|9 Months Ended|
Sep. 30, 2022
As noted above, the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and on a basis consistent with the 2021 Report, which contemplates that the Company will continue to operate as a going concern, which means 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 nine months ended September 30, 2022 (this “Form 10-Q”). Therefore, 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 Company had negative cash flows from operations during the nine months ended September 30, 2022. These negative cash flows were primarily a consequence of the four factors described in the paragraph below.
In connection with the preparation of the accompanying unaudited condensed consolidated financial statements, management assessed the Company’s financial condition and concluded that the following primary factors, taken in the aggregate, raised substantial doubt regarding the Company’s ability to continue as a going concern for the twelve-month period following the issuance of this Form 10-Q.
To address the negative cash flows in the Company’s business, the Company has developed a liquidity plan, the implementation of which management believes will alleviate the substantial doubt about the Company’s ability to continue as a going concern during the twelve-month period following the issuance of this Form 10-Q. The liquidity plan, which will continue to be refined as circumstances dictate, contemplates the following key elements, in which the Company will:
On August 3, 2022, as a result of the Company being unable to comply with its debt covenants as of June 30, 2022, the Company amended its existing Revolving Credit Agreement and the Term Loan Agreement (as defined below), which among other things, amended the calculation of EBITDA (as defined in the Revolving Credit Agreement), and Consolidated EBITDA (as defined in the Term Loan Agreement) to include (or “add back”) certain non-recurring losses and expenses relating to projects executed in Jacksonville, Florida, one-time costs and expenses incurred in connection with the Company’s transmission and distribution business unit start-up, and costs and expenses arising out of the Company’s litigation with a former executive and his employer (in each case, subject to certain specified dollar limits), as well as to amend and increase the Total Leverage Ratio (as defined in the Term Loan Agreement) applicable to the Company for certain periods. For additional information regarding the amendments, see “Note 9—Debt.”
While the above-mentioned factors have negatively affected the Company’s liquidity, there were two developments in the third and fourth quarter of 2022 that resulted in material cash receipts by the Company. Specifically, the Company settled two legal claims. The first such settlement involved a cash collection in the third quarter of 2022 of approximately $8.1 million related to an arbitration proceeding initiated by the Company against a third party in connection with the restatement of the Company’s financial statements in 2017 for the 2012 to 2014 period. The second matter, settled in the fourth quarter of 2022, involved litigation against a former executive and his employer that resulted in the employer of the former executive agreeing to pay a cash settlement of $2.7 million. The Company recognized both settlements as other income during the third quarter of 2022. The $8.1 million settlement proceeds were used to prepay part of the Company’s Term Loan and the $2.7 million settlement, which was collected on October 13, 2022, was used to repay a portion of the Revolving Credit Facility. As a result, the full amount of these settlement receipts could not be used for general working capital purposes and did not materially affect the Company’s liquidity. For additional information about the arbitration and legal settlements, please refer to “Note 9—Debt” and “Note 14—Subsequent Events” to the unaudited condensed consolidated financial statements included in this Form 10-Q.
In the first nine months of 2022, the Company’s principal sources of liquidity were borrowings under the Revolving Credit Facility and efforts to effectively manage its working capital. The Company anticipates that this will continue to be the case in the fourth quarter of 2022, subject to the anticipated benefits of the liquidity plan outlined above. The Company continues to monitor its liquidity and capital resources closely. If market conditions were to change, and revenue is reduced or operating costs either increased or could not be reduced as contemplated by the Company’s liquidity plan, cash flows and liquidity could be materially negatively impacted.
While management believes its liquidity plan alleviates the substantial doubt regarding the Company’s ability to continue as a going concern during the ensuing twelve-month period, the Company cannot provide any assurance that it will be able to implement its liquidity plan successfully or, even if successfully implemented, that the plan will ultimately result in the Company continuing as a going concern. In addition, the Company could be unable to meet its obligations under its existing indebtedness, including failing to comply with any of its covenants. If any such failures are not waived by the Company’s lenders, it would result in an event of default under such indebtedness and the potential acceleration of outstanding indebtedness thereunder and the potential foreclosure on the collateral securing such debt, and would likely cause a cross-default under the Company’s other outstanding indebtedness. If the liquidity plan does not have the intended effect, the Company may need to seek relief from the Company’s lenders or take steps to raise additional capital, such as selling equity or debt securities or entering into additional borrowing arrangements, to sustain operations, which may not be available on favorable terms, or at all, in which case the Company will be required to pursue other alternatives, which may include selling assets, selling or merging its business, ceasing operations or filing a petition for bankruptcy (either liquidation or reorganization) under applicable bankruptcy laws.