Form 10-Q Orbital Infrastructure For: Sep 30
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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 Number
Orbital Infrastructure Group, Inc. (f/k/a Orbital Energy Group, Inc.)
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| Suite 1650 | ||
| (Address of principal executive offices and zip code) |
| Former address: |
| 1924 Aldine Western |
| Houston, Texas 77038 |
(
(Registrant’s telephone number, including area code)
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 ☐ |
| | 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
There were
Securities registered pursuant to Section 12(b) of the Act.:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Item 1. Financial Statements.
Orbital Infrastructure Group, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | |||||||
| (in thousands, except share and per share amounts) | 2022 | 2021 | ||||||
| Assets: | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash - current portion | ||||||||
| Trade accounts receivable, net of allowance of $ and $, respectively | ||||||||
| Inventories | ||||||||
| Contract assets | ||||||||
| Note receivable, current portion | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Assets held for sale, current portion | ||||||||
| Total current assets | ||||||||
| Property and equipment, less accumulated depreciation | ||||||||
| Investment | ||||||||
| Right of use assets - Operating leases | ||||||||
| Right of use assets - Financing leases | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Restricted cash, noncurrent portion | ||||||||
| Note receivable, noncurrent portion | ||||||||
| Deposits and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity (Deficit): | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Notes payable, current portion | ||||||||
| Line of credit | ||||||||
| Operating lease obligations - current portion | ||||||||
| Financing lease obligations - current portion | ||||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Financial instrument liability, current portion | ||||||||
| Liabilities held for sale, current portion | ||||||||
| Total current liabilities | ||||||||
| Financial instrument liability, noncurrent portion | ||||||||
| Warrant liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Notes payable, less current portion | ||||||||
| Operating lease obligations, less current portion | ||||||||
| Financing lease obligations, less current portion | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' Equity (Deficit): | ||||||||
| Preferred stock, par value $; shares authorized; shares issued at September 30, 2022 or December 31, 2021 | ||||||||
| Common stock, par value $; shares authorized; shares issued and shares outstanding at September 30, 2022 and shares issued and shares outstanding at December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock at cost; shares held at September 30, 2022 and December 31, 2021 | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Orbital Infrastructure Group, Inc.'s stockholders' equity (deficit) | ( | ) | ||||||
| Noncontrolling interest | ( | ) | ||||||
| Total stockholders' equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders' equity (deficit) | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
Orbital Infrastructure Group, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| For the Three Months |
For the Nine Months |
|||||||||||||||
| (in thousands, except share and per share amounts) |
Ended September 30, |
Ended September 30, |
||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Revenues |
$ | $ | $ | $ | ||||||||||||
| Cost of revenues |
||||||||||||||||
| Gross profit |
( |
) | ( |
) | ||||||||||||
| Operating expenses (income): |
||||||||||||||||
| Selling, general and administrative expense |
||||||||||||||||
| Depreciation and amortization |
||||||||||||||||
| Impairment of goodwill and intangible assets |
||||||||||||||||
| Impairment of financing leased assets |
||||||||||||||||
| (Recovery of) provision for bad debt |
( |
) | ||||||||||||||
| Other operating income, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Total operating expenses |
||||||||||||||||
| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gain (loss) on extinguishment of debt |
( |
) | ( |
) | ||||||||||||
| Loss on financial instruments |
( |
) | ( |
) | ||||||||||||
| Gain on warrant liabilities |
||||||||||||||||
| Other income (expense) |
( |
) | ( |
) | ( |
) | ||||||||||
| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Loss from continuing operations before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax expense (benefit) |
( |
) | ( |
) | ||||||||||||
| Loss from continuing operations, net of income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Discontinued operations (Note 3) |
||||||||||||||||
| Income (loss) from operations of discontinued businesses |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Less: net loss attributable to noncontrolling interest |
( |
) | ( |
) | ||||||||||||
| Net loss attributable to Orbital Infrastructure Group, Inc. |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Basic and diluted weighted average common shares outstanding |
||||||||||||||||
| Loss from continuing operations per common share - basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Loss from discontinued operations - basic and diluted |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Loss per common share - basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
See accompanying notes to condensed consolidated financial statements
Orbital Infrastructure Group, Inc.
Condensed Consolidated Statements of Comprehensive Income and Loss
(Unaudited)
| For the Three Months |
For the Nine Months |
|||||||||||||||
| (in thousands) |
Ended September 30, |
Ended September 30, |
||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income (loss) |
||||||||||||||||
| Foreign currency translation adjustment |
( |
) | ( |
) | ||||||||||||
| Reclassification of Foreign currency translation adjustment from accumulated other comprehensive loss to gain on sale of Orbital U.K. upon disposition |
||||||||||||||||
| Net other comprehensive income (loss) |
( |
) | ||||||||||||||
| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Less: Comprehensive income (loss) attributable to noncontrolling interests |
( |
) | ( |
) | ||||||||||||
| Comprehensive loss attributable to Orbital Infrastructure Group, Inc. |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
See accompanying notes to condensed consolidated financial statements
Orbital Infrastructure Group, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(Unaudited)
| (in thousands, except share amounts) | Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-in Capital | Shares | Amount | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total OIG Stockholder's Equity (Deficit) | Non-controlling Interest | Total Stockholders' Equity (Deficit) | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||
| Common stock issued for acquisition | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued and issuable for compensation, services and royalty payments | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock issued for debt repayment | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued to lenders for OID for $105 million debt - (reissued) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for acquisition - purchase price adjustment | — | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of pre-funded warrants, net | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued and issuable for compensation, services and royalty payments | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for debt repayment | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued to lenders based on a new reference price on subscription agreement | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | ||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued and issuable for compensation, services and royalty payments | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for debt repayment | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued to lenders based on a new reference price on subscription agreement | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| (in thousands, except share amounts) | Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-in Capital | Shares | Amount | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | |||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Issuance of common stock via equity raises | — | — | — | — | ||||||||||||||||||||||||||||
| Common stock issued for cashless exercises of stock options | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Common stock issued and vesting of restricted stock for compensation, services, and royalty payments | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock issued for acquisition of Gibson Technical Services, Inc. | — | — | — | — | ||||||||||||||||||||||||||||
| Common stock issued for compensation, services, and royalty payments | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Balance, June 30, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock via equity raise | — | — | — | — | ||||||||||||||||||||||||||||
| Common stock issued for acquisition of IMMCO, Inc. | — | — | — | — | ||||||||||||||||||||||||||||
| Common stock issued for and issuable for compensation, services and royalty payments | — | — | — | — | — | |||||||||||||||||||||||||||
| Common stock issued for debt repayment | — | — | — | — | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||
| Other comprehensive income | — | — | ||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
Orbital Infrastructure Group, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months |
||||||||
| (in thousands) |
Ended September 30, |
|||||||
| 2022 |
2021 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation |
||||||||
| Amortization of intangibles |
||||||||
| Amortization of debt discount |
||||||||
| Amortization of note receivable discount |
( |
) | ( |
) | ||||
| Stock-based compensation and expense, net of forfeitures |
( |
) | ||||||
| Fair value adjustment to liability for stock appreciation rights |
( |
) | ||||||
| Fair value adjustment to financial instrument liabilities |
||||||||
| Fair value adjustment to warrant liabilities |
( |
) | ||||||
| Loss (gain) on extinguishment of debt and debt modifications |
( |
) | ||||||
| Gain on sale of business |
( |
) | ||||||
| (Recovery of) provision for bad debt |
( |
) | ||||||
| Deferred income taxes |
( |
) | ||||||
| Impairment of goodwill and intangible assets |
||||||||
| Impairment of financing leased assets |
||||||||
| Inventory reserve |
( |
) | ( |
) | ||||
| Gain on sale of assets |
( |
) | ( |
) | ||||
| Non-cash unrealized foreign currency loss |
( |
) | ||||||
| Liquidated damages from debt |
||||||||
| Change in operating assets and liabilities, net of acquisition: |
||||||||
| Trade accounts receivable |
( |
) | ||||||
| Inventories |
( |
) | ||||||
| Contract assets |
( |
) | ( |
) | ||||
| Prepaid expenses and other current assets |
||||||||
| Right of use assets/lease liabilities, net |
( |
) | ||||||
| Deposits and other assets |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ||||||
| Accrued expenses |
||||||||
| Contract liabilities |
( |
) | ( |
) | ||||
| NET CASH USED IN OPERATING ACTIVITIES |
( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Cash paid for acquisitions, net of cash received |
( |
) | ( |
) | ||||
| Cash paid for working capital adjustment on Front Line Power acquisition |
( |
) | ||||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Deposits on financing lease property and equipment |
( |
) | ||||||
| Proceeds from sale of businesses, net of cash included in the business |
||||||||
| Proceeds from sale of property and equipment and businesses |
||||||||
| Purchases of investments |
( |
) | ||||||
| Purchase of other intangible assets |
( |
) | ( |
) | ||||
| Proceeds from notes receivable |
||||||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from line of credit |
||||||||
| Payments on line of credit |
( |
) | ( |
) | ||||
| Payments on financing lease obligations |
( |
) | ( |
) | ||||
| Proceeds from notes payable |
||||||||
| Payments on notes payable |
( |
) | ( |
) | ||||
| Proceeds from sales of common stock and warrants |
||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES |
||||||||
| Effect of exchange rate changes on cash |
( |
) | ( |
) | ||||
| Net increase in cash, cash equivalents and restricted cash |
||||||||
| Cash, cash equivalents and restricted cash at beginning of period |
||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
$ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
Orbital Infrastructure Group, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
| For the Nine Months |
||||||||
| (in thousands) |
Ended September 30, |
|||||||
| 2022 |
2021 |
|||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||
| Income taxes paid (net refunded) |
$ | $ | ( |
) | ||||
| Interest paid |
$ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
| Non-cash investment in acquisitions including seller notes, equity issued and contingent consideration |
$ | $ | ||||||
| Equipment purchased with debt |
$ | $ | ||||||
| Accrued property and equipment purchases |
$ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
Orbital Infrastructure Group, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
| 1. | NATURE OF OPERATIONS, BASIS OF PRESENTATION AND COMPANY CONDITIONS |
Nature of Operations
Orbital Infrastructure Group, Inc. f/k/a Orbital Energy Group, Inc. (Orbital Infrastructure Group, "OIG," "The Company") is a diversified infrastructure services company serving customers in the electric power, telecommunications, and renewable markets. The Company’s reportable segments are the Electric Power segment, the Telecommunications segment, and the Renewables segment. In December 2021, the Company announced the planned divestiture of its previously reported Integrated Energy Infrastructure Solutions and Services segment.
The Electric Power segment consists of Front Line Power Construction, LLC based in Houston, Texas (acquired November 17, 2021), Orbital Power, Inc. based in Dallas, Texas, (began operations in Q1 2020) and Eclipse Foundation Group based in Gonzales, Louisiana (began operations in Q1 2021). The segment provides comprehensive infrastructure solutions to customers in the electric power industry. Services performed by Front Line Power and Orbital Power, Inc. generally include but are not limited to the engineering, design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities as well as emergency restoration services. Eclipse Foundation Group, which began operations in January 2021, is a drilled shaft foundation construction company that specializes in providing services to the electric transmission and substation, industrial, telecommunication and disaster restoration market sectors, with expertise performing services in water, marsh and rock terrains. In the third quarter of 2022, in order to streamline operations, the Eclipse business was integrated into Front Line Power Construction, LLC, and ceased to be a separate business unit.
The Telecommunications segment is made up of Gibson Technical Services, Inc. (“GTS”) (acquired April 13, 2021) and subsidiaries. GTS is an Atlanta-based telecommunications company providing diversified telecommunications services nationally since 1990 and is the parent of IMMCO, Inc., Full Moon Telecom, LLC, and Coax Fiber Solutions, LLC. IMMCO, Inc. (acquired July 28, 2021), which includes two Indian subsidiaries, is an Atlanta-based, full-service telecom engineering and network design company providing diversified engineering services and customized software solutions to a global customer base since 1992. Full Moon Telecom, LLC (acquired October 22, 2021) is a Florida-based telecommunications service provider that offers an extensive array of wireless service capabilities and experience including Layer 2/Layer 3 Transport, Radio Access Network (“RAN”) Integration, test and turn-up of Small Cell systems and Integration/Commissioning of Distributed Antenna (“DAS”) systems. Coax Fiber Solutions, LLC (acquired March 7, 2022), is based in Loganville, Georgia. Founded in 2016, Coax Fiber Solutions is a GDOT Certified contractor specializing in Aerial Installation, directional drilling, trenching, plowing, and missile crews for telecommunications, power, gas, water, CCTV, ATMS, and traffic signal cable installation.
The Renewables segment consists of Orbital Solar Services based in Raleigh, North Carolina. Orbital Solar Services provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility-scale solar construction. The Company serves a wide variety of project types, including commercial, substation, solar farms and public utility projects.
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information, which includes condensed consolidated financial statements. Accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The Condensed Consolidated Balance Sheet as of December 31, 2021 has been derived from the audited financial statements as of that date included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
It is management's opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. All intercompany accounts and transactions have been eliminated in consolidation. The results for the interim period are not necessarily indicative of the results to be expected for the remaining quarters or year ending December 31, 2022.
Reconciliation of Cash, Cash Equivalents, and Restricted Cash on Condensed Consolidated Statements of Cash Flows
| For the Nine Months | ||||||||
| (in thousands) | Ended September 30, | |||||||
| 2022 | 2021 | |||||||
| Cash and cash equivalents at beginning of period | $ | $ | ||||||
| Restricted cash at beginning of period (1) | ||||||||
| Cash, cash equivalents and restricted cash at beginning of period | $ | $ | ||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Restricted cash at end of period (1) | ||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
(1) Restrictions on cash at September 30, 2022 and September 30, 2021 relate to collateral for several bank-issued letters of credit for contract guaranties.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to record purchase price allocation for the Company's acquisitions, fair value measurements used in goodwill impairment tests, impairment estimations of long-lived assets, revenue recognition on cost-to-cost type contracts, allowances for uncollectible accounts, valuations of non-cash capital stock issuances, estimates of the incremental borrowing rate for long-term leases, fair value estimates and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Reclassifications
Certain reclassifications have been made to the 2021 classifications in order to conform to the 2022 presentation.
Company Conditions and Sources of Liquidity
The Company has experienced net losses, cash outflows from cash used in operating activities and a decline in share value over the past years. As of and for the nine months ended September 30, 2022, the Company had an accumulated deficit of $
The Company has plans to access additional capital to meet its obligations for the twelve months from the date these financial statements are available to be issued. Historically, the Company has raised additional equity and debt financing to fund its expansion; refer to Note 16 — Notes Payable and Line of Credit. The Company has also funded some of its capital expenditures through long-term financing with lenders and other investors as also described in further detail in Note 16 — Notes Payable and Line of Credit. Our ability to raise the additional capital is dependent on a number of factors, including, but not limited to, the market demand for our common stock, which itself is subject to a number of business risks and uncertainties, our creditworthiness and the uncertainty that we would be able to raise such additional capital at a price that is favorable to us. As of September 30, 2022, the Company has an effective S-3 shelf registration statement for the issuance of various types of securities, including common stock, preferred stock, debt securities and/or warrants in the aggregate of up to $
The Company plans to meet its obligations as they become due over the next twelve months by raising additional capital through equity and debt financing sources and forecasted positive cash flows generated from operations. There can be no assurance that the Company will succeed in executing these plans. If unsuccessful, the Company will not have sufficient liquidity and capital resources to repay its indebtedness when it matures, or otherwise meet its cash requirements over the next twelve months, as noted above.
Restructuring Costs
In September 2022, the Company fully impaired its finance lease equipment related to the Eclipse Foundation Group in the Electric Power segment. These pieces of equipment are drilling specific and at this time, the Company does not plan to use the equipment for the remaining term of the leases. As these leases are non-cancelable and do not include a sub-leasing option, the full finance lease assets related to Eclipse have been removed from the balance sheet and an equal impairment has been recognized in the amount of $
Sale of Orbital U.K.
On May 11, 2022, the Company completed the sale of its Orbital U.K. operations for the agreed upon amount of
Goodwill and Indefinite-lived intangible assets
The Company had Goodwill from acquisitions made in 2020, 2021 and 2022.
Roll-forward of the Company's goodwill:
| Electric Power | Telecommunications | Renewables | Total | |||||||||||||
| Goodwill - December 31, 2021 | $ | $ | $ | $ | ||||||||||||
| Acquisition of CFS | ||||||||||||||||
| IMMCO purchase price allocation adjustment | ||||||||||||||||
| September 30, 2022 - impairment | ( | ) | ( | ) | ( | ) | ||||||||||
| Goodwill - September 30, 2022 | $ | $ | $ | $ | ||||||||||||
The Company tests for impairment of Indefinite-lived intangibles and Goodwill in the second quarter of each year and when events or circumstances indicate that the carrying amount of Goodwill exceeds its fair value and may not be recoverable.
Under current accounting guidance, Orbital Infrastructure Group is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance includes a number of factors to consider in conducting the qualitative assessment.
During the three months ended June 30, 2022, the Company completed a quantitative analysis to determine whether it was more likely than not that the fair value of its reporting units were less than their carrying amount, including goodwill. To complete the review, management evaluated the fair value of the Goodwill and considered all known events and circumstances that might trigger an impairment of goodwill. The review of goodwill, prepared as of May 31, 2022, determined that there were not indicators present to suggest that it was more likely than not that the fair value of any of the Company's reporting units was less than its carrying amount and thus no impairment was necessary during the quarter ended June 30, 2022.
The Company did a second goodwill impairment analysis as of June 30, 2022 due to a
During the third quarter of 2022, triggering events were identified which led to performing interim goodwill impairment testing of our reporting units as of September 30, 2022. These events included a further decrease in the Company's market capitalization, the significant loss in the Renewables segment in the third quarter of 2022, interest rate increases and limitations on accessing capital, which raised substantial doubt regarding the Company’s ability to continue as a going concern. The fair value for our reporting units for the interim testing was valued using a market approach. The impairment assessment resulted in a conclusion that goodwill in the Electric Power and Telecommunications reporting units was impaired by $
Accrued expenses
Accrued expenses are liabilities that reflect expenses on the statement of operations that have not been paid or recorded in accounts payable at the end of the period. At September 30, 2022 and December 31, 2021, accrued expenses of $
| (in thousands) | September 30, | December 31 | ||||||
| 2022 | 2021 | |||||||
| Accrued bonding | $ | $ | ||||||
| Accrued compensation | ||||||||
| Working capital adjustment on Front Line Power Construction acquisition | ||||||||
| Accrued interest | ||||||||
| Accrued taxes payable | ||||||||
| Accrued subcontractor expenses | ||||||||
| Accrued union dues | ||||||||
| Accrued vendor invoices and accrued other expenses | ||||||||
| Total accrued expense | $ | $ | ||||||
Impact of COVID-19 Pandemic and current economic environment
The effects of the COVID-19 pandemic continues to impact certain aspects and geographies of the global economy due to supply chain, production and other logistical disruptions. While we have continued to operate as a provider of essential services from the onset of the pandemic, during the course of the pandemic our operations and financial results have been adversely impacted by governmental responses to the COVID-19 pandemic, including shut-down orders and limitations on work site practices implemented by governments. The longer-term implications of the COVID-19 pandemic on our financial performance remain uncertain and variable in the current economic environment including rising interest and inflation rates.
We continue to monitor governmental vaccination and testing standards or requirements related to COVID-19, as well as certain standards and guidance for preventing the spread of COVID-19. While the impact of these standards has lessened in 2022, we continue to monitor changes in these standards that may impact our business.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Our significant accounting policies are detailed in "Note 2 Summary of Significant Accounting Policies" within Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022.
| 3. | DISCONTINUED OPERATIONS AND SALE OF A BUSINESS |
As part of the Company’s stated strategy to transform Orbital Infrastructure Group into a diversified energy infrastructure services platform serving North American energy customers, the Company’s board of directors made the decision to divest of its Orbital Gas subsidiaries. The Orbital Gas subsidiaries provide proprietary gas measurement and sampling technologies and the integration of process control and measuring/sampling systems. They are legacy businesses that are not part of the Company’s strategy of building an infrastructure services company serving the electric power, telecommunications and renewable markets. The disposition of the Orbital Gas subsidiaries will facilitate the Company’s restructuring and cost savings initiatives and are intended to realign and simplify its business structure and better position the Company for future growth and improved profitability. In the fourth quarter of 2021, the Company recorded a $
The sale of the U.K. operations closed in May of 2022. The Company could receive additional consideration if certain events transpire during the 12-month restricted period following the settlement date. In addition, the Company will receive a “royalty” of
Assets and liabilities held for sale that are included on the Company's balance sheet, relate to the company's discontinued businesses, and are described below.
| As of | As of | |||||||
| September 30, | December 31, | |||||||
| (in thousands) | 2022 | 2021 | ||||||
| Carrying amounts of the major classes of assets included in discontinued operations: | ||||||||
| Trade accounts receivable | $ | $ | ||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Contract assets | ||||||||
| Assets held for sale, current portion | ||||||||
| Property and equipment | ||||||||
| Other intangible assets | ||||||||
| Deposits and other assets | ||||||||
| Assets held for sale, noncurrent portion | ||||||||
| Total assets of the disposal group classified as held for sale | $ | $ | ||||||
| Carrying amounts of the major classes of liabilities included in discontinued operations: | ||||||||
| Accounts payable | $ | $ | ||||||
| Contract liabilities | ||||||||
| Operating lease obligations - current portion | ||||||||
| Accrued expenses | ||||||||
| Liabilities held for sale, current portion | ||||||||
| Operating lease obligations, less current portion | ||||||||
| Other long-term liabilities | ||||||||
| Liabilities held for sale, noncurrent portion | ||||||||
| Total liabilities held for sale | $ | $ | ||||||
Selected data for these discontinued businesses consisted of the following:
Reconciliation of the Major Classes of Line Items Constituting Pretax Income from
Discontinued Operations to the After-Tax Income from Discontinued Operations That Are
Presented in the Condensed Consolidated Statement of Operations
| (in thousands) | For the Three Months | For the Nine Months | ||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| Major classes of line items constituting pretax profit of discontinued operations: | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Selling, general and administrative expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Depreciation and amortization | ( | ) | ( | ) | ||||||||||||
| (Provision) recovery of bad debt | ( | ) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Gain on extinguishment of PPP loan | ||||||||||||||||
| Other expense | ||||||||||||||||
| Pretax income of discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Pretax gain on sale of Orbital U.K. | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Total income from discontinued operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
There was $
| 4. | REVENUE FROM CONTRACTS WITH CUSTOMERS |
The Electric Power segment provides full service building, maintenance and support to the electrical power distribution, transmission, substation, and emergency response sectors of North America through Front Line Power, Orbital Power Services and Eclipse Foundation. The Telecommunications segment composed of Gibson Technical Services and subsidiaries provides technical implementation, design, maintenance, emergency and repair support services in the broadband, wireless, and outside plant and building technologies. The Renewables segment, Orbital Solar Services, provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility scale solar and community solar construction.
For our construction contracts, revenue is generally recognized over time. Our fixed price and unit-price construction projects generally use a cost-to-cost input method or an output method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. Revenue is also generally recognized over time as the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Under the output method, the measure of progress towards completion is based on units of work completed multiplied by the contractual pricing amounts per unit. Under the output method, revenue is determined by actual work achieved. For jobs under the output method, revenue is earned based on each unit in the contract completed. We construct comprehensive revenue calculations based on quantifiable measures of actual units completed multiplied by the agreed upon contract prices per item completed.
For our engineering and network design contracts, revenue is also generally recognized over time. In these jobs, timing of revenue recognition also depends on the payment terms of the contract, as our performance does not create an asset with an alternative use to us. For those contracts where the Company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced or for which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. As discussed above, these performance obligations use a cost-to-cost input method or output method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. However, for those contracts for which we do not have a right, at all times, to payment for performance completed to date and we are not enhancing a customer-controlled asset, we recognize revenue at the point in time when control is transferred to the customer.
For our service contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly, and the customer receives and consumes the benefits of our performance throughout the contract term.
For certain of our revenue streams, such as call-out repair and service work, and outage services, that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an input method as the customer receives and consumes the benefits of our performance completed to date.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicates a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.
Accounts Receivable, Contract Assets and Contract Liabilities
Accounts receivable are recognized in the period when our right to consideration is unconditional. We also assess our customer's ability and intention to pay, which is based on a variety of factors, including our historical payment experience with and the financial condition of our customers.
The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenue recognized under the output method or input cost-to-cost method exceeds the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Also included in contract assets are retainage receivables and amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to both scope and/or price or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Condensed Consolidated Balance Sheets.
Contract liabilities from our construction contracts occur when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost or output method measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts and provision for future contract losses for those contracts estimated to close in a gross loss position. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue.
Balances and activity in the current contract liabilities as of and for the nine months ended September 30, 2022 and 2021 was as follows:
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Total contract liabilities - beginning of period | $ | $ | ||||||
| Other contract additions, net | ||||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Contract settlements | ( | ) | ||||||
| Total contract liabilities - end of period | $ | $ | ||||||
Performance Obligations
Remaining Performance Obligations
Remaining performance obligations represents the transaction price of contracts with customers for which work has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts. As of September 30, 2022, the Company's remaining performance obligations are generally expected to be filled within the next 12 months. For the contracts that are greater than 12 months the Company has approximately $
Any adjustments to net revenues, cost of revenues, and the related impact to operating income are recognized as necessary in the period they become known. These adjustments may result from positive program performance and may result in an increase in operating income during the performance of individual performance obligations, if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations. Likewise, these adjustments may result in a decrease in operating income if we determine we will not be successful in mitigating these risks. Changes in estimates of net revenues, cost of revenues and the related impact to operating income are recognized on a cumulative catch-up basis in the period they become known, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations.
Performance Obligations Satisfied Over Time
To determine the proper revenue recognition method for our contracts, we evaluate whether a single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to separate the single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.
For most of our contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. Less commonly, however, we may promise to provide distinct goods or services within a contract in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone sales. In cases where we do, the observable standalone sales are used to determine the standalone selling price. More frequently, we sell a customized customer specific solution, and in these cases, we typically use the output method or the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.
Variable Consideration
The nature of our contracts gives rise to several types of variable consideration. In rare instances, we include in our contract estimates, additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably, and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. These amounts are included in our calculation of net revenue recorded for our contracts and the associated remaining performance obligations. Additionally, if the contract has a provision for liquidated damages in the case that the Company misses a timing target, or fails to meet any other contract benchmarks, the Company accounts for those estimated liquidated damages as variable consideration and will adjust revenue accordingly with periodic updates to the estimated variable consideration as the job progresses. Liquidated damages are recognized as variable consideration and are estimated based on the most likely amount that is deemed probable of realization.
Significant Judgments
Our contracts with certain customers may be subject to contract cancellation clauses. Contracts with other cancellation provisions may require judgment in determining the contract term, including the existence of material rights, transaction price and identifying the performance obligations and whether a contract should be accounted for over time or on a completed contract basis. Revenue is recognized for certain projects over time using cost-based input methods, in which significant judgement is required to evaluate assumptions including the amount of total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.
At times, customers may request changes that either amend, replace or cancel existing contracts. Judgment is required to determine whether the specific facts and circumstances within the contracts require the changes to be accounted for as a separate contract or as a modification. Generally, contract modifications containing additional goods and services that are determined to be distinct and sold at their stand-alone selling price are accounted for as a separate contract. For contract modifications where goods and services are not determined to be distinct and sold at their stand-alone selling price, the original contract is updated and the required adjustments to revenue and contract assets, liabilities, and other accounts will be made accordingly.
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately rather than together may require significant judgment. For, example, we consider many of our contracts that coordinate multiple products into an integrated system to be a single performance obligation, while the same products would be considered separate performance obligations if not so integrated.
In contracts where there are timing differences between when we transfer a promised good or service to the customer and when the customer pays for that good or service, we have determined that, our contracts do not include a significant financing component.
The following tables present the Company's revenues disaggregated by the type of customer:
| For the Three Months | For the Three Months | |||||||||||||||||||||||||||||||
| Ended September 30, 2022 | Ended September 30, 2021 | |||||||||||||||||||||||||||||||
| (in thousands) | Electric Power | Telecommunications | Renewables | Total | Electric Power | Telecommunications | Renewables | Total | ||||||||||||||||||||||||
| Utilities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Telecommunications | ||||||||||||||||||||||||||||||||
| Renewables | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| For the Nine Months | For the Nine Months | |||||||||||||||||||||||||||||||
| Ended September 30, 2022 | Ended September 30, 2021 | |||||||||||||||||||||||||||||||
| (in thousands) | Electric Power | Telecommunications | Renewables | Total | Electric Power | Telecommunications | Renewables | Total | ||||||||||||||||||||||||
| Utilities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Telecommunications | ||||||||||||||||||||||||||||||||
| Renewables | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The following tables present the Company's revenues disaggregated by type of contract:
| For the Three Months | For the Three Months | |||||||||||||||||||||||||||||||
| Ended September 30, 2022 | Ended September 30, 2021 | |||||||||||||||||||||||||||||||
| (in thousands) | Electric Power | Telecommunications | Renewables | Total | Electric Power | Telecommunications | Renewables | Total | ||||||||||||||||||||||||
| Cost-plus contracts | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Fixed price contracts | ||||||||||||||||||||||||||||||||
| Unit price contracts | ||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| For the Nine Months | For the Nine Months | |||||||||||||||||||||||||||||||
| Ended September 30, 2022 | Ended September 30, 2021 | |||||||||||||||||||||||||||||||
| (in thousands) | Electric Power | Telecommunications | Renewables | Total | Electric Power | Telecommunications | Renewables | Total | ||||||||||||||||||||||||
| Cost-plus contracts | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Fixed price contracts | ||||||||||||||||||||||||||||||||
| Unit price contracts | ||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| 5. | INVENTORIES |
Inventories consist of work-in-process and finished goods and are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method as a cost flow convention or through the moving average cost method. At September 30, 2022 and December 31, 2021, inventory by category is valued net of reserves and consists of:
| As of September 30, | As of December 31, | |||||||
| (in thousands) | 2022 | 2021 | ||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Total inventories | $ | $ | ||||||
| 6. | INVESTMENTS |
The Company has a minority ownership in Virtual Power Systems ("VPS"). The VPS investment basis at September 30, 2022 and December 31, 2021 was $
| 7. | LEASES |
Operating leases
Consolidated total operating lease costs were $
Future minimum operating lease obligations at September 30, 2022 are as follows for the years ended December 31:
| (in thousands) | ||||
| 2022 (remaining period) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Interest portion | ( | ) | ||
| Total operating lease obligations | $ |
Total lease cost and other lease information is as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Variable lease cost | ||||||||||||||||
| Sublease income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| Other information - Operating leases (in thousands) | For the Nine Months Ended September 30, 2022 | |||||||
| 2022 | 2021 | |||||||
| Cash paid for amounts included in the measurement of lease obligations: | ||||||||
| Operating cash flows from operating leases (includes discontinued operations) | $ | ( | ) | $ | ( | ) | ||
| Right-of-use assets obtained in exchange for new operating lease obligations | $ | $ | ||||||
| Weighted-average remaining lease term - operating leases (in years) | ||||||||
| Weighted-average discount rate - operating leases | % | % | ||||||
Variable lease costs primarily include common area maintenance costs, real estate taxes and insurance costs passed through to the Company from lessors.
Financing leases
Consolidated total financing lease costs were $
Future minimum finance lease obligations at September 30, 2022 are as follows for the years ended December 31:
| (in thousands) | ||||
| 2022 (remaining period) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Interest portion | ( | ) | ||
| Total financing lease obligations | $ |
Total financing lease costs are as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Depreciation of financing lease assets | $ | $ | $ | $ | ||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | ||||||||||||
In addition to the financing lease costs noted above, for the three and nine months ended September 30, 2022, the Company recognized $
| Other information - Financing leases | For the Nine Months Ended September 30, | |||||||
| (in thousands) | 2022 | 2021 | ||||||
| Cash paid for amounts included in the measurement of lease obligations: | ||||||||
| Operating cash flows from financing leases | $ | ( | ) | $ | ( | ) | ||
| Cash paid for amounts included in the measurement of lease obligations: | $ | ( | ) | $ | ( | ) | ||
| Right-of-use assets obtained in exchange for new financing lease obligations | $ | $ | ||||||
| Weighted-average remaining lease term - financing leases (in years) | ||||||||
| Weighted-average discount rate - finance leases | % | % | ||||||
| 8. | STOCK-BASED COMPENSATION AND EXPENSE |
Through December 31, 2021, the Company had been vesting a series of stock appreciation rights (SARS) to be settled in cash to certain executives. The SARS were considered liability-classified awards meaning their fair-values were remeasured at the end of each reporting period using a binomial lattice model and any changes in fair value for the vesting periods to-date were recorded through the income statement with a corresponding liability accrued on the balance sheet. Since December 31, 2021, the SARS have been exchanged for restricted stock units (RSUs) on the modification date of January 14, 2022 as approved by the Board of Directors. To account for this exchange, the company revalued the SARS as of the modification date of January 14, 2022 using the binomial lattice model and recorded changes in the vested value since December 31, 2021 as an adjustment to the income statement. The Company then reclassified the SARS accrued liability to APIC for new RSUs and recognized incremental expense. Shares deemed vested at the modification date were released and issued net of tax in March 2022. The SARS that converted to RSUs, were added to the Company's existing RSU program. The company recorded $
Restricted Stock
In March 2021, the Company granted
Restricted Stock Units
| Number of restricted shares | Weighted-average grant date fair value | |||||||
| Non-vested shares, beginning of year | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Non-vested shares, September 30, 2022 | $ | |||||||
| 9. | WARRANTS |
On April 28, 2022, the Company entered into a Securities Purchase Agreement with an institutional investor. The Purchase Agreement provides for the sale and issuance by the Company of an aggregate of: (i)
The accompanying warrants have an exercise price of $
Common stock warrants are accounted for in accordance with applicable accounting guidance provided in ASC Topic 815, Derivatives and Hedging - Contracts in Entity's Own Equity (ASC Topic 815), as either derivative liabilities or equity instruments depending on the specific terms of the warrant agreement.
The Company’s warrants are considered to be derivative warrants, are classified as liabilities, and are recorded at fair value. The warrants are subject to re-measurement at each balance sheet date and any change in fair value is recognized as a component of change in fair value of warrant liability in the consolidated statements of operations. The Company uses the Black-Scholes pricing model to estimate the fair value of the related derivative warrant liability. The warrants are classified as Level 3 liabilities (see Note 12 for fair value disclosures.)
Warrants outstanding and warrant activity for the nine months ended September 30, 2022 is as follows:
| Description | Classification | Exercise Price | Expiration Date | Balance December 31, 2021 | Warrants Issued | Warrants Exercised | Warrants Expired | Balance September 30, 2022 | ||||||||||||||||||
| Warrants | Liability | $ | April 2027 | |||||||||||||||||||||||
| Pre-funded warrants | Liability | $ | April 2027 | |||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
| 10. | SEGMENT REPORTING |
Operating segments are defined in accordance with ASC 280-10 as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The measurement basis of segment profit or loss is income (loss) from operations. Management has identified
The Electric Power segment consists of Front Line Power Construction, LLC, Orbital Power, Inc. and Eclipse Foundation Group. The segment provides comprehensive solutions to customers in the electric power industries.
The Telecommunications segment is made up of Gibson Technical Services, Inc. (“GTS”) (acquired April 13, 2021). GTS is an Atlanta-based telecommunications company providing diversified telecommunications services nationally since 1990 and is the parent of the following companies: IMMCO, Inc., Full Moon Telecom, and Coax Fiber Solutions, LLC.
The Renewables segment consists of Orbital Solar Services based in Raleigh, North Carolina. Orbital Solar Services provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility-scale solar construction. The Company serves a wide variety of project types, including commercial, substation, solar farms and public utility projects.
The Other category is made up primarily of the Company's corporate activities. This category does not include any operating segments and does not generate revenue.
The following information represents segment activity for the three months ended September 30, 2022:
| (in thousands) | Electric Power | Telecommunications | Renewables | Other | Total | |||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | |||||||||||||||
| Depreciation and amortization (1) | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Expenditures for long-lived assets | ||||||||||||||||||||
(1) Depreciation and amortization includes $
The following information represents segment activity for the three months ended September 30, 2021:
| (in thousands) | Electric Power | Telecommunications | Renewables | Other | Total | |||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | |||||||||||||||
| Depreciation and amortization (1) | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Expenditures for long-lived assets (2) | ||||||||||||||||||||
(1) Depreciation and amortization includes $
(2) Includes purchases of property, plant and equipment and other intangible assets. The Other category includes expenditures for discontinued operations of $
The following information represents selected balance sheet items by segment as of September 30, 2022:
| (in thousands) | Electric Power | Telecommunications | Renewables | Other | Total | |||||||||||||||
| Segment assets | $ | $ | $ | $ | $ | |||||||||||||||
| Goodwill | ||||||||||||||||||||
| Other intangible assets, net | ||||||||||||||||||||
The following information represents segment activity for the nine months ended September 30, 2022:
| (in thousands) | Electric Power | Telecommunications | Renewables | Other | Total | |||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | |||||||||||||||
| Depreciation and amortization (1) | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Expenditures for long-lived assets (2) | ||||||||||||||||||||
(1) Depreciation and amortization includes $
(2) Includes purchases of property, plant and equipment and other intangible assets. The Other category includes expenditures for discontinued operations of $
The following information represents segment activity for the nine months ended September 30, 2021:
| (in thousands) | Electric Power | Telecommunications | Renewables | Other | Total | |||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | |||||||||||||||
| Depreciation and amortization (1) | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Expenditures for long-lived assets (2) | ||||||||||||||||||||
(1) Depreciation and amortization includes $
(2) Includes purchases of property, plant and equipment and other intangible assets. The Other category includes expenditures for discontinued operations of $
The following information represents selected balance sheet items by segment as of December 31, 2021:
| (in thousands) | Electric Power | Telecommunications | Renewables | Other | Total | |||||||||||||||
| Segment assets | $ | $ | $ | $ | $ | |||||||||||||||
| Goodwill | ||||||||||||||||||||
| Other intangible assets, net | ||||||||||||||||||||
| 11. | RECENT ACCOUNTING PRONOUNCEMENTS |
In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations to enhance transparency about an entity’s use of supplier finance programs. Under the ASU, the buyer in a supplier finance program is required to disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a roll-forward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. An entity should also consider whether the existence of a supplier finance program changes the appropriate presentation of the payables in the program from trade payables to borrowings. The amendments in this update are effective for the Company for fiscal periods beginning after December 15, 2022, including interim periods within those fiscal years, except for the disclosure of roll-forward information, which is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the effect of this new standard, which is not expected to have a material effect on the Company's financial position or results of operations.
In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security should not be considered in measuring fair value. It also requires the following disclosures for equity securities subject to the contractual sale restrictions: 1) the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet; 2) the nature and remaining duration of the restriction(s); and 3) the circumstances that could cause a lapse in the restriction(s). ASU 2022-03 is effective for the fiscal years and interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The guidance should be applied prospectively. ASU 2022-03 is not expected to have a material effect on our consolidated financial statements.
On October 28, 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This guidance will require entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. This standard was designed to provide consistent recognition and measurement guidance for revenue contracts with customers. Legacy guidance requires entities to record contract assets and contract liabilities acquired to be recorded at fair value. The amendments will be effective for the Company beginning for fiscal years beginning after December 15, 2022. Early adoption is allowed. If an entity early adopts, the entity would be required to apply the new guidance to all acquisitions made in the year of the early adoption. The Company is still reviewing the standard and as of the reporting date of this filing has not elected to early adopt.
| 12. | FAIR VALUE MEASUREMENTS |
The Company’s fair value hierarchy for our financial assets and liabilities as of September 30, 2022 and December 31, 2021 was as follows:
| (in thousands) | ||||||||||||||||
| September 30, 2022 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||
| Front Line Power Construction Seller Financed debt | ||||||||||||||||
| Financial instrument liability - related to Syndicated debt | ||||||||||||||||
| Financial instrument liability - related to Front Line Power Construction seller financed debt | ||||||||||||||||
| Prepaid advance agreement | ||||||||||||||||
| Warrant liabilities | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| December 31, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||
| Front Line Power Construction Seller financed debt | ||||||||||||||||
| Financial instrument liability | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| (in thousands) | Financial Instrument Liability - related to Syndicated debt | |||
| Balance at December 31, 2021 | $ | |||
| Issuance of shares upon exercise and reset of instrument (instrument includes reference price of $0.40 per share at September 30, 2022) | ( | ) | ||
| Fair value adjustments to Financial instrument liability | ||||
| Balance at September 30, 2022 | $ | |||
| (in thousands) | Financial Instrument Liability - related to FLP seller financed debt | |||
| Balance at December 31, 2021 | $ | |||
| Fair value of financial instrument liability at inception | ||||
| Fair value adjustment to Derivative liability | ||||
| Balance at September 30, 2022 | $ | |||
| (in thousands) | Warrant Liability | |||
| Balance at December 31, 2021 | $ | |||
| Fair value of warrant liability at inception | ||||
| Exercise of pre-funded warrants | ( | ) | ||
| Fair value adjustment to warrant liability | ( | ) | ||
| Balance at September 30, 2022 | $ | |||
See note 16 for more information about the Company's prepaid advance agreement. There were no transfers between Level 3 and Level 2 in the three months ended September 30, 2022 as determined at the end of the reporting period.
| 13. | LOSS PER COMMON SHARE |
In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 260 (“FASB ASC 260”), “Earnings per Share,” Basic loss from continuing operations per share, basic income from discontinued operations per share and basic net income (loss) per share that is available to shareholders is computed by dividing the income or loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the respective loss available to common stockholders by the weighted average number of diluted shares outstanding during the period calculated using the treasury stock method. Due to the Company’s loss from continuing operations in the three and nine months ended September 30, 2022 and September 30, 2021, the assumed exercise of stock options, warrants and the unvested restricted stock that would otherwise increase diluted shares using the treasury stock method would have had an antidilutive effect and therefore
| For the Three Months | For the Nine Months | |||||||||||||||
| (in thousands, except share and per share amounts) | Ended September 30, | Ended September 30, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Loss from continuing operations, net of income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income (loss) from discontinued operations, net of income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average number of shares outstanding | ||||||||||||||||
| Loss from continuing operations per common share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss from discontinued operations - basic and diluted | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 14. | INCOME TAXES |
The Company is subject to taxation in the U.S., as well as various state and foreign jurisdictions. The Company continues to record a full valuation allowance against the Company's U.S. net deferred tax assets and a partial valuation allowance on its Canada deferred tax assets as it is not more likely than not that the Company will realize a benefit from these assets in a future period other than a $
Total net income tax expense of $
Total net income tax benefit of $
| 15. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
The components of accumulated other comprehensive loss are as follows:
| (in thousands) | As of September 30, 2022 | As of December 31, 2021 | ||||||
| Foreign currency translation adjustment | $ | ( | ) | $ | ( | ) | ||
| Accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
In the nine months ended September 30, 2022, the Company reclassified $
| 16. | NOTES PAYABLE AND LINE OF CREDIT |
Notes payable is summarized as follows:
| (in thousands) | As of September 30, 2022 | As of December 31, 2021 | ||||||
| Syndicated debt (1) | $ | $ | ||||||
| Seller Financed notes payable - Front Line Power Construction, LLC acquisition (2) | ||||||||
| Note Payable - Financing notes (3) | ||||||||
| Seller Financed notes payable - Reach Construction Group, LLC acquisition (4) | ||||||||
| Vehicle and equipment loans (5) | ||||||||
| Non-recourse payable agreements (6) | ||||||||
| Notes payable - Institutional investor (7) | ||||||||
| Prepaid Advance agreement (8) | ||||||||
| Conditional settlement notes payable agreement (9) | ||||||||
| Full Moon and CFS - loans to prior owners (10) | ||||||||
| Subtotal | ||||||||
| Unamortized prepaid financing fees and debt discounts | ( | ) | ( | ) | ||||
| Total notes payable | ||||||||
| Less: notes payable, current | ( | ) | ( | ) | ||||
| Notes payable, less current portion | $ | $ | ||||||
| (1) | On November 17, 2021, the Company entered into a credit agreement and associated documents (the “Credit Agreement”) with Alter Domus (US), LLC (“Alter Domus”), as administrative agent and collateral agent and various lenders (the “Lenders”) in order to enable the Company to finance the acquisition of Front Line Power Construction, LLC. The Lenders made a Term Loan to Front Line in the initial principal amount of $ |
|
|
| (2) | On November 17, 2021, the Company entered into two unsecured promissory notes, one with Kurt A Johnson, Jr, for $ |
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| |
| (3) | The Company has a note payable to First Insurance Funding executed in 2022 for the purposes of financing a portion of the Company's insurance coverage. The note has an annual percentage rate of |
|
| |
| (4) | Includes two seller-financed notes payable, one for $ |
|
| |
| (5) | Includes vehicle and equipment loans with interest rates ranging from |
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| |
| (6) | The Company entered into a non-recourse agreement with C6 which was originated in November 2021 with a face amount of $
In April, 2022, the Company took out three non-recourse agreements with C6 Capital for the sale of future revenues in the combined amount of $ |
| (7) | On March 23, 2021, the Company completed a note payable agreement with an institutional investor with a face amount of $
On May 11, 2021, the Company completed a note payable agreement with the institutional investor with a face amount of $
On December 20, 2021, the Company completed a note payable agreement with the institutional investor with a face amount of $
On June 9, 2022, the Company completed a note payable agreement with the institutional investor with a face amount of $
On August 2, 2022, the Company completed a note payable agreement with the institutional investor with a face amount of $
On September 29, 2022, the Company completed a note payable agreement with the institutional investor with a face amount of $ |
| (8) | On August 18, 2022, the Company entered into a Prepaid Advance Agreement (the “PPA”) with YA II PN, Ltd., a Cayman Islands exempt limited partnership (“Yorkville”). In accordance with the terms of the PPA, the Company may request advances of up to $ |
| (9) | In October 2020, the Company entered into a conditional settlement agreement with a subcontractor to make payments of $ |
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| (10) | Represents Coax Fiber Solutions and Full Moon Telecom, LLC opening balance sheet loans to prior Coax Fiber Solutions and Full Moon Telecom, LLC owners. |
Line of Credit
On August 19, 2021, the Company's GTS subsidiary entered into a $
Debt Modifications
In the first quarter of 2022, the Company entered into a loan modification on the Front Line Seller Financed notes payable. In order to extend the maturity date of these loans from the original maturity date of May 16, 2022, the Company agreed to reduce the restriction period on the stock granted to one of the sellers from two years to one and guarantee a $
| 17. | CONCENTRATIONS |
The Company’s major product lines in 2021 and 2022 were electric power transmission and distribution maintenance and service, utility-scale solar construction projects and telecommunications maintenance and service.
The Company had the following revenue concentrations by customer greater than 10% of consolidated revenue:
| For the Three Months Ended September 30, | ||||||||
| Customer | 2022 | 2021 | ||||||
| Customer 1 | % | |||||||
| Customer 2 | % | |||||||
| Customer 3 | | % | ||||||
| Customer 4 | % | % | ||||||
| Customer 5 | % | |||||||
| Total concentrations | % | % | ||||||
| For the Nine Months Ended September 30, | ||||||||
| Customer | 2022 | 2021 | ||||||
| Customer 1 | % | |||||||
| Customer 2 | % | |||||||
| Customer 3 | % | |||||||
| Customer 4 | % | % | ||||||
| Total concentrations | % | % | ||||||
The Company did not have geographic revenue concentrations outside the U.S.A. greater than 10% of consolidated revenue.
The Company had the following gross trade accounts receivable concentrations by customer greater than 10% of gross trade accounts receivable:
| As of September 30, | As of December 31, | |||||||
| Customer | 2022 | 2021 | ||||||
| Customer 2 | % | % | ||||||
| Customer 4 | | % | ||||||
| Customer 5 | % | |||||||
| Customer 3 | % | |||||||
| Total concentrations | % | % | ||||||
The Company did not have geographic concentrations outside of the U.S.A. greater than 10% of gross trade accounts receivable.
For the three months ended September 30, 2022, the Company had supplier concentrations of approximately
| 18. | ACQUISITIONS |
Acquisition of Coax Fiber Solutions
Effective March 7, 2022, GTS, an OIG subsidiary included in the Telecommunications segment, entered into a share purchase agreement to acquire Coax Fiber Solutions (CFS), a Georgia based GDOT Certified contractor specializing in Aerial Installation, directional drilling, trenching, plowing, and missile crews for telecommunications, power, gas, water, CCTV, ATMS, and traffic signal cable installation. GTS paid $
Acquisition of IMMCO
Effective July 28, 2021, the Company entered into a share purchase agreement to acquire IMMCO, Inc., an Atlanta-based telecommunications company providing enterprise solutions to the cable and telecommunications industries since 1992. The acquisition was effectuated pursuant to the Share Purchase Agreement (the “Agreement”), with the shareholders of IMMCO (the "Seller"). Orbital Infrastructure Group paid $
The purchase consideration was as follows:
(in thousands)
| Purchase Consideration | ||||
| Cash payment | $ | |||
| Fair value of common stock issued to sellers | ||||
| Total | $ |
The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated preliminary fair values at the date of acquisition.
(in thousands)
| Purchase price | $ | |||
| Cash and cash equivalents | $ | |||
| Trade accounts receivable, net | ||||
| Contract assets | ||||
| Prepaid expenses and other current assets | ||||
| Property and equipment | ||||
| Intangible, customer relationships | ||||
| Intangible, trade name | ||||
| Intangible, technology know how | ||||
| Other long-term assets | ||||
| Deferred tax liability | ( | ) | ||
| Liabilities assumed | ( | ) | ||
| Net assets acquired | ||||
| Goodwill | ||||
| Purchase price allocation | $ |
| (in thousands) | ||||
| Revenue from July 28, 2021 acquisition date to September 30, 2021 | $ | |||
| Income from continuing operations, net of income taxes from July 28, 2021 acquisition date to September 30, 2021 | * |
* The deferred tax liability recorded at acquisition was offset against the Company's valuation allowance and recorded as a tax benefit in the nine months ended September 30, 2021 within the income tax benefit line of the Condensed Consolidated Statement of Operations and is included in the total.
Acquisition of Gibson Technical Services
Effective April 13, 2021, the Company entered into a share purchase agreement to acquire Gibson Technical Services, an Atlanta-based telecommunications company providing diversified telecommunications services nationally since 1990. The acquisition was effectuated pursuant to the Share Purchase Agreement (the “Agreement”), dated as of April 13, 2021, between Orbital Infrastructure Group and the shareholders of GTS (the "Seller"). Orbital Infrastructure Group paid $
The purchase consideration was as follows:
| (in thousands) | ||||
| Purchase Consideration | ||||
| Cash payment | $ | |||
| Fair value of common stock issued to sellers | ||||
| Total | $ |
The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated preliminary fair values at the date of acquisition.
| Purchase price | $ | |||
| Cash and cash equivalents | $ | |||
| Trade accounts receivable | ||||
| Contract assets | ||||
| Contingent receivable | ||||
| Prepaid expenses and other current assets | ||||
| Property and equipment | ||||
| Right of use assets - Operating leases | ||||
| Intangible, customer relationships | ||||
| Intangible, trade name | ||||
| Intangible, non-compete agreements | ||||
| Other long-term assets | ||||
| Deferred tax liability | ( | ) | ||
| Liabilities assumed | ( | ) | ||
| Net assets acquired | ||||
| Goodwill | ||||
| Purchase price allocation | $ |
| (in thousands) | ||||
| Revenue from April 13, 2021 acquisition date to September 30, 2021 | $ | |||
| Income from continuing operations, net of income taxes from April 13, 2021 acquisition date to September 30, 2021 | * |
* The deferred tax liability recorded at acquisition was offset against the Company's valuation allowance and recorded as a tax benefit in the nine months ended September 30, 2021 within the income tax benefit line of the Condensed Consolidated Statement of Operations and is included in the total.
The table below summarizes the unaudited condensed pro forma information of the results of operations of Orbital Infrastructure Group, Inc. for the three and nine months ended September 30, 2021 as though the acquisitions of GTS and IMMCO had been completed as of January 1, 2020.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30 | |||||||
| 2021 | 2021 | |||||||
| Gross revenue | $ | $ | ||||||
| Loss from continuing operations, net of income taxes | $ | ( | ) | $ | ( | ) | ||
| 19. | COMMITMENTS AND CONTINGENCIES |
Off-Balance Sheet Arrangements
Performance and Payment Bonds and Parent Guarantees
In the ordinary course of business, Orbital Infrastructure Group and its subsidiaries are required by certain customers to provide performance and payment bonds for contractual commitments related to their projects. These bonds provide a guarantee to the customer that the Company will perform under the terms of a contract and that the Company will pay its subcontractors and vendors. If the Company fails to perform under a contract or to pay its subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. The Company must reimburse the surety for expenses or outlays it incurs. Certain bonds are for open-ended contracts with multiple work orders so the value may increase as the work progresses and more work orders are started. The bonds will remain in place as the Company completes projects and resolves any disputed matters with the customers, vendors and subcontractors related to the bonded projects. As of September 30, 2022, the total amount of the outstanding performance and payment bonds was approximately $
Additionally, from time to time, we guarantee certain obligations and liabilities of our subsidiaries that may arise in connection with, among other things, contracts with customers, equipment lease obligations, and contractor licenses. These guarantees may cover all of the subsidiary’s unperformed, undischarged and unreleased obligations and liabilities under or in connection with the relevant agreement. For example, with respect to customer contracts, a guarantee may cover a variety of obligations and liabilities arising during the ordinary course of the subsidiary’s business or operations, including, among other things, warranty and breach of contract claims, third-party and environmental liabilities arising from the subsidiary’s work and for which it is responsible, liquidated damages, or indemnity claims.
Contingent Liabilities
Orbital Infrastructure Group, Inc. is occasionally party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, negligence or gross negligence and/or property damages, wage and hour and other employment-related damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief.
Regarding all lawsuits, claims and proceedings, Orbital Infrastructure Group, Inc. records a reserve when it is probable that a liability has been incurred and the loss can be reasonably estimated. In addition, Orbital Infrastructure Group, Inc. discloses matters for which management believes a material loss is at least reasonably possible. None of these proceedings are expected to have a material adverse effect on Orbital Infrastructure Group, Inc.’s consolidated financial position, results of operations or cash flows. In all instances, management has assessed the matter based on current information and made a judgment concerning its potential outcome, considering the nature of the claim, the amount and nature of damages sought and the probability of success. Management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties of litigation.
Financial Instrument Liabilities
Seller Financed debt - financial instrument
To the extent that the fair value of the shares of common stock previously issued to Tidal Power are less than $
Syndicated debt - subscription agreement financial instrument
To the extent that the Company issues shares of its common stock at a price less than the current reference price, the Company is obligated to issue additional shares to the syndicated lenders based on formulas included in their subscription agreements. When additional shares are issued to the lenders the reference price is reset. The reference price was $
| 20. | SUBSEQUENT EVENTS |
Orbital Solar Services potential liquidated damages.
On October 23, 2022, Orbital Solar Services had a project completion milestone due that was not met. Contractually, liquidated damages may be incurred at $
New home office facility lease
On October 6, 2022, the Company signed a lease for its new home office in Houston, Texas. The lease is for
Cured default on syndicated debt
In November 2022, The Company resolved a dispute with the Syndicated lenders whereby the Syndicated lenders deemed the Company to be in default of its credit agreement due to the Company using proceeds from Front Line Power's operations to pay down $
Extension of prepaid advance maturity date
The maturity date for the Company's prepaid advance, which had a fair value of $
Shares issued to lenders of the Company's syndicated debt as part of the Company's subscription agreement with those lenders
On November 7, 2022, the Company issued the lenders of the Company's syndicated debt an additional
| Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Important Note about Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements as of September 30, 2022 and notes thereto included in this document and the audited consolidated financial statements in the Company’s 10-K filing for the period ended December 31, 2021 and the notes thereto. In addition to historical information, the following discussion and other parts of this Form 10-Q contain forward-looking information that involves risks and uncertainties. The Company’s actual results could differ materially from those anticipated by such forward-looking information due to factors discussed elsewhere in this Form 10-Q.
The statements that are not historical constitute “forward-looking statements.” Said forward-looking statements involve risks and uncertainties that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements, express or implied by such forward-looking statements. These forward-looking statements are identified by their use of such terms and phrases as "expects,” “intends,” “goals,” “estimates,” “projects,” “plans,” “anticipates,” “should,” “future,” “believes,” and “scheduled.”
The variables which may cause differences include, but are not limited to, the following: general economic and business conditions; changes in regulatory environment; extraordinary external events such as the pandemic health event resulting from COVID-19; competition; success of operating initiatives; operating costs; advertising and promotional efforts; the existence or absence of adverse publicity; changes in business strategy or development plans; the ability to retain management; availability, terms and deployment of capital; business abilities and judgment of personnel; availability of qualified personnel; labor and employment benefit costs; availability and costs of raw materials and supplies; and changes in, or failure to comply with various government regulations. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate; therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any person that the objectives and expectations of the Company will be achieved.
Orbital Infrastructure Group is a diversified infrastructure services company serving customers in the electric power, telecommunications, and renewable markets. The Company is dedicated to maximizing shareholder value through greenfield development and the acquisition of, and investment in successful, entrepreneurial led companies to profitably grow revenues by providing end-to-end solutions to customers, primarily in the renewable, electric power transmission and distribution, and telecommunications infrastructure markets. The Company is organized in three segments. The Electric Power segment consists of Front Line Power Construction, LLC based in Houston, Texas, Orbital Power, Inc. based in Dallas, Texas, and Eclipse Foundation Group based in Gonzales, Louisiana. The segment provides comprehensive infrastructure solutions to customers in the electric power industry. Services performed by Front Line Power and Orbital Power, Inc. generally include but are not limited to the engineering, design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities as well as emergency restoration services. Eclipse Foundation Group, which began operations in January 2021, is a drilled shaft foundation construction company that specializes in providing services to the electric transmission and substation, industrial, telecommunication and disaster restoration market sectors, with expertise performing services in water, marsh and rock terrains. In the third quarter of 2022, in order to streamline operations, the Eclipse business was integrated into Front Line Power Construction, LLC, and ceased to be a separate business unit.
The Telecommunications segment consists of Gibson Technical Services (GTS) along with its subsidiaries IMMCO, Inc. based in Atlanta, Georgia and Full Moon Telecom, LLC based in Florida. GTS provides engineering, design, construction, and maintenance services to the broadband and wireless telecommunication industries and was acquired by the Company effective April 13, 2021. IMMCO, Inc. provides enterprise solutions to the cable and telecommunication industries and was acquired by the Company effective July 28, 2021. Full Moon Telecom, LLC provides telecommunication services including an extensive array of wireless service capabilities and was acquired by the Company effective October 22, 2021. Coax Fiber Solutions was acquired as of March 7, 2022, and is a Georgia based GDOT Certified contractor specializing in Aerial Installation, directional drilling, trenching, plowing, and missile crews for telecommunications, power, gas, water, CCTV, ATMS, and traffic signal cable installation.
Orbital Solar Services, LLC (OSS), based in Raleigh, North Carolina, makes up the Renewables segment. OSS provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility-scale solar construction.
The Company has experienced rapid growth through organic growth and acquisitions as the Company benefits from its 2021 investments and acquisitions and as the economy continues to emerge from the COVID-19 induced slowdown. Third quarter 2022 revenue was over four times greater than the Company's total revenue from the third quarter of 2021. Improved revenues and income were a result of the inclusion of operations from the November acquisition of Front Line Power Construction in the Electric Power segment and continued growth in the Telecommunications segment acquired in the three months ended June 30, 2021. The Company continues to pursue both organic growth and growth through acquisitions. The Company's Telecommunications segment made an additional "tuck-in" acquisition in the first quarter of 2022 for cash and stock consideration of approximately $0.9 million.
During the nine-month period ended September 30, 2022, the Company began to see tangible benefits for all segments from the investments the Company made in 2021 through improved revenue. These benefits were offset by sub-contractor labor and material cost over-runs at OSS's Black Bear project that is projected to be completed by the end of the year. The Company is in the midst of a reset of its solar business. The solar reset should not materially change the revenue mix in the near term. Given some of the recent legislation and executive order, solar projects that had been delayed are now likely to be opportunities in 2023 and beyond. As the Company moves away from providing engineering, procurement, and construction ("EPC") services to being a specialized contractor providing skilled resources to EPC companies, the Company will benefit from a reduced risk profile that comes with being an EPC, and margins will be enhanced as we will not share profits or losses with our joint venture partners as we are now required to do.
The Company's results were affected negatively in the first nine months of 2022 by the $29.4 million loss on extinguishment of debt primarily related to the Company's seller financed debt on the November 2021 Front Line Construction acquisition and stock-based payments made against its investor held debt for which the stock was issued at a discount to the stock's fair value.
In the third quarter of 2021, the Company incurred ramp-up costs in the Electric Power segment that put downward pressure on margins in the third quarter of 2021.The Company also incurred professional fees related to mergers and acquisitions as the Company finalized the acquisition of GTS. The three-month period ended September 30, 2021, for both segments were also negatively affected by generally lower economic activity due to the COVID-19 pandemic that caused economic slowdowns throughout the world.
For the three and nine months ended September 30, 2022, Orbital Infrastructure Group, Inc. had a consolidated loss from continuing operations of $141.6 million and $208.3 million, respectively, compared to a consolidated loss from continuing operations in the three and nine months ended September 30, 2021, of $9.5 million and $34.1 million, respectively.
During the nine months ended September 30, 2022, Orbital Infrastructure Group, Inc. had a consolidated net loss of $210.8 million compared to a consolidated net loss in the nine months ended September 30, 2021, of $36.3 million. The greater net loss for the nine months ended September 30, 2022, was primarily the result of impairments on goodwill, intangibles, and financing leased assets, the loss on extinguishment of debt related to the loan modification of the seller financed debt, and increased interest expense related to acquisitions financed by debt in the second half of 2021.
Revenues from continuing operations increased for the nine months ended September 30, 2022, due to the continued ramp-up of the Electric Power and Renewables segments along with the addition of the Telecommunications segment which was assembled via acquisitions starting in the second quarter of 2021 and continuing into 2022.
Continuing Results of Operations
The following tables set forth, for the period indicated, certain financial information regarding revenue and operating results by segment.
For the Three Months Ended September 30, 2022:
| (dollars in thousands) |
Electric Power |
Percent of Segment Revenues |
Telecommunications |
Percent of Segment Revenues |
Renewables |
Percent of Segment Revenues |
Other |
Percent of Segment Revenues |
Total |
Percent of Total Revenues |
||||||||||||||||||||||||||||||
| $ |
% |
$ |
% |
$ |
% |
$ |
% |
$ |
% |
|||||||||||||||||||||||||||||||
| Revenues |
$ | 36,732 | 100.0 | % | $ | 24,064 | 100.0 | % | $ | 39,026 | 100.0 | % | $ | — | — | % | $ | 99,822 | 100.0 | % | ||||||||||||||||||||
| Income (loss) from operations |
$ | (76,606 | ) | (208.6 | )% | $ | (23,213 | ) | (96.5 | )% | $ | (26,535 | ) | (68.0 | )% | $ | (2,356 | ) | — | % | $ | (128,710 | ) | (128.9 | )% | |||||||||||||||
| (dollars in thousands) |
Electric Power |
Percent of Segment Revenues |
Telecommunications |
Percent of Segment Revenues |
Renewables |
Percent of Segment Revenues |
Other |
Percent of Segment Revenues |
Total |
Percent of Total Revenues |
||||||||||||||||||||||||||||||
| $ |
% |
$ |
% |
$ |
% |
$ |
% |
$ |
% |
|||||||||||||||||||||||||||||||
| Revenues |
$ | 12,200 | 100.0 | % | $ | 8,742 | 100.0 | % | $ | 3,880 | 100.0 | % | $ | — | — | % | $ | 24,822 | 100.0 | % | ||||||||||||||||||||
| Loss from operations |
$ | (2,445 | ) | (20.0 | )% | $ | (436 | ) | (5.0 | )% | $ | (3,605 | ) | (92.9 | )% | $ | (4,364 | ) | — | % | $ | (10,850 | ) | (43.7 | )% | |||||||||||||||
For the Nine Months Ended September 30, 2022:
| (dollars in thousands) |
Electric Power |
Percent of Segment Revenues |
Telecommunications |
Percent of Segment Revenues |
Renewables |
Percent of Segment Revenues |
Other |
Percent of Segment Revenues |
Total |
Percent of Total Revenues |
||||||||||||||||||||||||||||||
| $ |
% |
$ |
% |
$ |
% |
$ |
% |
$ |
% |
|||||||||||||||||||||||||||||||
| Revenues |
$ | 117,695 | 100.0 | % | $ | 60,524 | 100.0 | % | $ | 85,770 | 100.0 | % | $ | — | — | % | $ | 263,989 | 100.0 | % | ||||||||||||||||||||
| Income (loss) from operations |
$ | (77,621 | ) | (66.0 | )% | $ | (21,662 | ) | (35.8 | )% | $ | (32,280 | ) | (37.6 | )% | $ | (6,642 | ) | — | % | $ | (138,205 | ) | (52.4 | )% | |||||||||||||||
For the Nine Months Ended September 30, 2021:
| (dollars in thousands) |
Electric Power |
Percent of Segment Revenues |
Telecommunications | Percent of Segment Revenues |
Renewables |
Percent of Segment Revenues |
Other |
Percent of Segment Revenues |
Total |
Percent of Total Revenues |
||||||||||||||||||||||||||||||
| $ |
% |
$ |
% |
$ |
% |
$ |
% |
$ |
% |
|||||||||||||||||||||||||||||||
| Revenues |
$ | 20,297 | 100.0 | % | $ | 14,816 | 100.0 | % | $ | 6,789 | 100.0 | % | $ | — | — | % | $ | 41,902 | 100.0 | % | ||||||||||||||||||||
| Loss from operations |
$ | (11,461 | ) | (56.5 | )% | $ | (1,185 | ) | (8.0 | )% | $ | (17,178 | ) | (253.0 | )% | $ | (14,243 | ) | — | % | $ | (44,067 | ) | (105.2 | )% | |||||||||||||||
Revenue
The revenues for the three and nine months ended September 30, 2022, increased compared to the 2021 comparable periods primarily due to the additions of the Telecommunications segment following the acquisitions of GTS in Q2 2021, IMMCO in Q3 2021, Full Moon in Q4 2021 and Coax Fiber Solutions, LLC in Q1 2022 along with the acquisition of Front Line Power Construction, LLC, included in the Company's Electric Power segment, added in Q4 2021. In addition, Orbital Power Inc. in the Electric Power segment has continued to ramp up operations in 2022. Renewables had significantly higher revenues in the three months ended September 30, 2022, on the strength of several large projects compared to the three months ended September 30, 2021, which was affected by supply chain issues and a general slow-down caused by the COVID-19 epidemic.
The Electric Power Segment held backlogs of customer orders of approximately $226.8 million as of September 30, 2022, and $207.7 million at December 31, 2021. The increase in backlog is generally due to timing of master service agreement renewals. The Telecommunications segment held backlogs of customer orders of approximately $209.2 million as of September 30, 2022, compared to a backlog of $194.5 million at December 31, 2021. Increases to the backlog are due to the continuous growth of Gibson Technical Services. The Renewables segment had a backlog of $36.3 million as of September 30, 2022 compared to $121.4 million as of December 31, 2021 which is due to further work being completed and revenue being recognized in the quarter on projects that make up this backlog. Of the September 30, 2022, backlog totals, the amounts expected to be recognized in the twelve months following Q3 2022 are approximately $265.9 million. The amounts expected to be recognized in the twelve months following Q3 2022 consist of $150.1 million from the Electric Power segment, $79.5 million from the Telecommunications segment and $36.3 million from the Renewables segment.
Cost of revenues
For the three months ended September 30, 2022, the cost of revenues as a percentage of revenue increased to 105.9% from 90.7% from the prior-year period primarily due to the significant cost overruns at the Black Bear solar project in the Renewables segment in the quarter. For the nine months ended September 30, 2022, the cost of revenues as a percentage of revenue decreased to 94.1% from 107.4% from the prior-year period. This decrease was primarily in the Electric Power segment and was attributable to ramp-up of revenues in the segment both organically and the addition of Front Line Power Construction and was partially offset by lower margins in the Renewables segment due to cost overruns in the Black Bear solar project. The Black Bear project had negative gross margins of $18.8 million and $22.2 million for the three and nine months ended September 30, 2022. At September 30, 2022, the Company had a loss provision of $3.8 million for estimated future losses on the Black Bear contract. Margin percentages will vary based upon the mix of projects including emergency response services, new crew onboarding costs, and the competitive markets in which the Company competes.
The three and nine months ended September 30, 2021 were affected by start-up costs at the Company's Orbital Power Services group, lower margin projects during the period for Orbital Solar Services and was also affected negatively by the COVID-19 pandemic and the resulting world-wide economic slowdown. Ramp-up costs included onboarding personnel, equipment and supplies in advance of projected work in order to obtain the necessary resources in a competitive market as the Company prepared for forward demand expectations. Additionally, adverse weather negatively impacted several Electric Power fixed price jobs in the first nine months of 2021.
The Company expects continued improvement in margins during the remainder of 2022 as the Electric Power segment continues to gain efficiencies and increase revenues, and the Telecommunications segment sees continued synergistic benefits from the acquisitions of GTS, IMMCO, Full Moon, and Coax Fiber Solutions.
Selling, General and Administrative Expenses
Selling, General and Administrative (SG&A) expenses include such items as wages, commissions, consulting, general office expenses, business promotion expenses and costs of being a public company, including legal and accounting fees, insurance and investor relations. SG&A expenses are generally associated with the ongoing activities to reach new customers, promote new product and service lines including for the Electric Power segment, Renewables segment, and Telecommunications segments.
During the three months ended September 30, 2022, SG&A increased $1.0 million compared to the three months ended September 30, 2021, primarily due to organic growth and the Company's 2021 and 2022 acquisitions. In the nine months ended September 30, 2022 SG&A decreased $3.7 million compared to the prior-year comparative periods. The decrease in SG&A for the nine month period was primarily due to decreased SG&A costs in the Renewables segment due to the $5.2 million restricted stock forfeiture related to a Renewables' Executive termination in Q1 2022 and higher stock-based compensation in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2022 due to the restricted stock vesting expense recorded in 2021 on the restricted stock that was subsequently forfeited in the first quarter of 2022. Also contributing to the decreased SG&A was lower executive bonuses in Q1 2022 and a $0.3 million positive cash settled SARS mark-to-market fair value adjustment in 2022 compared to a $2.5 million mark-to-market expense in the nine months ended September 30, 2021. These decreases were partially offset by increases in SG&A in the Electric Power and Telecommunications segments primarily due to organic growth and the Company's 2021 and 2022 acquisitions.
Impairments of goodwill and intangible assets
The Company recorded $100.3 million of impairments of goodwill and intangible assets in the three and nine months ended September 30, 2022 due to an additional 25-percent drop in the Company's stock price between June 30, 2022 and September 30, 2022, that caused an overall further decrease in the Company's market capitalization. Additional triggering events included the significant loss in the Renewables segment in the third quarter of 2022, interest rate increases and limitations on accessing capital, which raised substantial doubt regarding the Company’s ability to continue as a going concern. See Note 1 for more information on goodwill and goodwill impairments.
Restructuring Costs
In September 2022, the Company fully impaired its finance lease equipment related to the Eclipse Foundation Group in the Electric Power segment, which was integrated by Front Line Power. These pieces of equipment are drilling specific and at this time, the Company does not plan to use the equipment for the remaining term of the leases. As these leases are non-cancelable and do not include a sub-leasing option, the full finance lease assets related to Eclipse have been removed from the balance sheet and an equal impairment has been recognized in the amount of $4.5 million. Future payments related to these leases will be approximately $5.2 million paid through June 2026.
Depreciation and Amortization
(dollars in thousands)
| For the Three Months Ended |
||||||||||||||||
| Depreciation and amortization expense by Segment |
September 30, |
|||||||||||||||
| 2022 |
2021 |
$ Change |
% Change |
|||||||||||||
| Electric Power |
$ | 6,975 | $ | 1,095 | $ | 5,880 | 537.0 | % | ||||||||
| Telecommunications |
1,315 | 774 | 541 | 69.9 | % | |||||||||||
| Renewables |
608 | 614 | (6 | ) | (1.0 | )% | ||||||||||
| Other |
16 | 416 | (400 | ) | (96.2 | )% | ||||||||||
| Total depreciation and amortization |
$ | 8,914 | $ | 2,899 | $ | 6,015 | 207.5 | % | ||||||||
| For the Nine Months Ended |
||||||||||||||||
| Depreciation and amortization by Segment |
September 30, |
|||||||||||||||
| 2022 |
2021 |
$ Change |
% Change |
|||||||||||||
| Electric Power |
$ | 21,445 | $ | 1,944 | $ | 19,501 | 1003.1 | % | ||||||||
| Telecommunications |
3,582 | 1,389 | 2,193 | 157.9 | % | |||||||||||
| Renewables |
1,825 | 2,319 | (494 | ) | (21.3 | )% | ||||||||||
| Other |
47 | 1,281 | (1,234 | ) | (96.3 | )% | ||||||||||
| Total depreciation and amortization |
$ | 26,899 | $ | 6,933 | $ | 19,966 | 288.0 | % | ||||||||
Depreciation and amortization expenses are associated with depreciation on leasehold improvements, furniture, equipment, vehicles, and amortization of intangible assets over the estimated useful lives of the related assets.
Depreciation and amortization expense in the three and nine months ended September 30, 2022, were up compared to the three and nine months ended September 30, 2021, primarily due to additional amortization in the Electric Power and Telecommunication segments from acquisition intangibles that were acquired in the second, third and fourth quarter of 2021 and depreciation of equipment used by Orbital Power Services which had been ramping up their capital expenditures as more crews were added.
Gain (loss) on Extinguishment of debt
Loss on extinguishment of debt in the three and nine months ended September 30, 2022, was $1.1 million and $29.4 million, respectively. The loss included $26.2 million related to loan modifications on the Company's seller financed debt with the sellers of Front Line Power Construction recorded in the first two quarters of the year and approximately $1.1 million and 2.7 million loss on extinguishment in the three and nine months ended September 30, 2022, related to the payment of certain loans with stock-based payments for which the stock was issued at a discount to the stock's fair value. The loss on extinguishment on the seller financed debt was primarily related to financial instruments included in the first quarter 2022 loan modification. The loss on extinguishment also included $0.5 million from the paydown of two non-recourse agreements with C6 in the second quarter of 2022.
Gain on extinguishment of debt in the three and nine months ended September 30, 2021 of $0.7 million and $1.6 million was due to the forgiveness by the U.S. government of certain payroll protection loans in the three months ended September 30, 2021, partially offset by the loss on the extinguishment of debt due to the amendment to remove the convertible equity feature of its convertible debt and the earlier paydown of two non-recourse agreements with C6 during the nine months ended September 30, 2021.
Loss on financial instruments
Loss on financial instruments Include mark to market adjustment on financial instrument related to Syndicated debt in the amount of $4.4 million, $13.3 million related to the financial instrument embedded in the Front Line seller notes and $0.2 million related to the Company's prepaid advance agreement. See Note 12 for more information on these financial instruments.
Other Income (Expense), net
(dollars in thousands)
| For the Three Months Ended |
||||||||||||||||
| Other Income (Expense), net |
September 30, |
|||||||||||||||
| 2022 |
2021 |
$ Change |
% Change |
|||||||||||||
| Foreign exchange gain (loss) |
$ | 34 | $ | (380 | ) | $ | 414 | (108.9 | )% | |||||||
| Interest income |
20 | 82 | (62 | ) | (75.6 | )% | ||||||||||
| Rental income |
129 | 129 | — | 0.0 | % | |||||||||||
| Liquidated damages on debt |
(1,194 | ) | — | (1,194 | ) | 100.0 | % | |||||||||
| Other, net |
(117 | ) | (34 | ) | (83 | ) | 244.1 | % | ||||||||
| Total Other income (expense) |
$ | (1,128 | ) | $ | (203 | ) | $ | (925 | ) | 455.7 | % | |||||
| For the Nine Months Ended |
||||||||||||||||
| Other Income (Expense), net |
September 30, |
|||||||||||||||
| 2022 |
2021 |
$ Change |
% Change |
|||||||||||||
| Foreign exchange loss |
$ | (7 | ) | $ | (241 | ) | $ | 234 | (97.1 | )% | ||||||
| Interest income |
118 | 245 | (127 | ) | (51.8 | )% | ||||||||||
| Rental income |
488 | 372 | 116 | 31.2 | % | |||||||||||
| Liquidated damages on debt |
(2,271 | ) | — | (2,271 | ) | 100.0 | % | |||||||||
| Other, net |
(162 | ) | (6 | ) | (156 | ) | 2600.0 | % | ||||||||
| Total Other income (expense) |
$ | (1,834 | ) | $ | 370 | $ | (2,204 | ) | (595.7 | )% | ||||||
Other income (expense) changes contributing to increased expenses were liquidated damages incurred on the Company's investor held debt and less favorable foreign currency affects in 2022 compared to 2021. Losses were offset by greater rental income in the year-to-date period.
Interest Expense
For the three and nine months ended September 30, 2022, the Company incurred interest expense of $9.7 million and $27.6 million, respectively, compared to interest for the three and nine months ended September 30, 2021, of $1.3 million and $3.1 million, respectively. The increase in interest expense in 2022 is related to the increase in notes payable outstanding in the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021, primarily related to the Front Line Power Construction acquisition. Also contributing to the increase is the increase in the variable rate on the Company's $104.5 million Syndicated debt that increased from 13.50% at inception to 15.45% at September 30, 2022.
Income Tax Expense
The Company is subject to taxation in the U.S., various state and foreign jurisdictions. The Company continues to record a full valuation allowance against the Company's U.S. net deferred tax assets and partial valuation allowance against the Company’s Canada net deferred tax assets, as it is not more likely than not that the Company will realize a benefit from these assets in a future period.
For additional analysis, see Note 14, "Income Taxes," of the condensed consolidated financial statements in Part I - Item I, "Financial Statements."
Liquidity and Capital Resources
Company Conditions and Sources of Liquidity
The Company has experienced net losses, cash outflows from cash used in operating activities and a decline in share value over the past years. As of and for the nine months ended September 30, 2022, the Company had an accumulated deficit of $421.4 million, loss from continuing operations of $208.3 million, and net cash used in operating activities of $13.4 million. Further, as of September 30, 2022, the Company had a working capital deficit of $118.7 million, including current maturities of debt, and cash and cash equivalents of $28.0 million available for working capital needs and planned capital asset expenditures. As a result of the foregoing, the Company does not have sufficient liquidity and capital resources to meet its obligations and fund its operations for the twelve months following the issuance of these financial statements. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern.
The Company has plans to access additional capital to meet its obligations for the twelve months from the date these financial statements are available to be issued. Historically, the Company has raised additional equity and debt financing to fund its expansion; refer to Note 16 — Notes Payable and Line of Credit. The Company has also funded some of its capital expenditures through long-term financing with lenders and other investors as also described in further detail in Note 16 — Notes Payable and Line of Credit. Our ability to raise the additional capital is dependent on a number of factors, including, but not limited to, the market demand for our common stock, which itself is subject to a number of business risks and uncertainties, our creditworthiness and the uncertainty that we would be able to raise such additional capital at a price that is favorable to us. As of September 30, 2022, the Company has an effective S-3 shelf registration statement for the issuance of various types of securities, including common stock, preferred stock, debt securities and/or warrants in the aggregate of up to $68.8 million. In addition, although no formal agreements exist, the company has solicited interest from various lenders to potentially raise additional term debt to restructure or refinance its existing notes.
The Company plans to meet its obligations as they become due over the next twelve months by raising additional capital through equity and debt financing sources and forecasted positive cash flows generated from operations. There can be no assurance that the Company will succeed in executing these plans. If unsuccessful, the Company will not have sufficient liquidity and capital resources to repay its indebtedness when it matures, or otherwise meet its cash requirements over the next twelve months, as noted above.
General
As of September 30, 2022, the Company held cash and cash equivalents of $28.0 million and restricted cash of $0.6 million. Operations, investments, and equipment have been funded through cash on hand, the issuance of common stock authorized by its July 2020 and February 2021 S-3 filings, seller financing, and the issuance of debt and financing through the sale of future revenues. The Company filed an S-3 in February of 2021 which became effective in April 2021 for the issuance of additional stock or public debt. In April 2022, the Company issued 9,000,000 shares of common stock and pre-funded warrants to purchase up to 7,153,847 shares of Common Stock for a total raise of $21.0 million before expenses. In August of 2021, the Company opened a $4.0 million dollar line of credit to support additional funding. Major uses of cash in the first nine months of 2022 included the purchases of property and equipment, debt payments and changes in working capital. The Company continues to work to improve its short-term liquidity through management of its working capital. Long-term liquidity is expected to benefit from revenue growth and earnings through its existing operations. Overall volume growth in the Company's businesses both organically and through acquisitions are expected to benefit cash flows as well.
Cash Used in Operations
Cash used in operations of $13.4 million was a $23.5 million decrease in cash used compared to the nine-month period in 2021.
The decrease in uses of cash in the first nine months of 2022 are primarily related to higher merger and acquisition costs in the first quarter of 2021 as compared to 2022 along with company growth in 2022. Due to the large increase in revenue and associated costs both through acquisitions and organic growth, the Company was better able to cover it's fixed costs, but increased interest costs partially offset the benefits of much greater sales. Also, with the growth of the company's revenue comes increased accounts receivables and accounts payable, which outside of timing, generally have offsetting cash flow effects. In the short-term, rapid growth can have a detrimental effect on cash flows as sales on account with positive gross margins waiting to be collected exceed accounts payable not yet paid. As the Company's growth begins to moderate, overall cash used in operations will continue to improve through revenue growth associated with new customers and larger projects. The change in cash used in operating activities since December 31, 2021, exclusive of net loss, is primarily the result of the following line items: Timing of cash payments on accounts payable and accrued liabilities was a combined $36.9 million increase in cash provided by operating activities related to larger projects at Orbital Solar Services. Changes in cost in excess of billing and accounts receivable from December 31, 2021, was a combined $14.5 million use of cash for the period and reflects the greater revenue volumes in the first nine months of 2022 compared to the first nine months of 2021.
S-3 registration
The Company filed an S-3 registration statement on July 17, 2020, containing a prospectus that was effective in September 2020. The Company utilized this filing in January 2021 to issue common stock for $45 million before costs. The Company filed a new S-3 shelf registration in January 2021, which, as amended, became effective in April 2021. With this filing, Orbital Infrastructure Group may from time-to-time issue various types of securities, including common stock, preferred stock, debt securities and/or warrants, up to an aggregate amount of $150 million. The Company utilized this S-3 registration to issue additional common stock in July 2021 for $38 million before expenses. In May 2022, the Company utilized the S-3 to issue shares and prefunded warrants for $21.0 million and additional warrants with a cumulative exercise value of $21.2 million. The Company has approximately $68.8 million remaining available to issue additional securities from its shelf registration.
As the Company focuses on growing its infrastructure services market presence both organically and through strategic acquisitions, technology development, product and service line additions, and increasing Orbital’s market presence, it will fund these activities together with related operating, sales and marketing efforts for its various product and service offerings with cash on hand, and possible proceeds from future issuances of equity through the S-3 registration statement, and available debt.
Orbital Infrastructure Group may raise additional capital needed to fund the further development and marketing of its products and services as well as payment of its debt obligations.
See the section entitled Recent Sales of Unregistered Securities for a complete listing of all unregistered securities transactions.
Capital Expenditures and Investments
During the first nine months of 2022 and 2021, Orbital Infrastructure Group invested $3.7 million and $6.6 million, respectively, in property and equipment. These investments typically include additions to equipment including vehicles and equipment for powerline service and maintenance, engineering, furniture, computer equipment for office personnel, facilities improvements and other fixed assets as needed for operations. In addition, during the nine months ended September 30, 2022, the Company had collections from a notes receivable of $3.5 million related to the sale of the Company's electromechanical business in 2019.
Financing Activities
In the nine months ended September 30, 2022, the Company made cash payments on notes payable of $35.5 million and had proceeds from notes payable of $41.2 million, respectively. This compared to $19.4 million of proceeds from notes payable and $7.5 million of payments on notes payable in the nine months ended September 30, 2021. The Company also received $3.5 million in proceeds from their line of credit and made $2.0 million in payments on this line of credit in 2022 compared to $0.4 million paid in the first nine months of 2021 to close its line of credit that was acquired with the Orbital Solar Services business. In the nine months ended September 30, 2022, and 2021 the Company recorded payments on finance lease obligations of $3.8 million and $0.9 million dollars, respectively.
Recap of Liquidity and Capital Resources
At September 30, 2022, the Company had unrestricted cash and cash equivalents balances of $28.0 million of which $2.5 million is covered by insured deposit programs. At September 30, 2022, the Company had $0.6 million of restricted cash and cash equivalents balances at domestic financial institutions including $0.4 million that is covered under the FDIC insured deposits programs.
The Company expects the revenues from its continuing operations, and cash on hand, to cover operating and other expenses for the next twelve months of operations. However, in the short-term, the Company expects to continue to need cash support as the Company's businesses increase their market positions and revenue. The Company may issue additional debt or equity to support continuing operations and acquisition efforts in the remaining months of 2022.
Critical Accounting Policies
The Company has adopted various accounting policies to prepare the consolidated financial statements in accordance with Generally Accepted Accounting Principles, ("GAAP"). Certain of the Company's accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. In the Company's 2021 Annual Report on Form 10-K filed on March 31, 2022, the Company identified the critical accounting policies that affect the Company's more significant estimates and assumptions used in preparing the Company's consolidated financial statements.
Recent Accounting Pronouncements
See Note 11 Recent Accounting Pronouncements of the condensed consolidated financial statements in Part I—Item I, “Financial Statements” for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial position, results of operations and cash flows.
Off-Balance Sheet Arrangements
See Note 19 Commitments and Contingencies of the condensed consolidated financial statements in Part I—Item I, “Financial Statements” for a description of the Company's off-balance sheet arrangements.
| Quantitative and Qualitative Disclosure about Market Risk. |
The Company is exposed to market risk in the ordinary course of business. Market risk represents the risk of loss that may impact the Company’s financial position due to adverse changes in financial market prices and rates. This market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. The Company neither holds nor issues financial instruments for trading purposes.
Investment Risk
The Company has an Investment Policy that, inter alia, provides an internal control structure that takes into consideration safety (credit risk and interest rate risk), liquidity and yield. Our Investment officers, CEO and CFO, oversee the investment portfolio and compile a quarterly analysis of the investment portfolio when applicable for internal use. In addition, the Company has an Investment Committee to administer and operate the portfolio. At September 30, 2022, the Investment Committee is comprised of C. Stephen Cochennet, Corey A. Lambrecht, Chairman, and Nicholas M. Grindstaff, CFO.
Cash and cash equivalents are diversified and maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit, therefore, bear minimal credit risk.
The Company has trade receivable and revenue concentrations with large customers. See Note 17 of the Company's financial statements for more information on the Company's concentration risks.
| Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief Executive Officer (CEO) and its Chief Financial Officer (CFO), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. In designing and evaluating the Company’s disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company’s management is required to apply their judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, the Company's management, including the CEO and the CFO, concluded that, as of September 30, 2022, the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) or Rule 15d-15(f) of the Exchange Act) during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Orbital Infrastructure Group, Inc. is occasionally party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, negligence or gross negligence and/or property damages, wage and hour and other employment-related damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief.
Regarding all lawsuits, claims and proceedings, Orbital Infrastructure Group, Inc. records a reserve when it is probable that a liability has been incurred and the loss can be reasonably estimated. The Company currently has no such reserves. In addition, Orbital Infrastructure Group, Inc. discloses matters for which management believes a material loss is at least reasonably possible. None of these proceedings are expected to have a material adverse effect on Orbital Infrastructure Group, Inc.’s consolidated financial position, results of operations or cash flows. In all instances, management has assessed the matter based on current information and made a judgment concerning its potential outcome, considering the nature of the claim, the amount and nature of damages sought and the probability of success. Management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties of litigation.
The Company recently filed and served a federal civil complaint in the United States District Court for the Northern District of Texas – Dallas Division against the former owner of Reach Construction Group LLC (“Reach”). The complaint alleges, among other things, misrepresentations and misconduct committed by the former owner in conjunction with the purchase and sale of Reach to Orbital Infrastructure Group, Inc. Based on the information and evidence contained in the complaint, the Company reasonably believes that it owes no more compensation to the former owner and is seeking return of certain funds already paid and relief of certain debt and accruals currently on the balance sheet.
There are no material changes from Risk Factors as previously disclosed in the Company’s Form 10-K filed with the Commission on March 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Common Stock Issued.
During the nine months ended September 30, 2022, the Company issued the following shares of common stock, which were not registered under the Securities Act. The Company relied on Section 4(2) of the Securities Act of 1933 as the basis for an exemption from registration for the following issuances.
| Date of issuance |
Type of issuance |
Stock issuance recipient |
Reason for issuance |
Total no. of shares |
Grant date fair value recorded at issuance and periodic vesting (in thousands) |
|||||||||||||||
| January, April 2022 |
Common stock |
Consultant |
Services |
117,320 | $ | 212 | ||||||||||||||
| January, February, March, April, May, June, July, August, September 2022 |
Common stock |
Institutional investor |
Debt payment |
14,286,090 | 14,048 | |||||||||||||||
| February 2022 |
Common stock |
1 Syndicated debt lender |
Portion of original issue discount on $105 million credit facility * |
54,026 | — | |||||||||||||||
| June and September 2022 |
Common stock | Syndicated debt lenders | Shares issued to lenders as part of amended and restated subscription agreement | 8,284,360 | 4,361 | |||||||||||||||
| Total other equity transactions |
22,741,796 | $ | 18,621 | |||||||||||||||||
* These shares were issuable as of November 17, 2021 and were recorded as part of additional paid in capital prior to issuance.
Cured default on syndicated debt
On November 7, 2022, The Company resolved a dispute with the Syndicated lenders whereby the Syndicated lenders deemed the Company to be in default of its credit agreement due to the Company using proceeds from Front Line Power's operations to pay down $9.5 million of the Company's working capital adjustment with the sellers of Front Line Power. As part of a consent agreement with the lenders, the Company agreed to pay the lenders in a paid-in-kind amount of $10.5 million, which was added to the Syndicated debt balance and included $1.0 million of interest calculated from the first intercompany advance that the Company made. See Exhibit 10.139 for the consent agreement.
The following exhibits are included as part of this Form 10-Q.
| Exhibit No. |
Description |
| 10.136 1 | Home Office lease dated October 5, 2022 by and between Franklin Post Oak, Ltd and Orbital Infrastructure Group, Inc. |
| 10.137 1 | Executive Long Term Retention Equity Award Agreement by Orbital Infrastructure Group, Inc. and William J. Clough |
| 10.138 1 | Executive Long Term Retention Equity Award Agreement by Orbital Infrastructure Group, Inc and James F. O'Neil |
| 10.139 1 | Limited Consent to Credit Agreement between Alter Domus LLC, Front Line Power Construction LLC and Orbital Infrastructure Group, Inc. |
| 31.1 1 |
|
| 31.2 1 |
|
| 32.1 1 |
|
| 32.2 1 |
|
| 101.INS 1 |
Inline XBRL Instance Document |
| 101.SCH 1 |
Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL 1 |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF 1 |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB 1 |
Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE 1 |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Footnotes to Exhibits:
1Filed herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Signed and submitted this 14th day of November 2022.
| Orbital Infrastructure Group, Inc. |
|||
| By: |
/s/ James F. O'Neil |
||
| James F. O'Neil, |
|||
| Chief Executive Officer |
|||
| (Principal Executive Officer) |
|||
| By: |
/s/ Nicholas M. Grindstaff |
||
| Nicholas M. Grindstaff, |
|||
| Chief Financial Officer |
|||
| (Principal Financial Officer) |
|||
ATTACHMENTS / EXHIBITS
EXHIBIT 10.137 - EXECUTIVE LONG TERM RETENTION EQUITY AWARD AGREEMENT - CLOUGH
EXHIBIT 10.138 - EXECUTIVE LONG TERM RETENTION EQUITY AWARD AGREEMENT - O'NEIL
EXHIBIT 10.139 - LIMITED CONSENT TO CREDIT AGREEMENT
XBRL TAXONOMY EXTENSION SCHEMA
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
XBRL TAXONOMY EXTENSION LABEL LINKBASE
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