What changed in this filing

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Item 1A. Risk Factors

2022-12-06 compared with 2021-12-03 · 45 added, 63 removed, 216 unchanged (33% of the section changed)

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Risks Relating to the Operations of our Business

The Coronavirus Disease 2019 ("COVID-19") pandemic has adversely impacted, and could have a future materially adverse impact on, our business, including our financial condition, cash flows and results of operations.

The COVID-19 pandemic and its ongoing impact on markets, the supply chain, and availability of labor continue to influence trends affecting our business.

We continue to experience increased prices, longer delivery times, or limited availability for certain materials necessary for our projects, notably copper, aluminum, steel, electrical components, fuel, and certain plastics.

The COVID-19 pandemic and related responses are continuing to evolve and, therefore, continue to present potential new risks to our business, particularly in light of new variants of the virus.

To date, the COVID-19 pandemic has had a number of adverse impacts on our results of operations.

Factors that may affect our results of operations in the future include, but are not limited to, the potential impacts of illness on our workforce, management, or Board of Directors;

the shut-down of job sites;

a reduced demand for our services;

increases in operating costs due to disruptions, the cost of complying with vaccine or testing mandates, personal protective equipment requirements and other increased employment-related costs;

potential supply chain disruptions;

increased material prices;

and limitations on the ability of our customers to pay us on a timely basis.

We may also be more vulnerable to security breaches, cyber-attacks, computer viruses, ransomware, or other similar events, particularly with respect to employees working remotely.

We are continuing to monitor conditions affecting our business and will take actions as may be necessary to protect the health and safety of our employees and to serve our customers.

The ultimate impact and the extent to which the COVID-19 pandemic will continue to affect our business, results of operations and financial condition are difficult to predict and depend on numerous evolving factors outside our control including:

emergence of new variants of the virus;

government, social, business and other actions that have been and will be taken in response to the pandemic;

any additional waves of COVID-19 infections;

the efficacy of vaccines on new variants of the virus;

the effect of government or customer vaccine or testing requirements on employee retention and recruitment;

and the effect of the pandemic on short- and long-term general economic conditions.

Demand for our services is cyclical and vulnerable to economic downturns affecting the industries we serve.

Demand for our services has been, and will likely continue to be, cyclical in nature and vulnerable to downturns in the general economy, as well as in the construction industry and the housing market.

Many of our customers depend on the availability of credit to purchase our services or electrical and mechanical products.

In the past, when the general level of economic activity has been reduced from historical levels, certain of our customers have delayed or cancelled projects or capital spending, thereby reducing our revenues and profitability.

General concerns about the fundamental soundness of the economy may cause customers to defer projects, even if they have credit available to them.

Prolonged uncertainties in the credit market, or the return of constrained credit market conditions, including the impact of rising interest rates on the housing markets, could have adverse effects on our customers, which would adversely affect our financial condition and results of operations.

The highly competitive nature of our industries could affect our profitability by reducing our revenues or profit margins.

With respect to contracting services, the industries in which we compete are highly fragmented and are generally served by many small, owner-operated private companies.

The industries in which we compete are highly fragmented and are generally served by many small, owner-operated private companies.

There are also several large private regional companies and a small number of large public companies from which we face competition in these industries.

In the future, we could also face competition from new competitors entering these markets because certain segments, such as our electrical contracting services, have a relatively low barrier for entry while other segments, such as our services for mission critical infrastructure, have attractive growth and profitability characteristics.

Some of our competitors in certain markets offer a greater range of services, including mechanical construction, facilities management, plumbing and heating, ventilation and air conditioning services.

In the future, we could also face competition from new competitors entering these markets because certain segments, such as our electrical contracting services, have a relatively low barrier for entry while other segments, such as our services and custom engineered electro-mechanical products for mission critical infrastructure, have attractive growth and profitability characteristics.

Some of our competitors in certain markets may offer a greater range of services than we offer in those markets, including mechanical construction and facilities management.

Competition in our markets depends on a number of factors, including price.

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If we are unable to offer our services at competitive prices or if we have to reduce our prices to remain competitive, our profitability would be impaired.

The markets in which Infrastructure Solutions does business are highly competitive, and we do not expect the level of competition that we face to decrease in the future.

An increase in competitive pressures in these markets or our failure to compete effectively (including

efficiently managing future capital expenditures and refurbishment, repair and upgrade costs) may result in pricing reductions, reduced gross margins, and loss of market share.

Some of our competitors have longer operating histories, greater name recognition, more customers, and significantly greater financial, marketing, technical, and other competitive resources than we have.

These competitors may be able to adapt more quickly to new technologies and changes in customer needs or devote greater resources to the development, promotion, and sale of their services.

While we believe Infrastructure Solutions’ overall product and service offerings distinguish it from its competitors, these competitors could develop new products or services that could directly compete with Infrastructure Solutions’ services.

We generate a significant portion of our revenues under fixed price contracts.

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Depending upon the size of a particular project, variations from estimated contract costs can have a significant impact on our operating results.

If the costs associated with labor and commodities, such as copper, aluminum, steel, electrical components, fuel, and certain plastics, increase due to low supply or other forces, losses may be incurred.

Some of our materials have been and may continue to be subject to sudden and significant price increases.

Depending on competitive pressures and customer resistance, we may not be able to pass on these cost increases to our customers, which would reduce our gross profit margins and, in turn, make it more difficult for us to maintain our profitability.

If the costs associated with labor and commodities, such as copper, aluminum, steel, electrical components, fuel, and certain plastics, increase due to low supply, inflation, general market conditions, supply chain disruptions and delays, or other forces, losses may be incurred.

Some of our materials have been and may continue to be subject to sudden and significant price increases, and continued high demand and low supply for those resources may lead to additional price increases.

We are also exposed to volatility in energy prices, particularly as they relate to fuel prices for our fleet vehicles.

Depending on competitive pressures and the fixed price nature of many of our contracts, we may not be able to pass on these cost increases to our customers, which would reduce our gross profit margins and, in turn, make it more difficult for us to maintain our profitability.

We have a work force of over 8,000 employees, and our labor costs may fluctuate based on availability of and demand for workers as well as other labor related risks, including risks related to collective bargaining agreements, benefits arrangements, wage and hour claims and other compensation arrangements.

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Contract bidding and negotiations are affected by a number of factors, including our own cost structure and bidding policies.

Although no single customer represented more than ten percent of our consolidated revenue in fiscal 2022, we do have certain customers that are significant to our individual operating segments.

It is not possible for us to predict the future level of demand for our services by these customers, and if one or more of them were to significantly delay, reduce or curtail activity, or stop accepting bids from us, it could have a material impact on our operating results.

In addition, our ability to secure new contracts depends on our ability to maintain all required electrical, construction, mechanical and business licenses.

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Further, valuations of non-marketable debt and equity investments are inherently complex due to the lack of readily available market data.

In addition, our acquisitions and investments may not perform as expected or may not generate a positive return on investment due to factors we could not predict prior to the acquisition or due to incorrect investment assumptions.

We may be unsuccessful at integrating other companies that we may acquire, or new types of work, products or processes into our segments.

Some of our past acquisitions and investments have not performed as expected, and there is no assurance that future acquisitions and investments will perform as expected or generate a positive return on investment due to factors we could not predict prior to the acquisition or due to incorrect investment assumptions.

Acquisitions, dispositions and other strategic transactions that we may pursue could have a negative effect on our results of operations.

We are actively seeking to engage in acquisitions of operations, assets and investments, or to develop new types of work or processes, and we may seek to engage in dispositions of certain operations, assets or investments from time to time.

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• the demands of managing new locations, new personnel and new lines of business acquired.

Demand for our services is cyclical and vulnerable to economic downturns affecting the industries we serve.

Many of our customers depend on the availability of credit to purchase our services or electrical and mechanical products.

General concerns about the fundamental soundness of the economy may cause customers to defer projects, even if they have credit available to them.

Prolonged uncertainties in, or the return of, constrained credit market conditions could have adverse effects on our customers, which would adversely affect our financial condition and results of operations.

Backlog may not be realized or may not result in profits.

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In the event of a project cancellation, we may be reimbursed for certain costs, but typically have no contractual right to the total revenues reflected in our backlog.

We may fail to adequately recover on contract change orders or claims brought by us against customers.

We may fail to adequately recover on contract change orders.

From time to time, we may pursue claims against our customers to recover costs incurred on a project in excess of the original contract amount.

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Furthermore, we may be required to invest significant working capital to fund cost overruns while the resolution of a claim is pending, and our additional costs may not be recovered until the claim is resolved, if at all.

When appropriate, we establish provisions against possible exposures, and we adjust these provisions from time to time, but our assumptions and estimates related to these exposures might prove to be inadequate or inaccurate.

Unfavorable resolution of these matters can result in a reduction of revenues and profit recognized in prior periods or the recognition of a loss, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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If we were to elect to dispose of a substantial portion of any of our segments, facilities, or assets, the realized values of such assets could be substantially less than current book values, which would likely result in a material adverse impact on our financial results.

In addition, we may have warranty claims or other unexpected liabilities from closed facilities beyond the closing date, which could adversely impact our financial returns.

In addition, we may have warranty claims, costs pursuant to obligations to indemnify buyers after assets are sold, or other unexpected liabilities from closed facilities beyond the closing date, and if we dispose of a segment or business, we may continue to be subject to certain prior liabilities of that business after its disposition and may not be able to negotiate for limitations on those liabilities, all of which could adversely impact our financial returns.

The COVID-19 pandemic has adversely impacted, and could have a future materially adverse impact on, our business, including our financial condition, cash flows and results of operations.

The COVID-19 pandemic and its ongoing impact on markets, the supply chain, and availability of labor has had a number of adverse impacts on our results of operations, and it continues to influence trends affecting our business.

The impact of the COVID-19 pandemic or any future epidemics or pandemics on our business is difficult to predict, but adverse impacts could include the potential for job site closures or work stoppages, supply chain disruptions, delays in awarding new project bids, construction delays, reduced demand for our services, delays in our ability to collect from our customers, or illness of management or other employees.

The availability and cost of surety bonds affect our ability to enter into new contracts and our margins on those engagements.

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Those bonds guarantee the customer that we will perform under the terms of a contract and that we will pay subcontractors and vendors.

We obtain surety bonds from two

primary surety providers;

We obtain surety bonds from two primary surety providers;

however, there is no commitment from these providers to guarantee our ability to issue bonds for projects as they are required.

Our ability to access this bonding capacity is at the sole discretion of our surety providers.

Accordingly, if we were to experience an interruption or reduction in our availability of bonding capacity, we may be unable to compete for, or work on, certain projects .

Accordingly, if we were to experience an interruption or reduction in our availability of bonding capacity, or if we are unable to obtain bonds at a reasonable cost, we may be unable to compete for, or work on, certain projects.

We are subject to risks associated with seasonality, adverse weather conditions, and climate change.

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Adverse weather conditions, including rain, heat, ice, cold or snow may not only delay our work and contribute to project inefficiency, but may negatively impact our schedules and profitability by delaying the work of other trades on a construction site.

Extreme weather conditions (such as storms, droughts, extreme heat or cold, wildfires and floods) may limit the availability of resources, increase our costs, or may cause projects to be cancelled.

Extreme weather conditions (such as hurricanes or other storms, droughts, extreme heat or cold, wildfires and floods) may limit the availability of resources, increase our costs, damage property, disrupt our workforce, or may cause projects to be cancelled.

As we have expanded our operations in coastal areas, particularly Florida, these risks have increased.

To the extent climate change results in an increase in extreme weather events and adverse weather conditions, the likelihood of a negative impact on our results of operations may increase.

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In all of our businesses, we are subject to potential claims and litigation, including contractual disputes, warranty claims, and claims related to our compliance with legal and regulatory requirements.

We have in the past been, and may in the future be, named as a defendant in lawsuits, claims and other legal proceedings;

such claims and litigation are common in the construction and electrical and mechanical maintenance businesses and may be related to contract delays, changes in the scope of work or alleged defects.

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If multiple matters are resolved during a given period, then the cumulative effect of these matters may be higher than the ordinary level in any one reporting period.

In addition, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such actions or proceedings, which could result in significant expense, damage to our reputation and diversion of management’s attention from our business.

Latent defect litigation is normal for residential home builders in some parts of the country, as well as in certain areas of the commercial market.

Any increases in our latent defect claims and litigation could place pressure on the profitability of the Residential and Commercial & Industrial segments of our business.

Regulatory requirements could result in significant compliance costs and liabilities.

We have operations throughout the United States and are subject to multiple state and local regulations.

In addition, our segments, particularly our Commercial & Industrial segment, may be subject to federal laws and requirements applicable to government contractors.

Our 130 locations are located in 27 states, which exposes us to a variety of different state and local laws and regulations, particularly those pertaining to electrical contractor and other licensing requirements.

These laws and regulations govern many aspects of our business, and there are often different standards and requirements in different locations.

Changes in law, regulations or requirements, or a material failure to comply with any of them, could increase our costs and have other negative impacts on our business by, among other things, increasing costs, harming our reputation and, in some instances, causing us to be in violation of our contractual obligations.

Disruptions to the proper functioning of our information technology systems or security breaches of our critical data, sensitive information or information technology systems could disrupt operations and cause increases in costs, decreases in revenues and/or harm to our reputation.

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Compliance with future changes in environmental laws and regulations, including those relating to climate change, could require significant expenditures.

Increasing concerns about climate change and other environmental issues may result in additional environmental regulations and restrictions, and we cannot predict the nature, scope or effect of legislation or regulatory requirements that could be imposed, or how

existing or future laws or regulations will be administered or interpreted.

Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could increase the costs of projects for us or our customers, potentially resulting in reduced profitability or a reduced demand for our services, or require us to incur substantial costs of compliance.

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We have a severance plan in place that covers certain of our senior leaders;

however, this plan can neither guarantee that we will not lose key employees, nor prevent them from competing against us, which is often dependent on state and local employment laws.

however, this plan can neither guarantee that we will not lose key employees, nor prevent them from competing against us.

If we lose a group of key personnel or even one key person at a segment, we may not be able to recruit suitable replacements at comparable salaries or at all, which could adversely affect our operations.

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Our business is labor intensive, and many of our operations experience a high rate of employee turnover.

We also may be constrained in hiring and retaining sufficient qualified employees to support our growth strategy due to general labor shortages in our industries, including potential employee attrition in connection with government or customer COVID-19 vaccine or testing mandates.

We also may be constrained in hiring and retaining sufficient qualified employees to support our growth strategy due to general labor shortages in our industries.

In addition, a lack of skilled labor or increased turnover rates within our employee base could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees.

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However, there can be no assurance that our results of operations will not be adversely affected in the event that disagreement over our tax positions does arise.

We have recognized deferred tax assets based upon our estimates of future taxable income, and we may recognize tax expense if there is a reduction in the statutory tax rate or if future taxable income is lower than our estimates.

As of September 30, 2021, we have a net deferred tax asset of $19.0 million on our Consolidated Balance Sheets, which includes $6.4 million attributable to NOLs.

To realize the full benefit of this deferred tax asset attributable to NOLs, we must generate sufficient taxable income within the applicable carry forward period to offset against NOLs.

Under GAAP, we are required to assess whether we believe the benefit of the deferred tax asset is more likely than not to be realized based on our expectation of generating sufficient future taxable income, and we are required to record a valuation allowance, or offset, against our deferred tax asset based on the portion of the deferred tax asset that we believe is not more likely than not to be realized.

Any future change in the federal statutory tax rate could impact the economic benefit of the NOLs and other deferred tax assets available to us and result in a charge or benefit to adjust the book value of the deferred tax asset recorded on our Consolidated Balance Sheets.

If we are unable to generate sufficient taxable income in the future to utilize our NOLs, then we could be required to record valuation allowances, resulting in an increase in income tax expense and a reduction of our consolidated net income.

Failure to generate sufficient taxable income in the future could also result in the inability to utilize certain NOLs before they expire.

To fund our working capital requirements, complete acquisitions and service any debt we may incur, we may require a significant amount of cash.

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We may not be able to remain in compliance with the covenants in our credit agreement, including financial covenants which, among other things, require minimum levels of liquidity and require us to maintain a specified fixed charge coverage ratio as defined under our credit agreement.

Other covenants, among other things, limit our ability to provide liens, restrict fundamental changes, limit transactions with affiliates and subsidiaries, restrict changes to our organization documents, limit asset dispositions, limit investments, limit the ability to incur debt, restrict certain payments to shareholders, limit our ability to repurchase our stock, and limit the ability to change the nature of our business.

A failure to fulfill the terms and requirements of our credit agreement may result in a default under our credit agreement and acceleration of any indebtedness we may incur, as well as a default under one or more of our material agreements, any of which could have a material adverse effect on our ability to conduct our operations and our financial condition.

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A majority of our outstanding common stock is owned by Tontine, and Jeffrey Gendell, founder and managing member of Tontine, serves as our Chief Executive Officer and as Chairman of our Board of Directors.

Based on a Form 4 filed by Tontine with the SEC on November 18, 2021, Tontine owned approximately 56 percent of the Company’s outstanding common stock as of December 1, 2021.

Tontine owns approximately 57 percent of the Company’s outstanding common stock based on a Form 4 filed by Tontine with the SEC on December 3, 2021, and the Company's

shares outstanding as of December 2, 2022.

As a result, Tontine can control most of our affairs, including the election of our directors, who in turn appoint executive management and can control most actions requiring the approval of shareholders, including the adoption of amendments to our corporate charter and approval of any potential merger or sale of all or substantially all of the Company's assets or business segments or the Company itself.

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Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could increase the costs for our shareholders to bring claims, discourage our shareholders from bringing claims, or limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our current or former directors, officers, employees or shareholders in such capacity.

In April 2021, we amended our bylaws to provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for claims, including derivative claims that are based upon a violation of a duty by a current or former director, officer, employee or shareholder in such capacity or as to which the Delaware General Corporation Law confers jurisdiction upon the Court of Chancery.

Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is, to the fullest extent permitted by law, the sole and exclusive forum for claims, including derivative claims that are based upon a violation of a duty by a current or former director, officer, employee or shareholder in such capacity or as to which the Delaware General Corporation Law confers jurisdiction upon the Court of Chancery.

The exclusive forum provision may increase the costs for a shareholder to bring a claim or limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder finds favorable for disputes with us or our directors, officers, employees or shareholders in such capacity, which may discourage such lawsuits against us and such persons.

Alternatively, if a court were to find these provisions of our bylaws inapplicable to, or unenforceable in respect of, the claims as to which they are intended to apply, then we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial position or results of operations.

While the exclusive forum provision applies to state and federal law claims, our shareholders will not be deemed to have waived our compliance with, and the exclusive forum provision will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under, the federal securities laws, including the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

While the exclusive forum provision applies to state and federal law claims, our shareholders will not be deemed to have waived our compliance with, and the exclusive forum provision will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under, the federal securities laws, including the Exchange Act, or the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

General Risks

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A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be satisfied.

Internal controls over financial reporting and disclosure controls and procedures are designed to

give reasonable assurance that they are effective and achieve their objectives.

Internal controls over financial reporting and disclosure controls and procedures are designed to give reasonable assurance that they are effective and achieve their objectives.

We cannot provide absolute assurance that all possible future control issues have been detected.

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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-K

Item 1A. Risk Factors