CECO Environmental(CECO) - 2024 Q1 - Quarterly Results

First Quarter 2024 Performance Overview First Quarter Financial Highlights CECO Environmental reported a 12% revenue increase to $126.3 million, a 40% rise in GAAP operating income, and a 36% increase in Adjusted EBITDA to $13.2 million, with free cash flow significantly improving Q1 2024 Key Financial Metrics | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change (%) | | :-------------------- | :----------------- | :----------------- | :--------- | | Revenue | $126.3 | $112.6 | 12% | | Orders | $145.3 | N/A | N/A | | Net Income (GAAP) | $1.5 | $2.0 | -25% | | Net Income (Non-GAAP) | $4.0 | $3.6 | 11% | | GAAP EPS (Diluted) | $0.04 | $0.06 | N/A | | Non-GAAP EPS (Diluted) | $0.11 | $0.10 | N/A | | Adjusted EBITDA | $13.2 | $9.7 | 36% | | Operating Income (GAAP) | $7.7 | $5.5 | 40% | | Operating Income (Non-GAAP) | $10.2 | $7.7 | 32% | | Backlog | $389.5 | N/A | 9% | - Free cash flow significantly improved by $12.6 million, moving from $(14.5) million in Q1 2023 to $(1.9) million in Q1 2024[4][7] CEO Commentary and Strategic Outlook CEO Todd Gleason noted record gross margins, a 1.2 book-to-bill ratio, near-record backlog, and $3 million in stock repurchases, expressing confidence in the sales pipeline and M&A funnel - Achieved record gross margins, demonstrating ongoing progress in driving operational excellence programs and steadily advancing and diversifying the overall portfolio[7] - The book-to-bill ratio of 1.2 increased the backlog to near-record levels[7] - Repurchased $3 million of stock during the quarter as part of a disciplined capital allocation strategy[7] - Entered the second quarter with a near-record backlog and the largest, most balanced sales pursuit pipeline, including potentially record-sized energy transition opportunities and a replenished M&A funnel with attractive, strategic, growth businesses[7] Full Year 2024 Guidance CECO Environmental reaffirmed its 2024 guidance, projecting revenue of $590-$610 million and Adjusted EBITDA of $67-$70 million, supported by a strong sales pipeline 2024 Full Year Guidance | Metric | 2024 Full Year Guidance | YoY Change (Midpoint) | | :---------------- | :---------------------- | :-------------------- | | Revenue | $590 - $610 million | ~10% | | Adjusted EBITDA | $67 - $70 million | ~20% | | Free Cash Flow | 50% - 70% of Adjusted EBITDA | N/A | - The company maintains high conviction in its full-year outlook, supported by a large sales pipeline, energy transition opportunities, and potential M&A additions[8] About CECO Environmental Company Overview CECO Environmental is a leading diversified industrial company providing global solutions for air, industrial water, and energy transition markets since 1966 - CECO Environmental is a leading environmentally focused, diversified industrial company, serving the broad landscape of industrial air, industrial water, and energy transition markets globally, providing innovative solutions and application expertise[10] - CECO solutions improve air and water quality, optimize emissions management, and increase energy efficiency for highly-engineered applications across various industrial end markets[10] - Incorporated in 1966, CECO's global headquarters is in Dallas, Texas, and the company is listed on Nasdaq under the ticker symbol "CECO"[10] Consolidated Financial Statements Consolidated Statements of Income Net sales increased to $126.3 million, gross profit rose to $45.1 million, but net income decreased to $1.5 million, resulting in diluted EPS of $0.04 Consolidated Statements of Income Highlights (Three months ended March 31) | Metric (in thousands) | 2024 | 2023 | YoY Change | | :------------------------------------------ | :----- | :----- | :--------- | | Net sales | $126,332 | $112,563 | +12.2% | | Cost of sales | $81,200 | $77,670 | +4.5% | | Gross profit | $45,132 | $34,893 | +29.3% | | Selling and administrative expenses | $34,908 | $27,193 | +28.4% | | Income from operations | $7,686 | $5,461 | +40.7% | | Net income attributable to CECO Environmental Corp. | $1,508 | $1,978 | -23.8% | | Diluted EPS | $0.04 | $0.06 | -33.3% | Consolidated Balance Sheets Total assets decreased to $589.0 million, total liabilities to $352.9 million, and shareholders' equity to $236.2 million as of March 31, 2024 Consolidated Balance Sheets Highlights (as of) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | Change | | :-------------------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $46,557 | $54,779 | $(8,222) | | Total current assets | $271,609 | $281,437 | $(9,828) | | Total assets | $589,020 | $600,291 | $(11,271) | | Total current liabilities | $196,310 | $203,106 | $(6,796) | | Total liabilities | $352,868 | $362,800 | $(9,932) | | Total shareholders' equity | $236,152 | $237,491 | $(1,339) | Consolidated Statements of Cash Flows Net cash from operating activities significantly improved to $1.2 million, while investing cash outflow decreased, and financing cash flow shifted to a $(6.5) million outflow Consolidated Statements of Cash Flows Highlights (Three months ended March 31) | Metric (in thousands) | 2024 | 2023 | Change | | :-------------------------------------------------- | :----- | :------- | :------- | | Net cash provided by (used in) operating activities | $1,224 | $(12,021) | +$13,245 | | Net cash used in investing activities | $(2,694) | $(26,655) | +$23,961 | | Net cash (used in) provided by financing activities | $(6,528) | $34,359 | $(40,887) | | Net decrease in cash, cash equivalents and restricted cash | $(8,420) | $(4,381) | $(4,039) | | Cash, cash equivalents and restricted cash at end of period | $47,028 | $42,204 | +$4,824 | Non-GAAP Financial Measures Reconciliation of GAAP to Non-GAAP Measures Non-GAAP net income increased to $4.0 million, Adjusted EBITDA rose to $13.2 million, and free cash flow significantly improved to $(1.9) million in Q1 2024 Non-GAAP Net Income and Adjusted EBITDA (Three months ended March 31) | Metric (in millions) | 2024 | 2023 | Change | | :------------------- | :--- | :--- | :----- | | Net income (GAAP) | $1.5 | $2.0 | $(0.5) | | Non-GAAP net income | $4.0 | $3.6 | $0.4 | | Non-GAAP diluted EPS | $0.11 | $0.10 | $0.01 | | Adjusted EBITDA | $13.2 | $9.7 | $3.5 | Non-GAAP Operating Income and Margin (Three months ended March 31) | Metric (in millions, except ratios) | 2024 | 2023 | Change | | :---------------------------------- | :--- | :--- | :----- | | Operating income (GAAP) | $7.7 | $5.5 | $2.2 | | Operating margin (GAAP) | 6.1% | 4.9% | +1.2 pp | | Non-GAAP operating income | $10.2 | $7.7 | $2.5 | | Non-GAAP operating margin | 8.1% | 6.8% | +1.3 pp | Free Cash Flow Reconciliation (Three months ended March 31) | Metric (in millions) | 2024 | 2023 | Change | | :---------------------------------------- | :--- | :---- | :----- | | Net cash provided by operating activities | $1.2 | $(12.0) | +$13.2 | | Acquisitions of property and equipment | $(3.1) | $(2.5) | $(0.6) | | Free cash flow | $(1.9) | $(14.5) | +$12.6 | Note Regarding Non-GAAP Financial Measures Non-GAAP measures offer insight into core operations by excluding specific items, are supplemental to GAAP, have limitations, and forward-looking non-GAAP measures are not reconciled due to unpredictability - Non-GAAP financial measures are provided to help individuals better assess the ongoing nature of CECO's core operations by excluding amounts included in GAAP[21] - Adjustments to non-GAAP measures typically exclude amortization expenses for acquisition-related intangible assets, contingent retention and earnout expenses, restructuring expenses, acquisition and integration expenses, foreign currency remeasurement, and other nonrecurring or infrequent items[22] - Non-GAAP financial measures are supplemental to, and not a substitute for, GAAP measures, have limitations, and may not be comparable to similarly titled measures of other companies[28] - Forward-looking non-GAAP measures were not reconciled to comparable GAAP financial measures because the reconciliation could not be performed without unreasonable efforts due to the unpredictability of certain impacting items[29] Forward-Looking Statements Safe Harbor Statement This safe harbor statement cautions that forward-looking statements, based on management's views, involve risks and uncertainties that may cause actual results to differ materially - Statements in the Press Release, other than historical fact, are forward-looking statements based on management's views and assumptions regarding future events and business performance[24] - Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially, including factors such as economic conditions, dependence on fixed-price contracts, supply chain challenges, litigation, fluctuations in raw material prices, inflationary pressures, debt, government regulations, and catastrophic events[24] - Investors are cautioned not to place undue reliance on such forward-looking statements, and the company undertakes no obligation to update or review them, except as required under federal securities laws[24]