CECO ENVIRONMENTAL CORP. 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 months ended
CECO Environmental Corp. ("CECO," "we," "us," or the "Company") is a leading environmentally focused, diversified industrial company whose solutions protect people, the environment, and industrial equipment. We focus on engineering, designing, building, and installing systems that capture, clean and destroy air- and water-borne emissions from industrial facilities as well as fluid handling, gas and water separation, 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 and water quality, protect customer's equipment, and provide customized engineered solutions 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, and wastewater treatment, along with a wide range of other industries.
COVID-19 and Other Market Pressures
A novel strain of coronavirus ("COVID-19") surfaced in late 2019 and has spread
around the world, including to the United States . In March 2020 , the World
Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic
persists in geographic areas in which we have operations, suppliers, customers
and employees, and has had a significant impact on worldwide economic activity,
macroeconomic conditions, and the end markets of our business.
As a key supplier to critical infrastructure projects, CECO has worked to
maintain ongoing operations. We continue to operate our business in compliance
with applicable state and local laws and are observing recommended Centers 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. 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 customers,
vendors, or suppliers.
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 customers, vendors and suppliers, 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 facilities, other 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.
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 as the result of the pandemic and other market pressures. In
particular, we are currently experiencing shortages of raw materials and
inflationary pressures for certain materials and labor. We expect these supply
chain challenges and cost impacts to continue for the foreseeable future as
markets recover. Although we have secured additional raw materials from existing
and alternate suppliers and have taken other mitigating actions to mitigate
supply disruptions, we cannot guarantee that we can continue to do so in the
future. In this event, our business, results and financial condition could be
adversely affected.
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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 has provided the non-GAAP financial 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 transactions associated with the Company's acquisitions, divestitures 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. The Company has incurred substantial expense and income associated with the acquisition and divestitures. While the Company cannot predict the exact timing or amounts of such charges, it does expect to treat the financial impact of these transactions as special items in its future presentation of non-GAAP results. Results of Operations Consolidated Results
Our Condensed Consolidated Statements of Operations for the three month and nine
months ended
Three months ended September 30, Nine months ended September 30,
(in millions, except ratios) 2022 2021 2022 2021
Net sales $ 108.4 $ 80.0 $ 306.2 $ 230.6
Cost of sales 76.0 57.3 215.7 158.2
Gross profit $ 32.4 $ 22.7 $ 90.5 $ 72.4
Percent of sales 29.9 % 28.4 % 29.6 % 31.4 %
Selling and administrative expenses 25.1 20.9 66.8 60.9
Percent of sales 23.2 % 26.1 % 21.8 % 26.4 %
Amortization and earnout expenses 2.0 1.8 4.9 5.8
Restructuring expenses - 0.4 0.1 0.7
Acquisition and integration expenses 1.3 0.2 3.8 0.4
Executive transition expenses 1.2 - 1.2 -
Operating income $ 2.8 $ (0.6 ) $ 13.7 $ 4.6
Operating margin 2.6 % (0.8 )% 4.5 % 2.0 %
To compare operating performance between the three month and nine months ended
September 30, 2022 and 2021, 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
expense, including severance for its former Chief Financial Officer and Senior
Vice President of Human Resources, as well as fees and expenses incurred in the
search for, and hiring of, a new Chief Financial Officer.
The following table presents the reconciliation of GAAP operating income and GAAP operating margin to non-GAAP operating income and non-GAAP operating margin:
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Three months ended September 30, Nine months ended September 30,
(in millions, except ratios) 2022 2021 2022 2021
Operating income as reported in
accordance with GAAP $ 2.8 $ (0.6 ) $ 13.7 $ 4.6
Operating margin in accordance
with GAAP 2.6 % (0.8 )% 4.5 % 2.0 %
Amortization and earnout expenses 2.0 1.8 4.9 5.8
Restructuring expenses - 0.4 0.1 0.7
Acquisition and integration
expenses 1.3 0.2 3.8 0.4
Executive transition expenses 1.2 - 1.2 -
Non-GAAP operating income $ 7.3 $ 1.8 $ 23.7 $ 11.5
Non-GAAP operating margin 6.7 % 2.3 % 7.7 % 5.0 %
Net sales for the three months ended September 30, 2022 increased $28.4 million ,
or 35.5%, to $108.4 million compared with $80.0 million for the three months
ended September 30, 2021 . The increase is broad-based, led by increases of $8.9
million in our thermal acoustics technologies, $7.6 million across our entire
industrial process solutions platforms, $4.6 million in our damper and expansion
products, and $2.6 million in our separation and filtration technologies.
Approximately 80%, or $22.4 million , of the increase in net sales is
attributable to organic revenue growth, while $6.0 million is attributable to
current year acquisitions.
Net sales for the nine months ended September 30, 2022 increased $75.6 million ,
or 32.8%, to $306.2 million compared with $230.6 million for the nine months
ended September 30, 2021 . The increase is broad-based, led by increases of $20.5
million in our thermal acoustics technologies, $16.0 million across our entire
industrial process solutions platforms, $14.6 million in our emissions
management technologies, $12.1 million in our damper and expansion products, and
$8.2 million in our engineered cyclone systems. Approximately 85%, or $64.3
million , of the increase in net sales is attributable to organic revenue growth,
while $11.3 million is attributable to current year acquisitions.
Gross profit increased $9.7 million , or 42.7%, to $32.4 million in the three
months ended September 30, 2022 compared with $22.7 million in the three months
ended September 30, 2021 . The increase in gross profit is primarily attributable
to the increase in sales volume as described above. Gross profit as a percentage
of sales increased 1.5% to 29.9% in the three months ended September 30, 2022
compared with 28.4% in the three months ended September 30, 2021 due to price
increases and higher project margin mix executed during the three month period
ended September 30, 2022 , partially offset by inflation and supply chain
challenges.
Gross profit increased $18.1 million , or 25.0%, to $90.5 million in the nine
months ended September 30, 2022 compared with $72.4 million in the nine months
ended September 30, 2021 . The increase in gross profit is primarily attributable
to the increase in sales volume as describe above. Gross profit as a percentage
of sales decreased to 29.6% in the nine months ended September 30, 2022 compared
with 31.4% in the nine months ended September 30, 2021 due to inflation, supply
chain challenges, and lower project margin mix executed during the nine months
ended September 30, 2022 , partially offset by price increases. We continue to
experience shortages of raw materials and inflationary pressures for certain
materials and labor. We expect these supply chain challenges and cost impacts to
continue for the foreseeable future as markets recover. Although we have secured
additional raw materials from existing and alternate suppliers and have taken
other mitigating actions to mitigate supply disruptions, such as implementing
price increases and applying material surcharges. We cannot guarantee that we
can continue to do so in the future. In this event, our business, results and
financial condition could be adversely affected.
Orders booked increased $9.1 million , or 9.8%, to $101.7 million during the
three months ended September 30, 2022 compared with $92.6 million in the three
months ended September 30, 2021 . The increase is primarily attributable to
increases of $12.3 million in our separation and filtration technologies and
$2.3 million in our damper and expansion products partially offset by a decrease
of $4.4 million in our industrial air control technologies. For the $9.1 million
increase in orders, $3.3 million is attributable to organic growth, while $5.8
million is attributable to current year acquisitions.
Orders booked increased $106.0 million , or 39.2%, to $376.2 million during the
nine months ended September 30, 2022 compared with $270.2 million during the
nine months ended September 30, 2021 . The increase is primarily attributable to
increases of $49.4 million in our separation and filtration technologies, $25.1
million in our thermal acoustics technologies and $23.5 million in industrial
air control technologies. For the $106.0 million increase in orders,
approximately 90%, or $94.3 million , is attributable to organic growth, while
$11.7 million is attributable to current year acquisitions.
Selling and administrative expenses were $25.1 million for the three months
ended September 30, 2022 compared with $20.9 million for the three months ended
September 30, 2021 . The increase is primarily attributable to acquisitions
during 2022, as well as increased headcount in order to support expected revenue
growth. Selling and administrative expenses as a percentage of sales was 23.2%
in the three months ended September 30, 2022 compared with 26.1% in the three
months ended September 30, 2021 . The decrease in percentage is primarily
attributable to gaining operating leverage on increased organic revenues.
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Selling and administrative expenses were $66.8 million for the nine months ended
September 30, 2022 compared with $60.9 million for the nine months ended
September 30, 2021 . The increase is primarily attributable to acquisitions
during 2022, as well as increased headcount in order to support expected revenue
growth. Selling and administrative expenses as a percentage of sales was 21.8%
in the nine months ended September 30, 2022 compared with 26.4% in the nine
months ended September 30, 2021 . The decrease in percentage is primarily
attributable to gaining operating leverage on increased organic revenues.
Amortization and earnout expense was $2.0 million for the three months ended
September 30, 2022 compared with $1.8 million for the three months ended
September 30, 2021 . The increase in expense is attributable to a $0.3 million
increase in definite lived asset amortization, partially offset by a decrease of
$0.1 million in earnout expense.
Amortization and earnout expense was
Operating income increased$3.4 million to$2.8 million for the three months endedSeptember 30, 2022 compared with operating loss of$0.6 million for the three months endedSeptember 30, 2021 . Operating income increased$9.1 million to$13.7 million for the nine months endedSeptember 30, 2022 compared with$4.6 million for the nine months endedSeptember 30, 2021 . The increase in operating income for the three and nine months endedSeptember 30, 2022 is primarily attributable to increases in organic sales. Non-GAAP operating income was$7.3 million for the three months endedSeptember 30, 2022 compared with$1.8 million for the three months endedSeptember 30, 2021 . The increase of$5.5 million in non-GAAP operating income is primarily attributable to the increase in net organic sales. Non-GAAP operating income as a percentage of sales increased to 6.7% for the three months endedSeptember 30, 2022 from 2.3% for the three months endedSeptember 30, 2021 . Non-GAAP operating income was$23.7 million for the nine months endedSeptember 30, 2022 compared with$11.5 million for the nine months endedSeptember 30, 2021 . The increase of$12.2 million in non-GAAP operating income is primarily attributable to the increase in net organic sales. Non-GAAP operating income as a percentage of sales increased to 7.7% for the nine months endedSeptember 30, 2022 from 5.0% for the nine months endedSeptember 30, 2021 . Interest expense increased to$1.6 million in the three months endedSeptember 30, 2022 and$3.5 million for the nine months endedSeptember 30, 2022 compared with interest expense of$0.7 million in the three months endedSeptember 30, 2021 and$2.2 million for the nine months endedSeptember 30, 2021 . The increase in interest expense is primarily due to increased debt balances. Income tax expense was$0.3 million for the three months endedSeptember 30, 2022 and$3.3 million for the nine months endedSeptember 30, 2022 compared with income tax expense of$0.1 million for the three months endedSeptember 30, 2021 and$0.8 million for the nine months endedSeptember 30, 2021 . The effective income tax rate for the three months endedSeptember 30, 2022 was 12.7% compared with (5.6)% for the three months endedSeptember 30, 2021 . The effective income tax rate for the nine months endedSeptember 30, 2022 was 25.3% compared with 62.7% for the nine months endedSeptember 30, 2021 . The effective income tax rates for the three and nine months endedSeptember 30, 2022 differ fromthe 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 differences in tax rates among the jurisdictions in 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 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,
(in thousands) 2022 2021 2022 2021
Net sales (less intra-,
inter-segment sales)
Engineered Systems segment $ 65,630 $ 44,779 $ 189,938 $ 130,196
Industrial Process Solutions
segment 42,784 35,200 116,287 100,355
Total net sales $ 108,414 $ 79,979 $ 306,225 $ 230,551
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Three months ended September 30, Nine months ended September 30,
(in thousands) 2022 2021 2022 2021
Income (loss) from operations
Engineered Systems segment $ 8,991 $ 4,301 $ 24,467 $ 16,105
Industrial Process Solutions segment 5,226 2,669 14,847 10,932
Corporate and Other(1) (11,444 ) (7,566 ) (25,591 ) (22,434 )
Total income (loss) from operations
$ 13,723 $ 4,603
(1) Includes corporate compensation, professional services, information technology and other general and administrative corporate expenses.
Engineered Systems Segment
Our Engineered Systems segment net sales increased$20.8 million to$65.6 million for the three months endedSeptember 30, 2022 compared with$44.8 million for the three months endedSeptember 30, 2021 . The increase is broad-based, led by increases of$8.9 million in our thermal acoustics technologies,$4.6 million in our damper and expansion products,$2.6 million in our separation and filtration technologies,$1.7 million in our engineered cyclone systems,$1.5 million in our industrial water technologies and$1.5 million in our emissions management technologies. Approximately 75%, or$15.5 million , of the increase in net sales is attributable to organic revenue growth, while$5.3 million is attributable to current year acquisitions. Our Engineered Systems segment net sales increased$59.7 million to$189.9 million for the nine months endedSeptember 30, 2022 compared with$130.2 million for the nine months endedSeptember 30, 2021 . The increase is broad-based, led by increases of$20.5 million in our thermal acoustics technologies,$14.6 million in our emissions management technologies,$12.1 million in our damper and expansion products, and$8.2 million in our engineered cyclone systems. Approximately 80%, or$49.1 million , of the increase in net sales is attributable to organic revenue growth, while$10.6 million is attributable to current year acquisitions. Operating income for the Engineered Systems segment increased$4.7 million to$9.0 million for the three months endedSeptember 30, 2022 compared with$4.3 million for the three months endedSeptember 30, 2021 . The operating income increase is primarily attributable to higher gross profit related to increased sales of$20.8 million . Operating income for the Engineered Systems segment increased$8.4 million to$24.5 million for the nine months endedSeptember 30, 2022 compared with$16.1 million for the nine months endedSeptember 30, 2021 . The operating income increase is primarily attributable to higher gross profit related to increased sales of$59.7 million .
Industrial Process Solutions Segment
Our Industrial Process Solutions segment net sales increased$7.6 million to$42.8 million for the three months endedSeptember 30, 2022 compared with$35.2 million for the three months endedSeptember 30, 2021 . The increase is primarily attributable to increases across all products serving industrial air end markets. Approximately 90%, or$7.0 million , of the increase in net sales is attributable to organic revenue growth, while$0.7 million is attributable to current year acquisitions. Our Industrial Process Solutions segment net sales increased$15.9 million to$116.3 million for the nine months endedSeptember 30, 2022 compared with$100.4 million for the nine months endedSeptember 30, 2021 . The increase is primarily attributable to increases across all products serving industrial air end markets. Approximately 95%, or$15.2 million , of the increase in net sales is attributable to organic revenue growth, while$0.7 million is attributable to current year acquisitions. Operating income for the Industrial Process Solutions segment increased$2.5 million to$5.2 million for the three months endedSeptember 30, 2022 compared with$2.7 million for the three months endedSeptember 30, 2021 . The increase is primarily attributable to higher gross profit related to increased sales of$7.6 million , offset by a$1.3 million increase in selling and administrative expense. Operating income for the Industrial Process Solutions segment increased$3.9 million to$14.8 million for the nine months endedSeptember 30, 2022 compared with$10.9 million for the nine months endedSeptember 30, 2021 . The increase is primarily attributable to higher gross profit related to increased sales of$15.9 million , offset by a$2.8 million increase in selling and administrative expense. 24 --------------------------------------------------------------------------------
Corporate and Other Segment
Operating expense for the Corporate and Other segment increased$3.8 million to$11.4 million for the three months endedSeptember 30, 2022 compared with$7.6 million for the three months endedSeptember 30, 2021 . The increase is primarily attributable to inflationary increases for wages and services, and executive transition expenses of$1.2 million . Operating expense for the Corporate and Other segment increased$3.2 million to$25.6 million for the nine months endedSeptember 30, 2022 compared with$22.4 million for the nine months endedSeptember 30, 2021 . The increase is primarily attributed to inflationary increases for wages and services and executive transition expenses of$1.2 million , partially offset by a$2.5 million favorable insurance settlement received in the first quarter of 2022.
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$277.7 million as ofSeptember 30, 2022 from$213.9 million as ofDecember 31, 2021 . 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
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, 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 under our Credit Facility (as defined below). AtSeptember 30, 2022 , the Company had working capital of$82.9 million , compared with$72.3 million atDecember 31, 2021 . The ratio of current assets to current liabilities was 1.59 to 1.00 onSeptember 30, 2022 , as compared with a ratio of 1.62 to 1.00 atDecember 31, 2021 . AtSeptember 30, 2022 andDecember 31, 2021 , cash and cash equivalents totaled$35.2 million and$29.9 million , respectively. As ofSeptember 30, 2022 andDecember 31, 2021 ,$24.2 million and$22.6 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) September 30, 2022 December 31, 2021 Outstanding borrowings under the Credit Facility (defined below). Term loan payable in quarterly principal installments of$550 throughSeptember 2023 , and$825 throughSeptember 2025 and$1,100 thereafter with balance due upon maturity inSeptember 2026 - Term loan $ 41,859 $ 43,511 - Revolving Credit Loan 59,700 22,000 Total outstanding borrowings under the Credit Facility 101,559 65,511 Outstanding borrowings under the joint venture term debt 10,230 - Unamortized debt discount (1,452 ) (1,731 ) Total outstanding borrowings $ 110,337 $ 63,780 Less: current portion (3,303 ) (2,203 ) Total debt, less current portion $ 107,034 $ 61,577 25
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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, 2022 andDecember 31, 2021 , 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.
Total unused credit availability under our existing Credit Facility is as follows:
(in millions) September 30, 2022 December 31, 2021 Credit Facility, revolving loans $ 140.0 $ 140.0 Draw down (59.7 ) (22.0 ) Letters of credit open (19.4 ) (14.5 ) Total unused credit availability $ 60.9 $ 103.5 Amount available based on borrowing limitations $ 60.9 $ 45.9
Overview of Cash Flows and Liquidity
For the nine months ended September 30,
(dollars in thousands) 2022 2021
Net cash provided by operating activities $ 19,696 $ 10,232
Net cash used in investing activities (47,260 ) (1,207 )
Net cash provided by (used in) financing
activities 38,242 (11,835 )
Effect of exchange rate changes on cash, cash
equivalents and restricted cash (6,459 ) (535 )
Net increase (decrease) in cash, cash equivalents
and restricted cash $ 4,219 $ (3,345 )
Operating Activities
For the nine months ended September 30, 2022 , $19.7 million of cash was provided
by operating activities compared with $10.2 million provided by operations in
the prior year period, a $9.5 million increase. Cash flow from operating
activities in the first nine months of 2022 had a favorable impact
year-over-year primarily due to an increase in net income and certain
improvements in net working capital.
Investing Activities
For the nine months endedSeptember 30, 2022 , net cash used in investing activities was$47.3 million compared with$1.2 million used in investing activities in the prior year period. For the nine months endedSeptember 30, 2022 , the$47.3 million cash used in investing activities was the result of$44.9 million cash used for the acquisitions as described in Note 14, and$2.4 million for the acquisition of property and equipment. In the prior year period, cash flow of$1.2 million used in investing activities was the result of$1.7 million used for the acquisition of property and equipment, offset by proceeds from the disposal of assets held for sale of$0.5 million .
Financing Activities
For the nine months endedSeptember 30, 2022 ,$38.2 million was provided by financing activities compared with$11.8 million used in financing activities in the prior year period, an increase of$50.0 million . For the nine months endedSeptember 30, 2022 , the Company used$6.6 million to repurchase common stock,$1.2 million in non-controlling interest distributions, and received$0.2 million from proceeds from purchases under the employee stock purchase plan and the exercise of stock options. Additionally, for the nine months endedSeptember 30, 2022 , the Company used$37.7 million for net borrowings on the Company's revolving credit lines, primarily used to finance current year acquisitions, and$2.3 million in repayment on long-term debt. In the prior year period, the Company used$4.8 million for repayments on the Company's revolving credit line, and$2.2 million in repayments 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
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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.
Management believes there have been no changes during the nine months ended
September 30, 2022 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, 2021 .
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. 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, 2021 , and include, but are not limited to:
•
the sensitivity of our business to economic, political and financial market conditions generally and economic conditions in our 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 our 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;
•
the impact of employee-related cost inflation and labor shortages;
•
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 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 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;
•
our ability to successfully realize the expected benefits of our restructuring program;
•
our ability to identify appropriate targets for acquisition to support our growth strategy and to consummate any such acquisitions on acceptable terms;
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our ability to successfully integrate acquired businesses and realize the synergies from strategic transactions, as well as the potential for unknown or inestimable liabilities relating to the acquired businesses; and
•
the 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.
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