What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-08 compared with 2021-11-09 · 176 added, 90 removed, 316 unchanged (46% of the section changed)

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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;

• any risk factors discussed in this Form 10-Q, Form 10-K for the fiscal year ended June 30, 2021, and in our other 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;

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RESULTS OF OPERATIONS

Operational Update

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:

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

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.

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

• Process and Industrial Facilities :

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• Storage and Terminal Solutions :

consists of work related to aboveground storage tanks and terminals.

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.

consists of work related to aboveground crude oil and refined product storage tanks and terminals.

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 as 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.

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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.

Operational Update

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 the omicron and other 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.

The emergence of the omicron variant in the second quarter of fiscal 2022 did not have a significant impact on our existing COVID-19 safety protocols designed to maintain our safe working environment.

In fiscal 2020, we initiated a business improvement plan to increase profitability and reduce our cost structure in order to help us become more competitive and deliver higher quality service.

As a result of specific events, including the effects of the COVID-19 pandemic and related market disruptions, the Company expanded its business improvement plan.

The business improvement plan consisted of an initial phase of discretionary cost reductions, workforce reductions, reduction of capital expenditures and the reduction in size or closure of certain offices in order to increase the utilization of our staff and bring the cost structure of the business in line with revenue volumes.

In fiscal 2022, we commenced a second phase of our plan to focus on centralization of support functions, including business development, accounting, human resources, procurement and project services into shared service centers.

We incurred $0.7 million and $1.3 million of restructuring costs during the three and six months ended December 31, 2021 and $22.1 million of restructuring costs since inception of the plan.

The restructuring costs consist primarily of severance costs, facility closure costs, consulting fees and other liabilities.

To date, we estimate that we have reduced our cost structure by approximately $80 million, or approximately 29%, with approximately 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 Condensed Consolidated Statements of Income.

Financial Statements, Note 10 - Restructuring Costs, for more information about our business improvement plan.

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

Based on improving market conditions and strong award activity in the first half of fiscal 2022, we expect cost savings from the business improvement plan along with improving revenue volumes to positively impact earnings in the second half of fiscal 2022.

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

Consolidated revenue was $162.0 million for the three months ended December 31, 2021, compared to $167.5 million in the same period last year.

On a segment basis, revenue decreased in the Storage and Terminal Solutions and Process and Industrial Facilities segments by $7.3 million and $1.0 million, respectively.

The decreases were partially offset by an increase in revenue of $2.8 million in the Utility and Power Infrastructure segment.

Consolidated gross profit decreased to $3.2 million in the three months ended December 31, 2021 compared to $15.3 million in the same period last year.

Gross margin decreased to 2.0% in the three months ended December 31, 2021 compared to 9.1% in the same period last year.

Gross margins in the second quarter of fiscal 2022 were negatively impacted by lower volumes, which led to the under recovery of construction overhead costs, and by a lower than previously forecasted margin on a tank repair and maintenance project in the Storage and Terminal Solutions segment.

Gross margins in fiscal 2021 were positively impacted by strong project execution, partially offset by lower than forecasted volumes, which led to under recovery of construction overhead costs.

Consolidated SG&A expenses were $15.9 million in the three months ended December 31, 2021 compared to $16.7 million in the same period a year earlier.

The decrease is primarily attributable to implemented cost reductions.

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

As a result of restructuring activities, we recorded $0.7 million of restructuring costs in the three months ended December 31, 2021.

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

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.

Interest expense was $0.5 million in the three months ended December 31, 2021 compared to $0.4 million in the three months ended December 31, 2020.

Interest expense in the three months ended December 31, 2021 consisted primarily of letter of credit fees, unused capacity fees and amortization of deferred debt issuance costs.

Our effective tax rates for the three months ended December 31, 2021 and December 31, 2020 were (78.7)% and 20.9%, respectively.

The effective tax rate in fiscal 2022 was negatively impacted by a $14.2 million valuation allowance placed on our deferred tax assets during the second quarter, see Item 1.

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

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

For the three months ended December 31, 2021, we had a net loss of $24.9 million, or $0.93 per fully diluted share, compared to a net loss of $4.6 million, or $0.17 per fully diluted share, in the three months ended December 31, 2020.

Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment was $54.8 million in the three months ended December 31, 2021 compared to $52.0 million in the same period last year.

The increase is primarily due to higher volumes of power generation work.

The segment gross margin (loss) was (0.9)% in fiscal 2022 compared to 10.8% in fiscal 2021.

The segment gross margin (loss) for the second quarter of fiscal 2022 was negatively impacted by lower margins on power delivery work bid competitively and revenue recognized on a large capital project at a margin reduced in prior periods.

In addition, segment gross margin in the second quarter of fiscal 2022 was also negatively impacted by low volumes, which led to the under recovery of construction overhead costs.

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

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $50.3 million in the three months ended December 31, 2021 compared to $51.3 million in the same period last year.

While segment revenue was nearly flat compared to last year, we booked $210.4 million of project awards in the first half of fiscal 2022, which includes some large capital projects that are still in the preliminary stages of engineering and construction.

As such, we expect strong revenue growth in this segment during the second half of fiscal 2022.

The segment gross margin was 8.4% for the three months ended December 31, 2021 compared to 15.3% in the same period last year.

Despite generally strong project execution, the lower segment gross margin in fiscal 2022 was the result of low volumes, which lead to under recovery of construction overhead costs.

Segment gross margin in the second quarter of fiscal 2021 was positively impacted by strong project execution and a one-time workers compensation claim, partially offset by the under recovery of construction overhead costs.

Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $56.9 million in the three months ended December 31, 2021 compared to $64.2 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 (loss) was (0.3)% for the three months ended December 31, 2021 compared to 2.9% in the same period last year.

The fiscal 2022 segment gross margin was negatively impacted by a lower than previously forecasted margin on a thermal energy storage tank repair and maintenance project due to changes in repair scope, expanded client weld testing and associated schedule delays, which reduced segment gross profit by $2.8 million.

The segment gross margin in the second quarter of fiscal 2022 was also negatively impacted by low volumes, which led to under recovery of construction overhead costs.

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.

Unallocated corporate expenses were $6.6 million during the three months ended December 31, 2021 compared to $7.1 million in the same period last year.

The decrease is primarily attributable to implemented cost reductions under the business improvement plan (see Item 1.

Financial Statements, Note 10 - Restructuring Costs, and "Operational Update" in this Results of Operations section for more information).

Six Months Ended December 31, 2021 Compared to the Six Months Ended December 31, 2020

Consolidated revenue was $330.1 million for the six months ended December 31, 2021, compared to $350.2 million in the same period last year.

On a segment basis, revenue decreased in the Storage and Terminal Solutions, Process and Industrial Facilities, and Utility and Power Infrastructure segments by $16.5 million, $3.0 million and $0.7 million, respectively.

Consolidated gross profit (loss) decreased to $(0.3) million in the six months ended December 31, 2021 compared to $29.7 million in the same period last year.

Gross margin (loss) decreased to (0.1)% in the six months ended December 31, 2021 compared to 8.5% 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 a lower than previously forecasted margin on a tank repair and maintenance project in the Storage and Terminal Solutions segment.

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

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

Consolidated SG&A expenses were $32.6 million in the six months ended December 31, 2021 compared to $34.9 million in the same period a year earlier.

The decrease is primarily attributable to implemented cost reductions.

As a result of restructuring activities, we recorded $1.3 million of restructuring costs in the six months ended December 31, 2021.

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

Interest expense was $2.5 million in the six months ended December 31, 2021 compared to $0.7 million in the six months ended December 31, 2020.

Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees (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.

The remaining interest expense in fiscal 2022 was comprised of letter of credit fees, unused capacity fees and amortization of deferred debt issuance costs.

Our effective tax rates for the six months ended December 31, 2021 and December 31, 2020 were (15.5)% and 11.0%, respectively.

The effective tax rate in fiscal 2022 was negatively impacted by a $14.2 million valuation allowance placed on our deferred tax assets during the second quarter, see Item 1.

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

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

For the six months ended December 31, 2021, we had a net loss of $42.5 million, or $1.59 per fully diluted share, compared to a net loss of $7.6 million, or $0.29 per fully diluted share, in the six months ended December 31, 2020.

Utility and Power Infrastructure

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.

Revenue for the Utility and Power Infrastructure segment was $112.0 million in the six months ended December 31, 2021 compared to $112.7 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 power generation and storm response service work.

The segment gross margin (loss) was (5.9)% in fiscal 2022 compared to 11.1% 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 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.

The fiscal 2022 segment gross margin was negatively impacted by an increase in the forecasted costs to complete a large capital project in the first quarter, which resulted in a decrease in gross profit of $5.9 million.

The change in forecasted costs 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 and resulted in no change to the expected outcome of the project.

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.

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

Process and Industrial Facilities

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.

Revenue for the Process and Industrial Facilities segment was $94.2 million in the six months ended December 31, 2021 compared to $97.2 million in the same period last year.

While segment revenue was slightly down compared to last year, we booked $210.4 million of project awards in the first half of fiscal 2022, which includes some large capital projects that are still in the preliminary stages of engineering and construction.

As such, we expect strong revenue growth in this segment during the second half of fiscal 2022.

The segment gross margin was 7.5% for the six months ended December 31, 2021 compared to 11.9% in the same period last year.

Despite generally strong project execution, the low segment gross margin in fiscal 2022 was the result of low volumes, which led to the under recovery of construction overhead costs.

Segment gross margin in fiscal 2021 was positively impacted by strong project execution and the positive impact of a one-time workers' compensation item.

Storage and Terminal Solutions

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.

Revenue for the Storage and Terminal Solutions segment was $123.9 million in the six months ended December 31, 2021 compared to $140.4 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 segment gross margin was 0.2% for the six months ended December 31, 2021 compared to 4.0% in the same period last year.

In addition, the fiscal 2022 segment gross margin was also negatively impacted by low volumes, which led to under recovery of construction overhead costs.

Unallocated corporate expenses were $14.3 million during the six months ended December 31, 2021 compared to $13.9 million in the same period last year.

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

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

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

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

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

(In thousands)

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

Project awards 28,244 115,852 48,074 192,170

Revenue recognized (54,752) (50,316) (56,897) (161,965)

Backlog as of December 31, 2021 $ 150,368 $ 250,970 $ 190,222 $ 591,560

Book-to-bill ratio (1)

0.5 2.3 0.8 1.2

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

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

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

(In thousands)

Backlog as of June 30, 2021 $ 170,043 $ 134,777 $ 157,741 $ 462,561

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Revenue recognized (111,956) (94,221) (123,881) (330,058)

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

Backlog as of December 31, 2021 $ 150,368 $ 250,970 $ 190,222 $ 591,560

Book-to-bill ratio (1)

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

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.

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.

Strong bidding activity has led to project awards of $192.2 million and $459.1 million during the three and six months ended December 31, 2021, respectively, leading to a book-to-bill ratios of 1.2 and 1.4 for the three and six month periods.

Project awards through the first half of fiscal 2022 have surpassed project awards for the full year of fiscal 2021.

Total backlog increased by 5.4% and 27.9% during the three and six months ended December 31, 2021, respectively.

In the Utility and Power Infrastructure segment, backlog decreased by 15.0% as we booked $28.2 million of project awards during the three months ended December 31, 2021.

Backlog decreased by 11.6% as we booked $92.3 million of project awards during the six months ended December 31, 2021.

Bidding activity is strong in the power delivery portion of the business.

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

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

In addition, we expect the $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, backlog increased by 35.3% as we booked $115.9 million of project awards during the three months ended December 31, 2021.

Backlog increased by 86.2% as we booked $210.4 million of project awards during the six months ended December 31, 2021.

Client spending related to refinery maintenance operations has returned to near-normal levels.

During the first half of fiscal 2022, we received key awards for a thermal vacuum chamber, a midstream gas processing plant and other renewable energy capital projects.

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.

In the Storage and Terminal Solutions segment, backlog decreased by 4.4% as we booked $48.1 million of project awards during the three months ended December 31, 2021.

Backlog increased by 20.6% as we booked $156.4 million of project awards during the six months ended December 31, 2021.

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 half 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.

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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.

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

Some of these seasonal factors may cause some of our offices and projects to close or reduce activities temporarily.

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(In thousands, except per share data)

Three Months Ended

September 30, 2021 September 30, 2020

Three Months Ended Six Months Ended

December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020

Net loss, as reported $ (24,919) $ (4,591) $ (42,457) $ (7,628)

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Accelerated amortization of deferred debt amendment fees (2)

Tax impact of adjustments (546) 82

Deferred tax asset valuation allowance (3)

14,198 — 14,198 —

Tax impact of restructuring costs and accelerated amortization of debt amendment fees (179) (1,299) (725) (1,217)

Adjusted net loss $ (10,205) $ (845) $ (26,166) $ (4,120)

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Adjusted loss per fully diluted share $ (0.38) $ (0.03) $ (0.98) $ (0.16)

(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.

(1) This table presents non-GAAP financial measures of our adjusted net loss and adjusted diluted loss per common share for the three and six months ended December 31, 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.

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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.

(2) Interest expense in fiscal 2022 included $1.5 million of accelerated amortization of deferred debt amendment fees (see Item 1.

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

(3) See Item 1.

Financial Statements, Note 6 - Income Taxes, for more information about the deferred tax asset valuation allowance.

Adjusted EBITDA

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A reconciliation of Adjusted EBITDA to net loss follows:

Three Months Ended

September 30,

2021 September 30,

Three Months Ended Six Months Ended

2021 December 31,

2020 December 31,

2021 December 31,

(In thousands)

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Interest expense 502 358 2,501 733

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

Provision (benefit) for income taxes 10,976 (1,212) 5,711 (942)

Depreciation and amortization 3,789 4,648 7,841 9,287

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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 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.

Our primary sources of liquidity at December 31, 2021 were unrestricted cash and cash equivalents on hand, capacity under our ABL Facility, and cash generated from operations.

Unrestricted cash and cash equivalents at December 31, 2021 totaled $65.0 million and availability under the ABL Facility totaled $36.7 million, resulting in total liquidity of $101.7 million.

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,

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Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows $ 92,640 $ 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.

While we saw improvement in our project awards and business environment during the first half 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.

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• proactively managing our the cost structure and working capital;

• eliminating all non-critical capital expenditures.

• limiting capital expenditures to critical needs.

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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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.

At December 31, 2021, our borrowing base was $70.1 million and we had $33.4 million in letters of credit outstanding issued by Bank of Montreal, which resulted in availability of $36.7 million under the ABL Facility.

In addition, there were $9.5 million in letters of credit outstanding issued by JPMorgan Chase Bank, N.A.

("JPMorgan").

JPMorgan was the administrative agent of our former senior secured revolving credit facility, which was terminated and replaced with the ABL Facility.

The JPMorgan letters of credit outstanding as of December 31, 2021 were in the process of being replaced by Bank of Montreal letters of credit, and that process was substantially complete at the end of January.

The letters of credit outstanding from Bank of Montreal had reduced from $33.4 million as of December 31, 2021 to $23.6 million as of January 31, 2022.

In addition, the letters of credit outstanding from JPMorgan had reduced from $9.5 million as of December 31, 2021 to $0.2 million as of January 31, 2022.

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.

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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.

In the event that our availability is less than the greater of (i) $15.0 million and (ii) 15.00% of 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.

We are in compliance with all covenants of the ABL Facility as of December 31, 2021.

Senior Secured Revolving Credit Facility

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.

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, 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 was set to expire 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 three months ended September 30, 2021 totaled $19.2 million.

As of December 31, 2021 there were $9.5 million in letters of credit outstanding under the Prior Credit Agreement, which decreased to $0.2 million outstanding as of January 31, 2022.

Interest expense during the six months ended December 31, 2021 included $1.5 million of accelerated amortization of deferred debt amendment fees associated with the Prior Credit Agreement.

Cash Flow for the Six Months Ended December 31, 2021

Cash Flows Provided by Operating Activities

Cash provided by operating activities for the six months ended December 31, 2021 totaled $11.4 million.

The various components are as follows:

Net Cash Used by Operating Activities

Net Cash Provided by Operating Activities

(In thousands)

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Cash effect of changes in operating assets and liabilities 35,500

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

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.

Net cash provided by operating activities $ 11,385

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

• Accounts receivable decreased $26.5 million during the six months ended December 31, 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 $3.7 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.

Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $31.0 million, which increased 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, non-current, increased $3.3 million during the three months ended September 30, 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, were flat during the six months ended December 31, 2021, which did not affect 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, 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.

• Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current decreased by $18.1 million during the six months ended December 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 $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.

Investing activities used $0.5 million of cash in the six months ended December 31, 2021 primarily due to $0.6 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 $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.

Financing activities used $1.8 million of cash in the six months ended December 31, 2021 primarily due to $1.0 million paid in fees to enter into our ABL Facility and $0.9 million paid to repurchase our stock for payment of withholding taxes due on equity-based compensation.

Dividend Policy

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Treasury Shares

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.

The terms of our ABL Facility 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.

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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.

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

As of December 31, 2021, there were 1,349,037 shares available for repurchase under the Stock Buyback Program.

We had 1,114,242 treasury shares as of December 31, 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

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Claims are more fully discussed in Note 7 - Commitments and Contingencies of the Notes to Financial Statements.

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $15.3 million at September 30, 2021 and $14.6 million at June 30, 2021.

Costs and estimated earnings in excess of billings on uncompleted contracts included revenues for unpriced change orders and claims of $10.1 million at December 31, 2021 and $14.6 million at June 30, 2021.

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis