CECO ENVIRONMENTAL REPORTS FOURTH QUARTER AND FULL YEAR 2022 RESULTS

March 6, 2023

Strong Fourth Quarter Results Capstone High Growth, Transformational Full Year 2022
Company Raises Full Year 2023 Outlook Off Record Backlog Levels

DALLAS, March 6, 2023 /PRNewswire/ -- CECO Environmental Corp. (Nasdaq: CECO) ("CECO"), a leading environmentally focused, diversified industrial company whose solutions protect people, the environment, and industrial equipment, today reported its financial results for the fourth quarter and full year results of 2022.

CECO Environmental Corp. Logo (PRNewsfoto/CECO Environmental Corp.) (PRNewsfoto/CECO Environmental Corp.)

Highlights for the Quarter(1)

  • Orders of $150.5 million, up 66 percent; Backlog of $311.7 million, up 46 percent
     
  • Revenue of $116.4 million, up 24 percent
     
  • Net income of $8.3 million, up $7.1 million; non-GAAP net income of $7.4 million, up $4.0 million
     
  • GAAP EPS (diluted) of $0.24, up $0.21; non-GAAP EPS (diluted) of $0.21, up $0.11
     
  • Adjusted EBITDA of $13.0 million, up 38 percent
  • Free cash flow of $9.0 million, up $6.8 million with 69% conversion from EBITDA

Highlights for the Year(1)

  • Orders of $526.6 million, up 46 percent
     
  • Revenue of $422.6 million, up 30 percent
     
  • Net income of $17.4 million, up $16.0 million; non-GAAP net income of $25.9 million, up $16.1 million
     
  • GAAP EPS (diluted) of $0.50, up $0.46; non-GAAP EPS (diluted) of $0.74, up $0.46
     
  • Adjusted EBITDA of $42.2 million, up 65 percent
     
  • Free cash flow of $27.2 million, up $15.9 million with 64% conversion from EBITDA

(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.

"We finished the year by delivering excellent results in the fourth quarter, highlighted by the second highest orders level in our company's history and exiting the year with record backlog.  I am especially pleased with the balance we continue to see across our portfolio as well as the fact that our orders and sales growth is accompanied by strong operating margin expansion and free cash flow generation," said CECO Chief Executive Officer, Todd Gleason.

Fourth quarter operating income was $8.4 million, up $3.1 million or 58 percent when compared to $5.3 million in the fourth quarter 2021. On an adjusted basis, non-GAAP operating income was $11.0 million, up $3.3 million or 43 percent when compared to $7.7 million in the fourth quarter of 2021. Net income was $8.3 million in the quarter, up $7.1 million compared to $1.2 million in the fourth quarter 2021. Non-GAAP net income was $7.4 million, up $4.0 million compared to $3.4 million in the fourth quarter 2021. Adjusted EBITDA of $13.0 million, reflecting a margin of 11.2 percent, was up 38 percent compared to $9.4 million in the fourth quarter 2021. Free cash flow in the quarter was $9.0 million, up $6.8 million compared to $2.2 million in the fourth quarter of 2021. The Company repurchased $0.5 million of shares in the fourth quarter as part of the previously announced $20 million share repurchase program.

Full year operating income was $22.2 million, up $12.3 million or 124 percent when compared to $9.9 million in 2021. On an adjusted basis, non-GAAP operating income was $34.8 million, up $15.7 million or 82 percent when compared to $19.1 million in 2021. Net income was $17.4 million in the year, up $16.0 million compared to $1.4 million in 2021. Non-GAAP net income was $25.9 million, up $16.1 million compared to $9.8 million in 2021. Adjusted EBITDA of $42.2 million, reflecting a margin of 10.0 percent, was up 65 percent compared to $25.6 million in 2021. Free cash flow was $27.2 million, up $15.9 million compared to $11.3 million in 2021. The Company repurchased $7.0 million of shares in 2022 as part of the previously announced $20 million share repurchase program.

"Throughout the year we delivered outstanding results.  Each quarter our teams drove strong growth in orders, revenue and income.  We had our two largest bookings quarters in company history which yielded record backlog as we exited 2022.  These tremendous organic growth results were bolstered by our programmatic M&A transactions which will add significant strategic capabilities to our industrial air, industrial water and energy transition programs.  Additionally, we repurchased $7 million of shares in the year which reflects our steady capital allocation focus," added Gleason. 

Company Financial Outlook: Raises Full Year 2023 Outlook

The Company raises the top-end of the full year adjusted EBITDA range from $45 million to $48 million to a new range of between $45 and $50 million, up approximately 13 percent at the midpoint year over year. The Company also raises its full year 2023 revenue range from $450 to $475 million to a new range of $460 to $485 million, up approximately 13 percent at the midpoint year over year.  

"We are in excellent position to deliver another year with strong top-line and bottom-line growth.  We enter 2023 with a record backlog, robust commercial programs to maintain a large sales pipeline, stronger operating excellence initiatives to drive margin expansion and our programmatic M&A process sourcing strategic and accretive transactions.  We are excited to deliver another tremendous year for our customers, partners and shareholders," concluded Gleason. 

EARNINGS CONFERENCE CALL

A conference call is scheduled for today at 8:30 a.m. ET to discuss the fourth quarter and full year 2022 financial results. Please visit the Investor Relations portion of the website (www.cecoenviro.com) to listen to the call via webcast. The conference call may also be accessed by dialing 888-346-4547 (Toll-Free) within the U.S., or +1-412-317-5251 (Toll-Required) outside the U.S.

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 dialing 877-344-7529 (Toll-Free) within the U.S., or +1-412-317-0088 (Toll-Required) outside the U.S. and entering access code 3422414.

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 or Gary Guyton
Three Part Advisors, LLC
214-872-2710
investor.relations@onececo.com

 

             

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

   

December 31,

 

(dollars in thousands, except share data)

 

2022

   

2021

 

                                                                                ASSETS

           

Current assets:

           

Cash and cash equivalents

 

$

45,522

   

$

29,902

 

Restricted cash

   

1,063

     

2,093

 

Accounts receivable, net

   

83,086

     

74,991

 

Costs and estimated earnings in excess of billings on uncompleted contracts

   

71,016

     

51,429

 

Inventories, net

   

26,526

     

17,052

 

Prepaid expenses and other current assets

   

12,174

     

10,760

 

Prepaid income taxes

   

1,271

     

2,784

 

Total current assets

   

240,658

     

189,011

 

Property, plant and equipment, net

   

20,828

     

15,948

 

Right-of-use assets from operating leases

   

11,373

     

10,893

 

Goodwill

   

183,197

     

161,183

 

Intangible assets – finite life, net

   

35,251

     

25,841

 

Intangible assets – indefinite life

   

9,508

     

9,629

 

Deferred income taxes

   

829

     

505

 

Deferred charges and other assets

   

3,077

     

3,187

 

Total assets

 

$

504,721

   

$

416,197

 

                              LIABILITIES AND SHAREHOLDERS' EQUITY

           

Current liabilities:

           

Current portion of debt

 

$

3,579

   

$

2,203

 

Accounts payable and accrued expenses

   

107,198

     

84,081

 

Billings in excess of costs and estimated earnings on uncompleted contracts

   

32,716

     

28,908

 

Income taxes payable

   

3,207

     

1,493

 

Total current liabilities

   

146,700

     

116,685

 

Other liabilities

   

15,129

     

14,826

 

Debt, less current portion

   

107,625

     

61,577

 

Deferred income tax liability, net

   

8,666

     

8,390

 

Operating lease liabilities

   

8,453

     

8,762

 

Total liabilities

   

286,573

     

210,240

 

Commitments and contingencies

           

Shareholders' equity:

           

Preferred stock, $.01 par value; 10,000 shares authorized, none issued

   

     

 

Common stock, $.01 par value; 100,000,000 shares authorized, 34,381,668 and 35,028,197 shares issued and outstanding at December 31, 2022
  and 2021, respectively

   

344

     

350

 

Capital in excess of par value

   

250,174

     

252,989

 

Accumulated loss

   

(19,298)

     

(36,715)

 

Accumulated other comprehensive loss

   

(17,996)

     

(12,070)

 

Total CECO shareholders' equity

   

213,224

     

204,554

 

Noncontrolling interest

   

4,924

     

1,403

 

Total shareholders' equity

   

218,148

     

205,957

 

Total liabilities and shareholders' equity

 

$

504,721

   

$

416,197

 

 

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

 

     
   

Three months ended December 31,

   

Year ended December 31,

 

(dollars in thousands, except share and per share data)

 

2022

   

2021

   

2022

   

2021

 

Net sales

 

$

116,402

   

$

93,589

   

$

422,627

   

$

324,140

 

Cost of sales

   

78,706

     

65,054

     

294,402

     

223,218

 

Gross profit

   

37,696

     

28,535

     

128,225

     

100,922

 

Selling and administrative expenses

   

26,667

     

20,903

     

93,473

     

81,797

 

Amortization and earnout expenses

   

1,870

     

1,940

     

6,809

     

7,789

 

Acquisition and integration expenses

   

721

     

461

     

4,546

     

818

 

Executive transition expenses

   

     

     

1,161

     

29

 

Restructuring expenses (income)

   

     

(23)

     

75

     

632

 

Income from operations

   

8,438

     

5,254

     

22,161

     

9,857

 

Other income (expense), net

   

4,193

     

(1,076)

     

6,947

     

(2,231)

 

Interest expense

   

(1,930)

     

(800)

     

(5,419)

     

(2,952)

 

Income before income taxes

   

10,701

     

3,378

     

23,689

     

4,674

 

Income tax expense

   

2,139

     

1,878

     

5,426

     

2,691

 

Net income

   

8,562

     

1,500

     

18,263

     

1,983

 

Noncontrolling interest

   

(267)

     

(298)

     

(846)

     

(557)

 

Net income attributable to CECO Environmental Corp.

 

$

8,295

   

$

1,202

   

$

17,417

   

$

1,426

 

Income per share:

                       

Basic

 

$

0.24

   

$

0.03

   

$

0.50

   

$

0.04

 

Diluted

 

$

0.24

   

$

0.03

   

$

0.50

   

$

0.04

 

Weighted average number of common shares outstanding:

                       

Basic

   

34,318,526

     

35,399,724

     

34,672,007

     

35,345,785

 

Diluted

   

34,919,398

     

35,537,136

     

35,005,159

     

35,594,779

 

 

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

Year ended December 31,

 

(dollars in thousands)

 

2022

   

2021

 

Cash flows from operating activities:

           

Net income

 

$

18,263

   

$

1,983

 

Adjustments to reconcile net income to net cash provided by operating activities:

           

Depreciation and amortization

   

10,614

     

9,853

 

Unrealized foreign currency (gain) loss

   

(1,284)

     

2,047

 

Fair value adjustments to earnout liabilities

   

(229)

     

704

 

Earnout payments

   

(1,007)

     

(587)

 

Loss (gain) on sale of property and equipment

   

10

     

(83)

 

Amortization of debt discount

   

371

     

404

 

Share based compensation expense

   

3,895

     

3,335

 

Bad debt expense

   

1,340

     

688

 

Inventory reserve expense

   

140

     

82

 

Deferred income tax (benefit) expense

   

(39)

     

 

Changes in operating assets and liabilities, net of acquisitions:

           

Accounts receivable

   

(6,751)

     

(13,165)

 

Cost and estimated earnings of billings on uncompleted contracts

   

(16,851)

     

(7,007)

 

Inventories

   

(6,023)

     

(203)

 

Prepaid expenses and other current assets

   

37

     

5,911

 

Deferred charges and other assets

   

2,478

     

300

 

Accounts payable and accrued expenses

   

22,536

     

440

 

Billings in excess of costs and estimated earnings on uncompleted contracts

   

4,405

     

8,431

 

Income taxes payable

   

1,424

     

1,047

 

Other liabilities

   

(3,680)

     

(882)

 

Net cash provided by operating activities

   

29,649

     

13,298

 

Cash flows from investing activities:

           

Acquisitions of property and equipment

   

(3,376)

     

(2,616)

 

Net proceeds from sale of assets

   

19

     

533

 

Cash paid for acquisitions, net of cash acquired

   

(44,900)

     

 

Net cash used in investing activities

   

(48,257)

     

(2,083)

 

Cash flows from financing activities:

           

Borrowings on revolving credit lines

   

75,200

     

51,400

 

Repayments on revolving credit lines

   

(35,900)

     

(57,100)

 

Borrowings of long-term debt

   

11,000

     

 

Repayments of long-term debt

   

(3,120)

     

(2,738)

 

Repayments of notes payable

   

(500)

     

 

Deferred financing fees paid

   

(130)

     

(801)

 

Payments on capital leases and sale-leaseback financing liability

   

(600)

     

(603)

 

Earnout payments

   

     

(823)

 

Proceeds from employee stock purchase plan and exercise of stock options

   

671

     

230

 

Distributions to non-controlling interest

   

(1,425)

     

(107)

 

Common stock repurchases

   

(7,020)

     

(5,014)

 

Net cash provided by (used in) financing activities

   

38,176

     

(15,556)

 

Effect of exchange rate changes on cash and cash equivalents

   

(4,978)

     

(1,475)

 

Net increase (decrease) in cash, cash equivalents and restricted cash

   

14,590

     

(5,816)

 

Cash, cash equivalents and restricted cash at beginning of year

   

31,995

     

37,811

 

Cash, cash equivalents and restricted cash at end of year

 

$

46,585

   

$

31,995

 

Cash paid (received) during the period for:

           

Interest

 

$

5,007

   

$

2,146

 

Income taxes

 

$

5,378

   

$

(2,570)

 

 

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES

 

 
   

Three months ended December 31,

   

Year ended December 31,

 

(in millions, except ratios)

 

2022

   

2021

   

2022

   

2021

 

Operating income as reported in accordance with GAAP

 

$

8.4

   

$

5.3

   

$

22.2

   

$

9.9

 

Operating margin in accordance with GAAP

   

7.2 %

     

5.7 %

     

5.3 %

     

3.1 %

 

Amortization and earnout expenses

   

1.9

     

1.9

     

6.8

     

7.8

 

Acquisition and integration expenses

   

0.7

     

0.5

     

4.5

     

0.8

 

Executive transition expenses

   

     

     

1.2

     

 

Restructuring expenses

   

     

     

0.1

     

0.6

 

Non-GAAP operating income

 

$

11.0

   

$

7.7

   

$

34.8

   

$

19.1

 

Non-GAAP operating margin

   

9.5 %

     

8.2 %

     

8.2 %

     

5.9 %

 
   

Three months ended December 31,

   

Year ended December 31,

 

(in millions, except share data)

 

2022

   

2021

   

2022

   

2021

 

Net income as reported in accordance with GAAP

 

$

8.3

   

$

1.2

   

$

17.4

   

$

1.4

 

Amortization and earnout expenses

   

1.9

     

1.9

     

6.8

     

7.8

 

Acquisition and integration expenses

   

0.7

     

0.5

     

4.5

     

0.8

 

Executive transition expenses

   

     

     

1.2

     

 

Restructuring expenses

   

     

     

0.1

     

0.6

 

Foreign currency remeasurement

   

(3.8)

     

0.5

     

(1.3)

     

2.0

 

Tax benefit expense of adjustments

   

0.3

     

(0.7)

     

(2.8)

     

(2.8)

 

Non-GAAP net income

 

$

7.4

   

$

3.4

   

$

25.9

   

$

9.8

 

Depreciation

   

1.0

     

0.8

     

3.6

     

3.2

 

Non-cash stock compensation

   

1.0

     

0.9

     

3.9

     

3.3

 

Other (income) expense

   

(0.4)

     

0.6

     

(5.6)

     

0.2

 

Interest expense

   

1.9

     

0.8

     

5.4

     

3.0

 

Income tax expense

   

1.8

     

2.6

     

8.2

     

5.5

 

Noncontrolling interest

   

0.3

     

0.3

     

0.8

     

0.6

 

Adjusted EBITDA

 

$

13.0

   

$

9.4

   

$

42.2

   

$

25.6

 
                         

Earnings per share:

                       

Basic

 

$

0.24

   

$

0.03

   

$

0.50

   

$

0.04

 

Diluted

 

$

0.24

   

$

0.03

   

$

0.50

   

$

0.04

 
                         

Non-GAAP net income per share:

                       

Basic

 

$

0.22

   

$

0.10

   

$

0.75

   

$

0.28

 

Diluted

 

$

0.21

   

$

0.10

   

$

0.74

   

$

0.28

 
   

Three months ended December 31,

   

Year ended December 31,

 

(in millions, except ratios)

 

2022

   

2021

   

2022

   

2021

 

Net cash provided by operating activities

 

$

10.0

   

$

3.1

   

$

29.6

   

$

13.3

 

Earnout payments (within operating activities)

   

     

     

1.0

     

0.6

 

Acquisitions of property and equipment

   

(1.0)

     

(0.9)

     

(3.4

     

(2.6)

 

Free cash flow

 

$

9.0

   

$

2.2

   

$

27.2

   

$

11.3

 

 

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, 2022 and may be included in subsequently filed Quarterly Reports on Form 10-Q, and include, but are not limited to: 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 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.

 

SOURCE CECO Environmental Corp.