CECO Environmental(US:CECO)2025-04-29 20:13Part I – Financial Information Item 1. Financial Statements CECO Environmental Corp. reported Q1 2025 net sales of $176.7 million and net income of $36.0 million, significantly boosted by a divestiture gain Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $476,101 | $330,971 | | Total assets | $957,095 | $759,699 | | Total current liabilities | $278,754 | $244,662 | | Total liabilities | $667,044 | $507,806 | | Total shareholders' equity | $290,051 | $251,893 | Condensed Consolidated Statement of Income Highlights (in thousands, except per share data) | Account | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net sales | $176,697 | $126,332 | | Gross profit | $62,162 | $45,132 | | Income from operations | $61,870 | $7,686 | | Gain on sale of Global Pump Solutions business | $64,502 | $— | | Net income attributable to CECO | $35,984 | $1,508 | | Diluted EPS | $0.98 | $0.04 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(11,696) | $1,224 | | Net cash provided by (used in) investing activities | $4,829 | $(2,694) | | Net cash provided by (used in) financing activities | $115,756 | $(6,528) | | Net increase (decrease) in cash | $108,475 | $(8,420) | Notes to Condensed Consolidated Financial Statements Q1 2025 notes detail Profire Energy acquisition, Global Pump Solutions divestiture gain, increased debt, and litigation - On January 3, 2025, the Company acquired all outstanding shares of Profire Energy, Inc. for $122.7 million in cash, financed through cash on hand and a draw on the revolving credit facility72 - On March 31, 2025, the Company finalized the sale of its Global Pump Solutions business for a purchase price of $109.5 million, recognizing a pre-tax gain on the sale of $64.5 million86 Debt Composition (in thousands) | Debt Component | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Revolving credit facility | $334,700 | $214,200 | | Joint venture term debt | $6,885 | $7,297 | | Total outstanding borrowings | $339,710 | $218,880 | Segment Operating Income (in thousands) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Engineered Systems | $18,740 | $16,277 | | Industrial Process Solutions | $69,650 | $7,100 | | Total Segment Operating Income | $88,390 | $23,377 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2025 orders and net sales increased, with GAAP operating income boosted by divestiture, non-GAAP income declined - Orders booked increased 57.0% to $227.9 million in Q1 2025 from $145.3 million in Q1 2024, with organic bookings contributing approximately 81% of the total111 - Backlog increased to $602.0 million as of March 31, 2025, from $540.9 million as of December 31, 2024. Substantially all backlog is expected to be delivered within 18 to 24 months129 Reconciliation of GAAP to Non-GAAP Operating Income (in millions) | Description | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Operating income (GAAP) | $61.9 | $7.7 | | Amortization expenses | $3.1 | $2.2 | | Acquisition and integration expenses | $8.1 | $0.2 | | Gain on sale of Global Pump Solutions business | $(64.5) | $— | | Other expenses | $— | $0.1 | | Non-GAAP operating income | $8.6 | $10.2 | | Non-GAAP operating margin | 4.9% | 8.1% | Results of Operations Q1 2025 net sales rose 39.9% to $176.7 million, with GAAP operating income heavily influenced by a $64.5 million divestiture gain - Net sales increased $50.4 million (39.9%) to $176.7 million, with organic revenue contributing $142.4 million (81% of total sales)112 - Gross profit as a percentage of sales slightly decreased to 35.2% in Q1 2025 from 35.7% in Q1 2024 due to project mix113 - Selling and administrative expenses increased to $53.6 million from $34.9 million, primarily due to increased headcount and expenses from prior year acquisitions114 - Non-GAAP operating margin decreased to 4.9% for Q1 2025 from 8.1% for Q1 2024117 Business Segments Engineered Systems and Industrial Process Solutions segments saw increased orders and sales, with IPS operating income boosted by divestiture gain - Engineered Systems segment orders increased 62.9% to $163.0 million, with organic bookings accounting for 88% of the total123 - Industrial Process Solutions segment operating income increased by $62.6 million to $69.7 million, primarily due to the gain on the sale of the Global Pump Solutions business128 Liquidity and Capital Resources The company's liquidity strengthened with cash increasing to $146.5 million, driven by divestiture proceeds and credit facility borrowings - Working capital increased to $197.4 million at March 31, 2025, from $86.3 million at December 31, 2024132 - Cash and cash equivalents totaled $146.5 million at March 31, 2025, a substantial increase from $37.8 million at December 31, 2024133 - In April 2025, subsequent to the quarter end, the Company made payments of $98.7 million on its Credit Facility135 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rate and foreign currency changes, with a 10% rate change impacting earnings by $2.5 million annually - The company's primary market risks are changes in interest rates and foreign currency exchange rates146 - A hypothetical 10% change in the estimated weighted average borrowing rate at March 31, 2025, would have an estimated annual impact of $2.5 million147 - Transaction gains included in "Other expense, net" were $1.7 million for the three months ended March 31, 2025, compared to $0.8 million in the prior year period149 Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2025, with no material changes to internal controls during the quarter - Based on an evaluation, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025150 - No changes in the Company's internal control over financial reporting occurred during the quarter ended March 31, 2025, that materially affected, or are reasonably likely to materially affect, internal controls152 Part II – Other Information Item 1. Legal Proceedings The company faces asbestos-related lawsuits through its subsidiary, but management expects no material adverse financial impact - The Company's subsidiary, Met-Pro, has been named in asbestos-related lawsuits. The Company retained these historical liabilities after the divestiture of its fluid handling business67 - Management believes that none of the pending cases will have a material adverse impact upon the Company's results of operations, liquidity or financial condition68 Item 1A. Risk Factors No material changes occurred in the company's risk factors from those disclosed in the Annual Report on Form 10-K for 2024 - There have been no material changes in the Company's risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024155 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company made no share repurchases in Q1 2025, with $8.0 million remaining available under the program expiring April 30, 2025 - The company did not repurchase any shares during the three months ended March 31, 202553156 - As of March 31, 2025, $8.0 million remained available under the share repurchase program, which expires on April 30, 2025156 Other Items (3, 4, 5, 6) The company reported no defaults on senior securities and no director or officer trading plan adoptions or terminations - Item 3: No defaults upon senior securities were reported157 - Item 5: No director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter159