Caution Regarding Forward-Looking Statements
This Form 10-Q and its exhibits contain or incorporate by reference various forward-looking statements that express a belief, expectation or intention or are otherwise not statements of historical fact. Forward-looking statements generally use forward-looking words, such as "may," "will," "could," "should," "would," "project," "believe," "anticipate," "expect," "estimate," "continue," "potential," "plan," "forecast" and other words that convey the uncertainty of future events or outcomes. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict. Therefore, our actual outcomes and results may differ materially from those expressed in these forward-looking statements. Investors should not place undue reliance on any of these forward-looking statements. Except as required by law, we undertake no obligation to further update any such statements, or the risk factors described in our 2020 Report under the heading "Part I-Item 1A. Risk Factors," to reflect new information, the occurrence of future events or circumstances or otherwise. The forward-looking statements in this Form 10-Q do not constitute guarantees or promises of future performance. Forward-looking statements may include information concerning the following, among other items:
? our level of debt;
our ability to make interest and principal payments on our debt and to meet
? financial and other commitments contained in our credit facilities, as well as our
ability to engage in certain transactions and activities due to limitations and
the commitments contained in these facilities;
our ability to generate sufficient liquidity to continue financing
operations, including working capital investments needed to support
? growth commitments we make to our customers and the potential
that we may not be able to secure additional financing as needed or to commit
operating losses in the future;
? exposure to market risks associated with changes in interest rates, including
or replacement of LIBOR;
? failure to maintain effective internal control over financial reporting and
future disclosure controls and procedures;
our ability to attract and retain qualified personnel, skilled workers and
? agents, including the potential impact of the federal COVID-19 vaccination
mandate, or any mandate imposed by our clients, on our ability to recruit
and retain employees;
failure to successfully implement or achieve our strategies, plans and
management objectives and liquidity, operating and growth initiatives and
? opportunities, including our expansion into international markets and our
ability to identify potential candidates for the acquisition and to carry it out,
disposal or investment transactions;
? the loss of one or more of our important customers;
? our competitive position;
market outlook and trends in our industry, including the possibility of
? investments in or increased regulation of nuclear power plants and the reduction of
building public infrastructure and reducing public funding,
including funding from state and local agencies;
? the failure of the
benefit our end markets;
? costs in excess of the estimates we use to establish fixed price contracts;
damage to our reputation or profitability due, among other things, to
? operational problems, poor performance of the subcontractor or subcontractor
insolvency;
? the potential insolvency or financial hardship of third parties, including our
customers and suppliers;
? our backlog and related amounts to be recognized as revenue;
? our ability to maintain our safety record, potential liability risks and
adequacy of insurance;
adverse changes in our relationships with suppliers, vendors and
? subcontractors, including cost increases, supply disruptions or shortages
labor, freight, equipment or supplies, including due to COVID-19
pandemic;
? compliance with laws relating to the environment, health, safety and other laws and
regulations, including those related to climate change;
? limitations or modifications to the compensation regulations of the
? our expected financial condition, future cash flows, results of operations and
future capital and other expenditures;
? the impact of general economic conditions, including inflation,
economic disruption and any recession resulting from the COVID-19 pandemic;
the impact of the COVID-19 pandemic on our activities, our operating results,
financial condition and cash flow, including global supply chain disruptions
? and the possibility of other cases of COVID-19 occurring at our active premises or
future projects, as happened before in our
which could have an impact on the costs and availability of labor;
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? information technology vulnerabilities and cyber attacks on our networks;
? our failure to comply with applicable laws and regulations, including, but not
limited to those relating to privacy and the fight against corruption;
? our participation in multi-employer pension plans;
? the impact of any disruption resulting from the expiration of the collective agreement
negotiation agreements;
? the impact of natural disasters and other serious catastrophic events (such as
the ongoing COVID-19 pandemic);
the impact of changes in tax laws and regulations, including future taxes
? payments and use of net operating loss and foreign tax credit
postponements;
? market price volatility for our common shares;
? our ability to maintain our stock market listing;
? the effects of anti-takeover provisions in our organizational documents and
? the impact of future offers or sales of our common shares on the market price
of this stock;
? the expected results of legal or regulatory proceedings and their
the effects on our operating results; and
? any other statement regarding future growth, future cash flow requirements,
future operations, business plans and financial results.
These forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties, and other factors, including unpredictable or unanticipated factors that we have not discussed in this Form 10-Q. In addition, some of these risks, uncertainties and other factors have been, and may further be, exacerbated by the COVID-19 pandemic. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by the forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. Investors should consider the areas of risk and uncertainty described above, as well as those discussed in the 2020 Report under the heading "Part I-Item 1A. Risk Factors" and in this Form 10-Q under the heading "Part II-Item 1A. Risk Factors." Except as may be required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and we caution investors not to rely upon them unduly. The following discussion provides an analysis of the results of continuing operations, an overview of our liquidity and capital resources and other items related to our business. Unless otherwise specified, the financial information and discussion in this Form 10-Q are as of and for the three and nine months endedSeptember 30, 2021 and are based on our continuing operations; they exclude any results of our discontinued operations. Please refer to "Note 4-Changes in Business" to the unaudited condensed consolidated financial statements included in this Form 10-Q for additional information on our discontinued operations. This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in this Form 10-Q and our audited consolidated financial statements and notes thereto included in the 2020 Report. Backlog The services we provide are typically carried out under construction contracts, long-term maintenance contracts and master service agreements. Total backlog represents the dollar amount of revenue expected to be recorded in the future for work performed under awarded contracts. Revenue estimates included in our backlog can be subject to change as a result of project accelerations, cancellations or delays due to various factors, including, but not limited to, the customer's budgetary constraints and adverse weather. These factors can also cause revenue amounts to be recognized in different periods and at levels other than those originally projected. Additional work that is not identified under the original contract is added to our estimated backlog when we reach an agreement with the customer as to the scope and pricing of that additional work. Backlog is reduced as work is performed and revenue is recognized, or upon cancellation. 24
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Backlog is not a measure defined by GAAP, and our methodology for determining backlog may vary from the methodology used by other companies in determining their backlog amounts. Backlog may not be indicative of future operating results and projects in our backlog may be cancelled, modified, or otherwise altered by our customers. We utilize our calculation of backlog to assist in measuring aggregate awards under existing contractual relationships with our customers. We believe our backlog disclosures will assist investors in better understanding this estimate of the services to be performed pursuant to awards by our customers under existing contractual relationships.
The following tables summarize our order book:
(in thousands) September 30, 2021 December 31, 2020 Cost plus $ 604,323 $ 430,694 Lump sum 68,183 13,156 Total $ 672,506 $ 443,850 (in thousands) Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021 Backlog - beginning of period $ 664,357 $ 443,850 New awards 76,774 376,228 Adjustments and cancellations, net 4,726 78,201 Revenue recognized (73,351) (225,773) Backlog - end of period $ 672,506 $ 672,506 Total backlog as ofSeptember 30, 2021 was$672.5 million , compared with$443.9 million onDecember 31, 2020 , an increase of$228.7 million , which was primarily driven by our decommissioning work, which accounted for$224.6 million of the increase. Our fossil and wastewater markets also contributed to a$28.3 million increase in backlog. These increases were partially offset by a reduction in our nuclear market backlog of$29.4 million . We estimate that approximately$207.4 million , or 30.8% of total backlog onSeptember 30, 2021 , will be converted to revenue within the next twelve months and$73.4 million , or 10.9% of total backlog, will be converted to revenue within the remainder of the fiscal year. As ofDecember 31, 2020 , we estimated that approximately$165.3 million , or 37.2% of total backlog, would convert to revenue in 2021.
Results of operations
The Company continues to monitor several factors that may cause actual results of operations and financial results to differ from our historical results or current expectations. These factors include: inflationary pressures, the political environment, work delays on projects and supplies, labor shortages and rising labor costs, new laws, regulations and guidelines, new project requirements, and the impact of the COVID-19 pandemic, including the consequences of governmental and other measures designed to prevent the spread of the virus, including the potential impact of applicable vaccine mandates on our labor supply and future results of operations, as well as any impact of such mandates on our customers, the continued sporadic outbreaks of COVID-19 cases and the ongoing spread of the new COVID-19 variants, the impact of COVID-19 vaccines, including the speed at which they, or related "boosters," are approved, disseminated and widely adopted, and their effectiveness against COVID-19 and its evolving strains, and the ultimate duration and scope of the pandemic. These and other factors could affect the Company's operational results and cause them to not be comparable to those of the same period in previous years. For instance, the effects of the COVID-19 pandemic led the Company to implement enhanced safety standards and processes on a project inGeorgia that experienced COVID-19 cases on site and caused work delays on projects inNew York due to specific state, local, municipal and customer mandated stay-at-home orders and new project requirements that were established to protect workers and the general public. Additionally, during the third quarter of 2020, we experienced a delay in a nuclear project and an outage cycle inLouisiana and have experienced a slow-down in business development activities and bid opportunities, particularly on the eastern shore of theLake Huron area inOntario, Canada due to COVID-19. Although the majority of stay-at-home orders were phased-out by the end of the second quarter of 2020, we are still experiencing impacts associated with the COVID-19 project specific protocols. While the Company has not yet experienced a material negative impact on its operational results, these project specific requirements are expected to remain in place for the foreseeable future, which will continue to impact project schedules and workflow going forward. In addition, federal and state governments have increased spending as part of efforts to mitigate the impact of COVID-19 on the economy. The amount and timing of such spending will be directly impacted by the duration of required efforts to contain COVID-19 and the severity of the negative impacts created by the virus and its effect on the economy. Any recovery from the COVID-19 pandemic and related economic impact may also be slowed or reversed by a number of factors, including any widespread resurgence in COVID-19 infections. The results presented in this Form 10-Q are not necessarily indicative of future operating results. 25 Table of Contents
The following summary and analysis of our results of operations is based on our continuing operations and excludes the results of our discontinued operations:
Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2021 2020 2021 2020 Revenue $ 73,351 $ 66,240$ 225,773 $ 204,936 Cost of revenue 66,590 57,582 203,561 180,014 Gross profit 6,761 8,658 22,212 24,922
Selling and marketing expenses 267 123 709 401 General and administrative expenses 4,248 5,827 16,931 17,413 Depreciation and amortization expense 50 46 137 144 Total operating expenses 4,565 5,996 17,777 17,958 Operating income 2,196 2,662 4,435 6,964 Interest expense, net 1,227 1,541 3,733 4,640 Other expense (income), net 181 (316) (1,411) (937) Income from continuing operations before income tax 788 1,437 2,113 3,261 Income tax expense (6) 321 256 565 Income from continuing operations $ 794 $ 1,116
$ 1,857 $ 2,696 Revenue for the three months endedSeptember 30, 2021 increased$7.1 million , or 10.7%, compared with the corresponding period in 2020. The increase was driven primarily by our growth in the decommissioning market of$8.6 million . In addition, our volume increased in the fossil fuel markets by$3.7 million . These increases were partially offset by reduced volume in the nuclear and industrial markets of$2.5 million and$2.6 million , respectively. Revenue for the nine months endedSeptember 30, 2021 increased$20.8 million , or 10.2%, compared with the corresponding period in 2020. The increase was primarily driven by our growth in the decommissioning market of$19.1 million , and the timing of a planned utility outage related to our long-term maintenance and modification contract of$18.3 million . In addition, our volume increased in the fossil fuel market by$10.8 million . These increases were partially offset by reduced volume in the nuclear market of$27.4 million . Gross profit for the three months endedSeptember 30, 2021 decreased$1.9 million , or 21.9%, compared with the corresponding period in 2020. The decrease was primarily driven by cost overruns on uncompleted fixed price projects in the industrial markets we serve inFlorida . We also incurred start-up costs associated with our expansion in the northeast transportation and distribution of natural gas during the three months endedSeptember 31, 2021 . The decrease was partially offset by growth in the decommissioning market accounting for a greater portion of revenue compared to the corresponding period in 2020. Our decommissioning projects have a lower gross margin profile compared to other services we provide. 26 Table of Contents Gross profit for the nine months endedSeptember 30, 2021 decreased$2.7 million , or 10.9%, compared with the corresponding period in 2020. The decrease was primarily driven by cost overruns on uncompleted fixed price projects in the industrial markets we serve inFlorida . The decrease was partially offset by growth in the decommissioning market and the timing of a planned utility outage related to our long-term maintenance and modification contract, each of which has a lower gross margin profile compared to other services we perform and accounted for a greater portion of revenue compared to the corresponding period in 2020. Operating income for the three months endedSeptember 30, 2021 decreased$0.5 million compared with the corresponding period in 2020, due primarily to the decrease in gross profit of$1.9 million . This was partially offset by a decrease of$1.4 million in operating expenses, driven by lower general and administrative costs. Operating income for the nine months endedSeptember 30, 2021 decreased$2.5 million compared with the corresponding period in 2020, due primarily to the decrease in gross profit of$2.7 million . This was partially offset by a decrease of$0.2 million in operating expenses, driven by lower general and administrative costs.
General and administrative expenses
Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2021 2020 2021 2020 Employee-related expenses $ 1,946 $ 3,111 $ 8,916 $ 8,835 Stock-based compensation expense 1,119 614
2,579 1,702 Professional fees (10) 843 1,876 3,088 Other expenses 1,193 1,259 3,560 3,788 Total $ 4,248 $ 5,827 $ 16,931 $ 17,413 Total general and administrative expenses for the three months endedSeptember 30, 2021 decreased by$1.6 million , or 27.1%, compared with the corresponding period in 2020. Employee related costs decreased by$1.2 million due to cost reductions in a short term incentive program, which was partially offset by growth in headcount. Professional fees decreased by$0.9 million resulting from a claim recovery on previously incurred expenses. These decreases were partially offset by an increase in stock-based compensation expense of$0.5 million , driven by additional restricted stock units granted in 2021. Total general and administrative expenses for the nine months endedSeptember 30, 2021 decreased by$0.5 million , or 2.8%, compared with the corresponding period in 2020. The decrease was primarily driven by decreases of$1.2 million and$0.2 million , respectively, in professional fees and other expenses resulting from a claim recovery on previously incurred expenses and cost reduction initiatives. These decreases were partially offset by increases of$0.1 million in employee related costs and$0.9 million in stock-based compensation expenses due to accelerated vesting of a restricted stock award and a new grant of restricted stock units.
Total other (income) expense, net
Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2021 2020 2021 2020 Interest expense, net $ 1,227 $ 1,541 $ 3,733 $ 4,640 Other (income) expense, net 181 (316) (1,411) (937) Total $ 1,408 $ 1,225 $ 2,322 $ 3,703
Total other charges, net, for the three months ended
increase
depreciation linked to a sublet, partially offset by
reduction in interest expense thanks to the refinancing of our debt in
Total other expense, net, for the nine months endedSeptember 30, 2021 decreased$1.4 million , or 37.3%, compared with the corresponding period in 2020. The decrease was primarily due to receipt of a$1.0 million distribution from the assets of a former subsidiary related to a previous intercompany receivable that we recognized as a loss in 2018, coupled with a$1.0 million decrease in interest expense and fees related to the refinancing of our debt in 2020. These decreases were partially offset by a$0.3 million reduction in joint venture earnings due to lower volume as construction activities for Plant Vogtle Units 3 and 4 move closer to completion, and a$0.4 million impairment charge related to a sublease, compared with the corresponding period in 2020. 27 Table of Contents Income Tax Expense Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2021 2020 2021 2020 Income tax (benefit) expense $ (6) $ 321 $ 256 $ 565 Income tax expense for the interim periods is based on estimates of the effective tax rate for the entire fiscal year. The effective income tax rate is based upon the estimated income during the calendar year, the estimated composition of the income in different jurisdictions and discrete adjustments, if any, in the applicable quarterly periods for settlements of tax audits or assessments and the resolution or identification of tax position uncertainties. For the three months endedSeptember 30, 2021 , we recorded income tax benefit from continuing operations of$0.01 million , or (0.8)% of pretax income from continuing operations, compared with income tax expense from continuing operations of$0.3 million , or 22.3% of pretax income from continuing operations, in the corresponding period of 2020. For the nine months endedSeptember 30, 2021 , we recorded income tax expense from continuing operations of$0.3 million , or 12.1% of pretax income from continuing operations, compared with income tax expense from continuing operations of$0.6 million , or 17.3% of pretax income from continuing operations, in the corresponding period of 2020. The difference between our effective tax rate and the federal statutory tax rate for the three and nine months endedSeptember 30, 2021 and 2020 is primarily related to the Canadian income tax provision and the partial valuation allowance recorded on ourU.S. deferred tax assets. The decrease in income tax provision from continuing operations for the three months endedSeptember 30, 2021 compared with the corresponding period in 2020, was primarily the result of the$0.3 million increase in theU.S. deferred tax assets net of a partial valuation allowance, and the$0.05 million decrease in the income tax provision due to the year-over-year fluctuation in the pre-tax Canadian book income. The decrease in income tax provision from continuing operations for the nine months endedSeptember 30, 2021 compared with the corresponding period in 2020 was primarily the result of the$0.4 million increase in theU.S. deferred tax assets net of the partial valuation allowance as the Company's indefinite lived intangible assets have been fully amortized for tax purposes as of year-end 2020, partially offset by the$0.1 million increase in the Canadian income tax provision.
2017 Tax Cut and Employment Laws
OnDecember 22, 2017 , the Tax Cuts and Jobs Act was signed into law, making significant changes to the Internal Revenue Code. Such changes include, but are not limited to, aU.S. federal corporate tax rate decrease from 35% to 21% effective for tax years beginning afterDecember 31, 2017 , the transition ofU.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as ofDecember 31, 2017 . Due to changes in interpretations and assumptions, and future guidance that may be issued and actions we may take in response to the Tax Cuts and Jobs Act, the ultimate impact of the Tax Cuts and Jobs Act may change in future periods. The Tax Cuts and Jobs Act is highly complex, and we will continue to assess the impact of certain aspects of the Tax Cuts and Jobs Act. For additional information, please refer to "Note 7-Income Taxes" to the consolidated financial statements included in this Form 10-Q.
Interrupted operations
See “Note 4-Changes in operations” to the unaudited condensed consolidated financial statements included in this Form 10-Q for information on discontinued operations.
Liquidity and capital resources
During the nine months ended
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