CECO — Q2 2026 Financial Report Analysis

CECO Environmental's second quarter of 2026 has two stories running through it. The first is demand: orders tripled to $798.5 million, driven by emissions and exhaust equipment for large natural-gas power plants, and the order backlog more than doubled to $1.82 billion. The second is the $2.26 billion purchase of Thermon, a maker of industrial heating systems, which closed on June 1. Its one-time costs pushed the quarter to a GAAP net loss of $34.8 million (-$0.80 per share), compared with a $9.5 million profit a year ago, even though the business underneath earned more than it did in Q2 2025.

At a glance

• Orders of $798.5 million, up 192%, almost three times the $285.0 million of revenue the company recognised in the quarter. Most of what CECO will sell over the next year or two has already been booked.
• Revenue of $285.0 million, up 54%, but $49.6 million of it came from one month of Thermon. Without Thermon, sales grew about 27% (our calculation from the filing's segment table), led by power-generation projects.
• GAAP net loss of $34.8 million versus adjusted net income of $21.5 million. The $56 million gap is almost all deal costs: $45.5 million of acquisition and integration expense, a $9.5 million accounting charge on Thermon's inventory, and higher amortization of acquired intangible assets.

Results versus a year ago

n/m = not meaningful (the result swung from profit to loss). Adjusted EBITDA is earnings before interest, tax, depreciation and amortization, with the company's one-off items also removed.

Where the growth came from

CECO now reports three segments. Thermon became the new Thermal Solutions segment, so there is no year-ago comparison for it.

Engineered Systems is the engine. The 10-Q says the sales increase "is led by backlog execution on large scale natural gas power generation projects." Segment orders rose 200% to $672.1 million, which management attributes to energy and power technologies: "investments in energy infrastructure and growth in midstream and downstream markets have resulted in increased demand for emissions, and acoustics products." The segment's profit margin held exactly at 20.7%, so the drop in company-wide gross margin did not come from this segment.

Industrial Process Solutions grew slowly and earned less. Sales rose $4.8 million on "project execution on semiconductor and industrial ducting backlog," but segment profit fell $1.8 million, which the filing puts down to "project mix", meaning a larger share of lower-margin jobs. Orders here did pick up, up 81% to $90.3 million on "higher demand for the Company's scrubber technologies in semiconductor and international markets."

Thermon's first month was close to break-even. It added $49.6 million of sales and a $5.3 million net loss. That loss includes $3.6 million of amortization on the intangible assets CECO recorded when it bought the company, so it does not show Thermon's underlying profitability. One month is too short to judge the business on.

The Thermon deal in numbers

The purchase changed the size and shape of the company in a single quarter:

• Price: total preliminary consideration of $2,264.1 million. That includes $141.7 million used to repay Thermon's debt and a mix of cash and new CECO shares. $1,210.5 million of it was booked as goodwill, the premium paid over the fair value of Thermon's identifiable assets.
• Balance sheet: total assets rose from $893.8 million at December 31 to $3,733.6 million. Debt rose from $212.4 million to $727.7 million, against cash of $61.1 million. The amended credit agreement allows net debt of up to 4.5 times adjusted EBITDA, stepping down to 4.25x on June 30, 2027 and 4.0x on December 31, 2027.
• Shares: shares outstanding rose from 35.6 million to 58.4 million (+64%) as Thermon holders received CECO stock. Q2 per-share figures used a weighted average of only 43.3 million shares because the new shares existed for one month. From Q3 the full count applies, so per-share growth will look much weaker than profit growth.
• Combined size: on the filing's pro forma basis (as if the two companies had been combined since January 2025), Q2 sales were $359.8 million versus $294.3 million, up 22%. That is a fairer measure of underlying growth than the 54% headline.

What the headline numbers hide

• The GAAP loss is driven by deal costs. Acquisition and integration expense was $45.5 million, compared with almost nothing a year ago. It includes $22.6 million of Thermon transaction costs and $8.9 million of separation pay for legacy Thermon executives. The $9.5 million "inventory valuation adjustment" also cuts gross profit: purchase accounting required Thermon's inventory to be recorded at market value, so goods sold in June carried an inflated cost. Without that charge, gross margin was 33.7%. That is still below last year's 36.2%, which the 10-Q attributes to "project mix and the timing of project completions within the power generation and industrial solutions end markets." So about 3.3 points of the 5.9-point margin decline is the accounting charge and the other 2.5 points is real mix.
• Adjusted figures exclude things that will keep recurring. The adjusted numbers add back amortization ($7.8 million this quarter, versus $2.9 million) and foreign-exchange losses. Amortization will keep rising now that Thermon's intangible assets are on the books, and the company's own disclosure says similar items "may continue" to affect results. Read the 96% jump in adjusted EPS as a better guide to operations than the GAAP loss, but not as cash in hand.
• Cash flow was negative before the deal adjustments. Operating cash flow was -$19.4 million in the quarter and -$32.4 million in the first half, and free cash flow was -$24.3 million in Q2. CECO's "adjusted free cash flow" of $53.2 million adds back $77.5 million of cash payments tied to the Thermon transaction. That adjustment is reasonable in principle, but it is the company's own definition.
• Receivables jumped, offset by customer billings. Excluding acquired balances, accounts receivable grew by $180.2 million in the first half. Over the same period, "billings in excess of costs", which is cash billed to customers ahead of the work being done, rose by $180.9 million. The two largely cancel out. The pattern suggests CECO is invoicing large project milestones in advance, and those invoices are not yet collected. If collections lag, cash conversion will lag too.
• Interest costs are about to rise. Interest expense almost doubled to $9.1 million "primarily due to increased debt balances," and the larger debt was in place for only one month of the quarter.
• Internal controls are still flagged. Management concluded that disclosure controls were not effective as of June 30, 2026. Two previously reported material weaknesses remain open: integration of the Verantis business acquired in December 2024, and the accuracy of information used in balance-sheet reconciliations. The filing says neither has caused a misstatement. It matters more now that a third large acquisition has to be integrated.
• The order surge depends on one market. The company's risk factors cite "the concentration of our orders and backlog in large-scale power generation projects." Customers can cancel orders, but the 10-Q says cancellations have "historically" not been significant.

Takeaway: Ignore the GAAP loss, which is a one-quarter accounting effect of the Thermon deal. What matters is the backlog: $1.82 billion, about 6.4 times this quarter's revenue, with "substantially all" expected to convert within 12–24 months. The risks have shifted from finding demand to delivering it: executing the power-plant backlog at margin, collecting cash on those projects, and paying down $728 million of new debt while absorbing 64% more shares.

Outlook

Management raised the bottom of its full-year 2026 ranges (which include Thermon from June 1):

Only the low ends moved; the tops are unchanged. First-half revenue was $490.9 million and adjusted EBITDA $60.5 million, so the guidance implies $809–884 million of revenue and $140–165 million of adjusted EBITDA in the second half. That is more than double the first half's EBITDA, and both figures sit well above the first half's combined (pro forma) sales of $714.0 million. A full six months of Thermon accounts for part of the step-up. The rest depends on converting power-generation backlog and on synergies, which the CEO said are "proceeding ahead of our pre-acquisition integration objectives." He also flagged "the situation in the Middle East as well as certain inflationary items" as things the company is monitoring.

Our read: the revenue range looks well covered by a $1.82 billion backlog, most of which management expects to deliver within 12 months. The EBITDA range is less certain, because gross margin ex the accounting charge (33.7%) is still running below last year's 36.2% on project mix. What to watch in Q3 (likely reported in early-to-mid November): whether gross margin recovers toward the mid-30s, Thermon's first full-quarter segment margin, whether operating cash flow turns positive as the billed milestones are collected, and how quickly net debt falls relative to EBITDA under the 4.5x covenant.

One administrative change: on October 2, 2026, CECO said it will move its primary stock listing from Nasdaq to the Texas Stock Exchange. Trading on TXSE is expected to begin October 19, 2026, under the same ticker, CECO.

This is CECO's first report on the site, so there is no previous outlook to check against.