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Item 7. Management’s Discussion and Analysis

2023-03-10 compared with 2022-03-11 · 91 added, 150 removed, 297 unchanged (45% of the section changed)

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We are a provider of professional, technical and consulting services to utilities, private industry, and public agencies at all levels of government.

As resources and infrastructures undergo continuous change, we help organizations and their communities evolve and thrive by providing a wide range of technical services for energy solutions and government infrastructure.

Through engineering, program management, policy advisory, and software and data management, we design and deliver trusted, comprehensive, innovative, and proven solutions to improve efficiency, resiliency, and sustainability in energy and infrastructure to our customers.

Our broad portfolio of services operates within two reporting segments:

As resource and infrastructure needs undergo continuous change, we help organizations and their communities evolve and thrive by providing a wide range of technical services for energy solutions, greenhouse gas reduction, and government infrastructure.

Through engineering, program management, policy advisory, and software and data management, we plan, design and deliver trusted, comprehensive, innovative, and proven solutions to improve efficiency, resiliency, and sustainability in energy and infrastructure to our clients.

Our broad portfolio of services operates within two financial reporting segments:

(1) Energy and (2) Engineering and Consulting.

The interfaces and synergies between these segments are important elements of our strategy to design and deliver trusted, comprehensive, innovative, and proven solutions for our customers.

The interfaces and synergies between these segments are important elements of our strategy to design and deliver trusted, comprehensive, innovative, and proven solutions and services for our customers.

Our Energy segment provides specialized, innovative, comprehensive energy solutions to businesses, utilities, state agencies, municipalities, and non-profit organizations in the U.S.

Our experienced engineers, consultants, and staff help our clients realize cost and energy savings by tailoring efficient and cost-effective solutions to assist in optimizing energy spend.

Our energy efficiency services include comprehensive audit and surveys, program design, master planning, demand reduction, grid optimization, benchmarking analyses, design engineering, construction management, performance contracting, installation, alternative financing, measurement and verification services, and advances in software and data analytics.

Our Engineering and Consulting segment provides civil engineering-related construction management, building and safety, city engineering, city planning, civil design, geotechnical, material testing and other engineering consulting services to our clients.

Our engineering services include rail, port, water, mining and other civil engineering projects.

We also provide economic and financial consulting to public agencies along with national preparedness and interoperability services, communications, and technology solutions.

Our Engineering and Consulting segment provides civil engineering-related construction management, building and safety, city engineering office management, city planning, civil design, geotechnical, material testing and other engineering consulting services to our clients.

Our engineering services include traffic, bridges, rail, port, water, mining and other civil engineering projects.

We also provide economic and financial consulting to public agencies.

Lastly, we supplement the engineering services that we offer our clients by offering expertise and support for the various financing techniques public agencies utilize to finance their operations and infrastructure.

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We provide financial advisory services for municipal securities but do not provide underwriting services.

Impact of Covid-19 on Our Business

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

In New York, phased re-openings began in June 2020, and all of our New York utility programs have restarted.

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 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 remaining program that was still suspended due to Covid-19.

As of March 9, 2022, none of our contracts have been cancelled due to Covid-19.

In the Energy segment, we 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 half of fiscal 2021.

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.

Our other programs are either services that have been determined to be “essential” by government authorities, can be performed remotely or outside of any Covid-related restrictions, or have continued to progress during the pandemic.

In the Engineering and Consulting segment, our revenues have been less affected by Covid-19 than the revenues in the Energy segment.

The services in this segment have generally been deemed “essential” by the government and have continued to operate while abiding social distancing measures.

We have continuously monitored our liquidity position during the Covid-19 pandemic in order to be flexible during these uncertain times and to position ourselves to resume our growth trajectory as work restrictions are lifted.

As part of this effort, we amended our credit facility in April 2021 for increased covenant flexibility as a result of forecasted increased working capital requirements related to $781 million in new California Investor Owned Utility contracts signed in December 2020.

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

As of December 31, 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.

Changes to the estimated future profitability of the business may require that we establish an additional valuation allowance against all or some portion of our net deferred tax assets.

Impact on Clients and Subcontractors and Other Risks

We primarily work for utilities, municipalities and other public agencies.

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 material contracts with governmental or public agencies were materially modified during our fiscal years 2020 or 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.

In addition, we rely on subcontractors and material suppliers to complete a substantial portion of our work, especially in our Energy segment.

If our significant subcontractors and material suppliers suffer significant economic harm and must limit or cease operations or file for bankruptcy as a result of the current economic slowdown, our subcontractors and material suppliers may not be able to fulfill their contractual obligations satisfactorily and we may not have the ability to select our subcontractors and material suppliers of choice for new contracts.

If our subcontractors and material suppliers are not able to fulfill their contractual obligations, it could result in a significant increase in costs for us to complete the projects or cause significant delays to the realization of revenues under those projects.

The ultimate impact of Covid-19 on our financial condition and results of operations will depend on all of the factors noted above, including other factors that we may not be able to forecast at this time.

See the risk factor “ The Covid-19 pandemic and health and safety measures intended to slow its spread have adversely affected, and may continue to adversely affect, our business, results of operations and financial condition.” under Part I.

“Risk Factors” included in this Annual Report on Form 10-K.

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.

Recent Developments

On March 8, 2022, we amended our credit facility to provide for increased liquidity and covenant flexibility as a result of forecasted increased working capital requirements related to additional organic growth, including the resumption of the LADWP small business program.

The amendment also revises the pricing structure of borrowings under our Credit Agreement from utilizing as a reference rate the London Inter-Bank Offered Rate (“LIBOR”) to utilizing the Secured Overnight Financing Rate (“SOFR”).

For additional information, see Part II, Item 8, Note 15, “ Subsequent Events” of the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K.

Results of Operations

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(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:

The following tables provides information about disaggregated revenue of our two segments, Energy and Engineering and Consulting by contract type, client type, and geographical region:

Engineering and

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Contract revenue.

Consolidated contract revenue increased $75.4 million, or 21.3%, in fiscal year 2022 compared to fiscal year 2021, primarily due to incremental revenues in our Energy segment generated from new governmental construction-management and design-build projects, combined with incremental revenues from the resumption of projects that had been suspended in fiscal year 2021 due to the Covid-19 pandemic, and increased governmental revenues in our Engineering and Consulting segment, partially offset by lower software licensing revenue.

Contract revenue in our Energy segment increased $71.1 million, or 24.8%, in fiscal year 2022 compared to fiscal year 2021, primarily as a result of incremental revenues from new governmental construction-management and design-build projects, combined with incremental revenues from the resumption of projects that had been suspended in fiscal year 2021 due to the Covid-19 pandemic, partially offset by lower software licensing revenue.

Contract revenue in our Engineering and Consulting segment increased $4.3 million, or 6.4%, in fiscal year 2022 compared to fiscal year 2021, primarily due to increased demand for services provided to our governmental clients.

Direct costs of contract revenue.

Direct costs of consolidated contract revenue increased $67.7 million, or 31.1%, in fiscal year 2022 compared to fiscal year 2021, primarily due to increases in our contract revenues in our Energy segment as described above as well as the ramping up of new projects for which we saw higher project startup costs relative to the revenue recognized.

Direct costs of contract revenue in our Energy segment increased $67.3 million, or 36.5%, in fiscal year 2022 compared to fiscal year 2021, primarily as a result of the reasons described above.

Direct costs of contract revenue for the Engineering and Consulting segment increased $0.4 million, or 1.2%, for the fiscal year 2022 compared to fiscal year 2021.

Subcontractor services and other direct costs increased by $50.4 million, or 33.1%, and salaries and wages increased by $17.3 million, or 26.4%, in fiscal year 2022 compared to fiscal year 2021, primarily due to the increases in contract revenues as described above combined with changes in the mix of those contract revenues to those which contain a higher percentage of material costs and installation subcontracting and lower percentage of labor costs, as well as the ramping up of new projects for which we saw higher project startup costs relative to the revenue recognized.

Gross Profit .

Gross profit increased 5.7% to $143.6 million, or a 33.5% gross margin, for fiscal year 2022 compared to $135.9 million, or a 38.4% gross margin for fiscal year 2021.

The decrease in gross margin percentage was primarily driven by changes in the mix of revenues as described above, combined with a reduction in software licensing revenues and the ramping up of new projects for which we saw higher project startup costs relative to the revenue recognized.

General and administrative expenses.

General and administrative (“G&A”) expenses increased by $6.1 million, or 4.2%, in fiscal year 2022 compared to fiscal year 2021.

The increase in G&A expenses consisted of an increase of $9.2 million in the Energy segment combined with an increase of $2.3 million in the Engineering and Consulting segment, partially offset by a decrease of $5.4 million in unallocated corporate expenses.

The increase in G&A expenses was primarily attributed to higher salaries and wages, payroll taxes and employee benefits, increased contingent consideration expense related to prior acquisitions, and higher computer-related expenses, partially offset by lower stock-based compensation expenses.

Within G&A expenses, the increase of $8.0 million in salaries and wages, payroll taxes and employee benefits combined with the increase of $6.5 million in other general and administrative expenses was partially offset by a decrease of $8.2 million in stock-based compensation and a decrease of $0.6 million in facilities and facility related expenses.

The increase in salaries and wages, payroll taxes and employee benefits was primarily due to increases in personnel.

The increase in other general and administrative expenses was primarily due to increased contingent consideration expense related to prior acquisitions, higher computer-related expenses and higher professional service fees.

The decrease in stock-based compensation expenses was primarily related to previously awarded stock grants reaching the end of their corresponding vesting periods.

The decrease in facilities and facility related expenses was due

to satisfied facility leases that were not renewed.

Depreciation and amortization was relatively flat for the fiscal year 2022 compared to fiscal year 2021.

Income (loss) from operations .

Operating loss was $7.1 million for fiscal year 2022, compared to an operating loss of $8.7 million for fiscal year 2021, as a result of the factors noted above.

As a percentage of contract revenue, the operating loss improved to 1.6% for fiscal year 2022 from an operating loss of 2.5% for fiscal year 2021.

Total other expense, net .

Total other expense, net, was $4.4 million for fiscal year 2022 compared to $3.7 million for fiscal year 2021.

The increase in total other expense, net is primarily due to higher interest expense as a result of higher variable interest rates under our credit facilities, partially offset by income from indemnification agreements.

Income tax expense (benefit) .

We recorded an income tax benefit of $3.0 million for fiscal year 2022 compared to a tax benefit of $4.0 million for fiscal year 2021.

The decrease in the income tax benefit is primarily attributable to the lower loss before income tax expense, the non-recurrence tax benefits provided by the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”), and various tax deductions and tax credits.

Net income (loss) .

Our net loss was relatively flat for fiscal year 2022, compared to fiscal year 2021, as a result of the factors described above.

Fiscal Year 2021 Compared to Fiscal Year 2020

Contract revenue.

Consolidated contract revenue decreased $37.2 million, or 9.5%, in fiscal year 2021 compared to fiscal year 2020, primarily due to decreased contract revenues from our construction management activities in our Energy segment and the impact of having one fewer week in fiscal year 2021 as compared to fiscal year 2020, partially offset by increased planning and advisory contract revenues including software licensing.

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General and administrative expenses.

General and administrative (“G&A”) expenses decreased by $1.1 million, or 0.7%, in the fiscal year 2021 compared to the fiscal year 2020.

G&A expenses decreased by $1.1 million, or 0.7%, in the fiscal year 2021 compared to the fiscal year 2020.

The decrease in G&A expenses consisted of a decrease of $2.6 million in the Energy segment combined with a decrease of $1.7 million in the unallocated corporate expenses, partially offset by an increase of $3.3 million in the Engineering and Consulting segment.

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The reduction in our net loss was primarily driven by increased gross profit margins combined with lower operating expenses.

Fiscal Year 2020 Compared to Fiscal Year 2019

Contract revenue.

Consolidated contract revenue decreased $52.1 million, or 11.8%, in fiscal year 2020 compared to fiscal year 2019, primarily due to decreased contract revenues from our direct install programs for small businesses in our Energy segment, partially offset by $31.2 million of incremental contract revenue generated from government projects and $22.0 million of incremental contract revenue from the acquisitions of Energy and Environmental Economics, Inc.

(“E3, Inc.”) and Onsite Energy Corporation (“Onsite Energy”) on October 28, 2019, and July 2, 2019, respectively.

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 we estimate to have reduced our contract revenue by approximately 20% from our planned pre-pandemic levels.

Contract revenue in our Energy segment decreased $46.5 million, or 12.6%, in fiscal year 2020 compared to fiscal year 2019.

Contract revenue for the Energy segment primarily decreased as a result of reduced contract revenues from our direct install programs for small businesses as a result of the effects of Covid-19 noted above, partially offset by $36.8 million of incremental contract revenue generated from government projects and $22.0 million of incremental contract revenue from the acquisitions of E3, Inc.

and Onsite Energy.

Contract revenue in our Engineering and Consulting segment decreased $5.6 million, or 7.7%, in fiscal year 2020 compared to fiscal year 2019.

Contract revenue for the Engineering and Consulting segment decreased primarily due to decreased subcontractor revenues combined with a $2 million reduction of scope of work related to one of our customers implemented during the second quarter of 2020.

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 in the Engineering and Consulting segment have generally been deemed “essential” by the government and continue to operate while abiding social distancing measures.

Direct costs of contract revenue.

Direct costs of consolidated contract revenue decreased $46.5 million, or 15.1%, in fiscal year 2020 compared to fiscal year 2019.

Direct costs of consolidated contract revenue decreased as a result of decreased contract revenues from our direct install programs for small businesses in our Energy segment, partially offset by $31.2 million of incremental contract revenue generated from government projects combined with an additional $7.9 million of incremental direct costs of contract revenue related to our acquisitions of E3, Inc.

and Onsite Energy.

Direct cost of contract revenue in our Energy segment decreased $41.3 million, or 15.5%, in the fiscal year 2020 compared to the fiscal year 2019, primarily as a result of the decrease in our contract revenues related to direct install programs for small businesses as described above, which generally use a higher percentage of materials and subcontractor services than other projects in our Energy segment, partially offset by $36.8 million of incremental contract revenues related to government projects combined with an incremental $7.9 million in direct costs of contract revenue contributed from the acquisitions of E3, Inc.

and Onsite Energy in the Energy segment.

Direct costs of contract revenue for the Engineering and Consulting segment decreased $5.2 million, or 12.6%, for the fiscal year 2020 compared to fiscal year 2019, primarily due to the reduction of revenues described above.

Subcontractor services and other direct costs decreased $47.2 million and salaries and wages increased by $0.7 million for the fiscal year 2020 compared to the fiscal year 2019.

As a percentage of contract revenue, salaries and wages increased to 16.7% of contract revenue for the fiscal year 2020 from 14.6% for the fiscal year 2019 and subcontractor services and other direct costs decreased to 50.2% of contract revenue for the fiscal year 2020 from 55.0% of contract revenue for the fiscal year 2019.

Salaries and wages within direct costs of contract revenue increased as a

percentage of contract revenue primarily as a result of our acquisition of E3, Inc.

and Onsite Energy which contain a higher percentage of labor costs and lower percentage of material costs and installation subcontracting.

Subcontractor services and other direct costs decreased as a percentage of contract revenue primarily as a result of the decrease in contract revenues from our direct install programs for small businesses, as described above.

General and administrative expenses.

General and administrative (“G&A”) expenses increased by $20.0 million, or 15.9%, in the fiscal year 2020 compared to the fiscal year 2019.

The increase in G&A expenses consisted of an increase of $12.2 million in the Energy segment and an increase of $8.5 million in the unallocated corporate expenses, partially offset by a decrease of $0.7 million in the Engineering and Consulting segment.

The increase in G&A expenses in the Energy segment was primarily attributed to incremental expenses of $13.0 million from the addition of E3, Inc.

and Onsite Energy, combined with increases in stock-based compensation, intangible asset amortization, and other corporate general and administrative expenses, partially offset by our cost-saving measures instituted, as described earlier, in response to Covid-19.

Of the $20.0 million increase in G&A expenses, $4.9 million resulted from an increase in salaries and wages, payroll taxes and employee benefits, $4.0 million resulted from an increase in stock-based compensation, $3.7 million resulted from an increase in depreciation and amortization, $1.9 million resulted from an increase in facilities and facility related expenses, and $5.4 million resulted from an increase in other general and administrative expenses.

The increase in other general and administrative expenses was primarily due to an increase of $6.5 million in the liability for contingent consideration, partially offset by lower traveling expenses as a result of the measures put in place for Covid-19, combined with lower acquisition costs and lower professional services.

The increase in salaries and wages, payroll taxes and employee benefits was primarily attributable to the addition of employees from the acquisition of E3, Inc.

and Onsite Energy, partially offset by our actions related to placing a temporary cash wage reduction for salaried employees, as well as instituting a reduction in workforce, primarily through unpaid furloughs, aimed at preserving liquidity as a result of the Covid-19 pandemic.

During the second half of the three months ended July 3, 2020, furloughed employees

began to return to work as government authorities began loosening restrictions through phased re-openings and, by the end of the third fiscal quarter, the majority of furloughed employees had returned to work.

In addition, as the initial impact of Covid-19 was ascertained and operations were adjusted accordingly, salaries were reinstituted in June 2020 with the exception of corporate staff, whose salaries were reinstituted at the end of July 2020.

The increase in facilities and facility related expenses was primarily due to the addition of offices in connection with the acquisition of E3, Inc., and Onsite Energy.

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

The increase in depreciation and amortization was primarily due to an increase in amortization of intangible assets derived from the acquisition of E3, Inc., and Onsite Energy.

Income (loss) from operations.

Our operating loss was $16.2 million for fiscal year 2020, compared to operating income of $9.4 million for fiscal year 2019, as a result of the factors noted above.

As a percentage of contract revenue, operating loss was 4.2% for the fiscal year 2020 compared to an operating income of 2.1% for the fiscal year 2019.

The decrease in operating margin was primarily attributable to decreases in contract revenue as a result of Covid-19 combined with increases in stock-based compensation and intangible asset amortization from the acquisition of E3, Inc.

and Onsite Energy, partially offset by increases in governmental contract revenue.

Total other expense, net.

Total other expense, net was $3.4 million for fiscal year 2020 compared to $4.7 million for fiscal year 2019.

The decrease in total other expense, net was primarily the result of the recognition of $0.6 million in income from an indemnification agreement and higher interest income.

Interest expense was relatively flat year over year.

Income tax expense (benefit).

We recorded an income tax benefit of $5.2 million for the fiscal year 2020 compared to a tax benefit of $0.2 million for the fiscal year 2019.

The effective tax rate for fiscal year 2020 was (26.3)% as compared to (4.0)% for fiscal year 2019.

The increase in the year-over-year effective tax rate for fiscal year 2020 is primarily attributable to our loss before income tax, reduced energy efficient commercial building deductions and increased nondeductible compensation recognized in 2020.

Net income (loss).

As a result of the above factors, our net loss was $14.5 million for the fiscal year ended 2020, as compared to a net income of $4.8 million for the fiscal year 2019.

Liquidity and Capital Resources

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Sources of Cash

We believe that our cash and cash equivalents on hand, 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 the $781 million in California Investor Owned Utility Contracts and other organic growth, we amended our credit agreement to, among other things, ensure an adequate margin for certain covenant compliance obligations.

As of December 31, 2021, we had $11.2 million of cash and cash equivalents.

In addition, as of December 31, 2021, we had a $100 million Term A Loan with $75.0 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 had a $50.0 million Delayed Draw Term Loan with $20.0 million available for draw subject to the satisfaction of certain covenants and $24.0 million outstanding.

Each of our Term A Loan, Revolving Credit Facility, and Delayed Draw Term Loan mature on June 26, 2024.

source of liquidity for the next 12 months and beyond is cash generated from operations and borrowings under our Revolving Credit Facility.

Our primary sources of liquidity for the next 12 months and beyond are our cash and cash equivalents and borrowings under our secured revolving facility under the Credit Agreement (the “Revolving Credit Facility”).

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.

A recent amendment to our Revolving Credit Facility limits our borrowing capacity under our Revolving Credit Facility to no more than $10.0 million at any time during the period from November 1, 2022 through the date on which financial statements and compliance documents have been received by the administrative agent under the Credit Agreement for the fiscal quarter ending March 31, 2023, as described in Part II, Item 8, Note 5, “ Debt Obligations”, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

As of December 30, 2022, we had not borrowed under the Revolving Credit Facility, and we were in compliance with the covenants contained in the Credit Agreement.

Our access to the Revolving Credit Facility may continue to be restricted if we do not achieve the specified leverage and fixed charge coverage ratios prescribed under our Credit Agreement for the fiscal quarter ending in March 2023.

As of December 30, 2022, we had fully drawn the $100 million secured term A loan with $65.0 million outstanding (the “Term A Loan” and, collectively with the Revolving Credit Facility and the Delayed Draw Term Loan, the “Credit Facilities”), a $50.0 million Revolving Credit Facility with no borrowed amounts outstanding and $4.1 million in letters of credit issued, and a fully drawn $50.0 million Delayed Draw Term Loan with $41.0 million outstanding, each scheduled to mature on June 26, 2024.

In addition, a s of December 30, 2022, we had $8.8 million of cash and cash equivalents.

As of December 30, 2022, borrowings under our Credit Facilities, exclusive of the effects of upfront fees, undrawn fees and issuance cost amortization, bore interest at 8.3%.

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Cash flows provided by operating activities were $9.4 million, $9.8 million, and $47.0 million for fiscal years 2022, 2021, and 2020, respectively.

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.

Cash flows provided by operating activities for fiscal year 2022 were unfavorably impacted by higher working capital requirements required to support the increase in contract revenues.

Cash flows provided by operating activities for fiscal year 2021 resulted primarily from the changing mix of revenues, partially offset by increased demand for working capital related to the resumption of our utility programs that were suspended in 2020 and start-up costs associated with certain new contract awards.

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and Onsite Energy.

Cash flows provided by operating activities for fiscal year 2019 resulted primarily as a result of our fiscal year 2019 acquisitions, combined with a decrease in accounts receivable and an increase in accrued liabilities, partially offset by an increase in contract assets.

Cash Flows from Investing Activities

Cash flows used in investing activities were $8.5 million for fiscal year 2021, as compared to $5.0 million and $78.3 million for fiscal years 2020 and 2019, respectively.

Cash flows used in investing activities for fiscal year 2021 were primarily due to cash paid for software development cost and the purchase of equipment.

Cash flows used in investing activities for fiscal year 2020 were primarily due to cash paid for the purchase of equipment, the enhancement of internal operating software, and leasehold improvements.

Cash flows used in investing activities for fiscal year 2019 were primarily due to cash paid for the acquisitions of The Weidt Group, Onsite Energy, and E3, Inc.

Cash flows used in investing activities were $9.5 million, $8.5 million and $5.1 million for fiscal years 2022, 2021, and 2020, respectively.

Cash flows used in investing activities for fiscal year 2022 were primarily due to cash paid for the development of software and the purchase of computers and other equipment.

Cash flows used in investing activities for fiscal year 2021 were primarily due to cash paid for software development cost and the purchase of computers and other equipment.

Cash flows used in investing activities for fiscal year 2020 were primarily due to cash paid for the purchase of computers and other equipment, the enhancement of internal operating software, and leasehold improvements.

Cash Flows from Financing Activities

Cash flows used in financing activities were $18.5 million and $19.0 million for fiscal year 2021 and 2020, as compared to cash flows provided by financing activities of $56.9 million for fiscal 2019.

Cash flows used in financing activities for fiscal year 2021 were primarily attributable to repayments of $13.0 million under our term loan facility and revolving line of credit, increases of $6.6 million for contingent consideration related to prior acquisitions, payments of taxes on stock grants of $3.1 million, payments on notes payable of $1.9 million, partially offset by $2.7 million in proceeds from sales of common stock under our employee stock purchase plan and $1.9 million in proceeds from stock option exercise.

Cash flows used in financing activities for fiscal year 2020 were primarily attributable to repayments of $42.0 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.

Cash flows provided by financing activities for fiscal year 2019 were primarily attributable to borrowings under our credit facilities related to our acquisitions of The Weidt Group, Onsite Energy, and E3, Inc.

Cash flows provided by financing activities was $8.4 million in fiscal year 2022 compared to cash flows used in financing activities of $18.5 million, and $19.0 million for fiscal years 2021, and 2020, respectively.

Cash flows provided by financing activities for fiscal year 2022 were primarily attributable to borrowings of $20.0 million under our Delayed Draw Term Loan, $10.7 million in receipt of restricted cash, $3.0 million in proceeds from sales of common stock under our employee stock purchase plan, and $1.7 million proceeds from notes payable, partially offset by repayments of $13.0 million under our Term A Loan, combined with payments of $10.2 million for contingent consideration related to prior acquisitions, $1.9 million payments on notes payable, and $1.1 million principal payments on finance leases.

Cash flows used in financing activities for fiscal year 2021 were primarily attributable to principal repayments of $13.0 million under our Term A Loan and Revolving Credit Facility, increases of $6.6 million for contingent consideration related to prior acquisitions, payments of taxes on stock grants of $3.1 million, payments on notes payable of $1.9 million, partially offset by $2.7 million in proceeds from sales of common stock under our employee stock purchase plan and $1.9 million in proceeds from stock option exercise.

Cash flows used in financing activities for fiscal year 2020 were primarily attributable to repayments of $42.0 million under our Term A Loan 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 Credit Facility.

Under certain utility contracts, we periodically receive cash deposits to be held in trust for the payment of energy incentive rebates to be sent directly to the utility’s end-customer on behalf of the utility.

We act solely as the utility’s agent to distribute these funds to the end-customer and, accordingly, we classify these contractually restricted funds as restricted cash.

Because these funds are held in trust for pass through to the utility’s customers and have no impact on our working capital or operating cash flows, these cash receipts are presented in the consolidated statement of cash flows as financing cash inflows, “Receipt of restricted cash”, with the subsequent payments classified as financing cash outflows, “Payment of restricted cash.”.

Off-Balance Sheet Arrangements

Other than operating lease commitments, we do not have any off-balance sheet financing arrangements or liabilities.

We do not have any off-balance sheet financing arrangements or liabilities.

In addition, our policy is not to enter into futures or forward contracts.

Finally, we do not have any majority-owned subsidiaries or any interests in, or relationships with, any special-purpose entities that are not included in the consolidated financial statements.

We have, however, an administrative services agreement with Genesys in which

we provide Genesys with ongoing administrative, operational and other non-professional support services.

We have, however, an administrative services agreement with Genesys in which we provide Genesys with ongoing administrative, operational and other non-professional support services.

We manage Genesys and have the power to direct the activities that most significantly impact Genesys’ performance, in addition to being obligated to absorb expected losses from Genesys.

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Short and Long-term Uses of Cash

Our principal uses of cash are to fund operating expenses and pay down outstanding debt.

Our principal uses of cash are to fund operating expenses, support working capital requirements, finance capital expenditures, and pay down outstanding debt.

From time to time, we also use cash to help fund business acquisitions.

Our cash and cash equivalents are impacted by the timing of when we pay expenses as reflected in the change in our outstanding accounts payable and accrued expenses.

Our cash and cash equivalents are impacted by the timing of when we are paid by our customers for services rendered and when we pay expenses as reflected in the change in our outstanding accounts payable and accrued expenses.

Contractual Obligations

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

Our Credit Facilities are scheduled to mature on June 26, 2024.

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

Future interest payments on our Delayed Draw Term Loan Facility are estimated using floating rates in effect as of December 30, 2022.

(3) Long-term debt and interest payments on debt outstanding do not include $20 million drawn on March 8, 2022 from our Delayed Draw Term Loan Facility in connection with the fifth amendment to the Amended and Restated Credit Agreement.

For more information, see Part II, Item 8, Note 15, “ Subsequent Events ”, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

We are obligated to pay earn-out payments in connection with our 2019 and 2017 acquisitions of E3, Inc.

and Integral Analytics, respectively.

We are obligated to pay up to (i) $12.0 million in cash if E3, Inc.

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

(“E3, Inc.”) if E3, Inc.

exceeds certain financial targets during the three years after the E3, Inc.

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 December 31, 2021, we had contingent consideration payable of $11.0 million related to these acquisitions.

For fiscal 2021, our statement of operations includes $2.3 million of accretion (excluding fair value adjustments) related to the contingent consideration.

closing date.

As of December 30, 2022, we had remaining contingent consideration payable of $4.0 million related to this acquisition.

For fiscal year 2022, our statement of operations includes $3.2 million of accretion (excluding fair value adjustments) related to the liability for contingent consideration.

Outstanding Indebtedness

Subsequent to December 31, 2021, we borrowed and repaid $5.0 million under our Revolving Credit Facility.

On March 8, 2022, after giving effect to the Fifth Amendment, we had $50.0 million in borrowing capacity available under our credit facilities.

See part II, Item 8, Note 5, “ Debt Obligations ”, and Note 15, “ Subsequent Events ”, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K 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.

See Part II, Item 8, Note 5, “ Debt Obligations ”, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K 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.

Insurance Premiums

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Interest Rate Swap

See Part II, Item 7A, “ Quantitative and Qualitative Disclosures About Market Risk ”, and Note 4, “ Derivative Financial Instruments ”, to the Notes of Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding our interest rate swap.

From time to time, we enter into interest rate swap agreements to moderate our exposure to fluctuations in interest rates underlying our variable rate debt.

For more information, see Part I, Item 7A, “ Quantitative and Qualitative Disclosures About Market Risk ”, and Note 4, “ Derivatives ”, to the Notes of Consolidated Financial Statements included in this Annual Report on Form 10-K.

Impact of Inflation

Due to the average duration of our projects and our ability to negotiate prices as contracts end and new contracts begin, we believe our operations have not been, and, in the foreseeable future, are not expected to be, materially impacted by moderate inflation.

Due to the average duration of our projects and our ability to negotiate prices as contracts end and new contracts begin, historically, our operations have not been materially impacted by inflation.

While immaterial to our results of operations and financial condition, we have experienced higher cost of materials and delays in our supply chain for equipment during fiscal year 2022, and we expect these higher costs and delays in our supply chain to persist through fiscal year 2023.

The prices of finished products from manufacturers are subject to fluctuation and increases.

It is difficult to accurately measure the impact of inflation, tariffs, price escalation, raw material costs, and other factors that impact the cost of finished goods due to the imprecise nature of the estimates required.

We are often able to mitigate the impact of future price increases by entering into fixed price purchase orders for materials and equipment, and subcontracts on our projects, as well as, when appropriate, including cost escalation factors into our proposals.

Despite our best mitigation efforts, significant price increases in equipment and disruptions to our supply chain could materially impact our results of operations and financial condition.

In addition, inflationary pressures, including expectations of future inflation, may impact the customers of our utility clients, which may lead to delayed or deferred decisions regarding expenditures to improve energy efficiency, and therefore potentially impact our future revenues.

Components of Revenue and Expense

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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 December 31, 2021, approximately 24% of our contracts are time-and-materials contracts and approximately 54% of our contracts are unit-based contracts, compared to approximately 26% for time-and-materials contracts and approximately 46% for unit-based contracts as of January 1, 2021.

As of December 30, 2022, 20% of our contracts are time-and-materials contracts, 45% are unit-based contracts, and 35% are fixed price contracts, compared to 24% for time-and-materials contracts, 54% for unit-based contracts, and 22% for fixed price contract s, as of December 31, 2021.

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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Most of our contracts permit our clients, with prior notice, to terminate the contracts at any time without cause.

While we have a large volume of contracts, the renewal, termination or modification of a contract, in particular contracts with Consolidated Edison, the City of Elk Grove, DASNY, and utility programs associated with Los Angeles Department of Water and Power and Duke Energy Corp., may have a material effect on our consolidated operations.

While we have a large volume of contracts, the renewal, termination or modification of a contract, in particular contracts with Consolidated Edison, DASNY, and utility programs associated with LADWP, Southern California Edison, and Duke Energy Corp., may have a material effect on our consolidated operations.

Some of our contracts include certain performance guarantees, such as a guaranteed energy saving quantity.

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General and Administrative Expenses

G&A expenses include the costs of the marketing and support staffs, other marketing expenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs of contract revenue for those employees who provide our services.

G&A expenses include the costs of the marketing and support staff, other marketing expenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs of contract revenue for those employees who provide our services.

G&A expenses also include facility costs, depreciation and amortization, professional services, legal and accounting fees and administrative operating costs.

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In accordance with ASC 606, we perform an assessment of each contract to identify the performance obligations, determine the overall transaction price for the contract, allocate the transaction price to the performance obligations, and recognize the revenue when the performance obligations are satisfied.

We utilize the residual approach by which it estimates the standalone selling price by reference to the total transaction price less the sum of the observable standalone selling prices of other goods or services promised in the contract.

We utilize the residual approach by which we estimate the standalone selling price by reference to the total transaction price less the sum of the observable standalone selling prices of other goods or services promised in the contract.

The software license revenue is typically recognized at a point in time when control is transferred to the client, which is defined as the point in time when the client can use and benefit from the license.

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With respect to our contracts, it is rare that multiple contracts should be combined into a single performance obligation.

This evaluation requires significant judgment and the decision to combine a group of

contracts or separate a single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

This evaluation requires significant judgment and the decision to combine a group of contracts or separate a single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

Contracts are considered to have a single performance obligation if the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts, which is mainly because we provide a significant service of integrating a complex set of tasks and components into a single project or capability.

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The new standard does not change how a goodwill impairment is identified.

We will continue to

perform our quantitative and qualitative goodwill impairment test by comparing the fair value of each reporting unit to its carrying amount, but if we are required to recognize a goodwill impairment charge, under the new standard the amount of the charge will be calculated by subtracting the reporting unit’s fair value from its carrying amount.

We will continue to perform our quantitative and qualitative goodwill impairment test by comparing the fair value of each reporting unit to its carrying amount, but if we are required to recognize a goodwill impairment charge, under the new standard the amount of the charge will be calculated by subtracting the reporting unit’s fair value from its carrying amount.

Under the prior standard, if we were required to recognize a goodwill impairment charge, Step 2 required us to calculate the implied value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination and the amount of the charge was calculated by subtracting the reporting unit’s implied fair value of goodwill from its actual goodwill balance.

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During fiscal years 2022, 2021 and 2020, we did not have any acquisitions.

During fiscal year 2019, we completed three acquisitions;

On October 28, 2019, we acquired all of the capital stock of E3, Inc.

On July 2, 2019, we acquired substantially all of the assets and liabilities of Onsite Energy.

On March 8, 2019, we acquired substantially all of the assets of the energy practice division of The Weidt Group.

Income taxes are accounted for under the asset and liability method.

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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-K

Item 7. Management’s Discussion and Analysis