# Ceco Environmental Corp: Form 10-Q for the period ended Sep 30, 2024

- Company: [Ceco Environmental Corp](/companies/ceco.md) (CIK 3197)
- Form: 10-Q
- Filed: 2024-10-29
- Accepted by EDGAR: Oct 29, 2024, 10:51 ET
- Period: 2024-09-30
- Accession: 0000950170-24-117928
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/3197/000095017024117928/ceco-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/3197/000095017024117928/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $135.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $399.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $90.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $259.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $45.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $139.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $34.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $105.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $7.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $24.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $2.6m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $9.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $1.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $2.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $2.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $8.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.22 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 36,488,788 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 36,322,690 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $23.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $11.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $5.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $38.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $276.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $621.5m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $213.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $375.6m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $122.8m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $10.6m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $241.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,461 characters.

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.

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.

### Market Pressures

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.

### Note Regarding Use of Non-GAAP Financial Measures

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These GAAP financial statements include certain charges the Company believes are not indicative of its core ongoing operational performance.

As a result, the Company provides financial information in this Management’s Discussion and Analysis that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides this non-GAAP financial information because the Company’s management utilizes it to evaluate its ongoing financial performance and the Company believes it provides greater transparency to investors as supplemental information to its GAAP results.

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.

### Results of Operations

### Consolidated Results

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

*(in millions, except ratios)*

|  | Three months ended September 30, 2024 | 2023 | Nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $135.5 | $149.4 | $399.4 | $391.1 |
| Cost of sales | 90.2 | 106.3 | 259.9 | 273.3 |
| Gross profit | $45.3 | $43.1 | $139.5 | $117.8 |
| Percent of sales | 33.4% | 28.8% | 34.9% | 30.1% |
| Selling and administrative expenses | 34.3 | 30.3 | 105.7 | 86.1 |
| Percent of sales | 25.3% | 20.3% | 26.5% | 22.0% |
| 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 expenses | — | 1.3 | — | 1.4 |
| Asbestos litigation expenses | — | — | 0.2 | — |
| Operating income | $7.2 | $7.9 | $24.1 | $21.9 |
| Operating margin | 5.3% | 5.3% | 6.0% | 5.6% |
| Other expense, net | $(0.4) | $(0.2) | $(2.5) | $(0.7) |
| Interest expense | (2.6) | (3.3) | (9.3) | (9.5) |
| Income before income taxes | $4.2 | $4.4 | $12.3 | $11.7 |
| Income tax expense | 1.6 | 0.6 | 2.7 | 1.6 |
| Net income | $2.6 | $3.8 | $9.6 | $10.1 |
| Noncontrolling interest | (0.5) | (0.4) | (1.5) | (1.1) |
| Net income attributable to CECO Environmental Corp. | $2.1 | $3.4 | $8.1 | $9.0 |

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.

The following table presents the reconciliation of GAAP operating income and GAAP operating margin to non-GAAP operating income and non-GAAP operating margin:

*(in millions, except ratios)*

|  | Three months ended September 30, 2024 | 2023 | Nine months ended September 30, 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% |

Orders booked increased $16.8 million, or 11.5%, to $162.3 million during the three months ended September 30, 2024 compared with $145.5 million in the three months ended September 30, 2023. The increase is broad-based with year-over-year growth in both the Engineered Systems and Industrial Process Solutions segments. Notable technologies attributing to the broad-based increase include emissions management and industrial ducting. Of the $162.3 million in orders booked during the three months ended September 30, 2024, $4.6 million is attributable to acquisitions that occurred during the preceding twelve month period.

Orders booked decreased $6.1 million, or 1%, to $448.3 million during the nine months ended September 30, 2024 compared with $454.4 million in the nine months ended September 30, 2023. The decrease is primarily related to two unique industrial air bookings from the first half of 2023 that were not expected to repeat. Of the $448.3 million in orders booked during the nine months ended September 30, 2024, $25.6 million is attributable to acquisitions that occurred during the preceding twelve month period.

Net sales for the three months ended September 30, 2024 decreased $13.9 million, or 9.3%, to $135.5 million compared with $149.4 million for the three months ended September 30, 2023. The decrease is entirely attributable to the Engineered Systems segment, notably driven by variability in timing of large order bookings. On a trailing twelve-month basis, Engineered Systems revenue has increased $49.8 million, or 14.6%. Approximately 94%, or $127.6 million, of net sales for the three months ended September 30, 2024 is attributable to organic revenue, defined as revenue recorded subsequent to the twelve month period post-acquisition date.

Net sales for the nine months ended September 30, 2024 increased $8.3 million, or 2.1%, to $399.4 million compared with $391.1 million for the nine months ended September 30, 2023. The increase is broad-based, led by an increase of $10.5 million across multiple technologies within the Engineered Systems segment. Approximately 94% or $376.8 million, of net sales for the nine months ended September 30, 2024 is attributable to organic revenue.

Gross profit increased $2.2 million, or 5.1%, to $45.3 million in the three months ended September 30, 2024 compared with $43.1 million in the three months ended September 30, 2023. The increase in gross profit is primarily attributable to sales mix, project execution and flow through from higher booked margins, as well as continued benefits from sourcing and value engineering. Gross profit as a percentage of sales increased to 33.4% in the three months ended September 30, 2024 compared with 28.8% in the three months ended September 30, 2023.

Gross profit increased $21.7 million, or 18.4%, to $139.5 million in the nine months ended September 30, 2024 compared with $117.8 million in the nine months ended September 30, 2023. The increase in gross profit is primarily attributable to sales mix, project execution and flow through from higher booked margins, as well as continued benefits from sourcing and value engineering. Gross profit as a percentage of sales increased to 34.9% in the nine months ended September 30, 2024 compared with 30.1% in the nine months ended September 30, 2023.

Selling and administrative expenses were $34.3 million for the three months ended September 30, 2024 compared with $30.3 million for the three months ended September 30, 2023. The increase is primarily attributable to workforce merit and other annual compensation adjustments, and investments in functional support for sourcing and manufacturing benefits.

Selling and administrative expenses were $105.7 million for the nine months ended September 30, 2024 compared with $86.1 million for the nine months ended September 30, 2023. The increase is primarily attributable to workforce merit and other annual compensation adjustments, and investments in functional support for sourcing and manufacturing benefits.

Amortization and earnout expense was $2.6 million for the three months ended September 30, 2024, compared with $2.0 million for the three months ended September 30, 2023.

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.

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.

Operating income increased $2.2 million to $24.1 million for the nine months ended September 30, 2024 compared with operating income of $21.9 million for the nine months ended September 30, 2023. The increase in operating income is primarily attributable to the increase in net sales.

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.

Non-GAAP operating income was $33.8 million for the nine months ended September 30, 2024 compared with $31.7 million for the nine months ended September 30, 2023. Non-GAAP operating income as a percentage of sales increased to 8.5% for the three months ended September 30, 2024 from 8.1% for the nine months ended September 30, 2023.

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.

Interest expense decreased to $9.3 million in the nine months ended September 30, 2024 compared with interest expense of $9.5 million for the nine months ended September 30, 2023. The decrease in interest expense is primarily due to reduction of the debt balance.

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.

### Business Segments

The Company’s operations are organized and reviewed by management along its product lines or end market that the segment serves and are presented in two reportable segments. The results of the segments are reviewed through “Income from operations” on the unaudited Condensed Consolidated Statements of Income.

*(in thousands)*

| Net Sales (less intra- and inter-segment sales) | Three months ended September 30, 2024 | 2023 | Nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Engineered Systems segment | $91,277 | $105,540 | $278,018 | $267,516 |
| Industrial Process Solutions segment | 44,236 | 43,850 | 121,349 | 123,618 |
| Total net sales | $135,513 | $149,390 | $399,367 | $391,134 |

*(in thousands)*

| Income from Operations | Three months ended September 30, 2024 | 2023 | Nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Engineered Systems segment | $15,837 | $15,759 | $51,444 | $39,601 |
| Industrial Process Solutions segment | 8,065 | 5,586 | 20,834 | 15,769 |
| Corporate and Other(1) | (16,715) | (13,492) | (48,149) | (33,453) |
| Total income from operations | $7,187 | $7,853 | $24,129 | $21,917 |

(1) Includes corporate compensation, professional services, information technology and other general and administrative corporate expenses.

#### Engineered Systems Segment

Our Engineered Systems segment orders booked increased $13.2 million, or 12.1%, to $122.1 million during the three months ended September 30, 2024 compared with $108.9 million in the three months ended September 30, 2023. The increase is primarily driven by power end market bookings at emissions management, partially offset by a decrease in bookings at acoustics technologies. Of the $122.1 million in orders booked during the three months ended September 30, 2024, $4.0 million is attributable to an acquisition that occurred during the preceding twelve month period.

Our Engineered Systems segment orders booked were $322.8 million during the nine months ended September 30, 2024 compared with $309.4 million in the nine months ended September 30, 2023. The increase is primarily attributable to growth in water and wastewater treatment technologies. Of the $322.8 million in orders booked during the nine months ended September 30, 2024, $22.0 million is attributable to acquisitions that occurred during the preceding twelve month period.

Our Engineered Systems segment net sales decreased $14.2 million to $91.3 million for the three months ended September 30, 2024 compared with $105.5 million for the three months ended September 30, 2023. The decrease is entirely attributable to the variability in timing of large order bookings. On a trailing twelve-month basis, Engineered Systems revenue has increased $49.8 million, or

14.6%. Approximately 94%, or $85.8 million, of net sales for the three months ended September 30, 2024 is attributable to organic revenue.

Our Engineered Systems segment net sales increased $10.5 million to $278.0 million for the nine months ended September 30, 2024 compared with $267.5 million for the nine months ended September 30, 2023. The increase is led by growth in our separation, filtration, and industrial water technologies, partially offset by power end market revenue. Approximately 93%, or $257.9 million, of net sales for the nine months ended September 30, 2024 is attributable to organic revenue.

Operating income for the Engineered Systems segment is flat at $15.8 million for the three months ended September 30, 2024 compared with $15.8 million for the three months ended September 30, 2023. The increase is primarily attributable to increased net sales, partially offset by an increase in direct costs.

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.

#### Industrial Process Solutions Segment

Our Industrial Process Solutions segment orders booked increased $3.6 million, or 9.8%, to $40.1 million during the three months ended September 30, 2024 compared with $36.5 million in the three months ended September 30, 2023. The increase is wholly driven by an increase in our industrial ducting business. Of the $40.1 million in orders booked during the three months ended September 30, 2024, $0.6 million is attributable to an acquisition that occurred during the preceding twelve month period.

Our Industrial Process Solutions segment orders booked decreased $19.4 million, or 13.4%, to $125.6 million during the nine months ended September 30, 2024 compared with $145.0 million in the nine months ended September 30, 2023. The decrease is primarily related to two unique industrial air bookings from the first half of 2023 that were not expected to repeat. Of the $125.6 million in orders booked during the nine months ended September 30, 2024, $0.6 million is attributable to an acquisition that occurred during the preceding twelve month period.

Our Industrial Process Solutions segment net sales were $44.2 million for the three months ended September 30, 2024 compared with $43.9 million for the three months ended September 30, 2023. Approximately 95%, or $41.8 million, of net sales for the three months ended September 30, 2024 is attributable to organic revenue.

Our Industrial Process Solutions segment net sales were $121.3 million for the nine months ended September 30, 2024 compared with $123.6 million for the nine months ended September 30, 2023. Approximately 98%, or $118.9 million, of net sales for the nine months ended September 30, 2024 is attributable to organic revenue.

Operating income for the Industrial Process Solutions segment increased $2.5 million to $8.1 million for the three months ended September 30, 2024 compared with $5.6 million for the three months ended September 30, 2023. The increase is primarily attributable to a decrease in direct costs, partially offset by a decrease in net sales.

Operating income for the Industrial Process Solutions segment increased $5.0 million to $20.8 million for the nine months ended September 30, 2024 compared with $15.8 million for the nine months ended September 30, 2023. The increase is primarily attributable to increased sales, partially offset by an increase in direct costs.

#### Corporate and Other Segment

Operating expense for the Corporate and Other segment increased $3.2 million to $16.7 million for the three months ended September 30, 2024 compared with $13.5 million for the three months ended September 30, 2023. The increase is primarily attributable to investments made to support growth inclusive of acquisition and integration expenses, and inflationary increases for wages and services.

Operating expense for the Corporate and Other segment increased $14.6 million to $48.1 million for the nine months ended September 30, 2024 compared with $33.5 million for the nine months ended September 30, 2023. The increase is primarily attributable to investments made to support growth inclusive of acquisition and integration expenses, and inflationary increases for wages and services.

### Backlog

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.

### New Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 2 to the unaudited condensed consolidated financial statements within Item 1 of this Quarterly Report on Form 10-Q.

### Liquidity and Capital Resources

When we undertake large jobs, our working capital objective is to make these projects self-funding. We work to achieve this by obtaining customer down payments, progress billing contracts, when possible, utilizing extended payment terms from material suppliers, and paying sub-contractors after payment from our customers, which is an industry practice. Our investment in net working capital is funded by cash flow from operations and by our revolving line of credit under our Credit Facility (as defined below).

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.

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.

Debt consisted of the following:

*(in thousands)*

| Outstanding borrowings under Credit Facility (defined below) Term loan payable in quarterly principal installments of $550 through September 2023, $2,232 through September 2025 and $2,977 thereafter with balance due upon maturity in December 2026 | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Term loan | $105,727 | $112,424 |
| Revolving credit facility | 20,900 | 17,300 |
| Total outstanding borrowings under the Credit Facility | 126,627 | 129,724 |
| Outstanding borrowings under the joint venture term debt | 7,710 | 8,855 |
| Unamortized debt discount | (939) | (1,296) |
| Total outstanding borrowings | 133,398 | 137,283 |
| Less: current portion | (10,580) | (10,488) |
| Total debt, less current portion | $122,818 | $126,795 |

#### Credit Facility

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.

See Note 8 to the unaudited condensed consolidated financial statements within Item 1 of this Quarterly Report on Form 10-Q for further information on the Company’s debt facilities.

Total unused credit availability under our existing Credit Facility is as follows:

*(in millions)*

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Credit Facility, revolving loans | $140.0 | $140.0 |
| Draw down | (20.9) | (17.3) |
| Letters of credit open | (13.8) | (13.3) |
| Total unused credit availability | $105.3 | $109.4 |
| Amount available based on borrowing limitations | $82.7 | $99.8 |

### Overview of Cash Flows and Liquidity

*(in thousands)*

|  | Nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $23,000 | $29,491 |
| Net cash used in investing activities | (26,191) | (53,613) |
| Net cash (used in) provided by financing activities | (14,518) | 25,170 |
| Effect of exchange rate changes on cash and cash equivalents | 1,187 | 703 |
| Net (decrease) increase in cash | $(16,522) | $1,751 |

### Operating Activities

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.

### Investing Activities

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.

### Financing Activities

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.

### Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s condensed consolidated financial statements. The preparation of these financial statements requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include revenue recognition, the valuation of trade receivables, inventories, goodwill, intangible assets, other long-lived assets, legal contingencies, guarantee obligations and assumptions used in the calculation of income taxes, assumptions used in business combination accounting and related balances, and pension and post-retirement benefits, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. Management monitors economic conditions and other factors and will adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

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.

### Forward-Looking Statements

This Quarterly Report on Form 10-Q includes 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, which are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Any statements contained in this Quarterly Report on Form 10-Q, other than statements of historical fact, including statements about management’s beliefs and expectations, are forward-looking statements 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 “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and include, but are not limited to:

- the sensitivity of our business to economic and financial market conditions generally and economic conditions in CECO’s 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 CECO’s 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;
- our ability to successfully realize the expected benefits of our restructuring program;
- economic and political conditions generally;
- 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;
- 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
- 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.

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.

## Market risk

As filed, 1,824 characters.

We are exposed to certain market risks, primarily changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. For the Company, these exposures are primarily related to changes in interest rates. We do not currently hold any derivatives or other financial instruments purely for trading or speculative purposes.

The carrying value of the Company’s total long-term debt and current maturities of long-term debt at September 30, 2024 was $134.3 million. Market risk was estimated as the potential decrease (increase) in future earnings and cash flows resulting from a hypothetical 10% increase (decrease) in the Company’s estimated weighted average borrowing rate at September 30, 2024. Most of the interest on the Company’s debt is indexed to SOFR market rates. The estimated annual impact of a hypothetical 10% change in the estimated weighted average borrowing rate at September 30, 2024 is $1.0 million.

The Company has wholly-owned subsidiaries in several countries, including in the Netherlands, Canada, the People’s Republic of China, Mexico, United Kingdom, Singapore, India, United Arab Emirates and South Korea. In the past, we have not hedged our foreign currency exposure, and fluctuations in exchange rates have not materially affected our operating results. Future changes in exchange rates may positively or negatively impact our revenues, operating expenses and earnings. Transaction gains (losses) included in “Other expense, net” line of the Condensed Consolidated Statements of Income were $0.3 million and $(0.6) million for the three months ended September 30, 2024 and 2023, respectively, and $1.9 million and $0.2 million for the nine months ended September 30, 2024 and 2023, respectively.

## Controls and procedures

As filed, 2,716 characters.

### Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2024.

Management believes that the condensed consolidated financial statements included in this report present fairly, in all material respects, the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report in conformity with accounting principles generally accepted in the United States of America.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

### Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.

## Risk factors

As filed, 203 characters.

There have been no material changes in the Company’s risk factors that were disclosed in “Part I – Item 1A. Risk Factors” of the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Filed Oct 29, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-117928. Last ingested by Listed: Oct 24, 2026, 14:51 ET. No prices; not investment advice.