. That was back in October. With all the puts and takes over the last four to five months, our view is we're still on track to hit that initial outlook. Revenue, $700 million-$750 million with a midpoint at $725 million is a 30% year-over-year growth. Adjusted EBITDA, the midpoint's 50% year-over-year growth. Our free cash flow is on track with a recovery through the year sequentially of delivering 60%-75% against that adjusted EBITDA number. We're very encouraged by the strong start in the first quarter on orders and revenue. The order book continues to grow. The pipeline continues to expand. Our customers are not hesitating to pull the trigger on orders.
In fact, they're accelerating a lot of the conversations we've been having with them. This EBITDA figure here does reflect what we know about the tariff situation today and the impact on CECO, and we believe it's relatively modest and manageable. If something changes, this could change, but today we feel very comfortable we can manage through the existing situation and not have to change the outlook. In summary, CECO is a company focused on delivering strong growth and sustainable shareholder value. We've got a multi-year track record of delivering growth and margin expansion and EBITDA dollar growth as we transform the business. Recent performance, particularly on orders and revenue and gross profit, is very, very strong. Our 2025 outlook is robust. We have the growth underpinning the margin expansion and EBITDA growth, and our teams are working every day to offset any impacts of tariffs or inflation.
We like our portfolio, but we're constantly looking for opportunities to upgrade it. The acquisition landscape is very robust. There's no shortage of attractive targets. We can afford now to be very selective. We've established ourselves and our programmatic M&A playbook so that we are a buyer of choice for many sellers. The word is out. You join CECO, you have an outstanding career, and we invest in our businesses. I want to thank you for your time today, and I want to thank our team for all the hard work that they're doing to continue to make this a strong story and a story that's going to run for many years. Thank you. Any questions?
What are the metrics you use when you look at acquisition candidates?
Yeah, so there's three things we look at when we're screening businesses. We look at a set of financial metrics.
We look at some less objective, more subjective measures, and then we look at culture. We start with, does the business have a strong brand? Is the business well recognized in its end markets? Does it have a large installed base? Does it have business fundamentals that we can build on? Does it have reasonable financial performance? Doesn't have to be home-run performance, but it has to be reasonable. We don't want to buy something that we're turning around. The big one is culture. Can they join CECO and fit culturally? Does the management team have the same thinking around culture and values and the way you invest in people and your businesses to grow? If they don't, we move on very, very quickly. You could have a 40% EBITDA business growing 20% a year, and if the culture's corrosive, we won't touch it.
Can you speak up a little bit? I'm sorry, I can't hear you.
[No Sound] Can you give us an update on the Profire integration, how that's going, and how you guys are going to leverage that?
Absolutely. The transaction closed on January 3rd, and on January 7th, integration started. We'd done a lot of work with the management team before close on integration planning. What I'm happy to say is not a single employee, not a single member of the Profire team has left the business since the acquisition closed. They're fully engaged in integrating themselves as well as allowing us to work with them to find new sources of value. I would say the integration so far is an A. I grade us an A. We've taken out the public company costs. We're working through the corporate expenses where there's overlap. Insurance is an obvious one.
IT costs are an obvious one. We have got another quarter. By the end of this quarter, we should have that fully realized. The real big opportunity is in expanding this business into international markets where the CECO footprint gives them access to customers a small company could not or would not invest to reach. We give them access in industrial markets to customers in chemical and in manufacturing that they do not have today that accelerates their diversification efforts. That is both a domestic and a focused international effort. We give them access to natural gas utilities with our installed base with the Peerless business that they have struggled to penetrate. We are seeing substantial opportunities to grow organically with this business domestically and internationally. Those efforts have started. The prior CEO, Cameron Tidball, is leading the business inside of CECO. He is also their commercial leader.
He's made now two trips internationally, I believe, one to the Middle East, one to Asia, to begin the process of not only training our teams, but opening our teams' eyes up to the opportunities that exist for their technology outside of the U.S. Our teams there are very excited. We have product specialists we're investing in in the Dubai office and in Singapore to help drive that effort. I will also say their first quarter, they did something they've never done in their history, and that was they built backlog. They built a substantial backlog for them, which is now trading through the business in the second quarter.
Going back to the cultural evaluation of an acquisition, can you kind of dig down on how do you do that?
Is it just at the top level of interviewing management, or do you go down into the rank and file and.
We do it at both levels. Yeah. The first assessment really is during management presentations. One thing that kind of gets us suspicious is when you sit across the table during a management presentation and there are only two people speaking. That's a red flag for us. That means there either is a lack of confidence or a lack of depth in the team, or it's a management team that isn't collaborative. Very quickly, we hone in on where is the rest of the team, who else should we be talking to.
We put together in our diligence plan, if we move beyond the management presentation into a formal diligence process, an interview schedule where we want to get out and meet as many people in the business as possible. That may be hard in a small business when you've got 20 to 30 people, but it's actually more important in a very small business because you need to understand what's sitting below maybe the founder or the president. One thing we also try to do and we do as quickly as possible is we get an assessment of third parties, others that have done business with or in some way work with the company to see if there isn't some red flags there as well. Could be suppliers, could be customers, could even be regulators. For us, it's comprehensive.
Of the 13 transactions, there's one case where we actually had a miss. We bought a family business. It turns out that the father and the sons didn't get along, and two of the three brothers hated each other. That was a recipe for a tough first year. We worked through it, but that kind of raised our sensitivity to those cultural factors. I will tell you, the cultural component with Profire was front and center because it's our biggest transaction. It was a public company. They had their own values and norms. I'll tell you, it's been the easiest integration of them all. It's a really solid business with really good people, very humble and very helpful. I mean, they view being part of CECO as a natural extension of their growth plans that they couldn't fund. It's been a really, really good experience.
As I said, we've lost no one.
The old Global Pump Solutions business that you exited back was always viewed as very solid for cash producing. Still is. Right. What can we read relative to the timing of your willingness to part with the business that was that profitable? What does that say about how you were going on the evolution with the profitability of the rest of the company?
Yeah, certainly. Thanks for the question. I would point to that as being one for us. It's a sign of confidence that our portfolio had matured enough and our EBITDA generation from the remaining piece of the portfolio were solid enough that we could part with a business that for many years was an important part of cash generation for the company.
The reasons we sold it were not because it was a bad business or it was a business that we thought was going to begin to struggle. Frankly, it does not grow. It did not grow. It was a GDP plus or minus growth business that would have required substantial investment in channel and product to change that trajectory. We found a buyer in May River Capital who owns today four different fluid tech platforms, and that is what they do. They invest in mature technologies. They put new channel in place. They make product investments. They get them ready for the next owner, if you will. That is the role private equity has in a lot of ecosystems. They take corporate carve-outs. They take them from organizations where they are part of a portfolio, where they are not prioritized, and they place a priority on them.
I had dinner with the May River team earlier this week. They're extremely pleased with the business, but more importantly, they're pleased with the opportunities they've already found. We presented in our information memorandum materials to the buyers the things that if it was a priority in our portfolio, we would do or would have done. Many of those you kind of go, "Okay." Because we see a lot of inbound materials where sellers are saying the same thing, if onlys. They're beginning to start actually realizing that we weren't bullshitting them. They're actually real opportunities that we just deprioritized.
Okay. The remaining business, you get a higher return on incremental investments because you're not having to build up the business.
It was our, from a CapEx standpoint, it was our highest CapEx consumer, and we were facing another wave of machinery or tool investments.
We also look at the balance of our businesses as easier to move from a growth standpoint. They're less reliant on internal capacity. We've got good supply chain partners, whether for final fabrication or component fabrication, where we do final assembly and tests that we can grow and scale faster. That business will be a solid business, but it's going to require more capital than we are ready to contribute.
Back to Al? On some of the high-demand energy markets, obviously, whether it's data center or related, how are you positioned for that trend in terms of just basically stressing with grid energy?
We see two kind of, I'll call it, sustainable trends coming out of that. Computing writ large. There's going to be a greater demand for computing, whether it's AI, it's cloud, it's crypto, it's servers moving, basic business computing.
There's going to be a much larger demand for computing centers. Computing centers consume a lot of gigawatts, a lot of electrons. We have a pending shortage of that in the United States. I mean, it's hard to believe as developed a nation as we are, we're facing an electricity shortage. It's not just a grid issue. It's a generation issue. There are three ways to solve that problem. You consume less energy, you eliminate bottlenecks, or you generate more electricity. Frankly, the country is working on all three. We benefit from all three aspects. Most immediately, Al, it's gas turbine-fired power plants being built and nuclear power plants being either upgraded and re-rated and large institutional or large industrial scale solar being deployed.
We get an indirect bite at solar because our equipment goes into solar panel and module manufacturing facilities for cleaning the air and removing acid gases and VOCs. We get the benefits from supplying emissions treatment and fuel gas conditioning packages on gas turbine-fired power. When you look at the manufacturing facilities that are going to be producing more of the transmission equipment, including transformers and cabling, we have technologies that go into those manufacturing facilities to keep the air clean and the water clean. It's an all of the above story, and it's all hands on deck. We do not solve the permitting problem, though. We are all going to be sitting here one day going, "I wonder why the lights are flickering." You had a question, I'm sorry?
It was about Profire. Do you expect in the next couple of years units to grow substantially?
Our view is the Profire business will double in five years or sooner.
That's also from a unit perspective. Do you think it can grow units?
Yeah. Today, that business has a very large installed base, plus a growing new install opportunity domestically, whether it's in its core markets or the, what they call diversification markets of utility or industry. We also have a very strong belief in putting the investment plans in place to internationalize that business. There are three other regions of the world that want exactly what is delivered in their core oil and gas markets, that being the Middle East, North Africa, and Southeast Asia. Today, we have a supply chain that's North American, but it's a supply chain that can be globalized.
The EPA is going to try and roll back emissions standards.
I wonder if today, yesterday, whatever, is that going to impact business at all? Do you have certainty or?
Our view is that rollback will be hard to actually make happen because it's going to require congressional approval to change certain Clean Air Act laws. Where we believe the EPA is going to have greater impact is actually reducing the time it takes to move from, "I want to build something," through the entire environmental review process to permitting that project. We're seeing the benefits of that now with projects moving faster. If the EPA is successful in their efforts and Congress is willing to go along with changes to the Clean Air Act, I don't think you're going to see demonstrably different impacts.
The reason for that is the engineering of all the systems and all the technology that goes into gas-fired equipment is already set. We're not going to roll back to the 1970s and pull out old drawings from our drawers and try and make what we used to make again. I just don't see it happening. What it may slow is the change of tightening going forward. Today, the systems that are in place and the technology that we supply are more than adequate to meet federally regulated standards. States, by the way, still have the ability to impose their own standards. It's an area that's yet to be litigated or yet to be legislated, but I don't see in the near term it having a major impact. Clean Water, the Clean Water Act's going to remain as is.
I think what we're seeing is an EPA that's going to be more focused on getting things done and less focused on stopping things from getting done. The DOE is in that same posture as well. You might have just seen the most recent announcement on the administration trying to get nuclear really kick-started. It's going to be really hard to build 10 new reactors in five years, but if you don't have an aggressive vision, they will take 20 years unless you're really pushing to do it faster. The nuclear wave that we're going to see or the nuclear kind of renaissance we're seeing is not a reason to own our stock, but I mentioned earlier too in the meeting, it's like sprinkles on a cupcake. You really like it when you get them, but if you get a cupcake without the sprinkles, it's good too.
Think of nuclear for CECO as sprinkles on a cupcake. It's a great high-margin business. It's not going to move the revenue line much.
The overall trend in energy.
Absolutely. 100%. Doesn't matter how the electrons are produced, we're benefiting from it. And that's an international trend.
I'm just curious. The natural gas turbine power plant, what kind of numbers or what kind of revenue do you guys get?
It depends on the usage of the gas turbine, the size of the gas turbine, and the location. Let's just take a typical 250-megawatt simple cycle combustion turbine that operates on a backup or a peaking basis. We'll have anywhere between $8 million and if we get the full scope of supply, it'd be over $25 million. If we get a partial scope, it'd be $15 million.
If we get only the stacks and exhaust treatment package, it'll be around $8 million-$10 million per turbine. These tend to be packaged in groups of two or four, and it's very rare that the minimum scope is what is purchased. It is generally middle of the road or it's the full scope. We have three competitors in that field. One is a real competitor. A third kind of picks up scraps. Any large gas turbine system that's delivered by GE or Siemens or Mitsubishi in the United States, we will expect to win our fair share. Internationally, where emission standards are slightly different, the win rates are slightly lower.
What's the market share in the U.S.?
We don't measure market share, but if we think about the gas turbine projects over the last four years that have gone to construction, we have half that business.
Can you just talk about when the work logs do show up in your backlogs because you look at GE and that's they're scoping for for many, many years now?
Yeah. We have to distinguish between a reservation and an order in the GE and Siemens backlogs. What's, I think, more interesting to you from a leading indicator is when the utility announces the financing's in place to start construction. Their FID decision. They will have already placed the order conditionally with their turbine provider years in advance. We will have done preliminary engineering or pre-award engineering for up to two years ahead of that, supporting with trade studies, costing studies, and analysis. Once an FID is announced and the turbine provider is designated, within six to eight weeks, we'll have an order if we're the selected party.
The project will run anywhere from 18 months to 36, depending on complexity of the project, number of gas turbines involved, and whether we are involved in any site work. If we receive an order today for a project, we will deliver revenue. The first revenue will show up in the next quarter. It will start to accelerate in the fourth quarter, or quarter two, and then it will deliver in a fairly linear fashion over the next four to six quarters. I have a minute and 40 seconds left, or I run over. Maybe I run over. I have a red light here. Okay. Thank you, everybody. If you have any questions, we are here all day. If you do not get to see us, the three-part advisors team will get you connected. Thank you.