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 June 30, 2020

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

Graphic

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 August 6, 2020, there were 25,324,645 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 June 30, 2020 and December 31, 2019 (unaudited)

3

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

6

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited)

7

Notes to Condensed Consolidated Financial Statements (unaudited)

8

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

24

Item 3. Quantitative and Qualitative Disclosures about Market Risk

31

Item 4. Controls and Procedures

31

Part II—OTHER INFORMATION

Item 1. Legal Proceedings

32

Item 1A. Risk Factors

32

Item 6. Exhibits

35

SIGNATURES

36


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)

June 30, 2020

  

December 31, 2019

ASSETS

  

  

Current assets:

Cash and cash equivalents

$

4,050

$

7,350

Restricted cash

 

468

 

468

Accounts receivable, net of allowance of $373 and $377, respectively

 

47,371

 

38,218

Contract assets

 

10,730

 

7,225

Other current assets

 

3,470

 

2,483

Total current assets

 

66,089

 

55,744

Property, plant and equipment, net

 

273

 

273

Goodwill

 

35,400

 

35,400

Intangible assets

 

12,500

 

12,500

Other long-term assets

 

8,694

 

8,549

Total assets

$

122,956

$

112,466

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

10,914

$

16,618

Accrued compensation and benefits

 

14,057

 

9,318

Contract liabilities

 

3,190

 

2,699

Short-term borrowings

11,402

10,849

Current portion of long-term debt

700

700

Other current liabilities

 

9,547

 

6,408

Current liabilities of discontinued operations

339

340

Total current liabilities

 

50,149

 

46,932

Long-term debt, net

 

32,527

 

32,658

Deferred tax liabilities

2,239

2,198

Other long-term liabilities

 

2,908

 

4,028

Long-term liabilities of discontinued operations

4,422

4,486

Total liabilities

 

92,245

 

90,302

Commitments and contingencies (Note 9 and 11)

Stockholders’ equity:

Common stock, $0.01 par value, 170,000,000 shares authorized and 25,916,307 and 19,794,270 shares issued, respectively, and 25,324,645 and 19,057,195 shares outstanding, respectively

 

256

 

198

Paid-in capital

 

89,202

 

81,964

Accumulated other comprehensive income (loss)

 

(32)

 

222

Accumulated deficit

 

(58,707)

 

(60,211)

Treasury stock, at par (591,662 and 737,075 common shares, respectively)

 

(8)

 

(9)

Total stockholders’ equity

 

30,711

 

22,164

Total liabilities and stockholders’ equity

$

122,956

$

112,466

See accompanying notes to condensed consolidated financial statements.

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WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except share and per share data)

  

2020

  

2019

2020

  

2019

Revenue

$

72,549

$

71,466

$

138,696

$

122,118

Cost of revenue

63,194

62,274

122,432

106,244

 Gross profit

9,355

9,192

16,264

15,874

Selling and marketing expenses

140

165

278

405

General and administrative expenses

5,386

6,474

11,586

11,236

Depreciation and amortization expense

57

76

98

148

Total operating expenses

5,583

6,715

11,962

11,789

Operating income

3,772

2,477

4,302

4,085

Interest expense, net

1,566

1,519

3,099

2,993

Other income, net

(499)

(343)

(621)

(668)

Total other expense, net

1,067

1,176

2,478

2,325

Income from continuing operations before income tax

2,705

1,301

1,824

1,760

Income tax expense

196

15

244

79

Income from continuing operations

2,509

1,286

1,580

1,681

Loss from discontinued operations before income tax

(102)

(57)

(156)

(121)

Income tax benefit

(98)

(776)

(80)

(748)

Income (loss) from discontinued operations

(4)

719

(76)

627

Net income

$

2,505

$

2,005

$

1,504

$

2,308

Basic earnings per common share

Income from continuing operations

$

0.10

$

0.07

$

0.07

$

0.09

Income from discontinued operations

0.00

0.04

0.00

0.03

Basic earnings per common share

$

0.10

$

0.11

$

0.07

$

0.12

Diluted earnings per common share

Income from continuing operations

$

0.10

$

0.07

$

0.07

$

0.09

Income from discontinued operations

0.00

0.04

0.00

0.03

Diluted earnings per common share

$

0.10

$

0.11

$

0.07

$

0.12

See accompanying notes to condensed consolidated financial statements.

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WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

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

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2020

  

2019

2020

  

2019

Net income

$

2,505

$

2,005

$

1,504

$

2,308

Foreign currency translation adjustment

 

4

 

(62)

 

(254)

 

(44)

Comprehensive income

$

2,509

$

1,943

$

1,250

$

2,264

See accompanying notes to condensed consolidated financial statements.

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WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

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

Balance, March 31, 2019

19,767,605

$

197

$

80,709

$

18

$

(62,094)

(767,224)

$

(9)

$

18,821

Issuance of restricted stock units

19,027

Stock-based compensation

482

482

Foreign currency translation

(62)

(62)

Net income

2,005

2,005

Balance, June 30, 2019

19,767,605

$

197

$

81,191

$

(44)

$

(60,089)

(748,197)

$

(9)

$

21,246

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, 2019

19,794,270

$

198

$

81,964

$

222

$

(60,211)

(737,075)

$

(9)

$

22,164

Issuance of common stock

5,384,615

54

6,478

6,532

Issuance of restricted stock units

423,341

80,207

1

1

Tax withholding on restricted stock units

(65)

(41,445)

0

(65)

Stock-based compensation

376

376

Foreign currency translation

(258)

(258)

Net loss

(1,001)

(1,001)

Balance, March 31, 2020

25,602,226

$

252

$

88,753

$

(36)

$

(61,212)

(698,313)

$

(8)

$

27,749

Issuance of common stock

4

(48)

(44)

Issuance of restricted stock units

407,315

138,221

1

1

Tax withholding on restricted stock units

(93,234)

(153)

(31,570)

(1)

(154)

Stock-based compensation

650

650

Foreign currency translation

4

4

Net income

2,505

2,505

Balance, June 30, 2020

25,916,307

$

256

$

89,202

$

(32)

$

(58,707)

(591,662)

$

(8)

$

30,711

See accompanying notes to condensed consolidated financial statements.

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WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30,

(in thousands)

2020

  

2019

Operating activities:

Net income

$

1,504

$

2,308

Adjustments to reconcile net income to net cash used in operating activities:

Net (income) loss from discontinued operations

76

(627)

Deferred income tax provision (benefit)

41

(20)

Depreciation and amortization on plant, property and equipment

92

148

Amortization of deferred financing costs

365

308

Bad debt expense

3

89

Stock-based compensation

1,122

891

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

Accounts receivable

(9,260)

(4,945)

Contract assets

(3,458)

(3,874)

Other current assets

(981)

(512)

Other assets

(591)

1,124

Accounts payable

(5,235)

7,148

Accrued and other liabilities

6,586

(2,738)

Contract liabilities

491

19

Net cash (used in) operating activities, continuing operations

(9,245)

(681)

Net cash (used in) operating activities, discontinued operations

(141)

(344)

Net cash (used in) operating activities

(9,386)

(1,025)

Investing activities:

Purchase of property, plant and equipment

(89)

(161)

Net cash (used in) investing activities, continuing operations

(89)

(161)

Financing activities:

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

(218)

(121)

Proceeds from issuance of common stock

6,488

Debt issuance costs

(325)

Proceeds from short-term borrowings

114,796

110,746

Repayments of short-term borrowings

(114,242)

(110,378)

Repayments of long-term debt

(175)

(175)

Net cash provided by financing activities, continuing operations

6,324

72

Effect of exchange rate change on cash, continuing operations

(149)

Net change in cash, cash equivalents and restricted cash

(3,300)

(1,114)

Cash, cash equivalents and restricted cash, beginning of period

7,818

4,942

Cash, cash equivalents and restricted cash, end of period

$

4,518

$

3,828

Supplemental Disclosures:

Cash paid for interest

$

1,811

$

2,355

Noncash amendment fee related to MidCap facility

$

150

$

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

Williams Industrial Services Group Inc. was incorporated in 2001 under the name “Global Power Equipment Group Inc.” under the laws of the State of Delaware and became the successor to GEEG Holdings, LLC, which was formed as a Delaware limited liability company in 1998. 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, and our stock now trades 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. We provide a broad range of construction, maintenance and support services to customers in energy, power and industrial end markets. Our 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 our 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, 2019, filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on March 27, 2020 (the “2019 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, 2019 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 2019 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

  

2020

  

2019

Three Months Ended March 31

January 1, 2020 to March 29, 2020

January 1, 2019 to March 31, 2019

Three Months Ended June 30

March 30, 2020 to June 28, 2020

April 1, 2019 to June 30, 2019

Three Months Ended September 30

June 29, 2020 to September 27, 2020

July 1, 2019 to September 29, 2019

NOTE 2—LIQUIDITY

The Company’s unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes that 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 six months ended June 30, 2020 (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.

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The Company had negative cash flows from operations during the three and six months ended June 30, 2020 and has historically raised capital to fund its working capital and growth. On January 13, 2020, the Company amended its existing credit facilities with Centre Lane (as defined below) and MidCap (as defined below), which, among other things, provided the Company with an additional $10.0 million in borrowing capacity under the MidCap Facility (as defined below). As of June 30, 2020, the Company had $5.4 million in available borrowing capacity (see Note 9). In addition, during the first quarter of 2020, the Company successfully completed its fully backstopped $7.0 million registered offering of subscription rights to purchase shares of the Company’s common stock to existing holders of the Company’s common stock (the “Rights Offering”), which expired March 2, 2020, pursuant to which the Company issued 5,384,615 shares of its common stock and received net proceeds of $6.6 million. The Company is using the net proceeds from the Rights Offering, combined with the additional borrowing capacity provided by the amended MidCap Facility, for working capital and general corporate purposes to fund certain of the Company’s strategic growth initiatives. As a result, management believes that the Company has sufficient resources to satisfy its working capital requirements for at least 12 months following the issuance of these unaudited condensed consolidated financial statements. However, the Company’s liquidity could be periodically, and for certain intervals, constrained due to the working capital requirements that will be needed as it continues to execute its plans to grow the business.

The Company continues to monitor its liquidity and capital resources. If market conditions were to change, and revenue was reduced or operating costs increased, cash flows and liquidity could be significantly reduced.

In December 2019, a novel strain of the coronavirus (“COVID-19”) surfaced in Wuhan, China, spread globally, and was declared a pandemic by the World Health Organization in March 2020. The effects of COVID-19 have impacted some of the Company’s projects; for instance, in April 2020, the Company experienced a temporary suspension in projects in New York, which led the Company to implement a phased reopening of the affected work sites to adapt to new project safety requirements; and in July 2020, it experienced an increase in COVID-19 cases at a nuclear power project in Georgia, in response to which the Company began to administer and enforce stricter safety precautions. The Company instituted remote work policies for the corporate office in Tucker, Georgia and other offices throughout the United States and Canada. The Company also implemented enhanced safety policies at its work sites, involving modified cleaning schedules, social distancing, facial covering requirements, employee screening practices, and contact tracing methods to meet Centers for Disease Control and Prevention guidelines. Although to date the Company has not experienced materially negative impacts from COVID-19, such as widespread project stoppage or cancellations or a slowdown or cessation of accounts receivables collections, the timing of future contract awards could create gaps in the Company’s project delivery schedule across quarterly periods, and the uncertainty and economic impacts created by the pandemic could cause a temporary decline in demand for the Company’s services. The Company anticipates that its future results of operations, including the results for 2020, will be impacted by the COVID-19 outbreak, but at this time does not expect that the impact from the COVID-19 outbreak will have a material negative effect on the Company’s liquidity or financial position. The Company currently believes that the impact of COVID-19 on the Company will not negatively impact its ability to comply with the covenants under its existing credit facilities. However, given the speed and frequency of continuously evolving developments and inherent uncertainty with respect to this pandemic, including the duration and severity of the pandemic and the related length of its impact on the global economy, the Company cannot provide any assurance that such impacts will not grow and become material to its liquidity or financial position. In addition, even after the COVID-19 pandemic has subsided, the Company may continue to experience an adverse impact to its business as a result of the pandemic’s global economic impact, including any recession that has occurred or may occur in the future. As a consequence, the Company’s estimates of the duration of the pandemic and its impact on the Company’s future earnings and cash flows could change and have a material impact on its results of operations and financial condition.

NOTE 3—RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 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. In the first quarter of 2020, the Company adopted ASU 2018-15, which did not have a material impact on its financial position, results of operations and cash flows.

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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. In the first quarter of 2020, the Company adopted ASU 2018-13, which did not have a material impact on its financial statement disclosures.

In November 2018, the FASB issued ASU 2018-18, “Collaborative Arrangements (Topic 808).” This amendment update clarifies the interaction between Topic 808, Collaborative Arrangements, and Topic 606, Revenue from Contracts with Customers. In the first quarter of 2020, the Company adopted ASU 2018-18, which did not have a material impact on its financial statement disclosures.

In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This amendment update amends various topics in the FASB Accounting Standards Codification (“ASC”) to make technical corrections and minor improvements to the guidance on financial instruments as part of the FASB’s ongoing project to clarify guidance and correct unintended application of the guidance. The FASB expects that the amendments will not have significant effect on current accounting practice nor create a significant administrative cost to most entities. In the second quarter of 2020, the Company adopted ASU 2020-03, which did not have a material impact on its financial statement disclosures.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848).” This guidance is to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). The guidance is effective upon issuance and may be adopted on any date on or after March 12, 2020. The Company is currently evaluating the impact this ASU will have on its results of operations, financial position and cash flows.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes”, which simplifies the accounting for income taxes by removing certain exceptions for investments, intraperiod allocations and interim calculations, and adding guidance to reduce complexity in accounting for income taxes. The update is effective for annual periods beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on its results of operations, financial position and cash flows.

NOTE 4—LEASES

On January 1, 2019, 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.

The Company primarily leases office space and related equipment, as well as equipment, modular units and vehicles directly used in providing services to its 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 lease term at the lease 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 were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Lease Cost/(Sublease Income) (in thousands)

2020

2019

2020

2019

Operating lease cost

$

881

$

1,219

$

2,100

$

2,446

Short-term lease cost

632

711

1,467

1,017

Sublease income

(39)

(48)

Total lease cost

$

1,513

$

1,891

$

3,567

$

3,415

Lease cost related to finance leases was not significant for the three and six months ended June 30, 2020 and 2019.

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

Lease Assets/Liabilities (in thousands)

Balance Sheet Classification

June 30, 2020

December 31, 2019

Lease Assets

Right-of-use assets

Other long-term assets

$

5,197

$

5,743

Lease Liabilities

Short-term lease liabilities

Other current liabilities

$

3,543

$

2,985

Long-term lease liabilities

Other long-term liabilities

1,847

2,939

Total lease liabilities

$

5,390

$

5,924

Supplemental information related to the Company’s leases was as follows:

Six Months Ended June 30,

(dollars in thousands)

2020

2019

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

Operating cash used by operating leases

$

2,500

$

2,462

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

1,796

9,192

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

27

Weighted-average remaining lease term - operating leases

1.68 years

2.67 years

Weighted-average remaining lease term - finance leases

3.73 years

4.74 years

Weighted-average discount rate - operating leases

9%

9%

Weighted-average discount rate - finance leases

9%

9%

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Table of Contents

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

Operating Leases

Finance Leases

Six Months Ended June 30, 2020

(in thousands)

Remainder of 2020

$

2,315

$

3

2021

2,575

6

2022

824

5

2023

194

5

2024

2

1

Thereafter

Total lease payments

$

5,910

$

20

Less: interest

(539)

(1)

Present value of lease liabilities

$

5,371

$

19

NOTE 5—CHANGES IN BUSINESS

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.

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, consisting of a lease guarantee, liability for salary and benefit continuation and a pension withdrawal liability, which were included in loss from discontinued operations in the Company’s consolidated statements of operations for the year ended December 31, 2018. 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. Certain claims that the Chapter 7 Trustee might assert on behalf of the Koontz-Wagner bankruptcy estate are now time-barred by operation of the U.S. Bankruptcy Code. The pension liability is expected to be satisfied by annual cash payments of $0.3 million each, paid in quarterly installments, which began in 2018 and will continue to be paid over the next eighteen years.

Mechanical Solutions

During the third quarter of 2017, the Company made the decision to exit and sell substantially all of the operating assets and liabilities of its Mechanical Solutions and determined that the decision to exit this segment met the definition of a discontinued operation. As a result, this segment, including TOG Manufacturing Company, Inc., has been presented as a discontinued operation for all periods presented.

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. In April 2019, the purchaser of the Company’s 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 under the transition services agreement of $0.2 million in the three months ended March 31, 2019. At the time the purchaser went into receivership, the Company also had remaining balances of $0.2 million and $0.8 million included in other current assets and other current liabilities, respectively, on its condensed consolidated balance sheet. In November 2019, the Company executed, and the U.S. Bankruptcy Court for the Northern District of Oklahoma approved, an agreement with the purchaser to settle the disputes related to the remaining asset and liability. As a result, the Company recorded a net gain of $0.4 million, which was included in other (income) expense, net on its consolidated statement of operations for the year ended December 31, 2019.

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As of June 30, 2020 and December 31, 2019, 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)

  

June 30, 2020

December 31, 2019

Liabilities:

Other current liabilities

$

339

$

340

Current liabilities of discontinued operations

339

340

Liability for pension obligation

2,730

2,708

Liability for uncertain tax positions

1,692

1,778

Long-term liabilities of discontinued operations

4,422

4,486

Total liabilities of discontinued operations

$

4,761

$

4,826

The following table presents a reconciliation of the major classes of line items constituting the net income (loss) from discontinued operations. In accordance with GAAP, the amounts in the table below do not include an allocation of corporate overhead.

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

  

2020

  

2019

2020

  

2019

General and administrative expenses

$

5

$

4

$

6

$

14

Loss on disposal - Electrical Solutions

45

45

Interest expense

52

53

105

107

Loss from discontinued operations before income tax

(102)

(57)

(156)

(121)

Income tax benefit

(98)

(776)

(80)

(748)

Income (loss) from discontinued operations

$

(4)

$

719

$

(76)

$

627

NOTE 6—REVENUE

Disaggregation of Revenue

Disaggregated revenue by type of contract was as follows:  

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2020

2019

2020

2019

Cost-plus reimbursement contracts

$

65,270

$

64,796

$

125,566

$

108,299

Fixed-price contracts

7,279

6,670

13,130

13,819

Total

$

72,549

$

71,466

$

138,696

$

122,118

Disaggregated revenue by the geographic area where the work was performed was as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2020

2019

2020

2019

United States

$

62,815

$

66,898

$

120,463

$

116,102

Canada

9,734

4,568

18,233

6,016

Total

$

72,549

$

71,466

$

138,696

$

122,118

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Contract Balances

The Company enters into contracts that allow for periodic billings over the contract term that are dependent upon specific advance billing terms, as services are provided, or as milestone billings based on completion of certain phases of work. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported in the Company’s unaudited condensed consolidated balance sheets as contract assets. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported in the Company’s unaudited condensed consolidated balance sheets as contract liabilities. At any point in time, each project in process could have either contract assets or contract liabilities.

The following table provides information about contract assets and contract liabilities from contracts with customers:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2020

  

2019

2020

  

2019

Costs incurred on uncompleted contracts

$

63,194

$

62,902

$

122,432

$

106,305

Earnings recognized on uncompleted contracts

 

9,355

 

8,530

 

16,264

 

15,795

Total

72,549

 

71,432

138,696

 

122,100

Less—billings to date

(65,009)

 

(62,637)

(131,156)

 

(113,305)

Net

$

7,540

$

8,795

$

7,540

$

8,795

Contract assets

$

10,730

$

12,092

$

10,730

$

12,092

Contract liabilities

(3,190)

 

(3,297)

(3,190)

 

(3,297)

Net

$

7,540

$

8,795

$

7,540

$

8,795

For the three and six months ended June 30, 2020, the Company recognized revenue of approximately $0.3 million and approximately $1.6 million, respectively, on approximately $2.8 million in the corresponding contract liability balance at December 31, 2019.

Remaining Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2020:

(in thousands)

Remainder of 2020

2021

2022

Thereafter

Total

Remaining performance obligations

$

121,213

$

154,445

$

84,548

$

178,654

$

538,860

NOTE 7—EARNINGS PER SHARE

In March 2020, the Company successfully completed its fully backstopped $7.0 million Rights Offering, which expired March 2, 2020, pursuant to which the Company issued 5,384,615 shares of its common stock and received net proceeds of $6.6 million.

As of June 30, 2020, the Company’s 25,324,645 shares outstanding included 550,857 shares of contingently issued but unvested restricted stock. As of June 30, 2019, the Company’s 19,019,408 shares outstanding included 307,164 shares of contingently issued but unvested restricted stock. Restricted stock is excluded from the calculation of basic weighted average shares outstanding, but its impact, if dilutive, is included in the calculation of diluted weighted average shares outstanding.

Basic earnings per common share are calculated by dividing net income by the weighted average common shares outstanding during the period. Diluted earnings per common share are based on the weighted average common shares outstanding during the period, adjusted for the potential dilutive effect of common shares that would be issued upon the vesting and release of restricted stock awards and units and stock options, if any.

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Table of Contents

Basic and diluted earnings per common share from continuing operations were calculated as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except share data)

  

2020

2019

2020

  

2019

Income from continuing operations

$

2,509

$

1,286

$

1,580

$

1,681

Basic earnings per common share:

Weighted average common shares outstanding

24,773,788

18,712,244

22,560,723

18,613,097

Basic earnings per common share

$

0.10

$

0.07

$

0.07

$

0.09

Diluted earnings per common share:

Weighted average common shares outstanding

24,773,788

18,712,244

22,560,723

18,613,097

Diluted effect:

 

Unvested portion of restricted stock units and awards

417,105

308,863

644,977

470,334

Weighted average diluted common shares outstanding

25,190,893

19,021,107

 

23,205,700

19,083,431

Diluted earnings per common share

$

0.10

$

0.07

$

0.07

$

0.09

The weighted average number of shares outstanding used in the computation of basic and diluted earnings per common share does not include the effect of the following potential outstanding common stock. The effects of the potentially outstanding service-based restricted stock and restricted stock unit awards were not included in the calculation of diluted earnings per common share because the effect would have been anti-dilutive. The effects of the potentially outstanding performance- and market-based restricted stock unit awards were not included in the calculation of diluted earnings per common share because the performance and/or market conditions had not been satisfied as of June 30, 2020 and 2019.

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

  

2019

Unvested service-based restricted stock and restricted stock unit awards

464,373

228,776

447,707

228,776

Unvested performance- and market-based restricted stock unit awards

2,369,890

878,147

2,369,890

878,147

Stock options

122,000

122,000

NOTE 8—INCOME TAXES

The effective income tax expense rate for continuing operations for the three and six months ended June 30, 2020 and 2019 was as follows:

Three Months Ended June 30,

Six Months Ended June 30,

    

2020

2019

2020

    

2019

Income tax expenses

$196

$15

$244

$79

Effective income tax rate for continuing operations

7.2%

1.2%

13.4%

4.5%

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.

The effective income tax rate differs from the statutory federal income tax rate of 21% primarily because of the partial valuation allowances recorded on the Company’s deferred tax assets and the Canadian income tax provision.

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Table of Contents

For the three months ended June 30, 2020, the Company recorded income tax expense from continuing operations of $0.2 million, or 7.2% of pretax income from continuing operations, compared with income tax expense from continuing operations of less than $0.1 million, or 1.2% of pretax income from continuing operations, in the corresponding period in 2019. For the six months ended June 30, 2020, the Company recorded income tax expense from continuing operations of $0.2 million, or 13.4% of pretax income from continuing operations, compared with income tax expense from continuing operations of less than $0.1 million, or 4.5% of pretax income from continuing operations in the corresponding period in 2019.

The increase in income tax provision from continuing operations for the three and six months ended June 30, 2020, compared with the corresponding periods in 2019 was primarily the result of the $0.2 million current year Canadian income tax provision. In addition, the increase in the indefinitely-lived deferred tax liability outpaced the increase in the indefinitely-lived deferred tax assets, which resulted in additional deferred tax expense of less than $0.1 million.

As of June 30, 2020, and 2019, the Company would have needed to generate approximately $268.1 million and $278.4 million, respectively, of future financial taxable income in order to realize its deferred tax assets.

The Company’s foreign subsidiaries may generate earnings that are not subject to U.S. income taxes so long as they are permanently reinvested in its operations outside of the U.S. pursuant to ASC 740-30. Undistributed earnings of foreign subsidiaries that are no longer permanently reinvested would become subject to deferred income taxes. As of June 30, 2020 and 2019, the Company had undistributed earnings in one of its Canadian subsidiaries.

As of June 30, 2020, and 2019, the Company provided for a total liability of $2.8 million and $2.7 million, respectively, of which $1.7 million and $1.8 million, respectively,  related to discontinued operations for unrecognized tax benefits related to various federal, foreign and state income tax matters, which were included in long-term deferred tax assets and other long-term liabilities. If recognized, the entire amount of liability would affect the effective tax rate. As of June 30, 2020, the Company accrued approximately $1.2 million, of which $0.7 million related to discontinued operations, in other long-term liabilities for potential payment of interest and penalties related to uncertain income tax positions.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. The CARES Act did not have a material impact on the Company’s unaudited condensed consolidated financial condition or results of operations as of and for the three and six months ended June 30, 2020. However, the Company has deferred the timing of federal estimated tax payments and employer payroll taxes as permitted by the CARES Act.

NOTE 9—DEBT

As of June 30, 2020, the Company was in compliance with all debt covenants. After considering the current and potential effects of the COVID-19 pandemic, the Company currently expects to remain in compliance with its debt covenants. However, the Company cannot provide any assurance that the assumptions used to estimate its liquidity requirements will remain accurate due to the unprecedented nature and the unpredictability of the COVID-19 global pandemic. As a consequence, the Company’s estimates of the duration of the pandemic and its impact on the Company’s future earnings and cash flows could change and have a material impact on its results of operations and financial condition, including negatively affecting the Company’s ability to remain in compliance with its debt covenants.

The following table provides information about the Company’s debt, net of unamortized deferred financing costs:

(in thousands)

  

June 30, 2020

  

December 31, 2019

MidCap Facility

$

11,402

$

10,849

Current portion of New Centre Lane Facility

700

700

Current debt

$

12,102

$

11,549

New Centre Lane Facility

$

33,513

$

33,687

Unamortized deferred financing costs

(986)

(1,029)

Long-term debt, net

$

32,527

$

32,658

Total debt, net

$

44,629

$

44,207

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MidCap Facility

On October 11, 2018, the Company entered into a three-year, $15.0 million Credit and Security Agreement with MidCap Financial Trust (“MidCap”), as agent and as a lender, and other lenders that may be added as a party thereto (as amended, the “MidCap Facility”). The MidCap Facility is a secured asset-based revolving credit facility that provides borrowing availability against the sum of 85% of eligible accounts receivable plus the lesser of 80% of eligible contract assets and $1.0 million, after certain customary exclusions and reserves, and allows for up to $6.0 million of non-cash collateralized letters of credit. The Company can, if necessary, make daily borrowings under the MidCap Facility with twenty-four to forty-eight hour funding. The outstanding loan balance under the MidCap Facility is reduced through the daily automated sweeping of the Company’s depository accounts to the lender’s account under the terms of deposit account control agreements.

The MidCap Facility requires the Company to regularly provide financial information to the lenders, and, beginning on December 31, 2018, to maintain certain total leverage and fixed charge coverage ratios and meet minimum consolidated adjusted EBITDA and minimum liquidity requirements (each of which as defined in the MidCap Facility). As of June 30, 2020 and December 31, 2019, the Company was in compliance with all four financial covenants.

On January 13, 2020, the Company entered into the Third Amendment to the MidCap Facility (the “MidCap Amendment”) to, among other things, extend the maturity date of the revolving loan facility by one year to October 11, 2022 and increase the maximum available principal amount of revolving loans by $10.0 million to $25.0 million. The MidCap Amendment also changed the leverage ratio requirement to a “net” leverage ratio, enabling the Company to net unrestricted cash and cash equivalents in excess of $2.5 million against its Total Debt (as defined in the MidCap Facility) when determining the total net leverage ratio; amended the calculation of consolidated adjusted EBITDA; revised the required levels of the total net leverage ratio and minimum consolidated adjusted EBITDA for certain future periods; required the payment of a $150,000 amendment fee; increased the monthly collateral management fee and a certain prepayment fee; and made certain other changes to the MidCap Facility, in each case subject to the terms and conditions of the MidCap Amendment.

On August 1, 2020, the Company entered into a Fourth Amendment to the MidCap Facility that, among other things, (a)  extended the payment terms of certain deferred origination fees scheduled to expire on October 11, 2020 and October 11, 2021, respectively; provided that no such fee shall be payable within 90 days of the maturity date, and (b) increased the concentration limit under the borrowing base for certain accounts receivable to 60% through August 1, 2021, and 50% at all times thereafter. This increased availability under the borrowing base will enable the Company to maintain sufficient liquidity to accommodate its growth initiatives and better scale its operations in order to meet increased customer demand for its services.

As of June 30, 2020, and December 31, 2019, the Company had $11.4 million and $10.8 million, respectively, outstanding under the MidCap Facility, which was included in short-term borrowings on the unaudited condensed consolidated balance sheets. As of June 30, 2020, the Company had $5.4 million in available borrowings under the MidCap Facility.

Borrowings under the MidCap Facility bear interest at LIBOR plus 6.0% per year, subject to a minimum LIBOR rate of 1.0%, which is payable in cash on a monthly basis.

The Company must pay a customary unused line fee equal to 0.5% per annum of the average unused portion of the commitments under the MidCap Facility, certain other customary administration fees and a minimum balance fee. In addition, while any letters of credit are outstanding under the MidCap Facility, the Company must pay a letter of credit fee equal to 6.0% per annum, in addition to any other customary fees required by the issuer of the letter of credit.

The Company’s obligations under the MidCap Facility are secured by first priority liens on substantially all of its assets, other than the Excluded Collateral (as defined in the MidCap Facility), subject to the terms of an intercreditor agreement, dated as of October 11, 2018 (as amended, the “Intercreditor Agreement”), entered into by an affiliate of Centre Lane Partners, LLC (“Centre Lane”) as a lender under the New Centre Lane Facility (as defined below), and MidCap, as agent, and to which the Company consented. The Intercreditor Agreement was entered into as required by the MidCap Facility and the New Centre Lane Facility. The first priority liens previously granted by the Company and certain of its wholly owned subsidiaries in favor of  Centre Lane in connection with the New Centre Lane Facility are also subject to the Intercreditor Agreement, which, among other things, specifies the relative lien priorities of the secured parties under each of the MidCap Facility and the New Centre Lane Facility in the relevant collateral. It contains customary provisions regarding, among other things, the rights of the respective secured parties to take enforcement actions against the collateral and certain limitations on amending the documentation governing each of the MidCap Facility and the New Centre Lane Facility. It additionally provides secured parties under each of the MidCap Facility and the New Centre Lane Facility the option, in certain instances, to purchase all outstanding obligations of the Company under the other respective loan facility.

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Table of Contents

The Company may from time to time voluntarily prepay outstanding amounts under the MidCap Facility, in whole or in part, in a minimum amount of $0.1 million. If at any time the principal amount outstanding under the MidCap Facility exceeds the borrowing base in effect at such time, the Company must repay the excess amount in cash, cash collateralize liabilities under letters of credit, or cause the cancellation of outstanding letters of credit (or any combination of the foregoing), in an aggregate amount equal to such excess. The Company is also required to repay certain amounts outstanding under the MidCap Facility upon the occurrence of certain events involving the assets upon which the borrowing base is calculated, including receipt of payments or proceeds from the Company’s accounts receivable, certain casualty proceeds in excess of $25,000, and receipt of proceeds following certain asset dispositions. The Company also has certain reimbursement obligations in the event of payments by the agent or a lender against draws under outstanding letters of credit.

In the event the MidCap Facility is terminated (by reason of an event of default or otherwise) 90 days or more prior to the maturity date, the Company will be required to pay a deferred loan origination fee in an amount equal to the aggregate commitment under the MidCap Facility at the time of termination, multiplied by 2.0% in the first two years following October 11, 2018, 1.5% in the third year, and 1.0% thereafter.

The MidCap Facility also contains customary representations and warranties, as well as customary affirmative and negative covenants. The MidCap Facility contains covenants that may, among other things, limit the Company’s ability to incur additional debt, incur liens, make investments, engage in mergers, dispositions or sale-leasebacks, engage in new lines of business or certain transactions with affiliates and change accounting policies or fiscal year.

Events of default under the MidCap Facility include, but are not limited to, failure to timely pay any amounts due and owing, a breach of certain covenants or any representations or warranties, the commencement of any bankruptcy or other insolvency proceeding, judgments in excess of certain acceptable amounts, certain events related to ERISA matters, impairment of security interests in collateral or invalidity of guarantees or security documents, and a default or event of default under the New Centre Lane Facility or the Intercreditor Agreement.

Upon default, MidCap would have the right to declare all borrowings under the MidCap Facility to be immediately due and payable, together with accrued interest and fees, and exercise remedies under the other Financing Documents (as defined in the MidCap Facility).

Centre Lane Facilities

On September 18, 2018, the Company refinanced and replaced its 4.5 year senior secured term loan facility with a four-year, $35.0 million senior secured credit agreement with an affiliate of Centre Lane as Administrative Agent and Collateral Agent, and the other lenders from time to time party thereto (as amended, the “New Centre Lane Facility”). The New Centre Lane Facility requires payment of an annual administration fee of $25,000. Borrowings under the New Centre Lane Facility bear interest at LIBOR (with a minimum rate of 2.5%) plus 10.0% per year, which is payable monthly in cash. The Company must repay an amount equal to 0.25% of the original aggregate principal amount of the New Centre Lane Facility in consecutive quarterly installments, beginning on December 31, 2018 through June 30, 2019. The Company must repay an amount equal to 0.50% of the original aggregate principal amount of the New Centre Lane Facility in consecutive quarterly installments, beginning on September 30, 2019.

The Company’s obligations under the New Centre Lane Facility are guaranteed by all of its wholly owned domestic subsidiaries, subject to customary exceptions. The Company’s obligations are secured by first priority security interests on substantially all of its assets and those of its wholly owned domestic subsidiaries. This includes 100% of the voting equity interests of the Company’s domestic subsidiaries and directly owned foreign subsidiaries.

Beginning on September 19, 2019, the Company may voluntarily prepay the New Centre Lane Facility at any time or from time to time, in whole or in part, in a minimum amount of $1.0 million of the outstanding principal amount, plus any accrued but unpaid interest on the aggregate principal amount being prepaid, plus a prepayment premium, to be calculated as follows (the “Prepayment Premium”):

Prepayment Premium as a

Percentage of Aggregate

Period

Outstanding Principal Prepaid

January 13, 2020 to January 13, 2021

2%

January 14, 2021 to January 13, 2022

1%

After January 13, 2022

0%

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Subject to certain exceptions, the Company must prepay an aggregate principal amount equal to 75% of its Excess Cash Flow (as defined in the New Centre Lane Facility), minus the sum of all voluntary prepayments, within five business days after the date that is 90 days following the end of each fiscal year. The New Centre Lane Facility also requires mandatory prepayment of certain amounts in the event the Company or its subsidiaries receive proceeds from certain events and activities, including, among others, asset sales, casualty events, the issuance of indebtedness and equity interests not otherwise permitted under the New Centre Lane Facility and the receipt of tax refunds or extraordinary receipts in excess of $500,000, plus, in certain instances, the applicable Prepayment Premium, calculated as set forth above.

The New Centre Lane Facility contains customary representations and warranties, as well as customary affirmative and negative covenants. The New Centre Lane Facility contains covenants that may, among other things, limit the Company’s ability to incur additional debt, incur liens, make investments or capital expenditures, declare or pay dividends, engage in mergers, acquisitions and dispositions, engage in new lines of business or certain transactions with affiliates and change accounting policies or fiscal year.

The New Centre Lane Facility requires the Company to regularly provide financial information to the lenders, and, beginning on December 31, 2018, to maintain certain total leverage and fixed charge coverage ratios and meet minimum consolidated adjusted EBITDA and minimum liquidity requirements (each of which as defined in the New Centre Lane Facility). As of June 30, 2020, and December 31, 2019, the Company was in compliance with all of its financial covenants.

On January 13, 2020, the Company entered into a Third Amendment to the New Centre Lane Facility (“New Centre Lane Amendment”) that, among other things, redefined and changed the minimum leverage ratio requirement to a minimum net leverage ratio and changed the minimum consolidated Adjusted EBITDA and minimum liquidity requirements. In addition, the New Centre Lane Amendment increased the Prepayment Premium to 2% beginning on January 13, 2020 and to 1% beginning January 14, 2021 and thereafter. The New Centre Lane Amendment also waived the requirement to prepay future cash proceeds generated from the Company’s Rights Offering and any event of default that would otherwise result from the failure to pay such amounts. The Company’s expense related to the New Centre Lane Amendment was $0.2 million and is included in general and administrative expenses on the condensed consolidated statement of operations in this Form 10-Q for the six months ended June 30, 2020.

Events of default under the New Centre Lane Facility include, but are not limited to, a breach of any of the financial covenants or any representations or warranties, failure to timely pay any amounts due and owing, the commencement of any bankruptcy or other insolvency proceeding, judgments in excess of certain acceptable amounts, the occurrence of a change in control, certain events related to ERISA matters and impairment of security interests in collateral or invalidity of guarantees or security documents.

Upon a default under the New Centre Lane Facility, the Company’s senior secured lenders would have the right to accelerate the then-outstanding amounts under such facility and to exercise their rights and remedies to collect such amounts, which would include foreclosing on collateral constituting substantially all of the Company’s assets and those of its subsidiaries. The Company’s borrowing rate under the New Centre Lane Facility as of both June 30, 2020 and December 31, 2019 was 12.5%.

Letters of Credit and Bonds

In line with industry practice, the Company is often required to provide letters of credit and payment and performance surety bonds to customers. These letters of credit and bonds provide credit support and security for the customer if the Company fails to perform its obligations under the applicable contract with such customer.

The MidCap Facility provides a sub-facility for up to $6.0 million of non-cash collateralized letters of credit at 6.0% interest, of which the Company had $0.9 million and $1.8 million outstanding as of June 30, 2020 and December 31, 2019, respectively. There were no amounts drawn upon these letters of credit.

In addition, as of June 30, 2020 and December 31, 2019, the Company had outstanding payment and performance surety bonds of $61.6 million and $59.3 million, respectively.

Deferred Financing Costs

Deferred financing costs are amortized over the terms of the related debt facilities using the effective yield method. The following table summarizes the amortization of deferred financing costs related to the Company's debt facilities and recognized in interest expense on the unaudited condensed consolidated statements of operations:

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Table of Contents

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2020

2019

2020

2019

New Centre Lane Facility

$

110

$

95

$

220

$

190

MidCap Facility

73

59

145

118

Total

$

183

$

154

$

365

$

308

The following table summarizes unamortized deferred financing costs on the Company's unaudited condensed consolidated balance sheets:

(in thousands)

    

Location

    

June 30, 2020

December 31, 2019

New Centre Lane Facility

Long-term debt, net

$

986

$

1,029

MidCap Facility

Other long-term assets

423

419

Total

$

1,409

$

1,448

NOTE 10FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

ASC 820–Fair Value Measurement defines fair value as the exit price, which is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-tier fair value hierarchy, which categorizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in the active markets for identical assets and liabilities and the lowest priority to unobservable inputs.

The Company’s financial instruments as of June 30, 2020 and December 31, 2019 consisted primarily of cash and cash equivalents, restricted cash, receivables, payables and debt instruments. The carrying values of these financial instruments approximate their respective fair values, as they are either short-term in nature or carry interest rates that are periodically adjusted to market rates.

NOTE 11—COMMITMENTS AND CONTINGENCIES

Litigation and Claims

The Company is from time to time party to various lawsuits, including personal injury claims and other proceedings that arise in the ordinary course of its business. With respect to all such lawsuits, claims and proceedings, the Company records a reserve when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe that the resolution of any currently pending lawsuits, claims and proceedings, either individually or in the aggregate, will have a material adverse effect on its financial position, results of operations or liquidity. However, the outcomes of any currently pending lawsuits, claims and proceedings cannot be predicted, and therefore, there can be no assurance that this will be the case.

The Company completed a bankruptcy filing of its Koontz-Wagner subsidiary in July 11, 2018. This could require the Company to incur legal fees and other expenses related to liabilities from this bankruptcy filing. While the Company does not anticipate these liabilities will have a material adverse effect on its results of operations, cash flows and financial position, and although the statute of limitations has run on certain claims that the Chapter 7 Trustee for the Koontz-Wagner estate might assert, there can be no assurance of the outcome. 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. For additional information, please refer to “Note 5—Changes in Business” to the unaudited condensed consolidated financial statements.

NOTE 12—STOCK-BASED COMPENSATION PLANS

During the first half of 2020, the Company granted 365,855 service-based restricted stock awards under the 2015 Equity Incentive Plan, as amended and restated on June 10, 2019 (the “2015 Plan”) at a grant date fair value of  $1.23 per share to its five non-employee directors, which vest in full on March 13, 2021. The fair value of these service-based restricted stock awards represents the closing price of the Company’s common stock on the date of grant.

During the first half of 2019, the Company granted 149,639 service-based restricted stock awards out of treasury stock of which 130,612 shares were granted under our annual director compensation program at a grant date fair value of $2.45 per share and

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19,027 shares were granted to a new director at a grant date fair value of $2.35. These awards vest in four equal annual installments, one of which occurred on January 22, 2020 and the three remaining on January 22 of each of 2021, 2022 and 2023. This resulted in 37,410 service-based shares being vested to non-employee directors.

Historically, the non-employee directors also received an annual grant of service-based restricted shares in January with a value of $80,000 that vested in four equal annual installments. However, the annual grants for 2016, 2017 and 2018 were delayed until the Company filed its Annual Report on Form 10-K for the year ended December 31, 2017. After this Form 10-K was filed, the Board of Directors approved grants of restricted shares, out of treasury stock, with award values of $80,000 for 2016, $80,000 for 2017 and $60,000 for 2018 for non-employee directors who continued to serve after the 2018 Annual Meeting of Stockholders (in each case pro-rated for partial years of service).  The restricted shares for 2016, 2017 and 2018 vest in four equal annual installments in January of each year, determined as if the grant had occurred in the ordinary course in January of the respective year of service, resulting in a portion of each of the total awards vesting on the grant date.  The fair value of these service-based restricted stock awards represents the closing price of the Company’s common stock on the date of grant. This resulted in 59,057 service-based shares being vested to non-employee directors on January 22, 2020.

During the first half of 2020, the Company granted awards under the 2020 long-term incentive program, with a total target award opportunity equal to $2.9 million, which was converted to 580,312 service-based restricted stock units and 1,178,213 performance-based restricted stock units under the 2015 Plan using a conversion price of $1.67 per share. These equity awards had a grant date fair value of $1.22 per share, which was the closing price on March 31, 2020, and have the potential to be settled in shares or cash at the election of the Compensation Committee of the Board of Directors. The service-based restricted stock units will vest in equal annual installments over a period of three years; the performance-based restricted stock units are earned based on the extent to which the Company achieves annual performance objectives during the three-year period commencing January 1, 2020, with threshold performance resulting in awards earned at 50% of the target award opportunity and maximum performance resulting in awards earned at 200% of the target, and, to the extent earned, shall vest on March 31, 2023.

During the first half of 2019, the Company granted 358,613 service-based restricted stock units under the 2019 long-term incentive program and the 2015 Plan at a grant date fair value of $2.35 per share. The fair value of service-based restricted stock units represents the closing price of the Company’s common stock on the grant date. These service-based restricted stock units vest ratably over a three-year period, one of which occurred on March 31, 2020 and the two remaining on March 31, 2021 and 2022. This resulted in 120,574 service-based shares being vested on March 31, 2020 to key employees.

During the first half of 2019, the Company also granted performance-based restricted stock units under the 2019 long-term incentive program and the 2015 Plan with an aggregate cash value of approximately $1.7 million, which could be paid in cash or shares at the election of the Company. These performance-based restricted stock units vest ratably over a three-year period beginning on March 31, 2020. Performance objectives are established by the Compensation Committee of the Board of Directors (the “Compensation Committee”) on an annual basis. For the 2019 and 2020 performance periods, the performance objective was based on the Company’s backlog performance targets. Performance objectives for the final year will be established by the Compensation Committee in 2021. Award payouts range from a threshold of 50% to a maximum of 200% for each respective annual performance period. The fair value of the performance-based restricted stock units with an established 2019 and 2020 performance objective represents the closing price of the Company’s common stock on the date of grant. The fair value of the performance-based restricted stock units for the 2021 performance period will be measured in the year that the respective performance objective is established and approved by the Compensation Committee. On March 31, 2020, the Company paid 320,074 performance-based shares to key employees, based on the Company’s achievement of its 2020 backlog target.

In September 2019, the Company granted to a new employee, out of treasury stock, 100,000 service-based restricted stock units (with vesting in three equal annual installments on each of March 31, 2020, 2021 and 2022) and 50,000 performance-based restricted stock units (with vesting in two equal annual installments on each of March 31, 2021 and 2022, subject to achievement of the performance metrics to be established by the Board of Directors of the Company for the years ended December 31, 2020 and 2021), as an inducement grant. The fair value of service-based restricted stock units represents the closing price of the Company’s common stock on the date of grant. The fair value of the performance-based restricted stock units is estimated using the Monte Carlo simulation model. This resulted in 33,333 service-based shares being vested on March 31, 2020.

During 2018, the Company granted 429,165 service-based restricted stock units to employees, under the 2018 long-term incentive program, out of treasury stock, at a grant date fair value of $2.94 per share. Restricted stock units granted to employees in 2018 vest ratably over a three-year period beginning on March 31, 2019. The fair value of service-based restricted stock units represents the closing price of the Company’s common stock on the date of grant. On March 31, 2020, the Company

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vested 104,888 service-based shares to key employees. The Company also granted 357,545 performance-based restricted stock units, out of treasury stock, at a grant date fair value of $3.00 per share which vest in three equal annual installments on March 31 of each of 2019, 2020 and 2021, provided that the Company achieves a per share stock price of at least $5.00 for any period of 30 consecutive trading days at any time prior to June 30, 2021. The fair value of the performance-based restricted stock units is estimated using the Monte Carlo simulation model.

During the first half of 2019, the Company also granted an additional 21,500 service-based restricted stock units and 21,500 performance-based restricted stock units, both out of treasury stock, under the 2018 long-term incentive program at a grant date fair value of $2.60 per share and $0.75 per share, respectively. The fair value of the service-based restricted stock units represents the closing price of the Company’s common stock on the date of grant. The fair value of the performance-based restricted stock units is estimated using the Monte Carlo simulation model. On March 31, 2020, the Company vested 5,500 of the service-based restricted stock units to key employees.

Stock-based compensation expense for the three months ended June 30, 2020 and 2019 remained approximately unchanged at $0.6 million, and for the six months ended June 30, 2020 and 2019 was $1.1 million and $0.9 million, respectively, and was included in general and administrative expenses on the Company’s unaudited condensed consolidated statements of operations.

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NOTE 13—SUBSEQUENT EVENTS

The Company entered into a Fourth Amendment to the MidCap Facility that, effective as of August 1, 2020, among other things, (a) extended the payment terms of certain deferred origination fees scheduled to expire on October 11, 2020 and October 11, 2021, respectively; provided that no such fee shall be payable within 90 days of the maturity date, and (b) increased the concentration limit under the borrowing base for certain accounts receivable to 60% through August 1, 2021, and 50% at all times thereafter. This increased availability under the borrowing base will enable the Company to maintain sufficient liquidity to accommodate its growth initiatives and better scale its operations in order to meet increased customer demand for its services.

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

Cautionary Statement 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 2019 Report under the heading “Part I—Item 1A. Risk Factors” or “Part II—Item 1A. Risk Factors” of this Form 10-Q 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 indebtedness;
our ability to make interest and principal payments on our debt and satisfy the financial and other covenants contained in the New Centre Lane Facility and the MidCap Facility;
our ability to engage in certain transactions and activities due to limitations and covenants contained in the New Centre Lane Facility and the MidCap Facility;
our ability to enter into new lending facilities, if needed, and to obtain adequate surety bonding and letters of credit;
our ability to generate sufficient cash resources to continue funding operations, including investments in working capital required to support growth-related commitments that we make to our customers, and the possibility that we continue to incur further losses from operations in the future;
exposure to market risks from changes in interest rates, including changes to or replacement of LIBOR;
the possibility we may be required to write-down additional amounts of goodwill and other indefinite-lived assets;
failure to maintain effective internal control over financial reporting and disclosure controls and procedures in the future;
changes in our senior management and financial reporting and accounting teams, the ability of such persons to successfully perform their roles, and our ability to attract and retain qualified personnel, skilled workers and key officers;
a failure to successfully implement or realize our business strategies, plans and objectives of management, and liquidity, operating and growth initiatives and opportunities;
the loss of one or more of our significant customers;
our competitive position;
market outlook and trends in our industry, including the possibility of reduced investment in, or increased regulation of, nuclear power plants and declines in public infrastructure construction and reductions in government funding, including funding by state and local agencies;
costs exceeding estimates we use to set fixed-price contracts;
harm to our reputation or profitability due to, among other things, internal operational issues, poor subcontractor performances or subcontractor insolvency;
potential insolvency or financial distress of third parties, including our customers and suppliers;
our contract backlog and related amounts to be recognized as revenue;
our ability to maintain our safety record, the inherently dangerous nature of the services we provide, the risks of potential liability and adequacy of insurance;
changes in our credit profile and market conditions affecting our relationships with suppliers, vendors and subcontractors;