CECO Environmental Corp. (CECO) | The Buildout — AI Infrastructure
The Verdict
CECO Environmental sells engineered industrial equipment that takes pollution, noise and heat out of large facilities. Its emissions-management systems, silencers, dampers, scrubbers and water-treatment gear sit on gas-fired power plants, refineries, chemical plants, semiconductor fabs and water plants. In the AI buildout that makes it an indirect supplier: data centers pull electricity, which pulls gas-fired generation, and AI chips pull fab construction. The Thermon combination added liquid load banks and heat trace, two products bought directly by data-center developers. The 10-K calls the company "a leading environmentally focused, diversified industrial company."
| Market Cap | — |
| Revenue (TTM) | $912M |
| Revenue Growth | +39.0% |
| EBITDA Margin (TTM) | 4.6% |
| Net Debt | $702M |
| Earnings Beats | 4 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Backlog ended Q2 at $1.82 billion, up 164% year over year and 76% sequentially from the prior record of $1.035 billion; the company reports 12 consecutive quarters of backlog growth.
- Q2 orders were a record $799 million, up 191%. First-half 2026 bookings of roughly $1.25 billion already exceeded all of 2025 by 17%, or $184 million.
- The company printed its first mid-teens EBITDA quarter: $40.2 million adjusted, a 14.1% margin, up 73% year over year. It says it expects to "consistently exceed" mid-teens.
- Thermon cost synergies are running ahead of plan: about $13 million annualized captured in the first 60 days, roughly a third of the $40 million target, with a year-one target of $17-$20 million.
- Backlog quality: management disclosed a debooking rate of less than half of 1% (0.3%-0.5%).
What We’re Watching
- About 50% of Q2 ending backlog is power generation-related. A slowdown in gas-fired power would hit the largest part of the book.
- The guided second-half 2026 revenue acceleration has not happened yet. Conversion depends on CECO's engineering pipeline clearing, customers being ready to receive and install, and long-lead equipment arriving.
- Leverage was 2.7x at quarter-end, near the high end of the stated 2.0-2.5x range, after net debt rose $495 million. The company paid down $39.5 million through July 31, lowering gross debt to $692 million.
- Middle East industrial water orders have been delayed for two consecutive calls and are now framed as possibly 2027. They remain excluded from guidance.
The thesis is strengthening on orders and margin structure and unproven on delivery. Two record order quarters, a first mid-teens EBITDA quarter and a partially evidenced synergy run-rate are real. Against them, the guidance raise is mostly a perimeter change: the Q2 guide is consolidated and the Q1 guide was stand-alone, so the clean organic increment is $25 million at the low end of revenue and $5 million at the low end of adjusted EBITDA. The open question is whether the $1.82 billion backlog converts into the second-half revenue acceleration management has guided.
Earnings Beat
CECO reported Q2 2026 revenue of $285 million, up 54% year over year and including one month of Thermon. GAAP gross margin was 30.3%, while adjusted gross margin was 33.7%, up 264 basis points sequentially. Orders were a record $799 million, up 191%, and the quarter ended with $1.82 billion of backlog.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $285M | $215M | $185M | +53.7% |
| Gross margin | 30.3% | 35.1% | 36.2% | -590bps |
| EBITDA | −$21M | $21M | $23M | −191.8% |
| EPS | $-0.80 | $0.08 | $0.26 | −409.6% |
| Book-to-bill | ~2.8x | n/a | n/a | — |
| Backlog | $1.82B | $1.035B | n/a | +164% YoY; +76% QoQ |
This was a record-setting quarter across the board.— Todd Gleason, 2026-08-10
Management tone: Management's language stepped up between the two calls. On the Q1 call Thermon was still pending and the company was "highly confident" in $40 million of synergies; by the Q2 call it had closed June 1, captured about $13 million annualized in 60 days, and management described "increasing confidence. based on the current pace of execution." The self-description added "more profitable," the margin ambition extended from mid-teens stand-alone to high teens consolidated, and the quarter was called "a record-setting quarter across the board." Management also declined to size commercial synergies for a second call and answered a comparison to the mid-2010s energy cycle qualitatively.
Management Guidance
Management guided FY2026 consolidated revenue of $1.3 billion to $1.375 billion, raising the low end by $25 million, and adjusted EBITDA of $200 million to $225 million, raising the low end by $5 million and including about $5 million of realized Thermon cost synergies. Adjusted free cash flow conversion to at least 55% of adjusted EBITDA, adjusted EBITDA margin to mid-teens, and organic top-line growth to "greater than 25%." The company also initiated a pro forma calendar-year view including Thermon for the full year: roughly $1.5 billion to $1.6 billion of revenue and $255 million to $280 million of adjusted EBITDA. The Q2 guide is consolidated while the prior Q1 guide was stand-alone, so the headline jump is largely a perimeter change.
Trajectory
Reported revenue has stepped up over the past year, from $198 million in the September 2025 quarter to $285 million in the June 2026 quarter, though the latest jump includes one month of Thermon; stand-alone CECO revenue was a record $235 million. Trailing-twelve-month revenue of $912 million is growing 39.0% year over year, and TTM adjusted EBITDA is $113.4 million at a 12.6% margin, up nearly 180 basis points. Adjusted EBITDA margin reached 14.1% in Q2, the first mid-teens quarter, with four consecutive quarters of year-over-year margin expansion; GAAP gross margin was 30.3% and GAAP net income was negative on deal costs. Management guides revenue growth to accelerate in the second half of 2026 as backlog exits the engineering phase, most notably in power generation.
The Model
The model's locked projections put FY+1 revenue at $1,355 million with $217 million of EBITDA, a 16.05% margin, and FY+2 revenue at $1,770 million with $323 million of EBITDA, an 18.25% margin. The FY+1 figure sits close to management's own consolidated FY2026 revenue guide of $1.3 billion to $1.375 billion, so it leans on backlog conversion and a full year of Thermon rather than on a new demand assumption. The FY+2 step to an 18.25% margin rests on the drivers the company has named: higher-margin projects converting out of backlog, Thermon's higher gross margin blend, the 80/20 program, and progress toward the $40 million cost-synergy target.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $774M | $1.4B | $1.8B |
| YoY Growth | — | +75.0% | +30.6% |
| EBITDA | $132M | $217M | $323M |
| EBITDA Margin | 17.0% | 16.1% | 18.2% |
Projections are the median of 4 independent model runs. The model’s revenue sits 1.6% above analyst consensus.
Management guided FY2026 consolidated revenue of $1.3 billion to $1.375 billion, raising the low end by $25 million, and adjusted EBITDA of $200 million to $225 million, raising the low end by $5 million and including about $5 million of realized Thermon cost synergies. Adjusted free cash flow conversion to at least 55% of adjusted EBITDA, adjusted EBITDA margin to mid-teens, and organic top-line growth to "greater than 25%." The company also initiated a pro forma calendar-year view including Thermon for the full year: roughly $1.5 billion to $1.6 billion of revenue and $255 million to $280 million of adjusted EBITDA. The Q2 guide is consolidated while the prior Q1 guide was stand-alone, so the headline jump is largely a perimeter change.
What Could Go Right — and Wrong
- Backlog converts on management's timetable, with revenue growth accelerating in the second half of 2026 as power-generation projects exit the engineering phase.
- Thermon's annualized cost-synergy run-rate moves from roughly $13 million toward the $17-$20 million year-one target and on toward the $40 million total.
- The consolidated business reaches the stated high-teens adjusted EBITDA margin ambition, helped by Thermon's higher gross margin blend and the 80/20 program.
- Commercial synergies deliver the stated "1 to 2 percentage points" of additional organic growth, with Thermon content attached to CECO power projects plus medium-voltage and food-processing overlaps.
- The delayed Middle East industrial water orders return.
- Roughly half the $1.82 billion backlog is power-generation related, so a slowdown in gas-fired power demand or permitting would slow conversion in the largest part of the book.
- Second-half 2026 revenue does not accelerate, which would break the bridge between the record backlog and reported revenue.
- The Thermon synergy run-rate stalls near the $13 million captured in the first 60 days, leaving the $40 million target a hypothesis rather than a plan.
- Working-capital timing or a conversion delay keeps leverage at 2.7x, above the stated 2.0-2.5x range, and stretches the deleveraging path.
- The Middle East conflict spreads from the delayed industrial water orders into the roughly 25% gas, NGL and hydrocarbon portion of the backlog.
Looking Ahead
Over the next twelve months the tests are dated. The first is the second half of 2026, when management says revenue growth should accelerate as backlog exits the engineering phase, most notably in power generation. The next quarterly print is the first to carry a full quarter of Thermon, which is the first real check on the pro forma perimeter of roughly $1.5 billion to $1.6 billion of revenue and $255 million to $280 million of adjusted EBITDA. Beyond that sit the LNG final investment decisions management expects through the remainder of 2026, the year-one Thermon synergy target of $17 million to $20 million, ERP completion for CECO entities in early 2027, and the delayed Middle East industrial water orders that management now frames as possibly 2027.
- Q3 2026Order momentum check — Management said Q3 shows no slowdown.
- 2H 2026Revenue acceleration — Backlog conversion as power projects exit engineering
- Remainder of 2026LNG investment decisions — CECO expects to be awarded work
- Early 2027ERP migration completion — CECO entities move to a single ERP platform
- Year one of the Thermon deal (~mid-2027)Synergy run-rate target — $17-$20M annualized, 45%-50% of the $40M target
- 2027Middle East water orders — Delayed large orders may return; still excluded from guidance
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $558M | $774M | $912M | +38.8% |
| Gross Margin | 35.1% | 34.4% | 32.7% | 80bps |
| EBITDA | $50M | $132M | $42M | +163.4% |
| EBITDA Margin | 9.0% | 17.0% | 4.6% | +804bps |
| Net Income | $13M | $50M | −$27M | +285.4% |
| Free Cash Flow | $25M | −$5M | −$11M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)32.7%
- EBITDA Margin (TTM)4.6%
- Net Margin (TTM)-3.0%
- ROIC0.3%
- FCF Conversion-27.3%
- SBC / Revenue3.6%
The Company
CECO Environmental sells engineered industrial equipment that takes pollution, noise and heat out of heavy industry. Its emissions-management systems, industrial air scrubbers, ducting, filtration and water-treatment equipment are installed at gas-fired power plants, refineries, chemical plants, semiconductor fabs, water and wastewater plants, mills and food-processing lines. The 10-K describes the company as "a leading environmentally focused, diversified industrial company, serving the global industrial air, industrial water and energy transition markets." For the AI buildout, CECO sits downstream: the word "AI" does not appear in either of the two most recent earnings call transcripts in the source material, and management frames demand as "digitization and electrification," a "power super cycle," semiconductor expansion and data centers. The Thermon acquisition added two products sold directly to data-center developers, liquid load banks and heat trace.
CECO does not run a heavy fixed-asset manufacturing base. It engineers and program-manages projects and outsources fabrication to a global network of partners, which management calls "design once, build many times": a large power order is engineered once, the supply chain is built around it, and equipment ships sequentially over several quarters. The company has built engineering teams in India and Asia and a global supply chain, investments it says ran from 2022 through 2025. Per the 10-K, the Engineered Systems segment operates 4 owned and 27 leased facilities across listed U.S. states and countries including Canada, China, India, the Netherlands, the Republic of Korea, the UAE and the UK; Industrial Process Solutions operates 18 facilities; and corporate occupies 2. The filing names no specific plants or cities and gives no capacity or utilization figures.
Business Segments
Competitive Landscape
CECO does not claim a sole-source position; the 10-K carries no sole-source disclosures. The documented competitive picture is narrower and more specific. Fuel Tech material names "Babcock Power, Babcock & Wilcox (B&W) Company, CECO Environmental and Mitsubishi" as "active SCR system and reagent feed providers," so the power-generation emissions category where CECO's backlog is largest has multiple named suppliers. Management's read on the Q2 call was that "nothing's changed in the dynamic of competition. I think all of our markets have good competition. The pricing dynamic is favorable." The defenses the company cites are scale, reference sites, financial strength and a global supply chain.
- Fuel Tech (FTEK)Named in the supply-chain wiring as an SCR and NOx reduction competitor and the only competitor carrying a documented quote.
- Donaldson (DCI)Named in the supply-chain wiring as a filtration and air pollution control competitor; not otherwise discussed.
- Babcock PowerNamed in Fuel Tech material among "active SCR system and reagent feed providers."
- Babcock & Wilcox (B&W)Named in Fuel Tech material among "active SCR system and reagent feed providers."
- MitsubishiNamed in Fuel Tech material among "active SCR system and reagent feed providers."
Supply Chain
CECO sits in the middle of the heavy-industrial chain: it buys specialty components and sells engineered systems to gas-turbine OEMs, EPCs, power developers, fabs, refiners and data-center developers. Most named relationships below come from an inferred supply-chain map rather than company disclosure.
More on CECO: Earnings recap