What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-02-09 compared with 2020-11-05 · 190 added, 97 removed, 315 unchanged (48% of the section changed)

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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 $13.9 million at September 30, 2020 and $14.5 million at June 30, 2020.

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $13.0 million at December 31, 2020 and $14.5 million at June 30, 2020.

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

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Operational Update

Although we expect business conditions to improve in the second half of fiscal 2021, there continues to be significant uncertainty regarding the near- and intermediate-term economic impacts from the COVID-19 pandemic, which continues to disrupt the markets we serve.

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.

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Work at most customer locations continues to progress as 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.

There continues to be significant uncertainty regarding the near- and intermediate-term economic impacts from the COVID-19 pandemic, which continues to disrupt the markets we serve.

In fiscal 2020, the Company implemented a business improvement plan related to:

• its strategic initiative to exit the domestic iron and steel industry;

• the implementation of business improvements in the power delivery portion of the Utility and Power Infrastructure segment;

• the reduction of its cost structure following the decline in revenue caused by the COVID-19 pandemic and related market disruption and the decline in the price of crude oil.

The business improvement plan consisted 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 expected near-term decrease in revenue.

The Company incurred $14.0 million of restructuring costs during fiscal 2020 and substantially completed its restructuring activities under the business improvement plan.

However, the Company recognized a $0.3 million gain on restructuring activities during the three months ended September 30, 2020 as a result of various trailing restructuring expenses and credits.

These actions, along with lower incentive compensation, reduced first quarter of fiscal 2021 SG&A and construction overhead costs by $15.9 million when compared to the same quarter last year.

In addition to these actions, we have and will continue to look for opportunities to further reduce costs until we see project awards and revenue volume recover.

As a result of the business conditions, we implemented discretionary cost reductions, workforce reductions, reduced capital expenditures and reduced the size of or closed certain offices.

The Company incurred $14.0 million of restructuring costs during fiscal 2020 and $4.7 million during the first half of fiscal 2021.

The restructuring costs consist primarily of severance costs, facility closure costs, intangible asset impairments and other liabilities as a result of exiting certain operations.

These actions have resulted in an annual reduction in construction overhead and SG&A costs of approximately $60 million.

Activities under this plan are essentially complete with remaining costs of $1.0 million to $1.5 million expected in the third quarter.

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 six months ended December 31, 2020 and 2019 after adjusting for restructuring costs, impairments and the tax impacts of these adjustments and other net tax items:

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

(In thousands, except per share data)

Three Months Ended Six Months Ended

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Net loss, as reported $ (4,591) $ (28,008) $ (7,628) $ (21,857)

Restructuring costs incurred 5,045 — 4,725 —

Goodwill and intangible asset impairments — 38,515 — 38,515

Tax impact of adjustments and other net tax items (1,299) (5,275) (1,217) (5,275)

Adjusted net income (loss) $ (845) $ 5,232 $ (4,120) $ 11,383

Loss per fully diluted share, as reported $ (0.17) $ (1.04) $ (0.29) $ (0.81)

Adjusted earnings (loss) per fully diluted share $ (0.03) $ 0.19 $ (0.16) $ 0.41

(1) 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 six months ended December 31, 2020 and 2019.

The most directly comparable GAAP financial measures are net loss and diluted loss per common share, respectively, presented in the condensed consolidated statements of income.

We have presented these non-GAAP 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 (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.

Change in Reportable Segments

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consists of power delivery services provided to investor owned utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, upgrades and maintenance, as well as emergency and storm restoration services.

The Company also provides construction and maintenance services to a variety of power generation facilities, including gas fired facilities in simple or combined cycle design, and provides engineering, fabrication, and construction services for liquefied natural gas LNG utility peak shaving facilities.

The Company also provides construction and maintenance services to a variety of power generation facilities, including gas fired facilities in simple or combined cycle configuration, and provides engineering, fabrication, and construction services for liquefied natural gas LNG utility peak shaving facilities.

• Process and Industrial Facilities :

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consists of work related to aboveground storage tanks and terminals.

Also included in this segment are cryogenic and other specialty storage tanks and terminals, including LNG, liquid nitrogen/liquid oxygen, liquid petroleum and other specialty vessels such as spheres, as well as marine structures and truck and rail loading/offloading facilities.

Also included in this segment are cryogenic and other specialty storage tanks and terminals, including LNG, liquid nitrogen/liquid oxygen, liquid petroleum, hydrogen and other specialty vessels such as spheres, as well as marine structures and truck and rail loading/offloading facilities.

The Company's services include engineering, fabrication, construction, and maintenance and repair, which includes planned and emergency services for both tanks and full terminals.

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Segment assets consist primarily of accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, property, plant and equipment, right-of-use lease assets, goodwill and other intangible assets.

Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

Consolidated revenue was $182.8 million for the three months ended September 30, 2020, compared to $338.1 million in the same period in the prior fiscal year.

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

Consolidated revenue was $167.5 million for the three months ended December 31, 2020, compared to $318.7 million in the same period in the prior fiscal year.

On a segment basis, revenue decreased for the Process and Industrial Facilities and Storage and Terminal Solutions segments by $91.6 million, and $62.5 million, respectively.

These decreases were partially offset by an increase in the Utility and Power Infrastructure segment of $2.9 million.

Consolidated gross profit decreased to $14.4 million in the three months ended September 30, 2020 compared to $32.5 million in the same period in the prior fiscal year.

Gross margin decreased to 7.9% in the three months ended September 30, 2020 compared to 9.6% in the same period in the prior fiscal year.

Consolidated gross profit decreased to $15.3 million in the three months ended December 31, 2020 compared to $30.0 million in the same period in the prior fiscal year.

Gross margin decreased to 9.1% in the three months ended December 31, 2020 compared to 9.4% in the same period in the prior fiscal year.

Despite generally strong project execution, gross margins in fiscal 2021 were lower than fiscal 2020 due to lower than forecasted volumes, which led to higher under recovery of construction overhead costs.

Consolidated SG&A expenses were $18.1 million in the three months ended September 30, 2020 compared to $23.7 million in the same period a year earlier.

The decrease is primarily attributable to cost reductions we implemented under our business improvement and restructuring plan that began in late fiscal 2020 and lower incentive compensation.

Interest expense was $0.4 million in each of the three months ended September 30, 2020 and September 30, 2019.

Interest income was less than $0.1 million in the three months ended September 30, 2020 compared to $0.5 million in the same period a year ago primarily due to higher interest rates in the prior period.

Our effective tax rates for the three months ended September 30, 2020 and September 30, 2019 were (9.8)% and 30.6%, respectively.

We expect our effective tax rate to be approximately 27.0% in fiscal 2021.

The effective tax rate for the three months ended September 30, 2020 was negatively impacted by a $1.0 million deferred tax asset adjustment.

For the three months ended September 30, 2020, we had a net loss of $3.0 million, or $0.12 per fully diluted share, compared to net income of $6.2 million, or $0.22 per fully diluted share, in the three months ended September 30, 2019.

Consolidated SG&A expenses were $16.7 million in the three months ended December 31, 2020 compared to $23.2 million in the same period a year earlier.

The decrease is primarily attributable to cost reductions we implemented under our business improvement plan that began in the third quarter of 2020 and lower incentive compensation.

The Company recorded $5.0 million of restructuring costs in the three months ended December 31, 2020 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.

Interest expense was $0.4 million in the three months ended December 31, 2020 and December 31, 2019.

Interest income was less than $0.1 million in the three months ended December 31, 2020 compared to $0.4 million in the same period a year ago primarily due to higher interest rates in the prior period.

Our effective tax rates for the three months ended December 31, 2020 and December 31, 2019 were 20.9% and 10.5%, respectively.

The effective tax rate for the three months ended December 31, 2020 was negatively impacted by deferred tax asset adjustments of $0.2 million.

We expect our effective tax rate to be approximately 27.0% for the remainder of fiscal 2021.

For the three months ended December 31, 2020, we had a net loss of $4.6 million, or $0.17 per fully diluted share, compared to a net loss of $28.0 million, or $1.04 per fully diluted share, in the three months ended December 31, 2019.

For the three months ended December 31, 2020, the adjusted net loss was $0.8 million, or $0.03 per fully diluted share, compared to adjusted net income of $5.2 million, or $0.19 per fully diluted share, in the three months ended December 31, 2019.

Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment was $60.7 million in the three months ended September 30, 2020 compared to $47.7 million in the same period a year earlier.

Revenue for the Utility and Power Infrastructure segment was $52.0 million in the three months ended December 31, 2020 compared to $49.2 million in the same period a year earlier.

The increase is due to a higher volume of LNG utility peak shaving work, partially offset by lower volumes of power delivery and power generation work.

The segment gross margin was 10.8% in fiscal 2021 compared to (2.5)% in fiscal 2020.

The fiscal 2021 segment gross margin was positively impacted by strong project execution on LNG utility peak shaving capital projects and power delivery work.

The fiscal 2020 segment gross margin was negatively impacted by lower than previously expected margins on a transmission and distribution upgrade project due to lower than expected productivity and craft retention incentives, and an LNG utility peak shaving capital project due to purchased equipment that was found to be under performing.

In fiscal 2020, the Company announced a business improvement plan for the former Electrical Infrastructure segment, which is now included in the Utility and Power Infrastructure 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 second half of fiscal 2020, we implemented the planned personnel changes, added business development resources and strengthened business processes, which has led to improved project execution, which has continued through the first quarter of fiscal 2021.

Continued 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 fiscal 2021 segment gross margin was positively impacted by strong project execution, partially offset by under recovery of construction overhead costs.

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

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $45.9 million in the three months ended September 30, 2020 compared to $154.9 million in the same period a year earlier.

The decrease is primarily due to our strategic exit from the domestic iron and steel industry in the third quarter of fiscal 2020, lower volumes of turnaround, refinery maintenance, and midstream gas processing work.

The segment gross margin was 8.0% for the three months ended September 30, 2020 compared to 8.8% in the same period last year.

Project execution in fiscal 2021 has been strong, but gross margin was negatively impacted by lower volumes, which led to the under recovery of construction overhead costs.

Fiscal 2020 was positively impacted by strong project execution on capital and repair and maintenance iron and steel work.

The short-term impact to the Company's refinery turnaround and maintenance operations as a result of the global pandemic continues to be significant.

Although there have been project delays and suspensions of planned seasonal work, in most cases the revenue volumes are moving out in time, but not eliminated.

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

Revenue for the Process and Industrial Facilities segment was $51.3 million in the three months ended December 31, 2020 compared to $142.9 million in the same period a year earlier.

The decrease is primarily due to our strategic exit from the domestic iron and steel industry in the third quarter of fiscal 2020, the completion of a major capital project, lower volumes of midstream gas projects, and reduced refinery turnaround and maintenance work.

The segment gross margin was 15.3% for the three months ended December 31, 2020 compared to 9.7% in the same period last year.

Segment gross margin in the second quarter of fiscal 2021 was positively impacted by strong project execution.

Under recovery of construction overhead costs in fiscal 2021 was offset by the positive impact of a one-time workers' compensation item.

The fiscal 2020 segment gross margin was supported by good project execution on both capital and repair and maintenance iron and steel projects.

Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $76.2 million in the three months ended September 30, 2020 compared to $135.5 million in the same period a year earlier.

The decrease in segment revenue is primarily a result of lower volumes of tank and crude oil terminal capital work and repair and maintenance work.

The segment gross margin was 5.0% in the three months ended September 30, 2020 compared to 14.6% in the three months ended September 30, 2019.

The fiscal 2021 segment gross margin was negatively impacted by lower volumes, which led to the under recovery of construction overhead costs, and a lower than previously forecasted margin on a crude oil storage terminal capital project that is nearing completion.

Revenue for the Storage and Terminal Solutions segment was $64.2 million in the three months ended December 31, 2020 compared to $126.6 million in the same period a year earlier.

The decrease in segment revenue is primarily a result of lower volumes of crude oil tank and terminal capital work and repair and maintenance work.

The segment gross margin in fiscal 2021 was negatively impacted by a lower than previously forecasted margin on a large crude oil storage terminal capital project and the under recovery of construction overhead costs.

The $5.8 million project charge reduced the segment gross margin by 9.7% to 2.9%.

The Company has achieved mechanical completion and is demobilizing from the project.

We continue to work through final closeout and outstanding change orders with the client.

The segment gross margin was 14.2% in the three months ended December 31, 2019.

The fiscal 2020 segment gross margin was positively impacted by strong project execution on large capital projects and higher volumes than fiscal 2021, which led to better recovery of construction overhead costs.

As a result of the COVID-19 pandemic, global energy demand, and regulatory issues, we continue to experience slower project award activity that began in the third quarter of fiscal 2020.

Unallocated corporate expenses included in operating income were $6.9 million during the three months ended September 30, 2020 compared to $7.8 million in the same period last year.

The decrease is primarily attributable to lower incentive compensation and cost reductions we implemented under our business improvement plan in late fiscal 2020.

Unallocated corporate expenses were $7.1 million during the three months ended December 31, 2020 compared to $6.8 million in the same period last year.

Fiscal 2021 included restructuring costs of $0.2 million and fiscal 2020 included an incentive reversal of $1.1 million.

Six Months Ended December 31, 2020 Compared to the Six Months Ended December 31, 2019

Consolidated revenue was $350.2 million for the six months ended December 31, 2020, compared to $656.8 million in the same period in the prior fiscal year.

On a segment basis, revenue decreased for the Process and Industrial Facilities and Storage and Terminal Solutions segments by $200.6 million, and $121.8 million, respectively.

These decreases were partially offset by an increase in the Utility and Power Infrastructure segment of $15.8 million.

Consolidated gross profit decreased to $29.7 million in the six months ended December 31, 2020 compared to $62.5 million in the same period in the prior fiscal year.

Gross margin decreased to 8.5% in the six months ended December 31, 2020 compared to 9.5% in the same period in the prior fiscal year.

Despite generally strong project execution, gross margins in the first half of fiscal 2021 were lower than fiscal 2020 due to lower than forecasted volumes, which led to higher under recovery of construction overhead costs.

Consolidated SG&A expenses were $34.9 million in the six months ended December 31, 2020 compared to $46.9 million in the same period a year earlier.

The decrease is primarily attributable to cost reductions we implemented under our business improvement plan that began in the third quarter of fiscal 2020 and lower incentive compensation.

The Company recorded $4.7 million of restructuring costs in the six months ended December 31, 2020 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.

Interest expense was $0.7 million in the six months ended December 31, 2020 compared to $0.8 million in the six months ended December 31, 2019.

Interest income was $0.1 million in the six months ended December 31, 2020 compared to $0.9 million in the same period a year ago primarily due to higher interest rates in the prior period.

Our effective tax rates for the six months ended December 31, 2020 and December 31, 2019 were 11.0% and 2.6%, respectively.

The effective tax rate for the six months ended December 31, 2020 was negatively impacted by deferred tax asset adjustments of $1.2 million.

We expect our effective tax rate to be approximately 27.0% for the remainder of fiscal 2021.

For the six months ended December 31, 2020, we had a net loss of $7.6 million, or $0.29 per fully diluted share, compared to a net loss of $21.9 million, or $0.81 per fully diluted share, in the six months ended December 31, 2019.

For the six months ended December 31, 2020, the adjusted net loss was $4.1 million, or $0.16 per fully diluted share, compared to adjusted net income of $11.4 million, or $0.41 per fully diluted share, in the six months ended December 31, 2019.

Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment was $112.7 million in the six months ended December 31, 2020 compared to $96.9 million in the same period a year earlier.

The increase is due to a higher volume of LNG utility peak shaving work, partially offset by lower volumes of power delivery and power generation work.

The segment gross margin (loss) was 11.1% in fiscal 2021 compared to (1.4)% in fiscal 2020.

The fiscal 2021 segment gross margin was positively impacted by strong project execution, partially offset by under recovery of construction overhead costs.

The fiscal 2020 segment gross margin was negatively impacted by poor project execution, which included a charge on a transmission and distribution upgrade project, and a charge on an LNG utility peak shaving capital project due to purchased equipment that was found to be under performing.

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $97.2 million in the six months ended December 31, 2020 compared to $297.8 million in the same period a year earlier.

The segment gross margin was 11.9% for the six months ended December 31, 2020 compared to 9.2% in the same period last year.

Segment gross margin in the first half of fiscal 2021 was positively impacted by strong project execution.

Under recovery of construction overhead costs in fiscal 2021 was partially offset by the positive impact of a one-time workers' compensation item.

The fiscal 2020 segment gross margin was supported by good project execution on both capital and repair and maintenance iron and steel projects, partially offset by a lower volume of turnaround work, which led to the under recovery of construction overhead costs.

Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $140.4 million in the six months ended December 31, 2020 compared to $262.1 million in the same period a year earlier.

The decrease in segment revenue is primarily a result of lower volumes of crude oil tank and terminal capital work and repair and maintenance work.

The $7.7 million project charge reduced the segment gross margin by 7.3% to 4.0%.

The Company has achieved mechanical completion and is demobilizing from the project.

We continue to work through final closeout and outstanding change orders with the client.

The segment gross margin was 14.4% in the six months ended December 31, 2019.

Unallocated corporate expenses included in operating loss were $13.9 million during the six months ended December 31, 2020 compared to $14.7 million in the same period last year.

Fiscal 2021 included restructuring costs of $0.4 million and fiscal 2020 included an incentive reversal of $1.1 million.

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 revenue recognized as of the reporting date.

The following table provides a summary of changes in our backlog for the three months ended September 30, 2020:

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

Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal Solutions Total

(In thousands)

Backlog as of September 30, 2020 $ 233,463 $ 150,590 $ 294,374 $ 678,427

Project awards 16,772 58,100 36,942 111,814

Revenue recognized (52,023) (51,262) (64,183) (167,468)

Backlog as of December 31, 2020 $ 198,212 $ 157,428 $ 267,133 $ 622,773

Book-to-bill ratio (1)

0.3 1.1 0.6 0.7

(1) 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, 2020:

Utility and Power Infrastructure Process and Industrial Facilities Storage and Terminal Solutions Total

(In thousands)

Backlog as of June 30, 2020 $ 272,816 $ 145,725 $ 339,924 $ 758,465

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Revenue recognized (112,694) (97,193) (140,352) (350,239)

Backlog as of September 30, 2020 $ 233,463 $ 150,590 $ 294,374 $ 678,427

Backlog as of December 31, 2020 $ 198,212 $ 157,428 $ 267,133 $ 622,773

Book-to-bill ratio (1)

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(1) 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 continue to be cautious with their spending levels.

Therefore, we have seen deferrals in award dates across the business and lengthening award cycles, especially in the Storage and Terminal Solutions segment.

In the Process and Industrial Facilities segment, we continue to see delays 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.

Due to the impact of the COVID-19 pandemic and the resulting disruption to energy and industrial markets, some of our customers continue to be conservative with their spending levels.

In the Utility and Power Infrastructure segment, performance in the power delivery portion continues to be strong on reduced revenue, however bidding activity is strong, and we expect project awards to improve as we move through the fiscal year.

Similarly, our LNG peak shaving projects are performing well and the opportunity pipeline for future projects is strong, however those awards, while significant, can be less frequent.

We are optimistic that the priorities of the new presidential administration will lead to increased opportunities in this segment.

In the Process and Industrial Facilities segment, overall the short-term impact of the global pandemic on the Company's refinery turnaround and maintenance operations has moderated while maintenance volumes in locations where we have a permanent presence has returned to normal.

However, some refiners continue to delay or reduce discretionary maintenance and capital spending.

We expect some improvement in the Spring turnaround cycle.

During the second quarter of fiscal 2021, we received a key contract for a natural gas pipeline compressor station upgrade.

In addition, we continue to see strong demand for thermal vacuum chambers, as well as increasing opportunities in mining and minerals and chemicals.

In the Storage and Terminal Solutions segment, we have seen deferrals in award dates and lengthening award cycles as a result of the COVID-19 pandemic and its disruption of global energy demand.

Opportunities in crude oil tanks and terminals are limited, however, this segment also includes a strong funnel of opportunities in North America, Central America and the Caribbean for storage infrastructure projects related to natural gas, LNG, ammonia, renewable energy, and NGLs that support clean energy initiatives and chemical feed stocks.

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 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.

We have presented Adjusted EBITDA, which we define as net 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 loss” is the most directly comparable GAAP measure to Adjusted EBITDA.

Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance.

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In addition, this measure is not a measure of our ability to fund our cash needs.

As Adjusted EBITDA excludes certain financial information compared with net income (loss), the most directly comparable GAAP financial measure, users of this financial information should consider the type of events and transactions that are excluded.

As Adjusted EBITDA

excludes certain financial information compared with net loss, the most directly comparable GAAP financial measure, users of this financial information should consider the type of events and transactions that are excluded.

Our non-GAAP performance measure, Adjusted EBITDA, has certain material limitations as follows:

• It does not include impairments to goodwill and other intangible assets.

While impairments to intangible assets are non-cash expenses in the period recognized, cash or other consideration was still transferred in exchange for intangible assets in the period of the acquisition.

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.

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Therefore, any measure that excludes depreciation or amortization expense has material limitations.

A reconciliation of Adjusted EBITDA to net income (loss) follows:

Three Months Ended

September 30,

2020 September 30,

A reconciliation of Adjusted EBITDA to net loss follows:

Three Months Ended Six Months Ended

2020 December 31,

2019 December 31,

2020 December 31,

(In thousands)

Net income (loss) $ (3,037) $ 6,151

Net loss $ (4,591) $ (28,008) $ (7,628) $ (21,857)

Goodwill and other intangible asset impairment — 38,515 — 38,515

Restructuring costs 5,045 — 4,725 —

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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 September 30, 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 September 30, 2020 totaled $82.2 million and availability under the senior secured revolving credit facility totaled $51.7 million resulting in available liquidity of $133.9 million as of September 30, 2020.

Our primary sources of liquidity as of December 31, 2020 were cash and cash equivalents on hand, capacity under our senior secured revolving credit facility and cash flows from operations.

Cash and cash equivalents on hand at December 31, 2020 totaled $93.5 million and availability under the senior secured revolving credit facility totaled $33.4 million resulting in available liquidity of $126.9 million as of December 31, 2020.

There continues to be significant uncertainty regarding the near- and intermediate-term business impacts from the COVID-19 pandemic.

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• maintaining little or no debt.

The following table provides a summary of changes in our liquidity for the three months ended September 30, 2020 (in thousands):

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

Liquidity as of September 30, 2020 $ 133,891

Net cash increase due to changes in operating assets and liabilities 19,886

Net cash decrease due to other activity (8,580)

Change in credit facility capacity constraint (27,555)

Net repayments on credit facility 9,788

Increase in letters of credit outstanding (133)

Foreign currency translation of borrowings (405)

Liquidity as of December 31, 2020 $ 126,892

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

Liquidity as of June 30, 2020 $ 193,435

Net cash reduction due to changes in working capital (18,375)

Net cash increase due to other activity 514

Net cash increase due to changes in operating assets and liabilities 1,511

Net cash decrease due to other activity (8,066)

Change in credit facility capacity constraint (68,826)

Net repayments on credit facility 9,788

Increase in letters of credit outstanding (370)

Foreign currency translation of outstanding borrowings (175)

Liquidity as of September 30, 2020 $ 133,891

A detailed discussion of our credit agreement in effect at September 30, 2020 and as recently amended is provided under the caption "Senior Secured Revolving Credit Facility" below.

Foreign currency translation of borrowings (580)

Liquidity as of December 31, 2020 $ 126,892

A detailed discussion of our new credit agreement as recently amended is provided under the caption "Senior Secured Revolving Credit Facility" below.

Factors that routinely impact our short-term liquidity and may impact our long-term liquidity include, but are not limited to:

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Other factors that may impact both short and long-term liquidity include:

• Acquisitions and disposals of businesses.

• Strategic investments in new operations.

• Purchases of shares under our stock buyback program.

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

• Contract disputes, which can be significant.

• 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 Three Months Ended September 30, 2020

Cash Flows Used by Operating Activities

Cash used by operating activities for the three months ended September 30, 2020 totaled $15.0 million.

• Acquisitions and disposals of businesses.

• Strategic investments in new operations.

• Purchases of shares under our stock buyback program.

Cash Flow for the Six Months Ended December 31, 2020

Cash Flows Provided by Operating Activities

Cash provided by operating activities for the six months ended December 31, 2020 totaled $5.8 million.

The various components are as follows:

Net Cash Used by Operating Activities

Net Cash Provided by Operating Activities

(In thousands)

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Cash effect of changes in operating assets and liabilities 1,511

Net cash used by operating activities $ (15,020)

Cash effect of changes in operating assets and liabilities at September 30, 2020 in comparison to June 30, 2020 include the following:

• Accounts receivable, net of credit losses recognized during the period, increased $10.8 million during the three months ended September 30, 2020, which decreased cash flows from operating activities.

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

Net cash provided by operating activities $ 5,824

Cash effect of changes in operating assets and liabilities at December 31, 2020 in comparison to June 30, 2020 include the following:

• Accounts receivable, net of credit losses recognized during the period, decreased $9.6 million during the six months ended December 31, 2020, which increased cash flows from operating activities.

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

• Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") decreased $18.2 million, which increased cash flows from operating activities.

Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") decreased $1.6 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.

• Inventories, income taxes receivable, other current assets, operating right-of-use assets and other assets increased $5.9 million, which decreased cash flows from operating activities.

The increase was primarily related to annual prepayments of insurance.

• Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities, and other accrued expenses decreased by $6.5 million during the three months ended September 30, 2020, which decreased cash flows from operating activities.

The variance is primarily attributable to lower business volumes and the timing of vendor payments.

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

• Inventories, income taxes receivable, other current assets, operating right-of-use lease assets and other assets increased $1.9 million, which decreased cash flows from operating activities.

These operating assets can fluctuate based on the timing of inventory builds and draw-downs, accrual and receipt of income taxes receivable;

prepayments of certain expenses;

lease commencement, passage of time, expiration, or termination of operating leases;

business volumes;

and other timing differences.

• Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities, and other accrued expenses decreased by $26.7 million during the six months ended December 31, 2020, which decreased cash flows from operating activities.

These operating liabilities can fluctuate based on the timing of vendor payments;

lease commencement, lease payments, expiration, or termination of operating leases;

business volumes;

and other timing differences.

• Other liabilities increased by $3.7 million, which increased cash flows from operating activities.

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Cash Flows Used by Investing Activities

Investing activities used $1.7 million of cash in the three months ended September 30, 2020 primarily due to $2.8 million of capital expenditures, offset by $1.1 million of proceeds from other asset sales.

Investing activities used $1.4 million of cash in the six months ended December 31, 2020 primarily due to $3.1 million of capital expenditures, partially offset by $1.6 million of proceeds from other asset sales.

Capital expenditures consisted of:

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Cash Flows Used by Financing Activities

Financing activities used $1.5 million of cash in the three months ended September 30, 2020 primarily due to the repurchase of $1.5 million of Company stock for payment of withholding taxes due on equity-based compensation.

Financing activities used $11.8 million of cash in the six months ended December 31, 2020 primarily due to the net repayment of $9.8 million on the Company's senior secured revolving credit facility, $1.5 million paid to repurchase the Company's stock for payment of withholding taxes due on equity-based compensation, and $0.7 million paid in fees to amend the Company's Credit Agreement.

Senior Secured Revolving Credit Facility

On November 2, 2020, the Company entered into the Fifth Amended and Restated Credit Agreement (the "Credit Agreement"), by and among the Company and certain foreign subsidiaries, as Borrowers, various subsidiaries of the Company, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, Sole Lead Arranger and Sole Bookrunner, and the other Lenders party thereto, which replaced the Fourth Amended and Restated Credit Agreement (the "Prior Credit Agreement") that was in place at September 30, 2020, and which is described in Part II, Item 8.

On November 2, 2020, the Company entered into the Fifth Amended and Restated Credit Agreement (the "Credit Agreement"), by and among the Company and certain foreign subsidiaries, as Borrowers, various subsidiaries of the Company, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, Sole Lead Arranger and Sole Bookrunner, and the other Lenders party thereto, which replaced the Fourth Amended and Restated Credit Agreement (the "Prior Credit Agreement") that was in place at June 30, 2020, which is described in Part II, Item 8.

Financial Statements and Supplementary Data, Note 5 - Debt, in the Company's Annual Report on Form 10-K for the year ended June 30, 2020.

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Dollar equivalent sublimit of $75.0 million for revolving loans denominated in Australian Dollars, Canadian Dollars, Euros and Pounds Sterling and letters of credit in Australian Dollars, Euros, and Pounds Sterling.

The credit facility also includes a $200.0 million sublimit for total letters of credit.

Each revolving borrowing under the Credit Agreement will bear interest at a rate per annum equal to:

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The unused credit facility fee is between 0.35% and 0.50% based on the Leverage Ratio.

Covenants and limitations under the Credit Agreement are effective for the quarter ended September 30, 2020 and include the following:

Covenants and limitations under the Credit Agreement are effective for the quarter ended December 31, 2020 and include the following:

• Our Leverage Ratio, determined as of the end of each fiscal quarter, may not exceed 3.00 to 1.00.

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• Share repurchases are limited to $30.0 million per calendar year.

As of September 30, 2020, the Company is in compliance with all affirmative, negative, and financial covenants under the Credit Agreement.

As of December 31, 2020, the Company is in compliance with all affirmative, negative, and financial covenants under the Credit Agreement.

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 September 30, 2020 was as follows:

September 30,

Availability at December 31, 2020 and June 30, 2020 under the new and prior senior secured revolving credit facilities, respectively, were as follows:

2020 June 30,

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Availability under the senior secured revolving credit facility $ 33,411 $ 93,399

Availability under the new $200.0 million senior secured revolving credit facility at September 30, 2020 would have been the same if the Credit Agreement had been in place on such date due to the capacity constraint.

Availability under the new $200 million senior secured revolving credit facility at June 30, 2020 would have been same if the Credit Agreement had been in place on such date due to the capacity constraint.

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.

There were 1,349,037 shares available for repurchase under the November 2018 Program as of September 30, 2020.

The Company had 1,428,021 treasury shares as of September 30, 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.

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

The Company had 1,385,257 treasury shares as of December 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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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