What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 154 added, 74 removed, 183 unchanged (55% of the section changed)

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Impact of Covid-19 on Our Business

The coronavirus (“Covid-19”) pandemic has resulted in governmental authorities around the world implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns (subject to exceptions for certain essential operations and businesses).

The Covid-19 outbreak and restrictions intended to slow the spread of Covid-19 have caused economic and social disruption on an unprecedented scale.

The full extent to which Covid-19 impacts our operations will depend on future developments, which are highly uncertain, including, among others, the duration of the pandemic, resurgences of Covid-19 and variants, the availability, effectiveness and public acceptance of FDA-approved Covid-19 vaccines, and the actions taken, especially those by governmental authorities, to contain its spread or treat its impact.

Health and Safety

In response to the Covid-19 pandemic, we have taken and will continue to take temporary precautionary measures intended to help minimize the risk of Covid-19 to our employees, including requiring the majority of our employees to work remotely, suspending non-essential travel and restricting in-person work-related meetings.

We expect to continue to implement these measures until it has determined that the Covid-19 pandemic is adequately contained for

purposes of our business, and may take further actions as government authorities require or recommend or as it determines to be in the best interests of our employees, customers, business partners and third-party service providers.

Financial Position and Results of Operations

The Covid-19 pandemic and efforts to limit its spread negatively impacted our operations during our fiscal year 2020 and continued to impact us, albeit to a lesser extent, during the first quarter of fiscal year 2021.

The coronavirus (“Covid-19”) pandemic and efforts to limit its spread negatively impacted our operations during our fiscal year 2020 and continued to impact us, albeit to a lesser extent, during the first quarter of fiscal year 2021.

In California and New York, the states in which we have historically derived a majority of our revenue, mandatory shutdown orders were issued in March 2020.

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In California, phased re-openings began in May 2020, followed by periods of curtailments as a result of resurgences of Covid-19 cases, and subsequent re-openings.

As a result, the most significant pandemic related impacts to our business are now occurring in California to our direct install business as re-openings are still in progress .

In addition, as of May 5, 2021, though some of our work has been suspended, none of our contracts have been cancelled.

In the Energy segment, we have experienced a negative impact on our direct install programs that serve small businesses as a result of restrictions put in place by governmental authorities that required temporary shutdowns of all “non-essential” businesses which resulted in a significant portion of our direct install work on these programs being suspended for varying periods of time during fiscal year 2020 and continuing in California through our first fiscal quarter of 2021.

As a result, the most significant pandemic related impacts to the our business occurred in California to our direct install business.

During the last week of June 2021, our largest program for the Los Angeles Department of Water and Power (“LADWP”) resumed, which was our last program suspended due to Covid-19.

In addition, as of August 4, 2021, none of our contracts have been cancelled due to Covid-19.

During non-Covid-19 impacted years, such as fiscal year 2019, we derived approximately 40% of our gross revenue from our direct install programs that serve small businesses and 60% from our other programs.

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Asset and liability valuation and other estimates used in preparation of financial statements

As of April 2, 2021, we did not have any impairment with respect to goodwill or long-lived assets, including intangible assets.

As of July 2, 2021, we did not have any impairment with respect to goodwill or long-lived assets, including intangible assets.

Because the full extent of the impact of the Covid-19 outbreak and efforts to slow its spread are unknown at this time, they could, under certain circumstances, cause impairment and result in a non-cash impairment charge being recorded in future periods.

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Some of these customers could experience significant budget shortfalls for the current year and beyond as a result of the measures taken to mitigate the Covid-19 pandemic and/or revenue shortfalls as a result of reduced economic activity.

Although none of our contracts with governmental or public agencies were materially modified during our first fiscal quarter of 2021, these potential budget deficits could result in delayed funding for existing contracts with us, postponements of new contracts or price concessions.

Further, most of our clients are not committed to purchase any minimum amount of services, as our agreements with them are based on a “purchase order” model.

Although none of our contracts with governmental or public agencies were materially modified during our fiscal year 2020 or during our first half of fiscal half of 2021, these potential budget deficits could result in delayed funding for existing contracts with us, postponements of new contracts or price concessions.

Further, most of our clients are not committed to purchase any minimum amount of services, as our agreements with them are based on a “purchase order” or “master service agreement” model.

As a result, they may discontinue utilizing some or all of our services with little or no notice.

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While Covid-19 has had, and we expect it to continue to have, an adverse effect on our business, financial condition and results of operations, we are unable to predict the extent or duration of these impacts at this time.

Health and Safety

In response to the Covid-19 pandemic, we have taken and will continue to take precautionary measures intended to help minimize the risk of Covid-19 to our employees, including requiring the majority of our employees to work remotely, suspending non-essential travel and restricting in-person work-related meetings.

We expect to continue to implement these measures until it has determined that the Covid-19 pandemic is adequately contained for purposes of our business, and may take further actions as government authorities require or recommend or as it determines to be in the best interests of our employees, customers, business partners and third-party service providers.

Results of Operations

First Quarter Overview

Second Quarter and First Half Overview

The following table sets forth, for the periods indicated, certain information derived from our consolidated statements of comprehensive income (1) :

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(1) Percentages are expressed as a percentage of contract revenue and may not total due to rounding.

Six Months Ended

(in thousands, except percentages)

Contract revenue

Direct costs of contract revenue:

Salaries and wages

Subcontractor services and other direct costs

Total direct costs of contract revenue

General and administrative expenses:

Salaries and wages, payroll taxes and employee benefits

Facilities and facilities related

Stock-based compensation

Depreciation and amortization

Total general and administrative expenses

Income (loss) from operations

Other income (expense):

Interest expense

Total other income (expense)

Income (Loss) before income tax expense

Income tax expense (benefit)

Net income (loss)

(1) Percentages are expressed as a percentage of contract revenue and may not total due to rounding.

The following tables provides information about disaggregated revenue of the Company’s two segments Energy and Engineering and Consulting by contract type, client type and geographical region (1) :

Three months ended April 2, 2021

Three months ended July 2, 2021

Engineering and

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Geography (3)

Three months ended April 3, 2020

Six months ended July 2, 2021

Engineering and

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(2) Includes the portion of revenue related to small business programs paid by the end user/customer.

(3) Revenue from our foreign operations were immaterial for the three months ended April 2, 2021 and April 3, 2020.

Three Months Ended April 2, 2021 Compared to Three Months Ended April 3, 2020

(3) Revenue from our foreign operations were immaterial for the three and six months ended July 2, 2021.

Three months ended July 3, 2020

Engineering and

(in thousands)

Contract Type

Time-and-materials

Utilities (2)

Geography (3)

Six months ended July 3, 2020

Engineering and

(in thousands)

Contract Type

Time-and-materials

Utilities (2)

Geography (3)

(1) Amounts may not add to the totals due to rounding.

(2) Includes the portion of revenue related to small business programs paid by the end user/customer.

(3) Revenue from our foreign operations were immaterial for the three and six months ended July 3, 2020.

Three Months Ended July 2, 2021 Compared to Three Months Ended July 3, 2020

Contract revenue.

Consolidated contract revenue decreased $26.9 million, or 25.4%, in the three months ended April 2, 2021 compared to the three months ended April 3, 2020, primarily due to decreased contract revenues from our direct install programs for small businesses in our Energy segment and the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020.

Contract revenue in our Energy segment decreased $25.8 million, or 29.4%, in the three months ended April 2, 2021 compared to the three months ended April 3, 2020.

Contract revenues for our direct install programs for small businesses decreased as a result of the business suspensions resulting from the Covid-19 pandemic and efforts to limit its spread that started in March 2020, which continue to impact our operations.

Contract revenue in our Engineering and Consulting segment decreased $1.1 million, or 6.3%, in the three months ended April 2, 2021 compared to the three months ended April 3, 2020.

Contract revenue for the Engineering and Consulting segment decreased primarily due the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020.

Consolidated contract revenue was $84.2 million for the three months ended July 2, 2021, or relatively flat as compared to the three months ended July 3, 2020 .

Contract revenue in our Energy segment was relatively flat for the three months ended July 2, 2021 compared to the three months ended July 3, 2020.

Within our Energy segment, utility contract revenues increased $9.6 million, offset by decreases of $8.0 million governmental contract revenues combined with a decrease of $1.9 million in commercial contract revenues.

Utility contract revenue increased as a result of increased contract revenues from our direct install programs for small businesses due to the lifting of business suspensions resulting from the Covid-19 pandemic and efforts to limit its spread that started in March 2020, which had a full impact during the second quarter of fiscal year 2020 compared to having a partial impact on our second quarter of fiscal year 2021.

Governmental and commercial contract revenues decreased as a result of the absence in the second quarter of fiscal year 2021 of the acceleration of projects, particularly those related to improvements in public schools that were accelerated to take advantage of empty facilities, that took place during the second quarter of fiscal year 2020 during the mandatory shutdown orders issued by local governments in response to the Covid-19 pandemic.

Contract revenue in our Engineering and Consulting segment increased $0.9 million, or 5.1%, in the three months ended July 2, 2021 compared to the three months ended July 3, 2020.

Contract revenue for the Engineering and Consulting segment increased primarily as a result of incremental government revenues of $1.4 million partially offset by $0.5 million of lower utility revenues.

Contract revenue in our Engineering and Consulting segment has been less affected by Covid-19 than contract revenue in our Energy segment as the services provided in our Engineering and Consulting segment have generally been deemed “essential” by government authorities and have continued to operate while abiding social distancing measures.

Direct costs of contract revenue.

Direct costs of consolidated contract revenue decreased $28.4 million, or 37.7%, in the three months ended April 2, 2021 compared to the three months ended April 3, 2020, primarily as a result of decreased contract revenues from our direct install programs for small businesses in our Energy segment, the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020, and the reduction in pass-through construction management costs.

Direct costs of contract revenue in our Energy segment decreased $26.9 million, or 41.5%, in the three months ended April 2, 2021 compared to the three months ended April 3, 2020, primarily as a result of the decrease in our contract revenues related to direct install programs for small businesses as described above, and the impact of having one

fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020.

Direct costs of contract revenue for the Engineering and Consulting segment decreased $1.5 million, or 13.9%, in the three months ended April 2, 2021 compared to the three months ended April 3, 2020, primarily due to the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020.

Subcontractor services and other direct costs decreased by $25.3 million and salaries and wages decreased by $3.1 million for the three months ended April 2, 2021 compared to the three months ended April 3, 2020.

As a percentage of contract revenue, salaries and wages increased to 20.0% of contract revenue for the three months ended April 2, 2021 from 17.8% for the three months ended April 3, 2020.

Subcontractor services and other direct costs decreased to 39.4% of contract revenue for the three months ended April 2, 2021 from 53.2% of contract revenue for the three months ended April 3, 2020.

Direct costs of consolidated contract revenue were relatively flat for the three months ended July 2, 2021 compared to the three months ended July 3, 2020 .

Direct costs of contract revenue in our Energy segment decreased $0.9 million, or 2.0%, in the three months ended July 2, 2021 compared to the three months ended July 3, 2020.

Direct costs of contract revenue for the Engineering and Consulting segment increased $0.2 million, or 1.9%, in the three months ended July 2, 2021 compared to the three months ended July 3, 2020.

Subcontractor services and other direct costs decreased by $3.5 million, and salaries and wages increased by $2.7 million for the three months ended July 2, 2021 compared to the three months ended July 3, 2020.

As a percentage of contract revenue, salaries and wages increased to 19.4% of contract revenue for the three months ended July 2, 2021 from 16.3% for the three months ended July 3, 2020.

Subcontractor services and other direct costs decreased to 43.9% of contract revenue for the three months ended July 2, 2021 from 48.3% of contract revenue for the three months ended July 3, 2020.

As a percentage of contract revenue, changes in salaries and wages and subcontractor services and other direct costs were primarily as a result of changes in the mix of revenues to those which contain a higher percentage of labor costs and lower percentage of material costs and installation subcontracting.

Gross Profit .

Gross profit increased to $30.1 million, or 36.7% gross margin, for the three months ended July 2, 2021 compared to the three months ended July 3, 2020.

The increase in our gross margin was primary driven by changes in the mix of revenues to those which contain a higher percentage of labor costs and lower percentage of material costs and installation subcontracting.

General and administrative expenses.

General and administrative (“G&A”) expenses increased by $4.6 million, or 13.7%, in the three months ended July 2, 2021 compared to the three months ended July 3, 2020.

The increase in G&A expenses consisted of an increase of $3.6 million in the Energy segment and $1.3 million in the Engineering and Consulting segment, partially offset by a decrease of $0.3 million in the unallocated corporate expenses.

Within G&A expenses, the increase of $3.4 million for salaries and wages, payroll taxes and employee benefits, combined with the increase of $1.7 million in stock-based compensation and $1.0 million in other general and administrative expenses, was partially offset by a decrease of $1.2 million in depreciation and amortization, combined with a decrease of $0.3 million in facilities and facility related expenses.

The increase in salaries and wages, payroll taxes and employee benefits was primarily attributable to having restored, during our third quarter of fiscal year 2020, certain actions taken during the second quarter of our fiscal year 2020 aimed at preserving liquidity in the early stages of the Covid-19 pandemic, such as a temporary cash wage reduction for salaried employees, as well as instituting a reduction in workforce, primarily through unpaid furloughs.

The increase in stock-based compensation expenses was primarily related to new stock grants to current employees and executives.

The increase in other general and administrative expenses was primarily due to increased travel expenses as a result of the easing of travel restrictions put in place for Covid-19, combined with higher professional services.

The decrease in depreciation and amortization was primarily related to lower amortization of intangible assets derived from prior acquisitions.

The decrease in facilities and facilities related expenses was attributed to satisfied facility leases that were not renewed.

Income (loss) from operations.

Our operating loss was $7.1 million for the three months ended July 2, 2021 as a result of the factors noted above.

As a percentage of contract revenue, operating loss was 8.4% for the three months

ended July 2, 2021 compared to 4.6% for the three months ended July 3, 2020.

The decrease in operating margin was primarily attributable to increases in G&A expenses, partially offset by an increase in profit margin.

Total other expense, net.

Total other expense, net, was relatively flat for the three months ended July 2, 2021 compared to the three months ended July 3, 2020.

Income tax expense (benefit).

We recorded an income tax benefit of $3.7 million for the three months ended July 2, 2021 compared to a tax benefit of $0.1 million for the three months ended July 3, 2020.

The increase in the income tax benefit is primarily attributable to our loss before income tax combined with an increase in various tax deductions and tax credits related to stock compensation and project-related incentives, and an additional tax benefit related to the net operating loss carryback provisions of the CARES Act.

Net income (loss).

Our net loss was $4.6 million for the three months ended July 2, 2021, as compared to a net loss of $5.0 million for the three months ended July 3, 2020.

The improvement in net loss was primarily attributable to income tax benefits combined with the increase in higher margin revenues, partially offset by increases in G&A.

Six Months Ended July 2, 2021 Compared to Six Months Ended July 3, 2020

Contract revenue.

Consolidated contract revenue decreased $26.3 million, or 13.9%, in the six months ended July 2, 2021 compared to the six months ended July 3, 2020, primarily due to decreased contract revenues from our direct install programs for small businesses in our Energy segment and the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020.

Contract revenue in our Energy segment decreased $26.1 million, or 16.9%, in the six months ended July 2, 2021 compared to the six months ended July 3, 2020.

Contract revenue for the Energy segment primarily decreased as a result of decreased contract revenues from our direct install programs for small businesses combined with the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020 and the absence in the second quarter of fiscal year 2021 of the acceleration of projects, particularly those related to improvements in public schools that were accelerated to take advantage of empty facilities, that took place during the second quarter of fiscal year 2020 during the mandatory shutdown orders issued by local governments in response to the Covid-19 pandemic.

Through the first half of our fiscal year 2021, the most significant pandemic related impacts to the Company’s business occurred in California to our direct install business which restarted throughout the first half of fiscal 2021.

Contract revenue in our Engineering and Consulting segment was relatively flat for the six months ended July 2, 2021 compared to the six months ended July 3, 2020.

Direct costs of contract revenue.

Direct costs of consolidated contract revenue decreased $29.1 million, or 22.5%, in the six months ended July 2, 2021 compared to the six months ended July 3, 2020, primarily as a result of decreased contract revenues from our direct install programs for small businesses in our Energy segment, the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020, and the reduction in pass-through construction management costs.

Direct costs of contract revenue in our Energy segment decreased $27.9 million, or 25.3%, in the six months ended July 2, 2021 compared to the six months ended July 3, 2020, primarily as a result of the decrease in our contract revenues related to direct install programs for small businesses as described above, and the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020.

Direct costs of contract revenue for the Engineering and Consulting segment decreased $1.3 million, or 6.6%, in the six months ended July 2, 2021 compared to the six months ended July 3, 2020, primarily due to the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020.

Subcontractor services and other direct costs decreased by $28.7 million and salaries and wages decreased by $0.4 million for the six months ended July 2, 2021 compared to the six months ended July 3, 2020.

As a percentage of contract revenue, salaries and wages increased to 19.7% of contract revenue for the six months ended July 2, 2021 from 17.2% for the six months ended July 3, 2020.

Subcontractor services and other direct costs decreased to 41.7% of contract revenue for the six months ended July 2, 2021 from 51.0% of contract revenue for the six months ended July 3, 2020.

Salaries and wages within direct costs of contract revenue increased as a percentage of contract revenue primarily as a result of the decrease in contract revenues from our direct install programs for small businesses which resulted in changes in the mix of revenues to those which contain a higher percentage of labor costs and lower percentage of material costs and installation subcontracting.

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Gross Profit .

Gross profit increased to $32.1 million, or 40.6%, for the three months ended April 2, 2021 compared the three months ended April 3, 2020.

Gross profit increased to $63.0 million, or 38.6% gross margin, for the six months ended July 2, 2021 compared the six months ended July 3, 2020.

General and administrative expenses.

General and administrative (“G&A”) expenses decreased by $2.6 million, or 6.8%, in the three months ended April 2, 2021 compared to the three months ended April 3, 2020.

The decrease in G&A expenses consisted of a decrease of $2.8 million in the Energy segment and a decrease of $0.1 million in the unallocated corporate expenses, partially offset by an increase of $0.3 million in the Engineering and Consulting segment.

The decrease in G&A expenses in the Energy segment was primarily attributed to the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020.

Of the $2.6 million decrease in G&A expenses, $1.0 million resulted from a decrease in salaries and wages, payroll taxes and employee benefits, $0.9 million resulted from a decrease other general and administrative expenses, $0.4 million resulted from a decrease in stock-based compensation, $0.3 million resulted from a decrease in depreciation and amortization.

Facilities and facilities related expenses were flat year over year.

G&A expenses increased by $1.9 million, or 2.7%, in the six months ended July 2, 2021 compared to the six months ended July 3, 2020.

The increase in G&A expenses consisted of an increase of $0.9 million in the Energy segment and an increase of $1.5 million in the Engineering and Consulting segment, partially offset by a decrease of $0.5 in the unallocated corporate expenses.

The increase in G&A expenses in the Energy segment and Engineering and Consulting segment was primarily attributed to having restored wage reductions and other actions taken during our second quarter of fiscal 2020 aimed at preserving liquidity as a result of the Covid-19 pandemic, partially offset by the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020.

Within G&A expenses, the increase of $2.4 million for salaries and wages, payroll taxes and employee benefits, combined with the increase of $1.3 million in stock-based compensation was partially offset by a decrease of $1.6 million in depreciation and amortization, combined with a decrease of $0.3 million in facilities and facility related expenses.

The increase in salaries and wages, payroll taxes and employee benefits was primarily attributable to having restored, during our third quarter of fiscal year 2020, certain actions taken during the second quarter of our fiscal year 2020 aimed at preserving liquidity in the early stages of the Covid-19 pandemic, such as placing a temporary cash wage reduction for salaried employees, as well as instituting a reduction in workforce, primarily through unpaid furloughs.

The increase in stock-based compensation expenses was primarily related to new stock grants to current employees and executives.

The decrease in depreciation and amortization was primarily related to lower amortization of intangible assets derived from prior acquisitions.

The decrease in facilities and facilities related expenses was attributed to satisfied facility leases that were not renewed.

Income (loss) from operations.

Our operating loss was $4.2 million for the three months ended April 2, 2021 as a result of the factors noted above.

As a percentage of contract revenue, operating loss was 5.3% for the three months ended April 2, 2021 compared to an operating loss of 7.8% for the three months ended April 3, 2020.

The increase in operating margin was primarily attributable to decreases in direct costs of contract revenue combined with decreases in salaries and wages, payroll taxes and employee benefits, and decreases in other general and administrative expenses.

Our operating loss was $11.3 million for the six months ended July 2, 2021 as a result of the factors noted above.

As a percentage of contract revenue, operating loss was 6.9% for the six months ended July 2, 2021 compared to an operating loss of 6.4% for the six months ended July 3, 2020.

The decrease in operating margin was primarily attributable to increases in G&A expenses, partially offset by an increase in profit margin.

Total other expense, net.

Total other expense, net, was $1.0 million for the three months ended April 2, 2021 compared to $1.5 million for the three months ended April 3, 2020.

Total other expense, net, was $2.2 million for the six months ended July 2, 2021 compared to $2.7 million for the six months ended July 3, 2020.

The decrease in total other expense, net is primarily as a result of lower interest expense as a result of lower interest rate borrowings under our credit facilities combined with the impact of having one fewer week in our first fiscal quarter of fiscal year 2021 as compared to our first fiscal quarter of fiscal year 2020.

Income tax expense (benefit).

We recorded an income tax benefit of $1.5 million for the three months ended April 2, 2021 compared to a tax benefit of $1.6 million for the three months ended April 3, 2020.

The decrease in the income tax benefit is primarily attributable to our loss before income tax combined with an increase in various tax deductions and tax credits.

We recorded an income tax benefit of $5.1 million for the six months ended July 2, 2021 compared to a tax benefit of $1.7 million for the six months ended July 3, 2020.

The increase in the income tax benefit is primarily attributable to an increase in various tax deductions and tax credits related to stock compensation and project-related incentives, and an additional tax benefit related to the net operating loss carryback provision of the CARES Act.

Net income (loss).

Our net loss was $3.8 million for the three months ended April 2, 2021, as compared to a net loss of $8.2 million for the three months ended April 3, 2020.

The increase in our operating performance was primarily driven by cost control and the increase in higher margin business.

Our net loss was $8.4 million for the six months ended July 2, 2021, as compared to a net loss of $13.1 million for the six months ended July 3, 2020.

The improvement in our net loss was primarily driven by cost control and income tax benefits combined with the increase in higher margin revenues, partially offset by increases in G&A.

Liquidity and Capital Resources

The following table summarizes our statements of cash flows for the periods indicated:

Three Months Ended

Six Months Ended

(in thousands)

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Net increase (decrease) in cash and cash equivalents

We believe that our cash and cash equivalents, cash generated by operating activities, and available borrowings under our revolving credit facility will be sufficient to finance our operating activities for at least the next 12 months.

We believe that our cash and cash equivalents, cash generated by operating activities, and available borrowings under our revolving credit facility and Delayed Draw Term Loan will be sufficient to finance our operating activities for at least the next 12 months.

As a result of forecasted increased working capital requirements related to our $781 million in California Investor Owned Utility Contracts signed in December 2020, we amended our credit agreement to, among other things, ensure an adequate margin for certain covenant compliance obligations.

As of April 2, 2021, we had $25.4 million of cash and cash equivalents.

As of July 2, 2021, we had $9.4 million of cash and cash equivalents.

Our primary source of liquidity is cash generated from operations and borrowings under our Revolving Credit Facility.

In addition, as of April 2, 2021, we had a $100 million Term A Loan with $82.5 million outstanding, a $50.0 million Revolving Credit Facility with no borrowed amounts outstanding and $2.7 million in letters of credit issued.

We also have a $50.0 million Delayed Draw Term Loan with $26.3 million outstanding scheduled to mature on June 26, 2024.

As of April 2, 2021, borrowings under our Credit Facilities bore interest at 3.0% based on the Company’s consolidated total leverage ratio.

See Part I, Item 1, Note 6, Debt Obligations and Note 13, Subsequent Events , of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, and Part II, Item 8, Note 5, “Debt Obligations”, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on March 17, 2021 for information regarding our indebtedness, including information about new borrowings and repayments, principal repayment terms, interest rates, covenants, and other key terms of our outstanding indebtedness.

In addition, as of July 2, 2021, we had a $100 million Term A Loan with $80.0 million outstanding, a $50.0 million Revolving Credit Facility with no borrowed amounts outstanding and $4.1 million in letters of credit issued.

We also have a $50.0 million Delayed Draw Term Loan with $20.0 million available for draw subject to the satisfaction of certain covenants and $25.5 million outstanding scheduled to mature on June 26, 2024.

As of July 2, 2021, borrowings under our Credit Facilities bore interest at 2.75% based on the Company’s consolidated total leverage ratio.

See Part I, Item 1, Note 6, Debt Obligations, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, and Part II, Item 8, Note 5, Debt Obligations , of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on March 17, 2021 for information regarding our indebtedness, including information about new borrowings and repayments, principal repayment terms, interest rates, covenants, and other key terms of our outstanding indebtedness.

Cash Flows from Operating Activities

Cash flows provided by operating activities were $5.6 million for the three months ended April 2, 2021, as compared to cash flows provided by operating activities of $16.5 million for the three months ended April 3, 2020.

Cash flows used in operating activities were $0.7 million for the six months ended July 2, 2021, as compared to cash flows provided by operating activities of $29.2 million for the six months ended July 3, 2020.

Cash flow from operating activities primarily consists of net income, adjusted for non-cash charges, such as depreciation and amortization and stock-based compensation, plus or minus changes in operating assets and liabilities.

Changes in cash flows provided by operating activities for the three months ended April 2, 2021 were primarily due to reductions in working capital requirements as a result of the reduction of revenues from the suspension of our small business energy programs in California.

Cash flows provided by operating activities for the three months ended April 3, 2020 resulted primarily as result of our acquisitions of Onsite Energy and E3, Inc., and significant reductions in working capital requirements as a result of the reduction of revenues from the suspension of our small business energy programs.

Cash Flows used in Investing Activities

Cash flows used in investing activities were $1.3 million for the three months ended April 2, 2021, as compared to cash flows used in investing activities of $2.1 million for the three months ended April 3, 2020.

Cash flows used in investing activities for the three months ended April 2, 2021 were primarily due to cash paid for the development of software, the purchase of equipment and leasehold improvements.

Cash flows used in investing activities for the three months ended April 3, 2020, were primarily due to cash paid for the purchase of equipment and leasehold improvements.

Cash flows used by operating activities for the six months ended July 2, 2021 resulted primarily due to the changing mix of revenues as described earlier and start-up costs associated with certain new contract awards.

Cash flows provided by operating activities for the six months ended July 3, 2020 resulted primarily as result of our acquisitions of Onsite Energy and E3, Inc., improvements in cash collections, and significant reductions in working capital requirements as a result of the reduction of revenues from the suspension of our small business energy programs.

Cash Flows from Investing Activities

Cash flows used in investing activities were $3.1 million for the six months ended July 2, 2021, as compared to cash flows used in investing activities of $2.9 million for the six months ended July 3, 2020.

Cash flows used in investing activities for the six months ended July 2, 2021 were primarily due to cash paid for the development of

software, the purchase of equipment and leasehold improvements.

Cash flows used in investing activities for the six months ended July 3, 2020, were primarily due to cash paid for the purchase of equipment and leasehold improvements.

Cash Flows from Financing Activities

Cash flows used in financing activities were $7.4 million for the three months ended April 2, 2021, as compared to cash flows used in financing activities of $7.5 million for the three months ended April 3, 2020.

Cash flows used in financing activities for the three months ended April 2, 2021 were primarily attributable to payments of $5.4 million for contingent consideration related to prior acquisitions, repayments of $3.2 million under our term loan facility and revolving line of credit, partially offset by $1.4 million in proceeds from sales of common stock under our employee stock purchase plan.

Cash flows used in financing activities for the three months ended April 3, 2020 were primarily attributable to repayments of $13.3 million under our term loan facility and revolving line of credit, a payment of $2.9 million in employee payroll taxes related to the vesting of performance-based restricted stock units during the quarter, payments of $1.4 million for contingent consideration related to prior acquisitions, partially offset by $9.0 million of borrowings under our revolving line of credit.

Cash flows used in financing activities were $15.2 million for the six months ended July 2, 2021, as compared to cash flows used in financing activities of $14.6 million for the six months ended July 3, 2020.

Cash flows used in financing activities for the six months ended July 2, 2021 were primarily attributable to payments of $6.6 million for contingent consideration related to prior acquisitions, repayments of $6.5 million under our term loan facility and revolving line of credit, payments of taxes on stock grants of $3.1 million, payments on notes payable of $1.5 million, partially offset by $1.4 million in proceeds from sales of common stock under our employee stock purchase plan and $1.4 million in proceeds from stock option exercise.

Cash flows used in financing activities for the six months ended July 3, 2020 were primarily attributable to repayments of $35.5 million under our term loan facility and revolving line of credit, a payment of $2.9 million in employee payroll taxes related to the vesting of performance-based restricted stock units, and payments of $1.4 million for contingent consideration related to prior acquisitions, partially offset by $24.0 million of borrowings under our revolving line of credit.

Off-Balance Sheet Arrangements

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Contractual Obligations

The following table sets forth our known contractual obligations as of April 2, 2021:

The following table sets forth our known contractual obligations as of July 2, 2021:

Contractual Obligations

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Total contractual cash obligations

(1) Long-term debt includes $82.5 million outstanding on our Term A Loan and $26.3 million outstanding on our Delayed Draw Term Loan as of April 2, 2021.

(1) Long-term debt includes $80.0 million outstanding on our Term A Loan and $25.5 million outstanding on our Delayed Draw Term Loan as of July 2, 2021.

We have assumed no future borrowings or repayments (other than at maturity) for purposes of this table.

(2) Borrowings under our Delayed Draw Term Loan bear interest at a variable rate.

Future interest payments on our Credit Facilities are estimated using floating rates in effect as of April 2, 2021.

Future interest payments on our Credit Facilities are estimated using floating rates in effect as of July 2, 2021.

We are obligated to pay earn-out payments in connection with our 2019 and 2017 acquisitions of Energy and Environmental Economics, Inc.

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closing date, and (ii) $12.0 million in cash based on future work obtained from the business of Integral Analytics during the four years after the closing of the acquisition, payable in installments, if certain financial targets are met during the four years.

As of April 2, 2021, we had contingent consideration payable of $10.3 million related to these acquisitions.

For the three months ended April 2, 2021, our statement of operations includes $0.4 million of accretion (excluding fair value adjustments) related to the contingent consideration.

As of July 2, 2021, we had contingent consideration payable of $9.5 million related to these acquisitions.

For the six months ended

July 2, 2021, our statement of operations includes $0.8 million of accretion (excluding fair value adjustments) related to the contingent consideration.

Outstanding Indebtedness

See Part I, Item 1, Note 6, “ Debt Obligations ” and Note 13, “ Subsequent Events ”, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, and Part II, Item 8, Note 5, “ Debt Obligations ”, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2021, for information regarding our indebtedness, including information about new borrowings and repayments, principal repayment terms, interest rates, covenants, and other key terms of our outstanding indebtedness.

On May 3, 2021, after giving effect to the Fourth Amendment, we had $67.3 million in borrowing capacity available under our credit facilities, as amended by the Fourth Amendment.

As of May 3, 2021, the Company’s composite interest rate, exclusive of the effects of upfront fees, undrawn fees and issuance cost amortization, was 3.0% and $2.7 million in letters of credit were issued.

See Part I, Item 1, Note 6, “ Debt Obligations ”, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, and Part II, Item 8, Note 5, “ Debt Obligations ”, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2021, for information regarding our indebtedness, including information about new borrowings and repayments, principal repayment terms, interest rates, covenants, and other key terms of our outstanding indebtedness.

As of July 2, 2021, we had $50.0 million in borrowing capacity under the Revolving Credit Facility and an additional $20.0 million under the Delayed Draw Term Loan.

As of July 2, 2021, the Company’s composite interest rate, exclusive of the effects of upfront fees, undrawn fees and issuance cost amortization, was 2.75% and $4.1 million in letters of credit were issued.

Insurance Premiums

We have also financed, from time to time, insurance premiums by entering into unsecured notes payable with insurance companies .

See Part I, Item 1, Note 6 , “ Debt Obligations ”, of the Notes of Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding our financing arrangements related to our insurance premiums including principal repayment terms, interest rates, and other related key terms.

Interest Rate Swap

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Revenue on our time-and-materials and unit-based contracts are recognized as the work is performed in accordance with specific terms of the contract.

As of April 2, 2021, approximately 26% of our contracts are time-and-materials contracts and approximately 53% of our contracts are unit-based contracts, compared to approximately 27% for time-and-materials contracts and approximately 51% for unit-based contracts as of April 3, 2020.

As of July 2, 2021, 26% of our contracts are time-and-materials contracts and 53% of our contracts are unit-based contracts, compared to 31% for time-and-materials contracts and approximately 37% for unit-based contracts as of July 3, 2020.

Some of these contracts include maximum contract prices, but contract maximums are often adjusted to reflect the level of effort to achieve client objectives and thus the majority of these contracts are not expected to exceed the maximum.

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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