CECO ENVIRONMENTAL REPORTS THIRD QUARTER 2023 RESULTS

About this update from Ceco Environmental Corp.

Record Revenue, Backlog, Gross Profit and Cash Flow DollarsCompany Raises Full Year 2023 Outlook and Introduces 2024 Guidance DALLAS , Nov. 7, 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 third quarter of 2023. Highlights for the Quarter(1) Orders of $145.5 million , up 43 percent; Record backlog of $394.0 million , up 42 percent Revenue of $149.4 million , up 38 percent; Net income of $3.3 million , up 74 percent; Non-GAAP net income of $7.6 million , up 7 percent Gross profit of $43.1 million , up 33 percent Adjusted EBITDA of $15.1 million , up 64 percent GAAP EPS (diluted) of $0.09 , compared to $0.06 ; Non-GAAP EPS (diluted) of $0.22 , compared to $0.20 (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. "Our third quarter results reflect the strong execution our global teams continue to demonstrate as we solve our diverse customers' critical needs in industrial air, industrial water, and the energy transition. We delivered several impressive records including the highest revenue, gross profit, and cash flow dollars of any quarter in the company's history. I want to thank the team for successfully completing the acquisition of Kemco Systems in the quarter, which is an excellent addition to the leadership position we continue to build in the industrial water markets," said CECO's Chief Executive Officer, Todd Gleason . "Our teams continue to work through supply chain challenges and negative mix, which impacted our gross margins in the quarter, but adjusted EBITDA margin expansion was up over 150 basis points versus the prior year. We closed the quarter with a record $394 million in backlog, setting us up for a strong finish to 2023 and a great start to 2024." Third quarter operating income was $7.9 million , up $5.1 million compared to $2.8 million in the third quarter of 2022. On an adjusted basis, non-GAAP operating income was $12.8 million , up $5.5 million versus $7.3 million in the third quarter of 2022. Net income was $3.3 million in the quarter, up $1.4 million compared to $1.9 million in the third quarter of 2022. Non-GAAP net income was $7.6 million , up $0.5 million compared to $7.1 million in the third quarter of 2022. Adjusted EBITDA of $15.1 million was up $5.9 million versus $9.2 million in the third quarter of 2022. Free cash flow in the quarter was $28.5 million , up $28.4 million compared to $0.1 million in the third quarter of 2022. "Record third quarter results were a continuation of our strong recurring performance for well over a year now. On a trailing-twelve-month basis ("TTM"), our revenues are up 27 percent and Adjusted EBITDA is up 33 percent when compared to the year-over-year TTM basis. And, with a TTM book-to-bill ratio of 1.2, we have been building our backlog for sustainable growth," added Gleason. Company Financial Outlook: Raises 2023 Full Year and Introduces Full Year 2024 The Company updated its full year 2023 guidance to reflect revenue between $525 and $550 million , up approximately 25% year over year, and adjusted EBITDA between $55 and $57 million , up approximately 33% year over year. The updated expected full year revenue and adjusted EBITDA guidance are compared to the previous outlook, provided in September, for revenues to exceed $525 million and adjusted EBITDA to exceed $55 million . The Company also introduced its full year 2024 guidance of $575 to $600 million in revenue, up 10% year over year, at the midpoint; and its expected adjusted EBITDA to be $65 to $70 million , up approximately 21% year over year, at the midpoint. Free cash flow is expected to be 50% to 70% of the full year adjusted EBITDA guidance range. "We are increasing our 2023 guidance, for the fourth quarter and full year, which reflects the confidence we have in our visibility including our record backlog, our strong sales pipeline, and our team's outstanding execution driving performance across each of our acquisitions. We are also pleased to be able to share our current expectations for the upcoming year 2024 – which highlight sustainable double-digit top-line and continued bottom-line growth," concluded Gleason. EARNINGS CONFERENCE CALL A conference call is scheduled for today at 8:30 a.m. ET to discuss the third quarter 2023 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 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 9439376. 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 by 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 Officer888-990-6670 [email protected] Investor Relations Contact: Steven Hooser and Jean Marie Young Three Part Advisors, LLC 214-872-2710 [email protected] News Media: Kimberly Plaskett Corporate Communications Director [email protected] CECO ENVIRONMENTAL CORP. AND SUBSIDIARIESCONDENSED 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 and34,381,668 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 CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES 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 CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine months ended September 30 , (in thousands) 2023 2022 Cash flows from operating activities: Net income $ 10,172 $ 9,701 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,769 7,609 Unrealized foreign currency (loss) gain (138) 2,525 Fair value adjustment to earnout liabilities 296 — Earnout payments — (1,007) Gain (loss) on sale of property and equipment 43 (7) Debt discount amortization 271 279 Share-based compensation expense 3,096 2,859 Bad debt expense 154 823 Inventory reserve expense 526 115 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (25,961) (15,772) Costs and estimated earnings in excess of billings on uncompleted contracts 6,006 (4,846) Inventories (10,395) (4,620) Prepaid expense and other current assets (8,228) (1,900) Deferred charges and other assets (268) 2,311 Accounts payable 21,162 13,050 Accrued expenses 7,868 4,598 Billings in excess of costs and estimated earnings on uncompleted contracts 19,330 6,567 Income taxes payable 261 (51) Other liabilities, net (3,473) (2,538) Net cash provided by operating activities 29,491 19,696 Cash flows from investing activities: Acquisitions of property and equipment (5,511) (2,367) Net proceeds from sale of assets — 7 Net cash paid for acquisitions (48,102) (44,900) Net cash used in investing activities (53,613) (47,260) Cash flows from financing activities: Borrowings on revolving credit lines 94,200 73,600 Repayments on revolving credit lines (63,200) (35,900) Borrowing on long-term debt — 11,000 Repayments of long-term debt (2,478) (2,294) Deferred financing fees paid — (130) Deferred consideration paid for acquisitions (1,247) — Payments on finance leases and financing liability (680) (444) Earnout payments (1,496) — Proceeds from employee stock purchase plan and exercise of stock options 1,435 169 Noncontrolling interest distributions (1,364) (1,201) Common stock repurchased — (6,558) Net cash provided by financing activities 25,170 38,242 Effect of exchange rate changes on cash, cash equivalents and restricted cash 703 (6,459) Net increase in cash, cash equivalents and restricted cash 1,751 4,219 Cash, cash equivalents and restricted cash at beginning of period 46,585 31,995 Cash, cash equivalents and restricted cash at end of period $ 48,336 $ 36,214 Cash paid during the period for: Interest $ 8,531 $ 3,239 Income taxes $ 8,633 $ 3,566 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) 2023 2022 2023 2022 Operating income as reported in accordance with GAAP $ 7.9 $ 2.8 $ 21.9 $ 13.7 Operating margin in accordance with GAAP 5.3 % 2.6 % 5.6 % 4.5 % Amortization and earnout expenses 2.0 2.0 6.0 4.9 Acquisition and integration expenses 1.4 1.3 2.2 3.8 Executive transition expenses 1.3 1.2 1.4 1.2 Restructuring expenses 0.2 — 0.2 0.1 Non-GAAP operating income $ 12.8 $ 7.3 $ 31.7 $ 23.7 Non-GAAP operating margin 8.6 % 6.7 % 8.1 % 7.7 % Three months ended September 30 , Nine months ended September 30 , (in millions, except share data) 2023 2022 2023 2022 Net income as reported in accordance with GAAP $ 3.3 $ 1.9 $ 9.0 $ 9.1 Amortization and earnout expenses 2.0 2.0 6.0 4.9 Acquisition and integration expenses 1.4 1.3 2.2 3.8 Executive transition expenses 1.3 1.2 1.4 1.2 Restructuring expenses 0.2 — 0.2 0.1 Foreign currency remeasurement 0.8 2.5 (0.1) 2.5 Tax benefit expense of adjustments (1.4) (1.8) (2.4) (3.1) Non-GAAP net income $ 7.6 $ 7.1 $ 16.3 $ 18.5 Depreciation 1.2 0.9 3.5 2.7 Non-cash stock compensation 1.2 1.1 3.1 2.9 Other (income) expense (0.6) (3.8) 0.8 (5.3) Interest expense 3.3 1.6 9.5 3.5 Income tax expense 2.0 2.1 4.0 6.4 Noncontrolling interest 0.4 0.2 1.1 0.6 Adjusted EBITDA $ 15.1 $ 9.2 $ 38.3 $ 29.3 Earnings per share: Basic $ 0.10 $ 0.06 $ 0.26 $ 0.26 Diluted $ 0.09 $ 0.06 $ 0.26 $ 0.26 Non-GAAP net income per share: Basic $ 0.22 $ 0.21 $ 0.47 $ 0.54 Diluted $ 0.22 $ 0.20 $ 0.46 $ 0.53 Three months ended September 30 , Nine months ended September 30 , (in millions) 2023 2022 2023 2022 Net cash provided by operating activities $ 30.1 $ 1.0 $ 29.5 $ 19.7 Earnout payments (within operating activities) — — — 1.0 Acquisitions of property and equipment (1.6) (0.9) (5.5) (2.4) Free cash flow $ 28.5 $ 0.1 $ 24.0 $ 18.3 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; 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; and our ability to remediate our material weaknesses, or any other material weakness that we may identify in the future that could result in material misstatements in our financial statements. 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. View original content to download multimedia: https://www.prnewswire.com/news-releases/ceco-environmental-reports-third-quarter-2023-results-301979037.html SOURCE CECO Environmental Corp.

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