Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                

 

Commission File No. 001-16501

Picture 1

Williams Industrial Services Group Inc.

(Exact name of registrant as specified in its charter)

 


 

 

 

 

Delaware

 

73-1541378

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

100 Crescent Centre Parkway, Suite 1240

Tucker, GA 30084

(Address of principal executive offices) (Zip code)

 

(770) 879-4400

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 


 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

N/A

N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No   ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒  No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

 

 

As of November 8, 2019, there were 19,057,195 shares of common stock of Williams Industrial Services Group Inc. outstanding.

 

 

 

 

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

Table of Contents

 

 

Part I—FINANCIAL INFORMATION 

3

 

 

Item 1. Financial Statements 

3

 

 

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (unaudited) 

3

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited) 

4

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited) 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited) 

6

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (unaudited) 

7

 

 

Notes to Condensed Consolidated Financial Statements (unaudited) 

8

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

23

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk 

30

 

 

Item 4. Controls and Procedures 

30

 

 

Part II—OTHER INFORMATION 

 

 

 

Item 1. Legal Proceedings 

31

 

 

Item 1A. Risk Factors 

31

 

 

Item 5. Other Items 

31

 

 

Item 6. Exhibits 

32

 

 

SIGNATURES 

33

 

 

 

 

Table of Contents

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements.

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except share data)

 

September 30, 2019

  

December 31, 2018

ASSETS

  

 

 

  

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,004

 

$

4,475

Restricted cash

 

 

468

 

 

467

Accounts receivable, net of allowance of $193 and $140, respectively

 

 

30,514

 

 

22,724

Contract assets

 

 

12,377

 

 

8,218

Other current assets

 

 

3,653

 

 

1,735

Total current assets

 

 

49,016

 

 

37,619

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

285

 

 

335

Goodwill

 

 

35,400

 

 

35,400

Intangible assets

 

 

12,500

 

 

12,500

Other long-term assets

 

 

8,752

 

 

1,650

Total assets

 

$

105,953

 

$

87,504

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

10,969

 

$

2,953

Accrued compensation and benefits

 

 

9,233

 

 

10,859

Contract liabilities

 

 

5,317

 

 

3,278

Short-term borrowings

 

 

3,898

 

 

3,274

Current portion of long-term debt

 

 

700

 

 

525

Other current liabilities

 

 

9,807

 

 

5,518

Current liabilities of discontinued operations

 

 

342

 

 

640

Total current liabilities

 

 

40,266

 

 

27,047

Long-term debt, net

 

 

32,738

 

 

32,978

Deferred tax liabilities

 

 

2,614

 

 

2,682

Other long-term liabilities

 

 

4,736

 

 

1,396

Long-term liabilities of discontinued operations

 

 

4,466

 

 

5,188

Total liabilities

 

 

84,820

 

 

69,291

Commitments and contingencies (Note 9 and 11)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value, 170,000,000 shares authorized and 19,794,270 and 19,767,605 shares issued, respectively, and 19,057,195 and 18,660,218 shares outstanding, respectively

 

 

198

 

 

197

Paid-in capital

 

 

81,380

 

 

80,424

Accumulated other comprehensive loss

 

 

(27)

 

 

 —

Accumulated deficit

 

 

(60,409)

 

 

(62,397)

Treasury stock, at par (737,075 and 1,107,387 common shares, respectively)

 

 

(9)

 

 

(11)

Total stockholders’ equity

 

 

21,133

 

 

18,213

Total liabilities and stockholders’ equity

 

$

105,953

 

$

87,504

 

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(in thousands, except share and per share data)

  

2019

 

2018

 

2019

  

2018

Revenue

 

$

56,862

 

$

53,467

 

$

178,980

 

$

144,563

Cost of revenue

 

 

50,906

 

 

43,255

 

 

157,150

 

 

121,154

 

 

 

 

 

 

 

 

 

 

 

 

 

 Gross profit

 

 

5,956

 

 

10,212

 

 

21,830

 

 

23,409

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

 

63

 

 

397

 

 

468

 

 

1,299

General and administrative expenses

 

 

5,091

 

 

7,529

 

 

16,327

 

 

21,645

Restructuring charges

 

 

 —

 

 

1,436

 

 

 —

 

 

3,661

Depreciation and amortization expense

 

 

77

 

 

192

 

 

225

 

 

633

Total operating expenses

 

 

5,231

 

 

9,554

 

 

17,020

 

 

27,238

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

725

 

 

658

 

 

4,810

 

 

(3,829)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

1,511

 

 

3,622

 

 

4,504

 

 

7,397

Other (income) expense, net

 

 

(485)

 

 

(339)

 

 

(1,153)

 

 

(844)

Total other (income) expense, net

 

 

1,026

 

 

3,283

 

 

3,351

 

 

6,553

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income tax

 

 

(301)

 

 

(2,625)

 

 

1,459

 

 

(10,382)

Income tax (benefit) expense

 

 

62

 

 

215

 

 

141

 

 

720

Income (loss) from continuing operations

 

 

(363)

 

 

(2,840)

 

 

1,318

 

 

(11,102)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations before income tax

 

 

(54)

 

 

(10,619)

 

 

(175)

 

 

(14,522)

Income tax (benefit) expense

 

 

(97)

 

 

17

 

 

(845)

 

 

(666)

Income (loss) from discontinued operations

 

 

43

 

 

(10,636)

 

 

670

 

 

(13,856)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(320)

 

$

(13,476)

 

$

1,988

 

$

(24,958)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share  

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.02)

 

$

(0.16)

 

$

0.07

 

$

(0.61)

Income (loss) from discontinued operations

 

 

 —

 

 

(0.58)

 

 

0.04

 

 

(0.76)

Basic earnings (loss) per common share  

 

$

(0.02)

 

$

(0.74)

 

$

0.11

 

$

(1.37)

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.02)

 

$

(0.16)

 

$

0.07

 

$

(0.61)

Income (loss) from discontinued operations

 

 

 —

 

 

(0.58)

 

 

0.03

 

 

(0.76)

Diluted earnings (loss) per common share

 

$

(0.02)

 

$

(0.74)

 

$

0.10

 

$

(1.37)

 

 

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(in thousands)

 

2019

  

2018

 

2019

  

2018

Net income (loss)

 

$

(320)

 

$

(13,476)

 

$

1,988

 

$

(24,958)

Foreign currency translation adjustment

 

 

17

 

 

 —

 

 

(27)

 

 

 —

Comprehensive income (loss)

 

$

(303)

 

$

(13,476)

 

$

1,961

 

$

(24,958)

 

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01 Per Share

 

 

Paid-in

 

 

Accumulated

 

Treasury Shares

 

 

 

(in thousands, except share data)

  

Shares

  

 

Amount

  

 

Capital

  

 

Deficit

 

Shares

 

 

Amount

  

 

Total

Balance, December 31, 2017

 

19,360,026

 

$

193

 

$

78,910

 

$

(36,962)

 

(1,413,640)

 

$

(14)

 

$

42,127

Issuance of restricted stock units

 

167,841

 

 

 2

 

 

(2)

 

 

 —

 

 —

 

 

 —

 

 

 —

Tax withholding on restricted stock units

 

 —

 

 

 —

 

 

(186)

 

 

 —

 

(23,161)

 

 

 —

 

 

(186)

Stock-based compensation

 

 —

 

 

 —

 

 

753

 

 

 —

 

 —

 

 

 —

 

 

753

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(3,988)

 

 —

 

 

 —

 

 

(3,988)

March 31, 2018

 

19,527,867

 

$

195

 

$

79,475

 

$

(40,950)

 

(1,436,801)

 

$

(14)

 

$

38,706

Issuance of restricted stock units

 

187,738

 

 

 2

 

 

(2)

 

 

 —

 

308,523

 

 

 4

 

 

 4

Tax withholding on restricted stock units

 

 —

 

 

 —

 

 

(140)

 

 

 —

 

(100,569)

 

 

(2)

 

 

(142)

Stock-based compensation

 

 —

 

 

 —

 

 

490

 

 

 —

 

 —

 

 

 —

 

 

490

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(7,494)

 

 —

 

 

 —

 

 

(7,494)

June 30, 2018

 

19,715,605

 

$

197

 

$

79,823

 

$

(48,444)

 

(1,228,847)

 

$

(12)

 

$

31,564

Issuance of restricted stock units

 

 —

 

 

 —

 

 

 4

 

 

 —

 

38,608

 

 

 —

 

 

 4

Tax withholding on restricted stock units

 

 —

 

 

 —

 

 

(31)

 

 

 —

 

(10,421)

 

 

 —

 

 

(31)

Stock-based compensation

 

 —

 

 

 —

 

 

250

 

 

 —

 

 —

 

 

 —

 

 

250

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(13,476)

 

 —

 

 

 —

 

 

(13,476)

Balance, September 30, 2018

 

19,715,605

 

$

197

 

$

80,046

 

$

(61,920)

 

(1,200,660)

 

$

(12)

 

$

18,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01 Per Share

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

Treasury Shares

 

 

 

(in thousands, except share data)

  

Shares

  

 

Amount

  

 

Capital

  

 

Income (Loss)

  

 

Deficit

  

Shares

  

 

Amount

  

 

Total

Balance, December 31, 2018

 

19,767,605

 

$

197

 

$

80,424

 

$

 —

 

$

(62,397)

 

(1,107,387)

 

$

(11)

 

$

18,213

Issuance of restricted stock units

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

390,901

 

 

 4

 

 

 4

Tax withholding on restricted stock units

 

 —

 

 

 —

 

 

(123)

 

 

 —

 

 

 —

 

(50,738)

 

 

(2)

 

 

(125)

Stock-based compensation

 

 —

 

 

 —

 

 

408

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

408

Foreign currency translation

 

 —

 

 

 —

 

 

 —

 

 

18

 

 

 —

 

 —

 

 

 —

 

 

18

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

303

 

 —

 

 

 —

 

 

303

March 31, 2019

 

19,767,605

 

$

197

 

$

80,709

 

$

18

 

$

(62,094)

 

(767,224)

 

$

(9)

 

$

18,821

Issuance of restricted stock units

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

19,027

 

 

 —

 

 

 —

Tax withholding on restricted stock units

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 

482

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

482

Foreign currency translation

 

 —

 

 

 —

 

 

 —

 

 

(62)

 

 

 —

 

 —

 

 

 —

 

 

(62)

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,005

 

 —

 

 

 —

 

 

2,005

June 30, 2019

 

19,767,605

 

$

197

 

$

81,191

 

$

(44)

 

$

(60,089)

 

(748,197)

 

$

(9)

 

$

21,246

Issuance of restricted stock units

 

26,665

 

 

 1

 

 

 —

 

 

 —

 

 

 —

 

27,391

 

 

 —

 

 

 1

Tax withholding on restricted stock units

 

 —

 

 

 —

 

 

(34)

 

 

 —

 

 

 —

 

(16,269)

 

 

 —

 

 

(34)

Stock-based compensation

 

 —

 

 

 —

 

 

223

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

223

Foreign currency translation

 

 —

 

 

 —

 

 

 —

 

 

17

 

 

 —

 

 —

 

 

 —

 

 

17

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(320)

 

 —

 

 

 —

 

 

(320)

Balance, September 30, 2019

 

19,794,270

 

$

198

 

$

81,380

 

$

(27)

 

$

(60,409)

 

(737,075)

 

$

(9)

 

$

21,133

 

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

(in thousands)

 

2019

  

2018

Operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

1,988

 

$

(24,958)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

Net (income) loss from discontinued operations

 

 

(670)

 

 

13,856

Deferred income tax provision (benefit)

 

 

(68)

 

 

608

Depreciation and amortization on plant, property and equipment

 

 

225

 

 

633

Amortization of deferred financing costs

 

 

462

 

 

1,475

Loss on disposals of property, plant and equipment

 

 

 —

 

 

210

Bad debt expense

 

 

53

 

 

(90)

Stock-based compensation

 

 

1,114

 

 

697

Paid-in-kind interest

 

 

 —

 

 

1,964

Restructuring charges

 

 

 —

 

 

3,661

Changes in operating assets and liabilities, net of businesses sold:

 

 

 

 

 

 

Accounts receivable

 

 

(7,843)

 

 

(2,860)

Contract assets

 

 

(4,159)

 

 

2,336

Other current assets

 

 

(1,918)

 

 

2,453

Other assets

 

 

1,404

 

 

(1,400)

Accounts payable

 

 

8,016

 

 

2,021

Accrued and other liabilities

 

 

(2,705)

 

 

3,643

Contract liabilities

 

 

2,039

 

 

(4,261)

Net cash provided by (used in) operating activities, continuing operations

 

 

(2,062)

 

 

(12)

Net cash provided by (used in) operating activities, discontinued operations

 

 

(350)

 

 

(6,685)

Net cash provided by (used in) operating activities

 

 

(2,412)

 

 

(6,697)

Investing activities:

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(178)

 

 

(123)

Net cash provided by (used in) investing activities, continuing operations

 

 

(178)

 

 

(123)

Net cash provided by (used in) investing activities, discontinued operations

 

 

 —

 

 

319

Net cash provided by (used in) investing activities

 

 

(178)

 

 

196

Financing activities:

 

 

 

 

 

 

Repurchase of stock-based awards for payment of statutory taxes due on stock-based compensation

 

 

(154)

 

 

(351)

Debt issuance costs

 

 

 —

 

 

(1,520)

Proceeds from short-term borrowings

 

 

163,040

 

 

 —

Repayments of short-term borrowings

 

 

(162,416)

 

 

 —

Proceeds from long-term debt

 

 

 —

 

 

33,679

Repayments of long-term debt

 

 

(350)

 

 

(31,154)

Net cash provided by (used in) financing activities, continuing operations

 

 

120

 

 

654

Net cash provided by (used in) financing activities, discontinued operations

 

 

 —

 

 

 —

Net cash provided by (used in) financing activities

 

 

120

 

 

654

Net change in cash, cash equivalents and restricted cash

 

 

(2,470)

 

 

(5,847)

Cash, cash equivalents and restricted cash, beginning of period

 

 

4,942

 

 

16,156

Cash, cash equivalents and restricted cash, end of period

 

$

2,472

 

$

10,309

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

 

Cash paid for interest

 

$

3,527

 

$

3,555

Cash paid for income taxes, net of refunds

 

$

 —

 

$

16

Noncash amendment fee related to term loan

 

$

 —

 

$

4,000

 

See accompanying notes to condensed consolidated financial statements.

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 WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1—BUSINESS AND BASIS OF PRESENTATION

Business

Effective June 29, 2018, Global Power Equipment Group Inc. changed its name to Williams Industrial Services Group Inc. (together with its wholly owned subsidiaries, “Williams,” the “Company,” “we,” “us” or “our,” unless the context indicates otherwise) to better align its name with the Williams business. Since March 19, 2019, the Company’s stock has traded on the OTCQX® Best Market under the ticker symbol “WLMS.” Williams has been safely helping plant owners and operators enhance asset value for more than 50 years. The Company provides a broad range of construction, maintenance and support services to customers in energy, power and industrial end markets. The Company’s mission is to be the preferred provider of construction, maintenance, and specialty services through commitment to superior safety performance, focus on innovation, and dedication to delivering unsurpassed value to its customers.

Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) on a basis consistent with that used in the Annual Report on Form 10-K for the year ended December 31, 2018, filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on April 1, 2019 (the “2018 Report”). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, including all normal recurring adjustments, necessary to present fairly the unaudited condensed consolidated balance sheets and statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the periods indicated. All significant intercompany transactions have been eliminated. The December 31, 2018 unaudited condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. These unaudited condensed consolidated interim financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the 2018 Report. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for any interim period are not necessarily indicative of operations to be expected for the full year.

The Company reports on a fiscal quarter basis utilizing a “modified” 4-4-5 calendar (modified in that the fiscal year always begins on January 1 and ends on December 31). However, the Company has continued to label its quarterly information using a calendar convention. The effects of this practice are modest and only exist when comparing interim period results. The reporting periods and corresponding fiscal interim periods are as follows:

 

 

 

 

 

 

 

 

 

 

Reporting Interim Period

 

Fiscal Interim Period

 

  

2019

  

2018

Three Months Ended March 31

 

January 1, 2019 to March 31, 2019

 

January 1, 2018 to April 1, 2018

Three Months Ended June 30

 

April 1, 2019 to June 30, 2019

 

April 2, 2018 to July 1, 2018

Three Months Ended September 30

 

July 1, 2019 to September 29, 2019

 

July 2, 2018 to September 30, 2018

 

 

NOTE 2—LIQUIDITY

The Company’s unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes it will be able to meet its obligations and continue its operations during the twelve-month period following the issuance of this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2019 (this “Form 10-Q”). These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

The MidCap Facility generally provides adequate liquidity for the Company’s working capital needs. However, due to certain borrowing base eligibility limitations and exclusions within the MidCap Facility, there are instances where the Company would not have sufficient availability under the MidCap Facility to meet its growth working capital requirements. The borrowing base eligibility limitations and exclusions that have the most impact on availability under the MidCap Facility are customer

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concentration limits, exclusion of receivables from the Company’s joint ventures, and exclusion of receivables related to projects on which there is an underlying surety bond.

As of the date of this Form 10-Q, management has concluded that its plan has alleviated the substantial doubt regarding the Company’s ability to continue as a going concern. While management believes that the Company has sufficient resources to satisfy its 2019 working capital requirements, the Company is currently engaged in a process to refinance its existing credit facilities with Centre Lane and MidCap. In addition, the Company intends to file a registration statement on Form S-1 with the SEC for a rights offering to existing holders of the Company’s common stock. However, the Company’s liquidity will be periodically, and for certain intervals, significantly constrained due to the working capital requirements that will be needed to execute its plans to grow the business. In the event the Company is unable to close on the new credit facility through its refinancing process, and are unable to address potential liquidity shortfalls in the future, the Company will need to seek additional funding, which may not be available on reasonable terms, if at all, and may result in management concluding that our liquidity position raises substantial doubt about our ability to continue as a going concern.  The risk factors described in the 2018 Report under the heading “Item 1A. Risk Factors,” are still relevant to the Company’s operations.

NOTE 3—RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of Accounting Standards Codification (“ASC”) Topic 718, “Compensation–Stock Compensation” and applies to all share-based payment transactions to nonemployees in which a grantor acquires goods and services to be used or consumed in a grantor’s own operations by issuing share-based awards. Upon adoption of ASU 2018-07, an entity should only re-measure liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. In the first quarter of 2019, the Company adopted ASU 2018-07, which did not have a material impact on its financial position, results of operations and cash flows.

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which gives entities the option to reclassify the tax effects stranded in accumulated other comprehensive income as a result of the enactment of comprehensive tax legislation in December 2017, commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), to retained earnings. The Company adopted ASU 2018-02 effective January 1, 2019 and elected not to reclassify the income tax effects stranded in accumulated other comprehensive income to retained earnings and, as a result, there was no impact on the Company’s financial position, results of operations or cash flows. 

In February 2016, the FASB issued ASU 2016-02, “Leases” (ASC Topic 842), which, together with its related clarifying ASUs (collectively, “ASU 2016-02”), amended the previous guidance for lease accounting and related disclosure requirements. The new guidance requires the recognition of right-of-use assets and lease liabilities on the balance sheet for leases with terms greater than twelve months or leases that contain a purchase option that is reasonably certain to be exercised. Lessees are required to classify leases as either finance or operating leases. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. For leases with a term of twelve months or less, a lessee can make an accounting policy election by class of underlying asset to not recognize an asset and corresponding liability. Lessees will also be required to provide additional qualitative and quantitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. These disclosures are intended to supplement the amounts recorded in the financial statements and provide additional information about the nature of an organization’s leasing activities. On January 1, 2019, the Company adopted ASU 2016-02 using the modified retrospective method, meaning it has been applied to leases that existed or have been entered into on or after January 1, 2019 without adjusting comparative periods in the financial statements. Please refer to “Note 4–Leases” for further discussion of the adoption and the impact on the Company’s financial statements.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other Internal-Use Software (Subtopic 350-40).” This update aligns the requirements for capitalizing costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software, including hosting arrangements that are service contracts, over the term of the hosting arrangement. Further, this update requires the presentation of the expense in the statement of income, the presentation of the costs on the statement of financial position and the

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classification of payments in the statement of cash flows related to capitalized implementation costs to be treated the same as the fees of the associated hosting arrangement. The update is effective for annual periods beginning after December 15, 2019, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the effect this ASU will have on its results of operations, financial position and cash flows.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820).” This amendment update modifies disclosure requirements related to fair value measurement and will be effective for fiscal years beginning after December 15, 2019 and interim periods thereafter. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. Early adoption is permitted, and the standard allows for early adoption of any removed or modified disclosures upon issuance of the update, while delaying adoption of the additional disclosures until their effective date. The Company is currently evaluating this guidance to determine the impact it may have on its disclosures.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". This update replaces the incurred loss methodology to record credit losses with a methodology which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. The Company will be required to adopt ASU 2016-13 for its annual periods beginning after December 15, 2022, and interim periods within the fiscal years. Early adoption is permitted for periods beginning on or after January 1, 2019. The Company is currently evaluating the effect the adoption may have on its results of operations, financial condition and cash flows.

 

NOTE 4—LEASES

On January 1, 2019, the Company adopted ASU 2016-02, which amended the previous guidance for lease accounting and related disclosure requirements. The new guidance requires the recognition of right-of-use assets and lease liabilities on the balance sheet for leases with terms greater than twelve months or leases that contain a purchase option that is reasonably certain to be exercised. Lessees are required to classify leases as either finance or operating leases. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. 

The Company elected to utilize the package of practical expedients in ASC 842-10-65-1(f) that, upon adoption of ASU 2016-02, allowed entities to (1) not reassess whether any expired or existing contracts are or contain leases, (2) retain the classification of leases (e.g., operating or finance lease) existing as of the date of adoption and (3) not reassess initial direct costs for any existing leases.

The Company adopted ASU 2016-02 using the modified retrospective method, and accordingly, the new guidance was applied to leases that existed as of January 1, 2019. This resulted in the recognition of lease liabilities of $8.7 million and right-of-use-assets of $8.5 million on January 1, 2019, which included the impact of eliminating prior year deferred rent. The adoption of ASU 2016-02 did not have a material impact on the Company’s results of operations or cash flows.

The Company primarily leases office space and related equipment, as well as equipment, modular units and vehicles directly used in providing services to our customers. The Company’s leases have remaining lease terms of one to ten years. Most leases contain renewal options for varying periods, which are at the Company’s sole discretion and included in the expected lease term if they are reasonably certain of being exercised. For leases beginning in 2019 and thereafter, the Company accounts for lease components, such as fixed payments including rent, real estate taxes, and insurance costs, separately from the non-lease components, such as common area maintenance costs.

For leases with terms greater than twelve months, the Company records the related right-of-use assets and lease liabilities at the present value of the fixed lease payments over the term at the commencement date. The Company uses its incremental borrowing rate to determine the present value of the lease as the rate implicit in the lease is typically not readily determinable.

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Short-term leases (leases with an initial term of twelve months or less or leases that are cancelable by the lessee and lessor without significant penalties) are expensed on a straight-line basis over the lease term. The majority of the Company’s short-term leases relate to equipment used in delivering services to its customers. These leases are entered into at agreed upon hourly, daily, weekly or monthly rental rates for an unspecified duration and typically have a termination for convenience provision. Such equipment leases are considered short-term in nature unless it is reasonably certain that the equipment will be leased for a term greater than twelve months.

The components of lease expense for the three and nine months ended September 30, 2019 were as follows:

 

 

 

 

 

 

 

Lease Cost/(Sublease Income) (in thousands)

 

Three Months Ended September 30, 2019

 

Nine Months Ended September 30, 2019

Operating lease cost

 

$

1,223

 

$

3,669

Short-term lease cost

 

 

463

 

 

1,480

Sublease income

 

 

(38)

 

 

(86)

Total lease cost

 

$

1,648

 

$

5,063

Lease cost related to finance leases was not significant for the three and nine months ended September 30, 2019.

Information related to the Company’s right-of-use assets and lease liabilities as of September 30, 2019 was as follows:

 

 

 

 

 

 

Lease Assets/Liabilities (in thousands)

 

Balance Sheet Classification

 

September 30, 2019

Lease Assets 

 

 

 

 

 

Right-of-use assets

 

Other long-term assets

 

$

6,349

 

 

 

 

 

 

Lease Liabilities

 

 

 

 

 

Short-term lease liabilities

 

Other current liabilities

 

$

3,046

Long-term lease liabilities

 

Other long-term liabilities

 

 

3,495

Total lease liabilities

 

 

 

$

6,541

 

Supplemental information related to the Company’s leases for the nine months ended September 30, 2019 was as follows:

 

 

 

 

(in thousands)

 

Nine Months Ended September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

Operating cash used by operating leases

 

$

3,696

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

9,701

Right-of-use assets obtained in exchange for new finance lease liabilities

 

 

27

Weighted-average remaining lease term - operating leases

 

 

2.25 years

Weighted-average remaining lease term - finance leases

 

 

4.48 years

Weighted-average discount rate - operating leases

 

 

9%

Weighted-average discount rate - finance leases

 

 

9%

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Total remaining lease payments under the Company’s operating and finance leases are as follows:

 

 

 

 

 

 

 

 

 

Operating Leases

 

Finance Leases

Year Ended December 31,

 

(in thousands)

Remainder of 2019

 

$

1,136

 

$

 1

2020

 

 

3,060

 

 

 6

2021

 

 

2,208

 

 

 6

2022

 

 

646

 

 

 6

2023

 

 

144

 

 

 6

Thereafter

 

 

 1

 

 

 1

Total lease payments

 

$

7,195

 

$

26

Less: interest

 

 

(678)

 

 

(1)

Present value of lease liabilities

 

$

6,517

 

$

25

 

 

NOTE 5—CHANGES IN BUSINESS

Restructuring Charges

In 2018, the Company made the decision to relocate its corporate headquarters to Tucker, Georgia and vacated its existing leased office space in Irving, Texas on September 30, 2018. The Company recorded exit costs related to the leased office space and the termination of certain personnel. The balance of the restructuring accrual is included in other current liabilities on the Company’s unaudited condensed consolidated balance sheets.

The following table shows the restructuring activities for the nine months ended September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

(in thousands)

    

 

Lease

    

 

Severance

    

 

Total

Balance, December 31, 2018

 

$

367

 

$

2,889

 

$

3,256

Payments for restructuring

 

 

(196)

 

 

(2,502)

 

 

(2,698)

Balance, September 30, 2019

 

$

171

 

$

387

 

$

558

In March 2019, the Company entered into a short-term sublease of its former headquarters facility in which the rental period is co-terminus with the primary lease, which ends in November 2019. Under the sublease arrangement, the sublessee is obligated to pay the Company sublease payments and the Company recognizes those payments as a reduction of the fixed lease costs. The sublease income was immaterial for each of the three and nine months ended September 30, 2019.

Discontinued Operations

Electrical Solutions

During the fourth quarter of 2017, the Company made the decision to exit and sell its Electrical Solutions segment (which was comprised solely of Koontz-Wagner Custom Controls Holdings LLC (“Koontz-Wagner”), a wholly owned subsidiary of the Company) in an effort to reduce the Company’s outstanding term debt. The Company determined that the decision to exit this segment met the definition of a discontinued operation. As a result, this segment has been presented as a discontinued operation for all periods presented. In connection with the Company’s decision to sell the Electrical Solutions segment, the Company performed an impairment analysis on this segment’s finite- and indefinite-lived intangible assets (customer relationships and trade names, respectively) and determined that their carrying value exceeded their fair value. As a result, in the fourth quarter of 2017, the Company recorded an impairment charge of $9.7 million related to these intangible assets. After the impairment charge, the fair value of this segment’s intangible assets was zero at December 31, 2017. Determining fair value is judgmental in nature and requires the use of significant estimates and assumptions, considered to be Level 3 inputs. There were no non-recurring fair value re-measurements related to the Electrical Solutions segment during the year ended December 31, 2018 or the three and nine months ended September 30, 2019.

In spite of the Company’s efforts, which included retaining financial advisors to sell all or part of Koontz-Wagner’s operations, inside or outside of a federal bankruptcy or state court proceeding (including Chapter 11 of Title 11 of the U.S. Bankruptcy Code), the proposed disposition did not progress as planned due, primarily, to the absence of viable bids in the sale process, the inability of Koontz-Wagner to fund its ongoing operations or obtain financing to do so, and Koontz-Wagner’s deteriorating

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financial performance. As a result, on July 11, 2018, Koontz-Wagner filed a voluntary petition for relief under Chapter 7 of Title 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of Texas. The filing was for Koontz-Wagner only, not for the Company as a whole, and was completely separate and distinct from the Williams business and operations. 

As a result of the July 11, 2018 bankruptcy of Koontz-Wagner, the Company recorded $11.4 million of exit costs, which were included in loss from discontinued operations in the Company’s consolidated statements of operations for the year ended December 31, 2018. These charges consisted of a $4.0 million fee related to a fifth amendment of the Initial Centre Lane Facility, a pension withdrawal liability of $2.9 million related to Koontz-Wagner’s International Brotherhood of Electrical Workers Local Union 1392 multi-employer pension plan, a $1.8 million negotiated settlement of the Company’s guarantee of Koontz-Wagner’s Houston, Texas facility lease agreement and a $2.7 million liability as a result of the Company providing affected Koontz-Wagner employees with 60 days of salary continuation, as well as the difference between each employee’s cost of health care at the time of their employment termination and the cost of continued benefits under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). The Company satisfied the liability related to the lease guarantee settlement and substantially all of the salary and benefit continuation liability through cash payments by the end of 2018. The pension liability is expected to be satisfied by annual cash payments of $0.3 million each, paid in quarterly installments, over the next twenty years.

Mechanical Solutions

On March 21, 2018, the Company closed on the sale of its office building in Heerlen, Netherlands for $0.3 million, resulting in an immaterial gain on sale, which was reflected in loss from discontinued operations before income tax expense (benefit) in the Company’s unaudited condensed consolidated statement of operations for the nine months ended September 30, 2018.

In connection with the sale of its Mechanical Solutions segment during 2017, the Company entered into a transition services agreement with the purchaser to provide certain accounting and administrative services for an initial period of nine months. During the three and nine months ended September 30, 2019, the Company did not provide services for the purchaser. For the three and nine months ended September 30, 2018, the Company provided less than $0.1 million and $0.3 million, respectively, in services for the purchaser, which was included in general and administrative expenses from continuing operations in the unaudited condensed consolidated statement of operations.

In April 2019, the purchaser of our former Mechanical Solutions segment went into receivership and in connection with this event, the Company recognized a write down to the estimated fair value of its amounts due of $0.2 million in the three months ended March 31, 2019. This charge was included in general and administrative expenses from continuing operations in the unaudited condensed consolidated statement of operations for the nine months ended September 30, 2019. The Company has remaining balances of $0.2 million and $0.8 million included in other current assets and other current liabilities, respectively, on the September 30, 2019 unaudited condensed consolidated balance sheet. Management continues to monitor the status of the bankruptcy proceedings and believes the amounts recorded in its financial statements as of September 30, 2019 materially reflect the fair value of the related asset and liability.

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As of September 30, 2019 and December 31, 2018, the Company did not have any assets related to its Electrical and Mechanical Solutions’ discontinued operations. The following table presents a reconciliation of the carrying amounts of major classes of liabilities of Electrical and Mechanical Solutions’ discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

  

September 30, 2019

 

December 31, 2018

Liabilities:

 

 

 

 

 

 

Accrued compensation and benefits 

 

$

 —

 

$

259

Other current liabilities

 

 

342