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 on Form 10-Q to “Orion,” “the Company,” “we,” “our,” or “us” are to Orion Group Holdings, Inc. and its subsidiaries 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 COVID-19 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, 2021 (“2021 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 audited consolidated financial statements and notes thereto included in our 2021 Form 10-K, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2021 Form 10-K and with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.
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 throughout the continental United States, Alaska, and the Caribbean Basin. The Company’s marine segment
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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.
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.
Second Quarter 2022 Recap and 2022 Outlook
In the quarter ended June 30, 2022, we recorded revenues of $194.6 million, of which $82.3 million was attributable to our marine segment and the remaining $112.3 million to our concrete segment. In addition, we ended the quarter with a consolidated backlog of $603.2 million. Our revenues in the quarter increased by 33.4% as compared with the comparable prior year period and we recorded a net loss of $3.1 million, as compared with net income of $3.5 million in the comparable prior year period.
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. 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, we have had and may continue to see disruptions to our operations as variants of the COVID-19 virus have caused increases in absenteeism rates among our workforce and other impacts to supply chains and labor markets.
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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 COVID-19 related uncertainties and the war in Ukraine. 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, opportunities under the Tourist Opportunities and Revived Economies of the Gulf Coast States Act (the “RESTORE Act”) may arise in 2022. 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
● Potential opportunities related to the 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 inflation, labor concerns, supply chain delays and 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-
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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 the 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 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, however we may be in the future, especially in economically uncertain periods.
Backlog as of the periods ended below are as follows (in millions):
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
Marine segment
$
281.0
$
317.4
$
376.9
$
379.9
$
170.2
Concrete segment
322.2
286.7
213.1
192.9
224.2
Consolidated
$
603.2
$
604.1
$
590.0
$
572.8
$
394.4
The increase in backlog was primarily driven by new jobs we won. The now ended general trend of declining backlog through June 2021 was due in significant part to headwinds created by the COVID-19 pandemic in certain end market sectors, which slowed the timing of project awards. Backlog has since increased significantly and we are optimistic in our end-markets and in the opportunities that are emerging across our various marketplaces as evidenced by the $2.5 billion of quoted bids outstanding at quarter end, of which $153 million we are the apparent low bidder on or have been awarded contracts subsequent to the end of the fiscal quarter ended June 30, 2022.
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.
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Three months ended June 30, 2022, compared with three months ended June 30, 2021.
Three months ended June 30,
2022
2021
Amount
Percent
Amount
Percent
(dollar amounts in thousands)
Contract revenues
$
194,575
100.0
%
$
145,875
100.0
%
Cost of contract revenues
180,244
92.6
%
133,574
91.6
%
Gross profit
14,331
7.4
%
12,301
8.4
%
Selling, general and administrative expenses
17,233
8.9
%
13,715
9.3
%
Amortization of intangible assets
310
0.2
%
381
0.3
%
Gain on disposal of assets, net
(364)
(0.2)
%
(7,361)
(5.0)
%
Operating (loss) income
(2,848)
(1.5)
%
5,566
3.8
%
Other (expense) income:
Other income
55
—
%
72
—
%
Interest income
16
—
%
25
—
%
Interest expense
(958)
(0.4)
%
(2,943)
(1.9)
%
Other expense, net
(887)
(0.4)
%
(2,846)
(1.9)
%
(Loss) income before income tax expense
(3,735)
(1.9)
%
2,720
1.9
%
Income tax benefit
(681)
(0.3)
%
(810)
(0.5)
%
Net (loss) income
$
(3,054)
(1.6)
%
$
3,530
2.4
%
Contract Revenues. Contract revenues for the three months ended June 30, 2022 of $194.6 million increased $48.7 million or 33.4% as compared to $145.9 million in the prior year period. The increase was primarily driven by higher volume in the concrete segment and the start up on large jobs awarded in the second half of 2021 in the marine segment.
Gross Profit. Gross profit was $14.3 million for the three months ended June 30, 2022, compared to $12.3 million in the prior year period, an increase of $2.0 million or 16.5%. Gross profit in the second quarter was 7.4% of total contract revenues as compared to 8.4% in the prior year period. The increase in gross profit dollars was primarily driven by efficiencies in equipment and labor utilization and a change in the mix of work in the marine segment in the current period, partially offset by unabsorbed indirect expenses in the concrete segment. The decrease in gross profit percentage was primarily driven by additional costs in the concrete segment as a result of project performance and conditions and a change in the mix of work in the current period partially offset by the impact from change orders recognized related to work primarily recognized in previous periods.
Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses were $17.2 million for the three months ended June 30, 2022 compared to $13.7 million in the prior year period, an increase of $3.5 million or 25.7%. As a percentage of total contract revenues, SG&A expenses decreased from 9.3% to 8.9%, primarily due to higher revenues in the current period. The increase in SG&A dollars was driven primarily by severance, consulting fees related to the management transition, property tax true-ups in the current year period and as a result of a true-up reducing bonus expense in the prior year period.
Gain on Disposal of Assets, net. During the three months ended June 30, 2022 and 2021, we realized $0.4 million and $7.4 million, respectively, of net gains on disposal of assets. Included in the prior year amount is a net gain of $6.8 million related to the sale of property in Tampa, Florida. See Note 6 – Property and Equipment in this Quarterly Report on Form 10-Q for a further description of the sale of the property.
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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 Benefit. We recorded tax benefit of $0.7 million in the three months ended June 30, 2022, compared to tax benefit of $0.8 million in the prior year period. Our effective tax rate for the three months ended June 30, 2022 was 18.2%, which differs from the federal statutory rate of 21% primarily due to the tax impact from the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items.
Six months ended June 30, 2022, compared with six months ended June 30, 2021.
Six months ended June 30,
2022
2021
Amount
Percent
Amount
Percent
(dollar amounts in thousands)
Contract revenues
$
369,506
100.0
%
$
299,184
100.0
%
Cost of contract revenues
342,359
92.7
%
271,428
90.7
%
Gross profit
27,147
7.3
%
27,756
9.3
%
Selling, general and administrative expenses
33,403
8.9
%
28,345
9.5
%
Amortization of intangible assets
620
0.2
%
761
0.3
%
Gain on disposal of assets, net
(1,173)
(0.3)
%
(8,971)
(3.0)
%
Operating (loss) income
(5,703)
(1.5)
%
7,621
2.5
%
Other (expense) income:
Other income
99
—
%
109
—
%
Interest income
35
—
%
51
—
%
Interest expense
(1,698)
(0.5)
%
(3,983)
(1.2)
%
Other expense, net
(1,564)
(0.5)
%
(3,823)
(1.2)
%
(Loss) income before income tax expense
(7,267)
(2.0)
%
3,798
1.3
%
Income tax expense (benefit)
643
0.1
%
(660)
(0.2)
%
Net (loss) income
$
(7,910)
(2.1)
%
$
4,458
1.5
%
Contract Revenues. Contract revenues for the six months ended June 30, 2022 of $369.5 million increased $70.3 million or 23.5% as compared to $299.2 million in the prior year period. The increase was primarily driven by the start up on large jobs awarded in the second half of 2021 in the marine segment and higher volume in the concrete segment.
Gross Profit. Gross profit was $27.1 million for the six months ended June 30, 2022, compared to $27.8 million in the prior year period, a decrease of $0.7 million or 2.2%. Gross profit in the period was 7.3% of total contract revenues as compared to 9.3% in the prior year period. The decrease in gross profit dollars and percentage was primarily driven by additional costs in the concrete segment as a result of project performance and conditions and a change in the mix of work in the current period partially offset by the impact from change orders recognized related to work primarily recognized in previous periods.
Selling, General and Administrative Expense. SG&A expenses were $33.4 million for the six months ended June 30, 2022 compared to $28.3 million in the prior year period, an increase of $5.1 million or 17.8%. As a percentage of total contract revenues, SG&A expenses decreased from 9.5% to 8.9%, primarily due to higher revenues in the current period. The increase in SG&A dollars was driven primarily by severance, consulting fees related to the management transition and property tax true-ups in the current year period.
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Gain on Disposal of Assets, net. During the six months ended June 30, 2022 and 2021, we realized $1.2 million and $9.0 million, respectively, of net gains on disposal of assets. Included in the prior year amount is a net gain of $6.8 million related to the sale of property in Tampa, Florida.
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 (Benefit). We recorded tax expense of $0.6 million in the six months ended June 30, 2022, compared to tax benefit of $0.7 million in the prior year period. Our effective tax rate for the six months ended June 30, 2022 was (8.8)%, which differs from the federal statutory rate of 21% primarily due to the tax impact from 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.
Three months ended June 30, 2022 compared with three months ended June 30, 2021.
Three months ended June 30,
2022
2021
Amount
Percent
Amount
Percent
(dollar amounts in thousands)
Contract revenues
Marine segment
Public sector
$
52,280
63.5
%
$
44,667
69.9
%
Private sector
30,039
36.5
%
19,275
30.1
%
Marine segment total
$
82,319
100.0
%
$
63,942
100.0
%
Concrete segment
Public sector
$
7,505
6.7
%
$
6,500
7.9
%
Private sector
104,751
93.3
%
75,433
92.1
%
Concrete segment total
$
112,256
100.0
%
$
81,933
100.0
%
Total
$
194,575
$
145,875
Operating income (loss)
Marine segment
$
2,516
3.1
%
$
8,606
13.5
%
Concrete segment
(5,364)
(4.8)
%
(3,040)
(3.7)
%
Total
$
(2,848)
$
5,566
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Marine Segment
Revenues for our marine segment for the three months ended June 30, 2022 were $82.3 million compared to $63.9 million for the three months ended June 30, 2021, an increase of $18.4 million, or 28.7%. The increase was primarily driven by the start up on large jobs awarded in the second half of 2021.
Operating income for our marine segment for the three months ended June 30, 2022 was $2.5 million, compared to operating income of $8.6 million for the three months ended June 30, 2021, a decrease of $6.1 million. Excluding the impact of the sale of property in Tampa, Florida in the prior year period operating income was $2.5 million, compared to operating income of $1.8 million for the three months ended June 30, 2021, an increase of $0.7 million, or 36.8%. This increase in operating income was primarily due to the increase in revenue noted above, partially offset by the increase in SG&A expense noted above.
Concrete Segment
Revenues for our concrete segment for the three months ended June 30, 2022 were $112.3 million compared to $81.9 million for the three months ended June 30, 2021, an increase of $30.4 million, or 37.0%. This increase was primarily driven by increased cubic yard production in light commercial projects.
Operating loss for our concrete segment for the three months ended June 30, 2022 was $5.4 million, compared to $3.0 million for the three months ended June 30, 2021, an increase of $2.4 million. This increase in operating loss was primarily due to the decline in project profits due to write-downs on several projects in addition to unabsorbed indirect expenses related to additional project management labor expense.
Six months ended June 30, 2022 compared with six months ended June 30, 2021.
Six months ended June 30,
2022
2021
Amount
Percent
Amount
Percent
(dollar amounts in thousands)
Contract revenues
Marine segment
Public sector
$
109,588
65.7
%
$
86,336
63.4
%
Private sector
57,211
34.3
%
49,752
36.6
%
Marine segment total
$
166,799
100.0
%
$
136,088
100.0
%
Concrete segment
Public sector
$
12,998
6.4
%
$
11,279
6.9
%
Private sector
189,709
93.6
%
151,817
93.1
%
Concrete segment total
$
202,707
100.0
%
$
163,096
100.0
%
Total
$
369,506
$
299,184
Operating income (loss)
Marine segment
$
4,356
2.6
%
$
11,454
8.4
%
Concrete segment
(10,059)
(5.0)
%
(3,833)
(2.4)
%
Total
$
(5,703)
$
7,621
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Marine Segment
Revenues for our marine segment for the six months ended June 30, 2022 were $166.8 million compared to $136.1 million for the six months ended June 30, 2021, an increase of $30.7 million, or 22.6%. The increase was primarily driven by the start up on large jobs awarded in the second half of 2021.
Operating income for our marine segment for the six months ended June 30, 2022 was $4.4 million, compared to operating income of $11.5 million for the six months ended June 30, 2021, a decrease of $7.1 million. Excluding the impact of the sale of property in Tampa, Florida in the prior year period operating income was $4.4 million, compared to operating income of $4.7 million for the six months ended June 30, 2021, a decrease of $0.3 million, or 7.1%. This decrease in operating income was primarily due to the decrease in gross profit margin noted above and the increase in SG&A expense noted above.
Concrete Segment
Revenues for our concrete segment for the six months ended June 30, 2022 were $202.7 million compared to $163.1 million for the six months ended June 30, 2021, an increase of $39.6 million, or 24.3%. This increase was primarily driven by increased cubic yard production in light commercial projects.
Operating loss for our concrete segment for the six months ended June 30, 2022 was $10.1 million, compared to $3.8 million for the six months ended June 30, 2021, an increase of $6.3 million. This increase in operating loss was primarily due to the decline in project profits due to write-downs on several projects in addition to unabsorbed indirect expenses related to additional project management labor expense.
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. The assessment of the liquidity and going concern requires the Company to make estimates of future activity and judgments about whether the Company has adequate liquidity to operate. Significant assumptions used in the Company's forecasted model of liquidity include forecasted sales, costs, and capital expenditures. Based on a careful assessment of these factors management believes that the Company will have adequate liquidity for its operations for at least the next 12 months.
Changes in working capital are normal within our business given the varying mix in size, scope and timing of delivery of our projects. At June 30, 2022, our working capital was $30.7 million, as compared with $36.2 million at December 31, 2021. As of June 30, 2022, we had unrestricted cash on hand of $8.1 million. Our borrowing capacity at June 30, 2022 was approximately $8.4 million.
Ninth Amendment to Revolving Credit Facility
On March 1, 2022, we entered into an amended revolving line of credit and swingline loan agreement (the “Ninth Amendment”) to, among other things, waive covenant defaults, reset the revolver limit, implement an anti-cash hoarding provision and institute temporary covenant requirements. For further details of the Ninth Amendment, see Note 11 in the Notes to the Financial Statements (of this Form 10-Q).
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. Although our line of credit is reduced, we believe our forecasted cash position and available credit, including our ability to access liquidity beyond the maturing
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date of the Credit Agreement, is adequate for our general business requirements discussed above, to service our debt, and to maintain compliance with our financial covenants.
The following table provides information regarding our cash flows and our capital expenditures for the three and six months ended June 30, 2022 and 2021:
Three months ended
Six months ended
June 30,
June 30,
2022
2021
2022
2021
Net (loss) income
$
(3,054)
$
3,530
$
(7,910)
$
4,458
Adjustments to remove non-cash and non-operating items
8,018
2,609
15,069
9,504
Cash flow from net (loss) income after adjusting for non-cash and non-operating items
4,964
6,139
7,159
13,962
Change in operating assets and liabilities (working capital)
(3,348)
(3,982)
4,517
(2,687)
Cash flows provided by operating activities
$
1,616
$
2,157
$
11,676
$
11,275
Cash flows (used in) provided by investing activities
$
(4,148)
$
19,690
$
(6,958)
$
20,462
Cash flows provided by (used in) financing activities
$
3,895
$
(24,079)
$
(8,922)
$
(30,916)
Capital expenditures (included in investing activities above)
$
(4,478)
$
(3,097)
$
(8,001)
$
(4,715)
Operating Activities. During the three months ended June 30, 2022, we generated approximately $1.6 million in cash from our operating activities. The net cash inflow is comprised of $5.0 million of cash inflows from net loss, after adjusting for non-cash items, partially offset by $3.4 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 $7.3 million outflow pursuant to the relative timing and significance of project progression and billings during the period and a $1.1 million decrease in operating lease liabilities, partially offset by a $4.2 million inflow related to an increase in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and $0.8 million of inflows from the decrease in prepaid expenses and other assets.
During the six months ended June 30, 2022, we generated approximately $11.7 million in cash from our operating activities. The net cash inflow is comprised of $7.2 million of cash inflows from net loss, after adjusting for non-cash items and $4.5 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 $4.5 million of inflows from the decrease in prepaid expenses and other assets and by a $2.4 million inflow pursuant to the relative timing and significance of project progression and billings during the period, partially offset by a $2.3 million decrease in operating lease liabilities and a $0.1 million outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period.
Investing Activities. Capital asset additions and betterments to our fleet were $4.5 million in the three months ended June 30, 2022, as compared with $3.1 million in the three months ended June 30, 2021. Proceeds from the sale of property and equipment were $0.3 in the three months ended June 30, 2022, as compared with $22.8 million in the three months ended June 30, 2021.
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Capital asset additions and betterments to our fleet were $8.0 million in the six months ended June 30, 2022, as compared with $4.7 million in the six months ended June 30, 2021. Proceeds from the sale of property and equipment were $1.0 in the six months ended June 30, 2022, as compared with $24.7 million in the six months ended June 30, 2021. The decrease in proceeds from the sale of property and equipment for the three and six months ended June 30, 2022 is primarily related to the sale of our property in Tampa, Florida in the prior year period.
Financing Activities. During the three months ended June 30, 2022, we had borrowings of $5.0 million on our revolving line of credit, had payments of $0.8 million on finance lease liabilities and incurred $0.1 million of loan costs related to the Ninth Amendment of the Credit Facility.
During the six months ended June 30, 2022 we had borrowings of $5.0 million and payments of $11.6 million on our revolving line of credit, had payments of $1.5 million on finance lease liabilities and incurred $0.6 million of loan costs related to the Ninth Amendment of the Credit Facility.
Sources of Capital
As of June 30, 2022, our available sources of capital consist of cash flows from operations and borrowing availability on our revolving line of credit of $8.4 million pursuant to our Credit Facility.
Financial covenants
Restrictive financial covenants under the Credit Facility include:
• Consolidated EBITDA minimum of:
- Fiscal Quarter Ending June 30, 2022 - $7.7 million on a year-to-date basis
• Consolidated Leverage Ratio
- Fiscal Quarter Ending September 30, 2022 and each Fiscal Quarter thereafter, maximum of 3.00 to 1.00
• Consolidated Fixed Charge Coverage Ratio
- Fiscal Quarter Ending December 31, 2022 and each Fiscal Quarter thereafter, minimum of 1.25 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.
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 June 30, 2022, the capacity under our current bonding arrangement was at least $750 million, with approximately $200 million of projects being bonded. We believe our 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.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.