What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2024-02-08 · 233 added, 170 removed, 288 unchanged (58% of the section changed)

44 unchanged sentences

primarily consists of plant maintenance, repair, and turnarounds in the downstream and midstream markets for energy clients including refining and processing of crude oil, fractionating, and marketing of natural gas and natural gas liquids.

We also perform engineering, procurement, fabrication, and construction for refinery upgrades and retrofits for renewable fuels.

We also perform engineering, procurement, fabrication, and construction for refinery upgrades and retrofits for renewable fuels, including hydrogen processing, production, loading and distribution facilities.

We also construct thermal vacuum test chambers for aerospace and defense industries and other infrastructure for industries including petrochemical, sulfur, mining and minerals primarily in the extraction of non-ferrous metals, cement, agriculture, wastewater treatment facilities and other industrial customers.

Operational Update

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.

During the third quarter of fiscal 2024, our markets and project opportunities remained strong, and during the quarter we added $186.8 million of awards to backlog, producing a book-to-bill ratio of 1.1.

On a trailing twelve month basis, we generated a book-to-bill ratio of 1.9, an increase from a ratio of 1.3 in the prior twelve month period, and produced the highest backlog in company history of $1.45 billion.

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.

The time to convert these awards to revenue is dependent on a variety of factors, many outside of our control.

Several of those factors resulted in operating results that were below our expectations for the current quarter, and will result in a slower than expected recovery during our fourth fiscal quarter.

Despite these challenges, the company generated positive cash flows from operations during the quarter, which improved our overall cash balance by $22.5 million, reflecting our ability to efficiently manage capital and maintain financial stability.

Combining expected forthcoming revenues from effective project execution and conversion of our historic backlog, the company is on a trajectory of upward growth and profitability.

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.

6 unchanged sentences

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

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

The following table provides a summary of changes in our backlog for the three months ended March 31, 2024:

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

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

Project awards 134,592 27,093 25,113 186,798

Other adjustment (2)

— — (17,370) (17,370)

Revenue recognized (54,304) (46,120) (65,589) (166,013)

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

Backlog as of March 31, 2024 $ 738,337 $ 432,415 $ 279,486 $ 1,450,238

Book-to-bill ratio (1)

1 unchanged sentence

(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:

(2) Backlog was reduced by $17.4 million to account for a reduction of work available to us under an existing refinery maintenance program.

The following table provides a summary of changes in our backlog for the nine months ended March 31, 2024:

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

2 unchanged sentences

Project awards 674,486 91,556 148,949 914,991

Other adjustment (2)

— — (17,370) (17,370)

Revenue recognized (206,808) (118,659) (212,014) (537,481)

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

Backlog as of March 31, 2024 $ 738,337 $ 432,415 $ 279,486 $ 1,450,238

Book-to-bill ratio (1)

1 unchanged sentence

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

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.

(2) Backlog was reduced by $17.4 million to account for a reduction of work available to us under an existing refinery maintenance program.

In the Storage and Terminal Solutions segment, we booked $134.6 million of project awards during the third quarter of fiscal 2024.

Included in project awards was the award of an ethane storage tank project.

During the nine months ended March 31, 2024, we booked $674.5 million of project awards, which included a significant ethane storage project.

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

We believe LNG and hydrogen projects will be key growth drivers for this segment.

Bidding activity on LNG projects has been strong.

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.

In the Utility and Power Infrastructure segment, we booked $27.1 million of project awards during the third quarter of fiscal 2024.

During the nine months ended March 31, 2024, we booked $91.6 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 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.

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.

In the Process and Industrial Facilities segment, we booked $25.1 million of project awards during the third quarter of fiscal 2024.

During the nine months ended March 31, 2024, we booked $148.9 million of project awards.

Project awards during the quarter were driven by contract growth on a refinery retrofit project at a biodiesel facility.

Additionally, during the quarter, backlog in this segment was reduced by $17.4 million to account for a reduction of work available under an existing refinery maintenance program.

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

In addition, we are pursuing further 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.

4 unchanged sentences

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.

Results of Operations

Three months ended March 31, 2024 Compared to the Three months ended March 31, 2023

The information below is an analysis of our consolidated results for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments.

Consolidated Results

Three Months Ended

March 31, 2024 v 2023

2024 2023 $ %

Revenue $ 166,013 $ 186,895 $ (20,882) (11) %

Cost of revenue 160,435 182,476 (22,041) (12) %

Gross profit 5,578 4,419 1,159 26 %

Selling, general and administrative expenses 19,948 16,862 3,086 18 %

Restructuring costs — 316 (316) (100) %

Operating loss (14,370) (12,759) (1,611) 13 %

Other income (expense):

Interest expense (143) (268) 125 (47) %

Interest income 165 94 71 76 %

Other (235) (116) (119) 103 %

Loss before income tax expense (14,583) (13,049) (1,534) 12 %

Provision for federal, state and foreign income taxes (2) (363) 361 (99) %

Net loss $ (14,581) $ (12,686) $ (1,895) 15 %

Revenue - The decrease in overall revenue of $20.9 million, or 11%, was primarily attributable to reduced revenue volumes in our Process and Industrial Facilities segment driven by lower volumes of midstream gas processing work, combined with the delay in the ramp of previously awarded construction projects.

Revenue is expected to increase on a consolidated basis in the near term as work on projects currently in backlog begins to increase.

Gross profit - Gross profit in the third quarter of fiscal 2024 increased $1.2 million, or 26%, compared to the third quarter of fiscal 2023.

Gross margin increased to 3.4% for the third quarter of fiscal 2024 compared to 2.4% for the third quarter of fiscal 2023.

While project execution remained strong, gross margins were negatively impacted by the under-recovery of construction overhead costs due to low revenue.

Additionally, gross margin was impacted by reduced labor demand for turnaround and maintenance services in the final year of a three-year refinery maintenance contract which is currently up for renewal.

The accounting for this change resulted in a cumulative catch-up adjustment over the life of the contract, which impacted gross margins during the period.

The gross margins in the third 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, 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.

Selling, general and administrative expenses - The increase in SG&A expenses of $3.1 million, or 18%, is primarily due to an increase in our cash-settled stock-based compensation of $1.9 million, which increased due to a substantially higher stock price year over year, and increased project pursuit costs as we continue to actively pursue additional project opportunities.

Provision for income taxes - Our effective tax rates for the three months ended March 31, 2024 and March 31, 2023 were zero and 2.8%, respectively.

The effective tax rates during both periods were impacted by valuation allowances of $4.4 million million and $3.6 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.

Results of Operations by Business Segment

Three Months Ended

March 31, 2024 v 2023

Dollars in thousands 2024 2023 $ %

Storage and Terminal Solutions $ 54,304 $ 52,165 $ 2,139 4 %

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 46,120 35,024 11,096 32 %

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 65,589 99,706 (34,117) (34) %

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 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.

Total revenue (1)

$ 166,013 $ 186,895 $ (20,882) (11) %

(1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $1.3 million and $1.7 million for the three months ended March 31, 2024 and 2023, respectively.

Gross profit (loss)

Storage and Terminal Solutions $ 2,313 $ (810) $ 3,123 (386) %

Utility and Power Infrastructure 1,409 2,790 (1,381) (49) %

Process and Industrial Facilities 1,767 3,160 (1,393) (44) %

Corporate 89 (721) 810 (112) %

Total gross profit $ 5,578 $ 4,419 $ 1,159 26 %

Operating Income (loss)

Storage and Terminal Solutions $ (3,082) $ (6,624) $ 3,542 (53) %

Utility and Power Infrastructure (1,324) 921 (2,245) (244) %

Process and Industrial Facilities (823) (502) (321) 64 %

Corporate (9,141) (6,554) (2,587) 39 %

Total Operating Loss $ (14,370) $ (12,759) $ (1,611) 13 %

Storage and Terminal Solutions

Storage and Terminal Solutions revenues increased by $2.1 million, or 4%, in the three months ended March 31, 2024 compared to the same period last year.

The Company expects higher revenue volume in the near term as it transitions recent large specialty storage project awards through contracting, project planning and mobilization.

Storage and Terminal Solutions gross profit increased by $3.1 million in the three months ended March 31, 2024 compared to the same period last year.

The segment gross margin was 4.3% for the three months ended March 31, 2024 compared to segment gross loss of 1.6% in the same period last year.

Project execution was strong for the segment in the current quarter;

however, both periods were impacted by the under-recovery of construction overhead costs.

Utility and Power Infrastructure

Utility and Power Infrastructure revenues increased by $11.1 million, or 32%, in the three months ended March 31, 2024 compared to the same period last year.

The increase is primarily attributable to higher volumes of work for LNG peak shaving projects, partially offset by lower volumes of work for power delivery and power generation.

Utility and Power Infrastructure gross profit decreased by $1.4 million, or 49%, in the three months ended March 31, 2024 compared to the same period last year.

The segment gross margin was 3.1% for the three months ended March 31, 2024 compared to 8.0% in the same period last year.

The segment gross margin in the current period was impacted by the under-recovery of construction overhead costs as we have shifted resources to this segment to support large construction projects which are in their early stages.

Process and Industrial Facilities

Process and Industrial Facilities revenues decreased by $34.1 million, or 34%, in the three months ended March 31, 2024 compared to the same period last year.

The decrease is primarily attributable to lower volumes of work for a mining and minerals facility, midstream gas processing projects, and refinery maintenance.

These decreases were partially offset by higher volumes for a renewable energy facility.

Process and Industrial Facilities gross profit decreased by $1.4 million, or 44%, in the three months ended March 31, 2024 compared to the same period last year.

The segment gross margin was 2.7% for the three months ended March 31, 2024 compared to 3.2% in the same period last year.

The segment gross margin in the third quarter of fiscal 2024 was impacted by reduced labor demand for turnaround and maintenance services in the final year of a three-year refinery maintenance contract which is currently up for renewal.

The accounting for this change resulted in a cumulative catch-up adjustment over the life of the contract, which impacted gross margins during the period.

The segment gross margin in the third 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 capital projects, which resulted in the projects reducing gross profit by $3.3 million for the quarter.

The segment gross margin was also impacted by under-recovery of construction overhead costs.

Unallocated corporate expenses were $9.1 million during the three months ended March 31, 2024 compared to $6.6 million in the same period last year.

The increase of $2.5 million was primarily due to higher cash-settled stock-based compensation due to an increase in the price of our stock

Nine Months Ended March 31, 2024 Compared to the Nine Months Ended March 31, 2023

The information below is an analysis of our consolidated results for the nine months ended March 31, 2024, compared to the nine months ended March 31, 2023.

See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments.

Consolidated Results

Nine Months Ended

March 31, 2024 v 2023

Dollars in thousands 2024 2023 $ %

Revenue $ 538,714 $ 589,166 $ (50,452) (9) %

Cost of revenue 510,688 573,041 (62,353) (11) %

Gross profit 28,026 16,125 11,901 74 %

Selling, general and administrative expenses 52,792 51,218 1,574 3 %

Goodwill impairment — 12,316 (12,316) (100) %

Restructuring costs — 2,881 (2,881) (100) %

Operating loss (24,766) (50,290) 25,524 (51) %

Other income (expense):

Interest expense (787) (1,556) 769 (49) %

Interest income 477 164 313 191 %

Other (Note 3) 4,481 (706) 5,187 (735) %

Loss before income tax expense (20,595) (52,388) 31,793 (61) %

Provision for federal, state and foreign income taxes 4 (363) 367 (101) %

Net loss $ (20,599) $ (52,025) $ 31,426 (60) %

Revenue - The decrease in overall revenue of $50.5 million, or 9%, was primarily attributable to revenue decreases across our Process and Industrial Facilities and Utility Power and Infrastructure segments of $55.1 million and $11.8 million, respectively.

These decreases were partially offset by an increase in revenue in our Storage and Terminal Solutions segment of $15.2 million.

Gross profit - Gross profit increased $11.9 million, or 74%.

Gross margin increased to 5.2% in the nine months ended March 31, 2024 compared to a gross margin of 2.7% in the same period last year.

Gross margins in the first nine months of fiscal 2024 were impacted by under-recovery of overhead costs due to low revenue volumes.

Gross margins in the first nine 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, and continued work on previously-booked projects with reduced gross margins awarded in a highly competitive time period.

Selling, general and administrative expenses - The increase in SG&A expenses of $1.6 million, or 3%, is primarily due to an increase in cash-settled stock-based compensation of $4.4 million, which increased due to a higher stock price year over year, partially offset by lower pursuit costs and lower depreciation and amortization expenses.

Goodwill Impairment - The Company did not record any goodwill impairment during the nine months ended March 31, 2024.

During the nine months ended March 31, 2023 we recorded a goodwill impairment of $12.3 million.

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.

Restructuring cost s - The Company did not incur any restructuring costs during the nine months ended March 31, 2024.

During the nine months ended March 31, 2023, we incurred $2.9 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.

1 unchanged sentence

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.

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.

Interest expense - The decrease in interest expense of $0.8 million, or 49%, is primarily due to lower average outstanding borrowings.

Provision for income taxes - Our effective tax rates for the nine months ended March 31, 2024 and March 31, 2023 were zero and 0.7%, respectively The effective tax rates during both periods were impacted by valuation allowances of $5.8 million and $13.3 million, respectively, placed on deferred tax assets generated during the quarters.

We placed a valuation allowance on our deferred tax assets in the second quarter of fiscal 2022 due to the existence of a cumulative loss over a three-year period.

Other income - The increase in other income of $5.2 million, is primarily due to gains on sales of assets recorded during the period.

During the second quarter of fiscal 2024, we recognized a gain of $2.0 million from the sale of a facility in Catoosa, Oklahoma for $2.7 million in net proceeds.

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

2 unchanged sentences

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 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.

We placed a valuation allowance on our deferred tax assets in the second quarter of fiscal 2022 due to the existence of a cumulative loss over a three-year period.

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.

Results of Operations by Business Segment

Nine Months Ended

March 31, 2024 v 2023

2024 2023 $ %

Storage and Terminal Solutions $ 206,808 $ 191,614 $ 15,194 8 %

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.

The fiscal 2023 segment gross margin was positively impacted by strong project execution, partially offset by low revenue volume, which led to under-recovery of construction overhead costs.

Utility and Power Infrastructure 118,659 130,429 (11,770) (9) %

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 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 212,014 267,123 (55,109) (21) %

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 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.

Corporate 1,233 — 1,233 — %

Total revenue (1)

$ 538,714 $ 589,166 $ (50,452) (9) %

(1) Total revenues are net of inter-segment revenues which are primarily Storage and Terminal Solutions and were $3.1 million and $2.8 million for the nine months ended March 31, 2024 and 2023, respectively.

Gross profit (loss)

Storage and Terminal Solutions $ 9,104 $ 8,403 $ 701 8 %

Utility and Power Infrastructure 6,520 6,929 (409) (6) %

Process and Industrial Facilities 13,516 2,359 11,157 473 %

Corporate (1,114) (1,566) 452 (29) %

Total gross profit $ 28,026 $ 16,125 $ 11,901 74 %

Operating Income (loss)

Storage and Terminal Solutions $ (5,258) $ (7,923) $ 2,665 (34) %

Utility and Power Infrastructure 261 1,498 (1,237) (83) %

Process and Industrial Facilities 5,632 (22,068) 27,700 (126) %

Corporate (25,401) (21,797) (3,604) 17 %

Total Operating Loss $ (24,766) $ (50,290) $ 25,524 (51) %

Storage and Terminal Solutions

Storage and Terminal Solutions revenues increased by $15.2 million, or 8%, in the nine months ended March 31, 2024 compared to the same period last year.

The increase is primarily attributable to increases in work performed for specialty vessel projects awarded in previous fiscal years.

Storage and Terminal Solutions gross profit increased slightly by $0.7 million, or 8%, in the nine months ended March 31, 2024 compared to the same period last year.

The segment gross margin was 4.4% for the nine months ended March 31, 2024 compared to 4.4% in the same period last year.

Project execution was strong for the segment;

however, both periods were impacted by the under-recovery of construction overhead costs.

Utility and Power Infrastructure

Utility and Power Infrastructure revenues decreased by $11.8 million, or 9%, in the nine months ended March 31, 2024 compared to the same period last year.

The decrease is primarily attributable to lower volumes of power delivery and power generation work, partially offset by revenue increases from peak shaving projects.

Utility and Power Infrastructure gross profit decreased by $0.4 million, or 6%, in the nine months ended March 31, 2024 compared to the same period last year.

The segment gross margin was 5.5% for the nine months ended March 31, 2024 compared to 5.3% in the same period last year.

During the nine months ended March 31, 2024, project execution was strong for the segment;

however, margin was impacted by the under-recovery of construction overhead costs as we have shifted resources to this segment to support large construction projects which are in their early stages.

The segment gross margin for the first nine months of fiscal 2023 was negatively impacted by continued work on projects with previously reduced gross margins, projects that were bid competitively, and the under recovery of construction overhead costs due to lower revenue volumes.

These negative impacts were partially offset by strong execution of cost reimbursable power delivery work.

Process and Industrial Facilities

Process and Industrial Facilities revenues decreased by $55.1 million, or 21%, in the nine months ended March 31, 2024 compared to the same period last year.

The decrease is primarily attributable to lower revenue volumes for midstream gas processing projects, mining and minerals, industrial facilities and refinery turnarounds.

These decreases were offset by revenue increases for a renewable energy facility in addition to increases in revenue associated with thermal vacuum chambers.

Process and Industrial Facilities gross profit increased by $11.2 million in the nine months ended March 31, 2024 compared to the same period last year.

The segment gross margin was 6.4% for the nine months ended March 31, 2024 compared to 0.9% for the same period last year.

The segment gross margin for the first nine months of fiscal 2024 was positively impacted by strong project execution on thermal vacuum chamber projects, partially offset by unfavorable changes in margin opportunity for an existing refinery maintenance program due to lower volumes of work, as well as under-recovery of construction overhead costs.

The segment gross margin in the first nine months 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 capital projects, which resulted in the projects reducing gross profit by $12.7 million for the period.

Unallocated corporate revenue and expenses net to $25.4 million during the nine months ended March 31, 2024 compared to $21.8 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.

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(In thousands, except per share data)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

March 31, 2024 March 31, 2023 March 31, 2024 March 31, 2023

Net loss, as reported $ (14,581) $ (12,686) $ (20,599) $ (52,025)

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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.

(4) 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.

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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 Six Months Ended

2023 December 31,

2022 December 31,

2023 December 31,

Three Months Ended Nine Months Ended

2024 March 31,

2023 March 31,

2024 March 31,

(In thousands)

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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 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):

Our primary sources of liquidity at March 31, 2024 were unrestricted cash and cash equivalents on hand, capacity under our ABL Facility, and cash generated from operations.

Unrestricted cash and cash equivalents at March 31, 2024 totaled $69.7 million and availability under the ABL Facility totaled $65.3 million, resulting in total liquidity of $135.0 million.

During the third quarter of fiscal 2024, cash and cash equivalents increased $22.5 million and total liquidity increased $28.7 million primarily as a result of cash provided by operating activities.

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

2024 December 31,

2023 September 30,

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Total cash, cash equivalents and restricted cash $ 94,658 $ 72,160 $ 52,359 $ 79,812

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

Total Liquidity $ 135,013 $ 106,270 $ 80,252 $ 92,554

The following table provides a summary of changes in our liquidity for the three months ended March 31, 2024 (in thousands):

Liquidity at December 31, 2023 $ 106,270

Cash provided by operating activities 24,838

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Effect of exchange rate changes on cash (280)

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 March 31, 2024 $ 135,013

The following table provides a summary of changes in our liquidity for the nine months ended March 31, 2024 (in thousands):

Liquidity at June 30, 2023 $ 92,554

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Effect of exchange rate changes on cash (243)

Liquidity at December 31, 2023 $ 106,270

Liquidity at March 31, 2024 $ 135,013

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 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.

and Canada operating subsidiaries entered into an asset-based credit agreement, which was amended on May 3, 2024 (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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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 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.

The borrowing base is recalculated on a monthly basis and at March 31, 2024, our borrowing base was $72.3 million, we had $7.0 million in letters of credit outstanding, which resulted in availability of $65.3 million under the ABL Facility.

During the second quarter ended December 31, 2023, the Company repaid all outstanding borrowings 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.

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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 December 31, 2023.

Cash Flow for the Six Months Ended December 31, 2023

We were in compliance with all covenants of the ABL Facility as of March 31, 2024.

Cash Flow for the Nine Months Ended March 31, 2024

Cash Flows provided by Operating Activities

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

Cash provided by operating activities for the nine months ended March 31, 2024 totaled $25.6 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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Net cash provided by operating activities $ 25,567

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.

Cash effect of changes in operating assets and liabilities at March 31, 2024 in comparison to June 30, 2023 include the following:

• Accounts receivable, excluding credit losses recognized during the period, increased by $43.1 million during the nine months ended March 31, 2024, which decreased cash flows from operating activities.

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

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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, 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.

• Accounts payable decreased by $20.9 million during the nine months ended March 31, 2024, which decreased cash flows from operating activities.

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

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

business volumes;

and other timing differences.

• Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, increased $11.8 million during the nine months ended March 31, 2024, which decreased cash flows from operating activities.

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

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and other timing differences.

• Accounts payable, accrued wages and benefits, accrued insurance, operating lease liabilities, 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.

Accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current increased by $4.1 million during the nine months ended March 31, 2024, which increased cash flows from operating activities.

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

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and other timing differences.

Cash Flows Provided by Investing Activities

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.

Cash Flows Used by Investing Activities

Investing activities used $0.2 million of cash in the nine months ended March 31, 2024 primarily due to capital expenditures, offset by proceeds from asset sales.

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.

In the third quarter of fiscal 2024 we purchased a fabrication facility in Bakersfield, California for $4.1 million to replace a facility currently being leased by the Company.

Cash Flows Used by Financing Activities

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.

Financing activities used $10.3 million of cash in the nine months ended March 31, 2024 primarily due to $10.0 million in advances and $20.0 million in repayments under our ABL facility.

As of March 31, 2024 we have no outstanding borrowings under our ABL facility.

Dividend Policy

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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 three months ended September 30, 2023 and have no current plans to repurchase stock.

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

We made no repurchases under the program in the nine months ended March 31, 2024 and have no current plans to repurchase stock.

As of March 31, 2024, 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 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.

We had 583,483 treasury shares as of March 31, 2024 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