Afternoon, everyone. Gerry Sweeney from Roth Capital. Thanks for joining us for my last fireside chat of the day. It's to 180blu for some beers. Is this being webcast? Yes. Okay. Well, we can edit that out. No one's saying anything.
That was the best part of the introduction.
Yes, it was, right? We have today CECO and Thermon. We have Bruce Thames. Correct? Right?
Thames.
Thames. I'm sorry. Todd Gleason, CEO of CECO. We also have the Chip Moore.
Hello, everybody. I cover Thermon here.
Yes. Moore, he's my compatriot at Roth Capital. Analyst extraordinaire. Anyhow, I figured we'd just jump right into it and just ask why this deal now, and how did it come about? Just tell us your thought process on, you know, going through the due diligence and pulling the trigger.
Yeah. I guess I'll start, Bruce, and then you can fill in some additional good points, I'm sure. It's great to be here. Thanks for having us, of course. There's a lot there actually in a question or a group of questions. I'll say this, number in no particular order, but we have, I have known, and we have been monitoring and admiring what Bruce and the team at Thermon have done for a long period of time. It's a mark, an area of the market that I am familiar with. We're a diversified industrial company. We serve a variety of engineered solutions across an entire range of heavy industry areas of need specific to process management, environmental solutions, and what a coincidence, Thermon does much of the same thing.
You don't lead an industrial company and not pay attention to other companies that are winning, that are leading, that have niche leadership positions, that are doing things that you admire, that are launching new products that you see in the marketplace. Our customers know us. Our customers know them. That's where it started. It started with an acquaintance of each other, as admiring each other's organizations. When I reached out to Bruce, it was simply to get to know what he and his team are doing across some different areas of the marketplace. We don't compete, but we saw some opportunities where we might wanna work together.
Those conversations have all evolved into our announcement a few weeks ago, where we see the best way to work together is to actually put two winning companies together now that each have exciting growth opportunities now, that we believe that the combined organizations provide a tremendous amount of scale, global opportunities, new market opportunities commercially and operationally for us to work smarter, more efficiently together. The last thing I'll say is, and I'm probably saying a lot here, is it's not every day that you get to take a company that has a ton of momentum with another company with a ton of momentum. As we look forward, not just for the next calendar year, but for years to come, this is a double-digit growth combination company with 20%+ EBITDA margins.
That rule of 30, rule of 40 company in the industrial space isn't that common. We believe the formation of the combination of CECO and Thermon solidifies that rule of 30, rule of 40 company for years to come with the market opportunities we have separately and together. The why now is I think it just speaks to the power that Bruce and I and our boards see together for the next three, five+ years.
Yeah. I think, Todd, you did a fantastic job of summarizing much of it from Thermon's perspective. As, you know, Todd and I have been connected really since not long after he became CEO of CECO, and we've compared notes throughout that period of time. As he said, we've had some mutual respect for what each other have done with the businesses and in the market. Todd has done a phenomenal job in repositioning CECO for growth, the expansion into water globally, the opportunities they have across the power sector and others.
As we began to talk, maybe some of the opportunities weren't as readily apparent, but when we began to look at our operational footprint and talk about opportunities in markets and things, where they are, where we are, really saw an opportunity to accelerate Thermon's ability to build out our operational infrastructure with their locations in Korea and in China. We've been looking to buy into those markets, either acquiring or building manufacturing capabilities there. As we've really been talking here most recently, the opportunities that Todd and the team have in the power markets is just exceptional. You know, 9%-10% of Thermon's revenues are in the power sector.
As we begin to talk about commercial opportunities, there's opportunities they have and relationships they have with the GE Vernova and Siemens and others that really creates opportunities for our solutions to be able to pull those three through. I'm excited about the combination of these two businesses, and I truly believe we were great independently. We both had good, great growth stories, but together I really believe it accelerates our abilities to execute against our strategic plans collectively.
Chip, do you mind if we go with one more question just to pull some more info out?
Go for it.
You both have provided some synergy opportunities, but I don't think you've really gone into the commercial side, right? Two questions here. I understand, CECO, for a long time you were looking to build out your shorter cycle business, but the long cycle business has always sort of outgrown that. This transaction, very straightforward, balances out short cycle, mid-cycle, long cycle business. But that aside, you were talking, you were discussing how you were talking more and seeing some of these synergies. Maybe on the commercial side, what opportunities should we be looking at?
Yeah. You know, really one of the genesis of my interest in reconnecting with Bruce in 2025 was to start to better understand their investment in their controls platform and which ironically is called Genesis. You know how they grew that internally and how they utilize that as a way for them to really establish even more leadership in their marketplace. It's an area where we have been looking organically and inorganically to invest in controls, monitoring, ways to connect across platforms.
Number one, there's a lot of synergies there where now we have a team as we look to combine our organizations, an initial platform, an opportunity for us to learn, to leverage, to grow, to offer to our customers potentially, an enhanced suite of product category, especially in air and water. A lot to like about controls, period. First and foremost, that's where one of our commercial synergies will come from in the next few years. Number two, as Bruce and I were talking about footprint expansion operationally, commercially, we have made a focused investment to expand commercially, in certain verticals and geographic markets. We know that there's a lot of opportunities in those areas for us to utilize our established footprint beachhead already in those international or industrial spaces.
Now that our commercial teams can talk, because obviously this was a private transaction, we see a lot of product overlap in our larger projects. We're winning very large multi-hundred-million-dollar power jobs. In each of those, just as one example, Gerry, there are heat trace, heat process, immersion heaters, a ton of applications where we're now gonna be going out and buying product. Thermon could be one of those products. We might find a way to partner and bring that suite of product through in an offering or a bid or a proposal. We know that there's millions of dollars of commercial opportunities on these projects alone. In our backlog or in our sales pipeline, which is now $6.5 billion, we have the data. We know what's being asked of us to design in a system.
We're unique in that way in that because we're 70% long cycle, that $6.5 billion of pipeline are specific projects over the next two years with a tremendous amount of insight into what those customers need on those projects. Now we'll be able to accelerate those conversations within this new product category that Thermon is already an established leader.
Bruce.
Yeah. Just to add on to that, you know, as we look at it, if you look at every one of these emission stacks, when you look at SCRs and other emissions, our tubing bundle line is all around CEMS. It's continuous emission monitoring systems. That's just a low-hanging fruit. The other thing is, to Todd's point, our commercial teams really couldn't talk until it was announced. Well, they didn't have no knowledge of the deal until it was announced. Shortly thereafter, we're already bidding immersion heaters on fuel conditioning systems for these big turbines. We have a relationship with another large turbine manufacturer. We get little to no business from Siemens and GE. There's just big opportunities with these OEMs to pull through our solutions.
Our heat tracing is even used in a lot of these, the Peerless filtration systems and the like, to be able to heat trace louvers. Their supplier who's supplying louvers was actually buying from a third party. We'd bid on it, and now we're being specified. Those are just low-hanging fruit that's happened in the last three to four weeks. Our commercial teams are pretty excited about the potential of the combined businesses.
Yeah. I think, maybe Bruce, that might be helpful to talk about Thermon has changed quite a bit in recent history and your 3D strategy. No Guy Fieri, but right, decarbonization, digitalization, diversification. Just talk about how it's changed the portfolio and how it might change going forward.
Yeah. I think, you know, too often Thermon gets kind of bucketed in its past. When I joined the company 11 years ago, you know, 65% of the revenues were tied to oil and gas. Half of that was upstream, largely in the Canadian oil sands in Russia. Fast-forward to today, 28%-30% of our revenues are now oil and gas. Only 2% of that is tied to upstream CapEx. That's all downstream, and a lot of it is recurring. If you looked at the business back then, it was largely 45% CapEx and 55% OpEx. Today, it's about 83% OpEx recurring revenues on the installed base. We've used that 3 D strategy. If you look at the growth profile of the business back from the 2017 timeframe, we've essentially, and we adjust for t he exit of Russia, which is about $30 million in revenue, we've had about 9% top line growth over that period of time.
It has all been on our 3D strategy in diverse end markets. Today, more than 70% of our revenues are outside of gas, oil and gas. What is that? That's general industrial, a big sector for us. Chemical, petrochemical, power, commercial, food and beverage, rail and transit, semiconductor, pharmaceuticals, very broad base. Our technologies are agnostic, and we've been able to apply those across a wide range of end market verticals.
Most recently, we've really been benefiting from electrification and the trends there, and we have some new product launches that are really exciting around medium voltage, which really enables us to provide large bulk heating in industrial applications and also our liquid load banks which are targeting the data centers. Those two product lines alone will position us to essentially have 5%-7% growth in just two new product offerings if we kinda complement that with the upturn in capital spending we're seeing. Our backlog in engineering is at a record high. We're sitting here this year. CapEx spending, and I say our customers' CapEx spending is up 26%. We see that trend continuing going forward.
With some of the secular growth drivers we're seeing that we're exposed to, we see that continuing for the next three to five years. We really are becoming more of a growth story ourselves and see double-digit growth for what would be our fiscal 2027 going forward for the next several years. We're excited about the opportunities, how we've repositioned the business, and really the secular growth trends we're seeing in these big macro trends.
Now, I plan to take all the credit for that growth.
You can have it.
Okay. Power's come up, right? It wouldn't be a conference in 2026 if you didn't ask about data centers. I mean, CECO is we look at it almost as a derivative play on AI, right? Because AI power, you work with the turbine companies. Maybe give us a little bit of detail of what's happening on that front. There also sounds like there's some opportunity to pull more, you know, cross-sells. Sounds like Thermon it does not do much work with GE and Siemens. I think there's a third one would be Mitsubishi. Yeah. Maybe what's the opportunity, the macro on what's happening on the power side, but maybe combining all three of those turbine opportunities?
Yeah. I'll hand it over to Bruce and let him revisit some of the new rollout of their product with the relationship to data center.
Right.
We do participate in and around data center, but nowhere near as interesting as power. Look, couple things. First of all, when it comes to gas turbine power, in particular, although we're certainly also in nuclear, coal still, there are, you know, still lingering.
Sure
C oal facilities, and you know, geothermal. Gas turbine power is the boom industry.
Power of choice.
The power of choice. All you have to do is look at what GE Vernova and Siemens and others are saying about their bookings and about their growth for the next, you know, three, four, five years. They are those turbines now are growing in size to the larger frame units. Not to say it was easy for them just to roll out the aeroderivative turbines, but a lot faster and a lot easier over the last few years. Now as the market moves now towards the larger multi-gigawatt or gigawatt or larger power gas turbine facilities and campuses, you're now moving into the frames, which is really where we win more.
Now you're breaking down to two or three of us suppliers that can do the full suite of emissions, comprehensive solutions. In that, as we've already mentioned, we can now bring the Thermon product line into those projects that we're winning and we've already won. We can look at opportunities coming down the pipeline. There's a reason why just a few weeks ago, we increased our bookings outlook for the year, which we started the year promoting that we thought that we were gonna get greater than $1.2 billion. We've now increased that to greater than $1.5 billion. Honestly, we think that there's, you know, a magnitude above that, whether it's in 2026 or in the next 12 - 18 months. The amount that we're seeing from power, especially with these large turbine orders, is extremely large. These are projects that have already been booked.
Mm-hmm.
We're now the next chapter of that solution. Look, you know, for us, power is ramping higher, not lower. Some of the questions we received when we announced the transaction is this a pivot away from power for us? Are we starting to feel nervous about those opportunities? I'm not chuckling at the question, but the answer only forces you to chuckle and say no. I mean, we're only seeing that power wave hit us now. It started to come in last year where we booked over $1 billion for the first time as a company. You know, $300 million-$400 million of that was power related. We might do that in one job.
The key point here, though, is there's few companies that can provide the whole comprehensive suite. You're sort of in that sweet spot. Maybe just 30 seconds on what you do with the turbine.
Yeah.
Yeah.
Think of it as, in the simplest way, as that power combustion occurs, a multitude of things happen. Heat, noise and emissions. There are only two or three of us in the world that can handle the heat movement and transfer the—whether it's the expansion, the dampers, the ducting. Then of course, as that noise needs to be attenuated, we call that thermal abatement, thermoacoustics. Again, there are a few of us in the world that can handle that type of thermal exhaust and that type of thermal pressure and release. Then last but not least is eliminating the NOx and other, you know, airborne pollutants that come from that. The muffler on the car muffles the sound, and if every car had to eliminate all of its, you know, emissions, we would be that company to do that.
I've already talked a lot about the opportunities for pull-through into power, and we do a lot in the power generation facilities themselves. We do heat tracing in those combined cycle natural gas-powered plants. Those are, you know, dependent on the size and scale. If it's a gigawatt, it's maybe $1.2 million. In the Gulf Coast, if you're talking about colder climates, it's certainly more than that. We have opportunities there. That's with heat tracing. We also have opportunities where we sell boilers into the power market for backup and for other systems. We also have an N-Stamp, and we do work in nuclear power, particularly in Eastern Canada and the Northeast. We have an N-Stamp which enables us to do work in nuclear. We have other opportunities around power as well.
It's about 9%-10% of our revenues. If you think about combined cycle power and natural gas power generation, I looked up the value chain. If you go back to our roots in oil and gas, we do a lot in natural gas. Natural gas processing, so think about going upstream and midstream gas processing with fractionators. Those are $5 million-$7 million jobs. We have a very large market share of those types of opportunities. If you think about LNG, we've booked six or seven LNG projects since the beginning of our fiscal year, which started April 1st of 2025.
We booked six or seven big, nice LNG opportunities, and those are, I believe, accelerating, particularly when you look at what's going on in the Middle East and the uncertainty of supply and supply disruption. I even think about not only just power, but looking up that value chain and seeing the other opportunities that we're seeing that are linked to that.
I've got one maybe on, I'd be interested in M&A as a combined entity down the road. You've made some smart acquisitions that have led to, you know, some growth in some pretty fragmented markets. Data center we talked about. CECO, I understand you've been pretty acquisitive, and Todd, you've got a history with some companies that did a good job at that as well. Just the increased scale and how you think about M&A as a combined entity?
Yeah. Well, Bruce and I have the same view. It starts with a successful combination with CECO and Thermon and a very focused growth on both companies in our current portfolio with respect to enabling our teams to get after organic growth globally to serve the markets, to serve our customers. You know, we're really excited now that our teams are talking. Our corporate organizations see the same strategic opportunities in these big markets, and we're not gonna starve any of our businesses for capital where we have the best opportunities to win. You know, we also happen to be starting day one with a very healthy balance sheet, 2.5 levered at the combination.
You know, we're gonna be able to look at opportunities inorganically and as soon as we're ready, which we do not think that this integration is not complicated. There are important aspects of any integration, but culturally, a lot to like. Geographically, a lot of overlap. Their Thermon is going to be our largest strategic business group. It's. We're not breaking up Thermon. We're not separating it into other businesses that we have. The hit the ground running moment needs to happen at the whistle. Our balance sheet's gonna be ready to go at the whistle. We think the market opportunities that Thermon brings strategically are attractive, organically and inorganically. We have a similar list of things in our pipeline. Now, we're gonna make sure the integration goes well.
I think what we're saying is that we're gonna be programmatic as an M&A organization should be when we see that we have niche leadership that we can expand on in various markets geographically and other industrial markets. We're gonna stay true to our knitting. We like what Thermon's opportunity set looks like organically and inorganically. We certainly love what we know about the business combination, and the low leverage on the balance sheet just gives us a lot of scale and punching power to go after businesses in the future that we think would be great additions to our leadership.
Audience questions perhaps. We've got a minute.
Yes. If not, I can ask some questions.
Do you want to?
Okay. I mean, so we
We got Bob. Bob wanted.
Oh, Bob? Oh, go ahead, Bob.
Here, you know what? Here.
Good excuse to get some water.
It's being recorded, Bob.
Since you've announced the transaction, what do you think this street has not fully appreciated or recognized?
Steal my question.
Yeah, look, we've had an opportunity to talk to a lot of investors. There was a bit of a surprise factor, no doubt. Look, you know, I think that that's not an uncommon reaction, is that there's the street just sort of reacts and what do they say? You know, shoot first, aim later. I think there was a little bit of confusion over the financial aspect of the transaction. How much debt would this bring on? Not to criticize other organizations, but we've all seen combinations in recent ones, even over the last few years, that sounded like they might be interesting, but they're highly levered. This is not that. Once the market, I think, got a chance to appreciate that this combination makes a lot of sense. We're not worried about growth on either side.
If anything, this is two winning companies coming together at a really at a moment for us to find an even higher pinnacle for both organizations. Just as that was starting to get digested and appreciated, you know, we had this little war that got started. I think the timing in that way was a little unfortunate because the headlines got trapped into a drawdown of equities. Again, you know, that this is life. This too shall pass. Look, I think what's important to us is that the market almost always gets things right in a relatively short period of time. We've only been out there with this transaction for a few weeks. We think the market's starting to really appreciate and get excited about what this combination means.
I know Bruce and I are convinced that as we meet with smart investors, they're gonna start to really understand what this combination unlocks on day one, let alone on day thousand, right? That combination that we already talked about, the financial combination, the leadership of our two organizations, and we believe a really powerful cultural mix of two companies that have a ton of pride, the investors are gonna follow it.
Is it fair to say, from my perspective, I thought there was some portion of the street that said that was in it for this aeroderivative power play, but the acquisition actually makes you stronger, better, a more balanced company. At the end of the day, that was sort of my take, okay, we dig in, it's a little different, but this, the combination of the two is a much more balanced company over the longer term.
Well, it is. We think that we're still as attractive as it relates to the power theme.
Mm-hmm.
We're way more attractive as it relates to the power theme and the data center theme with the combination with Thermon. Over any horizon that I can see, this combination makes us a better company.
Yeah, there's no doubt. Chip?
All good. I think we're at time, so.
All right. Thank you, everybody.
Thanks.
Third Eye Blind. Thank you. Dinner's on Bruce.