Part I – Financial Information [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for CECO Environmental Corp. and its subsidiaries, including the balance sheets, statements of income, comprehensive income, shareholders' equity, and cash flows, along with detailed notes explaining the basis of reporting, significant accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The Condensed Consolidated Balance Sheets show a slight decrease in total assets and liabilities from December 31, 2023, to June 30, 2024, with cash and cash equivalents decreasing significantly while accounts receivable and inventories increased. Total shareholders' equity saw a modest increase Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------------------- | :------------ | :------------------ | | Cash and cash equivalents | $36,523 | $54,779 | | Accounts receivable, net | $126,974 | $112,733 | | Inventories, net | $38,475 | $34,089 | | Total current assets | $281,370 | $281,437 | | Total assets | $598,133 | $600,291 | | Total current liabilities | $207,323 | $203,106 | | Total liabilities | $358,321 | $362,800 | | Total shareholders' equity | $239,812 | $237,491 | [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For the three and six months ended June 30, 2024, the company reported increased net sales and gross profit compared to the prior year periods. Net income attributable to CECO Environmental Corp. also increased, with diluted EPS rising for the three-month period Condensed Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $137,522 | $129,181 | $263,854 | $241,744 | | Gross profit | $49,047 | $39,817 | $94,179 | $74,710 | | Income from operations | $9,257 | $8,603 | $16,943 | $14,064 | | Net income attributable to CECO | $4,485 | $3,724 | $5,993 | $5,701 | | Diluted EPS | $0.12 | $0.11 | $0.17 | $0.16 | [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for the three months ended June 30, 2024, decreased slightly year-over-year due to a foreign currency translation loss, while for the six months, it also decreased despite higher net income, primarily due to a smaller foreign currency translation gain compared to the prior year Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $4,930 | $3,990 | $7,022 | $6,460 | | Foreign currency translation (loss) gain | $(856) | $139 | $(202) | $905 | | Comprehensive income | $4,074 | $4,129 | $6,820 | $7,365 | [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity increased from **$237.5 million** at **December 31, 2023**, to **$239.8 million** at **June 30, 2024**. Key changes included net income contributions, share-based compensation, and common stock repurchases, partially offset by noncontrolling interest distributions and translation losses Shareholders' Equity Changes (in thousands) | Metric | Six months ended June 30, 2024 | | :----------------------------------- | :----------------------------- | | Balance December 31, 2023 | $237,491 | | Net income | $5,993 | | Share based compensation earned | $3,999 | | Common stock repurchase and retirement | $(5,001) | | Translation (loss) gain | $(202) | | Noncontrolling interest distributions | $(1,105) | | Balance June 30, 2024 | $239,812 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2024, the company generated **$7.9 million** in cash from operating activities, a **significant improvement** from a cash outflow in the prior year. Investing activities used less cash due to fewer acquisitions, while financing activities used cash primarily for debt repayments and share repurchases Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $7,891 | $(611) | | Net cash used in investing activities | $(6,811) | $(28,061) | | Net cash (used in) provided by financing activities | $(16,565) | $29,498 | | Net (decrease) increase in cash | $(18,534) | $1,967 | | Cash, cash equivalents and restricted cash at end of period | $36,914 | $48,552 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the company's financial reporting, including accounting policies, specific asset and liability breakdowns, debt structures, share-based compensation, income taxes, commitments, and recent acquisitions, offering crucial context to the condensed financial statements [1. Basis of Reporting for Consolidated Financial Statements](index=11&type=section&id=1.%20Basis%20of%20Reporting%20for%20Consolidated%20Financial%20Statements) The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and GAAP, including normal recurring adjustments. Management's estimates and assumptions are used, and the statements should be read with the Annual Report on Form 10-K - Financial statements are unaudited and prepared under **SEC** rules and **GAAP**, incorporating management's estimates and assumptions[187](index=187&type=chunk)[188](index=188&type=chunk) [2. New Financial Accounting Pronouncements](index=11&type=section&id=2.%20New%20Financial%20Accounting%20Pronouncements) The company has not adopted any new accounting standards in fiscal 2024. It is currently evaluating the impact of ASU 2023-09 (Income Taxes) and ASU 2023-07 (Segment Reporting), both effective for fiscal years beginning after December 15, 2024, and 2023 respectively, with interim periods for segment reporting after December 15, 2024 - No new accounting standards **adopted** in fiscal **2024**[191](index=191&type=chunk) - Evaluating impact of **ASU 2023-09** (Income Taxes) and **ASU 2023-07** (Segment Reporting), **effective** for fiscal years beginning after **December 15, 2024** and **2023** respectively[192](index=192&type=chunk)[193](index=193&type=chunk) [3. Accounts Receivable](index=11&type=section&id=3.%20Accounts%20Receivable) Accounts receivable, net, increased to **$127.0 million** at **June 30, 2024**, from **$112.7 million** at **December 31, 2023**. The provision for credit losses also increased, and retainage receivables on contracts in progress amounted to **$3.9 million** Accounts Receivable (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :------------------ | | Accounts receivable | $133,556 | $119,193 | | Provision for credit losses | $(6,582) | $(6,460) | | Total accounts receivable, net | $126,974 | $112,733 | - Retainage receivables on contracts in progress were approximately **$3.9 million** as of **June 30, 2024**[196](index=196&type=chunk) [4. Contract Assets and Liabilities](index=13&type=section&id=4.%20Contract%20Assets%20and%20Liabilities) Contract assets (costs and estimated earnings in excess of billings) **decreased** to **$55.4 million** at **June 30, 2024**, from **$66.6 million** at **December 31, 2023**. Contract liabilities (billings in excess of costs and estimated earnings) **increased** to **$59.9 million** from **$56.9 million** over the same period. Approximately **70%** of contract liabilities from **December 31, 2023**, were recognized as revenue in the first six months of **2024** Contract Assets and Liabilities (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :---------------------------------------------------------------- | :------------ | :------------------ | | Costs and estimated earnings in excess of billings on uncompleted contracts | $55,378 | $66,574 | | Billings in excess of costs and estimated earnings on uncompleted contracts | $59,851 | $56,899 | - Approximately **70%** of contract liabilities as of **December 31, 2023**, were recognized as revenue in the six months ended **June 30, 2024**[198](index=198&type=chunk) [5. Inventories](index=13&type=section&id=5.%20Inventories) Total inventories **increased** to **$38.5 million** at **June 30, 2024**, from **$34.1 million** at **December 31, 2023**, driven by increases in raw materials and work in process. The obsolescence allowance also **increased** slightly Inventories (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :------------------- | :------------ | :------------------ | | Raw materials | $27,869 | $25,819 | | Work in process | $11,732 | $9,710 | | Finished goods | $2,905 | $2,368 | | Obsolescence allowance | $(4,031) | $(3,808) | | Total inventories | $38,475 | $34,089 | [6. Goodwill and Intangible Assets](index=14&type=section&id=6.%20Goodwill%20and%20Intangible%20Assets) Goodwill remained relatively **stable** at **$211.1 million** as of **June 30, 2024**, with minor adjustments from acquisitions and foreign currency translation. Finite life intangible assets, net, **decreased** to **$46.1 million** from **$50.5 million**, primarily due to amortization expense. The company performs annual impairment assessments in the fourth quarter and found no triggering events for interim impairment as of **June 30, 2024** Goodwill and Intangible Assets (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------------------- | :------------ | :------------------ | | Goodwill | $211,144 | $211,326 | | Tradename (Indefinite life intangible) | $9,522 | $9,570 | | Total intangible assets – finite life | $132,676 (Cost) / $86,590 (Accum. Amort.) | $132,999 (Cost) / $82,538 (Accum. Amort.) | | Intangible assets – finite life, net | $46,086 | $50,461 | - Amortization expense for finite life intangible assets was **$4.3 million** for the six months ended **June 30, 2024**, and is projected to be **$4.3 million** for the remainder of **2024**, **$7.6 million** in **2025**, **$6.2 million** in **2026**, **$6.0 million** in **2027**, and **$5.6 million** in **2028**[1](index=1&type=chunk) - No triggering events were identified during the three or six months ended **June 30, 2024**, that would require an interim impairment assessment of goodwill or intangible assets[3](index=3&type=chunk) [7. Accrued Expenses](index=16&type=section&id=7.%20Accrued%20Expenses) Total accrued expenses **increased** slightly to **$44.7 million** at **June 30, 2024**, from **$44.3 million** at **December 31, 2023**. This was primarily driven by increases in contract liability and other accrued expenses, partially offset by a **decrease** in compensation and related benefits Accrued Expenses (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------ | :------------------ | | Compensation and related benefits | $8,854 | $11,278 | | Accrued warranty | $5,478 | $5,105 | | Contract liability | $9,197 | $7,875 | | Short-term operating lease liability | $3,950 | $4,278 | | Other | $17,257 | $15,765 | | Total accrued expenses | $44,736 | $44,301 | [8. Senior Debt](index=16&type=section&id=8.%20Senior%20Debt) Total outstanding borrowings **decreased** to **$130.8 million** at **June 30, 2024**, from **$137.3 million** at **December 31, 2023**. The company maintains a Credit Facility with **$111.0 million** in unused credit availability and was in **compliance** with all financial covenants. Joint venture debt and foreign bank guarantees also saw minor changes Senior Debt (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--------------------------------------------------- | :------------ | :------------------ | | Term loan | $107,959 | $112,424 | | Revolving credit facility | $15,800 | $17,300 | | Total outstanding borrowings under the Credit Facility | $123,759 | $129,724 | | Outstanding borrowings under the joint venture term debt | $8,123 | $8,855 | | Total outstanding borrowings | $130,826 | $137,283 | | Total debt, less current portion | $120,246 | $126,795 | - Total unused credit availability under the Credit Facility was **$111.0 million** at **June 30, 2024**, up from **$109.4 million** at **December 31, 2023**[8](index=8&type=chunk) - The weighted average stated interest rate on outstanding borrowings **decreased** to **7.88%** at **June 30, 2024**, from **8.29%** at **December 31, 2023**[10](index=10&type=chunk) - The company was in **compliance** with all financial and other restrictive covenants under the Credit Facility as of **June 30, 2024**[14](index=14&type=chunk) [Credit Facility](index=16&type=section&id=Credit%20Facility) The Credit Facility includes a senior secured term loan and revolver, with **$13.2 million** in outstanding letters of credit and **$111.0 million** in unused credit availability as of **June 30, 2024**. Interest rates are variable, tied to federal funds, prime, SOFR, or Term SOFR, with a weighted average stated rate of **7.88%** at **June 30, 2024**. The company was in **compliance** with all covenants, including a **Consolidated Net Leverage Ratio** of **4.00** through **June 30, 2024**, **decreasing** to **3.50** thereafter - Total unused credit availability under the Credit Facility was **$111.0 million** at **June 30, 2024**[8](index=8&type=chunk) - Weighted average stated interest rate on outstanding borrowings was **7.88%** at **June 30, 2024**, down from **8.29%** at **December 31, 2023**[10](index=10&type=chunk) - The company was in **compliance** with all financial covenants, including a **Consolidated Net Leverage Ratio** of **4.00** through **June 30, 2024**, which **decreased** to **3.50** thereafter[12](index=12&type=chunk)[14](index=14&type=chunk) [Joint Venture Debt](index=18&type=section&id=Joint%20Venture%20Debt) The **EFM JV**, **63%** owned by the company, had **$8.1 million** outstanding under a loan agreement as of **June 30, 2024**, down from **$8.9 million** at **December 31, 2023**. The loan, secured by **EFM JV** assets, accrues interest at Term SOFR plus **3.25%** (floor **3.75%**), with an interest rate of **8.52%** at **June 30, 2024**. The **EFM JV** contributed **$13.2 million** in revenue for the three months and **$23.9 million** for the six months ended **June 30, 2024** - **EFM JV** loan outstanding: **$8.1 million** (**June 30, 2024**) vs. **$8.9 million** (**December 31, 2023**)[15](index=15&type=chunk) - Interest rate at **June 30, 2024**, was **8.52%**[15](index=15&type=chunk) - **EFM JV** revenue contribution: **$13.2 million** (**Q2 2024**) and **$23.9 million** (**H1 2024**)[15](index=15&type=chunk) [Foreign Debt](index=18&type=section&id=Foreign%20Debt) The company has various foreign bank guarantee facilities and bilateral lines of credit, with **$48.3 million** in outstanding bank guarantees as of **June 30, 2024**, an **increase** from **$45.8 million** at **December 31, 2023**. This includes Euro-denominated and Yuan-denominated guarantees secured by local assets - Outstanding bank guarantees: **$48.3 million** (**June 30, 2024**) vs. **$45.8 million** (**December 31, 2023**)[16](index=16&type=chunk) - Includes **$1.9 million** Euro-denominated and **$2.8 million** Yuan-denominated outstanding bank guarantees at **June 30, 2024**[16](index=16&type=chunk) [9. Earnings per Share](index=19&type=section&id=9.%20Earnings%20per%20Share) **Diluted EPS increased** to **$0.12** for the three months ended **June 30, 2024**, from **$0.11** in the prior year, and remained **stable** at **$0.17** for the six months. The company repurchased **86,000 shares** for **$2.0 million** in **Q2 2024** and **230,000 shares** for **$5.0 million** in **H1 2024** under its **$20.0 million** share repurchase program Earnings per Share (in thousands, except per share data) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :---------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to CECO Environmental Corp. | $4,485 | $3,724 | $5,993 | $5,701 | | Basic weighted-average shares outstanding | 34,918 | 34,619 | 34,882 | 34,531 | | Diluted weighted-average shares outstanding | 36,303 | 35,144 | 36,239 | 35,172 | | Basic EPS | $0.13 | $0.11 | $0.17 | $0.17 | | Diluted EPS | $0.12 | $0.11 | $0.17 | $0.16 | - The company repurchased approximately **86,000 shares** for **$2.0 million** during the three months ended **June 30, 2024**, and **230,000 shares** for **$5.0 million** during the six months ended **June 30, 2024**, under its **$20.0 million** share repurchase program[20](index=20&type=chunk) [10. Share-Based Compensation](index=19&type=section&id=10.%20Share-Based%20Compensation) Share-based compensation expense **increased** to **$2.2 million** for the three months ended **June 30, 2024**, from **$1.2 million** in the prior year, and to **$3.8 million** for the six months from **$2.0 million**. The company granted approximately **57,000** restricted stock units in **Q2 2024** and **341,000** in **H1 2024**, along with **25,000** stock options in **H1 2024** Share-Based Compensation Expense (in thousands) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Share-based compensation expense | $2,200 | $1,200 | $3,800 | $2,000 | - Granted approximately **57,000** restricted stock units in **Q2 2024** and **341,000** in **H1 2024**[22](index=22&type=chunk) - Granted approximately **25,000** stock options during the six months ended **June 30, 2024**[22](index=22&type=chunk)[24](index=24&type=chunk) [11. Pension and Employee Benefit Plans](index=21&type=section&id=11.%20Pension%20and%20Employee%20Benefit%20Plans) Net periodic benefit cost for the defined benefit pension plan **decreased** to **$57 thousand** for the three months ended **June 30, 2024**, from **$107 thousand** in the prior year, and to **$113 thousand** for the six months from **$214 thousand**. The company made **$0.2 million** in contributions in **H1 2024** and expects to contribute **$0.9 million** for the remainder of **2024**. The **unfunded liability** was **$4.0 million** at **June 30, 2024** Pension Plan Expense (in thousands) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest cost | $304 | $318 | $608 | $637 | | Expected return on plan assets | $(304) | $(285) | $(608) | $(571) | | Amortization of net actuarial loss | $57 | $74 | $113 | $148 | | Net periodic benefit cost | $57 | $107 | $113 | $214 | - The company made contributions of **$0.2 million** to its defined benefit plan during the three and six months ended **June 30, 2024**[27](index=27&type=chunk) - The **unfunded liability** of the plan was **$4.0 million** as of **June 30, 2024**[27](index=27&type=chunk) [12. Income Taxes](index=21&type=section&id=12.%20Income%20Taxes) Income tax expense **decreased** to **$0.4 million** for the three months ended **June 30, 2024**, from **$1.0 million** in the prior year, with the **effective** tax rate falling to **7.4%** from **19.8%**. For the six months, expense was **$1.1 million** with a **13.1% effective** rate. The company recorded **$0.8 million** in deferred income taxes on undistributed foreign earnings and is currently **not subject** to Pillar Two global minimum taxes Income Tax Expense and Effective Rate | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense | $0.4 million | $1.0 million | $1.1 million | $1.0 million | | Effective income tax rate | 7.4% | 19.8% | 13.1% | 13.3% | - Deferred income taxes of approximately **$0.8 million** were recorded on undistributed earnings of foreign subsidiaries as of **June 30, 2024**[29](index=29&type=chunk) - The company is currently **not subject** to Pillar Two global minimum taxes based on its current revenue threshold[31](index=31&type=chunk) [13. Financial Instruments](index=23&type=section&id=13.%20Financial%20Instruments) The company's financial instruments, including cash, receivables, notes payable, and accounts payable, approximate fair value due to their short-term nature or variable interest rates. The fair value of debt under the Credit Facility and joint venture term loan was **$131.9 million** at **June 30, 2024**, determined using **Level 2** inputs - Financial instruments approximate fair value due to short-term nature or variable, market-driven interest rates[32](index=32&type=chunk) - Fair value of debt under Credit Facility and joint venture term loan was **$131.9 million** at **June 30, 2024** (**Level 2** on fair value hierarchy)[38](index=38&type=chunk) [14. Commitments and Contingencies](index=23&type=section&id=14.%20Commitments%20and%20Contingencies) The company is involved in asbestos-related lawsuits, with **333 cases** pending as of **June 30, 2024**, an **increase** from **313 cases** at **December 31, 2023**. Cumulative settlement payments since **2002** totaled **$6.8 million**, largely covered by insurers. The company believes its insurance coverage is **adequate** and that pending cases will **not** have a **material adverse impact** on its financial condition - **333 cases** pending against the company as of **June 30, 2024**, up from **313 cases** at **December 31, 2023**[40](index=40&type=chunk) - Cumulative settlement payments for asbestos claims from **2002** through **June 30, 2024**, were **$6.8 million**, substantially paid by insurers[39](index=39&type=chunk) - The company believes its insurance coverage is **adequate** and that pending cases will **not** have a **material adverse impact** on its results of operations, liquidity, or financial condition[40](index=40&type=chunk) [15. Acquisitions](index=25&type=section&id=15.%20Acquisitions) The company completed three acquisitions: **Kemco Systems Co., LLC** (August **2023**), **Transcend Solutions, LLC** (March **2023**), and **Malvar Engineering Limited (Wakefield)** (January **2023**). These acquisitions expanded the company's market position in water/wastewater treatment, hydrocarbon processing, and industrial noise control, respectively. The purchase accounting for **Kemco** is still subject to final adjustments - Acquired **Kemco Systems Co., LLC** for **$23.6 million** cash (adjusted) plus earnout payments, enhancing its position in North American water and wastewater treatment[44](index=44&type=chunk) - Acquired **Transcend Solutions, LLC** for **$22.4 million** (cash and deferred consideration), expanding into midstream oil and gas, LNG, and chemical processing[46](index=46&type=chunk) - Acquired **Malvar Engineering Limited (Wakefield)** for **$4.1 million** cash plus deferred consideration, strengthening its industrial silencing and noise attenuation market position[49](index=49&type=chunk) - Purchase accounting for **Kemco** acquisition is subject to final adjustment, primarily for intangible asset valuation and tax balances[51](index=51&type=chunk) [16. Business Segment Information](index=29&type=section&id=16.%20Business%20Segment%20Information) The company operates in two reportable segments: Engineered Systems and Industrial Process Solutions. The Engineered Systems segment showed strong growth in net sales and operating income for both the three and six months ended June 30, 2024, while the Industrial Process Solutions segment experienced a slight decrease in net sales but an increase in operating income for the three-month period Segment Net Sales (in thousands) | Segment | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Engineered Systems segment | $97,392 | $87,522 | $186,741 | $161,977 | | Industrial Process Solutions segment | $40,130 | $41,659 | $77,113 | $79,767 | | Total net sales | $137,522 | $129,181 | $263,854 | $241,744 | Segment Income from Operations (in thousands) | Segment | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Engineered Systems segment | $19,330 | $14,089 | $35,607 | $23,894 | | Industrial Process Solutions segment | $5,669 | $4,586 | $12,769 | $10,131 | | Corporate and Other | $(15,742) | $(10,072) | $(31,433) | $(19,961) | | Total income from operations | $9,257 | $8,603 | $16,943 | $14,064 | - Engineered Systems segment net sales **increased** by **$9.9 million (11.3%)** for the three months and **$24.7 million (15.2%)** for the six months ended **June 30, 2024**, primarily driven by separation, filtration, and industrial water technologies[96](index=96&type=chunk)[97](index=97&type=chunk) - Industrial Process Solutions segment net sales **decreased** slightly for both periods, but operating income **increased** due to a **decrease** in direct costs[102](index=102&type=chunk)[161](index=161&type=chunk) [17. Subsequent Events](index=33&type=section&id=17.%20Subsequent%20Events) On **July 29, 2024**, the company acquired **EnviroCare International** for approximately **$17 million**, financed by cash and existing credit. This acquisition is expected to strengthen the Industrial Process Solutions segment by adding industrial exhaust air contamination treatment solutions and expanding market access - Acquired **EnviroCare International** on **July 29, 2024**, for approximately **$17 million**[66](index=66&type=chunk) - Acquisition financed using a combination of cash and borrowings under the existing Credit Facility[66](index=66&type=chunk) - **EnviroCare** specializes in industrial exhaust air contamination treatment, enhancing the Industrial Process Solutions segment[66](index=66&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, including consolidated results, segment performance, liquidity, and capital resources. It highlights increased net sales and gross profit, improved operating cash flow, and ongoing efforts to manage market pressures and integrate acquisitions [Company Overview](index=34&type=section&id=Company%20Overview) **CECO Environmental Corp.** is a diversified industrial company focused on environmental solutions for industrial air, water, and energy transition markets globally. It provides technologies and expertise to improve air and water quality, optimize emissions, and enhance energy efficiency across various industrial sectors - **CECO** is an environmentally focused, diversified industrial company serving global industrial air, water, and energy transition markets[73](index=73&type=chunk) - Solutions include improving air/water quality, optimizing emissions, and **increasing** energy/process efficiency for highly engineered applications[73](index=73&type=chunk) [Note Regarding Use of Non-GAAP Financial Measures](index=34&type=section&id=Note%20Regarding%20Use%20of%20Non-GAAP%20Financial%20Measures) The company provides non-GAAP financial measures, such as non-GAAP operating income and margin, to offer greater transparency into its ongoing operational performance by excluding items like amortization, earnout, acquisition, restructuring, executive transition, and asbestos litigation expenses, which management believes are not indicative of core operations - Non-GAAP financial measures (non-GAAP operating income and margin) are provided to exclude items not indicative of ongoing operations[70](index=70&type=chunk)[74](index=74&type=chunk) - Excluded items include amortization and earnout expenses, acquisition and integration expenses, executive transition expenses, restructuring expenses, and asbestos litigation expenses[154](index=154&type=chunk) [Market Pressures](index=34&type=section&id=Market%20Pressures) The company actively monitors key materials market indexes and trends, adjusting procurement strategies and securing raw materials from diverse suppliers to mitigate supply disruptions. However, it cannot guarantee continued mitigation, and unmitigated disruptions could adversely affect business and financial results - Monitoring key materials market indexes and trends, adjusting procurement strategies[68](index=68&type=chunk) - Secured raw materials from existing and alternate suppliers to **mitigate** supply disruptions[68](index=68&type=chunk) - Inability to **mitigate** supply disruptions could **adversely affect** business, results, and financial condition[68](index=68&type=chunk) [Consolidated Results](index=35&type=section&id=Consolidated%20Results) Consolidated net sales **increased** by **6.4%** for the three months and **9.2%** for the six months ended **June 30, 2024**, driven by separation, filtration, and industrial water technologies. Gross profit margins **improved significantly** due to sales mix, project execution, and sourcing benefits. Operating income and non-GAAP operating income also **increased**, while interest expense **decreased** in **Q2** but **increased** in **H1** due to rising rates Consolidated Financial Performance (in millions, except ratios) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $137.5 | $129.2 | $263.9 | $241.7 | | Gross profit | $49.0 | $39.8 | $94.2 | $74.7 | | Gross profit % of sales | 35.6% | 30.8% | 35.7% | 30.9% | | Operating income | $9.3 | $8.6 | $16.9 | $14.1 | | Operating margin | 6.8% | 6.7% | 6.4% | 5.8% | | Non-GAAP operating income | $12.6 | $11.4 | $22.8 | $19.1 | | Non-GAAP operating margin | 9.2% | 8.8% | 8.6% | 7.9% | | Net income attributable to CECO | $4.5 | $3.7 | $5.9 | $5.6 | - Net sales **increased 6.4% (Q2)** and **9.2% (H1)** year-over-year, primarily from separation, filtration, and industrial water technologies[79](index=79&type=chunk)[80](index=80&type=chunk) - Gross profit margin **improved** to **35.6% (Q2)** and **35.7% (H1)** due to sales mix, project execution, and sourcing benefits[81](index=81&type=chunk)[82](index=82&type=chunk) - Orders booked **decreased** by **13.6%** in **Q2** and **7%** in **H1**, mainly due to emissions management, partially offset by separation, filtration, and industrial water technologies[76](index=76&type=chunk)[77](index=77&type=chunk)[155](index=155&type=chunk) [Business Segments](index=39&type=section&id=Business%20Segments) The Engineered Systems segment saw net sales **increase** by **11.3%** in **Q2** and **15.2%** in **H1**, with operating income rising significantly due to **increased** sales. The Industrial Process Solutions segment experienced a slight net sales **decrease** but an **increase** in operating income, driven by a **decrease** in direct costs. Corporate and Other operating expenses **increased** due to growth investments and inflationary pressures Segment Net Sales (in thousands) | Segment | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Engineered Systems segment | $97,392 | $87,522 | $186,741 | $161,977 | | Industrial Process Solutions segment | $40,130 | $41,659 | $77,113 | $79,767 | Segment Income from Operations (in thousands) | Segment | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Engineered Systems segment | $19,330 | $14,089 | $35,607 | $23,894 | | Industrial Process Solutions segment | $5,669 | $4,586 | $12,769 | $10,131 | | Corporate and Other | $(15,742) | $(10,072) | $(31,433) | $(19,961) | - Engineered Systems segment operating income **increased** by **$5.2 million (Q2)** and **$11.7 million (H1)** due to **increased** net sales[99](index=99&type=chunk)[160](index=160&type=chunk) - Industrial Process Solutions segment operating income **increased** by **$1.1 million (Q2)** and **$2.7 million (H1)**, despite a slight net sales **decrease**, primarily due to **decreased** direct costs[103](index=103&type=chunk)[161](index=161&type=chunk) [Backlog](index=41&type=section&id=Backlog) Backlog, representing unfulfilled performance obligations, **increased** to **$390.9 million** as of **June 30, 2024**, from **$370.9 million** at **December 31, 2023**. Substantially all backlog is expected to be delivered within **12 to 18 months**, and historically, cancellations have not been common - Backlog **increased** to **$390.9 million** as of **June 30, 2024**, from **$370.9 million** as of **December 31, 2023**[162](index=162&type=chunk) - Substantially all backlog is expected to be delivered within **12 to 18 months**[162](index=162&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) The company's working capital **decreased** slightly to **$74.1 million** at **June 30, 2024**, from **$78.3 million** at **December 31, 2023**, with cash and cash equivalents **decreasing** to **$36.5 million**. Operating activities generated **$7.9 million** in cash for **H1 2024**, a **significant improvement**, while financing activities used **$16.6 million** primarily for debt repayment and share repurchases - Working capital was **$74.1 million** at **June 30, 2024**, down from **$78.3 million** at **December 31, 2023**[114](index=114&type=chunk) - Cash and cash equivalents totaled **$36.5 million** at **June 30, 2024**, down from **$54.8 million** at **December 31, 2023**[109](index=109&type=chunk) - Net cash provided by operating activities was **$7.9 million** for the six months ended **June 30, 2024**, compared to **$0.6 million** used in the prior year[117](index=117&type=chunk) - Net cash used in financing activities was **$16.6 million** for **H1 2024**, primarily for long-term debt repayment (**$6.7 million**) and common stock repurchases (**$5.0 million**)[118](index=118&type=chunk) [Critical Accounting Policies and Estimates](index=44&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Management's financial reporting relies on estimates and assumptions for revenue recognition, asset valuations (receivables, inventories, goodwill, intangibles), legal contingencies, and income taxes. These estimates are based on historical experience and ongoing monitoring of economic conditions, with no material changes identified in critical accounting policies during the six months ended June 30, 2024 - Financial statements rely on management's estimates and assumptions for various items, including revenue recognition, asset valuations, and income taxes[119](index=119&type=chunk) - **No material changes** to critical accounting policies and estimates were identified during the six months ended **June 30, 2024**[120](index=120&type=chunk) [Forward-Looking Statements](index=44&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially. Key risks include economic conditions, dependence on fixed-price contracts, supply chain challenges, litigation, fluctuations in material prices, debt levels, regulatory changes, and the ability to integrate acquisitions - Forward-looking statements are based on management's views and assumptions, subject to risks and uncertainties[122](index=122&type=chunk) - Potential risks include economic conditions, fixed-price contract dependence, supply chain issues, litigation, material price fluctuations, debt, regulatory impact, and acquisition integration[122](index=122&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is primarily exposed to market risks from changes in interest rates and foreign currency exchange rates. A hypothetical **10% increase** in the weighted average borrowing rate would impact annual earnings and cash flows by **$1.0 million**. Foreign currency fluctuations have not materially affected operating results historically, but future changes could have an impact - Primary market risks are changes in interest rates and foreign currency exchange rates[124](index=124&type=chunk) - A hypothetical **10% increase** in the weighted average borrowing rate would result in an estimated annual impact of **$1.0 million**[126](index=126&type=chunk) - Foreign currency fluctuations have **not materially affected** operating results in the past, but future changes may impact revenues, operating expenses, and earnings[127](index=127&type=chunk) [Item 4. Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were **effective** as of **June 30, 2024**, following the **remediation** of previously reported material weaknesses in internal control over financial reporting related to revenue recognition and balance sheet reconciliations. Management reinforced policies and implemented monitoring activities to strengthen the control environment - Disclosure controls and procedures were **effective** as of **June 30, 2024**[129](index=129&type=chunk) - Previously reported material weaknesses in internal control over financial reporting related to revenue recognition and balance sheet reconciliations have been **remediated**[131](index=131&type=chunk)[132](index=132&type=chunk)[134](index=134&type=chunk) - **Remediation** efforts included reinforcing adherence to company policies, strengthening training programs, and developing monitoring activities[134](index=134&type=chunk) Part II – Other Information [Item 1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 14 to the unaudited Condensed Consolidated Financial Statements - Legal proceedings information is detailed in **Note 14** of the financial statements[138](index=138&type=chunk) [Item 1A. Risk Factors](index=51&type=page&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023 - **No material changes** to risk factors since the Annual Report on Form 10-K for fiscal year **2023**[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended **June 30, 2024**, the company repurchased **86,353 shares** of common stock at an average price of **$23.16** per share, totaling approximately **$2.0 million**, under its **$20.0 million** share repurchase program. Approximately **$8.0 million** remains available under the program Purchases of Equity Securities (Three months ended June 30, 2024) | Period | Total Number of Shares Purchased | Average Price per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Value of Shares That May Yet Be Purchased Under the Plans or Programs | | :----------------------------------- | :------------------------------- | :---------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------ | | April 1, 2024 - April 30, 2024 | — | — | — | $10,000 | | May 1, 2024 - May 31, 2024 | 48,102 | $23.09 | 48,102 | $8,889 | | June 1, 2024 - June 30, 2024 | 38,251 | $23.25 | 38,251 | $8,000 | | Total | 86,353 | $23.16 | 86,353 | | - The share repurchase program, authorized on **May 10, 2022**, allows for up to **$20.0 million** in repurchases through **April 30, 2025**[143](index=143&type=chunk) [Item 3. Defaults Upon Senior Securities](index=51&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - No defaults upon senior securities[144](index=144&type=chunk) [Item 4. Mine Safety Disclosures](index=51&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - **Not applicable**[145](index=145&type=chunk) [Item 5. Other Information](index=51&type=section&id=Item%205.%20Other%20Information) No director or **Section 16 officer adopted** or terminated a **Rule 10b5-1** or non-**Rule 10b5-1** trading arrangement during the three months ended **June 30, 2024** - No director or **Section 16 officer adopted** or terminated a **Rule 10b5-1** or non-**Rule 10b5-1** trading arrangement during **Q2 2024**[146](index=146&type=chunk) [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications by the CEO and CFO, and Inline XBRL documents - Exhibits include CEO and CFO certifications (Rule 13(a)/15d-14(a) and 18 U.S. Section 1350) and **Inline XBRL documents**[142](index=142&type=chunk)[147](index=147&type=chunk) [SIGNATURES](index=53&type=section&id=SIGNATURES) The report was duly signed on behalf of **CECO Environmental Corp.** by **Kiril Kovachev**, **Chief Accounting Officer**, on **July 30, 2024** - Report signed by **Kiril Kovachev**, **Chief Accounting Officer**, on **July 30, 2024**[151](index=151&type=chunk)

CECO Environmental Corp. (NASDAQ:CECO) Q2 2024 Earnings Conference Call July 30, 2024 8:30 AM ET Company Participants Steven Hooser - Investor Relations Todd Gleason - Chief Executive Officer Peter Johansson - Chief Financial & Strategy Officer Conference Call Participants Aaron Spychalla - Craig Hallam Capital Group Rob Brown - Lake Street Capital Markets Gerry Sweeney - Roth Jim Ricchiuti - Needham and Company Bobby Brooks - Northland Capital Markets Amit Dayal - H.C. Wainwright Operator Good morning, and ...

Q2 2024 Earnings Report July 30, 2024 This presentation contains forward-looking statements with predictions, projections and other statements about future events. 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 inv ...

CECO Environmental (CECO) came out with quarterly earnings of $0.20 per share, beating the Zacks Consensus Estimate of $0.16 per share. This compares to earnings of $0.15 per share a year ago. These figures are adjusted for non-recurring items. CECO, which belongs to the Zacks Pollution Control industry, posted revenues of $137.52 million for the quarter ended June 2024, missing the Zacks Consensus Estimate by 3.84%. This compares to year-ago revenues of $129.18 million. The company has topped consensus rev ...

Financial Performance - Second quarter revenue reached $137.5 million, an increase of 6% year-over-year[6] - Gross profit for the quarter was $49.0 million, up 23%, with gross margins expanding by 480 basis points to 35.6%[6] - Adjusted EBITDA was $16.1 million, reflecting an 18% increase compared to the same quarter last year, with a margin of 11.7%[6] - Net income for the quarter was $4.5 million, a 22% increase from $3.7 million in the second quarter of 2023[6] - Operating income for the three months ended June 30, 2024, was reported at $9.3 million, compared to $8.6 million in 2023, reflecting a year-over-year increase of 8.1%[23] - Non-GAAP operating income for the six months ended June 30, 2024, reached $22.8 million, up from $19.1 million in 2023, indicating a growth of 19.4%[23] - Adjusted EBITDA for the six months ended June 30, 2024, was $29.3 million, compared to $23.4 million in 2023, marking an increase of 25.3%[23] - Net income for the six months ended June 30, 2024, increased to $7,022,000, up from $6,460,000 in 2023, representing a growth of 8.7%[21] - Non-GAAP net income for the six months ended June 30, 2024, was $11.5 million, compared to $8.8 million in 2023, reflecting a growth of 30.7%[23] Guidance and Future Outlook - The company raised its full year 2024 revenue guidance to between $600 million and $620 million, representing a 12% increase at the midpoint[8] - Adjusted EBITDA guidance for 2024 was also raised to between $68 million and $72 million, up approximately 21% year-over-year at the midpoint[8] Acquisitions and Sales - The company completed the acquisition of EnviroCare International, expected to contribute approximately $13 million in sales for 2024 with mid-teen EBITDA margins[7] - The backlog stood at $390.9 million, indicating strong demand and operational capacity[6] Cash Flow and Capital Expenditures - Free cash flow for the quarter was $2.6 million, down $7.4 million compared to the same quarter last year[6] - Free cash flow for the six months ended June 30, 2024, was $0.7 million, a significant improvement from a negative $4.5 million in 2023[23] - Cash flows from operating activities for the six months ended June 30, 2024, provided $7,891,000, compared to a negative cash flow of $611,000 in 2023[21] - The company incurred $7,233,000 in capital expenditures for property and equipment during the six months ended June 30, 2024, compared to $3,919,000 in 2023[21] - The company reported a decrease in cash, cash equivalents, and restricted cash to $36,914,000 at the end of the period, down from $48,552,000 in 2023[21] Risks and Uncertainties - The company acknowledges that forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from expectations[31] - Key risks include dependence on fixed price contracts, potential contract delays, and supply chain challenges[31] - The company faces inflationary pressures related to rising raw material costs and labor costs[31] - There is a substantial amount of debt incurred from strategic transactions, impacting the company's ability to repay or refinance[31] - The unpredictability of catastrophic events, including cybersecurity threats and public health crises, poses additional risks[31] - The company emphasizes the importance of not placing undue reliance on forward-looking statements as they reflect views only as of the date made[31] - Management's ability to successfully identify acquisition targets and integrate acquired businesses is crucial for realizing synergies[31] - The company is subject to federal, state, or local government regulations that may impact operations[31] - The ability to repurchase shares of common stock and the timing of such repurchases are uncertain[31] - The company undertakes no obligation to update or review forward-looking statements unless required by federal securities laws[31]

The market expects CECO Environmental (CECO) to deliver a year-over-year increase in earnings on higher revenues when it reports results for the quarter ended June 2024. This widely-known consensus outlook is important in assessing the company's earnings picture, but a powerful factor that might influence its near-term stock price is how the actual results compare to these estimates. While the sustainability of the immediate price change and future earnings expectations will mostly depend on management's di ...

Company Overview - CECO Environmental is a leading environmentally focused, diversified industrial company serving industrial air, water, and energy transition markets globally [2][3] - The company operates through key business segments: Engineered Systems and Industrial Process Solutions, providing innovative technology and application expertise [2] Financial Reporting - CECO Environmental will report its second quarter 2024 financial results on July 30, 2024, before the market opens [3] - An earnings call will be hosted at 8:30 a.m. Eastern Time on the same day [3] Business Focus - CECO Environmental aims to improve air quality, optimize the energy value chain, and provide custom solutions for various applications including power generation, petrochemical processing, and electric vehicle production [2] - The company is committed to offering safe, clean, and efficient solutions that protect people, the environment, and industrial equipment [2]

• Great Returns in 2022 & 2023 Transactions Stock Buybacks • $15M repurchased since 2021 (average price ~ $8.20) • $10M remaining on authorization Capital Expenditures • ERP Consolidation Net Repayments $(2.8) Other $ (1.0) • Cybersecurity On term loan $0.0 Repayments Capex $(3.1) On revolver $(12.6) • Adding Mfg. Footprint to absorb sustainable growth Ref: Cash Interest $(3.3) Cash Taxes $(1.0) Leverage Ratio3/ 1.4x 1.4x 1.4x 3/ Leverage Ratio = Net Debt / TTM Bank EBITDA 4/ Capacity = Current Facility Cap ...

CECO Environmental Corp. (NASDAQ:CECO) Q1 2024 Earnings Conference Call April 30, 2024 8:30 AM ET Company Participants Steven Hooser - IR Todd Gleason - President & CEO Peter Johansson - Chief Financial & Strategy Officer Conference Call Participants Aaron Spychalla - Craig Hallam Capital Group Rob Brown - Lake Street Capital Markets Gerry Sweeney - Roth Chris Grenga - Needleman and Company Bobby Brooks - Northern Capital Markets Amit Dayal - H.C. Wainwright Operator Good morning, and welcome to the CECO En ...

CECO Environmental (CECO) came out with quarterly earnings of $0.11 per share, in line with the Zacks Consensus Estimate. This compares to earnings of $0.10 per share a year ago. These figures are adjusted for non-recurring items.A quarter ago, it was expected that this maker of air pollution controls and industrial ventilation systems would post earnings of $0.25 per share when it actually produced earnings of $0.28, delivering a surprise of 12%.Over the last four quarters, the company has surpassed consen ...