What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2021-02-09 · 203 added, 200 removed, 305 unchanged (57% of the section changed)

68 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 $13.0 million at December 31, 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 $16.6 million at March 31, 2021 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.

8 unchanged sentences

In accordance with current accounting guidance, goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level, which is a level below our reportable segments.

We perform our annual impairment test in the fourth quarter of each fiscal year to determine whether an impairment exists and to determine the amount of headroom.

We perform our annual impairment test as of May 31st of each fiscal year to determine whether an impairment exists and to determine the amount of headroom.

We define "headroom" as the percentage difference between the fair value of a reporting unit and its carrying value.

26 unchanged sentences

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.

We transitioned the majority of our administrative and engineering team members to remote working conditions in March 2020.

At this time, we have returned to the office in select locations where predetermined criteria have been met, but the majority of our administrative and engineering team members continue to work remotely.

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.

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:

Throughout the course of the COVID-19 pandemic, the Company's top priority has been to maintain a safe working environment for all field and office employees, customers and business partners.

While North America has seen a significant reduction in infection rates and an equally significant increase in vaccine availability, our project teams, in coordination with our clients, continue to operate under enhanced work processes to protect the health and safety of everyone on our job sites.

Additionally, in direct response to market conditions, many of which are a result of COVID-19’s impact on energy demand, over the last year, the Company has reduced its cost structure in excess of $60 million, or approximately 25%, with a third of those reductions related to SG&A and the rest related to construction overhead, which is included in cost of revenue in the income statement.

In order to achieve these cost savings, the Company incurred $14.0 million of restructuring costs during fiscal 2020 and $6.6 million during the nine months ended March 31, 2021.

Despite these significant reductions in construction overhead, our third quarter revenue did not allow for complete recovery of overhead, which reduces gross margin.

Based on our opportunity pipeline and the strengthening market, we believe our current adjusted overhead levels are appropriate.

While the Company will continue to manage its cost structure, we are also focused on rebuilding our backlog and restoring revenue volume to more normalized levels.

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, 2021 and 2020 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

Three Months Ended Nine Months Ended

March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020

Net loss, as reported $ (12,873) $ (5,495) $ (20,501) $ (27,352)

5 unchanged sentences

Adjusted earnings (loss) per fully diluted share $ (0.43) $ (0.02) $ (0.59) $ 0.40

(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.

(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 nine months ended March 31, 2021 and 2020.

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.

22 unchanged sentences

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 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 $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 $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.

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020

Consolidated revenue was $148.3 million for the three months ended March 31, 2021, compared to $248.3 million in the same period in the prior fiscal year.

On a segment basis, revenue decreased for the Storage and Terminal Solutions, Process and Industrial Facilities, and Utility and Power Infrastructure segments by $57.0 million, $32.1 million, and $10.9 million, respectively.

Consolidated gross profit decreased to $1.6 million in the three months ended March 31, 2021 compared to $20.5 million in the same period in the prior fiscal year.

Gross margin decreased to 1.1% in the three months ended March 31, 2021 compared to 8.2% in the same period in the prior fiscal year.

Gross margins in fiscal 2021 were largely impacted negatively by lower than forecasted volumes, which led to under recovery of construction overhead costs as well as a lower than previously forecasted margin on a large capital project in the Utility and Power Infrastructure segment.

These negative impacts were partially offset by increases in estimated recoveries on other completed capital projects.

Consolidated SG&A expenses were $17.2 million in the three months ended March 31, 2021 compared to $19.7 million in the same period a year earlier.

The decrease is primarily attributable to implemented cost reductions.

As a result of actions taken to reduce the cost structure of the Company, we recorded $1.9 million of restructuring costs in the three months ended March 31, 2021.

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.

Interest expense was $0.3 million in the three months ended March 31, 2021 compared to $0.4 million in the three months ended March 31, 2020.

The decrease resulted from the Company's repayment of outstanding borrowings in the previous quarter.

Interest income was less than $0.1 million in the three months ended March 31, 2021 compared to $0.4 million in the same period a year ago primarily due to lower interest rates in the current period.

Our effective tax rates for the three months ended March 31, 2021 and March 31, 2020 were 28.2% and 16.9%, respectively.

Based on the third quarter and full year projected operating results for fiscal 2021, the Company, through provisions in the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), has an income tax benefit from the ability to carryback the fiscal 2021 federal net operating loss five years.

$3.2 million of this benefit impacts the effective rate for the third quarter and is a result of the statutory federal income tax rate differential between the current and carryback years.

The effective rate during the quarter was negatively impacted by $1.9 million of valuation allowances on certain deferred tax assets.

For the three months ended March 31, 2021, we had a net loss of $12.9 million, or $0.49 per fully diluted share, compared to a net loss of $5.5 million, or $0.21 per fully diluted share, in the three months ended March 31, 2020.

For the three months ended March 31, 2021, the adjusted net loss was $11.5 million, or $0.43 per fully diluted share, compared to an adjusted net loss of $0.4 million, or $0.02 per fully diluted share, in the three months ended March 31, 2020.

Utility and Power Infrastructure

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, 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.

Revenue for the Utility and Power Infrastructure segment was $44.7 million in the three months ended March 31, 2021 compared to $55.7 million in the same period a year earlier.

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

The segment gross margin (loss) was (10.5)% in fiscal 2021 compared to 5.6% in fiscal 2020.

The fiscal 2021 segment gross margin was negatively impacted by an increase in the forecasted costs to complete a large capital project, which resulted in a decrease in gross profit of $8.9 million.

The change in estimate was due to lower than previously forecasted productivity caused by excessive rain at the project site, the continuing impact of COVID-19, and rework which led to higher costs and some schedule compression.

The profit on future revenue related to this project will be recognized based on the current project forecast, which is at a reduced gross profit margin, but near our expected range for the segment.

In addition, segment gross margin was negatively impacted by low volumes, which led to the under recovery of construction overhead costs.

These negative impacts were partially offset by good project execution in the remainder of the segment.

Fiscal 2020 segment gross margin was negatively impacted by lower volumes, which led to the under recovery of construction overhead costs, and a lower than previously expected margin on a capital project due to costs to remediate faulty equipment designed by a subcontractor.

Process and Industrial Facilities

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.

Revenue for the Process and Industrial Facilities segment was $42.8 million in the three months ended March 31, 2021 compared to $75.0 million in the same period a year earlier.

The decrease is primarily due to lower volumes of midstream gas and refinery capital projects.

The decrease was also attributable to the completion of our remaining iron and steel projects in the third quarter of fiscal 2020 after our strategic exit from the business in the same period.

The segment gross margin was (0.4)% for the three months ended March 31, 2021 compared to 4.1% in the same period last year.

Project execution generally met our expectations in the current quarter, however, segment gross margin was negatively impacted by low volumes, which led to the under recovery of construction overhead costs, and an adjustment related to the Company's assessment of the amount due on a completed project.

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

Storage and Terminal Solutions

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.

Revenue for the Storage and Terminal Solutions segment was $60.7 million in the three months ended March 31, 2021 compared to $117.7 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.

The segment gross margins were 10.6% and 12.7% in the three months ended March 31, 2021 and March 31, 2020, respectively.

The fiscal 2021 segment gross margin was positively impacted by additional estimated recoveries of unpriced change orders on a large crude oil terminal project following the achievement of mechanical completion and demobilization from the project site.

The project's financial impact for the three months ended March 31, 2021 was a $3.9 million increase to gross profit.

The benefit of this adjustment was partially offset by the under recovery of construction overhead costs caused by lower revenue volumes.

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.

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.

Unallocated corporate expenses were $6.2 million during the three months ended March 31, 2021 compared to $7.5 million in the same period last year.

The decrease is primarily attributable to cost reductions we implemented.

Nine Months Ended March 31, 2021 Compared to the Nine Months Ended March 31, 2020

Consolidated revenue was $498.5 million for the nine months ended March 31, 2021, compared to $905.1 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 $232.7 million, and $178.8 million, respectively.

These decreases were partially offset by an increase in the Utility and Power Infrastructure segment of $4.9 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.

Consolidated gross profit decreased to $31.2 million in the nine months ended March 31, 2021 compared to $82.9 million in the same period in the prior fiscal year.

Gross margin decreased to 6.3% in the nine months ended March 31, 2021 compared to 9.2% in the same period in the prior fiscal year.

Gross margins in fiscal 2021 were negatively impacted by lower than forecasted volumes, which led to under recovery of construction overhead costs as well as a lower than previously forecasted margin on a large capital project in the Utility and Power Infrastructure segment.

Consolidated SG&A expenses were $52.0 million in the nine months ended March 31, 2021 compared to $66.6 million in the same period a year earlier.

The decrease is primarily attributable to implemented cost reductions.

As a result of actions taken to reduce the cost structure of the Company, we recorded $6.6 million of restructuring costs in the nine months ended March 31, 2021.

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.

Interest expense was $1.1 million in the nine months ended March 31, 2021 compared to $1.2 million in the nine months ended March 31, 2020.

The decrease is primarily due to a lower average debt balance in fiscal 2021.

Interest income was $0.1 million in the nine months ended March 31, 2021 compared to $1.2 million in the same period a year ago primarily due to lower interest rates in the current period.

Our effective tax rates for the nine months ended March 31, 2021 and March 31, 2020 were 22.6% and 5.9%, respectively.

Based on the third quarter and full year projected operating results for fiscal 2021, the Company, through provisions in the CARES Act, has an income tax benefit from the ability to carryback the fiscal 2021 federal net operating loss five years.

$3.2 million of this benefit impacts the effective rate for the third quarter and is a result of the statutory federal income tax rate differential between the current and carryback years.

The effective rate during the quarter was negatively impacted by $1.9 million of valuation allowances on certain deferred tax assets.

In prior quarters this fiscal year, the Company recorded $1.2 million of other discrete deferred tax asset adjustments, which negatively impacted the effective rate for the nine months ended March 31, 2021.

For the nine months ended March 31, 2021, we had a net loss of $20.5 million, or $0.78 per fully diluted share, compared to a net loss of $27.4 million, or $1.02 per fully diluted share, in the nine months ended March 31, 2020.

For the nine months ended March 31, 2021, the adjusted net loss was $15.6 million, or $0.59 per fully diluted share, compared to adjusted net income of $11.0 million, or $0.40 per fully diluted share, in the nine months ended March 31, 2020.

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.

Revenue for the Utility and Power Infrastructure segment was $157.4 million in the nine months ended March 31, 2021 compared to $152.6 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.

The segment gross margin was 5.0% in fiscal 2021 compared to 1.1% in fiscal 2020.

The fiscal 2021 segment gross margin was negatively impacted by an increase in the forecasted costs to complete a large capital project, which resulted in a decrease in gross profit of $8.9 million during the quarter.

The profit on future revenue related to this project will be recognized based on the current project forecast, which is at a reduced gross profit margin, but near our expected range for the segment.

In addition, segment gross margin was negatively impacted by low volumes, which led to the under recovery of construction overhead costs.

These negative impacts were partially offset by good project execution in the remainder of the segment.

The fiscal 2020 segment gross margin was negatively impacted by poor execution in the first and second quarters, including a lower than previously expected margin on a capital project due to costs to remediate faulty equipment designed by a subcontractor.

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

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.

Revenue for the Process and Industrial Facilities segment was $140.0 million in the nine months ended March 31, 2021 compared to $372.7 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 midstream gas projects, the completion of a major capital project, and reduced refinery turnaround and maintenance work during the first and second quarters.

The segment gross margin was 8.1% for the nine months ended March 31, 2021 compared to 8.2% in the same period last year.

Segment gross margin in fiscal 2021 was positively impacted by strong project execution and the positive impact of a one-time workers' compensation item recorded in the second quarter, but these positive impacts were partially offset by lower revenue volumes, which led to the under recovery of construction overhead costs.

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

Revenue for the Storage and Terminal Solutions segment was $201.1 million in the nine months ended March 31, 2021 compared to $379.8 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 lower repair and maintenance work.

The segment gross margin was 6.0% in the nine months ended March 31, 2021 compared to 13.9% in the same period last year.

The fiscal 2021 segment gross margin was negatively impacted by increases in the costs to complete a large crude oil terminal project, partially offset by an increase in the estimated recovery of those costs.

During the third quarter, the Company achieved mechanical completion on the project, demobilized and completed its assessment of unpriced change orders.

The project's financial impact for the nine months ended March 31, 2021 was a $3.8 million reduction to gross profit.

In addition, fiscal 2021 gross margin was negatively impacted by low volumes, which led to the under recovery of construction overhead costs.

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.

Unallocated corporate expenses were $20.2 million during the nine months ended March 31, 2021 compared to $22.2 million in the same period last year.

The decrease is primarily attributable to cost reductions we implemented.

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.

4 unchanged sentences

For long-term maintenance contracts with no minimum commitments and other established customer agreements, we include only the amounts that we expect to recognize as revenue over the next 12 months.

For arrangements in which we have received a limited notice to proceed, we include the entire scope of work in our backlog if we conclude that the likelihood of the full project proceeding as high.

For arrangements in which we have received a limited notice to proceed ("LNTP"), we include the entire scope of work in our backlog if we conclude that the likelihood of the full project proceeding as high.

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 December 31, 2020:

The following table provides a summary of changes in our backlog for the three months ended March 31, 2021:

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

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

Project awards 49,808 40,836 47,399 138,043

Other adjustment (1)

— — (74,219) (74,219)

Revenue recognized (44,720) (42,834) (60,706) (148,260)

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

Backlog as of March 31, 2021 $ 203,300 $ 155,430 $ 179,607 $ 538,337

Book-to-bill ratio (2)

1.1 1.0 0.8 0.9

(1) The other adjustment in the Storage and Terminal Solutions segment was due to a customer's decision not to renew our existing LNTP for a storage tank capital project.

The Company was paid for all work performed on the project and has been invited to rebid the project when the customer makes the final investment decision.

(2) 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:

The following table provides a summary of changes in our backlog for the nine months ended March 31, 2021:

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

2 unchanged sentences

Project awards 87,898 149,732 114,960 352,590

Other adjustment (1)

— — (74,219) (74,219)

Revenue recognized (157,414) (140,027) (201,058) (498,499)

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

Backlog as of March 31, 2021 $ 203,300 $ 155,430 $ 179,607 $ 538,337

Book-to-bill ratio (2)

0.6 1.1 0.6 0.7

(1) The other adjustment in the Storage and Terminal Solutions segment was due to a customer's decision not to renew our existing LNTP for a storage tank capital project.

The Company was paid for all work performed on the project and has been invited to rebid the project when the customer makes the final investment decision.

(2) Calculated by dividing project awards by revenue recognized during the period.

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 the Utility and Power Infrastructure segment, performance in the power delivery business continues to be strong on lower revenue.

Bidding activity is strong and we expect project awards to improve.

Similarly, our opportunity pipeline for LNG peak shaving projects is building, however those awards, while significant, can be less frequent.

During the third quarter of fiscal 2021, we received a key contract for an upgrade of an LNG peak shaving facility.

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

In the Process and Industrial Facilities segment, the short-term impact of the global pandemic on the Company's refinery maintenance operations has moderated.

We saw an increase in demand for refinery and maintenance work on existing long-term maintenance contracts with certain customers.

However, other customers continue to delay or reduce discretionary maintenance and capital spending.

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

The larger midstream gas projects continue to be limited, but we are seeing some activity in smaller capital work.

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.

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, hydrogen, NGLs and other forms of renewable energy that support clean energy investments, President Biden priorities, 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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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 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:

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A reconciliation of Adjusted EBITDA to net loss follows:

Three Months Ended Six Months Ended

2020 December 31,

2019 December 31,

2020 December 31,

Three Months Ended Nine Months Ended

2021 March 31,

2020 March 31,

2021 March 31,

(In thousands)

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Interest expense 322 398 1,055 1,231

Provision for income taxes (1,212) (3,302) (942) (591)

Benefit from income taxes (5,060) (1,114) (6,002) (1,705)

Depreciation and amortization 4,352 4,686 13,639 14,388

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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, 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.

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

Our primary sources of liquidity as of March 31, 2021 were cash and cash equivalents of $73.8 million and cash flows from operations.

Due to the financial results of the Company, we are currently unable to obtain revolving loans under our credit facility and are subject to other restrictions as discussed below under the caption "Senior Secured Revolving Credit Facility".

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

However, the Company continues to maintain a strong balance sheet, which we believe is sufficient to support its near- to intermediate-term needs.

The Company continues to take the following actions:

• managing the cost structure of the business based on the expected near-term revenue;

• proactive working capital management;

• eliminating all non-critical capital expenditures.

• maintaining little or no debt.

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 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 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:

• 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.

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• Issuances of letters of credit.

• Acquisitions and disposals of businesses.

• Strategic investments in new operations.

Other factors that may impact long-term liquidity include:

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

• Acquisitions and disposals of businesses.

• 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.

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.

The Credit Agreement replaced the Fourth Amended and Restated Credit Agreement, 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.

The Credit Agreement provides for a three-year senior secured revolving credit facility of $200.0 million that expires November 2, 2023.

The credit facility may be used for working capital, acquisitions, capital expenditures, issuances of letters of credit and other lawful purposes.

The credit facility includes a U.S.

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.

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

• The ABR or the Adjusted LIBO Rate, in the case of revolving loans denominated in U.S.

• The Canadian Prime Rate or the CDOR rate, in the case of revolving loans denominated in Canadian Dollars;

• The Adjusted LIBO Rate or the Adjusted EURIBOR Rate, in the case of revolving loans denominated in Pounds Sterling or Australian Dollars;

• The Adjusted EURIBOR Rate, in the case of revolving loans denominated in Euros,

in each case, plus the Applicable Margin, which is based on the Company's Leverage Ratio.

The Applicable Margin on ABR loans ranges between 1.00% and 2.00%.

The Applicable Margin for Adjusted LIBO, Adjusted EURIBOR and CDOR loans ranges between 2.00% and 3.00% and the Applicable Margin for Canadian Prime Rate loans ranges between 2.50% and 3.50%.

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

Covenants and limitations under the Credit Agreement include the following:

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

The Leverage Ratio covenant requires that Consolidated Funded Indebtedness, as defined in the Credit Agreement, 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.

• We are required to maintain a Fixed Charge Coverage Ratio (“FCCR”), determined as of the end of each fiscal quarter, greater than or equal to 1.25 to 1.00.

The FCCR is calculated as follows:

◦ If no borrowings are outstanding at quarter end, then the FCCR covenant requires that, as of the end of any fiscal quarter, Covenant EBITDA, after deducting capital expenditures and dividends for the previous four quarters, may not be less than 1.25 times the total of interest expense and cash paid for income taxes over the previous four quarters plus scheduled maturities of certain indebtedness for the next four quarters.

◦ If borrowings are outstanding at quarter end, the FCCR is calculated the same except that all share repurchases for the previous four quarters are also deducted from Covenant EBITDA.

• Asset dispositions (other than dispositions in which all of the net cash proceeds therefrom are reinvested into the Company and dispositions of inventory and obsolete or unneeded equipment in the ordinary course of business) are limited to $20.0 million per 12-month period.

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

On May 4, 2021, the Company entered into the First Amendment to Fifth Amended and Restated Credit Agreement (the “Amended 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, and the other Lenders party thereto, which amended the Credit Agreement.

The Company entered into the Amended Credit Agreement to obtain temporary relief from the financial covenants due to the continued decline in operating results.

Under the Amended Credit Agreement, the Company will not be required to comply with the Leverage Ratio and FCCR financial covenants for the quarters ending March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021.

The Amended Credit Agreement adds a number of new requirements and restrictions.

During a “Covenant Relief Period” commencing May 4, 2021 and ending on the date on which the Company provides a compliance certificate for the quarter ending March 31, 2022:

• No revolving loans will be made under the credit facility.

• If any new letters of credit are issued during the Covenant Relief Period, the Company will be required to provide cash collateral equal to 50% of the face value of the letter of credit (or 105% of the face value of the letter of credit if the aggregate amount of letters of credit outstanding exceeds $100 million).

• At all times prior to July 1, 2021, the Company will be required to maintain at least $50.0 million of unrestricted cash.

Beginning July 1, 2021, and at all times during the remainder of the Covenant Relief Period, the Company will be required to maintain at least $60.0 million of unrestricted cash.

The requirement to maintain unrestricted cash is in addition to any cash which would be required as collateral for any new letters of credit.

• Acquisitions, stock repurchases under the Company’s existing stock buyback program and cash dividends are prohibited.

• Capital expenditures may not exceed $2.0 million in any fiscal quarter.

In addition to these provisions, the Amended Credit Agreement requires the Company to generate Covenant EBITDA of at least:

• $2.5 million for the fiscal quarter ending June 30, 2021

• $8.0 million for the six months ending September 30, 2021;

• $16.5 million for the nine months ending December 31, 2021.

As of March 31, 2021, the Company had $41.4 million in letters of credit issued under the credit facility and no borrowings.

Cash Flow for the Nine Months Ended March 31, 2021

Cash Flows Used by Operating Activities

Cash used by operating activities for the nine months ended March 31, 2021 totaled $13.2 million.

The various components are as follows:

Net Cash Provided by Operating Activities

Net Cash Used by Operating Activities

(In thousands)

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Cash effect of changes in operating assets and liabilities (13,841)

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.

Net cash used by operating activities $ (13,212)

Cash effect of changes in operating assets and liabilities at March 31, 2021 in comparison to June 30, 2020 include the following:

• Accounts receivable, net of credit losses recognized during the period, decreased $2.6 million during the nine months ended March 31, 2021, which increased cash flows from operating activities.

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

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Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") decreased $4.4 million, which decreased cash flows from operating activities.

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.

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

• Inventories, income taxes receivable, other current assets, operating right-of-use lease assets and other assets increased $15.7 million during the nine months ended March 31, 2021, 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;

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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.

• Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities, and other accrued expenses decreased by $21.7 million during the nine months ended March 31, 2021, which decreased cash flows from operating activities.

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

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Cash Flows Used by Investing Activities

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.

Investing activities used $2.1 million of cash in the nine months ended March 31, 2021 primarily due to $3.9 million of capital expenditures, partially offset by $1.8 million of proceeds from other asset sales.

Capital expenditures consisted of:

$1.0 million for transportation equipment, $0.9 million for software and office equipment, $0.6 million for construction and fabrication equipment, and $0.6 million for facilities.

$1.0 million for transportation equipment, $1.0 million for software and office equipment, $1.0 million for facilities, and $0.9 million for construction and fabrication equipment.

Cash Flows Used by Financing Activities

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 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.