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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2022

or

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

For the transition period from                 to                

Commission File No. 001-16501

Graphic

Williams Industrial Services Group Inc.

(Exact name of registrant as specified in its charter)

Delaware

73-1541378

(State or other jurisdiction of
incorporation or organization)

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

200 Ashford Center North, Suite 425

Atlanta, GA 30338

(Address of principal executive offices) (Zip code)

(770) 879-4400

(Registrant’s telephone number, including area code)

N/A

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

WLMS

NYSE American

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of November 7, 2022, there were 26,422,761 shares of common stock of Williams Industrial Services Group Inc. outstanding.

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

Table of Contents

Part I—FINANCIAL INFORMATION

2

Item 1. Financial Statements

2

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)

2

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)

3

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)

4

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)

5

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)

6

Notes to Condensed Consolidated Financial Statements (unaudited)

7

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

25

Item 3. Quantitative and Qualitative Disclosures about Market Risk

34

Item 4. Controls and Procedures

35

Part II—OTHER INFORMATION

Item 1. Legal Proceedings

36

Item 1A. Risk Factors

36

Item 6. Exhibits

37

SIGNATURES

38

1

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements.

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)

September 30, 2022

  

December 31, 2021

ASSETS

  

  

Current assets:

Cash and cash equivalents

$

1,013

$

2,482

Restricted cash

 

468

 

468

Accounts receivable, net of allowance of $318 and $427, respectively

 

37,339

 

35,204

Contract assets

 

10,076

 

12,683

Other current assets

 

10,675

 

11,049

Total current assets

 

59,571

 

61,886

Property, plant, and equipment, net

 

1,016

 

653

Goodwill

 

35,400

 

35,400

Intangible assets

 

12,500

 

12,500

Other long-term assets

 

7,732

 

5,712

Total assets

$

116,219

$

116,151

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

11,732

$

12,168

Accrued compensation and benefits

 

14,312

 

12,388

Contract liabilities

 

3,440

 

3,412

Short-term borrowings

14,525

676

Current portion of long-term debt

1,050

1,050

Other current liabilities

 

4,630

 

11,017

Current liabilities of discontinued operations

106

316

Total current liabilities

 

49,795

 

41,027

Long-term debt, net (Note 9)

 

21,809

 

30,328

Deferred tax liabilities

2,263

2,442

Other long-term liabilities

 

4,440

 

1,647

Long-term liabilities of discontinued operations

3,513

4,250

Total liabilities

 

81,820

 

79,694

Commitments and contingencies (Note 11)

Stockholders’ equity:

Common stock, $0.01 par value, 170,000,000 shares authorized and 26,865,064 and 26,408,789 shares issued, respectively, and 26,422,761 and 25,939,621 shares outstanding, respectively

 

264

 

261

Paid-in capital

 

93,705

 

92,227

Accumulated other comprehensive loss

 

(440)

 

(95)

Accumulated deficit

 

(59,124)

 

(55,930)

Treasury stock, at par (442,303 and 469,168 common shares, respectively)

 

(6)

 

(6)

Total stockholders’ equity

 

34,399

 

36,457

Total liabilities and stockholders’ equity

$

116,219

$

116,151

See accompanying notes to condensed consolidated financial statements.

2

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share data)

  

2022

  

2021

2022

  

2021

Revenue

$

56,685

$

73,351

$

182,303

$

225,773

Cost of revenue

55,936

66,590

173,564

203,561

 Gross profit

749

6,761

8,739

22,212

Selling and marketing expenses

322

267

1,054

709

General and administrative expenses

6,657

4,248

19,022

16,931

Depreciation and amortization expense

61

50

173

137

Total operating expenses

7,040

4,565

20,249

17,777

Operating income (loss)

(6,291)

2,196

(11,510)

4,435

Interest expense, net

1,485

1,227

3,965

3,733

Other (income) expense, net

(11,114)

181

(11,533)

(1,411)

Total other (income) expense, net

(9,629)

1,408

(7,568)

2,322

Income (loss) from continuing operations before income tax

3,338

788

(3,942)

2,113

Income tax expense (benefit)

(272)

(6)

(214)

256

Income (loss) from continuing operations

3,610

794

(3,728)

1,857

Income (loss) from discontinued operations before income tax

(45)

(34)

(92)

130

Income tax expense (benefit)

(3)

22

(626)

59

Income (loss) from discontinued operations

(42)

(56)

534

71

Net income (loss)

$

3,568

$

738

$

(3,194)

$

1,928

Basic income (loss) per common share

Income (loss) from continuing operations

$

0.14

$

0.03

$

(0.14)

$

0.07

Income (loss) from discontinued operations

(0.00)

0.02

0.00

Basic income (loss) per common share

$

0.14

$

0.03

$

(0.12)

$

0.07

Diluted income (loss) per common share

Income (loss) from continuing operations

$

0.14

$

0.03

$

(0.14)

$

0.07

Income (loss) from discontinued operations

(0.01)

(0.00)

0.02

0.00

Diluted income (loss) per common share

$

0.13

$

0.03

$

(0.12)

$

0.07

See accompanying notes to condensed consolidated financial statements.

3

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2022

  

2021

2022

  

2021

Net income (loss)

$

3,568

$

738

$

(3,194)

$

1,928

Foreign currency translation adjustment

 

(318)

 

(98)

 

(345)

 

(64)

Comprehensive income (loss)

$

3,250

$

640

$

(3,539)

$

1,864

See accompanying notes to condensed consolidated financial statements.

4

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Accumulated

Common Shares

Other

$0.01 Per Share

Paid-in

Comprehensive

Accumulated

Treasury Shares

(in thousands, except share data)

  

Shares

  

Amount

  

Capital

  

Income (Loss)

  

Deficit

  

Shares

  

Amount

  

Total

Balance, December 31, 2020

25,926,333

$

256

$

90,292

$

28

$

(58,673)

(589,891)

$

(8)

$

31,895

Restricted stock awards granted

164,388

Restricted stock units vested

274,448

4

120,723

2

6

Tax withholding on restricted stock units

(545)

(545)

Stock-based compensation

625

625

Foreign currency translation

4

4

Net loss

(1,681)

(1,681)

Balance, March 31, 2021

26,365,169

$

260

$

90,372

$

32

$

(60,354)

(469,168)

$

(6)

$

30,304

Restricted stock units vested

19,501

Tax withholding on restricted stock units

40

40

Stock-based compensation

424

424

Foreign currency translation

30

30

Net income

2,871

2,871

Balance, June 30, 2021

26,384,670

$

260

$

90,836

$

62

$

(57,483)

(469,168)

$

(6)

$

33,669

Stock-based compensation

834

834

Foreign currency translation

(98)

(98)

Net income

738

738

Balance, September 30, 2021

26,384,670

$

260

$

91,670

$

(36)

$

(56,745)

(469,168)

$

(6)

$

35,143

Accumulated

Common Shares

Other

$0.01 Per Share

Paid-in

Comprehensive

Accumulated

Treasury Shares

(in thousands, except share data)

  

Shares

  

Amount

  

Capital

  

Income (Loss)

  

Deficit

  

Shares

  

Amount

  

Total

Balance, December 31, 2021

26,408,789

$

261

$

92,227

$

(95)

$

(55,930)

(469,168)

$

(6)

$

36,457

Restricted stock awards granted

291,894

Stock-based compensation

(147)

(147)

Foreign currency translation

142

142

Net loss

(2,044)

(2,044)

Balance, March 31, 2022

26,700,683

$

261

$

92,080

$

47

$

(57,974)

(469,168)

$

(6)

$

34,408

Restricted stock units vested

169,255

26,865

Tax withholding on restricted stock units

2

(165)

(163)

Stock-based compensation

1,293

1,293

Foreign currency translation

(169)

(169)

Net loss

(4,718)

(4,718)

Balance, June 30, 2022

26,869,938

$

263

$

93,208

$

(122)

$

(62,692)

(442,303)

$

(6)

$

30,651

Restricted stock units forfeited

(4,874)

Tax withholding on restricted stock units

1

3

4

Stock-based compensation

494

494

Foreign currency translation

(318)

(318)

Net income

3,568

3,568

Balance, September 30, 2022

26,865,064

$

264

$

93,705

$

(440)

$

(59,124)

(442,303)

$

(6)

$

34,399

See accompanying notes to condensed consolidated financial statements.

5

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30,

(in thousands)

2022

  

2021

Operating activities:

Net income (loss)

$

(3,194)

$

1,928

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

Net income from discontinued operations

(534)

(71)

Deferred income tax benefit

(178)

(304)

Depreciation and amortization on plant, property, and equipment

173

137

Amortization of deferred financing costs

636

623

Amortization of debt discount

150

150

Bad debt expense

(26)

(123)

Stock-based compensation

1,120

2,579

Changes in operating assets and liabilities:

Accounts receivable

(2,551)

(11,896)

Contract assets

2,547

(4,824)

Other current assets

2

(5,113)

Other assets

(2,202)

(214)

Accounts payable

(331)

2,121

Accrued and other liabilities

(692)

6,628

Contract liabilities

29

(39)

Net cash used in operating activities, continuing operations

(5,051)

(8,418)

Net cash used in operating activities, discontinued operations

(413)

(348)

Net cash used in operating activities

(5,464)

(8,766)

Investing activities:

Purchase of property, plant, and equipment

(536)

(537)

Net cash used in investing activities

(536)

(537)

Financing activities:

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

(159)

(501)

Debt issuance costs

(175)

Proceeds from short-term borrowings

211,875

208,421

Repayments of short-term borrowings

(198,026)

(204,101)

Repayments of long-term debt

(8,844)

(788)

Net cash provided by financing activities

4,671

3,031

Effect of exchange rate change on cash

(140)

112

Net change in cash, cash equivalents and restricted cash

(1,469)

(6,160)

Cash, cash equivalents and restricted cash, beginning of period

2,950

9,184

Cash, cash equivalents and restricted cash, end of period

$

1,481

$

3,024

Supplemental Disclosures:

Cash paid for interest

$

2,778

$

2,781

Cash paid for income taxes, net of refunds

$

$

1,841

See accompanying notes to condensed consolidated financial statements.

6

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1—BUSINESS AND BASIS OF PRESENTATION

Business

Williams Industrial Services Group Inc. (together with its wholly owned subsidiaries, “Williams,” the “Company,” “we,” “us” or “our,” unless the context indicates otherwise) was initially formed in 1998 as GEEG Inc., a Delaware corporation, and in 2001 changed its name to “Global Power Equipment Group Inc.,” and, as part of a reorganization, became the successor to GEEG Holdings, L.L.C., a Delaware limited liability company. Effective June 29, 2018, the Company changed its name to Williams Industrial Services Group Inc. to better align its name with the Williams business, and the Company’s stock trades on the NYSE American LLC under the ticker symbol “WLMS.” Williams has been safely helping power plant owners and operators enhance asset value for more than 50 years. It provides a broad range of construction, maintenance, and support services to infrastructure customers in energy, power, and industrial end markets. The Company’s mission is to be the preferred provider of construction, maintenance, and specialty services through commitment to superior safety performance, focus on innovation, and dedication to delivering unsurpassed value to its customers.

Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) on a basis consistent with that used in the Annual Report on Form 10-K for the year ended December 31, 2021, filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on March 16, 2022 (the “2021 Report”). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, including all normal recurring adjustments, necessary to present fairly the unaudited condensed consolidated balance sheets and statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the periods indicated. All significant intercompany transactions have been eliminated. The December 31, 2021 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. These unaudited condensed consolidated interim financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the 2021 Report. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for any interim period are not necessarily indicative of operations to be expected for the full year.

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

Reporting Interim Period

Fiscal Interim Period

  

2022

  

2021

Three Months Ended March 31

January 1, 2022 to April 3, 2022

January 1, 2021 to April 4, 2021

Three Months Ended June 30

April 4, 2022 to July 3, 2022

April 5, 2021 to July 4, 2021

Three Months Ended September 30

July 4, 2022 to October 2, 2022

July 5, 2021 to October 3, 2021

7

NOTE 2—LIQUIDITY

As noted above, the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and on a basis consistent with the 2021 Report, which contemplates that the Company will continue to operate as a going concern, which means that it will be able to meet its obligations and continue its operations during the twelve-month period following the issuance of this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2022 (this “Form 10-Q”).  Therefore, these financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

The Company had negative cash flows from operations during the nine months ended September 30, 2022.  These negative cash flows were primarily a consequence of the four factors described in the paragraph below.  

In connection with the preparation of the accompanying unaudited condensed consolidated financial statements, management assessed the Company’s financial condition and concluded that the following primary factors, taken in the aggregate, raised substantial doubt regarding the Company’s ability to continue as a going concern for the twelve-month period following the issuance of this Form 10-Q.

Significant losses incurred on a number of fixed price contracts in our Florida water business, which have been the subject of prior disclosures.
Start-up costs related to the Company’s entry into the transmission and distribution market, which have utilized cash resources and, while ultimately anticipated to benefit the Company’s business, have negatively impacted liquidity.
Failure to convert pipeline opportunities into revenue, which have had the effect of delaying the Company’s receipt of cash from such opportunities.
Delays in collecting cash receipts from customers.

To address the negative cash flows in the Company’s business, the Company has developed a liquidity plan, the implementation of which management believes will alleviate the substantial doubt about the Company’s ability to continue as a going concern during the twelve-month period following the issuance of this Form 10-Q.  The liquidity plan, which will continue to be refined as circumstances dictate, contemplates the following key elements, in which the Company will:

Take steps to enhance profitability of non-performing businesses;
Lower the cost of services by removing nonbillable expenses that cannot be recovered;
Aggressively reduce operating expenses; and
Shorten the collection cycle time on the Company’s accounts receivable and lengthen the payment cycle time on its accounts payable.

On August 3, 2022, as a result of the Company being unable to comply with its debt covenants as of June 30, 2022, the Company amended its existing Revolving Credit Agreement and the Term Loan Agreement (as defined below), which among other things, amended the calculation of EBITDA (as defined in the Revolving Credit Agreement), and Consolidated EBITDA (as defined in the Term Loan Agreement) to include (or “add back”) certain non-recurring losses and expenses relating to projects executed in Jacksonville, Florida, one-time costs and expenses incurred in connection with the Company’s transmission and distribution business unit start-up, and costs and expenses arising out of the Company’s litigation with a former executive and his employer (in each case, subject to certain specified dollar limits), as well as to amend and increase the Total Leverage Ratio (as defined in the Term Loan Agreement) applicable to the Company for certain periods. For additional information regarding the amendments, see “Note 9—Debt.”

8

While the above-mentioned factors have negatively affected the Company’s liquidity, there were two developments in the third and fourth quarter of 2022 that resulted in material cash receipts by the Company.  Specifically, the Company settled two legal claims.  The first such settlement involved a cash collection in the third quarter of 2022 of approximately $8.1 million related to an arbitration proceeding initiated by the Company against a third party in connection with the restatement of the Company’s financial statements in 2017 for the 2012 to 2014 period.  The second matter, settled in the fourth quarter of 2022, involved litigation against a former executive and his employer that resulted in the employer of the former executive agreeing to pay a cash settlement of $2.7 million.  The Company recognized both settlements as other income during the third quarter of 2022. The $8.1 million settlement proceeds were used to prepay part of the Company’s Term Loan and the $2.7 million settlement, which was collected on October 13, 2022, was used to repay a portion of the Revolving Credit Facility.  As a result, the full amount of these settlement receipts could not be used for general working capital purposes and did not materially affect the Company’s liquidity.  For additional information about the arbitration and legal settlements, please refer to “Note 9—Debt” and “Note 14—Subsequent Events” to the unaudited condensed consolidated financial statements included in this Form 10-Q.

In the first nine months of 2022, the Company’s principal sources of liquidity were borrowings under the Revolving Credit Facility and efforts to effectively manage its working capital.  The Company anticipates that this will continue to be the case in the fourth quarter of 2022, subject to the anticipated benefits of the liquidity plan outlined above.  The Company continues to monitor its liquidity and capital resources closely. If market conditions were to change, and revenue is reduced or operating costs either increased or could not be reduced as contemplated by the Company’s liquidity plan, cash flows and liquidity could be materially negatively impacted.

While management believes its liquidity plan alleviates the substantial doubt regarding the Company’s ability to continue as a going concern during the ensuing twelve-month period, the Company cannot provide any assurance that it will be able to implement its liquidity plan successfully or, even if successfully implemented, that the plan will ultimately result in the Company continuing as a going concern. In addition, the Company could be unable to meet its obligations under its existing indebtedness, including failing to comply with any of its covenants. If any such failures are not waived by the Company’s lenders, it would result in an event of default under such indebtedness and the potential acceleration of outstanding indebtedness thereunder and the potential foreclosure on the collateral securing such debt, and would likely cause a cross-default under the Company’s other outstanding indebtedness. If the liquidity plan does not have the intended effect, the Company may need to seek relief from the Company’s lenders or take steps to raise additional capital, such as selling equity or debt securities or entering into additional borrowing arrangements, to sustain operations, which may not be available on favorable terms, or at all, in which case the Company will be required to pursue other alternatives, which may include selling assets, selling or merging its business, ceasing operations or filing a petition for bankruptcy (either liquidation or reorganization) under applicable bankruptcy laws.

NOTE 3—RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

The Company did not implement any new accounting pronouncements during the first nine months of 2022. However, the Company is currently evaluating the impact of future disclosures that may arise under recent SEC proposals.

NOTE 4—LEASES

The Company primarily leases office space and related equipment, as well as equipment, modular units and vehicles directly used in providing services to its customers. The Company’s leases have remaining lease terms of one to ten years. Most leases contain renewal options for varying periods, which are at the Company’s sole discretion and included in the expected lease term if they are reasonably certain of being exercised. In accordance with ASU 2016-02, the Company accounts for lease components, such as fixed payments including rent, real estate taxes, and insurance costs, separately from the non-lease components, such as common area maintenance costs.

In accordance with ASU 2016-02, for leases with terms greater than twelve months, the Company records the related right-of-use assets and lease liabilities at the present value of the fixed lease payments over the lease term at the lease commencement date. The Company uses its incremental borrowing rate to determine the present value of the lease as the rate implicit in the lease is typically not readily determinable.

9

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

On September 2, 2021, the Company made the decision to relocate its corporate headquarters to Atlanta, Georgia and entered into a ten-year lease agreement. The Company completed its relocation in March 2022. The lease is presented as a right-of-use asset and lease liability and the lease liability amounts to $3.3 million with a present value of $2.2 million over a ten-year term. If the Company defaults, the landlord has the right to use the security deposit for rent or other payments due to other damages, injury, expense or liability as defined in the lease agreement. Although the security deposit shall be deemed the property of the landlord, any remaining balance of the security deposit shall be returned by the landlord to the Company after termination of the lease as the Company’s obligations under the lease have been fulfilled. The Company subleased a portion of its former office space and collected $44,000 of sublease income during the nine months ended September 30, 2022.

The components of lease expense were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Lease Cost/(Sublease Income) (in thousands)

2022

2021

2022

2021

Operating lease cost

$

549

$

619

$

1,668

$

1,711

Short-term lease cost

2,125

1,051

5,353

2,484

Sublease income

(14)

(5)

(44)

(5)

Total lease cost

$

2,660

$

1,665

$

6,977

$

4,190

Lease cost related to finance leases was not significant for the three and nine months ended September 30, 2022 and 2021.

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

Lease Assets/Liabilities (in thousands)

Balance Sheet Classification

September 30, 2022

December 31, 2021

Lease Assets

Right-of-use assets

Other long-term assets

$

3,738

$

1,527

Lease Liabilities

Short-term lease liabilities

Other current liabilities

$

1,572

$

1,606

Long-term lease liabilities

Other long-term liabilities

2,582

511

Total lease liabilities

$

4,154

$

2,117

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

Nine Months Ended September 30,

(dollars in thousands)

2022

2021

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

Operating cash used by operating leases

$

1,810

$

1,810

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

3,669

1,549

Weighted-average remaining lease term - operating leases

5.34 years

1.47 years

Weighted-average remaining lease term - finance leases

1.48 years

2.48 years

Weighted-average discount rate - operating leases

9%

9%

Weighted-average discount rate - finance leases

9%

9%

10

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

Operating Leases

Finance Leases

Nine Months Ended September 30,

(in thousands)

Remainder of 2022

$

557

$

1

2023

1,490

6

2024

653

1

2025

375

-

2026

381

-

Thereafter

1,873

-

Total lease payments

$

5,329

$

8

Less: interest

(1,183)

-

Present value of lease liabilities

$

4,146

$

8

NOTE 5—CHANGES IN BUSINESS

Discontinued Operations

Electrical Solutions

During the fourth quarter of 2017, the Company made the decision to exit and sell its Electrical Solutions segment (which was comprised solely of Koontz-Wagner Custom Controls Holdings LLC (“Koontz-Wagner”), a wholly owned subsidiary of the Company) in an effort to reduce the Company’s outstanding term debt. The Company determined that the decision to exit this segment met the definition of a discontinued operation. As a result, this segment has been presented as a discontinued operation for all periods presented.

On July 11, 2018, Koontz-Wagner filed a voluntary petition for relief under Chapter 7 of Title 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of Texas. The filing was for Koontz-Wagner only, not for the Company as a whole, and was completely separate and distinct from the Williams business and operations. As a result of the July 11, 2018 bankruptcy of Koontz-Wagner, the Company recorded a pension withdrawal liability of $2.9 million related to Koontz-Wagner’s International Brotherhood of Electrical Workers Local Union 1392 (“IBEW”) multi-employer pension plan.

After an arbitration process, on May 12, 2021, an arbitrator concluded that the IBEW used an incorrect per hour contribution rate in calculating the Company’s pension withdrawal liability, which resulted in the Company overpaying. The arbitrator directed IBEW to refund all overpayments, with interest, to the Company and to redetermine the Company’s payments going forward using the proper contribution rate. Accordingly, the Company’s overall pension withdrawal liability decreased by approximately $0.3 million. The pension liability is expected to be satisfied by annual cash payments of $0.3 million each, paid in quarterly installments, through 2038. The Company recorded a gain on disposal of approximately $0.2 million during the first nine months of 2021 to reduce its previously recorded estimated withdrawal liability.

Mechanical Solutions

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

11

As of September 30, 2022 and December 31, 2021, the Company did not have any assets related to its Electrical Solutions’ and Mechanical Solutions’ discontinued operations. The following table presents a reconciliation of the carrying amounts of major classes of liabilities of Electrical Solutions’ and Mechanical Solutions’ discontinued operations:

(in thousands)

  

September 30, 2022

December 31, 2021

Liabilities:

Current liabilities of discontinued operations

$

106

$

316

Liability for pension obligation

2,307

2,368

Liability for uncertain tax positions

1,206

1,882

Long-term liabilities of discontinued operations

3,513

4,250

Total liabilities of discontinued operations

$

3,619

$

4,566

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

  

2022

  

2021

  

2022

  

2021

General and administrative expenses

$

$

5

$

$

39

Loss (gain) on disposal - Electrical Solutions

(17)

17

(245)

Interest expense

45

46

75

76

Income (loss) from discontinued operations before income tax

(45)

(34)

(92)

130

Income tax expense (benefit)

(3)

22

(626)

59

Income (loss) from discontinued operations

$

(42)

$

(56)

$

534

$

71

NOTE 6—REVENUE

Disaggregation of Revenue

The Company’s contracts generally include a single performance obligation for which revenue is recognized over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. For cost-plus contracts, the Company recognizes revenue when services are performed and contractually billable based upon the hours incurred and agreed-upon hourly rates. Revenue on fixed-price contracts is recognized and invoiced over time using the cost-to-cost percentage-of-completion method. To the extent a contract is deemed to have multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract. The Company does not adjust the price of the contract for the effects of a significant financing component. Change orders are generally not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. The Company believes these methods of revenue recognition most accurately reflect the economics of the transactions with its customers.

The Company’s contracts may include several types of variable consideration, including change orders, rate true-up provisions, retainage, claims, incentives, penalties, and liquidated damages. The Company estimates the amount of revenue to be recognized on variable consideration using estimation methods that best predict the amount of consideration to which the Company expects to be entitled. The Company includes variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of its anticipated performance and all information (historical, current, and forecasted) that is reasonably available. The Company updates its estimate of the transaction price each reporting period and the effect of variable consideration on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis. In circumstances where the Company cannot reasonably determine the outcome of a contract, it recognizes revenue over time as the work is performed, but only to the extent of recoverable costs incurred (i.e. zero margin). A loss provision is recorded for the amount of any estimated unrecoverable costs in excess of total estimated revenue on a contract as soon as the Company becomes aware. The Company generally provides a limited warranty for a term of two years or less following completion of services performed under its contracts. Historically, warranty claims have not resulted in material costs incurred.

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Disaggregated revenue by type of contract was as follows:  

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2022

2021

2022

2021

Cost-plus reimbursement contracts

$

44,237

$

63,363

$

138,263

$

201,027

Fixed-price contracts

12,448

9,988

44,040

24,746

Total

$

56,685

$

73,351

$

182,303

$

225,773

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2022

2021

2022

2021

United States

$

56,685

$

64,379

$

176,801

$

197,287

Canada

-

8,972

5,502

28,486

Total

$

56,685

$

73,351

$

182,303

$

225,773

Contract Balances

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2022

2021

2022

  

2021

Costs incurred on uncompleted contracts

$

55,936

$

66,590

$

173,564

$

203,561

Earnings recognized on uncompleted contracts

749

6,761

 

8,739

 

22,212

Total

56,685

73,351

182,303

 

225,773

Less—billings to date

(50,049)

(63,034)

(175,667)

 

(215,456)

Net

$

6,636

$

10,317

$

6,636

$

10,317

Contract assets

$

10,076

$

12,811

$

10,076

$

12,811

Contract liabilities

(3,440)

(2,494)

(3,440)

 

(2,494)

Net

$

6,636

$

10,317

$

6,636

$

10,317

For the three and nine months ended September 30, 2022, the Company recognized revenue of approximately $0.1 million and $2.2 million, respectively, on approximately $3.4 million that was included in the corresponding contract liability balance on December 31, 2021.

Remaining Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of September 30, 2022:

(in thousands)

Remainder of 2022

2023

2024

Thereafter

Total

Remaining performance obligations

$

64,529

$

122,093

$

61,135

$

104,966

$

352,723

NOTE 7—EARNINGS (LOSS) PER SHARE

As of September 30, 2022, the Company’s 26,422,761 shares outstanding included 321,142 shares of contingently issued but unvested restricted stock. As of September 30, 2021, the Company’s 25,915,502 shares outstanding included 215,956 shares

13

of contingently issued but unvested restricted stock. Restricted stock is excluded from the calculation of basic weighted average shares outstanding, but its impact, if dilutive, is included in the calculation of diluted weighted average shares outstanding.

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except share data)

  

2022

2021

2022

  

2021

Income (loss) from continuing operations

$

3,610

$

794

$

(3,728)

$

1,857

Basic income (loss) per common share:

Weighted average common shares outstanding

26,102,308

25,699,545

26,009,465

25,306,130

Basic income (loss) per common share

$

0.14

$

0.03

$

(0.14)

$

0.07

Diluted income (loss) per common share:

Weighted average common shares outstanding

26,102,308

25,699,545

26,009,465

25,306,130

Diluted effect:

 

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