What changed in this filing

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Item 1. Financial Statements

2020-07-31 compared with 2020-05-01 · 231 added, 433 removed, 598 unchanged (53% of the section changed)

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Other non-current

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

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Total liabilities

Stockholders’

Stockholders’ equity:

Preferred stock -- $ 0.01 par value, 10,000,000 authorized, none issued

Common stock -- $ 0.01 par value, 50,000,000 authorized, 31,060,101 and 30,303,395 issued;

29,774,169 and 29,592,164 outstanding at March 31, 2020 and December 31, 2019, respectively

Treasury stock, 711,231 shares, at cost, as of March 31, 2020 and December 31, 2019, respectively

Other comprehensive loss

30,348,870 and 29,592,164 outstanding at June 30, 2020 and December 31, 2019, respectively

Treasury stock, 711,231 shares, at cost, as of June 30, 2020 and December 31, 2019, respectively

Accumulated other comprehensive loss

Additional paid-in capital

Retained loss

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these condensed consolidated financial statements

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(In Thousands, Except Share and Per Share Information)

Three months ended

Three months ended June 30,

Six months ended June 30,

Contract revenues

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Income (loss) before income taxes

Income tax expense

Income tax expense (benefit)

Net income (loss)

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(In Thousands)

Three months ended June 30,

Six months ended June 30,

Net income (loss)

Change in fair value of cash flow hedge, net of tax benefit of $226 and $80 for the three months ended March 31, 2020, and March 31, 2019, respectively.

Change in fair value of cash flow hedge, net of tax expense of $ 9 and tax benefit of $ 217 for the three and six months ended June 30, 2020, respectively and net of tax benefit of $ 145 and $ 225 for the three and six months ended June 30, 2019.

Total comprehensive income (loss)

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and Subsidiaries

Condensed Consolidated Statements of Stockholders’

Condensed Consolidated Statements of Stockholders’ Equity

(In Thousands, Except Share and Per Share Information)

Accumulated Other

Comprehensive

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Balance, March 31, 2020

Stock-based compensation

Issuance of restricted stock

Forfeiture of restricted stock

Purchase of vested stock-based awards

Cash flow hedge

Balance, June 30, 2020

Accumulated Other

Comprehensive

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Balance, March 31, 2019

Stock-based compensation

Issuance of restricted stock

Forfeiture of restricted stock

Cash flow hedge

Balance, June 30, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements

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(in thousands)

Three months ended March 31,

Six months ended June 30,

Cash flows from operating activities:

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Amortization of ROU finance leases

Unamortized debt issuance costs upon debt modification

Amortization of deferred debt issuance costs

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Payments of finance lease liabilities

Purchase of vested stock-based awards

Exercise of stock options

Net cash used in financing activities

Net cash (used in) provided by financing activities

Net change in cash, cash equivalents and restricted cash

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Cash, cash equivalents and restricted cash at end of period

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents and restricted cash shown above

Supplemental disclosures of cash flow information:

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Description of Business

Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the "Company"), provide a broad range of specialty construction services in the infrastructure, industrial, and building sectors of the continental United States, Alaska, Canada and the Caribbean Basin.

The Company’s marine segment services the infrastructure sector through marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services.

Its concrete segment services the building sector by providing turnkey concrete construction services including pour and finish, dirt work, layout, forming, rebar, and mesh across the light commercial, structural and other associated business areas.

The Company is headquartered in Houston, Texas with offices throughout its operating areas.

The tools used by the chief operating decision maker ("CODM") to allocate resources and assess performance are based on two reportable and operating segments:

marine, which operates under the Orion Marine Group brand and logo, and concrete, which operates under the TAS Commercial Concrete brand and logo.

Although we describe the business in this report in terms of the services the Company provides, its base of customers and the areas in which it operates, the Company has determined that its operations currently comprise two reportable segments pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting .

In making this determination, the Company considered the similar economic characteristics of its operations that comprise its marine segment.

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Environmental Protection Agency and U.S.

Occupational Safety and Health Administration ("OSHA"), among others.

Additionally, the segment is driven by macro-economic considerations including the level of import/export seaborne transportation, development of energy-related infrastructure, cruise line expansion and operations, marine bridge infrastructure development, waterway pipeline crossings and the maintenance of waterways.

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The accompanying condensed consolidated financial statements and financial information included herein have been prepared pursuant to the interim period reporting requirements of Form 10-Q.

Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”) have been condensed or omitted.

Readers of this report should also read the Company’s condensed consolidated financial statements and the notes thereto included in its Annual Report on Form 10‑K for the fiscal year ended December 31, 2019 (“2019 Form 10‑K”) as well as Item 7 –

Management’s Discussion and Analysis of Financial Condition and Results of Operations also included in its 2019 Form 10‑K.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented.

Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”) have been condensed or omitted.

Readers of this report should also read the Company’s condensed consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Form 10-K”) as well as Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations also included in its 2019 Form 10-K.

Such adjustments are of a normal recurring nature.

Interim results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation in the Company’s condensed consolidated statement of operations.

As part of the Company’s Invest, Scale and Grow (“ISG”) initiative it realigned its project management personnel within the operating groups for the combined company.

As a result of the realignment, beginning in the second quarter of 2019, the Company has elected to classify certain project management costs in Cost of contract revenue in its Condensed Consolidated Statements of Operations (the “Statements of Operations”) to better represent how those costs are managed and controlled.

For periods reported prior to the second quarter of 2019, certain project management costs were included in Selling, general and administrative (“SG&A”) expenses.

The Company’s SG&A expense for 2019 included project management costs of $1.1 million incurred in the first quarter of 2019.

Interim results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation in the Company’s condensed consolidated statement of operations.

As part of the Company’s Invest, Scale and Grow (“ISG”) initiative it realigned its project management personnel within the operating groups for the combined company.

For periods reported prior to the second quarter of 2019, certain project management costs were included in Selling, general and administrative (“SG&A”) expenses.

The Company’s SG&A expense for 2019 included project management costs of $ 1.1 million incurred in the first quarter of 2019.

Summary of Significant Accounting Policies

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GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Management’s estimates, judgments and assumptions are continually evaluated based on available information and experience;

however, actual amounts could differ from those estimates.

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The Company recognized the cumulative effect of initially adopting Topic 606 guidance as an adjustment to the beginning balance of retained earnings.

Contracts with customers that were not substantially complete in both the Company’s marine and concrete segments were evaluated in order to determine the impact as of the date of adoption.

The Company’s revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services.

The Company’s projects are typically short in duration and usually span a period of less than one year.

Contracts with customers that were not substantially complete in both the Company’s marine and concrete segments were evaluated in order to determine the impact as of the date of adoption.

The Company’s revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services.

The Company’s projects are typically short in duration and usually span a period of less than one year.

The Company determines the appropriate accounting treatment for each contract before work begins and generally records revenue on contracts over time.

Performance obligations are promises in a contract to transfer distinct goods or services to the customer and are the unit of account under Topic 606.

The Company’s contracts and related change orders typically represent a single performance obligation because the Company provides a significant integrated service and individual goods and services are not separately identifiable.

Revenue is recognized over time because control is continuously transferred to the customer.

For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the stand-alone selling price of each distinct good or service.

Progress is measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract.

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Remaining performance obligations represent the transaction price of firm orders or other written contractual commitments from customers for which work has not been performed or is partially completed and excludes unexercised contract options and potential orders.

As of March 31, 2020, the aggregate amount of the remaining performance obligations was approximately $609.5 million.

As of June 30, 2020, the aggregate amount of the remaining performance obligations was approximately $ 528.4 million.

Of this amount, the Company expects to recognize $ 465.4 million, or 88 %, in the next 12 months and the remaining balance thereafter.

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The Company has not historically sustained losses on its cash balances in excess of federally insured limits.

Cash equivalents at March 31, 2020 and December 31, 2019 consisted primarily of overnight bank deposits.

Restricted cash as of March 31, 2020 and December 31, 2019, consisted of $0.9 million and $1.0 million, respectively, of collateral related to a marine project and is classified in current assets.

Cash equivalents at June 30, 2020 and December 31, 2019 consisted primarily of overnight bank deposits.

Restricted cash of $ 1.0 million at December 31, 2019 consisted of collateral related to a marine project that was completed during the quarter ended June 30, 2020.

The Company had no restricted cash as of June 30, 2020.

Risk Concentrations

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The Company depends on its ability to continue to obtain federal, state and local governmental contracts, and indirectly, on the amount of funding available to these agencies for new and current governmental projects.

Therefore, a portion of the Company’s operations is dependent upon the level and timing of government funding.

Statutory mechanics liens provide the Company high priority in the event of lien foreclosures following financial difficulties of private owners, thus minimizing credit risk with private customers.

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Accounts receivable are stated at the historical carrying value, net of allowances for credit losses.

The Company has significant investments in billed and unbilled receivables as of March 31, 2020 and December 31, 2019.

The Company has significant investments in billed and unbilled receivables as of June 30, 2020 and December 31, 2019.

Billed receivables represent amounts billed upon the completion of small contracts and progress billings on large contracts in accordance with contract terms and milestone achievements.

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The Company writes off potentially uncollectible accounts receivable against the allowance for credit losses if it is determined that the amounts will not be collected or if a settlement is reached for an amount that is less than the carrying value.

As of March 31, 2020 and December 31, 2019, the Company has recorded an allowance for credit losses of $3.0 million and $2.6 million, respectively.

As of June 30, 2020 and December 31, 2019, the Company has recorded an allowance for credit losses of $ 3.0 million and $ 2.6 million, respectively.

Balances billed to customers but not paid pursuant to retainage provisions in construction contracts generally become payable upon contract completion and acceptance by the owner.

Retainage at March 31, 2020 totaled $40.1 million, of which $6.0 million is expected to be collected beyond March 31, 2021.

Retainage at June 30, 2020 totaled $ 38.0 million, of which $ 6.0 million is expected to be collected beyond June 30, 2021.

Retainage at December 31, 2019 totaled $ 42.5 million.

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Successful claims negotiations could result in the recovery of previously recorded losses.

Significant losses on receivables could adversely affect the Company’s financial position, results of operations and overall liquidity.

Advertising Costs

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Environmental liabilities, if any, are recognized when the expenditure is considered probable and the amount can be reasonably estimated.

The Company did not recognize any environmental liabilities as of March 31, 2020 or December 31, 2019.

The Company did not recognize any environmental liabilities as of June 30, 2020 or December 31, 2019.

Fair Value Measurements

The Company evaluates and presents certain amounts included in the accompanying condensed consolidated financial statements at “fair value”

in accordance with U.S.

The Company evaluates and presents certain amounts included in the accompanying condensed consolidated financial statements at “fair value” in accordance with U.S.

GAAP, which requires the Company to base its estimates on assumptions that market participants, in an orderly transaction, would use to price an asset or liability, and to establish a hierarchy that prioritizes the information used to determine fair value.

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lower of the carrying amount or the fair value, less the costs to sell, and are no longer depreciated.

There were no assets classified as held for sale as of March 31, 2020 or December 31, 2019.

There were no assets classified as held for sale as of June 30, 2020 or December 31, 2019.

The Company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019, on a prospective basis, forgoing comparative reporting.

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In addition, the Company evaluates the remaining useful life of intangible assets in each reporting period to determine whether events and circumstances warrant a revision of the remaining period of amortization.

If the estimate of an intangible asset’s remaining life is changed, the remaining carrying value of such asset is amortized prospectively over that revised remaining useful life.

Intangible assets that have infinite lives are not amortized but are subject to impairment testing at least annually or more frequently if events or circumstances indicate that the asset may be impaired.

The Company has one infinite-lived intangible asset, a trade name, which is tested for impairment annually on October 31, or whenever events or circumstances indicate that the carrying amount of the trade name may not be recoverable.

Impairment is calculated as the excess of the trade name’s carrying value over its fair value.

The fair value of the trade name is determined using the relief from royalty method, a variation of the income approach.

This method assumes that if a company owns intellectual property, it does not have to “rent”

the asset and is, therefore, “relieved”

from paying a royalty.

This method assumes that if a company owns intellectual property, it does not have to “rent” the asset and is, therefore, “relieved” from paying a royalty.

Once a supportable royalty rate is determined, the rate is then applied to the projected revenues over the expected remaining life of the intangible assets to estimate the royalty savings.

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updated on a periodic basis.

See Note 15 for further discussion of the Company’s stock-based compensation plan.

The Company determines its consolidated income tax provision using the asset and liability method prescribed by U.S.

GAAP, which requires the recognition of income tax expense for the amount of taxes payable or refundable for the current period and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns.

The Company must make significant assumptions, judgments and estimates to determine its current provision for income taxes, its deferred tax assets and liabilities, and any valuation allowance to be recorded against any deferred tax asset.

The current provision for income tax is based upon the current tax laws and the Company’s interpretation of these laws, as well as the probable outcomes of any tax audits.

The value of any net deferred tax asset depends upon estimates of the amount and category of future taxable income reduced by the amount of any tax benefits that the Company does not expect to realize.

Actual operating results and the underlying amount and category of income in future years could render current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate, thus impacting the Company’s financial position and results of operations.

The Company computes deferred income taxes using the liability method.

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The Company maintains insurance coverage for its business and operations.

Insurance related to property, equipment, automobile, general liability, and a portion of workers’

compensation is provided through traditional policies, subject to a deductible or deductibles.

A portion of the Company’s workers’

compensation exposure is covered through a mutual association, which is subject to supplemental calls.

Insurance related to property, equipment, automobile, general liability, and a portion of workers’ compensation is provided through traditional policies, subject to a deductible or deductibles.

A portion of the Company’s workers’ compensation exposure is covered through a mutual association, which is subject to supplemental calls.

The marine segment maintains five levels of excess loss insurance coverage, totaling $ 200 million in excess of primary coverage.

The marine segment’s excess loss coverage responds to all key marine liability policies when a primary limit of $1 million has been exhausted;

provided that the primary limit for Contingent Maritime Employer’s Liability is $10 million and the Watercraft Pollution Policy primary limit is $5 million.

The marine segment’s excess loss coverage responds to all key marine liability policies when a primary limit of $ 1 million has been exhausted;

provided that the primary limit for Contingent Maritime Employer’s Liability is $ 10 million and the Watercraft Pollution Policy primary limit is $ 5 million.

The concrete segment maintains five levels of excess loss insurance coverage, totaling $ 200 million in excess of primary coverage.

The concrete segment’s excess loss coverage responds to most of its policies when a primary limit of $1 million has been exhausted.

The concrete segment’s excess loss coverage responds to most of its policies when a primary limit of $ 1 million has been exhausted.

If a claim arises and a potential insurance recovery is probable, the impending gain is recognized separately from the related loss.

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The Company does not net insurance recoveries against the related claim liability as the amount of the claim liability is determined without consideration of the anticipated insurance recoveries from third parties.

Separately, the Company’s marine segment employee health care is not covered by primary insurance, with claims being paid out of general assets of the Company and the insurance program being currently administered by a third party.

The administrator has purchased appropriate stop-loss coverage.

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Actual claims may vary from estimates.

Any adjustments to such reserves are included in the Condensed Consolidated Results of Operations in the period in which they become known.

The Company’s concrete segment employee health care is provided through two policies.

Any adjustments to such reserves are included in the Condensed Consolidated Statements of Operations in the period in which they become known.

The Company’s concrete segment employee health care is provided through two policies.

A fully funded policy is offered primarily to salaried employees and their dependents while a partially self-funded plan with an appropriate stop-loss is offered primarily to hourly employees and their dependents.

The self-funded plan is funded to the maximum exposure and, as a result, is expected to receive a partial refund after the policy expiration.

The accrued liability for insurance includes incurred but not reported claims of $3.1 million and $3.7 million at March 31, 2020 and December 31, 2019, respectively.

The total liability for insurance includes incurred but not reported claims of $ 3.2 million and $ 3.7 million at June 30, 2020 and December 31, 2019, respectively.

Accounting Standards Adopted in 2020

The Financial Accounting Standards Board (“FASB”) issues accounting standards and updates (each, an "ASU") from time to time to its Accounting Standards Codification (‘ASC’), which is the primary source of U.S.

The Company regularly monitors ASUs as they are issued and considers applicability to its business.

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The Company adopted the new standard on January 1, 2020.

For the Company’s trade receivables, certain other receivables and certain other financial instruments, the Company is required to use a new forward-looking “expected”

credit loss model based on historical loss rates that replaced the prior “incurred”

credit loss model, which generally results in earlier recognition of allowances for credit losses.

For the Company’s trade receivables, certain other receivables and certain other financial instruments, the Company is required to use a new forward-looking “expected” credit loss model based on historical loss rates that replaced the prior “incurred” credit loss model, which generally results in earlier recognition of allowances for credit losses.

Adoption of the standard resulted in no adjustment for credit losses as the impact was immaterial;

however, subsequently primarily as a result of the COVID-19 pandemic additional bad debt expense of approximately $0.4 million was recorded as of March 31, 2020.

Contract revenues are recognized when ownership of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The following table represents a disaggregation of the Company’s contract revenues by service line for the marine and concrete segments:

Three months ended March 31,

however, subsequently primarily as a result of the COVID-19 pandemic additional bad debt expense of approximately $ 0.4 million was recorded as of June 30, 2020.

Contract revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The following table represents a disaggregation of the Company’s contract revenues by service line for the marine and concrete segments:

Three months ended June 30,

Six months ended June 30,

Marine Segment

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Additionally, as discussed, both the marine and concrete segments have a limited number of contracts with multiple performance obligations.

The Company’s contracts often combine multiple services, such as engineering, dredging, diving and construction, into one distinct finished product that is transferred to the customer.

These contracts are often estimated and bid as one project and evaluated as to performance as one project, not by individual services performed under such contracts.

Both the marine and concrete segments have a single chief operating decision maker (“CODM”) for the entire segment, not the service lines of the segments.

Resources are allocated by segment and financial and budgetary information is compiled and reviewed by segment, not service line.

Both the marine and concrete segments have a single chief operating decision maker (“CODM”) for the entire segment, not the service lines of the segments.

Resources are allocated by segment and financial and budgetary information is compiled and reviewed by segment, not by service line.

Marine Segment

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Other services comprise labor related to concrete pouring such as rebar

installation and pumping services and typically support the Company’s structural and light commercial services.

Concentration of Risk and Enterprise Wide Disclosures

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Balances billed to customers but not paid pursuant to retainage provisions generally become payable upon contract completion and acceptance by the owner.

The table below presents the concentrations of current receivables (trade and retainage) at March 31, 2020 and December 31, 2019, respectively:

March 31, 2020

The table below presents the concentrations of current receivables (trade and retainage) at June 30, 2020 and December 31, 2019, respectively:

June 30, 2020

December 31, 2019

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Net receivables

At March 31, 2020 two customers in the Private Companies category accounted for 22.3% of total current receivables.

At June 30, 2020 one customer in the Private Companies category accounted for 10.3 % of total current receivables.

At December 31, 2019, no single customer accounted for more than 10.0% of total current receivables.

Additionally, the table below represents concentrations of contract revenue by type of customer for the three months ended March 31, 2020 and 2019, respectively:

Three months ended March 31,

Additionally, the table below represents concentrations of contract revenue by type of customer for the three and six months ended June 30, 2020 and 2019, respectively:

Three months ended June 30,

Six months ended June 30,

Federal Government

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Total contract revenues

In the three months ended March 31, 2020 and 2019, no single customer exceeded 10.0% of total contract revenues.

In the three months ended June 30, 2020, one customer in the Local Governments category accounted for 10.1 % of total contract revenues.

In the three months ended June 30, 2019, one customer in the Local Governments category accounted for 14.1 %.

In the six months ended June 30, 2020, no single customer accounted for more than 10% of total contract revenues.

In the six months ended June 30, 2019, one customer in the Local Governments category accounted for 11.4 % of total contract revenues.

The Company does not believe that the loss of any one of its customers would have a material adverse effect on the Company or its subsidiaries and affiliates since no single specific customer sustains such a large portion of receivables or contract revenue over time.

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The loss of any one of these suppliers could adversely impact short-term operations.

Contract revenues generated outside the United States totaled 2.4% and 0.4% of total revenues for the three months ended March 31, 2020 and 2019, respectively, and were primarily located in the Caribbean Basin and Mexico.

Contract revenues generated outside the United States totaled 2.1 % and 1.4 % of total revenues for the three months ended June 30, 2020 and 2019, respectively, and 2.3 % and 0.9 % for the six months ended June 30, 2020 and 2019, respectively, and were primarily located in the Caribbean Basin and Mexico.

Contracts in Progress

Contracts in progress are as follows at March 31, 2020 and December 31, 2019:

Contracts in progress are as follows at June 30, 2020 and December 31, 2019:

Costs incurred on uncompleted contracts

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Billings to date

Included in the accompanying Condensed Consolidated Balance Sheet under the following captions:

( 1,180,648 )

( 1,035,796 )

Included in the accompanying Condensed Consolidated Balance Sheets under the following captions:

Costs and estimated earnings in excess of billings on uncompleted contracts

Billings in excess of costs and estimated earnings on uncompleted contracts

Included in cost and estimated earnings in excess of billings on uncompleted projects is approximately $0.2 million and $0.1 million at March 31, 2020 and December 31, 2019, respectively, related to claims and unapproved change orders.

See Note 2 - Summary of Significant Accounting Policies to the Company’s condensed consolidated financial statements for discussion of the accounting for these claims.

Included in cost and estimated earnings in excess of billings on uncompleted projects is approximately $ 1.7 million and $ 0.1 million at June 30, 2020 and December 31, 2019, respectively, related to claims and unapproved change orders.

See Note 2 - Summary of Significant Accounting Policies to the Company’s condensed consolidated financial statements for discussion of the accounting for these claims.

Contract costs include all direct costs, such as materials and labor, and those indirect costs incurred that are related to contract performance such as payroll taxes and insurance.

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Property and Equipment

The following is a summary of property and equipment at March 31, 2020 and December 31, 2019:

The following is a summary of property and equipment at June 30, 2020 and December 31, 2019:

Automobiles and trucks

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Construction in progress

For the three months ended March 31, 2020 and 2019, depreciation expense was $5.7 million and $5.8 million, respectively.

Substantially all depreciation expense is included in the cost of contract revenue in the Company’s Condensed Consolidated Statements of Operations.

Substantially all of the assets of the Company are pledged as collateral under the Company’s Credit Agreement (as defined in Note 11 ).

Substantially all of the Company’s long-lived assets are located in the United States.

See Note 2 to the Company’s condensed consolidated financial statements for further discussion of property and equipment.

Current inventory at both March 31, 2020 and December 31, 2019 of $1.2 million and $1.1 million, respectively, consisted primarily of spare parts and small equipment held for use in the ordinary course of business.

Non-current inventory at March 31, 2020 and December 31, 2019 totaled $7.1 million and $7.0 million, respectively, and consisted primarily of spare engine components or items which require longer lead times for sourcing or fabrication for certain of the Company’s assets to reduce equipment downtime.

For the three months ended June 30, 2020 and 2019, depreciation expense was $ 5.6 million and $ 6.0 million, respectively.

For the six months ended June 30, 2020 and 2019, depreciation expense was $ 11.3 million and $ 11.8 million, respectively.

Substantially all depreciation expense is included in the cost of contract revenue in the Company’s Condensed Consolidated Statements of Operations.

Substantially all of the assets of the Company are pledged as collateral under the Company’s Credit Agreement (as defined in Note 11 ).

Substantially all of the Company’s long-lived assets are located in the United States.

See Note 2 to the Company’s condensed consolidated financial statements for further discussion of property and equipment.

Current inventory at both June 30, 2020 and December 31, 2019 of $ 2.0 million and $ 1.1 million, respectively, consisted primarily of spare parts and small equipment held for use in the ordinary course of business.

Non-current inventory at June 30, 2020 and December 31, 2019 totaled $ 6.4 million and $ 7.0 million, respectively, and consisted primarily of spare engine components or items which require longer lead times for sourcing or fabrication for certain of the Company’s assets to reduce equipment downtime.

Recurring Fair Value Measurements

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Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The Company’s assessment of the significance of a particular input to the fair value requires judgment and may affect the placement of assets and liabilities within the fair value hierarchy levels.

The following table sets forth by level within the fair value hierarchy the Company’s recurring financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:

The Company’s assessment of the significance of a particular input to the fair value requires judgment and may affect the placement of assets and liabilities within the fair value hierarchy levels.

Fair Value Measurements

Carrying Value

March 31, 2020

June 30, 2020

Cash surrender value of life insurance policy

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Cash surrender value of life insurance policy

The Company’s derivatives, which are comprised of interest rate swaps, are valued using a discounted cash flow analysis that incorporates observable market parameters, such as interest rate yield curves and credit risk adjustments, that are necessary to reflect the probability of default by us or the counterparty.

The Company’s derivatives, which are comprised of interest rate swaps, are valued using a discounted cash flow analysis that incorporates observable market parameters, such as interest rate yield curves and credit risk adjustments that are necessary to reflect the probability of default by us or the counterparty.

These derivatives are classified as a Level 2 measurement within the fair value hierarchy.

See Note 11 for additional information on the Company’s derivative instrument.

Our concrete segment has life insurance policies with a combined face value of $11.1 million as of March 31, 2020.

See Note 11 for additional information on the Company’s derivative instrument.

Our concrete segment has life insurance policies with a combined face value of $ 11.1 million as of June 30, 2020.

The policies are invested in mutual funds and the fair value measurement of the cash surrender balance associated with these policies is determined using Level 2 inputs within the fair value hierarchy and will vary with investment performance.

These assets are included in the "Other noncurrent" asset section in the Company’s Condensed Consolidated Balance Sheets.

These assets are included in the "Other noncurrent"

asset section in the Company’s Condensed Consolidated Balance Sheets.

Non-Recurring Fair Value Measurements

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Other Fair Value Measurements

The fair value of the Company’s debt at March 31, 2020 and December 31, 2019 approximated its carrying value of $71.5 million and $73.3 million, respectively, as interest is based on current market interest rates for debt with similar risk and maturity.

If the Company’s debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy.

The fair value of the Company’s debt at June 30, 2020 and December 31, 2019 approximated its carrying value of $ 53.8 million and $ 73.3 million, respectively, as interest is based on current market interest rates for debt with similar risk and maturity.

If the Company’s debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy.

Goodwill and Intangible Assets

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Customer relationships were valued at approximately $ 18.8 million and are being amortized over eight years using an accelerated method based on the pattern in which the economic benefits of the assets are consumed.

For the three months ended March 31, 2020, $0.5 million of amortization expense was recognized for these assets.

For the six months ended June 30, 2020, $ 1.0 million of amortization expense was recognized for these assets.

Future expense remaining of approximately $ 4.2 million will be amortized as follows:

Additionally, the Company has one indefinite-lived intangible asset, a trade name, which is tested for impairment annually on October 31, or whenever events or circumstances indicate that the carrying amount of the trade name may not be recoverable.

Impairment is calculated as the excess of the trade name’s carrying

value over its fair value.

The fair value of the trade name is determined using the relief from royalty method, a variation of the income approach.

This method assumes that if a company owns intellectual property it does not have to "rent" the asset and is, therefore, "relieved" from paying a royalty.

This method assumes that if a company owns intellectual property it does not have to "rent"

the asset and is, therefore, "relieved"

from paying a royalty.

Once a supportable royalty rate is determined, the rate is then applied to the projected revenues over the expected remaining life of the intangible assets to estimate the royalty savings.

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Accrued Liabilities

Accrued liabilities at March 31, 2020 and December 31, 2019 consisted of the following:

March 31, 2020

Accrued liabilities at June 30, 2020 and December 31, 2019 consisted of the following:

June 30, 2020

December 31, 2019

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Long-term Debt and Line of Credit

The Company entered into an amended syndicated credit agreement (the “Credit Agreement”

also known as the “Fourth Amendment”) on July 31, 2018 with Regions Bank, as administrative agent and collateral agent, and the following co-syndication agents:

The Company entered into an amended syndicated credit agreement (the “Credit Agreement” also known as the “Fourth Amendment”) on July 31, 2018 with Regions Bank, as administrative agent and collateral agent, and the following co-syndication agents:

Bank of America, N.A., BOKF, NA dba Bank of Texas, KeyBank National Association, NBH Bank, IBERIABANK, Trustmark National Bank, First Tennessee Bank NA, and Branch Banking and Trust Company.

The Credit Agreement, which may be amended from time to time, provides for borrowings under a revolving line of credit and a term loan (together, the “Credit Facility”).

The Credit Facility matures on July 31, 2023.

The Credit Agreement, which may be amended from time to time, provides for borrowings under a revolving line of credit and a term loan (together, the “Credit Facility”).

The Credit Facility is guaranteed by the subsidiaries of the Company, secured by the assets of the Company, including stock held in its subsidiaries, and may be used to finance general corporate and working capital purposes, to finance capital expenditures, to refinance existing indebtedness, to finance permitted acquisitions and associated fees, and to pay for all related expenses to the Credit Facility.

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Amounts repaid under the revolving line of credit may be re-borrowed.

The Credit Facility matures on July 31, 2023.

Total debt issuance costs for the Fourth Amendment, which included underwriter fees, legal fees and syndication fees were approximately $ 0.9 million and were capitalized as non-current deferred charges and amortized using the effective interest rate method over the duration of the loan.

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The remaining debt issuance costs of approximately $ 0.9 million related to the Fourth, Fifth, and Sixth Amendments will be amortized over the duration of the loan.

The quarterly weighted average interest rate for the Credit Facility as of March 31, 2020 was 4.44%.

The Company’s obligations under debt arrangements consisted of the following:

March 31, 2020

The Company entered into a new syndicated credit agreement (the “364-Day Revolving Credit Facility”) on June 8, 2020 with Regions Bank, as administrative agent and collateral agent, and the following co-syndication agents:

Bank of America, N.A.

and BOKF, NA dba Bank of Texas.

Concurrent with this the Company executed an amendment to the Credit Agreement with its existing lenders (“also known as the “Seventh Amendment”) for the sole intent and outcome of executing the 364-Day Revolving Credit Facility.

The 364-Day Revolving Credit Facility, which may be amended from time to time, provides for borrowings under a new revolving line of credit (the “364-Day Revolving Loan”).

The 364-Day Revolving Credit Facility is guaranteed by the subsidiaries of the Company, secured by the assets of the Company, including stock held in its subsidiaries, and may be used to finance general corporate and working capital purposes, to finance Permitted Acquisitions, and to pay transaction fees, costs and expenses related to the consummation of the Seventh Amendment.

Interest is due and is computed based on the designation of the loan, with the option of a Base Rate Loan (the base rate plus the Applicable Margin), or an Adjusted LIBOR Rate Loan (the adjusted LIBOR rate plus the Applicable Margin).

Interest is due on the last day of each quarter end for Base Rate Loans and at the end of the LIBOR rate period for Adjusted LIBOR Rate Loans.

Principal balances drawn under the 364- Day Revolving Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty.

Amounts repaid under a 364-Day Revolving Loan may be re-borrowed.

The 364-Day Revolving Credit Facility matures on June 7, 2021.

Total debt issuance costs for the 364-Day Revolving Credit Facility, which included underwriter fees, legal fees and syndication fees were approximately $ 0.4 million and were capitalized as current deferred charges and will be amortized over the duration of the loan.

The quarterly weighted average interest rate for the Credit Facility as of June 30, 2020 was 3.15 %.

The Company’s obligations under debt arrangements consisted of the following:

June 30, 2020

December 31, 2019

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Total long-term debt

Total debt issuance costs include underwriter fees, legal fees and syndication fees and fees related to the execution of the Fourth, Fifth, and Sixth Amendments to the Credit Agreement.

Provisions of the revolving line of credit and accordion

(1) Total debt issuance costs include underwriter fees, legal fees and syndication fees and fees related to the execution of the Fourth, Fifth, Sixth and Seventh Amendments to the Credit Agreement.

Provisions of the revolving line of credit

The Company has a maximum borrowing availability under the revolving line of credit and swingline loans (as defined in the Credit Agreement) of $ 50.0 million.

There is a letter of credit sublimit that is equal to the lesser of $20.0 million and the aggregate unused amount of the revolving commitments then in effect.

There is a letter of credit sublimit that is equal to the lesser

of $ 20.0 million and the aggregate unused amount of the revolving commitments then in effect.

There is also a swingline sublimit equal to the lesser of $ 5.0 million and the aggregate unused amount of the revolving commitments then in effect.

Revolving loans may be designated as Base Rate Loan or Adjusted LIBOR Rate Loans, at the Company’s request, and must be drawn in an aggregate minimum amount of $1.0 million and integral multiples of $250,000 in excess of that amount.

Revolving loans may be designated as Base Rate Loan or Adjusted LIBOR Rate Loans, at the Company’s request, and must be drawn in an aggregate minimum amount of $ 1.0 million and integral multiples of $ 250,000 in excess of that amount.

Swingline loans must be drawn in an aggregate minimum amount of $ 250,000 and integral multiples of $ 50,000 in excess of that amount.

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The maturity date for amounts drawn under the revolving line of credit is the earlier of the Facility termination date of July 31, 2023, or the date the outstanding balance is permanently reduced to zero.

Prior to the fourth quarter of 2018, the Company classified amounts drawn as current liabilities based on an intent and ability to

repay the amounts using current assets within the next twelve months.

Prior to the fourth quarter of 2018, the Company classified amounts drawn as current liabilities based on an intent and ability to repay the amounts using current assets within the next twelve months.

During the fourth quarter of 2018, the Company determined it no longer has the intent to repay amounts drawn within the next twelve months.

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Therefore, the Company has classified the entire outstanding balance of the revolving line of credit as non-current.

As of March 31, 2020, the outstanding balance for all borrowings under the revolving line of credit was $35.0 million, designated as an Adjusted LIBOR Rate Loan at a weighted average rate of 3.56%.

There were also $2.1 million in outstanding letters of credit as of March 31, 2020, which reduced the maximum borrowing availability on the revolving line of credit to $12.9 million as of March 31, 2020.

During the three months ended March 31, 2020, the Company drew down $5.0 million for general corporate purposes and made payments of $6.0 million on the revolving line of credit which resulted in a net decrease of $1.0 million.

As of June 30, 2020, the outstanding balance for all borrowings under the revolving line of credit was $ 18.0 million, designated as an Adjusted LIBOR Rate Loan at a weighted average rate of 2.69 %.

There were also $ 2.1 million in outstanding letters of credit as of June 30, 2020, which reduced the maximum borrowing availability on the revolving line of credit to $ 29.9 million as of June 30, 2020.

During the six months ended June 30, 2020, the Company drew down $ 5.0 million for general corporate purposes and made payments of $ 23.0 million on the revolving line of credit which resulted in a net decrease of $ 18.0 million.

Provisions of the 364-day revolving loan

The Company has a maximum borrowing availability under the 364-day revolving loan of $ 20.0 million.

The 364-day revolving loans may be designated as Base Rate Loan or Adjusted LIBOR Rate Loans, at the Company’s request, and must be drawn in an aggregate minimum amount of $ 1.0 million and integral multiples of $ 250,000 in excess of that amount.

The Company may convert, change, or modify rate designations from time to time.

The Company is subject to a commitment fee for the unused portion of the maximum borrowing availability under the 364-day revolving line of credit.

The commitment fee, which is due quarterly in arrears, is equal to the Applicable Margin of the actual daily amount by which the Aggregate Revolving Commitments exceeds the Total Revolving Outstanding.

The revolving line of credit termination date is the earlier of the Credit Facility termination date, June 7, 2021, or the date the outstanding balance is permanently reduced to zero, in accordance with the terms of the 364-Day Revolving Credit Facility.

As of June 30, 2020, there were no outstanding balances for borrowings under the 364-day revolving line of credit with $ 20.0 million of availability.

Provisions of the term loan

The original principal amount of $ 60.0 million for the term loan commitment is paid off in quarterly installment payments (as stated in the Credit Agreement).

At March 31, 2020, the outstanding term loan component of the Credit Facility totaled $36.5 million and was secured by specific assets of the Company.

At June 30, 2020, the outstanding term loan component of the Credit Facility totaled $ 35.8 million and was secured by specific assets of the Company.

The table below outlines the total remaining payment amounts annually for the term loan through maturity of the Credit Facility:

During the three months ended March 31, 2020 the Company made the scheduled quarterly principal payment of $0.8 million.

During the six months ended June 30, 2020 the Company made the scheduled quarterly principal payments of $ 1.5 million.

The current portion of debt is $ 4.5 million, and the non-current portion is $ 31.3 million.

As of March 31, 2020, the term loan was designated as an Adjusted LIBOR Rate Loan with an interest rate of 3.75%.

As of June 30, 2020, the term loan was designated as an Adjusted LIBOR Rate Loan with an interest rate of 2.69 %.

Financial covenants

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The Company believes that its cash position and available borrowings together with cash flow from its operations is adequate for general business requirements and to service its debt.

The Company was in compliance with all financial covenants as of March 31, 2020.

The Company was in compliance with all financial covenants as of June 30, 2020.

Derivative Financial Instruments

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The sixth swap is scheduled to expire on July 31, 2023.

At inception, these interest rate swaps were designated as cash flow hedges for hedge accounting, and as such, the effective portion of unrealized changes in market value are recorded in accumulated other comprehensive income (loss) and reclassified into earnings during the period in which the hedged forecasted transaction affects earnings.

At inception, these interest rate swaps were designated as cash flow hedges for hedge accounting, and as such, the effective portion of unrealized changes in market value are recorded in other comprehensive income (loss) and reclassified into earnings during the period in which the hedged forecasted transaction affects earnings.

Gains and losses from hedge ineffectiveness are recognized in current earnings.

The change in fair market value of the swaps for the comparative periods ended March 31, 2020 and March 31, 2019, as reflected in other comprehensive loss in the Condensed Consolidated Statements of Stockholders’

Equity, is approximately $1.0 million and $0.3 million.

The fair market value of the swaps as of March 31, 2020 is reflected as a liability of $2.0 million on the Condensed Consolidated Balance Sheets.

See Note 8 for more information regarding the fair value of the Company’s derivative instruments.

The change in fair market value of the swaps for the comparative periods ended June 30, 2020 and June 30, 2019, as reflected in accumulated other comprehensive loss in the Condensed Consolidated Statements of Stockholders’ Equity, is approximately $ 0.9 million and $ 1.0 million.

The fair market value of the swaps as of June 30, 2020 is reflected as a liability of $ 2.0 million on the Condensed Consolidated Balance Sheets.

See Note 8 for more information regarding the fair value of the Company’s derivative instruments.

Other Long-Term Liabilities

Other long-term liabilities at March 31, 2020 and December 31, 2019 consisted of the following:

March 31,2020

Other long-term liabilities at June 30, 2020 and December 31, 2019 consisted of the following:

June 30, 2020

December 31, 2019

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Sale-Leaseback Arrangement

On September 27, 2019, the Company entered into a purchase and sale agreement (the “Purchase and Sale Agreement”).

Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its 17300 & 17140 Market Street location in Channelview, Texas (the “Property”) for a purchase price of $19.1 million.

Concurrent with the sale of the Property, the Company entered into a fifteen-year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of approximately $1.5 million, subject to annual rent increases of 2.0%.

On September 27, 2019, the Company entered into a purchase and sale agreement (the “Purchase and Sale Agreement”).

Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its 17300 & 17140 Market Street location in Channelview, Texas (the “Property”) for a purchase price of $ 19.1 million.

Concurrent with the sale of the Property, the Company entered into a fifteen year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of approximately $ 1.5 million, subject to annual rent increases of 2.0 % .

Under the Lease Agreement, the Company has two consecutive options to extend the term of the Lease by ten years for each such option.

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The Company recorded a liability for the amounts received, will continue to depreciate the non-land portion of the asset, and has imputed an interest rate so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the initial lease term.

Concurrently with the sale, the Company paid $18.2 million towards the Term loan portion of the Company’s Credit Facility, consistent with terms of the Sixth Amendment.

The Company’s effective tax rate is based on expected income, statutory rates and tax planning opportunities available to it.

Concurrently with the sale, the Company paid $ 18.2 million towards the Term loan portion of the Company’s Credit Facility, consistent with terms of the Sixth Amendment.

The Company’s effective tax rate is based on expected income, statutory rates and tax planning opportunities available to it.

For interim financial reporting, the Company estimates its annual tax rate based on projected taxable income (loss) for the full year and records a quarterly tax provision in accordance with the anticipated annual rate.

Income tax expense included in the Company’s accompanying Condensed Consolidated Statements of Operations was as follows (in thousands, except percentages):

Three months ended

Six months ended

Income tax expense (benefit)

Effective tax rate

The effective rate for the three months ended March 31, 2020 differed from the Company’s statutory federal rate of 21% primarily due to movement in the valuation allowance to offset foreign tax credits and net operating loss carryforwards, foreign taxes, state income taxes and the non-deductibility of certain permanent items.

The effective rate for the three and six months ended June 30, 2020 differed from the Company’s statutory federal rate of 21 % primarily due to movement in the valuation allowance to offset foreign tax credits and net operating loss carryforwards, foreign taxes, state income taxes and the non-deductibility of certain permanent items.

During the year ended December 31, 2019 the Company assessed the realizability of its deferred tax assets and determined that it was more likely than not that some portion or all the deferred tax assets would not be realized and therefore recorded a valuation allowance on the net deferred tax assets.

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The Company considers the scheduled reversal of deferred tax liabilities, available carryback periods, and tax-planning strategies in making this assessment.

For the period ended September 30, 2019 the Company evaluated all positive and negative evidence in determining the amount of deferred tax assets more likely than not to be realized.

Based on the review of available evidence, Management believes that a valuation allowance on the net deferred tax assets at March 31, 2020 remains appropriate.

The Company does not expect that unrecognized tax benefits as of March 31, 2020 for certain federal income tax matters will significantly change due to any settlement and/or expiration of statutes of limitations over the next 12 months.

For the period ended June 30, 2020 the Company evaluated all positive and negative evidence in determining the amount of deferred tax assets more likely than not to be realized.

Based on the review of available evidence, Management believes that a valuation allowance on the net deferred tax assets at June 30, 2020 remains appropriate.

The Company does not expect that unrecognized tax benefits as of June 30, 2020 for certain federal income tax matters will significantly change due to any settlement and/or expiration of statutes of limitations over the next 12 months.

The final outcome of these tax positions is not yet determinable.

The Company’s uncertain tax benefits, if recognized, would affect the Company’s effective tax rate.

Earnings (Loss) Per Share

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Diluted earnings (loss) per share is based on the weighted average number of common shares outstanding as well as the effect of all dilutive common stock equivalents during each period net income is generated.

For the three months ended March 31, 2020 and 2019, the Company had 1,458,225 and 1,748,489 securities, respectively, that were potentially dilutive in earnings per share calculations.

For the three months ended June 30, 2020 and 2019, the Company had 1,117,301 and 1,651,916 securities, respectively, that were potentially dilutive in earnings per share calculations.

For the six months ended June 30, 2020 and 2019, the Company had 1,287,763 and 1,699,936 securities, respectively, that were potentially dilutive in earnings per share calculations.

Such dilution is dependent on the excess of the market price of our stock over the exercise price and other components of the treasury stock method.

The exercise price for certain stock options awarded by the Company exceeded the average market price of the Company’s common stock for the three months ended March 31, 2020 and 2019.

The exercise price for certain stock options awarded by the Company exceeded the average market price of the Company’s common stock for the three and six months ended June 30, 2020 and 2019.

Such stock options are antidilutive and are not included in the computation of earnings (loss) per share for those periods.

The following table reconciles the denominators used in the computations of both basic and diluted earnings (loss) per share:

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Weighted average shares outstanding

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Stock-Based Compensation

The Compensation Committee of the Company’s Board of Directors is responsible for the administration of the Company’s stock incentive plans, which include the balance of shares remaining under the 2011 Long Term Incentive Plan (the "2011 LTIP") and 2017 Long Term Incentive Plan (the "2017 LTIP"), which was approved by shareholders in May 2017 and authorized the maximum aggregate number of shares to be issued of 2,400,000.

In general, the Company’s 2017 LTIP provides for grants of restricted stock and stock options to be issued with a per-share price equal to the fair market value of a share of common stock on the date of grant.

Option terms are specified at each grant date but generally are 10 years from the date of issuance.

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The Company applies a 3.2 % and a 5.5 % forfeiture rate, which is compounded over the vesting terms of the individual award, to its restricted stock and option grants, respectively, based on historical analysis.

In the three months ended March 31, 2020 and 2019, compensation expense related to stock-based awards outstanding was $0.5 million and $0.7 million, respectively.

In the three months ended June 30, 2020 and 2019, compensation expense related to stock-based awards outstanding was $ 1.1 million for both periods.

In the six months ended June 30, 2020 and 2019, compensation related to stock based awards outstanding was $ 1.6 million and $ 1.7 million, respectively.

In the three and six months ended June 30, 2020, expense related to the purchase of vested stock-based awards for certain officers and directors of the Company was less than $ 0.1 million.

In February 2020, the Company granted an executive of the Company 15,121 shares of restricted common stock, which vested immediately on the date of grant.

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In March 2020, certain officers and executives of the Company were awarded 170,235 shares with a vesting period of three years and a fair value of $ 3.73 per share.

In the three months ended March 31, 2020, there were no options exercised.

In the three months ended March 31, 2019, 7,021 options were exercised, generating proceeds to the Company of less than $0.1 million.

At March 31, 2020, total unrecognized compensation expense related to unvested stock and options was approximately $2.2 million, which is expected to be recognized over a period of approximately two years.

In May 2020, independent directors as well as certain officers and executives of the Company were awarded 638,938 shares of restricted common stock.

The total number included 238,938 shares, which were awarded to the independent directors and vested immediately on the date of the grant, as well as 300,000 shares of performance-based stock awarded to certain executives.

The performance-based stock will potentially vest 50 % if the target is met, with 25 % each vesting on the second and third anniversary of the grant, with 100 % of the shares to be earned based on the achievement of an objective, tiered return on invested capital, measured over a one-year performance period.

The Company evaluates the probability of achieving this each reporting period.

The fair value of all shares awarded on the date of the grant was $ 2.26 per share.

In the three and six months ended June 30, 2020, there were no options exercised.

In the three months ended June 30, 2019, there were no options exercised.

In the six months ended June 30, 2019, 7,021 options were exercised, generating proceeds to the Company of less than $ 0.1 million.

At June 30, 2020, total unrecognized compensation expense related to unvested stock and options was approximately $ 2.8 million, which is expected to be recognized over a period of approximately two years .

Commitments and Contingencies

The Company and one former and two current officers are named defendants in a class action lawsuit filed on April 11, 2019 in the United States District Court for the Southern District of Texas, Houston Division, seeking unstated compensatory damages under the federal securities laws allegedly arising from materially false and misleading statements during the period of March 13, 2018 to March 18, 2019.

The complaint asserts, among other things, that the current and former officers caused the Company to overstate goodwill in certain periods;

The Company and one former and two current officers were named defendants in a class action lawsuit filed on April 11, 2019 in the United States District Court for the Southern District of Texas, Houston Division, seeking unstated compensatory damages under the federal securities laws allegedly arising from materially false and misleading statements during the period of March 13, 2018 to March 18, 2019.

The complaint asserted, among other things, that the current and former officers caused the Company to overstate goodwill in certain periods;

overstate accounts receivable;

that the company lacked effective internal controls over financial reporting related to goodwill impairment testing and accounts receivable;

and that as a result certain adjustments to goodwill and accounts receivable materially impacted the company’s financial statements, which in turn caused the company’s stock price to be artificially inflated during the class period.

The Company has responded to the complaint, considers all of these allegations without merit and is vigorously contesting the allegations.

The District Court granted the Company’s Motion to Dismiss the Complaint on June 29, 2020 and the ruling became final on July 20, 2020 after no appeal was filed.

In addition, from time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business.

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The Company does not believe any of these or any other proceedings, individually or in the aggregate, would be expected to have a material adverse effect on results of operations, cash flows, or financial condition

A legal matter was settled in the Company’s favor for $5.5 million during the first quarter of 2018.

A legal matter was settled in the Company’s favor for $ 5.5 million during the first quarter of 2018.

Settlement amounts were recorded in Other gain from continuing operations in the Condensed Consolidated Statement of Operations, Prepaid expenses and other (current portion of the notes receivable) and Other non-current assets (non-current portion of the notes receivable) in the Condensed Consolidated Balance Sheets.

As of March 31, 2020, the current portion of the notes receivable was $0.8 million and the non-current portion was $2.3 million, net of $0.3 million of unamortized discount.

As of June 30, 2020, the current portion of the notes receivable was $ 0.8 million and the non-current portion was $ 2.1 million, net of $ 0.3 million of unamortized discount.

Legal fees related to this matter were expensed as incurred during the respective reporting period.

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marine and concrete.

The Company’s financial reporting systems present various data for management to run the business, including profit and loss statements

prepared according to the segments presented.

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Three months ended

Six months ended

Contract revenues

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Contract revenues

Operating income

Operating (loss) income

Depreciation and amortization expense

Property, plant and equipment, net

There were $2.3 million and less than $0.1 million in intersegment revenues between the Company’s two reportable segments for the three months ended March 31, 2020 and 2019, respectively.

The marine segment had foreign revenues of $4.0 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively.

There were $ 0.4 million and $ 2.7 million in intersegment revenues between the Company’s two reportable segments for the three and six months ended June 30, 2020, respectively.

There were $ 0.2 million and $ 0.1 million in intersegment revenues between the Company’s two reportable segments for the three and six months ended June 30, 2019, respectively.

The marine segment had foreign revenues of $ 3.9 million and $ 2.4 million for the three months ended June 30, 2020 and 2019, respectively, and $ 7.9 million and $ 2.9 million for the six months ended June 30, 2020 and 2019, respectively.

These revenues are derived from projects in the Caribbean Basin and Mexico and are paid primarily in U.S.

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Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date.

As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

The expected lease term includes options to extend or terminate the lease when it is reasonably certain the Company will exercise such option.

Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term.

The Company’s lease arrangements have lease and non-lease components.

Leases with an expected term of 12 months or less are not accounted for on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Leases recorded on the balance sheet consists of the following:

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Total liabilities

Operating lease right-of-use assets are recorded net of accumulated amortization of $6.4 million as of March 31, 2020.

Financing lease right-of-use assets are recorded net of accumulated amortization of $6.6 million as of March 31, 2020.

(1) Operating lease right-of-use assets are recorded net of accumulated amortization of $ 7.4 million as of June 30, 2020.

(2) Financing lease right-of-use assets are recorded net of accumulated amortization of $ 6.7 million as of June 30, 2020.

Other information related to lease term and discount rate is as follows:

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The components of lease expense are as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating lease costs:

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Supplemental cash flow information related to leases is as follows:

Three Months Ended March 31,

Six Months Ended June 30,

Cash paid for amounts included in the measurement of lease liabilities:

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Year ending December 31,

2020 (excluding the three months ended March 31, 2020)

2020 (excluding the six months ended June 30, 2020)

Total future minimum lease payments

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Long-term lease obligations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Unless the context otherwise indicates, all references in this quarterly report to “Orion,”

“the Company,”

“we,”

“our,”

or “us”

are to Orion Group Holdings, Inc.

and its subsidiaries taken as a whole .

Certain information in this Quarterly Report on Form 10‑Q, including but not limited to Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), may constitute forward-looking statements as such term is defined within the meaning of the “safe harbor”

provisions of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

All statements other than statements of historical facts, including those that express a belief, expectation, or intention are forward-looking statements.

The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending.

Our forward-looking statements are generally accompanied by words such as “estimate,”

“project,”

“predict,”

“believe,”

“expect,”

“anticipate,”

“potential,”

“plan,”

“goal”

or other words that convey the uncertainty of future events or outcomes.

We have based these forward-looking statements on our current expectations and assumptions about future events.

While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control, including unforeseen productivity delays and other difficulties encountered in project execution, levels of government funding or other governmental budgetary constraints, and contract cancellation at the discretion of the customer.

These and other important factors, including those described under “Risk Factors”

in Item 1A of the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019 (“2019 Form 10‑K”) may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

The forward-looking statements in this quarterly report on Form 10‑Q speak only as of the date of this report;

we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly.

MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition since the most recent fiscal year-end, and (ii) results of operations during the current fiscal year-to-date period and current fiscal quarter as compared to the corresponding periods of the preceding fiscal year.

In order to better understand such changes, this MD&A should be read in conjunction with the Company’s fiscal 2019 audited consolidated financial statements and notes thereto included in our 2019 Form 10‑K, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2019 Form 10‑K and with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this quarterly report.

Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the “Company”), provides a broad range of specialty construction services in the infrastructure, industrial and building sectors of the continental United States, Alaska, and the Caribbean Basin.

The Company’s marine segment services the infrastructure sector through marine transportation facility construction, marine pipeline construction, marine

environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services.

The Company is headquartered in Houston, Texas with offices throughout its operating areas.

Our contracts are obtained primarily through competitive bidding in response to “requests for proposals”

by federal, state and local agencies and through negotiation and competitive bidding with private parties and general contractors.

Our bidding activity and strategies are affected by such factors as our backlog, current utilization of equipment and other resources, job location, our ability to obtain necessary surety bonds and competitive considerations.

The timing and location of awarded contracts may result in unpredictable fluctuations in the results of our operations.

Most of our revenue is derived from fixed-price contracts.

We generally record revenue on construction contracts over time, measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract.

There are a number of factors that can create variability in contract performance and therefore impact the results of our operations.

The most significant of these include the following:

completeness and accuracy of the original bid;

increases in commodity prices such as concrete, steel and fuel;

customer delays, work stoppages, and other costs due to weather and environmental restrictions;

availability and skill level of workers;

a change in availability and proximity of equipment and materials.

All of these factors can have a negative impact on our contract performance, which can adversely affect the timing of revenue recognition and ultimate contract profitability.

We plan our operations and bidding activity with these factors in mind and they generally have not had a material adverse impact on the results of our operations in the past.

First quarter 2020 Recap and 2020 Outlook

In the quarter ended March 31, 2020, we recorded revenues of $166.6 million, of which $85.9 million was attributable to our marine segment and the remaining $80.7 million to our concrete segment.

In addition, we ended the quarter with a consolidated backlog of $609.5 million.

Our revenues in the quarter increased by 16.4% as compared with the comparable prior year period and we recorded net income of $2.7 million, as compared with a net loss of $7.9 million in the comparable prior year period.

Looking toward the balance of 2020, the Company continues to focus on developing opportunities across the infrastructure, industrial, and building sectors through organic growth and greenfield expansion.

The spread of COVID-19 has impacted the global economy, leaving supply chains disrupted.

As the world uses tactics like “social distancing”

and “stay at home orders”

to slow and stop the spread of COVID-19, demand destruction has led to increased unemployment and to the weakening of consumer confidence.

Although to date the Company hasn’t experienced materially negative impacts from COVID-19, such as widespread project stoppage/cancelations or a slowdown/stoppage of accounts receivables collections, the timing of future awards could create gaps in the Company’s project delivery schedule across quarterly periods.

Federal and State governments have increased spending as part of efforts to mitigate the impact of COVID-19 on the economy.

The amount and timing of such spending will be directly impacted by the duration of required efforts to contain COVID-19 and the severity of the negative impacts created by the virus and its effect on the economy.

The Company will continue to track and monitor any developments on a federal infrastructure bill which could potentially create bid opportunities for the Company.

Marine Segment

Demand for our marine construction services continues, given our differentiated capabilities and service offering within the space.

We continue to see bid opportunities to help maintain and expand the infrastructure that facilitates the movement of goods and people on or over waterways.

However, we are closely monitoring the short and long-term cruise line capital expenditures as their current demand has been negatively impacted by COVID-19.

Further, while we currently see bid opportunities from our private sector energy-related customers as they expand their marine facilities related to the storage, transportation and refining of domestically produced energy, we recognize that the timing of project awards may be impacted as a result of depressed oil prices.

Over the long-term, we expect to see bid opportunities in this sector from petrochemical-related businesses, energy exporters, and liquefied natural gas facilities.

Opportunities from local port authorities will also remain over the long-term, many of which are related to the widened Panama Canal.

Additionally, bid opportunities related to coastal restoration funded through the Resource and Ecosystems Sustainability, Tourist Opportunities and Revived Economies of the Gulf Coast States Act (the “RESTORE Act”) may arise throughout 2020 and into 2021.

We believe our current equipment fleet will allow us to better meet market demand for projects from both our public and private customers.

In the long-term, we see positive trends in demands for our services in our end markets, including:

Continuing need to repair and improve degrading U.

marine infrastructure;

Long-term demand from downstream energy-related companies will be driven by larger capital projects, as well as maintenance call-out work;

Expected increases in cargo volume and future demands from larger ships transiting the Panama Canal will require ports along the Gulf Coast and Atlantic Seaboard to expand port infrastructure as well as perform additional dredging services;

Possible work opportunities generated by the Water Resources Reform and Development Act (the “WRRDA Act”) authorizing expenditures for the conservation and development of the nation’s waterways as well as addressing funding deficiencies within the Harbor Maintenance Trust Fund;

Renewed focus on coastal rehabilitation along the Gulf Coast, particularly through the use of RESTORE Act funds based on fines collected related to the 2010 Gulf of Mexico oil spill;

Funding for highways and transportation under the FAST Act, which provides authority through 2020;

Nearly $5 billion of federal funding provided by the USACE in connection with disaster recovery in Texas;

Potential opportunities related to the impending federal infrastructure bill.

Concrete Segment

Demand for our concrete segment’s services continues, although timing of certain new project releases could be delayed as a result of COVID-19 related macroeconomic impacts.

We currently see long-term demand for our concrete construction services in the Texas building sector as Texas’

four major metropolitan areas, and expanding suburbs, continuously retain their positions as leading destinations for population and business growth.

Population growth throughout our markets continues to drive new distribution centers, education facilities, office expansion, retail and grocery establishments, new multi-family housing units, and structural towers for business, residential or mixed-use purposes.

The diversified Texas economy provides us with multiple sources of bid opportunities.

Additional demand for concrete services in our markets could be provided by work as part of a federal infrastructure bill.

Consolidated Results of Operations

Backlog Information

Our contract backlog represents our estimate of the revenues we expect to realize under the portion of contracts remaining to be performed.

Given the typical duration of our contracts, which is generally less than a year, our backlog at any point in time usually represents only a portion of the revenue that we expect to realize during a twelve-month period.

We have not been adversely affected by contract cancellations or modifications in the past, we may be in the future, especially in economically uncertain periods.

Consequently, backlog is not necessarily indicative of future results.

In addition to our backlog under contract, we also have a substantial number of projects in negotiation or pending award at any time.

Backlog as of the periods ended below are as follows (in millions):

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

Marine segment

Concrete segment

Three months ended March 31, 2020, compared with three months ended March 31, 2019

Three months ended March 31,

(dollar amounts in thousands)

Contract revenues

Cost of contract revenues

Selling, general and administrative expenses

Amortization of intangible assets

Gain on sale of assets, net

Operating income (loss)

Other (expense) income:

Interest income

Interest expense

Other expense, net

Loss before income tax expense (benefit)

Income tax expense (benefit)

Net (loss) income

Contract Revenues.

Contract revenues for the three months ended March 31, 2020 of $166.6 million increased approximately 16.4% as compared to $143.1 million in the prior year period.

The increase was primarily attributable to increased project execution in the marine segment, partially offset by a slight decline in revenue in the concrete segment.

Gross Profit.

Gross profit was $19.8 million for the three months ended March 31, 2020, compared to $9.1 million in the prior year period, an increase of $10.7 million.

Gross margin in the first quarter was 11.9% of total contract revenues as compared to 6.3% in the prior year period.

The increase in gross profit dollars and percentage were primarily driven by execution related margin expansion on certain projects and increased asset and human capital utilization, resulting in higher absorption of fixed costs.

Selling, General and Administrative Expense.

Selling, general and administrative ("SG&A") expenses were $15.9 million for the three months ended March 31, 2020 compared to $15.0 million in the prior year period, an increase of $0.9 million, or 6.0%.

As a percentage of total contract revenues, SG&A expenses decreased from 10.4% to 9.5%.

The increase in SG&A dollars was primarily attributable to the full ratable accrual of the incentive compensation plan.

Other Income, net of Expense.

Other expense primarily reflects interest on our borrowings, partially offset by interest income and non-operating gains or losses.

See Note 11 for additional discussion of the amended syndicated credit agreement, also known as the Sixth Amendment, executed in May 2019.

Income Tax Expense (Benefit).

We recorded tax expense of $0.4 million in the three months ended March 31, 2020, compared to tax expense of $0.6 million in the prior year period.

Our effective tax rate for the three months ended March 31, 2020 was 12.2%, which differs from the federal statutory rate of 21% primarily due

to movement in the valuation allowance to offset foreign tax credits and net operating loss carryforwards, foreign taxes, state income taxes and the non-deductibility of certain permanent items.

Segment Results

The following table sets forth, for the periods indicated, statements of operations data by segment, segment revenues as a percentage of consolidated revenues and segment operating (loss) income as a percentage of segment revenues:

Segment Comparison

Three months ended March 31,

(dollar amounts in thousands)

Contract revenues

Marine segment

Public sector

Private sector

Marine segment total

Concrete segment

Public sector

Private sector

Concrete segment total

Operating income (loss)

Marine segment

Concrete segment

Three months ended March 31, 2020 compared with three months ended March 31, 2019

Marine Segment

Revenues for our marine segment for the three months ended March 31, 2020 were $85.9 million compared to $61.5 million for the three months ended March 31, 2019, an increase of $24.4 million, or 39.8%.

This increase is primarily attributable to execution on the larger volume of work in our backlog and the mix of additional dredging work.

Operating income for our marine segment for the three months ended March31, 2020 was $2.9 million, compared to an operating loss of $6.5 million for the three months ended March 31, 2019, an increase of $9.4 million.

This increase in operating income (loss) was primarily due to execution on the larger volume of work in our backlog and the mix of additional dredging work.

Concrete Segment

Revenues for our concrete segment for the three months ended March 31, 2020 were $80.7 million compared to $81.6 million for the three months ended March 31, 2019, a decrease of $0.9 million, or 1.2%.

This decrease in revenue was primarily due to an overall decrease in cubic yard production on our projects.

Operating income for our concrete segment for the three months ended March 31, 2020 was $1.5 million, compared to operating income of $0.3 million for the three months ended March 31, 2019, an increase of $1.2 million.

This increase in operating income was primarily due to the improvement in man-hours per cubic yard production.

Liquidity and Capital Resources

Our primary liquidity needs are to finance our working capital, fund capital expenditures, and pursue strategic acquisitions.

Historically, our source of liquidity has been cash provided by our operating activities and borrowings under our Credit Facility (as defined below).

Changes in working capital are normal within our business given the varying mix in size, scope and timing of delivery of our projects.

At March 31, 2020, our working capital was $64.8 million, as compared with $62.2 million at December 31, 2019.

As of March 31, 2020, we had unrestricted cash on hand of $12.6 million.

Our borrowing capacity at March 31, 2020 was approximately $12.9 million.

We expect to meet our future internal liquidity and working capital needs and maintain or replace our equipment fleet through capital expenditure purchases and major repairs, from funds generated by our operating activities for at least the next 12 months.

We believe our cash position is adequate for our general business requirements discussed above and to service our debt.

The following table provides information regarding our cash flows and our capital expenditures for the three months ending March 31, 2020 and 2018:

Three months ended

Net income (loss)

Adjustments to remove non-cash and non-operating items

Cash flow from net income after adjusting for non-cash and non-operating items

Change in operating assets and liabilities (working capital)

Cash flows provided by (used in) operating activities

Cash flows used in investing activities

Cash flows used in financing activities

Capital expenditures (included in investing activities above)

Operating Activities.

During the three months ended March 31, 2020, we generated approximately $15.5 million in cash from our operating activities.

The net cash inflow is comprised of $11.3 million of cash inflows from net income, after adjusting for non-cash items and $4.2 million of cash inflows related to changes in net working capital.

The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Condensed Consolidated Statements of Cash Flows, were primarily driven by a net inflow of $14.6 million pursuant to the relative timing and significance of project progression and billings during the

period and a $9.4 million outflow related to an increase in our net position of accounts receivable and accounts payable.

Investing Activities.

Capital asset additions and betterments to our fleet were $2.8 million in the three months ended March 31, 2020, as compared with $3.9 million in the three months ended March 31, 2019.

The changes are primarily a result of the timing of purchase of capital assets.

Financing Activities.

During the three months ended March 31, 2020, we drew down $5.0 million from our revolving line of credit.

Additionally, we repaid $6.0 million on our revolving line of credit, as well as made the regularly scheduled debt payment on the term loan of $0.8 million.

Sources of Capital

The Company entered into an amended syndicated credit agreement (the “Credit Agreement”

also known as the “Fourth Amendment”) on July 31, 2018, with Regions Bank, as administrative agent and collateral agent, and the following co-syndication agents:

Bank of America, N.A., BOKF, NA dba Bank of Texas, KeyBank National Association, NBH Bank, IBERIABANK, Trustmark National Bank, First Tennessee Bank NA, and Branch Baking and Trust Company.

The primary purpose of the Credit Agreement was to provide the Company with greater flexibility as it provides for the calculation of Adjusted EBITDA that adds back various project specific costs.

Additionally, the Company executed the Fifth Amendment during March 2019, which was made effective as of December 31, 2018, and executed the Sixth Amendment during May 2019.

The Credit Agreement, which may be amended from time to time, provides for borrowings under a revolving line of credit and a term loan (together, the “Credit Facility”).

Interest is computed based on the designation of the loan, with the option of a Base Rate Loan (the base rate plus the Applicable Margin), or an Adjusted LIBOR Rate Loan (the adjusted LIBOR rate plus the Applicable Margin).

Interest is due on the last day of each quarter end for Base Rate Loans and at the end of the LIBOR rate period for Adjusted LIBOR Rate Loans.

Principal balances drawn under the Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty.

Amounts repaid under the revolving line of credit may be re-borrowed.

The Credit Facility matures on July 31, 2023.

See Note 11 in the Notes to the Financial Statements (of this Form 10-Q) for further discussion on the Company’s Debt.

Financial covenants

Restrictive financial covenants under the Credit Facility include:

A consolidated Fixed Charge Coverage Ratio to not be less than the following during each noted period:

-Fiscal Quarter Ending December 31, 2019 and each Fiscal Quarter thereafter, to not be less than 1.25 to 1.00.

A consolidated Leverage Ratio to not exceed the following during each noted period:

-Fiscal Quarter Ending March 31, 2020 and each Fiscal Quarter thereafter, to not exceed 3.00 to 1.00.

In addition, the Credit Facility contains events of default that are usual and customary for similar arrangements, including non-payment of principal, interest or fees;

breaches of representations and warranties that are not timely cured;

violation of covenants;

bankruptcy and insolvency events;

and events constituting a change of control.

The Company expects to meet its future internal liquidity and working capital needs and maintain or replace its equipment fleet through capital expenditure purchases and major repairs, from funds generated by its operating activities for at least the next 12 months.

The Company believes that its cash position and available borrowings together with cash flow from its operations is adequate for general business requirements and to service its debt.

The Company was in compliance with all financial covenants as of March 31, 2020.

Derivative Financial Instruments

On September 16, 2015, the Company entered into a series of receive-variable, pay-fixed interest rate swaps to hedge the variability in the interest payments on 50% of the aggregate principal amount of the Regions Term Loan outstanding, beginning with a notional amount of $67.5 million.

There was a total of five sequential interest rate swaps to achieve the hedged position and each year on August 31, with the exception of the final swap, the existing interest rate swap was scheduled to expire and be immediately replaced with a new interest rate swap until the expiration of the final swap on July 31, 2020.

On December 6, 2018, the Company entered into a sixth receive-variable, pay-fixed interest rate swap to hedge the variability of interest payments.

The sixth swap will begin with a notional amount of $27.0 million on July 31, 2020 and will hedge the variability in the interest payments on the aggregate scheduled principal amount of the Regions Term Loan outstanding.

The sixth swap is scheduled to expire on July 31, 2023.

Gains and losses from hedge ineffectiveness are recognized in current earnings.

Equity, is approximately $1.0 million and $0.3 million.

The fair market value of the swaps as of March 31, 2020 is reflected as a liability of $2.0 million on the Condensed Consolidated Balance Sheets.

See Note 8 for more information regarding the fair value of the Company’s derivative instruments.

Sale-Leaseback Arrangement

On September 27, 2019, the Company entered into a purchase and sale agreement (the “Purchase and Sale Agreement”).

Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its 17300 & 17140 Market Street location in Channelview, Texas (the “Property”) for a purchase price of $19.1 million.

Under the Lease Agreement, the Company has two consecutive options to extend the term of the Lease by ten years for each such option.

This transaction was recorded as a failed sale-leaseback.

Concurrently with the sale, the Company paid $18.2 million as an additional principal payment towards the Term loan portion of the Company’s Credit Facility, consistent with terms of the Sixth Amendment.

Bonding Capacity

We are often required to provide various types of surety bonds that provide additional security to our customers for our performance under certain government and private sector contracts.

Our ability to obtain surety bonds depends on our capitalization, working capital, past performance and external factors, including the capacity of the overall surety market.

At March 31, 2020, the capacity under our current bonding arrangement was at least $500 million, with approximately $270 million of projects being bonded.

We believe our strong balance sheet and working capital position will allow us to continue to access our bonding capacity.

Effect of Inflation

We are subject to the effects of inflation through increases in the cost of raw materials, and other items such as fuel, concrete and steel.

Due to the relative short-term duration of our projects, we are generally able to include anticipated price increases in the cost of our bids.

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 1. Financial Statements