CECO Environmental(CECO) - 2025 Q2 - Quarterly Report

Part I Financial Statements This section presents CECO Environmental Corp.'s unaudited condensed consolidated financial statements as of June 30, 2025, detailing assets, liabilities, equity, operating results, and cash flows Condensed Consolidated Balance Sheets | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | | Total Assets | $876,582 | $759,699 | 15.4% | | Total Liabilities | $573,363 | $507,806 | 12.9% | | Total Shareholders' Equity | $303,219 | $251,893 | 20.4% | | Cash and cash equivalents | $36,823 | $37,832 | -2.7% | | Accounts receivable, net | $161,498 | $159,572 | 1.2% | | Inventories | $59,792 | $42,624 | 40.3% | | Goodwill | $288,043 | $269,747 | 6.8% | | Intangible assets – finite life, net | $106,871 | $74,050 | 44.3% | | Total current liabilities | $285,035 | $244,662 | 16.5% | | Debt, less current portion | $236,877 | $217,230 | 9.0% | Condensed Consolidated Statements of Income | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Net sales | $185,391 | $137,522 | 34.8% | $362,088 | $263,854 | 37.2% | | Gross profit | $67,108 | $49,047 | 36.8% | $129,270 | $94,179 | 37.3% | | Income from operations | $18,061 | $9,257 | 95.1% | $79,930 | $16,943 | 371.7% | | Net income attributable to CECO Environmental Corp. | $9,510 | $4,485 | 112.0% | $45,494 | $5,993 | 659.1% | | Basic EPS | $0.27 | $0.13 | 107.7% | $1.29 | $0.17 | 658.8% | | Diluted EPS | $0.26 | $0.12 | 116.7% | $1.24 | $0.17 | 629.4% | - Significant growth in operating income and net income for the six months ended June 30, 2025, was primarily driven by a $64.5 million gain from the sale of the Global Pump Solutions business[11] Condensed Consolidated Statements of Comprehensive Income | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Net income | $10,106 | $4,930 | 105.0% | $46,549 | $7,022 | 562.9% | | Foreign currency translation gain (loss) | $404 | $(856) | N/A | $1,923 | $(202) | N/A | | Comprehensive income | $10,510 | $4,074 | 158.0% | $48,472 | $6,820 | 610.7% | Condensed Consolidated Statements of Shareholders' Equity | Metric (in thousands) | December 31, 2024 | June 30, 2025 | Change | | :-------------------- | :---------------- | :------------ | :----- | | Total CECO shareholders' equity | $247,689 | $298,364 | $50,675 | | Noncontrolling interest | $4,204 | $4,855 | $651 | | Total shareholders' equity | $251,893 | $303,219 | $51,326 | - Net income of $45.5 million for the six months ended June 30, 2025, increased retained earnings[14] - Share-based compensation increased capital in excess of par value by $6.5 million for the six months ended June 30, 2025[14] Condensed Consolidated Statements of Cash Flows | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Net cash (used in) provided by operating activities | $(19,363) | $7,891 | $(27,254) | | Net cash provided by (used in) investing activities | $3,813 | $(6,811) | $10,624 | | Net cash provided by (used in) financing activities | $14,197 | $(16,565) | $30,762 | | Net decrease in cash, cash equivalents and restricted cash | $(1,292) | $(18,534) | $17,242 | - Cash flow from investing activities in 2025 was primarily impacted by $105.9 million in proceeds from the sale of the Global Pump Solutions business and $97.6 million paid for the Profire acquisition[17] - Financing activities in 2025 were primarily driven by $19.7 million in net borrowings for the Profire acquisition[17] Notes to Condensed Consolidated Financial Statements Note 1. Basis of Reporting for Consolidated Financial Statements - Financial statements are unaudited and include only normal recurring adjustments[19] - Management's estimates and assumptions are integral to financial statement preparation, and actual results may differ[20] Note 2. Recent Financial Accounting Pronouncements - The company is evaluating the impact of ASU 2023-09 (Income Tax Disclosures) on consolidated financial statements, effective for fiscal years after December 15, 2024[25] - The company is evaluating the impact of ASU 2024-03 (Income Statement Expense Disaggregation Disclosures) on consolidated financial statements, effective for fiscal years after December 15, 2026[26] Note 3. Accounts Receivable | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Accounts receivable | $170,491 | $168,435 | $2,056 | | Provision for credit losses | $(8,993) | $(8,863) | $(130) | | Total accounts receivable, net | $161,498 | $159,572 | $1,926 | | Provision for Credit Losses (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :--------------------------- | :--------------------------- | | Balance at beginning of period | $8,863 | $6,460 | | Write-offs | $(1,167) | $(14) | | Changes to the provision | $1,297 | $787 | | Recoveries | — | $(651) | | Balance at end of period | $8,993 | $6,582 | Note 4. Contract Assets and Liabilities | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Costs and estimated earnings in excess of billings on uncompleted contracts | $91,262 | $69,889 | $21,373 | | Billings in excess of costs and estimated earnings on uncompleted contracts | $93,045 | $81,501 | $11,544 | - Approximately 50% of contract liabilities as of December 31, 2024, were recognized as revenue during the six months ended June 30, 2025[30] Note 5. Inventories | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Raw materials | $21,461 | $24,803 | $(3,342) | | Work in process | $17,691 | $14,532 | $3,159 | | Finished goods | $20,640 | $3,289 | $17,351 | | Total inventories | $59,792 | $42,624 | $17,168 | - Provision for obsolete inventory charged to cost of sales decreased to $0.2 million for the six months ended June 30, 2025, compared to $0.7 million in the prior year period[31] Note 6. Goodwill and Intangible Assets | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Goodwill | $288,043 | $269,747 | $18,296 | | Tradename (indefinite life) | $9,666 | $9,466 | $200 | - Goodwill increased due to acquisitions of Profire, WK Group, and Verantis, and foreign currency translation, partially offset by the divestiture of the Fluid Handling business[33] | Finite Life Intangible Assets (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :----------------------------------------- | :------------ | :---------------- | :----- | | Intangible assets – finite life, net | $106,871 | $74,050 | $32,821 | | Amortization expense (6 months) | $(6,033) | $(4,315) | $(1,718) | | Acquisitions (6 months) | $41,810 | — | $41,810 | - No triggering events for interim impairment assessments were identified, and no impairment charges for goodwill or intangible assets were recorded for the three or six months ended June 30, 2025[37] Note 7. Accrued Expenses | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Compensation and related benefits | $12,695 | $12,274 | $421 | | Accrued warranty | $5,274 | $4,558 | $716 | | Contract liability | $15,976 | $9,746 | $6,230 | | Short-term operating lease liability | $4,536 | $4,262 | $274 | | Other | $15,469 | $16,688 | $(1,219) | | Total accrued expenses | $53,950 | $47,528 | $6,422 | Note 8. Senior Debt | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Revolving credit facility | $233,900 | $214,200 | $19,700 | | Joint venture term debt | $6,472 | $7,297 | $(825) | | Total outstanding borrowings | $238,734 | $218,880 | $19,854 | | Total debt, less current portion | $236,877 | $217,230 | $19,647 | - The weighted-average interest rate on outstanding borrowings was 7.27% as of June 30, 2025, up from 7.07% as of December 31, 2024[44] - The company was in compliance with all relevant financial and other restrictive covenants under its credit facility and joint venture debt as of June 30, 2025[48][49] - Unused credit availability under the company's credit facility was $104.3 million as of June 30, 2025, compared to $1.0 million as of December 31, 2024[42] Note 9. Earnings per Share | Metric (in thousands, except per share) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income attributable to CECO Environmental Corp. | $9,510 | $4,485 | $45,494 | $5,993 | | Basic EPS | $0.27 | $0.13 | $1.29 | $0.17 | | Diluted EPS | $0.26 | $0.12 | $1.24 | $0.17 | | Basic weighted-average shares outstanding | 35,286 | 34,918 | 35,158 | 34,882 | | Diluted weighted-average shares outstanding | 36,558 | 36,303 | 36,625 | 36,239 | - The stock repurchase program expired on April 30, 2025, with no share repurchases made during the three or six months ended June 30, 2025[54] Note 10. Share-Based Compensation | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Share-based compensation expense | $2,900 | $2,200 | $6,200 | $3,800 | - Approximately 203,000 restricted stock units were granted in Q2 2025, up from 57,000 in Q2 2024[56] - 67,000 stock options were granted in the first half of 2025, compared to 25,000 in the first half of 2024[56] Note 11. Pension and Employee Benefit Plans - The company's non-contributory defined benefit pension plan was transferred to the purchaser of the Global Pump Solutions business on March 31, 2025[59] | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net periodic benefit cost | $0 | $57 | $(8) | $113 | Note 12. Income Taxes | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax expense | $4,511 | $394 | $23,127 | $1,062 | | Effective income tax rate | 30.9% | 7.4% | 33.2% | 13.1% | - The effective tax rate is influenced by the gain on the sale of the Global Pump Solutions business, state income taxes, non-deductible share-based compensation, and varying tax rates across jurisdictions[63] - The company is not currently subject to Pillar Two taxation as its revenue does not meet the relevant thresholds[64] - The company is evaluating the impact of the recently enacted "A Big, Beautiful Bill" (HR-1) on its consolidated financial statements[65] Note 13. Financial Instruments - The fair value of debt under the credit facility and joint venture term loan was $240.4 million as of June 30, 2025[67] - $26.2 million in cash and cash equivalents were held outside the U.S. as of June 30, 2025[68] Note 14. Commitments and Contingencies - The company retained historical asbestos liabilities and related legacy insurance policies following the divestiture of its Fluid Handling business[69] - Accrued amount for asbestos-related litigation was $1.5 million as of June 30, 2025[69] - Management believes that pending asbestos cases will not materially adversely affect the company's operating results, liquidity, or financial condition[70] Note 15. Acquisitions - On January 3, 2025, the company acquired Profire Energy, Inc., a provider of intelligent control solutions for industrial combustion equipment, for $122.7 million in cash[74] - Profire contributed $31.3 million in revenue and $3.6 million in net income to the company for the six months ended June 30, 2025[77] - A fair value adjustment to the WK Group contingent consideration liability resulted in a $7.4 million gain recognized in "Other operating (income) expense, net" during Q2 2025[81] - Goodwill recognized from acquisitions represents the value expected from combining acquired businesses with the company's operations, including market expansion, new customer acquisition, and potential cost savings and synergies, and is not deductible for tax purposes[86] Note 16. Divestiture - The Global Pump Solutions business was sold on March 31, 2025, for a purchase price of $109.5 million[90] - The company received $105.9 million in cash proceeds from the sale[90] - A pre-tax gain on the sale of the business of $64.5 million was recognized from this divestiture[90][91] Note 17. Business Segment Information - The company operates in two reportable business segments: Engineered Systems and Industrial Process Solutions[94][95] | Segment Financials (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Engineered Systems Segment | | | | | | Net Sales | $128,460 | $97,392 | $248,893 | $186,741 | | Income from Operations | $25,194 | $19,330 | $43,934 | $35,607 | | Industrial Process Solutions Segment | | | | | | Net Sales | $56,931 | $40,130 | $113,195 | $77,113 | | Income from Operations | $15,110 | $5,669 | $84,760 | $12,769 | - Operating income for the Industrial Process Solutions segment significantly increased for the six months ended June 30, 2025, primarily due to the gain from the sale of the Global Pump Solutions business and the fair value adjustment of the WK Group contingent consideration liability[149] | Geographic Net Sales (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | United States | $120,204 | $90,450 | $230,875 | $168,238 | | United Kingdom | $12,470 | $14,353 | $32,027 | $26,555 | | Netherlands | $15,763 | $13,496 | $26,989 | $30,308 | | China | $13,563 | $8,883 | $28,357 | $13,213 | | Other | $23,391 | $10,340 | $43,840 | $25,540 | | Total net sales | $185,391 | $137,522 | $362,088 | $263,854 | Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and operating results for the three and six months ended June 30, 2025, highlighting significant growth driven by acquisitions and divestiture gains, non-GAAP metrics, market pressures, liquidity, and capital resources Consolidated Results | Metric (in millions, except ratios) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Net sales | $185.4 | $137.5 | 34.8% | $362.1 | $263.9 | 37.2% | | Gross profit | $67.1 | $49.0 | 36.9% | $129.3 | $94.2 | 37.3% | | Operating income (GAAP) | $18.1 | $9.3 | 94.6% | $79.9 | $16.9 | 373.0% | | Operating margin (GAAP) | 9.8% | 6.8% | 3.0 pp | 22.1% | 6.4% | 15.7 pp | | Non-GAAP operating income | $18.3 | $12.6 | 45.2% | $26.9 | $22.8 | 18.0% | | Non-GAAP operating margin | 9.9% | 9.2% | 0.7 pp | 7.4% | 8.6% | -1.2 pp | - Significant GAAP operating income growth for the six months ended June 30, 2025, was primarily attributed to a $64.5 million gain from the Global Pump Solutions business sale and a fair value adjustment to the WK Group contingent consideration liability[129] - Orders booked increased 95% to $274.1 million for the three months ended June 30, 2025, and 75% to $502.1 million for the six months ended June 30, 2025, driven by energy and power technologies and recent acquisitions[117][119] Business Segments | Segment Performance (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (%) | | :--------------------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Engineered Systems | | | | | | | | Orders booked | $224,200 | $100,500 | 123.1% | $387,100 | $200,000 | 93.6% | | Net sales | $128,460 | $97,392 | 31.9% | $248,893 | $186,741 | 33.3% | | Operating income | $25,194 | $19,330 | 30.3% | $43,934 | $35,607 | 23.4% | | Industrial Process Solutions | | | | | | | | Orders booked | $49,900 | $40,200 | 24.1% | $114,900 | $85,500 | 34.4% | | Net sales | $56,931 | $40,130 | 41.9% | $113,195 | $77,113 | 46.8% | | Operating income | $15,110 | $5,669 | 166.5% | $84,760 | $12,769 | 563.8% | Engineered Systems Segment - Q2 2025 orders booked increased 123%, with 94% attributed to organic orders, driven by energy and power technologies and the Profire acquisition[136][137] - Q2 2025 net sales grew 31.9%, with 87% from organic revenue, benefiting from backlog execution on large power projects and inorganic growth from Profire[139] Industrial Process Solutions Segment - Q2 2025 orders booked increased 24%, with 70% from organic orders, driven by recent industrial air handling acquisitions and increased demand for scrubber technologies[143] - Q2 2025 net sales grew 41.9%, with 59% from organic revenue, primarily from recent acquisitions, partially offset by the Global Pump Solutions divestiture[145] - Q2 2025 segment operating income increased by $9.4 million, primarily due to a fair value adjustment to the WK Group contingent consideration liability and higher gross profit from increased net sales[147] Backlog | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change | | :------------------- | :------------ | :---------------- | :----- | | Backlog | $688.1 | $540.9 | $147.2 | - The vast majority of the backlog is expected to be delivered within 18 to 24 months[150] Recent Accounting Pronouncements - Refer to Note 2 to the Condensed Consolidated Financial Statements for detailed information on recent accounting pronouncements[151] Liquidity and Capital Resources | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change | | :------------------- | :------------ | :---------------- | :----- | | Working capital | $98.0 | $86.3 | $11.7 | | Cash and cash equivalents | $36.8 | $37.8 | $(1.0) | | Total outstanding borrowings | $238.7 | $218.9 | $19.8 | | Unused credit availability | $104.3 | $1.0 | $103.3 | Credit Facility - The credit facility provides a senior secured revolving credit line of up to $400 million[41] - Outstanding borrowings under the revolving credit facility were $233.9 million as of June 30, 2025[40] - The company entered an "Increased Ratio Period" in Q1 2025, allowing a maximum consolidated net leverage ratio of 4.50 and consolidated secured net leverage ratio of 3.50 for up to four quarters[45] Overview of Cash Flows and Liquidity | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | | Net cash (used in) provided by operating activities | $(19,363) | $7,891 | $(27,254) | | Net cash provided by (used in) investing activities | $3,813 | $(6,811) | $10,624 | | Net cash provided by (used in) financing activities | $14,197 | $(16,565) | $30,762 | | Net decrease in cash | $(1,292) | $(18,534) | $17,242 | Operating Activities - Cash used in operating activities for the six months ended June 30, 2025, was $19.4 million, a $27.3 million decrease year-over-year, primarily due to the timing of project-related payments[161] Investing Activities - Net cash provided by investing activities was $3.8 million in the first half of 2025, compared to net cash used of $6.8 million in the first half of 2024[162] - This was primarily due to $105.9 million in proceeds from the sale of the Global Pump Solutions business, partially offset by $97.6 million paid for the Profire acquisition[162] Financing Activities - Net cash provided by financing activities was $14.2 million in the first half of 2025, compared to net cash used of $16.6 million in the first half of 2024[163] - The increase was primarily driven by $19.7 million in net borrowings for the Profire acquisition[163] Critical Accounting Estimates - No significant changes occurred in the company's critical accounting policies and estimates disclosed for the six months ended June 30, 2025[164] Forward-Looking Statements - This report contains forward-looking statements involving risks and uncertainties that could cause actual results to differ materially from any future results, performance, or achievements expressed or implied by such statements[165] - Key risks include those related to acquisitions and divestitures, fixed-price contracts, supply chain challenges, litigation, and general economic conditions[166] Quantitative and Qualitative Disclosures about Market Risk The company primarily faces market risks from changes in interest rates and foreign currency exchange rates, with hypothetical interest rate changes impacting earnings and cash flows - The company primarily faces market risks from changes in interest rates and foreign currency exchange rates[167][168] - A hypothetical 10% change in the weighted-average borrowing rate is estimated to impact future earnings and cash flows by $1.7 million annually[169] - Foreign currency transaction gains (losses) were -$1.4 million for the three months ended June 30, 2025, and -$0.9 million for the six months ended June 30, 2025[170] Controls and Procedures Management assessed disclosure controls and procedures as effective as of June 30, 2025, with no significant changes to internal financial reporting controls during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[171] - No significant changes occurred in internal financial reporting controls during the quarter ended June 30, 2025[173] - Control systems provide reasonable, not absolute, assurance due to inherent limitations and resource constraints[174] Part II – Other Information Legal Proceedings Information regarding legal proceedings is detailed in Note 14 to the condensed consolidated financial statements - Legal proceedings information is detailed in Note 14 to the financial statements[175] Risk Factors No material changes to the company's risk factors have occurred since the Form 10-K annual report as of December 31, 2024 - No material changes to risk factors have occurred since the 2024 annual report on Form 10-K[176] Unregistered Sales of Equity Securities and Use of Proceeds The company's $20 million stock repurchase program expired on April 30, 2025, with no repurchases made during the three months ended June 30, 2025 - The company did not repurchase any shares under the plan during the three months ended June 30, 2025[177] - The $20 million stock repurchase program expired on April 30, 2025[177] Defaults Upon Senior Securities This report discloses no defaults upon senior securities - No defaults upon senior securities occurred[178] Mine Safety Disclosures This item is not applicable to the company - Not applicable[179] Other Information No directors or Section 16 officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No directors or Section 16 officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q2 2025[180] Exhibits This section lists exhibits filed with Form 10-Q, including equity award agreements, CEO and CFO certifications, and XBRL documents - Exhibits include equity award agreements, CEO/CFO certifications, and XBRL documents[182] Signatures - This report was signed by Kiril Kovachev, Chief Accounting Officer, on behalf of CECO Environmental Corp. on July 29, 2025[186]