What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-31 · 227 added, 206 removed, 404 unchanged (52% of the section changed)

5 unchanged sentences

Hughes’ wholly owned subsidiaries on a consolidated basis.

The accompanying information gives effect to certain adjustments made to the previously reported financial statements for the three and six months ended March 31, 2022, and as of September 30, 2022.

The accompanying information gives effect to certain adjustments made to the previously reported financial statements for the three and nine months ended June 30, 2022, and as of September 30, 2022.

Refer to Note 3, “Restatement of Previously Issued Financial Statements” in the accompanying consolidated financial statements for further details related to the restatement and impact on our financial statements.

Forward Looking Statements

Within Energy Services’ consolidated financial statements and this discussion and analysis of the financial condition and results of operations, there are included statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.

Within the consolidated financial statements of Energy Services of America Corporation (“Energy Services” or the “Company”) and this discussion and analysis of the financial condition and results of operations, there are included statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.

You can identify these statements by the fact that they do not relate strictly to historical or current facts.

7 unchanged sentences

Company Overview

Energy Services of America Corporation (“Energy Services” or the “Company”), formed in 2006, is a contractor and service company that operates primarily in the mid-Atlantic and central regions of the United States and provides services to customers in the natural gas, petroleum, water distribution, automotive, chemical, and power industries.

Energy Services, formed in 2006, is a contractor and service company that operates primarily in the mid-Atlantic and central regions of the United States and provides services to customers in the natural gas, petroleum, water distribution, automotive, chemical, and power industries.

For the gas industry, the Company is primarily engaged in the construction, replacement and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies.

24 unchanged sentences

Nitro Construction Services, Inc.

(“Nitro”), a wholly owned subsidiary of C.J.

Hughes, provides electrical, mechanical, HVAC/R, solar installation, and fire protection services to customers primarily in the automotive, chemical, and power industries.

Revolt Energy, LLC and Nitro Electric Company, LLC are newly formed, wholly owned subsidiaries of Nitro.

(“NCS”), a wholly owned subsidiary of C.J.

Hughes, provides electrical, mechanical, HVAC/R, and fire protection services to customers primarily in the automotive, chemical, and power industries.

Revolt Energy, LLC (“Revolt”), a wholly owned subsidiary of NCS, performs residential solar installation projects.

Nitro Electric Company, LLC (“Nitro Electric”), a wholly owned subsidiary of NCS, performs industrial electrical work and is a satellite office registered in Michigan.

Pinnacle Technical Solutions, Inc.

(“Pinnacle”), a wholly owned subsidiary of Nitro, operates as a data storage facility within Nitro’s office building.

Pinnacle is supported by Nitro and has no employees of its own.

(“Pinnacle”), a wholly owned subsidiary of NCS, operates as a data storage facility within Nitro’s office building.

Pinnacle is supported by NCS and has no employees of its own.

NCS and its subsidiaries will collectively be referred to “Nitro”.

Hughes, Nitro, and Contractors Rental construction personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals.

25 unchanged sentences

As a result, our volume of business may be adversely affected by where our customers are in the cycle and thereby their financial condition as to their capital needs and access to capital to finance those needs.

Three and Six Months Ended March 31, 2023 and 2022 Overview

The following is an overview of results from operations for the three and six months ended March 31, 2023 and 2022:

Three and Nine Months Ended June 30, 2023 and 2022 Overview

The following is an overview of results from operations for the three and nine months ended June 30, 2023 and 2022:

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenues

Selling and administrative expenses

(Loss) income from operations

Income from operations

Other income (expense)

3 unchanged sentences

Gain on sale of equipment

(Loss) income before income taxes

Income tax (benefit) expense

Net (loss) income

Income before income taxes

Income tax expense

Weighted average shares outstanding-basic

Weighted average shares-diluted

(Loss) earnings per share-basic

(Loss) earnings per share-diluted

Results of Operations for the Three and Six Months Ended March 31, 2023 Compared to the Three and Six Months Ended March 31, 2022

A table comparing the Company’s revenues for the three and six months ended March 31, 2023 compared to the three and six months ended March 31, 2022, is below:

Earnings per share-basic

Earnings per share-diluted

Results of Operations for the Three and Nine Months Ended June 30, 2023 Compared to the Three and Nine Months Ended June 30, 2022

A table comparing the Company’s revenues for the three and nine months ended June 30, 2023 compared to the three and nine months ended June 30, 2022, is below:

Three Months Ended

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

Gas & Water Distribution

1 unchanged sentence

Electrical, Mechanical, and General

Six Months Ended

March 31, 2023

March 31, 2022

Nine Months Ended

June 30, 2023

June 30, 2022

Gas & Water Distribution

1 unchanged sentence

Electrical, Mechanical, and General

Total revenues increased by $18.3 million to $53.7 million for the three months ended March 31, 2023, as compared to $35.4 million for the three months ended March 31, 2022.

The increases were a result of increased work in all categories of business except for transmission projects, which are starting later compared to 2022.

Total revenues increased by $35.7 million to $113.7 million for the six months ended March 31, 2023, as compared to $78.1 million for the six months ended March 31, 2022.

Total revenues increased by $34.4 million to $85.5 million for the three months ended June 30, 2023, as compared to $51.2 million for the three months ended June 30, 2022.

Total revenues increased by $70.0 million to $199.2 million for the nine months ended June 30, 2023, as compared to $129.2 million for the nine months ended June 30, 2022.

The increases were a result of increased work in all categories of business.

Gas & Water Distribution revenues totaled $13.4 million for the three months ended March 31, 2023, a $2.8 million increase from $10.7 million for the three months ended March 31, 2022.

Gas & Water Distribution revenues totaled $25.9 million for the six months ended March 31, 2023 a $3.3 million increase from $22.6 million for the six months ended March 31, 2022.

The revenue increase was primarily related to paving services performed on water projects, partially offset by reduced customer spending on certain blanket contracts.

Gas & Petroleum Transmission revenues totaled $5.3 million for the three months ended March 31, 2023 a $3.2 million decrease from $8.5 million for the three months ended March 31, 2022.

The revenue decrease was primarily related to the Company’s transmission work starting later compared to 2022.

Gas & Petroleum Transmission revenues totaled $22.2 million for the six months ended March 31, 2023 a $2.5 million increase from $19.8 million for the six months ended March 31, 2022.

The revenue increase was primarily related to transmission work that was awarded during the fiscal year ended September 30, 2022 and completed during the first quarter of fiscal year 2023.

Electrical, Mechanical, & General construction services revenues totaled $34.9 million for the three months ended March 31, 2023, an $18.7 million increase from $16.2 million for the three months ended March 31, 2022.

Electrical, Mechanical, & General construction services revenues totaled $65.6 million for the six months ended March 31, 2023, a $29.9 million increase from $35.7 million for the six months ended March 31, 2022.

The revenue increases were primarily related to increased mechanical and electrical maintenance services performed during the three and six months ended March 31, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.

Gas & Water Distribution revenues totaled $17.9 million for the three months ended June 30, 2023, a $4.2 million increase from $13.7 million for the three months ended June 30, 2022.

Gas & Water Distribution revenues totaled $43.8 million for the nine months ended June 30, 2023, a $7.5 million increase from $36.3 million for the nine months ended June 30, 2022.

The revenue increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to paving services performed on water projects.

Gas & Petroleum Transmission revenues totaled $28.5 million for the three months ended June 30, 2023, a $13.0 million increase from $15.4 million for the three months ended June 30, 2022.

Gas & Petroleum Transmission revenues totaled $50.7 million for the nine months ended June 30, 2023, a $15.5 million increase from $35.2 million for the nine months ended June 30, 2022.

The revenue increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to an increase in transmission projects awarded in 2023 as compared to 2022.

Electrical, Mechanical, & General construction services revenues totaled $39.1 million for the three months ended June 30, 2023, a $17.1 million increase from $22.1 million for the three months ended June 30, 2022.

Electrical, Mechanical, & General construction services revenues totaled $104.7 million for the nine months ended June 30, 2023, a $47.0 million increase from $57.7 million for the nine months ended June 30, 2022.

The revenue increases were primarily related to increased mechanical and electrical maintenance services performed during the three and nine months ended June 30, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.

Cost of Revenues.

A table comparing the Company’s costs of revenues for the three and six months ended March 31, 2023 compared to the three months ended March 31, 2022, is below:

A table comparing the Company’s costs of revenues for the three and nine months ended June 30, 2023 compared to the three and nine months ended June 30, 2022, is below:

Three Months Ended

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

Gas & Water Distribution

2 unchanged sentences

Unallocated Shop Expenses

Six Months Ended

March 31, 2023

March 31, 2022

Nine Months Ended

June 30, 2023

June 30, 2022

Gas & Water Distribution

2 unchanged sentences

Unallocated Shop Expenses

Total cost of revenues increased by $17.2 million to $49.8 million for the three months ended March 31, 2023, as compared to $32.5 million for the three months ended March 31, 2022.

Total cost of revenues increased by $34.0 million to $103.8 million for the six months ended March 31, 2023, as compared to $69.9 million for the six months ended March 31, 2022.

The cost of revenues increase was a result of increased work in all categories of business, except transmission for the three months ended March 31, 2022.

Gas & Water Distribution cost of revenues totaled $10.6 million for the three months ended March 31, 2023, a $1.4 million increase from $9.2 million for the three months ended March 31, 2022.

Gas & Water Distribution cost of revenues totaled $21.3 million for the six months ended March 31, 2023, a $2.7 million increase from $18.5 million for the six months ended March 31, 2022.

The cost of revenues increases were primarily related to paving services performed on water projects, partially offset by reduced customer spending on certain blanket contracts.

Gas & Petroleum Transmission cost of revenues totaled $5.8 million for the three months ended March 31, 2023, a $1.8 million decrease from $7.6 million for the three months ended March 31, 2022.

The cost of revenues decrease was primarily related to the Company’s transmission work starting later compared to 2022.

Gas & Petroleum Transmission cost of revenues totaled $19.8 million for the six months ended March 31, 2023, a $2.5 million increase from $17.3 million for the six months ended March 31, 2022.

The cost of revenues increases were primarily related to transmission work that was awarded during the fiscal year ended September 30, 2022 and completed during the first quarter of fiscal year 2023.

Electrical, Mechanical, & General construction services cost revenues totaled $32.5 million for the three months ended March 31, 2023, a $17.2 million increase from $15.3 million for the three months ended March 31, 2022.

Electrical, Mechanical, & General construction services cost revenues totaled $61.5 million for the six months ended March 31, 2023, a $28.1 million increase from $33.4 million for the six months ended March 31, 2022.

The cost of revenues increases was primarily related to increased mechanical and electrical maintenance services performed during the three and six months ended March 31, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.

Unallocated shop expenses totaled $935,000 for the three months ended March 31, 2023, a $507,000 increase from $427,000 for the three months ended March 31, 2022.

Unallocated shop expenses totaled $1.2 million for the six months ended March 31, 2023, a $634,000 increase from $597,000 for the six months ended March 31, 2022.

The increases in unallocated shop expenses were due to decreased internal equipment charges to projects for the three and six months ended March 31, 2023, as compared to the same period in the prior year.

Total cost of revenues increased by $29.9 million to $74.7 million for the three months ended June 30, 2023, as compared to $44.8 million for the three months ended June 30, 2022.

Total cost of revenues increased by $63.8 million to $178.5 million for the nine months ended June 30, 2023, as compared to $114.6 million for the nine months ended June 30, 2022.

The cost of revenues increase was a result of increased work in all categories of business.

Gas & Water Distribution cost of revenues totaled $13.3 million for the three months ended June 30, 2023, a $2.4 million increase from $10.9 million for the three months ended June 30, 2022.

Gas & Water Distribution cost of revenues totaled $34.5 million for the nine months ended June 30, 2023, a $5.1 million increase from $29.4 million for the nine months ended June 30, 2022.

The cost of revenues increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to paving services performed on water projects.

Gas & Petroleum Transmission cost of revenues totaled $24.5 million for the three months ended June 30, 2023, a $10.2 million increase from $14.3 million for the three months ended June 30, 2022.

Gas & Petroleum Transmission cost of revenues totaled $44.4 million for the nine months ended June 30, 2023, a $12.8 million increase from $31.6 million for the nine months ended June 30, 2022.

The cost of revenues increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to an increase in transmission projects awarded in 2023 as compared to 2022.

Electrical, Mechanical, & General construction services cost revenues totaled $36.6 million for the three months ended June 30, 2023, a $16.2 million increase from $20.4 million for the three months ended June 30, 2022.

Electrical, Mechanical, & General construction services cost revenues totaled $98.1 million for the nine months ended June 30, 2023, a $44.3 million increase from $53.9 million for the nine months ended June 30, 2022.

The cost of revenues increases was primarily related to increased mechanical and electrical maintenance services performed during the three and nine months ended June 30, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.

Unallocated shop expenses totaled $249,000 for the three months ended June 30, 2023, a $1.1 million increase from ($852,000) for the three months ended June 30, 2022.

Unallocated shop expenses totaled $1.5 million for the nine months ended June 30, 2023, a $1.7 million increase from ($254,000) for the nine months ended June 30, 2022.

The increases in unallocated shop expenses were due to decreased internal equipment charges to projects for the three and nine months ended June 30, 2023, as compared to the same period in the prior year.

Gross Profit.

A table comparing the Company’s gross profit for the three and six months ended March 31, 2023 compared to the three and six months ended March 31, 2022, is below:

A table comparing the Company’s gross profit for the three and nine months ended June 30, 2023 compared to the three and nine months ended June 30, 2022, is below:

Three Months Ended

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

Gas & Water Distribution

2 unchanged sentences

Unallocated Shop Expenses

Six Months Ended

March 31, 2023

March 31, 2022

Nine Months Ended

June 30, 2023

June 30, 2022

Gas & Water Distribution

2 unchanged sentences

Unallocated Shop Expenses

Total gross profit increased by $1.0 million to $3.9 million for the three months ended March 31, 2023, as compared to $2.9 million for the three months ended March 31, 2022.

Total gross profit increased by $1.7 million to $9.9 million for the six months ended March 31, 2023, as compared to $8.2 million for the six months ended March 31, 2022.

Gas & Water Distribution gross profit totaled $2.8 million for the three months ended March 31, 2023, a $1.4 million increase from $1.5 million for the three months ended March 31, 2022.

Gas & Water Distribution gross profit totaled $4.7 million for the six months ended March 31, 2023, a $578,000 increase from $4.1 million for the six months ended March 31, 2022.

The gross profit increase was primarily related to paving services performed on water projects, partially offset by reduced customer spending on certain blanket contracts.

Gas & Petroleum Transmission gross loss totaled ($420,000) for the three months ended March 31, 2023, a $1.4 million decrease from $955,000 for the three months ended March 31, 2022.

Gas & Petroleum Transmission gross profit totaled $2.4 million for the six months ended March 31, 2023, a $66,000 decrease from $2.5 million for the six months ended March 31, 2022.

The gross profit decrease was primarily related to existing transmission work that was less profitable during the three and six months ended March 31, 2023, as compared to the same periods in 2022, and new transmission projects starting later in 2023 as compared to 2022.

Electrical, Mechanical, & General construction services gross profit totaled $2.4 million for the three months ended March 31, 2023, a $1.5 million increase from $883,000 for the three months ended March 31, 2022.

Electrical, Mechanical, & General construction services gross profit totaled $4.1 million for the six months ended March 31, 2023, a $1.8 million increase from $2.2 million for the six months ended March 31, 2022.

The gross profit increases were primarily related to increased mechanical and electrical maintenance services performed during the three and six months ended March 31, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.

Gross profit percentage

Total gross profit increased by $4.5 million to $10.9 million for the three months ended June 30, 2023, as compared to $6.4 million for the three months ended June 30, 2022.

Total gross profit increased by $6.2 million to $20.8 million for the nine months ended June 30, 2023, as compared to $14.6 million for the nine months ended June 30, 2022.

Gas & Water Distribution gross profit totaled $4.6 million for the three months ended June 30, 2023, a $1.9 million increase from $2.8 million for the three months ended June 30, 2022.

Gas & Water Distribution gross profit totaled $9.3 million for the nine months ended June 30, 2023, a $2.4 million increase from $6.9 million for the nine months ended June 30, 2022.

The gross profit increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to paving services performed on water projects.

The Company has increased its gross profit percentage on Gas & Water Distribution work due partially to project mix and improved pricing on renewed contracts.

Gas & Petroleum Transmission gross profit totaled $4.0 million for the three months ended June 30, 2023, a $2.8 million increase from $1.2 million for the three months ended June 30, 2022.

Gas & Petroleum Transmission gross profit totaled $6.4 million for the nine months ended June 30, 2023, a $2.7 million increase from $3.6 million for the nine months ended June 30, 2022.

The gross profit increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to an increase in transmission projects awarded in 2023 as compared to 2022.

Gross profit percentage in fiscal year 2023 has increased on Gas & Petroleum Transmission projects due to increased production, as compared to fiscal year 2022.

Electrical, Mechanical, & General construction services gross profit totaled $2.5 million for the three months ended June 30, 2023, an $879,000 increase from $1.6 million for the three months ended June 30, 2022.

Electrical, Mechanical, & General construction services gross profit totaled $6.6 million for the nine months ended June 30, 2023, a $2.7 million increase from $3.9 million for the nine months ended June 30, 2022.

The gross profit increases were primarily related to increased mechanical and electrical maintenance services performed during the three and nine months ended June 30, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.

Gross (loss) profit from unallocated shop expenses totaled ($249,000) for the three months ended June 30, 2023, a $1.1 million decrease from $852,000 for the three months ended June 30, 2022.

Gross (loss) profit from unallocated shop expenses totaled ($1.5 million) for the nine months ended June 30, 2023, a $1.7 million decrease from $254,000 for the nine months ended June 30, 2022.

The increases in gross loss from unallocated shop expenses were due to decreased internal equipment charges to projects for the three and nine months ended June 30, 2023, as compared to the same period in the prior year.

Selling and administrative expenses .

Total selling and administrative expenses increased by $2.5 million to $5.9 million for the three months ended March 31, 2023, as compared to $3.4 million for the same period in the prior year.

Total selling and administrative expenses increased by $4.2 million to $11.2 million for the six months ended March 31, 2023, as compared to $7.0 million for the same period in the prior year.

Selling and administrative expenses for operations acquired after March 31, 2022 totaled $1.0 million and $1.9 million for the three and six months ended March 31, 2023, respectively.

The remaining increase was primarily related to additional personnel hired to secure and manage work for expected growth in fiscal year 2023.

Other nonoperating (expense) income.

Other nonoperating expenses totaled $11,000 for the three months ended March 31, 2023, a decrease of $99,000 from $110,000 for the same period in the prior year.

Other nonoperating expense totaled $91,000 for the six months ended March 31, 2023, a decrease of $172,000 from $263,000 for the same period in the prior year.

Total selling and administrative expenses increased by $1.5 million to $5.3 million for the three months ended June 30, 2023, as compared to $3.8 million for the same period in the prior year.

Total selling and administrative expenses increased by $5.6 million to $16.5 million for the nine months ended June 30, 2023, as compared to $10.9 million for the same period in the prior year.

Selling and administrative expenses increased by $1.0 million and $2.5 million, respectively, for the three and nine months ended June 30, 2023, as compared to the same periods in 2022, for acquired businesses that were not in operation for all fiscal year 2022.

The remaining increase was primarily related to additional personnel hired to secure and manage work for expected growth in fiscal year 2023 and beyond.

Other nonoperating expense.

Other nonoperating expenses totaled $72,000 for the three months ended June 30, 2023, a decrease of $103,000 from $175,000 for the same period in the prior year.

Other nonoperating expense totaled $164,000 for the nine months ended June 30, 2023, a decrease of $275,000 from $438,000 for the same period in the prior year.

Interest expense.

Interest expense totaled $575,000 for the three months ended March 31, 2023, an increase of $405,000 from $170,000, as restated, for the same period in the prior year.

Interest expense totaled $1,074,000 for the six months ended March 31, 2023, an increase of $682,000 from $392,000, as restated, for the same period in the prior year.

Interest expense totaled $640,000 for the three months ended June 30, 2023, an increase of $409,000 from $231,000, as restated, for the same period in the prior year.

Interest expense totaled $1.7 million for the nine months ended June 30, 2023, an increase of $1.1 million from $623,000, as restated, for the same period in the prior year.

The increase in interest expense was primarily due to the financing of recent acquisitions, an increase in line of credit borrowings due to increased work, and an increase in interest rates.

Gain on sale of equipment.

Gain on sale of equipment totaled $48,000 for the three months ended March 31, 2023, an increase of $28,000 from $20,000 for the same period in the prior year.

Gain on sale of equipment totaled $17,000 for the six months ended March 31, 2023, a decrease of $343,000 from $360,000 for the same period in the prior year.

The Company sold certain underutilized or non-working pieces of equipment at auction during the six months ended March 31, 2022, with no comparable sale occurring during the three and six months ended March 31, 2023.

Net (loss) income.

Loss before income taxes was ($2.5) million for the three months ended March 31, 2023, compared to ($811,000) for the same period in the prior year.

Loss before income taxes was ($2.5) million for the six months ended March 31, 2023, compared to an income before tax of $829,000 for the same period in the prior year.

The decrease was primarily related to the items mentioned above.

Income tax benefit for the three months ended March 31, 2023, was ($650,000) compared to ($200,000) for the same period in the prior year.

Income tax benefit for the six months ended March 31, 2023, was ($730,000) compared to income tax expense of $294,000 for the same period in the prior year.

The changes in income tax expense (benefit) were due to the decreases in taxable income for the three and six months ended March 31, 2023 as compared to the prior period.

Net (loss) income for the three and six months ended March 31, 2023 was ($1.9) million and ($1.7) million, respectively, as compared to ($610,000) and $535,000 for the same periods in the prior year.

Comparison of Financial Condition at March 31, 2023 and September 30, 2022

The Company had total assets of $104.8 million at March 31, 2023, a decrease of $7.8 million from the prior fiscal year end balance of $112.6 million.

Accounts receivable, net of allowance for doubtful accounts, totaled $24.7 million at March 31, 2023, a decrease of $13.7 million from the prior fiscal year end balance of $38.5 million.

The decrease was primarily due to the timing of cash collections and project invoicing since September 30, 2022.

Contract assets totaled $11.5 million at March 31, 2023, a decrease of $4.7 million from the prior fiscal year end balance of $16.1 million.

The decrease was primarily due to a difference in the timing of project billings at March 31, 2023, compared to September 30, 2022.

Intangible assets, net totaled $3.6 million at March 31, 2023, a decrease of $265,000 from the prior fiscal year end balance of $3.9 million.

The decrease was due to the amortization of intangible assets during the three and six months ended March 31, 2023.

Cash and cash equivalents totaled $11.6 million at March 31, 2023, an increase of $4.2 million from the prior fiscal year end balance of $7.4 million.

The increase was primarily due to $3.1 million in proceeds from long-term debt and a net $11.8 million provided from operating activities, partially offset by a net $5.3 million investment in equipment, $4.5 million in net short-term and long-term debt repayments, $833,000 in dividend payments on common stock, and $72,000 paid for treasury stock.

The Company had property, plant and equipment of $35.1 million at March 31, 2023, an increase of $2.5 million from the prior fiscal year end balance of $32.7 million.

The increase was due to a $5.6 million cash investment in property, plant and equipment and a $599,000 addition of financed equipment, partially offset by $3.6 million in depreciation and net equipment disposals of $258,000.

Prepaid expenses and other totaled $6.0 million at March 31, 2023, an increase of $2.0 million from the prior fiscal year end balance of $3.9 million.

The increase was primarily due to financed insurance premiums, net of expense, during the six months ended March 31, 2023.

Retainage receivable totaled $5.7 million at March 31, 2023, an increase of $1.2 million from the prior fiscal year end balance of $4.4 million.

Gain on sale of equipment totaled $30,000 for the three months ended June 30, 2023, a decrease of $28,000 from $58,000 for the same period in the prior year.

Gain on sale of equipment totaled $47,000 for the nine months ended June 30, 2023, a decrease of $371,000 from $418,000 for the same period in the prior year.

The Company sold certain underutilized or non-working pieces of equipment at auction during the nine months ended June 30, 2022, with no comparable sale occurring during the three and nine months ended June 30, 2023.

Income before income taxes was $4.9 million for the three months ended June 30, 2023, compared to $2.2 million for the same period in the prior year.

Income before income taxes was $2.4 million for the nine months ended June 30, 2023, compared to an income before tax of $3.1 million for the same period in the prior year.

The changes were primarily related to the items mentioned above.

Income tax expense for the three months ended June 30, 2023, was $1.5 million compared to $651,000 for the same period in the prior year.

Income tax expense for the nine months ended June 30, 2023, was $768,000 compared to income tax expense of $945,000 for the same period in the prior year.

The changes in income tax expense were due to the changes in taxable income for the three and nine months ended June 30, 2023 as compared to the prior period.

Net income for the three and nine months ended June 30, 2023 was $3.4 million and $1.6 million, respectively, as compared to $1.7 million and $2.1 million for the same periods in the prior year.

Comparison of Financial Condition at June 30, 2023 and September 30, 2022

The Company had total assets of $129.2 million at June 30, 2023, an increase of $16.6 million from the prior fiscal year end balance of $112.6 million.

Accounts receivable, net of allowance for doubtful accounts, totaled $47.8 million at June 30, 2023, an increase of $9.4 million from the prior fiscal year end balance of $38.5 million.

The increase was primarily due to the timing of cash collections and project invoicing since September 30, 2022.

The Company had net property, plant and equipment of $36.2 million at June 30, 2023, an increase of $3.5 million from the prior fiscal year end balance of $32.7 million.

The increase was due to an $8.5 million cash investment in property, plant and equipment and a $893,000 addition of financed equipment, partially offset by $5.4 million in depreciation and net equipment disposals of $500,000.

Retainage receivable totaled $7.3 million at June 30, 2023, an increase of $2.9 million from the prior fiscal year end balance of $4.4 million.

The increase was primarily due to more current year projects that require retainages to be withheld.

Right-of-use assets totaled $2.3 million at March 31, 2023, an increase of $649,000 from the prior fiscal year end balance of $1.6 million.

The increase was primarily due to $962,000 in operating lease additions, partially offset by $315,000 in amortization expense, during the six months ended March 31, 2023.

Other receivables totaled $320,000 at March 31, 2023, an increase of $309,000 from the prior end balance of $11,000.

The increase was primarily related to expected insurance premium refunds.

Goodwill totaled $4.1 million at March 31, 2023 and September 30, 2022.

The Company had total liabilities of $79.2 million at March 31, 2023, a decrease of $5.2 million from the prior fiscal year end balance of $84.4 million.

Accounts payable totaled $14.2 million at March 31, 2023, a decrease of $6.2 million from the prior fiscal year end balance of $20.3 million.

The decrease was due to the timing of accounts payable payments as compared to September 30, 2022.

Accrued expenses and other current liabilities totaled $8.3 million at March 31, 2023, a decrease of $3.0 million from the prior fiscal year end balance of $11.3 million.

The decrease was due to the timing of accrued expense payments, as compared to September 30, 2022.

Deferred tax liabilities totaled $3.7 million at March 31, 2023, a decrease of $730,000 from the prior fiscal year end balance of $4.5 million.

The decrease was primarily related to an increase in the net operating loss carry forward other tax assets during the six months ended March 31, 2023.

Lines of credit and short-term borrowings totaled $25.4 million at March 31, 2023, an increase of $2.2 million from the prior fiscal year end balance of $23.2 million.

The increase was primarily due to the financed insurance premiums, net of repayments.

Contract liabilities totaled $7.0 million at March 31, 2023, an increase of $1.0 million from the prior fiscal year end balance of $6.0 million.

The increase was due to a difference in the timing of project billings at March 31, 2023, as compared to September 30, 2022.

Long-term debt totaled $18.4 million at March 31, 2023, an increase of $837,000 from the prior fiscal year end balance of $17.6 million, as restated.

Right-of-use assets totaled $3.7 million at June 30, 2023, an increase of $2.1 million from the prior fiscal year end balance of $1.6 million.

The increase was primarily due to $2.6 million in operating lease additions, partially offset by $578,000 in amortization expense, during the nine months ended June 30, 2023.

Cash and cash equivalents totaled $9.0 million at June 30, 2023, an increase of $1.6 million from the prior fiscal year end balance of $7.4 million.

The increase was primarily due to $3.1 million in proceeds from long-term debt, $1.2 million in net short-term borrowings, and a net $10.3 million provided from operating activities, partially offset by a net $8.0 million investment in equipment, $4.0 million in long-term debt repayments, $833,000 in dividend payments on common stock, and $220,000 paid for treasury stock.

Prepaid expenses and other totaled $4.8 million at June 30, 2023, an increase of $904,000 from the prior fiscal year end balance of $3.9 million.

The increase was primarily due to financed insurance premiums, net of expense, during the nine months ended June 30, 2023.

Other receivables totaled $567,000 at June 30, 2023, an increase of $556,000 from the prior fiscal year end balance of $11,000.

The increase was primarily related to an advance payment on a construction project.

Contract assets totaled $12.2 million at June 30, 2023, a decrease of $3.9 million from the prior fiscal year end balance of $16.1 million.

The decrease was primarily due to a difference in the timing of project billings at June 30, 2023, compared to September 30, 2022.

Intangible assets, net totaled $3.5 million at June 30, 2023, a decrease of $401,000 from the prior fiscal year end balance of $3.9 million.

The decrease was due to the amortization of intangible assets during the nine months ended June 30, 2023.

Goodwill totaled $4.1 million at June 30, 2023 and September 30, 2022.

The Company had total liabilities of $100.4 million at June 30, 2023, an increase of $16.0 million from the prior fiscal year end balance of $84.4 million.

Contract liabilities totaled $16.6 million at June 30, 2023, an increase of $10.5 million from the prior fiscal year end balance of $6.0 million.

The increase was due to a difference in the timing of project billings at June 30, 2023, as compared to September 30, 2022.

Lines of credit and short-term borrowings totaled $28.2 million at June 30, 2023, an increase of $5.1 million from the prior fiscal year end balance of $23.2 million, as restated.

The increase was primarily due to the financed insurance premiums, net of repayments and additional line of credit borrowings.

Current and long-term operating lease liabilities totaled $3.6 million at June 30, 2023, an increase of $2.0 million from the prior fiscal year end balance of $1.6 million.

The increase was due to operating lease additions of $2.6 million, partially offset by $655,000 in operating lease payments for the nine months ended June 30, 2023.

Deferred tax liabilities totaled $5.2 million at June 30, 2023, an increase of $700,000 from the prior fiscal year end balance of $4.5 million.

The increase was primarily related to a decrease in the net operating loss carry forward other tax assets during the nine months ended June 30, 2023.

Long-term debt totaled $17.6 million at June 30, 2023, an increase of $36,000 from the prior fiscal year end balance.

The increase in long-term debt was primarily due to $4.0 million in new debt agreements, partially offset by $4.0 million in debt repayments.

The new long-term debt was primarily related to the financing of the equipment obtained in the Ryan Construction acquisition, which was a cash transaction at the time of the acquisition.

Current and long-term operating lease liabilities totaled $2.2 million at March 31, 2023, an increase of $646,000 from the prior fiscal year end balance of $1.6 million.

The increase was due to operating lease additions of $962,000, partially offset by $357,000 in operating lease payments for the six months ended March 31, 2023.

Shareholders’ equity was $25.6 million at March 31, 2023, a decrease of $2.6 million from the prior fiscal year end balance of $28.2 million.

The decrease was due to net loss of ($1.7) million for the six months ended March 31, 2023, common dividend payments of $833,000, and treasury stock repurchases of $72,000.

Accounts payable totaled $18.8 million at June 30, 2023, a decrease of $1.5 million from the prior fiscal year end balance of $20.3 million.

The decrease was due to the timing of accounts payable payments as compared to September 30, 2022.

Accrued expenses and other current liabilities, including income tax payable, totaled $10.3 million at June 30, 2023, a decrease of $948,000 from the prior fiscal year end balance of $11.3 million.

The decrease was due to the timing of accrued expense payments, as compared to September 30, 2022.

Shareholders’ equity was $28.9 million at June 30, 2023, an increase of $627,000 from the prior fiscal year end balance of $28.2 million.

The increase was due to net income of $1.7 million for the nine months ended June 30, 2023, partially offset by common stock dividend payments of $833,000, and treasury stock repurchases of $220,000.

Liquidity and Capital Resources

4 unchanged sentences

The interest rate at September 30, 2022, was 5.5%.

On January 19, 2023, the Company received an amendment to the agreement which increased the line of credit to $30.0 million, limited to a borrowing base calculation, which was approximately $12.75 million at March 31, 2023.

The maturity date remains June 28, 2023, with a variable interest rate equal to the “Wall Street Journal” Prime Rate with a floor of 4.5%.

The interest rate at March 31, 2023 was 8.0%.

The modified financial covenants for the quarter ended March 31, 2023, and all subsequent quarters, are below:

On January 19, 2023, the Company received an amendment to the agreement which increased the line of credit to $30.0 million with a maturity date of June 28, 2023.

On June 1, 2023, the agreement was renewed through June 28, 2024.

The line of credit is limited to a borrowing base calculation, which was approximately $24.4 million at June 30, 2023.

The outstanding balance on the line of credit was $16.2 million at June 30, 2023.

The line of credit has a variable interest rate equal to the “Wall Street Journal” Prime Rate with a floor of 4.5%, which was 9.25% at June 30, 2023.

The modified financial covenants for the quarter ended June 30, 2023, and all subsequent quarters, are below:

● Minimum tangible net worth of $28.0 million,

2 unchanged sentences

● Maximum debt to tangible net worth ratio (“TNW”) of 2.75x,

● Each ratio and covenant shall be determined, tested, and measured as of each calendar quarter beginning March 31, 2023,

● Each ratio and covenant shall be determined, tested, and measured as of each calendar quarter beginning June 30, 2023,

● The Company shall maintain a ratio of Maximum Senior Funded Debt (“SFD”) to Earnings before Interest, Taxes, Depreciation and Amortization (“EBDITA”) equal to or less than 3.5:1.

1 unchanged sentence

The covenant shall be tested quarterly, at the end of each fiscal quarter, with EBITDA based on the preceding four quarters.

The Company was in compliance with all covenants at March 31, 2023 and the Company projects to meet all covenant requirements for the next twelve months.

The Company was not in compliance with all covenants at June 30, 2023;

however, a waiver was received from the Company’s lender.

The Company projects to meet all covenant requirements for the next twelve months.

Insurance Premiums Financed

2 unchanged sentences

The Company makes a down payment in January and finances the remaining premium amount over eleven monthly payments.

At March 31, 2023 and September 30, 2022, respectively, the remaining balance of the insurance premiums was $2.5 million and $580,000.

At June 30, 2023 and September 30, 2022, the remaining balance of the insurance premiums was $1.9 million and $580,000, respectively.

Paycheck Protection Program Loans

14 unchanged sentences

The Company has recorded a short-term borrowing due to the SBA inquiry for the full $9.8 million, plus accrued interest for all periods presented.

During July 2023, management received notification from the SBA that two additional forgiveness applications related to the PPP Loans were under review.

As part of the review, the SBA requested information regarding the ability of the Company's affiliates to meet SBA size standards and/or PPP corporate maximum limits.

The requested information was subsequently provided to the SBA through the Lender.

Borrowers must retain PPP documentation for at least six years after the date the loan is forgiven or paid in full, and the SBA and SBA Inspector General must be granted these files upon request.

7 unchanged sentences

Treasury yield, adjusted to a constant maturity of three years as published by the Federal Reserve weekly.

As of March 31, 2023, the Company had made principal payments of $359,000.

As of June 30, 2023, the Company had made principal payments of $373,000.

The loan is collateralized by the building purchased under this agreement.

2 unchanged sentences

On November 13, 2015, the Company entered into a 10-year $1.1 million loan agreement with United Bank to purchase the fabrication shop and property Nitro had previously been leasing for $12,900 each month.

The variable interest rate on the loan agreement is 9.0% at March 31, 2023 with monthly payments of $12,464.

As of March 31, 2023, the Company had made principal payments of $765,000.

The variable interest rate on the loan agreement is 9.0% at June 30, 2023 with monthly payments of $12,500.

As of June 30, 2023, the Company had made principal payments of $775,000.

The loan is collateralized by the building and property purchased under this agreement.

3 unchanged sentences

The unsecured five-year term note requires annual payments of at least $500,000 with a fixed interest rate of 3.25% on the $3.0 million sellers’ note, which equates to 5.35% on the carrying value of the note.

As of March 31, 2023, the Company had made annual installment payments of $1,250,000, interest payments of $186,000 and expensed $45,000 in accreted interest.

The Company has made principal payments of $1.3 million on this note as of June 30, 2023.

On January 4, 2021, the Company entered into a $3.0 million Non-Revolving Note agreement with United Bank.

2 unchanged sentences

The loan is collateralized by the equipment purchased under this agreement.

As of March 31, 2023, the Company borrowed $3.0 million against this line of credit with monthly payments of $68,150 that started in February 2022.

The interest rate at March 31, 2023 was 9.0%.

The Company has made principal payments of $763,000 on this note as of March 31, 2023.

As of June 30, 2023, the Company borrowed $3.0 million against this line of credit with monthly payments of $68,000 that started in February 2022.

The interest rate at June 30, 2023 was 9.25%.

The Company has made principal payments of $969,000 on this note as of June 30, 2023.

On April 2, 2021, the Company entered into a $3.5 million Non-Revolving Note agreement with United Bank.

2 unchanged sentences

The loan is collateralized by the Company’s equipment and receivables.

As of March 31, 2023, the Company had made principal payments of $1.3 million.

As of June 30, 2023, the Company had made principal payments of $1.5 million.

On April 29, 2022, the Company entered into a $7.5 million Non-Revolving Note agreement with United Bank.

This five-year agreement was used to finance the purchase of Tri-State Paving and has monthly payments of $129,910 with a fixed interest rate of 4.25%.

The Company has made principal payments of $1.2 million on this note as of March 31, 2023.

The Company has made principal payments of $1.5 million on this note as of June 30, 2023.

On April 29, 2022, the Company entered into a $1.0 million promissory note agreement with Corns Enterprises, a related party, as partial consideration for the purchase of Tri-State Paving.

1 unchanged sentence

Interest payments due shall be calculated on the principal balance remaining and shall be at the stated rate of 3.5% per year.

The Company had made principal payments of $250,000 on this note as of March 31, 2023.

The Company had made principal payments of $250,000 on this note as of June 30, 2023.

On October 10, 2022, the Company entered into a $3.1 million promissory note agreement with United Bank.

2 unchanged sentences

The loan is collateralized by the Company’s equipment and receivables.

As of March 31, 2023, the Company had made principal payments of $224,000.

As of June 30, 2023, the Company had made principal payments of $360,000.

On June 1, 2023, the Company entered into a $9.3 million Non-Revolving Note agreement with United Bank.

This five-year agreement gave the Company access to a $9.3 million line of credit ("Equipment Line of Credit 2023"), specifically for the purchase of equipment, for a period of six months with a fixed interest rate of 7.25%.

After six months, all borrowings against the Equipment Line of Credit 2023 will convert to a fifty-four-month term note agreement with a fixed interest rate of 7.25%.

The loan will be collateralized by the equipment purchased under this agreement.

As of June 30, 2023, the Company had not borrowed against this line of credit.

Lease Obligations

7 unchanged sentences

The Company has two right-of-use operating leases acquired on April 29, 2022, as part of the Tri-State Paving, LLC transaction.

The first operating lease, for the Hurricane, West Virginia facility, had a net present value of $236,000 at inception, and a carrying value of $167,000 at March 31, 2023.

The second operating lease, for the Chattanooga, Tennessee facility, had a net present value of $144,000 at inception, and a carrying value of $88,000 at March 31, 2023.

The first operating lease, for the Hurricane, West Virginia facility, had a net present value of $236,000 at inception, and a carrying value of $148,000 at June 30, 2023.

The second operating lease, for the Chattanooga, Tennessee facility, had a net present value of $144,000 at inception, and a carrying value of $72,000 at June 30, 2023.

The 4.5% interest rate on the operating leases is based on the Company’s incremental borrowing rate at inception.

1 unchanged sentence

acquired on August 11, 2022, as part of the Ryan Environmental acquisition.

This lease agreement was initially for 31 vehicles to be used by Ryan Construction;

however, the Company plans to add vehicles as it finds necessary.

This lease had a net present value of $1.2 million at inception, and carrying value of $1.7 million at March 31, 2023.

This lease agreement was initially for thirty-one vehicles with a net present value of $1.2 million.

The Company has subsequently added twenty-six leased vehicles with a net present value of $2.4 million.

The right-of-use operating lease has a carrying value of $3.2 million at June 30, 2023.

The 4.5% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.

The Company has a right-of-use operating lease with RICA Developers, LLC acquired on August 12, 2022, as part of the Ryan Environmental acquisition.

This lease, for the Bridgeport, West Virginia facility, had a net present value of $140,000 at inception and a carrying value of $63,000 at March 31, 2023.

This lease, for the Bridgeport, West Virginia facility, had a net present value of $140,000 at inception and a carrying value of $21,000 at June 30, 2023.

The 4.5% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.

The Company has a right-of-use operating lease acquired on March 28, 2023.

This lease, for the Winchester, Kentucky facility, had a net present value of $290,000 at inception and a carrying value of $273,000 at March 31, 2023.

This lease, for the Winchester, Kentucky facility, had a net present value of $290,000 at inception and a carrying value of $247,000 at June 30, 2023.

The 7.75% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.

5 unchanged sentences

Rental expense can vary by reporting period due to equipment requirements on construction projects and the availability of Company owned equipment.

Rental expense, which is included in cost of goods sold on the consolidated statements of income (loss), was $1.5 million and $1.6 million, and $4.2 million and $3.5 million for the three and six months ended March 31, 2023 and 2022, respectively.

Rental expense, which is included in cost of goods sold on the consolidated statements of income was $2.5 million and $1.7 million, respectively, for the three months ended June 30, 2023 and 2022 and $6.8 million and $5.3 million, respectively, for the nine months ended June 30, 2023 and 2022.

Letters of Credit

Certain customers or vendors may require letters of credit to secure payments that the vendors are making on our behalf or to secure payments to subcontractors and vendors on various customer projects.

At March 31, 2023, the Company did not have any letters of credit outstanding.

At June 30, 2023, the Company did not have any letters of credit outstanding.

Performance Bonds

8 unchanged sentences

The Company does not anticipate any claims in the foreseeable future.

At March 31, 2023, the Company had $97.6 million in performance bonds outstanding.

At June 30, 2023, the Company had $139.8 million in performance bonds outstanding.

Concentration of Credit Risk

3 unchanged sentences

Under certain circumstances such as foreclosure, the Company may take title to the underlying assets in lieu of cash in settlement of receivables.

Please see the tables below for customers that represent 10.0% or more of the Company’s revenue for the three and six months ended March 31, 2023 and 2022:

Please see the tables below for customers that represent 10.0% or more of the Company’s revenue for the three and nine months ended June 30, 2023 and 2022:

Three Months Ended

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

TransCanada Corporation

* Less than 10.0% and included in “All other” if applicable

Six Months Ended

March 31, 2023

March 31, 2022

Nine Months Ended

June 30, 2023

June 30, 2022

TransCanada Corporation

* Less than 10.0% and included in “All other” if applicable

Please see the tables below for customers that represent 10.0% or more of the Company’s accounts receivable, net of retention at March 31, 2023 and September 30, 2022:

Please see the tables below for customers that represent 10.0% or more of the Company’s accounts receivable, net of retention at June 30, 2023 and September 30, 2022:

Accounts receivable, net of retention

March 31, 2023

June 30, 2023

September 30, 2022

TransCanada Corporation

* Less than 10.0% and included in “All other” if applicable

2 unchanged sentences

On November 21, 2022, a Judgment Order was issued, and the Company was awarded $13.1 million, of which $5.8 million was the jury award, $1.6 million was for attorney’s fees, and $5.7 million was for penalties and interest.

The amounts awarded by the Judgment Order have not been recognized in the Company’s consolidated financial statements as of March 31, 2023.

The amounts awarded by the Judgment Order have not been recognized in the Company’s consolidated financial statements as of June 30, 2023.

The Company’s attorney’s fees have been expensed as incurred.

The case has been appealed to the United States Court of Appeals for the Third Circuit and is expected to be heard in the next 10 to 12 months.

The case has been appealed to the United States Court of Appeals for the Third Circuit and is expected to be heard within the next 10 to 12 months.

On November 12, 2021, the Company received a withdrawal liability claim from a pension plan to which the Company made pension contributions for union construction employees performing covered work in a particular jurisdiction.

5 unchanged sentences

The Company is in negotiations with the pension fund to resolve the matter and all future payments have been suspended as part of the negotiation.

The Company has expensed all $164,000 in payments made through March 31, 2023 and does not expect any future liabilities related to this claim.

Other than described above, at March 31, 2023, the Company was not involved in any legal proceedings other than in the ordinary course of business.

The Company has expensed all $164,000 in payments made through June 30, 2023 and does not expect any future liabilities related to this claim.

Other than described above, at June 30, 2023, the Company was not involved in any legal proceedings other than in the ordinary course of business.

The Company is a party from time to time to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business.

1 unchanged sentence

With respect to all such lawsuits, claims, and proceedings, we record reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

At March 31, 2023, the Company does not believe that any of these proceedings, separately or in aggregate, would be expected to have a material adverse effect on our financial position, results of operations or cash flows.

At June 30, 2023, the Company does not believe that any of these proceedings, separately or in aggregate, would be expected to have a material adverse effect on our financial position, results of operations or cash flows.

Related Party Transactions

12 unchanged sentences

On October 26, 2021, Mr.

Douglas Reynolds was elected a director of Peoples Bancorp, Inc., and its subsidiary Peoples Bank.

Douglas Reynolds was elected director of Peoples Bancorp, Inc., and its subsidiary Peoples Bank (collectively “Peoples Bank”).

On February 21, 2023, Mr.

Reynolds resigned from the board of directors of Peoples Bank.

On April 29, 2022, the Company entered into a $1.0 million promissory note agreement with Corns Enterprises as partial consideration for the purchase of Tri-State Paving.

3 unchanged sentences

This thirty-six-month lease is treated as a right-of-use asset and has payments of $7,000 per month.

The total net present value was $236,000 at inception, and had a carrying value of $167,000 at March 31, 2023.

The total net present value was $236,000 at inception, and had a carrying value of $148,000 at June 30, 2023.

SQP made an equity investment of $156,000 in 1030 Quarrier Development, LLC (“Development”) in August 2022.

9 unchanged sentences

SQP and Ventures have jointly provided an unconditional guarantee for the $5.0 million of obligations associated with the Project.

As of March 31, 2023, there is no significant impact on our consolidated financial statements in connection with this investment by SQP.

Other than mentioned above, there were no new material related party transactions entered into during the three months March 31, 2023.

As of June 30, 2023, there is no significant impact on our consolidated financial statements in connection with this investment by SQP.

Other than mentioned above, there were no new material related party transactions entered into during the three months ended June 30, 2023.

Certain Energy Services subsidiaries routinely engage in transactions in the normal course of business with each other, including sharing employee benefit plan coverage, payment for insurance and other expenses on behalf of other affiliates, and other services incidental to business of each of the affiliates.

4 unchanged sentences

Significant inflation or supply chain issues could cause customers to delay or cancel planned projects;

however, inflation did not have a significant effect on our results for the three months ended March 31, 2023 and 2022.

however, inflation did not have a significant effect on our results for the nine months ended June 30, 2023 and 2022.

Critical Accounting Estimates

32 unchanged sentences

Our contract liabilities consist of provisions for losses and billings in excess of costs and estimated earnings.

Provisions for losses are recognized in the consolidated statements of income (loss) at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue.

Provisions for losses are recognized in the consolidated statements of income at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue.

Billings in excess of costs and estimated earnings are billings to customers on contracts in advance of work performed, including advance payments negotiated as a contract condition.

Generally, unearned project-related costs will be earned over the next twelve months.

The following table presents our costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings at March 31, 2023 and September 30, 2022:

March 31, 2023

The following table presents our costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings at June 30, 2023 and September 30, 2022:

June 30, 2023

September 30, 2022

10 unchanged sentences

Additionally, frequently changing reserves could be an indication of risky or unreliable customers.

At March 31, 2023, the management review deemed that the allowance for doubtful accounts was adequate.

At June 30, 2023, the management review deemed that the allowance for doubtful accounts was adequate.

Please see the allowance for doubtful accounts table below:

March 31, 2023

June 30, 2023

September 30, 2022

7 unchanged sentences

If a company fails this test or decides to bypass this step, it must proceed with a quantitative assessment of goodwill impairment.

The Company did not have a goodwill impairment at March 31, 2023 or September 30, 2022.

The Company did not have a goodwill impairment at June 30, 2023 or September 30, 2022.

Materially incorrect estimates could cause an impairment to goodwill or intangible assets and result in a loss in profitability for the Company.

A table of the Company’s intangible assets subject to amortization is below:

Amortization and

Impairment Six

Remaining Life at

and Impairment

Remaining Life

Amortization and

(in months) at

Impairment at

Ended June 30,

Net Book Value

Intangible assets:

June 30, 2023

Original Cost

March 31, 2023

June 30, 2023

September 30, 2022

March 31, 2023

at June 30, 2023

West Virginia Pipeline:

18 unchanged sentences

The definite-lived identifiable intangible assets recognized as part of the Company’s business combinations are recorded at their estimated fair value.

The Company’s depreciation expense for the six months ended March 31, 2023 and 2022 was $3.6 million and $2.6 million, respectively.

In general, depreciation is included in “cost of revenues” on the Company’s consolidated statements of income (loss).

The Company’s intangible amortization expense for the six months ended March 31, 2023 and 2022 was $265,000 and $196,000, respectively.

In general, amortization is included in “selling and administrative expenses” on the Company’s consolidated statements of income (loss).

The Company’s depreciation expense for the nine months ended June 30, 2023 and 2022 was $5.4 million and $4.0 million, respectively.

In general, depreciation is included in “cost of revenues” on the Company’s consolidated statements of income.

The Company’s intangible amortization expense for the nine months ended June 30, 2023 and 2022 was $401,000 and $308,000, respectively.

In general, amortization is included in “selling and administrative expenses” on the Company’s consolidated statements of income.

Materially incorrect estimates of depreciation and amortization and/or the useful lives of assets could significantly impact the value of long-lived assets on the Company’s consolidated financial statements.

A material overvaluation could result in impairment charges and reduced profitability for the Company.

The Company’s income tax expense (benefit) and deferred tax assets and liabilities reflect management’s best estimate of current and future taxes to be paid.

Significant judgments and estimates are required in the determination of the consolidated income tax expense (benefit).

The Company’s provision for income taxes is computed by applying a federal rate of 21.0% and a state rate of 6.0% to taxable income or loss after consideration of non-taxable and non-deductible items.

Permanent income tax differences result in an increase or decrease in taxable income and impact the Company’s effective tax rates, which were (26.0%) and (25.5%), as restated, for the three months ended March 31, 2023, and 2022, respectively.

The effective income tax rate for the six months ended March 31, 2023 was (30.2%), as restated, as compared to 33.4%, as restated, for the same period in the prior year.

The Company’s income tax expenses and deferred tax assets and liabilities reflect management’s best estimate of current and future taxes to be paid.

Significant judgments and estimates are required in the determination of the consolidated income tax expense.

The Company’s provision for income taxes is computed by applying a federal rate of 21.0% and a state rate of 6.0% (net of federal tax benefit) to taxable income or loss after consideration of non-taxable and non-deductible items.

Permanent income tax differences result in an increase or decrease in taxable income and impact the Company’s effective tax rates, which were 30.5% and 29.0%, as restated, for the three months ended June 30, 2023, and 2022, respectively.

The effective income tax rate for the nine months ended June 30, 2023 was 31.4%, as compared to 30.7%, as restated, for the same period in the prior year.

Our tax rate is affected by recurring items, such as non-deductible expenses, which we expect to be fairly consistent in the near term.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future.

At March 31, 2023, the Company had a net deferred income tax liability of $3.8 million as compared to $4.5 million at September 30, 2022.

The Company’s deferred income tax liabilities at March 31, 2023 totaled $7.5 million and primarily related to depreciation on property and equipment.

The Company’s deferred income tax assets at March 31, 2023, totaled $3.8 million and primarily related to a NOL carryforward.

At June 30, 2023, the Company had a net deferred income tax liability of $5.2 million as compared to $4.5 million at September 30, 2022.

The Company’s deferred income tax liabilities at June 30, 2023 totaled $8.5 million and primarily related to depreciation on property and equipment.

The Company’s deferred income tax assets at June 30, 2023, totaled $3.4 million and primarily related to a NOL carryforward.

The Company believes that it is more likely than not that all NOL carryforwards will be realized.

18 unchanged sentences

Retrospective application of the guidance is permitted.

The guidance in ASU 2021-10 is effective for financial statements of all entities for annual periods beginning after December 15, 2021, with early application permitted.

ASU 2021-10 has not become effective for the Company;

however, a significant impact is not expected.

The guidance in ASU 2021-10 is effective for financial statements of all entities for annual periods beginning after December 15, 2021, with early application permitted.The Company adopted ASU 2021-10 on October 1, 2022, and its adoption did not have a significant impact on the Company’s consolidated financial statements.

Subsequent Events

4 unchanged sentences

The Company is seeing a significant increase in bid opportunities for natural gas transmission and distribution projects along with electrical, mechanical, and general construction projects.

The Company’s backlog at March 31, 2023 was $224.6 million, as compared to $120.3 million and $142.3 million at December 31, 2022, and September 30, 2022, respectively.

The Company’s backlog at June 30, 2023 was $185.9 million, as compared to $135.0 million and $142.3 million at June 30, 2022, and September 30, 2022, respectively.

While adding additional projects appears likely, no assurances can be given that the Company will be successful in bidding on projects that become available.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis