What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-02-06 compared with 2024-11-07 · 185 added, 94 removed, 202 unchanged (58% of the section changed)

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primarily consists of engineering, procurement, fabrication, and construction services to support growing demand for LNG utility peak shaving facilities.

We also perform traditional electrical work for public and private utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, and upgrades and maintenance including live wire work.

We also perform power delivery work for public and private utilities, including construction of new substations, upgrades of existing substations, transmission and distribution line installations, and upgrades and maintenance including live wire work.

Work may also include emergency and storm restoration services.

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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.

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

Operational Update

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.

Operating activity increased during the second quarter of fiscal 2025 as revenues showed a 13% increase from first quarter of 2025.

This increase marks the beginning of a ramp in activity, and was fueled by growth primarily in the Storage and Terminal Solutions segment, as well as the Utility and Power Infrastructure segment.

We believe these positive trends will continue as we progress through the remainder of the fiscal year.

Combined with strong project execution, we believe the continued increase in activity will result in enhanced leverage of our cost structure, improved operating margins, and bottom-line results.

Project awards during the quarter were $90.5 million.

We have experienced lower levels of project awards as many customers delayed spending decisions pending the outcome of the 2024 presidential election.

It is not uncommon for awards to shift from one period to another as the timing of awards is dependent on a number of factors, and while project awards in the quarter is the lowest quarterly awards in over three years, demand in the markets we serve remains strong based upon significant market trends, and recent and anticipated actions by the new administration.

The market drivers for each of our segments are strong and include increased oil and gas demand, the clean energy transition, low-cost feed stock, data center energy demand, industrial reshoring/onshoring, grid reliability and electrical supply assurance.

As a result, we believe we will have strong award activity in the coming quarters.

We define backlog as the total dollar amount of revenue that we expect to recognize as a result of performing work that has been awarded to us through a signed contract, limited notice to proceed ("LNTP") or other type of assurance that we consider firm.

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

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

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

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

(In thousands)

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

Project awards 32,826 21,442 36,270 90,538

Other adjustment (2)

— — (4,106) (4,106)

Revenue recognized (95,507) (61,076) (30,586) (187,169)

Backlog as of December 31, 2024 $ 738,986 $ 318,516 $ 253,632 $ 1,311,134

Book-to-bill ratio (1)

0.3 x 0.4 x 1.2 x 0.5 x

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

(2) Backlog was reduced as a result of the closure of a customer's facility.

This customer has historically represented less than 1% of our consolidated revenues.

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

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

(In thousands)

Backlog as of June 30, 2024 $ 798,255 $ 379,697 $ 251,521 $ 1,429,473

Project awards 114,477 55,807 68,231 238,515

Other adjustment (2)

— — (4,106) (4,106)

Revenue recognized (173,746) (116,988) (62,014) (352,748)

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

Backlog as of December 31, 2024 $ 738,986 $ 318,516 $ 253,632 $ 1,311,134

Book-to-bill ratio (1)

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(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.

(2) Backlog was reduced as a result of the closure of a customer's facility.

This customer has historically represented less than 1% of our consolidated revenues.

In the Storage and Terminal Solutions segment, we booked $32.8 million of project awards during the second quarter of fiscal 2025.

During the six months ended December 31, 2024, we booked $114.5 million of project awards.

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

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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.

In the Utility and Power Infrastructure segment, we booked $21.4 million of project awards during the second quarter of fiscal 2025.

During the six months ended December 31, 2024, we booked $55.8 million of project awards.

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

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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 $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.

In the Process and Industrial Facilities segment, we booked $36.3 million of project awards during the second quarter of fiscal 2025.

During the six months ended December 31, 2024, we booked $68.2 million of project awards, and 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, renewables and refinery turnarounds.

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.

This lag normally extends up to six months or longer in unique circumstances, depending on finalization of scopes, contracts, permits, and facility process requirements.

This lag can vary and can extend 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.

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.

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

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

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

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Three Months Ended

September 30, 2024 v 2023

December 31, 2024 v 2023

2024 2023 $ %

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Net loss $ (5,533) $ (2,851) $ (2,682) 94 %

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.

Revenue - The increase in consolidated revenue of $12.1 million, or 7%, was primarily attributable to increased revenue volumes in our Storage and Terminal Solutions and Utility and Power Infrastructure segments, partially offset by reduced revenue volumes in Process and Industrial Facilities.

Gross profit - Gross profit in the second quarter of fiscal 2025 increased $0.3 million, or 3%, compared to the second quarter of fiscal 2024.

Gross margin of 5.8% for the second quarter of fiscal 2025 decreased slightly compared with gross margin of 6.0% for the second quarter of fiscal 2024.

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

Selling, general and administrative expenses - The increase in SG&A expenses of $1.6 million, or 10%, is due to several factors, including an increase in salaries and wages of $0.6 million and an increase in project pursuit costs of $0.6 million, all necessitated to support conversion of backlog to revenue and expected growth of the 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.

In late fiscal 2024, as a result of increasing cash balances, we invested excess cash balances in interest-bearing cash accounts.

Other income - Other income decreased $3.0 million compared to 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.

Additionally, the Company incurred a foreign currency loss of $0.7 million for the three months ended December 31, 2024 compared to a gain of $0.3 million for the three months ended December 31, 2023.

Provision for income taxes - Our effective tax rates for the three months ended December 31, 2024 and December 31, 2023 were (0.3%) and zero, respectively.

The effective tax rates during both periods were impacted by valuation allowances of $1.8 million and $1.2 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.

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.

Currently, we 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 as we generate taxable income.

Results of Operations by Business Segment

Three Months Ended

September 30, 2024 v 2023

December 31, 2024 v 2023

Dollars in thousands 2024 2023 $ %

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Process and Industrial Facilities 30,586 71,305 (40,719) (57) %

Corporate — 1,233 (1,233) (100) %

Total revenue (1)

$ 187,169 $ 175,042 $ 12,127 7 %

(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.

(1) Total revenues are net of inter-segment revenues which are primarily Process and Industrial Facilities and were $0.8 million for the three months ended December 31, 2024.

Gross profit (loss)

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Storage and Terminal Solutions

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;

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

Storage and Terminal Solutions revenues increased by $33.1 million, or 53%, in the three months ended December 31, 2024 compared to the same period last year, driven by an increased volume of work for specialty vessel and LNG storage.

Storage and Terminal Solutions gross profit increased by $5.4 million, or 296%, in the three months ended December 31, 2024 compared to the same period last year.

The segment gross margin was 7.6% for the three months ended December 31, 2024 compared to segment gross margin of 2.9% in the same period last year.

The improved gross margin relative to the prior year period reflects consistent project execution and improved construction overhead cost absorption as a result of higher revenues.

Utility and Power Infrastructure

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.

Utility and Power Infrastructure revenues increased by $20.9 million, or 52%, in the three months ended December 31, 2024 compared to the same period last year.

The increase is primarily attributable to a higher volume of work for LNG peak shaving projects, partially offset by decreases in power delivery work.

Utility and Power Infrastructure gross profit increased by $2.0 million, or 141%, in the three months ended December 31, 2024 compared to the same period last year.

The segment gross margin was 5.6% for the three months ended December 31, 2024 compared to 3.5% in the same period last year, an increase of 2.1% due to an improved mix of work.

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

Process and Industrial Facilities

Process and Industrial Facilities revenues decreased by $40.7 million, or 57%, in the three months ended December 31, 2024 compared to the same period last year.

The decrease is primarily attributable to lower revenue volumes resulting from the completion of a large renewable diesel project, and to lower revenue volumes for thermal vacuum chambers.

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 $6.3 million, or 94%, in the three months ended December 31, 2024 compared to the same period last year.

The segment gross margin was 1.2% for the three months ended December 31, 2024 compared to 9.4% in the same period last year.

Gross margins decreased due to changes in the mix of work, as well as an increase in under-recovery of construction overhead costs due to lower revenues.

Unallocated corporate expenses net to $6.6 million during the three months ended December 31, 2024 compared to $6.5 million in the same period last year.

Six months ended December 31, 2024 Compared to the Six months ended December 31, 2023

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

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

Consolidated Results of Operations

Six Months Ended

December 31, 2024 v 2023

2024 2023 $ %

Revenue $ 352,748 $ 372,701 $ (19,953) (5) %

Cost of revenue 334,043 350,253 (16,210) (5) %

Gross profit 18,705 22,448 (3,743) (17) %

Selling, general and administrative expenses 35,866 32,844 3,022 9 %

Operating loss (17,161) (10,396) (6,765) 65 %

Other income (expense):

Interest expense (234) (644) 410 (64) %

Interest income 3,150 312 2,838 910 %

Other (495) 4,716 (5,211) (110) %

Loss before income tax expense (14,740) (6,012) (8,728) 145 %

Provision for federal, state and foreign income taxes 16 6 10 — %

Net loss $ (14,756) $ (6,018) $ (8,738) 145 %

Revenue - The decrease in overall revenue of $20.0 million, or 5%, was primarily attributable to reduced revenue volumes in our Process and Industrial Facilities segment, partially offset by increases in Storage and Terminal Solutions and Utility and Power Infrastructure.

Gross profit - Gross profit in the first half of fiscal 2025 decreased $3.7 million, or 17%, compared to the first half of fiscal 2024.

Gross margin decreased to 5.3% for the first half of fiscal 2025 compared to 6.0% for the first half of fiscal 2024.

While project execution remained strong, gross margins were negatively impacted by the under-recovery of construction overhead costs, which increased for the first half of fiscal 2025 due to lower revenues.

Selling, general and administrative expenses - The increase in SG&A expenses of $3.0 million, or 9%, is primarily due to several factors including an increase in salaries and wages of $1.6 million and an increase in pursuit costs of $0.6 million, all necessitated to support conversion of backlog to revenue and expected growth of the business.

Interest income - The increase in interest income of $2.8 million is primarily due to an increase in our cash balance.

In late fiscal 2024, as a result of increasing cash balances, we invested excess cash balances in interest-bearing cash accounts.

Other income - Other income decreased $5.2 million in the first half of fiscal 2025 as compared to the first half of fiscal 2024.

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.

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.

Provision for income taxes - Our effective tax rates for the six months ended December 31, 2024 and December 31, 2023 were (0.1%) and zero, respectively.

The effective tax rates during both periods were impacted by valuation allowances of $3.1 million and $1.4 million, respectively, placed on deferred tax assets generated during the quarters.

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

Results of Operations by Business Segment

Six Months Ended

December 31, 2024 v 2023

Dollars in thousands 2024 2023 $ %

Storage and Terminal Solutions $ 173,746 $ 152,504 $ 21,242 14 %

Utility and Power Infrastructure 116,988 72,539 44,449 61 %

Process and Industrial Facilities 62,014 146,425 (84,411) (58) %

Corporate — 1,233 (1,233) (100) %

Total revenue (1)

$ 352,748 $ 372,701 $ (19,953) (5) %

(1) Total revenues are net of inter-segment revenues which are primarily Process and Industrial Facilities and were $1.7 million for the six months ended December 31, 2024.

Gross profit (loss)

Storage and Terminal Solutions $ 11,969 $ 6,790 $ 5,179 76 %

Utility and Power Infrastructure 4,716 5,111 (395) (8) %

Process and Industrial Facilities 2,367 11,749 (9,382) (80) %

Corporate (347) (1,202) 855 (71) %

Total gross profit $ 18,705 $ 22,448 $ (3,743) (17) %

Operating income (loss)

Storage and Terminal Solutions $ 833 $ (2,177) $ 3,010 (138) %

Utility and Power Infrastructure (2,821) 1,585 (4,406) (278) %

Process and Industrial Facilities (1,076) 6,456 (7,532) (117) %

Corporate (14,097) (16,260) 2,163 (13) %

Total Operating Loss $ (17,161) $ (10,396) $ (6,765) 65 %

Storage and Terminal Solutions

Storage and Terminal Solutions revenues increased by $21.2 million, or 14%, in the six months ended December 31, 2024 compared to the same period last year, driven by increased volume of work for specialty vessel and LNG storage, partially offset by decreases in tank repair and maintenance work.

Storage and Terminal Solutions gross profit increased by $5.2 million, or 76%, in the six months ended December 31, 2024 compared to the same period last year.

The segment gross margin was 6.9% for the six months ended December 31, 2024 compared to segment gross margin of 4.5% in the same period last year.

The improved gross margin relative to the prior year period reflects consistent project execution and improved construction overhead cost absorption as a result of higher revenues.

Utility and Power Infrastructure

Utility and Power Infrastructure revenues increased by $44.4 million, or 61%, in the six months ended December 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 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.

Utility and Power Infrastructure gross profit decreased by $0.4 million, or 8%, in the six months ended December 31, 2024 compared to the same period last year.

The segment gross margin was 4.0% for the six months ended December 31, 2024 compared to 7.0% in the same period last year.

The segment gross margin in the current period was impacted by higher levels of under-recovery of construction overhead costs.

Process and Industrial Facilities

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.

Process and Industrial Facilities revenues decreased by $84.4 million, or 58%, in the six months ended December 31, 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, in addition to lower revenue volumes for thermal vacuum chambers.

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.

Process and Industrial gross profit decreased by $9.4 million, or 80%, in the six months ended December 31, 2024 compared to the same period last year.

The segment gross margin was 3.8% for the six months ended December 31, 2024 compared to 8.0% in the same period last year.

The segment gross margin in the current period was impacted by higher levels of under-recovery of construction overhead costs due to lower revenue.

Unallocated corporate revenue and expenses net to $14.1 million during the six months ended December 31, 2024 compared to $16.3 million in the same period last year.

The decrease of $2.2 million was primarily due to reduced legal expenses year over year.

Legal expenses incurred during the first half 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 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.

We assess liquidity based on 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, 2024 were unrestricted cash and cash equivalents on hand, capacity under our ABL Facility, and cash generated from operations.

Our primary operational uses of capital are expenditures required to execute our projects, fund business operations and fulfill our contractual obligations.

We believe that for at least the next 12 months, anticipated cash generated by operating activities, along with our availability under the ABL Facility and cash position, is sufficient to support our operating requirements.

Unrestricted cash and cash equivalents at December 31, 2024 totaled $156.8 million and availability under the ABL Facility totaled $54.9 million, resulting in total liquidity of $211.7 million.

During the second quarter of fiscal 2025, liquidity increased $30.4 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):

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Total Liquidity $ 211,697 $ 181,252 $ 169,603

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

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

Liquidity at September 30, 2024 $ 181,252

Cash provided by operating activities 33,598

Capital expenditures (915)

Proceeds from asset sales 163

Decrease in availability under ABL Facility (1,722)

Cash provided by financing activities 56

Effect of exchange rate changes on cash (735)

Liquidity at December 31, 2024 $ 211,697

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

Liquidity at June 30, 2024 $ 169,603

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Capital expenditures (2,859)

Proceeds from asset sales 163

Increase in availability under ABL Facility 932

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Effect of exchange rate changes on cash (525)

Liquidity at September 30, 2024 $ 181,252

Liquidity at December 31, 2024 $ 211,697

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 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;

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

◦ some cost-plus and fixed-price customer contracts are billed based on milestones which may increase or decrease liquidity in the near term depending on the timing of when we incur significant expenditures and when we collect from our customers;

◦ time and material contracts are normally billed in arrears.

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

• release of contract retentions, and

• capital expenditures.

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ABL Credit Facility

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

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.

We have 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.

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

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

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

The 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.

The Adjusted Term SOFR is defined as (i) the SOFR plus (ii) 11.448 basis points for a one-month tenor and 26.161 basis points for a three-month tenor;

provided that the Adjusted Term SOFR cannot be below zero.

The Base Rate is defined as a fluctuating interest rate equal to the greater of:

(i) rate of interest announced by Bank of Montreal from time to time as its prime rate;

(ii) the U.S.

federal funds rate plus 0.50%;

(iii) Adjusted Term SOFR for one month period plus 1.00%;

or (iv) 1.00%.

Depending on the amount of average availability, the applicable margin is between 1.00% to 1.50% for Base Rate and Canadian Prime Rate borrowings, which includes either U.S.

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.

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 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 September 30, 2024.

The borrowing base is recalculated on a monthly basis and at December 31, 2024, our borrowing base was $59.7 million.

We had no borrowings outstanding and $4.8 million in letters of credit outstanding as of December 31, 2024, which resulted in availability of $54.9 million under the ABL Facility.

For additional information regarding our ABL Facility, see Item I of Part I, "Financial Statements - Note 4 - Debt."

Cash Flows Provided by Operating Activities

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:

Cash provided by operating activities for the six months ended December 31, 2024 totaled $45.5 million.

Major components of cash flows provided by operating activities for the six months ended December 31, 2024 are as follows:

Net Cash Provided by Operating Activities

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Net cash provided by operating activities $ 45,516

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.

Cash effect of changes in operating assets and liabilities at December 31, 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 $18.9 million during the six months ended December 31, 2024, which decreased cash flows from operating activities.

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

• Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") decreased $2.1 million, which increased cash flows from operating activities.

• Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") increased $0.8 million, which decreased cash flows from operating activities.

Billings on uncompleted contracts in excess of costs and estimated earnings ("BIE") increased $66.2 million, which increased cash flows from operating activities.

CIE and BIE balances can experience significant fluctuations based on business volumes and the timing of when job costs are incurred and the timing of customer billings and payments.

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

• Accounts payable increased by $14.5 million during the six months ended December 31, 2024, which increased cash flows from operating activities.

These operating liabilities can fluctuate based on business volumes;

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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 $7.3 million during the three months ended September 30, 2024, which decreased cash flows from operating activities.

• Inventories, income taxes receivable, prepaid expenses, other current assets, operating right-of-use lease assets and other assets, non-current, increased $4.4 million during the six months ended December 31, 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;

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and other timing differences.

• 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.

• Accrued wages and benefits, accrued insurance, operating lease liabilities, other accrued expenses, and other liabilities, non-current decreased by $5.8 million during the six months ended December 31, 2024, which decreased cash flows from operating activities.

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

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Cash Flows Used by Investing Activities

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

Investing activities used $2.7 million of cash in the six months ended December 31, 2024 due to capital expenditures associated with improvements at a fabrication facility in Bakersfield, California that we purchased in fiscal 2024, as well as the purchase of construction equipment to support our projects.

Cash Flows Used by Financing Activities

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.

Financing activities used $1.1 million of cash in the six months ended December 31, 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 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.

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

As of December 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 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.

We had 285,392 treasury shares as of December 31, 2024 and intend to utilize these treasury shares in connection with equity awards under 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