CECO ENVIRONMENTAL CORP. 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 Operations for the
three-month and nine-month periods ended
CECO Environmental Corp. (the "Company," "CECO," "we," "us," or "our") is a global leader in industrial air quality and fluid handling serving a broad landscape of industrial and other niche markets through an attractive asset-light business model. We focus on engineering, designing, building, and installing systems that capture, clean and destroy airborne contaminants from industrial facilities, including equipment that controls hazardous emissions from such facilities, as well as fluid handling and filtration systems. CECO provides innovative technology and application expertise that helps companies grow their businesses with safe, clean, and more efficient solutions to protect our shared environment. CECO serves diverse industries globally by working to improve air quality, optimizing the energy value chain, and providing customized Engineered Systems in our customers' mission critical applications. The industries CECO serves include power generation, petrochemical processing, general industrial, refining, midstream oil & gas, electric vehicle production, poly silicon fabrication, battery recycling, beverage can, and water/wastewater treatment, along with a wide range of other industries. COVID-19 A novel strain of coronavirus ("COVID-19") surfaced in late 2019 and has spread around the world, including tothe United States . InMarch 2020 , theWorld Health Organization characterized COVID-19 as a pandemic. As ofOctober 31, 2021 , the virus continues to spread and has had a significant impact on worldwide economic activity and on macroeconomic conditions and the end markets of our business. As a key supplier to critical infrastructure projects, CECO has worked to maintain ongoing operations. Withinthe United States , certain portions of our business have been designated an essential business, and we continue to operate our business in compliance with applicable state and local laws and are observing recommendedCenters for Disease Control and Prevention guidelines to minimize the risk of spreading the COVID-19 virus including implementing, where possible, work-from-home procedures and additional sanitization efforts where facilities remain open to provide necessary services. This allows us to continue to serve our customers, however, the COVID-19 pandemic has also disrupted our international operations. Some of our facilities and our suppliers have experienced temporary disruptions as a result of the COVID-19 pandemic, and we continue to work closely with our global supply chain to proactively support customers during this critical time. We cannot predict whether our facilities will experience more significant disruptions in the future or the impact on our suppliers. The senior management team meets regularly to review and assess the status of the Company's operations and the health and safety of its employees. The senior management team continues to monitor and manage the Company's ability to operate effectively and, to date, the Company has not experienced any significant disruptions within its supply chain as a result of the COVID-19 pandemic; however, we have experienced some short-term execution issues associated with supply chain and logistics costs, customer delays and labor shortages. Although vaccines are available in various countries where we operate, health concern risks remain and notwithstanding the Company's continued efforts, it is possible the COVID-19 pandemic could further impact our operations and the operations of our suppliers and venders, particularly in light of newly emerging variant strains of the virus becoming more dominant and the potential resumption of high levels of infection and hospitalization. We cannot predict whether any of our manufacturing, operations or suppliers will be disrupted by these events, or how long such disruptions would last. COVID-19 has had and may have further negative impacts on our operations, customers and supply chain despite the preventative and precautionary measures being taken. COVID-19 began to impact the Company during the first quarter of 2020 and if the COVID-19 pandemic worsens or the pandemic continues longer than presently expected, COVID-19 could impact our results of operations, financial position and cash flows. 18
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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 inthe 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 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 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 provides non-GAAP operating income and non-GAAP operating margin to exclude certain items that the Company believes are not indicative of its ongoing operations. These items relate to the Company's acquisitions, divestitures, restructuring expenses and other 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. The Company believes that these items are not necessarily indicative of its ongoing operations and their exclusion provides individuals with additional information to compare the Company's results over multiple periods. The Company's financial statements may continue to be affected by items similar to those excluded in the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP financial measures should not be construed as an inference that all such costs are unusual or infrequent. Results of Operations Consolidated Results
Our Condensed Consolidated Statements of Operations for the three-month and
nine-month periods ended
Nine months ended September
Three months ended September 30, 30,
(dollars in millions) 2021 2020 2021 2020
Net sales $ 80.0 $ 77.4 $ 230.6 $ 233.1
Cost of sales 57.3 52.6 158.2 154.2
Gross profit $ 22.7 $ 24.8 $ 72.4 $ 78.9
Percent of sales 28.4 % 32.0 % 31.4 % 33.8 %
Selling and administrative expenses 20.9 18.9 60.9 59.3
Percent of sales 26.1 % 24.4 % 26.4 % 25.4 %
Amortization and earnout expenses 1.8 2.1 5.8 5.5
Restructuring expenses 0.4 0.9 0.7 1.8
Acquisition and integration expenses 0.2 0.4 0.4 1.1
Executive transition expenses - 1.5 - 1.5
Operating (loss) income $ (0.6 ) $ 1.0 $ 4.6 $ 9.7
Operating margin (0.8 )% 1.3 % 2.0 % 4.2 %
To compare operating performance between the three-month and nine-month periods
ended September 30, 2021 and 2020, the Company has adjusted GAAP operating
income to exclude (1) amortization of intangible assets, earnout and retention
expenses, (2) restructuring expenses primarily relating to severance, facility
exits, and associated legal expenses, (3) acquisition and integration expenses,
which include legal, accounting, and other expenses, and (4) executive
transition expenses, including severance for its former Chief Executive Officer,
fees and expenses incurred in the search, for and hiring, of a new Chief
Executive Officer. See "Note
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Regarding Use of Non-GAAP Financial Measures" above. 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 September 30, Nine months ended September 30,
(dollars in millions) 2021 2020 2021 2020
Operating (loss) income as reported
in accordance with GAAP $ (0.6 ) $ 1.0 $ 4.6 $ 9.7
Operating margin in accordance with
GAAP (0.8 )% 1.3 % 2.0 % 4.2 %
Amortization and earnout expenses 1.8 2.1 5.8 5.5
Restructuring expenses 0.4 0.9 0.7 1.8
Acquisition and integration expenses 0.2 0.4 0.4 1.1
Executive transition expenses - 1.5 - 1.5
Non-GAAP operating income $ 1.8 $ 5.9 $ 11.5 $ 19.6
Non-GAAP operating margin 2.3 % 7.6 % 5.0 % 8.4 %
Net sales for the third quarter of 2021 increased
Net sales for the first nine months of 2021 decreased$2.5 million , or 1.1%, to$230.6 million compared with$233.1 million in the first nine months of 2020. The decrease is primarily attributable to the effects of the COVID-19 pandemic on the global demand for certain products in 2021, which include decreases of$8.9 million in our custom-engineered cyclone systems,$5.6 million in our Selective Catalytic Reduction ("SCR") technologies, and$3.4 million in custom designed sheet metal fabrication products. These decreases were partially offset by increases of$8.1 million in volatile organic compounds ("VOC") abatement solutions from the Environmental Integrated Solutions ("EIS") business and$7.3 million in our RTO solutions. Gross profit decreased$2.1 million , or 8.5%, to$22.7 million in the third quarter of 2021 compared with$24.8 million in the third quarter of 2020. The decrease in gross profit is primarily related to inflation, supply chain challenges, and lower margin mix of projects executed during the period compared to the prior period. Gross profit as a percentage of sales decreased to 28.4% in the third quarter of 2021 compared with 32.0% in the third quarter of 2020. Gross profit decreased$6.5 million , or 8.4%, to$72.4 million in the first nine months of 2021 compared with$78.9 million in the first nine months of 2020. The decrease in gross profit is primarily related to inflation, supply chain challenges, and lower margin mix of projects executed during the nine-month period endedSeptember 30, 2021 . Gross profit as a percentage of sales decreased to 31.4% in the first nine months of 2021 compared with 33.8% in the first nine months of 2020. Orders booked increased$25.8 million , or 38.6%, to$92.6 million during the third quarter of 2021 compared with$66.8 million in the third quarter of 2020. Orders booked were$270.2 million for the first nine months of 2021 compared with$202.4 million during the first nine months of 2020, an increase of$67.8 million , or 33.5%. The increase is primarily attributable to increases in the electrical vehicle production, engineered wood, aluminum beverage can, refinery and power generation end markets. Selling and administrative expenses were$20.9 million for the third quarter of 2021 compared with$18.9 million for the third quarter of 2020. The increase is primarily attributable to cost reduction measures related to the COVID-19 pandemic implemented in the third quarter of 2020, but did not recur in the third quarter of 2021, such as furloughs and one-time reductions including wage reductions and travel restrictions. Selling and administrative expenses as a percentage of sales was 26.1% in the third quarter of 2021 compared with 24.4% in the third quarter of 2020. Selling and administrative expenses were$60.9 million for the first nine months of 2021 compared with$59.3 million for the first nine months of 2020. The increase is primarily attributed to cost reduction measures related to the COVID-19 pandemic implemented in 2020, but did not recur in 2021, such as furlough and one-time reductions including wage reductions and travel restrictions. Selling and administrative expenses increased as a percentage of sales to 26.4% in the first nine months of 2021 compared with 25.4% in the first nine months of 2020.
Amortization and earnout expense was
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Amortization expense was $5.8 million for the first nine months of 2021 compared
with $5.5 million for the first nine months of 2020. The increase in expense is
attributable to a $0.7 million increase in earnout expense offset by a $0.4
million decrease in definite lived asset amortization.
Operating income decreased $1.6 million to $(0.6) million in the third quarter
of 2021 compared with $1.0 million during the third quarter of 2020. Operating
income decreased $5.1 million to $4.6 million in the first nine months of 2021
compared with $9.7 million during the first nine months of 2020. The decreases
in operating income for the three- and nine-month periods ended September 30,
2021 are primarily attributable to a lower margin mix of products sold during
the year, increased selling and administrative expenses and increases in earnout
expenses, as described above, partially offset by decreases in restructuring
expenses, acquisition and integration expenses, and executive transition
expenses.
Non-GAAP operating income was $1.8 million for the third quarter of 2021
compared with $5.9 million for the third quarter of 2020. The decrease in
non-GAAP operating income is primarily attributable to the increase in selling
and administrative expenses, which was primarily attributable to the
discontinuation of certain cost reduction measures related to the COVID-19
pandemic, such as furloughs and one-time reductions including wage reductions
and travel restrictions, which were implemented in the third quarter of 2020,
but did not recur in the third quarter of 2021, as well as, a decrease in gross
profit. Non-GAAP operating income as a percentage of sales decrease2.3%d to for
the third quarter of 2021 from 7.6% for the third quarter of 2020.
Non-GAAP operating income was $11.5 million for the first nine months of 2021
compared with $19.6 million for the first nine months of 2020. The decrease5.0%
in non-GAAP operating income is primarily attributable to the decrease in net
sales and gross profit. Non-GAAP operating income as a percentage of sales
decreased to for the first nine months of 2021 from 8.4% for the first nine
months of 2020.
Interest expense decreased to $0.7 million in the third quarter of 2021 and $2.2
million for the first nine months of 2021 compared with interest expense of $0.8
million in the third quarter of 2020 and $2.7 million for the first nine months
of 2020. The decrease in interest expense is primarily due to a reduced debt
balance for the three- and nine-month periods in 2021 compared to 2020.
Income tax expense was $0.1 million for the third quarter of 2021 and $0.8
million for the first nine months of 2021 compared with income tax expense of
$0.2 million for the third quarter of 2020 and $1.5 million for the first nine
months of 2020. The effective income tax rate for the third quarter of 2021 was
(5.6)% compared with (468.2)% for the third quarter of 2020. The effective
income tax rate for the first nine months of 2021 was 62.7% compared with 19.4%
for the first nine months of 2020. The effective income tax rate for the three
and nine months ended September 30, 2021 is different than the 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, the Global Intangible Low-Taxed Income inclusion and
Foreign-Derived Intangible Income deduction, tax credits, and differences in tax
rates among the jurisdictions in which we operate.
Business Segments
During the first quarter of 2021, management determined that a realignment of
the Company's segments was necessary to better reflect the solutions we provide,
and the end markets we serve. As a result of this realignment, we combined the
operating results of the prior Industrial Solutions segment and Fluid Handling
Solutions segment into a single reportable segment named the Industrial Process
Solutions segment. In addition, the Energy Solutions segment was renamed the
Engineered Systems segment. The results of the segments for the prior year
periods have been re-cast to reflect this re-alignment. See note 15 to the
consolidated financial statements included in this report.
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 two
reportable segments. The results of the segments are reviewed through "Income
from operations" on the unaudited Condensed Consolidated Statements of
Operations.
Three months ended September 30, Nine months ended September 30,
(dollars in thousands) 2021 2020 2021 2020
Net sales (less intra-,
inter-segment sales)
Engineered Systems segment $ 44,779 $
49,709
35,200 27,716 100,355 83,652
Net sales $ 79,979 $ 77,425 $ 230,551 $ 233,081
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Three months ended September 30, Nine months ended September 30,
(dollars in thousands) 2021 2020 2021 2020
(Loss) income from Operations
Engineered Systems segment $ 4,301 $ 7,276 $ 16,105 $ 24,479
Industrial Process Solutions segment 2,669 1,539 10,932 6,471
Corporate and Other(1) (7,566 ) (7,797 ) (22,434 ) (21,299 )
(Loss) income from operations $ (596 ) $ 1,018 $ 4,603 $ 9,651
(1) Includes corporate compensation, professional services, information technology and other general and administrative corporate expenses.
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Engineered Systems Segment
Our Engineered Systems segment net sales decreased$4.9 million to$44.8 million for the third quarter of 2021 compared with$49.7 million in the same period of 2020. The decrease is primarily attributable to the effects of COVID-19 on global demand for certain products, which included decreases of$2.1 million in custom-engineered cyclone systems,$1.3 million in products serving the midstream oil & gas end markets, and$1.2 million in products serving the power generation end markets. Our Engineered Systems segment net sales decreased$19.2 million to$130.2 million in the first nine months of 2021 compared with$149.4 million in the same period of 2020. The decrease is primarily attributable to the effects of COVID-19 on global demand for certain products, which included decreases of$8.9 million in custom-engineered cyclone systems,$5.6 million in our SCR technologies, and$5.7 million in products serving the midstream oil & gas end markets. Operating income for the Engineered Systems segment decreased$3.0 million to$4.3 million in the third quarter of 2021 compared with$7.3 million in the same period of 2020. The operating income decrease is primarily attributable to a decrease in gross profit of$2.7 million due to a decrease in net sales, inflation, supply chain challenges, and product mix. Operating income for the Engineered Systems segment decreased$8.4 million to$16.1 million in the first nine months of 2021 compared with$24.5 million in the same period of 2020. The operating income decrease is primarily attributable to a decrease in gross profit of$8.6 million due to lower net sales, inflation, supply chain challenges, and product mix.
Industrial Process Solutions Segment
Our Industrial Process Solutions segment net sales increased$7.5 million to$35.2 million in the third quarter of 2021 compared with$27.7 million in the third quarter of 2020. The increase is primarily attributable to increases across all products serving industrial air end markets. Our Industrial Process Solutions segment net sales increased$16.7 million to$100.4 million in the first nine months of 2021 compared with$83.7 million in the first nine months of 2020. The increase is primarily attributable to increases of$8.1 million in our VOC abatement solutions business from the EIS acquisition,$7.3 million in our RTO system solutions,$3.4 million in our custom-designed collection and ventilation solutions and$1.8 million in our fluid filtration solutions. These increases were offset by decreased net sales of$3.4 million for our custom-designed sheet metal fabrication products. Operating income for the Industrial Process Solutions segment increased$1.2 million to$2.7 million in the third quarter of 2021 compared with$1.5 million in the third quarter of 2020. The increase is primarily attributable to a$0.5 million increase in gross profit driven by increased net sales and a$0.7 million decrease in restructuring expenses, partially offset by inflation, supply chain challenges and product mix. Operating income for the Industrial Process Solutions segment increased$4.4 million to$10.9 million in the first nine months of 2021 compared with$6.5 million in the first nine months of 2020. The increase is primarily attributable to an increase of$2.1 million in gross profit driven by increased net sales, a$1.6 million decrease in selling and administrative expenses related to cost reduction measures implemented in 2020 and decreased restructuring costs of$1.1 million , which were partially offset by inflation, supply chain challenges, product mix, and increased earnout expenses of$0.7 million . Corporate and Other Segment Operating expense for the Corporate and Other segment decreased$0.2 million to$7.6 million for the third quarter of 2021 compared with$7.8 million for the third quarter of 2020. The decrease is attributable to decreased restructuring expenses, acquisition and integration expenses and executive transition expenses of$1.8 million which were offset by increased selling and administrative expenses of$1.6 million related to the discontinuation of proactive cost reduction measures taken in response to the COVID-19 pandemic during the third quarter of 2020, such as furloughs and one-time reductions including wage reductions and travel restrictions, which did not recur in the third quarter of 2021. Operating expense for the Corporate and Other segment increased$1.1 million to$22.4 million for the first nine months of 2021 compared with$21.3 million for the first nine months of 2020. The increase is primarily attributable to$3.1 million of increased selling and administrative expense related to the discontinuation of certain cost reduction measures in response to the COVID-19 pandemic, such as furloughs and one-time reductions including wage reductions and travel restrictions, which were offset by decreased restructuring expenses, acquisition and integration expenses, and executive transition expenses of$1.9 million . 23
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Backlog
Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. Backlog increased to$219.1 million as ofSeptember 30, 2021 from$183.1 million as ofDecember 31, 2020 . During the first nine months of 2021, the Company removed$3.6 million of orders that were previously disclosed as backlog in prior quarters due to customer cancellations. Our customers may have the right to cancel a given order. Historically, cancellations have not been common. Backlog is adjusted on a quarterly basis for adjustments in foreign currency exchange rates. Substantially all backlog is expected to 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.
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, working capital and other corporate requirements. When we undertake large jobs, our working capital objective is to make these projects self-funding. We work to achieve this by obtaining initial down payments, progress billing contracts, utilizing extended payment terms from material suppliers when possible, 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. AtSeptember 30, 2021 , the Company had working capital of$71.3 million , compared with$74.1 million atDecember 31, 2020 . The ratio of current assets to current liabilities was 1.60 to 1.00 onSeptember 30, 2021 , as compared with a ratio of 1.68 to 1.00 atDecember 31, 2020 . AtSeptember 30, 2021 andDecember 31, 2020 , cash and cash equivalents totaled$31.9 million and$36.0 million , respectively. As ofSeptember 30, 2021 andDecember 31, 2020 ,$24.7 million and$28.0 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:
(table only in thousands) September 30, 2021 December 31, 2020 Outstanding borrowings under the Credit Facility (defined below). Term loan payable in quarterly principal installments of$0.9 million throughJune 2023 , and$1.3 million thereafter with balance due upon maturity inJune 2024 . - Term loan $ 44,063 $ 46,250 - Revolving Credit Loan 22,900 27,700 - Unamortized debt discount (1,031 ) (1,334 ) Total outstanding borrowings under Credit Facility $ 65,932 $ 72,616 Less: current portion (3,750 ) (3,125 ) Total debt, less current portion $ 62,182 $ 69,491 Credit Facility The Company's outstanding borrowings inthe 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 ofSeptember 30, 2021 andDecember 31, 2020 , the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility.
See Note 7 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.
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Total unused credit availability under our existing Credit Facility is as follows:
(dollars in millions) September 30, 2021 December 31, 2020 Credit Facility, revolving loans $ 140.0 $ 140.0 Draw down (22.9 ) (27.7 ) Letters of credit open (12.9 ) (7.6 ) Total unused credit availability $ 104.2 $ 104.7 Amount available based on borrowing limitations $ 37.1 $ 60.8
Overview of Cash Flows and Liquidity
For the Nine months ended September 30,
(dollars in thousands) 2021 2020
Net cash provided by operating activities $ 10,232 $ 9,115
Net cash used in investing activities (1,207 ) (8,165 )
Net cash (used in) provided by financing
activities (11,835 ) 7,783
Effect of exchange rate changes on cash and cash
equivalents (535 ) 657
Net (decrease) increase in cash $ (3,345 ) $ 9,390
Operating Activities
For the nine months ended September 30, 2021 , $10.2 million of cash was provided
by operating activities compared with $9.1 million in the prior year period, a
$1.1 million increase. Cash flow from operating activities in the first nine
months of 2021 had a favorable impact year-over-year primarily due to certain
improvements in net working capital.
Investing Activities
For the nine months endedSeptember 30, 2021 , net cash used in investing activities was$(1.2) million compared with$(8.2) million used in investing activities in the prior year period. For the nine months endedSeptember 30, 2021 , the$(1.2) million cash used in investing activities was the result of$(1.7) million cash used for the acquisition of property and equipment, offset by$0.5 million of proceeds from the disposal of assets held for sale. In the prior year period, cash flow of$(8.2) million used in investing activities was the result of$(5.9) million used, net of cash acquired, for the EIS acquisition and$(2.9) million used for the acquisition of property and equipment, offset by proceeds from the disposal of assets held for sale of$0.6 million . Financing Activities For the nine months endedSeptember 30, 2021 ,$(11.8) million was used in financing activities compared with$7.8 million provided by financing activities in the prior year period, a decrease of$(19.6) million . For the nine months endedSeptember 30, 2021 , the Company used$(3.7) million to repurchase common stock,$(0.8) million to make earnout payments,$(0.1) million in non-controlling interest distributions, and received$0.2 million from proceeds from employee stock purchase plan and exercise of stock options. Additionally, for the first nine months endedSeptember 30, 2021 , the Company used$(4.8) million for net repayments on the Company's revolving credit lines and$(2.2) million in repayment on long-term debt. In the prior year period, the Company had net borrowings of$12.5 million on its revolving credit facility, of which$10.3 million was used to fund the EIS acquisition onJune 4, 2020 , and$(4.4) million on long-term debt.
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, 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 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.
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Management believes there have been no changes during the nine-month period
ended September 30, 2021 , other than as disclosed in Note 2 to the condensed
consolidated financial statements within Item 1 of this quarterly Report on Form
10-Q, 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, 2020 .
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 which are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. 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 future 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 1A. Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , and include, but are not limited to: ? the sensitivity of our business to 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 revenue; ? 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 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, including as a result of tariffs and surcharges; ? the substantial amount of debt incurred in connection with our 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, if any; ? economic and political conditions generally; ? our ability to successfully realize the expected benefits of our restructuring program; ? our ability to successfully integrate acquired businesses and realize the synergies from strategic transactions; and ? unpredictability and severity of catastrophic events, including cyber security threats, acts of terrorism or outbreak of war or hostilities or public health crises, such as uncertainties regarding the extent and duration of impacts of matters associated with COVID-19, as well as management's response to any of the aforementioned factors. Many of these risks are beyond management's ability to control or predict. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may vary in material aspects from those currently anticipated. Investors are cautioned not to place undue reliance on such forward-looking statements as they speak only to our views as of the date the statement is made. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of theSecurities and Exchange Commission , we undertake no obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise. 26
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