What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-08 compared with 2023-11-09 · 207 added, 93 removed, 251 unchanged (54% of the section changed)

47 unchanged sentences

Operational Update

We received $497.4 million of project awards during the first quarter of fiscal 2024, which resulted in a book-to-bill ratio of 2.5 for the quarter.

Backlog was $1.4 billion as of September 30, 2023, which is at the highest level since the fourth quarter of fiscal 2015.

We continued to build on the momentum from project awards in fiscal 2023 and our bidding activity continues to be strong, especially in LNG and specialty vessel storage projects.

We expect recent project awards and backlog growth to return revenue volumes to pre-pandemic levels;

however, we are not expecting a meaningful uplift to revenue volumes until the third quarter of fiscal 2024 due to the timing of project starts of many of our recently awarded large capital projects.

These awards are expected to generate increased revenue over a multi-year period.

Additionally, many of the projects booked in recent quarters are large capital projects with expected gross margins at our pre-pandemic historical gross margin range.

We expect growing revenue volume combined with cost reductions implemented in recent years to allow us to better leverage our cost structure, further enhancing gross margins and operating income in the second half of fiscal 2024 and beyond.

During the second quarter of fiscal 2024, we continued to make progress on efforts to position the company for profitable growth.

Another quarter of strong project awards contributed to a total of $1.4 billion of project awards in the last 12 months, and the highest backlog in the company's history.

Many of these project awards are large construction projects that will generate revenues over a multi-year period with expected gross margins at our pre-pandemic historical gross margin range.

While the time to convert these awards to revenue is dependent on a variety of factors, many outside of our control, we expect modest growth in the third quarter of this fiscal year, and a substantial recovery of revenues in the fourth quarter and beyond.

We have also improved project execution, resulting in strong direct gross margins in all three of our segments.

We tightly managed costs, with selling, general and administrative expenses at their lowest level since 2014.

These efforts have produced a cost structure that we expect to leverage for enhanced gross margins and operating income as revenue volumes return.

We have also closely managed our balance sheet.

During the second quarter of fiscal 2024, we repaid all outstanding borrowings on our ABL Facility while simultaneously growing our cash balance by $19.8 million.

The result is a strong financial position, which will provide the foundation for future growth.

The combination of these factors positions the company for significantly improved financial performance in the near term.

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 ("LNTP") or other type of assurance that we consider firm.

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

The following table provides a summary of changes in our backlog for the three months ended September 30, 2023:

The following table provides a summary of changes in our backlog for the three months ended December 31, 2023:

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

(In thousands)

Backlog as of September 30, 2023 $ 595,160 $ 450,212 $ 344,461 $ 1,389,833

Project awards 125,249 41,374 64,176 230,799

Revenue recognized (62,360) (40,144) (71,305) (173,809)

Backlog as of December 31, 2023 $ 658,049 $ 451,442 $ 337,332 $ 1,446,823

Book-to-bill ratio (1)

2.0 1.0 0.9 1.3

(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, 2023:

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

(In thousands)

Backlog as of June 30, 2023 $ 270,659 $ 459,518 $ 359,921 $ 1,090,098

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Revenue recognized (152,504) (72,539) (146,425) (371,468)

Backlog as of September 30, 2023 $ 595,160 $ 450,212 $ 344,461 $ 1,389,833

Backlog as of December 31, 2023 $ 658,049 $ 451,442 $ 337,332 $ 1,446,823

Book-to-bill ratio (1)

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

Backlog increased $299.7 million or 27.5% in the first quarter of fiscal 2024 on project awards of $497.4 million and a book-to-bill ratio of 2.5.

In the Storage and Terminal Solutions segment, backlog increased by 119.9% as we booked $414.6 million of project awards during the first quarter of fiscal 2024.

Included in project awards was a significant LNG storage capital project.

In the Storage and Terminal Solutions segment, we booked $125.2 million of project awards during the second quarter of fiscal 2024.

Included in project awards was scope growth on an existing LNG storage construction project award, and a tank and terminal construction project.

During the six months ended December 31, 2023, we booked $539.9 million of project awards, which included a significant LNG storage construction project.

This segment 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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Bidding activity on LNG projects has been strong.

In the Utility and Power Infrastructure segment, backlog decreased by 2.0% as we booked $23.1 million of project awards during the first quarter of fiscal 2024.

In the Utility and Power Infrastructure segment, we booked $41.4 million of project awards during the second quarter of fiscal 2024.

Included in project awards was a significant power delivery construction project.

During the six months ended December 31, 2023, we booked $64.5 million of project awards.

Project opportunities and bidding activity are strong for both the power delivery portion of the business and LNG peak shaving.

In the Process and Industrial Facilities segment, backlog decreased by 4.3% as we booked $59.7 million of project awards during the first quarter of fiscal 2024.

In the Process and Industrial Facilities segment, backlog decreased by 2.1% as we booked $64.2 million of project awards during the second quarter of fiscal 2024.

Project awards during the quarter were driven by contract growth on a refinery retrofit project at a biodiesel facility and spending related to refinery maintenance and turnaround operations.

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

In addition, we are continuing to pursue opportunities for midstream gas work, including some larger scale projects.

During the six months ended December 31, 2023, we booked $123.8 million of project awards.

We continue to see increasing opportunities in mining and minerals, chemicals, aerospace, and renewables.

In addition, we are pursuing opportunities for hydrogen and carbon capture projects across a number of different markets.

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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Backlog volatility may increase for some segments from time to time when individual project awards are less frequent, but more significant.

Awards for significant capital projects may be recognized as revenue over a multi-year period as the projects may take a few years to complete.

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Consolidated revenue was $197.7 million for the three months ended September 30, 2023, compared to $208.4 million in the same period last year.

There is an inherent lag between the time a project is awarded and when it begins to have a material impact on revenue.

In some cases, this lag can be between three and six months or longer, depending on finalization of scopes, contracts, permits, and facility process requirements.

Additionally, awards for larger construction projects may be recognized as revenue over a multi-year period as the projects may take a few years to complete.

Three months ended December 31, 2023 Compared to the Three months ended December 31, 2022

Consolidated revenue was $175.0 million for the three months ended December 31, 2023, compared to $193.8 million in the same period last year.

The decrease was primarily related to the Process and Industrial Facilities and Utility Power and Infrastructure segments, which decreased by $9.5 million and $10.4 million, respectively.

Consolidated gross profit increased to $10.6 million in the three months ended December 31, 2023 compared to a gross loss of $1.3 million in the same period last year.

Gross margin (loss) increased to 6.0% in the three months ended December 31, 2023 compared to (0.7)% in the same period last year.

Gross margins in the second quarter of fiscal 2024 were positively impacted by strong project execution partially offset by the under-recovery of construction overhead costs.

Gross margins in the second quarter of fiscal 2023 were also negatively impacted by the under-recovery of construction overhead costs, as well as unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete certain midstream gas processing projects, and continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Consolidated SG&A expenses were $15.7 million in the three months ended December 31, 2023 compared to $17.5 million in the same period last year.

SG&A expenses continue to benefit from the Company's cost control measures.

In addition, the timing of project pursuits resulted in lower pursuit costs in the quarter ended December 31, 2023.

We remain active in the market as we pursue additional project opportunities.

In the prior year quarter ended December 31, 2022, we recorded a goodwill impairment of $12.3 million.

We did not have any goodwill impairment in the quarter based upon the improved market and performance outlook.

Financial Statements, Note 4 - Goodwill, for more information about the impairment.

The Company did not incur any restructuring costs during the second quarter of fiscal 2024.

During the second quarter of fiscal 2023, we closed an underperforming office and ceased its associated operations, which resulted in $1.3 million of restructuring costs.

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

Our restructuring efforts were substantially complete as of June 30, 2023.

Interest expense was $0.3 million in the three months ended December 31, 2023 compared to $0.9 million in the three months ended December 31, 2022.

Interest expense in the three months ended December 31, 2023 and December 31, 2022 consisted primarily of interest on debt outstanding, unused capacity fees, amortization of deferred debt issuance costs, letter of credit fees and other interest.

Interest expense decreased due to the repayment of borrowing under the ABL credit facility during the second quarter of fiscal 2024.

Other income during the three months ended December 31, 2023 included a gain of $2.0 million on the sale of a facility in Catoosa, Oklahoma.

We received $2.7 million in net proceeds from the sale.

The proceeds were received in January 2024.

The facility was previously utilized for our industrial cleaning business, which was sold during the fourth quarter of fiscal 2023.

This completes the divestiture and closure of a non-core service offering of the business as part of our strategy to focus the business on core markets.

Our effective tax rates for the three months ended December 31, 2023 and December 31, 2022 were zero.

The effective tax rates during both periods were impacted by valuation allowances of $1.2 million and $8.4 million, respectively, placed on deferred tax assets generated during the quarters.

We placed a valuation allowance on our deferred tax assets due to the existence of a cumulative loss over a three-year period.

We will continue to place valuation allowances on newly generated deferred tax assets and will realize the benefit associated with the deferred tax assets for which the valuation allowance has been provided to the extent we generate taxable income in the future.

For the three months ended December 31, 2023, we had a net loss of $2.9 million, or $0.10 per fully diluted share, compared to a net loss of $32.8 million, or $1.22 per fully diluted share, in the three months ended December 31, 2022.

Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $62.4 million in the three months ended December 31, 2023 compared to $62.5 million in the same period last year.

The revenue volume in the recent quarter was impacted by low levels of material procurement on recently awarded projects.

The Company expects higher revenue volume as it moves through the remainder of fiscal 2024 and into fiscal 2025 as it transitions recent large specialty storage project awards through contracting, project planning and mobilization.

The segment gross margin was 2.9% for the three months ended December 31, 2023 compared to a gross margin of 2.6% in the same period last year.

Strong direct margins during the quarter were offset by under-recovery of construction overhead costs.

We have allocated additional resources to this segment to support recent awards and anticipated higher revenue volume in the second half of fiscal 2024.

We expect continued award strength in this segment in the next two quarters that will increase revenue volumes and provide more stability in future quarters.

With revenue increases in this segment, we expect to reach full recovery of construction overhead costs in the fourth quarter of fiscal 2024.

Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment was $40.1 million in the three months ended December 31, 2023 compared to $50.5 million in the same period last year.

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

The Company expects higher revenue volume as it moves through the remainder of fiscal 2024 and into fiscal 2025 as it transitions recent large LNG peak shaver project awards through contracting, project planning and mobilization.

The segment gross margin was 3.5% in the second quarter of fiscal 2024 compared to a gross margin of 4.8% in the same period last year.

In the current quarter, strong project execution in this segment was offset by under-recovery of construction overhead costs due to lower revenue volumes.

The segment gross margin in the second quarter of fiscal 2023 was negatively impacted by previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $71.3 million in the three months ended December 31, 2023 compared to $80.8 million in the same period last year.

Decreases in revenue volumes from midstream gas processing, industrial cleaning, and mining and minerals work were partially offset by increases in work for a renewable energy facility and thermal vacuum chambers.

The segment gross margin (loss) was 9.4% for the three months ended December 31, 2023 compared to (6.4)% in the same period last year.

Project execution improved in the second quarter of fiscal 2024 resulting in a significantly improved gross margin despite the lower revenue volume.

The segment gross margin (loss) in the second quarter of fiscal 2023 was negatively impacted by unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete certain midstream gas processing construction work.

The project reduced gross profit by $9.6 million during the three months ended December 31, 2022.

The segment gross margin (loss) in the second quarter of fiscal 2023 was also negatively impacted by the under recovery of construction overhead costs and continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Unallocated corporate revenue and expenses were $6.5 million during the three months ended December 31, 2023 compared to $7.4 million in the same period last year.

The decrease was primarily due to the favorable resolution of a long-standing legal dispute with an iron and steel customer, which resulted in the recognition of $1.2 million of revenue.

Six Months Ended December 31, 2023 Compared to the Six Months Ended December 31, 2022

Consolidated revenue was $372.7 million for the six months ended December 31, 2023, compared to $402.3 million in the same period last year.

On a segment basis, revenue decreased in the Utility and Power Infrastructure and Process and Industrial Facilities segments by $22.9 million and $21.0 million, respectively.

These decreases were partially offset by a $13.1 million increase in revenue in the Storage and Terminal Solutions segment.

Consolidated gross profit decreased to $11.9 million in the three months ended September 30, 2023 compared to a gross profit of $13.0 million in the same period last year.

Gross margin of 6.0% in the three months ended September 30, 2023 was consistent with the gross margin of 6.2% in the same period last year.

Gross margins in the first quarter of fiscal 2024 were negatively impacted by the under-recovery of construction overhead costs.

We expect this under-recovery to be temporary as

we have maintained overhead resources at levels needed to support significantly higher revenue volumes in the second half of fiscal 2024.

Gross margins in the first quarter of fiscal 2023 were also negatively impacted by the under-recovery of construction overhead costs.

Consolidated SG&A expenses were $17.1 million in the three months ended September 30, 2023 compared to $16.8 million in the same period last year.

We incurred an additional $1.8 million of expense associated with the variable accounting for cash-settled stock-based compensation, which increased due to a higher stock price.

This increase was offset by various other lower costs, which includes continued streamlining of the business as well as delaying certain costs based on the timing of revenue.

Interest expense was $0.3 million in the three months ended September 30, 2023 compared to $0.4 million in the three months ended September 30, 2022.

Consolidated gross profit increased to $22.4 million in the six months ended December 31, 2023 compared to a gross profit of $11.7 million in the same period last year.

Gross margin increased to 6.0% in the six months ended December 31, 2023 compared to a gross margin of 2.9% in the same period last year.

Gross margins in the first six months of fiscal 2024 were

positively impacted by strong project execution, partially offset by the under-recovery of construction overhead costs.

We expect this under-recovery to be temporary as we have maintained overhead resources at levels needed to support higher revenue volumes in the fourth quarter of fiscal 2024.

Gross margins in the first six months of fiscal 2023 were also negatively impacted by the under-recovery of construction overhead costs, as well as unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete certain midstream gas processing projects, continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Consolidated SG&A expenses were $32.8 million in the six months ended December 31, 2023 compared to $34.4 million in the same period last year.

Consolidated SG&A expenses for the first half of fiscal 2024 continue to benefit from the Company's cost control measures, with lower costs in a number of categories, including pursuit costs, salaries, professional fees, depreciation, and rent.

These decreases were partially offset by an additional $1.9 million of expense associated with the variable accounting for cash-settled stock-based compensation, which increased due to a higher stock price.

In the prior year period ended December 31, 2022, we recorded a goodwill impairment of $12.3 million.

We did not have any goodwill impairment in the current period based upon the improved market and performance outlook.

Financial Statements, Note 4 - Goodwill, for more information about the impairment.

The Company did not incur any restructuring costs during the six months ended December 31, 2023.

During the six months ended December 31, 2022, we incurred $2.6 million of restructuring costs, which included severance and other personnel-related costs in connection with our restructuring plan.

Additionally, we closed an underperforming office and ceased its associated operations, which resulted in $0.7 million of restructuring costs.

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

Our restructuring efforts were substantially complete as of June 30, 2023.

Interest expense was $0.6 million in the six months ended December 31, 2023 compared to $1.3 million in the six months ended December 31, 2022.

Interest expense in both periods consisted primarily of interest on debt outstanding, unused capacity fees, amortization of deferred debt issuance costs and letter of credit fees.

Other income during the three months ended September 30, 2023 included a gain of $2.5 million on the sale of a previously utilized facility in Burlington, Ontario.

Interest expense decreased due to lower average outstanding borrowings.

Other income during the six months ended December 31, 2023, included a gain of $2.0 million from the sale of a facility in Catoosa, Oklahoma for $2.7 million in net proceeds.

The proceeds were received in January 2024.

The facility was previously utilized for our industrial cleaning business, which was sold during the fourth quarter of fiscal 2023.

Additionally, in the first quarter of fiscal 2024, we recognized a gain of $2.5 million on the sale of a previously utilized facility in Burlington, Ontario.

We received $2.7 million in net proceeds from the sale.

We closed this previously utilized facility during the second quarter of fiscal 2023 because it was no longer strategic to the future of the business.

Our effective tax rates for the three months ended September 30, 2023 and September 30, 2022 were zero.

Our effective tax rates for the six months ended December 31, 2023 and December 31, 2022 were zero.

The effective tax rates during both periods were impacted by valuation allowances of $1.4 million and $9.8 million, respectively, placed on deferred tax assets generated during the quarters.

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For the three months ended September 30, 2023, we had a net loss of $3.2 million or $0.12 per fully diluted share, compared to a net loss of $6.5 million, or $0.24 per fully diluted share, in the three months ended September 30, 2022.

For the six months ended December 31, 2023, we had a net loss of $6.0 million or $0.22 per fully diluted share, compared to a net loss of $39.3 million, or $1.46 per fully diluted share, in the six months ended December 31, 2022.

Storage and Terminal Solutions

Revenue for the Storage and Terminal Solutions segment was $90.1 million in the three months ended September 30, 2023 compared to $76.9 million in the same period last year.

The increase in segment revenue is primarily a result of higher volumes of specialty vessel capital projects.

The segment gross margin was 5.5% for the three months ended September 30, 2023 compared to a gross margin of 9.8% in the same period last year.

The first quarter fiscal 2024 segment gross margin was negatively impacted by the under-recovery of construction overhead costs.

We have allocated additional resources to this segment to support recent awards and additional revenue in the second half of fiscal 2024.

Revenue for the Storage and Terminal Solutions segment was $152.5 million in the six months ended December 31, 2023 compared to $139.4 million in the same period last year.

The increase in segment revenue is primarily a result of work on large construction projects awarded in the previous fiscal year, partially offset by lower volumes of work on tanks and terminals projects.

The segment gross margin was 4.5% for the six months ended December 31, 2023 compared to a gross margin of 6.6% in the same period last year.

Strong direct margins during the period were offset by under-recovery of construction overhead costs.

We have allocated additional resources to this segment to support recent awards and additional revenue in the fourth quarter of fiscal 2024.

As these revenues increase, we expect to reach full recovery of construction overhead costs in the second half of fiscal 2024.

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Utility and Power Infrastructure

Revenue for the Utility and Power Infrastructure segment was $32.4 million in the three months ended September 30, 2023 compared to $44.9 million in the same period last year.

The decrease is primarily due to a net decrease in natural gas peak shaving capital work and lower volumes of power delivery work.

The decrease related to natural gas peak shaving capital work is temporary as we expect recently awarded large peak shaving projects to ramp up in the first half of fiscal 2024 driving higher revenue in the second half of the fiscal year.

The segment gross margin was 11.4% for the three months ended September 30, 2023 compared to a gross margin of 3.8% in the same period last year.

The segment gross margin for the first quarter of fiscal 2024 was positively impacted by strong project execution which led to favorable project closeouts.

Revenue for the Utility and Power Infrastructure segment was $72.5 million in the six months ended December 31, 2023 compared to $95.4 million in the same period last year.

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

The segment gross margin was 7.0% for the six months ended December 31, 2023 compared to a gross margin of 4.3% in the same period last year.

The segment gross margin for the first half of fiscal 2024 was positively impacted by strong project execution which led to favorable project closeouts.

This was partially offset by the under-recovery of construction overhead costs due low revenue volumes.

The segment gross margin for first quarter ended September 30, 2022 was negatively impacted by low revenue volume, which led to the under-recovery of construction overhead costs, and work on a large capital project with a previously reduced gross margin.

The segment gross margin for second quarter ended December 31, 2023 was negatively impacted by previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Process and Industrial Facilities

Revenue for the Process and Industrial Facilities segment was $75.1 million in the three months ended September 30, 2023 compared to $86.6 million in the same period last year.

The decrease was primarily due to lower volumes of midstream gas processing capital work and the sale of the industrial cleaning business during the fourth quarter of fiscal 2023.

The segment gross margin was 6.8% for the three months ended September 30, 2023 compared to 5.0% in the same period last year.

The segment gross margin in the first quarter of fiscal 2024 was negatively impacted by the under-recovery of construction overhead costs due to low revenue volume.

Revenue for the Process and Industrial Facilities segment was $146.4 million in the six months ended December 31, 2023 compared to $167.4 million in the same period last year.

Decreases in revenue volumes from midstream gas processing, industrial facilities, mining and minerals, and refinery turnarounds work were partially offset by increases in work for a renewable energy facility and thermal vacuum chambers.

The segment gross margin was 8.0% for the six months ended December 31, 2023 compared to a gross loss of (0.5)% in the same period last year.

Project execution was significantly improved in the second quarter of fiscal 2024 resulting in a significantly improved gross margin despite the lower revenue volume.

The segment gross margin in the first half of fiscal 2024 was negatively impacted by the under-recovery of construction overhead costs due to low revenue volume.

Otherwise, project execution was generally strong in this segment including the completion of a midstream gas processing project in line with our previous forecast.

The segment gross margin in the first quarter of fiscal 2023 was negatively impacted by work on a midstream gas processing project that experienced increases in forecasted costs to complete in the prior year, which reduced the remaining margin realized on the project.

In addition, revenue volumes were still too low to fully recover construction overhead costs, which negatively impacted segment gross margin.

Unallocated corporate expenses were $9.7 million during the three months ended September 30, 2023 compared to $7.9 million in the same period last year.

The increase was primarily due to higher cash-settled stock-based compensation due to an increase in the price of our stock and legal costs related to a jury trial that resulted in a verdict in our favor, see Note 6 - Commitments and Contingencies, Litigation, for more information.

The segment gross margin in the first half of fiscal 2023 was negatively impacted by work on a midstream gas processing project that experienced increases in forecasted costs to complete in the prior year, which reduced the remaining margin realized on the project.

In addition, low revenue volumes resulted in under-recovery of construction overhead costs, which negatively impacted segment gross margin.

Unallocated corporate revenues and expenses were $16.3 million during the six months ended December 31, 2023 compared to $15.2 million in the same period last year.

The increase was primarily due to higher cash-settled stock-based compensation due to an increase in the price of our stock and legal costs related to a jury trial that resulted in a verdict in our favor, partially offset by the recognition of $1.2 million of revenue due to the favorable resolution of that dispute, see Note 7 - Commitments and Contingencies, Litigation, for more information.

Non-GAAP Financial Measures

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

• It does not include impairments to goodwill.

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

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

• It does not include restructuring costs.

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• It does not include gain on the sale of assets.

While this sale occurred outside the normal course of business, any measure that excludes this gain has inherent limitations since the sale resulted in a material inflow of cash.

While these sales occurred outside the normal course of business, any measure that excludes this gain has inherent limitations since the sales resulted in material inflows of cash.

A reconciliation of Net loss to Adjusted net loss follows:

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(In thousands, except per share data)

Three Months Ended

September 30, 2023 September 30, 2022

Three Months Ended Six Months Ended

December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022

Net loss, as reported $ (2,851) $ (32,827) $ (6,018) $ (39,339)

Goodwill impairment — 12,316 — 12,316

Restructuring costs — 1,278 — 2,565

Gain on sale of assets (2)

(2,006) — (4,542) —

Tax impact of adjustments (3)

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Prior period information has been adjusted to conform to the updated definition of Adjusted net loss and Adjusted loss per share.

(2) Represents gain on the sale of our Burlington, ON office.

See Item 1, Note 3 - Property, Plant and Equipment, Burlington Office Disposal, for more information.

(3) Represents the tax impact of the adjustments to Net loss, calculated using the applicable effective tax rate of the adjustment.

(2) Represents gain on the sale of our Burlington, ON office in the first quarter of FY24 and the gain on the sale of our Catoosa, OK facility in the second quarter of FY24.

See Item 1, Note 3 - Property, Plant and Equipment, Building Disposals, for more information.

(3) Represents the tax impact of the adjustments to Net loss, calculated using the applicable effective tax rate of the adjustment, including the impacts related to our valuation allowance on deferred tax assets.

Adjusted EBITDA

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

• It does not include impairments to goodwill.

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

• It does not include restructuring costs.

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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 historically release vested shares out of our treasury stock, which has been replenished by using cash to periodically repurchase our stock.

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

using cash to periodically repurchase our stock.

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

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A reconciliation of Net loss to Adjusted EBITDA follows:

Three Months Ended

September 30,

2023 September 30,

Three Months Ended Six Months Ended

2023 December 31,

2022 December 31,

2023 December 31,

(In thousands)

Net loss $ (2,851) $ (32,827) $ (6,018) $ (39,339)

Goodwill impairment — 12,316 — 12,316

Restructuring costs — 1,278 — 2,565

Gain on sale of assets (1)

(2,006) — (4,542) —

Stock-based compensation (2)

2,030 1,692 3,785 3,747

Interest expense 319 916 644 1,288

Provision (benefit) for federal, state and foreign income taxes 6 — 6 —

Depreciation and amortization 2,781 3,535 5,692 7,177

Adjusted EBITDA $ 279 $ (13,090) $ (433) $ (12,246)

(1) Represents gain on the sale of our Burlington, ON office.

See Item 1, Note 3 - Property, Plant and Equipment, Burlington Office Disposal, for more information.

(1) Represents gain on the sale of our Burlington, ON office in the first quarter of FY24 and the gain on the sale of our Catoosa, OK facility in the second quarter of FY24.

See Item 1, Note 3 - Property, Plant and Equipment, Building Disposals, for more information.

(2) Represents only the equity-settled portion of our stock-based compensation expense.

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

Our primary sources of liquidity at September 30, 2023 were unrestricted cash and cash equivalents on hand, capacity under our ABL Facility, and cash generated from operations.

Unrestricted cash and cash equivalents at September 30, 2023 totaled $27.4 million and availability under the ABL Facility totaled $52.9 million, resulting in total liquidity of $80.3 million.

Our primary sources of liquidity at December 31, 2023 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, 2023 totaled $47.2 million and availability under the ABL Facility totaled $59.1 million, resulting in total liquidity of $106.3 million.

During the second quarter of fiscal 2024, cash and cash equivalents increased $19.8 million and total liquidity increased $26.0 million as a result of cash provided by operating activities partially offset by the repayment of borrowings under the ABL credit facility.

The following table provides cash and cash equivalents, restricted cash and total cash in the Condensed Consolidated Balance Sheets (in thousands):

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Total cash, cash equivalents and restricted cash $ 72,160 $ 52,359 $ 79,812

The following table provides a summary of changes in our liquidity for the three months ended September 30, 2023 (in thousands):

The following table provides a summary of changes in our liquidity for the three months ended December 31, 2023 (in thousands):

Liquidity at September 30, 2023 $ 80,252

Cash provided by operating activities 29,604

Proceeds from asset sales 188

Capital expenditures (381)

Increase in availability under ABL Facility 6,217

Cash used by financing activities (9,954)

Effect of exchange rate changes on cash 344

Liquidity at December 31, 2023 $ 106,270

The following table provides a summary of changes in our liquidity for the six months ended December 31, 2023 (in thousands):

Liquidity at June 30, 2023 $ 92,554

Cash used by operating activities (28,875)

Cash provided by operating activities 729

Proceeds from asset sales 2,806

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Effect of exchange rate changes on cash 37

Liquidity at September 30, 2023 $ 80,252

Liquidity at December 31, 2023 $ 106,270

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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On September 9, 2021, the Company and our primary U.S.

and Canada operating subsidiaries entered into an asset-based credit agreement, which was amended on October 5, 2022 (as amended, the "ABL Facility"), with Bank of Montreal, as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer, and the lenders named therein.

and Canada operating subsidiaries entered into an asset-based credit agreement, which was amended on October 5, 2022 and December 29, 2023 (as amended, the "ABL Facility"), with Bank of Montreal, as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer, and the lenders named therein.

The maximum amount of loans under the ABL Facility is limited to $90.0 million.

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

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

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.

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

At September 30, 2023, our borrowing base was $72.9 million, we had $10.0 million of outstanding borrowings, and we had $10.0 million in letters of credit outstanding, which resulted in availability of $52.9 million under the ABL Facility.

We repaid all outstanding borrowings in November 2023.

The borrowing base is recalculated on a monthly basis and at December 31, 2023, our borrowing base was $69.1 million.

During the quarter ended December 31, 2023, the Company repaid all outstanding borrowings under the ABL Facility.

The Company had $10.0 million in letters of credit outstanding, which resulted in availability of $59.1 million under the ABL Facility.

Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, an annual rate of either a base rate (“Base Rate”), an Adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR"), or at the Canadian Prime Rate, plus an applicable margin.

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or Canadian prime rate, and between 2.00% and 2.50% for Adjusted Term SOFR borrowings.

Interest is payable either (i) monthly for Base Rate or Canadian Prime Rate borrowings or (ii) the last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility.

Interest is payable either (i) monthly for Base Rate or

Canadian Prime Rate borrowings or (ii) the last day of the interest period for Adjusted Term SOFR borrowings, as set forth in the ABL Facility.

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

The interest rate in effect for borrowings outstanding at September 30, 2023, including applicable margin, was approximately 7.68%.

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 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 were in compliance with all covenants of the ABL Facility as of September 30, 2023.

Cash Flow for the Three Months Ended September 30, 2023

Cash Flows used by Operating Activities

Cash used by operating activities for the three months ended September 30, 2023 totaled $28.9 million.

We were in compliance with all covenants of the ABL Facility as of December 31, 2023.

Cash Flow for the Six Months Ended December 31, 2023

Cash Flows provided by Operating Activities

Cash provided by operating activities for the six months ended December 31, 2023 totaled $0.7 million.

The various components are as follows:

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Other non-cash expenses 125

Gain on sale of property, plant and equipment (4,589)

Cash effect of changes in operating assets and liabilities 1,734

Net cash used by operating activities $ (28,875)

Cash effect of changes in operating assets and liabilities at September 30, 2023 in comparison to June 30, 2023 include the following:

• Accounts receivable, excluding credit losses recognized during the period, increased by $6.5 million during the three months ended September 30, 2023, which decreased cash flows from operating activities.

Net cash provided by operating activities $ 729

Cash effect of changes in operating assets and liabilities at December 31, 2023 in comparison to June 30, 2023 include the following:

• Accounts receivable, excluding credit losses recognized during the period, increased by $19.8 million during the six months ended December 31, 2023, which decreased 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") decreased $4.5 million, which increased cash flows from operating activities.

Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") decreased $12.3 million, which decreased cash flows from operating activities.

Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $31.8 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.

The decrease in BIE was primarily due to continued work on capital projects that received upfront billings in the prior year.

• Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, increased $8.2 million during the three months ended September 30, 2023, which decreased cash flows from operating activities.

• Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, increased $0.1 million during the six months ended December 31, 2023, 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.

The increase was primarily due to the payment of annual insurance premiums as well as inventory purchases associated with projects in our growing backlog.

• Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current decreased by $3.6 million during the three months ended September 30, 2023, 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 decreased by $14.7 million during the six months ended December 31, 2023, 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 Provided by Investing Activities

Investing activities provided $2.1 million of cash in the three months ended September 30, 2023 primarily due to proceeds from asset sales, partially offset by capital expenditures.

During the first quarter of fiscal 2024, we sold a previously utilized facility in Burlington, Ontario for $2.7 million in net proceeds, which resulted in a gain of $2.5 million.

We closed this previously utilized facility during the second quarter of fiscal 2023 because it was no longer strategic to the future of the business.

Investing activities provided $1.9 million of cash in the six months ended December 31, 2023 primarily due to proceeds from asset sales, partially offset by capital expenditures.

In the first quarter of fiscal 2024, we sold a previously utilized facility in Burlington, Ontario for $2.7 million in net proceeds.

In the second quarter of fiscal 2024, we sold a facility in Catoosa, Oklahoma.

Proceeds from this sale of $2.7 million were received in January 2024 and will be reflected in our cash flows in the third quarter of fiscal 2024.

We closed these previously utilized facilities as they was no longer strategic to the future of the business.

Capital expenditures of $0.9 million during the first quarter of fiscal 2024 primarily consisted of transportation equipment.

Cash Flows Used by Financing Activities

Financing activities used $0.4 million of cash in the three months ended September 30, 2023 primarily due to $0.5 million paid to repurchase our stock for payment of withholding taxes due on equity-based compensation.

Financing activities used $10.4 million of cash in the six months ended December 31, 2023 primarily due to $10.0 million in advances and $20.0 million in repayments under our ABL facility.

As of December 31, 2023, we have no outstanding borrowings under our ABL facility.

Dividend Policy

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We made no repurchases under the program in the three months ended September 30, 2023 and have no current plans to repurchase stock.

As of September 30, 2023, there were 1,349,037 shares available for repurchase under the Stock Buyback Program.

As of December 31, 2023, there were 1,349,037 shares available for repurchase under the Stock Buyback Program.

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.

Treasury Shares

We had 678,379 treasury shares as of September 30, 2023 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 had 587,732 treasury shares as of December 31, 2023 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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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