CECO ENVIRONMENTAL CORP

Previous wording

The Company’s Condensed Consolidated Statements of Income for the three months ended March 31, 2024 and 2023 reflect the consolidated operations of the Company and its subsidiaries.

Current wording

The Company’s Condensed Consolidated Statements of Income for the three and six months ended June 30, 2024 and 2023 reflect the consolidated operations of the Company and its subsidiaries.

Previous wording

The senior management team monitors and manages the Company’s ability to operate effectively as the result of market pressures. In particular, we are currently experiencing shortages of raw materials and inflationary pressures for certain materials and labor. We have secured raw materials from existing and alternate suppliers and have taken other mitigating actions to mitigate supply disruptions; however, we cannot guarantee that we will be able to continue to do so in the future. If we are unable to continue to mitigate the effects of these supply disruptions, our business, results and financial condition could be adversely affected.

Current wording

The senior management team monitors and manages the Company’s ability to operate effectively as the result of market pressures. We are monitoring key materials market indexes and trends and adjusting our material procurement strategies accordingly. We have secured raw materials from existing and alternate suppliers and have taken other mitigating actions to mitigate supply disruptions; however, we cannot guarantee that we will be able to continue to do so in the future. If we are unable to mitigate the effects of supply disruptions, our business, results and financial condition could be adversely affected.

Previous wording

Our Condensed Consolidated Statements of Income for the three months ended March 31, 2024 and 2023 are as follows:

Current wording

Our Condensed Consolidated Statements of Income for the three and six months ended June 30, 2024 and 2023 are as follows:

Previous wording

To compare operating performance between the three months ended March 31, 2024 and 2023, the Company has adjusted GAAP operating income to exclude (1) amortization of intangible assets, and earnout expenses, (2) acquisition and integration expenses, which include legal, accounting, and other expenses, and (3) restructuring expenses primarily relating to severance, facility exits, and associated legal expenses.

Current wording

To compare operating performance between the three and six months ended June 30, 2024 and 2023, the Company has adjusted GAAP operating income to exclude (1) amortization of intangible assets, and earnout expenses, (2) acquisition and integration expenses, which include legal, accounting, and other expenses, (3) executive transition expenses, including fees and expenses incurred in the search for and hiring of new executives, (4) restructuring expenses primarily relating to severance, facility exits, and associated legal expenses, and (5) asbestos litigation expenses, related to expected future settlement payments.

Previous wording

Net sales for the three months ended March 31, 2024 increased $13.7 million, or 12.2%, to $126.3 million compared with $112.6 million for the three months ended March 31, 2023. The increase is led by an increase of $12.5 million in our separation, filtration, and industrial water technologies. Approximately 92%, or $116.4 million, of the net sales for the three months ended March 31, 2024 is attributable to organic revenue, defined as revenue recorded subsequent to the twelve month period post-acquisition date.

Current wording

Net sales for the three months ended June 30, 2024 increased $8.3 million, or 6.4%, to $137.5 million compared with $129.2 million for the three months ended June 30, 2023. The increase is broad-based, led by an increase of $5.2 million related to our separation, filtration and industrial water technologies. Approximately 97%, or $132.8 million, of net sales for the three months ended June 30, 2024 is attributable to organic revenue, defined as revenue recorded subsequent to the twelve month period post-acquisition date.

Previous wording

Gross profit increased $10.2 million, or 29.2%, to $45.1 million in the three months ended March 31, 2024 compared with $34.9 million in the three months ended March 31, 2023. The increase in gross profit is primarily attributable to the increase in sales volume as described above, higher project margin mix and acquisitions of businesses with favorable margins. Gross profit as a percentage of sales increased to 35.7% in the three months ended March 31, 2024 compared with 31.0% in the three months ended March 31, 2023.

Current wording

Gross profit increased $19.5 million, or 26.1%, to $94.2 million in the six months ended June 30, 2024 compared with $74.7 million in the six months ended June 30, 2023. The increase in gross profit is primarily attributable to sales mix, project execution and flow through from higher booked margins, as well as continued benefits from sourcing and value engineering. Gross profit as a percentage of sales increased to 35.7% in the six months ended June 30, 2024 compared with 30.9% in the six months ended June 30, 2023.

Previous wording

Selling and administrative expenses were $34.9 million for the three months ended March 31, 2024 compared with $27.2 million for the three months ended March 31, 2023. The increase is primarily attributable to acquisitions during the prior year, and increased headcount in order to support our growth and expand our global footprint.

Current wording

Selling and administrative expenses were $36.4 million for the three months ended June 30, 2024 compared with $28.4 million for the three months ended June 30, 2023. The increase is primarily attributable to acquisitions during the prior year, workforce merit and other annual compensation adjustments, and investments in functional support for sourcing and manufacturing benefits.

Previous wording

Amortization and earnout expense was $2.2 million for the three months ended March 31, 2024 compared with $1.7 million for the three months ended March 31, 2023. The increase in expense is attributable to a $0.5 million increase in definite lived asset amortization due to increased intangible assets attributable to prior year acquisitions.

Current wording

Amortization and earnout expense was $4.4 million for the six months ended June 30, 2024 compared with $4.0 million for the six months ended June 30, 2023. The increase in expense is attributable to an increase of $0.7 million in earnout expense and an increase of $0.4 million in definite lived asset amortization due to increased intangible assets attributable to prior year acquisitions.

Previous wording

Operating income increased $2.2 million to $7.7 million for the three months ended March 31, 2024 compared with operating income of $5.5 million for the three months ended March 31, 2023. The increase in operating income is primarily attributable to the increase in net sales.

Current wording

Operating income increased $0.7 million to $9.3 million for the three months ended June 30, 2024 compared with operating income of $8.6 million for the three months ended June 30, 2023. The increase in operating income is primarily attributable to the increase in net sales.

Previous wording

Non-GAAP operating income was $10.2 million for the three months ended March 31, 2024 compared with $7.7 million for the three months ended March 31, 2023. Non-GAAP operating income as a percentage of sales increased to 8.1% for the three months ended March 31, 2024 from 6.8% for the three months ended March 31, 2023.

Current wording

Non-GAAP operating income was $12.6 million for the three months ended June 30, 2024 compared with $11.4 million for the three months ended June 30, 2023. Non-GAAP operating income as a percentage of sales increased to 9.2% for the three months ended June 30, 2024 from 8.8% for the three months ended June 30, 2023.

Previous wording

Interest expense increased to $3.4 million in the three months ended March 31, 2024 compared with interest expense of $2.4 million for the three months ended March 31, 2023. The increase in interest expense is primarily due to increased debt balances and rising interest rates.

Current wording

Interest expense increased to $6.7 million in the six months ended June 30, 2024 compared with interest expense of $6.2 million for the six months ended June 30, 2023. The increase in interest expense is primarily due to rising interest rates.

Previous wording

Income tax expense was $0.7 million for the three months ended March 31, 2024 compared with income tax expense of zero for the three months ended March 31, 2023. The effective income tax rate for the three months ended March 31, 2024 was 24.2% compared with 0.4% for the three months ended March 31, 2023. The effective income tax rate for the three months ended March 31, 2024 differs from the United States federal statutory rate. Our effective tax rate is affected by certain other permanent differences, including state income taxes, non-deductible incentive stock-based compensation, and differences in tax rates among the jurisdictions in which we operate.

Current wording

Income tax expense was $0.4 million for the three months ended June 30, 2024 compared with income tax expense of $1.0 million for the three months ended June 30, 2023. Income tax expense was $1.1 million for the six months ended June 30, 2024 compared with income tax expense of $1.0 million for the six months ended June 30, 2023. The effective income tax rate for the three months ended June 30, 2024 was 7.4% compared with 19.8% for the three months ended June 30, 2023. The effective income tax rate for the six months ended June 30, 2024 was 13.1% compared with 13.3% for the six months ended June 30, 2023. The effective income tax rates for the three and six months ended June 30, 2024 differ from the United States federal statutory rate. Our effective tax rate is affected by certain other permanent differences, including state income taxes, non-deductible incentive stock-based compensation, and differences in tax rates among the jurisdictions in which we operate. Additionally, we received a tax indemnification payment of $0.5 million, related to a prior year acquisition, in the second quarter of 2024.

Previous wording

Our Engineered Systems segment orders booked increased $3.5 million, or 3.6%, to $100.1 million during the three months ended March 31, 2024 compared with $96.6 million in the three months ended March 31, 2023. The increase is primarily attributable to increases of $6.7 million related to dampers and expansion joints and $5.0 million related to emissions management, partially offset by a decrease of $8.3 million related to fluid bed cyclones. Approximately 91%, or $87.8 million, of the orders for the three months ended March 31, 2024 is attributable to organic bookings, defined as orders recorded subsequent to the twelve month period post-acquisition date.

Current wording

Our Engineered Systems segment orders booked decreased $3.4 million, or 3.2%, to $100.6 million during the three months ended June 30, 2024 compared with $103.9 million in the three months ended June 30, 2023. The decrease is primarily driven by a decrease related to emissions management, offset by an increase related to dampers and expansion joints. Of the $100.6 million in orders booked during the three months ended June 30, 2024, $12.2 million is attributable to acquisitions that occurred during the preceding twelve month period.

Previous wording

Our Engineered Systems segment net sales increased $14.8 million to $89.3 million for the three months ended March 31, 2024 compared with $74.5 million for the three months ended March 31, 2023. The increase is led by an increase of $12.5 million in separation, filtration, and industrial water technologies. Approximately 89%, or $79.4 million, of the net sales for the three months ended March 31, 2024 is attributable to organic revenue

Current wording

Our Engineered Systems segment net sales increased $9.9 million to $97.4 million for the three months ended June 30, 2024 compared with $87.5 million for the three months ended June 30, 2023. The increase is led by an increase of $5.2 million related to our separation, filtration, and industrial water technologies. Approximately 95%, or $92.7 million, of net sales for the three months ended June 30, 2024 is attributable to organic revenue.

Previous wording

Operating income for the Engineered Systems segment increased $6.5 million to $16.3 million for the three months ended March 31, 2024 compared with $9.8 million for the three months ended March 31, 2023. The operating income increase is primarily attributable to higher gross profit related to increased sales of $14.8 million, partially offset by an increase in selling and administrative expense.

Current wording

Operating income for the Engineered Systems segment increased $5.2 million to $19.3 million for the three months ended June 30, 2024 compared with $14.1 million for the three months ended June 30, 2023. The increase is primarily attributable to increased net sales, partially offset by an increase in direct costs.

Previous wording

Our Industrial Process Solutions segment orders booked decreased $4.2 million, or 8.7%, to $45.3 million during the three months ended March 31, 2024 compared with $49.5 million in the three months ended March 31, 2023. The decrease is primarily attributable to a decrease of $10.8 million related to industrial air end markets, partially offset by an increase of $7.0 million related to duct fabrication and installation.

Current wording

Our Industrial Process Solutions segment orders booked decreased $18.7 million, or 31.8%, to $40.2 million during the three months ended June 30, 2024 compared with $58.9 million in the three months ended June 30, 2023. The decrease is primarily driven by a decrease related to industrial air end markets, offset by an increase related to duct fabrication and installation.

Previous wording

Our Industrial Process Solutions segment net sales decreased $1.1 million to $37.0 million for the three months ended March 31, 2024 compared with $38.1 million for the three months ended March 31, 2023. The decrease is primarily attributable to a decrease of $2.7 million related to industrial air end markets and $0.4 million related to fluid handling, partially offset by an increase of $2.5 million related to duct fabrication and installation.

Current wording

Our Industrial Process Solutions segment orders booked decreased $23.0 million, or 21.2%, to $85.5 million during the six months ended June 30, 2024 compared with $108.5 million in the six months ended June 30, 2023. The decrease is primarily driven by a decrease related to industrial air end markets, offset by an increase related to duct fabrication and installation.

Previous wording

Operating income for the Industrial Process Solutions segment increased $1.6 million to $7.1 million for the three months ended March 31, 2024 compared with $5.5 million for the three months ended March 31, 2023. The increase is primarily attributable to an increase of $2.0 million in gross profit related to decreased direct costs, primarily related to materials, partially offset by an increase in engineering and administrative expenses.

Current wording

Operating income for the Industrial Process Solutions segment increased $2.7 million to $12.8 million for the six months ended June 30, 2024 compared with $10.1 million for the six months ended June 30, 2023. The increase is primarily attributable to increased sales, partially offset by an increase in direct costs.

Previous wording

Operating expense for the Corporate and Other segment increased $5.8 million to $15.7 million for the three months ended March 31, 2024 compared with $9.9 million for the three months ended March 31, 2023. The increase is primarily attributable to investments made to support growth, and inflationary increases for wages and services.

Current wording

Operating expense for the Corporate and Other segment increased $5.6 million to $15.7 million for the three months ended June 30, 2024 compared with $10.1 million for the three months ended June 30, 2023. The increase is primarily attributable to investments made to support growth inclusive of acquisition and integration expenses, and inflationary increases for wages and services.

Previous wording

Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. Backlog increased to $389.5 million as of March 31, 2024, from $370.9 million as of December 31, 2023. Our customers may have the right to cancel a given order. Historically, cancellations have not been common. Backlog is adjusted on a quarterly basis for adjustments in foreign currency exchange rates. Substantially all backlog is expected to be delivered within 12 to 18 months. Backlog is not defined by GAAP and our methodology for calculating backlog may not be consistent with methodologies used by other companies.

Current wording

Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. Backlog increased to $390.9 million as of June 30, 2024 from $370.9 million as of December 31, 2023. Our customers may have the right to cancel a given order. Historically, cancellations have not been common. Backlog is adjusted on a quarterly basis for adjustments in foreign currency exchange rates. Substantially all backlog is expected to be delivered within 12 to 18 months. Backlog is not defined by GAAP and our methodology for calculating backlog may not be consistent with methodologies used by other companies.

Previous wording

At March 31, 2024, the Company had working capital of $75.3 million, compared with $94.0 million at December 31, 2023. The ratio of current assets to current liabilities was 1.38 to 1.00 on March 31, 2024, as compared with a ratio of 1.64 to 1.00 on December 31, 2023.

Current wording

At June 30, 2024, the Company had working capital of $74.1 million, compared with $78.3 million at December 31, 2023. The ratio of current assets to current liabilities was 1.36 to 1.00 on June 30, 2024, as compared with a ratio of 1.39 to 1.00 on December 31, 2023. The decrease in the ratio was driven by timing of cash receipts and payments to suppliers.

Previous wording

At March 31, 2024 and December 31, 2023, cash and cash equivalents totaled $46.6 million and $54.8 million, respectively. As of March 31, 2024 and December 31, 2023, $35.5 million and $38.5 million, respectively, of our cash and cash equivalents were held by certain non-United States subsidiaries, as well as being denominated in foreign currencies.

Current wording

At June 30, 2024 and December 31, 2023, cash and cash equivalents totaled $36.5 million and $54.8 million, respectively. As of June 30, 2024 and December 31, 2023, $28.6 million and $38.5 million, respectively, of our cash and cash equivalents were held by certain non-United States subsidiaries, as well as being denominated in foreign currencies.

Previous wording

For the three months ended March 31, 2024, $1.2 million of cash was provided by operating activities compared with $12.0 million used in operations in the prior year period, representing an improvement of $13.2 million. Cash flow from operating activities in the first three months of 2024 had a favorable impact year-over-year primarily due to timing of receipt of outstanding receivables.

Current wording

For the six months ended June 30, 2024, $7.9 million of cash was provided by operating activities compared with $0.6 million used in operations in the prior year period, representing $8.5 million additional cash generated. Cash flow from operating activities in the first six months of 2024 increased year-over-year primarily due to timing of costs and billings on uncompleted contracts, and improved management of payments to suppliers.

Previous wording

For the three months ended March 31, 2024, net cash used in investing activities was $2.7 million compared with $26.7 million used in investing activities in the prior year period. For the three months ended March 31, 2024, the $3.1 million cash used in investing activities was primarily the result of acquisitions of property and equipment. In the prior year period, the $26.7 million cash used in investing activities was the result of $24.1 million used for acquisitions as described in Note 15 and $2.5 million for the acquisition of property and equipment.

Current wording

For the six months ended June 30, 2024, net cash used in investing activities was $6.8 million compared with $28.1 million used in investing activities in the prior year period. For the six months ended June 30, 2024, the $6.8 million cash used in investing activities was primarily the result of acquisitions of property and equipment. In the prior year period, the $28.1 million cash used in investing activities was the result of $24.1 million used for acquisitions as described in Note 15 and $3.9 million for the acquisition of property and equipment.

Previous wording

For the three months ended March 31, 2024, $6.5 million was used in financing activities compared with $34.4 million provided by financing activities in the prior year period, for an increase of $27.9 million. For the three months ended March 31, 2024, the primary uses of cash for financing activities were $3.0 million to repurchase common stock, $2.6 million to repay long-term debt, $1.0 million of deferred consideration paid for acquisitions and $0.8 million on distributions to the noncontrolling interest, partially offset by $0.8 million in net borrowings. In the prior year period, the Company obtained $34.8 million for net borrowings on the Company’s revolving credit lines, primarily used to finance acquisitions, and $0.8 million in repayment on long-term debt. The Company also received $0.6 million of proceeds from the exercise of stock options.

Current wording

For the six months ended June 30, 2024, $16.6 million was used in financing activities compared with $29.5 million provided by financing activities in the prior year period, for a decrease of $12.9 million. For the six months ended June 30, 2024, the primary uses of cash for financing activities were $6.7 million to repay long-term debt, $5.0 million to repurchase common stock, $2.1 million of deferred consideration paid for acquisitions, $1.7 million for earnout payments and $1.1 million on distributions to the noncontrolling interest. In the prior year period, the Company used $31.9 million for net borrowings on the Company’s revolving credit lines, primarily used to finance acquisitions, $1.7 million in repayment on long-term debt, $0.9 million on deferred payments for acquisitions, and $0.6 million on distributions to the noncontrolling interest. The Company also received $1.2 million of proceeds from the exercise of stock options and the employee stock purchase plan.

Previous wording

Management believes there have been no changes during the three months ended March 31, 2024 to the items that the Company disclosed as its critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

Management believes there have been no changes during the six months ended June 30, 2024 to the items that the Company disclosed as its critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

our ability to successfully identify acquisition targets, integrate acquired businesses and realize the synergies from strategic transactions;

Current wording

our ability to successfully identify acquisition targets, integrate acquired businesses and realize the synergies from strategic transactions; and

Previous wording

unpredictability and severity of catastrophic events, including cybersecurity threats, acts of terrorism or outbreak of war or hostilities or public health crises, as well as management’s response to any of the aforementioned factors; and

Current wording

unpredictability and severity of catastrophic events, including cybersecurity threats, acts of terrorism or outbreak of war or hostilities or public health crises, as well as management’s response to any of the aforementioned factors.