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same

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2021

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                         

Commission File No. 0-07099

 

CECO ENVIRONMENTAL CORP.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-2566064

(State or other jurisdiction of

Incorporation or organization)

 

(IRS Employer

Identification No.)

 

14651 North Dallas Parkway

Suite 500

Dallas, Texas

 

 

 

75254

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (214) 357-6181

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CECE

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

Accelerated Filer

 

 

 

 

Non-Accelerated Filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes      No  

The number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date: 35,604,634 shares of common stock, par value $0.01 per share, as of April 30, 2021.


 

 

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended March 31, 2021

Table of Contents

 

Part I –

 

Financial Information

 

2

 

 

 

 

 

 

 

Item 1. Financial Statements

 

2

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2021 and 2020

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2021 and 2020

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the three-month periods ended March 31, 2021 and 2020

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2021 and 2020

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

25

 

 

 

 

 

 

 

Item 4. Controls and Procedures

 

25

 

 

 

 

 

Part II –

 

Other Information

 

27

 

 

 

 

 

 

 

Item 1. Legal Proceedings

 

27

 

 

 

 

 

 

 

Item 1A. Risk Factors

 

27

 

 

 

 

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

 

 

 

 

 

 

Item 3. Defaults Upon Senior Securities

 

27

 

 

 

 

 

 

 

Item 4. Mine Safety Disclosures

 

27

 

 

 

 

 

 

 

Item 5. Other Information

 

27

 

 

 

 

 

 

 

Item 6. Exhibits

 

28

 

 

 

 

 

Signatures

 

29

 

 

 

1


 

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

PART I – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

(dollars in thousands, except per share data)

 

(unaudited)

MARCH 31, 2021

 

 

DECEMBER 31, 2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,864

 

 

$

35,992

 

Restricted cash

 

 

2,386

 

 

 

1,819

 

Accounts receivable, net

 

 

66,468

 

 

 

63,046

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

41,173

 

 

 

45,498

 

Inventories, net

 

 

16,398

 

 

 

17,343

 

Prepaid expenses and other current assets

 

 

11,369

 

 

 

11,530

 

Prepaid income taxes

 

 

2,838

 

 

 

7,790

 

Assets held for sale

 

 

 

 

 

467

 

Total current assets

 

 

181,496

 

 

 

183,485

 

Property, plant and equipment, net

 

 

16,175

 

 

 

16,228

 

Right-of-use assets from operating leases

 

 

10,729

 

 

 

11,376

 

Goodwill

 

 

161,652

 

 

 

161,820

 

Intangible assets – finite life, net

 

 

31,021

 

 

 

29,637

 

Intangible assets – indefinite life

 

 

9,720

 

 

 

12,937

 

Deferred charges and other assets

 

 

2,864

 

 

 

3,831

 

Total assets

 

$

413,657

 

 

$

419,314

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt

 

$

3,437

 

 

$

3,125

 

Accounts payable and accrued expenses

 

 

85,518

 

 

 

84,997

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

17,107

 

 

 

20,691

 

Income taxes payable

 

 

 

 

 

543

 

Total current liabilities

 

 

106,062

 

 

 

109,356

 

Other liabilities

 

 

20,183

 

 

 

20,576

 

Debt, less current portion

 

 

65,955

 

 

 

69,491

 

Deferred income tax liability, net

 

 

6,964

 

 

 

6,970

 

Operating lease liabilities

 

 

8,842

 

 

 

9,310

 

Total liabilities

 

 

208,006

 

 

 

215,703

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value; 10,000 shares authorized, none issued

 

 

 

 

 

 

Common stock, $.01 par value; 100,000,000 shares authorized, 35,567,511 and

35,504,757 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

356

 

 

 

355

 

Capital in excess of par value

 

 

255,982

 

 

 

255,296

 

Accumulated loss

 

 

(36,960

)

 

 

(38,141

)

Accumulated other comprehensive loss

 

 

(14,441

)

 

 

(14,496

)

 

 

 

204,937

 

 

 

203,014

 

Less treasury stock, at cost, 137,920 shares at March 31, 2021 and December 31, 2020

 

 

(356

)

 

 

(356

)

Total CECO shareholders’ equity

 

 

204,581

 

 

 

202,658

 

Noncontrolling interest

 

 

1,070

 

 

 

953

 

Total shareholders' equity

 

 

205,651

 

 

 

203,611

 

Total liabilities and shareholders' equity

 

$

413,657

 

 

$

419,314

 

 

The notes to the condensed consolidated financial statements are an integral part of the above statements.

2


CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

 

 

 

Three months ended March 31,

 

(dollars in thousands, except per share data)

 

2021

 

 

2020

 

Net sales

 

$

71,892

 

 

$

80,486

 

Cost of sales

 

 

47,485

 

 

 

52,207

 

Gross profit

 

 

24,407

 

 

 

28,279

 

Selling and administrative expenses

 

 

19,454

 

 

 

21,953

 

Amortization and earnout expenses

 

 

1,791

 

 

 

1,713

 

Restructuring expenses

 

 

 

 

 

374

 

Acquisition and integration expenses

 

 

108

 

 

 

 

Income from operations

 

 

3,054

 

 

 

4,239

 

Other (expense) income, net

 

 

(480

)

 

 

975

 

Interest expense

 

 

(725

)

 

 

(1,023

)

Income before income taxes

 

 

1,849

 

 

 

4,191

 

Income tax expense

 

 

551

 

 

 

779

 

Net income

 

 

1,298

 

 

 

3,412

 

Noncontrolling interest

 

 

117

 

 

 

 

Net income attributable to CECO Environmental Corp.

 

$

1,181

 

 

$

3,412

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.03

 

 

$

0.10

 

Diluted

 

$

0.03

 

 

$

0.10

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

35,396,705

 

 

 

35,155,377

 

Diluted

 

 

35,774,208

 

 

 

35,394,865

 

 

 

The notes to the condensed consolidated financial statements are an integral part of the above statements.

 


3


 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

 

 

Three months ended March 31,

 

(dollars in thousands)

2021

 

 

2020

 

Net income

$

1,298

 

 

$

3,412

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

55

 

 

 

(2,268

)

Comprehensive income

$

1,353

 

 

$

1,144

 

 

 

The notes to the condensed consolidated financial statements are an integral part of the above statements.

 


4


 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)

 

 

 

 

Common Stock

 

 

Capital in

excess of

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Treasury Stock

 

 

Noncontrolling

 

 

Total

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

par value

 

 

Loss

 

 

Loss

 

 

Shares

 

 

Amount

 

 

Interest

 

 

Equity

 

Balance December 31, 2019

 

 

35,275

 

 

$

353

 

 

$

253,869

 

 

$

(46,344

)

 

$

(14,505

)

 

 

(138

)

 

$

(356

)

 

$

 

 

$

193,017

 

Net income for the three-months ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,412

 

Restricted stock units issued

 

 

63

 

 

 

1

 

 

 

(153

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(152

)

Share based compensation earned

 

 

 

 

 

 

 

 

597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

597

 

Translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,268

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,268

)

Balance March 31, 2020

 

 

35,338

 

 

$

354

 

 

$

254,313

 

 

$

(42,932

)

 

$

(16,773

)

 

 

(138

)

 

$

(356

)

 

$

 

 

$

194,606

 

 

 

 

 

Common Stock

 

 

Capital in

excess of

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Treasury Stock

 

 

Noncontrolling

 

 

Total

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

par value

 

 

Loss

 

 

Loss

 

 

Shares

 

 

Amount

 

 

Interest

 

 

Equity

 

Balance December 31, 2020

 

 

35,505

 

 

$

355

 

 

$

255,296

 

 

$

(38,141

)

 

$

(14,496

)

 

 

(138

)

 

$

(356

)

 

$

953

 

 

$

203,611

 

Net income for the three-months ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

117

 

 

 

1,298

 

Exercise of stock options

 

 

2

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

Restricted stock units issued

 

 

40

 

 

 

1

 

 

 

(134

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(133

)

Share based compensation earned

 

 

21

 

 

 

 

 

 

807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

807

 

Translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55

 

Balance March 31, 2021

 

 

35,568

 

 

$

356

 

 

$

255,982

 

 

$

(36,960

)

 

$

(14,441

)

 

 

(138

)

 

$

(356

)

 

$

1,070

 

 

$

205,651

 

 

The notes to the condensed consolidated financial statements are an integral part of the above statements.

 

 

5


 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Three months ended March 31,

 

(dollars in thousands)

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,298

 

 

$

3,412

 

Adjustment to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,435

 

 

 

2,196

 

Unrealized foreign currency (gain) loss

 

 

576

 

 

 

505

 

Gain on sale of property and equipment

 

 

(66

)

 

 

 

Debt discount amortization

 

 

102

 

 

 

104

 

Share-based compensation expense

 

 

693

 

 

 

597

 

Bad debt (recoveries) expense

 

 

(41

)

 

 

46

 

Inventory reserve expense

 

 

108

 

 

 

69

 

Changes in operating assets and liabilities, net of divestitures:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,493

)

 

 

12,190

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

4,319

 

 

 

(5,927

)

Inventories

 

 

456

 

 

 

1,765

 

Prepaid expense and other current assets

 

 

5,269

 

 

 

(3,022

)

Deferred charges and other assets

 

 

822

 

 

 

491

 

Accounts payable and accrued expenses

 

 

1,548

 

 

 

(4,611

)

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

(3,564

)

 

 

(375

)

Income taxes payable

 

 

(499

)

 

 

(6

)

Other liabilities

 

 

(55

)

 

 

(433

)

Net cash provided by operating activities

 

 

9,908

 

 

 

7,001

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisitions of property and equipment

 

 

(492

)

 

 

(976

)

Proceeds from sale of property and equipment

 

 

534

 

 

 

 

Net cash provided by (used in) by investing activities

 

 

42

 

 

 

(976

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings on revolving credit lines

 

 

9,200

 

 

 

49,500

 

Repayments on revolving credit lines

 

 

(11,900

)

 

 

(6,500

)

Repayments of long-term debt

 

 

(625

)

 

 

(625

)

Payments on finance leases and financing liability

 

 

(135

)

 

 

(125

)

Earnout Payments

 

 

(823

)

 

 

 

Proceeds from employee stock purchase plan and exercise of stock options

 

 

128

 

 

 

 

Net cash (used in) provided by financing activities

 

 

(4,155

)

 

 

42,250

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(356

)

 

 

(1,127

)

Net increase in cash, cash equivalents and restricted cash

 

 

5,439

 

 

 

47,148

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

37,811

 

 

 

36,958

 

Cash, cash equivalents and restricted cash at end of period

 

$

43,250

 

 

$

84,106

 

Cash paid (received) during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

641

 

 

$

1,056

 

Income taxes

 

$

(3,717

)

 

$

133

 

 

 

 

 

 

 

 

 

 

 

 

The notes to the condensed consolidated financial statements are an integral part of the above statements.

 

 

6


 

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1.

Basis of Reporting for Consolidated Financial Statements

 

The accompanying unaudited condensed consolidated financial statements of CECO Environmental Corp. and its subsidiaries (the “Company”, “CECO”, “we”, “us” or “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in audited financial statements have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position as of March 31, 2021 and the results of operations, cash flows and shareholders’ equity for the three-month periods ended March 31, 2021 and 2020. The results of operations for the three-month period ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 2020 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 3, 2021 (the “Form 10-K”).

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

These financial statements and accompanying notes should be read in conjunction with the audited financial statements and the notes thereto included in the Form 10-K.

 

Unless otherwise indicated, all balances within tables are in thousands, except per share amounts.

 

COVID-19

A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and has spread around the world, including to the United States.  In March 2020, the World Health Organization characterized COVID-19 as a pandemic. As of April 30, 2021, the virus continues to spread and has had a significant impact on worldwide economic activity and on macroeconomic conditions and the end markets of our business.  

 

The outbreak and a continued spread of COVID-19 has resulted in a substantial curtailment of business activities worldwide and has caused weakened economic conditions, both in the United States and abroad.  It also remains unclear how various national, state, and local governments will react if the distribution of vaccines is slower than expected or new variants of the virus become more dominant.  COVID-19 has had, and may continue to have, a negative impact on the Company's ongoing operations and the end markets in which it serves.  However, the full impact of the COVID-19 pandemic continues to evolve as of the date of this filing, and as such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations.  Management is actively monitoring the impact of the pandemic on its financial condition, liquidity, operations, suppliers, industry, and workforce.


7


 

 

2.

New Financial Accounting Pronouncements

 

Accounting Standards adopted in Fiscal 2021

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning January 1, 2021 and did not a material impact on our financial statements.

Accounting Standards Yet to be Adopted

None.

 

 

3.     Accounts Receivable

 

(table only in thousands)

 

March 31, 2021

 

 

December 31, 2020

 

Contract receivables

 

$

58,193

 

 

$

57,435

 

Trade receivables

 

 

11,151

 

 

 

8,721

 

Allowance for doubtful accounts

 

 

(2,876

)

 

 

(3,110

)

Total accounts receivable

 

$

66,468

 

 

$

63,046

 

 

Balances billed but not paid by customers under retainage provisions in contracts within the Condensed Consolidated Balance Sheets amounted to approximately $1.5 million at March 31, 2021 and December 31, 2020, respectively. Retainage receivables on contracts in progress are generally collected within a year after contract completion.

 

The Company had net recoveries of bad debts of approximately $41,000 for the three-months ended March 31, 2021 compared with bad debt expense of approximately $46,000 for the three-months ended March 31, 2020.

 

4.

Inventories

 

 

(table only in thousands)

 

March 31, 2021

 

 

December 31, 2020

 

Raw materials

 

$

13,591

 

 

$

14,262

 

Work in process

 

 

5,208

 

 

 

5,594

 

Finished goods

 

 

643

 

 

 

496

 

Obsolescence allowance

 

 

(3,044

)

 

 

(3,009

)

Total inventories

 

$

16,398

 

 

$

17,343

 

 

Amounts credited to the allowance for obsolete inventory and charged to cost of sales amounted to $0.1 million for the three-months ended March 31, 2021 and 2020.

 

5.

Goodwill and Intangible Assets

 

 

(table only in thousands)

 

Three months ended March 31, 2021

 

 

Year ended December 31, 2020

 

Goodwill / Tradename

 

Goodwill

 

 

Tradename

 

 

Goodwill

 

 

Tradename

 

Beginning balance

 

$

161,820

 

 

$

12,937

 

 

$

152,020

 

 

$

14,291

 

Acquisitions

 

 

 

 

 

 

 

$

9,107

 

 

 

 

Transfers to finite life classification

 

 

 

 

 

(3,150

)

 

 

 

 

 

(700

)

Impairment charge

 

 

 

 

 

 

 

 

 

 

 

(850

)

Foreign currency translation

 

 

(168

)

 

 

(67

)

 

 

693

 

 

 

196

 

 

 

$

161,652

 

 

$

9,720

 

 

$

161,820

 

 

$

12,937

 

8


 

 

(table only in thousands)

 

As of March 31, 2021

 

 

As of December 31, 2020

 

Intangible assets – finite life

 

Cost

 

 

Accum. Amort.

 

 

Cost

 

 

Accum. Amort.

 

Technology

 

$

14,457

 

 

$

13,183

 

 

$

14,457

 

 

$

13,008

 

Customer lists

 

 

73,199

 

 

 

50,221

 

 

 

73,199

 

 

 

48,959

 

Tradenames

 

 

9,728

 

 

 

2,001

 

 

 

6,578

 

 

 

1,758

 

Foreign currency adjustments

 

 

(2,516

)

 

 

(1,558

)

 

 

(2,826

)

 

 

(1,954

)