CECO Environmental orders surge 191% as backlog tops $1.8bn

CECO Environmental Corp. reported a record second quarter as major industrial projects and the addition of Thermon Group Holdings pushed orders to $798.5 million and backlog above $1.8 billion. The Nasdaq-listed industrial technology company, which trades under $CECO, generated $285 million of revenue, adjusted EBITDA of $40.2 million and non-GAAP earnings of $0.47 per diluted share during the quarter ended June 30. Revenue increased 54%, while orders rose 191% and backlog expanded 164% from the comparable period. Management also raised the lower end of its 2026 revenue and adjusted EBITDA forecasts following the June 1 completion of its approximately $2.2 billion acquisition of Thermon. The central tension is that the combination has created a much larger growth platform with record order visibility, but it has also increased debt, share count and integration expenses while reported free cash flow remained negative.

CECO reported a GAAP net loss attributable to the company of $34.8 million, or $0.80 per share, compared with net income of $9.5 million a year earlier. The difference between the reported loss and $21.5 million of non-GAAP net income was driven principally by acquisition and integration expenses, amortization and purchase-accounting adjustments associated with the Thermon transaction. Adjusted EBITDA increased 73% and reached a quarterly margin of 14.1%.

CECO shares traded near $68.51 around midday on August 10, down approximately 3.4% from the previous close after trading as high as $79.55 earlier in the session. The reversal suggests investors were weighing the strength of record orders against acquisition-related complexity and the enlarged company’s valuation and balance sheet.

Why CECO Environmental’s 191% order growth matters more than the headline revenue increase

CECO booked $798.5 million of new orders during the second quarter, nearly three times the comparable prior-year level. Backlog reached $1.82 billion, representing growth of 164%, while management said the company’s wider sales pipeline had expanded beyond $8.5 billion.

That distinction is important because revenue measures projects already being delivered, while orders and backlog provide a view of potential future activity. CECO’s quarterly revenue of $285 million was substantially smaller than new bookings, indicating that the company added future work much faster than it converted existing contracts into sales during the period.

The order growth is connected to capital spending across power generation, data centres, semiconductor manufacturing and industrial reshoring. CECO said in June that demand was particularly strong for power-generation infrastructure supporting data centres and artificial intelligence computing, alongside semiconductor and industrial projects.

CECO supplies engineered systems used for industrial air quality, emissions management, water treatment, natural gas transport and processing, energy efficiency and equipment protection. Thermon adds industrial process heating, heat tracing, temperature management and related technologies, broadening the range of products available to customers operating large industrial facilities.

The combination creates cross-selling opportunities because many of the same industrial customers require both environmental controls and thermal-management equipment. A power plant, refinery, semiconductor facility or natural gas project can require emissions equipment, fluid handling, heating systems and other engineered solutions during the same development cycle.

Large orders can nevertheless create their own risk. CECO specifically identifies concentration in large-scale power-generation projects, customer rights to delay or cancel orders and the possibility that fixed-price contract costs exceed estimates as factors that could affect backlog conversion and profitability.

Backlog should therefore not be treated as guaranteed future profit. CECO must procure components, complete engineering work, manage labour and meet customer schedules before those orders become revenue and cash.

The quality of the order book will ultimately depend on margin rather than size alone. A record backlog creates substantial visibility, but unexpected material inflation, tariffs, project delays or execution problems could reduce the earnings produced by those contracts.

How the $2.2 billion Thermon deal transformed CECO’s revenue, ownership and balance sheet

CECO completed its acquisition of Thermon on June 1 after announcing the approximately $2.2 billion stock-and-cash combination in February. Thermon shareholders were allowed to elect cash, CECO stock or mixed consideration, subject to proration, with the transaction structured so legacy CECO shareholders would own approximately 62.5% of the combined company and former Thermon shareholders about 37.5%.

The impact is already visible in CECO’s financial statements. Common shares outstanding increased from approximately 35.6 million at the end of 2025 to 58.4 million at June 30, an increase of about 64%. The quarterly weighted-average share count was lower because Thermon was included for only one month of the reporting period.

Dilution is not inherently negative if the acquired earnings and cash flow increase faster than the share count. The financial test is whether Thermon contributes enough incremental profit and synergies to raise earnings and free cash flow per CECO share over time.

Debt also increased materially. Current and long-term borrowings totaled approximately $727.7 million at June 30, compared with about $212.4 million at the end of 2025. CECO borrowed $235 million of long-term debt and recorded substantial activity under its revolving credit lines during the first half.

Interest expense increased to $9.1 million during the second quarter from $4.9 million a year earlier. That cost will become increasingly relevant as investors evaluate the acquisition because interest payments compete with investment, acquisitions and shareholder returns for operating cash.

The acquisition also reshaped CECO’s asset base. Goodwill increased from $288.2 million at year-end to approximately $1.50 billion, while finite-lived intangible assets rose from $97 million to nearly $1 billion. These balances largely reflect the accounting value assigned to acquired businesses, customer relationships and technologies rather than physical assets that can necessarily be sold for equivalent amounts.

Thermon nevertheless adds established industrial capabilities and a broader geographic footprint. CECO expects the combination to increase its exposure to shorter-cycle and aftermarket revenue, which could reduce dependence on long-duration engineered projects and provide a more balanced earnings mix.

Management originally targeted approximately $40 million of annual cost synergies within 36 months and said in June that initial cost and growth savings were already being captured. The August results indicated that integration remained ahead of the company’s pre-acquisition objectives. These are management targets and progress assessments rather than guaranteed future savings.

Why CECO’s GAAP loss and adjusted profit tell very different stories

CECO reported a $33.2 million operating loss during the quarter compared with operating income of $18.1 million a year earlier. Acquisition and integration expenses totaled $45.5 million, while amortization expense increased to $7.8 million.

After excluding those and other identified items, non-GAAP operating income increased 75% to $32.1 million. Non-GAAP net income rose 147% to $21.5 million and adjusted EBITDA increased 73% to $40.2 million.

Neither presentation should be considered in isolation. The adjusted figures provide a clearer view of operating activity after removing transaction expenses that are unlikely to recur indefinitely, but CECO still spent real cash completing and integrating Thermon.

The quarter included a $9.5 million purchase-accounting inventory adjustment that reduced GAAP gross profit. Reported gross margin was 30.3%, compared with 36.2% a year earlier, while non-GAAP gross margin was 33.7%. Even after removing the inventory adjustment, margin remained below the prior-year level.

Reported quarterly free cash flow was negative by $24.3 million, compared with negative $8.8 million a year earlier. CECO’s adjusted measure was positive by $53.2 million after adding back $77.5 million of transaction-related and other specified cash-flow adjustments.

The difference is unusually large. It shows why the Thermon integration makes CECO’s near-term cash generation more difficult to interpret using a single measure.

First-half operating cash flow was negative by $32.4 million. Accounts receivable increased significantly, although acquisition accounting explains part of the balance-sheet increase. Billings in excess of costs also rose sharply, showing the importance of project timing, customer advances and working-capital movements to CECO’s cash profile.

Management expects full-year free cash flow of at least 55% of adjusted EBITDA. Achieving that target would demonstrate that acquisition expenses and working-capital pressure are temporary rather than a structural drag on the enlarged business.

Raised 2026 guidance increases the pressure to convert record backlog into profitable growth

CECO raised the lower end of its full-year revenue forecast to $1.30 billion from $1.275 billion while keeping the upper end at $1.375 billion. Adjusted EBITDA guidance increased to $200 million to $225 million from $195 million to $225 million.

The guidance includes seven months of Thermon results because the acquisition closed June 1. Direct year-over-year growth will therefore reflect both organic performance and the addition of the acquired company rather than providing a clean comparison with the former CECO business.

Management said the third quarter had started without a slowdown in booked projects and that sales discussions continued as expected. It also identified Middle East conditions and inflationary pressures as areas being monitored.

The $8.5 billion sales pipeline and $1.82 billion backlog give CECO substantial opportunities to exceed its historical revenue scale. They also require the organization to execute a much larger number of projects while integrating Thermon’s workforce, systems and customer relationships.

CECO’s long-term opportunity is tied to several investment cycles occurring simultaneously. AI data centres require additional electrical generation and cooling infrastructure, semiconductor expansion requires specialized industrial equipment, and reshoring projects are creating new demand for factories, energy and environmental controls.

Thermon expands CECO’s ability to participate in those projects beyond its traditional environmental technologies. The company now has a larger product portfolio, more geographic reach and greater exposure to recurring aftermarket activity.

The financial case will ultimately depend on execution rather than order announcements. CECO must convert its record backlog at attractive margins, achieve the promised Thermon synergies and reduce acquisition leverage while demonstrating that adjusted cash flow becomes reported cash flow as transaction expenses fade.

Key takeaways from CECO Environmental’s record second-quarter results

• CECO Environmental Corp. reported $285 million of second-quarter revenue, representing growth of 54% from the prior-year period.
• New orders surged 191% to $798.5 million, pushing backlog to a record $1.82 billion, up 164%.
• The wider sales pipeline exceeded $8.5 billion, supported by power generation, data centres, semiconductor investment and industrial reshoring.
• Adjusted EBITDA increased 73% to $40.2 million and reached a margin of 14.1%.
• CECO recorded a GAAP net loss of $34.8 million, while non-GAAP net income reached $21.5 million because acquisition and integration expenses materially affected reported results.
• The $2.2 billion Thermon acquisition closed June 1 and is expected to generate approximately $40 million or more of annual cost synergies.
• Outstanding CECO shares increased substantially following the stock component of the Thermon transaction, making per-share earnings and cash-flow growth important measures of acquisition success.
• Current and long-term debt increased to approximately $728 million, increasing the importance of free cash flow and future deleveraging.
• CECO raised its 2026 revenue outlook to $1.30 billion to $1.375 billion and adjusted EBITDA guidance to $200 million to $225 million.
• The outlook for $CECO depends on converting its record backlog into profitable cash flow while integrating Thermon, delivering synergies and controlling acquisition-related leverage.