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 ~~September 30, 2017~~ March 31, 2024


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

For the transition period fromto

Commission File No. ~~0-7099~~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)

~~(513) 458-2600~~

(Registrant’s telephone number, including area ~~code)~~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	CECO	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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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	☐	Accelerated ~~Filer~~filer	☒

~~Non-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: ~~34,707,649~~34,935,514 shares of common stock, par value $0.01 per share, as of ~~November 2, 2017.~~April 18, 2024.

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended ~~September 30, 2017~~March 31, 2024

Table of Contents


Part I –	Financial Information	32

	Item 1. Financial Statements	32

	Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016~~2023	32

	Condensed Consolidated Statements of Income for the ~~three-month~~three months ended March 31, 2024 and ~~nine-month periods ended September 30, 2017 and 2016~~2023	43

	Condensed Consolidated Statements of Comprehensive Income for the ~~three-month~~three months ended March 31, 2024 and ~~nine-month periods ended September 30, 2017 and 2016~~2023	54

	Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2024 and 2023	5

	Condensed Consolidated Statements of Cash Flows for the ~~nine-month periods~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023	6

	Notes to Condensed Consolidated Financial Statements	7

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2318

	Item 3. Quantitative and Qualitative Disclosures about Market Risk	3324

	Item 4. Controls and Procedures	3325

Part II –	Other Information	3527

	Item 1. Legal Proceedings	3527

	Item 1A. Risk Factors	3527

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3527

	Item 3. Defaults Upon Senior Securities	3527

	Item 4. Mine Safety Disclosures	3527

	Item 5. Other Information	3527

	Item 6. Exhibits	3628

Signatures		3729

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

PART I – FINANCIAL INFORMATION

~~ITEM 1.~~

~~FINANCIAL STATEMENTS~~

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands, except per share data)	(unaudited) March 31, 2024			December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	46,557		$	54,779
Restricted cash		471			669
Accounts receivable, net allowances of $6,023 and $6,460		116,647			112,733
Costs and estimated earnings in excess of billings on uncompleted contracts		58,541			66,574
Inventories, net		38,032			34,089
Prepaid expenses and other current assets		10,620			11,769
Prepaid income taxes		741			824
Total current assets		271,609			281,437
Property, plant and equipment, net		27,743			26,237
Right-of-use assets from operating leases		15,095			16,256
Goodwill		211,479			211,326
Intangible assets – finite life, net		48,324			50,461
Intangible assets – indefinite life		9,558			9,570
Deferred income taxes		291			304
Deferred charges and other assets		4,921			4,700
Total assets	$	589,020		$	600,291
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of debt	$	10,580		$	10,488
Accounts payable		79,061			87,691
Accrued expenses		46,195			44,301
Billings in excess of costs and estimated earnings on uncompleted contracts		58,158			56,899
Notes payable		1,500			2,500
Income taxes payable		816			1,227
Total current liabilities		196,310			203,106
Other liabilities		11,479			12,644
Debt, less current portion		125,070			126,795
Deferred income tax liability, net		9,519			8,838
Operating lease liabilities		10,490			11,417
Total liabilities		352,868			362,800
Commitments and contingencies (See Note 14)
Shareholders’ equity:
Preferred stock, $.01 par value; 10,000 shares authorized, none issued		—			—
Common stock, $.01 par value; 100,000,000 shares authorized, 34,908,330 and 34,835,293 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively		349			348
Capital in excess of par value		251,673			254,956
Accumulated loss		(4,879	)		(6,387	)
Accumulated other comprehensive loss		(15,620	)		(16,274	)
Total CECO shareholders' equity		231,523			232,643
Noncontrolling interest		4,629			4,848
Total shareholders' equity		236,152			237,491
Total liabilities and shareholders' equity	$	589,020		$	600,291

(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

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(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


	Three months ended March 31,
(in thousands, except per share data)	2024			2023
Net sales	$	126,332		$	112,563
Cost of sales		81,200			77,670
Gross profit		45,132			34,893
Selling and administrative expenses		34,908			27,193
Amortization and earnout expenses		2,209			1,747
Acquisition and integration expenses		190			492
Restructuring expenses		139			—
Income from operations		7,686			5,461
Other expense, net		(1,513	)		(574	)
Interest expense		(3,413	)		(2,408	)
Income before income taxes		2,760			2,479
Income tax expense		667			10
Net income		2,093			2,469
Noncontrolling interest		(585	)		(491	)
Net income attributable to CECO Environmental Corp.	$	1,508		$	1,978
Earnings per share:
Basic	$	0.04		$	0.06
Diluted	$	0.04		$	0.06
Weighted average number of common shares outstanding:
Basic		34,846,163			34,441,905
Diluted		36,177,323			35,198,668

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

CONDENSED CONSOLIDATED ~~STATEMENT~~SSTATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

THREE MONTHS ENDED
SEPTEMBER 30,

NINE MONTHS ENDED
SEPTEMBER 30,

(dollars in thousands)

2017

2016

2017

2016

Net income

$
3,036

$
5,826

$
8,560

$
12,918

Other comprehensive income (loss), net of tax:

Interest rate swap

3

201

31

(422
)
Foreign currency translation

1,396

(73
)

3,565

(1,526
)
Comprehensive income

4,435

5,954

12,156

10,970

Net income (loss) attributable to noncontrolling interest

—

22

—

(36
)
Comprehensive income attributable to CECO Environmental Corp.

$
4,435

$
5,976

$
12,156

$
10,934


	Three months ended March 31,
(in thousands)	2024		2023
Net income	$	2,093	$	2,469
Other comprehensive income, net of tax:
Foreign currency translation (loss) gain		654		766
Comprehensive income	$	2,747	$	3,235

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

CONDENSED CONSOLIDATED S~~TATEMENTS~~STATEMENTS OF ~~CASH FLOWS~~SHAREHOLDERS’ EQUITY

(unaudited)

NINE MONTHS ENDED
SEPTEMBER 30,

(dollars in thousands)

2017

2016

Cash flows from operating activities:

Net income

$
8,560

$
12,918

Adjustment to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

12,105

15,017

Unrealized foreign currency gain

(2,030
)

(620
)
Net (gain) loss on interest rate swaps

(186
)

342

Fair value adjustments to earnout liabilities

(5,689
)

460

Earnout payments

(7,797
)

—

Loss on sale of property and equipment

87

199

Debt discount amortization

753

803

Share-based compensation expense

1,179

1,724

Bad debt expense

2,184

324

Inventory reserve expense

829

964

Deferred income taxes

(164
)

(1,111
)
Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

12,718

15,221

Costs and estimated earnings in excess of billings on uncompleted contracts

(183
)

3,449

Inventories

(606
)

7,526

Prepaid expense and other current assets

1,720

(2,907
)
Deferred charges and other assets

1,414

1,068

Accounts payable and accrued expenses

(9,072
)

(10,010
)
Billings in excess of costs and estimated earnings on uncompleted contracts

(14,526
)

6,859

Income taxes payable

(857
)

2,608

Other liabilities

(1,528
)

(1,955
)
Net cash (used in) provided by operating activities

(1,089
)

52,879

Cash flows from investing activities:

Acquisitions of property and equipment

(806
)

(811
)
Proceeds from sale of property and equipment

367

301

Net cash used in investing activities

(439
)

(510
)
Cash flows from financing activities:

Decrease in short-term and long-term restricted cash

878

2,853

Net borrowings (repayments) on revolving credit lines

2,197

(13,142
)
Repayments of debt

(9,161
)

(31,631
)
Deferred financing fees paid

(171
)

—

Payoff of loans on life insurance policies

—

(987
)
Earnout payments

(7,396
)

(9,270
)
Proceeds from sale-leaseback transactions

—

14,244

Payments on capital lease and sale-leaseback financing liability

(542
)

(241
)
Proceeds from employee stock purchase plan, exercise of stock options,
and dividend reinvestment plan

1,372

763

Repurchases of common stock

—

(188
)
Dividends paid to common shareholders

(7,787
)

(6,738
)
Net cash used in financing activities

(20,610
)

(44,337
)
Effect of exchange rate changes on cash and cash equivalents

881

(412
)
Net (decrease) increase in cash and cash equivalents

(21,257
)

7,620

Cash and cash equivalents at beginning of period

45,824

34,194

Cash and cash equivalents at end of period

$
24,567

$
41,814

Cash paid during the period for

Interest

$
4,176

$
5,375

Income taxes

$
3,328

$
2,344

Non-cash transactions

Property, plant and equipment acquired under capital leases

$
—

$
4,385

Noncontrolling interest acquired through an issuance of a note payable (See Note 17)

$
—

$
5,300

Earnout settled through an exchange of accounts receivable

$
—

$
3,272


	Common Stock						Capital in excess of			Accumulated			Accumulated Other Comprehensive			Non-controlling			Total Shareholders'
	Shares			Amount			par value			Loss			Loss			interest			Equity
Balance December 31, 2023		34,835		$	348		$	254,956		$	(6,387	)	$	(16,274	)	$	4,848		$	237,491
Net income for the three months ended March 31, 2024		—			—			—			1,508			—			585			2,093
Exercise of stock options		10			—			113			—			—			—			113
Restricted stock units issued		195			2			(2,204	)		—			—			—			(2,202	)
Share based compensation earned		12			—			1,808			—			—			—			1,808
Common stock repurchase and retirement		(144	)		(1	)		(3,000	)		—			—			—			(3,001	)
Translation gain		—			—			—			—			654			—			654
Noncontrolling interest distributions		—			—			—			—			—			(804	)		(804	)
Balance March 31, 2024		34,908		$	349		$	251,673		$	(4,879	)	$	(15,620	)	$	4,629		$	236,152


	Common Stock				Capital in excess of			Accumulated			Accumulated Other Comprehensive			Non-controlling		Total Shareholders'
	Shares		Amount		par value			Loss			Loss			interest		Equity
Balance December 31, 2022		34,382	$	344	$	250,174		$	(19,298	)	$	(17,996	)	$	4,924	$	218,148
Net income for the three months ended March 31, 2023		—		—		—			1,978			—			491		2,469
Exercise of stock options		52		1		611			—			—			—		612
Restricted stock units issued		123		1		(622	)		—			—			—		(621	)
Share based compensation earned		—		—		808			—			—			—		808
Translation gain		—		—		—			—			766			—		766
Balance March 31, 2023		34,557	$	346	$	250,971		$	(17,320	)	$	(17,230	)	$	5,415	$	222,182

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Three months ended March 31,
(in thousands)	2024			2023
Cash flows from operating activities:
Net income	$	2,093		$	2,469
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		3,512			2,885
Unrealized foreign currency gain (loss)		149			(92	)
Gain (loss) on sale of property and equipment		115			(17	)
Debt discount amortization		120			91
Share-based compensation expense		1,670			806
Bad debt expense		(384	)		83
Inventory reserve expense		499			175
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(5,355	)		(22,786	)
Costs and estimated earnings in excess of billings on uncompleted contracts		7,858			(8,418	)
Inventories		(4,447	)		(2,191	)
Prepaid expense and other current assets		1,211			572
Deferred charges and other assets		(221	)		(325	)
Accounts payable		(2,442	)		(3,358	)
Accrued expenses		1,220			2,302
Billings in excess of costs and estimated earnings on uncompleted contracts		1,262			16,838
Income taxes payable		(387	)		(17	)
Other liabilities		(5,249	)		(1,038	)
Net cash provided by (used in) operating activities		1,224			(12,021	)
Cash flows from investing activities:
Acquisitions of property and equipment		(3,116	)		(2,513	)
Net cash received (paid) for acquisitions		422			(24,142	)
Net cash used in investing activities		(2,694	)		(26,655	)
Cash flows from financing activities:
Borrowings on revolving credit lines		13,400			54,800
Repayments on revolving credit lines		(12,600	)		(20,000	)
Repayments of long-term debt		(2,553	)		(826	)
Payments on finance leases and financing liability		(229	)		(225	)
Deferred consideration paid for acquisitions		(1,000	)		—
Proceeds from employee stock purchase plan and exercise of stock options		258			610
Noncontrolling interest distributions		(804	)		—
Common stock repurchased		(3,000	)		—
Net cash (used in) provided by financing activities		(6,528	)		34,359
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(422	)		(64	)
Net decrease in cash, cash equivalents and restricted cash		(8,420	)		(4,381	)
Cash, cash equivalents and restricted cash at beginning of period		55,448			46,585
Cash, cash equivalents and restricted cash at end of period	$	47,028		$	42,204
Cash paid during the period for:
Interest	$	3,269		$	2,338
Income taxes	$	975		$	1,290

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

CECO ENVIRONMENTAL CO~~RP.~~CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Reporting for Consolidated Financial Statements

1.	~~Basis of Reporting for Consolidated Financial Statements~~

The accompanying unaudited condensed consolidated financial statements of CECO Environmental Corp. and its subsidiaries (the ~~“Company”, “we”, “us”,~~“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 ~~annual~~ financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 ~~September 30, 2017~~March 31, 2024 and the results of operations, ~~and~~ cash flows and shareholders’ equity for the ~~three-month~~three months ended March 31, 2024 and ~~nine-month periods ended September 30, 2017 and 2016.~~2023. The results of operations for the ~~three-month and nine-month periods~~three months ended ~~September 30, 2017~~March 31, 2024 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, ~~2016~~2023 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, ~~2016~~2023 as filed with the ~~SEC.~~SEC on March 5, 2024 (the “Form 10-K”).

The preparation of financial statements in conformity with ~~accounting principles generally accepted in the United States of America (“GAAP”)~~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 ~~Company’s Annual Report on~~ Form ~~10-K for the year ended December 31, 2016 filed with the SEC.~~10-K.

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

The Company’s consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries for all periods presented. All significant inter-company accounts and transactions have been eliminated in consolidation. On July 12, 2016, the Company entered into an agreement with the noncontrolling owner of Peerless Propulsys China Holdings LLC (“Peerless Propulsys”) and acquired 100% ownership in the equity and earnings of Peerless Propulsys by acquiring the remaining 40% interest.

2. New Financial Accounting Pronouncements

2.	~~New Financial Accounting Pronouncements~~

Accounting Standards Adopted in Fiscal ~~2017~~2024

None.

Accounting Standards to be Adopted

In ~~January 2017,~~December 2023, the Financial Accounting Standards Board ~~(“FASB”~~(the "FASB") issued Accounting Standards Update ~~(“ASU”~~("ASU") ~~2017-04, “Intangibles – Goodwill and Other~~2023-09, Income Taxes (Topic ~~350)~~740): ~~Simplifying~~Improvements to Income Tax Disclosures, which addresses income tax disclosure requirements, primarily around the ~~Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2~~disclosure of the former goodwill impairment test along with amending other parts of the goodwill impairment test. Under this ASU, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount,rate reconciliation and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company has adopted ASU 2017-04 effective as of January 1, 2017. The provisions of ASU 2017-04 did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting,” which changes the accounting for certain aspects of share-based payments to employees. The new guidance requires, among its other provisions, that excess tax benefits (which represent the excess of actual tax benefits received at the date of vesting or settlement over the benefits recognized over the vesting period or upon issuance of share-based payments) and tax deficiencies (which represent the amount by which actual tax benefits received at the date of vesting or settlement is lower than the benefits recognized over the vesting period or upon issuance of share-based payments) be recorded in the income statement as an increase or decrease in income taxes when the awards vest or are settled. This is in comparison to the prior requirement that these excess tax benefits be recognized in additional paid-in capital and these tax deficiencies be recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement.paid. The new guidance also requires excess tax benefits to be classified along with other income tax cash flows as an operating activity in the statement of cash flows rather than, as previously required, a financing activity. The new guidance allows companies to elect a change to an

~~accounting policy to account for forfeitures as they occur. The new guidance is effective for the first quarter of our fiscal year ending December 31, 2017, with early adoption permitted.~~

~~We have adopted~~ ASU ~~2016-09 effective January 1, 2017 on a prospective basis where permitted by the new standard. As a result of this adoption:~~

• We recognized discrete tax benefits of $0.4 million in the income tax expense line item of our Condensed Consolidated Statement of Income for the nine months ended September 30, 2017 related to excess tax benefits upon vesting or settlement in that period.

• We elected to adopt the cash flow presentation of the excess tax benefits prospectively, commencing with our Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017, where these benefits are classified along with other income tax cash flows as an operating activity.

• We have elected to change our accounting policy to account for forfeitures as they occur. This change was applied on a modified retrospective basis with a cumulative effect adjustment to reduce retained earnings by $0.1 million as of January 1, 2017.

• We excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the three and nine month periods ended September 30, 2017.

In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” ASU 2016-05 amends Topic 815 to clarify that novation of a derivative (replacing one of the parties to a derivative instrument with a new party) designated as the hedging instrument would not, in and of itself, be considered a termination of the derivative instrument or a change in critical terms requiring discontinuation of the designated hedging relationship. ASU 2016-05 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has adopted ASU 2016-05 on a prospective basis. The provisions of ASU 2016-05 had no effect on the Company’s financial condition, results of operations, or cash flows.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” ASU 2015-11 requires inventory within the scope of the ASU (i.e., first-in, first-out (“FIFO”) or average cost) to be measured using the lower of cost and net realizable value. Inventory excluded from the scope of the ASU (i.e., last-in, first-out (“LIFO”) or the retail inventory method) will continue to be measured at the lower of cost or market. The ASU also amends some of the other guidance in Topic 330, “Inventory,” to more clearly articulate the requirements for the measurement and disclosure of inventory. ASU 2015-11 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has adopted ASU 2015-11 on a prospective basis. The provisions of ASU 2015-11 did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In December 2016, the FASB issued ASU 2016-19, “Technical Corrections and Improvements.” The amendments cover a wide range of topics in the Accounting Standards Codification, guidance clarification, reference corrections, simplification, and minor improvements. The adoption of ASU 2016-19 is effective for annual periods, including interim periods, within those annual periods, beginning after December 15, 2016. The Company has adopted ASU 2016-19 on a prospective basis. The provisions of ASU 2016-19 did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

~~Accounting Standards Yet to be Adopted~~

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 expands an entity’s ability to apply hedge accounting for nonfinancial and financial risk components and allow for a simplified approach for fair value hedging of interest rate risk. ASU 2017-12 eliminates the need to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item. Additionally, ASU 2017-12 simplifies the hedge documentation and effectiveness assessment under the previous guidance. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. We plan to adopt the standard on January 1, 2019. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as a modification. Under ASU 2017-09, an entity will not apply modification accounting to a

share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We plan to adopt the standard on January 1, 2018. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under existing GAAP, an entity is required to present all components of net periodic pension cost and net periodic postretirement benefit cost aggregated as a net amount in the income statement, and this net amount may be capitalized as part of an asset where appropriate. ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when applicable. The amendments in ASU 2017-07 shall be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. ASU 2017-07 becomes effective for the Company on January 1, 2018. Early adoption is permitted. We plan to adopt this standard on January 1, 2018. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The adoption of ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective dates. The Company is evaluating the effect of this standard on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU 2016-18 will require a change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that year. The Company is currently in the process of evaluating the impact of ASU 2016-18 on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. ASU 2016-15 will require adoption on a retrospective basis, unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable. Early adoption is permitted, including adoption in an interim period. We plan to adopt this standard on January 1, 2018. The Company is currently in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.2024. The Company ~~believes that~~is currently evaluating the ~~new~~impact the adoption of the standard will have ~~a material impact~~ on ~~its consolidated balance sheet due to the recognition of ROU assets and liabilities for~~ the Company’s ~~operating leases but it will not have a material impact on its liquidity. The Company is continuing to evaluate potential impacts to its~~ consolidated financial statements.

In ~~May 2014,~~November 2023, the FASB issued ASU ~~2014-09, “Revenue From Contracts With Customers.”~~2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which addresses segment disclosure requirements, primarily the disclosure of significant segment expenses. The ASU ~~2014-09 supersedes nearly all existing revenue recognition principles under GAAP. The core principle of ASU 2014-09~~ is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration an entity expects to be entitled to for those goods or services using a defined five-step process. More judgment and estimates may be required to achieve this principle than under existing GAAP. In 2016, the FASB issued accounting standards updates to address

implementation issues and to clarify the guidance for identifying performance obligations, licenses and determining if a company is the principal or agent in a revenue arrangement. ASU 2014-09 and its clarifying amendments are effective for ~~annual~~fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, ~~2017, including interim periods therein, using either of~~2024. The Company is currently evaluating the ~~following transition methods: (i) a full retrospective approach reflecting~~impact the ~~application~~adoption of the standard ~~in each prior reporting period with~~will have on the option to elect certain practical expedients or (ii) a modified retrospective approach with the cumulative effect upon initial adoption recognized at the date of adoption, which includes additional footnote disclosures. We currently expect to adopt ASU 2014-09Company’s consolidated financial statements.

3. Accounts Receivable

Accounts receivable as of March 31, 2024 and December 31, 2023 consisted of the following:


(in thousands)	March 31, 2024			December 31, 2023
Accounts receivable	$	122,670		$	119,193
Provision for credit losses		(6,023	)		(6,460	)
Total accounts receivable, net	$	116,647		$	112,733

Accounts receivable, net as of the beginning of the prior year period, or January 1, ~~2018, under the modified retrospective method where the cumulative effect is recognized at the date of initial application.~~ 2023, were $83.1 million.

The Company’s assessment efforts to date have included reviewing current accounting policies, processes, and system requirements, as well as assigning internal resources and engaging third-party consultants to assist in the process. Additionally, the Company has begun to review historical contracts and other arrangements to identify potential differences that could arise from the adoption of ASU 2014-09. Most notably, the Company is evaluating its current conclusions with respect to the timing of revenue recognition for certain contract arrangements where revenue is recognized over time, to determine whether the application of ASU 2014-09 necessitates changes to such reporting whereby revenue would be recognized at a point in time. The Company will continue to evaluate our business processes, systems and controls, and potential differences, if any, in the timing and method of revenue recognition. However, the Company will not be able to make a complete determination about the impact of the standard on its consolidated financial statements until the time of adoption based upon outstanding contracts at that time.

3.	~~Accounts Receivable~~

(Table only in thousands)

September 30,
2017

December 31,
2016

Trade receivables

$
13,211

$
11,976

Contract receivables

60,176

72,835

Allowance for doubtful accounts

(2,883
)

(1,749
)

$
70,504

$
83,062

Balances billed but not paid by customers under retainage provisions in contracts within the Condensed Consolidated Balance Sheets amounted to approximately ~~$2.6~~$3.5 million and ~~$3.2~~$3.2 million at ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, respectively. Retainage receivables on contracts in progress are generally collected within a year ~~after~~or two subsequent to contract ~~completion.~~completion, and are recorded in either "Accounts receivable, net" or "Deferred charges and other assets" within the Condensed Consolidated Balance Sheets depending on timing of expected collection.

~~The amounts~~Amounts (recovered from) charged to the provision for ~~doubtful accounts~~credit losses were ~~$1.2~~$(0.4) million and ~~$30,000~~$0.1 for the ~~three-month periods~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016, respectively,~~2023, respectively.

4. Contract Assets and ~~$2.2 million~~Liabilities

Contract assets and ~~$0.3 million for~~liabilities as of March 31, 2024 and December 31, 2023 consisted of the ~~nine-month periods ended September 30, 2017~~following:


(in thousands)	March 31, 2024		December 31, 2023
Costs and estimated earnings in excess of billings on uncompleted contracts	$	58,541	$	66,574
Billings in excess of costs and estimated earnings on uncompleted contracts		58,158		56,899

As of the beginning of the prior year period, or January 1, 2023, costs and ~~2016, respectively.~~

4.	~~Costs and Estimated Earnings on Uncompleted Contracts~~

~~Revenues from contracts are primarily recognized on the percentage~~estimated earnings in excess of completion method, measured by the percentage of contract costs incurred to date compared with estimated total contract costs for each contract. This method is used because management considers contract costs to be the best available measure of progress on these contracts. For contracts where the duration is short, total contract revenue is insignificant, or reasonably dependable estimates cannot be made, revenues are recognized on a completed contract basis, when risk and title passes to the customer, which is generally upon shipment of product.

~~Our contracts have various lengths to completion ranging from a few days to a year. We anticipate that a majority of our current contracts will be completed within the next twelve months.~~

(Table only in thousands)

September 30,
2017

December 31,
2016

Costs incurred on uncompleted contracts

$
187,646

$
186,609

Estimated earnings

67,533

77,709

255,179

264,318

Less billings to date

(236,253
)

(261,280
)

$
18,926

$
3,038

Included in the accompanying condensed consolidated
   balance sheets under the following captions:

Costs and estimated earnings in excess of billings
   on uncompleted contracts

$
39,964

$
38,123

Billings in excess of costs and estimated
   earnings on uncompleted contracts

21,038

35,085

$
18,926

$
3,038

~~Provisions for estimated losses~~billings on uncompleted contracts ~~are made~~and billings in ~~the period in which such losses are determined. Changes to job performance, job conditions,~~excess of costs and estimated ~~profitability may result in revisions to contract revenue and costs and are recognized in the period in which the revisions are made. A provision of $0.1 million for estimated losses~~earnings on uncompleted contracts ~~was recognized at September 30, 2017. No provision for estimated losses~~were $71.0 million and $32.7 million, respectively. The contract liabilities recorded in “Accrued expenses” on ~~uncompleted contracts was required at~~the Condensed Consolidated Balance Sheets were $8.9 million, $7.9 million and $4.5 million as of March 31, 2024, December 31, ~~2016.~~ 2023 and January 1, 2023, respectively. Approximately 40% of the Company's contract liabilities as of December 31, 2023 were recognized as revenue in the three months ended March 31, 2024.

5. Inventories

5.	~~Inventories~~

Inventories as of March 31, 2024 and December 31, 2023 consisted of the following:


(in thousands)	March 31, 2024			December 31, 2023
Raw materials	$	25,792		$	25,819
Work in process		13,802			9,710
Finished goods		2,500			2,368
Obsolescence allowance		(4,062	)		(3,808	)
Total inventories	$	38,032		$	34,089

(Table only in thousands)

September 30,
2017

December 31,
2016

Raw materials

$
19,750

$
17,889

Work in process

3,310

3,986

Finished goods

1,261

1,508

Obsolescence allowance

(2,571
)

(1,896
)

$
21,750

$
21,487

Amounts credited to the allowance for obsolete inventory and charged to cost of sales amounted to ~~$0.5~~$0.5 million and ~~$0.1~~$0.2 million for the ~~three-month periods~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016, respectively,~~2023, respectively.

6. Goodwill and ~~$0.8 million and $1.0 million~~Intangible Assets

Goodwill activity for the ~~nine-month periods~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016, respectively.~~ the year ended December 31, 2023 was as follows:


(in thousands)	Three months ended March 31, 2024					Year ended December 31, 2023
Goodwill / Tradename	Goodwill		Tradename			Goodwill		Tradename
Balance at beginning of period	$	211,326	$	9,570		$	183,197	$	9,508
Acquisitions		110		—			27,152		—
Foreign currency translation		43		(12	)		977		62
Balance at end of period	$	211,479	$	9,558		$	211,326	$	9,570

During the three months ended March 31, 2024, the Company recorded measurement period adjustments related to the acquisition of Kemco Systems Co., LLC ("Kemco"), as discussed in Note 15, resulting in an increase to goodwill.

6.	~~Goodwill and Intangible Assets~~

Finite life intangible assets as of March 31, 2024 and December 31, 2023 consisted of the following:


	March 31, 2024					December 31, 2023
(in thousands)	Cost			Accum. Amort.		Cost			Accum. Amort.
Technology	$	16,517		$	14,225	$	16,517		$	14,061
Customer lists		103,471			65,072		103,471			63,420
Tradenames		14,094			5,343		14,094			5,001
Foreign currency adjustments		(1,111	)		7		(1,083	)		56
Total intangible assets – finite life	$	132,971		$	84,647	$	132,999		$	82,538

(Table only in thousands)

Nine months ended
September 30, 2017

Year ended
December 31, 2016

Goodwill / Indefinite Life Tradenames

Goodwill

Tradenames

Goodwill

Tradenames

Beginning balance

$
170,153

$
22,042

$
220,163

$
26,337

Acquisitions and related adjustments

—

—

4,205

—

Impairment

—

—

(53,762
)

(4,161
)
Foreign currency translation

1,086

339

(453
)

(134
)

$
171,239

$
22,381

$
170,153

$
22,042

(Table only in thousands)

As of September 30, 2017

As of December 31, 2016

Intangible assets – finite life

Cost

Accum.
Amort.

Cost

Accum.
Amort.

Technology

$
15,867

$
8,040

$
15,867

$
6,360

Customer lists

77,497

32,758

77,497

26,041

Noncompetition agreements

1,118

643

1,118

478

Tradename

1,390

405

1,390

301

Foreign currency adjustments

(1,453
)

(176
)

(2,964
)

(1,000
)

$
94,419

$
41,670

$
92,908

$
32,180

~~Activity~~Finite life intangible asset activity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016 is~~2023 was as follows:

(Table only in thousands)	2017			2016

							Three months ended March 31,
(in thousands)							2024			2023
Intangible assets – finite life, net at beginning of period	$	60,728		$	74,957		$	50,461		$	35,251
Amortization expense		(8,666	)		(11,123	)		(2,157	)		(1,690	)
Acquisitions								—			1,778
Foreign currency adjustments		687			142			20			75
Intangible assets – finite life, net at end of period	$	52,749		$	63,976		$	48,324		$	35,414

Amortization expense of finite life intangible assets was ~~$2.9~~$2.2 million and ~~$3.5~~$1.7 million for the ~~three-month periods~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016, respectively, and $8.7 million and $11.1~~2023, respectively. Amortization over the next five years for finite life intangibles is expected to be $6.4 million for the ~~nine-month periods ended September 30, 2017~~remainder of 2024, $7.6 million in 2025, $6.2 million in 2026, $6.0 million in 2027, and ~~2016, respectively.~~ $5.6 million in 2028.

The Company completes its goodwill and indefinite life intangible asset impairment assessment annually in the fourth quarter, or more often if circumstances require. As a part of its impairment assessment, the Company first qualitatively assesses whether current events or changes in circumstances lead to a determination that it is more likely than not, defined as a likelihood of more than 50 percent, that the fair value of a reporting unit or indefinite life intangible asset is less than its carrying amount. If there is a qualitative determination that the fair value is more likely than not greater than the carrying value, the Company does not quantitatively test for impairment. If this qualitative assessment indicates a more likely than not potential that the asset may be impaired, the estimated fair value is calculated. If the estimated fair value is less than carrying value, an impairment charge is recorded.

As of March 31, 2024, the Company reviewed its previous forecasts and assumptions based on its current projections, which are subject to various risks and uncertainties, including projected revenue, projected operational profit, terminal growth rates, and the cost of capital. The Company did not identify any triggering events during the ~~three-month~~three months ended March 31, 2024 and ~~nine-month periods ended September 30, 2017~~2023 that would require an interim impairment assessment of goodwill ~~finite life~~or intangible ~~assets, or indefinite life intangible~~ assets. ~~Therefore, there was no~~

The Company’s assumptions about future conditions important to its assessment of potential impairment of its goodwill ~~finite life intangible assets, or~~and indefinite life intangible assets ~~during~~are subject to uncertainty, and the ~~three-month~~Company will continue to monitor these conditions in future periods as new information becomes available, and ~~nine-month periods ended September 30, 2017.~~will update its analysis accordingly.

7. Accrued Expenses

7.	~~Accounts Payable and Accrued Expenses~~

(Table only in thousands)

September 30,
2017

December 31,
2016

Trade accounts payable, including due to subcontractors

$
54,091

$
58,985

Compensation and related benefits

4,528

8,232

Current portion of earn-out liability

3,514

13,527

Accrued warranty

4,244

2,684

Other accrued expenses

11,278

12,182

$
77,655

$
95,610

~~The activity in the Company’s current portion~~Accrued expenses as of ~~earn-out liability~~March 31, 2024 and ~~long-term portion of earn-out liability was as follows for the nine months ended September 30, 2017 and 2016:~~

(Table only in thousands)

Energy Segment

Environmental Segment

Total⁽¹⁾

Balance of earn-out at December 31, 2016

$
24,214

$
—

$
24,214

Fair value adjustment

(5,689
)

—

(5,689
)
Compensation expense adjustment

918

—

918

Foreign currency translation adjustment

729

—

729

Payment

(15,193
)

—

(15,193
)
Total earn-out liability as of September 30, 2017

$
4,979

$
—

$
4,979

Less: current portion of earn-out

(3,514
)

—

(3,514
)
Balance of long term portion of earn-out recorded in Other liabilities at September 30, 2017

$
1,465

$
—

$
1,465

(Table only in thousands)

Energy Segment

Environmental Segment

Total⁽¹⁾

Balance of earn-out at December 31, 2015

$
29,304

$
3,367

$
32,671

Fair value adjustment

960

(500
)

460

Compensation expense adjustment

923

—

923

Foreign currency translation adjustment

(539
)

—

(539
)
Settlement through an exchange of accounts receivable

(3,272
)

—

(3,272
)
Payment

(8,170
)

(1,100
)

(9,270
)
Total earn-out liability as of September 30, 2016

$
19,206

$
1,767

$
20,973

Less: current portion of earn-out

(9,991
)

(1,267
)

(11,258
)
Balance of long term portion of earn-out recorded in Other liabilities at September 30, 2016

$
9,215

$
500

$
9,715

~~(1)~~

~~The Fluid Handling and Filtration segment does not have any earn-out arrangements associated with the segment.~~

8.	~~Senior debt~~

~~Debt~~December 31, 2023 consisted of the ~~following at September 30, 2017~~following:


(in thousands)	March 31, 2024		December 31, 2023
Compensation and related benefits	$	8,039	$	11,278
Accrued warranty		4,873		5,105
Contract liability		8,880		7,875
Short-term operating lease liability		4,034		4,278
Other		20,369		15,765
Total accrued expenses	$	46,195	$	44,301

8. Senior Debt

Debt as of March 31, 2024 and December 31, ~~2016:~~

(Table only in thousands)

September 30,
2017

December 31,
2016

Outstanding borrowings under the Credit Facility (defined below).
   Term loan payable in quarterly principal installments of $2.0
   million through September 2018, $2.5 million thereafter
   with balance due upon maturity in September 2020.

- Term loan

$
115,911

$
125,072

- U.S. Dollar revolving loans

2,000

—

- Unamortized debt discount and debt issuance costs

(2,593
)

(3,175
)
Total outstanding borrowings under the Credit Facility

115,318

121,897

Outstanding borrowings (U.S. dollar equivalent) under
   the China Facility (defined below)

—

1,296

Outstanding borrowings (U.S. dollar equivalent) under
   the Aarding Facility (defined below)

1,614

—

Total outstanding borrowings

116,932

123,193

Less: current portion

9,645

8,827

Total debt, less current portion

$
107,287

$
114,366

~~During the nine-month period ended September 30, 2017, the Company made prepayments of $4.3 million on the outstanding balance~~2023 consisted of the ~~term loan. These prepayments were applied to future principal payments due under the term loan.~~ following:


(in thousands)	March 31, 2024			December 31, 2023
Outstanding borrowings under Credit Facility (defined below) Term loan payable in quarterly principal installments of $550 through September 2023, $2,232 through September 2025 and $2,977 thereafter with balance due upon maturity in December 2026.
Term loan	$	110,191		$	112,424
Revolving credit facility		18,100			17,300
Total outstanding borrowings under the Credit Facility		128,291			129,724
Outstanding borrowings under the joint venture term debt		8,535			8,855
Unamortized debt discount		(1,176	)		(1,296	)
Total outstanding borrowings		135,650			137,283
Less: current portion		(10,580	)		(10,488	)
Total debt, less current portion	$	125,070		$	126,795

Scheduled principal payments under ~~our~~the Credit Facility and joint venture term debt are ~~$2.0~~$7.9 million for the remainder of ~~2017, $8.5~~2024, $11.3 million in ~~2018, $10.0~~2025, $113.7 million in ~~2019, and $97.4~~2026, $3.9 million in ~~2020.~~2027, and zero in 2028.

~~United States Debt~~Credit Facility

As of ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016, $20.8~~2023, $13.5 million and ~~$18.0~~$13.3 million of letters of credit were outstanding, respectively. Total unused credit availability, in consideration of borrowing limitations, under the Company’s senior secured term loan and senior secured ~~U.S. dollar revolving loans~~revolver loan with sub-facilities for letters of credit, ~~and~~ swing-line loans and senior secured multi-currency ~~revolving credit facility for U.S. dollar and specific foreign currency~~ loans ~~(collectively, the “Credit Facility”~~(the "Credit Facility") was ~~$57.2~~$108.4 million and ~~$62.0~~$109.4 million at ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, respectively. Revolving loans may be borrowed, repaid and reborrowed until ~~September 3, 2020,~~December 17, 2026, at which time all ~~amounts borrowed pursuant to~~outstanding balances of the Credit Facility must be repaid.

At the Company’s option, revolving loans and the term loans accrue interest at a per annum rate based on (a) either the highest of (i) the federal funds rate plus 0.5%, or (ii) the prime lending rate of the Agent (as defined in the Credit Facility), (b) Daily Simple SOFR plus the Daily Simple SOFR Adjustment of 0.11% plus 1.0%, (c) 1.0%, plus a margin ranging from 1.75% to 3.25% depending on the Company’s Consolidated Leverage Ratio, or (d) a one/three/six-month Term SOFR Rate (as defined in the Credit Facility) plus the Term SOFR Adjustment ranging from 0.11% to 0.43% plus 1.75% to 3.25% depending on the Company’s Consolidated Leverage Ratio. Interest on swing line loans is the Base Rate.

Interest on Base Rate loans is payable quarterly in arrears on the last day of each calendar quarter and at maturity. Interest on Term SOFR rate loans is payable on the last date of each applicable Interest Period (as defined in the agreement), but in no event less than once every three months and at maturity. The weighted average stated interest rate on outstanding borrowings was ~~3.60%~~8.01% and ~~3.26%~~8.29% at ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, respectively. The effective interest rate was 8.24% and 7.70% at March 31, 2024 and December 31, 2023, respectively.

~~In accordance with~~Under the terms of the Credit Facility, ~~terms,~~the Company is required to maintain certain financial covenants, including the maintenance of a Consolidated Net Leverage Ratio (as defined in the Credit Facility). In the third quarter of 2023, the Company entered into an interest rate swap on December 30, 2015 to hedge against interest rate exposure related to approximately one-third of the outstanding debt indexed to LIBOR market rates. The fair value of the interest rate swap had no impact on the CondensedElevated Ratio Period resulting in a maximum Consolidated Balance Sheet as of September 30, 2017. The fair value of the interest rate swap was a liability totaling $0.2 million at December 31, 2016, which is recorded in “Accounts payable and accrued expenses” on the Condensed Consolidated Balance Sheets. The Company did not designate the interest rate swap as an effective hedge until the first quarter of 2016, and accordingly the change in the fair value until the date of designation of $0.5 million was recorded in earnings in “Other income (expense), net” in the Condensed Consolidated Statements of Income for the nine-month period ended September 30, 2016. From the date of designation, a significant portion of the changes to the fair value of the interest rate swap have been recorded in other comprehensive income (loss) as the hedge is deemed effective.

The Company amended the Credit Facility as of June 9, 2017. The Credit Facility was amended to, among other things, (a) modify the calculation of Consolidated EBITDA and Consolidated Fixed Charges to exclude certain pro forma adjustments related to certain acquisitions and other transactions and (b) modify the ConsolidatedNet Leverage Ratio ~~covenant.~~

~~The Company amended the Credit Facility as~~ of October 31, 2017. The Credit Facility was amended to, among other things, (a) modify the calculation of Consolidated EBITDA and Consolidated Fixed Charges to exclude certain adjustments related to certain transactions (b) modify the Consolidated Leverage Ratio covenant and (c) add a covenant restricting the amount of capital expenditures we may make in fiscal years 2018 and 2019. ~~As a result of the amendment to the Credit~~ ~~Facility, the maximum consolidated leverage ratio increased from 3.25 to 3.75 and~~4.00 through June 30, 2024, after which time it will ~~remain constant at this ratio through March 31, 2019, when it is set to~~ decrease to 3.50 ~~through September 30, 2019. The Consolidated Leverage Ratio will then decrease to 3.25 where it will remain~~ until the end of the term of the Credit Facility.

The Company has granted a security interest in substantially all of its assets to secure its obligations pursuant to the Credit Facility. The Company’s obligations under the Credit Facility. are guaranteed by the Company’s domestic subsidiaries and such guaranty obligations are secured by a security interest on substantially all the assets of such subsidiaries, including certain real property. The Company’s obligations under the Credit Facility may also be guaranteed by the Company’s material foreign subsidiaries to the extent no adverse tax consequences would result to the Company.

As of ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, the Company was in compliance with all related financial and other restrictive covenants under the Credit ~~Facility~~.Facility.

~~Foreign~~Joint Venture Debt

~~A subsidiary~~On March 7, 2022, the Effox-Flextor-Mader, Inc. joint venture ("EFM JV"), for which the Company holds 63% of the ~~Company located~~equity, entered into a loan agreement secured by the assets of the EFM JV in the ~~Netherlands has a Euro denominated facilities agreement with ING Bank N.V. (“Aarding Facility”) with a total borrowing capacity~~aggregate principal amount of ~~$15.4 million.~~$11.0 million for the acquisition of General Rubber, LLC ("GRC"). As of ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, $8.5 million and $8.9 million was outstanding under the ~~borrowers were~~loan, respectively. Principal will be paid back to the lender monthly with the final installment due by February 27, 2027. Interest is accrued at the per annum rate based on EFM JV's choice of the 1/3/6 month Term SOFR rate plus 3.25%, with a floor rate of 3.75%. Interest is paid monthly on the last day of each month. The interest rate at March 31, 2024 and December 31, 2023 was 8.52% and 8.70%, respectively. As of March 31, 2024 and December 31, 2023, the EFM JV was in compliance with all related financial and other restrictive ~~covenants.~~covenants under this loan agreement. This loan balance does not impact the Company’s borrowing capacity or the financial covenants under the Credit Facility. As of ~~September 30, 2017, $4.6~~March 31, 2024, there were $16.0 million ofin current assets, $26.4 million in long-lived assets, and $31.4 million in total liabilities related to the ~~bank guarantee and $1.6 million of~~EFM JV included in the ~~overdraft facility are being used by the Company.~~Condensed Consolidated Balance Sheets. As of December 31, ~~2016, $5.3~~2023, there were $14.5 million in current assets, $26.7 million in long-lived assets, and $12.5 million in total liabilities related to the EFM JV included in the Consolidated Balance Sheets. For the three months ended March 31, 2024 and 2023, the EFM JV accounted for $10.7 million and $9.4 million in revenue, respectively, included in the Company's results.

Foreign Debt

The Company has a number of bank guarantee facilities and bilateral lines of credit in various foreign countries currently supported by cash, letters of credit or pledged assets and collateral under the Credit Facility. In March 2023, the Company amended the Credit Facility, allowing letters of credit and bank guarantee issuances of up to $80.0 million from the bilateral lines of credit secured through pledged assets and collateral under the Credit Facility. As of March 31, 2024 and December 31, 2023, $46.8 million and $45.8 million in bank guarantees were outstanding, respectively, inclusive of $1.8 million and $1.3 million in outstanding bank guarantees as of March 31, 2024 and December 31, 2023, respectively, under a Euro-denominated bank guarantee agreement held by a subsidiary of the Company located in the Netherlands secured by local assets, as well as $2.2 million and $2.3 million in outstanding bank guarantees as of March 31, 2024 and December 31, 2023, respectively, under a Yuan-denominated bank guarantee ~~and none of the overdraft facility was being used~~agreements held by ~~the Company. There is no stated expiration date on the Aarding Facility.~~

Aa subsidiary of the Company located in China ~~has a Chinese Yuan Renminbi denominated short-term loan with Bank of America (“China Facility”) with an amount outstanding of $1.3 million as of December 31, 2016 at an interest rate of 4.79%~~. This loan was paid down in full during the nine months ended September 30, 2017. The total amount available for borrowing under the China Facility was $4.5 million and $4.3 million as of September 30, 2017 and December 31, 2016, respectively.

As a result of the PMFG, Inc. (“PMFG”) acquisition in September 2015, the Company acquired a 60% equity investment in Peerless Propulsys that entitled the Company to 80% of Peerless Propulsys’s earnings. In prior periods, the noncontrolling interest of Peerless Propulsys was reported as a separate component on the Consolidated Balance Sheets. During July 2016, the Company entered into an agreement with the noncontrolling owner of Peerless Propulsys and issued a promissory note in the amount of $5.3 million due on July 11, 2019 in exchange for the remaining interest in Peerless Propulysys, which increased the Company’s ownership to 100% in the equity and earnings of Peerless Propulsys. The interest rate on the note payable is 1.50%, which approximates the market rate given the short-term duration of the note payable. The note payable is guaranteedsecured by the Company. As of September 30, 2017 and December 31, 2016, $5.3 million of the principal amount of the note payable was outstanding. The note is payable at the earlier of July 11, 2019 or 30 days subsequent to the sale of building and land that the Company owns in China. As the Company intends to sell this building and land within one year of September 30, 2017, this note payable is currently classified as a current liability in the Consolidated Balance Sheets as of September 30, 2017. local assets.

9. Earnings per Share

9.	~~Earnings and Dividends per Share~~

The computational components of basic and diluted earnings per share for the ~~three-month~~three months ended March 31, 2024 and ~~nine-month periods ended September 30, 2017~~2023 are as follows:


	Three months ended March 31,
(in thousands)	2024		2023
Numerator (for basic and diluted earnings per share)
Net income attributable to CECO Environmental Corp.	$	1,508	$	1,978

Denominator
Basic weighted-average shares outstanding		34,846		34,442
Common stock equivalents arising from stock options and restricted stock awards		1,331		757
Diluted weighted-average shares outstanding		36,177		35,199

Options and ~~2016 are below.~~

For the three-month
period ended September 30, 2017

Numerator
(Income)

Denominator
(Shares)

Per Share
Amount

Basic net income and earnings per share

$
3,036

34,519

$
0.09

Effect of dilutive securities:

Common stock equivalents arising from stock
options, restricted stock awards, and employee
stock purchase plan

—

103

—

Diluted earnings and earnings per share

$
3,036

34,622

$
0.09

For the three-month
period ended September 30, 2016

Numerator
(Income)

Denominator
(Shares)

Per Share
Amount

Basic net income and earnings per share

$
5,804

33,984

$
0.17

Effect of dilutive securities:

Common stock equivalents arising from stock
options, restricted stock awards, and employee
stock purchase plan

—

371

—

Diluted earnings and earnings per share

$
5,804

34,355

$
0.17

For the nine-month
period ended September 30, 2017

Numerator
(Income)

Denominator
(Shares)

Per Share
Amount

Basic net income and earnings per share

$
8,560

34,404

$
0.25

Effect of dilutive securities:

Common stock equivalents arising from stock
options, restricted stock awards, and employee
stock purchase plan

—

261

—

Diluted earnings and earnings per share

$
8,560

34,665

$
0.25

For the nine-month
period ended September 30, 2016

Numerator
(Income)

Denominator
(Shares)

Per Share
Amount

Basic net income and earnings per share

$
12,954

33,953

$
0.38

Effect of dilutive securities:

Common stock equivalents arising from stock
options, restricted stock awards, and employee
stock purchase plan

—

258

—

Diluted earnings and earnings per share

$
12,954

34,211

$
0.38

~~Options,~~ restricted stock units ~~and warrants~~ included in the computation of diluted earnings per share are calculated using the treasury stock method. For the ~~three-month periods~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016, 0.8~~2023, 0.1 million and ~~1.1 million, respectively, and 0.7 million and 1.4 million during the nine-month periods ended September 30, 2017 and 2016,~~zero, respectively, of outstanding options and ~~warrants~~restricted stock units were excluded from the computation of diluted earnings per share due to their having an anti-dilutive effect.

Once a restricted stock unit vests, it is included in the computation of weighted average shares outstanding for purposes of basic and diluted earnings per share.

Common Stock Repurchase

On ~~August 7, 2017,~~May 10, 2022, the Company declared and, on September 29, 2017, paid to common stockholders a quarterly dividend of $0.075 per share. The dividend policy and the payment of cash dividends under that policy are subject to the Board of Directors’ continuing determination that the dividend policy and the declaration of dividends are in the best interest of the Company’s

~~stockholders. On November 6, 2017, the~~Company's Board of Directors ~~reviewed~~authorized a share repurchase program under which the ~~Company’s dividend policy and determined that it would be~~Company may purchase up to $20.0 million of its outstanding shares of common stock through April 30, 2025. The authorization permits the Company to repurchase shares in the ~~best interest of the stockholders to discontinue dividend payments. Future dividends and the dividend policy may be changed~~open market, through accelerated share repurchases, block trades, Rule 10b5-1 trading plans or ~~cancelled at the Company’s discretion at any time. Payment of dividends is also subject to the continuing compliance with our financial covenants under our Credit Facility.~~

~~10.~~

~~Share-Based Compensation~~

The Company’s 2017 Equity and Incentive Compensation Plan (the “2017 Plan”) was approved by the Company’s stockholders on May 16, 2017. The 2017 Plan permits the granting of stock options, which are granted with an exercise price equal to or greater than the fair market value of the Company’s common stock at the date of the grant, and other stock-based awards, including appreciation rights, restricted stock, restricted stock unit, performance shares and dividend equivalents. As of May 16, 2017, no further grants will be made under the Company’s 2007 Equity Incentive Plan (the “2007 Plan”), but outstanding awards under the 2007 Plan prior to such date will continue to be unaffectedthrough privately negotiated transactions in accordance with ~~their terms.~~ applicable laws, rules and regulations. During the three months ended March 31, 2024, the Company repurchased approximately 144,000 shares under the program for a cost of $3.0 million. There were no shares repurchased under the program during the three months ended March 31, 2023.

10. Share-Based Compensation

The Company accounts for ~~stock-based~~share-based compensation in accordance with ~~ASC~~Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation,” which requires the Company to recognize compensation expense for ~~stock-based~~share-based awards, measured at the fair value of the awards at the grant date. The Company recognized ~~expense of $0.5~~$1.7 million and ~~$0.6~~$0.8 million of share-based compensation related expense during the ~~three-month periods~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016, respectively, and $1.2 million and $1.7 million during the nine-month periods ended September 30, 2017 and 2016,~~2023, respectively. ~~Share based compensation expense was lower in 2017 primarily due to a large amount of forfeitures related to the former Chief Executive Officer’s departure from the Company.~~

~~The Company granted no options during the three-month periods ended September 30, 2017 and 2016, respectively.~~ The Company granted approximately ~~128,000~~284,000 and 100,000 options during the nine-month periods ended September 30, 2017 and 2016, respectively. The weighted-average fair value of stock options granted during the nine months ended September 30, 2017 and 2016 was determined to be $2.68 and $2.07 per option, respectively, using the Black-Scholes option-pricing model based on the following assumptions:

~~Expected Volatility:~~ The Company utilizes a volatility factor based on the Company’s historical stock prices for a period of time equal to the expected term of the stock option utilizing weekly price observations. For the nine months ended September 30, 2017 and 2016, the Company utilized a weighted-average volatility factor of 39%.

~~Expected Term:~~ ~~For the nine months ended September 30, 2017 and 2016, the Company utilized a weighted-average expected term factor of 6.3 years and 6.5 years, respectively.~~

~~Risk-Free Interest Rate:~~ The risk-free interest rate factor utilized is based upon the implied yields currently available on U.S. Treasury zero-coupon issues over the expected term of the stock options. For the nine months ended September 30, 2017 and 2016, the Company utilized a weighted-average risk-free interest rate factor of 2.1%.

~~Expected Dividends:~~ ~~The Company utilized a weighted average expected dividend rate of 3.3% and 3.6% to value options granted during the nine months ended September 30, 2017 and 2016, respectively.~~

~~The Company granted no~~340,000 restricted stock units during the ~~three-month period~~three months ended ~~September 30, 2017~~March 31, 2024 and 2023, respectively, and approximately ~~165,000 restricted~~25,000 and zero stock ~~units~~options during the three-month period ended September 30, 2016. The Company granted approximately 405,000 and 270,000 restricted stock units during the nine-month periods ended September 30, 2017 and 2016, respectively. The weighted-average fair value of restricted stock units granted during the ninethree months ended ~~September 30, 2017~~March 31, 2024 and ~~2016 was determined to be $9.87 and $9.77 per unit, respectively, using the value of stock in the open market on the date of grant.~~2023, respectively.

On June 10, 2017, the Company granted 700,000 performance units to our Chief Executive Officer whose total value was determined to be $175,000 and will be expensed over the vesting period. The maximum shares of common stock that the participant could receive upon his performance units vesting is 77,778 shares. The performance units are earned based upon the Company’s stock price during 30 consecutive trading days within a specified date range of approximately two years. The performance units are settled in the Company’s common stock subsequent to this specified date range and vest approximately three years from the date of the grant. The estimated grant date fair value and compensation expense of each performance share is determined on the date of grant by using the Monte Carlo valuation model.

~~The fair value of the stock-based awards, including the performance units, granted is recorded as compensation expense on a straight-line basis over the vesting periods of the awards.~~

There were ~~approximately 287,000~~10,000 and ~~74,000~~52,000 options exercised during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016,~~2023, respectively. The Company received ~~$1.1~~$0.1 million and ~~$0.5~~$0.6 million in cash from employees and directors exercising options during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016,~~2023, respectively. The intrinsic value of options exercised during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 was ~~$1.9~~$0.1 million and ~~$0.2~~$0.2 million, respectively.

11. Pension and Employee Benefit Plans

~~11.~~

~~Pension and Employee Benefit Plans~~

~~We sponsor~~The Company sponsors a non-contributory defined benefit pension plan for certain union employees. The plan is funded in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974.

~~We also sponsor a postretirement health care plan for office employees retired before January 1, 1990.~~ The ~~plan allowed retirees who attained~~Company presents the ~~age~~components of ~~65 to elect~~net periodic benefit cost within “Other expense, net” on the ~~type~~Condensed Consolidated Statements of ~~coverage desired.~~Income.

Retirement ~~and health care~~ plan expense is based on valuations performed by plan actuaries as of the beginning of each fiscal year. The components of the pension plan expense consisted of the following:

(Table only in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Pension plan:
Service cost	$	101		$	112		$	315		$	335
													Three months ended March 31,
(in thousands)													2024			2023
Interest cost		329			356			986			1,069		$	304		$	318
Expected return on plan assets		(431	)		(457	)		(1,292	)		(1,371	)		(304	)		(285	)
Amortization of net actuarial loss		57			53			170			159			57			74
Net periodic benefit cost	$	56		$	64		$	179		$	192		$	57		$	107
Health care plan:
Interest cost	$	1		$	1		$	2		$	3
Amortization of loss		2			3			6			8
Net periodic benefit cost	$	3		$	4		$	8		$	11

WeThe Company madeno contributions to ~~our~~its defined benefit ~~plans~~plan during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016 totaling $1.6~~2023. For the remainder of 2024, the Company expects to make contributions of $0.6 million ~~and $29,000, respectively. We anticipate $0.3 million and $25,000 of further contributions~~ to fund the pension ~~plans and the retiree health care plan, respectively, during the remainder of 2017.~~plan. The unfunded liability of the ~~plans~~plan of ~~$9.6~~$4.2 million and ~~$11.1~~$4.1 million as of ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, respectively, is included in ~~Other liabilities~~“Other liabilities” on ~~our unaudited~~the Condensed Consolidated Balance Sheets.

12. Income Taxes

~~12.~~

~~Income Taxes~~

The Company files income tax returns in various federal, state and local jurisdictions. Tax years from ~~2014 and onward~~2018 forward remain open for examination by ~~federal~~Federal authorities. Tax years from ~~2012 and onward~~2017 forward remain open for all significant state and foreign authorities.

The Company accounts for uncertain tax positions pursuant to ASC Topic 740, “Income Taxes.” As of ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, the liability for uncertain tax positions totaled approximately ~~$0.4~~$0.2 million, which is included in ~~Other liabilities~~“Other liabilities” on ~~our unaudited~~the Condensed Consolidated Balance Sheets. The Company recognizes accrued interest ~~accrued~~ related to uncertain tax positions ~~in interest expense~~ and penalties, if any, in income tax ~~expense.~~expense within the Condensed Consolidated Statements of Income.

Certain of the Company’s undistributed earnings of our foreign subsidiaries are not permanently reinvested. Since foreign earnings have already been subject to United States income tax in 2017 as a result of the 2017 Tax Cuts and Jobs Act, the

Company intends to repatriate foreign-held cash as needed. The Company ~~has not~~records deferred income tax attributable to foreign withholding taxes that would become payable should it decide to repatriate cash held in our foreign operations. As of March 31, 2024 and December 31, 2023, the Company recorded deferred income taxes of approximately $1.1 million and $0.7 million, respectively, on the undistributed earnings of its foreign ~~subsidiaries because~~subsidiaries.

Income tax expense was $0.7 million and zero million for the three months ended March 31, 2024 and 2023, respectively. The effective income tax rate for the three months ended March 31, 2024 was 24.2% compared with 0.4% for the three months ended March 31, 2023. The effective income tax rates for the three months ended March 31, 2024 and 2023 differ from the United States federal statutory rate. The Company's effective rate is affected by certain other permanent differences, including state income taxes, non-deductible incentive stock-based compensation and differences in tax rates among jurisdictions in which it operates.

The Organization for Economic Co-operation and Development/G20 Inclusive Framework on Base Erosion and Profit Shifting published the Pillar Two model rules designed to address the tax challenges arising from the digitalization of ~~management’s intent~~the global economy which introduces a 15% global minimum corporate tax for companies with revenues above €750 million calculated on a country-by-country basis. On February 1, 2023, the FASB indicated that it believes the minimum tax imposed under Pillar Two is an alternative minimum tax, and, accordingly, deferred tax assets and liabilities associated with the minimum tax would not be recognized or adjusted for the estimated future effects of the minimum tax but would be recognized in the period incurred. Aspects of Pillar Two legislation have been enacted in certain jurisdictions in which the Company operates effective for accounting periods commencing on or after January 1, 2024. However, based on the current revenue threshold, the Company is currently not subject to ~~indefinitely reinvest such earnings.~~Pillar Two taxes.

13. Financial Instruments

~~13.~~

~~Financial Instruments~~

~~Our~~The Company's financial instruments consist primarily of investments in cash and cash equivalents, receivables and certain other assets, notes payable, foreign debt and accounts payable, which approximate fair value at ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, due to their short-term nature or variable, market-driven interest rates.

The fair value of the debt issued under the Credit Facility and joint venture term loan was ~~$117.9~~$136.8 million and ~~$125.1~~$138.6 million at ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, respectively. The fair value was determined considering market conditions, the Company's credit worthiness and the current terms of our debt, which is considered Level 2 on the ~~note payable was $5.3 million at September 30, 2017~~fair value hierarchy.

At March 31, 2024 and December 31, ~~2016, respectively.~~

~~In accordance with~~2023, the ~~terms of the Credit~~ ~~Facility, the~~ Company entered into an interest rate swap on December 30, 2015 to hedge against interest rate exposure related to a portion of the outstanding debt indexed to LIBOR market rates. See Note 8 for further information regarding the interest rate swap.

~~At September 30, 2017 and December 31, 2016, we~~ had cash and cash equivalents of ~~$24.6~~$46.6 million and ~~$45.8~~$54.8 million, respectively, of which ~~$17.0~~$35.5 million and ~~$25.6~~$38.5 million, respectively, was held outside of the United States, principally in the Netherlands, United Kingdom, ~~China,~~United Arab Emirates, and ~~Canada.~~ China.

14. Commitments and Contingencies

Restricted cash is held by the Company to collateralize letters of credit issued in foreign jurisdictions to support Company operations. The Company occasionally enters into letters of credit with durations in excess of one year.

~~14.~~

~~Commitments and Contingencies – Legal Matters~~

Asbestos cases

~~Our~~The Company's subsidiary, Met-Pro Technologies LLC (“Met-Pro”), beginning in 2002, ~~began to be~~has been named in asbestos-related lawsuits filed against a large number of industrial companies including, in particular, those in the pump and fluid handling industries. In management’s opinion, the complaints typically have been vague, general and speculative, alleging that Met-Pro, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which caused injuries (including death) and loss to the plaintiffs. Counsel has advised that more recent cases typically allege more serious claims of mesothelioma. The Company’s insurers have hired attorneys who, together with the Company, are vigorously defending these cases. Many cases have been dismissed after the plaintiff fails to produce evidence of exposure to Met-Pro’s products. In those cases, where evidence has been produced, the Company’s experience has been that the exposure levels are low and the Company’s position has been that its products were not a cause of death, injury or loss. The Company has been dismissed from or settled a large number of these cases. Cumulative settlement payments from 2002 through ~~September 30, 2017~~March 31, 2024 for cases involving asbestos-related claims were ~~$1.2~~$6.7 million of which together with all legal fees other than corporate counsel ~~expenses; $1.1 million~~expenses have substantially been paid by the Company’s insurers. The average cost per settled claim, excluding legal fees, was approximately ~~$27,000.~~$36,000.

Based upon the most recent information available to the Company regarding such claims, there were a total of ~~223~~327 cases pending against the Company as of ~~September 30, 2017 (with Connecticut,~~March 31, 2024 with Illinois, New York, Pennsylvania and West Virginia having the largest number of ~~cases),~~cases, as compared with ~~229~~313 cases that were pending as of December 31, ~~2016.~~2023. During the ~~nine~~three months ended ~~September 30, 2017, 39~~March 31, 2024, 47 new cases were filed against the Company, and the Company was dismissed from 4026 cases and settled ~~five~~7 cases. Most of the pending cases have not advanced beyond the ~~discovery stage~~early stages of ~~litigation,~~discovery, although a number of cases are on

schedules leading to or ~~are~~ scheduled for trial. The Company believes that its insurance coverage is adequate for the cases currently pending against the Company and for the foreseeable future, assuming a continuation of the current volume, nature of cases and settlement amounts. However, the Company has no control over the number and nature of cases that are filed against it, nor as to the financial health of its insurers or their position as to coverage. The Company also presently believes that none of the pending cases will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition.

~~Valero~~Other

One of our subsidiaries, Fisher-Klosterman, Inc. (“FKI”), was a defendant in a products liability lawsuit filed in Harris County, Texas on August 23, 2010 by three Valero refining companies. The plaintiffs claimed that FKI (and its co-Defendants) used an allegedly defective refractory material included in cyclones it supplied to Valero that caused damages to refineries they own and operate. Plaintiffs claimed to have suffered property damages, including catalyst loss, regenerator repair costs, replacement part costs, damage to other property and business interruption loss. During 2014, the Company reached a settlement with the plaintiffs for $0.5 million and, accordingly, recorded a corresponding charge to operations. In addition, the Company reached an agreement with a supplier to recover $0.2 million related to this matter. The recovery was also recorded during 2014. The Company’s insurer, Valley Forge Insurance Company (“Valley Forge”), who had paid for the legal defense in this matter, initiated a new case in the Southern District of Ohio against the Company in October 2014 seeking, among other things, recoupment of past legal costs paid. Valley Forge claims that it did not have an obligation to defend FKI and is entitled to recoup all amounts paid to defend FKI. The Court rejected Valley Forge’s position on the duty to defend as contrary to Ohio law. The Court found that if Valley Forge could prove that FKI breached its duty to cooperate in defending the Valero Suit, Valley Forge may be relieved of its duty to defend to some extent. Valley Forge moved for reconsideration of the Court’s opinion in May 2016, which the court ruled against. The Court ruled in 2017 that Valley Forge could amend its complaint. The Company is vigorously disputing this claim, and is seeking to pursue counterclaims against the insurer.

~~Summary~~

The Company is also a party to routine contract and employment-related litigation matters, warranty claims and routine audits of state and local tax returns arising in the ordinary course of its business.

The final outcome and impact of open matters, and related claims and investigations that may be brought in the future, are subject to many variables, and cannot be predicted. ~~In accordance with ASC 450, “Contingencies,” and related guidance, we record reserves~~The Company records accruals for estimated losses relating to claims and lawsuits when available information indicates that a loss is probable and the amount of the loss, or range of loss, can be reasonably estimated. The Company expenses legal costs as they are incurred.

~~We are~~The Company is not aware of any pending claims or assessments, other than as described above, which may have a material adverse impact on ~~our~~its liquidity, financial position, results of operations, or cash flows.

15. Acquisitions

Kemco Systems Co., LLC

On August 23, 2023, the Company acquired 100% of the equity interests of Kemco for $24.0 million in cash, which was financed with a draw on the Company’s revolving credit facility. During the three months ended March 31, 2024, the Company received $0.4 million from the former owners of Kemco as a working capital adjustment, reducing the purchase price to $23.6 million. As additional consideration, the former owners of Kemco are entitled to earn-out payments up to $4.0 million based upon specified financial results through August 31, 2026. Based on projections at the acquisition date, the Company estimated the fair value of the earn-out to be $2.2 million. This fair value measurement is based on inputs not observable in the market, which is considered Level 3 on the fair value hierarchy. As of March 31, 2024, the earnout liability recorded in “Accrued expenses” and "Other liabilities", depending on the anticipated payout timing, on the Condensed Consolidated Balance Sheets is $2.7 million. Kemco designs and manufactures energy and water conservation systems and equipment for applications regarding wastewater reuse and recycle, heat recovery, water heating, and vapor energy. This acquisition advances the Company's position within the North American water and wastewater treatment market within the Engineered Systems segment. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing.

~~15.~~

~~Business Segment Information~~


(in thousands)
Current assets (including accounts receivable of $2,328)	$	8,902
Property and equipment		341
Right-of-use assets from operating leases		1,602
Intangible - finite life		11,610
Goodwill		11,115
Other assets		16
Total assets acquired		33,586
Current liabilities assumed		(6,853	)
Other liabilities assumed		(404	)
Net assets acquired	$	26,329

The Company acquired technology, customer lists and tradename intangible assets valued at $1.4 million, $8.7 million and $1.5 million, respectively. These assets were determined to have useful lives of 7, 10 and 10 years, respectively.

Transcend Solutions

On March 31, 2023, the Company acquired 100% of the equity interests of Transcend Solutions, LLC ("Transcend") for $22.4 million, including $20.0 million in cash, which was financed with a draw on the Company’s revolving credit facility, $2.4 million of deferred cash consideration, consisting of $0.4 million of holdback paid within one year and $2.0 million of notes payable due in equal installments over two years, of which $1.0 million was paid during the three months ended March 31, 2024. Transcend is a process filtration solution design and manufacturing company with applications in hydrocarbon and chemical processing. This acquisition improves the Company's short-cycle and long-cycle mix and expands the Company's

reach into midstream oil and gas, liquified natural gas, hydrocarbon processing, and chemical processing applications within the Engineered Systems segment. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing.


(in thousands)
Current assets (including cash of $52 and accounts receivable of $1,493)	$	2,614
Property and equipment		1,153
Intangible - finite life		8,930
Goodwill		10,839
Other assets		231
Total assets acquired		23,767
Current liabilities assumed		(1,203	)
Deferred tax liability		(168	)
Net assets acquired	$	22,396

Malvar Engineering Limited

On January 10, 2023, the Company acquired 100% of the equity interests of Malvar Engineering Limited, including its subsidiaries Arkanum Management Limited and Wakefield Acoustics Limited (collectively, "Wakefield"), for $4.1 million in cash, which was financed with a draw on the Company’s revolving credit facility, and $0.4 million of deferred cash consideration. As additional consideration, the former owners are entitled to earn-out payments based upon specified financial results through July 31, 2023. Based on projections at the acquisition date, the Company estimated the fair value of the earn-out to be $0.6 million. A payment of $0.6 million, representing the fully earned amount, was made in the fourth quarter of 2023. Wakefield is a producer of industrial engineered noise control solutions, including custom acoustical gen-set packages, ambient air baffles, acoustical louvres, and skid enclosures, primarily serving server farms for data centers, standby and emergency power generation, oil and gas, petrochemical, commercial construction, infrastructure, and general manufacturing industries. This acquisition advances the Company's position within the industrial silencing and noise attenuation market by adding a range of solutions and access to new geographic markets within the Engineered Systems segment. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing.


(in thousands)
Current assets (including accounts receivable of $2,467)	$	3,240
Property and equipment		635
Intangible - finite life		1,778
Goodwill		5,296
Total assets acquired		10,949
Current liabilities assumed		(4,860	)
Deferred income tax liability		(961	)
Net assets acquired	$	5,128

The Company acquired customer lists and tradename intangible assets valued at $1.5 million and $0.3 million, respectively. These assets were determined to have useful lives of 10 years.

The Company has finalized the valuation of assets acquired and liabilities assumed related to the acquisition of Wakefield and Transcend. The purchase accounting related to the Kemco acquisition is subject to final adjustment, primarily for the valuation of intangible assets pending final valuation results for such assets and tax balances for the further assessment of the acquiree’s tax positions. These preliminary estimates and assumptions could change significantly during the purchase price measurement period as the Company finalizes the valuation of assets acquired and liabilities assumed. These changes could result in material variances in the Company's future financial results, including variances in the estimated purchase price, fair values recorded and expenses associated with these items.

Goodwill recognized represents value the Company expects to be created by combining the various operations of the acquired businesses with the Company’s operations, including the expansion into markets within existing business segments, access to new customers and potential cost savings and synergies. Goodwill related to this acquisition is not deductible for tax purposes.

Acquisition and integration expenses on the Condensed Consolidated Statements of Income are related to acquisition activities, which include retention, legal, accounting, banking, and other expenses.

The following unaudited pro forma financial information represents the Company’s results of operations as if these acquisitions had occurred at the beginning of the fiscal year prior to the acquisition. The pro forma results have been prepared for informational purposes only and include adjustments to amortize acquired intangible assets with finite life, reflect additional interest expense on debt used to fund the acquisition, and to record the income tax consequences of the pro forma adjustments.


	Three months ended March 31,
(in thousands, except per share data)	2024		2023
Net sales	$	126,332		122,195
Net income attributable to CECO Environmental Corp.		1,508		2,728
Earnings per share:
Basic	$	0.04	$	0.08
Diluted	$	0.04	$	0.08

These pro forma results do not purport to be indicative of the results of operations that would have occurred had the purchase been made as of the beginning of the periods presented or of the results of operations that may occur in the future.

16. Business Segment Information

The Company’s operations are organized and reviewed by management along with its ~~product lines~~solutions or end ~~market~~markets that the segment serves and presented in ~~three~~two reportable segments.

~~Energy Segment~~

Our Energy segment provides customized solutions for the power generation and petrochemical industry. This includes natural gas turbine exhaust systems, dampers and diverters, gas and liquid separation and filtration equipment, selective catalytic reduction (“SCR”) and selective non-catalytic reduction (“SNCR”) systems, acoustical components and silencers, secondary separators (nuclear plant reactor vessels) and expansion joints, the design and manufacture of technologies for flue gas and diverter dampers, non-metallic expansion joints, and silencer and precipitator applications, primarily for natural gas and coal-fired power plants, refining, oil production and petrochemical processing, as well as a variety of other industries.

~~Environmental Segment~~

Our Environmental segment provides the air pollution control technologies that enable our customers to reduce their carbon footprint, lower energy consumption, minimize waste and meet compliance targets for toxic emissions, fumes, volatile organic compounds, process and industrial odors. These products and solutions include chemical and biological scrubbers, fabric filters and cartridge collectors, thermal and catalytic oxidation systems, cyclones, separators, gas absorbers and industrial ventilation systems. In addition, this segment designs and manufactures fluid catalytic cracking unit cyclones used in the petroleum and petrochemical refining process. This segment also provides component parts for industrial air systems and provides cost effective alternatives to traditional duct components, as well as custom metal engineered fabrication services. These products and services are applicable to a wide variety of industries.

~~Fluid Handling and Filtration Segment~~

Our Fluid Handling and Filtration segment provides the design and manufacture of high quality pump, filtration and fume exhaust solutions. This includes centrifugal pumps for corrosive, abrasive and high temperature liquids, filter products for air and liquid filtration, precious metal recovery systems, carbonate precipitators, and technologically advanced air movement and exhaust systems. These products are applicable to a wide variety of industries, particularly the aquarium/aquaculture, plating and metal finishing, food and beverage, chemical/petrochemical, wastewater treatment, desalination and pharmaceutical markets.

The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC. Interest income and expense are not included in the measure of segment profit reviewed by management. Income taxes are also not included in the measure of segment operating profit reviewed by management. The operating results of the segments are reviewed through to the “Income from operations” line on the Condensed Consolidated Statements of ~~Income.~~Income.

19The Company’s reportable segments are organized as groups of similar products and services, as described as follows:

Engineered Systems segment: The Engineered Systems segment serves the power generation, hydrocarbon processing, water/wastewater treatment, oily water separation and treatment, marine and naval vessels, and midstream oil and gas sectors. The Company seeks to address the global demand for environmental and equipment protection solutions with its highly engineered platforms including emissions management, fluid bed cyclones, thermal acoustics, separation and filtration, and dampers and expansion joints.

Industrial Process Solutions segment: The Industrial Process Solutions segment serves the broad industrial sector with solutions for air pollution and contamination control, fluid handling, and process filtration in applications such as aluminum beverage can production, automobile production, food and beverage processing, semiconductor fabrication, electronics production, steel and aluminum mill processing, wood manufacturing, desalination, and aquaculture markets. The Company assists customers in maintaining clean and safe operations for employees, reducing energy consumption, minimizing waste for customers, and meeting regulatory standards for toxic emissions, fumes, volatile organic compounds, and odor elimination through its platforms including duct fabrication and installation, industrial air, and fluid handling.

The financial segment information is ~~presented in the following tables:~~as follows:


	Three months ended March 31,
(in thousands)	2024		2023
Net sales (less intra-, inter-segment sales)
Engineered Systems segment	$	89,349	$	74,454
Industrial Process Solutions segment		36,983		38,109
Total net sales	$	126,332	$	112,563


	Three months ended March 31,
(in thousands)	2024			2023
Income from operations
Engineered Systems segment	$	16,277		$	9,805
Industrial Process Solutions segment		7,100			5,546
Corporate and Other(1)		(15,691	)		(9,890	)
Total income from operations	$	7,686		$	5,461

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)

2017

2016

2017

2016

Net Sales (less intra-, inter-segment sales)

Energy Segment

$
36,182

$
50,259

$
114,681

$
151,058

Environmental Segment

29,735

36,606

103,543

119,939

Fluid Handling and Filtration Segment

20,105

14,866

54,269

46,874

Corporate and Other⁽¹⁾

(1,035
)

(135
)

(985
)

(842
)
Net sales

$
84,987

$
101,596

$
271,508

$
317,029

(1)

Includes corporate compensation, professional services, information technology, and other general and administrative corporate expenses.

⁽¹⁾	~~Includes adjustment for revenue on intercompany jobs.~~


	Three months ended March 31,
(in thousands)	2024		2023
Property and equipment additions
Engineered Systems segment	$	1,137	$	244
Industrial Process Solutions segment		606		1,399
Corporate and Other		1,373		870
Total property and equipment additions	$	3,116	$	2,513


	Three months ended March 31,
(in thousands)	2024		2023
Depreciation and amortization
Engineered Systems segment	$	1,785	$	1,212
Industrial Process Solutions segment		1,119		1,158
Corporate and Other		608		515
Total depreciation and amortization	$	3,512	$	2,885


(in thousands)	March 31, 2024		December 31, 2023
Identifiable assets
Engineered Systems segment	$	430,890	$	432,098
Industrial Process Solutions segment		143,819		147,740
Corporate and Other(2)		14,311		20,453
Total identifiable assets	$	589,020	$	600,291

(2)

Corporate and Other assets consist primarily of cash and income tax related assets.

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)

2017

2016

2017

2016

Income from Operations

Energy Segment

$
5,287

$
8,502

$
14,428

$
20,065

Environmental Segment

2,157

5,459

12,043

16,324

Fluid Handling and Filtration Segment

4,299

3,109

11,756

9,507

Corporate and Other⁽²⁾

(5,404
)

(6,520
)

(20,184
)

(20,058
)
Eliminations

(709
)

(51
)

(1,808
)

(971
)
Income from operations

$
5,630

$
10,499

$
16,235

$
24,867


(in thousands)	March 31, 2024		December 31, 2023
Goodwill
Engineered Systems segment	$	142,304	$	142,229
Industrial Process Solutions segment		69,175		69,097
Total goodwill	$	211,479	$	211,326

⁽²⁾

Includes corporate compensation, professional services, information technology, acquisition and integration expenses, and other general and administrative corporate expenses / income. This figure excludes earn-out expenses / income, which are recorded in the segment in which the expense / income occurs. See Note 7 for the earn-out expenses / income by segment.

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)

2017

2016

2017

2016

Property and Equipment Additions

Energy Segment

$
69

$
4

$
419

$
232

Environmental Segment

68

225

110

529

Fluid Handling and Filtration Segment⁽³⁾

17

1,118

236

4,428

Corporate and Other

11

1

41

7

Property and equipment additions

$
165

$
1,348

$
806

$
5,196

⁽³⁾	Includes non-cash additions of $1,089 and $4,385 for property, plant, and equipment acquired under capital leases during the three months ended September 30, 2016 and nine months ended September 30, 2016, respectively.

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)

2017

2016

2017

2016

Depreciation and Amortization

Energy Segment

$
1,927

$
2,341

$
5,957

$
8,082

Environmental Segment

813

994

2,500

2,868

Fluid Handling and Filtration Segment

1,168

1,321

3,563

3,969

Corporate and Other

29

33

85

98

Depreciation and Amortization

$
3,937

$
4,689

$
12,105

$
15,017

(dollars in thousands)

September 30,
2017

December 31,
2016

Identifiable Assets

Energy Segment

$
234,575

$
257,566

Environmental Segment

106,373

118,680

Fluid Handling and Filtration Segment

102,485

104,294

Corporate and Other⁽⁴⁾

12,110

18,094

Identifiable Assets

$
455,543

$
498,634

⁽⁴⁾	~~Corporate assets primarily consist of cash and income tax related assets.~~

(dollars in thousands)

September 30,
2017

December 31,
2016

Goodwill

Energy Segment

$
76,913

$
75,827

Environmental Segment

48,203

48,203

Fluid Handling and Filtration Segment

46,123

46,123

Goodwill

$
171,239

$
170,153

Intra-segment and Inter-segment Revenues

The Company has multiple divisions that sell to each other within segments (intra-segment sales) and between segments (inter-segment sales), as ~~indicated in the following tables:~~follows:


	Three months ended March 31, 2024
						Less Inter-Segment Sales
(in thousands)	Total Sales		Intra- Segment Sales			Industrial Process Solutions			Engineered Systems			Net Sales to Outside Customers
Net sales
Engineered Systems segment	$	92,518	$	(3,082	)	$	(87	)	$	—		$	89,349
Industrial Process Solutions segment		39,579		(2,535	)		—			(61	)		36,983
Total net sales	$	132,097	$	(5,617	)	$	(87	)	$	(61	)	$	126,332


	Three months ended March 31, 2023
						Less Inter-Segment Sales
(in thousands)	Total Sales		Intra- Segment Sales			Industrial Process Solutions			Engineered Systems			Net Sales to Outside Customers
Net sales
Engineered Systems segment	$	76,089	$	(1,538	)	$	(97	)	$	—		$	74,454
Industrial Process Solutions segment		39,042		(835	)		—			(98	)		38,109
Total net sales	$	115,131	$	(2,373	)	$	(97	)	$	(98	)	$	112,563

Three Months Ended September 30, 2017

Less Inter-Segment Sales

(dollars in thousands)

Total
Sales

Intra-
Segment
Sales

Environmental

Energy

FHF

Corp
and
Other

Net Sales to
Outside
Customers

Net Sales

Energy Segment

$
37,290

$
(1,102
)

$
(6
)

$
—

$
—

$
—

$
36,182

Environmental Segment

30,138

(396
)

—

(1
)

(6
)

—

29,735

Fluid Handling and Filtration Segment

20,768

(570
)

(55
)

(38
)

—

—

20,105

Corporate and Other⁽⁵⁾

—

—

—

—

—

(1,035
)

(1,035
)
Net Sales

$
88,196

$
(2,068
)

$
(61
)

$
(39
)

$
(6
)

$
(1,035
)

$
84,987

Three Months Ended September 30, 2016

Less Inter-Segment Sales

(dollars in thousands)

Total
Sales

Intra-
Segment
Sales

Environmental

Energy

FHF

Corp
and
Other

Net Sales to
Outside
Customers

Net Sales

Energy Segment

$
51,155

$
(874
)

$
(22
)

$
—

$
—

$
—

$
50,259

Environmental Segment

38,454

(941
)

—

(878
)

(29
)

—

36,606

Fluid Handling and Filtration Segment

15,451

(313
)

(88
)

(184
)

—

—

14,866

Corporate and Other⁽⁵⁾

—

—

—

—

—

��
(135
)

(135
)
Net Sales

$
105,060

$
(2,128
)

$
(110
)

$
(1,062
)

$
(29
)

$
(135
)

$
101,596

Nine Months Ended September 30, 2017

Less Inter-Segment Sales

(dollars in thousands)

Total
Sales

Intra-
Segment
Sales

Environmental

Energy

FHF

Corp
and
Other

Net Sales to
Outside
Customers

Net Sales

Energy Segment

$
120,958

$
(6,249
)

$
(28
)

$
—

$
—

$
—

$
114,681

Environmental Segment

106,404

(2,086
)

—

(730
)

(45
)

—

103,543

Fluid Handling and Filtration Segment

56,620

(1,727
)

(477
)

(147
)

—

—

54,269

Corporate and Other⁽⁵⁾

—

—

—

—

—

(985
)

(985
)
Net Sales

$
283,982

$
(10,062
)

$
(505
)

$
(877
)

$
(45
)

$
(985
)

$
271,508

Nine Months Ended September 30, 2016

Less Inter-Segment Sales

(dollars in thousands)

Total
Sales

Intra-
Segment
Sales

Environmental

Energy

FHF

Corp
and
Other

Net Sales to
Outside
Customers

Net Sales

Energy Segment

$
153,476

$
(2,019
)

$
(399
)

$
—

$
—

$
—

$
151,058

Environmental Segment

126,029

(3,539
)

—

(2,345
)

(206
)

—

119,939

Fluid Handling and Filtration Segment

48,508

(1,168
)

(282
)

(184
)

—

—

46,874

Corporate and Other⁽⁵⁾

—

—

—

—

—

(842
)

(842
)
Net Sales

$
328,013

$
(6,726
)

$
(681
)

$
(2,529
)

$
(206
)

$
(842
)

$
317,029

⁽⁵⁾	~~Includes adjustment for revenue on intercompany jobs.~~

CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

~~ITEM 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

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

The Company’s Condensed Consolidated Statements of Income for the ~~three-month~~three months ended March 31, 2024 and ~~nine-month periods ended September 30, 2017 and 2016~~2023 reflect the consolidated operations of the Company and its subsidiaries.

CECO Environmental Corp. (“CECO,” “we,” “us,” or the “Company”) is a ~~global leader in~~leading environmentally focused, diversified industrial company, serving the broad landscape of industrial air, ~~quality~~industrial water and ~~fluid handling serving the~~ energy ~~industrial and other niche~~transition markets ~~through an attractive asset-light business model. CECO provides~~globally providing innovative technology and application ~~expertise that~~expertise. CECO helps companies grow their ~~businesses~~business with safe, clean, and more efficient solutions tothat help protect ~~our shared environment.~~people, the environment and industrial equipment. CECO ~~serves both established and emerging industries in regions around the world working to~~solutions improve air and water quality, optimize emissions management, and increase the energy ~~value chain,~~ and ~~provide customized~~process efficiency for highly engineered ~~solutions~~applications in ~~multiple applications that include oil and gas,~~ power generation, midstream and downstream hydrocarbon processing and transport, chemical processing, electric vehicle production, polysilicon fabrication, semiconductor and electronics production, battery production and recycling, specialty metals, aluminum and steel production, beverage can manufacturing, and industrial and produced water and wastewater ~~battery production, poly silicon fabrication, chemical~~treatment, and ~~petrochem processing, along with~~ a wide range of ~~others.~~other industrial end markets.

Market Pressures

The senior management team monitors and manages the Company’s ability to operate effectively as the result of market pressures. In particular, we are currently experiencing shortages of raw materials and inflationary pressures for certain materials and labor. We have secured raw materials from existing and alternate suppliers and have taken other mitigating actions to mitigate supply disruptions; however, we cannot guarantee that we will be able to continue to do so in the future. If we are a global corporation with worldwide operations. As a global business, our operations are affected by worldwide, regional and industry-specific economic factors, wherever we operate or do business. Our geographic and industry diversity, and the breadth of our product and services portfolios, have helpedunable to continue to mitigate the ~~impact~~effects of ~~any one industry or the economy of any single country on our consolidated operating results.~~

We believe growth for our products and services is driven by the increasing demand for energy consumption and a shift towards cleaner sources such as natural gas, nuclear, and renewable sources. We believe these ~~trends should stimulate investment in new power generation facilities, pipeline expansion and related infrastructure, and in upgrading existing facilities.~~

With a shift to cleaner, more environmentally responsible power generation, power providers and industrial power consumers are building new facilities that use cleaner fuels. In developed markets, natural gas is increasingly becoming one of the energy sources of choice. We supply product offerings throughout the entire natural gas infrastructure value chain and believe expansion will drive growth within our Energy segment for our pressure products and SCR systems for natural-gas-fired power plants. Increased global natural gas production as a percent of total energy consumption, miles of new pipeline being added globally, and an increase in liquification capacity all stand to drive the need for our products.

We also believe there is a trend in both developed and emerging markets to control and reduce emissions of harsher fuel sources for which our air pollution control equipment is required. In emerging markets, including China, India, and South East Asia,disruptions, our business, is positioned to benefit from tightening of air pollution standards. In developed markets, growth of industrialization will drive greater output of emissions requiring our air pollution control technologyresults and ~~equipment as well. In both markets, we expect capital expenditures for our equipment to increase and the need for our aftermarket services to grow as companies seek to meet new standards.~~financial condition could be adversely affected.

We continue to focus on increasing revenues and profitability globally while continuing to strengthen and expand our presence domestically. Our operating strategy has historically involved horizontally expanding our scope of technology, products, and services through selective acquisitions and the formation of new business units that are then vertically integrated into our growing group of turnkey system providers. Our continuing focus will be on global growth, market coverage, and expansion of our Asia operations. Operational excellence, margin expansion, after-market recurring revenue growth, and safety leadership are also critical to our growth strategy.

~~Operations Overview~~

The Company concluded its strategic plan assessment and made several decisions to transform the business to win market share and create value. The Company will implement a restructuring program during the fourth quarter to reduce costs by approximately $5 million to $7 million per annum and refocus the Company’s portfolio including exiting non-core and low critical mass products. The Company recently modified the debt covenants within the debt agreement to allow for covenant flexibility to invest in a tough market cycle. Additionally, the Company’s Board of Directors 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.

We operate under a “hub and spoke” business model in which executive management, finance, administrative and marketing staff serves as the hub while the sales channels serve as spokes. We use this model throughout our operations. This has provided us with certain efficiencies over a more decentralized model. The Company’s segment presidents manage our division managers who are responsible for successfully running their operations, that is, sales, gross margins, manufacturing, pricing, purchasing, safety, employee development and customer service excellence. The segment presidents work closely with our Chief Executive Officer on

global growth strategies, operational excellence, and employee development. The headquarters (hub) focuses on enabling the core back-office key functions for scale and efficiency, that is, accounting, payroll, human resources/benefits, information technology, safety support, internal control over financial reporting, and administration. We have excellent organizational focus from headquarters throughout our divisional businesses with clarity and minimal duplicative work streams.

Our three reportable segments are: the Energy segment, which produces customized solutions for the power and petrochemical industry; the Environmental segment, which provides a variety of air pollution control and catalytic product recovery technologies; and the Fluid Handling and Filtration segment, which produces high quality pump, filtration and fume exhaust solutions. It is through combining the efforts of some or all of these groups that we are able to offer complete turnkey systems to our customers and leverage operational efficiencies.

Our contracts are obtained either through competitive bidding or as a result of negotiations with our customers. Contract terms offered by us are generally dependent on the complexity and risk of the project as well as the resources that will be required to complete the project. Our focus is on increasing our operating margins as well as our gross margin percentage, which translates into higher net income.

Our cost of sales is principally driven by a number of factors, including material prices and labor cost and availability. Changes in these factors may have a material impact on our overall gross profit margins.

~~We break down costs of sales into five categories. They are:~~

~~Subcontracts—Electrical work, concrete work and other subcontracts necessary to produce our products;~~

~~Labor—Our direct labor both in the shop and in the field;~~

~~Material—Raw material that we buy to build our products;~~

~~Equipment—Fans, motors, control panels and other equipment necessary for turnkey systems; and~~

~~Factory overhead—Costs of facilities and supervision wages necessary to produce our products.~~

In general, subcontracts provide us the most flexibility in margin followed by labor, material, and equipment. Across our various product lines, the relative relationships of these factors change and cause variations in gross margin percentage. Material costs have also increased faster than labor costs, which also reduces gross margin percentage. As material cost inflation occurs, the Company seeks to pass this cost onto our customers as price increases.

Selling and administrative expense principally includes sales payroll and related fringes, advertising and marketing expenditures as well as all corporate and administrative functions and other costs that support our operations. The majority of these expenses are fixed. We expect to leverage our fixed operating structure as we continue to grow our revenue.

Note Regarding Use of Non-GAAP Financial Measures

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These GAAP financial statements include certain charges the Company believes are not indicative of its core ongoing operational performance.

As a result, the Company provides financial information in this ~~MD&A~~Management’s Discussion and Analysis that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides this ~~supplemental~~ non-GAAP financial information because the Company’s management utilizes it to evaluate its ongoing financial performance and the Company believes it provides greater transparency to investors as supplemental information to its GAAP results.

The Company has provided the non-GAAP financial ~~measure~~measures of non-GAAP operating income and non-GAAP operating margin as a result of items that the Company believes are not indicative of its ongoing operations. These include ~~charges~~transactions associated with the Company’s ~~acquisition and integration of~~ acquisitions and the items described below in “Consolidated Results.” The Company believes that evaluation of its financial performance compared with prior and future periods can be enhanced by a presentation of results that exclude the impact of these items. ~~As a result of the Company’s completed acquisitions, the~~The Company has incurred ~~charges~~substantial expense and income associated with ~~the acquisition and integration of these companies.~~acquisitions. While the Company cannot predict the exact timing or amounts of such charges, it does expect to treat the financial impact of these ~~charges~~transactions as special items in its future presentation of non-GAAP results.

2418

Results of Operations

Consolidated Results

Our Condensed Consolidated Statements of Income for the ~~three-month~~three months ended March 31, 2024 and ~~nine-month periods ended September 30, 2017 and 2016~~2023 are as follows:


	Three months ended March 31,
(in millions, except ratios)	2024			2023
Net sales	$	126.3		$	112.6
Cost of sales		81.2			77.7
Gross profit	$	45.1		$	34.9
Percent of sales		35.7	%		31.0	%
Selling and administrative expenses		34.9			27.2
Percent of sales		27.6	%		24.2	%
Amortization and earnout expenses		2.2			1.7
Acquisition and integration expenses		0.2			0.5
Restructuring expenses		0.1			—
Operating income	$	7.7		$	5.5
Operating margin		6.1	%		4.9	%
Other expense, net	$	(1.5	)	$	(0.6	)
Interest expense		(3.4	)		(2.4	)
Income before income taxes	$	2.8		$	2.5
Income tax expense		0.7			—
Net income	$	2.1		$	2.5
Noncontrolling interest		(0.6	)		(0.5	)
Net income attributable to CECO Environmental Corp.	$	1.5		$	2.0

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in millions)

2017

2016

2017

2016

Net sales

$
85.0

$
101.6

$
271.5

$
317.0

Cost of sales

57.9

67.9

184.0

217.8

Gross profit

$
27.1

$
33.7

$
87.5

$
99.2

Percent of sales

31.9
%

33.2
%

32.2
%

31.3
%
Selling and administrative expenses

$
22.0

$
19.5

$
66.7

$
60.6

Percent of sales

25.9
%

19.2
%

24.6
%

19.1
%
Acquisition and integration expenses

$
—

$
0.2

$
—

$
0.5

Percent of sales

—

0.2
%

—

0.2
%
Amortization and earn-out (income) expenses, net

$
(0.5
)

$
3.5

$
4.6

$
13.2

Percent of sales

(0.6
)%

3.4
%

1.7
%

4.2
%
Operating income

$
5.6

$
10.5

$
16.2

$
24.9

Operating margin

6.6
%

10.3
%

6.0
%

7.9
%

To compare operating performance between the ~~three-month~~three months ended March 31, 2024 and ~~nine-month periods ended September 30, 2017 and 2016,~~2023, the Company has adjusted GAAP operating income to exclude (1) ~~executive transition~~amortization of intangible assets, and earnout expenses, ~~including severance for its former Chief Executive Officer, fees incurred in the search for a new Chief Executive Officer, and expenses associated with hiring a new Chief Financial Officer,~~ (2) acquisition and integration ~~related~~ expenses, ~~including~~which include legal, accounting, and ~~banking~~other expenses, and (3) ~~amortization~~restructuring expenses primarily relating to severance, facility exits, and ~~contingent acquisition expenses, including amortization of acquisition related intangibles, retention, severance, and earn-out expenses, (4) gain on insurance settlement, (5) facility exit expenses~~ associated with the closure of certain leased facilities, (6) legacy design repair expenses related to costs to rectify issues on products that are no longer in production and (7) inventory valuation and plant, property and equipment valuation adjustments related to acquisitions. See “Note Regarding Use of Non-GAAP Financial Measures” above. legal expenses.

The following table presents the reconciliation of GAAP operating income and GAAP operating margin to non-GAAP operating income and non-GAAP operating margin:


	Three months ended March 31,
(in millions, except ratios)	2024			2023
Operating income as reported in accordance with GAAP	$	7.7		$	5.5
Operating margin in accordance with GAAP		6.1	%		4.9	%
Amortization and earnout expenses		2.2			1.7
Acquisition and integration expenses		0.2			0.5
Restructuring expenses		0.1			—
Non-GAAP operating income	$	10.2		$	7.7
Non-GAAP operating margin		8.1	%		6.8	%

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
%

~~Consolidated net sales for the third quarter of 2017~~ Orders bookeddecreased ~~$16.6~~$0.8 million, or ~~16.3%~~1.0%, to ~~$85.0~~$145.3 million during the three months ended March 31, 2024 compared with ~~$101.6~~$146.1 million in the ~~third quarter of 2016.~~three months ended March 31, 2023. The decrease is primarily attributable to a ~~decline~~decrease of $4.3 million in ~~demand for solid fuel power generation and natural gas turbine exhaust systems within the Company’s Energy~~our Industrial Process Solutions segment, ~~and a decline in demand for ventilation duct work and related equipment, and refinery related products within the Company’s Environmental segment. These declines were~~ partially offset by an increase of $3.5 million in our Engineered Systems segment. Approximately 94%, or $136.5 million, of the orders for the three months ended March 31, 2024 is attributable to organic bookings, defined as orders recorded subsequent to the twelve month period post-acquisition date.

Net sales for the three months ended March 31, 2024 increased ~~sales~~$13.7 million, or 12.2%, to $126.3 million compared with $112.6 million for the three months ended March 31, 2023. The increase is led by an increase of $12.5 million in our separation, filtration, and industrial water technologies. Approximately 92%, or $116.4 million, of the ~~Company’s Fluid Handling & Filtration segment.~~

~~Consolidated~~ net sales for the ~~first nine~~three months ~~of 2017 decreased $45.5~~ended March 31, 2024 is attributable to organic revenue, defined as revenue recorded subsequent to the twelve month period post-acquisition date.

Gross profit increased $10.2 million, or ~~14.4%~~29.2%, to ~~$271.5 million compared with $317.0~~$45.1 million in the ~~first nine~~three months ~~of 2016.~~ended March 31, 2024 compared with $34.9 million in the three months ended March 31, 2023. The ~~decrease~~increase in gross profit is primarily attributable to ~~a decline~~the increase in ~~demand for solid fuel power generation and natural gas turbine exhaust systems within the Company’s Energy segment and a decline in demand for ventilation duct work and~~

related equipment, and refinery related products within the Company’s Environmental segment. These declines were partially offset by increased sales in the Company’s Fluid Handling & Filtration segment.

Gross profit decreased $6.6 million, or 19.6%, to $27.1 million in the third quarter of 2017 compared with $33.7 million in the third quarter of 2016. The lower gross profit was primarily attributable to a sales volume ~~decline period over period.~~as described above, higher project margin mix and acquisitions of businesses with favorable margins. Gross profit as a percentage of sales ~~was 31.9%~~increased to 35.7% in the ~~third quarter of 2017~~three months ended March 31, 2024 compared with ~~33.2%~~31.0% in the ~~third quarter of 2016.~~

~~Gross profit decreased $11.7 million, or 11.8%, to $87.5 million in the first nine~~three months of 2017 compared with $99.2 million in the first nine months of 2016. The lower gross profit was primarily attributable to a sales volume decline period over period. Gross profit as a percentage of sales was 32.2% in the first nine months of 2017 compared with 31.3% in the first nine months of 2016. The higher gross profit margin in the first nine months of 2017 was primarily due to a more favorable project mix during this period. This increase was partially offset by the Company incurring $2.5 million in warranty expense and $2.0 million in legacy design repairs during the first nine months of 2017, compared with warranty expense of $0.4 million during the first nine months of 2016. The increase in warranty expense is primarily attributable to a superseded product design issue. The increase in legacy design repairs is primarily attributable to specific issues on certain pre-acquisition projects. ended March 31, 2023.

Orders booked were $71.0 million during the third quarter of 2017 and $242.2 million during the first nine months of 2017 as compared with $96.2 million during the third quarter of 2016 and $325.1 million during the first nine months of 2016. The decrease is primarily attributable to lower bookings by the Energy and Environmental Segment due to lower near term demand for natural gas turbine exhaust systems and solid fuel power generation equipment in China, as well as a reduction in refinery related capital expenditures impacting the Company’s bookings related to cyclone products. 19

Selling and administrative expenses ~~increased $2.5 million to $22.0~~were $34.9 million for the ~~third quarter of 2017~~three months ended March 31, 2024 compared with ~~$19.5~~$27.2 million for the ~~third quarter of 2016. Additionally, selling and administrative expenses increased as a percentage of sales from 19.2% in the third quarter of 2016 compared to 25.9% in the third quarter of 2017.~~three months ended March 31, 2023. The increase is primarily attributable to ~~increases of $1.1 million of bad debt expense and $1.2 million of selling personnel costs~~acquisitions during the ~~third quarter of 2017 when compared with the third quarter of 2016. Additionally, the increase is partially attributable~~prior year, and increased headcount in order to ~~the Company recording a gain of $0.6 million during the third quarter of 2016 related to a warranty settlement received from an external service provider of the Company.~~support our growth and expand our global footprint.

~~Selling~~Amortization and ~~administrative expenses increased $6.1 million to $66.7~~earnout expense was $2.2 million for the ~~first nine~~three months ~~of 2017~~ended March 31, 2024 compared with ~~$60.6~~$1.7 million for the ~~first nine~~three months ~~of 2016. Additionally, selling and administrative expenses increased as a percentage of sales from 19.1% in the first nine months of 2016 compared to 24.6% in the first nine months of 2017.~~ended March 31, 2023. The increase in expense is attributable to a $0.5 million increase in definite lived asset amortization due to increased intangible assets attributable to prior year acquisitions.

Operating income increased $2.2 million to $7.7 million for the three months ended March 31, 2024 compared with operating income of $5.5 million for the three months ended March 31, 2023. The increase in operating income is primarily attributable to executive transition expenses related to the Company’s transition and search for a new Chief Executive Officer and expenses associated with the hiring of a new Chief Financial Officer of $1.3 million in the first nine months of 2017, an increase of $1.9 million of bad debt expense during the first nine months of 2017 compared with the first nine months of 2016, and additional investments in selling and finance personnel which occurred in the first nine months of 2017. Other factors leading to the increase in selling and administrative expenses consisted of the Company recording a gain on an insurance settlement of $1.0 million and a gain on a warranty settlement of $0.6 million during the first nine months of 2016, which did not recur in 2017. net sales.

Acquisition and integration expenses were zero and $0.2 million during the third quarter of 2017 and 2016, respectively, and zero and $0.5 million during the first nine months of 2017 and 2016, respectively. The acquisition and integration expenses in 2016 were related to the PMFG acquisition, which occurred during the third quarter of 2015.

Amortization and earn-out expense/income was $0.5 million of income for the third quarter of 2017 compared with $3.5 million of expense for the third quarter of 2016. The income was primarily attributable to earn-out adjustments resulting in income of $3.9 million in the third quarter of 2017 related to the acquisition of Zhongli Industrial Technology Co. Ltd. (“Zhongli Acquisition”) in the fourth quarter of 2014 due to lower than expected operational profit in 2017. This income was partially offset by amortization expense of $2.9 million in the third quarter of 2017.

Amortization and earn-out expense/income was $4.6 million of expense for the first nine months of 2017 compared with $13.2 million of expense for the first nine months of 2016. The decrease in expense was primarily attributable to earn-out adjustments resulting in income of $5.7 million in the first nine months of 2017 for the Zhongli Acquisition due to lower than expected operational profit in 2017. Included in the first nine months of 2016 expense was $1.0 million related to the fair value adjustment of the Zhongli Acquisition earn-out during this period due to higher than expected operational profit at Zhongli after the acquisition. The decrease was also partially attributable to decreased amortization expense of $2.5 million period over period due to certain intangible assets becoming fully amortized.

Operating income decreased $4.9 million to $5.6 million in the third quarter of 2017 compared with $10.5 million of income during the third quarter of 2016. The decrease is primarily attributable to lower gross profit and increased selling and administrative

~~expenses partially offset by a decrease in acquisition, integration, amortization and earn-out expense/income during the third quarter of 2017.~~

Operating income decreased $8.7 million to $16.2 million in the first nine months of 2017 compared with $24.9 million during the first nine months of 2016. The decrease is primarily attributable to lower gross profit and increased selling and administrative expenses partially offset by a decrease in acquisition, integration, amortization, and earn-out expense/income during the first nine months of 2017.

Non-GAAP operating income was ~~$5.3~~$10.2 million for the ~~third quarter of 2017~~three months ended March 31, 2024 compared with ~~$14.4~~$7.7 million for the ~~third quarter of 2016. The decrease is primarily due to a decrease in gross profit and increased selling and administrative expenses as described above.~~three months ended March 31, 2023. Non-GAAP operating income as a percentage of sales ~~decreased~~increased to ~~6.2%~~8.1% for the ~~third quarter of 2017~~three months ended March 31, 2024 from ~~14.2%~~6.8% for the ~~third quarter~~three months ended March 31, 2023.

Interest expense increased to $3.4 million in the three months ended March 31, 2024 compared with interest expense of ~~2016.~~

~~Non-GAAP operating income was $24.8~~ $2.4million for the ~~first nine~~three months ~~of 2017 compared with $38.2 million for the first nine months of 2016.~~ended March 31, 2023. The ~~decrease~~increase in interest expense is primarily due to ~~a decrease in gross profit~~increased debt balances and increased selling and administrative expenses as described above. Non-GAAP operating income as a percentage of sales decreased to 9.1% for the first nine months of 2017 from 12.1% for the first nine months of 2016.rising interest rates.

Other income/expense, net was $0.1 million of expense in the third quarter of 2017 compared with less than $0.1 million of income in the third quarter of 2016. During the third quarter of 2017, the net amount was due to $0.5 million of income from the impact of the strengthening of the Euro on an intercompany loan with a foreign subsidiary, offset by net foreign currency exchange losses from normal business operations of $0.6 million. During the third quarter of 2016, the less than $0.1 million of income was due primarily to $0.2 million of income from the impact of the strengthening of the Euro on an intercompany loan with a foreign subsidiary, which was offset by net foreign currency exchange losses from normal business operations of $0.2 million.

Other income/expense, net was $0.1 million of income in the first nine months of 2017 compared with $0.4 million of income in the first nine months of 2016. During the first nine months of 2017, the net $0.1 million of income was due to $2.0 million of income from the impact of the strengthening of the Euro on an intercompany loan with a foreign subsidiary, offset by net foreign currency exchange losses from normal business operations of $1.9 million. During the first nine months of 2016, the net $0.4 million of income was due to $0.6 million of income from the effect of the strengthening of the Euro on an intercompany loan with a foreign subsidiary, and net foreign currency exchange gains from normal business operations of $0.3 million, partially offset by a $0.5 million loss on our interest rate swap prior to being designated as an effective hedge.

Interest expense decreased to $1.6 million in the third quarter of 2017 from $1.9 million in the third quarter of 2016. The decrease is due to debt repayments made throughout 2016 and 2017 that decreased the amount of outstanding debt throughout 2017.

Interest expense decreased to $5.0 million in the first nine months of 2017 from $6.0 million in the first nine months of 2016. The decrease is due to debt repayments made throughout 2016 and 2017 that decreased the amount of outstanding debt throughout 2017.

Income tax expense was ~~$0.9~~$0.7 million for the ~~third quarter of 2017~~three months ended March 31, 2024 compared with ~~$2.8 million~~income tax expense of zero for the ~~same quarter of 2016.~~three months ended March 31, 2023. The effective income tax rate for the ~~third quarter of 2017~~three months ended March 31, 2024 was ~~22.6%~~24.2% compared with ~~32.3%~~0.4% for the ~~comparable period of 2016. Income tax expense was $2.9 million for the first nine~~three months ~~of 2017 compared with $6.3 million for the first nine months of 2016.~~ended March 31, 2023. The effective income tax rate for the ~~first nine~~three months ~~of 2017 was 25.1% compared with 33.0% for~~ended March 31, 2024 differs from the comparable period of 2016. This rate change for the three and nine month periods is due primarily to changes in income before taxes, discrete tax benefits of $0.3 million in the first nine months of 2017 related to stock compensation, and a decrease in permanent differences related to non-deductible acquisition and earn-out expenses.United States federal statutory rate. Our effective tax rate is affected by certain other permanent differences, including state income taxes, non-deductible incentive stock-based compensation, and ~~earn-out expenses, and decreased~~differences in tax rates among the jurisdictions in ~~certain foreign jurisdictions.~~which we operate.

Business Segments

The Company’s operations are organized and reviewed by management along its product lines or end market that the segment serves and are presented in ~~three~~two reportable segments. The results of the segments are reviewed through ~~to the~~ “Income from operations” ~~line~~ on the unaudited Condensed Consolidated Statements of ~~Operations.~~Income.


	Three months ended March 31,
(in thousands)	2024		2023
Net Sales (less intra- and inter-segment sales)
Engineered Systems segment	$	89,349	$	74,454
Industrial Process Solutions segment		36,983		38,109
Total net sales	$	126,332	$	112,563


	Three months ended March 31,
(in thousands)	2024			2023
Income from Operations
Engineered Systems segment	$	16,277		$	9,805
Industrial Process Solutions segment		7,100			5,546
Corporate and Other(1)		(15,691	)		(9,890	)
Total income from operations	$	7,686		$	5,461

(1) Includes corporate compensation, professional services, information technology and other general and administrative corporate expenses.

Engineered Systems Segment

Our Engineered Systems segment orders booked increased $3.5 million, or 3.6%, to $100.1 million during the three months ended March 31, 2024 compared with $96.6 million in the three months ended March 31, 2023. The increase is primarily attributable to increases of $6.7 million related to dampers and expansion joints and $5.0 million related to emissions management, partially offset by a decrease of $8.3 million related to fluid bed cyclones. Approximately 91%, or $87.8 million, of the orders for the three months ended March 31, 2024 is attributable to organic bookings, defined as orders recorded subsequent to the twelve month period post-acquisition date.

⁽¹⁾	~~Includes adjustment for revenue on intercompany jobs.~~

⁽²⁾

~~Energy Segment~~Our Engineered Systems segment net sales increased $14.8 million to $89.3 million for the three months ended March 31, 2024 compared with $74.5 million for the three months ended March 31, 2023. The increase is led by an increase of $12.5 million in separation, filtration, and industrial water technologies. Approximately 89%, or $79.4 million, of the net sales for the three months ended March 31, 2024 is attributable to organic revenue

Operating income for the Engineered Systems segment increased $6.5 million to $16.3 million for the three months ended March 31, 2024 compared with $9.8 million for the three months ended March 31, 2023. The operating income increase is primarily attributable to higher gross profit related to increased sales of $14.8 million, partially offset by an increase in selling and administrative expense.

Industrial Process Solutions Segment

Our ~~Energy Segment~~Industrial Process Solutions segment orders booked decreased $4.2 million, or 8.7%, to $45.3 million during the three months ended March 31, 2024 compared with $49.5 million in the three months ended March 31, 2023. The decrease is primarily attributable to a decrease of $10.8 million related to industrial air end markets, partially offset by an increase of $7.0 million related to duct fabrication and installation.

Our Industrial Process Solutions segment net sales decreased ~~$14.1~~$1.1 million to ~~$36.2~~$37.0 million infor the ~~third quarter of 2017~~three months ended March 31, 2024 compared with ~~$50.3~~$38.1 million infor the ~~third quarter of 2016.~~three months ended March 31, 2023. The decrease is ~~due~~ primarily attributable to a decrease of $2.7 million related to industrial air end markets and $0.4 million related to fluid handling, partially offset by an increase of $2.5 million related to duct fabrication and installation.

Operating income for the Industrial Process Solutions segment increased $1.6 million to $7.1 million for the three months ended March 31, 2024 compared with $5.5 million for the three months ended March 31, 2023. The increase is primarily attributable to an increase of $2.0 million in gross profit related to decreased direct costs, primarily related to materials, partially offset by an increase in engineering and administrative expenses.

Corporate and Other Segment

Operating expense for the Corporate and Other segment increased $5.8 million to $15.7 million for the three months ended March 31, 2024 compared with $9.9 million for the three months ended March 31, 2023. The increase is primarily attributable to investments made to support growth, and inflationary increases for wages and services.

Backlog

Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales ~~volume decreases~~we expect to recognize for our products and services ~~within Europe and Asia primarily due to a decline in the Company’s natural gas turbine exhaust systems related products and services and solid fuel power generation period over period,~~for which ~~is primarily attributable to a temporary weakening of the solid fuel power generation market in China and a temporary weakening in the gas turbine powered market due to over-capacity.~~

Our Energy Segment net sales decreased $36.4 million to $114.7 million in the first nine months of 2017 compared with $151.1 million in the first nine months of 2016. The decrease is due primarily to sales volume decreases for our products and services within Europe and Asia primarily due to a decline in the Company’s natural gas turbine exhaust systems related products and services and solid fuel power generation period over period, which is primarily attributable to a temporary weakening of the solid fuel power generation market in China and a temporary weakening in the gas turbine powered market due to over-capacity.

Operating income for the Energy Segment decreased $3.2 million to $5.3 million in the third quarter of 2017 compared with $8.5 million of income in the third quarter of 2016. Operating income in the third quarter 2017 included $3.9 million of income relatedcontrol has not yet transferred to the ~~fair value adjustment~~customer. Backlog increased to $389.5 million as of ~~the Zhongli Acquisition earn-out due to significant changes in operational profit~~March 31, 2024, from ~~amounts previously forecasted. The decrease in operating income excluding the earn-out adjustment was primarily due to the Energy Segment achieving lower gross profit on decreased sales~~$370.9 million as ~~well as increases in selling and administrative expenses during the third quarter~~ of ~~2017.~~

~~Operating income for the Energy Segment decreased $5.7 million to $14.4 million in the first nine months of 2017 compared with $20.1 million in operating income in the first nine months of 2016.~~Operating income in the first nine months of 2017 and 2016 included $5.7 million of income and $1.0 million of expense, respectively, related to the fair value adjustment of the Zhongli earn-out. The decrease in operating income excluding the earn-out adjustment was primarily due to the Energy Segment achieving lower gross profit on decreased sales as well as increases in selling and administrative expenses during the third quarter of 2017.The decrease in operating income was also partially attributable to the Company incurring $2.4 million in warranty expense and $2.0 million in legacy design repairs during the first nine months of 2017, compared to warranty expense of $0.2 million during the first nine months of 2016. The increase in warranty expense is primarily attributable to a superseded product design issue. The increase in legacy design repairs is primarily attributable to specific issues on certain pre-acquisition projects.

~~Environmental Segment~~

Our Environmental Segment net sales decreased $6.9 million to $29.7 million in the third quarter of 2017 compared with $36.6 million in the third quarter of 2016. The decrease is due primarily to volume decreases for the Company’s refinery related products and services as well as decreases in volume related to the installation and fabrication of ventilation duct work and related equipment period over period, which is primarily attributable to a cyclical deferral of maintenance and capital expenditures by the Company’s customers in refinery related end markets.

Our Environmental Segment net sales decreased $16.4 million to $103.5 million in the first nine months of 2017 compared with $119.9 million in the first nine months of 2016. The decrease is due primarily to volume decreases for the Company’s refinery related products and services as well as decreases in the volume related to the installation and fabrication of ventilation duct work and related equipment period over period, which is primarily attributable to a cyclical deferral of maintenance and capital expenditures by the Company’s customers in refinery related end markets.

Operating income for the Environmental Segment decreased $3.3 million to $2.2 million in the third quarter of 2017 from $5.5 million in the third quarter of 2016. This decrease was primarily due to the Environmental Segment achieving lower gross profit on decreased sales volumes as well as increases in selling and administrative expenses during the third quarter of 2017.

Operating income for the Environmental Segment decreased $4.3 million to $12.0 million in the first nine months of 2017 from $16.3 million in the first nine months of 2016. This decrease was primarily due to the Environmental Segment achieving lower gross profit on decreased sales volumes as well as increases in selling and administrative expenses during the first nine months of 2017.

~~Fluid Handling and Filtration Segment~~

Our FHF Segment net sales increased $5.2 million to $20.1 million in the third quarter of 2017 compared with $14.9 million in the third quarter of 2016. The increase is attributable to increased international demand for the Company’s products and a strengthening of the FHF Segment’s North American Industrial Market in the third quarter of 2017.

Our FHF Segment net sales increased $7.4 million to $54.3 million in the first nine months of 2017 compared with $46.9 million in the first nine months of 2016. The increase is due to increased international demand for the Company’s products and a strengthening of the FHF Segment’s North American Industrial Market in the first nine months of 2017.

Operating income for FHF increased $1.2 million to $4.3 million in the third quarter of 2017 compared with $3.1 million in the third quarter of 2016. The increase is due primarily to higher sales volume.

Operating income for FHF increased $2.3 million to $11.8 million in the first nine months of 2017 compared with $9.5 million in the first nine months of 2016. The increase is due primarily to higher sales volume.

~~Corporate and Other Segment~~

Operating expense for Corporate and Other Segment decreased $1.1 million to $5.4 million in the third quarter of 2017 compared with $6.5 million in the third quarter of 2016. The decrease in operating expense is primarily attributable to incentive compensation income of $0.6 million being recorded in the third quarter of 2017 due to lower than anticipated operating performance.

Operating expense for Corporate and Other Segment increased $0.1 million to a $20.2 million loss in the first nine months of 2017 compared with a $20.1 million loss in the first nine months of 2016. The increase in the operating expense period over period is primarily attributable to the increase in executive transition expenses of $1.3 million during the first nine months of 2017 partially offset by the Company recording a gain on an insurance settlement of $1.0 million during the first nine months of 2016, which did not recur in 2017.

~~Backlog~~

Backlog is a representation of the amount of revenue expected from complete performance of firm fixed-price contracts that have not been completed for products and services we expect to substantially deliver within the next twelve-month to eighteen-month period.December 31, 2023. Our customers may have the right to cancel a given order. ~~Our~~Historically, cancellations have not been common. Backlog is adjusted on a quarterly basis for adjustments in foreign currency exchange rates. Substantially all backlog as of September 30, 2017 was $153.9 million compared with $197.0 million as of December 31, 2016. During 2017, the Company removed $9.7 million of orders that were previously disclosed as backlog in prior quarters, which were idle dueis expected to ~~inactivity by the customer.~~be delivered within 12 to 18 months. Backlog is not defined by GAAP and our methodology for calculating backlog may not be consistent with methodologies used by other companies. There can be no assurances that backlog will be replicated, increased or translated into higher revenues in the future. The success of our business depends on a multitude of factors related to our backlog and the orders secured during the subsequent periods. Certain contracts are highly dependent on the work of contractors and other subcontractors participating in a project, over which we have no or limited control, and their performance on such project could have an adverse effect on the profitability of our contracts. Delays resulting from these contractors and subcontractors, changes in the scope of the project, weather, and labor availability also can have an effect on a contract’s profitability.

New Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 2 to the unaudited condensed consolidated financial statements within Item 1 of this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flow from operations and available borrowings under our Credit Facility (as defined below). Our principal uses of cash are operating costs, payment of principal and interest on our outstanding debt, dividends, working capital and other corporate requirements, including acquisitions and any related earnouts.

The Company considers its level of cash on hand, borrowing capacity, current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and its historical levels of net cash flows from operating activities to be the most important measures.

At September 30, 2017, the Company had working capital of $65.4 million, compared with $66.6 million at December 31, 2016. The ratio of current assets to current liabilities was 1.57 to 1 as compared with a ratio of 1.46 to 1 at December 31, 2016. The $1.2 million decrease in working capital from December 31, 2016 to September 30, 2017 was primarily related to the net effect of decreased cash and cash equivalents ($21.3 million), a decrease in accounts receivable ($12.6 million) and an increase in the current portion of debt ($0.8 million), offset by a decrease in billing in excess of costs and estimated earnings on uncompleted contracts ($14.0 million), a decrease in accounts payable and accrued expenses ($18.0 million), and an increase in costs and estimated earnings in excess of billings on uncompleted contracts ($1.8 million). During the nine months ended September 30, 2017, the Company made prepayments of $4.3 million on the outstanding balance of the term loan, of which $3.0 million was applied to the long-term portion of the debt balance, which caused a reduction in working capital. Total repayments of term loan debt during the nine months ended September 30, 2017 was $9.2 million.

At September 30, 2017 and December 31, 2016, cash and cash equivalents totaled $24.6 million and $45.8 million, respectively. As of September 30, 2017 and December 31, 2016, $17.0 million and $25.6 million, respectively, of our cash and cash equivalents were held by certain non-U.S. subsidiaries, as well as being denominated in foreign currencies.

~~Debt consisted of the following at September 30, 2017 and December 31, 2016:~~

~~Credit Facility~~

(Table only in thousands)

September 30,
2017

December 31,
2016

Outstanding borrowings under the Credit Facility (defined in the paragraph
   below). Term loan payable in quarterly principal installments of $2.0
   million through  September 2018, and $2.5 million thereafter with
   balance due upon maturity in September 2020.

- Term loan

$
115,911

$
125,072

- U.S. Dollar revolving loans

2,000

—

- Unamortized debt discount and debt issuance costs

(2,593
)

(3,175
)
Total outstanding borrowings under the Credit Facility

115,318

121,897

Outstanding borrowings (U.S. dollar equivalent)
   under the China Facility

—

1,296

Outstanding borrowings (U.S. dollar equivalent)
   under the Aarding Facility

1,614

—

Total outstanding borrowings

116,932

123,193

Less: current portion

9,645

8,827

Total debt, less current portion

$
107,287

$
114,366

The Company’s outstanding borrowings in the United States consist of senior secured term loan, senior secured US. Dollar revolving loans with sub-facilities for letters of credit and swing-line loans and senior secured multi-currency revolving credit facility for U.S. dollar and specific foreign currency loans (collectively, the “Credit Facility”). As of September 30, 2017 and December 31, 2016, the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility.

~~See Note 8 to the condensed consolidated financial statements for further information regarding the Company’s outstanding debt.~~

~~Total unused credit availability under our existing Credit Facility and other non-U.S. credit facilities and agreements, exclusive of any potential asset base limitations, is as follows:~~

(dollars in millions)

September 30,
2017

December 31,
2016

Credit Facility, U.S. Dollar revolving loans

$
60.5

$
60.5

   Draw down

(2.0
)

—

   Letters of credit open

(20.8
)

(18.0
)
Credit Facility, Multi-currency revolving facilities

19.5

19.5

   Draw down

—

—

Netherlands facilities (€13.0 million at September 30, 2017 and
   December 31, 2016 in U.S. Dollar equivalent)

15.4

13.7

   Draw down

(1.6
)

—

   Letters of credit open

(4.6
)

(5.3
)
China facility

4.5

4.3

   Draw down

—

(1.3
)
Total unused credit availability

$
70.9

$
73.4

Amount available based on borrowing limitations

$
34.3

$
71.1

~~Overview of Cash Flows and Liquidity~~

For the nine months ended September 30,

(dollars in thousands)

2017

2016

Net cash (used in) provided by operating activities

$
(1,089
)

$
52,879

Net cash used in investing activities

(439
)

(510
)
Net cash used in financing activities

(20,610
)

(44,337
)
Effect of exchange rate changes on cash and cash
equivalents

881

(412
)
Net (decrease) increase in cash

$
(21,257
)

$
7,620

For the nine months ended September 30, 2017, $1.1 million of cash was used in operating activities compared with $52.9 million provided by operating activities in the prior-year period. The $54.0 million decrease in cash flow from operating activities was partially due to a decrease in net income of $4.4 million, a decrease in expense of the fair value adjustments to earnout liabilities of $6.1 million, and a decrease in cash flow due to payments of earnouts classified as operating activities of $7.8 million. Additionally, there were unfavorable net working capital items in the first nine months of 2017 compared with the first nine months of 2016. The incremental cash used was comprised of $8.1 million in inventories, $21.4 million in billings in excess of costs and estimated earnings on uncompleted contracts, $3.6 million in costs and estimated earnings in excess of billings on uncompleted contracts, and $2.5 million in accounts receivable. These unfavorable decreases in cash were partially offset by the incremental cash provided from $0.9 million in accounts payable and accrued expenses, and $4.6 million in prepaid expenses and other current assets.

For the nine months ended September 30, 2017, net cash used in investing activities was $0.4 million compared with net cash used in investing activities of $0.5 million in the prior-year period. In the current year period, cash used in investing activities was primarily the result of cash used for the acquisitions of property and equipment totaling $0.8 million offset by the proceeds from sales of property and equipment, including assets held for sale, totaling $0.4 million. In the prior-year period, ~~cash used in investing activities was~~ ~~primarily the result of~~ ~~cash used for additions to property and equipment of $0.8 million~~ ~~offset by the proceeds from sales of property and equipment, including assets held for sale, totaling $0.3 million.~~

For the nine months ended September 30, 2017, net cash used in financing activities was $20.6 million due principally to net term loan repayments of $9.2 million, earn-out payments classified as financing activities of $7.4 million, and $7.8 million in dividends paid to common stockholders, which was partially offset by the net borrowings on revolving credit facilities of $2.2 million and proceeds from the employee stock purchase plan, exercise of stock options and dividend reinvestment plan of $1.4 million. In the prior-year period, net cash used in financing activities was $44.3 million due principally to term loan repayments of $31.6 million, net payments on revolving credit facilities of $13.1 million, earnout payments classified as operating activities of $9.3 million and $6.7 million in dividends paid to common stockholders, which was partially offset by proceeds from sale-leaseback transactions of $14.2 million.

Our dividend policy and the payment of cash dividends under that policy are subject to the Board of Directors’ continuing determination that the dividend policy and the declaration of dividends are in the best interest of the Company’s stockholders. Future dividends and the dividend policy may be changed or cancelled at the Company’s discretion at any time. Payment of dividends is also subject to the continuing compliance with the financial covenants under our Credit Facility.

When we undertake large jobs, our working capital objective is to make these projects self-funding. We work to achieve this by obtaining ~~initial~~customer down payments, progress billing contracts, when possible, utilizing extended payment terms from material suppliers, and paying sub-contractors after payment from our customers, which is an industry practice. Our investment in net working capital is funded by cash flow from operations and by our revolving line of ~~credit.~~credit under our Credit Facility (as defined below).

At March 31, 2024, the Company had working capital of $75.3 million, compared with $94.0 million at December 31, 2023. The ratio of current assets to current liabilities was 1.38 to 1.00 on March 31, 2024, as compared with a ratio of 1.64 to 1.00 on December 31, 2023.

At March 31, 2024 and December 31, 2023, cash and cash equivalents totaled $46.6 million and $54.8 million, respectively. As of March 31, 2024 and December 31, 2023, $35.5 million and $38.5 million, respectively, of our cash and cash equivalents were held by certain non-United States subsidiaries, as well as being denominated in foreign currencies.

Debt consisted of the following:


(in thousands)	March 31, 2024			December 31, 2023
Outstanding borrowings under Credit Facility (defined below) Term loan payable in quarterly principal installments of $550 through September 2023, $2,232 through September 2025 and $2,977 thereafter with balance due upon maturity in December 2026.
Term loan	$	110,191		$	112,424
Revolving credit facility		18,100			17,300
Total outstanding borrowings under the Credit Facility		128,291			129,724
Outstanding borrowings under the joint venture term debt		8,535			8,855
Unamortized debt discount		(1,176	)		(1,296	)
Total outstanding borrowings		135,650			137,283
Less: current portion		(10,580	)		(10,488	)
Total debt, less current portion	$	125,070		$	126,795

Credit Facility

The Company’s outstanding borrowings in the United States consist of a senior secured term loan and a senior secured revolver loan with sub-facilities for letters of credit, swing-line loans and multi-currency loans (collectively, the “Credit Facility”). As of March 31, 2024 and December 31, 2023, the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility.

See Note 8 to the unaudited condensed consolidated financial statements within Item 1 of this Quarterly Report on Form 10-Q for further information on the Company’s debt facilities.

Total unused credit availability under our existing Credit Facility is as follows:


(in millions)	March 31, 2024			December 31, 2023
Credit Facility, revolving loans	$	140.0		$	140.0
Draw down		(18.1	)		(17.3	)
Letters of credit open		(13.5	)		(13.3	)
Total unused credit availability	$	108.4		$	109.4
Amount available based on borrowing limitations	$	108.4		$	99.8

Overview of Cash Flows and Liquidity


	Three months ended March 31,
(in thousands)	2024			2023
Net cash provided by (used in) operating activities	$	1,224		$	(12,021	)
Net cash used in investing activities		(2,694	)		(26,655	)
Net cash (used in) provided by financing activities		(6,528	)		34,359
Effect of exchange rate changes on cash and cash equivalents		(422	)		(64	)
Net decrease in cash	$	(8,420	)	$	(4,381	)

Operating Activities

For the three months ended March 31, 2024, $1.2 million of cash was provided by operating activities compared with $12.0 million used in operations in the prior year period, representing an improvement of $13.2 million. Cash flow from operating activities in the first three months of 2024 had a favorable impact year-over-year primarily due to timing of receipt of outstanding receivables.

Investing Activities

For the three months ended March 31, 2024, net cash used in investing activities was $2.7 million compared with $26.7 million used in investing activities in the prior year period. For the three months ended March 31, 2024, the $3.1 million cash used in investing

activities was primarily the result of acquisitions of property and equipment. In the prior year period, the $26.7 million cash used in investing activities was the result of $24.1 million used for acquisitions as described in Note 15 and $2.5 million for the acquisition of property and equipment.

Financing Activities

For the three months ended March 31, 2024, $6.5 million was used in financing activities compared with $34.4 million provided by financing activities in the prior year period, for an increase of $27.9 million. For the three months ended March 31, 2024, the primary uses of cash for financing activities were $3.0 million to repurchase common stock, $2.6 million to repay long-term debt, $1.0 million of deferred consideration paid for acquisitions and $0.8 million on distributions to the noncontrolling interest, partially offset by $0.8 million in net borrowings. In the prior year period, the Company obtained $34.8 million for net borrowings on the Company’s revolving credit lines, primarily used to finance acquisitions, and $0.8 million in repayment on long-term debt. The Company also received $0.6 million of proceeds from the exercise of stock options.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s condensed consolidated financial statements. The preparation of these financial statements requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include revenue recognition, the valuation of trade receivables, inventories, goodwill, intangible assets, other long-lived assets, legal contingencies, ~~earnout liabilities,~~ guarantee obligations and assumptions used in the calculation of income taxes, assumptions used in business combination accounting and related balances, and pension and post-retirement benefits, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. Management monitors ~~the~~ economic conditions and other factors and will adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Management believes there have been no ~~significant~~ changes during the ~~three-month and nine-month periods~~three months ended ~~September 30, 2017~~March 31, 2024 to the items that the Company disclosed as its critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2023.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, which are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. ~~All~~Any statements contained in this Quarterly Report on Form 10-Q, 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 ~~industry prospects or~~ future ~~results of operations or financial position made in this Quarterly Report on Form 10-Q are forward-looking.~~events and business performance. We use words such as “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “will,” “plan,” “should” and similar expressions to identify forward-looking statements. Forward-looking statements 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. Potential risks and uncertainties, among others, that could cause actual results to differ materially are discussed under ~~“Part I – Item~~“Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2023, and include, but are not limited to: ~~our ability to successfully realize~~

•

the ~~expected benefits~~sensitivity of our ~~restructuring program; our ability~~business 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;~~ cancellation as a result of on-going or worsening supply chain challenges;

•

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;~~ materials, including as a result of tariffs and surcharges, and rising energy costs

•

inflationary pressures relating to rising raw material costs and the cost of labor;

•

the substantial amount of debt incurred in connection with our ~~acquisitions~~strategic transactions and our ability to repay or refinance it or incur additional debt in the future;

•

the impact of federal, state or local government regulations;

•

our ability to repurchase shares of our common stock and the amounts and timing of repurchases;

•

our ability to successfully realize the expected benefits of our restructuring program;

•

economic and political conditions generally;

•

our ability to successfully identify acquisition targets, integrate acquired businesses and realize the ~~effect~~synergies from strategic transactions;

•

unpredictability and severity of ~~competition~~catastrophic events, including cybersecurity threats, acts of terrorism or outbreak of war or hostilities or public health crises, as well as management’s response to any of the aforementioned factors; and

•

our ability to remediate our material weakness, or any other material weakness that we may identify in the ~~environmental, energy and fluid handling and filtration industries.~~ future that could result in material misstatements in our financial statements.

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~~any related 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. Furthermore, the 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 ~~SEC,~~Securities and Exchange Commission (the “SEC”), we undertake no obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

~~ITEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks, primarily changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. For the Company, these exposures are primarily related to changes in interest rates. We do not currently hold any derivatives or other financial instruments purely for trading or speculative purposes. However, we do have an interest rate swap in place as of September 30, 2017 to hedge against a portion of our interest rate exposure related to debt indexed to LIBOR market rates. See Note 8 to the condensed consolidated financial statements for further information on this interest rate swap.

The carrying value of the Company’s total long-term debt and current maturities of long-term debt at March 31, 2024 was ~~$116.9 million at September 30, 2017.~~$136.8 million. Market risk was estimated as the potential decrease (increase) in future earnings and cash flows resulting from a hypothetical 10% increase (decrease) in the Company’s estimated weighted average borrowing rate at ~~September 30, 2017.~~March 31, 2024. Most of the interest on the Company’s debt is indexed to ~~either the LIBOR or EURIBOR~~SOFR market rates. The estimated annual impact of a hypothetical 10% change in the estimated weighted average borrowing rate ~~excluding the portion of debt which has an interest rate fixed by the interest rate swap described above,~~ at ~~September 30, 2017~~March 31, 2024 is ~~$0.3 million on an annual basis.~~$1.1 million.

The Company has wholly-owned subsidiaries ~~located~~in several countries, including in the Netherlands, Canada, the People’s Republic of China, Mexico, United Kingdom, Singapore, India, United Arab Emirates and ~~Chile.~~South Korea. In the past, we have not hedged our foreign currency exposure, and fluctuations in exchange rates have not materially affected our operating results. Future changes in exchange rates may positively or negatively impact our revenues, operating expenses and earnings.

Transaction gains included in “Other expense, net” line of the Condensed Consolidated Statements of Income were $0.8 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively.

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of ~~September 30, 2017. Management~~March 31, 2024, as the result of the material weakness in our internal control over financial reporting discussed below, which is currently being remediated. Notwithstanding this material weakness, management believes that the condensed consolidated financial statements included in this report present fairly, ~~present~~ in all material respects, the Company’s financial condition, results of operations and cash flows for each of the periods presented in this ~~report.~~report in conformity with accounting principles generally accepted in the United States of America.

33Material Weaknesses in Internal Control over Financial Reporting

Revenue Recognition

As previously reported, we identified a material weakness in internal control over financial reporting relating to management’s review of its revenue recognition for contracts recognized over time isolated to our Engineered Systems segment, which remains unremediated as of March 31, 2024. Specifically, management did not retain appropriate documentation supporting the review of over time revenue recognition for customer contracts within the Engineered Systems segment. This material weakness did not result in any material misstatement in our interim financial statements or disclosures, and there were no changes required to any of our previously released interim or audited consolidated financial statements.

Balance Sheet Reconciliations

As previously reported, we identified a material weakness in internal control over financial reporting relating to management’s review of balance sheet reconciliations for certain divisions within our Engineered Systems segment, which has been remediated as of March 31, 2024. Specifically, management did not review the reconciliations prepared for balance sheet accounts for certain divisions within the Engineered Systems segment as required by Company policy. This material weakness did not result in any material misstatement in our interim financial statements or disclosures, and there were no changes required to any of our previously released interim or audited consolidated financial statements.

Remediation Efforts to Address Material Weaknesses

Management is committed to maintaining a strong internal control environment. In response to the identified material weaknesses, management, with the oversight of the Audit Committee of the Board of Directors, has taken actions toward the remediation of the material weaknesses in internal control over financial reporting, including reinforcing the importance of adherence to Company policies regarding control performance and related documentation with control owners, strengthening existing training programs for control owners, and developing monitoring activities to validate the performance of controls by control owners. As of March 31, 2024, management has reinforced policies through training sessions as well as ongoing communications, and implemented incremental monitoring activities. As of March 31, 2024, these remediation efforts are ongoing as it relates to the material weakness related to revenue recognition, and complete as it relates to the material weakness related to balance sheet reconciliations.

The Company anticipates the actions described above and resulting improvements in controls will strengthen the Company’s processes, procedures and controls related to management’s review of over time revenue recognition and balance sheet reconciliations and will address the related material weaknesses. However, the material weakness related to revenue recognition cannot be considered remediated until the applicable control has operated for a sufficient period of time, and management has concluded, through testing, that the control is operating effectively.

Changes in Internal Control Over Financial Reporting

~~There~~Other than the material weakness described above related to revenue recognition and the ongoing remediation of such material weakness, and the remediation of the previous period material weakness related to balance sheet reconciliations, there were no

changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the ~~fiscal~~ quarter ended ~~September 30, 2017,~~March 31, 2024 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.

3426

PART II – ~~OTHE~~ROTHER INFORMATION

~~ITEM 1.~~

~~LEGAL PROCEEDINGS~~

~~Information with respect to legal proceedings can be found in~~ITEM 1. LEGAL PROCEEDINGS

See Note 14 ~~“Commitments and Contingencies – Legal Matters”~~ to the unaudited Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form ~~10-Q.~~10-Q for information regarding legal proceedings in which the Company is involved.

~~ITEM 1A.~~

~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

There have been no material changes in the Company’s risk factors that wewere disclosed in “Part I – Item 1A. Risk Factors” of ~~our~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2023.

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

~~None.~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information about our purchases of the Company's equity securities for the three months ended March 31, 2024:


	Issuer's Purchases of Equity Securities
(in thousands, except per share data) Period	Total Number of Shares Purchased 1		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
January 1, 2024 - January 31, 2024	—		$	—	—		$	13,000
February 1, 2024 - February 29, 2024	—			—	—			13,000
March 1, 2024 - March 31, 2024		143,938		20.84		143,938		10,000
Total		143,938	$	20.84		143,938

(1) On May 10, 2022, the Board of Directors authorized a $20.0 million share repurchase program as described within Note 9. The program expires on April 30, 2025.

~~ITEM 3.~~

~~DEFAULTS UPON SENIOR SECURITIES~~

~~None.~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(c)

Rule 10b5-1 Trading Plans

During the three months ended March 31, 2024, no director or Section 16 officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement,” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K..

ITEM 6. EXHIBITS


~~ITEM 5.~~	~~OTHER INFORMATION~~

~~None.~~

~~ITEM 6.~~

E~~XHIBITS~~


~~10.1~~		~~Separation Agreement, effective as of July 21, 2017, by and between the Company and Edward J. Prajzner~~

~~10.2~~		~~Amendment No. 3 to Amended and Restated Credit Agreement~~

~~31.1~~

31.1		Rule 13(a)/15d-14(a) Certification by Chief Executive Officer

31.2		Rule 13(a)/15d-14(a) Certification by Chief Financial Officer

32.1		Certification of Chief Executive Officer (18 U.S. Section 1350)

32.2		Certification of Chief Financial Officer (18 U.S. Section 1350)

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document with Embedded Linkbase Documents

~~101.CAL~~104		Cover Page Interactive Data File (formatted as Inline XBRL ~~Taxonomy Extension Calculation Linkbase Document~~and contained in Exhibit 101)

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


CECO Environmental Corp.

By:	/s/ ~~Matthew Eckl~~Kiril Kovachev
	~~Matthew Eckl~~Kiril Kovachev
	Chief ~~Financial~~Accounting Officer (principal accounting officer and duly authorized officer)

Date: ~~November 8, 2017~~April 30, 2024

3729

(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

	THREE MONTHS ENDED SEPTEMBER 30,					NINE MONTHS ENDED SEPTEMBER 30,
(dollars in thousands)	2017		2016			2017		2016
Net income	$	3,036	$	5,826		$	8,560	$	12,918
Other comprehensive income (loss), net of tax:
Interest rate swap		3		201			31		(422	)
Foreign currency translation		1,396		(73	)		3,565		(1,526	)
Comprehensive income		4,435		5,954			12,156		10,970
Net income (loss) attributable to noncontrolling interest		—		22			—		(36	)
Comprehensive income attributable to CECO Environmental Corp.	$	4,435	$	5,976		$	12,156	$	10,934

(Table only in thousands)	September 30, 2017			December 31, 2016
Trade receivables	$	13,211		$	11,976
Contract receivables		60,176			72,835
Allowance for doubtful accounts		(2,883	)		(1,749	)
	$	70,504		$	83,062

(Table only in thousands)	Nine months ended September 30, 2017				Year ended December 31, 2016
Goodwill / Indefinite Life Tradenames	Goodwill		Tradenames		Goodwill			Tradenames
Beginning balance	$	170,153	$	22,042	$	220,163		$	26,337
Acquisitions and related adjustments		—		—		4,205			—
Impairment		—		—		(53,762	)		(4,161	)
Foreign currency translation		1,086		339		(453	)		(134	)
	$	171,239	$	22,381	$	170,153		$	22,042

(Table only in thousands)	As of September 30, 2017						As of December 31, 2016
Intangible assets – finite life	Cost			Accum. Amort.			Cost			Accum. Amort.
Technology	$	15,867		$	8,040		$	15,867		$	6,360
Customer lists		77,497			32,758			77,497			26,041
Noncompetition agreements		1,118			643			1,118			478
Tradename		1,390			405			1,390			301
Foreign currency adjustments		(1,453	)		(176	)		(2,964	)		(1,000	)
	$	94,419		$	41,670		$	92,908		$	32,180

(Table only in thousands)	Energy Segment			Environmental Segment		Total⁽¹⁾
Balance of earn-out at December 31, 2016	$	24,214		$	—	$	24,214
Fair value adjustment		(5,689	)		—		(5,689	)
Compensation expense adjustment		918			—		918
Foreign currency translation adjustment		729			—		729
Payment		(15,193	)		—		(15,193	)
Total earn-out liability as of September 30, 2017	$	4,979		$	—	$	4,979
Less: current portion of earn-out		(3,514	)		—		(3,514	)
Balance of long term portion of earn-out recorded in Other liabilities at September 30, 2017	$	1,465		$	—	$	1,465

	For the three-month period ended September 30, 2017
	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic net income and earnings per share	$	3,036		34,519	$	0.09
Effect of dilutive securities:
Common stock equivalents arising from stock options, restricted stock awards, and employee stock purchase plan		—		103		—

Diluted earnings and earnings per share	$	3,036		34,622	$	0.09

	Three Months Ended September 30, 2017
						Less Inter-Segment Sales
(dollars in thousands)	Total Sales		Intra- Segment Sales			Environmental			Energy			FHF			Corp and Other			Net Sales to Outside Customers
Net Sales
Energy Segment	$	37,290	$	(1,102	)	$	(6	)	$	—		$	—		$	—		$	36,182
Environmental Segment		30,138		(396	)		—			(1	)		(6	)		—			29,735
Fluid Handling and Filtration Segment		20,768		(570	)		(55	)		(38	)		—			—			20,105
Corporate and Other⁽⁵⁾		—		—			—			—			—			(1,035	)		(1,035	)
Net Sales	$	88,196	$	(2,068	)	$	(61	)	$	(39	)	$	(6	)	$	(1,035	)	$	84,987

	Three Months Ended September 30, 2016
						Less Inter-Segment Sales
(dollars in thousands)	Total Sales		Intra- Segment Sales			Environmental			Energy			FHF			Corp and Other			Net Sales to Outside Customers
Net Sales
Energy Segment	$	51,155	$	(874	)	$	(22	)	$	—		$	—		$	—		$	50,259
Environmental Segment		38,454		(941	)		—			(878	)		(29	)		—			36,606
Fluid Handling and Filtration Segment		15,451		(313	)		(88	)		(184	)		—			—			14,866
Corporate and Other⁽⁵⁾		—		—			—			—			—		��	(135	)		(135	)
Net Sales	$	105,060	$	(2,128	)	$	(110	)	$	(1,062	)	$	(29	)	$	(135	)	$	101,596

	Nine Months Ended September 30, 2017
						Less Inter-Segment Sales
(dollars in thousands)	Total Sales		Intra- Segment Sales			Environmental			Energy			FHF			Corp and Other			Net Sales to Outside Customers
Net Sales
Energy Segment	$	120,958	$	(6,249	)	$	(28	)	$	—		$	—		$	—		$	114,681
Environmental Segment		106,404		(2,086	)		—			(730	)		(45	)		—			103,543
Fluid Handling and Filtration Segment		56,620		(1,727	)		(477	)		(147	)		—			—			54,269
Corporate and Other⁽⁵⁾		—		—			—			—			—			(985	)		(985	)
Net Sales	$	283,982	$	(10,062	)	$	(505	)	$	(877	)	$	(45	)	$	(985	)	$	271,508

	Nine Months Ended September 30, 2016
						Less Inter-Segment Sales
(dollars in thousands)	Total Sales		Intra- Segment Sales			Environmental			Energy			FHF			Corp and Other			Net Sales to Outside Customers
Net Sales
Energy Segment	$	153,476	$	(2,019	)	$	(399	)	$	—		$	—		$	—		$	151,058
Environmental Segment		126,029		(3,539	)		—			(2,345	)		(206	)		—			119,939
Fluid Handling and Filtration Segment		48,508		(1,168	)		(282	)		(184	)		—			—			46,874
Corporate and Other⁽⁵⁾		—		—			—			—			—			(842	)		(842	)
Net Sales	$	328,013	$	(6,726	)	$	(681	)	$	(2,529	)	$	(206	)	$	(842	)	$	317,029

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in millions)	2017			2016			2017			2016
Net sales	$	85.0		$	101.6		$	271.5		$	317.0
Cost of sales		57.9			67.9			184.0			217.8
Gross profit	$	27.1		$	33.7		$	87.5		$	99.2
Percent of sales		31.9	%		33.2	%		32.2	%		31.3	%
Selling and administrative expenses	$	22.0		$	19.5		$	66.7		$	60.6
Percent of sales		25.9	%		19.2	%		24.6	%		19.1	%
Acquisition and integration expenses	$	—		$	0.2		$	—		$	0.5
Percent of sales		—			0.2	%		—			0.2	%
Amortization and earn-out (income) expenses, net	$	(0.5	)	$	3.5		$	4.6		$	13.2
Percent of sales		(0.6	)%		3.4	%		1.7	%		4.2	%
Operating income	$	5.6		$	10.5		$	16.2		$	24.9
Operating margin		6.6	%		10.3	%		6.0	%		7.9	%

	For the nine months ended September 30,
(dollars in thousands)	2017			2016
Net cash (used in) provided by operating activities	$	(1,089	)	$	52,879
Net cash used in investing activities		(439	)		(510	)
Net cash used in financing activities		(20,610	)		(44,337	)
Effect of exchange rate changes on cash and cash equivalents		881			(412	)
Net (decrease) increase in cash	$	(21,257	)	$	7,620