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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-05-10 · 285 added, 387 removed, 121 unchanged (85% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

CRITICAL ACCOUNTING POLICIES

There have been no material changes in our critical accounting policies from those reported in our fiscal 2020 Annual Report on Form 10-K filed with the SEC.

For more information on our critical accounting policies, see Part II, Item 7 of our fiscal 2020 Annual Report on Form 10-K.

The following section provides certain information with respect to our critical accounting policies as of the close of our most recent quarterly period.

Revenue Recognition

General Information about our Contracts with Customers

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

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

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

The elapsed time from award to completion of performance may be in excess of one year for capital projects.

Contract Identification

We do not recognize revenue unless we have identified a contract with a customer.

A contract with a customer exists when it has approval and commitment from both parties, the rights and obligations of the parties are identified, payment terms are identified, the contract has commercial substance, and collectibility is probable.

We also evaluate whether a contract should be combined with other contracts and accounted for as one single contract.

This evaluation requires judgment and could change the timing of the amount of revenue and profit recorded for a given period.

Identify Performance Obligations

Next, we identify each performance obligation in the contract.

A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services to the customer.

Revenue is recognized separately for each performance obligation in the contract.

Many of our contracts have one clearly identifiable performance obligation.

However, many of our contracts provide the customer an integrated service that includes two or more of the following services:

engineering, procurement, fabrication, construction, repair and maintenance services.

For these contracts, we do not consider the integrated services to be distinct within the context of the contract when the separate scopes of work combine into a single commercial objective or capability for the customer.

Accordingly, we generally identify one performance obligation in our contracts.

The determination of the number of performance obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded for a given period.

Determine Contract Price

After determining the performance obligations in the contract, we determine the contract price.

The contract price is the amount of consideration we expect to receive from the customer for completing the performance obligation(s).

In a fixed price contract, the contract price is a single lump-sum amount.

In reimbursable and time and materials based contracts, the contract price is determined by the agreed upon rates or reimbursements for time and materials expended in completing the performance obligation(s) in the contract.

A number of our contracts contain various cost and performance incentives and penalties that can either increase or decrease the contract price.

These variable consideration amounts are generally earned or incurred based on certain performance metrics, most commonly related to project schedule or cost targets.

We estimate variable consideration at the most likely amount of additional consideration to be received (or paid in the case of penalties), provided that meeting the variable condition is probable.

We include estimated amounts of variable consideration in the contract price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

Our estimates of variable consideration and determination of whether to include estimated amounts in the contract price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.

We reassess the amount of variable consideration each accounting period until the uncertainty associated with the variable consideration is resolved.

Changes in the assessed amount of variable consideration are accounted for prospectively as a cumulative adjustment to revenue recognized in the current period.

Assign Contract Price to Performance Obligations

After determining the contract price, we assign such price to the performance obligation(s) in the contract.

If a contract has multiple performance obligations, we assign the contract price to each performance obligation based on the stand-alone selling prices of the distinct services that comprise each performance obligation.

Recognize Revenue as Performance Obligations are Satisfied

We record revenue for contracts with our customers as we satisfy the contracts' performance obligations.

We recognize revenue on performance obligations associated with fixed price contracts for engineering, procurement and construction services over time since these services create or enhance assets the customer controls as they are being created or enhanced.

We measure progress of satisfying these performance obligations by using the percentage-of-completion method, which is based on costs incurred to date compared to the total estimated costs at completion, since it best depicts the transfer of control of assets being created or enhanced to the customer.

We recognize revenue over time for reimbursable and time and material based repair and maintenance contracts since the customer simultaneously receives and consumes the benefit of those services as we perform work under the contract.

As a practical expedient allowed under ASC 606, we record revenue for these contracts in the amount to which we have a right to invoice for the services performed provided that we have a right to consideration from the customer in an amount that corresponds directly with the value of the performance completed to date.

Costs incurred may include direct labor, direct materials, subcontractor costs and indirect costs, such as salaries and benefits, supplies and tools, equipment costs and insurance costs.

Indirect costs are charged to projects based upon direct costs and overhead allocation rates per dollar of direct costs incurred or direct labor hours worked.

Typically, customer contracts will include standard warranties that provide assurance that products and services will function as expected.

The Company does not sell separate warranties.

We have numerous contracts that are in various stages of completion which require estimates to determine the forecasted costs at completion.

Due to the nature of the work left to be performed on many of our contracts, the estimation of total cost at completion for fixed price contracts is complex, subject to many variables and requires significant judgment.

Estimates of total cost at completion are made each period and changes in these estimates are accounted for prospectively as cumulative adjustments to revenue recognized in the current period.

If estimates of costs to complete fixed price contracts indicate a loss, a provision is made through a contract write-down for the total loss anticipated.

Change Orders

Contracts are often modified through change orders, which are changes to the agreed upon scope of work.

Most of our change orders, which may be priced or unpriced, are for goods or services that are not distinct from the existing contract due to the significant integration of services provided in the context of the contract and are accounted for as if they were part of that existing contract.

The effect of a change order on the contract price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis.

For unpriced change orders, we estimate the increase or decrease to the contract price using the variable consideration method described in the Step 3:

Determine Contract Price paragraph above.

Unpriced change orders are more fully discussed in Note 7 - Commitments and Contingencies.

Sometimes we seek claims for amounts in excess of the contract price for delays, errors in specifications and designs, contract terminations, change orders in dispute or other causes of additional costs incurred by us.

Recognition of amounts as additional contract price related to claims is appropriate only if there is a legal basis for the claim.

The determination of our legal basis for a claim requires significant judgment.

We estimate the change to the contract price using the variable consideration method described in the Step 3:

Determine Contract Price paragraph above.

Claims are more fully discussed in Note 7 - Commitments and Contingencies.

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 $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.

Loss Contingencies

Various legal actions, claims, and other contingencies arise in the normal course of our business.

Contingencies are recorded in the consolidated financial statements, or are otherwise disclosed, in accordance with Accounting Standard Codification ("ASC") Topic 450-20, “Loss Contingencies”.

Specific reserves are provided for loss contingencies to the extent we conclude that a loss is both probable and estimable.

We use a case-by-case evaluation of the underlying data and update our evaluation as further information becomes known.

We believe that any amounts exceeding our recorded accruals should not materially affect our financial position, results of operations or liquidity.

However, the results of litigation are inherently unpredictable and the possibility exists that the ultimate resolution of one or more of these matters could result in a material effect on our financial position, results of operations or liquidity.

Goodwill represents the excess of the purchase price of acquisitions over the acquisition date fair value of the net identifiable tangible and intangible assets acquired.

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 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.

The goodwill impairment test involves comparing management’s estimate of the fair value of a reporting unit with its carrying value, including goodwill.

If the fair value of a reporting unit exceeds its carrying value, then goodwill is not impaired.

If the fair value of a reporting unit is less than its carrying value, then goodwill is impaired to the extent of the difference, but the impairment may not exceed the balance of goodwill assigned to that reporting unit.

We utilize a discounted cash flow analysis, referred to as an income approach, and market multiples, referred to as a market approach, to determine the estimated fair value of our reporting units.

For the income approach, significant judgments and assumptions including forecasted project awards, discount rate, anticipated revenue growth rate, gross margins, operating expenses, working capital needs and capital expenditures are inherent in the fair value estimates, which are based on our operating and capital budgets and on our strategic plan.

As a result, actual results may differ from the estimates utilized in our income approach.

For the market approach, significant judgments and assumptions include the selection of guideline companies, forecasted guideline company EBITDA and our forecasted EBITDA.

The use of alternate judgments and/or assumptions could result in a fair value that differs from our estimate and could result in the recognition of additional impairment charges in the financial statements.

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

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

Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.

Valuation allowances based on our judgments and estimates are established when necessary to reduce deferred tax assets to the amount expected to be realized in future operating results.

Company management believes that realization of deferred tax assets in excess of the valuation allowance is more likely than not.

Our estimates are based on facts and circumstances in existence as well as interpretations of existing tax regulations and laws applied to the facts and circumstances, with the help of professional tax advisors.

Therefore, we estimate and provide for amounts of additional income taxes that may be assessed by the various taxing authorities.

The Company enters into lease arrangements for real estate, construction equipment and information technology equipment in the normal course of business.

The Company determines if an arrangement is or contains a lease at inception of the arrangement.

An arrangement is determined to be a lease if it conveys the right to control the use of identified property and equipment for a period of time in exchange for consideration.

Operating lease right-of-use assets are recognized as the present value of future lease payments over the lease term as of the commencement date, plus any lease payments made prior to commencement, and less any lease incentives received.

Operating lease liabilities are recognized as the present value of the future lease payments over the lease term as of the commencement date.

Operating lease expense is recognized based on the undiscounted future lease payments over the remaining lease term on a straight-line basis.

Lease expense related to short-term leases is recognized on a straight-line basis over the lease term.

Determinations with respect to lease term (including any renewals and terminations), incremental borrowing rate used to discount lease payments, variable lease expense and future lease payments require the use of judgment based on the facts and circumstances related to each lease.

The Company considers various factors, including economic incentives, intent, past history and business need, to determine the likelihood that a renewal option will be exercised.

Right-of-use assets are evaluated for impairment in accordance with our policy for impairment of long-lived assets.

FORWARD-LOOKING STATEMENTS

This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

All statements, other than statements of historical facts, included in this Form 10-Q which address activities, events or developments which we expect, believe or anticipate will or may occur in the future are forward-looking statements.

The words “believes,” “intends,” “expects,” “anticipates,” “projects,” “estimates,” “predicts” and similar expressions are also intended to identify forward-looking statements.

These forward-looking statements include, among others, such things as:

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

• amounts and nature of future project awards, revenue and margins from each of our segments;

• our ability to generate sufficient cash from operations, access our credit facility, or raise cash in order to meet our short and long-term capital requirements;

• our ability to comply with the covenants in our Credit Agreement;

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

• the likely impact of new or existing regulations or market forces on the demand for our services;

• our expectations with respect to the likelihood of a future impairment;

• expansion and other trends of the industries we serve.

These statements are based on certain assumptions and analyses we made in light of our experience and our historical trends, current conditions and expected future developments as well as other factors we believe are appropriate.

However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties which could cause actual results to differ materially from our expectations, including:

• the risk factors discussed in our Form 10-K for the fiscal year ended June 30, 2021 and listed from time to time in our filings with the Securities and Exchange Commission;

• economic, market or business conditions in general (including the length and severity of the COVID-19 pandemic) and in the oil, natural gas, power, petrochemical, agricultural and mining industries in particular;

• the transition to renewable energy sources and its impact on our current customer base;

• the under- or over-utilization of our work force;

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

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

• the inherently uncertain outcome of current and future litigation;

• the adequacy of our reserves for claims and contingencies;

• changes in laws or regulations, including the imposition, cancellation or delay of tariffs on imported goods.

Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences or effects on our business operations.

We assume no obligation to update publicly, except as required by law, any such forward-looking statements, whether as a result of new information, future events or otherwise.

RESULTS OF OPERATIONS

Operational Update

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 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)

Restructuring costs incurred 1,860 6,559 6,585 6,559

Goodwill and intangible asset impairments — — — 38,515

Tax impact of adjustments and other net tax items (479) (1,462) (1,695) (6,737)

Adjusted net income (loss) $ (11,492) $ (398) $ (15,611) $ 10,985

Loss per fully diluted share, as reported $ (0.49) $ (0.21) $ (0.78) $ (1.02)

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 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.

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

Due to changing markets facing our clients and to better align the financial reporting of the Company with our long-term strategic growth areas, we began reporting our financial results under new reportable segments effective July 1, 2020.

The new reportable segments along with a description of each are as follows:

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

Our project teams, in coordination with our clients, are monitoring the impact of new variants of COVID-19 and continue to operate under enhanced work processes to protect the health and safety of everyone on our job sites.

Since the beginning of the pandemic we have reduced our cost structure by more than $70 million, or approximately 27%, with one-third of those reductions related to SG&A and the rest related to construction overhead, which is included in cost of revenue in the Consolidated Statements of Income.

These cost savings were primarily the result of the business improvement plan that began in fiscal 2020 and continues to evolve based on our markets, organizational structure and outlook.

We expect to complete the plan in fiscal 2022.

Financial Statements, Note 10 - Restructuring Costs, for more information.

Despite these significant reductions in construction overhead, our low revenue volume still has not allowed for the complete recovery of construction overhead or leveraging of SG&A costs.

As we move through fiscal 2022, we expect the business improvement plan along with improving revenue volumes to positively impact earnings.

We report our results of operations through three reportable segments:

Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions.

• Utility and Power Infrastructure :

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 configuration, and provides engineering, fabrication, and construction services for liquefied natural gas LNG utility peak shaving facilities.

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

• Process and Industrial Facilities :

primarily serves customers in the downstream and midstream petroleum industries who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas and natural gas liquids.

The Company also serves customers in various other industries such as petrochemical, sulfur, mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and defense, cement, agriculture, and other industrial customers.

The Company's services include plant maintenance, turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.

We also serve customers in various other industries such as petrochemical, sulfur, mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and defense, cement, agriculture, and other industrial customers.

Our services include plant maintenance, turnarounds, industrial cleaning services, engineering, fabrication, and capital construction.

• Storage and Terminal Solutions :

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, 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.

Finally, the Company offers tank products, including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems and floating roof seals.

All prior period segment information has been restated to conform with our new reportable segments.

In addition, beginning July 1, 2020, the Company is reporting separately corporate selling, general and administrative expenses and other corporate expenses that were previously allocated to the segments.

The Company evaluates performance and allocates resources based on operating income.

Intersegment sales and transfers are recorded at cost;

We also include work related to cryogenic and other specialty storage tanks and terminals, including LNG, liquid nitrogen/liquid oxygen, liquid petroleum, hydrogen and other specialty vessels such as spheres in this segment, as well work related to marine structures and truck and rail loading/offloading facilities.

Our services include engineering, fabrication, construction, and maintenance and repair, which includes planned and emergency services for both tanks and full terminals.

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

We evaluate performance and allocate resources based on operating income.

We record intersegment sales and transfers at cost;

therefore, no intercompany profit or loss is recognized.

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 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.

In addition, corporate selling, general and administrative expenses are reported separately from the three reportable segments.

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Consolidated revenue was $168.1 million for the three months ended September 30, 2021, compared to $182.8 million in the same period last year.

On a segment basis, revenue decreased in the Storage and Terminal Solutions, Utility and Power Infrastructure, and Process and Industrial Facilities segments by $9.2 million, $3.5 million and $2.0 million, respectively.

Consolidated gross profit (loss) decreased to $(3.5) million in the three months ended September 30, 2021 compared to $14.4 million in the same period last year.

Gross margin (loss) decreased to (2.1)% in the three months ended September 30, 2021 compared to 7.9% in the same period last year.

Gross margins in fiscal 2022 were negatively impacted by a lower than previously forecasted margin on a large capital project and an unfavorable settlement of a claim with a customer, both in the Utility and Power Infrastructure segment, and by lower than previously forecasted margins on a limited number of projects in the Storage and Terminal Solutions segment.

In addition, gross margins were also negatively impacted by lower than forecasted volumes, which led to under recovery of construction overhead costs.

Consolidated SG&A expenses were $16.6 million in the three months ended September 30, 2021 compared to $18.1 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.

As a result of restructuring activities, we recorded $0.6 million of restructuring costs in the three months ended September 30, 2021.

Financial Statements, Note 10 - Restructuring Costs, for more information.

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.

Interest expense was $2.0 million in the three months ended September 30, 2021 compared to $0.4 million in the three months ended September 30, 2020.

Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees associated with the Prior Credit Agreement (see Item 1.

Financial Statements, Note 5 - Debt, for more information).

Our effective tax rates for the three months ended September 30, 2021 and September 30, 2020 were 23.1% and (9.8)%, respectively.

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, 2021, we had a net loss of $17.5 million, or $0.66 per fully diluted share, compared to a net loss of $3.0 million, or $0.12 per fully diluted share, in the three months ended September 30, 2020.

Utility and Power Infrastructure

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.

Revenue for the Utility and Power Infrastructure segment was $57.2 million in the three months ended September 30, 2021 compared to $60.7 million in the same period last year.

The decrease is primarily due to lower volumes of power delivery and natural gas utility peak shaving work, partially offset by higher volumes of storm response service work.

The segment gross margin (loss) was (10.7)% in fiscal 2022 compared to 11.4% in fiscal 2021.

The fiscal 2022 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 $5.9 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 $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 $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 $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 $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 $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 $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 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.

The change in estimate was principally due to unexpected equipment repairs during commissioning that delayed the scheduled completion and increased the estimated costs to complete.

We achieved a critical performance milestone in the second quarter of fiscal 2022, which significantly reduced our financial exposure.

In addition, segment gross margin was negatively impacted by an unfavorable settlement of a claim with a customer, and low volumes, which led to the under recovery of construction overhead costs.

Process and Industrial Facilities

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.

Revenue for the Process and Industrial Facilities segment was $43.9 million in the three months ended September 30, 2021 compared to $45.9 million in the same period last year.

The decrease is primarily due to lower volumes of thermal vacuum chamber and capital work, largely offset by an increase in refinery turnaround and maintenance work.

The segment gross margin was 6.5% for the three months ended September 30, 2021 compared to 8.0% in the same period last year.

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

The lower segment gross margin in fiscal 2022 was the result of lower direct margins largely offset by improved recovery of construction overhead costs.

Storage and Terminal Solutions

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 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.

Revenue for the Storage and Terminal Solutions segment was $67.0 million in the three months ended September 30, 2021 compared to $76.2 million in the same period last year.

The decrease in segment revenue is primarily a result of lower volumes of crude oil tank and terminal capital work, partially offset by an increase in tank repair and maintenance work.

The segment gross margin was 0.6% for the three months ended September 30, 2021 compared to 5.0% in the same period last year.

The fiscal 2022 segment gross margin was negatively impacted by lower than previously forecasted margins on a limited number of projects and a higher percentage of lower margin maintenance work.

While recovery of construction overhead costs improved in fiscal 2022, revenue volumes were still not sufficient to allow full recovery.

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

Unallocated corporate expenses were $7.6 million during the three months ended September 30, 2021 compared to $6.9 million in the same period last year.

The increase is primarily attributable to an increase in legal costs for outstanding litigation (see Item 1.

Financial Statements, Note 7 - Commitment and Contingencies, for more information) and third party consulting services related to restructuring activities (see "Operational Update" in this Results of Operations section), partially offset by 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.

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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 March 31, 2021:

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

(In thousands)

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 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 nine months ended March 31, 2021:

The following table provides a summary of changes in our backlog for the three months ended September 30, 2021:

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

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Project awards 64,037 94,562 108,288 266,887

Other adjustment (1)

— — (74,219) (74,219)

Revenue recognized (57,204) (43,905) (66,984) (168,093)

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

Backlog as of September 30, 2021 $ 176,876 $ 185,434 $ 199,045 $ 561,355

Book-to-bill ratio (1)

1.1 2.2 1.6 1.6

(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.

(1) 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 business continues to be strong on lower revenue.

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

In the Utility and Power Infrastructure segment, bidding activity is strong in the power delivery portion of the business.

During the first quarter of fiscal 2022, we received several key contracts for electrical infrastructure services including substation rebuilds, relay upgrades, and fiber installation.

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, hydrogen, NGLs and other forms of renewable energy that support clean energy investments, President Biden priorities, and chemical feed stocks.

In addition, we expect the new $1.2 trillion Infrastructure Investment and Jobs Act recently passed by congress will lead to increased opportunities in this segment.

In the Process and Industrial Facilities segment, client spending related to refinery maintenance operations has returned to near-normal levels.

During the first quarter of fiscal 2022, we received a key award for the construction of a thermal vacuum chamber.

We continue to see strong demand for thermal vacuum chambers in the coming quarters, as well as increasing opportunities in mining and minerals and chemicals.

In addition, we are seeing more opportunities for midstream gas work, including some larger scale projects.

In the Storage and Terminal Solutions segment, oil and natural gas producers have remained cautious with capital spending, which has limited new production volumes and opportunities in crude oil tanks and terminals.

However, we received key capital construction contracts for an LNG tank and a storage tank package consisting of seven biodiesel tanks, in the first quarter of fiscal 2022.

This segment also includes significant opportunities for storage infrastructure projects related to natural gas, LNG, ammonia, hydrogen, NGLs and other forms of renewable energy.

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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Therefore, revenue volume in the summer months is typically lower than in other periods throughout the year.

Our operations are also impacted by the COVID-19 pandemic, which has led to the loss of productivity, among other issues.

Our business can also be affected, both positively and negatively, by seasonal factors such as energy demand or weather conditions including hurricanes, snowstorms, and abnormally low or high temperatures.

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Accordingly, results for any interim period may not necessarily be indicative of operating results for the full year.

Other factors impacting operating results in all segments come from decreased work volumes during holidays, work site permitting delays or customers accelerating or postponing work.

The differing types, sizes, and durations of our contracts, combined with their geographic diversity and stages of completion, often results in fluctuations in the Company's operating results.

Other factors impacting operating results in all segments come from decreased work volume during holidays, work site permitting delays or customers accelerating or postponing work.

The differing types, sizes, and durations of our contracts, combined with their geographic diversity and stages of completion, often results in fluctuations in our operating results.

Our overhead cost structure is generally fixed.

Significant fluctuations in revenue volumes usually leads to over or under recovery of fixed overhead costs, which can have a material impact on our gross margin and profitability.

Non-GAAP Financial Measure

Significant fluctuations in revenue usually leads to over or under recovery of fixed overhead costs, which can have a material impact on our gross margin and profitability.

Non-GAAP Financial Measures

Adjusted Net Loss

In order to more clearly depict our core profitability, the following tables present our operating results after certain adjustments:

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

(In thousands, except per share data)

Three Months Ended

September 30, 2021 September 30, 2020

Net loss, as reported $ (17,538) $ (3,037)

Restructuring costs incurred 605 (320)

Accelerated amortization of deferred debt amendment fees 1,518 —

Tax impact of adjustments (546) 82

Adjusted net loss $ (15,961) $ (3,275)

Loss per fully diluted share, as reported $ (0.66) $ (0.12)

Adjusted loss per fully diluted share $ (0.60) $ (0.12)

(1) This table presents non-GAAP financial measures of our adjusted net loss and adjusted diluted loss per common share for the three months ended September 30, 2021 and 2020.

The most directly comparable financial measures are net loss and net loss per diluted 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 our core operating results during the periods presented and provide a more comparable measure of our operating results to other companies considered to be in similar businesses.

Since adjusted net loss and adjusted diluted 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.

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.

We have presented Adjusted EBITDA, which we define as net loss before restructuring costs, stock-based compensation, interest expense, income taxes, and 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 Condensed 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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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.

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

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

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

• It does not include stock-based compensation.

Stock-based compensation represents material amounts of equity that are awarded to our employees and directors for services rendered.

While the expense is non-cash, we release vested shares out of our treasury stock, which has historically been replenished by using cash to periodically repurchase our stock.

Therefore, any measure that excludes stock-based compensation has material limitations.

• It does not include interest expense.

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A reconciliation of Adjusted EBITDA to net loss follows:

Three Months Ended Nine Months Ended

2021 March 31,

2020 March 31,

2021 March 31,

Three Months Ended

September 30,

2021 September 30,

(In thousands)

Net loss $ (17,538) $ (3,037)

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

Restructuring costs 605 (320)

Stock-based compensation 1,869 2,218

Interest expense 1,999 375

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

Provision (benefit) from income taxes (5,265) 270

Depreciation and amortization 4,052 4,639

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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 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;

Our primary sources of liquidity at September 30, 2021 were unrestricted cash and cash equivalents on hand, capacity under our credit agreement, and cash generated from operations.

Unrestricted cash and cash equivalents at September 30, 2021 totaled $34.7 million and availability under the ABL Facility totaled $32.1 million, resulting in total liquidity of $66.8 million.

We expect letters of credit outstanding to decrease by approximately $20.0 million in the second quarter of fiscal 2022, which will increase availability under the ABL Facility by the same amount.

The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Condensed Consolidated Balance Sheets to the total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows (in thousands):

September 30,

2021 June 30,

Cash and cash equivalents $ 34,678 $ 83,878

Restricted cash, current 2,600 —

Restricted cash, non-current 25,000 —

Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows $ 62,278 $ 83,878

While we saw improvement in our project awards and business environment during the first quarter of fiscal 2022, the near- and intermediate-term business impacts from the COVID-19 pandemic and its disruption of our markets are still uncertain.

Therefore we continue to maintain a strong balance sheet, which we believe is sufficient to support our near- to intermediate-term needs.

We are continuing to take the following actions:

• strategically reviewing business processes and organizational structure;

• proactively managing our the cost structure and working capital;

• eliminating all non-critical capital expenditures.

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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.

• borrowing constraints under our ABL Facility and maintaining compliance with all covenants contained in the ABL Facility;

• acquisitions and disposals of businesses;

• purchases of shares under our stock buyback program.

ABL Credit Facility and Senior Secured Revolving Credit Facility

ABL Credit Facility

On September 9, 2021, we and our primary U.S.

and Canada operating subsidiaries entered into an asset-backed credit agreement (the "ABL Facility") as borrowers with Bank of Montreal, as Administrative Agent, Swing-Line Lender, a Letter of Credit Issuer and a Lender.

The ABL Facility is guaranteed by substantially all of our remaining U.S.

and Canadian subsidiaries.

The ABL Facility provides for available borrowings of up to $100.0 million, which may be increased further by an amount not to exceed $15.0 million, subject to certain conditions, including obtaining additional commitments.

The ABL Facility is intended to be used for working capital, capital expenditures, issuances of letters of credit and other lawful purposes.

Our obligations under the ABL Facility are secured by a first lien on all our assets and the assets of our co-borrowers and guarantors under the ABL Facility.

The maximum amount that we may borrow under the ABL Facility is subject to a borrowing base, which is based on restricted cash plus a percentage of the value of certain accounts receivable, inventory and equipment, reduced for certain reserves.

We are required to maintain a minimum of $25.0 million of restricted cash at all times, but such amounts are also included in the borrowing base.

At September 30, 2021, availability under the ABL Facility was $32.1 million and there were $43.1 million in letters of credit outstanding.

The ABL Facility matures and any outstanding amounts become due and payable on September 9, 2026.

Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate equal to any of a base rate (“Base Rate”), Canadian prime rate, CDOR rate or a LIBOR rate, plus an applicable margin.

The Base Rate is defined as a fluctuating interest rate equal to the greatest of (i) rate of interest announced by Bank of Montreal from time to time as its prime rate;

(ii) the U.S.

federal funds rate plus 0.50%;

(iii) LIBOR rate for one month period plus 1.00%;

and (iv) 1.00%.

Depending on the amount of average availability, the applicable margin is between 1.00% to 1.50% for either U.S.

Base Rate Loans or Canadian prime rate, and between 2.00% and 2.50% for CDOR and LIBOR rate borrowings.

Interest is payable either (i) monthly for Base Rate borrowings or (ii) the last day of the interest period for LIBOR or CDOR rate borrowings, as set forth in the Credit Agreement.

The fee for undrawn amounts is 0.25% per annum and is due quarterly.

The ABL Facility contains customary conditions to borrowings, events of default and covenants, including, but not limited to, covenants that restrict our ability to sell assets, engage in mergers and acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay cash dividends, issue equity instruments, make distribution or redeem or repurchase capital stock.

In the event that our availability is less than the greater of (i) $15.0 million and (ii) 15.00% of the lesser of (1) the current borrowing base and (2) the commitments under the ABL Facility then in effect, a consolidated Fixed Charge Coverage Ratio of at least 1.00 to 1.00 must be maintained.

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

The ABL Facility replaced the Fifth Amended and Restated Credit Agreement (the "Prior Credit Agreement"), that was entered into on November 2, 2020, and subsequently amended on May 4, 2021, by and among us and certain foreign subsidiaries, as Borrowers, various subsidiaries of ours, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, Sole Lead Arranger and Sole Book Runner, and the other Lenders party thereto.

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

We had no borrowings and $41.3 million of letters of credit outstanding under the Prior Credit Agreement as of the date we commenced the ABL Facility.

Interest expense during the three months ended September 30, 2021 included $1.5 million of accelerated amortization of deferred debt amendment fees associated with the Prior Credit Agreement.

Cash Flow for the Three Months Ended September 30, 2021

Cash Flows Used by Operating Activities

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

Cash used by operating activities for the three months ended September 30, 2021 totaled $19.2 million.

The various components are as follows:

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Net cash used by operating activities $ (19,153)

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.

• Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") decreased $21.6 million, which increased cash flows from operating activities.

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

• Accounts receivable, net of credit losses recognized during the period and other adjustments, decreased $3.1 million during the three months ended September 30, 2021, which increased cash flows from operating activities.

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

• Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") increased $3.0 million, which decreased cash flows from operating activities.

Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") decreased $2.9 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.

• Inventories, income taxes receivable, other current assets, operating right-of-use lease assets and other assets, non-current, increased $3.3 million during the three months ended September 30, 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 $21.7 million during the nine months ended March 31, 2021, which decreased cash flows from operating activities.

• Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current increased by $2.8 million during the three months ended September 30, 2021, which increased cash flows from operating activities.

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

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and other timing differences.

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

This increase was primarily due to deferred payroll tax associated with the CARES Act.

Financial Information, Note 6 - Income Taxes for more information.

Cash Flows Used by Investing Activities

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

Investing activities used $0.1 million of cash in the three months ended September 30, 2021 primarily due to $0.2 million of capital expenditures, partially offset by $0.1 million of proceeds from other asset sales.

Cash Flows Used by Financing Activities

Financing activities used $12.2 million of cash in the nine months ended March 31, 2021 primarily due to the net repayment of $9.8 million on the Company's senior secured revolving credit facility, $1.6 million paid to repurchase the Company's stock for payment of withholding taxes due on equity-based compensation, and $0.9 million paid in fees to amend the Company's Credit Agreement.

Financing activities used $1.8 million of cash in the three months ended September 30, 2021 primarily due to $0.9 million paid to repurchase our stock for payment of withholding taxes due on equity-based compensation and $0.9 million paid in fees to enter into our ABL Facility.

Dividend Policy

We have never paid cash dividends on our common stock, and the terms of our Amended Credit Agreement currently do not allow cash dividends.

Upon expiration of the Covenant Relief Period described above under the caption "Senior Secured Revolving Credit Facility," we may declare and pay cash dividends on our capital stock during any fiscal year up to an amount which, when added to all other cash dividends paid during such fiscal year, does not exceed 50% of our cumulative net income for such fiscal year to date.

Any future dividend payments will depend on our financial condition, capital requirements and earnings as well as other relevant factors.

We have never paid cash dividends on our common stock and the terms of our ABL Facility limit dividends to stock dividends only.

Any future dividend payments will depend on the terms of our ABL Facility, our financial condition, capital requirements and earnings as well as other relevant factors.

Stock Repurchase Program and Treasury Shares

Treasury Shares

The terms of our Amended Credit Agreement currently do not allow share repurchases.

Upon expiration of the Covenant Relief Period described above under the caption "Senior Secured Revolving Credit Facility," the Company may repurchase common stock pursuant to the stock buyback program that was in place and approved by the board of directors in November 2018.

However, the FCCR covenant in our Credit Agreement may still limit our ability to repurchase shares.

The specific limitations are described in the Senior Secured Revolving Credit Facility section above.

Under our stock buyback program, the Company may repurchase up to a maximum of $30.0 million per calendar year provided that the aggregate number of shares repurchased may not exceed 10%, or approximately 2.7 million, of the Company's shares outstanding as of November 6, 2018.

The Company may repurchase its stock from time to time in the open market at prevailing market prices or in privately negotiated transactions and is not obligated to purchase any shares.

The stock buyback 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 stock buyback plan upon expiration of the Covenant Relief Period.

The Company had 1,369,000 treasury shares as of March 31, 2021 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

These forward-looking statements include, among others, such things as:

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

• amounts and nature of future project awards, revenue and margins from each of our segments;

• our ability to generate sufficient cash from operations, access our credit facility, or raise cash in order to meet our short and long-term capital requirements;

• our ability to comply with the covenants in our credit agreement;

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

• the likely impact of new or existing regulations or market forces on the demand for our services;

• our expectations with respect to the likelihood of a future impairment;

• expansion and other trends of the industries we serve.

• the risk factors discussed in our Form 10-K for the fiscal year ended June 30, 2020, this Form 10-Q and listed from time to time in our filings with the Securities and Exchange Commission;

• economic, market or business conditions in general (including the length and severity of the COVID-19 pandemic) and in the oil, natural gas, power, agricultural and mining industries in particular;

• the transition to renewable energy sources and its impact on our current customer base;

• the under- or over-utilization of our work force;

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

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

• the inherently uncertain outcome of current and future litigation;

• the adequacy of our reserves for claims and contingencies;

• changes in laws or regulations, including the imposition or threatened imposition, cancellation or delay of tariffs on imported goods;

• other factors, many of which are beyond our control.

We assume no obligation to update publicly, except as required by law, any such forward-looking statements, whether as a result of new information, future events or otherwise.

The terms of our Credit Agreement limit share repurchases to $2.5 million per fiscal year provided that we meet certain availability thresholds and do not violate our Fixed Charge Coverage Ratio financial covenant.

We may repurchase common stock pursuant to the Stock Buyback Program, which was approved by the board of directors in November 2018.

Under the program, the aggregate number of shares repurchased may not exceed 2,707,175 shares.

We may repurchase our stock from time to time in the open market at prevailing market prices or in privately negotiated transactions and are not obligated to purchase any shares.

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

We made no repurchases under the program in the first quarter of fiscal 2022 and have no current plans to repurchase stock in the near-term.

As of September 30, 2021, there were 1,349,037 shares available for repurchase under the Stock Buyback Program.

We had 1,191,189 treasury shares as of September 30, 2021 and intend to utilize these treasury shares in connection with equity awards under the our stock incentive plans and for sales to the Employee Stock Purchase Plan.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in our critical accounting policies from those reported in our fiscal 2021 Annual Report on Form 10-K filed with the SEC.

For more information on our critical accounting policies, see Part II, Item 7 of our fiscal 2021 Annual Report on Form 10-K.

The following section provides certain information with respect to our critical accounting policies as of the close of our most recent quarterly period.

Revenue Recognition

General Information about our Contracts with Customers

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

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

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

The elapsed time from award to completion of performance may exceed one year for capital projects.

Contract Identification

We do not recognize revenue unless we have identified a contract with a customer.

We also evaluate whether a contract should be combined with other contracts and accounted for as a single contract.