What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-05-07 compared with 2020-02-06 · 193 added, 158 removed, 352 unchanged (50% of the section changed)

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Our revenues come from contracts to provide engineering, procurement, fabrication and construction, repair and maintenance and other services.

Our engineering, procurement and fabrication and construction services are usually provided in association with capital projects, which commonly are fixed price contracts and are billed based on project milestones.

Our engineering, procurement, fabrication and construction services are usually provided in association with capital projects, which commonly are fixed price contracts and are billed based on project milestones.

Our repair and maintenance services typically are cost reimbursable or time and material based contracts and are billed monthly or, for projects of short duration, at the conclusion of the project.

58 unchanged sentences

Unpriced Change Orders and Claims

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $9.1 million at December 31, 2019 and $10.1 million at June 30, 2019 .

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $10.8 million at March 31, 2020 and $10.1 million at June 30, 2019 .

The amounts ultimately realized may be significantly different than the recorded amounts resulting in a material adjustment to future earnings.

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As a test for reasonableness, we also consider the combined carrying values of our reporting units to our market capitalization.

During the third quarter, the Company concluded that goodwill impairment indicators existed based on the uncertainties caused by the COVID-19 pandemic and the significant decline in the price of crude oil.

These uncertainties have resulted in lowered revenue expectations for the remainder of fiscal 2020 and fiscal 2021 and led to significant volatility in the Company's stock price.

Accordingly, the Company performed an interim test as of March 31, 2020, which did not result in any impairments.

While near-term revenue expectations were reduced, the Company also projected significant reductions in its cost structure.

As of March 31, 2020, there were three reporting units with goodwill totaling $14.1 million that had low headroom, which we define as the percentage difference between the fair value of a reporting unit and its carrying value.

Our financial projections were based on the current assessment of our markets.

Our markets are at historically volatile levels and future developments are difficult to predict.

If the markets that impact our business continue to deteriorate, particularly in the reporting units mentioned above, the Company could recognize a significant goodwill impairment.

In the second quarter, the Company concluded that a goodwill impairment indicator existed in the Electrical Infrastructure segment based on the recent history of depressed gross margins and the second quarter’s downward acceleration of revenue and gross margin.

5 unchanged sentences

The remaining goodwill in the Industrial segment is related to a separate reporting unit that serves a broader customer base beyond iron and steel.

Except for the impairments previously discussed, the Company did not note any other impairment indicators as of December 31, 2019 .

However, if our market view of project opportunities or gross margins deteriorates, then additional interim goodwill impairment tests will be performed, which could result in the recognition of additional impairments to goodwill.

Our significant assumptions, including revenue growth rates, gross margins, discount rate and other factors may change in light of changes in the economic and competitive environment in which we operate.

Assuming that all other components of our fair value estimate remain unchanged, a change in the following assumptions would have the following effect on headroom:

Headroom Sensitivity Analysis

Goodwill as of March 31, 2020 (in thousands)

Baseline Headroom

Headroom if Revenue Growth Rate

Declines by 100 Basis Points

Headroom if Gross Margin

Declines by 100 Basis Points

Headroom if Discount Rate Increases by 100 Basis Points

Reporting Unit 1

Reporting Unit 2

Reporting Unit 3

All other reporting units

We use the asset and liability approach for financial accounting and reporting for income taxes.

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Finally, we offer AST products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

The Industrial segment consists of work for integrated iron and steel companies, major mining and minerals companies engaged primarily in the extraction of copper, as well as companies in other industries, including aerospace and defense, cement, and agriculture and grain.

The Industrial segment consists of work for various industries, including major mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and defense, cement, agriculture, and various industrial facilities.

Our services include engineering, fabrication and construction, and maintenance and repair, which includes planned and emergency services.

We also design instrumentation and control systems and offer specialized expertise in the design and construction of bulk material handling systems.

Business Update

During the second quarter of fiscal 2020, the Company recorded $38.5 million of impairments to goodwill and other intangible assets and a $2.4 million valuation allowance on a deferred tax asset that significantly impacted the provision for income taxes.

The events and circumstances that led to these charges as well as an update to each of our segments' business is provided in the sections below.

The following table presents our net income and earnings per fully diluted share after adjusting for these one-time non-cash items:

Operational Update

As the COVID-19 pandemic persists, the Company's top priority has been to maintain a safe working environment for all employees, customers and business partners.

We transitioned the majority of our 1,000 administrative and engineering team members to remote working conditions in March.

Our project teams in coordination with our clients created work processes to integrate the guidance from governmental agencies and leading health organizations to protect the health and safety of everyone on our job sites while maintaining productivity.

There is significant uncertainty regarding the near- and intermediate-term economic impacts from the COVID-19 pandemic and the significant supply/demand dislocation in crude oil during the quarter, which has resulted in lowered revenue expectations for the remainder of fiscal 2020 and for fiscal 2021.

As a result, the Company is expanding its previously announced business improvement plan, which consists of discretionary cost reductions, workforce reductions and closures of certain offices in order to increase the utilization of the Company's staff and bring the cost structure of the business in line with the near-term expectation of lower revenue.

The Company incurred $6.6 million of restructuring costs during the three months ended March 31, 2020 and expects to incur an additional $4.0 to $6.0 million of restructuring costs related to activities planned during the fourth quarter of fiscal 2020.

The Company expects to save approximately $40.0 million in annual operating costs at the conclusion of the plan.

Approximately $12.0 million of the reductions are related to SG&A and approximately $28.0 million are related to construction overhead activities.

In order to more clearly depict the core profitability of the Company, the following table presents our net income (loss) and earnings (loss) per fully diluted share for the three and nine months ended March 31, 2020 after adjusting for expense items related to restructuring initiatives and impairments:

Reconciliation of Adjusted Net Income (Loss) and Diluted Earnings (Loss) per Common Share (1)

(In thousands, except per share data)

Three Months Ended December 31, 2019

Six Months Ended December 31, 2019

Three Months Ended March 31, 2020

Nine Months Ended March 31, 2020

Amount of Charge

5 unchanged sentences

Net loss and diluted loss per common share, as reported

Restructuring costs incurred

Electrical Infrastructure segment goodwill impairment

1 unchanged sentence

Valuation allowance placed on a deferred tax asset

Adjusted net income and diluted earnings per common share

Adjusted net income (loss) and diluted earnings (loss) per common share

Weighted average common shares outstanding - diluted:

1 unchanged sentence

Adjusted weighted average common shares outstanding - diluted

This table presents non-GAAP financial measures of our adjusted net income and adjusted diluted earnings per common share for the three and six months ended December 31, 2019.

This table presents non-GAAP financial measures of our adjusted net income (loss) and adjusted diluted earnings (loss) per common share for the three and nine months ended March 31, 2020.

The most directly comparable financial measures are net income (loss) and diluted earnings (loss) per common share, respectively, presented in the Condensed Consolidated Statements of Income.

We have presented these financial measures because we believe they more clearly depict the core operating results of the Company during the periods presented and provide a more comparable measure of the Company's operating results to other companies considered to be in similar businesses.

Since adjusted net income and adjusted diluted earnings per common share are not measures of performance calculated in accordance with GAAP, they should be considered in addition to, rather than as a substitute for, the most directly comparable GAAP financial measures.

Three Months Ended December 31, 2019 Compared to the Three Months Ended December 31, 2018

Consolidated revenue was $318.7 million for the three months ended December 31, 2019 , compared to $340.6 million in the same period in the prior fiscal year.

On a segment basis, revenue decreased for the Oil Gas & Chemical and Electrical Infrastructure segments by $30.3 million and $28.1 million, respectively.

These decreases were partially offset by increases in the Industrial and Storage Solutions segments of $19.5 million and $17.0 million, respectively.

Consolidated gross profit increased to $30.0 million in the three months ended December 31, 2019 compared to $ 27.9 million in the same period in the prior fiscal year.

Gross margin increased to 9.4% in the three months ended December 31, 2019 compared to 8.2% in the same period in the prior fiscal year.

Fiscal 2020 gross margin was positively impacted by strong project execution in the Storage Solutions and Industrial segments.

Gross margin in the Electrical Infrastructure segment was negatively impacted by poor execution, which included a charge on a transmission and distribution upgrade project.

Gross margin in the Oil Gas & Chemical segment was negatively impacted by lower volumes, which led to the under recovery of construction overhead costs.

Consolidated SG&A expenses were $23.2 million in the three months ended December 31, 2019 compared to $22.4 million in the same period a year earlier.

The Company recorded non-cash goodwill and other intangible asset impairments of $38.5 million during the three months ended December 31, 2019 .

Financial Statements, Note 4 - Intangible Assets Including Goodwill for more information about the impairments.

Interest expense was $0.4 million in the three months ended December 31, 2019 compared to the same amount in the same period a year ago.

Interest expense was the same as the prior fiscal year despite having a higher average debt balance in the current year because of lower interest rates in the current year.

Interest income was $0.4 million in the three months ended December 31, 2019 compared to $0.3 million in the same period a year ago due to an increase in our average cash balance.

Our effective tax rate for the three months ended December 31, 2019 was 10.5% , compared to 27.4% for the same period a year ago.

We previously expected our fiscal 2020 effective tax rate to be approximately 27.0% .

The effective tax rate in fiscal 2020 was negatively impacted by a $2.4 million valuation allowance placed on a deferred tax asset that was created by net operating loss carryforwards and other tax credits in Canada.

The charge was the result of the second quarter cancellation of a Canadian iron and steel project that significantly impacted the fiscal 2020 financial forecast.

Additionally, the effective tax rate in fiscal 2020 was negatively impacted by the non-deductible portion of the goodwill impairments.

We expect the effective tax rate to be approximately 28.0% for the remainder of the fiscal year.

The fiscal 2019 effective tax rate was in line with our expected effective tax rate.

For the three months ended December 31, 2019 , we had a net loss was $28.0 million , or $1.04 per fully diluted share, compared to net income of $3.9 million , or $0.14 per fully diluted share, in the three months ended December 31, 2018 .

Since adjusted net income (loss) and adjusted diluted earnings (loss) per common share are not measures of performance calculated in accordance with GAAP, they should be considered in addition to, rather than as a substitute for, the most directly comparable GAAP financial measures.

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

Consolidated revenue was $248.3 million for the three months ended March 31, 2020 , compared to $358.9 million in the same period in the prior fiscal year.

On a segment basis, revenue decreased for the Industrial, Electrical Infrastructure, and Oil Gas & Chemical segments by $57.4 million, $32.3 million, and $30.2 million, respectively.

These decreases were partially offset by an increase in the Storage Solutions segment of $9.3 million.

Consolidated gross profit decreased to $20.5 million in the three months ended March 31, 2020 compared to $ 36.9 million in the same period in the prior fiscal year.

Gross margin decreased to 8.2% in the three months ended March 31, 2020 compared to 10.3% in the same period in the prior fiscal year.

Gross margins in Fiscal 2020 are the result of strong project execution, offset by the under recovery of construction overhead costs due to lower than anticipated revenue volumes.

Consolidated SG&A expenses were $19.7 million in the three months ended March 31, 2020 compared to $24.1 million in the same period a year earlier.

The decrease is primarily attributable to cost reduction initiatives and lower incentive compensation due to weaker operating results in the current year.

The Company recorded $6.6 million of restructuring costs due to actions taken under our business improvement plan.

See Operational Update in this Results of Operations section and Item 1.

Financial Statements, Note 10 - Restructuring Costs, for more information about the restructuring costs.

Interest expense was $0.4 million in the three months ended March 31, 2020 compared to $0.3 million in the same period a year ago.

The increase was due to a higher average debt balance during the three months ended March 31, 2020 .

Interest income was $0.4 million in the three months ended March 31, 2020 compared to $0.3 million in the same period a year ago due to an increase in our average cash balance.

Our effective tax rate for the three months ended March 31, 2020 was 16.9% compared to 30.5% for the same period a year ago.

The tax benefit for the three months ended March 31, 2020 was negatively impacted by higher than normal non-deductible expenses.

The effective tax rate in fiscal 2019 was negatively impacted by a valuation allowance of $0.6 million placed on foreign tax credits generated by our operations in Canada, which we believe will not be utilized prior to their expiration.

For the three months ended March 31, 2020 , we had a net loss of $5.5 million , or $0.21 per fully diluted share, compared to net income of $8.9 million , or $0.33 per fully diluted share, in the three months ended March 31, 2019 .

Electrical Infrastructure

Revenue for the Electrical Infrastructure was $30.0 million in the three months ended December 31, 2019 compared to $58.2 million in the same period a year earlier.

The decrease is primarily due to lower volumes of power delivery and power generation package work.

The segment gross margin (loss) was (9.6)% in fiscal 2020 and 6.1% in fiscal 2019.

The fiscal 2020 segment gross loss was negatively impacted by poor execution, which included a charge on a transmission and distribution upgrade project.

Fiscal 2019 segment gross margin was negatively impacted by lower than previously forecasted margins on a limited number of projects.

The Company recorded a goodwill impairment of $24.9 million in this segment in the second quarter of 2020.

The impairment of the goodwill was due to the financial performance of portions of the power delivery business that led to the recent history of depressed gross margins, which accelerated during the second quarter.

The Company is implementing significant changes to the operations and management of the business, including changes to leadership, modifications to operational processes, changes to mid-level operational personnel, and increased business development resources.

The Company believes that these changes will result in revenue growth and margin improvement although the timing of financial improvement is dependent upon the effectiveness and execution of the improvement plan, the markets we serve, the spending volumes of our existing clients and other external factors.

Revenue for the Electrical Infrastructure segment was $28.4 million in the three months ended March 31, 2020 compared to $60.7 million in the same period a year earlier.

The decrease is primarily due to a lower volume of power delivery and power generation work.

The segment gross margin was 2.6% in fiscal 2020 and 10.2% in fiscal 2019.

Fiscal 2020 project execution met our expectations, but segment gross margin was negatively impacted by lower volumes, which lead to the under recovery of construction overhead costs.

The fiscal 2019 segment gross margin was positively impacted by strong project execution on power generation work.

In the second quarter of fiscal 2020, the Company announced a business improvement plan for this segment.

The plan included significant changes to the operations and management of the business, including changes to leadership and mid-level operational personnel, modifications to operational processes, and increased business development resources.

During the quarter, we partially completed the planned personnel changes and strengthened business processes, which has led to improved project execution.

However, it is still too early to assess the long-term effectiveness of the business improvement plan.

Furthermore, an improvement in the operating performance of this segment will be dependent upon the effectiveness and execution of the improvement plan, the markets we serve, the spending volumes of our existing clients and other external factors.

The geographic footprint of most work in this segment is concentrated in the Mid-Atlantic and Northeastern U.S., which has been severely affected by the COVID-19 pandemic.

As a result, we have experienced suspensions of work at certain job sites and client proposal activity has slowed as they manage other pandemic-related challenges.

We will continue to assess conditions in the areas we serve and resume normal operations based on the needs of our clients and safety guidelines to ensure the protection of our employees and customers.

Oil Gas & Chemical

Revenue for the Oil Gas & Chemical segment was $56.0 million in the three months ended December 31, 2019 compared to $86.3 million in the same period a year earlier.

Revenue for the Oil Gas & Chemical segment was $52.3 million in the three months ended March 31, 2020 compared to $82.5 million in the same period a year earlier.

The decrease of $30.2 million is primarily due to lower volumes of turnaround work.

The segment gross margin was 7.5% for the three months ended December 31, 2019 compared to 10.6% in the same period last year.

The fiscal 2020 segment gross margin was negatively impacted by lower volumes, which led to the under recovery of construction overhead costs.

The outlook for this segment’s revenue and margin is expected to improve in the second half of the fiscal year, with increased levels of capital work in new and retrofit process infrastructure as well as engineering led projects in the mid-stream natural gas industry.

The segment gross margin was 5.6% for the three months ended March 31, 2020 compared to 13.0% in the same period last year.

Fiscal 2020 segment gross margin was negatively impacted by lower volumes, which led to under recovery of construction overhead costs, and a lower than previously expected margin on a capital project due to purchased equipment that was found to be under performing during start-up and commissioning.

The fiscal 2019 segment gross margin benefited from improved recovery of construction overhead costs and strong execution on capital projects.

The short-term impact to the Company's refinery turnaround and maintenance operations as a result of direct and indirect conditions created by the global pandemic has been considerable.

There have been project cancellations, delays and temporary suspensions of planned seasonal work, however, in most cases the revenue volumes are moving out in time from a few weeks to quarters, but not eliminated.

The updated start dates on many of the delayed activities is uncertain and will depend on the needs of our clients, safety guidelines, and the market.

Storage Solutions

Revenue for the Storage Solutions segment was $142.8 million in the three months ended December 31, 2019 compared to $125.7 million in the same period a year earlier.

The increase in segment revenue is primarily a result of increased tank and terminal construction work and higher levels of capital work in Canada.

The segment gross margin was 13.9% in the three months ended December 31, 2019 compared to 8.9% in the three months ended December 31, 2018 .

Revenue for the Storage Solutions segment was $143.7 million in the three months ended March 31, 2020 compared to $134.4 million in the same period a year earlier.

The increase in segment revenue is primarily a result of increased tank and terminal construction work and higher levels of work in Canada.

The segment gross margin was 12.5% in the three months ended March 31, 2020 compared to 10.8% in the three months ended March 31, 2019 .

The fiscal 2020 segment gross margin was positively impacted by strong project execution on large capital projects.

The fiscal 2019 segment gross margins were negatively impacted by the wind down of lower margin work awarded in a highly competitive environment in prior periods.

Subsequent to the end of the quarter the Company announced that it has been selected by Eagle LNG Partners LLC for the engineering, procurement, fabrication and construction of a LNG export facility to be built in Jacksonville, Florida.

This project, which is expected to commence in 2020 is not reflected in the Company’s backlog as of December 31, 2019.

The opportunity pipeline remains strong for crude, LNG and NGL storage and export terminal construction along the Gulf Coast.

Additionally, the Company is seeing increased opportunities in the Upper Midwest and Mid-Atlantic regions of the United States and in Canada.

Revenue for the Industrial segment increased $19.5 million to $89.9 million in the three months ended December 31, 2019 compared to $70.4 million in the same period a year earlier.

The increase in revenue is primarily attributable to higher volumes of iron and steel work, including spending on a capital project on which we received mechanical completion and demobilized in the second quarter.

The segment gross margin was 9.9% in the three months ended December 31, 2019 compared to 5.7% in the same period a year earlier.

The fiscal 2020 segment gross margin was positively impacted by good project execution on both capital and repair and maintenance projects.

The fiscal 2019 segment gross margin was negatively impacted by a lower than previously forecasted margin on a thermal vacuum chamber project.

The Company recorded goodwill and other intangible asset impairments of $13.6 million in the segment in the second quarter of fiscal 2020.

The impairments were due to a significant deterioration in the outlook of the segment based on the following:

general economic and trade issues impacting the spending of the nation's integrated iron and steel producers;

deterioration of the relationship with a key iron and steel customer that, directly and through a joint venture, represents almost 70% of the current year Industrial segment revenue;

the issues noted above resulted in the cancellation of previously awarded projects in the U.S.

The Company has decided that it will reduce its focus on the iron and steel industry due to various factors, including those noted above as well as the low margin profile of the business, high working capital requirements and its cyclical nature.

Accordingly, the Company expects a significant reduction in business volumes for this segment in the second half of the fiscal year.

The Company is currently assessing alternatives regarding the disposition of the remainder of the business.

Six Months Ended December 31, 2019 Compared to the Six Months Ended December 31, 2018

Consolidated revenue was $656.8 million for the six months ended December 31, 2019 , compared to $659.1 million in the same period in the prior fiscal year.

On a segment basis, revenue decreased in the Oil Gas & Chemical and Electrical Infrastructure segments by $48.3 million and $41.3 million, respectively.

These decreases were partially offset by increases in the Storage Solutions and Industrial segments of $54.4 million and $32.9 million, respectively.

Consolidated gross profit increased to $62.5 million in the six months ended December 31, 2019 compared to $51.3 million in the same period in the prior fiscal year.

Gross margin increased to 9.5% in the six months ended December 31, 2019 compared to 7.8% in the same period in the prior fiscal year.

Fiscal 2020 gross margin was positively impacted by strong project execution in the Storage Solutions and Industrial segments.

Gross margin in the Electrical Infrastructure segment was negatively impacted by poor execution, which included a charge on a transmission and distribution upgrade project.

Gross margin in the Oil Gas & Chemical segment was negatively impacted by lower volumes, which led to the under recovery of construction overhead costs.

Consolidated SG&A expenses were $46.9 million in the six months ended December 31, 2019 compared to $43.6 million in the same period a year earlier.

The increase was primarily due to investments to support the business and bad debt charges.

The Company recorded non-cash goodwill and other intangible asset impairments of $38.5 million during the six months ended December 31, 2019 .

As a result of the COVID-19 pandemic, we experienced short-term suspensions of work on a limited number of projects.

Work on most of these projects has resumed.

In addition, some project starts have been delayed for varying durations from a few weeks to a few quarters.

While some project award cycles have been extended, key opportunities, including a medium-scale LNG terminal, a crude terminal and LNG peak shaving project continue to advance.

Revenue for the Industrial segment decreased $57.4 million to $23.9 million in the three months ended March 31, 2020 compared to $81.3 million in the same period a year earlier.

The decrease in revenue is primarily attributable to our strategic decision to exit the domestic iron and steel industry.

We no longer have a continuous presence in any domestic iron and steel facility with final wind-down of the business to occur in the fourth quarter.

The segment gross margin (loss) was (5.2)% in the three months ended March 31, 2020 compared to 6.6% in the same period a year earlier.

The fiscal 2020 segment gross loss was negatively impacted by the under recovery of construction overhead costs following the sharp decline in revenue from our strategic decision to exit the domestic iron and steel industry.

Nine Months Ended March 31, 2020 Compared to the Nine Months Ended March 31, 2019

Consolidated revenue was $905.1 million for the nine months ended March 31, 2020 , compared to $1.018 billion in the same period in the prior fiscal year.

On a segment basis, revenue decreased in the Oil Gas & Chemical, Electrical Infrastructure, and Industrial segments by $78.6 million, $73.5 million, and $24.5 million, respectively.

These decreases were partially offset by an increase in the Storage Solutions segment of $63.7 million.

Consolidated gross profit decreased to $82.9 million in the nine months ended March 31, 2020 compared to $88.2 million in the same period in the prior fiscal year.

Gross margin increased to 9.2% in the nine months ended March 31, 2020 compared to 8.7% in the same period in the prior fiscal year.

Fiscal 2020 gross margin was positively impacted by strong project execution in the Storage Solutions, Oil Gas & Chemical and Industrial segments, partially offset by poor project execution in the Electrical Infrastructure segment in the first and second quarters and the under-recovery of overhead costs due to the lower revenue volumes across most of the business.

Consolidated SG&A expenses were $66.6 million in the nine months ended March 31, 2020 compared to $67.7 million in the same period a year earlier.

The decrease is primarily attributable to lower incentive compensation due to weaker operating results in the current year.

The Company recorded non-cash goodwill and other intangible asset impairments of $38.5 million during the second quarter of Fiscal 2020.

Financial Statements, Note 4 - Intangible Assets Including Goodwill for more information about the impairments.

Interest expense was $0.8 million in the three months ended December 31, 2019 compared to $0.7 million in the same period a year ago.

The increase was due to a higher average debt balance during the six months ended December 31, 2019 , partially offset by lower interest rates in the current year.

Interest income was $0.9 million in the six months ended December 31, 2019 compared to $0.6 million in the same period a year ago due to an increase in our average cash balance.

Our effective tax rate for the six months ended December 31, 2019 was 2.6% , compared to 23.7% for the same period a year ago.

We previously expected our fiscal 2020 effective tax rate to be approximately 27.0% .

The charge was the result of the second quarter cancellation of a Canadian iron and steel project that significantly impacted the fiscal 2020 financial forecast.

Additionally, the effective tax rate in fiscal 2020 was negatively impacted by the non-deductible portion of the goodwill impairments.

We expect the effective tax rate to be approximately 28.0% for the remainder of the fiscal year.

The effective tax rate for the six months ended December 31, 2018 was positively impacted by $0.3 million of excess tax benefits related to the vesting of stock-based compensation.

For the six months ended December 31, 2019 , we had a net loss of $21.9 million , or $0.81 per fully diluted share, compared to net income of $6.2 million , or $0.23 per fully diluted share in the six months ended December 31, 2018 .

In addition, The Company recorded $6.6 million of restructuring costs due to actions taken under our business improvement plan.

See Operational Update in this Results of Operations section and Item 1.

Financial Statements, Note 10 - Restructuring Costs, for more information about the restructuring costs.

Interest expense was $1.2 million in the nine months ended March 31, 2020 compared to $1.0 million in the same period a year ago.

The increase was due to a higher average debt balance during the nine months ended March 31, 2020 .

Interest income was $1.2 million in the nine months ended March 31, 2020 compared to $0.9 million in the same period a year ago due to an increase in our average cash balance.

Our effective tax rate for the nine months ended March 31, 2020 was 5.9% compared to 27.9% for the same period a year ago.

The tax benefit for the nine months ended March 31, 2020 was negatively impacted by a $2.5 million valuation allowance placed on a deferred tax asset that was created by net operating loss carryforwards and other tax credits in Canada and by the non-deductible portion of the goodwill impairments booked in the second quarter of fiscal 2020.

The effective tax rate for the nine months ended March 31, 2019 was negatively impacted by a valuation allowance of $0.6 million placed on foreign tax credits generated by our operations in Canada, which we believe will not be utilized prior to their expiration.

This was partially offset by $0.3 million of excess tax benefits related to the vesting of stock-based compensation.

For the nine months ended March 31, 2020 , we had a net loss of $27.4 million , or $1.02 per fully diluted share, compared to net income of $15.2 million , or $0.55 per fully diluted share in the nine months ended March 31, 2019 .

Electrical Infrastructure

Revenue for the Electrical Infrastructure segment decreased $41.3 million to $61.6 million in the six months ended December 31, 2019 compared to $102.9 million in the same period a year earlier.

The decrease is primarily due to lower volumes of power delivery and power generation package work.

Revenue for the Electrical Infrastructure segment was $90.0 million in the nine months ended March 31, 2020 compared to $163.5 million in the same period a year earlier.

The decrease is primarily due to lower volumes of power delivery and power generation work.

The segment gross margin (loss) was (2.2)% in fiscal 2020 and 8.0% in fiscal 2019.

The fiscal 2020 segment gross loss was negatively impacted by poor execution, which included a charge on a transmission and distribution upgrade project.

Fiscal 2019 segment gross margin was negatively impacted by lower than previously forecasted margins on a limited number of projects.

See the three months ended December 31, 2019 Electrical Infrastructure discussion above for information about the segment outlook.

The fiscal 2020 segment gross loss was negatively impacted by poor execution in the first and second quarters.

In addition, the lower volumes led to the under recovery of construction overhead costs.

Oil Gas & Chemical

Revenue for the Oil Gas & Chemical segment was $113.5 million in the six months ended December 31, 2019 compared to $161.8 million in the same period a year earlier.

The decrease of $48.3 million is primarily due to lower volumes of turnaround work.

The segment gross margin was 6.9% for the six months ended December 31, 2019 compared to 9.1% in the same period last year.

The fiscal 2020 segment gross margin was negatively impacted by a lower than previously expected margin on a capital project due to purchased equipment that was found to be under performing during start-up and commissioning.

In addition, lower volumes led to the under recovery of construction overhead costs.

See the three months ended December 31, 2019 Oil Gas & Chemical discussion above for information about the segment outlook.

Revenue for the Oil Gas & Chemical segment was $165.8 million in the nine months ended March 31, 2020 compared to $244.3 million in the same period a year earlier.

The decrease of $78.5 million is primarily due to lower volumes of turnaround and refinery maintenance work.

The segment gross margin was 6.5% for the nine months ended March 31, 2020 compared to 10.4% in the same period last year.

The fiscal 2020 segment gross margin was negatively impacted by lower volumes, which led to the under recovery of construction overhead costs.

Fiscal 2020 segment gross margin was also negatively impacted by a lower than previously expected margin on a capital project due to purchased equipment that was found to be under performing during start-up and commissioning.

Storage Solutions

Revenue for the Storage Solutions segment was $292.8 million in the six months ended December 31, 2019 compared to $238.5 million in the same period a year earlier.

The increase in segment revenue is primarily a result of increased tank and terminal construction work and higher levels of capital work in Canada.

The segment gross margin was 13.9% in the six months ended December 31, 2019 and 8.7% in the six months ended December 31, 2018 .

Revenue for the Storage Solutions segment was $436.6 million in the nine months ended March 31, 2020 compared to $372.9 million in the same period a year earlier.

The increase in segment revenue is primarily a result of increased tank and terminal construction work and higher levels of work in Canada.

The segment gross margin was 13.5% in the nine months ended March 31, 2020 and 9.5% in the nine months ended March 31, 2019 .

The fiscal 2020 segment gross margin was positively impacted by strong project execution on large capital projects.

The fiscal 2019 segment gross margin was negatively impacted by the completion of projects awarded at lower margins and lower than previously forecasted margins on a limited number of projects.

See the three months ended December 31, 2019 Storage Solutions discussion above for information about the segment outlook.

Revenue for the Industrial segment was $188.9 million in the six months ended December 31, 2019 compared to $155.9 million in the same period a year earlier.

The increase in revenue is primarily attributable to higher volumes of iron and steel capital work, including spending on a capital project on which we received mechanical completion and demobilized in the second quarter.

This increase was partially offset by reduced volumes of iron and steel maintenance spending and lower volumes of thermal vacuum chamber work.

The segment gross margin was 8.8% in the six months ended December 31, 2019 compared to 5.7% in the same period a year earlier.

The fiscal 2020 segment gross margin was positively impacted by good project execution on both capital and repair and maintenance projects.

The fiscal 2019 segment gross margin was negatively impacted by a lower than previously forecasted margin on a thermal vacuum chamber project.

See the three months ended December 31, 2019 Industrial discussion above for information about the segment outlook.

For the first and second quarters of fiscal 2019, gross margin was negatively impacted by the wind down of lower margin work awarded in a highly competitive environment and lower than previously forecasted margins on a limited number of those projects.

Revenue for the Industrial segment was $212.7 million in the nine months ended March 31, 2020 compared to $237.2 million in the same period a year earlier.

The decrease in revenue is primarily attributable to reduced volumes of iron and steel maintenance spending due to our decision to exit the domestic iron and steel industry, and lower volumes of thermal vacuum chamber work.

The segment gross margin was 7.2% in the nine months ended March 31, 2020 compared to 6.0% in the same period a year earlier.

The fiscal 2020 segment gross margin was positively impacted by good project execution on both capital and repair and maintenance projects in the first and second quarters.

The fiscal 2019 segment gross margin was negatively impacted by a lower than previously forecasted margin on a thermal vacuum chamber project and a high volume of lower margin iron and steel work.

We define backlog as the total dollar amount of revenue that we expect to recognize as a result of performing work that has been awarded to us through a signed contract, limited notice to proceed or other type of assurance that we consider firm.

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For all other arrangements, we calculate backlog as the estimated contract amount less revenues recognized as of the reporting date.

The following table provides a summary of changes in our backlog for the three months ended December 31, 2019 :

The following table provides a summary of changes in our backlog for the three months ended March 31, 2020 :

Infrastructure

(In thousands)

Backlog as of September 30, 2019

Backlog as of December 31, 2019

Project awards

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Revenue recognized

Backlog as of December 31, 2019

Backlog as of March 31, 2020

Book-to-bill ratio (2)

Primarily related to the deterioration of our relationship with a key customer in the iron and steel industry and the subsequent cancellations of work and the cancellation of a coke battery project in Canada.

See Business Update section included in this Results of Operations for additional information.

Cancellations in the Industrial segment were due to transferring $3.5 million of our remaining iron and steel work to another contractor following the final wind-down of our domestic iron and steel maintenance business.

Cancellations totaling $6.7 million in the Oil, Gas and Chemical segment consist of turnaround work transferred to a local contractor as a result of COVID-19 precautions.

Calculated by dividing project awards by revenue recognized during the period.

The following table provides a summary of changes in our backlog for the six months ended December 31, 2019 :

The following table provides a summary of changes in our backlog for the nine months ended March 31, 2020 :

Infrastructure

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Revenue recognized

Backlog as of December 31, 2019

Backlog as of March 31, 2020

Book-to-bill ratio (2)

See Business Update section included in this Results of Operations for additional information.

Subsequent cancellations in the third quarter were due to transferring $3.5 million of our remaining iron and steel work to another contractor following the final wind-down of our domestic iron and steel maintenance business.

Cancellations in the Oil, Gas and Chemical segment consist of $6.7 million of turnaround work transferred to a local contractor as a result of COVID-19 precautions.

Calculated by dividing project awards by revenue recognized during the period.

Due to the impact of the COVID-19 pandemic and the resulting reduction in the price of crude oil, our customers have become cautious with their spending levels.

Therefore, we have seen deferrals in award dates across the business and lengthening award cycles.

In the Oil Gas & Chemical segment, we saw a shift in the timing of turnarounds.

The updated start dates on many of the delayed activities is uncertain and will depend on the needs of our clients, safety guidelines, and the market.

Key opportunities, including a medium-scale LNG terminal, a crude terminal and LNG peak shaving project continue to advance.

Project awards in all segments are cyclical and are typically the result of a sales process that can take several months or years to complete.

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Adjusted EBITDA

We have presented Adjusted EBITDA, which we define as net income (loss) before impairment of goodwill and other intangible assets, interest expense, income taxes, depreciation and amortization, because it is used by the financial community as a method of measuring our performance and of evaluating the market value of companies considered to be in similar businesses.

We have presented Adjusted EBITDA, which we define as net income (loss) before impairment of goodwill and other intangible assets, restructuring costs, interest expense, income taxes, depreciation and amortization, because it is used by the financial community as a method of measuring our performance and of evaluating the market value of companies considered to be in similar businesses.

We believe that the line item on our Consolidated Statements of Income entitled “Net income (loss)” is the most directly comparable GAAP measure to Adjusted EBITDA.

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Any measure that excludes impairments to intangible assets has material limitations since these expenses represent the loss of an asset that was acquired in exchange for cash or other assets.

It does not include restructuring costs.

Restructuring costs represent material costs that were incurred by the company and are oftentimes cash expenses.

Therefore, any measure that excludes restructuring costs has material limitations.

It does not include interest expense.

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Three Months Ended

Six Months Ended

Nine Months Ended

(In thousands)

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Goodwill and other intangible asset impairment

Restructuring costs

Interest expense

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We define liquidity as the ongoing ability to pay our liabilities as they become due, fund business operations and meet all monetary contractual obligations.

Our primary sources of liquidity as of December 31, 2019 were cash and cash equivalents on hand, capacity under our senior secured revolving credit facility and cash and cash equivalents generated from operations before consideration of changes in working capital.

Cash and cash equivalents on hand at December 31, 2019 totaled $110.5 million and availability under the senior secured revolving credit facility totaled $166.0 million resulting in available liquidity of $ 276.5 million as of December 31, 2019 .

The Company's liquidity continues to be adequate to support its short-term needs and long-term strategic growth plans.

The following table provides a summary of changes in our liquidity for the three months ended December 31, 2019 (in thousands):

Liquidity as of September 30, 2019

Our primary sources of liquidity as of March 31, 2020 were cash and cash equivalents on hand, capacity under our senior secured revolving credit facility and cash and cash equivalents generated from operations before consideration of changes in working capital.

Cash and cash equivalents on hand at March 31, 2020 totaled $87.5 million and availability under the senior secured revolving credit facility totaled $128.8 million resulting in available liquidity of $ 216.3 million as of March 31, 2020 .

There is significant uncertainty regarding the near and intermediate-term business impacts from the COVID-19 pandemic and the significant decline in the price of crude oil during the quarter.

These uncertainties have resulted in lowered revenue expectations for the remainder of fiscal 2020 and fiscal 2021.

However, the Company entered this environment with a strong balance sheet and liquidity, which it expects to be sufficient to support its near- to intermediate-term needs.

The Company is taking appropriate steps to preserve its financial position by:

restructuring the business to right-size the cost structure to the lower revenue volumes expected in the near to intermediate-term;

eliminating all non-critical capital expenditures for at least the remainder of fiscal 2020 and early fiscal 2021;

suspending share repurchases until further notice.

The Company expects to save approximately $40.0 million in annual operating costs as a result of these actions.

Approximately $12.0 million of the reductions are related to SG&A and approximately $28.0 million are related to construction overhead activities.

The following table provides a summary of changes in our liquidity for the three months ended March 31, 2020 (in thousands):

Liquidity as of December 31, 2019

Net decrease in cash and cash equivalents

Decrease in credit facility capacity constraint

Increase in net borrowings on credit facility

Increase in credit facility capacity constraint

Decrease in net borrowings on credit facility

Increase in letters of credit outstanding

Foreign currency translation of outstanding borrowings

Liquidity as of December 31, 2019

The following table provides a summary of changes in our liquidity for the six months ended December 31, 2019 (in thousands):

Liquidity as of March 31, 2020

The following table provides a summary of changes in our liquidity for the nine months ended March 31, 2020 (in thousands):

Liquidity as of June 30, 2019

Net increase in cash and cash equivalents

Decrease in credit facility capacity constraint

Net decrease in cash and cash equivalents

Increase in credit facility capacity constraint

Increase in net borrowings on credit facility

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Foreign currency translation of outstanding borrowings

Liquidity as of December 31, 2019

Liquidity as of March 31, 2020

A detailed discussion of our credit agreement is provided under the caption "Senior Secured Revolving Credit Facility" included in the Liquidity and Capital Resources section of this Form 10-Q.

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Contract disputes, which can be significant.

Collection issues, including those caused by weak commodity prices or other factors which can lead to credit deterioration of our customers.

Collection issues, including those caused by weak commodity prices, economic slowdowns or other factors which can lead to credit deterioration of our customers.

Capacity constraints under our senior secured revolving credit facility and remaining in compliance with all covenants contained in the credit agreement.

Issuances of letters of credit.

Cash Flow for the Six Months Ended December 31, 2019

Cash Flow for the Nine Months Ended March 31, 2020

Cash Flows Provided by Operating Activities

Cash provided by operating activities for the six months ended December 31, 2019 totaled $38.6 million .

Cash provided by operating activities for the nine months ended March 31, 2020 totaled $31.5 million .

The various components are as follows:

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Net cash provided by operating activities

Working capital changes at December 31, 2019 in comparison to June 30, 2019 include the following:

Accounts receivable, net of bad debt expense recognized during the period, decreased $18.2 million during the six months ended December 31, 2019 , which increased cash flows from operating activities.

Working capital changes at March 31, 2020 in comparison to June 30, 2019 include the following:

Accounts receivable, net of bad debt expense recognized during the period, decreased $7.9 million during the nine months ended March 31, 2020 , which increased cash flows from operating activities.

The variance is primarily attributable to the timing of billing and collections.

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The decrease in CIE is primarily attributable to the timing of billings on a specific iron and steel project.

Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $4.9 million, which increased cash flows from operating activities.

Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") decreased $5.1 million, which decreased cash flows from operating activities.

CIE and BIE balances can experience significant fluctuations based on the timing of when job costs are incurred and the invoicing of those job costs to the customer.

Accounts payable and accrued expenses decreased by $55.7 million during the six months ended December 31, 2019 , which decreased cash flows from operating activities.

Accounts payable and accrued expenses decreased by $50.2 million during the nine months ended March 31, 2020 , which decreased cash flows from operating activities.

The variance is primarily attributable to lower business volumes, the timing of vendor payments, the timing of incentive payments and other related payroll accruals.

Cash Flows Used by Investing Activities

Investing activities used $14.1 million of cash in the six months ended December 31, 2019 primarily due to $14.5 million of capital expenditures, partially offset by $0.4 million of proceeds from other assets sales.

Investing activities used $16.6 million of cash in the nine months ended March 31, 2020 primarily due to $17.7 million of capital expenditures, partially offset by $1.0 million of proceeds from other assets sales.

Capital expenditures consisted of:

$5.9 million for transportation equipment, $4.1 million for construction and fabrication equipment, $3.5 million for software and office equipment, and $1.0 million for facilities.

$7.4 million for transportation equipment, $4.7 million for software and office equipment, $4.4 million for construction and fabrication equipment, and $1.2 million for facilities.

Cash Flows Used by Financing Activities

Financing activities used $4.0 million of cash in the six months ended December 31, 2019 primarily due to stock repurchases of $9.9 million and the repurchase of $3.5 million of Company stock for payment of withholding taxes due on equity-based compensation.

Financing activities used $16.1 million of cash in the nine months ended March 31, 2020 primarily due to stock repurchases of $17.0 million and the repurchase of $3.5 million of Company stock for payment of withholding taxes due on equity-based compensation.

These uses of cash were partially offset by net borrowings of $4.2 million under the Company's Senior Secured Revolving Credit Facility.

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The Credit Agreement includes a Leverage Ratio covenant, which provides that Consolidated Funded Indebtedness, as of the end of any fiscal quarter, may not exceed 3.0 times Consolidated EBITDA, as defined in the Credit Agreement, or "Covenant EBITDA," over the previous four quarters.

For the four quarters ended December 31, 2019 , Covenant EBITDA was $78.2 million .

Consolidated Funded Indebtedness at December 31, 2019 was $68.5 million .

For the four quarters ended March 31, 2020 , Covenant EBITDA was $64.4 million .

Consolidated Funded Indebtedness at March 31, 2020 was $64.2 million .

Covenant EBITDA differs from Adjusted EBITDA, as reported under "Results of Operations - Non-GAAP Financial Measure," primarily because it permits the Company to:

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exclude certain other extraordinary items, as defined in the Credit Agreement.

Availability under the senior secured revolving credit facility at December 31, 2019 was as follows:

Availability under the senior secured revolving credit facility at March 31, 2020 was as follows:

(In thousands)

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Availability under the senior secured revolving credit facility

At December 31, 2019 , the Company was in compliance with all affirmative, negative, and financial covenants under the Credit Agreement.

At March 31, 2020 , the Company was in compliance with all affirmative, negative, and financial covenants under the Credit Agreement.

Dividend Policy

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The November 2018 Program will continue unless and until it is modified or revoked by the Board of Directors.

During the second quarter of fiscal 2020, 500,000 shares were repurchased under the November 2018 Program and there were 1,896,643 shares available for repurchase as of December 31, 2019.

The Company had 1,216,103 treasury shares as of December 31, 2019 and intends to utilize these treasury shares in connection with equity awards under the Company’s stock incentive plans and for sales to the Employee Stock Purchase Plan.

The Company repurchased 547,606 shares for $7.1 million during the three months ended March 31, 2020 and repurchased 1,047,606 shares for $17.0 million during the nine months ended March 31, 2020.

There were 1,349,037 shares available for repurchase under the November 2018 Program as of March 31, 2020.

In order to maintain its strong financial position in the current environment, the Company suspended all share repurchases beginning in early March 2020.

The Company had 1,756,862 treasury shares as of March 31, 2020 and intends to utilize these treasury shares in connection with equity awards under the Company’s stock incentive plans and for sales to the Employee Stock Purchase Plan.

FORWARD-LOOKING STATEMENTS

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the impact to our business of changes in crude oil, natural gas and other commodity prices;

the impact to our business of the COVID-19 pandemic;

amounts and nature of future revenues and margins from each of our segments;

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the risk factors discussed in our Form 10-K for the fiscal year ended June 30, 2019 and listed from time to time in our filings with the Securities and Exchange Commission;

economic, market or business conditions in general and in the oil, natural gas, power, iron and steel, agricultural and mining industries in particular;

economic, market or business conditions in general (including the length and severity of the current economic slowdown) and in the oil, natural gas, power, iron and steel, agricultural and mining industries in particular;

the under-utilization of our work force;

delays in the commencement of major projects, whether due to permitting issues or other factors;

delays in the commencement of major projects, whether due to COVID-19 concerns, permitting issues or other factors;

reduced creditworthiness of our customer base and the higher risk of non-payment of receivables due to volatility of crude oil, natural gas, steel and other commodity prices to which our customers' businesses are affected;

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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-Q

Item 2. Management’s Discussion and Analysis