Item 2. Management’s Discussion and Analysis
ITEM 2.
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 the duration of the COVID19 pandemic and the resiliency of the economy thereafter, 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, 2020 (“2020 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 2020 audited consolidated financial statements and notes thereto included in our 2020 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.
Overview
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
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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.
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; and
● 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.
Third Quarter 2021 Recap and 2021 Outlook
In the quarter ended September 30, 2021, we recorded revenues of $139.9 million, of which $54.7 million was attributable to our marine segment and the remaining $85.2 million to our concrete segment. In addition, we ended the quarter with a consolidated backlog of $572.8 million. Our revenues in the quarter decreased by 26.1% as compared with the comparable prior year period and we recorded a net loss of $10.2 million, as compared with net income of $11.8 million in the comparable prior year period.
Looking toward the balance of 2021, the Company continues to focus on developing opportunities across the infrastructure, industrial, and building sectors through organic growth, greenfield expansion, and strategic acquisition opportunities.
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
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stoppage/cancelations or a slowdown/stoppage of accounts receivables collections, any delays in 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. Although little progress has been made to date and on a federal infrastructure bill, 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 have some concerns about the short-term outlook for and are closely monitoring the short and long-term cruise line capital expenditures as their current demand has been severely 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 volatility of oil prices due to COIVD-19 related uncertainties. 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 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 demand for our services in our end markets, including:
● Continuing need to repair and improve degrading U. S. 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 successor Acts to the FAST Act;
● Nearly $7 billion of federal funding provided by the USACE in connection with disaster recovery in Texas; and,
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● 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.
In the long-term, we see positive trends in demands for our services in our end markets, including:
● Population growth in the state of Texas driven by corporate relocations;
● Continued investment in warehouse/distribution space in the Dallas-Fort Worth region;
● COVID-19 driven shift of people moving from the inner cities to suburban areas;
● Nearly $7 billion of federal funding provided by the USACE in connection with disaster recovery in Texas; and,
● Potential opportunities related to the impending 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.
Backlog as of the periods ended below are as follows (in millions):
September 30, 2021
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
Marine segment
$
379.9
$
170.2
$
154.8
$
202.6
$
241.7
Concrete segment
192.9
224.2
210.0
236.9
187.1
Consolidated
$
572.8
$
394.4
$
364.8
$
439.5
$
428.8
The increase in backlog during the quarter is primarily driven by new jobs we won in the marine segment. The general trend of declining backlog over the past year through June 2021 is due in significant part to headwinds created by the COVID-19 pandemic in certain end market sectors, which has slowed the timing of project awards. We, however, remain optimistic in our end-markets and in the opportunities that are emerging across our various marketplaces as evidenced by the $2.0 billion of quoted bids outstanding at quarter end, of
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which $103 million we are the apparent low bidder on or have been awarded contracts subsequent to the end of the quarter ended September 30, 2021.
These estimates are subject to fluctuations based upon the scope of services to be provided, as well as factors affecting the time required to complete the project. 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 given time. Delays in decisions on pending awards also have a negative impact on the timing and amount by which we are able to increase backlog.
Three months ended September 30, 2021, compared with three months ended September 30, 2020
Three months ended September 30,
2021
2020
Amount
Percent
Amount
Percent
(dollar amounts in thousands)
Contract revenues
$
139,907
100.0
%
$
189,433
100.0
%
Cost of contract revenues
133,329
95.3
%
166,932
88.1
%
Gross profit
6,578
4.7
%
22,501
11.9
%
Selling, general and administrative expenses
15,733
11.2
%
15,270
8.1
%
Amortization of intangible assets
380
0.3
%
519
0.3
%
Gain on disposal of assets, net
(792)
(0.6)
%
(6,373)
(3.4)
%
Operating (loss) income
(8,743)
(6.2)
%
13,085
6.9
%
Other (expense) income:
Other income
50
—
%
115
0.1
%
Interest income
22
—
%
57
—
%
Interest expense
(523)
(0.4)
%
(1,151)
(0.6)
%
Other expense, net
(451)
(0.4)
%
(979)
(0.5)
%
Income before income tax expense
(9,194)
(6.6)
%
12,106
6.4
%
Income tax (benefit) expense
1,001
0.7
%
303
0.2
%
Net income
$
(10,195)
(7.3)
%
$
11,803
6.2
%
Contract Revenues. Contract revenues for the three months ended September 30, 2021 of $139.9 million decreased $49.6 million or 26.1% as compared to $189.4 million in the prior year period. The decrease was primarily driven by the timing and mix of several large marine projects that had driven activity in the prior year, which were not replicated or replaced in the current year quarter. This decrease was partially offset by increased production volumes in our concrete segment due to an increase in activity during 2021, including on several larger jobs in the current year period as compared to the prior year period.
Gross Profit. Gross profit was $6.6 million for the three months ended September 30, 2021, compared to $22.5 million in the prior year period, a decrease of $15.9 million or 70.8%. Gross profit in the third quarter was 4.7% of total contract revenues as compared to 11.9% in the prior year period. The decrease in gross profit dollars and percentage was driven by the decreased activity and volumes in the marine segment which negatively impacted revenue and contributed to an under recovery of indirect costs primarily related to decreased labor and equipment utilization. Decreased project performance in the concrete segment was driven by inefficiencies in executing work from COVID-19 and weather-related impacts, along with cost overruns in the current period on the completion of one project.
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Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses were $15.7 million for the three months ended September 30, 2021 compared to $15.3 million in the prior year period, an increase of $0.5 million or 3.0%. As a percentage of total contract revenues, SG&A expenses increased from 8.1% to 11.2%, primarily due to lower revenues in the current period. The increase in SG&A dollars was driven primarily by an increase in ERP implementation expense, partially offset by a decrease in bonus expense as compared to the prior year period.
Gain on Disposal of Assets, net. During the three months ended September 30, 2021 and 2020, we realized $0.8 million and $6.4 million, respectively, of net gains on disposal of assets. Included in the prior year amount is a $2.9 million net gain on insurance recoveries.
Other Income, net of Expense. Other expense primarily reflects interest on our borrowings, partially offset by interest income and non-operating gains or losses.
Income Tax Expense. We recorded tax expense of $1.0 million in the three months ended September 30, 2021, compared to tax expense of $0.3 million in the prior year period. Our effective tax rate for the three months ended September 30, 2021 was (10.9)%, which differs from the federal statutory rate of 21% primarily due to the movement in the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items.
Nine months ended September 30, 2021, compared with nine months ended September 30, 2020
Nine months ended September 30,
2021
2020
Amount
Percent
Amount
Percent
(dollar amounts in thousands)
Contract revenues
$
439,091
100.0
%
$
539,766
100.0
%
Cost of contract revenues
404,757
92.2
%
476,763
88.3
%
Gross profit
34,334
7.8
%
63,003
11.7
%
Selling, general and administrative expenses
44,078
10.0
%
47,651
8.8
%
Amortization of intangible assets
1,141
0.3
%
1,552
0.3
%
Gain on disposal of assets, net
(9,763)
(2.2)
%
(7,734)
(1.4)
%
Operating income (loss) from operations
(1,122)
(0.3)
%
21,534
4.0
%
Other (expense) income:
Other income
159
—
%
251
—
%
Interest income
73
—
%
151
—
%
Interest expense
(4,506)
(0.9)
%
(3,722)
(0.6)
%
Other expense, net
(4,274)
(0.9)
%
(3,320)
(0.6)
%
Income before income taxes
(5,396)
(1.2)
%
18,214
3.4
%
Income tax expense
341
0.1
%
1,660
0.3
%
Net income
$
(5,737)
(1.3)
%
$
16,554
3.1
%
Contract Revenues. Contract revenues for the nine months ended September 30, 2021 of $439.1 million decreased $100.7 million or 18.7% as compared to $539.8 million in the prior year period. The decrease was primarily driven by severe winter weather that shut down most of Texas for seven to ten days in February 2021, a reduction in project activity compared to the prior year in the marine segment and decreased project performance and margins in the concrete segment.
Gross Profit. Gross profit was $34.3 million for the nine months ended September 30, 2021, compared to $63.0 million in the prior year period, a decrease of $28.7 million or 45.5%. Gross profit in the period was 7.8% of
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total contract revenues as compared to 11.7% in the prior year period. The decrease in gross profit dollars and percentage was driven by the decreased activity and volumes which negatively impacted revenue and contributed to an under recovery of indirect costs primarily related to decreased labor and equipment utilization as the result of the winter and spring weather delays in the current year period. We also incurred decreased project performance in our concrete segment.
Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses were $44.1 million for the nine months ended September 30, 2021 compared to $47.7 million in the prior year period, a decrease of $3.6 million or 7.5%. As a percentage of total contract revenues, SG&A expenses increased from 8.8% to 10.0%. The decrease in SG&A dollars was driven by a decrease in the current year period related to bonus expense, business development costs pursuant to timing of project pursuits and awards and travel related costs.
Gain on Disposal of Assets, net. During the nine months ended September 30, 2021 and 2020, we realized $9.8 million and $7.7 million, respectively, of net gains on disposal of assets. Included in the current year amount is a net gain of $6.7 million related to the sale of property in Tampa, Florida. See Note 6 – Property and Equipment in this form 10-Q for a further description of the sale of property. Included in the prior year amount is a $2.9 million net gain on insurance recoveries.
Other Income, net of Expense. Other expense primarily reflects interest on our borrowings, partially offset by interest income and non-operating gains or losses. Interest expense for the current year period included $2.1 million related to the extinguishment of our term loan and related interest rate swaps.
Income Tax Expense. We recorded tax expense of $0.3 million in the nine months ended September 30, 2021, compared to tax expense of $1.7 million in the prior year period. Our effective tax rate for the nine months ended September 30, 2021 was (6.3)%, which differs from the federal statutory rate of 21% primarily due to the movement in the valuation allowance for current year activity, state income taxes and the non-deductibility of other 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. In connection with the preparation of the financial statements for the quarter ended June 30, 2021, the Company has identified and corrected certain immaterial errors in segment reporting for all periods presented. Specifically, certain corporate overhead costs previously recorded to the marine segment as part of operating income (loss) and allocated from the marine segment to the concrete segment below operating income in the other income (expense) line have been allocated from the marine segment to the concrete segment as part of the determination of operating income for each segment. These corrections resulted in an offsetting change in operating income (loss) for each segment of $3.0 million for the three months ended September 30, 2020 and $2.9 million and $9.2 million for the nine months ended September 30, 2021 and 2020, respectively.
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Three months ended September 30, 2021 compared with three months ended September 30, 2020.
Three months ended September 30,
2021
2020
Amount
Percent
Amount
Percent
(dollar amounts in thousands)
Contract revenues
Marine segment
Public sector
$
35,580
65.0
%
$
68,353
60.6
%
Private sector
19,159
35.0
%
44,528
39.4
%
Marine segment total
$
54,739
100.0
%
$
112,881
100.0
%
Concrete segment
Public sector
$
2,301
2.7
%
$
8,784
11.5
%
Private sector
82,867
97.3
%
67,768
88.5
%
Concrete segment total
$
85,168
100.0
%
$
76,552
100.0
%
Total
$
139,907
$
189,433
Operating (loss) income
Marine segment
$
(4,965)
(9.1)
%
$
12,025
10.7
%
Concrete segment
(3,778)
(4.4)
%
1,060
1.4
%
Total
$
(8,743)
$
13,085
Marine Segment
Revenues for our marine segment for the three months ended September 30, 2021 were $54.7 million compared to $112.9 million for the three months ended September 30, 2020, a decrease of $58.2 million, or 51.5%. The decrease was primarily driven by the timing and mix of several large projects which had significant activity in the prior year but were not repeated or replaced in the current year.
Operating loss for our marine segment for the three months ended September 30, 2021 was $5.0 million, compared to operating income of $12.0 million for the three months ended September 30, 2020, a decrease of $17.0 million. Excluding the net gain on insurance recoveries and the recovery on a disputed receivable in the prior year operating loss was $8.3 million for the three months ended September 30, 2020, a decrease of $13.2 million. This decrease in operating income was primarily due to the decrease in revenue and related under recovery of indirect costs as a result of decreased labor and equipment utilization.
Concrete Segment
Revenues for our concrete segment for the three months ended September 30, 2021 were $85.2 million compared to $76.6 million for the three months ended September 30, 2021, an increase of $8.6 million, or 11.3%. This increase was primarily driven by increased production volumes due to the timing and mix of projects including larger light commercial jobs that burned in the current year quarter.
Operating loss for our concrete segment for the three months ended September 30, 2021 was $3.8 million, compared to operating income of $1.1 million for the three months ended September 30, 2020, a decrease of $4.9 million. This decrease in operating income was primarily due to decreased project performance and lower margins on several projects during the 2021 period.
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Nine months ended September 30, 2021 compared with nine months ended September 30, 2020.
Nine months ended September 30,
2021
2020
Amount
Percent
Amount
Percent
(dollar amounts in thousands)
Contract revenues
Marine segment
Public sector
$
121,916
63.9
%
$
181,684
62.5
%
Private sector
68,911
36.1
%
108,865
37.5
%
Marine segment total
$
190,827
100.0
%
$
290,549
100.0
%
Concrete segment
Public sector
$
13,580
5.5
%
$
36,858
14.8
%
Private sector
234,684
94.5
%
212,359
85.2
%
Concrete segment total
$
248,264
100.0
%
$
249,217
100.0
%
Total
$
439,091
$
539,766
Operating (loss) income
Marine segment
$
6,489
3.4
%
$
21,584
7.4
%
Concrete segment
(7,611)
(3.1)
%
(50)
(0.0)
%
Total
$
(1,122)
$
21,534
Marine Segment
Revenues for our marine segment for the nine months ended September 30, 2021 were $190.8 million compared to $290.5 million for the nine months ended September 30, 2020, a decrease of $99.7 million, or 34.3%. The decrease was primarily attributable to the Texas winter storm in February 2021 and a reduction in project activity compared to the prior year period.
Operating income for our marine segment for the nine months ended September 30, 2021 was $6.5 million, compared to operating income of $21.6 million for the nine months ended September 30, 2020, a decrease of $15.1 million. Excluding the impact of the sale of property in Tampa, Florida in the current year and the net gain on insurance recoveries and the recovery on a disputed receivable in the prior year operating loss was $0.2 million for the nine months ended September 30, 2021, compared to operating income of $17.8 million for the nine months ended September 30, 2020, a decrease of $18.0 million. This decrease in operating income was primarily due to the decrease in revenue noted above and related under recovery of indirect costs as a result of decreased labor and equipment utilization.
Concrete Segment
Revenues for our concrete segment for the nine months ended September 30, 2021 were $248.3 million compared to $249.2 million for the nine months ended September 30, 2021, a decrease of $1.0 million, or 0.4%. This decrease resulted from decreased production volumes in the current year period, in part due to job delays caused by bad weather.
Operating loss for our concrete segment for the nine months ended September 30, 2021 was $7.6 million, compared to $0.1 million for the nine months ended September 30, 2020, an increase in operating loss of $7.5 million. This increase in operating loss was primarily due to the aforementioned decreased production volumes due to weather related impacts, decreased project performance and lower margins on several projects during the 2021 period.
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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 facilities.
Changes in working capital are normal within our business given the varying mix in size, scope and timing of delivery of our projects. At September 30, 2021, our working capital was $49.2 million, as compared with $54.8 million at December 31, 2020. As of September 30, 2021, we had unrestricted cash on hand of $0.9 million. Our borrowing capacity at September 30, 2021 was approximately $29.3 million.
We expect to meet our future internal liquidity and working capital needs and maintain or replace our equipment fleet through capital expenditure purchases, leases 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 and nine months ended September 30, 2021 and 2020:
Three months ended
Nine months ended
September 30,
September 30,
2021
2020
2021
2020
Net income
$
(10,195)
$
11,803
$
(5,737)
$
16,554
Adjustments to remove non-cash and non-operating items
7,234
1,505
16,738
19,333
Cash flow from net income after adjusting for non-cash and non-operating items
(2,961)
13,308
11,001
35,887
Change in operating assets and liabilities (working capital)
(4,074)
(8,006)
(6,761)
2,489
Cash flows (used in) provided by operating activities
$
(7,035)
$
5,302
$
4,240
$
38,376
Cash flows (used in) provided by investing activities
$
(5,973)
$
(153)
$
14,489
$
(2,197)
Cash flows provided by (used) in financing activities
$
11,491
$
(12,760)
$
(19,425)
$
(34,533)
Capital expenditures (included in investing activities above)
$
(6,879)
$
(4,408)
$
(11,594)
$
(9,444)
Operating Activities. During the three months ended September 30, 2021, we used approximately $7.0 million in cash in our operating activities. The net cash outflow is comprised of $3.0 million of cash outflows from net loss, after adjusting for non-cash items and $4.0 million of cash outflows 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 $8.1 million outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and a $1.2 million decrease in operating lease liabilities, partially offset by a $2.7 million inflow pursuant to the relative timing and significance of project progression and billings during the period and $2.6 million of other inflows.
During the nine months ended September 30, 2021, we generated approximately $4.2 million in cash from our operating activities. The net cash inflow is comprised of $11.0 million of cash inflows from net income, after adjusting for non-cash items and $6.8 million of cash outflows 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
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Condensed Consolidated Statements of Cash Flows, were primarily driven by a $12.0 million outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period, a $3.8 million decrease in operating lease liabilities during the period, partially offset by a $7.1 million inflow pursuant to the relative timing and significance of project progression and billings during the period and $1.9 million of other inflows.
Investing Activities. Capital asset additions and betterments to our fleet were $6.9 million in the three months ended September 30, 2021, as compared with $4.4 million in the three months ended September 30, 2020. Proceeds from the sale of property and equipment were $0.9 in the three months ended September 30, 2021, as compared with $4.1 million in the three months ended September 30, 2020.
Capital asset additions and betterments to our fleet were $11.6 million in the nine months ended September 30, 2021, as compared with $9.4 million in the nine months ended September 30, 2020. Proceeds from the sale of property and equipment were $25.6 in the nine months ended September 30, 2021, as compared with $5.8 million in the nine months ended September 30, 2020. The increase in proceeds from the sale of property and equipment for the nine months ended September 30, 2021 is primarily related to the sale of our property in Tampa, Florida.
Financing Activities. During the three and nine months ended September 30, 2021, we drew down $13.0 million and $33 million, respectively from our revolving line of credit. During the nine months ended September 30, 2021 we repaid $19 million on our revolving line of credit.
During the three months ended June 30, 2021 we fully extinguished the term loan portion of our Credit Facility, in part using proceeds from the sale of property in Tampa, Florida. The extinguishment of the term loan reduced our exposure to variability in interest rates and eliminated future loan amortization payment commitments. Concurrent with extinguishing the term loan, we canceled the remaining open position on our interest rate swap, resulting in a $1.3 million loss on the mark to market value of the swap at the date of termination. The $1.3 million was paid to the counterparty, cleared from the balance sheet as an interest rate swap liability, removed from Other Comprehensive Income and charged to interest expense during the quarter ended June 30, 2021. Further, the remaining $0.8 million of unamortized deferred debt issuance costs were charged to interest expense related to the early extinguishment of the term loan. There were no penalties incurred related to early payment of the term loan.
Sources of Capital
As of September 30, 2021, our available sources of capital consist of borrowing availability on our revolving line of credit of $29.3 million pursuant to our Credit Facility.
See Note 11 in the Notes to the Financial Statements (of this Form 10-Q) for further discussion on the Company’s Debt.
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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 September 30, 2021, the capacity under our current bonding arrangement was at least $750 million, with approximately $85 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.
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