What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-10-28 · 57 added, 183 removed, 100 unchanged (71% of the section changed)

8 unchanged sentences

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, contract modifications and changes, including change orders 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 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, 2022 (“2022 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 2022 Form 10-K, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 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, 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.

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

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.

Its concrete segment services the building sector by providing turnkey concrete construction services including place and finish, site preparation, layout, forming, and rebar placement for large commercial structural and other associated business areas.

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

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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.

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 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.

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

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 2023.

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 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.

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-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;

● Potential opportunities related to the federal infrastructure bill.

Consolidated Results of Operations

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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.

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):

September 30, 2022

June 30, 2022

March 31, 2023

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September 30, 2022

June 30, 2022

March 31, 2022

Marine segment

Concrete segment

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.

We are optimistic in our end-markets and in the opportunities that are emerging across our various marketplaces as evidenced by the $3.1 billion of quoted bids outstanding at quarter end, of which over $610 million we have been awarded contracts subsequent to the end of the fiscal quarter ended March 31, 2023.

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

Three months ended September 30,

(dollar amounts in thousands)

Contract revenues

Cost of contract revenues

Selling, general and administrative expenses

Amortization of intangible assets

Gain on disposal of assets, net

Operating income (loss)

Other (expense) income:

Interest income

Interest expense

Other expense, net

Income (loss) before income tax expense

Income tax (benefit) expense

Net income (loss)

Contract Revenues.

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 $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 $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 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 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) 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,

Three months ended March 31, 2023 compared with three months ended March 31, 2022.

Three months ended March 31,

(dollar amounts in thousands)

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Contract Revenues.

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.

Contract revenues for the three months ended March 31, 2023 of $159.2 million decreased $15.7 million or 9.0% as compared to $174.9 million in the prior year period.

The decrease was primarily due to weather and customer delays in both businesses and a reduction of concrete segment revenue in central Texas.

Gross Profit.

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 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.

Gross profit was $5.8 million for the three months ended March 31, 2023 compared to $12.8 million in the prior year period, a decrease of $7.0 million or 54.4%.

Gross profit in the first quarter was 3.7% of total contract revenues as compared to 7.3% in the prior year period.

Approximately half of this decrease

was due to the impact of weather in Texas, which lowered labor and equipment utilization.

The rest of the remaining decrease related to clean-up of low-margin projects resulting in write-downs in both the marine and concrete businesses.

This was partly offset by actions to manage costs during project delays including reallocating equipment, reducing the size of the fleet and headcount reductions, as well as realizing margin improvements in the concrete business that reflected our margin improvement initiatives.

Selling, General and Administrative Expense.

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, partially offset by a decrease in ERP implementation expense.

Selling, general and administrative (“SG&A”) expenses were $17.0 million for the three months ended March 31, 2023 compared to $16.2 million in the prior year period, an increase of $0.8 million or 5.2%.

As a percentage of total contract revenues, SG&A expenses increased from 9.1% to 10.8%, primarily due to lower revenues in the current period.

The increase in SG&A dollars was primarily due to an increase in compensation expense, partially offset by lower consulting expense related to the completion of the management transition.

Gain on Disposal of Assets, net.

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.

During the three months ended March 31, 2023 and 2022, we realized $0.7 million and $0.8 million, respectively, of net gains on disposal of assets.

Other Income, net of Expense.

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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.

We recorded tax expense of $0.6 million in the three months ended March 31, 2023, compared to $1.3 million in the prior year period.

Our effective tax rate for the three months ended March 31, 2023 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 September 30, 2022 compared with three months ended September 30, 2021.

Three months ended September 30,

(dollar amounts in thousands)

Contract revenues

Marine segment

Public sector

Private sector

Marine segment total

Concrete segment

Public sector

Private sector

Concrete segment total

Operating income (loss)

Marine segment

Concrete segment

Marine Segment

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 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 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.

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, partially offset by the release of discretionary project bonuses.

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

Nine months ended September 30,

Three months ended March 31, 2023 compared with three months ended March 31, 2022.

Three months ended March 31,

(dollar amounts in thousands)

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Concrete segment total

Operating income (loss)

Operating (loss) income

Marine segment

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Marine Segment

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.

Revenues for our marine segment for the three months ended March 31, 2023 were $79.3 million compared to $84.5 million for the three months ended March 31, 2022, a decrease of $5.2 million, or 6.1%.

The decrease was primarily due to weather and customer delays in the current year period.

Operating loss for our marine segment for the three months ended March 31, 2023 was $6.1 million, compared to operating income of $1.8 million for the three months ended March 31, 2022, a decrease in operating income of $7.9 million.

This decrease in operating income was primarily due to decreased revenue, clean-up of low-margin projects resulting in write-downs and lower labor and equipment utilization.

Concrete Segment

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 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.

Revenues for our concrete segment for the three months ended March 31, 2023 were $79.9 million compared to $90.5 million for the three months ended March 31, 2022, a decrease of $10.6 million, or 11.7%.

This decrease was primarily due to weather and customer delays and a reduction of revenue in central Texas.

Operating loss for our concrete segment for the three months ended March 31, 2023 was $4.6 million, compared to $4.7 million for the three months ended March 31, 2022, a decrease in operating loss of $0.1 million.

This decrease in operating loss was primarily due to lower indirect costs due to the winding down of the central Texas region, partially offset by the write-downs on several projects in the central Texas region.

Liquidity and Capital Resources

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

At March 31, 2023, our working capital was $21.8 million, as compared with $31.1 million at December 31, 2022.

As of March 31, 2023, we had unrestricted cash on hand of $2.8 million.

Our borrowing capacity under our revolving credit facility at March 31, 2023 was approximately $1.0 million.

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, 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.

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 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

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 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:

The assessment of the liquidity and going concern requires us to make estimates of future activity and judgments about whether we are compliant with financial covenant calculations under our debt and other agreements and have adequate liquidity to operate.

Significant assumptions used in our forecasted model of liquidity include forecasted sales, costs, and capital expenditures;

expected timing and proceeds of planned real estate transactions.

The following table provides information regarding our cash flows and our capital expenditures for the three months ended March 31, 2023 and 2022:

Three months ended

Nine months ended

September 30,

Net income (loss)

Adjustments to remove non-cash and non-operating items

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

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

Change in operating assets and liabilities (working capital)

Cash flows (used in) provided by operating activities

Cash flows provided by (used in) investing activities

Cash flows (used in) provided by financing activities

Cash flows used in investing activities

Cash flows provided by (used in) financing activities

Capital expenditures (included in investing activities above)

Operating Activities.

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.

During the three months ended March 31, 2023, we used approximately $3.0 million in cash from our operating activities.

The net cash outflow is comprised of $5.9 million of cash outflows from net income, after adjusting for non-cash items, partially offset by $2.9 million of inflows related to changes in net working capital.

The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Condensed Consolidated Statements of Cash Flows, were primarily driven by a $12.7 million cash inflow pursuant to the relative timing and significance of project progression and billings during the period and $0.8 million of other inflows, partially offset by a $7.9 million cash outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period, a $1.5 million cash outflow from the increase in prepaid expenses and a $1.2 million decrease in operating lease liabilities.

Investing Activities.

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.

Capital asset additions and betterments to our fleet were $1.9 million in the three months ended March 31, 2023, as compared with $3.5 million in the three months ended March 31, 2022.

Proceeds from the sale of property and equipment were $0.6 million in the three months ended March 31, 2023, as compared with $0.7 million in the three months ended March 31, 2022.

Financing Activities.

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.

During the three months ended March 31, 2023, we had borrowings of $5.0 million on our revolving line of credit and had payments of $0.8 million on finance lease liabilities, loan costs of $0.6 million and a cash outflow of $0.2 million for payments related to tax withholdings for share-based compensation.

Sources of Capital

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 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.

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.

We obtained from the Credit Facility lenders an extension of the consent with respect to the delivery of our annual financial statements with an audit opinion unqualified as to going concern and a consent for the Consolidated Leverage Ratio to exceed 3.00 to 1.00 and for the Consolidated Fixed Charge Coverage Ratio to be less than 1.25 to 1.00 for the Fiscal Quarter Ending March 31, 2023

On May 15, 2023, we entered into a new three-year $103.0 million senior secured credit facility with White Oak which includes a $65.0 million asset based revolving credit facility and a $38.0 million fixed asset term loan.

See Note 19 in the Notes to the Financial Statements (of this Form 10-Q) for further discussion on the Company’s Debt Refinancing.

Bonding Capacity

1 unchanged sentence

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

At March 31, 2023, 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.

3 unchanged sentences

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