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Item 7. Management’s Discussion and Analysis

2024-03-01 compared with 2023-03-16 · 145 added, 163 removed, 186 unchanged (62% of the section changed)

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes beginning on page F-1 of this Annual Report on Form 10-K.

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and its consolidated subsidiaries.

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 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.

Orion Group Holdings, Inc.

and subsidiaries, (hereafter collectively referred to as the “Company”), is a leading specialty construction company serving the infrastructure, industrial, and building sectors, providing services both on and off the water in the continental United States, Alaska, Hawaii, Canada and the Caribbean Basin through its marine segment and its concrete segment.

Our marine segment provides construction and dredging services including marine transportation facility construction, marine pipeline construction, marine environmental structures construction, dredging of waterways, channels and ports, environmental dredging, design, and specialty services related to marine construction, fabrication, and dredging.

Our concrete segment provides turnkey concrete construction services including concrete surface place and finish, site preparation, layout, forming, and rebar placement for large commercial, structural and other associated business areas.

We are headquartered in Houston, Texas with regional offices throughout our 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.

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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.

We 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.

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

● subcontractor performance;

● unforeseen site conditions;

● availability and skill level of workers;

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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.

Our independent registered public accounting firm has included an explanatory paragraph describing the uncertainty about our ability to continue as a going concern in its report contained in this Annual Report.

See “Liquidity and Capital Resources” below for more information.

2023 Recap and 2024 Outlook

In 2022, we recorded revenues of $748.3 million, of which $339.2 million was attributable to our marine segment and the remaining $409.1 million to our concrete segment.

In addition, we ended 2022 with a consolidated backlog of $448.8

Our revenues in 2022 increased by 24.4% as compared with 2021 and we recorded a net loss of $12.6 million, as compared with net loss of $14.6 million in the prior year.

Looking toward 2023, the Company continues to focus on developing opportunities across the infrastructure, industrial, and building sectors through organic growth.

Although to date the Company hasn’t experienced materially negative impacts from COVID-19, we have had and may continue to see some disruption to our operations due to variants of the COVID-19 virus that caused temporary increases in absenteeism rates among our workforce and other impacts to supply chains and labor markets.

In 2023, we recorded revenues of $711.8 million, a decrease of 4.9% as compared with 2022.

$395.9 million of total revenue was attributable to our marine segment and the remaining $315.9 million to our concrete segment.

Our net loss was $17.9 million, as compared with net loss of $12.6 million in the prior year.

In addition, we ended 2023 with a consolidated backlog of $762.2 million.

At the end of 2022, management outlined a strategic plan to improve the profitability of the concrete segment, strengthen business development to drive growth, and make investments in critical resources that would help realize the full potential of our business.

During 2023, the concrete segment generated a profit beginning in the third quarter of 2023.

On the business development front, we attracted experienced business development executives including a leader for the new role of corporate growth and strategy, and head of business development in Louisiana.

We invested in training and tools to engage our entire staff in fully understanding our business objectives, and to embrace a growth mindset through collaboration across disciplines.

These were important steps in strengthening our culture, leveraging best practices, driving synergies, and cross-selling capabilities.

In May, we closed a $103 million asset-based lending credit facility which included a term loan of $38 million and a revolving credit facility of up to $65 million.

In addition, we closed $25.8 million in equipment and real estate sale-leaseback transactions in the year.

Looking to 2024, we will continue to execute our strategic plan focused on developing opportunities across the infrastructure, industrial, and building sectors.

Marine Segment

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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.

Cruise line capital expenditures have yet to recover significantly from the pullback due to COVID-19, however we anticipate that, with continued recovery of end customer demand, we will see renewed interest in capital improvements from these customers.

Opportunities from local port authorities and private clients are expected to expand over the long-term due to the need to accommodate larger ships and deeper drafts because of the expanded Panama Canal.

Though the pace of bidding opportunities from the U.S.

Army Corps of Engineers slowed towards the end of 2022, significant approved funding for USACE projects leads us to believe that we will see this translate into an increase in bid opportunities as we progress through 2023.

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.

The Coastal Protection and Restoration Authority (“CPRA”) has a $1.35 billion budget for fiscal 2023, and our capabilities are well-suited to win a portion of this spending.

In addition to these, the $1.2 trillion Infrastructure Investment and Jobs Act contains billions of dollars allocated to ports and water infrastructure, bridges, and causeways.

In addition, the $1.2 trillion Infrastructure Investment and Jobs Act contains billions of dollars allocated to ports and water infrastructure, bridges, and causeways.

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

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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 macroeconomic impacts.

We currently see long-term demand for our concrete construction services in the Texas building sector as Texas’ major metropolitan areas, and expanding suburbs, continuously retain their positions as leading destinations for population and business growth.

Demand for our concrete segment’s services continues, although timing of certain new project releases could be delayed as a result of inflation, interest rates, labor concerns, supply chain delays and macroeconomic impacts.

We currently see long-term demand for our concrete construction services in the Texas building sector as Texas’s major metropolitan areas, and expanding suburbs continue to be leading locations 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.

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● Nearly $7 billion of federal funding provided by the USACE in connection with disaster recovery in Texas;

● Potential opportunities related to the Infrastructure Investment and Jobs Act (IIJA).

● Potential opportunities related to the IIJA.

Consolidated Results of Operations

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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.

We have not been adversely affected by contract cancellations or modifications in the past, however we may be in the future, especially in periods of economic uncertainty.

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

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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 $2.4 billion of quoted bids outstanding at quarter end, of which over $582 million we are the apparent low bidder on or have been awarded contracts subsequent to the end of the fiscal year ended December 31, 2022.

We are optimistic in our end-markets and in the opportunities that are emerging across our various marketplaces as evidenced by the $3.0 billion of quoted bids outstanding at quarter end, of which over $121 million resulted in the award of contracts subsequent to the end of the fiscal year ended December 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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Gain on disposal of assets, net

Operating (loss) income

Intangible asset impairment loss

Operating loss

Other (expense) income:

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Other expense, net

(Loss) income before income tax expense

Loss before income tax expense

Income tax expense

Net (loss) income

Year ended December 31, 2023 compared with year ended December 31, 2022

Contract Revenues.

Contract revenues for the year ended December 31, 2023 of $711.8 million decreased $36.5 million or 4.9% as compared to $748.3 million in the prior year period.

The decrease was primarily due to weather and customer delays in both businesses in the first quarter of 2023 and a reduction of concrete segment revenue in central Texas, partially offset by an increase in marine revenue primarily related to the Pearl Harbor Project.

Gross Profit.

Gross profit was $61.7 million for the year ended December 31, 2023, compared to $50.7 million in the prior year period, an increase of $11.0 million or 21.5%.

Gross profit was 8.7% of total contract revenues in the year ended December 31, 2023, compared to 6.8% in the prior year period.

The increase in gross profit dollars and margin was primarily due to actions to manage costs during project delays, including reallocating equipment, reducing the size of the fleet, headcount reductions, and realizing margin improvements in the concrete business that reflected our margin improvement initiatives.

Selling, General and Administrative Expenses.

Selling, General and Administrative (“SG&A”) expenses were $69.4 million for the year ended December 31, 2023, compared to $62.5 million in the prior year period, an increase of $6.9 million, or 11.1%.

As a percentage of total contract revenues, SG&A expenses increased from 8.4% to 9.8% for the year ended December 31, 2023 and December 31, 2022, respectively.

The increase in SG&A dollars and percentage was primarily due to the decrease in concrete segment revenue, an increase in bonus expense as a result of our strong performance relative to the budget and the addition of strategic new leadership positions in the year ended December 31, 2023, partially offset by lower consulting expense related to the completion of the management transition.

Gain on Disposal of Assets, net.

During the year ended December 31, 2023 and 2022, we realized $8.5 million and $5.0 million, respectively, of net gains on disposal of assets.

Included in the current year amount is a net gain of $5.2 million related to the sale-leaseback of our Port Lavaca South Yard property in Texas.

See Note 10 of the Notes to the Financial Statements in this Form 10-K for a further description of the sale of property.

Intangible Asset Impairment Loss.

During the year ended December 31, 2023, we recorded a $6.9 million intangible asset impairment loss due to our strategic decision to rebrand the concrete segment under the Orion banner.

The segment had previously operated under its prior name, TAS Concrete Construction, since its acquisition in 2015.

The rebranding reflects a strategic initiative to integrate our different service offerings under one banner to leverage Orion’s brand reputation and

to deliver greater value and seamless execution for our customers.

See Note 8 of the Notes to the Financial Statements in this Form 10-K for a further discussion of the intangible asset impairment loss.

Other Expense, net.

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

Interest expense for the year ended December 31, 2023 of $11.7 million increased $7.2 million, as compared to $4.5 million in the prior year period.

This increase was primarily due to an increase in the weighted average interest rate from 6.23% in the prior year period to 12.00% in the current year period as a result of the terms of our new Credit Agreement with White Oak and an increase in the weighted average debt outstanding in the current year period as compared to the prior year period.

Income Tax Expense.

We recorded tax expense of $0.3 million in the year ended December 31, 2023, compared to tax expense of $0.4 million in the prior year period.

Our effective tax rate for the year ended December 31, 2023 was (1.9)%, 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.

Year ended December 31, 2022 compared with year ended December 31, 2021

Contract Revenues.

Contract revenues for the year ended December 31, 2022 of $748.3 million increased $146.9 million or 24.4% as compared to $601.4 million in the prior year period.

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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.

Selling, General and Administrative Expense.

Selling, General and Administrative Expenses.

SG&A expenses were $62.5 million for the year ended December 31, 2022, compared to $60.2 million in the prior year period, an increase of $2.3 million or 3.9%.

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Included in the prior year amount is a net gain of $6.7 million related to the sale of property in Tampa, Florida.

See Note 6 in this form 10-K for a further description of the sale of property.

Other Income, net of Expense.

Other Expense, net.

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

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Our effective tax rate for the year ended December 31, 2022 was (3.5)%, 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.

Year ended December 31, 2021 compared with year ended December 31, 2020

Contract Revenues.

Contract revenues for the year ended December 31, 2021 of $601.4 million decreased $108.5 million or 15.3% as compared to $709.9 million in the prior year period.

The decrease was primarily driven by a reduction in project activity compared to the prior year in the marine segment as a result of reduced and/or delayed bid opportunities due to the continued impacts from COVID 19 on the industries in which we serve .

Gross Profit.

Gross profit was $41.0 million for the year ended December 31, 2021, compared to $84.7 million in the prior year period, a decrease of $43.7 million or 51.6%.

Gross profit in the period was 6.8% of total contract revenues as compared to 11.9% in the prior year period.

The decrease in gross profit dollars and percentage was driven by the decreased activity and volumes which negatively impacted revenue and contributed to an under recovery of indirect costs primarily related to decreased labor and equipment utilization.

We also incurred decreased project performance in our concrete segment.

Selling, General and Administrative Expense.

Selling, general and administrative expenses were $60.2 million for the year ended December 31, 2021 compared to $65.1 million in the prior year period, a decrease of $4.9 million or 7.5%.

As a percentage of total contract revenues, SG&A expenses increased from 9.3% to 10.0% primarily as a result of the reduced revenue noted above.

The decrease in SG&A dollars was driven by a decrease in the current year period related to bonus expense, business development costs pursuant to timing of project pursuits and awards and travel related costs.

Gain on Disposal of Assets, net.

During the year ended December 31, 2021 and 2020, we realized $11.4 million and $9.0 million, respectively, of net gains on disposal of assets.

Included in the current year amount is a net gain of $6.7 million related to the sale of property in Tampa, Florida.

Included in the prior year amount is a $2.9 million net gain on insurance recoveries.

Other Income, net of Expense.

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

Interest expense for the current year period included $2.1 million related to the extinguishment of our term loan and related interest rate swaps.

Income Tax Expense.

We recorded tax expense of $0.5 million in the year ended December 31, 2021, compared to tax expense of $2.0 million in the prior year period.

Our effective tax rate for the year ended December 31, 2021 was (3.6)%, which differs from the federal statutory rate of 21% primarily due to the valuation allowance related to the current year net loss.

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.

Year ended December 31,

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Revenues for our marine segment for the year ended December 31, 2023 were $395.9 million compared to $339.2 million for the year ended December 31, 2022, an increase of $56.7 million, or 16.7%.

The increase was primarily related to the Pearl Harbor Project.

Operating income for our marine segment for the year ended December 31, 2023 was $3.7 million, compared to operating income of $9.8 million for the year ended December 31, 2022, a decrease of $6.1 million.

Adjusted for the $5.2 million gain on the Port Lavaca South Yard property sale-leaseback in Texas, operating loss for the year ended December 31, 2023 was $1.5 million or a decrease of $11.3 million.

This decrease in operating income was primarily due to lower equipment utilization, and higher SG&A in the current year.

Concrete Segment

Revenues for our concrete segment for the year ended December 31, 2023 were $315.9 million compared to $409.1 million for the year ended December 31, 2022, a decrease of $93.2 million, or 22.8%.

This decrease was primarily due to a reduction of revenue resulting from winding down operations in Central Texas.

Operating loss for our concrete segment for the year ended December 31, 2023 was $10.3 million, compared to $17.8 million for the year ended December 31, 2022, a decrease in operating loss of $7.5 million.

Adjusted for the $6.9 million intangible asset impairment loss on the TAS Commercial Concrete tradename, operating loss for the year ended December 31, 2023 was $3.4 million, or a decrease in operating loss of $14.4 million.

This decrease in operating loss was primarily due to lower indirect costs due to winding down operations in Central Texas.

Year ended December 31, 2022 compared with year ended December 31, 2021

Marine Segment

Revenues for our marine segment for the year ended December 31, 2022 were $339.2 million compared to $263.9 million for the year ended December 31, 2021, an increase of $75.3 million, or 28.5%.

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.

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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.

Year ended December 31, 2021 compared with year ended December 31, 2020

Marine Segment

Revenues for our marine segment for the year ended December 31, 2021 were $263.9 million compared to $388.2 million for the year ended December 31, 2020, a decrease of $124.3 million, or 32.0%.

The decrease was primarily attributable to a reduction in project activity compared to the prior year period.

Operating income for our marine segment for the year ended December 31, 2021 was $5.8 million, compared to operating income of $29.8 million for the year ended December 31, 2020, a decrease of $24.0 million.

Excluding the impact of the sale of property in Tampa, Florida in the current year and the net gain on insurance recoveries and the recovery on a disputed receivable in the prior year operating loss was $0.6 million for the year ended December 31, 2021, compared to operating income of $26.1 million for the year ended December 31, 2020, a decrease of $26.7 million.

This decrease in operating income was primarily due to the decrease in revenue noted above and related under recovery of indirect costs as a result of decreased labor and equipment utilization.

Concrete Segment

Revenues for our concrete segment for the year ended December 31, 2021 were $337.5 million compared to $321.8 million for the year ended December 31, 2020, an increase of $15.7 million, or 4.9%.

This increase resulted from increased production volumes in the current year period.

Operating loss for our concrete segment for the year ended December 31, 2021 was $15.1 million, compared to $3.2 million for the year ended December 31, 2020, an increase in operating loss of $11.9 million.

This increase in operating loss was primarily due to decreased project performance and lower margins on several projects during the 2021 period.

Liquidity and Capital Resources

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

At December 31, 2023, our working capital was $55.9 million, as compared with $31.1 million at December 31, 2022.

As of December 31, 2023, we had unrestricted cash on hand of $30.9 million.

Our borrowing availability under our revolving portion of our Credit Agreement at December 31, 2023 was approximately $47.7 million.

Our primary liquidity needs are to finance our working capital and fund capital expenditures.

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 our liquidity 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, as well as expected timing and proceeds of planned real estate transactions.

The following table provides information regarding our cash flows and our capital expenditures for the years ending December 31, 2023, 2022 and 2021:

Adjustments to remove non-cash and non-operating items

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

Change in operating assets and liabilities (working capital)

Cash flows provided by operating activities

Cash flows provided by (used in) investing activities

Cash flows provided by (used in) financing activities

Capital expenditures (included in investing activities above)

Operating Activities.

During 2023, we generated approximately $17.2 million in cash from our operating activities.

The net cash inflow is comprised of $14.8 million of cash inflows from net income, after adjusting for non-cash items and $2.4 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 Consolidated Statements of Cash Flows, were primarily driven by a $21.4 million inflow related to an increase in our net position of accounts receivable and accounts payable plus accrued liabilities during the period, partially offset by a $11.3 million outflow pursuant to the relative timing and significance of project progression and billings during the period, a $6.8 million decrease in operating lease liabilities during the period, and $0.9 million of other cash outflows.

During 2022, we generated approximately $9.6 million in cash from our operating activities.

The net cash inflow is comprised of $14.8 million of cash inflows from net income, after adjusting for non-cash items and $5.2 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 Consolidated Statements of Cash Flows, were primarily driven by a $4.7 million decrease in operating lease liabilities during the period and a $4.7 million outflow pursuant to the relative timing and significance of project progression and billings during the period, partially offset by a $4.1 million inflow related to an increase in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and $0.1 million of other cash inflows.

During 2021, we generated approximately $0.1 million in cash from our operating activities.

The net cash inflow is comprised of $8.2 million of cash inflows from net income, after adjusting for non-cash items and $8.1 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 Consolidated Statements of Cash Flows, were primarily driven by a $2.4 million outflow pursuant to the relative timing and significance of project progression and billings during the period, a $1.3 million outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and a $4.9 million decrease in operating lease liabilities during the period, partially offset by $0.5 million of other cash inflows.

Investing Activities.

Capital asset additions and betterments to our fleet were $8.9 million in 2023, as compared with $14.6 million and $17.0 million in 2022 and 2021, respectively.

Proceeds from the sale of property and equipment were $11.1 million in 2023, as compared with $4.9 million and $27.2 million in 2022 and 2021, respectively.

Included in the year ended December 31, 2023 is $8.1 million of proceeds related to the sale-leaseback of the Port Lavaca South Yard property in Texas.

Financing Activities.

During the year ended December 31, 2023, we had borrowings of $5.0 million from our prior credit agreement, $38.0 million from the term loan portion of our new Credit Agreement and borrowings of $64.0 million on the revolving credit line under our new Credit Agreement, repayments of $40.0 million on our prior credit agreement, repayments of $64.0

million on the revolving credit line under our new Credit Agreement, proceeds from failed sales-leasebacks of $14.7 million, proceeds of $2.4 million related to the Port Lavaca land sale-leaseback financing, loan costs of $6.5 million, payments on finance lease liabilities of $4.8 million and a cash outflow of $0.5 million for payments related to tax withholdings for share-based compensation.

During the year ended December 31, 2022, we drew down $24.0 million from our revolving line of credit under our prior credit agreement.

During the year ended December 31, 2022, we repaid $28.0 million on our revolving line of credit under our prior credit agreement, had payments of $3.0 million on finance lease liabilities and incurred $0.7 million of loan costs related to the ninth amendment to our prior credit agreement.

During the year ended December 31, 2021, we drew down $53.0 million from our revolving line of credit under our prior credit agreement.

During the year ended December 31, 2021, we repaid $19.0 million on our revolving line of credit under our prior credit agreement.

During the year ended December 31, 2021, we fully extinguished the term loan portion of our prior credit agreement, in part using proceeds from the sale of property in Tampa, Florida.

Concurrent with extinguishing the term loan, we canceled the remaining open position on our interest rate swap, resulting in a $1.3 million loss on the mark to market value of the swap at the date of termination.

The $1.3 million was paid to the counterparty, cleared from the balance sheet as an interest rate swap liability, removed from Other Comprehensive Income and charged to interest expense during the year ended December 31, 2021.

Further, the remaining $0.8 million of unamortized deferred debt issuance costs were charged to interest expense related to the early extinguishment of the term loan.

There were no penalties incurred related to early payment of the term loan.

Sources of Capital

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

Please s ee Note 10 of the Notes to the Financial Statements for further discussion.

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 December 31, 2023, the capacity under our current bonding arrangement was at least $750 million, with approximately $575 million of projects being bonded.

While we believe that our current bonding capacity is sufficient to satisfy current demand for our services, any new major project opportunities may require us to seek additional bonding capacity in the future.

We believe our balance sheet and working capital position will allow us to access additional bonding capacity as needed in the future.

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 cost increases in the pricing of our bids.

Off Balance Sheet Arrangements

Currently our only off-balance sheet arrangements are those discussed above under “Bonding Capacity” and those which arise in the normal course of business.

These arrangements are not reasonably likely to have an effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Critical Accounting Estimates

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Our projects are typically short in duration and usually span a period of less than one year.

We determine the appropriate accounting treatment for each contract before work begins and generally record revenue on contracts over time.

We determine the appropriate accounting treatment for each contract before work begins and record revenue on contracts over time.

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

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This method is used because management considers contract costs incurred to be the best available measure of progress on these contracts.

These estimates are

subject to uncertainties and require judgment.

These estimates are subject to uncertainties and require judgment.

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

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Revenue is recorded net of any sales taxes collected and paid on behalf of the customer, if applicable.

Contract revenue is derived from the original contract price as modified by agreed-upon change orders and estimates of variable consideration related to incentive fees and change orders or claims for which price has not yet been agreed by the customer.

We estimate variable consideration based on our assessment of the most likely amount to which we expect to be entitled.

Variable consideration is included in the estimated recognition of revenue to the extent it is probable that a significant reversal of cumulative recognized revenue will not occur.

A determination that the collection of a claim is probable is based upon our evaluation of its compliance with the terms of the contract and the extent to which we performed in accordance therewith but does not guarantee collection in full.

Long-Lived Assets

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Fixed assets are carried at cost and are depreciated over their estimated useful lives, ranging from one to 30 years, using the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes.

The carrying value of our long-lived assets is evaluated periodically based on utilization of the asset and physical condition of the asset, as well as the useful life of the asset to determine if adjustment to the depreciation period or the carrying value is warranted.

The carrying value of our long-lived assets is

evaluated periodically based on utilization of the asset and physical condition of the asset, as well as the useful life of the asset to determine if adjustment to the depreciation period or the carrying value is warranted.

If events and circumstances such as poor utilization or deteriorated physical condition indicate that the asset(s) should be reviewed for possible impairment, we use projections to assess whether future cash flows, including disposition, on a non-discounted basis related to the tested assets are likely to exceed the recorded carrying amount of those assets to determine if an impairment exists.

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Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those

temporary differences are expected to be recovered or settled.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Under the liability method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

8 unchanged sentences

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

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

The concrete segment maintains five levels of excess loss insurance coverage,

totaling $300 million in excess of primary coverage.

This excess loss coverage responds to most of its liability policies when a primary limit of $1 million has been exhausted.

8 unchanged sentences

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

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 December 31, 2022, our working capital was $31.1 million, as compared with $36.2 million at December 31, 2021.

As of December 31, 2022, we had unrestricted cash on hand of $3.8 million.

Our borrowing capacity under our revolving credit facility at December 31, 2022 was approximately $6.0 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 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.

Going Concern

As described in Note 11 of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K, we had $35.0 million of outstanding indebtedness under our Credit Facility as of December 31, 2022 which matures on July 31, 2023.

As of the date of these financial statements, our existing cash and cash equivalents are not sufficient to satisfy our operating cash needs for at least one year after the issuance of these financial statements.

To alleviate these conditions, we are engaged in a syndication process to refinance the outstanding debt.

Based on the advanced nature of our discussions, the completion of substantial due diligence by potential lenders, agreement among the parties on key terms of a new credit facility, and the expected timeline for documentation and execution of a new credit agreement, Management believes it will successfully complete a refinancing transaction prior to the maturity of the current credit facility.

Additionally, we are exploring sales of underutilized assets as a source of liquidity.

Our ability to continue as a going concern is dependent on our ability to successfully refinance the credit facility, sale of underutilized assets and continue operations in forthcoming reporting periods.

As our refinancing activities are ongoing, there can be no assurances that we will be able to secure financing on terms that are acceptable to us or at all.

These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued.

While management has developed and is in process to implement plans that management believes could alleviate in the future the substantial doubt that was raised, management concluded at the date of the issuance of the financial statements that substantial doubt exists as those plans are not within the control of management.

Our consolidated financial statements do not include adjustments, if any, that may arise from the outcome of this uncertainty.

There is an explanatory paragraph included in the report of our independent registered public accounting firm describing the uncertainty about our ability to continue as a going concern, which is considered an event of noncompliance under our Credit Facility.

Management has obtained a consent with respect to the delivery of annual financial statements with an audit opinion unqualified as to going concern from the Credit Facility lenders, and we are compliant with the financial covenants of the credit agreement.

Please see “Risk Factors – Risk Factors Relating to Our Indebtedness and Financing Plans”.

The following table provides information regarding our cash flows and our capital expenditures for the years ending December 31, 2022, 2021 and 2020:

Net (loss) income

Adjustments to remove non-cash and non-operating items

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

Change in operating assets and liabilities (working capital)

Cash flows provided by operating activities

Cash flows (used in) provided by investing activities

Cash flows(used in) provided by financing activities

Capital expenditures (included in investing activities above)

Operating Activities.

During 2022, we generated approximately $9.6 million in cash from our operating activities.

The net cash inflow is comprised of $14.8 million of cash inflows from net income, after adjusting for non-cash items and $5.2 million of cash outflows related to changes in net working capital.

During 2021, we generated approximately $0.1 million in cash from our operating activities.

The net cash inflow is comprised of $8.2 million of cash inflows from net income, after adjusting for non-cash items and $8.1 million of cash outflows related to changes in net working capital.

million outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and a $4.9 million decrease in operating lease liabilities during the period, partially offset by $0.5 million of other cash inflows.

During 2020, we generated approximately $46.0 million in cash from our operating activities.

The net cash inflow is comprised of $46.5 million of cash inflows from net income, after adjusting for non-cash items, partially offset by $0.5 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 Consolidated Statements of Cash Flows, were primarily driven by a $6.5 million outflow pursuant to the relative timing and significance of project progression and billings during the period, a $5.4 million decrease in operating lease liabilities during the period and $1.3 million of other outflows, partially offset by a $12.7 million inflow 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 $14.6 million in 2022, as compared with $17.0 million and $14.7 million in 2021 and 2020, respectively.

Proceeds from the sale of property and equipment were $4.9 million in 2022, as compared with $27.1 million and $5.9 million in in 2021 and 2020, respectively.

The increase in proceeds from the sale of property and equipment for the year ended December 31, 2021 is primarily related to the sale of our property in Tampa, Florida.

Financing Activities.

During the year ended December 31, 2022, we drew down $24.0 million from our revolving line of credit.

During the year ended December 31, 2022, we repaid $28.0 million on our revolving line of credit, had payments of $3.0 million on finance lease liabilities and incurred $0.7 million of loan costs related to the Ninth Amendment of the Credit Facility.

During the year ended December 31, 2021, we drew down $53.0 million from our revolving line of credit.

During the year ended December 31, 2021, we repaid $19.0 million on our revolving line of credit.

During the year ended December 31, 2021, we fully extinguished the term loan portion of our Credit Facility, in part using proceeds from the sale of property in Tampa, Florida.

The extinguishment of the term loan reduced our exposure to variability in interest rates and eliminated future loan amortization payment commitments.

Further, the remaining $0.8 million of unamortized deferred debt issuance costs were charged to interest expense related to the early extinguishment of the term loan.

There were no penalties incurred related to early payment of the term loan.

During 2020, we drew down $10.0 million from our revolving line of credit.

Additionally, we repaid $41.0 million on our revolving line of credit, as well as made the regularly scheduled debt payment on the term loan of $3.8 million and an additional principal paydown of $3.4 million with proceeds from the sale of equipment.

Sources of Capital

Financial covenants

Restrictive financial covenants under the Credit Facility include:

• Consolidated Leverage Ratio

- Fiscal Quarter Ending December 31, 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 December 31, 2022, with the reported consolidated leverage ratio of 2.38 to 1.00 and the reported consolidated fixed charge coverage ratio of 1.76 to 1.00.

See Note 11 of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K for further discussion on the Company’s Debt.

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 December 31, 2022, the capacity under our current bonding arrangement was at least $750 million, with approximately $175 million of projects being bonded.

We are confident that our balance sheet and working capital position are sufficient to allow us to continue to access bonding capacity necessary to pursue and deliver projects.

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.

Off Balance Sheet Arrangements

Currently our only off balance sheet arrangements are those discussed above under “Bonding Capacity” and those which arise in the normal course of business.

See Note 17 of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.

Recently Issued Accounting Pronouncements

See Note 2 of the Notes to the Financial Statements (Part IV, Item 15 of this Form 10-K) for further discussion.

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-K

Item 7. Management’s Discussion and Analysis