Q3 2025 CECO Environmental Corp Earnings Call

Speaker #2: Good day and thank you for standing by . Welcome to the CECO Environmental Corp . Third quarter 2020 Earnings Call . At this time , all participants are in a listen only mode .

Speaker #2: After the speaker's presentation , there will be a question and answer session . To ask a question during the session , you will need to press star one one on your telephone .

Speaker #2: You will then hear an automated message advising that your hand is raised . To withdraw your question , please press star one one again .

Speaker #2: Please be advised that today's conference is being recorded . I would now like to hand the conference over to your first speaker today , Marcio Pinto , Vice President of Financial Planning and Investor Relations .

Speaker #2: Please go ahead .

Speaker #3: Thank you . Tanya , and thank you for joining us on the CECO Environmental Corp third Quarter 2020 Earnings Call . On the call with me today is Todd Gleason Chief Executive Officer and Peter Chief Financial Officer .

Speaker #3: Before we begin , I'd like to note that we have provided a slide presentation , which is on our website at CECO Environmental Corp .

Speaker #3: The presentation materials can be accessed through the Investor Relations section of the website . I'd also like to caution investors regarding forward looking statements .

Speaker #3: Any statements made in today's presentation that are not based on historical facts are forward looking statements . Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties .

Speaker #3: 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 , including on the 10-K for the year ended December 31st , 2020 .

Speaker #3: For 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 .

Speaker #3: Today's presentation will also include references to certain non-GAAP financial measures . We've provided comparable GAAP and non-GAAP numbers in today's press release , and provide non-GAAP reconciliations in the supplemental tables in the back of the slide deck .

Speaker #3: With that , I'll turn the call over to co-CEO Todd Gleason . Todd .

Speaker #4: Thanks , Marcio . And good day , everyone . Thanks for your time and for your continued interest in Seiko . I'm very pleased to discuss another strong quarter , as well as our reaffirmed outlook for 2025 and our initial view of full year 2026 .

Speaker #4: With that said , please turn to slide number two . This executive summary slide captures the main points . We hope you take away from today's earnings call and our release this morning .

Speaker #4: We will provide much more detail in later slides . So I will be brief . We delivered another high performance quarter with outstanding top line and bottom line growth .

Speaker #4: We exit Q3 with a new record backlog . Even after generating our highest ever quarterly revenue in the quarter , we expanded EBITDA margin nicely while we continue to invest in long term growth resources and operating capabilities .

Speaker #4: Given the tremendous visibility we have in our backlog and sales pipeline , we reaffirm our full year 2025 outlook and introduce our full year 2026 outlook , which points to another year with very strong growth in both sales and adjusted EBITDA .

Speaker #4: As you will hear from this call, we remain very bullish as we are encouraged by strong market dynamics in our most impactful sectors. We are pleased that our proven operating model continues to deliver for our customers and for our shareholders.

Speaker #4: Now , let's dive into more details . Please turn to slide number three . Demand for Seco solutions and Services continues at a record setting pace .

Speaker #4: Our backlog grew to $720 million . A new record year over year . Our backlog is up approximately $280 million , or 64% sequentially .

Speaker #4: Our backlog increased by approximately $30 million . This new record backlog was made possible by another quarter of robust order intake of $233 Million in new bookings , which is up 44% versus Q3 of 2020 .

Speaker #4: Four. We continue to book a nice mix of mid-sized and large-size orders, particularly in the power generation and energy transition sectors.

Speaker #4: While we didn't book any mega jobs this quarter because of timing of those particular jobs , we are very pleased with how those power opportunities continue to develop .

Speaker #4: We remain well positioned for these larger projects , which we define as greater than 50 and even greater than $100 million . When combined with orders from the first half .

Speaker #4: Our year to date 2025 book to bill is nearly 1.3 , with $735 million in year to date orders . If you expand the bookings across the past four quarters , we have now booked approximately $950 million in new orders with each quarter comfortably above $200 million .

Speaker #4: With the investments we have made to position our businesses to capture and capitalize on robust demand in our core markets, we expand into new geographies and offer more new solutions and services.

Speaker #4: Our sales pipeline is now over $5.8 billion , which adds to our confidence for sustainable growth . Quarterly revenues came very close to eclipsing $200 million for the first time and produced an all time record of $198 million in the quarter .

Speaker #4: This was up 46% year over year through three quarters of 2025 . We have already generated more sales than all of last year , which had been a previous record when we entered 2025 .

Speaker #4: We forecasted strong growth , and I would and I would submit that our year to date bookings and revenues are meeting or exceeding the bullish outlook we originally provided .

Speaker #4: Adjusted EBITDA was up 62% in the quarter, as our sales growth and improving G&A cost profile continue to allow for nice EBITDA margin expansion. Additionally, Q4 free cash flow of approximately $19 million was in line with our strong cash flow performance.

Speaker #4: We expected and a strong rebound from our first half of 2025 . We expect to continue to improve our working capital position as we navigate the balance of the year .

Speaker #4: A final metric on this on this summary slide shows adjusted EPs was $0.26 , up approximately 86% year over year . So overall record results and solid performance .

Speaker #4: And we enter Q4 with an incredible backlog and sustainable momentum in all of our growth programs . Now , please turn to slide number four .

Speaker #4: As today's press release highlighted , we are reaffirming our full year 2025 annual outlook across the board . This represents full year revenue of between 700 and 20 5 to $775 million , which is up approximately 35% at the midpoint year over year .

Speaker #4: For adjusted EBITDA . We are maintaining 90 to $100 million , which is up approximately 50% at the midpoint , and free cash flow at around 60% of adjusted EBITDA for the year , is also reaffirmed .

Speaker #4: You can see the comments on the right side of the slide . One of the items we highlight is our expectation that Q4 bookings will be above 250 million , and depending on the timing of just a few orders , we might actually deliver our first $300 million plus quarter .

Speaker #4: Now , before I hand it over to Peter , let's move to slide number five for a quick overview on Seiko's prime position to benefit from current market dynamics , and also navigate potential challenges for the remainder of 25 .

Speaker #4: And our initial 2026 outlook . We have a strong market backdrop in power , electrical equipment , industrial , restoring industrial water and natural gas infrastructure sectors .

Speaker #4: Each of the past four quarters we have booked orders in the critical infrastructure projects to support domestic power generation and energy delivery investments , and our pipeline would indicate we have the opportunity to maintain that pace throughout 2026 .

Speaker #4: We see these projects continue to grow in both side and volume , as we not only head through that year , but into 2027 .

Speaker #4: We remain bullish on the industrial water and wastewater treatment sector , and in particular , the international Water infrastructure projects , where we now have our most active and largest pipeline of opportunities associated with water reuse and recycling applications .

Speaker #4: We expect substantial orders to be placed over the next 4 to 6 quarters , with a sales pipeline that extends also well into 2027 .

Speaker #4: Industrial reshoring and the global global semiconductor and electronic component sectors also remain robust and breadth of capabilities in industrial , air and energy applications ensure that we are very well positioned to continue to win in these areas .

Speaker #4: We remain extremely focused on optimizing our project pricing and margin levels based on constant communication with our extended supply chain, including our fabricators, component suppliers, and raw material suppliers.

Speaker #4: We have seen moderate inflation in select commodities and components that we include in our costing models and work to mitigate our designs and sourcing plans .

Speaker #4: And last but not least , M&A . We have not announced a transaction since we closed the sale of our global pump business in late Q1 , as well as the acquisition of Profire Energy in early January of this year .

Speaker #4: But that doesn't mean we haven't been actively building our M&A pipeline . And advancing certain deal related discussions . We remain focused on the sustainability of Seiko's portfolio , building a world class industrial company with leadership positions in several and meaningful industrial niches .

Speaker #4: We expect to have more to discuss in the coming quarters . And as far as challenges or uncertainties at Seiko , we believe that proper planning for scenarios is one of the hallmarks of a high performance company .

Speaker #4: We remain laser focused on the things we can control , and we prepare for additional actions if certain headlines turn into headwinds . As such , we continue to monitor tariffs and the impact on inflation .

Speaker #4: We are also monitoring the U.S. government shutdown and what impact that might have on various operational items. So far, nothing that we can point to as far as moving the needle up or down as it pertains to Seiko. We will maintain our focus on these potential factors and act accordingly.

Speaker #4: Best to be proactive when possible . And that's our plan . I will now hand it over to Peter , who will go into more detail on our financial results .

Speaker #4: Peter .

Speaker #5: Thank you . Todd , good day everyone . Thank you for joining Todd and myself for Seiko's third quarter 2020 earnings call . I would like you to turn to slide number seven for more details on our recent financial results in the quarter .

Speaker #5: Seiko finished the third quarter with a record backlog of $720 million , up 64% versus prior year and 5% on a sequential basis .

Speaker #5: This result delivers the 11th of the last 12 quarters , with an increase in backlog . The increase was driven by good order rates across a wide range of end markets .

Speaker #5: Of the total , approximately $60 million is related to the recent acquisitions , with the balance of the increase being generated from organic order growth .

Speaker #5: Third quarter orders were $233 million , an increase of 44% over the prior year period , representing a book to bill of approximately 1.2 times .

Speaker #5: And as Todd mentioned earlier , the fourth consecutive quarter was orders greater than $200 million for a trailing 12 month level of $954 million , 65% greater than the prior 12 month period .

Speaker #5: This $954 million level represented a book to bill of 1.33 times revenue , a record for any 12 month period in Seiko company history by a large margin and a four quarter average of approximately $238 million .

Speaker #5: The results were largely due to strong demand in power , natural gas infrastructure , semiconductor and industrial water applications . I would like to point out that Seiko is just shy of reaching $1 billion in orders on a 12 month basis for the first time in company history , a level that we expect to achieve in the coming 12 months .

Speaker #5: Revenue in the quarter of $198 million was the highest for any quarter in company history , and an increase of 46% , or $62 million over prior year .

Speaker #5: Approximately 30% of the year over year increase was generated by the company's most recent three acquisitions , and the balance was from organic growth .

Speaker #5: Sequential revenue was up 7%, with a big assessed assist from revenues recognized on large power generation projects booked in prior quarters, as well as strong backlog conversion from industrial, air, and industrial water projects.

Speaker #5: Adjusted EBITDA of $23.2 million was an increase of 62% versus prior year , with margins improving approximately 120 basis points over the year ago quarter .

Speaker #5: On a trailing 12 month basis , adjusted EBITDA grew 26% to approximately 80 million , with margins down slightly , driven by our Q1 2025 results , which were lower than anticipated on a sequential basis .

Speaker #5: Adjusted EBITDA was flat on a dollar basis , with 80 basis points of margin contraction due to lower gross profit margins in the quarter , partially offset by lower G&A spending .

Speaker #5: Gross profit margins of approximately 33% in the quarter was down 70 basis points year over year , mainly due to an adverse project mix , as well as due as well as driven by a medium sized project closeout with dilutive gross margins sequentially , gross profit margins are slightly down , driven by mix and the typical summer seasonal headwind dynamics .

Speaker #5: Sales , engineering and G&A expense continued its favorable downward trend , with spending in the quarter down 4% sequentially , benefiting from cost saving initiatives initiated in the first quarter and strong expense management .

Speaker #5: Adjusted EPs in the quarter was up $0.12 , or 86% , on higher volumes . Operational excellence efforts and G&A expense management partially offset by higher interest expense .

Speaker #5: Now please turn to page eight with me to review our backlog position in more detail . With our strong orders , performance in the third quarter , our backlog is continuing at steady upward climb as we convert on the growing sales opportunity .

Speaker #5: Pipeline at $720 million , Sekos backlog has more than tripled since the end of 2021 . We expect the majority of this backlog to convert to revenue within the next 24 months .

Speaker #5: With a large portion scheduled to convert over the next 18 months . Our 2025 year to date book to bill is approximately 1.3 times further underpinning future revenue .

Speaker #5: Now please turn to page nine with me for a look at gross profit and gross margin performance . This slide , like in previous earnings decks , presents Saco's gross profit and gross margin performance by quarter since the fourth quarter of 2022 , we are presenting it on a trailing 12 month basis to normalize for quarter to quarter fluctuations and to provide a look back to the start of Saco's operating Excellence agenda deployment , which began in the fourth quarter of 2022 .

Speaker #5: Since that point , Saco has expanded , trailing 12 month gross profit margins by approximately 500 basis points , with gross profit , dollar growth of slightly greater than 95% .

Speaker #5: In the third quarter of 2025 . Our business delivered the second highest gross profit dollar performance for the company in a quarter of $64.6 million and a gross profit margin of 32.7% .

Speaker #5: The decrease of 300 with a decrease of 350 basis points sequentially and 70 basis points year over year . Project mix and seasonal seasonal dynamics drove the quarter on quarter decline .

Speaker #5: I would like to remind the audience that a sequential step down from second quarter to third quarter is normal for Saco . This has occurred annually since 2020 .

Speaker #5: Most recently in 2024 , where we experienced a 220 basis point sequential reduction before a similarly sized step up in the fourth quarter .

Speaker #5: The seasonal dynamic is mostly due to fewer working days , with summer holidays in Europe and the United States resulting in a general slowdown in business operations in addition , we chose to accelerate the closeout of an industrial air project with dilutive margins into the third quarter .

Speaker #5: To put that behind us for the balance of the year , similar to past years , we fully expect gross profit margins to bounce back into the fourth quarter and continue the upwards momentum as we maintain long term profit margins at the gross margin level , at greater than 35% .

Speaker #5: On a trailing 12 month basis , our gross profit margin was 35% at the end of the third quarter . This improvement over the past two plus years is attributable to the progress our teams have made , capturing annualized sourcing savings in the range of $10 million , improving project execution , and the impact of our commercial and portfolio transformation initiatives to improve the business mix .

Speaker #5: While making acquisitions with accretive gross profit margins for the remainder of 2025 and into 2026 . We will continue to implement and expand on our operating excellence agenda , focusing on project execution and sourcing and increasing our focus on G&A expenses , optimization and process simplification to further benefit adjusted EBITDA delivery .

Speaker #5: These efforts will be bolstered by the addition of 80 over 20 to our operating model , a process which we have introduced late in the third quarter and will continue to drive deeper into the organization in coming periods .

Speaker #5: Now , please move to slide ten , where I'll review cash flow and indebtedness starting on the left side of the page with free cash flow generation .

Speaker #5: This the schedule shows a walk from GAAP net income to free cash flow on a year to date basis . Cash flow in the quarter was a net positive of $19 million .

Speaker #5: A strong improvement of 22 million sequentially versus the second quarter due to strong cash generation from operations due to higher volumes , improved working capital management , and adjustments related to taxes paid on the gain on sale of the GPS business .

Speaker #5: In the first quarter of this year , on a year to date basis , cumulative free cash flow is approximately $1 million year to date capital expenditures of approximately 8.7 million are largely driven by investments in our ongoing ERP system migration program , operating improvements in select production facilities , an office updates and consolidations in Dubai , Shanghai and Singapore .

Speaker #5: As we integrated our legacy and acquired teams in those respective regions . On the right side of the slide is the summary of Saco's gross indebtedness with the primary drivers of change shown in the schedule provided we ended the third quarter with gross debt of approximately $217 million , flat two year end 2024 and a reduction of approximately 20 million from the end of the second quarter .

Speaker #5: Cash generated from generated from operations and working capital initiatives was used to reduce our gross debt balance in the quarter to a level that now predates the profile acquisition concluded in early January 2025 .

Speaker #5: The reduction in gross debt , combined with the growth of our TPM EBITDA , will result in a 25 basis point step down in the fourth quarter for the interest rate , we will pay on our outstanding revolver balance , providing Sica with approximately $550,000 of annual savings in interest payments on the current balance , this benefit is exclusive of the benefit we will experience from further fed rate reductions , of which two are expected by the end of 2025 .

Speaker #5: Net debt at quarter end was approximately $186 million , a decrease of 13 million from the end of the second quarter and a slight decrease .

Speaker #5: Increase ? Excuse me , from the year end net debt balance of 180 million at $186 million . Our net debt to EBITDA leverage ratio has been further improved to approximately 2.3 times our third quarter .

Speaker #5: TPM Bank EBITDA of 80.4 million at the end of the quarter , our investment capacity is $109 million , an increase of 40 million from the year end 2024 .

Speaker #5: Level . And providing sufficient liquidity for our near-term needs while we remain active in cultivating various M&A opportunities and expanding our deal pipeline , our short term focus for capital deployment remains to further strengthen our balance sheet , accelerate our ERP migration efforts , and fund our double digit organic growth .

Speaker #5: However , with our current capacity , we are well positioned to close on one of the tuck in transactions . Working its way through our M&A pipeline .

Speaker #5: That concludes my remarks on Secos third quarter 2020 financial performance a solid result to follow up on an equally strong second quarter performance .

Speaker #5: And now back to Todd for his final remarks and a wrap up .

Speaker #4: Thanks , Peter . Let's transition to looking ahead , including our initial 2026 outlook on slide 12 . We summarize positive market and operational items , as well as certain challenges that are incorporated in our 2026 outlook .

Speaker #4: We continue to believe energy transition investments such as more power generation , more natural gas infrastructure and LNG investments , and a business first friendly policy agenda , which allows investments to to flow quickly to create economic benefit .

Speaker #4: These are all meaningful positives to energy transition positives to our customers and positives to Seco . We also see other positive market dynamics for industrial , air and industrial water .

Speaker #4: Each with a set of bullet point items listed in their sections . Each of those has a very large pipeline of opportunities . As we navigate 20 .

Speaker #4: Excuse me , Q4 2025 and throughout our 2026 sales outlook , I can't stress enough how well positioned Seco is for general industrial investment and expansion globally .

Speaker #4: And now that we have firmly established a global water platform , we are also very well positioned for large wastewater and produced water projects .

Speaker #4: It remains a very exciting market dynamic and we continue to invest to advance our leadership and support our global operations . As for potential challenges or uncertainties , several of these same themes , several of these are the same themes from earlier in our earnings deck .

Speaker #4: We continue to monitor tariffs and inflation regulation changes and resource availability . These aren't new themes and these aren't new potential challenges . So we believe we have a lot of programs and processes in place to navigate these various items .

Speaker #4: Now please move to slide number 13 . And let me provide our initial full year 2026 outlook . I'm very pleased to share this outlook as it demonstrates the ongoing strength of our operating model and our leadership position in growing markets .

Speaker #4: Starting with orders we are targeting orders to exceed $1 billion , and the slide highlights a greater than 1.1 book to bill . We have the sales pipeline to overdrive this book to bill level , and we are very excited to work with our customers to eclipse $1 billion in bookings .

Speaker #4: As you know this , bookings , this bookings level is a preview of revenue levels in our periods , and we certainly are ready to be $1 billion revenue company on our way to much more full year 2026 revenue outlook is projected to be between 850 and $950 million , which is up between 15 to 25% year over year when compared to 2020 .

Speaker #4: Five . Midpoint . Our estimated 2025 year end backlog of approximately 750 million or greater gives us significant visibility as we start 2026 , and depending on how bookings occur in both Q4 25 and Q1 of 26 , we'll know a lot about this revenue range for next year .

Speaker #4: Moving to adjusted EBITDA . Our outlook is between 110 and $130 million , up between 20 and 40% year over year . When compared to full year 25 .

Speaker #4: We expect with the more revenue execution of major power jobs that gross profit will be slightly down year over year , but that will be more than offset by savings in our a as a result , we expect adjusted EBITDA margins to be up between 110 to 150 basis points year over year .

Speaker #4: Adjusted free cash flow is expected to convert between 50 to 60% of adjusted EBITDA based on achieving major project billing milestones and continued working capital management improvements .

Speaker #4: So as we sit here in October and provide outlook for 2026 , we have a lot of visibility and a lot of momentum .

Speaker #4: This gives us the confidence that providing initial guidance with strong double digit top and bottom line growth , which comes immediately after what will be a banner year in 2025 , is something something we are very comfortable doing .

Speaker #4: Okay , please turn to slide number 14 . This might be my favorite slide . There's a lot to like here . Certainly a lot of graphics going up and to the right .

Speaker #4: A lot of great double digit growth in steady margin expansion . What I like most about the slide is how we have demonstrated and continue to maintain high performance , sustainable results .

Speaker #4: The numbers jump out at you . Our four year backlog CAGR of 34% growth . Our five year order and five year revenue keger each with 23% growth .

Speaker #4: Our five year adjusted EBITDA Keger of 35% growth just set steady , solid performance . And it's not an accident . We continue to invest in people .

Speaker #4: We continue to invest in growth programs and global expansion . We continue to invest in operating excellence to drive safety , quality on time delivery and cash , and working capital management .

Speaker #4: We continue to deploy capital smartly to generate the best economic returns for our shareholders . In fact , perhaps the best number that's not even on this slide is our shareholder returns that we've generated over the last 4 to 5 years .

Speaker #4: We look forward to delivering more for our customers and shareholders as we deliver great results . For many years to come . Okay , let's please move to our last slide , which is number 15 .

Speaker #4: As we begin to wrap up 2025 , we believe Seco remains well positioned to benefit from our diverse end market exposure and key mega themes that remain very strong .

Speaker #4: Our $5.8 billion and above pipeline sales pipeline provides tremendous visibility into many exciting opportunities . I am very pleased with our Q3 and year to date 2025 performance .

Speaker #4: Year over year backlog up 64% . Orders up 44% , and revenue up 46% in the quarter . This level of growth just continues to be sustained , and are 124 basis point margin expansion is something we're pleased with as well .

Um, that means these are jobs that, over the next 18 months, we have a high confidence will move forward and we will either win or lose our participation on those programs. Um, that is multiple billions higher than it was just a few years ago and we're growing, obviously, at a strong, sustainable double-digit pace. Um, as we look at what's in the, you know, more near term—Q4 of this year, the first half of next year, I might even say Q1 of 2026—certainly, there are a handful of larger projects that we see the revenue profile associated with those projects being something that we can model in 2026 and in 2027. So, it really depends on if those projects, those specific projects, move forward and how many of those we win.

In, in Q4, and in the first half of next year, let's go with q1. Um, if let's say instead of winning 1 of 2, we win 2 of 2, large industrial Water jobs, or instead of, um, you know, 1 175, to 125 million power job, we win multiple, um, which, which we can, uh, serve in our capacity. Then that skews our view because we certainly haven't baked in every 1 of those jobs in our Outlook. So, to be fair, we have the visibility in our backlog, in, in our expected, win rate, to drive performance, relative to the Outlook that we just provided and it's very early obviously versus when most companies give a 2026 Outlook. So I'd say we have a high degree of confidence that what we were modeling in based on our expectations is something we're proud of. However, yes, there are always levers.

That can occur throughout the next few quarters that gives us even more visibility to what looks what could be a higher 2026 where we sit right now? You know, we would say we we don't think we're being conservative, we also don't think we're emptying the cupboards on 2026. We think we're in the right place. Uh, and we believe this guidance reflects that.

Okay, thanks for all the color. I'll turn it over.

And 1 moment for our next question.

Is by Chalie of Craig halum Capital group.

Line is open to Aaron.

Yeah, good morning. Todd and Peter, thanks for taking the questions. Um, you know, maybe first for me, just on the pipeline and in power generation, can you maybe give us an update? There? It seems like, you know, in the market, there's a focus on, um, you know, improving, um,

You know, connections uh, at the data center level and and just getting to Market faster, you know, are you seeing, you know, any acceleration in the pipeline there, uh, on the order front and and just, you know, maybe give a little more color on on the activity levels there.

Yeah, I don't know that we're seeing acceleration. I think we're seeing, you know, a very robust space with a lot of headlines. Um, and a lot of um, you know, a lot of activity. Um, no doubt. You know, it's easy and important to read what some of the more, you know, larger organizations like GE, vernova and Seamans and others are talking about as they clearly are leaders and providing uh so much of the important power generation equipment and we love partnering with them and those conversations continue to be positive. And yes, there are times when things accelerate and EB and flow, but they don't seem to be decelerating, I'll say that much, um,

But I, I would say.

Where we were a few quarters ago. Um I would say we we feel very confident to that pace being you know, pretty sustainable.

the pipeline is well over a billion uh, for us of just those

Projects over the next you know, 12 months or so. Um and so it's a very active it's a very active set of discussions. Peter

It's easy to become overwhelmed by all the.

Reporting on data centers.

Um, I think we all have to be

a little

Yep.

Suggesting that the international demand is every bit as exciting as North America.

and um,

that's because there is tremendous needs for power.

Both for industry as well as for um, you know, the the, you know, the transition off of coal in those regions as well.

so, I think we have to be careful that we

And we are careful. And and that we, we look at our pipeline in a way that ensures that we balance the best of the opportunities, with where they are occurring globally, and what Todd was referring to, you know, in his remarks earlier was that there's a, there's a, a lot of, you know, near-term in the US to serve the data center.

Uh, demand. But this is a multi-year cycle that's going to run for, you know, at least we view out through 2030, 2032.

And so, um, it is to somewhat to Rob's point as well. Um, you know, we could get it all today.

And we got it all today, still delivering over the next 3 to 5 years.

So it's a multi-year story and it's it just caution everyone to getting overly excited about these headlines because it takes years to build a plant takes years to deliver the equipment, it takes years to turn it on.

And and by the way, Aaron, and uh, only saying this because we've talked about this with you and, and, and others, and also been asked this question, and maybe coming up on this Q&A, we seeko in our solution with respect to power, our call it later, in the cycle of the power builds. Meaning, you know, we're providing the, you know thermal acoustic noise, abatement emissions management. Yes, there are some areas where we're in the gas infrastructure, side with separation filtration. But as we're our larger Solutions on these Power jobs come in the second to, you know, later half of a project, not not the beginning. We may be in early conversation and bidding and and participating in budget assessments, and and, and planning, but we don't win the jobs until later in the cycle. So as the cycle continues to mature, we're starting.

To hit our stride, if you want to call it that.

Right understood, thanks for the caller and then maybe just switching to margins. You know, you talked about 100 to 150 bits of of, kind of targeted. Uh, Eva down margin expansion. Can you just maybe talk about the confidence? There, you know, sounds like there might be some some mix um just from some of these larger projects on the gross margin line. Um, but you also talked about, you know, some of the early efforts on 8020 and and other lean initiatives and sgna reductions just maybe uh help provide some color there, please.

Certainly at least a 3-pronged steady approach for us and we're and we have a confidence in this approach and and and no particular order, you know, think of of number 1. The the the volume that we continue to generate is is is allows us to to have a lot of visibility. Not just through our backlog and margins and our backlog. And in the projects and we're talking about gross margins, which might be a little lower than the current company average of, you know, 34.35%. But the IBA margin from those jobs is is, is higher than the company average. So so we like the Dynamics number 1 of what the volume represents just in terms of, you know, continued, steady margin expansion, number 2, we have invested uh, throughout the last few years, in a lot of areas to support and to drive growth and those investments will continue. But as we get larger and we approach a billion, they they sort of

An 8020, for example is 1 um, process that really goes back and looks at now that you're, you know, twice the size you were 4 years ago. How would you, how should you design redesign your organization for maximal, efficiency? Given your new normal levels of operation. So we believe and know that operating excellence in 8020. Are that third most important prong to really get our, you know, our gross margin sustained and higher and to get our Eva margins to eventually. Those mid- te results, we just like the steady approach of getting it up a 1001 150 basis points next year, maybe higher, um, certainly would depend a little bit on volume and some of the mix. Uh but you know look we're on our way to the mid- teens if not higher margins over time and we're just having that balanced diet of of of of of areas and processes that we think are important.

Appreciate that. I will turn it over. Thanks.

Thanks Aaron.

Thank you.

And our next question comes from Jerry Sweeney of Roth. Your line is open.

Uh good afternoon or good morning guys. Well, congrats on a nice quarter and uh thanks for taking my call.

Peter and Todd morning.

Um, hey, uh, AI topic dour. So let's stick with it, but just a curious on the project side. So some of these, uh, data centers, they're switching different power, going a little bit more. So towards the disaggregated power opportunities,

Are there any opportunities in?

Those locations for you guys versus the large turbine builds, etc.

It depends on how they choose to power the the micro grid.

Yeah, if it's if it's reciprocating equipment, the answer is.

Little opportunity, okay.

If it's small-format industrial gas turbines or Arridy derivative gas turbines, there are certainly opportunities, but it depends on how the solution is defined.

And how many will be, how many are present?

Uh, the the the challenge in answering that question definitively is there's no single standard concept for any of these Solutions, okay?

Got it understood and then just sticking with the AI stuff or the, the power generation and build out at some point.

Does that expansion for a lack of better word stall? Just because there's just enough not enough capacity at some point in some of these buildups. So instead of it being a higher,

it's more of a elongated process, and

Do you have a sense of where I think the answer is? That's true.

The answer is we see? It is. Yes, it, it will be elongated because there isn't enough Supply to deliver. Uh, what is presently being called for demanded. Um,

When you hear numbers being thrown around like a trillion dollars of investment in data, centers is going to 3 trillion per year. It's eye watering and it's kind of hard to kind of make sense of it all.

Um, but Jensen Wong will be telling us it's going to be $3 billion a year, $3 trillion a year for the next decade in order to satisfy global demand. That suggests that the amount of megawatts that have to be delivered to power that is well in excess of what industry can supply today, and we'll be providing it for many years to come.

We also can't forget, there's 3 other demands being placed on our power grids.

We have a demand for uh, you know, new businesses knew, you know, manufacturing returning to the Us and other developed countries. So that reassuring Dynamic is raising. The demand on energy, we have the electrification of of everything from transport to manufacturing process to Heating and Cooling.

Um, to, you know, moving Goods, uh, within warehouses, uh, that's another source of demand. And finally, you've got uh, we you know, AI is, is what people are focused on, but good old-fashioned Computing, you know, cloud computing and more people operating computers for gaming, and for crypto Mining, and for trading.

All requires electricity and they're all going to be put on the grid in waves and there's there's plenty of analytics that suggests. This is going to run to 2040 at some level going to run to 2030 at an elevated level. Uh, we're just at the beginning.

and,

you know, adjacent to what you're doing or at a additional solutions to expand your your Wilder.

Sure. You know there's um our pipeline is balanced, we like it. Uh, to be that, you know, we we push all of our businesses to think of ways organically and inorganically to advance their leadership. That's true in our energy businesses. Um look you know we we to your point, our transactions have been more skewed to building and advancing the leadership position in industrial water. Certainly um, doing the same in industrial air. But you know, we've made some smart Investments, our the transcend acquisition separation filtration uh, sole business uh, which has a large aftermarket and installed base. Um you know was uh is is an it was a great investment, high margin investment for us. Uh that we made a few years ago continues to grow. We've doubled the business as we start to really stretch our legs on that uh uh acquisition, there's others that we would look at doing in the space as well.

Got it. Okay, we got it. So, great quarter. Congratulations, and I appreciate the time.

Thank you.

And our next question will be coming from Bobby Brooks of Northland Capital Markets. Your line is open, Bobby.

Hey, good morning guys. Thank you for taking the question. Uh, I was just curious to double to double click on the 2026 guide. I was just curious. What? And I know you've touched on a little bit, but just to go a little bit deeper, what sort of macroeconomic backdrop are you assuming in the ranges of your 26 guide?

Yeah. Look I think we're uh,

Stable I think is what what I start with that word? Um we're not we don't feel we need um a you know, a significant.

Positive change in, in the macroeconomics where, you know, I think we're reading the same headlines and we're sensitive to certain things that could influence the economy. Whether it's interest rates and you know um you know tariffs certainly we've all become, you know. Um

Much more accustomed to the Dynamics that exist with the, you know, the the direction changes at times around the Tariff topics. And, and I think Supply chains have, you know, been, uh, stable, uh, in in their management of that. I think that there's certainly things that could change

Um, our view of the macro, uh, economy, uh, because you know, we certainly aren't, you know, on an island if if things go completely different, but we certainly don't see a major positive or negative swing over the next 12 months. We think that there are reasons that things could change, um, but you know where we sit right now with our Pipeline and our and our backlog it look for us, Bobby, frankly, it's about the visibility of of pretty steady markets, right? Like, it's hard for us to sit here today and say that over the next 6 months, these important Power jobs are going to care about some of these headline topics, right? I mean, certainly things can change that. But, you know, tariffs and, and, and interest rates aren't going to really change these important Investments. Same thing with reaching, you know, um these water projects or somewhat, you know, unrelated to the general economy. So we're not as you well know and have done a great job of analyzing, we're not super

sensitive to short or intermediate um, changes in let's say consumer sentiment or um, you know,

You know, certain Geographic specific shifts. We're we're probably given that a 100% of our sales is an industrial with industrial customers that are really in, you know, expansion and investment mode. And a multi-year theme, it's hard for us to see a major economic shift in that.

Got it. That's really helpful caller. And then I wanted to Circle back on the uh, cross selling opportunities with profire. So you've had had profile under your umbrella for 9, ten months now, and I know 1 of the most exciting pieces to that acquisition was a cross-selling opportunities with their application. The historically had only went into US Oil Field Service, uh us oil field, service, customers to then cross sell that into your wide range of industrial customers, as well as bringing it to your International ofs customers. So just curious to kind of hear an update on that and how that's progressed so far.

To really, you know, get a, a firm grasp of how we can implement it at Seco. So a lot of dialogue with with profire, both in terms of opportunities to cross-sell and to break into new Geographic and Industrial markets. Um, I think that there's a lot of, uh, of good progress look. It's it's, you know, still only been 9, 10 months. We, we always say, we give it a year. We let our businesses get sort of settled in. We look for ways to invest operationally, and commercially, those, uh, programs are being put in place now. Um, the team, I, I know is very excited to be to be part of Seiko, um, certainly, you know, they're they're looking at market dynamics within their core markets, uh, in the oil fields and energy applications. So, you know, they're they're constantly looking at ways to innovate and to make investments. So, we've had some good discussions about organic and inorganic investments in profile. Um, I continue to believe it's a business that, you know, is a hund million dollar business, uh, in a few years down the road and some of those are certainly the result of our ability to bring

bring their product into more industrial and international applications.

Super helpful call. And then, just last 1 for me, Todd, you, you know, you, you quote in the press release saying, depending on timing fourth quarter. This year could be the largest book in corner ever, which is some really strong commentary and not something you specifically noted in Prior press releases. So I was just curious aside from the

multitude of shots on goal, you have

Especially with the large power Jet and water projects. What else? Is giving you confidence to to to speak to that? And maybe have you already had strong orders quarter to date through October? Thank you. So, yeah, look, it's a good catch, um, and uh, you know, obviously we we put it in there for sort of a reason. And and that reason is is, is quite simple. Um, you know, bring these 2 things together by 1 is we just delivered our fourth consecutive quarter of orders over 2 well over hundred million dollars. And we're very pleased with, you know, orders of of north of 230 million. Um and and that that this past quarter, the third quarter, um, you know, while while I gave us, you know, very nice year-over-year growth and a new record backlog. And, um, it really didn't include any of the large column Mega jobs, you know, it certainly had a several very important um, and uh, and and and decently sized jobs.

In in historically certainly would have been jobs that we might have called out because they were, you know, between 20 and let's say 40 million. Um but for for where we're at now in both power um and in in in International Industrial water, um they're not going to represent some of our larger jobs. And so the fact that, you know, let's say in our largest quarter year to date, we had 1 Mega job. And in the third quarter we still produced over 230.

We didn't have 1 and yet we believe we're very close in terms of timing on a purchase order, which is how we booked a job. Even if we have a verbal, we don't book anything until we have, you know, all of the t's and C's and purchase orders and everything completed. So I think it's a confidence in, not just the visibility in our pipeline but where we're at in several? Um, not just 1 but maybe several, uh, relationships and, and, and dialogues and verbals that we were getting from customers. Um, so look, if the timing in Q4, is it, you know, more than 1 but several of those occur. Now you're looking at our first quarter with with more than 1 Mega job and that'll give us you know, certainly that's the confidence that we have and that's why we're sharing it, you know. Look if it doesn't happen we're still we have a lot of visibility to to another great quarter of well over $200 million. But if they do happen then, you know, as I said, in our prepared remarks, in the uh, in the call, we will see what we believed. We could see a quarter over 300 million.

Excellent caller. Appreciate it. And congrats on the good quarter. Thank you.

And our next question will be coming from Jim Rudy of needam and Company your line is open. Jim

Thank you questions worse. Um I answered um 1 of I'd like to just follow up though. Yeah we're having a hard time hearing you the line is choppy. Yeah. Okay. Any better Peter just any better? A lot better. A lot better A lot better. Good. Thank you. Good good. So yeah it's just a follow-up question just on gross margin. Um yeah I appreciate the the commentary and you know sighting the sequential

You talked about some issue, a close-out issue that impacted the Q3 gross margin. I was wondering if you could size that for me.

It was about contributing 30 to 50 basis points of the reduction.

It was a project that we decided we would, uh, negotiate with our client to get it closed. Get all outstanding change orders recognized, put it behind us, free those teams up, and move on. Um, it was a project that started out with a lot of, uh, positive vibes. And at the end, it was just one of those where, uh, we decided we probably needed to terminate and move on from each other.

Got it. Um, thanks and, and just don't get, I'm sorry. I was just gonna, I just want to add to, uh, you know, look, um, our

Seasonally not our, our softest quarter from a gross margin perspective is historically. Uh, Q3. Um, so we sort of model in a, you know, a decline just naturally there's just certain costs of good sales costs that get sort of Trapped in the quarter um, while volumes and and and we're we're solid. Um, you know, just the dynamic of of the quarter is, is typically a a lower quarter for us from the gross margin perspective? You'll, you'll see it. If you look back at most of our q3s, it it's not a guarantee that it's always going to be the, the, the softest of our quarters. But

Would be 1 of the best that 80% of the time Q3 for us is the most uh, you know, impacted from a gross margin. If it dips it's going to dip in Q3. Um, so again, I'm not trying to just say, well you know, it's a seasonal thing but we we we already had a model then that we were going to have a bit of a decline. There's always some smaller pieces, like, Peter mentioned that, you know, could be 30 to 50 basis points of additional contraction. Um, you know, some inflation, uh, did occur in in the third quarter. Which, you know, the timing of which is something we're going to work through just like we have in other quarters. Um and so look we we're not, you know, we we were very happy with where our gross margins were year to date prior to Q3 Q3 was not different than we had. Sort of imagined. It could be, uh, we believe that. You know, we're going to get back to higher gross margins but but certainly, you know, we've seen some impacts in inflation. It's modest.

Okay, that's the helpful. Uh, thank you. And again on, uh, we're looking at to

2026. You, it sounds like, you're assuming somewhat lower gross margin or maybe I misinterpreted your comment and it and that's really. If that's the case, that's a function namely of mix, both industrial air, and Industrial water, a larger percentage of some of these bigger deals,

Yeah, I think it's it's we are just providing a view that if our gross margins in 26 are lower on average than 25, it's mostly because of mix. Uh, large Power jobs, large Water jobs. That would, that would just have lower gross margin but would maintain very good ibaa margins. Because the amount of GNA associated with those jobs is minimal and so and they're large jobs. So just the scale, the mixed scale size of these large jobs would be hard for us to overcome mathematically in gross margin, but not hard for us to overcome in terms of, in fact, would be beneficial to the IBA line. So it's it's more an indication that if gross margins are a little lower next year.

We don't believe it's a dynamic that's changing in price or inflation. Uh, those are things that we feel comfortable with. Um, in fact, look, there are potential opportunities in nuclear.

In defense, and in a few other areas of aftermarket in short cycle, if they occur throughout the year at the volumes that they could, those gross margins are materially higher than the average CECO gross margin and can certainly work to offset any natural gravitational pull down on margins from large power jobs and large.

Water infrastructure jobs. So look right now we're balancing it out. We don't give gross margin outlook for the year. We're just sign signaling that if it is lower we're not sure that it's a real headwind as much as it is. Just the, you know, mathematical dynamics of the size of the jobs that are pulling it down.

Got it. Thank you.

And 1 moment for our next question.

Which will be coming from Joseph, Gerardo of TD, Co and your line is open.

Hi, good morning. This is Chris on for Joe.

Any. Hi, have you observed, any change in in customer, uh, sentiment or or project timing for for Water, waste water and structure Investments, uh, contingent in part or in whole, uh, on some formal Government funding.

um, as a result of any changes in Pace of disbursement from infrastructure and jobs Act,

Yeah, we don't we we don't and I think you know um I don't want to sound like we're unique in the the fact that we're saying we don't. Um I would say it's mostly a quick and confident answer that we don't see an impact because in the large infrastructure jobs that were participating in they're not us-based role, uh, programs or even necessarily european-based. They're located in regions, where either that Dynamic isn't uh occurring where there's governmental pauses or or large program timing associated with monies instead. It's, um, they're in their other Investments that criteria altogether.

Great. And can you provide an update on on higher short cycle, business trended during the quarter and

It's expected to be a large share of the mix in 2026. What, um, what do you see contributing to that?

the mix.

Short cycle steady and it and it. But but the short cycle businesses are growing nicely and continue to add uh, you know, I think, you know, great results to our performance. Um, you know, mix is tricky because if we have large Power jobs and certainly, those are longer cycle. If we have large Water jobs, those can be longer cycle. So, the mix all of a sudden looks like it's staying steady when in fact, short cycle could be growing rapidly inside our organization. Just hard to overcome the mixed shift. Um but you know look we you know, 4 years ago, we had at best 20% as a percentage of sales. In short cycle, we continue to be up above 30%. Now, again, the mix of that can change depending on the jobs. Um but you know we're our goal over time is through organic and inorganic balance to find 50/50 that continues to be our goal. It's, you know, might not be a 2026 dynamic because of how our jobs are going to are going to flow.

Through our p&l. Um, but again, we like the fact that we continue to add applications and businesses with a lot more aftermarket uh content, you know, uh more filtration, more more aftermarket, uh, parts and services. So you know it is a continued investment for us but the short cycle has been pretty steady throughout the year

Great, thank you very much.

Thank you.

And I am showing no further questions. I would now like to turn the call back to Steven Hooser for closing remarks.

Thank you very much. And, uh, thanks everyone for the questions. And of course, the interest in our information today, uh, importantly, uh, to our Global teams, uh, that are delivering incredible value for our customers. Uh, thank you very much for all that you do. Um, you know, it's important for our customers that we have the most talented organization, to protect people, to protect the environment and to protect our customers investment in their Industrial Equipment. We're passionate about that. We are going to be presenting it. Several conferences in November and December. The information of those can be found at our investor relations website. We look forward to meeting with many of you and we're out on the road as well. Uh, so with that we're going to end the call today. We appreciate it and have a great day.

And this concludes today's conference call. We appreciate your patience.

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