Executive Summary / Key Takeaways

• Strategic Transformation Driving Record Growth: CECO Environmental has undergone a profound transformation, shifting from stagnant growth to consistent double-digit expansion, fueled by strategic M&A, global market penetration, and a robust sales pipeline now exceeding $5.8 billion.
• Strong Backlog and Bullish Outlook: The company exited Q3 2025 with a record backlog of $720 million and projects full-year 2025 revenue growth of approximately 35% at the midpoint, with an initial 2026 outlook targeting over $1 billion in orders and 15%-25% revenue growth.
• Technological Edge in Critical Infrastructure: CECO leverages proprietary technologies in emissions management, fluid bed cyclones, thermal acoustics, and advanced filtration, providing tangible benefits such as enhanced efficiency and compliance in high-demand sectors like power generation and industrial water treatment.
• Operational Excellence and Margin Expansion: Despite some project mix variations, CECO is committed to sustained EBITDA margin expansion, targeting mid-teens over time, driven by G&A leverage from increased scale, operational excellence initiatives like "80/20," and annualized sourcing savings.
• Positioned for Mega-Trends: The company is strategically aligned with powerful global mega-trends, including energy transition, industrial reshoring, electrification, and international water infrastructure, which are expected to drive multi-year investment cycles.

The Reimagined Industrial Powerhouse: CECO's Strategic Evolution

CECO Environmental Corp., founded in 1869, has historically operated with limited revenue growth, averaging around $90 million in quarterly orders prior to 2021. However, the company has undergone a significant strategic transformation, repositioning itself as a leading environmentally focused, diversified industrial company. This evolution has been driven by a deliberate strategy to expand its sales pipeline, aggressively target new markets, invest in new geographies, and diversify its product and service offerings. This foundational shift has enabled CECO to capitalize on global mega-trends, establishing a robust platform for sustainable double-digit growth.

The company's core business revolves around providing critical solutions in industrial air quality, industrial water treatment, and energy transition markets globally. These solutions protect people, the environment, and industrial equipment by improving air and water quality, optimizing emissions management, and increasing energy and process efficiency. CECO's offerings span highly engineered platforms, including emissions management, fluid bed cyclones, thermal acoustics, separation and filtration, and dampers and expansion joints.

Technological Differentiation and Innovation

CECO's competitive moat is significantly strengthened by its differentiated technology and engineering expertise. The company's core technologies in emissions control, such as selective catalytic reduction (SCR) systems, cyclonic technology, and thermal oxidizers, offer tangible benefits over alternatives. For instance, its cyclonic and thermal oxidizer systems provide enhanced performance for emissions control, proving more effective in high-pollution industrial environments compared to more generalized filtration solutions offered by some competitors. This technological edge translates into superior efficiency in pollutant removal, reduced operational downtime for customers, and stronger customer loyalty through reliable performance in demanding applications.

The company's engineering services and environmental systems are custom-built, allowing for tailored designs that handle complex air and water treatment challenges more effectively. This specialization is particularly critical in sectors like power generation and semiconductor manufacturing, where stringent compliance requirements and unique process demands necessitate highly customized solutions. CECO's focus on engineered design for environmental systems often leads to superior operational execution for compliance-focused applications, appealing to customers seeking lower operational complexity and higher reliability.

While specific quantitative metrics on R&D initiatives are not detailed, CECO's strategic acquisitions, such as Profire Energy, Inc., a provider of intelligent control solutions for industrial combustion appliances, demonstrate a commitment to integrating advanced technologies. The stated goal for Profire is to leverage CECO's global reach to expand its product into more industrial and international applications, aiming to grow it into a $100 million business within a few years. This integration of innovative control solutions enhances the efficiency, safety, and reliability of industrial combustion, directly contributing to CECO's competitive advantage in energy transition markets.

Competitive Landscape and Strategic Positioning

CECO operates within a competitive landscape that includes larger, diversified industrial conglomerates and more specialized niche players. Direct competitors like Danaher Corporation (DHR), Parker Hannifin Corporation (PH), Pentair plc (PNR), and Donaldson Company (DCI) offer overlapping solutions in filtration, emissions control, and fluid management.

CECO's market positioning as a specialized provider of engineered environmental solutions differentiates it from broader conglomerates like Danaher, which, despite its larger scale and integrated solutions, may not offer the same depth of tailored expertise in specific industrial applications. Against Parker Hannifin, a leader in motion and control, CECO's cyclonic technology for emissions capture can offer greater durability under harsh conditions, potentially offsetting Parker's faster production cycles. While Pentair focuses on scalable water technologies, CECO's custom engineering provides adaptability in volatile markets and integrated solutions for industrial facilities. Similarly, compared to Donaldson's filtration specialization, CECO's end-to-end solutions, including plant engineering and integrated system design, offer a more comprehensive approach for complex industrial clients.

CECO's strategy emphasizes strong customer relationships and customized engineering, which allows it to secure long-term contracts and maintain customer loyalty in niche markets. While CECO may not always lead in overall market share due to its specialized focus compared to larger rivals, its expertise often translates into leadership in specific segments. The company's global footprint, strategically positioned in the eight largest industrial trading zones, is rapidly approaching a balanced 50% North America and 50% international revenue mix, further diversifying its competitive exposure. This global presence, including a new office in Saudi Arabia, allows CECO to capitalize on industrial and economic development in regions like the Middle East, India, and Southeast Asia, where demand for environmentally sustainable solutions is accelerating.

Financial Performance and Operational Momentum

CECO's strategic transformation is clearly reflected in its financial performance. The company has achieved consistent revenue growth every year since 2021, with a three-year CAGR of approximately 20%. This growth is a balanced outcome of organic expansion into new markets and programmatic M&A.

For the three months ended September 30, 2025, CECO reported net sales of $197.6 million, a 46% increase year-over-year, marking its highest-ever quarterly revenue. Gross profit for the quarter was $64.6 million, up 43% year-over-year, though the gross profit margin slightly decreased to 32.7% from 33.4% in the prior year, primarily due to project mix within industrial solutions end markets and a medium-sized project closeout with dilutive gross margins. The company's trailing 12-month gross profit margin stood at 34.88%, a significant improvement attributed to annualized sourcing savings of $10 million, improved project execution, and accretive acquisitions.

Operating income for the nine months ended September 30, 2025, surged to $89.3 million, compared to $24.1 million in the prior year period. This substantial increase was primarily driven by a $63.7 million gain on the sale of the Global Pump Solutions business and a fair value adjustment to the earn-out liability associated with the WK Group acquisition. Adjusted EBITDA for Q3 2025 was $23.2 million, up 62% year-over-year, with margins expanding by approximately 120 basis points. Selling and administrative expenses increased due to investments in headcount and capabilities to support the growing pipeline and backlog, as well as recent acquisitions. However, sales, engineering, and G&A expenses showed a 4% sequential decrease in Q3 2025, benefiting from cost-saving initiatives and strong expense management.

CECO's liquidity and capital resources remain robust. Working capital increased to $97.2 million as of September 30, 2025, from $86.3 million at December 31, 2024. While cash flows from operating activities for the nine months ended September 30, 2025, saw an unfavorable impact due to project-related payment timing, net cash provided by investing activities was $1.5 million, largely from the sale of the Global Pump Solutions business, offsetting the Profire acquisition. The company's total unused credit availability under its Credit Facility was $109.1 million, and it remained in compliance with all financial covenants. The reduction in gross debt is expected to lead to a 25-basis point step down in interest rates for Q4 2025, yielding approximately $550,000 in annual interest savings.

Outlook and Growth Trajectory

CECO's forward-looking guidance reflects strong confidence in its continued growth. The company reaffirmed its full-year 2025 outlook, projecting revenues between $725 million and $775 million, representing approximately 35% year-over-year growth at the midpoint. Adjusted EBITDA is expected to be between $90 million and $100 million, a 50% increase at the midpoint, with free cash flow converting at around 60% of adjusted EBITDA. Management anticipates Q4 2025 bookings to exceed $250 million, with the potential to reach over $300 million, driven by strong demand in power generation and international industrial water projects.

The initial full-year 2026 outlook is equally bullish, targeting orders to exceed $1 billion, implying a book-to-bill greater than 1.1. Revenues are projected between $850 million and $950 million, an increase of 15% to 25% year-over-year. Adjusted EBITDA is forecasted between $110 million and $130 million, up 20% to 40%, with EBITDA margins expected to expand by 110 to 150 basis points. This margin expansion is anticipated despite a potential slight decrease in gross profit due to a project mix favoring large power and water jobs, which typically have lower gross margins but higher EBITDA margins due to minimal associated G&A. The company's long-term goal remains to achieve mid-teens, if not higher, EBITDA margins.

Underpinning this outlook is a record backlog of $720 million and a sales pipeline exceeding $5.8 billion, providing significant visibility. CECO is strategically positioned to benefit from robust market dynamics in power, electrical equipment, industrial reshoring, industrial water, and natural gas infrastructure. The demand for power generation, driven by data centers, AI, and electrification, is viewed as a multi-year super cycle extending through 2030-2032. International water infrastructure projects, particularly in the Middle East and Asia for water reuse and produced water applications, represent a significant and growing pipeline of opportunities.

Risks and Challenges

Despite the strong outlook, CECO faces several risks. The company continues to monitor inflationary pressures and raw material shortages, although it has implemented mitigation strategies. Geopolitical tariff considerations remain a concern, with potential impacts on costs and international trade. While CECO's operating model, which aligns its cost and revenue bases geographically, helps mitigate some tariff-related impacts, the broader economic uncertainty is an ongoing factor. The company also retains historical asbestos liabilities from its divested Global Pump Solutions business, though management believes these will not materially impact operations or financial condition. The successful integration of recent acquisitions and the realization of anticipated synergies are critical to achieving future growth targets.

Conclusion

CECO Environmental has successfully transformed into a dynamic, growth-oriented industrial leader, strategically positioned at the nexus of critical environmental and energy transition mega-trends. Its disciplined approach to M&A, coupled with a relentless focus on operational excellence and technological differentiation, has yielded record orders, a burgeoning backlog, and a robust sales pipeline. The company's ability to leverage its specialized engineering expertise and proprietary technologies in emissions control and fluid management provides a distinct competitive advantage in high-demand sectors globally.

With a clear path to sustained double-digit revenue and EBITDA growth, supported by a stable macroeconomic outlook for its industrial customers, CECO is poised for continued value creation. The commitment to expanding EBITDA margins through scale and efficiency, even as project mix evolves, underscores a disciplined management approach. For investors, CECO represents a compelling opportunity to participate in the long-term growth of essential environmental and energy infrastructure, driven by a proven strategy and a strong competitive standing.