Good morning, and welcome to the CECO Environmental Second Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Steven Hooser, Investor Relations. Please go ahead.

Thank you, and thank you for joining us for the CECO Environmental second 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 our earnings presentation, which is on our website at cecoenviro.com. 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. 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 are 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-Q for the quarter ended June 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 we make 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 provided a 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 Chief Executive Officer, Todd Gleason. Todd?

Thanks, Steven, and to our audience, thank you for your interest and continued support. We are a little more than halfway through the year and are very pleased we continue to meet or exceed the needs of our customers while making a positive impact on our communities and creating above-market shareholder value. As we outlined in today's press release, we delivered another strong quarter while maintaining our strategic investments to further advance our operating model as we pursue exciting growth opportunities across industrial air, industrial water and the energy transition. In the quarter, we delivered several impressive financial records, including our highest second quarter sales, gross profit, adjusted EBITDA dollars and excellent year-over-year margin expansion, all of which reflects the operating model we have developed and continue to advance to drive sustainable results. Now please turn to slide number three entitled Executive Summary, and I will highlight some key takeaways related to our second quarter performance. We delivered sales of $138 million in the quarter, a 6% improvement over last year, overcoming the impact of timing delays associated with a few customer-driven projects and the more drawn-out process, finalizing bookings in large project opportunities. If you recall, we signaled this in our first quarter earnings call, and although we grew sales approximately 9% sequentially, we expect to grow sequentially in the third quarter. Gross profit of $49 million was an increase of 23% over Q2 last year, and gross margins of almost 36% were up about 500 basis points year-over-year, further demonstrating the benefits we are realizing from our operational excellence efforts and our strong project execution. We expect that the benefits we are seeing from our sourcing and productivity initiatives will continue in subsequent quarters. Continuing with Q2 financial metrics, adjusted EBITDA of $16.1 million was up 18% and EBITDA margins of 11.7% were up approximately 120 basis points year-over-year. Margin expansion was attributable to higher volumes, positive mix and G&A efficiencies. Finally, adjusted EPS of $0.20 was up 33% year-over-year, benefiting from our continued improvements in operational performance and improving interest rates. So overall, very pleased with the financial records in the quarter and the balanced performance. Now please turn to Slide number 4. We will quickly review our first half of year results and how they set up CECO for a strong finish to 2024. Peter will add some commentary on these points as well. Let's start with orders and sales, the top line, so to speak. Orders for the first half were $286 million, which produced a positive book-to-bill of 1.08, but order volumes were down about 7% year-over-year. While we are pleased to have book-to-bill of almost 1.1, we are disappointed that our first half 2024 orders were down. Our order pipeline has never been stronger. And we continue to do a great job winning and booking small- to medium-sized projects, but we have witnessed a longer booking process associated with the large customer opportunities. In the first half of last year, we were not seeing this long duration time in the notification to order process, and we booked one large industrial layer order and one large energy order, each exceeding $25 million. We have similar opportunities in our current pipeline and had just one or two of these jobs booked this year, our year-to-date orders would have been up double digits. Instead, those large pending orders remain in our pipeline. And although we are confident our second half orders will reflect some of these large orders, we look at our pipeline over the next six to 18 months, we see a significant number of large jobs, especially in the energy transition in power markets, as the demands associated with electrification, data centers and general power consumption continue to ramp. So we remain optimistic in our full year bookings outlook and confident that we are well positioned for some large exciting project wins. Sales in the first half were $264 million, up 9% year-over-year, which is at or near the midpoint of our full year growth rate expectations. Additionally, if you look at our guidance for the full year, this first half sales level represents about 43% of that full year expectation. This is similar to previous year's run rate for the first half of the year. We expect stronger year-over-year sales levels in the second half, as our near record backlog produces more volume and project timing is more favorable. First half of the year adjusted EBITDA of more than $29 million was up 26% over the prior year's first half, and margins were up over 150 basis points. We had very strong income generation on our sales growth, which demonstrates the benefits we are getting from improving mix and our productivity initiatives. Adjusted EPS of $0.32 is up 28% year-over-year, benefiting from improving operating leverage and the positive trends we are starting to see from lower interest rates. Free cash flow generation was up nicely compared to last year as we continue to benefit from higher margins and our drive associated with working capital management improvements. And while we didn't deploy capital for acquisitions in the first half of 2024, we did maintain balance sheet health with low debt-to-EBITDA leverage ratio and repurchased $2 million of shares in the second quarter. Year-to-date, we have repurchased $5 million of our stock through opportunistic price targeting. We have approximately $8 million remaining on our multiyear stock buyback authorization. So a solid first half of 2024 with a lot of great progress building our sales pipeline, executing on projects to deliver for our customers and, of course, the very strong margin expansion and EPS growth. Please turn to slide number 5, and let's review our full year outlook. Typically, companies save guidance commentary for the end of their earnings report, but we felt it was important to incorporate our key themes in this first section. We are pleased to raise our full year guidance for both revenue and adjusted EBITDA. This is the second time we are raising full year guidance since we first introduced our 2024 outlook. You can see the initial guidance range in the column on the left side and how we have increased the guidance range over the past six months. With respect to full year revenues, we now expect a range of $600 million to $620 million, up about 12% at the midpoint. This compares to our previous sales range of $590 million to $610 million. With respect to adjusted EBITDA, we now expect a range of $68 million to $72 million, up about 21% at the midpoint. This compares to our previous adjusted EBITDA range of between $67 million to $70 million. And we continue to see free cash flow of approximately 50% to 70% of EBITDA for the full year. Our updated guidance range incorporates a few key factors. As I already mentioned, we entered the second half with a near-record backlog as well as a tremendous sales pipeline. These two top line factors give us visibility and confidence to deliver second half sales performance in line with this outlook. Our diverse and global sales pipeline includes meaningful project opportunities in a variety of energy-related sectors as well as ongoing strength in general industrial markets. And with respect to adjusted EBITDA, we expect to continue to produce solid margin expansion driven by more gains associated with productivity and improving business mix. We are balancing these positive items with a clear-eyed focus on items that could be challenges such as ongoing timing delays associated with larger projects and, of course, some unknown economic and political factors. Net-net, we feel good about raising guidance for the full year and continuing to invest for future growth. In addition to the items I just mentioned, I want to touch on M&A. As many of you know, we have been programmatic with respect to acquisitions over the past few years. While we did not complete a deal in the first six months this year, we advanced several attractive business transactions that fit our strategic focus on acquiring niche leadership businesses with outsized growth potential. As we shared in our press release today, I am pleased to announce we completed an acquisition this week, which is incorporated in our outlook. While the business will have a small financial impact on our full year 2024, we are very excited with the opportunities the acquired business brings to our portfolio. And while this is the only transaction incorporated in our guidance, we continue to advance our M&A pipeline and remain committed to adding winning businesses to advance our leadership positions. Please turn to slide number 6, where I will brief you on the recently acquired business of EnviroCare International. Yesterday, we completed the acquisition of the California-based EnviroCare International. EnviroCare has annualized sales of approximately $13 million, and we believe, as does the EnviroCare leadership, that with focused investment in utilization of our established global sales and operations teams, we can significantly increase their growth and profitability. The company has an established industrial air niche leadership position in markets including chemicals, food, mining and metals, cement products and municipal solid waste applications. As you can see on the slide, the business has 30% of sales in aftermarket, and we believe this is a growth opportunity within their installed base of over 1,000 systems. We also like the strong patent portfolio and decades of market and technical knowledge. In fact, we might suggest some of these smaller acquisitions could be called Aqua Resources, where you are acquiring resources. We believe the financials and growth profiles are very attractive on their own, but the resources are very strong, and we look forward to working closely with the team. So with that, I'll hand it over to Peter, who will walk us through additional information on our financial performance for the quarter.

Thank you, Todd, and good morning, everyone. Thank you for attending our earnings call today. Let's turn to slide 8, where I'll cover orders and backlog. Orders for the quarter of $141 million, while still significant and reflecting a book-to-bill ratio greater than 1, are down year-over-year approximately 13% on a tough comp, impacted by two significant orders, one in industrial air and one in energy transition worth over $70 million in aggregate that did not repeat. The result of the absence of such orders was that year-over-year TTM orders were flat and sequential TTM orders declined from the first quarter of 2024. Our commercial teams are pursuing a number of large projects that we expect to realize in the second half of 2024. And as we have communicated in our prior calls, we do not measure CECO bookings on a quarter-by-quarter basis, because they can be lumpy, and we prefer to use the trailing TTM metric and active pipeline size as KPIs, both which are trending positive. Shifting to the right-hand side of the slide, backlog has remained steady at near-record levels of $391 million, similar to the prior year and prior quarter with a book-to-bill ratio in the quarter of approximately 1.1 and strong booked margins, underpinning our confidence for continued strong gross profit performance in the second half of the year. We also expect that a large share of this backlog will be realized as revenue in the second half of the year, including a fair portion of the two very large jobs that Todd previously mentioned that booked last year in the second quarter. Now, let's talk about sales as we turn to Slide 9. Sales for the quarter of $138 million is a new second quarter sales record, up 6% year-over-year and up approximately 10% sequentially. While we are pleased with our sales performance in the quarter, the results could have been even stronger had we not experienced certain order booking delays as customers are taking longer to move from notification to formal purchase order placement and select delays in revenue recognition on projects currently underway. With our sales performance in the second quarter and for the first half of 2024, CECO's TTM sales are up $100 million from the year ago period, approximately 22%. With $264 million of first half sales, we have delivered approximately 47% of our total year results, which is in line with our 2022 and 2023 performance. I am very pleased with the strong double-digit TTM growth we have experienced and it is certainly a great way to enter the second half of the year. Now, please turn to Page 10, where I will cover earnings and margins, which is a story of continuous and steady improvements, keeping CECO on track for our mid-teens EBITDA margin target, which we have signaled we will achieve in the 2025, 2026 timeframe. Starting with gross profit, margins in the quarter were 35.6%, a record level for any second quarter, continuing a trend of mid-30s margins started in the fourth quarter of 2023, which reinforces that we are on the right path. The improvement year-over-year has been largely as a result of improved project execution, improved book margins, and the early benefits of our sourcing and operational efficiency initiatives. Also in the second quarter and the first half periods, our short-cycle brands and recent acquisitions, both of which tend to have higher margins, are contributing higher volumes and a greater share of revenues. Sequentially, gross profit has increased approximately $4 million to $49 million on $12 million of additional sales, realizing an incremental margin rate of 33% and a 9% improvement on a dollar basis. Year-over-year gross profit increased approximately $9 million or $9 million of incremental sales for a fantastic conversion result of nearly 100%. On a TTM basis, gross profit of $190 million is an increase of approximately $46 million, delivered on $100 million of additional sales or incremental conversion margins of 46% and a 32% increase on a dollar basis, resulting in a margin increase of 260 basis points to 33.6%, a number which is quite near our historical highs. And as you will recall from our first quarter conversation and fourth quarter results that that's where we expected to get back to a level in this year. Moving to adjusted EBITDA. Second quarter 2024 delivered $16.1 million, a record for any second quarter, benefiting from our record sales in the quarter and strong operational performance. This resulted in margins expanding by 120 basis points to 11.7%. The incremental conversion in the period was approximately 24% sequentially and 28% year-over-year, respectively. Our EBITDA conversion on higher sales was partially offset by continued investment in our sales, engineering, and project resources necessary to drive growth and operating excellence resources and information systems to drive back-office efficiencies and productivity to allow us to accelerate the integration of our acquisitions. Also, I'd like to bring to your attention that in the second quarter, CECO's annual merit adjustments become active, providing a little upward pressure on G&A expense. On a TTM basis, adjusted EBITDA of $64 million is an increase of approximately 40% or $18.2 million, which resulted in an 18.2% incremental margin rate, certainly on track to achieve the 20% margin target on incremental sales that we are targeting as we start to see accelerated benefits from our investments in our G&A processes, business system upgrades and functional resources from prior periods. The resulting TTM margin of 11.2% is an increase of about 140 basis points year-over-year and 20 basis points sequentially. Now moving to Slide 11, we'll quickly review our cash position and liquidity. CECO finished the quarter with gross debt of $125 million, lower by $8 million from year-end 2023, with net borrowings in the quarter of approximately $8 million. Net debt was $83 million at quarter end, higher by $10 million from year-end 2023 and flat year-over-year with CECO's leverage ratio moving up a tenth of turn to a modest 1.5x from year-end 2023, as our bank EBITDA metric adjusted slightly downwards in the quarter. Leverage moved down by 0.4 of a turn year-over-year with our capacity increasing slightly on a sequential basis to $120 million, a level which fully covers our planned capital deployment for the balance of the year, including M&A and capital investment. CECO finished the quarter with $37 million of global cash, reflecting a decrease of approximately $18 million from year-end 2023 and a decrease of $12 million year-over-year. The lower balance was the result of accelerated debt repayments in the quarter and the aforementioned stock buybacks we executed in the first half. In the quarter, we implemented our international cash pooling structure, which reduces structurally the amount of net cash that we believe we need to hold to support operations and meet our liquidity needs. This frees up cash for other corporate uses. Cash generated from operations was $8 million for the quarter and up approximately $9 million year-over-year, benefiting from improvements in working capital management. In the quarter, we funded CapEx investments of approximately $4 million to support continued growth, IT system upgrades, and cyber upgrades. Cash taxes and cash interest paid in the first half totaled $10.4 million versus $13 million in the year-ago period. That concludes my summary of CECO's second quarter 2024 financial results. The results in the quarter and the first half give me high confidence that we will sustain and improve on this level of performance sequentially throughout the remainder of 2024 on higher revenue generation and order rates, delivering on our commitments and the improved full-year outlook. And now I'd like to turn the stage back over to Todd for his concluding remarks.

Thanks, Peter. A lot of good details with respect to our financials and other insights into our performance. We're going to go to the final section and then also our final summary slide. Please turn to Slide number 13. Overall, our second quarter and year-to-date results produced sustainable top-line and bottom-line growth that we have been delivering for a number of quarters and also signaling in our guidance. We have navigated some delays in bookings and project deliveries. We continue to produce record financial results, and we are really demonstrating strong margin expansion, which is a major focus for our leadership teams. We feel great about our sales pipeline. There are tremendous opportunities in energy markets associated with what is proving to be a power super cycle, which is still on the horizon, but we're definitely closer to many of the jobs in our pipeline. And we have large project opportunities in industrial water and industrial air. We look forward to sharing more in the coming months and quarters as we believe the timing on these jobs is imminent. We are pleased to share the recent acquisition of EnviroCare, and we are excited how our M&A pipeline is advancing. We believe we have a proven track record of acquiring strategic growth businesses at accretive prices and then accelerating the growth and profitability of these acquired businesses. We look forward to investing in EnviroCare, working with their leadership team and maximizing its full potential. As a result of these factors, coupled with our view of the markets, we are pleased to have raised guidance for the second time this year, and we believe our revenue range of between $600 million to $620 million or up 12% at the midpoint and our full-year adjusted EBITDA range of between $68 million to $72 million, up 21% at the midpoint, each reflect our commitment to strong performance, while we invest for future growth. And a special thank you to all our CECO team members around the world that are working hard to deliver for our customers and providing solutions that protect people, protect the environment, and protect industrial equipment. And with that, we are now happy to open it up to any questions. I'll hand it back over to the operator, and then I will conclude with a few remarks.

We will now begin the question-and-answer session. Our first question comes from the line of Aaron Spychalla from Craig Hallam Capital Group.

Yes. Good morning, Todd and Peter. Thanks for taking the question. Maybe first for me, just on the pipeline expansion, the $4 billion, up 40% year-over-year. Can you talk about any areas in particular driving that strength? It sounds like there's still some large energy transition opportunities out there? And then just maybe a little bit more detail on some of the order delays and kind of confidence in some of those converting to orders here in the back half of the year.

Yeah. Good question, Aaron. Look, for us, we talk about it each quarter pretty consistently that certainly the quarterly performance of bookings is important and a focus of our organization. But us growing our pursuits and our sales pipeline in our minds, is really the best factor for us to drive that future growth. Look, I would say the largest opportunity set for us in the next six to 18 months, no doubt, in terms of the big projects, are in the energy and energy transition space. That doesn't mean that there aren't extremely important and large industrial water and industrial air opportunities of between $15 million to $30 million each. But those are fewer large jobs, but attractive. But in the energy space, we have been mentioning now for the last quarter maybe quarter and a half, that we are seeing many larger multiples of what we have seen in 2021, 2022, and 2023 of, again, mostly power-related opportunities, whether it be in natural gas or other power sources. And I would also say the reason we continue to refer to it as a supercycle, potentially, is that we're not seeing a slowdown in investments in renewables or in opportunities that could be down the pipeline like geothermal or nuclear. We would say everything's on the table to satisfy the demands of power globally. But for gas turbine power, we are in constant dialogue with our end customers with respect to jobs that they are booking, announcing or already been receiving but haven't yet announced. These are jobs that generally go on months and months of analysis, discussion, negotiation and review. So those are the areas where in our $4 billion of sales pipeline, we would suggest probably have the largest big project impact for us.

All right. Thank you for the color there. Another solid quarter of gross margin. Anything particular to note there one time? And then can you maybe talk about just the split between project execution, some of the initiatives that you're early in and just the short cycle mix there, and then how you're thinking about margin kind of cadence over the next few quarters as you execute on some of those larger projects you kind of talked about too?

Yeah. I'll make a couple of comments, and Peter will provide certainly more color. So we're pleased, and we've been, again, signaling our investment in operating excellence, project management and, of course, both acquisitions and organic better positioning our portfolio for higher gross margins and EBITDA margin results as just a core part of our portfolio. So all of those things are starting to really now produce great quarterly gross margins and EBITDA margins. We expect certainly to be expanding our EBITDA margins consistently on our path to maintain EBITDA margins, and that's the most important of the margin discussion topics for us, and we think for the investment community. That doesn't mean the gross margins we expect them to have a huge drop-off, but as revenue goes higher and the business mix of our gross margins in that revenue, we certainly expect gross margins will come down a little bit but still produce a very attractive year-over-year EBITDA margin expansion because of our ability to leverage the volumes and the G&A that those volumes can absorb. So for us, again, having higher gross margins year-over-year is a great driver of bottom line performance. And we're going to continue to keep the focus on productivity and business mix. But as our sales go higher in the second half of the year, we do expect gross margins will come down a bit versus the first half, but will continue to drive good EBITDA margin expansion.

Aaron, what we historically see is the very large projects booked with lower aggregate or lower average gross profit margins, but come with very little fixed cost addition. And so they have a powerful volume component in terms of delivery margin enhancement. We do track gross profit margins. Actually, we talk more about contribution margins internally because that is, to a great degree, what our project teams are seeing as they roll up their numbers because that takes all the project costs into consideration. And that's where we're seeing the operational efficiencies from buying better and executing faster where and when our customers are allowing us to move as fast as we would like to. And we're seeing those contribution margins typically across most of our regions expand sequentially and year-over-year.

Right. Okay. That makes sense. Thank you for the color and for taking the questions. I'll turn it over.

Yeah.

The mix is a powerful driver for us, Aaron, when we talk about large versus typical projects and short versus long, and it's that mix that converts to revenue that in these last two periods has been a tailwind for us.

Good morning.

Hey, Rob.

I would like to discuss the project delays a bit further. Are you noticing any broader trends that might be contributing to the delays, or are they mainly due to the specific circumstances of each project and the timeline not aligning with your initial expectations?

We recognize that small projects, defined as those over $1 million, and medium projects in the $3 million to $5 million, possibly up to $6 million range, are not experiencing any slowdown. In fact, our pipeline is expanding, and these projects are progressing through bid reviews, notifications, and purchase orders at a robust pace similar to last year. Our large customers are continuing with significant expansions and new builds. Economically, there are no indicators in the general industrial markets suggesting any major shifts in the investments businesses are making to support global operations, re-shoring, and ongoing industrial growth. However, for larger projects, we are noticing some challenges. We have a solid resource plan and are prepared, despite the challenges of retaining and recruiting talent. Yet, some larger projects are experiencing delays as the engineering, procurement, and construction firms, along with many suppliers, are organizing their resources for deployment. These delays are primarily due to the complexities of coordinating among various teams for these substantial projects. As we have mentioned over the past several months, resource availability is creating a slight pause in these larger projects. This might lead to a future quarter with unusually high bookings for many companies, potentially including ours. We have good visibility on these larger projects, and as we move into 2025, we see several opportunities where we are well-positioned to compete. Overall, we don't perceive significant economic changes at this time. There might be a brief pause as stakeholders await developments in regulatory matters related to the upcoming election, adjustments in interest rates, and decreases in commodity prices. All these factors contribute to the complexity and timeframe required to get everything in order for these large projects.

Okay. Yes, makes sense. Thank you. And then I think you talked before about, sort of, the size range of these projects. Could you remind us of what the sizes are sort of these projects in the range, I guess? And how do those flow through over what period of time does that drive revenue for you?

Rob, we are noticing that the size of large projects in our pipeline is increasing. Previously, we considered projects in the $20 million to $30 million range to be large, but now we are discussing opportunities in the $60 million to $100 million range. The scope and scale of what we are starting to address with energy customers, such as coal to gas conversions, data center backup power supply expansions, hydrogen supply projects, and support for electrolyzer plants, are becoming significantly larger. Therefore, the median size is increasing for us every quarter as we redefine what constitutes a large project. Historically, the impact of these projects has been positive; they are typically booked and last for about four to eight quarters, depending on how quickly the plant is commissioned and operational. We recognize revenue and generate consistent cash flow over multiple quarters. These projects usually follow a similar progression of milestones, and our teams manage them across various regions.

Okay. Thank you. Great. I will turn it over.

Thank you. One moment for our next question. Our next question comes from the line of Gerry Sweeney from Roth.

Good morning Todd, Peter, Steven. Thanks for taking my call. I'm just going to stick with power since everybody else's, but a slightly different question. Just curious as to maybe how many projects are out there and maybe it would be good to even understand what really differentiates you? And then finally, not surprised there's probably some resource delays there, et cetera. But are you seeing an actual margin opportunity since there are so many projects out there maybe you can start ratcheting up the margins on these projects?

I have a couple of questions to start with. First, regarding the volume of projects, we are pleased with the recent growth in our energy-related projects, specifically in power. Historically, we would pursue three to four large project opportunities, but now we are looking at around a dozen substantial jobs over the next year. This increase in opportunities is evident in areas like nuclear and geothermal, where specific certifications and experience are crucial. Many facilities in these sectors prefer established suppliers over unproven ones. Our capabilities in providing emissions, separation, filtration, and acoustic management solutions uniquely position us in this competitive landscape. The pipeline for power projects has significantly expanded, which seems sustainable over the long term. Other companies in the power sector, such as GE Vernova and Siemens Energy, have also indicated their readiness for incoming investments. Moreover, our acquisition of Wakefield has strengthened our industrial solutions for data centers and backup power, a business we've more than doubled in the last 18 months. We expect continued growth and opportunities that did not exist a year and a half ago. As for pricing and margins, while we anticipate healthy margins, our primary focus is on being a strong partner to our customers and delivering projects where our expertise is recognized. We aim to execute and manage projects efficiently, which will allow us to create value without solely emphasizing price increases. We expect our improved operations to lead to better productivity and potential margin improvements compared to previous years.

And Gerry, one area that Todd didn't include in his summary of the project pipeline is the addition of numerous nuclear opportunities. Nuclear has rebounded or recovered, shall I say, in the last three to four quarters, where it's now on many companies in many countries, radar screens. They're looking to have all potential sources of electricity to support electrification goals, decarbonization goals and support reindustrialization.

Got it. Todd, you mentioned earlier, when you're talking about pipeline, the size grew from maybe $20 million to $30 million to now $60 million to $100 million in terms of what your definition of a large project is. Is that project size getting larger? Or is that more of a function of maybe some recent acquisitions, bolt-ons that you're able to gain more wallet share or share of the project size?

It's the scope of the project. They are just larger machines, with more of them generating more gigawatts. It's all about the electrons, and I will keep emphasizing this every quarter until probably the end of the decade.

All about the electrons.

They're being produced in a way that suggests a significant opportunity ahead. We're confident in our approach as we have increased our investments and resources in India and the Middle East, supported by a strong team and dedicated employees. Our capabilities in Korea, East Asia, and Southeast Asia have expanded in ways we haven't experienced before, and we are enhancing our resources in Western Europe as well. We have consistently been well positioned in key markets, particularly in North America and the US power sector. Acquisitions do broaden our overall pipeline. Jobs that once were capped at $40 million to $50 million have now escalated to $60 million to $100 million, reflecting the increasing complexity and size of these projects. They involve not only the transition from coal to natural gas but also the integration of solar, wind, and other backup power solutions. These projects are now more multifaceted and larger in scope. There is a growing demand for data centers, digitization, and increased comfort through air conditioning and heating, which indicates a significant demand cycle.

Got it. Okay. I've probably taken up too much time as it is, but we have a follow-up. So thanks, guys.

Thanks.

One moment for our next question. Our next question comes from the line of Jim Ricchiuti from Needham and Company.

Hi. Thanks, good morning. Maybe moving to some of the more mundane aspects. You talked about customer-driven delays. And I'm wondering if you could maybe size that for us? And do you expect these delays to catch up on some of these delays in Q3? Or is that potentially slip into Q4?

Revenue recognition-related delays primarily due to customer reviews, approvals, or necessary design milestones for issuing purchase orders to our suppliers are simply postponements of revenue. This will carry over into the third and fourth quarters. Therefore, it is not a loss of revenue, but rather a deferral of revenue. We anticipate that this will positively impact the third quarter and possibly the fourth quarter. The time customers take to transition from notification to formal award results in a much larger revenue concentration in the latter half of the year. We recognized 43% of the full year outlook in the first half, suggesting that 57% will occur in the second half. These customer dynamics contribute to this distribution but are not the sole factor, as we have projects that were intentionally planned for this timeline.

And Peter, just the way you're seeing the business, is there the potential that it's even more weighted into Q4 this year, just given what...

Historically, our business experiences strong performance in the fourth quarter. The first quarter is usually our weakest, while the second and third quarters are more robust, often alternating in strength. This pattern results in lighter earnings in the first quarter and stronger performance in the fourth quarter, leading to greater EBITDA in that period.

EnviroCare, congrats on that issues about $13 million of annualized $24 revenue. Is that mix similar to your mix, where 55%, 60% of the revenues come in the back half? Or is it more linear?

The business is currently more evenly distributed as we have assessed their project and revenue recognition processes. With 30% of the revenue coming from aftermarket, which remains stable, and a small service component that is also consistent, approximately 65% of their revenue is reliable throughout the year. While there may be slight fluctuations each quarter, these will not significantly impact the overall revenue balance. However, we expect increased revenue in the third and fourth quarters since we did not see any revenue from Envirocare in the first seven months of the year, which will intensify the shift. Nonetheless, this is not expected to have a noticeable effect next year.

Last question, regarding the M&A pipeline. It has been somewhat quiet, but things seem to be picking up. How would you describe the current environment? Also, what is the potential for pursuing more of these smaller deals that appear to be quite appealing?

The current market is very active, with significant activity in private businesses, sponsor-owned businesses, and corporate carve-outs. The level of market activity is much higher compared to a year ago and even surpasses that of the first quarter. We are being very selective; although we're receiving numerous inquiries, we proceed with very few as we filter them through our valuation process. The pipeline is active, pricing conditions are favorable, and the quality of assets continues to impress us. This is all positive. We have done an excellent job, and our business leaders have successfully built strong relationships. We advance our discussions from there, and we see exciting opportunities that could benefit both the companies we want to acquire and us, provided they align with our operating model and culture, allowing for a mutually beneficial transaction. We are committed to investing in the businesses we acquire and are enthusiastic about these growth opportunities. However, we also firmly believe that if a situation does not yield a win-win outcome or if there isn't a good cultural match, we will choose to walk away amicably. We have opted out of several potential deals over the past year, which has slowed down our pipeline's progress towards achieving more favorable outcomes. Our focus remains steadfast; we won't stray from our strategy merely to make an acquisition. While we recognize that other companies might feel pressured to close transactions, we believe in our ability to be selective.

Okay. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Bobby Brooks from Northland Capital Markets.

Hey. Good morning guys. So you called in the prepared remarks, that an improving business mix is going to be a tailwind for margins going forward. Could you just discuss what that improving mix contains? I know short cycle is a tailwind for margins. But it seems like the mix would tilt more towards long-cycle stuff going forward, just given the commentary. And I know that, that traditionally.

Bobby, I think the statement was that it benefited us in the first half.

Well, but if you do look year-over-year?

I think it's important to address your question about the improving mix. You're correct to note that this context relates to year-over-year comparisons. For the third and fourth quarters, we expect the investments and productivity established in the first half of the year will continue to create a favorable mix going forward. You also mentioned that we might still have a larger share of long-cycle projects compared to short-cycle ones, which typically wouldn't benefit the mix. However, we anticipate that there will be more short-cycle revenue in absolute terms year-over-year, and our long-cycle business tends to carry higher margins. This is influenced by several specific factors. For instance, consider the jobs we have in separation filtration with Transcend, which offers excellent aftermarket services. Additionally, our industrial water businesses, which we've been developing both organically and through acquisitions, have been yielding higher margins and greater sales of consumables and replacement parts. These are continuous trends in an upward direction. There are also smaller but margin-rich areas in our portfolio, like applications for the U.S. Navy and the Department of Defense, which tend to be weighted toward the second half. Some of the energy projects we've secured, despite being smaller, also have higher margins, particularly in our Thermal Acoustics sector. While other applications may be classified as long-cycle, they align well with our operational strengths and yield higher margins compared to typical long-cycle projects. So, in summary, it's not a single element at play. Rather, numerous moderately sized factors contribute positively to our margins year-over-year. That remains our main focus. Although we report quarterly revenues and results, we view the business in a longer cycle, ranging from six to twelve months. Still, we are very much focused on margin expansion year-over-year, as it falls squarely within our expertise.

Understood. That's great information. Just to follow up on that, you mentioned in response to Aaron's question about gross margins that positioning the portfolio for higher margins is important. Is that related to what you just discussed, or could you clarify what better positioning the portfolio means in terms of achieving higher margins? Additionally, what plans does CECO have to accomplish this?

Yes, I believe the short answer is yes. It's all part of our operating model that will continue to drive margin expansion. Over the past year, we have been investing in our platforms and essential corporate resources to seize opportunities and achieve operational excellence. This includes focusing on the classic components of supply chain management, purchasing strategies, and ensuring we secure proper pricing while adding personnel and resources to enhance our operations. In the past six months, we've conducted more lean boot camps than ever before, emphasizing safety, quality, delivery, and cost across all our facilities. The principles of lean management are now being applied more consistently throughout our operations. These incremental improvements, like reducing costs associated with poor quality and minimizing scrap and rework, positively impact our margins as we see higher delivered margins than we expected in our bookings. For us, it’s about accumulating small victories rather than aiming for extraordinary outcomes, including through acquisitions. This year, we are incentivizing our team differently to focus more on margin expansion. In the past few years, our emphasis has leaned more toward growth—both organic and inorganic—which is why we project low-double-digit growth primarily driven by organic efforts. However, this year, we are slightly shifting our focus towards driving margin expansion, with more staff specifically incentivized for productivity and margin improvements. Our strategy evolves and advances rather than undergoes drastic changes. This year's advancements aim to apply more pressure on achieving our goal of 15% EBITDA margins, which we believe can be realized within our organization while continuing both organic and inorganic initiatives to reach those mid-teen EBITDA margins. We are committed to a gradual, sustainable approach rather than seeking rapid results, focusing on building momentum each quarter.

Understood. And just last one for me. So, you guys mentioned $4 billion. The pipeline is now $4 billion. That's a $500 million increase from the last call. I was just curious on how much of that increase is new jobs entering the pipeline? And how much of that is due to the delays in projects that you guys have called out that in normal circumstances likely would have already been booked or just decided?

We have at least $50 million worth of jobs that we initially didn't expect to have at the beginning of the year, but we thought they could materialize in the second quarter. The total could be much higher, potentially $100 million worth of jobs, which have now extended into the second half of the year. This is a tangible figure because we are aware of the specific projects involved. We see a growth from $3.5 billion less than a year ago to $4 billion, which reflects our current projects in industrial water that we didn't previously have, along with our global expansion in markets like India, providing an additional $50 million in potential opportunities. Some markets we mentioned had a strong performance in 2021, but activities have paused in 2022 and 2023, with signs of recovery now in various general industrial sectors. So, there are ups and downs, but I would say that $50 million to $100 million is connected to the jobs that have been pushed out. The remainder is due to our ongoing expansion into new geographical markets and the resurgence of certain markets, particularly as we approach the second half of the year and into 2025.

Terrific. Thank you for the call. I appreciate the time. I'll return back to the queue.

Thank you. Great, Bobby. Thanks.

Thank you. One moment for our next question. Our next question comes from the line of Amit Dayal from H.C. Wainwright.

Thank you. Good morning guys. With respect to this lower interest rate environment you're anticipating, how should we think about sales cycles maybe accelerating for you? Like how does the business change, you've done very well through this higher interest rate environment with interest rates potentially hitting lower, is that opportunity set even bigger for you? Like how should we think about it?

It's a great question. If I had to choose an answer, I'd say yes to it being a driver, but more accurately, I lean towards no. I don’t believe our customers' purchasing decisions, their capital expenditures, growth investments, or their commitment to safety and the environment are significantly influenced by current interest rate levels. If interest rates were to rise sharply or drop quickly, then perhaps there would be some effect. At this moment, I don’t see much change in our markets due to interest rates. However, there are certainly delays and some future opportunities that may not have materialized yet, which could be influenced by interest rates. There is a sense that interest rates might decrease. Additionally, factors related to the presidential election could be causing budgetary hesitations as people await various decisions and changes in administrative policy. These factors are having a modest influence on certain projects and decisions, but they aren’t hugely impactful. We recognize and acknowledge their presence. As CEO, I often say that if high interest rates are stable, we will manage that. If commodity costs are high but stable, we'll handle it. Lower interest rates or commodity costs are advantageous, and we'll take that. The real issue comes from instability and uncertainty; that's what leads to hesitation. Everyone is essentially waiting to see what will happen. If we could get clarity on future interest rates from the Fed, that would be beneficial for our planning. Similarly, definitive information on forthcoming policies would be helpful. Thus, for most of us, knowing that the market will be more stable in the next six to twelve months is the most significant point of interest.

And Matt, lower interest rates that are stable is a positive. Todd talked about the market impact. I'll talk about the impact on CECO. We have 100% of our credit is burial rate debt. Every reduction in interest rate is an improvement in our cash generation. The more cash we have and the lower the interest burden we have, the more likely we are to consider new investments, additional acquisitions, investments in growth or alternate uses of that cash. It certainly makes the EPS environment more positive for us as a company. So we have our micro impact, I can define. The macro impact, positive, but I don't think, to Todd's point, it's a big swinger.

Understood. Appreciate the color, guys. That's all I have. Thank you so much.

Thanks, Amit.

This concludes our question-and-answer session. I would like to turn the conference back over to Todd Gleason for any closing remarks.

Thank you. And I'd like to thank everyone for your great questions and, of course, the interest in our information today. Also, importantly, thanks to our CECO global teams. They continue to deliver incredible value for our customers as we protect people, protect the environment and protect our customers' investments in their industrial equipment. Also, once again, I'd like to welcome the great team at EnviroCare International to team CECO. Looking forward to getting to know each of you and working with you closely. We're going to continue to be active in the working and being out and available with investors. So we hope to see you as we present and have one-on-one meetings at the Midwest Ideas Conference in Chicago in late August, as well as the Jefferies Industrial and Lake Street Conferences in September. We'll be out in other opportunities to meet with investors across the country at various times. So we hope to see you if we're in your town. If you'd like to meet or please contact your representative at those conferences or reach out to us, and we'd be happy to set up a discussion. With that, I hope you have a great day, a great week and we appreciate, again, your time on the call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.