What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-12 compared with 2023-08-14 · 220 added, 281 removed, 350 unchanged (59% 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 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 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.

Within Energy Services’ (as defined below) consolidated financial statements and this Annual Report on Form 10-K, 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.

They use words such as “anticipate,” “estimate,” “project,” “forecast,” “may,” “will,” “should,” “could,” “expect,” “believe,” “intend” and other words of similar meaning.

These forward-looking statements are not guarantees of future performance and involve or rely on a number of risks, uncertainties, and assumptions that are difficult to predict or beyond Energy Services’ control.

These forward-looking statements do not guarantee future performance and involve or rely on risks, uncertainties, and assumptions that are difficult to predict or beyond Energy Services’ control.

Energy Services has based its forward-looking statements on management’s beliefs and assumptions based on information available to management at the time the statements are made.

1 unchanged sentence

The accuracy of such statements can be affected by inaccurate assumptions and by known or unknown risks and uncertainties.

All of the forward-looking statements, whether written or oral, are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements or that are otherwise included in this report.

All the forward-looking statements, whether written or oral, are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements or that are otherwise included in this report.

In addition, Energy Services does not undertake and expressly disclaims any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or otherwise.

Company Overview

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.

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.

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.

2 unchanged sentences

For the power, chemical, and automotive industries, the Company provides a full range of electrical and mechanical installations and repairs including substation and switchyard services, site preparation, equipment setting, pipe fabrication and installation, packaged buildings, transformers, and other ancillary work with regards thereto.

Energy Services’ other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction.

The Company has also added the ability to install residential, commercial, and industrial solar systems and perform civil and general contracting services.

Energy Services’ other pipeline services include corrosion protection services, horizontal drilling services, liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction.

The Company has also added the ability to install broadband and solar electric systems and perform civil and general contracting services.

Energy Services’ customers include many of the leading companies in the industries it serves, including:

13 unchanged sentences

The Company relies on direct contact between its sales force and customers’ engineering and contracting departments to obtain new business.

A substantial portion of the Company’s workforce are union members of various construction-related trade unions and are subject to separately negotiated collective bargaining agreements that expire at varying time intervals.

The Company believes its relationship with its unionized workforce is good.

Hughes Construction Company, Inc.

6 unchanged sentences

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.

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

Pinnacle Technical Solutions, Inc.

12 unchanged sentences

Tri-State Paving & Sealcoating, Inc.

(“TSP” or “Tri-State Paving”), a wholly owned subsidiary of Energy Services, completed the acquisition of substantially all of the assets of Tri-State Paving & Sealcoating, LLC (“Tri-State Paving, LLC”) on April 29, 2022.

(“TSP” or “Tri-State Paving”), a wholly owned subsidiary of Energy Services, completed the acquisition of substantially all the assets of Tri-State Paving & Sealcoating, LLC (“Tri-State Paving, LLC”) on April 29, 2022.

Tri-State Paving provides utility paving services to water distribution customers in the Charleston, West Virginia, Lexington, Kentucky, and Chattanooga, Tennessee markets.

8 unchanged sentences

These variations are the result of weather, customer spending patterns, bidding seasons and holidays.

The first quarter of the calendar year is typically the slowest in terms of revenues because inclement weather conditions cause delays in production and customers usually do not plan large projects during that time.

The first quarter of the calendar year is typically the slowest in terms

of revenues because inclement weather conditions cause delays in production and customers usually do not plan large projects during that time.

While usually better than the first quarter, the second calendar year quarter often has some inclement weather which can cause delays in production, reducing the revenues the Company receives and/or increasing the production costs.

3 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 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 December 31, 2023 and 2022 Overview

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

Three Months Ended

Nine Months Ended

Cost of revenues

3 unchanged sentences

Interest income

Other nonoperating expense

Other nonoperating income (expense)

Interest expense

Gain on sale of equipment

Loss on sale of equipment

Income before income taxes

Income tax expense

Income tax expense (benefit)

Weighted average shares outstanding-basic

2 unchanged sentences

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:

Results of Operations for the Three Months Ended December 31, 2023 Compared to the Three Months Ended December 31, 2022

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

Three Months Ended

June 30, 2023

June 30, 2022

Gas & Water Distribution

Gas & Petroleum Transmission

Electrical, Mechanical, and General

Nine Months Ended

June 30, 2023

June 30, 2022

December 31, 2023

December 31, 2022

Gas & Water Distribution

Gas & Petroleum Transmission

Electrical, Mechanical, and General

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 $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.

Electrical, Mechanical, & General

Total revenues increased by $30.1 million to $90.1 million for the three months ended December 31, 2023, as compared to $60.0 million for the three months ended December 31, 2022.

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

Gas & Water Distribution revenues totaled $17.1 million for the three months ended December 31, 2023, a $4.7 million increase from $12.4 million for the three months ended December 31, 2022.

The revenue increase was primarily related to increased paving services performed on water projects and increased gas and water distribution work.

Gas & Petroleum Transmission revenues totaled $28.6 million for the three months ended December 31, 2023, an $11.7 million increase from $16.8 million for the three months ended December 31, 2022.

The revenue increase was primarily related to gas transmission work that was awarded during the fiscal year ended September 30, 2023 and continued into the first quarter of fiscal year 2024.

Electrical, Mechanical, & General construction services revenues totaled $44.5 million for the three months ended December 31, 2023, a $13.7 million increase from $30.8 million for the three months ended December 31, 2022.

The revenue increase was primarily related to an increase in general contracting and electrical services performed during the three months ended December 31, 2023, as compared to the same period in the prior year.

Cost of Revenues.

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:

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

Three Months Ended

June 30, 2023

June 30, 2022

Gas & Water Distribution

Gas & Petroleum Transmission

Electrical, Mechanical, and General

Unallocated Shop Expenses

Nine Months Ended

June 30, 2023

June 30, 2022

December 31, 2023

December 31, 2022

Gas & Water Distribution

Gas & Petroleum Transmission

Electrical, Mechanical, and General

Unallocated Shop Expenses

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 nine months ended June 30, 2023 compared to the three and nine months ended June 30, 2022, is below:

Electrical, Mechanical, & General

Unallocated Shop Expense

Total cost of revenues increased by $25.3 million to $79.3 million for the three months ended December 31, 2023, as compared to $54.1 million for the three months ended December 31, 2022.

The cost of revenues increase was a result of increased work in all categories of business, partially offset by less unallocated shop expenses.

Gas & Water Distribution cost of revenues totaled $13.1 million for the three months ended December 31, 2023, a $2.5 million increase from $10.6 million for the three months ended December 31, 2022.

The cost of revenue increase was primarily related to increased paving services performed on water projects and increased gas and water distribution work.

Gas & Petroleum Transmission cost of revenues totaled $25.2 million for the three months ended December 31, 2023, an $11.1 million increase from $14.0 million for the three months ended December 31, 2022.

The cost of revenue increase was primarily related to gas transmission work that was awarded during the fiscal year ended September 30, 2023 and continued into the first quarter of fiscal year 2024.

Electrical, Mechanical, & General construction services cost of revenues totaled $41.1 million for the three months ended December 31, 2023, an $11.9 million increase from $29.2 million for the three months ended December 31, 2022.

The cost of revenue increase was primarily related to an increase in general contracting and electrical services performed during the three months ended December 31, 2023, as compared to the same period in the prior year.

Unallocated shop expenses totaled $5,500 for the three months ended December 31, 2023, a $291,000 decrease from $296,000 for the three months ended December 31, 2022.

The decrease in unallocated shop expenses was due to increased internal equipment charges to projects for the three months ended December 31, 2023, as compared to the same period in the prior year.

Gross Profit (Loss) .

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

Three Months Ended

June 30, 2023

June 30, 2022

Gas & Water Distribution

Gas & Petroleum Transmission

Electrical, Mechanical, and General

Unallocated Shop Expenses

Nine Months Ended

June 30, 2023

June 30, 2022

December 31, 2023

December 31, 2022

Gas & Water Distribution

Gas & Petroleum Transmission

Electrical, Mechanical, and General

Unallocated Shop Expenses

Electrical, Mechanical, & General

Unallocated Shop Expense

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.

Total gross profit increased by $4.9 million to $10.8 million for the three months ended December 31, 2023, as compared to $6.0 million for the three months ended December 31, 2022.

Gas & Water Distribution gross profit totaled $4.0 million for the three months ended December 31, 2023, a $2.2 million increase from $1.8 million for the three months ended December 31, 2022.

The gross profit increase was primarily related to increased paving services provided for water projects and increase water distribution services performed during the three months ended December 31, 2023 as compared to the same period in the prior year.

Gas & Petroleum Transmission gross profit totaled $3.4 million for the three months ended December 31, 2023, a $583,000 increase from $2.8 million for the three months ended December 31, 2022.

The gross profit increase was primarily related to gas transmission work that was awarded during the fiscal year ended September 30, 2023 and continued into the first quarter of fiscal year 2024.

Electrical, Mechanical, & General construction services gross profit totaled $3.5 million for the three months ended December 31, 2023, a 1.8 million increase from $1.7 million for the three months ended December 31, 2022.

The increase was primarily related to an increase in general contracting and electrical services performed during the three months ended December 31, 2023, as compared to the same period in the prior year.

Gross loss attributable to unallocated shop expenses totaled $5,500 for the three months ended December 31, 2023, a $291,000 decrease from $296,000 for the three months ended December 31, 2022.

The decrease in unallocated shop expenses was due to increased internal equipment charges to projects for the three months ended December 31, 2023, as compared to the same period in the prior year.

Selling and administrative expenses .

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.

Total selling and administrative expenses increased by $1.9 million to $7.2 million for the three months ended December 31, 2023, as compared to $5.3 million for the same period in the prior year.

The increase was primarily related to additional personnel hired to secure and manage work for expected growth.

Other nonoperating income (expense) .

Other nonoperating income totaled $75,000 for the three months ended December 31, 2023, as compared to a nonoperating expense of ($81,000) for the same period in the prior year.

The change was primarily related to an immaterial legal settlement that recouped costs expended in a prior period.

Interest expense .

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 $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.

Interest expense totaled $602,000 for the three months ended December 31, 2023, an increase of $102,000 from $499,000 for the same period in the prior year.

The increase in interest expense was primarily due to interest paid for equipment financing added in late fiscal year 2023 and an increase in interest rates.

Loss Gain on sale of equipment .

Loss on sale of equipment totaled $13,000 for the three months ended December 31, 2023, a decrease of $18,000 from $31,000 for the same period in the prior year.

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

Income before income taxes was $3.1 million for the three months ended December 31, 2023, as compared to $59,000 for the same period in the prior year.

The increase was primarily related to the items mentioned above.

Income tax expense for the three months ended December 31, 2023, was $1.1 million compared to an income tax benefit of ($80,000) for the same period in the prior year.

The increase in income tax expense was due to the increase in taxable income for the three months ended December 31, 2023, as compared to the prior period.

Net income for the three months ended December 31, 2023, was $2.0 million, as compared to $138,000 for the same period in the prior year.

Comparison of Financial Condition at December 31, 2023, and September 30, 2023

The Company had total assets of $136.4 million at December 31, 2023, a decrease of $6.1 million from the prior fiscal year end balance of $142.5 million.

Accounts receivable, net of allowance for doubtful accounts, totaled $43.2 million at December 31, 2023, a decrease of $8.0 million from the prior fiscal year end balance of $51.2 million.

The decrease was primarily due to the timing of cash collections and project invoicing since September 30, 2023.

Cash and cash equivalents totaled $11.3 million at December 31, 2023, an increase of $5.2 million from the prior fiscal year end balance of $16.4 million.

The decrease was primarily due to a net $2.9 million provided from operating activities, partially offset by a net $1.0 million investment in equipment, and $7.0 million in net short-term and long-term debt repayments.

Prepaid expenses and other totaled $2.7 million at December 31, 2023, a decrease of $833,000 from the prior fiscal year end balance of $3.5 million.

The decrease was primarily due to expensing prepaid insurance during the three months ended December 31, 2023.

Right-of-use assets totaled $2.9 million at December 31, 2023, a decrease of $409,000 from the prior fiscal year end balance of $3.3 million.

The decrease was primarily due to the amortization of operating leases during the three months ended December 31, 2023, partially offset by a net increase in leased vehicles.

The Company had net property, plant and equipment of $36.3 million at December 31, 2023, a decrease of $248,000 from the prior fiscal year end balance of $36.5 million.

The decrease was due to $2.2 million in asset additions, partially offset by $2.1 million in depreciation and net equipment disposals of $379,000.

Intangible assets, net totaled $3.3 million at December 31, 2023, a decrease of $108,000 from the prior fiscal year end balance of $3.4 million.

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

Contract assets totaled $21.8 million at December 31, 2023, an increase of $5.8 million from the prior fiscal year end balance of $16.0 million.

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

Retainage receivable totaled $9.7 million at December 31, 2023, an increase of $2.1 million from the prior fiscal year end balance of $7.6 million.

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

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.

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.

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

The Company had total liabilities of $100.7 million at December 31, 2023, a decrease of $7.2 million from the prior fiscal year end balance of $107.9 million.

Lines of credit and short-term borrowings totaled $14.9 million at December 31, 2023, a decrease of $4.9 million from the prior fiscal year end balance of $19.8 million.

The decrease was due to repayments on the line of credit and insurance premiums financed.

Accrued expenses and other current liabilities totaled $11.6 million at December 31, 2023, a decrease of $1.5 million from the prior fiscal year end balance of $13.1 million.

The decrease was due to the timing of accrued expense payments, as compared to September 30, 2023.

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.

Long-term debt totaled $23.8 million at December 31, 2023, a decrease of $1.2 million from the prior fiscal year end balance of $25.0 million.

The decrease in long-term debt was primarily due to $2.1 million in payments on long-term debt, partially offset by $813,000 in new equipment financing.

Current and long-term operating lease liabilities totaled $2.9 million at December 31, 2023, a decrease of $430,000 from the prior fiscal year end balance of $3.4 million.

The decrease was due to payments made during the three months ended December 31, 2023.

Contract liabilities totaled $17.7 million at December 31, 2023, a decrease of $79,000 from the prior fiscal year end balance of $17.7 million.

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

Deferred tax liabilities totaled $7.7 million at December 31, 2023, an increase of $782,000 from the prior fiscal year end balance of $6.9 million.

The decrease was primarily related to the reduction of the net operating loss carry forward during the three months ended December 31, 2023.

Accounts payable totaled $22.3 million at December 31, 2023, an increase of approximately $0.2 million from the prior fiscal year end balance of $22.0 million.

The increase was due to the timing of accounts payable payments as compared to September 30, 2023.

Shareholders’ equity was $35.6 million at December 31, 2023, an increase of $1.0 million from the prior fiscal year end balance of $34.6 million.

The increase was due to net income of $2.0 million for the three months ended December 31, 2023, partially offset by an annual cash dividend declaration of $994,000 paid on January 2, 2024.

Liquidity and Capital Resources

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The interest rate on the line of credit is the “ Wall Street Journal ” Prime Rate (the index) with a floor of 4.99%.

Based on a borrowing base calculation, the Company had borrowed all $12.5 million available on the line of credit as of September 30, 2022.

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 with a maturity date of June 28, 2023.

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 line of credit is limited to a borrowing base calculation as summarized below:

December 31, 2023

September 30, 2023

Eligible borrowing base

Borrowed on line of credit

Line of credit balance available

Interest rate

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

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

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’s lender has agreed to omit the effect of the PPP loan restatement from the Company’s covenant compliance calculations while a final decision on PPP loan forgiveness remains in question.

Thus, the Company was in compliance with all covenants at December 31, 2023.

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

Insurance Premiums Financed

The Company also finances insurance policy premiums on a short-term basis through a financing company.

The Company financed its captive insurance policy premiums on a short-term basis through a financing company for the calendar years ended December 31, 2023 and 2022.

These insurance policies include workers’ compensation, general liability, automobile, umbrella, and equipment policies.

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

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

The Company made down payments in January 2023 and 2022 and financed the remaining premium amount over eleven monthly payments.

At December 31, 2023 and September 30, 2023, the remaining balance of the insurance premiums was $0 and $950,000, respectively.

Paycheck Protection Program Loans

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On April 15, 2020, the Company and its subsidiaries, C.J.

Hughes, Contractors Rental and Nitro, entered into separate PPP notes effective April 7, 2020, with the Lender, in an aggregate principal amount of $13.1 million pursuant to the PPP Loans.

Hughes, Contractors Rental and Nitro, entered into separate PPP notes effective April 7, 2020, with its Lender in an aggregate principal amount of $13.1 million pursuant to the PPP Loans.

In a special meeting held on April 27, 2020, the Board of Directors of the Company unanimously voted to return $3.3 million of the PPP Loans after discussing the financing needs of the Company and subsidiaries.

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The Company recognizes that there is a possibility that the SBA could reverse its previous determination on the forgiveness of the PPP Loans.

As a result of this uncertainty, on May 12, 2023, the audit committee of the Board of Directors of Energy Services, after considering the recommendation of management, concluded:

that (a) the Company’s previously issued audited consolidated financial statements for the fiscal years ended September 30, 2022 and 2021, and the related reports of its independent registered public accounting firm, Baker Tilly, included in the Company’s annual reports on Form 10-K for the fiscal years ended September 30, 2022 and 2021, and (b) the Company’s unaudited consolidated financial statements for the periods ended June 30, 2021, December 31, 2021, March 31, 2022, June 30, 2022 and December 31, 2022 as reported in the Company’s quarterly reports on Form 10-Q for those periods should no longer be relied upon and have been restated.

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.

As a result of this uncertainty, the Company restated the previously audited financial statements of the Company for the fiscal years 2022 and 2021.

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

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

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Long-Term Debt

On December 16, 2014, the Company’s Nitro subsidiary entered into a 20-year $1.2 million loan agreement with a bank to purchase the office building and property it had previously been leasing for $6,300 monthly.

On December 16, 2014, the Company’s Nitro subsidiary entered into a 20-year $1.2 million loan agreement with a bank to purchase the office building and property it had previously been leasing.

The interest rate on this loan agreement is 4.82% with monthly payments of $7,800.

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

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

As of December 31, 2023, the Company had made principal payments of $402,000.

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

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(West Virginia).

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 June 30, 2023 with monthly payments of $12,500.

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

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.

The variable interest rate on the loan agreement is 9.5% at December 31, 2023.

As of December 31, 2023, the Company had made principal payments of $836,000.

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

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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.

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

As of December 31, 2023, the Company had made annual installment payments of $2.1 million.

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

This five-year agreement gave the Company access to a $3.0 million line of credit (“Equipment Line of Credit 2021”), specifically for the purchase of equipment, for a period of twelve months with a variable interest rate initially established at 4.25% as based on the Prime Rate as published by The Wall Street Journal .

published by The Wall Street Journal.

After twelve months, all borrowings against the Equipment Line of Credit 2021 were converted to a four-year term note agreement with a variable interest rate initially established at 4.25%.

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

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.

As of December 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 December 31, 2022 was 9.5%.

The Company has made principal payments of $1.3 million on this note as of December 31, 2023.

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

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

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

As of December 31, 2023, the Company had made principal payments of $1.8 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 $1.5 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.

This four-year agreement requires $250,000 principal installment payments on or before the end of each twelve (12) full calendar month period beginning April 29, 2022.

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 June 30, 2023.

The Company has made principal payments of $2.1 million on this note as of December 31, 2023.

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

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

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

As of December 31, 2022, the Company had made principal payments of $640,000.

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.

Corns remained as president of Tri-State Paving.

This four-year agreement requires $250,000 principal installment payments on or before the end of each twelve (12) full calendar month period beginning April 29, 2022.

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 has made principal payments of $750,000 on this note as of December 31, 2023.

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%.

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

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

As of December 31, 2023, the Company had borrowed $9.3 million against this line of credit and made $144,000 in principal payments.

Operating Leases

The Company leases office space for SQP for $1,500 per month.

The lease, signed on March 25, 2021, is for a period of two years with five one-year renewals available immediately following the end of the base term.

Rental terms for the option periods shall be negotiated and agreed mutually between the parties and shall not exceed five percent increases to rent, if any.

The lease, which was originally signed on March 25, 2021, is for a period of two years with five one-year renewals available immediately following the end of the base term.

The Company has only committed to a one-year renewal and is evaluating the intent to renew for additional periods.

The Company has two lease agreements for construction equipment with a combined amount of $160,000.

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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 $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 first operating lease, for the Hurricane, West Virginia facility, had a net present value of $236,000 at inception, and a carrying value of $106,000 at December 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 $40,000 at December 31, 2023.

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

The Company has a right-of-use operating lease with Enterprise Fleet Management, Inc.

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

The Company has a right-of-use operating lease with Enterprise acquired on August 11, 2022, as part of the Ryan Environmental acquisition.

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 $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 had sixty-nine vehicles on lease at December 31, 2023.

The right-of-use operating lease has a carrying value of $2.5 million at December 31, 2023.

Each vehicle leased under the master lease program has its own implicit rate ranging from 12.8% to 15.6%.

The Company has a right-of-use operating lease with RICA Developers, LLC acquired on August 12, 2022 and renewed for one year effective October 1, 2023.

This lease, for the Bridgeport, West Virginia facility, had a net present value of $125,000 at inception and a carrying value of $83,000 at December 31, 2023.

The 8.5% interest rate on the operating lease was based on the Company’s incremental borrowing rate at renewal.

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 $247,000 at June 30, 2023.

This lease, for the Winchester, Kentucky facility, had a net present value of $290,000 at inception and a carrying value of $231,000 at December 31, 2023.

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

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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 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.

Rental expense, which is included in cost of goods sold on the consolidated statements of income, was $5.4 million and $2.7 million, respectively, for the three months ended December 31, 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 June 30, 2023, the Company did not have any letters of credit outstanding.

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

Performance Bonds

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Depending upon the size and conditions of a particular contract, the Company may be required to post letters of credit or other collateral in favor of the insurer.

Posting these letters or other collateral will reduce our borrowing capabilities.

Posting of these letters or other collateral will reduce our borrowing capabilities.

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

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

At December 31, 2023, the Company had $98.4 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 nine months ended June 30, 2023 and 2022:

Please see the tables below for customers that represent 10.0% or more of the Company’s revenue or accounts receivable, net of retention for the three months ended December 31, 2023 and 2022:

Three Months Ended

June 30, 2023

June 30, 2022

TransCanada Corporation

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

Nine Months Ended

June 30, 2023

June 30, 2022

Three Months Ended

December 31, 2023

December 31, 2022

NiSource and subsidiaries

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 June 30, 2023 and September 30, 2022:

Accounts receivable, net of retention

June 30, 2023

September 30, 2022

TransCanada Corporation

at December 31, 2023

at September 30, 2023

NiSource and subsidiaries

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

In February 2018, the Company filed a lawsuit against a former customer (“Defendant”) in the United States District Court for the Western District of Pennsylvania.

In February 2018, the Company filed a lawsuit against a former customer in the United States District Court for the Western District of Pennsylvania.

The lawsuit is related to a dispute over work performed on a pipeline construction project.

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 June 30, 2023.

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

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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 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 has expensed all $164,000 in payments made through September 30, 2022 and does not expect any future liabilities related to this claim.

The Company did not make any payments during the three months ended December 31, 2023.

Other than described above, at December 31, 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.

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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 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.

At December 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.

Related Party Transactions

We intend that all transactions between us and our executive officers, directors, holders of 10% or more of the shares of any class of our common stock and affiliates thereof, will be on terms no less favorable than those terms given to unaffiliated third parties and will be approved by a majority of our independent outside directors not having any interest in the transaction.

On December 16, 2014, the Company’s Nitro subsidiary entered into a 20-year $1.2 million loan agreement with First Bank of Charleston, Inc.

(West Virginia) to purchase the office building and property it had previously been leasing for $6,300 each month.

The interest rate on the loan agreement is 4.82% with monthly payments of $7,800.

As of March 31, 2023, the Company had paid approximately $373,000 in principal and approximately $424,000 in interest since the beginning of the loan.

Douglas Reynolds, President of Energy Services, was a director and secretary of First Bank of Charleston.

Samuel Kapourales, a director of Energy Services, was also a director of First Bank of Charleston.

On October 15, 2018, First Bank of Charleston was merged into Premier Bank, Inc., a wholly owned subsidiary of Premier Financial Bancorp, Inc.

Marshall Reynolds, Chairman of the Board of Energy Services, held the same position with Premier Financial Bancorp, Inc.

Douglas Reynolds is the president and a director of Energy Services and was a director of Premier Financial Bancorp, Inc.

On September 17, 2021, Peoples Bancorp, Inc., parent company of Peoples Bank, completed an acquisition of Premier Financial Bancorp, Inc.

and its wholly owned subsidiaries, Premier Bank and Citizens Deposit Bank & Trust.

On October 26, 2021, Mr.

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.

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 has made $750,000 in principal payments on this note as of December 31, 2023.

Subsequent to the April 29, 2022 acquisition of Tri-State Paving, the Company entered into an operating lease for facilities in Hurricane, West Virginia with Corns Enterprises.

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 $148,000 at June 30, 2023.

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

The total net present value at inception was $236,000 with a carrying value of $106,000 at December 31, 2023.

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

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

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.

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

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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 nine months ended June 30, 2023 and 2022.

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

Critical Accounting Estimates

The discussion and analysis of the Company’s financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period.

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Management believes the following accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

The Company recognizes revenue as performance obligations are satisfied and control of the promised good and service is transferred to the customer.

For Lump Sum and Unit Price contracts, revenue is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward complete satisfaction of the performance obligation(s) using an input (i.e., “cost to cost”) method.

The Company recognizes revenue as performance obligations are satisfied and control of the promised goods and service is transferred to the customer.

cost”) method.

For Cost Plus and Time and Material (“T&M”) contracts, revenue is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward satisfaction of the performance obligation(s) using an output method.

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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 June 30, 2023 and September 30, 2022:

June 30, 2023

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

December 31, 2023

September 30, 2023

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

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

At December 31, 2022, the management review deemed that the allowance for doubtful accounts was adequate.

Please see the allowance for doubtful accounts table below:

June 30, 2023

December 31, 2023

September 30, 2023

Beginning balance

Balance at beginning of period

Charged to expense

Deductions for uncollectible receivables written off, net of recoveries

Ending Balance

Balance at end of period

Impairment of goodwill and intangible assets

The Company follows the guidance of ASC Topic 350, Intangibles-Goodwill and Other , which requires a company to record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value.

The Company follows the guidance of Accounting Standards Codification (“ASC”) 350-20-35-3 “Intangibles-Goodwill and Other (Topic 350)” which requires a company to record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value.

Under the current guidance, companies can first choose to assess any impairment based on qualitative factors (Step 0).

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 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.

The Company did not have a goodwill impairment at December 31, 2023.

Materially incorrect estimates could cause an impairment of 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:

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Impairment at

Ended June 30,

Ended December 31,

Net Book Value

Intangible assets:

June 30, 2023

December 31, 2023

Original Cost

June 30, 2023

December 31, 2023

September 30, 2023

at June 30, 2023

at December 31, 2023

at September 30, 2023

West Virginia Pipeline:

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Acquired intangible assets subject to amortization are amortized on a straight-line basis, which approximates the pattern in which the economic benefit of the respective intangible assets is realized, over their respective estimated useful lives.

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 nine months ended June 30, 2023 and 2022 was $5.4 million and $4.0 million, respectively.

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

The Company’s depreciation expenses for the three months ended December 31, 2023 and 2022 was $2.1 million and $1.8 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.

The Company’s amortization expenses for the three months ended December 31, 2023 and 2022 were $108,142 and $132,780, respectively.

In general, amortization is included in “cost of revenues” 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.

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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 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.

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.

The income tax expense for the three months ended December 31, 2023 was $1.1 million as compared to an income tax benefit of ($80,000) for the three months ended December 31, 2022.

The increase was due to an increase in taxable income for the three months ended December 31, 2023, as compared to the same period in 2022.

The effective income tax rate for the three months ended December 31, 2023, was 34.1%, as compared to (135.5) % for the same period in 2022.

Effective income tax rates are estimates and may vary from period to period due to changes in the amount of taxable income and non-deductible expenses.

Accounting for PPP Loans

1 unchanged sentence

The Company applies significant judgment regarding the determination of PPP loan forgiveness based on the rules established, and subsequently clarified by the SBA, including rules related to the Company’s affiliations and meeting SBA size standards.

Refer to Note 3 “Restatement of Previously Issued Financial Statements” in the accompanying consolidated financial statements for additional details.

Refer to Note 3 “Accounting for PPP Loans” in the accompanying consolidated financial statements for additional details.

New Accounting Pronouncements

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Entities are required to provide the new disclosures prospectively for all transactions with a government entity that are accounted for under either a grant or a contribution accounting model and are reflected in the financial statements at the date of initially applying the new amendments, and to new transactions entered into after that date.

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.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.

Retrospective application of the guidance is 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

On November 15, 2023, the Company’s Board of Directors approved an annual dividend of $0.06 per common share.

The 2024 dividend was paid on January 2, 2024 to holders of record as of December 15, 2023.

While this is expected to be an annual dividend, factors such as income from operations, cash flows, and overall financial outlook may affect future dividend payments.

Management has evaluated all subsequent events for accounting and disclosure.

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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 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.

The Company’s backlog at December 31, 2023, was $185.9 million, as compared to $206.9 million and $229.8 million at December 31, 2022, and September 30, 2023, 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