CECO ENVIRONMENTAL CORP

Previous wording

The Company’s Condensed Consolidated Statements of Income for the three and nine months ended September 30, 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 months ended March 31, 2025 and 2024 reflect the consolidated operations of the Company and its subsidiaries.

Previous wording

CECO Environmental Corp. (“CECO,” “we,” “us,” or the “Company”) is a leading environmentally focused, diversified industrial company, serving the broad landscape of industrial air, industrial water and energy transition markets globally providing innovative technology and application expertise. CECO helps companies grow their business with safe, clean, and more efficient solutions that help protect people, the environment and industrial equipment. CECO solutions improve air and water quality, optimize emissions management, and increase the energy and process efficiency for highly engineered applications in power generation, midstream and downstream hydrocarbon processing and transport, chemical processing, electric vehicle production, polysilicon fabrication, semiconductor and electronics production, battery production and recycling, specialty metals, aluminum and steel production, beverage can manufacturing, and industrial and produced water and wastewater treatment, and a wide range of other industrial end markets.

Current wording

CECO Environmental Corp. (“CECO,” “we,” “us,” or the “Company”) is a leading environmentally focused, diversified industrial company, serving the broad landscape of industrial air, industrial water and energy transition markets globally providing innovative technology and application expertise through a collection of focused operating companies with niche leadership positions and well-established brands in fragmented markets with flexible business models and established supply chains. CECO helps companies grow their business with safe, clean, and more efficient solutions that help protect people, the environment and industrial equipment. CECO solutions improve air and water quality, optimize emissions management, and increase the energy and process efficiency for highly engineered applications in power generation, midstream and downstream hydrocarbon processing and transport, chemical processing, electric vehicle production, polysilicon fabrication, semiconductor and electronics production, battery production and recycling, specialty metals, aluminum and steel production, beverage can manufacturing, and industrial and produced water and wastewater treatment, and a wide range of other industrial end markets.

Previous 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.

Current wording

The senior management team monitors and manages the Company’s ability to operate effectively as the result of market pressures. Against the current backdrop of a rapidly evolving global commercial environment, we believe we are comparatively well-positioned as we execute and manufacture a majority of our business in the same regions in which we sell, with our cost and revenue bases largely aligned as a result. Recently, international trade has been impacted by geopolitical tariff considerations. To mitigate potential tariff-related impacts, we have worked strategically with customers and suppliers to optimize terms and pricing, sourcing locations, and logistics routes and schedules. While we will continue to take a proactive approach on our efforts to mitigate the impacts of tariffs, our business and results could be adversely affected by further policy developments. Additionally, 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 and/or inflationary pressures, our business, results and financial condition could be adversely affected.

Previous wording

The Company has provided the non-GAAP financial measures of non-GAAP operating income and non-GAAP operating margin as a result of items that the Company believes are not indicative of its ongoing operations. These include transactions associated with the Company’s acquisitions and the items described below in “Consolidated Results.” The Company believes that evaluation of its financial performance compared with prior and future periods can be enhanced by a presentation of results that exclude the impact of these items. The Company has incurred substantial expense and income associated with acquisitions. While the Company cannot predict the exact timing or amounts of such charges, it does expect to treat the financial impact of these transactions as special items in its future presentation of non-GAAP results.

Current wording

The Company has provided the non-GAAP financial measures of non-GAAP operating income and non-GAAP operating margin as a result of items that the Company believes are not indicative of its ongoing operations. These include transactions associated with the Company’s acquisitions, divestiture, and the items described below in “Consolidated Results.” The Company believes that these items are not necessarily indicative of the Company’s ongoing operations and their exclusion provides individuals with additional information to better compare the Company's results over multiple periods. The Company utilizes this information to evaluate its ongoing financial performance. The Company has incurred substantial expense and income associated with acquisitions. While the Company cannot predict the exact timing or amounts of such charges, it does expect to treat the financial impact of these transactions as special items in its future presentation of non-GAAP results.

Previous wording

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

Current wording

Our Condensed Consolidated Statements of Income for the three months ended March 31, 2025 and 2024 are as follows:

Previous wording

To compare operating performance between the three and nine months ended September 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.

Current wording

To compare operating performance between the three months ended March 31, 2025 and 2024, the Company has adjusted GAAP operating income to exclude (1) amortization of intangible assets, (2) acquisition and integration expenses, which include legal, accounting, and other expenses, (3) gain on the sale of the Global Pump Solutions business as discussed in Note 16, and (4) other non-recurring expenses, including restructuring expenses primarily relating to severance, facility exits, and associated legal expenses.

Previous wording

Amortization and earnout expense was $7.1 million for the nine months ended September 30, 2024 compared with $6.0 million for the nine months ended September 30, 2023. The increase in expense is attributable to an increase of $0.4 million in earnout expense and increases in definite lived asset amortization due to increased intangible assets attributable to current and prior year acquisitions.

Current wording

Amortization expense was $3.1 million for the three months ended March 31, 2025 compared with $2.2 million for the three months ended March 31, 2024. The increase in expense is attributable to increased intangible assets attributable to prior year acquisitions.

Previous wording

Operating income decreased $0.7 million to $7.2 million for the three months ended September 30, 2024 compared with operating income of $7.9 million for the three months ended September 30, 2023. The decrease in operating income is primarily attributable to the increase in selling and administrative expenses, partially offset by the increased gross profit.

Current wording

Operating income increased $54.2 million to $61.9 million for the three months ended March 31, 2025 compared with operating income of $7.7 million for the three months ended March 31, 2024. The increase in operating income is primarily attributable to the gain on the sale of the Global Pump Solutions business, partially offset by an increase in acquisition and integration expenses related to the Company's recent acquisitions.

Previous wording

Non-GAAP operating income was $11.0 million for the three months ended September 30, 2024 compared with $12.8 million for the three months ended September 30, 2023. Non-GAAP operating income as a percentage of sales decreased to 8.1% for the three months ended September 30, 2024 from 8.6% for the three months ended September 30, 2023.

Current wording

Non-GAAP operating income was $8.6 million for the three months ended March 31, 2025 compared with $10.2 million for the three months ended March 31, 2024. Non-GAAP operating income as a percentage of sales decreased to 4.9% for the three months ended March 31, 2025 from 8.1% for the three months ended March 31, 2024.

Previous wording

Interest expense decreased to $2.6 million in the three months ended September 30, 2024 compared with interest expense of $3.3 million for the three months ended September 30, 2023. The decrease in interest expense is primarily due to reduction of the debt balance.

Current wording

Interest expense increased to $6.2 million in the three months ended March 31, 2025 compared with interest expense of $3.4 million for the three months ended March 31, 2024. The increase in interest expense is primarily due to increased debt balances.

Previous wording

Income tax expense was $1.6 million for the three months ended September 30, 2024 compared with income tax expense of $0.6 million for the three months ended September 30, 2023. Income tax expense was $2.7 million for the nine months ended September 30, 2024 compared with income tax expense of $1.6 million for the nine months ended September 30, 2023. The effective income tax rate for the three months ended September 30, 2024 was 38.7% compared with 13.6% for the three months ended September 30, 2023. The effective income tax rate for the nine months ended September 30, 2024 was 21.8% compared with 13.4% for the nine months ended September 30, 2023. The effective income tax rates for the three and nine months ended September 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.

Current wording

Income tax expense was $18.6 million for the three months ended March 31, 2025 compared with income tax expense of $0.7 million for the three months ended March 31, 2024. The effective income tax rate for the three months ended March 31, 2025 was 33.8% compared with 24.2% for the three months ended March 31, 2024. The effective income tax rate for the three months ended March 31, 2025 and March 31, 2024 differs from the United States federal statutory rate. Our effective tax rate is affected by certain other permanent differences, including the gain on the sale of the Global Pump Solutions business, state income taxes, non-deductible incentive stock-based compensation, and differences in tax rates among the jurisdictions in which we operate.

Previous wording

Operating income for the Engineered Systems segment increased $11.8 million to $51.4 million for the nine months ended September 30, 2024 compared with $39.6 million for the nine months ended September 30, 2023. The increase is primarily attributable to increased net sales, partially offset by an increase in direct costs.

Current wording

Operating income for the Engineered Systems segment increased $2.4 million to $18.7 million for the three months ended March 31, 2025 compared with $16.3 million for the three months ended March 31, 2024. The operating income increase is attributable to higher gross profit related to increased net sales, partially offset by an increase in selling and administrative expense.

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 $437.5 million as of September 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.

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 $602.0 million as of March 31, 2025, from $540.9 million as of December 31, 2024. 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 18 to 24 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 September 30, 2024, the Company had working capital of $63.1 million, compared with $78.3 million at December 31, 2023. The ratio of current assets to current liabilities was 1.30 to 1.00 on September 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.

Current wording

At March 31, 2025, the Company had working capital of $197.4 million, compared with $86.3 million at December 31, 2024. The ratio of current assets to current liabilities was 1.71 to 1.00 on March 31, 2025, as compared with a ratio of 1.35 to 1.00 on December 31, 2024.

Previous wording

At September 30, 2024 and December 31, 2023, cash and cash equivalents totaled $38.7 million and $54.8 million, respectively. As of September 30, 2024 and December 31, 2023, $25.3 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 March 31, 2025 and December 31, 2024, cash and cash equivalents totaled $146.5 million and $37.8 million, respectively. As of March 31, 2025 and December 31, 2024, $30.5 million and $29.7 million, respectively, of our cash and cash equivalents were held by certain foreign subsidiaries, as well as being denominated in foreign currencies.

Previous wording

The Company’s outstanding borrowings in the United States consist of a senior secured term loan and a senior secured revolver loan with sub-facilities for letters of credit, swing-line loans and multi-currency loans (collectively, the “Credit Facility”). As of September 30, 2024 and December 31, 2023, the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility.

Current wording

The Company’s outstanding borrowings in the United States consist of a senior secured revolver loan with sub-facilities for letters of credit, swing-line loans and multi-currency loans (collectively, the “Credit Facility”). As of March 31, 2025 and December 31, 2024, the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility. In April 2025, the Company made payments of $98.7 million on its Credit Facility.

Previous wording

For the nine months ended September 30, 2024, $23.0 million of cash was provided by operating activities compared with $29.5 million provided by operations in the prior year period, representing $6.5 million decline in cash generated. Cash flow from operating activities in the first nine months of 2024 decreased year-over-year primarily due to timing of costs and billings on uncompleted contracts and payments of prepaid expenses, partially offset by decreases in accounts receivable.

Current wording

For the three months ended March 31, 2025, $11.7 million of cash was used in operating activities compared with $1.2 million provided by operations in the prior year period, representing a decrease of $12.9 million. Cash flow from operating activities in the first three months of 2025 had an unfavorable impact year-over-year primarily due to timing of project-related payments.

Previous wording

For the nine months ended September 30, 2024, net cash used in investing activities was $26.2 million compared with $53.6 million used in investing activities in the prior year period. For the nine months ended September 30, 2024, the $26.2 million cash used in investing activities was primarily the result of $15.0 million used for acquisitions as described in Note 15 and $11.2 million for acquisitions of property and equipment. In the prior year period, the $53.6 million cash used in investing activities was the result of $48.1 million used for acquisitions as described in Note 15 and $5.5 million for the acquisition of property and equipment.

Current wording

For the three months ended March 31, 2025, net cash provided by investing activities was $4.8 million compared with $2.7 million used in investing activities in the prior year period. For the three months ended March 31, 2025, the Company received $105.8 million related to the sale of the Global Pump Solutions business as discussed in Note 16, offset by $97.6 million used in the acquisition of Profire as discussed in Note 15. In the prior year period, $3.1 million cash used in investing activities was primarily the result of acquisitions of property and equipment.

Previous wording

For the nine months ended September 30, 2024, $14.5 million was used in financing activities compared with $25.2 million provided by financing activities in the prior year period, for a decrease of $10.7 million. For the nine months ended September 30, 2024, the primary uses of cash for financing activities were $7.8 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 $1.7 million on distributions to the noncontrolling interest, partially offset by net borrowings on the Company's revolving credit lines of $3.6 million. In the prior year period, the Company used $31.0 million for net borrowings on the Company’s revolving credit lines, primarily used to finance acquisitions, $2.5 million in repayment on long-term debt, $1.2 million on deferred payments for acquisitions, and $1.4 million on distributions to the noncontrolling interest. The Company also received $1.4 million of proceeds from the exercise of stock options and the employee stock purchase plan.

Current wording

For the three months ended March 31, 2025, $115.8 million was provided by financing activities compared with $6.5 million used in financing activities in the prior year period, for an increase of $122.3 million. For the three months ended March 31, 2025, cash provided by financing activities was driven by net borrowings of $120.1 million, primarily to fund the acquisition of Profire as discussed in Note 15, partially offset by $1.0 million of deferred consideration paid for acquisitions, representing the repayment of the remainder of the promissory note associated with the acquisition of Transcend Solutions in 2023. 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.

Previous wording

Management believes there have been no changes during the nine months ended September 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.

Current wording

Management believes there have been no changes during the three months ended March 31, 2025 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, 2024.

Previous wording

risks regarding the parties’ ability to complete the proposed acquisition of Profire in the anticipated timeframe or at all, the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement between the parties, the effect of the announcement or pendency of the proposed transaction on business relationships, operating results, and business generally, disruption of current plans and operations and potential difficulties in employee retention as a result of the proposed transaction, diversion of management’s attention from ongoing business operations, the outcome of any legal proceedings that may be instituted related to the proposed transaction, the amount of the costs, fees, expenses and other charges related to the proposed transaction, the risk that competing offers or acquisition proposals will be made and the achievement of the anticipated benefits of the acquisition.

Current wording

the effect of recent acquisitions and the divestiture of our Fluid Handling Business (together, the “transactions”) on business relationships, operating results, and business generally, disruption of current plans and operations and potential difficulties in employee retention as a result of the transactions, diversion of management’s attention from ongoing business operations in connection with the integration of recent acquisitions, the outcome of any legal proceedings that have been or may in the future be instituted related to the Profire transaction or other transactions, the amount of the costs, fees, expenses and other charges related to the transactions, the achievement of the anticipated benefits of transactions, our ability to successfully integrate acquired businesses and realize the synergies from acquisitions, as well as a number of factors related to our business, including the sensitivity of our business to economic and financial market conditions generally and economic conditions in CECO’s service areas;

Previous wording

the effect of growth on CECO’s infrastructure, resources and existing sales;

Current wording

the effect of growth on our infrastructure, resources and existing sales;

Previous wording

the potential for contract delay or cancellation as a result of on-going or worsening supply chain challenges;

Current wording

the potential for contract delay or cancellation as a result of on-going or worsening supply chain challenges, or other customer-driven project delays relating to supply chain challenges or other customer considerations;

Previous wording

our ability to optimize our business portfolio by identifying acquisition targets, executing upon any strategic acquisitions or divestitures, integrating acquired businesses and realizing the synergies from strategic transactions;

Current wording

our ability to optimize our business portfolio by identifying acquisition targets, executing upon any strategic acquisitions or divestitures, integrating acquired businesses and realizing 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.

Previous wording

Many of these risks are beyond management’s ability to control or predict. Should one or more of these risks or uncertainties materialize, or should any related assumptions prove incorrect, actual results may vary in material aspects from those currently anticipated. Investors are cautioned not to place undue reliance on such forward-looking statements as they speak only to our views as of the date the statement is made. Furthermore, the forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the Securities and Exchange Commission (the “SEC”), we undertake no obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

Current wording

Many of these risks are beyond management’s ability to control or predict. Should one or more of these risks or uncertainties materialize, or should any related assumptions prove incorrect, actual results may vary in material aspects from those currently anticipated. Investors are cautioned not to place undue reliance on such forward-looking statements as they speak only to our views as of the date the statement is made. Except as required under the federal securities laws or the rules and regulations of the Securities and Exchange Commission (the “SEC”), we undertake no obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise.