CECO Environmental Reports Third Quarter 2024 Results

Company Produces Record Q3 Bookings and Highest-Ever Backlog
Q3 Revenue and Income Impacted by Customer-Driven Project Delays
Announced the Acquisition of Profire Energy (Nasdaq: PFIE) for $125 Million
Completed Acquisition of WK, in Early October
Updates FY24 Guidance and Introduces 2025 Outlook

DALLAS, Oct. 29, 2024 (GLOBE NEWSWIRE) -- CECO Environmental Corp. (Nasdaq: CECO) ("CECO"), (the “Company”), a leading environmentally focused, diversified industrial company whose solutions protect people, the environment, and industrial equipment, today reported its financial results for the third quarter of 2024. In addition, CECO, announces it has completed the acquisition of WK, an Industrial Air company headquartered in Germany, in early October. Additionally, the Company announced the acquisition of Profire Energy, Inc. (NASDAQ: PFIE) (“Profire”), a leader in burner management technology and combustion control systems that provide mission-critical combustion automation and control solutions and services to improve environmental efficiency, safety and reliability for industrial thermal applications globally.

Third Quarter Summary(1)

  • Orders of $162.3 million, up 12 percent
  • Backlog of $437.5 million
  • Revenue of $135.5 million, down 9 percent
  • Gross profit of $45.3 million, up 5 percent; Gross margin of 33.4 percent, up 460 basis points
  • Net income of $2.1 million, down 36 percent; non-GAAP net income of $5.2 million, down 32 percent
  • GAAP EPS (diluted) of $0.06; non-GAAP EPS (diluted) of $0.14, down 36 percent
  • Adjusted EBITDA of $14.3 million, down 5 percent
  • Free cash flow of $11.1 million, down $17.4 million

Subsequent to the Quarter

  • Completes the acquisition of WK in early October
  • Announces the acquisition of Profire; expected to close by January 2025

(1) All comparisons are versus the comparable prior year period, unless otherwise stated.
Reconciliations of GAAP (reported) to non-GAAP measures are in the attached financial tables.

Todd Gleason, CECO’s Chief Executive Officer commented, “While our third quarter produced very strong orders and a new record backlog, we were disappointed that we fell short of the anticipated quarterly revenue and income outlook as a handful of customer-driven delays in larger projects could not be overcome by continued progress with margin expansion and other actions. These delayed projects are expected to begin activity over the coming months and the impact is reflected in our updated full year 2024 and newly introduced full year 2025 outlook. We are excited to have been awarded several large energy transition and general industrial orders in the quarter and we anticipate this trend to continue as we are forecasting a very strong fourth quarter bookings period.”

Third quarter operating income was $7.2 million, down $0.7 million or 9 percent when compared to $7.9 million in the third quarter 2023. On an adjusted basis, non-GAAP operating income was $11.0 million, down $1.8 million or 14 percent when compared to $12.8 million in the third quarter of 2023. Net income was $2.1 million in the quarter, down $1.2 million or 36 percent when compared to $3.3 million in the third quarter of 2023. Non-GAAP net income was $5.2 million, down $2.4 million or 32 percent when compared to $7.6 million in the third quarter of 2023. Adjusted EBITDA of $14.3 million, reflecting a margin of 10.6 percent, was down 5 percent compared to $15.1 million in the third quarter of 2023. Free cash flow in the quarter was $11.1 million, down $17.4 million compared to $28.5 million in the third quarter of 2023.

Completes Acquisition of WK

CECO today announced that in early October it completed the acquisition of Germany-based, WK – a leading industrial air business with well-established global customers and a strong Asia-Pacific presence, based out of Singapore. WK designs, engineers and supplies a broad range of cutting-edge technical equipment and systems for process and environmental and surface technology applications, as well as innovative sustainable solutions. This acquisition strengthens CECO’s footprint and capabilities within the industrial processing solutions segment and further advances the Company’s Industrial Air and leadership positions. WK is expected to deliver full year 2024 sales of approximately $15 million with the potential for high-teen EBITDA margins.

“I would like to welcome the WK organization to our portfolio of leading industrial air solutions businesses,” said Mr. Gleason. “Together we will advance our joint capabilities to better serve global customers while penetrating markets with solutions and services from across our diverse enterprise.”

Announces Acquisition of Profire Energy, Inc. (Nasdaq: PFIE)

“I am excited that today we announced the acquisition of Profire in an all-cash transaction that we expect will close in January 2025. Profire expects to generate approximately $60 million in revenues with adjusted EBITDA margins of approximately 20 percent in the full year 2024. With an installed base approaching 100,000 burner management systems and a growing industrial market product offering, we look forward to accelerating their global market expansion and introducing their high-efficiency solutions to more customers in the industrial air and water markets. We are confident the increased scale and combined corporate organizations will generate meaningful efficiencies and synergies. The addition of Profire is another important step in our ongoing execution of programmatic M&A and we expect it will further advance our position as the leading environmental solutions provider in industrial markets,” added Mr. Gleason.

Updates 2024 Full Year Guidance

The Company updated its 2024 full year revenue guidance to reflect revenue between $575 and $600 million, up approximately 10 percent year over year at the midpoint of the range, and adjusted EBITDA between $65 to $70 million, up approximately 17 percent year over year, at the midpoint of the range. The updated expected full year guidance compares to the previous outlook for revenues of between $600 to $620 million and adjusted EBITDA of between $68 to $72 million. The Company expects 2024 full year bookings guidance to reflect a book to bill rate of or in excess of 1.2x, up from a previous range of 1.05x to 1.1x. The Company maintains its full year outlook for free cash flow of 50% to 70% of adjusted EBITDA.

“Our updated full year 2024 guidance essentially mirrors the initial outlook we provided as we entered 2024. As previously mentioned, unfortunately, the customer-driven delays associated with a handful of larger projects impacted our ability to hit the raised guidance we issued mid-year. This is the first time we have reduced guidance in company history, and although this is disappointing for our short-term results, we remain very pleased with our bookings, margin expansion progress and overall execution. Additionally, the revenue and associated income from the 2024 project delays slide into upcoming quarters, so we remain focused on execution and controlling factors we can influence,” said Mr. Gleason.

Introduces 2025 Full Year Guidance

The Company introduced its 2025 full year guidance to reflect revenue between $700 and $750 million, up approximately 25 percent at the midpoint of the range, and adjusted EBITDA between $90 and $100 million, up approximately 40% at the midpoint of the range. The Company expects full year free cash flow of between 50% to 70% of adjusted EBITDA.

Mr. Gleason concluded, “Our full year 2025 outlook reflects the visibility we have with our record backlog, ongoing strong bookings, 2024 related project push outs, and the impact from already completed acquisitions and the pending transaction with Profire. We continue to drive an aggressive operating model that supports strong organic growth, coupled with steady margin expansion and additions from accretive and strategic acquisitions.”

EARNINGS CONFERENCE CALL

A conference call is scheduled for today at 8:30 a.m. ET to discuss the third quarter 2024 financial results. Please visit the Investor Relations portion of the website (https://investors.cecoenviro.com) to listen to the call via webcast. The conference call may also be accessed by visiting https://edge.media-server.com/mmc/p/4ui844vi.

A replay of the conference call will be available on the Company’s website for a period of one year. The replay may also be accessed by visiting https://edge.media-server.com/mmc/p/4ui844vi.

ABOUT CECO ENVIRONMENTAL

CECO Environmental is a leading environmentally focused, diversified industrial company, serving the broad landscape of industrial air, industrial water and energy transition markets globally providing innovative solutions 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 energy efficiency for highly-engineered applications in power generation, midstream and downstream hydrocarbon processing and transport, electric vehicle production, polysilicon fabrication, semiconductor and electronics, battery production and recycling, specialty metals and steel production, beverage can, and water/wastewater treatment and a wide range of other industrial end markets. CECO is listed on Nasdaq under the ticker symbol "CECO." Incorporated in 1966, CECO’s global headquarters is in Dallas, Texas. For more information, please visit www.cecoenviro.com.

Company Contact:
Peter Johansson
Chief Financial and Strategy Officer
888-990-6670
investor.relations@onececo.com

Investor Relations Contact:
Steven Hooser and Jean Marie Young
Three Part Advisors, LLC
214-872-2710
investor.relations@onececo.com

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
      
(in thousands, except per share data)(unaudited)
September 30, 2024
  December 31, 2023 
ASSETS     
Current assets:     
Cash and cash equivalents$38,700  $54,779 
Restricted cash 226   669 
Accounts receivable, net of allowances of $7,214 and $6,460 100,111   112,733 
Costs and estimated earnings in excess of billings on uncompleted contracts 68,500   66,574 
Inventories, net 37,760   34,089 
Prepaid expenses and other current assets 27,143   11,769 
Prepaid income taxes 3,826   824 
Total current assets 276,266   281,437 
Property, plant and equipment, net 32,306   26,237 
Right-of-use assets from operating leases 24,690   16,256 
Goodwill 220,026   211,326 
Intangible assets – finite life, net 51,547   50,461 
Intangible assets – indefinite life 9,598   9,570 
Deferred income taxes 287   304 
Deferred charges and other assets 6,792   4,700 
Total assets$621,512  $600,291 
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Current liabilities:     
Current portion of debt$10,580  $10,488 
Accounts payable 92,316   87,691 
Accrued expenses 43,762   44,301 
Billings in excess of costs and estimated earnings on uncompleted contracts 64,801   56,899 
Notes payable 1,700   2,500 
Income taxes payable    1,227 
Total current liabilities 213,159   203,106 
Other liabilities 10,336   12,644 
Debt, less current portion 122,818   126,795 
Deferred income tax liability, net 9,622   8,838 
Operating lease liabilities 19,696   11,417 
Total liabilities 375,631   362,800 
Commitments and contingencies (See Note 14)     
Shareholders’ equity:     
Preferred stock, $.01 par value; 10,000 shares authorized, none issued     
Common stock, $.01 par value; 100,000,000 shares authorized, 34,979,018 and
34,835,293 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively
 349   348 
Capital in excess of par value 253,590   254,956 
Retained earnings (accumulated loss) 1,692   (6,387)
Accumulated other comprehensive loss (14,374)  (16,274)
Total CECO shareholders' equity 241,257   232,643 
Noncontrolling interest 4,624   4,848 
Total shareholders' equity 245,881   237,491 
Total liabilities and shareholders' equity$621,512  $600,291 


CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
      
 Three months ended September 30,  Nine months ended September 30, 
(in thousands, except share and per share data)2024  2023  2024  2023 
Net sales$135,513  $149,390  $399,367  $391,134 
Cost of sales 90,247   106,269   259,921   273,303 
Gross profit 45,266   43,121   139,446   117,831 
Selling and administrative expenses 34,262   30,439   105,636   86,082 
Amortization and earnout expenses 2,617   1,968   7,036   5,988 
Acquisition and integration expenses 1,210   1,386   1,876   2,210 
Executive transition expenses    1,258      1,417 
Restructuring expenses (10)  217   544   217 
Asbestos litigation expenses       225    
Income from operations 7,187   7,853   24,129   21,917 
Other expense, net (398)  (216)  (2,589)  (670)
Interest expense (2,648)  (3,340)  (9,315)  (9,498)
Income before income taxes 4,141   4,297   12,225   11,749 
Income tax expense 1,602   585   2,664   1,577 
Net income 2,539   3,712   9,561   10,172 
Noncontrolling interest (453)  (382)  (1,482)  (1,140)
Net income attributable to CECO Environmental Corp.$2,086  $3,330  $8,079  $9,032 
Earnings per share:           
Basic$0.06  $0.10  $0.23  $0.26 
Diluted$0.06  $0.09  $0.22  $0.26 
Weighted average number of common shares outstanding:           
Basic 34,966,625   34,771,742   34,910,165   34,612,163 
Diluted 36,488,788   35,301,429   36,322,690   35,215,843 


CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
   
 Nine months ended September 30, 
(in thousands)2024  2023 
Cash flows from operating activities:     
Net income$9,561  $10,172 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:     
Depreciation and amortization 10,536   8,769 
Unrealized foreign currency gain (loss) 201   (138)
Fair value adjustment to earnout liabilities 400   296 
Gain on sale of property and equipment 135   43 
Debt discount amortization 357   271 
Share-based compensation expense 5,790   3,096 
Bad debt expense 404   154 
Inventory reserve expense 850   526 
Other 77    
Changes in operating assets and liabilities, net of acquisitions:     
Accounts receivable 9,653   (25,961)
Costs and estimated earnings in excess of billings on uncompleted contracts (1,498)  6,006 
Inventories (4,305)  (10,395)
Prepaid expense and other current assets (18,059)  (8,228)
Deferred charges and other assets (2,755)  (268)
Accounts payable 15,387   21,162 
Accrued expenses (550)  7,868 
Billings in excess of costs and estimated earnings on uncompleted contracts 7,286   19,330 
Income taxes payable (1,140)  261 
Other liabilities (9,330)  (3,473)
Net cash provided by operating activities 23,000   29,491 
Cash flows from investing activities:     
Acquisitions of property and equipment (11,237)  (5,511)
Net cash paid for acquisitions (14,954)  (48,102)
Net cash used in investing activities (26,191)  (53,613)
Cash flows from financing activities:     
Borrowings on revolving credit lines 58,400   94,200 
Repayments on revolving credit lines (54,800)  (63,200)
Repayments of long-term debt (7,843)  (2,478)
Payments on finance leases and financing liability (692)  (680)
Deferred consideration paid for acquisitions (2,050)  (1,247)
Earnout payments (1,672)  (1,496)
Proceeds from employee stock purchase plan and exercise of stock options 846   1,435 
Noncontrolling interest distributions (1,707)  (1,364)
Common stock repurchased (5,000)   
Net cash (used in) provided by financing activities (14,518)  25,170 
Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,187   703 
Net (decrease) increase in cash, cash equivalents and restricted cash (16,522)  1,751 
Cash, cash equivalents and restricted cash at beginning of period 55,448   46,585 
Cash, cash equivalents and restricted cash at end of period$38,926  $48,336 
Cash paid during the period for:     
Interest$9,714  $8,531 
Income taxes$6,779  $8,633 


CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
      
 Three months ended September 30,  Nine months ended September 30, 
(in millions, except ratios)2024  2023  2024  2023 
Operating income as reported in accordance with GAAP$7.2  $7.9  $24.1  $21.9 
Operating margin in accordance with GAAP 5.3%  5.3%  6.0%  5.6%
Amortization and earnout expenses 2.6   2.0   7.1   6.0 
Acquisition and integration expenses 1.2   1.4   1.9   2.2 
Restructuring expenses    0.2   0.5   0.2 
Executive transition expenses    1.3      1.4 
Asbestos litigation expenses       0.2    
Non-GAAP operating income$11.0  $12.8  $33.8  $31.7 
Non-GAAP operating margin 8.1%  8.6%  8.5%  8.1%


 Three months ended September 30,  Nine months ended September 30, 
(in millions, except share data)2024  2023  2024  2023 
Net income as reported in accordance with GAAP$2.1  $3.3  $8.1  $9.0 
Amortization and earnout expenses 2.6   2.0   7.1   6.0 
Acquisition and integration expenses 1.2   1.4   1.9   2.2 
Restructuring expenses    0.2   0.5   0.2 
Executive transition expense    1.3      1.4 
Asbestos litigation expense       0.2   - 
Foreign currency remeasurement 0.3   0.8   1.8   (0.1)
Tax (benefit) expense of adjustments (1.0)  (1.4)  (2.8)  (2.4)
Non-GAAP net income$5.2  $7.6  $16.8  $16.3 
Depreciation 1.4   1.2   4.0   3.5 
Non-cash stock compensation 1.9   1.1   5.8   3.1 
Other expense, net 0.1   (0.6)  0.8   0.8 
Interest expense 2.6   3.3   9.3   9.5 
Income tax expense 2.6   2.0   5.6   4.0 
Noncontrolling interest 0.5   0.4   1.5   1.2 
Adjusted EBITDA$14.3  $15.0  $43.8  $38.4 
            
Earnings per share:           
Basic$0.06  $0.09  $0.23  $0.26 
Diluted$0.06  $0.10  $0.22  $0.26 
            
Non-GAAP net income per share:           
Basic$0.15  $0.22  $0.48  $0.47 
Diluted$0.14  $0.22  $0.46  $0.46 


 Three months ended September 30,  Nine months ended September 30, 
(in millions)2024  2023  2024  2023 
Net cash provided by operating activities$15.1  $30.1  $23.0  $29.5 
Acquisitions of property and equipment (4.0)  (1.6)  (11.2)  (5.5)
Free cash flow$11.1  $28.5  $11.8  $24.0 
                

NOTE REGARDING NON-GAAP FINANCIAL MEASURES

CECO is providing certain non-GAAP historical financial measures as presented above as we believe that these figures are helpful in allowing individuals to better assess the ongoing nature of CECO’s core operations. A "non-GAAP financial measure" is a numerical measure of a company's historical financial performance that excludes amounts that are included in the most directly comparable measure calculated and presented in accordance with GAAP.

Non-GAAP operating income, non-GAAP net income, non-GAAP operating margin, non-GAAP earnings per basic and diluted share, adjusted EBITDA and free cash flow, as we present them in the financial data included in this press release, have been adjusted to exclude the effects of amortization expenses for acquisition-related intangible assets, contingent retention and earnout expenses, restructuring expenses primarily relating to severance and legal expenses, acquisition and integration expenses which include retention, legal, accounting, banking, and other expenses, foreign currency remeasurement and other nonrecurring or infrequent items and the associated tax benefit of these items. Management 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. Management utilizes this information to evaluate its ongoing financial performance. Our financial statements may continue to be affected by items similar to those excluded in the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP financial measures should not be construed as an inference that all such costs are unusual or infrequent.

Non-GAAP operating income, non-GAAP net income, non-GAAP operating margin, non-GAAP earnings per basic and diluted share, adjusted EBITDA and free cash flow are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of CECO’s results as reported under GAAP. Additionally, CECO cautions investors that non-GAAP financial measures used by the Company may not be comparable to similarly titled measures of other companies.

In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, non-GAAP operating income, non-GAAP net income, non-GAAP operating margin, non-GAAP earnings per basic and diluted share, adjusted EBITDA and free cash flow stated in the tables above are reconciled to the most directly comparable GAAP financial measures.

Non-GAAP measures presented on a forward-looking basis were not reconciled to the comparable GAAP financial measures because the reconciliation could not be performed without unreasonable efforts. The GAAP measures are not accessible on a forward-looking basis because we are currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP measures for these periods but would not impact the non-GAAP measures. Such items may include amortization expenses for acquisition-related intangible assets, contingent retention and earnout expenses, restructuring expenses primarily relating to severance and legal expenses, acquisition and integration expenses which include retention, legal, accounting, banking, and other expenses, foreign currency remeasurement and other nonrecurring or infrequent items and the associated tax benefit of these items. The unavailable information could have a significant impact on our GAAP financial results.

SAFE HARBOR

Any statements contained in this Press Release, other than statements of historical fact, including statements about management’s beliefs and expectations, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, and should be evaluated as such. These statements are made on the basis of management’s views and assumptions regarding future events and business performance. We use words such as “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “will,” “plan,” “should” and similar expressions to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Potential risks and uncertainties, among others, that could cause actual results to differ materially are discussed under “Part I – Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and may be included in subsequently filed Quarterly Reports on Form 10-Q, and include, but are not limited to: the parties’ ability to complete the proposed Profire transactions 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 Profire transaction agreement between the parties, the effect of the announcement or pendency of the proposed Profire 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 Profire transaction, diversion of management’s attention from ongoing business operations as a result of the Profire transaction, the outcome of any legal proceedings that may be instituted related to the proposed Profire transaction, the amount of the costs, fees, expenses and other charges related to the proposed Profire transaction, the risk that competing offers or acquisition proposals will be made, the achievement of the anticipated benefits of the Profire transaction, the ability of Profire to achieve its 2024 earnings guidance, our ability to successfully integrate acquired businesses and realize the synergies from acquisitions, the sensitivity of our business to economic and financial market conditions generally and economic conditions in our service areas; dependence on fixed price contracts and the risks associated therewith, including actual costs exceeding estimates and method of accounting for revenue; the effect of growth on our infrastructure, resources, and existing sales; the ability to expand operations in both new and existing markets; the potential for contract delay or cancellation as a result of on-going or worsening supply chain challenges; liabilities arising from faulty services or products that could result in significant professional or product liability, warranty, or other claims; changes in or developments with respect to any litigation or investigation; failure to meet timely completion or performance standards that could result in higher cost and reduced profits or, in some cases, losses on projects; the potential for fluctuations in prices for manufactured components and raw materials, including as a result of tariffs and surcharges, and rising energy costs; inflationary pressures relating to rising raw material costs and the cost of labor; the substantial amount of debt incurred in connection with our strategic transactions and our ability to repay or refinance it or incur additional debt in the future; the impact of federal, state or local government regulations; our ability to repurchase shares of our common stock and the amounts and timing of repurchases, if any; our ability to successfully realize the expected benefits of our restructuring program; our ability to successfully identify acquisition targets, integrate acquired businesses and realize the synergies from strategic transactions; and the unpredictability and severity of catastrophic events, including cyber security 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. 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 the 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, we undertake no obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise. 


Primary Logo