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What changed in CECO ENVIRONMENTAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CECO ENVIRONMENTAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+231 added−234 removedSource: 10-K (2024-03-05) vs 10-K (2023-03-06)

Top changes in CECO ENVIRONMENTAL CORP's 2023 10-K

231 paragraphs added · 234 removed · 191 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

55 edited+18 added−21 removed49 unchanged
Biggest changeBacklog was $311.7 million as of December 31, 2022 as compared to $213.9 million as of December 31, 2021, an increase of $97.8 million or 45.7%. Backlog is adjusted on a quarterly basis for fluctuations in foreign currency exchange rates. Substantially all backlog is expected to be delivered within 18 months, with a majority within 12 months.
Biggest changeBacklog is adjusted on a quarterly basis for fluctuations in foreign currency exchange rates. Substantially all backlog is expected to be delivered within 18 months, with a majority within 12 months. Backlog is not defined by United States generally accepted accounting principles ("GAAP") and our methodology for calculating backlog may not be consistent with methodologies used by other companies.
Business Segments Our reportable segments continue to be focused on attractive end markets and each segment is aligned to generate profitable growth for the Company with a compelling technology and solution set to benefit customers. • Engineered Systems segment: Our Engineered Systems segment serves the power generation, hydrocarbon processing, water/wastewater treatment, oily water separation and treatment, marine and naval vessels, and midstream oil & gas sectors.
Business Segments Our reportable segments continue to be focused on attractive end markets and each segment is aligned to generate profitable growth for the Company with a compelling technology and solution set to benefit customers. • Engineered Systems segment: Our 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.
Our direct sales and business development teams when appropriate will work in conjunction with outside sales representatives in the North America, South America, Europe, Middle East, Southeast and East Asia, and India regions. We expect to continue expanding our sales and support capabilities and our network of outside sales representatives in key regions domestically and internationally.
Our direct sales and business development teams will work in conjunction with outside sales representatives in the North America, South America, Europe, Middle East, Southeast and East Asia, and India regions, when appropriate. We expect to continue expanding our sales and support capabilities and our network of outside sales representatives in key regions domestically and internationally.
Where we identify a technology that is a critical element or commonly required for a solution, we will consider acquiring such technology to ensure we have the appropriate degree of strategic control. This enables us to leverage existing business with selective alliances of suppliers and 5 application specific engineering expertise.
Where we identify a technology that is a critical element or commonly required for a solution, we will consider acquiring such technology to ensure we have the appropriate degree of strategic control. This enables us to leverage existing business with selective alliances of suppliers and application specific engineering expertise.
The SEC also maintains a website, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K unless expressly noted. 10
The SEC also maintains a website, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K unless expressly noted. 9
Item 1. B usiness General CECO Environmental Corp. (“CECO”, “we”, “us”, "our" or the “Company”) is a leading environmentally focused, diversified industrial company, serving the broad landscape of industrial air, industrial water and energy transition markets globally providing innovative technology and application expertise.
Item 1. B usiness General CECO Environmental Corp. (“CECO”, “we”, “us”, "our" or the “Company”) is a leading environmentally focused, diversified industrial company, serving the broad landscape of industrial air, industrial water and energy transition markets globally by providing innovative technology and application expertise.
On contract work, we try to mitigate the risk of higher prices by including the current price in our estimate and generally include price inflation clauses for protection. Typically, on turnkey projects, we subcontract manufacturing, electrical work, concrete work, controls, conveyors and insulation.
On contract work, we try to mitigate the risk of higher prices by including the current price in our estimate and generally include price inflation clauses for protection. 6 Typically, on turnkey projects, we subcontract manufacturing, electrical work, concrete work, controls, conveyors and insulation.
We leverage our engineering and manufacturing expertise, fabrication partner network, and strong customer relationships to develop and deliver new products and solutions to address the identified needs of our customers or a particular end market.
Innovative solutions We leverage our engineering and manufacturing expertise, fabrication partner network, and strong customer relationships to develop and deliver new products and solutions to address the identified needs of our customers or a particular end market.
Government Regulations We believe our operations are in compliance with applicable environmental laws and regulations. We believe that changes in environmental laws and regulations create opportunity given the nature of our business. Our business is subject to numerous laws and regulations.
Government Regulations We believe our operations are in compliance with applicable environmental laws and regulations. We believe that changes in environmental laws and regulations create opportunity given the nature of our business. Our business is subject to numerous evolving laws and regulations.
Our business management team has substantial experience in delivering highly-engineered solutions for industrial air quality, industrial water treatment, and energy transition applications. The collective experience of our teams enables us to pursue our strategy, and to successfully execute on our strategic and growth priorities.
Experienced management and engineering team Our business management team has substantial experience in delivering highly-engineered solutions for industrial air quality, industrial water treatment, and energy transition applications. The collective experience of our teams enables us to pursue our strategy, and to successfully execute on our strategic and growth priorities.
We expect that more rigorous regulations being introduced to protect the workforce, the environment, and the operating equipment will favorably impact demand for our products and solutions. • Developed Market Industrial Reshoring. The industries in which we operate have historically embraced a global supply chain which has provided certain advantages by offshoring select production and services.
We expect that more rigorous regulations being introduced to protect the workforce, the environment, and the operating equipment will favorably impact demand for our products and solutions. • Developed Market Industrial Re-shoring: The industries in which we operate have historically embraced a global supply chain which has provided certain advantages by offshoring select production and services.
Acquisitions are a big part of our growth model and we constantly are seeking out value-added, accretive additions to the CECO portfolio aligned with our strategic focus in industrial air, industrial water and the energy transition.
Acquisitions are a key part of our growth model and we constantly are seeking out value-added, accretive additions to the CECO portfolio aligned with our strategic focus in industrial air, industrial water and the energy transition.
Our asset-light business model focuses on effective management of subcontractors and flow of raw and finished materials, which allows us to optimize working capital levels through reduction in certain assets and reduce capital expenditures.
Our business model focuses on effective management of subcontractors and flow of raw and finished materials, which allows us to optimize working capital levels through reduction in certain assets and reduce capital expenditures.
While there are not currently regulations proposed or pending that we believe will result in material capital, operating or other costs to the business at this time, such regulations could be proposed and/or passed into law in 2023 or beyond. Other regulations currently in place could be withdrawn and replaced with more stringent requirements in 2023 or beyond.
While there are not currently regulations proposed or pending that we believe will result in material capital, operating or other costs to the business at this time, such regulations could be proposed and/or passed into law in 2024 or beyond. Other regulations currently in place could be withdrawn and replaced with more stringent 7 requirements in 2024 or beyond.
The experience and stability of our senior management, operating and engineering teams have been crucial to our recent growth and to developing and maintaining customer relationships, and increasing our market position. Innovative solutions .
The experience and stability of our senior management, operating and engineering teams have been crucial to our recent growth and to developing and maintaining customer relationships, and increasing our market position.
Our solutions improve air and water quality, optimize emissions management, and increase the energy efficiency for highly engineered applications in power generation, midstream and downstream hydrocarbon processing and transport, electric vehicle production, polysilicon fabrication, semiconductor and electronics, battery production and recycling, specialty metals and steel production, beverage can, and water/wastewater treatment and a wide range of other industrial end markets.
Our solutions improve air and water quality, optimize emissions management, and increase the energy and process efficiency for highly engineered applications in 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 treatment, and a wide range of other industrial end markets.
We help companies grow their business with safe, clean, and more efficient solutions that help protect people, the environment and industrial equipment.
We help companies grow their businesses with safe, clean, and more efficient solutions that help protect people, the environment and industrial equipment.
Once systems have been installed and a relationship has been established with the customer, we are often awarded repetitive service and maintenance business as the customers’ processes change and modifications or additions to their systems become necessary. Experienced management and engineering team.
Once systems have been installed and a relationship has been established with the customer, we are often awarded repetitive service and maintenance business as the customers’ processes change and modifications or additions to their systems become necessary.
When possible, we directly secure iron and steel sheet and plate products from steel mills, whereas other materials are purchased from a variety of steel service centers. Steel prices have traditionally been volatile, but we typically mitigate the risk of higher prices by including a “surcharge” on our standard products.
When possible, we directly secure iron and steel sheet and plate products from steel mills, whereas other materials are purchased from a variety of steel service centers. Steel prices have traditionally been volatile, but we typically mitigate the risk of higher prices by including a “surcharge” on our standard products and tracking major materials industry indices and projections.
Diversity, Equity, and an Inclusive Culture At CECO we believe a diverse and inclusive workforce is critical to inspiring innovative thinking, creative problem-solving, performance, and results, so we cultivate an environment where team members feel valued, engaged, and inspired to give their best.
We believe a diverse and inclusive workforce is critical to inspiring innovative thinking, creative problem-solving, performance, and results, so we cultivate an environment where team members feel valued, engaged, and inspired to give their best.
We are a key part of helping meet the global demand for environmental and equipment protection solutions with our highly engineered platforms including emissions control, fluid bed cyclones, thermal acoustics, separation & filtration, and dampers & expansion joints. • Industrial Process Solutions segment: Our 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.
We seek to address the global demand for environmental and equipment protection solutions with our highly engineered platforms including emissions management, fluid bed cyclones, thermal acoustics, separation and filtration, and dampers and expansion joints. • Industrial Process Solutions segment: Our 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.
We have serviced the needs of our target markets for over 50 years. Our extensive experience and expertise in providing diversified solutions enhances our overall customer relationships, and provides us with a competitive advantage in our markets relative to other companies in the industry. We believe this is evidenced by strong relationships with many of our world-class customers.
Our extensive experience and expertise in providing diversified solutions enhances our overall customer relationships, and provides us with a competitive advantage in our markets relative to other companies in the industry. We believe this is evidenced by strong relationships with many of our world-class customers.
Customers We are not dependent upon any single customer, and no customer contributed 10% or more of our consolidated revenues for 2022. Suppliers and Subcontractors We purchase our raw materials and supplies from a variety of global sources.
Customers We are not dependent upon any single customer, and no customer contributed 10% or more of our consolidated revenues for the years ended December 31, 2023, 2022, or 2021. Suppliers and Subcontractors We purchase our raw materials and supplies from a variety of global sources.
We sell most of our products under a number of registered trade names, brand names and registered trademarks, which we believe are widely recognized in the industry. While we hold patents within a number of our businesses, we do not view our patents to be material to our business.
We sell most of our products under a number of registered trade names, brand names and registered trademarks, which we believe are widely recognized in the industry. While we hold patents within a number of our businesses, we do not view our patents to be material to our business. Human Capital Management We have employees located throughout the globe.
We offer our customers a complete end-to-end solution, including engineering and project management services, procurement and fabrication, construction and installation, aftermarket support, and sale of consumables, which allows our customers to avoid dealing with multiple vendors when managing projects. Long-standing experience and customer relationships in growing industry .
We offer our customers a complete end-to-end solution, including engineering and project management services, procurement and fabrication, construction and installation, aftermarket support, and sale of consumables, which allows our customers to avoid dealing with multiple vendors when managing projects. Long-standing experience and customer relationships in growing industry We have serviced the needs of our target markets for over 50 years.
We start by understanding our customers’ needs, then by focusing our new product development efforts on those criteria that help protect our shared environment while improving a variety of operational outcomes including, but not limited to, facility uptime, production quality, employee safety, equipment protection and process performance.
We start by understanding our customers’ needs, then by focusing our new product development efforts on those criteria that help protect our shared environment while improving a variety of operational outcomes including, but not limited to, facility uptime, production quality, employee safety, equipment protection and process performance. 5 We continually collaborate with our customers on projects to ensure the proper solution and customer satisfaction.
Hydrocarbon processing involves the production, refining, and processing of hydrocarbons and organic chemicals (petrochemicals) for use in a variety of downstream applications, such as gasoline, aviation fuel, fertilizers, lubricants, polymers, plastics, paints and coatings, and additives that keep industry and our economies operating.
The pipeline and storage infrastructure required to supply these new users creates increased interest in our products and services. • Hydrocarbon Processing: Hydrocarbon processing involves the production, refining, and processing of hydrocarbons and organic chemicals (petrochemicals) for use in a variety of downstream applications, such as gasoline, aviation fuel, fertilizers, lubricants, polymers, plastics, paints and coatings, and additives that keep industry and our economies operating.
For Industrial Air applications, we assist companies maintain clean and safe operations for employees, reduce energy consumption, minimize waste for customers, and ensure they meet regulatory standards for toxic emissions, fumes, volatile organic compounds, and odor elimination through our platforms including duct fabrication & installation, industrial air, and fluid handling.
We assist 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 our platforms including duct fabrication and installation, industrial air, and fluid handling.
The adoption of increasingly stringent environmental regulations globally requires businesses to pay strict attention to environmental protection and efficient production processes. The businesses and industries we serve must comply with these various international, federal, state and local government regulations or potentially face substantial fines or be forced to suspend production or alter their production processes.
The businesses and industries we serve must comply with these various international, federal, state and local government regulations or potentially face substantial fines or be forced to suspend production or alter their production processes.
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.
Although we have secured 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.
Gohr holds a Masters of Accountancy degree from Miami University and a Bachelor’s degree in Business, Accountancy from Miami University. 9 Available Information We use the Investor Relations section of our website, www.cecoenviro.com , as a channel for routine distribution of important information, including news releases, investor presentations and financial information.
Available Information We use the Investor Relations section of our website, www.cecoenviro.com , as a channel for routine distribution of important information, including news releases, investor presentations and financial information.
As part of our efforts to expand CECO’s diverse workforce, we: • initiated and implemented recruitment efforts to attract and build a more diverse workforce, including expanding career opportunity postings on career websites to diverse job boards, as well as search engines that aggregate and display job openings by employers, including those dedicated to diverse candidates; • are developing a comprehensive Diversity, Equity and Inclusive roadmap to align with our operational structure. 8 CECO’s commitment to expanding our diverse workforce and enhancing our inclusive culture is driven by our recognition that a workplace that is reflective of our global customer base establishes a firm foundation to drive creativity and innovation, which lead to problem solving, development, performance, and business success.
As part of our efforts to expand CECO’s diverse workforce, we: • initiated and implemented recruitment efforts to attract and build a more diverse workforce, including expanding career opportunity postings on career websites to diverse job boards, as well as search engines that aggregate and display job openings by employers, including those dedicated to diverse candidates; and • are developing a comprehensive Diversity, Equity and Inclusive roadmap to align with our operational structure.
The transition to hydrogen and other “green” fuels (such as HVO’s, biogas, and green ammonia) are in their infancy but will be part of the energy transition over the next decade.
Natural gas-fired power plants have lower initial capital requirements and are more flexible in terms of operations. The transition to hydrogen and other “green” fuels (such as HVO’s, biogas, and green ammonia) are in their infancy but will be part of the energy transition over the next decade.
Providing assistance in meeting or exceeding stringent environmental regulations are a principal factor that drives our business. • Favorable Investment Climate for Net-zero Technologies. Our businesses are positively impacted by capital expenditures on technologies to address climate change and improve environmental outcomes. • Emerging Market Industrialization.
Providing assistance in meeting or exceeding stringent environmental regulations are a principal factor that drives our business. • Favorable Investment Climate for Net-zero Technologies: Our businesses are positively impacted by capital expenditures on technologies to address climate change and improve environmental outcomes. 2 • Emerging Market Industrialization: The rapid expansion of manufacturing in emerging economies, and the growing environmental focus in such emerging economies, increases the demand for our industrial air treatment and pollution controls for newly constructed and upgraded facilities.
Even though considered “green” fuels, power plants using these fuels will continue to require exhaust emissions control solutions which we provide, as will the production facilities and producers of the lightweight materials, batteries, and electronics required to build and operate the new vehicles being deployed. • Expanding Natural Gas Infrastructure .
Even though considered “green” fuels, power plants using these fuels will continue to require exhaust emissions control solutions which we provide, as will the production facilities and producers of the lightweight materials, batteries, and electronics required to build and operate the new vehicles being deployed. • Expanding Natural Gas Infrastructure: The International Energy Association projects a pronounced shift in Organization for Economic Cooperation and Development countries for electricity generation away from oil and coal towards natural gas, including liquified natural gas (“LNG”), and renewables.
Increasingly society, along with government regulation, is calling for companies to commit to the preservation and protection of the environment. We believe that through our air and water quality and emissions control offerings, companies want to work with us to protect people and our planet from the harmful effects of industrial processes. • Increasingly Stringent Regulatory Environment .
We believe that through our air and water quality and emissions control offerings, companies want to work with us to protect people and our planet from the harmful effects of industrial processes. • Increasingly Stringent Regulatory Environment: The adoption of increasingly stringent environmental regulations globally requires businesses to pay strict attention to environmental protection and efficient production processes.
Emerging sectors and applications include electric vehicle and battery production, desalination water transport, ultra-high purity water treatment for electrolysis and electronics production, naval/marine vessel oily water treatment, aluminum beverage can production, and lightweight, high-strength metals production. We believe demand for our products and services will continue to be driven by the following factors: • Global Focus on the Environment.
Emerging sectors and applications include electric vehicle and battery production, desalination water transport, ultra-high purity water treatment for electrolysis and electronics production, naval/marine vessel oily water treatment, aluminum beverage can production, and lightweight, high-strength metals production.
We continually collaborate with our customers on projects to ensure the proper solution and customer satisfaction. The project development cycle may follow many different paths depending on the specifics of the job and end market.
The project development cycle may follow many different paths depending on the specifics of the job and end market.
Backlog is not defined by United States generally accepted accounting principles ("GAAP") and our methodology for calculating backlog may not be consistent with methodologies used by other companies. Competition The markets we serve are highly fragmented with numerous small and regional participants. We believe no single company competes with us across the full range of our solutions and products.
Competition The markets we serve are highly fragmented with numerous small and regional participants. We believe no single company competes with us across the full range of our solutions and products.
Gleason holds a Masters of Science degrees in Management and Public Policy from Carnegie Mellon University and a Bachelors of Arts in International Studies and History from Wesleyan University. Peter Johansson (58) has served as SVP, Chief Financial and Strategy Officer since August 2022. Prior to joining the Company, Mr.
Gleason holds a Masters of Science degrees in Management and Public Policy from Carnegie Mellon University and a Bachelors of Arts in International Studies and History from Wesleyan University. Mr.
This new spending serves as a driver of increased interest for our portfolio of products and solutions. • Water Scarcity. There are increasing risks associated with water quality and water access around the globe. Protecting water resources is crucial for the health and resiliency of our communities, ecosystems and our customers.
As industrial capital expenditures grow, corporations are seeking to make these investments while minimizing environmental impact. This spending serves as a driver of increased interest for our portfolio of products and solutions. • Water Scarcity: There are increasing risks associated with water quality and water access around the globe.
Increased demand for efficient solutions and reduced air and water emissions remains at the forefront of sustainable production. As our customers and end markets navigate this changing landscape, we are making production and power generation cleaner, more efficient and flexible, and workplaces safer.
As our customers and end markets navigate this changing landscape, we are making production and power generation cleaner, more efficient and flexible, and workplaces safer. Increasingly, society, along with government regulation, is calling for companies to commit to the preservation and protection of the environment.
The rapid expansion of manufacturing in emerging economies increases the demand for our industrial air treatment and pollution controls for newly constructed and upgraded facilities. For investments in 2 semiconductor and electronics production, sources of ultra-pure water are required as are emission controls and scrubbers.
For investments in semiconductor and electronics production, sources of ultra-pure water are required as are emission controls and scrubbers.
We intend to continue to expand our customer base and end markets and have continued to pursue potential attractive growth opportunities both domestically and internationally. In the past few years, we have expanded our international presence with new sales & engineering hubs in the United Kingdom, Shanghai (China), Singapore, Pune (India), and Dubai.
We intend to continue to expand our customer base and end markets and have continued to pursue potential attractive growth opportunities both domestically and internationally.
Lynn holds a joint J.D. and MBA from Northwestern University’s Pritzker School of Law and the Kellogg School of Management and a bachelor’s degree in Chemical Engineering and Economics from the University of Wisconsin-Madison. Paul Gohr (41) has served as Chief Accounting Officer since May 2017. Mr.
Watkins-Asiyanbi holds a joint Juris Doctor and Master of Business Administration from Northwestern University’s Pritzker School of Law and the Kellogg School of Management and a Bachelor’s degree in Chemical Engineering and Economics from the University of Wisconsin-Madison.
We expect that more rigorous regulations are being, and will be introduced, to protect water as a natural resource. We are well-positioned to deliver solutions to our customers to meet this growing need. • Increased Demand for Electrical Power Generation.
Protecting water resources is crucial for the health and resiliency of our communities, ecosystems and our customers. We expect that more rigorous regulations are being, and will be introduced, to protect water as a natural resource.
In this event, our business, results and financial condition could be adversely affected. 6 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 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 was $370.9 million as of December 31, 2023 as compared to $311.7 million as of December 31, 2022, an increase of $59.2 million or 19.0%.
An accelerating shift away from traditional fossil fuel powered electricity generation and transportation towards cleaner and sustainable forms of power generation and mass “electrification” of transportation is underway. Demand for cleaner burning natural gas, renewable natural gas, hydrogen and its derivatives, renewables including solar and wind, and a resurgence in interest in nuclear is growing.
We are well-positioned to deliver solutions to our customers to meet this growing need. • Increased Demand for Electrical Power Generation: An accelerating shift away from traditional fossil fuel powered electricity generation and transportation towards cleaner and sustainable forms of power generation and mass “electrification” of transportation is underway.
Through our environmental, health and safety program we implement policies and training programs, as well as perform self-audits to ensure our colleagues leave the workplace safely every day. To better understand employee safety at the site level, we have safety committees and safety scorecards to share best practices between sites.
We believe that all injuries, occupational illnesses and incidents are preventable, and we are committed to operating with a zero-incident culture. Through our environmental, health and safety program we implement policies and training programs, as well as perform self-audits, to ensure our colleagues leave the workplace safely every day.
For the year ended December 31, 2022, CECO’s domestic Total Recordable Incident Rate (“TRIR”) was 1.1% as compared to our benchmark industry average TRIR of 4.1%.
In addition to lagging indicators, such as injury performance, the scorecards highlight leading indicators such as safety observations and near-misses, as well as other proactive actions taken at each site to ensure worker safety. For the year ended December 31, 2023, CECO’s domestic Total Recordable Incident Rate (“TRIR”) was 1.5% as compared to our benchmark industry average TRIR of 4.3%.
Johansson holds a Masters of Business Administration from the Anderson Graduate School of Management at UCLA, a Masters of Science degree in Mechanical Engineering from California State University-Fullerton, and a Bachelors of Science degree in Mechanical Engineering from Southern Methodist University in Dallas, Texas. Ramesh Nuggihalli (57) has served as Chief Operating Officer since April 2021.
Johansson earned a Bachelor of Science degree in Mechanical Engineering from Southern Methodist University of Dallas, Texas. He received his Master of Science degree in Mechanical Engineering from California State University at Fullerton, and his MBA from UCLA’s Anderson Graduate School of Management.
Executive Officers of CECO The following are the executive officers of the Company as of February 28, 2023. All officers serve for a one year term and until their successors are elected and qualified. Todd Gleason (52) has served as a director and Chief Executive Officer since July 2020. Prior to joining the Company, Mr.
Risk Factors” of this Annual Report on Form 10-K. Executive Officers of CECO The following are the executive officers of the Company as of February 26, 2024. All officers serve for a one year term and until their successors are elected and qualified.
We currently share scorecard information monthly to foster visibility, accountability and commitment across our workplace, communicating and celebrating successful results across the enterprise. In addition to lagging indicators, such as injury performance, the scorecards highlight leading indicators such as safety observations and near-misses, as well as other proactive actions taken at each site to ensure worker safety.
We currently share scorecard information monthly with our team members to foster visibility, accountability and commitment across our workplace, communicating and celebrating successful results across the enterprise.
In addition, the planned retirements of the coal- and oil-fired plants require greater investments in natural gas-fired and renewables generation. Natural gas-fired power plants have lower initial capital requirements and are more flexible in terms of operations.
Demand for cleaner burning natural gas, renewable natural gas, hydrogen and its derivatives, renewables including solar and wind, and a resurgence in interest in nuclear is growing. In addition, the planned retirements of the coal- and oil-fired plants require greater investments in natural gas-fired and renewables generation.
Mr. Nuggihalli holds a Master of Business Administration from Wilfred Laurier University in Canada, a Master of Engineering degree from McGill University in Canada and a Bachelor’s degree in Engineering from the University of Mysore, India. Lynn Watkins-Asiyanbi (48) has served as SVP, Chief Administrative and Legal Officer, and Corporate Secretary since August 2022. Ms.
Lynn Watkins-Asiyanbi (49) has served as SVP, Chief Administrative and Legal Officer, and Corporate Secretary since August 2022. Prior to that, from June 2022 to August 2022, Ms. Watkins-Asiyanbi served as Senior Vice President, General Counsel and Corporate Secretary. From June 2016 to June 2022, Ms.
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In 2021, the US Congress passed the Infrastructure Investment and Jobs Act with $550 billion of new federal spending aimed at rebuilding roads and bridges, improving climate resilience, and improving environmental outcomes. As industrial capital expenditures grow, corporations are seeking to make these investments with a smaller environmental impact.
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We believe demand for our products and services will continue to be driven by the following factors: • Global Focus on the Environment: Increased demand for efficient solutions and reduced air and water emissions remains at the forefront of sustainable production.
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The International Energy Association projects a pronounced shift in Organization for Economic Cooperation and Development countries for electricity generation away from oil and coal towards natural gas, including liquified natural gas (“LNG”), and renewables.
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Recent legislation, including the 2022 Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, 2022 Inflation Reduction Act, and 2021 Infrastructure Investment and Jobs Act in the United States, as well as the 2020 European Green Deal, 2021 Fit for 55 package, and 2022 REPowerEU, have dedicated government funds to improving environmental outcomes.
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The pipeline and storage infrastructure required to supply these new users creates increased interest in our products and services. • Hydrocarbon Processing .
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As of December 31, 2023, CECO had approximately 1,200 employees, across nine countries. Of our US employees, 131 are unionized in our Pennsylvania, Tennessee and North Carolina facilities. Outside the United States, we enter into employment contracts and agreements in those countries in which such relationships are mandatory or customary.
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Commitment to Values and Ethics At CECO, we act in accordance with our Code of Business Conduct and Ethics (“Code of Conduct”), which sets forth expectations and guidance for employees to make appropriate decisions.
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The provisions of these agreements correspond in each case with the required or customary terms in the subject jurisdiction. We have historically maintained good employee relations and have successfully concluded all of our recent negotiations without a work stoppage. However, we cannot predict the outcome of future contract negotiations.
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Our Code of Conduct covers topics such as anti-corruption, discrimination, harassment, data privacy, appropriate use of company assets, protecting confidential information, and reporting Code 7 of Conduct violations.
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Our strong employee base, along with our uncompromising commitment to our values of customer first, accountability, relentless execution, respect, integrity and teamwork, provide the foundation of our company’s success. Employee safety and managing the risks associated with our workplace, is of paramount importance to CECO.
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The Code of Conduct reflects our commitment to operating in a fair, honest, responsible and ethical manner and also provides direction for reporting complaints in the event of alleged violations of our policies, including through an anonymous helpline. Our executive officers and managers maintain an “open door” policy, and any form of retaliation is strictly prohibited.
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To better understand employee safety at the site level, we have safety committees and safety scorecards to share best practices between sites. CECO’s foundational commitment to safety is demonstrated by our world-class recordable and loss time rates.
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Human Capital Management CECO recognizes that in order to drive innovation and operational excellence, we must identify, attract, retain and motivate world-class talent. As of December 31, 2022, CECO has approximately 1,000 employees, across nine countries. 126 of our US employees are unionized in our Pennsylvania, Tennessee and North Carolina facilities.
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CECO’s commitment to expanding our diverse workforce and enhancing our inclusive culture is driven by our recognition that a workplace that is reflective of our global customer base establishes a firm foundation to drive creativity and innovation, which leads to problem solving, development, performance, and profitable business success.
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Talent, Leadership and People Development To support personal and professional development, we have strategically committed resources to leadership and management development programs, product knowledge, job skills, and compliance training. In 2022, CECO continued to leverage an online learning platform so our employees can continue developing their skill sets and knowledge.
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We invest in programs and processes that develop our employees’ capabilities to ensure that we have the talent we need to execute our strategic business plans. Our Performance Management Program ensures that all leaders have clear priorities, and that their performance relative to these priorities is linked to their total rewards package.
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Our learning platform offers over 16,000 courses and certifications ranging from job function to leadership and resource training. As of December 31, 2022, 85% of our employees have engaged with this learning platform and each is spending an average of approximately two hours per month building their knowledge and skills.
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We conduct an annual code of conduct training that includes subject matter areas of: anti-corruption, discrimination, harassment, data privacy, appropriate use of company assets, protecting confidential information and how to report code violations. Each employee takes this annual training and follow up communications are conducted to ensure completion of the course by all employees.
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Additionally, in 2021 we further invested in high performing leaders by partnering with top US Universities including Wharton, Yale, MIT University of CA Berkeley, University of Pennsylvania and more, to build strategic, leadership and operational excellence skills.
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We also timely completed our mandated sexual harassment training courses with the specified employees. We believe our management team has the experience necessary to effectively execute our strategy.
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We also partnered with the Center of Creative Leadership to further reinforce leadership skills by investing in executive level coaching of high performing leaders. We believe this investment in our team members and leaders results in a more knowledgeable and competent workforce today while strengthening our succession plan and leadership bench for the future.
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Our platform leaders have significant industry experience and are supported by an experienced and talented management team who is dedicated to maintaining 8 and expanding our position as a global leader in our markets. For discussion of the risks related to attracting and retention of management and executive employees, refer to “Part I, Item 1A.
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We provide a variety of resources to help our employees grow in their current roles and build new skills to thrive in the workplace of the future. Strategic talent reviews are conducted annually across all business areas.
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Todd Gleason (53) has served as a director and Chief Executive Officer since July 2020, and is responsible for driving the company’s strategic vision and aligning the organization for optimal value creation. Prior to joining the Company, Mr.
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Our Board of Directors ("Board") is updated on the Company’s people strategy on an annual basis, which is refined based on business drivers, market factors and key initiatives designed to drive the corporate strategy and business results and meets to review our succession planning strategy and leadership pipeline for key roles, taking into account the Company’s long-term strategy.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

52 edited+12 added−8 removed120 unchanged
Biggest changeIn addition, compliance with foreign and domestic legal and regulatory requirements, including import, export, defense regulations and foreign exchange controls and anti-corruption laws, such as the Foreign Corrupt Practices Act, the United Kingdom’s Bribery Act, the European Union’s General Data Protection Regulations and similar laws of other jurisdictions, could adversely impact our ability to compete against companies in such jurisdictions.
Biggest changeBribery 17 Act (as defined below), the European Union’s General Data Protection Regulations and similar laws of other jurisdictions, could adversely impact our ability to compete against companies in such jurisdictions. Moreover, the violation of such laws or regulations, by us or our representatives, could result in severe penalties including monetary fines, criminal proceedings and suspension of export privileges.
The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to us could be a drop in demand for our products and services, particularly in oil & gas industries.
The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to us could be a drop in demand for our products and services, particularly in oil and gas industries.
Our outstanding indebtedness could have important consequences for investors, including the following: • it may be more difficult for us to satisfy our obligations with respect to the agreement governing our Credit Facility (as defined in Note 8 to the Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K), and any failure to comply with the obligations of any of the agreements governing any additional indebtedness, including financial and other restrictive covenants, could result in an event of default under such agreements; • the covenants contained in our debt agreements, including our Credit Facility, limit our ability to borrow money in the future for acquisitions, capital expenditures or to meet our operating expenses or other general corporate obligations; • the amount of our interest expense may increase because a substantial portion of our borrowings is at variable rates of interest, which, if interest rates increase, could result in higher interest expense; • we may need to use a portion of our cash flows to pay interest on our debt, which will reduce the amount of money we have for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other business activities; 15 • we may have a higher level of debt than some of our competitors, which could put us at a competitive disadvantage; • we may be more vulnerable to economic downturns and adverse developments in our industry or the economy in general; and • our debt level could limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
Our outstanding indebtedness could have important consequences for investors, including the following: • it may be more difficult for us to satisfy our obligations with respect to the agreement governing our Credit Facility (as defined in Note 8 to the Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K), and any failure to comply with the obligations of any of the agreements governing any additional indebtedness, including financial and other restrictive covenants, could result in an event of default under such agreements; • the covenants contained in our debt agreements, including our Credit Facility, limit our ability to borrow money in the future for acquisitions, capital expenditures or to meet our operating expenses or other general corporate obligations; • the amount of our interest expense may increase because a substantial portion of our borrowings is at variable rates of interest, which, if interest rates increase, could result in higher interest expense; • we may need to use a portion of our cash flows to pay interest on our debt, which will reduce the amount of money we have for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other business activities; • we may have a higher level of debt than some of our competitors, which could put us at a competitive disadvantage; • we may be more vulnerable to economic downturns and adverse developments in our industry or the economy in general; and • our debt level could limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
In the event of systems failure or interruption, including those related to force majeure, telecommunications failures, criminal acts, including hardware or software break-ins or extortion attempts, or viruses, or other cybersecurity incidents, we will have limited ability to affect the timing and success of systems restoration and any resulting interruption in our ability to manage and operate our business could have a material adverse effect on our operating results.
In the event of systems failure or interruption, including those related to force majeure, telecommunications failures, criminal acts, including hardware or software break-ins or extortion attempts, or viruses, or other cybersecurity incidents, we 16 will have limited ability to affect the timing and success of systems restoration and any resulting interruption in our ability to manage and operate our business could have a material adverse effect on our operating results.
Any write-down of goodwill or intangible assets resulting from future periodic evaluations could adversely materially impact our results of operations. We may incur costs as a result of certain restructuring activities, which may negatively impact our financial results, and we may not achieve some or all of the expected benefits of our restructuring plans.
Any 13 write-down of goodwill or intangible assets resulting from future periodic evaluations could adversely materially impact our results of operations. We may incur costs as a result of certain restructuring activities, which may negatively impact our financial results, and we may not achieve some or all of the expected benefits of our restructuring plans.
We may not be able to refinance our existing or future debt, sell assets, borrow more money or raise equity on terms acceptable to us, if at all. Our ability to execute our growth strategies may be limited by our ability to secure and retain additional financing on terms reasonably acceptable to us or at all.
We may not be able to refinance our existing or future debt, sell assets, borrow more money or raise equity on terms acceptable to us, if at all. 14 Our ability to execute our growth strategies may be limited by our ability to secure and retain additional financing on terms reasonably acceptable to us or at all.
Accordingly, we may issue shares of any series of preferred stock that would rank senior to our common stock as to voting or dividend rights or rights upon our liquidation, dissolution or winding up. 20 Certain provisions in our charter documents have anti-takeover effects.
Accordingly, we may issue shares of any series of preferred stock that would rank senior to our common stock as to voting or dividend rights or rights upon our liquidation, dissolution or winding up. Certain provisions in our charter documents have anti-takeover effects.
We can give no assurances that any additional material weaknesses will not arise in the future due to our failure to implement and maintain adequate internal control over financial reporting. Item 1B. Unresolve d Staff Comments Not applicable. 21
We can give no assurances that any additional material weaknesses will not arise in the future due to our failure to implement and maintain adequate internal control over financial reporting. Item 1B. Unresolve d Staff Comments Not applicable.
We and our customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions and operating process changes.
We and our customers 15 will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions and operating process changes.
Contract revenue and total direct cost estimates are reviewed and revised periodically as the work progresses and as change orders are approved, and adjustments are reflected in contract revenue in the period when these estimates are revised. These estimates are based 11 on management’s reasonable assumptions and our historical experience, and are only estimates.
Contract revenue and total direct cost estimates are reviewed and revised periodically as the work progresses and as change orders are approved, and adjustments are reflected in contract revenue in the period when these estimates are revised. These estimates are based 10 on management’s reasonable assumptions and our historical experience, and are only estimates.
For 12 example, in a year-long project as opposed to a three-month project, more time is available for the customer to experience a softening in its business, which may cause the customer to cancel a project. We face significant competition in the markets we serve.
For example, in a year-long project as opposed to a three-month project, more time is available for the customer to experience a softening in its business, which may cause the customer to cancel a project. 11 We face significant competition in the markets we serve.
Failure of suppliers to supply, or delays in supplying, our raw materials or certain components, or allocations in the supply of certain high demand raw components, for any reason, including, without limitation, disruptions in our suppliers’ due to cybersecurity incidents, terrorist activity, public health crises (such as COVID-19), fires or other natural disasters could materially adversely affect our operations and ability to meet our own delivery schedules on a timely and competitive basis.
Failure of suppliers to supply, or delays in supplying, our raw materials or certain components, or allocations in the supply of certain high demand raw components, for any reason, including, without limitation, disruptions in our suppliers’ due to cybersecurity incidents, terrorist activity, public health crises, fires or other natural disasters could 12 materially adversely affect our operations and ability to meet our own delivery schedules on a timely and competitive basis.
Regulatory Compliance and International Operations Risks Our business can be significantly affected by changes in regulatory standards. The markets that the Company serves are characterized by competitively imposed process standards and regulatory requirements, each of which influences the demand for our products and services. Changes in legislative, regulatory or industrial requirements may render certain of our products and processes obsolete.
Our business can be significantly affected by changes in regulatory standards. The markets that the Company serves are characterized by competitively imposed process standards and regulatory requirements, each of which influences the demand for our products and services. Changes in legislative, regulatory or industrial requirements may render certain of our products and processes obsolete.
We continue to devote substantial time and resources to the documentation and testing of our controls, and to plan for and the implementation of remedial efforts in those instances where remediation is indicated.
We continue to devote substantial time and resources to the documentation and testing of our controls, and to plan for and the implementation of remedial efforts in those instances where remediation is indicated. As disclosed in Item 9A.
Our inability to deliver our backlog on time could affect our future sales and profitability, and our relationships with our customers. Our backlog was $311.7 million at December 31, 2022 and $213.9 million at December 31, 2021.
Our inability to deliver our backlog on time could affect our future sales and profitability, and our relationships with our customers. Our backlog was $370.9 million at December 31, 2023 and $311.7 million at December 31, 2022.
We cannot assure you that our third-party suppliers will dedicate sufficient resources to meet our scheduled delivery requirements or that our suppliers will have sufficient resources to satisfy 13 our requirements during any period of sustained demand.
We cannot ensure that our third-party suppliers will dedicate sufficient resources to meet our scheduled delivery requirements or that our suppliers will have sufficient resources to satisfy our requirements during any period of sustained demand.
Increasing costs for manufactured components, raw materials, transportation, health care and energy prices may adversely affect our profitability. We use a broad range of manufactured components and raw materials in our products, including raw steel, steel-related components, resin, filtration media and equipment such as fans and motors. Materials, wages and subcontracting costs comprise the largest components of our total costs.
Increasing costs for manufactured components, raw materials, transportation, health care and energy prices may adversely affect our profitability. We use a broad range of manufactured components and raw materials in our products, including raw steel, steel-related components, resin, filtration media and equipment such as fans and motors.
If we are not able to maintain the adequacy of our internal control over financial reporting, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business, financial condition and operating results could be harmed.
If we are not able to establish and maintain effective internal control over financial reporting, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business, financial condition and 20 operating results could be harmed.
We have $112.7 million of indebtedness as of December 31, 2022, and incurrence of additional indebtedness could adversely affect our ability to operate our business, remain in compliance with debt covenants, make payments on our debt and limit our growth.
We have $138.6 million of indebtedness as of December 31, 2023, and incurrence of additional indebtedness could adversely affect our ability to operate our business, remain in compliance with debt covenants, make payments on our debt and limit our growth.
Our ability to issue preferred stock could adversely affect the rights of holders of our common stock. Our certificate of incorporation authorizes us to issue up to 10,000 shares of preferred stock in one or more series on terms that may be determined at the time of issuance by our Board of Directors.
Our certificate of incorporation authorizes us to issue up to 10,000 shares of preferred stock in one or more series on terms that may be determined at the time of issuance by our Board of Directors.
Such provisions, including those limiting who may call special stockholders’ meetings, together with the possible issuance of our preferred stock without stockholder approval, may make it more difficult for other persons, without the approval of our Board of Directors, to make a tender offer or otherwise acquire substantial amounts of our common stock or to launch other takeover attempts that a stockholder might consider to be in such stockholder’s best interest.
Such provisions, including those limiting who may call special stockholders’ meetings, together with the possible issuance of our preferred stock without stockholder approval, may make it more difficult for other persons, without the approval of our Board of Directors, to make a tender offer or otherwise acquire substantial amounts of our common stock or to launch other takeover attempts that a stockholder might consider to be in such stockholder’s best interest. 19 Risks Related to Internal Control over Financial Reporting We have identified material weaknesses in our internal control over financial reporting.
Our products primarily compete on the basis of performance, quality, reliability, lead time, on-time delivery, and safety supported by advanced engineering and operational excellence. We must also be responsive to any technological developments and related changing customer requirements.
Our products primarily compete on the basis of performance, quality, reliability, lead time, on-time delivery, and safety supported by advanced engineering and operational excellence. We must also be responsive to any technological developments, including expanded use of data analytics, artificial intelligence, and machine learning, and related changing customer requirements.
This could in turn put pressure on our manufacturing costs and result in reduced profit margin associated with certain of our customer programs, or loss of customer programs that we may not be able to replace. Risks Related to Human Capital Management We may not be able to attract and retain qualified employees.
This could in turn put pressure on our manufacturing costs and result in reduced profit margin associated with certain of our customer programs, or loss of customer programs that we may not be able to replace.
The stock market has experienced and may in the future experience volatility that has often been unrelated to the operating performance of particular companies. The market price of our common stock has experienced, and may continue to experience, substantial volatility. During 2022, the sales price of our common stock on the NASDAQ ranged from $4.09 to $12.89 per share.
The stock market has experienced and may in the future experience volatility that has often been unrelated to the operating performance of particular companies. The market price of our common stock has experienced, and may continue to experience, substantial volatility. During 2023, the sales price of our common stock on the NASDAQ ranged from $10.68 to $21.43 per share.
We continually evaluate potential acquisition opportunities in the ordinary course of business. 16 Although we conduct what we believe to be a prudent level of investigation regarding the operating and financial condition of the businesses, product or service lines, assets or technologies we purchase, an unavoidable level of risk remains regarding their actual operating and financial condition.
Although we conduct what we believe to be a prudent level of investigation regarding the operating and financial condition of the businesses, product or service lines, assets or technologies we purchase, an unavoidable level of risk remains regarding their actual operating and financial condition.
Long-term fluctuations in relative currency values could have an adverse effect on our operations and financial conditions. 14 If our goodwill or indefinite lived intangibles become impaired, we may be required to recognize charges that would adversely impact our results of operations.
Long-term fluctuations in relative currency values could have an adverse effect on our operations and financial conditions. If our goodwill or indefinite lived intangibles become impaired, we may be required to recognize charges that would adversely impact our results of operations. As of December 31, 2023, goodwill and indefinite lived intangibles were $220.9 million, or 36.8%, of our total assets.
Unionization activities could also increase our costs, which could have an adverse effect on our profitability. 17 Additionally, a work stoppage at one of our suppliers could adversely affect our operations if an alternative source of supply were not readily available. Work stoppages by employees of our customers also could result in reduced demand for our products.
Additionally, a work stoppage at one of our suppliers could adversely affect our operations if an alternative source of supply were not readily available. Work stoppages by employees of our customers also could result in reduced demand for our products.
We have acquired other businesses, product or service lines, assets or technologies that are complementary to our business. We may be unable to find or consummate future acquisitions at acceptable prices and terms.
We have acquired other businesses, product or service lines, assets or technologies that are complementary to our business. We may be unable to find or consummate future acquisitions at acceptable prices and terms. We continually evaluate potential acquisition opportunities in the ordinary course of business.
The use of subcontractors decreases our control over the performance of these functions and could result in project delays, escalated costs and substandard quality. These risks could adversely affect our profitability and business reputation.
The use of subcontractors decreases our control over the performance of these functions and could result in project delays, escalated costs and substandard quality. These risks could adversely affect our profitability and business reputation. In addition, many of our competitors use the same subcontractors that we use and could potentially influence our ability to hire these subcontractors.
Our sales and profitability are impacted by the movement of the U.S. dollar against foreign currencies in the countries in which we generate sales and conduct operations.
Although our financial results are reported in U.S. dollars, a portion of our sales and operating costs are realized in foreign currencies. Our sales and profitability are impacted by the movement of the U.S. dollar against foreign currencies in the countries in which we generate sales and conduct operations.
Although we consider our employee relations to generally be good, our existing labor agreements may not prevent a strike or work stoppage at one or more of our facilities, including due to the effects of COVID-19, may have a material adverse effect on our business.
Although we consider our employee relations to generally be good, our existing labor agreements may not prevent a strike or work stoppage at one or more of our facilities, which may have a material adverse effect on our business. Unionization activities could also increase our costs, which could have an adverse effect on our profitability.
If we fail to maintain the adequacy of our internal controls, including remediating any material weaknesses or deficiencies in our internal controls, as such standards are modified, supplemented or amended in the future, we could be subject to regulatory actions, civil or criminal penalties or stockholder litigation.
If we continue to have material weaknesses in our internal controls, or, if we fail to develop and maintain adequate internal controls in the future, including remediating any material weaknesses or deficiencies in our internal controls, we could be subject to regulatory actions, civil or criminal penalties or stockholder litigation.
Work stoppages or similar difficulties could significantly disrupt our operations. As of December 31, 2022, approximately 200 of our approximately 1,000 employees are represented by international or independent labor unions under various union contracts that expire from May 1, 2023 to November 12, 2025. It is possible that our workforce will become more unionized in the future.
As of December 31, 2023, approximately 200 of our approximately 1,200 employees are represented by international or independent labor unions under various union contracts, which, for our covered employees in the United States, expire between November 12, 2025 and May 1, 2026. It is possible that our workforce will become more unionized in the future.
We have not paid a cash dividend on our common stock in any of the years ended December 31, 2022, 2021 or 2020 and currently intend to retain future earnings, if any, to finance the operations, growth and development of our business into the foreseeable future.
We have not paid a cash dividend on our common stock in recent years and currently intend to retain future earnings, if any, to finance the operations, growth and development of our business into the foreseeable future. Our ability to issue preferred stock could adversely affect the rights of holders of our common stock.
Our products are generally sold under contracts that allow us to bill upon the completion of certain agreed upon milestones or upon actual shipment of the product, and certain contracts include a retention provision. We attempt to negotiate progress-billing milestones on all large contracts to help us manage the working capital and credit risk associated with these large contracts.
Changes in billing terms can increase our exposure to working capital and credit risk. Our products are generally sold under contracts that allow us to bill upon the completion of certain agreed upon milestones or upon actual shipment of the product, and certain contracts include a retention provision.
A trade war or other governmental action related to tariffs or 19 international trade agreements, and any resulting negative sentiments towards the United States as a result thereof, would likely have an adverse effect on our international operations or upon our business, financial condition, results of operations and cash flows.
A trade war or other governmental action related to tariffs or international trade agreements, and any resulting negative sentiments towards the United States as a result thereof, would likely have an adverse effect on our international operations or upon our business, financial condition, results of operations and cash flows. 18 Risks Related to Our Common Stock The market price of our common stock may be volatile or may decline regardless of our operating performance and investors may not be able to resell shares they purchase at their purchase price.
As part of our operating strategy, we intend to expand our international operations through internal growth and selected acquisitions. Operations outside of the United States, particularly in emerging markets, are subject to a variety of risks that are different from or are in addition to the risks we face within the United States.
Operations outside of the United States, particularly in emerging markets, are subject to a variety of risks that are different from or are in addition to the risks we face within the United States.
A significant portion of our accounts receivable are related to larger contracts, which increases our exposure to credit risk. Significant portions of our sales are to customers who place large orders for custom products and whose activities are related to the power generation and oil & gas industries.
Significant portions of our sales are to customers who place large orders for custom products and whose activities are related to the power generation and oil and gas industries. As a result, our exposure to credit risk is affected to some degree by conditions within these industries and governmental and or political conditions.
The occurrence of one or more of the foregoing factors could have a material adverse effect on our international operations or upon our financial condition, results of operations and cash flows.
The occurrence of one or more of the foregoing factors could have a material adverse effect on our international operations or upon our financial condition, results of operations and cash flows. We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws worldwide. The U.S. Foreign Corrupt Practices Act ("FCPA"), the U.K.
We cannot guarantee that we will be able to achieve the technological advances that may be necessary for us to remain competitive or that certain of our products or services will not become obsolete. 18 Changes in current environmental legislation and enforcement could have an adverse impact on the sale of our environmental control systems and products and on our financial condition, results of operations and cash flows.
We cannot guarantee that we will be able to achieve the technological advances that may be necessary for us to remain competitive or that certain of our products or services will not become obsolete.
Our operations outside of the United States are subject to political, investment and local business risks. For the year ended December 31, 2022, approximately 35% of our total revenue was derived from products or services ultimately delivered or provided to end users outside the United States.
For the year ended December 31, 2023, approximately 33% of our total revenue was derived from products or services ultimately delivered or provided to end users outside the United States. As part of our operating strategy, we intend to expand our international operations through internal growth and selected acquisitions.
We compete in industrial markets against a number of local, regional and national manufacturers and suppliers in each of our product or service lines, many of which have been in existence longer than us and some of which have substantially greater financial resources than we do.
All of the product and solution categories in which we compete are highly fragmented and competitive. We compete in industrial markets against a number of local, regional and national manufacturers and suppliers in each of our product or service lines.
However, the continuing economic climate and other unanticipated events that affect our customers could have a materially adverse impact on our operating results. Changes in billing terms can increase our exposure to working capital and credit risk.
We frequently attempt to reduce our exposure to credit risk by requiring progress or milestone payments and letters of credit as well as closely monitoring the credit worthiness of our customers. However, the continuing economic climate and other unanticipated events that affect our customers could have a materially adverse impact on our operating results.
Our future success depends upon the continued service of our executive officers and other key management and technical personnel, and on our ability to continue to identify, attract, retain and motivate them. Implementing our business strategy requires specialized engineering and other talent, as our revenues are highly dependent on technological and product innovations.
Risks Related to Human Capital Management The loss of key personnel or inability to attract and retain additional personnel could affect our ability to successfully grow our business. Our future success depends upon the continued service of our executive officers and other key management and technical personnel, and on our ability to continue to identify, attract, retain and motivate them.
These assumptions are subjective and different estimates could have a significant impact on the results of our analyses.
This is the most sensitive of our estimates related to our evaluations. Other factors considered in our evaluations include assumptions as to the business climate, industry and economic conditions. These assumptions are subjective and different estimates could have a significant impact on the results of our analyses.
Moreover, the violation of such laws or regulations, by us or our representatives, could result in severe penalties including monetary fines, criminal proceedings and suspension of export privileges. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices.
We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our training and compliance programs, there is no assurance that our internal control policies and procedures will protect us from acts committed by our employees or agents.
Given that approximately 35% of our 2022 revenues are outside the United States, we are subject to the impact of fluctuations in foreign currency exchange rates. Although our financial results are reported in U.S. dollars, a portion of our sales and operating costs are realized in foreign currencies.
Currency fluctuations may reduce profits on our foreign sales or increase our costs, either of which could adversely affect our financial results. Given that approximately 33% of our 2023 revenues are outside the United States, we are subject to the impact of fluctuations in foreign currency exchange rates.
Similarly, transportation, steel and health care costs have risen steadily over the past few years and represent an increasing burden for us.
Materials, wages and subcontracting costs comprise the largest components of our total costs, and increases in the price of these items could materially increase our operating costs and materially adversely affect our profit margins. Similarly, transportation, steel and health care costs have risen steadily over the past few years and could represent an increasing burden for us.
The market for employees in our industry is extremely competitive, and competitors for talent, particularly engineering talent, increasingly attempt to hire, and to varying degrees have been successful in hiring, our employees, including by establishing local offices near our headquarters. If we are unable to attract and retain qualified employees, our business may be harmed.
Implementing our business strategy requires specialized engineering and other talent, as our revenues are highly dependent on technological and product innovations. The market for employees in our industry is extremely competitive, and competitors for talent, particularly engineering talent, increasingly attempt to hire, and to varying degrees have been successful in hiring, our employees.
Major factors that influence our evaluations are estimates for future revenue and expenses associated with the specific intangible asset or the reporting unit in which the goodwill resides. This is the most sensitive of our estimates related to our evaluations. Other factors considered in our evaluations include assumptions as to the business climate, industry and economic conditions.
Goodwill and indefinite lived intangible assets are not amortized, but instead are subject to annual impairment evaluations (or more frequently if circumstances require). Major factors that influence our evaluations are estimates for future revenue and expenses associated with the specific intangible asset or the reporting unit in which the goodwill resides.
Consequently, shifts in the billing terms of the contracts in our backlog from period to period can increase our requirement for working capital and can increase our exposure to credit risk. Currency fluctuations may reduce profits on our foreign sales or increase our costs, either of which could adversely affect our financial results.
We attempt to negotiate progress-billing milestones on all large contracts to help us manage the working capital and credit risk associated with these large contracts. Consequently, shifts in the billing terms of the contracts in our backlog from period to period can increase our requirement for working capital and can increase our exposure to credit risk.
If we are found to be liable for such violations, we could suffer from criminal or civil penalties or other sanctions, including loss of export privileges or authorization needed to conduct aspects of our international business, which could have a material adverse effect on our business.
If we are found to be liable for FCPA, U.K. Bribery Act or other similar violations (either due to our own acts or due to the acts of others), we could be subject to civil and criminal penalties or other sanctions, which could have a material adverse impact on our business, financial condition, and profits.
Removed
The current economic environment has resulted, and may continue to result, in price volatility and inflation of these costs. Further increases in the price of these items could further materially increase our operating costs and materially adversely affect our profit margins.
Added
If we were to lose relationships with key subcontractors, our business could be adversely impacted. A significant portion of our accounts receivable are related to larger contracts, which increases our exposure to credit risk.
Removed
All of the product and solution categories in which we compete are highly fragmented and competitive.
Added
If we are unable to attract and retain qualified employees, our business may be harmed. Work stoppages or similar difficulties could significantly disrupt our operations.
Removed
In addition, many of our competitors, who have greater financial resources and greater bargaining power than we have, use the same subcontractors that we use and could potentially influence our ability to hire these subcontractors. If we were to lose relationships with key subcontractors, our business could be adversely impacted.
Added
Regulatory Compliance and International Operations Risks Disruptions in the political, regulatory, economic and social conditions of the countries in which we conduct business could negatively impact our business, financial condition and profits. We operate and do business in many countries in addition to the United States.
Removed
As a result, our exposure to credit risk is affected to some degree by conditions within these industries and governmental and or political conditions. We frequently attempt to reduce our exposure to credit risk by requiring progress or milestone payments and letters of credit as well as closely monitoring the credit worthiness of our customers.
Added
In addition, compliance with foreign and domestic legal and regulatory requirements, including import, export, defense regulations and foreign exchange controls and anti-corruption laws, as discussed below, such as the FCPA (as defined below), the U.K.
Removed
As of December 31, 2022, goodwill and indefinite lived intangibles were $192.7 million, or 38.2%, of our total assets. Goodwill and indefinite lived intangible assets are not amortized, but instead are subject to annual impairment evaluations (or more frequently if circumstances require).
Added
Bribery Act of 2010 ("U.K. Bribery Act"), and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws.
Removed
We cannot assure you that our internal controls and procedures will always protect us from reckless or criminal acts committed by our employees or agents.
Added
Changes in current environmental legislation and enforcement could have an adverse impact on the sale of our environmental control systems and products and on our financial condition, results of operations and cash flows.
Removed
Risks Related to Our Common Stock The market price of our common stock may be volatile or may decline regardless of our operating performance and investors may not be able to resell shares they purchase at their purchase price.
Added
If we are unable to develop and maintain adequate internal controls, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business.
Removed
General Risk Factors Failure to maintain adequate internal controls could adversely affect our business.
Added
“Controls and Procedures” in this Annual Report on Form 10-K, we have material weaknesses in our control environment with regard to management’s review of revenue recognition for contracts and balance sheet reconciliations.
Added
These material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.
Added
To address these material weaknesses, we have developed a remediation plan that includes 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 December 31, 2023, these remediation efforts are ongoing.
Added
The actions that we are taking are subject to ongoing senior management review, as well as Audit Committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness.
Added
Until these material weaknesses are remediated, we plan to continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with GAAP.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLocation of Facilities Segment Owned Leased States Countries Engineered Systems Segment 1 15 Arizona, California, Connecticut, New York, Ohio, Texas United States, The Netherlands, Canada, India, United Arab Emirates, Singapore, United Kingdom, People's Republic of China, South Korea Industrial Process Solutions Segment 1 11 California, Illinois, Indiana, Michigan, North Carolina, Pennsylvania, Tennessee United States, United Kingdom, The Netherlands, People's Republic of China Corporate — 2 Ohio, Texas United States 2 28 Item 3.
Biggest changeLocation of Facilities Segment Owned Leased States Countries Engineered Systems Segment 1 16 Arizona, California, Connecticut, Florida, New York, Ohio, Texas United States, The Netherlands, Canada, India, United Arab Emirates, Singapore, United Kingdom, People's Republic of China, South Korea Industrial Process Solutions Segment 1 10 California, Indiana, Michigan, North Carolina, Pennsylvania, Tennessee United States, United Kingdom, The Netherlands, People's Republic of China Corporate — 2 Ohio, Texas United States 2 28 Item 3.
Item 2. P roperties The Company has 30 principal operating facilities across twelve states and nine countries. The Company’s executive offices are located in Dallas, Texas. We maintain our facilities in good operating condition, and we believe they are suitable and adequate for the purposes for which they are intended to conduct business.
Item 2. P roperties The Company has 30 principal operating facilities across 12 states and nine countries. The Company’s executive offices are located in Dallas, Texas. We maintain our facilities in good operating condition, and we believe they are suitable and adequate for the purposes for which they are intended to conduct business.
Information on the number and location of principal operating facilities by segment was as follows as of December 31, 2022.
Information on the number and location of principal operating facilities by segment was as follows as of December 31, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer's Purchases of Equity Securities Period (amounts in thousands, except per share data) 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 October 1, 2022 - October 31, 2022 51,257 $ 9.79 51,257 $ 13,000 November 1, 2022 - November 30, 2022 — — — 13,000 December 1, 2022 - December 31, 2022 — — — 13,000 Total 51,257 $ 9.79 51,257 (1) On May 10, 2022, the Board of Directors authorized a $20.0 million share repurchase program as described within Note 9 to the Consolidated Financial Statements.
Biggest changeIssuer's Purchases of Equity Securities Period (amounts in thousands, except per share data) 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 October 1, 2023 - October 31, 2023 — $ — — $ 13,000 November 1, 2023 - November 30, 2023 — — — 13,000 December 1, 2023 - December 31, 2023 — — — 13,000 Total — $ — — (1) On May 10, 2022, the Board of Directors authorized a $20.0 million share repurchase program as described within Note 9 to the Consolidated Financial Statements.
Market for Registrant’s Common Equity, Related S tockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on The Nasdaq Global Select Market under the symbol “CECO.” Performance Graph The following graph sets forth the cumulative total return to CECO’s stockholders during the five years ended December 31, 2022, as well as the following indices: Russell 2000 Index, Standard and Poor’s (“S&P”) 600 Small Cap Industrial Machinery Index, and S&P 500 Index.
Market for Registrant’s Common Equity, Related S tockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on The Nasdaq Global Select Market under the symbol “CECO.” Performance Graph The following graph sets forth the cumulative total return to CECO’s stockholders during the five years ended December 31, 2023, as well as the following indices: Russell 2000 Index, Standard and Poor’s (“S&P”) 600 Small Cap Industrial Machinery Index, and S&P 500 Index.
The following graph assumes $100 was invested on December 31, 2017, including the reinvestment of dividends, in each category.
The following graph assumes $100 was invested on December 31, 2018, including the reinvestment of dividends, in each category.
Holders The approximate number of registered stockholders of record of our common stock as of February 28, 2023 was 259, although there is a larger number of beneficial owners. 23 Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table provides information about our purchases of our equity securities for the quarter ended December 31, 2022.
Holders The approximate number of registered stockholders of record of our common stock as of February 26, 2024 was 248, although there is a larger number of beneficial owners. 23 Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table provides information about our purchases of our equity securities for the quarter ended December 31, 2023.
We have not paid a cash dividend on our common stock in any of the years ended December 31, 2022, 2021 or 2020 and currently intend to retain future earnings, if any, to finance the operations, growth and development of our business into the foreseeable future, or for other uses such as the continuation of our share repurchase program.
We have not paid a cash dividend on our common stock in recent years and currently intend to retain future earnings, if any, to finance the operations, growth and development of our business into the foreseeable future, or for other uses such as the continuation of our share repurchase program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWhile the Company cannot predict the exact timing or amounts of such charges, it does expect to treat these charges as special items in its future presentation of non-GAAP results. 27 Results of Operations Consolidated Results Our consolidated statements of income for the years ended December 31, 2022, 2021 and 2020 are as follows: Year ended December 31, (dollars in millions) 2022 2021 2020 Net sales $ 422.6 $ 324.1 $ 316.0 Cost of goods sold 294.4 223.2 210.9 Gross profit $ 128.2 $ 100.9 $ 105.1 Percent of sales 30.3 % 31.1 % 33.3 % Selling and administrative expenses $ 93.4 $ 81.8 $ 76.9 Percent of sales 22.1 % 25.2 % 24.3 % Amortization and earnout expenses 6.8 7.8 8.8 Acquisition and integration expenses 4.5 0.8 1.4 Executive transition expenses 1.2 — 1.5 Restructuring expenses 0.1 0.6 2.3 Intangible asset impairment — — 0.9 Operating income $ 22.2 $ 9.9 $ 13.3 Percent of sales 5.3 % 3.1 % 4.2 % Non-GAAP Measures To compare operating performance between the years ended December 31, 2022, 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, (4) executive transition expenses, including severance for the Company's former executives, fees and expenses incurred in the search, for and hiring, of new executives and (5) intangible asset impairment.
Biggest changeWhile the Company cannot predict the exact timing or amounts of such charges, it does expect to treat these charges as special items in its future presentation of non-GAAP results. 27 Results of Operations Consolidated Results Our consolidated statements of income for the years ended December 31, 2023, 2022 and 2021 are as follows: Year ended December 31, (dollars in millions) 2023 2022 2021 Net sales $ 544.8 $ 422.6 $ 324.1 Cost of goods sold 373.8 294.4 223.2 Gross profit $ 171.0 $ 128.2 $ 100.9 Percent of sales 31.4 % 30.3 % 31.1 % Selling and administrative expenses $ 122.9 $ 93.4 $ 81.8 Percent of sales 22.6 % 22.1 % 25.2 % Amortization and earnout expenses 8.2 6.8 7.8 Acquisition and integration expenses 2.5 4.5 0.8 Executive transition expenses 1.5 1.2 — Restructuring expenses 1.3 0.1 0.6 Operating income $ 34.6 $ 22.2 $ 9.9 Percent of sales 6.4 % 5.3 % 3.1 % Other income (expense), net $ 0.4 $ 6.9 $ (2.2 ) Interest expense (13.4 ) (5.4 ) (3.0 ) Income before income taxes $ 21.5 $ 23.7 $ 4.7 Income tax expense 7.0 5.4 2.7 Net income $ 14.5 $ 18.3 $ 2.0 Noncontrolling interest (1.6 ) (0.8 ) (0.6 ) Net income attributable to CECO Environmental Corp. $ 12.9 $ 17.4 $ 1.4 Non-GAAP Measures To compare operating performance between the years ended December 31, 2023, 2022 and 2021 the Company has adjusted GAAP operating income to exclude (1) amortization of intangible assets, and earnout 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, (4) executive transition expenses, including severance for the Company's former executives, fees and expenses incurred in the search, for and hiring, of new executives and (5) intangible asset impairment.
Our operations management team works closely with our Chief Executive Officer and Chief Operating Officer on global fulfillment strategies, operational excellence, resource allocation, and employee development. Within our segments we have monthly business reviews to ensure we are serving customers, achieving our operating plan, and executing on strategic growth initiatives.
Our operations management team works closely with our Chief Executive Officer on global fulfillment strategies, operational excellence, resource allocation, and employee development. Within our segments we have monthly business reviews to ensure we are serving customers, achieving our operating plan, and executing on strategic growth initiatives.
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.
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.
Overview Business Overview CECO is a leading environmentally focused, diversified industrial company, serving the broad landscape of industrial air, industrial water and energy transition markets globally providing innovative technology and application expertise. We help companies grow their business with safe, clean, and more efficient solutions that help protect people, the environment and industrial equipment.
Overview Business Overview CECO is a leading environmentally focused, diversified industrial company, serving the broad landscape of industrial air, industrial water and energy transition markets globally by providing innovative technology and application expertise. We help companies grow their business with safe, clean, and more efficient solutions that help protect people, the environment and industrial equipment.
These GAAP financial statements include certain charges the Company believes are not indicative of its ongoing operational performance. As a result, the Company provides financial information in this MD&A that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with 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 that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP.
If the estimated fair value of an asset is less than its carrying value, an impairment charge is recorded for the amount by which the carrying value of the asset exceeds its estimated fair value. During 2022 and 2021, our annual impairment test indicated no impairment of our indefinite-lived tradenames.
If the estimated fair value of an asset is less than its carrying value, an impairment charge is recorded for the amount by which the carrying value of the asset exceeds its estimated fair value. During 2023, 2022, and 2021, our annual impairment test indicated no impairment of our indefinite-lived tradenames.
An advantage of our asset light model is that as revenue grows, we have significant operating leverage on our fixed selling and administrative cost structure. Note Regarding Use of Non-GAAP Financial Measures The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
An advantage of our operating model is that as revenue grows, we have significant operating leverage on our fixed selling and administrative cost structure. Note Regarding Use of Non-GAAP Financial Measures The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
In periods where orders are infrequent, we do not have to maintain the fixed cost of a manufacturing plant. Across our various product lines, the relative relationships of these cost categories change and cause variations in gross margin percentage. Material and labor costs can increase fast, which also reduces gross margin percentage.
In periods where orders are infrequent, we do not have to maintain the fixed cost of a manufacturing plant. Across our various product lines, the relative relationships of these cost categories change and cause variations in gross margin percentage. Material and labor costs can increase quickly, which also reduces gross margin percentage.
Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. No provision for estimated losses on uncompleted contracts was needed at December 31, 2022, 2021 and 2020. Inventories The Company’s inventories are valued at the lower of cost or net realizable value using the first-in, first-out inventory costing method.
Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. No provision for estimated losses on uncompleted contracts was needed at December 31, 2023, 2022 and 2021. Inventories The Company’s inventories are valued at the lower of cost or net realizable value using the first-in, first-out inventory costing method.
Inventory quantities are regularly reviewed and provisions for excess or obsolete inventory are recorded primarily based on the Company’s forecast of future demand and market conditions. Significant unanticipated changes to the Company’s forecasts could require a change in the provision for excess or obsolete inventory.
Inventory quantities are regularly reviewed and provisions for excess or obsolete inventory are recorded primarily based on our forecast of future demand and market conditions. Significant unanticipated changes to our forecasts could require a change in the provision for excess or obsolete inventory.
Based on the analysis, the resultant estimated fair value of all of the reporting units exceeded their carrying value as of December 31, 2022. For additional information on goodwill impairment testing results, see Note 6 to the Consolidated Financial Statements.
Based on the analysis, the resultant estimated fair value of all of the reporting units exceeded their carrying value as of December 31, 2023. For additional information on goodwill impairment testing results, see Note 6 to the Consolidated Financial Statements.
The accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company records the related interest expense and penalties, if any, as tax expense in the tax provision. Management must assess the realizability of the Company’s deferred tax assets.
The accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We record the related interest expense and penalties, if any, as tax expense in the tax provision. Management must assess the realizability of the Company’s deferred tax assets.
If events or changes in circumstances occur that indicate possible impairment, our impairment review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of our assets and liabilities.
If such events or changes in circumstances occur, our impairment review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of our assets and liabilities.
The Company provides this supplemental non-GAAP financial information, which the Company’s management utilizes to evaluate its ongoing financial performance, and which the Company believes provides greater transparency to investors as supplemental information to its GAAP results.
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.
Our investment in net working capital is funded by cash flow from operations and by our revolving line of credit. At December 31, 2022, the Company had working capital of $94.0 million, compared with $72.3 million at December 31, 2021.
Our investment in net working capital is funded by cash flow from operations and by our revolving line of credit. At December 31, 2023, the Company had working capital of $78.3 million, compared with $94.0 million at December 31, 2022.
As a part of its annual assessment, typically, 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 an asset is less than its carrying amount.
As a part of its annual assessment, we first qualitatively assess 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 an asset is less than its carrying amount.
As a part of its annual 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 is less than its carrying amount.
As a part of the annual assessment, we first qualitatively assess 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 34 50 percent) that the fair value of a reporting unit is less than its carrying amount.
Our business model provides scalable efficiencies enabling us to serve our customers with a variety of products that we typically classify into three categories: make-to-order, configure-to-order, and engineer-to-order. For our project-based platforms, we use an asset light business model leveraging third-party subcontract fabrication partners in a global network to execute for our customers world-wide.
Our business model provides scalable efficiencies enabling us to serve our customers with a variety of products that we typically classify into three categories: make-to-order, configure-to-order, and engineer-to-order. For our project-based platforms, we leverage third-party subcontract fabrication partners in a global network to execute for our customers world-wide.
If there is a qualitative determination that the fair value of a particular reporting unit is more likely than not greater than its carrying value, the Company does not need to quantitatively test for goodwill impairment for that reporting unit.
If there is a qualitative determination that the fair value of a particular reporting unit is more likely than not greater than its carrying value, we do not need to quantitatively test for goodwill impairment for that reporting unit.
Market Pressures The senior management team monitors and manages the Company’s ability to operate effectively as the result of market pressures, including lingering impacts of the coronavirus pandemic. In particular, we are currently experiencing shortages of raw materials and inflationary pressures for certain materials and labor.
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.
The Company bases its measurement of the fair value of a reporting unit using a 50/50 weighting of the income method and the market method. The income method is based on a discounted future cash flow approach that uses the significant assumptions of projected revenue, projected operational profit, terminal growth rates, and the cost of capital.
We base our measurement of the fair value of a reporting unit using a 50/50 weighting of the income method and the market method. The income method is based on a discounted future cash flow approach that uses the significant assumptions of projected revenue, projected operational profit, terminal growth rates, and the cost of capital.
We account for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We recognize revenue as performance obligations are satisfied and the customer obtains control of the products and services.
We account for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. 33 We recognize revenue as performance obligations are satisfied.
Operating income as a percentage of sales for 2022 was 5.3% compared with 3.1% for 2021. The increase in operating income is primarily attributable to increases in net organic sales and gaining operating leverage. Non-GAAP operating income was $34.8 million in 2022 and $19.1 million in 2021.
Operating income as a percentage of sales for 2023 was 6.4% compared with 5.3% for 2022. The increase in operating income is primarily attributable to increases in net organic sales and gaining operating leverage. Non-GAAP operating income was $48.1 million in 2023 and $34.8 million in 2022.
We are a key part of helping meet the global demand for environmental and equipment protection solutions with our highly engineered platforms including emissions control, fluid bed cyclones, thermal acoustics, separation & filtration, and dampers & expansion joints. • Industrial Solutions segment: Our 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.
We seek to address the global demand for environmental and equipment protection solutions with our highly engineered platforms including emissions management, fluid bed cyclones, thermal acoustics, separation and filtration, and dampers and expansion joints. • Industrial Process Solutions segment: Our 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.
These items include charges 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.
These items include charges associated with the Company’s 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. The Company has incurred substantial expense and generated substantial income associated with acquisitions.
Year Ended December 31, (dollars in millions) 2022 2021 2020 Operating income as reported in accordance with GAAP $ 22.2 $ 9.9 $ 13.3 Operating margin in accordance with GAAP 5.3 % 3.1 % 4.2 % Amortization and earnout expenses 6.8 7.8 8.8 Acquisition and integration expenses 4.5 0.8 1.4 Executive transition expenses 1.2 — 1.5 Restructuring expenses 0.1 0.6 2.3 Intangible asset impairment — — 0.9 Non-GAAP operating income $ 34.8 $ 19.1 $ 28.2 Non-GAAP operating margin 8.2 % 5.9 % 8.9 % Year Ended December 31, (dollars in millions) 2022 2021 2020 Net income as reported in accordance with GAAP $ 17.4 $ 1.4 $ 8.2 Amortization and earnout expenses 6.8 7.8 8.8 Acquisition and integration expenses 4.5 0.8 1.4 Executive transition expenses 1.2 — 1.5 Restructuring expenses 0.1 0.6 2.3 Intangible asset impairment — — 0.9 Foreign currency remeasurement (1.3 ) 2.0 0.3 Tax (benefit) expense of adjustments (2.8 ) (2.8 ) (3.9 ) Non-GAAP net income $ 25.9 $ 9.8 $ 19.5 Non-GAAP net income as a percentage of sales 6.1 % 3.0 % 6.2 % 28 Comparison of the years ended December 31, 2022 and 2021 Consolidated net sales in 2022 were $422.6 million compared with $324.1 million in 2021, an increase of $98.5 million.
Year Ended December 31, (dollars in millions) 2023 2022 2021 Operating income as reported in accordance with GAAP $ 34.6 $ 22.2 $ 9.9 Operating margin in accordance with GAAP 6.4 % 5.3 % 3.1 % Amortization and earnout expenses 8.2 6.8 7.8 Acquisition and integration expenses 2.5 4.5 0.8 Executive transition expenses 1.5 1.2 — Restructuring expenses 1.3 0.1 0.6 Non-GAAP operating income $ 48.1 $ 34.8 $ 19.1 Non-GAAP operating margin 8.8 % 8.2 % 5.9 % Year Ended December 31, (dollars in millions) 2023 2022 2021 Net income as reported in accordance with GAAP $ 12.9 $ 17.4 $ 1.4 Amortization and earnout expenses 8.2 6.8 7.8 Acquisition and integration expenses 2.5 4.5 0.8 Executive transition expenses 1.5 1.2 — Restructuring expenses 1.3 0.1 0.6 Foreign currency remeasurement (1.0 ) (1.3 ) 2.0 Tax (benefit) expense of adjustments 1.2 (2.8 ) (2.8 ) Non-GAAP net income $ 26.6 $ 25.9 $ 9.8 Non-GAAP net income as a percentage of sales 4.9 % 6.1 % 3.0 % 28 Comparison of the years ended December 31, 2023 and 2022 Consolidated net sales in 2023 were $544.8 million compared with $422.6 million in 2022, an increase of $122.2 million or 28.9%.
Total unused credit availability under our Credit Facility and other non-U.S. credit facilities and agreements, exclusive of any potential asset base limitations, is as follows: December 31, 2022 2021 (dollars in millions) Credit Facility, revolving loans $ 140.0 $ 140.0 Draw down (61.3 ) (22.0 ) Letters of credit open (18.9 ) (14.5 ) Total unused credit availability $ 59.8 $ 103.5 Amount available based on borrowing limitations $ 59.8 $ 45.9 Overview of Cash Flows and Liquidity For the year ended December 31, (dollars in thousands) 2022 2021 2020 Total operating cash flow provided by operating activities $ 29,649 $ 13,298 $ 4,421 Net cash used in investing activities (48,257 ) (2,083 ) (9,235 ) Net cash provided by (used in) financing activities 38,176 (15,556 ) 3,724 Effect of exchange rate changes on cash and cash equivalents (4,978 ) (1,475 ) 1,943 Net increase (decrease) in cash, cash equivalents and restricted cash $ 14,590 $ (5,816 ) $ 853 Operating Activities In 2022, $29.6 million of cash was provided by operating activities compared with $13.3 million provided by operating activities in 2021, an increase of $16.3 million.
Total unused credit availability under our Credit Facility and other non-U.S. credit facilities and agreements, exclusive of any potential asset base limitations, is as follows: December 31, 2023 2022 (dollars in millions) Credit Facility, revolving loans $ 140.0 $ 140.0 Draw down (17.3 ) (61.3 ) Letters of credit open (13.3 ) (18.9 ) Total unused credit availability $ 109.4 $ 59.8 Amount available based on borrowing limitations $ 99.8 $ 59.8 Overview of Cash Flows and Liquidity For the year ended December 31, (dollars in thousands) 2023 2022 2021 Total operating cash flow provided by operating activities $ 44,647 $ 29,649 $ 13,298 Net cash used in investing activities (56,486 ) (48,257 ) (2,083 ) Net cash provided by (used in) financing activities 21,144 38,176 (15,556 ) Effect of exchange rate changes on cash and cash equivalents (442 ) (4,978 ) (1,475 ) Net increase (decrease) in cash, cash equivalents and restricted cash $ 8,863 $ 14,590 $ (5,816 ) Operating Activities In 2023, $44.6 million of cash was provided by operating activities compared with $29.6 million provided by operating activities in 2022, an increase of $15.0 million.
This analysis requires management judgment with respect to changes in technology, the continued success of product lines, and future volume, revenue and expense growth rates. We conduct annual reviews for idle and underutilized equipment, and review business plans for possible impairment.
This analysis requires management judgment with respect to changes in technology, the continued success of product lines, and future volume, revenue and expense growth rates. We also review business plans for possible impairment.
Additionally, we also evaluate the remaining useful life each reporting period to determine whether events and circumstances warrant a revision to the remaining period of depreciation or amortization. If the estimate of a long-lived asset’s remaining useful life is changed, the remaining carrying amount of the asset is amortized prospectively over that revised remaining useful life.
Additionally, we review the remaining useful lives of assets to determine whether events and circumstances warrant a revision to the remaining period of depreciation or amortization. If the estimate of a long-lived asset’s remaining useful life is changed, the remaining carrying amount of the asset is depreciated/amortized prospectively over that revised remaining useful life.
Our primary sources of liquidity are cash generated from operations and borrowing availability under the Credit Facility. We believe that cash flows from operating activities, together with our existing cash and borrowings available under our Credit Facility, will be sufficient for at least the next twelve months to fund our current anticipated uses of cash.
We believe that cash flows from operating activities, together with our existing cash and borrowings available under our Credit Facility, will be sufficient for at least the next twelve months to fund our current anticipated uses of cash.
As of December 31, 2022 and 2021, $31.7 million and $24.8 million, respectively, of our cash and cash equivalents were held by non-U.S. subsidiaries, as well as being denominated in foreign currencies.
As of December 31, 2023 and 2022, $38.5 million and $31.7 million, respectively, of our cash and cash equivalents were held by non-U.S. subsidiaries, as well as being denominated in foreign currencies.
The increase in other income was primarily attributable to net foreign currency transaction gains in the current year based on changes in exchange rates at our foreign subsidiaries. Interest expense increased to $5.4 million in 2022 from $3.0 million in 2021. The increase in interest expense is primarily due to increased debt balances to fund current year acquisitions.
The decrease in other income was primarily attributable to net foreign currency transaction losses in the current year based on changes in exchange rates at our foreign subsidiaries. Interest expense increased to $13.4 million in 2023 from $5.4 million in 2022. The increase in interest expense is primarily due to higher interest rates and increased debt balances to fund acquisitions.
They are: • Subcontracts—Electrical work, concrete work, subcomponents 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.
We break down costs of sales into five categories, as follows: • Subcontracts—Electrical work, concrete work, subcomponents and other subcontracts necessary to produce our products; • Labor—Our direct labor both in the shop and in the field; • Material—Raw materials 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.
Income tax expense was $5.4 million and $2.7 million in 2022 and 2021, respectively. The effective tax rate for 2022 was 22.9% compared with 57.6% in 2021.
Income tax expense was $7.0 million and $5.4 million in 2023 and 2022, respectively. The effective tax rate for 2023 was 32.6% compared with 22.9% in 2022.
The ratio of current assets to current liabilities was 1.64 to 1.00 at December 31, 2022 as compared with a ratio of 1.62 to 1.00 at December 31, 2021. At December 31, 2022 and 2021, cash and cash equivalents totaled $45.5 million and $29.9 million, respectively.
The ratio of current assets to current liabilities was 1.39 to 1.00 at December 31, 2023 as compared with a ratio of 1.64 to 1.00 at December 31, 2022. At December 31, 2023 and 2022, cash and cash equivalents totaled $54.8 million and $45.5 million, respectively.
Comparison of the years ended December 31, 2021 and 2020 See the Management Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of business segment results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, which information is incorporated by reference herein.
Comparison of the years ended December 31, 2022 and 2021 See the Management Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of business segment results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021.
This figure excludes earnout expenses / income, which are recorded in the segment in which the expense / income occurs. Comparison of the years ended December 31, 2022 and 2021 Engineered Systems segment Our Engineered Systems segment net sales increased $76.3 million to $263.2 million in 2022 compared with $186.9 million in 2021, an increase of 40.8%.
This figure excludes earnout expenses / income, which are recorded in the segment in which the expense / income occurs. Comparison of the years ended December 31, 2023 and 2022 Engineered Systems segment Our Engineered Systems segment net sales increased $116.9 million to $380.1 million in 2023 compared with $263.2 million in 2022, an increase of 44.4%.
Cash flow from operating activities in 2021 had a favorable impact year-over-year primarily due to certain improvements in net working capital, partially offset by decreases in net earnings. Investing Activities In 2022, $48.3 million of cash was used in investing activities, which consisted of $44.9 for current year acquisitions and $3.4 million for acquisition of property and equipment.
Cash flow from operating activities in 2022 had a favorable impact year-over-year primarily due to increases in net earnings, partially offset by increases in net working capital. Investing Activities In 2023, $56.5 million of cash was used in investing activities, which consisted of $48.1 for current year acquisitions and $8.4 million for acquisition of property and equipment.
Cash flow from operating activities in 2022 had a favorable impact year-over-year primarily due to increases in net earnings, partially offset by increases in net working capital. In 2021, $13.2 million of cash was provided by operating activities compared with $4.4 million in 2020, an increase of $8.8 million.
Cash flow from operating activities in 2023 had a favorable impact year-over-year primarily due to changes in net working capital. In 2022, $29.6 million of cash was provided by operating activities compared with $13.2 million in 2021, an increase of $16.4 million.
Debt consisted of the following: December 31, (table only in thousands) 2022 2021 Outstanding borrowings under Credit Facility Term loan payable in quarterly principal installments of $550 through September 2023, $825 through September 2025 and $1,100 thereafter with balance due upon maturity in December 2026. – Term loan $ 41,309 $ 43,511 – Revolving Credit Loan 61,300 22,000 Total outstanding borrowings under the Credit Facility 102,609 65,511 Outstanding borrowings under the joint venture term debt 10,083 — Unamortized debt discount (1,488 ) (1,731 ) Total outstanding borrowings 111,204 63,780 Less: current portion (3,579 ) (2,203 ) Total debt, less current portion $ 107,625 $ 61,577 In 2022, the Company made repayments of $2.2 million on the term loan and $0.9 million on the joint venture term debt, and net borrowings on the revolving credit line of $39.3 million .
Debt consisted of the following: December 31, (table only in thousands) 2023 2022 Outstanding borrowings under Credit Facility Term loan payable in quarterly principal installments of $550 through September 2023, $825 through September 2025 and $1,100 thereafter with balance due upon maturity in December 2026. – Term loan $ 112,424 $ 41,309 – Revolving Credit Loan 17,300 61,300 Total outstanding borrowings under the Credit Facility 129,724 102,609 Outstanding borrowings under the joint venture term debt 8,855 10,083 Unamortized debt discount (1,296 ) (1,488 ) Total outstanding borrowings 137,283 111,204 Less: current portion (10,488 ) (3,579 ) Total debt, less current portion $ 126,795 $ 107,625 In 2023, the Company made repayments of $44.0 million on the revolving credit line and $1.2 million on the joint venture term debt, with net borrowings of $71.1 million on the term loan .
Income tax expense and the effective tax rate for 2022 were affected by certain permanent differences, including state income taxes, non-deductible incentive stock-based compensation, and differences in tax rates among the jurisdictions in which we operate. 29 Comparison of the years ended December 31, 2021 and 2020 See the Management Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of our consolidated results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, which information is incorporated by reference herein.
Income tax expense and the effective tax rate for 2023 were affected by changes in valuation allowances, and the net impact of global intangible low-taxed income ("GILTI") and foreign-derived intangible income ("FDII"), as well as certain permanent differences including state income taxes, non-deductible incentive stock-based compensation, and differences in tax rates among the jurisdictions in which we operate. 29 Comparison of the years ended December 31, 2022 and 2021 See the Management Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our consolidated results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021.
These were partially offset by $3.1 million paydown of our term debt, $7.0 million for the repurchase and retirement of our common stock, $1.4 million in distributions to non-controlling interest, and $0.6 million in payments on our capital leases.
These were partially offset by $3.1 million paydown of our term debt, $7.0 million for the repurchase and retirement of our common stock, $1.4 million in distributions to non-controlling interest, and $0.6 million in payments on our capital leases. Our primary sources of liquidity are cash generated from operations and borrowing availability under the Credit Facility.
The Income from Operations table and corresponding comments regarding operating income (loss) at the reportable segment level include both intra-segment and inter-segment operating income. 2022 2021 2020 Net Sales (less intra-, inter-segment sales) (table only in thousands) Engineered Systems Segment $ 263,224 $ 186,926 $ 205,494 Industrial Process Solutions Segment 159,403 137,214 110,517 Total net sales $ 422,627 $ 324,140 $ 316,011 2022 2021 2020 Income from Operations (table only in thousands) Engineered Systems segment $ 36,200 $ 25,770 $ 34,170 Industrial Process Solutions segment 22,705 15,054 7,220 Corporate and Other (1) (36,744 ) (30,967 ) (28,044 ) Total income from operations $ 22,161 $ 9,857 $ 13,346 (1) Includes corporate compensation, professional services, information technology, and other general, administrative corporate expenses.
The Income from Operations table and corresponding comments regarding operating income at the reportable segment level include both intra-segment and inter-segment operating income. 2023 2022 2021 Net Sales (less intra-, inter-segment sales) (table only in thousands) Engineered Systems Segment $ 380,108 $ 263,224 $ 186,926 Industrial Process Solutions Segment 164,737 159,403 137,214 Total net sales $ 544,845 $ 422,627 $ 324,140 2023 2022 2021 Income from Operations (table only in thousands) Engineered Systems segment $ 59,846 $ 36,200 $ 25,770 Industrial Process Solutions segment 21,630 22,705 15,054 Corporate and Other (1) (46,907 ) (36,744 ) (30,967 ) Total income from operations $ 34,569 $ 22,161 $ 9,857 (1) Includes corporate compensation, professional services, information technology, and other general, administrative corporate expenses.
Our focus is on increasing our operating margins as well as our gross margin percentage, which translates into stronger operating results. Our cost of sales is principally driven by a number of factors, including material and subcontract prices and labor cost and availability. Changes in these factors may have a material impact on our overall gross profit margins.
Our cost of sales is principally driven by a number of factors, including material and subcontract prices and labor cost and availability. Changes in these factors may have a material impact on our overall gross profit margins.
The increase in non-GAAP operating income is primarily attributable to the increase in net organic sales. Non-GAAP operating income as a percentage of sales for 2022 was 8.2% compared with 5.9% for 2021. Other income for 2022 was $6.9 million, an increase of $9.1 million from $2.2 million other expense in 2021.
The increase in non-GAAP operating income is primarily attributable to the increase in net organic sales and improved operating leverage. Non-GAAP operating income as a percentage of sales for 2023 was 8.8% compared with 8.2% for 2022. Other income for 2023 was $0.4 million compared to $6.9 million in 2022.
Through September 30, 2023, the maximum Consolidated Net Leverage Ratio is 3.75, after which time it will decrease to 3.50 until the end of the term of the Credit Facility. 31 As of December 31, 2022 and 2021, the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility.
In the third quarter of 2023, the Company entered into an Elevated Ratio Period resulting in a maximum Consolidated Net Leverage Ratio of 4.00 through June 30, 2024, after which time it will decrease to 3.50 until the end of the term of the Credit Facility. 31 As of December 31, 2023 and 2022, the Company was in compliance with all related financial and other restrictive covenants under the Credit Facility.
In this event, our business, results and financial condition could be adversely affected. Operations Overview We operate our platforms serving their respective niche end markets. Our platforms are structured to win in their target markets with a core focus on understanding customer needs and providing best-in-class solutions.
Operations Overview We operate our segments and the underlying platforms serving their respective niche end markets. Our platforms are structured to win in their target markets with a core focus on understanding customer needs and providing best-in-class solutions.
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").
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"). On October 30, 2023, the Company entered into Amendment No. 4 to the Second Amended and Restated Credit Agreement.
In 2021, $2.1 million of cash was used in investing activities, which consisted of $2.6 million for acquisition of property and equipment, offset by $0.5 million of proceeds from the disposal of assets held for sale. 32 Financing Activities Financing activities in 2022 provided cash of $38.2 million, which consisted primarily of $39.3 million net borrowings on our revolving credit line and $11.0 million borrowings of joint venture term debt, both of which were used to finance current year acquisitions.
Financing activities in 2022 provided cash of $38.2 million, which consisted primarily of $39.3 million net borrowings on our revolving credit line and $11.0 million borrowings of joint venture term debt, both of which were used to finance current year acquisitions.
Under the terms of the Credit Facility, the Company is required to maintain certain financial covenants, including the maintenance of a Consolidated Net Leverage Ratio (as defined in the Credit Facility).
Pursuant to this amendment, the lenders provided an additional term loan in the aggregate principal amount of $75.0 million. Under the terms of the Credit Facility, the Company is required to maintain certain financial covenants, including the maintenance of a Consolidated Net Leverage Ratio (as defined in the Credit Facility).
Accordingly, we recognized no impairment charges in our financial results for the years ended December 31, 2022 and 2021, respectively.
Accordingly, we recognized no impairment charges in our financial results for the years ended December 31, 2023, 2022, and 2021. For additional information on impairment testing results, see Note 6 to the Consolidated Financial Statements.
Our reportable segments are: • Engineered Systems segment: Our Engineered Systems segment serves the power generation, hydrocarbon processing, water/wastewater treatment, oily water separation and treatment, marine and naval vessels, and midstream oil & gas sectors.
We have excellent collaboration between our platforms and our centralized service teams ensuring optimal efficiency and alignment on growth and improvement initiatives. Our reportable segments are: • Engineered Systems segment: Our 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.
In support of the platforms, centralized teams provide back-office functions for scale, efficiency, and compliance. These key functions include: accounting, treasury, tax, payroll, benefits management, legal, information technology, marketing, and internal control over financial reporting. We have excellent collaboration between our platforms and our centralized service teams ensuring optimal efficiency and alignment on growth and improvement initiatives.
In support of the segments, centralized teams provide back-office functions for scale, efficiency, and compliance. These key functions include: accounting, treasury, tax, payroll, human resources and total rewards management, legal, information technology, marketing, and internal control over financial reporting.
The Company completes an annual (or more often if circumstances require) impairment assessment of its indefinite life intangible assets.
We complete an impairment assessment of the Company's indefinite life intangible assets on an annual basis, or more often as circumstances require.
Amortization and earnout expense was $6.8 million in 2022 and $7.8 million in 2021. The decrease in expense is primarily attributable to a decrease of $1.3 million in earnout expense, partially offset by a $0.3 million increase in definite lived asset amortization. See Note 7 to the Consolidated Financial Statements for further discussion on earnout expenses.
The increase in expense is attributable to an increase of $0.9 million in definite lived asset amortization due to recent acquisitions and $0.5 million in earnout expense. See Note 7 to the Consolidated Financial Statements for further discussion on earnout expenses.
See Note 1 to the Consolidated Financial Statements, Summary of Significant Accounting Policies, which discusses accounting policies that must be selected by us when there are acceptable alternatives. New Accounting Pronouncements For information regarding recent accounting pronouncements, see Note 1 to the Consolidated Financial Statements included in this annual report on Form 10-K.
New Accounting Pronouncements For information regarding recent accounting pronouncements, see Note 1 to the Consolidated Financial Statements included in this annual report on Form 10-K.
We believe that, of our significant accounting policies, the following accounting policies involve a higher degree of judgments, estimates, and complexity. Use of Estimates Preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and related contingent liabilities.
(2) Includes notes payable and expected earnout liability. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in conformity with GAAP. Preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and related contingent liabilities.
Certain of the Company’s undistributed earnings of its foreign subsidiaries are not permanently reinvested. A liability has been recorded for the deferred taxes on such undistributed foreign earnings.
Certain of the Company’s undistributed earnings of its foreign subsidiaries are not permanently reinvested. A liability has been recorded for the deferred taxes on such undistributed foreign earnings. The amount is attributable primarily to the foreign withholding taxes that would become payable should the Company repatriate cash held in its foreign operations.
For Industrial Air applications, we assist companies maintain clean and safe operations for employees, reduce energy consumption, minimize waste for 26 customers, and ensure they meet regulatory standards for toxic emissions, fumes, volatile organic compounds, and odor elimination through our platforms including duct fabrication & installation, industrial air, and fluid handling.
We assist 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 our platforms including duct fabrication and installation, industrial air, and fluid handling. 26 Our contracts are obtained either through competitive bidding or as a result of negotiations with our customers.
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.
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 can continue to do so in the future. In this event, our business, results and financial condition could be adversely affected.
Acquisitions and integration expenses related to various merger and acquisition diligence activities, which include legal, accounting and banking expenses, were $4.5 million in 2022, as compared with $0.8 million in 2021.
Acquisitions and integration expenses related to various merger and acquisition diligence activities, which include legal, accounting and banking expenses, were $2.5 million in 2023, as compared with $4.5 million in 2022. The decrease is due to the timing of acquisition activity. See Note 14 to the Consolidated Financial Statements for further discussion on recent acquisitions.
For additional information on impairment testing results, see Note 6 to the Consolidated Financial Statements. 34 Goodwill The Company completes an annual (or more often if circumstances require) goodwill impairment assessment on October 1 on a reporting unit level, at or below the operating segment level.
Goodwill We complete a goodwill impairment assessment on an annual basis as of October 1, or more often as circumstances require, on a reporting unit level, at or below the operating segment level.
The increase in operating income in primarily attributable to higher gross profit related to increased sales of $76.3 million. Industrial Process Solutions segment Our Industrial Process Solutions segment net sales increased $22.2 million to $159.4 million in 2022 compared with $137.2 million in 2021, an increase of 16.2%.
Industrial Process Solutions segment Our Industrial Process Solutions segment net sales increased $5.3 million to $164.7 million in 2023 compared with $159.4 million in 2022, an increase of 3.3%. The increase is primarily attributable to an increase of $4.7 million in our duct fabrication and installation businesses.
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.
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 stronger operating results.
Corporate and Other segment Operating expense for the Corporate and Other segment increased $5.7 million to $36.7 million for 2022 compared with $31.0 million for 2021.
The decrease is primarily attributable to $1.0 million of restructuring expenses incurred in 2023. 30 Corporate and Other segment Operating expense for the Corporate and Other segment increased $10.2 million to $46.9 million for 2023 compared with $36.7 million for 2022.
The following table summarizes the Company’s material cash requirements from known contractual obligations as of December 31, 2022: Payments Due by Period (dollars in thousands) Total Less than 1 year 1-3 years 3-5 years More than 5 years Term Loan Debt, including joint venture debt $ 51,392 $ 3,579 $ 10,093 $ 37,720 $ — Revolving Credit Loan 61,300 — — 61,300 — Interest expense (estimated) 25,438 7,508 14,145 3,785 — Purchase obligations (1) 131,225 131,225 — — — Operating lease obligations 12,861 3,405 5,354 2,211 1,891 Capital lease obligations 7,316 907 1,868 1,944 2,597 Liabilities related to acquisitions (2) 2,700 1,200 1,500 — — Totals $ 292,232 $ 147,824 $ 32,960 $ 106,960 $ 4,488 (1) Primarily consists of purchase obligations for costs associated with uncompleted sales contracts.
The following table summarizes the Company’s material cash requirements from known contractual obligations as of December 31, 2023: Payments Due by Period (dollars in thousands) Total Less than 1 year 1-3 years 3-5 years More than 5 years Term Loan Debt, including joint venture debt $ 121,279 $ 10,488 $ 107,023 $ 3,768 $ — Revolving Credit Loan 17,300 — 17,300 — — Interest expense (estimated) 26,825 11,154 15,344 328 — Purchase obligations (1) 109,957 109,957 — — — Operating lease obligations 16,938 4,363 6,372 2,723 3,480 Capital lease obligations 6,409 925 1,905 1,983 1,596 Liabilities related to acquisitions (2) 3,700 1,115 2,585 — — Totals $ 302,408 $ 138,001 $ 150,529 $ 8,802 $ 5,076 (1) Primarily consists of purchase obligations for costs associated with uncompleted sales contracts.
Approximately 77.3%, or $59.0 million, of the increase in net sales is attributable to organic revenue growth, while $17.3 million is attributable to current year acquisitions. Operating income for the Engineered Systems segment increased $10.4 million to $36.2 million for 2022 compared with $25.8 million in 2021, an increase of 40.3%.
Operating income for the Engineered Systems segment increased $23.6 million to $59.8 million for 2023 compared with $36.2 million in 2022, an increase of 65.2%. The increase in operating income in primarily attributable to higher gross profit related to increased sales.
Actual results may differ from these estimates under different assumptions or conditions. 33 Revenue Recognition A substantial portion of our revenue is derived from fixed-price contracts.
We consider the estimates discussed below to be critical to the understanding of our financial statements. Actual results may differ from our estimates and assumptions, and any such differences could be material to our consolidated financial statements. Revenue Recognition A substantial portion of our revenue is derived from fixed-price contracts.
The increase is primarily attributed to acquisitions during 2022, as well as increased headcount in order to support our revenue growth. Selling and administrative expenses as a percentage of sales were 22.1% in 2022 compared with 25.2% in 2021. The decrease in percentage is primarily attributable to gaining operating leverage on increased organic revenues.
Orders booked were $582.8 million in 2023 compared with $526.6 million in 2022. This $56.2 million increase is primarily attributable to recent acquisitions. Selling and administrative expenses were $122.9 million in 2023 compared with $93.4 million in 2022. The increase is primarily attributed to acquisitions during 2023, as well as increased investment to support our revenue growth and increased backlog.
The amount is attributable primarily to the foreign withholding taxes that would become payable should the Company repatriate cash held in its foreign operations. 35 Other significant accounting policies Other significant accounting policies, not involving the same level of uncertainties as those discussed above, are nevertheless important to an understanding of our financial statements.
Other significant accounting policies Other significant accounting policies, not involving the same level of uncertainties as those discussed above, are nevertheless important to an understanding of our financial statements. See Note 1 to the Consolidated Financial Statements, Summary of 35 Significant Accounting Policies, which discusses accounting policies that must be selected by us when there are acceptable alternatives.
The increase is primarily attributable to increases across all products serving industrial air end markets. Approximately 93.2%, or $20.7 million, of the increase in net sales is attributable to organic revenue growth, while $1.5 million is attributable to current year acquisitions. 30 Operating income increased $7.6 million to $22.7 million for 2022 compared with $15.1 million in 2021.
Approximately 62.3%, or $3.3 million, of the increase in net sales is attributable to organic revenue growth, while $2.0 million is attributable to acquisitions that have occurred during the preceding twelve-month period. Operating income was $21.6 million in 2023 compared with $22.7 million in 2022.
The increase in gross profit is primarily attributable to the increase in sales volume as described above. Gross profit as a percentage of sales decreased to 30.3% in 2022 compared with 31.1% in 2021 due to inflation, supply chain challenges, and lower project margin mix executed during 2022, partially offset by price increases.
Gross profit as a percentage of sales increased to 31.4% in 2023 compared with 30.3% in 2022 due to higher project margin mix executed during the year and price increases. We continue to experience shortages of raw materials and inflationary pressures for certain materials and labor.
Approximately 80.9%, or $79.7 million, of the increase in net sales is attributable to organic revenue growth, while $18.8 million is attributable to current year acquisitions. Gross profit increased by $27.3 million, or 27.1%, to $128.2 million in 2022 compared with $100.9 million in 2021.
Gross profit increased by $42.8 million, or 33.4%, to $171.0 million in 2023 compared with $128.2 million in 2022. The increase in gross profit was primarily attributable to the increase in sales volume as described above.
Removed
We break down costs of sales into five categories.
Added
The increase was led by increases of $88.2 million in our separation, filtration and industrial water businesses and $21.2 million in our thermal acoustics technologies.
Removed
The Company has incurred substantial expense and generated substantial income associated with acquisitions and divestitures.
Added
Approximately 58.2%, or $71.1 million, of the increase in net sales is attributable to organic revenue growth, defined as revenue recorded subsequent to the twelve-month period post-acquisition date, while $51.1 million is attributable to acquisitions that have occurred during the preceding twelve-month period.
Removed
The increase is broad-based, led by increases of $23.0 million in our thermal acoustics technologies, $22.2 million across our entire industrial process solutions platforms, $17.8 million in our emissions management technologies, $14.4 million in our dampers and expansion joint products, and $6.9 million in engineered cyclone systems.
Added
Selling and administrative expenses as a percentage of sales were flat, with 22.6% in 2023 compared with 22.1% in 2022. Amortization and earnout expenses were $8.2 million in 2023 and $6.8 million in 2022.
Removed
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−0 removed3 unchanged
Biggest changeTransaction gains (losses) included in “Other income (expense), net” line of the Consolidated Statements of Income were $6.3 million, $(3.1) million and $1.3 million in 2022, 2021 and 2020, respectively. 36
Biggest changeTransaction gains (losses) included in “Other income (expense), net” line of the Consolidated Statements of Income were $1.2 million, $6.3 million, and $(3.1) million in 2023, 2022, and 2021, respectively. 36
The carrying value of the Company’s total long-term debt and current maturities of long-term debt at December 31, 2022 was $112.7 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 December 31, 2022.
The carrying value of the Company’s total long-term debt and current maturities of long-term debt at December 31, 2023 was $138.6 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 December 31, 2023.
Most of the interest on the Company’s debt is indexed to SOFR market rates. The estimated annual impact of a hypothetical 10% change in the estimated weighted average borrowing rate at December 31, 2022 is $0.8 million.
Most of the interest on the Company’s debt is indexed to SOFR market rates. The estimated annual impact of a hypothetical 10% change in the estimated weighted average borrowing rate at December 31, 2023 is $1.2 million.

Other CECO 10-K year-over-year comparisons