What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-28 compared with 2022-07-29 · 103 added, 106 removed, 180 unchanged (54% of the section changed)

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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.

The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, conversion of backlog, 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.

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, contract modifications and changes, including change orders 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.

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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.

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

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.

Orion Group Holdings, Inc., its subsidiaries and affiliates, provide 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 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.

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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.

Our bidding activity and strategies are affected by factors such 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.

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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.

Third Quarter 2022 Recap and 2022 Outlook

In the quarter ended September 30, 2022, we recorded revenues of $182.6 million, of which $76.1 million was attributable to our marine segment and the remaining $106.5 million to our concrete segment.

In addition, we ended the quarter with a consolidated backlog of $548.6 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.

Our revenues in the quarter increased by 30.5% as compared with the comparable prior year period and we recorded net income of $0.2 million, as compared with a net loss of $10.2 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.

Although to date the Company hasn’t experienced materially negative impacts from COVID-19, 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.

Marine Segment

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● 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;

● Funding for highways and transportation under successor Acts to the Fixing America’s Surface Transportation Act;

● Nearly $7 billion of federal funding provided by the US Army Core of Engineers (“USACE”) in connection with disaster recovery in Texas;

● Potential opportunities related to the federal infrastructure bill.

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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.

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.

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

September 30, 2022

June 30, 2022

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September 30, 2021

June 30, 2021

Marine segment

Concrete segment

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.

The sequential decline in backlog was due to a lower book-to-bill ratio in the concrete segment which was driven by more disciplined bidding practices and an effort to reduce exposure to under-performing projects.

We are optimistic in our end-markets and in the opportunities that are emerging across our various marketplaces as evidenced by the $1.8 billion of quoted bids outstanding at quarter end, of which $39 million we are the apparent low bidder on or have been awarded contracts subsequent to the end of the fiscal quarter ended September 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.

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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 June 30, 2022, compared with three months ended June 30, 2021.

Three months ended June 30,

Three months ended September 30, 2022 compared with three months ended September 30, 2021.

Three months ended September 30,

(dollar amounts in thousands)

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Gain on disposal of assets, net

Operating (loss) income

Operating income (loss)

Other (expense) income:

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Other expense, net

(Loss) income before income tax expense

Income tax benefit

Net (loss) income

Income (loss) before income tax expense

Income tax (benefit) expense

Net income (loss)

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.

Contract revenues for the three months ended September 30, 2022 of $182.6 million increased $42.7 million or 30.5% as compared to $139.9 million in the prior year period.

The increase was primarily driven by the start of large jobs awarded in the fourth quarter of 2021 in the marine segment, higher volume in the concrete segment, and the impact from claims and unapproved change orders recognized related to work primarily incurred in previous periods.

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.

Gross profit was $13.4 million for the three months ended September 30, 2022, compared to $6.6 million in the prior year period, an increase of $6.9 million or 104.5%.

Gross profit in the third quarter was 7.4% of total contract revenues as compared to 4.7% in the prior year period.

The increase in gross profit dollars and margin was primarily driven by the impact from claims and unapproved change orders recognized related to work primarily incurred in previous periods, the release of discretionary project bonuses and increased dredging activity as compared to the prior year period.

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%.

Selling, general and administrative (“SG&A”) expenses were $15.4 million for the three months ended September 30, 2022 compared to $15.7 million in the prior year period, a decrease of $0.3 million or 2.2%.

As a percentage of total contract revenues, SG&A expenses decreased from 11.2% to 8.5%, 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.

The decrease in SG&A dollars was driven primarily by a decrease in ERP implementation expense as compared to the prior year period, partially offset by consulting fees related to the management transition.

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.

During the three months ended September 30, 2022 and 2021, we realized $3.4 million and $0.8 million, respectively, of net gains on disposal of assets.

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,

Income Tax (Benefit) Expense.

We recorded a tax benefit of $0.2 million in the three months ended September 30, 2022, compared to tax expense of $1.0 million in the prior year period.

Our effective tax rate for the three

months ended September 30, 2022 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.

Nine months ended September 30, 2022 compared with nine months ended September 30, 2021.

Nine months ended September 30,

(dollar amounts in thousands)

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Gain on disposal of assets, net

Operating (loss) income

Operating loss

Other (expense) income:

2 unchanged sentences

Other expense, net

(Loss) income before income tax expense

Income tax expense (benefit)

Net (loss) income

Loss before income tax expense

Income tax expense

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.

Contract revenues for the nine months ended September 30, 2022 of $552.1 million increased $113.0 million or 25.7% as compared to $439.1 million in the prior year period.

The increase was primarily driven by the start of large jobs awarded in the second half of 2021 in the marine segment, higher volume in the concrete segment, and the impact from claims and unapproved change orders recognized related to work primarily incurred in previous periods.

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 was $40.6 million for the nine months ended September 30, 2022, compared to $34.3 million in the prior year period, an increase of $6.3 million or 18.2%.

Gross profit in the period was 7.3% of total contract revenues as compared to 7.8% 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.

The increase in gross profit dollars was primarily driven by the impact from claims and unapproved change orders recognized related to work primarily incurred in previous periods and the release of discretionary project bonuses.

The decrease in gross profit margin 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 claims and unapproved change orders related to work primarily incurred 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%.

SG&A expenses were $48.8 million for the nine months ended September 30, 2022 compared to $44.1 million in the prior year period, an increase of $4.7 million or 10.7%.

As a percentage of total contract revenues, SG&A expenses decreased from 10.0% to 8.8%, 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.

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, partially offset by a decrease in ERP implementation expense.

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.

During the nine months ended September 30, 2022 and 2021, we realized $4.6 million and $9.8 million, respectively, of net gains on disposal of assets.

Included in the prior year amount was 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.

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.

Income Tax Expense.

We recorded tax expense of $0.4 million in the nine months ended September 30, 2022, compared to tax expense of $0.3 million in the prior year period.

Our effective tax rate for the nine months ended September 30, 2022 was (5.5)%, 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,

Three months ended September 30, 2022 compared with three months ended September 30, 2021.

Three months ended September 30,

(dollar amounts in thousands)

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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.

Revenues for our marine segment for the three months ended September 30, 2022 were $76.1 million compared to $54.7 million for the three months ended September 30, 2021, an increase of $21.4 million, or 39.1%.

increase was primarily driven by the start of large jobs awarded in the fourth quarter of 2021 and the impact from claims and unapproved change orders recognized related to work primarily incurred in previous periods.

Operating income for our marine segment for the three months ended September 30, 2022 was $5.2 million, compared to an operating loss of $5.0 million for the three months ended September 30, 2021, an increase of $10.2 million.

This increase in operating income was primarily due to the increase in revenue noted above, the impact from claims and unapproved change orders recognized related to work primarily incurred in previous periods, the gain on the disposal of excess equipment and the release of discretionary project bonuses.

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%.

Revenues for our concrete segment for the three months ended September 30, 2022 were $106.5 million compared to $85.2 million for the three months ended September 30, 2021, an increase of $21.3 million, or 25.1%.

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,

Operating loss for our concrete segment for the three months ended September 30, 2022 was $4.1 million, compared to $3.8 million for the three months ended September 30, 2021, an increase of $0.3 million.

Nine months ended September 30, 2022 compared with nine months ended September 30, 2021.

Nine months ended September 30,

(dollar amounts in thousands)

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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.

Revenues for our marine segment for the nine months ended September 30, 2022 were $242.9 million compared to $190.8 million for the nine months ended September 30, 2021, an increase of $52.1 million, or 27.3%.

The increase was primarily driven by the start of large jobs awarded in the second half of 2021 and the impact from claims and unapproved change orders recognized related to work primarily incurred in previous periods.

Operating income for our marine segment for the nine months ended September 30, 2022 was $9.6 million, compared to operating income of $6.5 million for the nine months ended September 30, 2021, an increase of $3.1 million.

Excluding the impact of the sale of property in Tampa, Florida in the prior year period operating income was $9.6 million, compared to an operating loss of $0.2 million for the nine months ended September 30, 2021, an increase of $9.8 million.

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%.

Revenues for our concrete segment for the nine months ended September 30, 2022 were $309.2 million compared to $248.3 million for the nine months ended September 30, 2021, an increase of $60.9 million, or 24.6%.

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.

Operating loss for our concrete segment for the nine months ended September 30, 2022 was $14.1 million, compared to $7.6 million for the nine months ended September 30, 2021, an increase of $6.5 million.

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.

Historically, our source of liquidity has been cash provided by our operating activities, sale of underutilized assets, 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.

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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.

At September 30, 2022, our working capital was $34.7 million, as compared with $36.2 million at December 31, 2021.

As of September 30, 2022, we had unrestricted cash on hand of $2.7 million.

Our borrowing capacity at September 30, 2022 was approximately $10.8 million.

Ninth Amendment to Revolving Credit Facility

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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

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:

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 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 nine months ended September 30, 2022 and 2021:

Three months ended

Six months ended

Net (loss) income

Nine months ended

September 30,

Net income (loss)

Adjustments to remove non-cash and non-operating items

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

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

Change in operating assets and liabilities (working capital)

Cash flows provided by operating activities

Cash flows (used in) provided by investing activities

Cash flows provided by (used in) financing activities

Cash flows (used in) provided by operating activities

Cash flows provided by (used in) investing activities

Cash flows (used in) provided by financing activities

Capital expenditures (included in investing activities above)

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.

During the three months ended September 30, 2022, we used approximately $2.6 million in cash from our operating activities.

The net cash outflow is comprised of $7.9 million of cash outflows related to changes in net working capital, partially offset by $5.3 million of cash inflows from net income, after adjusting for non-cash items.

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 $11.1 million cash outflow pursuant to the relative timing and significance of project progression and billings during the period and a $1.2 million decrease in operating lease liabilities, partially offset by a $3.7 million cash inflow related to an increase in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and $0.7 million of cash inflows from the decrease in prepaid expenses and other assets.

During the nine months ended September 30, 2022, we generated approximately $9.1 million in cash from our operating activities.

The net cash inflow is comprised of $12.5 million of cash inflows from net income, after adjusting for non-cash items and $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 $8.7 million cash outflow pursuant to the relative timing and significance of project progression and billings during the period and a $3.5 million decrease in operating lease liabilities, partially offset by $5.2 million of cash inflows from the decrease in prepaid expenses and other assets and $3.6 million cash inflow related to an increase 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.

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.

Capital asset additions and betterments to our fleet were $2.6 million in the three months ended September 30, 2022, as compared with $6.9 million in the three months ended September 30, 2021.

Proceeds from the sale of property and equipment were $3.4 million in the three months ended September 30, 2022, as compared with $0.9 million in the three months ended September 30, 2021.

Capital asset additions and betterments to our fleet were $10.6 million in the nine months ended September 30, 2022, as compared with $11.6 million in the nine months ended September 30, 2021.

Proceeds from the sale of

property and equipment were $4.5 million in the nine months ended September 30, 2022, as compared with $25.6 million in the nine months ended September 30, 2021.

The decrease in proceeds from the sale of property and equipment for the nine months ended September 30, 2022 was 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.

During the three months ended September 30, 2022, we had borrowings of $4.0 million and payments of $6.4 million on our revolving line of credit and had payments of $0.8 million on finance lease liabilities.

During the nine months ended September 30, 2022 we had borrowings of $9.0 million and payments of $18.0 million on our revolving line of credit, had payments of $2.2 million on finance lease liabilities and incurred $0.7 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.

As of September 30, 2022, our available sources of capital consisted of cash flows from operations and borrowing availability on our revolving line of credit of $10.8 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

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and events constituting a change of control.

The Company was in compliance with all financial covenants as of September 30, 2022, with the reported consolidated leverage ratio of 2.88 to 1.00.

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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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.

At September 30, 2022, the capacity under our current bonding arrangement was at least $750 million, with approximately $210 million of projects being bonded.

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis