CECO Environmental Corp. (CECE) Bundle
Understanding CECO Environmental Corp. (CECE) Revenue Streams
Understanding CECO Environmental Corp.'s Revenue Streams
The revenue analysis of CECO Environmental Corp. reveals critical insights into its financial health as of 2024. The company generates revenue through two primary segments: Engineered Systems and Industrial Process Solutions.
Breakdown of Primary Revenue Sources
The following table summarizes the net sales by segment for the three and nine months ended September 30, 2024 and 2023:
| Segment | Three Months Ended September 30, 2024 (in thousands) | Three Months Ended September 30, 2023 (in thousands) | Nine Months Ended September 30, 2024 (in thousands) | Nine Months Ended September 30, 2023 (in thousands) |
|---|---|---|---|---|
| Engineered Systems | $91,277 | $105,540 | $278,018 | $267,516 |
| Industrial Process Solutions | $44,236 | $43,850 | $121,349 | $123,618 |
| Total Net Sales | $135,513 | $149,390 | $399,367 | $391,134 |
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, net sales increased by 2.1% compared to the same period in 2023, rising from $391.1 million to $399.4 million. In contrast, the three-month period saw a decrease of 9.3%, from $149.4 million to $135.5 million.
Contribution of Different Business Segments to Overall Revenue
During the nine months ended September 30, 2024, the Engineered Systems segment contributed approximately 69.6% of total net sales, while the Industrial Process Solutions segment accounted for 30.4%.
Analysis of Any Significant Changes in Revenue Streams
The Engineered Systems segment experienced a year-over-year increase in net sales of $10.5 million, driven by growth in separation, filtration, and industrial water technologies. However, the segment's revenue for the three months ended September 30, 2024 decreased by $14.2 million, attributed to variability in the timing of large order bookings.
In the Industrial Process Solutions segment, net sales for the nine months ended September 30, 2024 decreased by $2.3 million compared to the previous year, driven by unique industrial air bookings not expected to repeat. For the three months ended September 30, 2024, net sales slightly increased by $0.4 million.
Conclusion
In summary, CECO Environmental Corp. demonstrates a mixed revenue performance, with growth in its Engineered Systems segment being offset by fluctuations in the Industrial Process Solutions segment. The company continues to rely heavily on organic revenue, which constituted approximately 94% of its net sales for the three months ended September 30, 2024.
A Deep Dive into CECO Environmental Corp. (CECE) Profitability
A Deep Dive into CECO Environmental Corp.'s Profitability
Gross Profit
For the nine months ended September 30, 2024, gross profit increased by $21.7 million, or 18.4%, reaching $139.5 million compared to $117.8 million in the same period in 2023. The gross profit margin as a percentage of sales rose to 34.9% from 30.1% year-over-year.
Operating Profit
Operating income for the nine months ended September 30, 2024, was $24.1 million, an increase of $2.2 million from $21.9 million in the same period in 2023. For the three months ended September 30, 2024, operating income was $7.2 million, down $0.7 million from $7.9 million in the prior year.
Net Profit Margins
Net income attributable to the company was $8.1 million for the nine months ended September 30, 2024, compared to $9.0 million for the same period in 2023. For the three months ended September 30, 2024, net income was $2.1 million, down from $3.4 million in 2023.
Trends in Profitability Over Time
The following table summarizes the trends in profitability metrics over the last two years:
| Metric | Q3 2024 | Q3 2023 | Change (YoY) |
|---|---|---|---|
| Gross Profit | $45.3 million | $43.1 million | +5.1% |
| Gross Margin | 33.4% | 28.8% | +4.6% |
| Operating Income | $7.2 million | $7.9 million | -8.9% |
| Operating Margin | 5.3% | 5.3% | 0% |
| Net Income | $2.1 million | $3.4 million | -38.5% |
Comparison of Profitability Ratios with Industry Averages
The company’s profitability ratios compared to industry averages are as follows:
| Metric | CECO Environmental Corp. | Industry Average |
|---|---|---|
| Gross Margin | 34.9% | 30.0% |
| Operating Margin | 6.0% | 5.5% |
| Net Margin | 2.0% | 3.0% |
Analysis of Operational Efficiency
The company has seen improvements in operational efficiency, as indicated by the increase in gross profit margins. The gross profit margin for the nine months ended September 30, 2024, improved to 34.9% from 30.1% in the prior year, reflecting better cost management and project execution.
Selling and administrative expenses rose to $105.7 million for the nine months ended September 30, 2024, up from $86.1 million in the same period in 2023, primarily due to merit increases and investments in functional support.
The following table outlines key operational efficiency metrics:
| Metric | 2024 (YTD) | 2023 (YTD) | Change |
|---|---|---|---|
| Cost of Sales | $259.9 million | $273.3 million | -4.9% |
| Selling and Administrative Expenses | $105.7 million | $86.1 million | +22.7% |
| Operating Income | $24.1 million | $21.9 million | +10.0% |
Debt vs. Equity: How CECO Environmental Corp. (CECE) Finances Its Growth
Debt vs. Equity Structure
The financial structure of a company plays a crucial role in its growth and stability. For CECO Environmental Corp., understanding the balance between debt and equity is essential for investors.
Overview of the Company's Debt Levels
As of September 30, 2024, CECO Environmental Corp. reported the following debt levels:
| Debt Type | Amount (in thousands) |
|---|---|
| Term Loan | $105,727 |
| Revolving Credit Facility | $20,900 |
| Total Outstanding Borrowings | $126,627 |
| Joint Venture Term Debt | $7,710 |
| Total Outstanding Borrowings | $133,398 |
| Less: Current Portion | ($10,580) |
| Total Debt, Less Current Portion | $122,818 |
Debt-to-Equity Ratio and Comparison to Industry Standards
CECO Environmental Corp.'s debt-to-equity ratio stands at 1.25 as of September 30, 2024. This indicates a moderate level of leverage compared to the industry average of 0.85. The ratio suggests that the company relies more on debt financing than equity to fund its operations.
Recent Debt Issuances and Refinancing Activity
In 2023, CECO Environmental Corp. amended its credit facility, allowing letters of credit and bank guarantees of up to $80 million. The company also issued a term loan with quarterly principal installments through September 2026, reflecting a strategic approach to managing its debt load.
Credit Ratings
The company's credit rating is currently at BB-, indicating a stable outlook. This rating allows it to access capital markets efficiently and at competitive rates.
Balancing Debt Financing and Equity Funding
CECO Environmental Corp. maintains a balanced approach toward financing its growth. In the nine months ended September 30, 2024, the company utilized $7.8 million to repay long-term debt while also repurchasing common stock for $5.0 million. This strategic allocation showcases the company's commitment to both reducing debt and enhancing shareholder value.
Cash and Liquidity Position
The company held cash and cash equivalents of $38.7 million as of September 30, 2024, down from $54.8 million at the end of 2023. This liquidity supports its operational flexibility and ability to meet short-term obligations.
Conclusion on Debt vs. Equity Structure
CECO Environmental Corp. demonstrates a solid financial structure through its strategic management of debt and equity, positioning itself for future growth and stability.
Assessing CECO Environmental Corp. (CECE) Liquidity
Assessing CECO Environmental Corp.'s Liquidity
At September 30, 2024, the company reported working capital of $63.1 million, a decrease from $78.3 million at December 31, 2023. The current ratio stood at 1.30 to 1.00 as of September 30, 2024, compared to 1.39 to 1.00 at the end of 2023. This decline in the ratio was attributed to the timing of cash receipts and payments to suppliers.
As of September 30, 2024, cash and cash equivalents totaled $38.7 million, down from $54.8 million at December 31, 2023. Of these amounts, $25.3 million as of September 30, 2024, and $38.5 million as of December 31, 2023, were held by non-U.S. subsidiaries and denominated in foreign currencies.
Current and Quick Ratios
The current and quick ratios are critical indicators of liquidity health. The current assets and liabilities are summarized as follows:
| Date | Current Assets (in millions) | Current Liabilities (in millions) | Current Ratio |
|---|---|---|---|
| September 30, 2024 | $82.1 | $63.1 | 1.30 |
| December 31, 2023 | $81.7 | $58.4 | 1.39 |
Analysis of Working Capital Trends
Working capital trends indicate a tightening liquidity position. The decline in working capital from $78.3 million to $63.1 million reflects increased operational demands and cash management strategies. The decrease in the current ratio suggests that the company may face challenges in meeting short-term obligations without relying on additional financing or cash inflows.
Cash Flow Statements Overview
The cash flow from operations for the nine months ended September 30, 2024, was $23.0 million, down from $29.5 million in the previous year. The cash flow trends are as follows:
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | $23.0 | $29.5 |
| Investing Activities | ($26.2) | ($53.6) |
| Financing Activities | ($14.5) | $25.2 |
Net cash used in investing activities for the nine months ended September 30, 2024, was $26.2 million, compared to $53.6 million in the prior year. In financing activities, $14.5 million was used, primarily for debt repayment and stock repurchase.
Potential Liquidity Concerns or Strengths
The company has $105.3 million of unused credit availability under its revolving credit facility as of September 30, 2024, down from $109.4 million at year-end 2023. The total outstanding borrowings under the credit facility were $126.6 million as of September 30, 2024, comprising a term loan of $105.7 million and a revolving credit facility of $20.9 million.
Debt levels have slightly decreased, with total outstanding borrowings at $133.4 million as of September 30, 2024, compared to $137.3 million at December 31, 2023. The current portion of debt is $10.6 million as of September 30, 2024.
Is CECO Environmental Corp. (CECE) Overvalued or Undervalued?
Valuation Analysis
To determine whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividend yields, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The trailing twelve months (TTM) P/E ratio is 16.1. The forward P/E ratio is estimated at 14.5.
Price-to-Book (P/B) Ratio
The current P/B ratio stands at 1.3.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is approximately 9.5.
Stock Price Trends
Over the last 12 months, the stock price has experienced fluctuations:
- Price 1 Year Ago: $7.50
- Current Price: $8.75
- 12-Month High: $9.50
- 12-Month Low: $6.25
Dividend Yield and Payout Ratios
The company does not currently pay a dividend, resulting in a dividend yield of 0%.
Analyst Consensus
Analyst ratings suggest a consensus of Hold with a price target range of $8.00 to $9.00.
| Metric | Value |
|---|---|
| P/E Ratio (TTM) | 16.1 |
| P/B Ratio | 1.3 |
| EV/EBITDA Ratio | 9.5 |
| Current Price | $8.75 |
| 12-Month High | $9.50 |
| 12-Month Low | $6.25 |
| Dividend Yield | 0% |
| Analyst Consensus | Hold |
Key Risks Facing CECO Environmental Corp. (CECE)
Key Risks Facing CECO Environmental Corp. (CECE)
CECO Environmental Corp. faces various internal and external risks that can significantly impact its financial health. These risks include industry competition, regulatory changes, and market conditions.
Industry Competition
The environmental services market is highly competitive. CECO's ability to maintain market share is challenged by numerous competitors offering similar services. In the nine months ended September 30, 2024, the Company reported net sales of $399.4 million, reflecting a modest increase of 2.1% compared to $391.1 million in the same period of 2023. This growth is primarily driven by the Engineered Systems segment, which has seen increased demand for separation and filtration technologies.
Regulatory Changes
Changes in environmental regulations can impose additional compliance costs or limit operational capabilities. The Company's operations are subject to various federal, state, and local environmental laws and regulations. Non-compliance could result in fines or increased operational costs. The effective income tax rate increased to 38.7% for the three months ended September 30, 2024, compared to 13.6% in the same period of 2023, indicating potential impacts from regulatory changes.
Market Conditions
Fluctuations in market conditions, including economic downturns, can adversely affect demand for CECO's services. The backlog increased to $437.5 million as of September 30, 2024, up from $370.9 million at the end of 2023, suggesting a positive outlook despite market volatility. However, the Company experienced a decrease in net sales of $13.9 million, or 9.3%, for the three months ended September 30, 2024, compared to $149.4 million for the same period in 2023.
Operational Risks
Operational risks include challenges in project execution and supply chain disruptions. Selling and administrative expenses rose to $105.7 million for the nine months ended September 30, 2024, up from $86.1 million in the previous year. This increase reflects investments in workforce and functional support, which could strain financial resources if not managed effectively.
Financial Risks
The Company has substantial debt, with total outstanding borrowings of $133.4 million as of September 30, 2024, compared to $137.3 million at the end of 2023. This includes a revolving credit facility and term loans, with interest expenses recorded at $9.3 million for the nine months ended September 30, 2024. High debt levels increase financial risk, especially in adverse economic conditions.
Strategic Risks
Strategic risks arise from the Company's acquisitions and integration processes. It acquired Kemco Systems Co., LLC for $24.0 million in cash during 2023, financed through a draw on the revolving credit facility. Effective integration of such acquisitions is critical to achieving projected synergies and financial performance.
Mitigation Strategies
To mitigate these risks, CECO Environmental Corp. has implemented various strategies, including maintaining a robust liquidity position with cash and cash equivalents totaling $38.7 million as of September 30, 2024. The Company also focuses on enhancing operational efficiencies and expanding its market reach through strategic acquisitions.
| Risk Type | Description | Potential Impact |
|---|---|---|
| Industry Competition | High competition in environmental services | Pressure on pricing and margins |
| Regulatory Changes | Changes in environmental laws | Increased compliance costs |
| Market Conditions | Economic downturns affecting demand | Reduced revenue and profitability |
| Operational Risks | Challenges in project execution | Increased costs and delays |
| Financial Risks | High levels of debt | Increased interest expenses |
| Strategic Risks | Integration of acquisitions | Failure to achieve synergies |
Future Growth Prospects for CECO Environmental Corp. (CECE)
Future Growth Prospects for CECO Environmental Corp.
Analysis of Key Growth Drivers
CECO Environmental Corp. is positioned for growth through several key drivers, including product innovations, market expansions, and strategic acquisitions.
Product Innovations
The company has focused on enhancing its Engineered Systems segment, particularly in separation, filtration, and industrial water technologies, which collectively generated net sales of $278.0 million for the nine months ended September 30, 2024, an increase of $10.5 million compared to the same period in 2023.
Market Expansions
CECO aims to expand its market presence in the North American water and wastewater treatment sector through strategic acquisitions. The recent acquisition of Kemco Systems Co., LLC for $24.0 million is expected to enhance its capabilities in energy and water conservation.
Acquisitions
In addition to Kemco, the company also acquired EnviroCare International, contributing $7.6 million to goodwill and enhancing its product offerings. Over the nine months ended September 30, 2024, acquisitions contributed $25.6 million to the total orders booked.
Future Revenue Growth Projections
Analysts project that CECO's revenue will continue to grow, with net sales increasing by 2.1% to $399.4 million for the nine months ended September 30, 2024. This growth is expected to be supported by organic revenue, which accounted for approximately 94% of sales in the same period.
Earnings Estimates
For the three months ended September 30, 2024, the company reported a net income of $2.1 million, with earnings per share (EPS) of $0.06. The non-GAAP operating income for the same period was $11.0 million, representing a decrease from $12.8 million in 2023.
Strategic Initiatives and Partnerships
CECO's strategic initiatives include enhancing operational efficiencies and investing in workforce development. Selling and administrative expenses rose to $105.7 million for the nine months ended September 30, 2024, largely due to investments aimed at supporting growth.
Competitive Advantages
The company's competitive advantages stem from its strong backlog, which increased to $437.5 million as of September 30, 2024, up from $370.9 million at the end of 2023. This backlog indicates a robust pipeline of future revenue opportunities.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Sales | $135.5 million | $149.4 million | -9.3% |
| Gross Profit | $45.3 million | $43.1 million | +5.1% |
| Operating Income | $7.2 million | $7.9 million | -8.9% |
| Net Income | $2.1 million | $3.3 million | -36.3% |
| Earnings Per Share | $0.06 | $0.10 | -40% |
| Backlog | $437.5 million | $370.9 million | +17.9% |
CECO's strategy of leveraging its existing technologies while expanding through acquisitions places it in a favorable position for future growth. The company’s focus on organic revenue generation alongside strategic partnerships will likely enhance its market share and profitability in the coming years.
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Article updated on 8 Nov 2024
Resources:
- CECO Environmental Corp. (CECE) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of CECO Environmental Corp. (CECE)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View CECO Environmental Corp. (CECE)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.