What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-05-09 · 109 added, 334 removed, 187 unchanged (70% of the section changed)

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

Although we believe that our expectations regarding future events are based on reasonable assumptions, we can give no assurance that such expectations or assumptions will be achieved.

Important factors that could cause actual results to differ materially from those in the forward-looking statements are described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

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

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

• the impact to our business from economic, market or business conditions in general and in the natural gas, power, oil, petrochemical, agricultural and mining industries in particular;

• the impact of inflation on our operating expenses and our business operations;

• the impact to our business from economic, market or business conditions in general and in the natural gas, oil, petrochemical, industrial and power industries in particular;

• the impact of interest rates and inflation on our operating expenses and our business operations;

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

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• any risk factors discussed in this Form 10-Q, Form 10-K for the fiscal year ended June 30, 2024, and in our other filings with the Securities and Exchange Commission;

• economic, market or business conditions in general and in the natural gas, power, oil, petrochemical, agricultural and mining industries in particular;

• economic, market or business conditions in general and in the natural gas, power, oil, petrochemical, industrial and power industries in particular;

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

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

We assume no obligation to

update publicly, except as required by law, any such forward-looking statements, whether as a result of new information, future events or otherwise.

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

RESULTS OF OPERATIONS

We report our results of operations through three reportable segments:

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

We operate our business through three reportable segments:

• Storage and Terminal Solutions :

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Operational Update

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.

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.

Our backlog has remained steady at a near-record level of $1.4 billion, and a trailing twelve-month book-to-bill ratio of 1.1x, reflecting a robust pipeline of projects and sustained demand for our services.

We have demonstrated strong project execution across our portfolio.

Our liquidity has grown to $181 million, and our debt position remains at zero.

Although we experienced a decline in revenue year over year, the decline was primarily due to the completion of a large renewable diesel project.

As we progress through the year, our business remains poised for significant growth, particularly in the Storage and Terminal Solutions segment, driven by the increasing demand for specialty storage solutions for LNG and NGLs.

We expect this growth will result in improved fixed cost absorption, operating leverage, and margin improvement in the coming periods.

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 March 31, 2024:

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

(In thousands)

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

Book-to-bill ratio (1)

2.5 0.6 0.4 1.1

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

(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:

The following table provides a summary of changes in our backlog for the three months ended September 30, 2024:

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

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Project awards 81,651 34,365 31,961 147,977

Other adjustment (2)

— — (17,370) (17,370)

Revenue recognized (78,239) (55,912) (31,428) (165,579)

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

Backlog as of September 30, 2024 $ 801,667 $ 358,150 $ 252,054 $ 1,411,871

Book-to-bill ratio (1)

3.3 0.8 0.7 1.7

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

(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.

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.

1.0 x 0.6 x 1.0 x 0.9 x

(1) Calculated by dividing project awards by revenue recognized.

In the Storage and Terminal Solutions segment, we booked $81.7 million of project awards during the first quarter of fiscal 2025.

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

We believe LNG and ammonia projects in particular will be key growth drivers for this segment.

Bidding activity on LNG and ammonia projects has been strong and we expect that to continue.

In the Utility and Power Infrastructure segment, we booked $34.4 million of project awards during the first quarter of fiscal 2025.

Our opportunity pipeline for LNG peak shaving projects continues to be promising;

however those awards, while significant, can be less frequent.

Power delivery opportunities are expected to be driven over the long-term by increasing electrical demand and the related electrical grid requirements.

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, 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.

In the Process and Industrial Facilities segment, we booked $32.0 million of project awards during the first quarter of fiscal 2025.

During the quarter, we were notified of a five-year renewal of a refinery maintenance contract.

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.

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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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.

This lag normally extends up to six months or longer in unique circumstances, 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.

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.

Three months ended September 30, 2024 Compared to the Three months ended September 30, 2023

The information below is an analysis of our consolidated results for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

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

Consolidated Results

Consolidated Results of Operations

Three Months Ended

March 31, 2024 v 2023

September 30, 2024 v 2023

2024 2023 $ %

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Selling, general and administrative expenses 18,580 17,113 1,467 9 %

Restructuring costs — 316 (316) (100) %

Operating loss (10,767) (5,254) (5,513) 105 %

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Other 61 2,262 (2,201) (97) %

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 $ (9,223) $ (3,167) $ (6,056) 191 %

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.

Revenue - The decrease in overall revenue of $32.1 million, or 16%, was primarily attributable to reduced revenue volumes in our Storage and Terminal Solutions and Process and Industrial Facilities segments, partially offset by an increase in Utility and Power Infrastructure.

Gross profit - Gross profit in the first quarter of fiscal 2025 decreased $4.0 million, or 34%, compared to the first quarter of fiscal 2024.

Gross margin decreased to 4.7% for the first quarter of fiscal 2025 compared to 6.0% for the first quarter of fiscal 2024.

While project execution remained strong, gross margins were negatively impacted by the under-recovery of construction overhead costs on the lower revenues.

Selling, general and administrative expenses - The increase in SG&A expenses of $1.5 million, or 9%, is primarily due to an increase in operations headcount required to support the strong market demand and growth in our business.

Interest income - The increase in interest income of $1.4 million is primarily due to an increase in our cash balance.

In fiscal 2024 we invested excess cash balances in interest-bearing cash accounts.

Other income - The decrease in other income of $2.2 million is primarily due to the sale of our Burlington, Ontario facility in the first quarter of fiscal 2024.

We received $2.5 million in net proceeds from the sale of the facility.

Provision for income taxes - Our effective tax rates for the three months ended September 30, 2024 and September 30, 2023 were zero.

The effective tax rates during both periods were impacted by valuation allowances of $1.3 million and $0.2 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.

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Three Months Ended

March 31, 2024 v 2023

September 30, 2024 v 2023

Dollars in thousands 2024 2023 $ %

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$ 165,579 $ 197,659 $ (32,080) (16) %

(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.

(1) Total revenues are net of inter-segment revenues which are primarily Process and Industrial Facilities and Storage and Terminal Solutions and were $0.9 million for the three months ended September 30, 2024.

Gross profit (loss)

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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.

Storage and Terminal Solutions revenues decreased by $11.9 million, or 13%, in the three months ended September 30, 2024 compared to the same period last year, driven by reduced volume of work for flat bottom tank new build, repair and maintenance work, partially offset by increases in LNG storage and specialty vessel projects.

Storage and Terminal Solutions gross profit decreased by $0.3 million, or 5%, in the three months ended September 30, 2024 compared to the same period last year.

The segment gross margin was 6.0% for the three months ended September 30, 2024 compared to segment gross margin of 5.5% in the same period last year.

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

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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.

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.

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 - 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.

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.

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.

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.

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 %

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

Process and Industrial Facilities 212,014 267,123 (55,109) (21) %

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.

Utility and Power Infrastructure revenues increased by $23.5 million, or 73%, in the three months ended September 30, 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 decreases in power delivery work.

Utility and Power Infrastructure gross profit decreased by $2.4 million, or 65%, in the three months ended September 30, 2024 compared to the same period last year.

The segment gross margin was 2.3% for the three months ended September 30, 2024 compared to 11.4% in the same period last year.

The segment gross margin in the current period was impacted by the under-recovery of construction overhead costs, primarily in our power delivery service line.

Additionally, segment gross margin in the first quarter of fiscal 2024 benefited from favorable project closeouts.

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.

Non-GAAP Financial Measures

Adjusted Net Loss

We have presented Adjusted net loss, which we define as Net loss before restructuring costs, gain on sale of assets, and the tax impact of these adjustments, because we believe it better depicts our core operating results.

We believe that the line item on our Condensed Consolidated Statements of Income entitled “Net loss” is the most directly comparable GAAP measure to Adjusted net loss.

Since Adjusted net loss is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, Net loss as an indicator of operating performance.

Adjusted net loss, as we calculate it, may not be comparable to similarly titled measures employed by other companies.

In addition, this measure is not a measure of our ability to fund our cash needs.

As Adjusted net loss excludes certain financial information compared with Net loss, the most directly comparable GAAP financial measure, users of this financial information should consider the type of events and transactions that are excluded.

Our non-GAAP performance measure, Adjusted 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.

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

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

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

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:

Reconciliation of Net Loss to Adjusted Net Loss (1)

(In thousands, except per share data)

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)

Goodwill impairment — — — 12,316

Restructuring costs — 316 — 2,881

Gain on sale of assets (2)

— — (4,542) —

Tax impact of adjustments (3)

Adjusted net loss $ (14,581) $ (12,370) $ (25,141) $ (36,828)

Loss per share, as reported $ (0.53) $ (0.47) $ (0.75) $ (1.93)

Adjusted loss per share $ (0.53) $ (0.46) $ (0.92) $ (1.37)

(1) Beginning with the first quarter of fiscal 2024, the definition of Adjusted net loss and Adjusted loss per share was updated to no longer include changes in the valuation allowance of deferred tax assets.

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 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.

(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.

Adjusted EBITDA

We have presented Adjusted EBITDA, which we define as Net loss before restructuring costs, gain on sale of assets, stock-based compensation, interest expense, and depreciation and amortization, because it is used by the financial community as a method of measuring our performance and of evaluating the market value of companies considered to be in similar businesses.

We believe that the line item on our Condensed Consolidated Statements of Income entitled “Net loss” is the most directly comparable GAAP measure to Adjusted EBITDA.

Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, Net loss as an indicator of operating performance.

Adjusted EBITDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies.

In addition, this measure is not a measure of our ability to fund our cash needs.

As Adjusted EBITDA excludes certain financial information compared with Net loss, the most directly comparable GAAP financial measure, users of this financial information should consider the type of events and transactions that are excluded.

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.

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

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

• It does not include 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.

• It does not include equity-settled stock-based compensation expense.

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.

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

• It does not include interest expense.

Because we have borrowed money to finance our operations and acquisitions, pay commitment fees to maintain our credit facility, and incur fees to issue letters of credit under the credit facility, interest expense is a necessary and ongoing part of our costs and has assisted us in generating revenue.

Therefore, any measure that excludes interest expense has material limitations.

• It does not include depreciation or amortization expense.

Because we use capital and intangible assets to generate revenue, depreciation and amortization expense is a necessary element of our cost structure.

Therefore, any measure that excludes depreciation or amortization expense has material limitations.

A reconciliation of Net loss to Adjusted EBITDA follows:

Three Months Ended Nine Months Ended

2024 March 31,

2023 March 31,

2024 March 31,

(In thousands)

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

Goodwill impairment — — — 12,316

Restructuring costs — 316 — 2,881

Gain on sale of assets (1)

— — (4,542) —

Stock-based compensation (2)

1,980 1,407 5,765 5,154

Interest expense 143 268 787 1,556

Provision (benefit) for federal, state and foreign income taxes (2) (363) 4 (363)

Depreciation and amortization 2,645 3,322 8,337 10,499

Adjusted EBITDA $ (9,815) $ (7,736) $ (10,248) $ (19,982)

(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.

Seasonality and Other Factors

Our operating results can exhibit seasonal fluctuations, especially in our Process and Industrial Facilities and Utility and Power Infrastructure segments, for a variety of reasons.

Turnarounds and planned outages at customer facilities are typically scheduled in the spring or fall, when the demand for energy is lower.

Within the Utility and Power Infrastructure segment, transmission and distribution work is generally scheduled by the public utilities when the demand for electricity is at its lowest.

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

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

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

In addition to the above noted factors, the general timing of project starts and completions could exhibit significant fluctuations.

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

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

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

Our overhead cost structure is generally fixed.

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

Process and Industrial Facilities revenues decreased by $43.7 million, or 58%, in the three months ended September 30, 2024 compared to the same period last year.

The decrease is primarily attributable to lower revenue volumes for a now completed large renewable diesel project.

We believe this reduction in revenue is temporary given our strong backlog, including a significant gas processing construction project that is expected to commence in late fiscal 2025.

Process and Industrial Facilities gross profit decreased by $3.1 million, or 61%, in the three months ended September 30, 2024 compared to the same period last year.

The segment gross margin was 6.4% for the three months ended September 30, 2024 compared to 6.8% in the same period last year.

Gross margins in both periods were negatively impacted by under-recovery of construction overhead costs.

Unallocated corporate expenses net to $7.5 million during the three months ended September 30, 2024 compared to $9.7 million in the same period last year.

The decrease of $2.3 million was primarily due to reduced legal expenses in the first quarter of fiscal 2025.

Legal expenses incurred during the first quarter of fiscal 2024 included costs related to a jury trial that resulted in a verdict in our favor.

LIQUIDITY AND CAPITAL RESOURCES

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 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,

Our primary sources of liquidity at September 30, 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 September 30, 2024 totaled $124.6 million and availability under the ABL Facility totaled $56.6 million, resulting in total liquidity of $181.2 million.

During the first quarter of fiscal 2025, liquidity increased $11.6 million primarily as a result of cash provided by operating activities.

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

September 30,

2024 June 30,

Cash and cash equivalents $ 69,658 $ 47,160 $ 27,359 $ 54,812

Restricted cash 25,000 25,000 25,000 25,000

Total cash, cash equivalents and restricted cash $ 149,610 $ 140,615

Restricted cash 25,000 25,000

Unrestricted cash 124,610 115,615

Availability 56,642 53,988

Total Liquidity $ 181,252 $ 169,603

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

Proceeds from asset sales 2,729

Capital expenditures (4,830)

Increase in availability under ABL Facility 6,245

Cash used by financing activities 41

Effect of exchange rate changes on cash (280)

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):

The following table provides a summary of changes in our liquidity for the three months ended September 30, 2024 (in thousands):

Liquidity at June 30, 2024 $ 169,603

Cash provided by operating activities 11,918

Proceeds from asset sales 5,535

Capital expenditures (1,944)

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Effect of exchange rate changes on cash 210

Liquidity at March 31, 2024 $ 135,013

Liquidity at September 30, 2024 $ 181,252

Factors that routinely impact our short-term liquidity and may impact our long-term liquidity include, but are not limited to:

• changes in costs and estimated earnings in excess of billings on uncompleted contracts and billings on uncompleted contracts in excess of costs due to contract terms that determine the timing of billings to customers and the collection of those billings:

◦ some cost-plus and fixed-price customer contracts are billed based on milestones which may require us to incur significant expenditures prior to collections from our customers;

◦ some fixed-price customer contracts allow for significant upfront billings at the beginning of a project, which temporarily increases liquidity near term;

◦ some cost-plus and fixed-price customer contracts are billed based on milestones which may require us to incur significant expenditures prior to collections from our customers;

◦ time and material contracts are normally billed in arrears.

Therefore, we are routinely required to carry these costs until they can be billed and collected;

◦ some of our large construction projects may require security in the form of letters of credit or significant retentions.

◦ some of our large construction projects may require security in the form of significant retentions.

Retentions are normally held until certain contractual milestones are achieved;

therefore, collection may extend beyond one year;

• the mix of work can impact liquidity.

In periods where fixed-price contracts comprise a larger portion of revenue, liquidity may increase.

In periods where time and material contracts comprise a larger portion of revenue, liquidity may decrease;

• other changes in working capital, including the timing of tax payments and refunds;

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• collection issues, including those caused by weak commodity prices, economic slowdowns or other factors which can lead to credit deterioration of our customers;

• strategic investments in new operations or divestitures of existing operations;

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

• letters of credit.

We have certain contracts with customers, and may have future contracts, that permit the customer to obtain, at the customer's expense, letters of credit as a form of security under the contract.

Letters of credit reduce our borrowing availability under the Company's ABL Facility;

• acquisitions and disposals of businesses or assets;

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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 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.

and Canada operating subsidiaries entered into an asset-based credit agreement, which was most recently 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.

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

The ABL Facility's available borrowings may be increased by an amount not to exceed $15.0 million, subject to certain conditions, including obtaining additional commitments.

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

Our obligations under the ABL Facility are guaranteed by substantially all of our U.S.

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.

and Canadian subsidiaries and are secured by a first lien on all our assets under the ABL Facility.

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

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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 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.

The borrowing base is recalculated on a monthly basis and at September 30, 2024, our borrowing base was $61.4 million.

During fiscal 2024, the Company repaid all outstanding borrowings under the ABL Facility.

The Company had $4.8 million in letters of credit outstanding as of September 30, 2024, which resulted in availability of $56.6 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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The fee for undrawn amounts is 0.25% per annum and is due quarterly.

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

The ABL Facility contains customary conditions to borrowings, events of default and covenants, including, but not limited to, covenants that limit 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 March 31, 2024.

Cash Flow for the Nine Months Ended March 31, 2024

We were in compliance with all covenants of the ABL Facility as of September 30, 2024.

Cash Flows Provided by Operating Activities

Cash provided by operating activities for the nine months ended March 31, 2024 totaled $25.6 million.

The various components are as follows:

Cash provided by operating activities for the three months ended September 30, 2024 totaled $11.9 million.

Major components of cash flows provided by operating activities for the three months ended September 30, 2024 are as follows:

Net Cash Provided by Operating Activities

1 unchanged sentence

Net loss $ (9,223)

Loss on sale of property, plant and equipment

Depreciation and amortization 2,515

1 unchanged sentence

Other non-cash expenses 38

Gain on sale of property, plant and equipment (4,530)

Cash effect of changes in operating assets and liabilities 16,209

Net cash provided by operating activities $ 11,918

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.

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

• Accounts receivable, excluding credit losses recognized during the period and including retention amounts classified as non-current, increased by $5.1 million during the three months ended September 30, 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.

• 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;

• Accounts payable decreased by $3.9 million during the three months ended September 30, 2024, which decreased cash flows from operating activities.

These operating liabilities can fluctuate based on business volumes;

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;

• Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, increased $7.3 million during the three months ended September 30, 2024, which decreased cash flows from operating activities.

These operating assets can fluctuate based on business volumes;

the amount of long-term retention receivables;

the timing of inventory builds and draw-downs, accrual and receipt of income taxes receivable;

prepayments of certain expenses;

lease commencement, passage of time, expiration, or termination of operating leases;

business volumes;

and other timing differences.

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;

• Accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current decreased by $2.9 million during the three months ended September 30, 2024, which decreased cash flows from operating activities.

These operating liabilities can fluctuate based on the timing of payroll, distributions, business volumes;

vendor payments;

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

business volumes;

and other timing differences.

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.

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

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.

Investing activities used $1.9 million of cash in the three months ended September 30, 2024 due to capital expenditures.

Cash Flows Used by Financing Activities

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.

Financing activities used $1.2 million of cash in the three months ended September 30, 2024 primarily due to the repurchase of common stock for payment of statutory taxes due on equity-based compensation.

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 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.

We made no repurchases under the program in the three months ended September 30, 2024 and have no current plans to repurchase stock.

As of September 30, 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 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.

We had 338,015 treasury shares as of September 30, 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