10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2023

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 0-07099

 

https://cdn.kscope.io/1a85b2577ab0da69cf815c60a3c194ea-img57671236_0.jpg 

CECO ENVIRONMENTAL CORP.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-2566064

(State or other jurisdiction of

Incorporation or organization)

 

(IRS Employer

Identification No.)

 

14651 North Dallas Parkway

Suite 500

Dallas, Texas

 

 

 

75254

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (214) 357-6181

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CECO

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

The number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date: 34,812,539 shares of common stock, par value $0.01 per share, as of October 30, 2023.

 


 

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended September 30, 2023

Table of Contents

 

Part I –

Financial Information

 

2

 

 

Item 1. Financial Statements

 

2

 

 

Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

 

2

 

 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022

 

3

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022

 

4

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2023 and 2022

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

29

 

 

Item 4. Controls and Procedures

 

30

 

 

Part II –

Other Information

 

32

 

 

Item 1. Legal Proceedings

 

32

 

 

Item 1A. Risk Factors

 

32

 

 

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

32

 

 

Item 3. Defaults Upon Senior Securities

 

33

 

 

Item 4. Mine Safety Disclosures

 

33

 

 

Item 5. Other Information

 

33

 

 

Item 6. Exhibits

 

34

 

 

Signatures

 

35

 

 

 

1


 

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(in thousands, except per share data)

 

(unaudited)
September 30, 2023

 

 

December 31, 2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

47,583

 

 

$

45,522

 

Restricted cash

 

 

753

 

 

 

1,063

 

Accounts receivable, net

 

 

112,433

 

 

 

83,086

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

64,856

 

 

 

71,016

 

Inventories, net

 

 

37,911

 

 

 

26,526

 

Prepaid expenses and other current assets

 

 

15,266

 

 

 

12,174

 

Prepaid income taxes

 

 

6,583

 

 

 

1,271

 

Total current assets

 

 

285,385

 

 

 

240,658

 

Property, plant and equipment, net

 

 

25,010

 

 

 

20,828

 

Right-of-use assets from operating leases

 

 

13,849

 

 

 

11,373

 

Goodwill

 

 

209,825

 

 

 

183,197

 

Intangible assets – finite life, net

 

 

52,340

 

 

 

35,251

 

Intangible assets – indefinite life

 

 

9,514

 

 

 

9,508

 

Deferred income taxes

 

 

801

 

 

 

829

 

Deferred charges and other assets

 

 

3,333

 

 

 

3,077

 

Total assets

 

$

600,057

 

 

$

504,721

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of debt

 

$

4,726

 

 

$

3,579

 

Accounts payable

 

 

94,236

 

 

 

73,407

 

Accrued expenses

 

 

44,154

 

 

 

33,791

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

54,209

 

 

 

32,716

 

Notes payable

 

 

2,500

 

 

 

Income taxes payable

 

 

3,473

 

 

 

3,207

 

Total current liabilities

 

 

203,298

 

 

 

146,700

 

Other liabilities

 

 

14,652

 

 

 

15,129

 

Debt, less current portion

 

 

135,273

 

 

 

107,625

 

Deferred income tax liability, net

 

 

7,591

 

 

 

8,666

 

Operating lease liabilities

 

 

9,101

 

 

 

8,453

 

Total liabilities

 

 

369,915

 

 

 

286,573

 

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, 34,811,077 and
34,381,668 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

 

 

347

 

 

 

344

 

Capital in excess of par value

 

 

253,613

 

 

 

250,174

 

Accumulated loss

 

 

(10,266

)

 

 

(19,298

)

Accumulated other comprehensive loss

 

 

(18,251

)

 

 

(17,996

)

Total CECO shareholders' equity

 

 

225,443

 

 

 

213,224

 

Noncontrolling interest

 

 

4,699

 

 

 

4,924

 

Total shareholders' equity

 

 

230,142

 

 

 

218,148

 

Total liabilities and shareholders' equity

 

$

600,057

 

 

$

504,721

 

 

The notes to the condensed consolidated financial statements are an integral part of the above statements.

2


 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in thousands, except per share data)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales

 

$

149,390

 

 

$

108,414

 

 

$

391,134

 

 

$

306,225

 

Cost of sales

 

 

106,269

 

 

 

75,988

 

 

 

273,303

 

 

 

215,696

 

Gross profit

 

 

43,121

 

 

 

32,426

 

 

 

117,831

 

 

 

90,529

 

Selling and administrative expenses

 

 

30,439

 

 

 

25,166

 

 

 

86,082

 

 

 

66,806

 

Amortization and earnout expenses

 

 

1,968

 

 

 

2,039

 

 

 

5,988

 

 

 

4,939

 

Acquisition and integration expenses

 

 

1,386

 

 

 

1,287

 

 

 

2,210

 

 

 

3,827

 

Executive transition expenses

 

 

1,258

 

 

 

1,161

 

 

 

1,417

 

 

 

1,161

 

Restructuring expenses

 

 

217

 

 

 

 

 

 

217

 

 

 

73

 

Income from operations

 

 

7,853

 

 

 

2,773

 

 

 

21,917

 

 

 

13,723

 

Other (expense) income, net

 

 

(216

)

 

 

1,276

 

 

 

(670

)

 

 

2,754

 

Interest expense

 

 

(3,340

)

 

 

(1,569

)

 

 

(9,498

)

 

 

(3,489

)

Income before income taxes

 

 

4,297

 

 

 

2,480

 

 

 

11,749

 

 

 

12,988

 

Income tax expense

 

 

585

 

 

 

314

 

 

 

1,577

 

 

 

3,287

 

Net income

 

 

3,712

 

 

 

2,166

 

 

 

10,172

 

 

 

9,701

 

Noncontrolling interest

 

 

382

 

 

 

223

 

 

 

1,140

 

 

 

579

 

Net income attributable to CECO Environmental Corp.

 

$

3,330

 

 

$

1,943

 

 

$

9,032

 

 

$

9,122

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.10

 

 

$

0.06

 

 

$

0.26

 

 

$

0.26

 

Diluted

 

$

0.09

 

 

$

0.06

 

 

$

0.26

 

 

$

0.26

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

34,771,742

 

 

 

34,455,657

 

 

 

34,612,163

 

 

 

34,791,129

 

Diluted

 

 

35,301,429

 

 

 

34,871,313

 

 

 

35,215,843

 

 

 

35,035,041

 

 

The notes to the condensed consolidated financial statements are an integral part of the above statements.

 

3


 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(in thousands)

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

$

3,712

 

 

$

2,166

 

 

$

10,172

 

 

$

9,701

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

(1,160

)

 

 

(5,890

)

 

 

(255

)

 

 

(9,387

)

Comprehensive income (loss)

$

2,552

 

 

$

(3,724

)

 

$

9,917

 

 

$

314

 

 

The notes to the condensed consolidated financial statements are an integral part of the above statements.

 

4


 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)

 

 

 

Common Stock

 

 

Capital in
excess of

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Non-controlling

 

 

Total
Shareholders'

 

 

 

Shares

 

 

Amount

 

 

par value

 

 

Loss

 

 

Loss

 

 

interest

 

 

Equity

 

Balance December 31, 2022

 

 

34,382

 

 

$

344

 

 

$

250,174

 

 

$

(19,298

)

 

$

(17,996

)

 

$

4,924

 

 

$

218,148

 

Net income for the three months ended March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

1,978

 

 

 

 

 

 

491

 

 

 

2,469

 

Exercise of stock options

 

 

52

 

 

 

1

 

 

 

611

 

 

 

 

 

 

 

 

 

 

 

 

612

 

Restricted stock units issued

 

 

123

 

 

 

1

 

 

 

(622

)

 

 

 

 

 

 

 

 

 

 

 

(621

)

Share based compensation earned

 

 

 

 

 

 

 

 

808

 

 

 

 

 

 

 

 

 

 

 

 

808

 

Translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

766

 

 

 

 

 

 

766

 

Balance March 31, 2023

 

 

34,557

 

 

$

346

 

 

$

250,971

 

 

$

(17,320

)

 

$

(17,230

)

 

$

5,415

 

 

$

222,182

 

Net income for the three months ended June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

3,724

 

 

 

 

 

 

266

 

 

 

3,990

 

Exercise of stock options

 

 

25

 

 

 

 

 

 

317

 

 

 

 

 

 

 

 

 

 

 

 

317

 

Restricted stock units issued

 

 

132

 

 

 

1

 

 

 

(271

)

 

 

 

 

 

 

 

 

 

 

 

(270

)

Share based compensation earned

 

 

24

 

 

 

 

 

 

1,389

 

 

 

 

 

 

 

 

 

 

 

 

1,389

 

Translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139

 

 

 

 

 

 

139

 

Noncontrolling interest distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(599

)

 

 

(599

)

Balance June 30, 2023

 

 

34,738

 

 

$

347

 

 

$

252,406

 

 

$

(13,596

)

 

$

(17,091

)

 

$

5,082

 

 

$

227,148

 

Net income for the three months ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

3,330

 

 

 

 

 

 

382

 

 

 

3,712

 

Exercise of stock options

 

 

25

 

 

 

 

 

 

281

 

 

 

 

 

 

 

 

 

 

 

 

281

 

Restricted stock units issued

 

 

48

 

 

 

 

 

 

(203

)

 

 

 

 

 

 

 

 

 

 

 

(203

)

Share based compensation earned

 

 

 

 

 

 

 

 

1,129

 

 

 

 

 

 

 

 

 

 

 

 

1,129

 

Translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,160

)

 

 

 

 

 

(1,160

)

Noncontrolling interest distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(765

)

 

 

(765

)

Balance September 30, 2023

 

 

34,811

 

 

$

347

 

 

$

253,613

 

 

$

(10,266

)

 

$

(18,251

)

 

$

4,699

 

 

$

230,142

 

 

 

5


 

 

 

Common Stock

 

 

Capital in
excess of

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Non-controlling

 

 

Total
Shareholders'

 

 

 

Shares

 

 

Amount

 

 

par value

 

 

Loss

 

 

Loss

 

 

interest

 

 

Equity

 

Balance December 31, 2021

 

 

35,028

 

 

$

350

 

 

$

252,989

 

 

$

(36,715

)

 

$

(12,070

)

 

$

1,403

 

 

$

205,957

 

Net income for the three months ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

2,792

 

 

 

 

 

 

18

 

 

 

2,810

 

Restricted stock units issued

 

 

34

 

 

 

 

 

 

(67

)

 

 

 

 

 

 

 

 

 

 

 

(67

)

Share based compensation earned

 

 

14

 

 

 

 

 

 

953

 

 

 

 

 

 

 

 

 

 

 

 

953

 

Translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(531

)

 

 

 

 

 

(531

)

Noncontrolling interest distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(900

)

 

 

(900

)

Fair value of noncontrolling interest equity issued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

 

 

5,000

 

Balance March 31, 2022

 

 

35,076

 

 

$

350

 

 

$

253,875

 

 

$

(33,923

)

 

$

(12,601

)

 

$

5,521

 

 

$

213,222

 

Net income for the three months ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

4,385

 

 

 

 

 

 

339