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CECO Environmental Corp. Reports Third Quarter and Nine Months 2017 Results; Deepening Market Downturn Negatively Impacted Results- Management Implementing Tangible Actions

DALLAS, Nov. 8, 2017 /PRNewswire/ -- CECO Environmental Corp. (Nasdaq: CECE), a leading global air quality and fluid handling company serving the energy, industrial and other niche markets, today reported its financial results for the third quarter and first nine months of 2017.

Highlights of the Third Quarter 2017*

  • Revenue of $85.0 million, compared with $101.6 million
  • Gross profit of $27.1 million (31.9% margin), compared with $33.7 million (33.2% margin)
  • Non-GAAP gross profit of $27.3 million (32.1% margin) compared with $33.9 million (33.4% margin)
  • Operating income of $5.6 million compared with $10.5 million
  • Non-GAAP operating income of $5.3 million compared with $14.4 million
  • Net income was $3.0 million, compared with $5.8 million
  • Non-GAAP net income of $1.2 million, compared with $8.2 million
  • Net income per diluted share was $0.09, compared with $0.17
  • Non-GAAP net income per diluted share of $0.03, compared with $0.24
  • Adjusted EBITDA of $6.9 million, compared with $16.2 million
  • Bookings of $71.0 million
  • Backlog of $153.9 million

* All comparisons are versus the comparable prior-year period.

CECO's Chief Executive Officer Dennis Sadlowski commented, "The third quarter of 2017 presented continued challenges, including soft volume throughout the quarter that led to disappointing results. Our served energy markets are experiencing notable headwinds that we expect to continue into 2018. However, even with soft power generation and refinery markets, we picked up key wins in those segments and our team remains committed to market share penetration."

Mr. Sadlowski added, "We also concluded our strategic plan assessment and have made several decisions together with our Board to transform the business to win market share and create value. We are implementing a restructuring program during the fourth quarter to reduce costs by approximately $5-7 million per annum, and refocusing our portfolio including exiting non-core and low critical mass products. We also recently modified our debt covenants to allow for flexibility to invest in a tough market cycle. Additionally, our Board agreed to suspend the current quarterly dividend so that cash can be used towards investment for growth in people, systems and customer focused product innovation. While we are not pleased with our results and the current state of our core end-markets, we are committed to implementing the necessary steps to transform the Company to once again realize increasing profits and generating returns for all of our stakeholders."

THIRD QUARTER RESULTS

Revenue in the third quarter of 2017 was $85.0 million, down 16.3% from $101.6 million in the prior-year period.

Operating income was $5.6 million for the third quarter of 2017 (6.6% margin), compared with $10.5 million in the prior-year period (10.3% margin). Operating income on a non-GAAP basis was $5.3 million for the third quarter of 2017 (6.2% margin), compared with $14.4 million in the prior-year period (14.2% margin).

Net income was $3.0 million for the third quarter of 2017, compared with $5.8 million in the prior-year period. Net income on a non-GAAP basis was $1.2 million for the third quarter of 2017, compared with $8.2 million in the prior-year period.

Net income per diluted share was $0.09 for the third quarter of 2017, compared with net income per diluted share of $0.17 in the prior-year period. Non-GAAP net income per diluted share was $0.03 for the third quarter of 2017, compared with $0.24 for the prior-year period.

Cash and cash equivalents were $24.6 million and bank debt was $119.5 million, as of September 30, 2017, compared with $45.8 million and $126.4 million, respectively, as of December 31, 2016.

BACKLOG AND BOOKINGS

Total backlog at September 30, 2017 was $153.9 million as compared with $197.0 million on December 31, 2016, and $219.3 million on September 30, 2016.

Bookings were $71.0 million for the third quarter of 2017, compared with $96.2 million in the prior-year period. Bookings were $242.2 million for the first nine months of 2017 compared with $325.1 million for the prior-year period.

YEAR-TO-DATE RESULTS

Revenue in the first nine months of 2017 was $271.5 million, down 14.4% from $317.0 million in the prior-year period.

Operating income was $16.2 million for the first nine months of 2017 (6.0% margin), compared with $24.9 million in the prior-year period (7.9% margin). Operating income on a non-GAAP basis was $24.8 million for the first nine months of 2017 (9.1% margin), compared with $38.2 million in the prior-year period (12.1% margin).

Net income was $8.6 million for the first nine months of 2017, compared with $12.9 million in the prior-year period. Net income on a non-GAAP basis was $11.2 million for the first nine months of 2017, compared with $21.5 million in the prior-year period.

Net income per diluted share was $0.25 for the first nine months of 2017, compared with net income per diluted share of $0.38 in the prior-year period. Non-GAAP net income per diluted share was $0.32 for the first nine months of 2017, compared with $0.63 for the prior-year period.

QUARTERLY DIVIDENDS

On November 6, 2017, CECO's Board of Directors reviewed the Company's dividend policy and determined that it would be in the best interest of the stockholders to discontinue quarterly cash dividends.

CONFERENCE CALL

A conference call is scheduled for today at 8:30 a.m. ET to discuss the third quarter 2017 results. The conference call may be accessed by dialing +1.877.407.3982 (Toll-Free) in the U.S. and Canada or by dialing +1.201.493.6780 for international calls. A replay will be available from 11:30 a.m. ET on November 8, 2017 until November 22, 2017 at 11:59 p.m. ET. The replay may be accessed by dialing +1.844.512.2921 (Toll-Free) in the U.S. and Canada or by dialing +1.412.317.6671 for international calls and entering passcode 13672530.

The live webcast and slides can also be accessed at https://www.cecoenviro.com/events-calendar.

ABOUT CECO ENVIRONMENTAL

CECO Environmental is a global leader in air quality and fluid handling serving the energy, industrial and other niche markets through an attractive asset-light business model. CECO provides innovative technology and application expertise that helps companies grow their businesses with safe, clean, and more efficient solutions to help protect our shared environment. CECO serves both established and emerging industries in regions around the world working to improve air quality, optimize the energy value chain, and provide customized engineered solutions in multiple applications that include oil and gas, power generation, water and wastewater, battery production, poly silicon fabrication, chemical and petrochem processing, along with a wide range of others. CECO targets its $5 billion+ of installed base, specifically to expand and grow a higher recurring revenue of aftermarket products and services. CECO is listed on Nasdaq under the ticker symbol "CECE." For more information, please visit http://www.cecoenviro.com/.

Contact:

Matthew Eckl, Chief Financial Officer
800.333.5475
investor.relations@onececo.com

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


(dollars in thousands, except per share data)


(unaudited)

SEPTEMBER 30,
2017



DECEMBER 31,
2016


ASSETS









Current assets:









Cash and cash equivalents


$

24,567



$

45,824


Restricted cash



873




1,498


Accounts receivable, net



70,504




83,062


Costs and estimated earnings in excess of billings on uncompleted contracts



39,964




38,123


Inventories, net



21,750




21,487


Prepaid expenses and other current assets



12,984




13,560


Prepaid income taxes



1,300




1,590


Assets held for sale



8,001




7,834


Total current assets



179,943




212,978


Property, plant and equipment, net



24,667




27,270


Goodwill



171,239




170,153


Intangible assets-finite life, net



52,749




60,728


Intangible assets-indefinite life



22,381




22,042


Deferred charges and other assets



4,564




5,463




$

455,543



$

498,634


LIABILITIES AND SHAREHOLDERS' EQUITY









Current liabilities:









Current portion of debt


$

9,645



$

8,827


Accounts payable and accrued expenses



77,655




95,610


Billings in excess of costs and estimated earnings on uncompleted contracts



21,038




35,085


Note payable



5,300




5,300


Income taxes payable



924




1,536


Total current liabilities



114,562




146,358


Other liabilities



23,873




34,864


Debt, less current portion



107,287




114,366


Deferred income tax liability, net



12,754




12,964


Total liabilities



258,476




308,552


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, 34,699,316 and
34,300,209 shares issued at September 30, 2017 and December 31, 2016, respectively



347




343


Capital in excess of par value



247,601




244,878


Accumulated loss



(41,079)




(41,741)


Accumulated other comprehensive loss



(9,446)




(13,042)





197,423




190,438


Less treasury stock, at cost, 137,920 shares at September 30, 2017 and December 31, 2016



(356)




(356)


Total shareholders' equity



197,067




190,082




$

455,543



$

498,634


CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)




THREE MONTHS ENDED
SEPTEMBER 30,



NINE MONTHS ENDED

SEPTEMBER 30,


(dollars in thousands, except per share data)


2017



2016



2017



2016


Net sales


$

84,987



$

101,596



$

271,508



$

317,029


Cost of sales



57,854




67,920




183,960




217,837


Gross profit



27,133




33,676




87,548




99,192


Selling and administrative expenses



21,958




19,549




66,690




60,625


Acquisition and integration expenses






163







524


Amortization and earn-out (income) expenses, net



(455)




3,465




4,623




13,176


Income from operations



5,630




10,499




16,235




24,867


Other (expense) income, net



(110)




14




141




395


Interest expense



(1,595)




(1,913)




(4,951)




(5,995)


Income before income taxes



3,925




8,600




11,425




19,267


Income tax expense



889




2,774




2,865




6,349


Net income


$

3,036



$

5,826



$

8,560



$

12,918


Net income (loss) attributable to noncontrolling interest


$



$

22



$



$

(36)


Net income attributable to CECO Environmental Corp.


$

3,036



$

5,804



$

8,560



$

12,954


Earnings per share:

















Basic


$

0.09



$

0.17



$

0.25



$

0.38


Diluted


$

0.09



$

0.17



$

0.25



$

0.38


Weighted average number of common shares outstanding:

















Basic



34,518,622




33,983,708




34,403,720




33,952,768


Diluted



34,621,883




34,354,687




34,665,053




34,211,067


CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES


RECONCILIATION OF GAAP TO NON-GAAP MEASURES




Three Months Ended
September 30,



Nine Months Ended
September 30,


(dollars in millions)


2017



2016



2017



2016


Gross profit as reported in accordance with GAAP


$

27.1



$

33.7



$

87.5



$

99.2


Gross profit margin in accordance with GAAP



31.9

%



33.2

%



32.2

%



31.3

%

Legacy design repairs









2.0





Inventory valuation adjustment












0.1


Plant, property and equipment valuation adjustment



0.2




0.2




0.5




0.5


Non-GAAP gross profit


$

27.3



$

33.9



$

90.0



$

99.8


Non-GAAP gross profit margin



32.1

%



33.4

%



33.1

%



31.5

%



Three Months Ended September 30,



Nine Months Ended September 30,


(dollars in millions)


2017



2016



2017



2016


Operating income as reported in accordance with GAAP


$

5.6



$

10.5



$

16.2



$

24.9


Operating margin in accordance with GAAP



6.6

%



10.3

%



6.0

%



7.9

%

Legacy design repairs









2.0





Inventory valuation adjustment












0.1


Plant, property and equipment valuation adjustment



0.2




0.2




0.5




0.5


Gain on insurance settlement












(1.0)


Acquisition and integration expenses






0.2







0.5


Amortization and earn-out (income) expenses, net



(0.5)




3.5




4.6




13.2


Executive transition expenses









1.3





Facility exit expenses









0.2





Non-GAAP operating income


$

5.3



$

14.4



$

24.8



$

38.2


Non-GAAP operating margin



6.2

%



14.2

%



9.1

%



12.1

%



Three Months Ended

September 30,



Nine Months Ended

September 30,


(dollars in millions)


2017



2016



2017



2016


Net income as reported in accordance with GAAP


$

3.0



$

5.8



$

8.6



$

12.9


Legacy design repairs









2.0





Inventory valuation adjustment












0.1


Plant, property and equipment valuation adjustment



0.2




0.2




0.5




0.5


Gain on insurance settlement












(1.0)


Acquisition and integration expenses






0.2







0.5


Amortization and earn-out (income) expenses, net



(0.5)




3.5




4.6




13.2


Executive transition expenses









1.3





Facility exit expenses









0.2





Foreign currency remeasurement



(0.5)




(0.2)




(2.0)




(0.6)


Tax benefit of adjustments



(1.0)




(1.3)




(4.0)




(4.1)


Non-GAAP net income


$

1.2



$

8.2



$

11.2



$

21.5


Depreciation



1.0




1.2




3.0




3.4


Non-cash stock compensation (excluding executive transition costs)



0.6




0.6




1.8




1.7


Other (income) / expense



0.6




0.2




1.8




0.2


Gain on insurance settlement












1.0


Interest expense



1.6




1.9




5.0




6.0


Income tax expense



1.9




4.1




6.9




10.5


Adjusted EBITDA


$

6.9



$

16.2



$

29.7



$

44.3



















Earnings per share:

















Basic


$

0.09



$

0.17



$

0.25



$

0.38


Diluted


$

0.09



$

0.17



$

0.25



$

0.38



















Non-GAAP net income per share:

















Basic


$

0.03



$

0.24



$

0.33



$

0.63


Diluted


$

0.03



$

0.24



$

0.32



$

0.63


NOTE REGARDING NON-GAAP FINANCIAL MEASURES

CECO is providing certain non-GAAP historical financial measures as presented above as the Company believes that these figures are helpful in allowing individuals to better assess the ongoing nature of CECO's core operations. A "non-GAAP financial measure" is a numerical measure of a company's historical financial performance that excludes amounts that are included in the most directly comparable measure calculated and presented in the GAAP statement of operations.

Non-GAAP gross profit, Non-GAAP operating income, non-GAAP net income, non-GAAP gross profit margin, non-GAAP operating margin, non-GAAP earnings per basic and diluted share and adjusted EBITDA, as we present them in the financial data included in this press release, have been adjusted to exclude the effects of expenses related to legacy design repairs, inventory valuation adjustments, property, plant and equipment valuation adjustments, gains from insurance settlements, acquisition and integration expense activities including retention, legal, accounting, banking, amortization and contingent earn-out expenses, foreign currency re-measurement, intangible asset impairment, legal reserves, executive transition expenses, facility exit expenses, other nonrecurring or infrequent items and the associated tax benefit of these items. Management believes that these items are not necessarily indicative of the Company's ongoing operations and their exclusion provides individuals with additional information to compare the Company's results over multiple periods. Management utilizes this information to evaluate its ongoing financial performance. Our financial statements may continue to be affected by items similar to those excluded in the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP financial measures should not be construed as an inference that all such costs are unusual or infrequent.

Non-GAAP gross profit, non-GAAP operating income, non-GAAP net income, non-GAAP gross profit margin, non-GAAP operating margin, non-GAAP earnings per basic and diluted share, adjusted EBITDA, adjusted EBITDA margin, adjusted free cash flow and adjusted net free cash flow are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of CECO's results as reported under GAAP. Additionally, CECO cautions investors that non-GAAP financial measures used by the Company may not be comparable to similarly titles measures of other companies.

In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, non-GAAP gross profit, non-GAAP operating income, non-GAAP net income, non-GAAP gross profit margin, non-GAAP operating margin, non-GAAP earnings per basic and diluted share, adjusted EBITDA, adjusted EBITDA margin, adjusted free cash flow and adjusted net free cash flow stated in the tables above present the most directly comparable GAAP financial measure and reconcile to the most directly comparable GAAP financial measures. Adjusted free cash flow and adjusted net free cash flow have limitations due to the fact that they do not represent the residual cash flow available for discretionary expenditures since they do not take into account debt service requirements or other non-discretionary expenditures that are not deducted from these measures.

SAFE HARBOR

Any statements contained in this press release other than statements of historical fact, including statements about management's beliefs and expectations, are forward-looking statements and should be evaluated as such. These statements are made on the basis of management's views and assumptions regarding future events and business performance. Words such as "estimate," "believe," "forecast", "anticipate," "expect," "intend," "plan," "target," "project," "should," "may," "will" and similar expressions are intended to identify forward-looking statements. Forward-looking statements (including oral representations) involve risks and uncertainties that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. These risks and uncertainties include, but are not limited to: our ability to successfully realize the expected benefits of our restructuring program; our ability to successfully integrate acquired businesses and realize the synergies from acquisitions, as well as a number of factors related to our business including economic and financial market conditions generally and economic conditions in CECO's service areas; dependence on fixed price contracts and the risks associated therewith, including actual costs exceeding estimates and method of accounting for contract revenue; fluctuations in operating results from period to period due to cyclicality or seasonality of the business; the effect of growth on CECO's infrastructure, resources, and existing sales; the ability to expand operations in both new and existing markets; the potential for contract delay or cancellation; liabilities arising from faulty services or products that could result in significant professional or product liability, warranty, or other claims; changes in or developments with respect to any litigation or investigation; failure to meet timely completion or performance standards that could result in higher cost and reduced profits or, in some cases, losses on projects; the potential for fluctuations in prices for manufactured components and raw materials; the substantial amount of debt incurred in connection with our acquisitions and our ability to repay or refinance it or incur additional debt in the future; the impact of federal, state or local government regulations; economic and political conditions generally; and the effect of competition in the environmental, energy and fluid handling and filtration industries. These and other risks and uncertainties are discussed in more detail in CECO's filings with the Securities and Exchange Commission, including our reports on Form 10-K and Form 10-Q. Many of these risks are beyond management's ability to control or predict. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may vary in material aspects from those currently anticipated. Investors are cautioned not to place undue reliance on such forward-looking statements as they speak only to our views as of the date the statement is made. All forward-looking statements attributable to CECO or persons acting on behalf of CECO are expressly qualified in their entirety by the cautionary statements and risk factors contained in this press release and CECO's respective filings with the Securities and Exchange Commission. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the Securities and Exchange Commission, CECO undertakes no obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

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SOURCE CECO Environmental Corp.