CECO Environmental Corp (CECO) 2024 Q4 法說會逐字稿

Hello everyone and welcome to the CECO Environmental fourth quarter 2024 earnings call.

(Operator Instructions).

Now it's my pleasure to turn the call over to Steven Hooser, Investor relations.

Please proceed.

Thank you, Carmen, and thank you for joining us on the CECO Environmental fourth quarter 2024 earnings call.

On the call with me today is Todd Gleason, Chief Executive Officer, and Peter Johansson, Chief Financial and Strategy Officer.

Before we begin, I'd like to note that we have provided a slide presentation to help guide our discussion.

The call will be webcast along with the earnings presentation, which is on the website at cecoenviro.com. The presentation materials can be accessed through the investor relations sections of the website.

I'd also like to caution investors regarding forward-looking statements.

Any statements made in today's presentation that are not based on historical fact are forward-looking statements.

Such statements are based on certain estimates and expectations and subject to a number of risks and uncertainties.

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 Form 10-K for the year ended December 30, 2024.

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 are made here today, whether as a result of new information, future events, or otherwise.

Today's presentation will also include references to certain non-GAAP financial measures.

We've provided the comparable GAAP and non-GAAP numbers in today's press release and provided non-GAAP reconciliations in the supplemental tables in the back of the slide deck.

And with that, I'd now like to turn the call over to Todd Gleason, Chief Executive Officer Todd.

Thanks, Steven.

Good day, everyone, and thanks for your time today.

Please turn to slide number three, which summarizes today's earnings report.

I'm going to hit on a few financial highlights as Peter will give more details in his financial review in just a few minutes.

As we announced in our press release today, we closed 2024 in line with the revised outlook issued in mid-January.

Let's review some of the figures.

Starting with full year revenue, we finished the year at $558 million.

Well, this was a record year, excuse me, for CECO, our growth rate on a year over year and consolidated basis was up only 2%.

The customer driven project delays that plagued us throughout much of 2024 did abate late in the year, but not in enough time for us to make up the shortfall to our original guidance.

Adjusted EBITDA was also a full year record.

We finished 2024 at $62.8 million which was an increase of approximately 9% versus prior year, and with adjusted EBITDA margins expanding approximately 70 basis points.

Peter will elaborate more on this and his remarks, but we are pleased with our ongoing margin expansion and expected.

And we expect EBITDA margins to rise in 2025 as we will continue to see the benefit from stronger volume and mix as well as advancements, we continue to make with our operating excellence efforts.

In fact, our gross margins expanded very nicely, driven in large part by $10 million of productivity savings in the year.

Moving to the last two items in the upper right sections of the slide.

I'm very pleased to report that full year and quarterly orders were both company records, and it wasn't even close.

The previous record for a quarter was approximately $165 million.

So for us to deliver $219 million in Q4 really demonstrates our market leadership and the strength of key verticals that we participate in these eye-popping fourth quarter orders produced growth of over 70%, and our full year orders of $667 million were up mid-teens year over year.

As a reminder, our orders turned to revenue in a staggered fashion, depending on the type of project.

Some orders turned to revenue rather quickly within 30 days to 90 days or 100 days.

While other orders have a profile that has a longer duration of revenue recognition, perhaps even 9 months to 18 months.

In either case, our orders rarely de-book.

Our de-booking experience is less than 2%, and in most years, it can be less than 1%.

We will highlight some of the strong markets that drove these record orders growth.

And we continue to see tremendous opportunities across various markets including power generation, natural gas infrastructure, industrial air, and produced water and markets, and other diversified industrials.

In fact, so far in Q1 of 2025 we have maintained a very strong orders profile, so we expect continued robust levels.

And these record orders helped us build a tremendous backlog which closed at $541 million an increase of 46% from previous year end the excuse me, the increase reflects the strength of our pipeline that yielded nearly $400 million worth of orders in the second half of 2024, including two large projects in power generation totaling around $100 million.

The power generation market as a whole is just embarking on what we expect will be a multi-year capital investment super cycle.

This market coupled with how well we are positioned to benefit from broader macros of reshoring industrial manufacturing, electrification, global investments in infrastructure data centers, and growing needs for industrial air and water treatment solutions, helps to grow our sales pipeline to new heights.

So in summary of this slide, we ended the year with lower than guided revenue in EBITDA, but we are extremely pleased with the booking's momentum in both Q3 and Q4.

So this momentum has carried into 2025 and coupled with our recent acquisitions that we are integrating very well, we expect 2025 to be a banner year for CECO.

Let's move to slide number four.

We have the chance Pardon me.

I've had the chance to spend significant portions of my career working with or around world-class CEOs and leaders to transform companies into value creation machines.

Each company had unique operating models, and of course each CEO was different, but a common aspect was a multi-year perspective which incorporated a focus value creation strategy and of course the ability to maintain performance.

Even if one year wasn't quite as good as other years.

What was always important was meaningful progress.

Well, despite a year in which CECO didn't hit all of our stated performance metrics, our teams continue to ensure we are making the right progress in our value creation strategy.

I hope our investors don't lose sight of the foundation we have been building and our transformational results.

Now let's look at the details on this slide.

As you can see, moving from the left side to the right, please note the five-year progression of three key metrics.

First, with orders.

Our annual book to bill has exceeded one in every year, and we expect this to continue in 2025.

Our multi-year orders growth has been a silent 23% CAGR.

Some of you might remember that prior to 2021, the average quarterly orders level for CECO was around $90 million.

In 2024, we booked over $90 million in December.

In that specific month, we didn't book in a single order greater than $10 million.

So I'm not cherry picking a month with one or two huge bookings.

As we exited 2024, our sales pipeline was approximately $4.5 billion compared to approximately $1.5 billion as we exited 2021.

I believe this is high performance and transformational.

Moving to the second metric, revenue, we have grown our sales every year since 2021 with a three-year CAGR of approximately 20%.

We have been delivering consistent sequential growth, which has been a balance of executing or organic strategies to expand into new markets with solutions and services, as well as adding niche leadership businesses via our programmatic M&A model.

We have added global diversity, and our 2025 outlook reflects the momentum we have coming into the year with a record backlog and robust and markets.

And finally, for adjusted EBITDA, it is another consistent and high-performance growth story.

For the past four years we have grown adjusted EBITDA over 34% CAGR, and we have experienced EBITDA margins growing over 300 basis points.

And I believe we're just getting started on margin expansion as we advance our operating excellence programs and the benefits that we'll derive from improved business mix and the uplift from accretive acquisitions.

I am proud and grateful for my career experiences and my exposure to some incredible leaders.

I would submit that what we are doing here at CECO should capture the attention of those same mentors and former colleagues, given the sustainable and transformational value creation we continue to deliver.

Importantly, this is a huge tribute to the great team members at CECO who work tirelessly to deliver world-class results by giving our customers best in class solutions.

So thank you to Team CECO.

Please turn to slide number five.

We wanted to include this slide as well as the next one to simply highlight that our transformation isn't just financial results.

We shared this material in many of our investor presentations and with certain internal meetings.

The takeaway here is that we are a radically different company than 4 years to 5 years ago.

We have a balanced industrial air, industrial water, and energy transition set of businesses that are each leader in very important niche markets, and we are being recognized more and more each day for the tremendous work we do to support our global customers and to sustainably execute across complex industries.

And if you turn to slide six, we wanted to stress that while we are very diverse, we are also very focused.

CECO is 100% focused on niche leadership in industrial markets with a myriad of diverse solutions and services.

That diversity continues when you see the number of end markets we serve within those industrial sectors.

Every day we work with leading industrial companies to solve some of their most complex industrial air, water, and any energy contamination removal, treatment, and emissions challenges.

So while we are 100% focused on industrial, our diverse solutions, offerings, and diverse end markets are so vast it gives us tremendous balance.

And we will continue to leverage this access to diverse markets, providing a range of solutions while we maintain a nimble capability to move from industry to industry based on market dynamics.

Our business leaders work very well together to ensure CECO maximizes our full potential to take advantage of growth opportunities.

I will now hand it over to Peter, who will provide additional detail on various financial and operational items.

Peter.

Thank you, Todd.

Good day, everyone, and thank you for attending our fourth quarter in 2024 year earnings call today.

You would please turn to slide eight.

I'll provide you with additional insights into CECO's financial results for the quarter and the full year.

Starting with backlog.

We closed the quarter with a record backlog of $541 million up 46% versus prior year.

And 24% sequentially.

Of the total approximately $50 million.

Is related to the three acquisitions completed in 2024.

Orders in the quarter and the year were also records.

Fourth quarter orders of $219 million represents a 71% increase versus prior year, also up sequentially by $57 million or 35%.

With a book to bill ratio of 1.4 in the quarter and 1.2 for the full year.

Although the timing of 2024 bookings impacted our ability to recognize revenue on the P&L in the quarter and for the year.

We are well positioned to realize this revenue in 2025 and into 2026.

Revenue in the quarter of $159 million was an increase of 3% year over year and up sequentially by approximately $23 million or 17%.

Although we fell short of our expectations for fourth quarter revenue as we exited the third quarter, I am happy to see the step up sequentially, which represents approximately $640 million of revenue on a run rate basis.

Before the benefits of the Verantis acquisition completed in late December and the Profire acquisition completed in early January.

This performance supports our confidence in delivering on our 2025 outlook.

For the full year, we recorded revenue of $558 million also a record, a modest increase versus prior year as revenue recognition was impacted by the two main factors Todd mentioned previously.

Customer-driven project delays.

And slower to realize timing of bookings in the first half of 2024.

We delivered $19.1 million of adjusted EBITDA in the fourth quarter, which was down slightly by approximately 2% year over year, but an improvement sequentially of approximately 34%.

Gross profit margin was 35.8% in the quarter, up 120 basis points versus the same period in 2023 and 240 basis points sequentially.

As our material sourcing, productivity, and project execution initiatives continue to deliver benefits.

We also realize the benefits and have improved portfolio and business mix in the period.

Adjusted EBITDA margin of 12% was down 54 basis points versus the prior year period.

Driven mainly by the timing of investments in SEGA in anticipation of revenues that I've mentioned were late to materialize.

These additional expenses were partially offset by gross profit expansion in the quarter.

On a sequential basis, our Q4 adjusted EBITDA margin was up approximately 150 basis points.

From a full year perspective, we delivered adjusted EBITDA of $62.8 million near the high end of our previous guidance with full year margins of approximately 11.3%.

Both metrics are up versus prior year.

Adjusted EBITDA grew $5 million or 9%, with margins expanding 70 basis points, benefiting from business mix.

M&A and overall expense management, which I will elaborate more on in the next page.

For 2024, the delivered incremental adjusted EBITDA margins of 40% was a strong result given the softer than anticipated volume.

Adjusted EPS was essentially flat year by year for both the quarter and the full year, as moderate growth in adjusted EBITDA was more than offset by tax timing and select below the line items.

Finally moving to free cash flow.

We were disappointed with how we ended the year.

But have already seen a quick turnaround with respect to cash generation in 2025.

Cash flow for the 4th quarter was an outflow of $4 million due to working capital timing, largely driven by collections scheduled to be received in the quarter.

That unfortunately hit our bank account in the first year, first week of 2025.

The delayed cash receipts amounted to approximately $15 million.

On a full year basis, cash flow performance was somewhat destined to be under pressure, given the aforementioned customer-driven project delays and the bookings that were postponed into the second half of the year.

Both of which hindered our ability to recover to a more consistent working capital delivery profile as our billings reflected the delayed timing of projects and bookings.

When viewed as a group, I estimate that these factors negatively impacted full year free cash flow by approximately $30 million.

On slide 21 in the appendix, we have included details that provide additional colour on this topic and help bridge those components and their impact to our 2024 free cash flow performance.

We fully expect this delayed 2024 cash delivery will be recovered in 2025, just like we expect to fully capture the benefit of the the delayed 2024 revenue.

Please turn with me to page nine now, where I will discuss gross profit and our gross profit margin performance.

To orient you to the presentation on this slide, we are presenting CECO's gross profit performance by quarter since the fourth quarter of 2022 on a TTM basis in order to normalize for quarter-to-quarter fluctuations.

And I'm providing a look back of two years to the point where our sourcing and productivity initiatives were launched.

Since the fourth quarter of 2022, we've expanded our gross profit margins by approximately 500 basis points, with a gross profit dollar growth of approximately 53%.

Over the past 2 years, a number of focused operational and portfolio actions have enabled this improvement.

The impact attributable to our operations excellence efforts is an annualized savings of approximately $10 million.

An increase in shorter cycle sales, improved project execution, leading to realization of project contingencies and acquisitions with the creative gross profit margins have also contributed to our consistent and sequential improvement.

I feel good about our team's performance and our ability to sustain the current profitability levels with modest improvements continuing in 2025.

As we move through 2025, we will continue our cost savings pursuit through sourcing, functional productivity, and improved product ex project execution.

In addition, we expect to see benefits from our early deployments of lean in a number of our businesses and the synergies captured and to be captured from our recent acquisitions of WK, Verantis, and Profire Energy.

A possible modest headwind to 2025 gross profit margins could be the already booked and expected to book large to mega-sized projects in a few markets.

Where gross profits tend to be below the company average but have above average EBITDA margins, as these jobs have very little incremental costs below gross profit related expenses.

So for these large jobs, the operating income is very attractive.

Now I'd like to move from slide nine to slide 10 for a quick review of cash flow and liquidity.

We'll start on the left side of the page with a free cash flow walk from net income on a year-to-date basis.

For the full year, we delivered less free cash flow on a year-to-date basis due to working capital timing and higher capital expenditures.

Working capital is lowered by approximately $30 million negatively impacted by customer payment timing.

The large amount of second half bookings resulted in a significant increase in customer down payment receivables still open as of year end.

These receivables create a cash tailwind for the company in the first half of 2025.

CapEx investments were up approximately $9 million year over year.

As we continue our investments in the ERP migration and consolidations.

And we chose to invest in select machinery and facility upgrades to improve throughput, increase capacity, improve productivity, and accommodate lean production model changes.

Depreciation and amortization is up year over year to reflect the increases in capital spending in the prior years.

On the right side of the slide.

We're presenting a more streamlined bridge of the sources and uses driving the change in our debt position.

We ended the fourth quarter with a gross debt of approximately $217 million resulting in net debt of approximately $180 million as we utilize the upsize credit agreement to execute on strategic M&A with leverage at the end of the period reaching approximately 3 times our bank EBITDA.

In 2025, with the expected proceeds from the pending sale of our fluids business plus the application of operating cash flow for debt repayment, we expect to reduce our outstanding borrowings on a revolver and lower our leverage ratio to a comfortable 2.2 times EBITDA, yielding approximately $100 million of dry powder in the third quarter of 2025.

A level more than sufficient to continue executing against our programmatic M&A strategy and to make incremental investments in organic growth.

And with this slide, I conclude my summary on CECOs Q4 and FY 2024 results and will now hand back the presentation to Todd.

Thanks, Peter.

Please turn to slide 12, which really helps to set up our discussion for 2025.

We have steadily grown our backlog and ended 2024 at $540 million.

This provides great visibility to full year 2025 revenue already in our backlog projects.

Any discussion of a robust full year outlook should start with a highlight slide that resembles this one.

I'm very proud of the sustainable growth we have shown, and this slide reiterates that we have consistently grown or booked a bill greater than 1.1 and even 1.2. That is strong confirmation that we have created a double-digit growth organization and our sales CAGR, which I highlighted back on slide 4, reflect our strong orders growth.

Moving to slide 13.

We felt this was another informative slide to add.

We hope you find it helpful as it highlights how we produce revenue.

On the left side of the slide, you can see our sales are fairly balanced across short, medium, and longer cycles mix of business.

Starting with the 30% of our sales, which are shorter cycle or relatively consistent flow of sales from aftermarket services and standard product shipments.

As we have stated in prior calls, we continue to evolve the portfolio towards a greater, shorter cycle mix of business with a goal to reach 50% in the next few years.

A similar amount of revenue is generated from lightly configured engineered solutions.

This is a mix of revenue that we often refer to as mid-cycle because from booking to revenue generation, these projects generally convert in 6 months to 9 months.

And finally, the balance of our sales is from longer or longer or larger projects.

These are highly engineered, and CECO has an outstanding reputation engineering and delivering these complex and custom-built solutions.

These projects start to turn to revenue anywhere between 3 months to 9 months, and they last anywhere between 12 months to 18 months.

On the right side of the slide is a fairly self-explanatory sales pipeline visual with supporting information.

As I mentioned earlier, we have built our sales pipeline from $1.5 billion in 2021 to over $4.5 billion as we exited 2024.

This sales pipeline is a combination of replacement systems from our large installed base to our ability to enter new markets and support existing or new customers with their needs.

Now let's turn to slide 14.

As we highlighted in today's press release, we are maintaining our 2025 guides.

We expect the full year to produce orders greater than revenues, thus implying another positive book to bill for 2025, which would expand our run of book to build greater than 1.0 to 5 years.

For revenue, we are reiterating our outlook for a range of between $700 million to $750 million which is a 30% growth rate year over year if you take the midpoint of that range.

About half of our growth is organic and half is from the acquisitions we have already completed and started to integrate.

For adjusted EBITDA, we reiterate the expectation between 10, excuse me, between $90 million to $100 million an increase of 50% versus 2024 at the midpoint.

Margins are expected to continue a nice improvement as well.

And with respect to free cash flow, we are introducing a range of 60% to 75% of full year adjusted EBITDA.

This is higher, about 10% points when compared to our standard free cash flow guidance, as we have significant receivables that slid into 2025 and which Peter already outlined.

On the right side of this slide, we highlight a few dynamics we think are important to track as we navigate the year.

I will categorize them in two areas tailwinds because we already have good visibility to this momentum and monitoring because there is generally uncertainty, general uncertainty in some areas.

For tailwinds, we highlight our record backlog entering the year, our orders momentum and strong markets, and the fact that we continue to increase our market opportunities, which is reflected in the $4.5 billion dollar sales pipeline.

We will continue to monitor the potential impacts from tariffs and other legislative or administrative items.

There is just a lot of of interest, but also a lot of uncertainty in these topics.

And of course, interest rates and inflation are also important to monitor.

Each year we encounter positive and negative surprises, so we will focus on what we can control and what we have the ability.

We will pull for various levers to maximize our upside.

And of course, work to offset any downside factors.

Finally, we have the acquisition of Profire in the late Q1 divestiture of fluid handling already incorporated in our full year outlook.

Now let's turn to slide 15, which is our summary slide.

In summary, we are pleased with our ongoing transformation, even with the mixed results in 2024.

There were a number of important records, but also some shortfalls versus our 2024 guidance.

We have a very good track record identifying, acquiring, integrating, and growing very strategic and accretive businesses through our programmatic M&A, and we expect to continue this successful approach.

I am pleased with our sales pipeline and margin expansion progress, and we have a lot of opportunities with each.

And more importantly, we have created.

A significant amount of shareholder value over the past 3 yeras or 4 years and remain very committed and aligned with shareholder value creation.

And I want to thank Team CECO once again for delivering for our customers and navigating complicated and challenging markets.

You inspire me and our entire team every day.

With that, we will open it up for questions, operator.

(Operator Instructions).

Our first question is from Rob Brown with Lake Street Capital Markets.

Please proceed.

Good morning

Good morning.

About, you talked about seeing some momentum pipeline, or sorry, order pipeline momentum in the 2025.

Just wanted to get a sense of kind of where you're seeing the strength, what, you're seeing there thus far this year.

I think it's the same strength, Rob, and I guess obviously we are, being somewhat redundant with comments that, the power generation markets, reshoring of industrial infrastructure, not just natural gas infrastructure, but in infrastructure overall, you can there's certainly a number of areas of uncertainty as we kind of enter 2025, but for us the momentum that we saw in third and fourth quarter orders continues to feel very strong.

So I'll leave it at that.

I would just say that we, as we're halfway through the first quarter, we have seen a just a good.

Vibrant, orders, market for us, and we hope that that continues, and we expect it to, given the advanced stages we're at with a lot of our pipeline discussions.

Okay, great.

And then maybe on Profire, now that you've had it a couple months here, what are you seeing in terms of, opportunities there?

Where do you see growth?

I think it's how's the integration going?

Yeah, look, we were always excited to bring the incredible team of and the market leading solutions of Profire into the CECO portfolio and in, 7 weeks or 8 weeks that has been, that has just continued to expand in terms of our excitement.

The both the Profire leadership as well as a different business within CECO continue to engage on significant opportunities whether it be in the energy market.

Helping Profire identify industrial markets or just working with our industrial teams on penetrating market opportunities more efficiently.

We've started really rich dialogue on how Profire can grow internationally with our already established market positions in the Middle East and in other international markets, so.

I'd say really hit the ground running, frankly.

For us it is the largest acquisition we've made in my since I joined CECO, not the largest acquisition I've made and not the one, not the largest that CECO has made in its history, but the largest in the five years since I've been CECO.

But it might prove to be a very efficient immigration just given the Profire was already a publicly traded company.

So while a little bit larger, a lot of the integration programs that we do are fairly efficient and fast because they already had established processes that resemble many of ours.

So from an integration perspective we feel good from a growth and collaboration perspective we feel great.

And we'll stand behind the fact that we think that with investment and leadership that Profire could be another one of our acquisitions that we believe we can double and, in 3 or so years and certainly the synergies that we expect to get from Profire we continue to feel great about and we look forward to just, getting that integration further along in the year, providing you with some updates and then investing for growth.

Great thank you I'll turn it over.

Thank you.

Our next question comes from Aaron Spychalla with Craig-Hallum Capital Group.

Please proceed.

Yeah, good morning, Todd and Peter.

Thanks for taking the questions.

First on the backlog entering the year, can you just kind of talk about visibility that provides into guidance maybe how that compares to past years and then just confidence, that project timing.

How that's incorporated into your 2025 guidance.

Yeah, I think we get better visibility as we go, each year, Aaron, and it's a good question.

Look, as I mentioned in one of my final slides, yeah, it's hard to have the confidence of having a 30% top line revenue projection without having that backlog that we have, right?

So, to have a backlog that is, 40 or so % higher than it was a year ago coming into the year,

I would say gives us a lot of confidence and momentum, entering 2025.

And look, we work with all of our businesses to understand.

What of that backlog is in shorter cycle businesses so we have more visibility to the first, 2 months to 3 months or 4 months of the year.

What of it is still in mid cycle and where are those projects at in their duration and then what's in longer cycle.

Last year we had visibility entering 2024, but we didn't have as rich a backlog coming into 2024.

We sort of probably needed a stronger start to the year in bookings than we got.

And then we obviously had certain key projects push out this year I would say we're starting a little bit more, all cylinder's firing, we just completed a handful of acquisitions.

So we have a lot of strength and momentum from those transactions where there's growth opportunities across the board.

Our bookings in the fourth quarter, which included very little benefit from those acquisitions of $219 million.

Just gives us a lot of visibility to the healthy and markets that are out there.

And so, for us, I think, there's a more visibility to '25 as we enter the year for the full year than we had coming into '24.

And the fact that we're already seeing strong orders in the first part of the first quarter, that just gives us more confidence that we're going to continue to see a strong revenue for the year.

Great thanks.

And then maybe second just on, margins, Peter, you touched on it but you know nice progress there you just maybe give a little bit more detail on on how you know you're thinking those progress as we move through 2025 and then talked a little bit about tariffs but just maybe you know the latest thoughts there, given I know it's an evolving situation, but just how you're thinking about that with the business as we move forward.

The gross margins, we believe still have a little more room to expand, but the rate of expansion will moderate.

We'll continue to see the efforts in lean and operating excellence and sourcing allow us to offset any headwinds that might arise from tariffs, which today is uncertain and quite frankly, almost a fool's errand to try and predict.

So we're just running our business and we're going to be nimble and flexible.

The Margins at the EBITDA line will begin to start seeing accelerated improvement with the ability to see the benefits of functional productivity, the systems we're investing in, and frankly scale on the existing fixed cost as with a $750 million business with essentially similar fixed cost, we'll see that flow through nicely.

If we were to talk about tariffs in any specific way, we'd be here for hours, so, maybe we'll take care of that later.

Yeah, I, we've done a lot.

I will say, this is Todd, we've certainly rolled up our sleeves and done a lot of work on our exposure to regions, countries where tariffs could be, applied.

And so we understand what, analytically what it could mean, and we have a lot of confidence given our dynamics with our projects and contracts that that we could be, a price passed through on that type of whatever you want to call it.

That kind of inflationary result from tariffs.

So we could, like Peter said, go around and around on what it could mean quantitatively.

I would say qualitatively or the thing that I'm more interested in and I think most maybe CECOs are, is will this uncertainty create some unnecessary market dynamic that doesn't seem like it wants to or needs to exist right now that there could be a significant pause.

As everyone sort of gets their head and their arms around what the impacts are.

We're not seeing that.

I think that we're seeing questions and we're all a little uncertain that to me that would be the most that the impact financially of the tariffs seemed to me to be less impactful than what could be.

Some sort of a market pause that hasn't occurred and we hope and don't expect it to occur.

But that that's what I would say about tariffs is that the financial impact for CECO will be minimal we believe and managed because of how we have our business relationships and contracts set up, but the economic uncertainty is a little TBD and but we haven't seen any impact of it to date, and we look forward to that continuing.

All right, that makes sense, appreciate the the caller.

I'll turn it over.

Thank you.

Our next question is from Bobby Brooks with Northland Capital Markets.

Please proceed.

Hey, good morning guys.

Thank you for taking the question.

So I kind want to, piggyback on Aaron's question a bit about the backlog, but so 2024 was sort of a transitional year for you guys as your backlog began to consist of larger, more complex projects and you historically had worked on.

And given that maybe the forecasting tools you previously were using weren't kind of weren't the right fit for those new bigger projects, could you just discuss what maybe new tools the team has implemented or process of that implemented to better forecast and track projects sitting into your backlog which then you know should help give more confidence of hitting guide this year.

Yeah, I, there's a lot there and some of that is certainly worth unwrapping because we work on our processes and our tools, consistently, even if last year had been the initial guidance that we met or exceeded, I think we have a lot of work to do like most companies do on the complexities associated with, a project-based revenue model which is, greater than 50% of our revenue as I already outlined.

So, look, we are consolidating more businesses into a standard ERP that gives us more visibility to how their cost structure is associated with those projects.

We have, spent deliberate time and energy getting people on a more consistent percent of complete revenue recognition model that allows us to have more standardization across our businesses.

These large projects have actually we have a tremendous amount of experience with them.

That's probably the only comment you made, Bobby, that I would probably try to correct is that these projects might be a little larger, but some of that has to do with just the time I might say, we've done $40 million to $50 million dollar projects before and our forecasting has never really been the issue.

It is, the dynamics that occurred last year are a little unique and I think we're learning from those dynamics.

And so if I would, I think we learned, I personally would say, heading into 2024, we were more vulnerable.

To if there were some project delays in terms of bookings or there were project delays in our backlog because as we exited 2023.

I know I'm asking you to go back a ways, our third and fourth quarter bookings were, weren't as strong, and then as we entered '24 we thought those bookings were going to happen earlier in the year and they didn't, and I would just say it kind of came a little bit of a domino effect that we learned from so it's maybe a little bit less of systems and processes which we continue to improve and a little bit more of the dynamics.

As we exit a year and enter a year with either momentum or your fingers are crossed that you're going to find momentum that I'd say this year, as you can see from our second half bookings, the fact that we've completed now a handful of acquisitions rather than those acquisitions being in front of us to complete.I think for the full year, look, we would always say.

We don't give quarterly guidance for a reason because our numbers can move around a little bit based on swings in certain projects and dynamics, but as we head into '25, I would say this feels exactly like when we headed into 2022, we're heading into 2022 and 2023, we had a lot of visibility to our guidance and our performance, and I would say we feel like that heading into full year 2025.

I appreciate the clarity on that and that makes that makes a lot of sense and then just I believe with your profile acquisition you guys might you guys gain some manufacturing capabilities within the US.

I was just curious if you know tariffs were to kind of boil up, is that an asset you could leverage for other pieces of the business, or should we think of that as strictly for profire related revenues?

It's for profire it's strictly for profire, I would submit.

Now look, we're as creative as the next person, so you know if there's a way for us to leverage manufacturing domestically for various cost purposes, including terrorist avoidance or maximization of our domestic footprint, Verantis might be a better example of that to some extent, given their, Ohio and Cleveland-based capabilities that we might be able to look at for industrial air.

We have other manufacturing that we might be able to evaluate and utilize, including in various other states in, and let's say our industrial air ducting business, etc. That we could look at leveraging.

I think that's a little bit of a longer-term play.

We're well positioned in Texas with our Denton facility if we wanted to add, supply chain capabilities through that.

But Bobby, right now I'd say that feels like CapEx we don't need to spend until we better understand what would be the long-term benefit of that economically.

However, yeah, it's a look, it's a fair question, and I think companies are going to continue to be strategic with the footprint that exists, and I think look for profire the balance of their footprint between Canada and the US is very attractive to us, and, I think we could toggle things in our businesses if it, if I guess of economics demand it.

Makes perfect sense.

I'll jump back in the queue.

Thanks guys.

(Operator Instructions) Our next question is from Jim Ricchiuti with Needham.

Please proceed.

Hi, good morning.

This is Chris Grenga on for Jim.

Thank you for taking the questions.

Hi Chris

How would you compare the level of activity you're seeing in the short cycle business versus the longer cycle parts of industrial air and industrial water?

A pretty stable in terms of the shorter cycle.

So look, in industrial air and industrial water or in energy as well, a good percentage of that is some aftermarket replacement parts and filters and services and things of that nature.

So that's steady for sure and continues to grow because of our installed base.

We don't sell a lot into distribution and frankly, and so even in our shorter cycle business.

We don't have a lot of stocking and so unlike some companies that might be making a comment with respect to inventory through their channel, we don't have that.

And so that's both a good thing because we're not nervous about the fact that we've put too much inventory into a channel.

We don't have to, there's not going to be a correction there and at the same time certainly we would like to have a little bit more

Business where we have that dynamic because it's a good dynamic to have.

It's a good balance to have.

So but I think there's, for you and for Jim and how you're thinking about the short cycle, I think we feel good about short cycle.

In fact, for us in 2024, our short cycle sales continues to continue to be just fine, and it was one of the areas of consistency in 2024.

We expect that to continue this year.

Great, could you talk about, what you're seeing and maybe what your what your outlook is for in terms of.

The LNG vertical or LNGM market has there been any incremental change in in interest or urgency from customers in that space?

There has.

We discussed this in the fourth quarter and we're still seeing the The increase in the dialogue.

I'll go back a couple of months.

Literally after the election announced, the results were announced.

Our two largest customers in LNG plant development, both based in Houston, called us and said, come to Houston, we're going to start getting next year plan because these, projects that have been deferred by the Biden pa.

Are going to turn back on.

We rebid those projects.

We've updated quotes in lead times, and we're seeing order activity begin both in Louisiana and Texas, as well as some international project work.

So I think 2025 and 2026 are going to yield some very robust project work, projects that have all their permits and were put on pause and those which will now get permits and will proceed.

And they're large.

Yeah, It's a very positive conversation.

Dare I say the world needs more of it, and you can either buy it from us or you can get it from the Qataris.

I suspect many would rather get it from us, meaning the US.

Not Zika.

And I know this wasn't your question, Chris, but if I could expand it a little bit just from LNG, which is a really good focus by the way, for a number of companies and I think CECO's well positioned for that.

We also could say, you look at the amount of power that we're hearing, and I know that.

There's been some new, some introduction of some new topics like deep seek into the conversation where maybe that's going to, reduce the amount of power needed.

I think regardless of the dynamic of AI, etc. That I read an article that, we need to generate.

Like the amount of power that would be equivalent to a new Japan in the next three years, and we need to do that multiple times in the next 10 years and you know there was another article that talked about, multiple trillions of dollars that need to be spent on potentially.

On reshoring industrial manufacturing, not just to the US but to other, reshoring within, North America, a writ large, Europe, etc.

So a lot of movement in in the world.

I think over the next 5 years to 10 years we feel well positioned for that.

And the reason we call it an energy super cycle isn't just because of power or LNG.

It's because it's one of the few times where you might see meaningful investment in almost every energy bucket from, wind and solar to, gas and infrastructure associated with power as well as gas infrastructure and movement including LNG.

There's very.

Nuclear.

We've reviewed several nuclear projects recently, which is, much more activity than we were seeing a year ago even.

So we're seeing every sector of energy with a higher investment thesis in '25, '26, and '27.

That's what makes it a super cycle.

It's not just the demand for power, although the demand for power, including natural gas power, is, we think at this point pretty tremendous.

Thank you very much.

It's really helpful.

Thank you, and this concludes our Q&A session for today and I will turn it back to Todd Gleason for final comments.

Okay, thank you.

Thanks for your question and interest today.

Also, once again, thanks to our global teams for delivering incredible value to our customers as we continue to protect people, protect the environment, and protect our customers' investments in their industrial equipment.

We'll continue to be active meeting with investors, including presenting at the ROTH conference in Dana Point, California in March, meeting with investors in other meetings in March as well.

If you'd like to chat and meet, please contact your representative at conferences.

Lastly, we look forward to speaking with you when we release our first quarter results in late April.

So have a great rest of your day and for many of you, we'll talk to you later.

Thank you.

And thank you all for participating, and you may now disconnect.