Energy Services of America CORP 10-Q for FY2023 Q3
Energy Services of America CORP (ESOA)
About this 10-Q
Energy Services of America CORP filed this 10-Q on August 14, 2023, covering the quarter ended June 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $85.53M
- up 67.1% from $51.17M a year earlier
- Diluted EPS
- $0.21
- up 110.0% from $0.10 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
(Exact Name of Registrant as Specified in Its Charter)
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Securities Registered Pursuant to Section 12(b) of the Act:
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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 requirements for the past 90 days. ☒ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ 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 definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, or an “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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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 June 11, 2023 there were
Part 1. Financial Information
Item 1. Financial Statements (Unaudited):
Energy Services of America Corporation
Consolidated Balance Sheets
Unaudited
| | | | As Restated | ||
| | June 30, | | September 30, | ||
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| 2023 |
| 2022 | ||
Assets | | | | | | |
Current assets |
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Cash and cash equivalents | | $ | | | $ | |
Accounts receivable-trade | |
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Allowance for doubtful accounts | |
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Retainages receivable | |
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Other receivables | |
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Contract assets | |
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Prepaid expenses and other | |
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Total current assets | |
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Property, plant and equipment, at cost | |
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less accumulated depreciation | |
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Total property and equipment, net | |
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Right-of-use assets-operating lease | | | | | | |
Intangible assets, net | | | | | | |
Goodwill | | | | | | |
Total assets | | $ | | | $ | |
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Liabilities and shareholders’ equity | |
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Current liabilities | |
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Current maturities of long-term debt | | $ | | | $ | |
Lines of credit and short-term borrowings | |
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Current maturities of operating lease liabilities | | | | | | |
Accounts payable | |
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Accrued expenses and other current liabilities | |
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Contract liabilities | |
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Total current liabilities | |
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Long-term debt, less current maturities | |
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Long-term operating lease liabilities, less current maturities | | | | | | |
Deferred tax liability | |
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Total liabilities | |
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Shareholders’ equity | |
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Common stock, $ | |
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Treasury stock, | |
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Additional paid in capital | |
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Retained deficit | |
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Total shareholders’ equity | |
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Total liabilities and shareholders’ equity | | $ | | | $ | |
The Accompanying Notes are an Integral Part of These Financial Statements
1
Energy Services of America Corporation
Consolidated Statements of Income
Unaudited
| | | | As Restated | | | | | As Restated | |||
| | Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended | ||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||
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| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Revenue | | $ | | | $ | | | $ | | | $ | |
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Cost of revenues | |
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Gross profit | |
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Selling and administrative expenses | |
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Income from operations | |
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Other income (expense) | |
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Interest income | |
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Other nonoperating expense | |
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Interest expense | | | ( | | | ( | | | ( | | | ( |
Gain on sale of equipment | |
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Income before income taxes | |
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Income tax expense | |
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Net income | | $ | | | $ | | | $ | | | $ | |
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Weighted average shares outstanding-basic | |
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Weighted average shares-diluted | |
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Earnings per share-basic | | $ | | | $ | | | $ | | | $ | |
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Earnings per share-diluted | | $ | | | $ | | | $ | | | $ | |
The Accompanying Notes are an Integral Part of These Financial Statements
2
Energy Services of America Corporation
Consolidated Statements of Cash Flows
Unaudited
| | | | As Restated | ||
| | Nine Months Ended | | Nine Months Ended | ||
| | June 30, | | June 30, | ||
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| 2023 |
| 2022 | ||
Cash flows from operating activities: |
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Net income | | $ | | | $ | |
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Adjustments to reconcile net income to net cash provided by operating activities: | |
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Accreted interest on PPP Loans | | | | |
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Depreciation expense | |
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Gain on sale of equipment | |
| ( | |
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Provision for deferred taxes | | | | | | |
Amortization of intangible assets | | | 401,221 | | | 307,698 |
Accreted interest on notes payable | | | | | | |
Increase in accounts receivable | |
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Increase in retainage receivable | | | ( | | | ( |
(Increase) decrease in other receivables | | | ( | | | |
Decrease (increase) in contract assets | | | | | | ( |
Decrease in prepaid expenses and other | |
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(Decrease) increase in accounts payable | |
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(Decrease) increase in accrued expenses and other current liabilities | |
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Increase in contract liabilities | |
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Net cash provided by operating activities | |
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Cash flows from investing activities: | |
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Investment in property and equipment | |
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Proceeds from sales of property and equipment | |
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Net cash used in investing activities | |
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Cash flows from financing activities: | |
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Preferred stock redemption | | | — | | | ( |
Dividends on common stock | | | ( | | | — |
Treasury stock purchased | | | ( | | | — |
Borrowings on lines of credit and short-term debt, net of (repayments) | | | | | | ( |
Proceeds from long-term debt | | | | | | — |
Principal payments on long-term debt | | | ( | | | ( |
Net cash used in financing activities | |
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Increase (decrease) in cash and cash equivalents | |
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Cash and cash equivalents beginning of period | |
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Cash and cash equivalents end of period | | $ | | | $ | |
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Supplemental schedule of noncash investing and financing activities: | |
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Purchases of property & equipment under financing agreements | | $ | | | $ | |
Prepaid insurance premiums financed | | $ | | | $ | |
Debt assumed in acquisitions for equipment | | $ | — | | $ | |
Sellers’ note Tri-State Paving acquisition | | $ | — | | $ | |
Note payable to finance Tri-State Paving acquisition | | $ | — | | $ | |
Common stock issued to finance Tri-State Paving acquisition | | $ | — | | $ | |
Par value of common stock issued from preferred stock conversion | | $ | — | | $ | |
Operating lease right-of-use assets acquired in exchange for operating lease liabilities | | $ | | | $ | |
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Supplemental disclosures of cash flows information: | |
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Cash paid during the year for: | |
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Interest | | $ | | | $ | |
Income taxes | | $ | — | | $ | |
The Accompanying Notes are an Integral Part of These Financial Statements
3
Energy Services of America Corporation
Consolidated Statements of Changes in Shareholders’ Equity
For the three and nine months ended June 30, 2023 and 2022
Unaudited
| | | | | | | | | | | | | | | | Total | |
| | Common Stock | | Additional Paid | | Retained | | Treasury | | Shareholders’ | |||||||
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| Shares |
| Amount |
| in Capital |
| Deficit |
| Stock |
| Equity | |||||
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Balance at September 30, 2022, as restated |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
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Net income, as restated |
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Balance at December 31, 2022, as restated |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
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Net loss |
| — | | | — | | | — | | | ( | | | — | | | ( |
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Dividends on common stock ($ | | — | | | — | | | — | | | ( | | | — | | | ( |
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Treasury stock purchased by company | | ( | | | — | | | ( | | | — | | | ( | | | ( |
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Balance at March 31, 2023 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
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Net income |
| — | | | — | | | — | | | | | | — | | | |
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Treasury stock purchased by company |
| ( | | | — | | | ( | | | — | | | ( | | | ( |
Balance at June 30, 2023 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | Total | |
| | Common Stock | | Additional Paid | | Retained | | Treasury | | Shareholders’ | |||||||
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| Shares |
| Amount |
| in Capital |
| Deficit |
| Stock |
| Equity | |||||
Balance at September 30, 2021, as restated | | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
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Net income, as restated | | — | | | — | | | — | | | | | | — | | | |
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Preferred share redemption, net of accrued dividends at September 30, 2021 | | — | | | — | | | ( | | | — | | | — | | | ( |
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Preferred share conversion | | | | | | — | | | — | | | — | | | |||
Balance at December 31, 2021, as restated |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
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Net loss, as restated | | — | | | — | | | — | | | ( | | | — | | | ( |
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Balance at March 31, 2022, as restated |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
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Net income, as restated | | — | | | — | | | — | | | | | | — | | | |
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Shares issued for Tri-State Paving acquisition | | | | | | | | | | | — | | | — | | | |
Balance at June 30, 2022, as restated | | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
The Accompanying Notes are an Integral Part of These Financial Statements
4
ENERGY SERVICES OF AMERICA CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Energy Services of America Corporation (“Energy Services” or the “Company”), formed in 2006, is a contractor and service company that operates primarily in the mid-Atlantic and central regions of the United States and provides services to customers in the natural gas, petroleum, water distribution, automotive, chemical, and power industries. For the gas industry, the Company is primarily engaged in the construction, replacement and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies. Energy Services is involved in the construction of both interstate and intrastate pipelines, with an emphasis on the latter. For the oil industry, the Company provides a variety of services relating to pipeline, storage facilities and plant work. For the power, chemical, and automotive industries, the Company provides a full range of electrical and mechanical installations and repairs including substation and switchyard services, site preparation, equipment setting, pipe fabrication and installation, packaged buildings, transformers, and other ancillary work with regards thereto. Energy Services’ other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction. The Company has also added the ability to install residential, commercial, and industrial solar systems and perform civil and general contracting services.
C.J. Hughes Construction Company, Inc. (“C.J. Hughes”), a wholly owned subsidiary of the Company, is a general contractor primarily engaged in pipeline construction for utility companies. Contractors Rental Corporation (“Contractors Rental”), a wholly owned subsidiary of C.J. Hughes, provides union building trade employees for projects managed by C.J. Hughes.
Nitro Construction Services, Inc. (“NCS”), a wholly owned subsidiary of C.J. Hughes, provides electrical, mechanical, HVAC/R, and fire protection services to customers primarily in the automotive, chemical, and power industries. Revolt Energy, LLC (“Revolt”), a wholly owned subsidiary of NCS, performs residential solar installation projects. Nitro Electric Company, LLC (“Nitro Electric”), a wholly owned subsidiary of NCS, performs industrial electrical work and is a satellite office registered in Michigan. Pinnacle Technical Solutions, Inc. (“Pinnacle”), a wholly owned subsidiary of NCS, operates as a data storage facility within Nitro’s office building. Pinnacle is supported by NCS and has no employees of its own. NCS and its subsidiaries will collectively be referred to “Nitro”.
All C.J. Hughes, Nitro, and Contractors Rental construction personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals.
West Virginia Pipeline, Inc. (“West Virginia Pipeline” or “WVP”), a wholly owned subsidiary of Energy Services, operates as a gas and water distribution contractor primarily in southern West Virginia. The employees of West Virginia Pipeline are non-union and are managed independently of the Company’s union subsidiaries.
SQP Construction Group, Inc. (“SQP”), a wholly owned subsidiary of Energy Services, operates as a general contractor primarily in West Virginia. SQP engages in the construction and renovation of buildings and other civil construction projects for state and local government agencies and commercial customers. As a general contractor, SQP manages the overall construction project and subcontracts most of the work. The employees of SQP are non-union and are managed independently of the Company’s union subsidiaries.
Tri-State Paving & Sealcoating, Inc. (“TSP” or “Tri-State Paving”), a wholly owned subsidiary of Energy Services, completed the acquisition of substantially all of the assets of Tri-State Paving & Sealcoating, LLC (“Tri-State Paving, LLC”) on April 29, 2022. Tri-State Paving provides utility paving services to water distribution customers in the Charleston, West Virginia, Lexington, Kentucky, and Chattanooga, Tennessee markets. The employees of TSP are non-union and are managed independently of the Company’s union subsidiaries.
Ryan Construction Services Inc. (“Ryan Construction” or “RCS”), a wholly owned subsidiary of Energy Services, formed in August 2022 in connection with the acquisition of substantially all the assets of Ryan Environmental, LLC and Ryan Environmental Transport, LLC (collectively “Ryan Environmental”), provides directional drilling services for broadband service providers along with offering natural gas distribution services, cathodic protection and corrosion prevention services, and civil construction services. Ryan Construction operates primarily in West Virginia and Pennsylvania. The employees of RCS are non-union and are managed independently of the Company’s union subsidiaries.
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Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto for the years ended September 30, 2022, and 2021 included in the Company’s Amendment No. 1 to the Company’s Annual Report on Form 10-K/A filed with the SEC on May 31, 2023. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to the interim financial reporting rules and regulations of the SEC. The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and results of operations. The operating results for the three and nine months ended June 30, 2023 and 2022 are not necessarily indicative of the results to be expected for the full year or any other interim period.
Principles of Consolidation
The consolidated financial statements of Energy Services include the accounts of Energy Services, its wholly owned subsidiaries West Virginia Pipeline, SQP, Ryan Construction, Tri-State Paving and C.J. Hughes and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidation. Unless the context requires otherwise, references to Energy Services include Energy Services, West Virginia Pipeline, SQP, Ryan Construction, Tri-State Paving and C.J. Hughes and its subsidiaries.
Use of Estimates and Assumptions
The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and loss during the reporting period. Actual results could differ materially from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Please refer to Note 2 “Summary of Significant Accounting Policies” of the Consolidated Financial Statements in the Company’s Amendment No. 1 to the Company’s Annual Report on Form 10-K/A for the year ended September 30, 2022 for a more detailed discussion of our significant accounting policies. There were no material changes to these significant accounting policies during the three and nine months ended June 30, 2023.
3. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
On May 12, 2023, the audit committee of the Board of Directors of Energy Services, after considering the recommendation of management, concluded: that (a) the Company’s previously issued audited consolidated financial statements for the fiscal years ended September 30, 2022 and 2021 included in the Company’s annual reports on Form 10-K for the fiscal years ended September 30, 2022 and 2021, and (b) the Company’s unaudited consolidated financial statements for the periods ended June 30, 2021, December 31, 2021, March 31, 2022, June 30, 2022 and December 31, 2022 as reported in the Company’s quarterly reports on Form 10-Q for those periods (together, the “Reports”) should no longer be relied upon and have been restated.
Due to the economic uncertainties created by COVID-19 and limited operating funds available, the Company applied for loans under the Paycheck Protection Program (“PPP”). On April 15, 2020, the Company and its subsidiaries, C.J. Hughes, Contractors Rental, and Nitro, entered into separate PPP notes effective April 7, 2020, with United Bank as the lender (“Lender”) in an aggregate principal amount of $
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During April 2023, management received notification from the SBA that one of the Company’s forgiveness applications related to the PPP Loans was under review. As part of the review, the SBA requested additional payroll information. Additionally, the SBA requested information regarding the ability of the Company’s affiliates to meet SBA size standards and/or PPP corporate maximum limits. The requested information was subsequently provided to the SBA through the Lender. The Company recognizes that there is a possibility that the SBA could reverse its previous determination on the forgiveness of the PPP Loans. As a result of this uncertainty, the Company restated the previously issued financial statements of the Company that were included in the Reports. The Company has recorded a short-term borrowing due to the SBA inquiry for the full $
During July 2023, management received notification from the SBA that two additional forgiveness applications related to the PPP Loans were under review. As part of the review, the SBA requested information regarding the ability of the Company’s affiliates to meet SBA size standards and/or PPP corporate maximum limits. The requested information was subsequently provided to the SBA through the Lender.
Tables for the income statement impact “As previously reported” and “restated” for Paycheck Protection Program loan forgiveness and interest expense for the three and nine months ended June 30, 2022 are below:
| | Three Months Ended June 30, 2022 | |||||||
| | As Previously | | | | | | | |
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| Reported |
| Restated |
| Change | |||
Interest expense | | $ | | | $ | | | $ | |
Net income | | | |
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| | Nine Months Ended June 30, 2022 | |||||||
| | As Previously | | | | | | | |
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| Reported |
| Restated |
| Change | |||
Interest expense | | $ | | | $ | | | $ | |
Net income |
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| | ( |
A table for the balance sheet impact “As previously reported” and “restated” for Paycheck Protection Program loan forgiveness and interest expense at September 30, 2022 is below:
| | September 30, 2022 | |||||||
| | As Previously | | | | | | | |
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| Reported |
| Restated |
| Change | |||
Lines of credit and short-term borrowings | | $ | | | $ | | | $ | |
Shareholders' equity | |
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| ( |
4. REVENUE RECOGNITION
Our revenue is primarily derived from construction contracts that can span several quarters. We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606” or “Topic 606”) which provides for a five-step model for recognizing revenue from contracts with customers as follows:
| ● | Identify the contract |
| ● | Identify performance obligations |
| ● | Determine the transaction price |
| ● | Allocate the transaction price |
| ● | Recognize revenue |
The accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the cost to complete each project. We believe our experience allows us to create materially reliable estimates. There are a number of factors that can contribute to changes in estimates of contract cost and profitability. The most significant of these include:
| ● | the completeness and accuracy of the original bid; |
| ● | costs associated with scope changes; |
| ● | changes in costs of labor and/or materials; |
7
| ● | extended overhead and other costs due to owner, weather and other delays; |
| ● | subcontractor performance issues; |
| ● | changes in productivity expectations; |
| ● | site conditions that differ from those assumed in the original bid; |
| ● | changes from original design on design-build projects; |
| ● | the availability and skill level of workers in the geographic location of the project; |
| ● | a change in the availability and proximity of equipment and materials; |
| ● | our ability to fully and promptly recover on affirmative claims and back charges for additional contract costs; and |
| ● | the customer’s ability to properly administer the contract. |
The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit from period to period. Significant changes in cost estimates, particularly in our larger, more complex projects, could have a significant effect on our profitability.
Our contract assets include cost and estimated earnings in excess of billings that represent amounts earned and reimbursable under contracts, including claim recovery estimates, but have a conditional right for billing and payment such as achievement of milestones or completion of the project. With the exception of customer affirmative claims, generally, such unbilled amounts will become billable according to the contract terms and generally will be billed and collected over the next three months. Settlement with the customer of outstanding affirmative claims is dependent on the claims resolution process and could extend beyond one year. Based on our historical experience, we generally consider the collection risk related to billable amounts to be low. When events or conditions indicate that it is probable that the amounts outstanding become unbillable, the transaction price and associated contract asset is reduced.
Our contract liabilities consist of provisions for losses and billings in excess of costs and estimated earnings. Provisions for losses, if incurred, are recognized in the consolidated statements of income at the uncompleted performance obligation level for total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue. Billings in excess of costs and estimated earnings are billings to customers on contracts in advance of work performed, including advance payments negotiated as a contract condition. Generally, unearned project-related costs will be earned over the next twelve months.
5. DISAGGREGATION OF REVENUE
The Company disaggregates revenue based on the following lines of service: (1) Gas & Water Distribution, (2) Gas & Petroleum Transmission, and (3) Electrical, Mechanical, & General services and construction. Our contract types are: Lump Sum, Unit Price, Cost Plus and Time and Materials (“T&M”). The following tables present our disaggregated revenue for the three and nine months ended June 30, 2023 and 2022:
| | Three Months Ended June 30, 2023 | ||||||||||
| | | | | | Electrical, | | | ||||
| | Gas & Water | | Gas & Petroleum | | Mechanical, and | | Total revenue | ||||
|
| Distribution |
| Transmission |
| General |
| from contracts | ||||
Lump sum contracts | | $ | — | | $ | — | | $ | | | $ | |
Unit price contracts | |
| | |
| | |
| | |
| |
Cost plus and T&M contracts | |
| — | |
| — | |
| | |
| |
Total revenue from contracts | | $ | | | $ | | | $ | | | $ | |
| |
| | |
| | |
| | |
| |
Earned over time | | $ | | | $ | | | $ | | | $ | |
Earned at point in time | |
| | |
| — | |
| | |
| |
Total revenue from contracts | | $ | | | $ | | | $ | | | $ | |
8
| | Three Months Ended June 30, 2022 | ||||||||||
| | | | | | Electrical, | | | | |||
| | Gas &Water | | Gas & Petroleum | | Mechanical, and | | Total revenue | ||||
|
| Distribution |
| Transmission |
| General |
| from contracts | ||||
Lump sum contracts | | $ | — | | $ | — | | $ | | | $ | |
Unit price contracts | |
| | |
| | |
| — | |
| |
Cost plus and T&M contracts | |
| — | |
| — | |
| | |
| |
Total revenue from contracts | | $ | | | $ | | | $ | | | $ | |
| |
| | |
|
| |
|
| |
|
|
Earned over time | | $ | | | $ | | | $ | | | $ | |
Earned at point in time | |
| | |
| — | |
| | |
| |
Total revenue from contracts | | $ | | | $ | | | $ | | | $ | |
| | Nine Months Ended June 30, 2023 | ||||||||||
| | | | | | | | Electrical, | | | | |
| | Gas & Water | | Gas & Petroleum | | Mechanical, and | | Total revenue | ||||
|
| Distribution |
| Transmission |
| General |
| from contracts | ||||
Lump sum contracts | | $ | — | | $ | — | | $ | | | $ | |
Unit price contracts | |
| | |
| | |
| | |
| |
Cost plus and T&M contracts | |
| — | |
| — | |
| | |
| |
Total revenue from contracts | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Earned over time | | $ | | | $ | | | $ | | | $ | |
Earned at point in time | |
| | |
| — | |
| | |
| |
Total revenue from contracts | | $ | | | $ | | | $ | | | $ | |
| | Nine Months Ended June 30, 2022 | ||||||||||
| | | | | | | | Electrical, | | | | |
| | Gas & Water | | Gas & Petroleum | | Mechanical, and | | Total revenue | ||||
|
| Distribution |
| Transmission |
| General |
| from contracts | ||||
Lump sum contracts | | $ | — | | $ | — | | $ | | | $ | |
Unit price contracts | |
| | |
| | |
| — | |
| |
Cost plus and T&M contracts | |
| — | |
| — | |
| | |
| |
Total revenue from contracts | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Earned over time | | $ | | | $ | | | $ | | | $ | |
Earned at point in time | |
| | |
| — | |
| | |
| |
Total revenue from contracts | | $ | | | $ | | | $ | | | $ | |
6. CONTRACT BALANCES
The Company’s accounts receivable consists of amounts that have been billed to customers and collateral is generally not required. Most of the Company’s contracts have monthly billing terms; however, billing terms for some are based on project completion. Payment terms are generally within
During the three and nine months ended June 30, 2023, we recognized revenue of $
9
Accounts receivable-trade, net of allowance for doubtful accounts, contract assets and contract liabilities consisted of the following:
|
| June 30, 2023 |
| September 30, 2022 |
| Change | |||
| | | | | | | | | |
Accounts receivable-trade, net of allowance for doubtful accounts | | $ | | | $ | | | $ | |
| |
|
| |
|
| |
|
|
Contract assets | |
|
| |
|
| |
|
|
Cost and estimated earnings in excess of billings | | $ | | | $ | | | $ | ( |
| |
|
| |
| | |
| |
Contract liabilities | |
|
| |
| | |
| |
Billings in excess of cost and estimated earnings | | $ | | | $ | | | $ | |
7. PERFORMANCE OBLIGATIONS
For the three and nine months ended June 30, 2023, there was
At June 30, 2023, the Company had $
8. UNCOMPLETED CONTRACTS
Costs, estimated earnings, and billings on uncompleted contracts as of June 30, 2023 and September 30, 2022, are summarized as follows:
| | | | | | |
|
| June 30, 2023 |
| September 30, 2022 | ||
Costs incurred on contracts in progress | | $ | | | $ | |
Estimated earnings, net of estimated losses | |
| | |
| |
| |
| | |
| |
Less billings to date | |
| | |
| |
| | $ | ( | | $ | |
| | | | | | |
Costs and estimated earnings in excess of billed on uncompleted contracts | | $ | | | $ | |
| | | | | | |
Less billings in excess of costs and estimated earnings on uncompleted contracts | |
| |
| | |
| | | | | | |
| | $ | ( | | $ | |
Backlog at June 30, 2023 and September 30, 2022, was $
9. FAIR VALUE MEASUREMENTS
The fair value measurement guidance of the Financial Accounting Standards Board (“FASB”) ASC defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP and specifies disclosures about fair value measurements.
Under the FASB’s authoritative guidance on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement guidance of the FASB ASC establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1 — Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.
10
Level 2 — Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. Level 2 also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data.
Level 3 — Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for nonbinding single dealer quotes not corroborated by observable market data.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The carrying amount for borrowings under the Company’s revolving credit facility approximates fair value because of the variable market interest rate charged to the Company for these borrowings. The fair value of the Company’s long term fixed-rate debt was estimated using a discounted cash flow analysis and a yield rate that was estimated based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities. The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $
All other current assets and liabilities are carried at a net realizable value which approximates fair value because of their short duration to maturity.
10. EARNINGS PER SHARE
The amounts used to compute the earnings per share for the three and nine months ended June 30, 2023 and 2022 are summarized below.
| | | | As Restated | | | | As Restated | ||||
| | Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended | ||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Net income, as restated | | $ | | | $ | | | $ | | | $ | |
| |
| | |
| | |
| | |
| |
Weighted average shares outstanding-basic | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
Weighted average shares-diluted | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
Earnings per share-basic | | $ | | | $ | | | $ | | | $ | |
| |
| | |
| | |
| | |
| |
Earnings per share-diluted | | $ | | | $ | | | $ | | | $ | |
11
11. INCOME TAXES
The components of income taxes are as follows:
The effective income tax rate for the three and nine months ended June 30, 2023 was
| | | | | | |
| | Three Months Ended | ||||
|
| June 30, 2023 |
| June 30, 2022 | ||
Federal |
| |
|
| |
|
Current | | $ | | | $ | |
Deferred | |
| | |
| |
Total | | | | | | |
| |
| | |
| |
State | |
| | |
| |
Current | | | — | | | — |
Deferred | |
| | |
| |
Total | | | | | | |
Total income tax expense | | $ | | | $ | |
| | | | | | |
| | Nine Months Ended | ||||
|
| June 30, 2023 |
| June 30, 2022 | ||
Federal |
| |
|
| |
|
Current | | $ | | | $ | |
Deferred | |
| | |
| |
Total | |
| | |
| |
| | | | | | |
State | |
| | |
| |
Current | | | — | | | — |
Deferred | |
| | |
| |
Total | |
| | |
| |
Total income tax expense | | $ | | | $ | |
The income tax effects of temporary differences giving rise to the deferred tax assets and liabilities are as follows:
| | June 30, | | September 30, | ||
|
| 2023 |
| 2022 | ||
Deferred tax liabilities |
| |
|
| |
|
Property and equipment | | $ | | | $ | |
Other | |
| | |
| |
Total deferred tax liabilities | | $ | | | $ | |
| |
| | |
| |
Deferred income tax assets | |
| | |
| |
Other | | $ | | | $ | |
Net operating loss carryforward | | | | | | |
Total deferred tax assets | | $ | | | $ | |
| |
| | |
| |
Total net deferred tax liabilities | | $ | | | $ | |
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. At June 30, 2023, the Company expects all net operating loss carryforwards to be realized in the near future.
12
The Company does not believe that it has any unrecognized tax benefits included in its consolidated financial statements that require recognition. The Company has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations. The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in general and administrative expenses.
The Company and all subsidiaries file a consolidated federal and various state income tax returns on a fiscal year basis. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations for years ended prior to September 30, 2018.
12. SHORT-TERM AND LONG-TERM DEBT
Operating Line of Credit
On July 13, 2022, the Company received a one-year extension on its $
On January 19, 2023, the Company received an amendment to the agreement which increased the line of credit to $
The modified financial covenants for the quarter ended June 30, 2023, and all subsequent quarters, are below:
| ● | Minimum tangible net worth of $ |
| ● | Minimum traditional debt service coverage of |
| ● | Minimum current ratio of |
| ● | Maximum debt to tangible net worth ratio (“TNW”) of |
| ● | Each ratio and covenant shall be determined, tested, and measured as of each calendar quarter beginning June 30, 2023, |
| ● | The Company shall maintain a ratio of Maximum Senior Funded Debt (“SFD”) to Earnings before Interest, Taxes, Depreciation and Amortization (“EBDITA”) equal to or less than |
The Company was not in compliance with all covenants at June 30, 2023; however, a waiver was received from the Company’s lender. The Company projects to meet all covenant requirements for the next twelve months.
Insurance Premiums Financed
The Company also finances insurance policy premiums on a short-term basis through a financing company. These insurance policies include workers’ compensation, general liability, automobile, umbrella, and equipment policies. The Company makes a down payment in January and finances the remaining premium amount over eleven monthly payments. At June 30, 2023 and September 30, 2022, the remaining balance of the insurance premiums was $
13
Paycheck Protection Program Loans
Due to the economic uncertainties created by COVID-19 and limited operating funds available, the Company applied for loans under the PPP. On April 15, 2020, the Company and its subsidiaries, C.J. Hughes, Contractors Rental and Nitro, entered into separate PPP notes effective April 7, 2020, with its Lender in an aggregate principal amount of $
During April 2023, management received notification from the SBA that one of the Company’s forgiveness applications related to the PPP Loans was under review. As part of the review, the SBA requested additional payroll information. Additionally, the SBA requested information regarding the ability of the Company’s affiliates to meet SBA size standards and/or PPP corporate maximum limits. The requested information was subsequently provided to the SBA through the Lender. The Company recognizes that there is a possibility that the SBA could reverse its previous determination on the forgiveness of the PPP Loans. As a result of this uncertainty, the Company restated the previously issued financial statements of the Company that were included in the Reports. The Company has recorded a short-term borrowing due to the SBA inquiry for the full $
During July 2023, management received notification from the SBA that two additional forgiveness applications related to the PPP Loans were under review. As part of the review, the SBA requested information regarding the ability of the Company’s affiliates to meet SBA size standards and/or PPP corporate maximum limits. The requested information was subsequently provided to the SBA through the Lender.
14
A summary of short-term and long-term debt as of June 30, 2023 and September 30, 2022 is as follows:
| | | | As Restated | ||
| | June 30, | | September 30, | ||
|
| 2023 |
| 2022 | ||
Line of credit payable to bank, monthly interest at | | $ | | | $ | |
| |
| | |
| |
Equipment line of credit payable to United Bank, $ | | | — | | | — |
| | | | | | |
Paycheck Protection Program loans from Small Business Administration, | |
| | |
| |
| | | | | | |
Term note payable to United Bank, WV Pipeline acquisition, due in monthly installments of $ | | | | | | |
| |
| | |
| |
Notes payable to finance companies, due in monthly installments totaling $ | |
| | |
| |
| |
| | |
| |
Note payable to finance company for insurance premiums financed, due in monthly installments totaling $ | |
| | |
| |
| |
| | |
| |
Notes payable to bank, due in monthly installments totaling $ | |
| | |
| |
| |
| | |
| |
Notes payable to bank, due in monthly installments totaling $ | |
| | |
| |
| |
| | |
| |
Notes payable to bank, due in monthly installments totaling $ | |
| | |
| — |
| |
| | |
| |
Notes payable to David Bolton and Daniel Bolton, due in annual installments totaling $ | |
| | |
| |
| |
|
| |
| |
Notes payable to bank, interest at | | | | | | |
| | | | | | |
Term note payable to United Bank, Tri-State Paving acquisition, due in monthly installments of $ | | | | | | |
| | | | | | |
Notes payable to Corns Enterprises, $ | | | | | | |
| | | | | | |
Total debt | | $ | | | $ | |
Less current maturities | |
| | |
| |
Total long term debt | | $ | | | $ | |
15
13. GOODWILL AND INTANGIBLE ASSETS
The Company follows the guidance of ASC Topic 350, Intangibles-Goodwill and Other, which requires a company to record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value. Under the current guidance, companies can first choose to assess any impairment based on qualitative factors (Step 0). If a company fails this test or decides to bypass this step, it must proceed with a quantitative assessment of goodwill impairment. The Company did
A table of the Company’s goodwill is below:
|
| June 30, |
| September 30, | ||
| 2023 | | 2022 | |||
Beginning balance | | $ | | | $ | |
| | | | | | |
Acquired | |
| | |
| |
Ending balance | | $ | | | $ | |
A table of the Company’s intangible assets subject to amortization at June 30, 2023 and September 30, 2022 is below:
| | | | | | | | | | Amortization | | Amortization | | | | |||||
| | | | | | | Accumulated | | Accumulated | | and Impairment | | and Impairment | | | |||||
| | Remaining Life | | | | Amortization and | | Amortization and | | Three Months | | Nine Months | | | ||||||
| | (in months) at | | | | Impairment at | | Impairment at | | Ended June 30, | | Ended June 30, | | Net Book Value | ||||||
Intangible assets: |
| June 30, 2023 | | Original Cost |
| June 30, 2023 |
| September 30, 2022 |
| 2023 | | 2023 |
| at June 30, 2023 | ||||||
West Virginia Pipeline: | | | |
| | |
| | |
| | |
| | | | | | |
|
Customer Relationships | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
Tradename | | | | | | | | | | | | | | | | | | | | |
Non-competes |
| — |
| | |
| | |
| | |
| | — | | | | |
| — |
| | | | | | | | | | | | | | | | | | | | |
Revolt Energy: |
| |
| | |
| | |
| | |
| | | | | | |
| |
| | | | | | | | | | | | | | | | | | | | |
Employment agreement/non-compete |
| — |
| | |
| | |
| | |
| | | | | | |
| — |
| | | | | | | | | | | | | | | | | | | | |
Tri-State Paving: | | | | | | | | | | | | | | | | | | | | |
Customer Relationships | | | | | | | | | | | | | | | | | | | | |
Tradename | | | | | | | | | | | | | | | | | | | | |
Non-competes | | — | | | | | | | | | | | | | | | | | | — |
| | | | | | | | | | | | | | | | | | | | |
Total intangible assets | | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
The amortization on identifiable intangible assets for the three and nine months ended June 30, 2023 was $
Amortization expense associated with the identifiable intangible assets is expected to be as follows:
|
| Amortization Expense | |
July 2023 to June 2024 |
| $ | |
July 2024 to June 2025 |
| | |
July 2025 to June 2026 |
| | |
July 2026 to June 2027 |
| | |
July 2027 to June 2028 |
| | |
After |
| | |
Total | | $ | |
16
14. LEASE OBLIGATIONS
The Company leases office space for SQP for $
The Company has
The Company has
The Company has a right-of-use operating lease with Enterprise Fleet Management, Inc. acquired on August 11, 2022, as part of the Ryan Environmental acquisition. This lease agreement was initially for
The Company has a right-of-use operating lease with RICA Developers, LLC acquired on August 12, 2022, as part of the Ryan Environmental acquisition. This lease, for the Bridgeport, West Virginia facility, had a net present value of $
The Company has a right-of-use operating lease acquired on March 28, 2023. This lease, for the Winchester, Kentucky facility, had a net present value of $
Schedules related to the Company’s operating leases at June 30, 2023 can be found below:
| | | | | | | | | | | | |
| | | | Remaining liability | | | | | ||||
|
| Years left |
| June 30, 2023 |
| September 30, 2022 |
| Lease end |
| Fiscal year end | ||
Operating lease 1 |
| | $ | | | $ | | | 4/30/2025 | | 2025 | |
Operating lease 2 |
| |
| |
| | | | 5/31/2024 |
| 2024 | |
Operating lease 3 | | | | | | | | | 8/10/2026 | | 2027 | |
Operating lease 4 | | | | | | | | | 8/11/2023 | | 2023 | |
Operating lease 5 | | | | | | | — | | 3/31/2026 | | 2026 | |
| | | | $ | | | $ | | | | | |
| | | | | | | | | | | | |
Weighted average remaining term | | | |
|
| | | |
|
|
| |
| | | |
Operating Lease Maturity Schedule | | | |
July 2023 to June 2024 |
| $ | |
July 2024 to June 2025 | |
| |
July 2025 to June 2026 | |
| |
July 2026 to June 2027 | | | |
| | | |
Less amounts representing interest | |
| ( |
Present value of operating lease liabilities | | $ | |
17
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended | ||||
Operating Lease Expense |
| June 30, 2023 |
| June 30, 2023 |
| June 30, 2022 |
| June 30, 2022 | ||||
Amortization | | | | | | | | | | | | |
Operating lease 1 |
| $ | | | $ | | | $ | | | $ | |
Operating lease 2 | | | | | | | | | | | | |
Operating lease 3 | |
| | |
| | |
| — | |
| — |
Operating lease 4 | | | | | | | | | — | | | — |
Operating lease 5 | | | | | | | | | — | | | — |
Total amortization | | | | | | | | | | | | |
Interest | |
| | |
| | |
| | |
| |
Operating lease 1 | | | | | | | | | | | | |
Operating lease 2 | |
| | |
| | |
| | |
| |
Operating lease 3 | | | | | | | | | — | | | — |
Operating lease 4 | | | | | | | | | — | | | — |
Operating lease 5 | | | | | | | | | — | | | — |
Total interest | | | | | | | | | | | | |
Total amortization and interest | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended | ||||
Cash Paid for Operating Leases |
| June 30, 2023 |
| June 30, 2023 |
| June 30, 2022 |
| June 30, 2022 | ||||
Operating lease 1 |
| $ | | | $ | | | $ | | | $ | |
Operating lease 2 | | | | | | | | | | | | |
Operating lease 3 | | | | | | | | | — | | | — |
Operating lease 4 | | | | | | | | | — | | | — |
Operating lease 5 | | | | | | | | | — | | | — |
|
| $ | | | $ | | | $ | | | $ | |
The Company rents equipment for use on construction projects with rental agreements being week to week or month to month. Rental expense can vary by reporting period due to equipment requirements on construction projects and the availability of Company owned equipment. Rental expense, which is included in cost of goods sold on the consolidated statements of income was $
15. SUBSEQUENT EVENTS
Management has evaluated all subsequent events for accounting and disclosure. There have been no other material events during the period, other than noted above, that would either impact the results reflected in the report or the Company’s results going forward.
18
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of the financial condition and results of operations of Energy Services in conjunction with the “Financial Statements” appearing in this report as well as the historical financial statements and related notes contained elsewhere herein. Among other things, those historical consolidated financial statements include more detailed information regarding the basis of presentation for the following information. The term “Energy Services” refers to the Company, West Virginia Pipeline, SQP, Tri-State Paving, Ryan Construction, and C.J. Hughes and C.J. Hughes’ wholly owned subsidiaries on a consolidated basis.
Restatement
The accompanying information gives effect to certain adjustments made to the previously reported financial statements for the three and nine months ended June 30, 2022, and as of September 30, 2022. Refer to Note 3, “Restatement of Previously Issued Financial Statements” in the accompanying consolidated financial statements for further details related to the restatement and impact on our financial statements.
Forward Looking Statements
Within the consolidated financial statements of Energy Services of America Corporation (“Energy Services” or the “Company”) and this discussion and analysis of the financial condition and results of operations, there are included statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “project,” “forecast,” “may,” “will,” “should,” “could,” “expect,” “believe,” “intend” and other words of similar meaning.
These forward-looking statements are not guarantees of future performance and involve or rely on a number of risks, uncertainties, and assumptions that are difficult to predict or beyond Energy Services’ control. Energy Services has based its forward-looking statements on management’s beliefs and assumptions based on information available to management at the time the statements are made. Actual outcomes and results may differ materially from what is expressed, implied and forecasted by forward-looking statements and any or all of Energy Services’ forward-looking statements may turn out to be wrong. The accuracy of such statements can be affected by inaccurate assumptions and by known or unknown risks and uncertainties.
All of the forward-looking statements, whether written or oral, are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements or that are otherwise included in this report. In addition, Energy Services does not undertake and expressly disclaims any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or otherwise.
Company Overview
Energy Services, formed in 2006, is a contractor and service company that operates primarily in the mid-Atlantic and central regions of the United States and provides services to customers in the natural gas, petroleum, water distribution, automotive, chemical, and power industries. For the gas industry, the Company is primarily engaged in the construction, replacement and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies. Energy Services is involved in the construction of both interstate and intrastate pipelines, with an emphasis on the latter. For the oil industry, the Company provides a variety of services relating to pipeline, storage facilities and plant work. For the power, chemical, and automotive industries, the Company provides a full range of electrical and mechanical installations and repairs including substation and switchyard services, site preparation, equipment setting, pipe fabrication and installation, packaged buildings, transformers, and other ancillary work with regards thereto. Energy Services’ other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction. The Company has also added the ability to install residential, commercial, and industrial solar systems and perform civil and general contracting services.
Energy Services’ customers include many of the leading companies in the industries it serves, including:
TransCanada Corporation
NiSource, Inc.
Marathon Petroleum
19
Mountaineer Gas
American Electric Power
Toyota Motor Manufacturing
Bayer Chemical
Dow Chemical
Kentucky American Water
West Virginia American Water
Various state, county and municipal public service districts.
The majority of the Company’s customers are in West Virginia, Virginia, Ohio, Pennsylvania, and Kentucky. However, the Company also performs work in other states including Alabama, Michigan, Illinois, Tennessee, and Indiana.
Energy Services’ sales force consists of industry professionals with significant relevant sales experience, who utilize industry contacts and available public data to determine how to market the Company’s line of products most appropriately. The Company relies on direct contact between its sales force and customers’ engineering and contracting departments to obtain new business.
C.J. Hughes Construction Company, Inc. (“C.J. Hughes”), a wholly owned subsidiary of the Company, is a general contractor primarily engaged in pipeline construction for utility companies. Contractors Rental Corporation (“Contractors Rental”), a wholly owned subsidiary of C.J. Hughes, provides union building trade employees for projects managed by C.J. Hughes.
Nitro Construction Services, Inc. (“NCS”), a wholly owned subsidiary of C.J. Hughes, provides electrical, mechanical, HVAC/R, and fire protection services to customers primarily in the automotive, chemical, and power industries. Revolt Energy, LLC (“Revolt”), a wholly owned subsidiary of NCS, performs residential solar installation projects. Nitro Electric Company, LLC (“Nitro Electric”), a wholly owned subsidiary of NCS, performs industrial electrical work and is a satellite office registered in Michigan. Pinnacle Technical Solutions, Inc. (“Pinnacle”), a wholly owned subsidiary of NCS, operates as a data storage facility within Nitro’s office building. Pinnacle is supported by NCS and has no employees of its own. NCS and its subsidiaries will collectively be referred to “Nitro”.
All C.J. Hughes, Nitro, and Contractors Rental construction personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals.
West Virginia Pipeline, Inc. (“West Virginia Pipeline” or “WVP”), a wholly owned subsidiary of Energy Services, operates as a gas and water distribution contractor primarily in southern West Virginia. The employees of West Virginia Pipeline are non-union and are managed independently of the Company’s union subsidiaries.
SQP Construction Group, Inc. (“SQP”), a wholly owned subsidiary of Energy Services, operates as a general contractor primarily in West Virginia. SQP engages in the construction and renovation of buildings and other civil construction projects for state and local government agencies and commercial customers. As a general contractor, SQP manages the overall construction project and subcontracts most of the work. The employees of SQP are non-union and are managed independently of the Company’s union subsidiaries.
Tri-State Paving & Sealcoating, Inc. (“TSP” or “Tri-State Paving”), a wholly owned subsidiary of Energy Services, completed the acquisition of substantially all of the assets of Tri-State Paving & Sealcoating, LLC (“Tri-State Paving, LLC”) on April 29, 2022. Tri-State Paving provides utility paving services to water distribution customers in the Charleston, West Virginia, Lexington, Kentucky, and Chattanooga, Tennessee markets. The employees of TSP are non-union and are managed independently of the Company’s union subsidiaries.
Ryan Construction Services Inc. (“Ryan Construction” or “RCS”), a wholly owned subsidiary of Energy Services, formed in August 2022 in connection with the acquisition of substantially all the assets of Ryan Environmental, LLC and Ryan Environmental Transport, LLC (collectively “Ryan Environmental”), provides directional drilling services for broadband service providers along with offering natural gas distribution services, cathodic protection and corrosion prevention services, and civil construction services. Ryan Construction operates primarily in West Virginia and Pennsylvania. The employees of RCS are non-union and are managed independently of the Company’s union subsidiaries.
The Company’s website address is www.energyservicesofamerica.com.
20
Seasonality: Fluctuation of Results
Our revenues and results of operations can and usually are subject to seasonal variations. These variations are the result of weather, customer spending patterns, bidding seasons and holidays. The first quarter of the calendar year is typically the slowest in terms of revenues because inclement weather conditions cause delays in production and customers usually do not plan large projects during that time. While usually better than the first quarter, the second calendar year quarter often has some inclement weather which can cause delays in production, reducing the revenues the Company receives and/or increasing the production costs. The third and fourth calendar year quarters usually are less impacted by weather and usually have the largest number of projects underway. Many projects are completed in the fourth calendar year quarter and revenues are often impacted by customers seeking to either spend their capital budget for the year or scale back projects due to capital budget overruns.
In addition to the fluctuations discussed above, the pipeline industry can be highly cyclical, reflecting variances in capital expenditures in proportion to energy price fluctuations. As a result, our volume of business may be adversely affected by where our customers are in the cycle and thereby their financial condition as to their capital needs and access to capital to finance those needs.
Three and Nine Months Ended June 30, 2023 and 2022 Overview
The following is an overview of results from operations for the three and nine months ended June 30, 2023 and 2022:
|
| |
| As Restated |
| | |
| As Restated | |||
| | Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended | ||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
Revenue | | $ | 85,529,892 | | $ | 51,171,939 | | $ | 199,245,920 | | $ | 129,223,642 |
| | | | | | | | | | | | |
Cost of revenues | |
| 74,650,897 | |
| 44,754,346 | |
| 178,480,010 | |
| 114,632,057 |
| | | | | | | | | | | | |
Gross profit | |
| 10,878,995 | |
| 6,417,593 | |
| 20,765,910 | |
| 14,591,585 |
| | | | | | | | | | | | |
Selling and administrative expenses | |
| 5,283,617 | |
| 3,821,043 | |
| 16,487,502 | |
| 10,870,677 |
Income from operations | |
| 5,595,378 | |
| 2,596,550 | |
| 4,278,408 | |
| 3,720,908 |
| | | | | | | | | | | | |
Other income (expense) | |
| | |
| | |
| | |
| |
Interest income | |
| — | |
| — | |
| 196 | |
| 576 |
Other nonoperating expense | |
| (72,338) | |
| (174,957) | |
| (163,525) | |
| (438,195) |
Interest expense | |
| (639,888) | |
| (231,265) | |
| (1,713,862) | |
| (623,498) |
Gain on sale of equipment | |
| 30,136 | |
| 58,311 | |
| 47,073 | |
| 418,103 |
| |
| (682,090) | |
| (347,911) | |
| (1,830,118) | |
| (643,014) |
| | | | | | | | | | | | |
Income before income taxes | |
| 4,913,288 | |
| 2,248,639 | |
| 2,448,290 | |
| 3,077,894 |
| | | | | | | | | | | | |
Income tax expense | |
| 1,497,742 | |
| 651,396 | |
| 767,970 | |
| 945,216 |
| | | | | | | | | | | | |
Net income | | $ | 3,415,546 | | $ | 1,597,243 | | $ | 1,680,320 | | $ | 2,132,678 |
| | | | | | | | | | | | |
Weighted average shares outstanding-basic | |
| 16,602,556 | |
| 16,449,829 | |
| 16,659,169 | |
| 16,270,499 |
| | | | | | | | | | | | |
Weighted average shares-diluted | |
| 16,602,556 | |
| 16,449,829 | |
| 16,659,169 | |
| 16,270,499 |
| | | | | | | | | | | | |
Earnings per share-basic | | $ | 0.21 | | $ | 0.10 | | $ | 0.10 | | $ | 0.13 |
| | | | | | | | | | | | |
Earnings per share-diluted | | $ | 0.21 | | $ | 0.10 | | $ | 0.10 | | $ | 0.13 |
21
Results of Operations for the Three and Nine Months Ended June 30, 2023 Compared to the Three and Nine Months Ended June 30, 2022
Revenues. A table comparing the Company’s revenues for the three and nine months ended June 30, 2023 compared to the three and nine months ended June 30, 2022, is below:
| | Three Months Ended | | | | | |
|
|
| ||||||
|
| June 30, 2023 |
| % of total |
| June 30, 2022 |
| % of total |
| Change |
| % Change |
| |||
Gas & Water Distribution | | $ | 17,906,005 | | 20.9 | % | $ | 13,667,006 | | 26.7 | % | $ | 4,238,999 |
| 31.0 | % |
Gas & Petroleum Transmission | |
| 28,488,329 | | 33.3 | % |
| 15,443,917 | | 30.2 | % |
| 13,044,412 |
| 84.5 | % |
Electrical, Mechanical, and General | |
| 39,135,558 | | 45.8 | % |
| 22,061,016 | | 43.1 | % | | 17,074,542 |
| 77.4 | % |
Total | | $ | 85,529,892 | | 100.0 | % | $ | 51,171,939 | | 100.0 | % | $ | 34,357,953 |
| 67.1 | % |
| | Nine Months Ended | | | | | | | | | ||||||
|
| June 30, 2023 |
| % of total |
| June 30, 2022 |
| % of total |
| Change |
| % Change | | |||
Gas & Water Distribution | | $ | 43,825,957 | | 22.00 | % | $ | 36,282,234 | | 28.08 | % | $ | 7,543,723 | | 20.79 | % |
Gas & Petroleum Transmission | |
| 50,718,004 | | 25.45 | % |
| 35,217,113 | | 27.25 | % |
| 15,500,891 |
| 44.02 | % |
Electrical, Mechanical, and General | |
| 104,701,959 | | 52.55 | % |
| 57,724,295 | | 44.67 | % |
| 46,977,664 |
| 81.38 | % |
Total | | $ | 199,245,920 | | 100.0 | % | $ | 129,223,642 | | 100.0 | % | $ | 70,022,278 |
| 54.19 | % |
Total revenues increased by $34.4 million to $85.5 million for the three months ended June 30, 2023, as compared to $51.2 million for the three months ended June 30, 2022. Total revenues increased by $70.0 million to $199.2 million for the nine months ended June 30, 2023, as compared to $129.2 million for the nine months ended June 30, 2022. The increases were a result of increased work in all categories of business.
Gas & Water Distribution revenues totaled $17.9 million for the three months ended June 30, 2023, a $4.2 million increase from $13.7 million for the three months ended June 30, 2022. Gas & Water Distribution revenues totaled $43.8 million for the nine months ended June 30, 2023, a $7.5 million increase from $36.3 million for the nine months ended June 30, 2022. The revenue increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to paving services performed on water projects.
Gas & Petroleum Transmission revenues totaled $28.5 million for the three months ended June 30, 2023, a $13.0 million increase from $15.4 million for the three months ended June 30, 2022. Gas & Petroleum Transmission revenues totaled $50.7 million for the nine months ended June 30, 2023, a $15.5 million increase from $35.2 million for the nine months ended June 30, 2022. The revenue increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to an increase in transmission projects awarded in 2023 as compared to 2022.
Electrical, Mechanical, & General construction services revenues totaled $39.1 million for the three months ended June 30, 2023, a $17.1 million increase from $22.1 million for the three months ended June 30, 2022. Electrical, Mechanical, & General construction services revenues totaled $104.7 million for the nine months ended June 30, 2023, a $47.0 million increase from $57.7 million for the nine months ended June 30, 2022. The revenue increases were primarily related to increased mechanical and electrical maintenance services performed during the three and nine months ended June 30, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.
22
Cost of Revenues. A table comparing the Company’s costs of revenues for the three and nine months ended June 30, 2023 compared to the three and nine months ended June 30, 2022, is below:
| | Three Months Ended | | | | | | |
| | ||||||
|
| June 30, 2023 |
| % of total |
| June 30, 2022 |
| % of total |
| Change |
| % Change |
| |||
Gas & Water Distribution | | $ | 13,256,617 | | 17.8 | % | $ | 10,887,169 | | 24.3 | % | $ | 2,369,448 |
| 21.8 | % |
Gas & Petroleum Transmission | |
| 24,517,102 | | 32.8 | % |
| 14,286,300 | | 31.9 | % |
| 10,230,802 |
| 71.6 | % |
Electrical, Mechanical, and General | |
| 36,627,738 | | 49.1 | % |
| 20,432,562 | | 45.7 | % |
| 16,195,176 |
| 79.3 | % |
Unallocated Shop Expenses | |
| 249,440 | | 0.3 | % |
| (851,685) | | (1.9) | % |
| 1,101,125 |
| (129.3) | % |
Total | | $ | 74,650,897 | | 100.0 | % | $ | 44,754,346 | | 100.0 | % | $ | 29,896,551 |
| 66.80 | % |
| | Nine Months Ended | | | | | | | | | ||||||
|
| June 30, 2023 |
| % of total |
| June 30, 2022 |
| % of total |
| Change |
| % Change |
| |||
Gas & Water Distribution | | $ | 34,521,047 | | 19.3 | % | $ | 29,425,050 | | 25.7 | % | $ | 5,095,997 |
| 17.32 | % |
Gas & Petroleum Transmission | |
| 44,352,812 | | 24.9 | % |
| 31,600,023 | | 27.6 | % |
| 12,752,789 |
| 40.36 | % |
Electrical, Mechanical, and General | |
| 98,125,733 | | 55.0 | % |
| 53,861,256 | | 47.0 | % |
| 44,264,477 |
| 82.18 | % |
Unallocated Shop Expenses | |
| 1,480,418 | | 0.8 | % |
| (254,272) | | (0.2) | % |
| 1,734,690 |
| (682.22) | % |
Total | | $ | 178,480,010 | | 100.0 | % | $ | 114,632,057 | | 100.0 | % | $ | 63,847,953 |
| 55.70 | % |
Total cost of revenues increased by $29.9 million to $74.7 million for the three months ended June 30, 2023, as compared to $44.8 million for the three months ended June 30, 2022. Total cost of revenues increased by $63.8 million to $178.5 million for the nine months ended June 30, 2023, as compared to $114.6 million for the nine months ended June 30, 2022. The cost of revenues increase was a result of increased work in all categories of business.
Gas & Water Distribution cost of revenues totaled $13.3 million for the three months ended June 30, 2023, a $2.4 million increase from $10.9 million for the three months ended June 30, 2022. Gas & Water Distribution cost of revenues totaled $34.5 million for the nine months ended June 30, 2023, a $5.1 million increase from $29.4 million for the nine months ended June 30, 2022. The cost of revenues increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to paving services performed on water projects.
Gas & Petroleum Transmission cost of revenues totaled $24.5 million for the three months ended June 30, 2023, a $10.2 million increase from $14.3 million for the three months ended June 30, 2022. Gas & Petroleum Transmission cost of revenues totaled $44.4 million for the nine months ended June 30, 2023, a $12.8 million increase from $31.6 million for the nine months ended June 30, 2022. The cost of revenues increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to an increase in transmission projects awarded in 2023 as compared to 2022.
Electrical, Mechanical, & General construction services cost revenues totaled $36.6 million for the three months ended June 30, 2023, a $16.2 million increase from $20.4 million for the three months ended June 30, 2022. Electrical, Mechanical, & General construction services cost revenues totaled $98.1 million for the nine months ended June 30, 2023, a $44.3 million increase from $53.9 million for the nine months ended June 30, 2022. The cost of revenues increases was primarily related to increased mechanical and electrical maintenance services performed during the three and nine months ended June 30, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.
Unallocated shop expenses totaled $249,000 for the three months ended June 30, 2023, a $1.1 million increase from ($852,000) for the three months ended June 30, 2022. Unallocated shop expenses totaled $1.5 million for the nine months ended June 30, 2023, a $1.7 million increase from ($254,000) for the nine months ended June 30, 2022. The increases in unallocated shop expenses were due to decreased internal equipment charges to projects for the three and nine months ended June 30, 2023, as compared to the same period in the prior year.
23
Gross Profit. A table comparing the Company’s gross profit for the three and nine months ended June 30, 2023 compared to the three and nine months ended June 30, 2022, is below:
| | Three Months Ended | | | | | | | | | ||||||
|
| June 30, 2023 |
| % of revenue |
| June 30, 2022 |
| % of revenue |
| Change |
| % Change |
| |||
Gas & Water Distribution | | $ | 4,649,388 | | 26.0 | % | $ | 2,779,837 | | 20.3 | % | $ | 1,869,551 |
| 67.3 | % |
Gas & Petroleum Transmission | |
| 3,971,227 | | 13.9 | % |
| 1,157,617 | | 7.5 | % |
| 2,813,610 |
| 243.1 | % |
Electrical, Mechanical, and General | |
| 2,507,820 | | 6.4 | % |
| 1,628,454 | | 7.4 | % |
| 879,366 |
| 54.0 | % |
Unallocated Shop Expenses | |
| (249,440) | | | |
| 851,685 | | | |
| (1,101,125) |
| (129.3) | % |
Total | | $ | 10,878,995 | | 12.7 | % | $ | 6,417,593 | | 12.5 | % | $ | 4,461,402 |
| 69.5 | % |
| | Nine Months Ended | | | | | | | | | ||||||
|
| June 30, 2023 |
| % of revenue |
| June 30, 2022 |
| % of revenue |
| Change |
| % Change |
| |||
Gas & Water Distribution | | $ | 9,304,910 | | 21.2 | % | $ | 6,857,184 | | 18.9 | % | $ | 2,447,726 |
| 35.7 | % |
Gas & Petroleum Transmission | |
| 6,365,192 | | 12.6 | % |
| 3,617,090 | | 10.3 | % |
| 2,748,102 |
| 76.0 | % |
Electrical, Mechanical, and General | |
| 6,576,226 | | 6.3 | % |
| 3,863,039 | | 6.7 | % |
| 2,713,187 |
| 70.2 | % |
Unallocated Shop Expenses | |
| (1,480,418) | | | |
| 254,272 | | | |
| (1,734,690) |
| (682.2) | % |
Total | | $ | 20,765,910 | | 10.4 | % | $ | 14,591,585 | | 11.3 | % | $ | 6,174,325 |
| 42.3 | % |
| | | | | | | | | | | | | | | | |
Gross profit percentage | |
| 10.4 | % | | |
| 11.3 | % | | |
|
|
|
| |
Total gross profit increased by $4.5 million to $10.9 million for the three months ended June 30, 2023, as compared to $6.4 million for the three months ended June 30, 2022. Total gross profit increased by $6.2 million to $20.8 million for the nine months ended June 30, 2023, as compared to $14.6 million for the nine months ended June 30, 2022.
Gas & Water Distribution gross profit totaled $4.6 million for the three months ended June 30, 2023, a $1.9 million increase from $2.8 million for the three months ended June 30, 2022. Gas & Water Distribution gross profit totaled $9.3 million for the nine months ended June 30, 2023, a $2.4 million increase from $6.9 million for the nine months ended June 30, 2022. The gross profit increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to paving services performed on water projects. The Company has increased its gross profit percentage on Gas & Water Distribution work due partially to project mix and improved pricing on renewed contracts.
Gas & Petroleum Transmission gross profit totaled $4.0 million for the three months ended June 30, 2023, a $2.8 million increase from $1.2 million for the three months ended June 30, 2022. Gas & Petroleum Transmission gross profit totaled $6.4 million for the nine months ended June 30, 2023, a $2.7 million increase from $3.6 million for the nine months ended June 30, 2022. The gross profit increase for both the three and nine month 2023 periods as compared to the prior year periods was primarily related to an increase in transmission projects awarded in 2023 as compared to 2022. Gross profit percentage in fiscal year 2023 has increased on Gas & Petroleum Transmission projects due to increased production, as compared to fiscal year 2022.
Electrical, Mechanical, & General construction services gross profit totaled $2.5 million for the three months ended June 30, 2023, an $879,000 increase from $1.6 million for the three months ended June 30, 2022. Electrical, Mechanical, & General construction services gross profit totaled $6.6 million for the nine months ended June 30, 2023, a $2.7 million increase from $3.9 million for the nine months ended June 30, 2022. The gross profit increases were primarily related to increased mechanical and electrical maintenance services performed during the three and nine months ended June 30, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.
Gross (loss) profit from unallocated shop expenses totaled ($249,000) for the three months ended June 30, 2023, a $1.1 million decrease from $852,000 for the three months ended June 30, 2022. Gross (loss) profit from unallocated shop expenses totaled ($1.5 million) for the nine months ended June 30, 2023, a $1.7 million decrease from $254,000 for the nine months ended June 30, 2022. The increases in gross loss from unallocated shop expenses were due to decreased internal equipment charges to projects for the three and nine months ended June 30, 2023, as compared to the same period in the prior year.
24
Selling and administrative expenses. Total selling and administrative expenses increased by $1.5 million to $5.3 million for the three months ended June 30, 2023, as compared to $3.8 million for the same period in the prior year. Total selling and administrative expenses increased by $5.6 million to $16.5 million for the nine months ended June 30, 2023, as compared to $10.9 million for the same period in the prior year. Selling and administrative expenses increased by $1.0 million and $2.5 million, respectively, for the three and nine months ended June 30, 2023, as compared to the same periods in 2022, for acquired businesses that were not in operation for all fiscal year 2022. The remaining increase was primarily related to additional personnel hired to secure and manage work for expected growth in fiscal year 2023 and beyond.
Other nonoperating expense. Other nonoperating expenses totaled $72,000 for the three months ended June 30, 2023, a decrease of $103,000 from $175,000 for the same period in the prior year. Other nonoperating expense totaled $164,000 for the nine months ended June 30, 2023, a decrease of $275,000 from $438,000 for the same period in the prior year.
Interest expense. Interest expense totaled $640,000 for the three months ended June 30, 2023, an increase of $409,000 from $231,000, as restated, for the same period in the prior year. Interest expense totaled $1.7 million for the nine months ended June 30, 2023, an increase of $1.1 million from $623,000, as restated, for the same period in the prior year. The increase in interest expense was primarily due to the financing of recent acquisitions, an increase in line of credit borrowings due to increased work, and an increase in interest rates.
Gain on sale of equipment. Gain on sale of equipment totaled $30,000 for the three months ended June 30, 2023, a decrease of $28,000 from $58,000 for the same period in the prior year. Gain on sale of equipment totaled $47,000 for the nine months ended June 30, 2023, a decrease of $371,000 from $418,000 for the same period in the prior year. The Company sold certain underutilized or non-working pieces of equipment at auction during the nine months ended June 30, 2022, with no comparable sale occurring during the three and nine months ended June 30, 2023.
Income before income taxes was $4.9 million for the three months ended June 30, 2023, compared to $2.2 million for the same period in the prior year. Income before income taxes was $2.4 million for the nine months ended June 30, 2023, compared to an income before tax of $3.1 million for the same period in the prior year. The changes were primarily related to the items mentioned above.
Income tax expense for the three months ended June 30, 2023, was $1.5 million compared to $651,000 for the same period in the prior year. Income tax expense for the nine months ended June 30, 2023, was $768,000 compared to income tax expense of $945,000 for the same period in the prior year. The changes in income tax expense were due to the changes in taxable income for the three and nine months ended June 30, 2023 as compared to the prior period.
Net income for the three and nine months ended June 30, 2023 was $3.4 million and $1.6 million, respectively, as compared to $1.7 million and $2.1 million for the same periods in the prior year.
Comparison of Financial Condition at June 30, 2023 and September 30, 2022
The Company had total assets of $129.2 million at June 30, 2023, an increase of $16.6 million from the prior fiscal year end balance of $112.6 million.
Accounts receivable, net of allowance for doubtful accounts, totaled $47.8 million at June 30, 2023, an increase of $9.4 million from the prior fiscal year end balance of $38.5 million. The increase was primarily due to the timing of cash collections and project invoicing since September 30, 2022.
The Company had net property, plant and equipment of $36.2 million at June 30, 2023, an increase of $3.5 million from the prior fiscal year end balance of $32.7 million. The increase was due to an $8.5 million cash investment in property, plant and equipment and a $893,000 addition of financed equipment, partially offset by $5.4 million in depreciation and net equipment disposals of $500,000.
Retainage receivable totaled $7.3 million at June 30, 2023, an increase of $2.9 million from the prior fiscal year end balance of $4.4 million. The increase was primarily due to more current year projects that require retainages to be withheld.
Right-of-use assets totaled $3.7 million at June 30, 2023, an increase of $2.1 million from the prior fiscal year end balance of $1.6 million. The increase was primarily due to $2.6 million in operating lease additions, partially offset by $578,000 in amortization expense, during the nine months ended June 30, 2023.
25
Cash and cash equivalents totaled $9.0 million at June 30, 2023, an increase of $1.6 million from the prior fiscal year end balance of $7.4 million. The increase was primarily due to $3.1 million in proceeds from long-term debt, $1.2 million in net short-term borrowings, and a net $10.3 million provided from operating activities, partially offset by a net $8.0 million investment in equipment, $4.0 million in long-term debt repayments, $833,000 in dividend payments on common stock, and $220,000 paid for treasury stock.
Prepaid expenses and other totaled $4.8 million at June 30, 2023, an increase of $904,000 from the prior fiscal year end balance of $3.9 million. The increase was primarily due to financed insurance premiums, net of expense, during the nine months ended June 30, 2023.
Other receivables totaled $567,000 at June 30, 2023, an increase of $556,000 from the prior fiscal year end balance of $11,000. The increase was primarily related to an advance payment on a construction project.
Contract assets totaled $12.2 million at June 30, 2023, a decrease of $3.9 million from the prior fiscal year end balance of $16.1 million. The decrease was primarily due to a difference in the timing of project billings at June 30, 2023, compared to September 30, 2022.
Intangible assets, net totaled $3.5 million at June 30, 2023, a decrease of $401,000 from the prior fiscal year end balance of $3.9 million. The decrease was due to the amortization of intangible assets during the nine months ended June 30, 2023.
Goodwill totaled $4.1 million at June 30, 2023 and September 30, 2022.
The Company had total liabilities of $100.4 million at June 30, 2023, an increase of $16.0 million from the prior fiscal year end balance of $84.4 million.
Contract liabilities totaled $16.6 million at June 30, 2023, an increase of $10.5 million from the prior fiscal year end balance of $6.0 million. The increase was due to a difference in the timing of project billings at June 30, 2023, as compared to September 30, 2022.
Lines of credit and short-term borrowings totaled $28.2 million at June 30, 2023, an increase of $5.1 million from the prior fiscal year end balance of $23.2 million, as restated. The increase was primarily due to the financed insurance premiums, net of repayments and additional line of credit borrowings.
Current and long-term operating lease liabilities totaled $3.6 million at June 30, 2023, an increase of $2.0 million from the prior fiscal year end balance of $1.6 million. The increase was due to operating lease additions of $2.6 million, partially offset by $655,000 in operating lease payments for the nine months ended June 30, 2023.
Deferred tax liabilities totaled $5.2 million at June 30, 2023, an increase of $700,000 from the prior fiscal year end balance of $4.5 million. The increase was primarily related to a decrease in the net operating loss carry forward other tax assets during the nine months ended June 30, 2023.
Long-term debt totaled $17.6 million at June 30, 2023, an increase of $36,000 from the prior fiscal year end balance. The increase in long-term debt was primarily due to $4.0 million in new debt agreements, partially offset by $4.0 million in debt repayments. The new long-term debt was primarily related to the financing of the equipment obtained in the Ryan Construction acquisition, which was a cash transaction at the time of the acquisition.
Accounts payable totaled $18.8 million at June 30, 2023, a decrease of $1.5 million from the prior fiscal year end balance of $20.3 million. The decrease was due to the timing of accounts payable payments as compared to September 30, 2022.
Accrued expenses and other current liabilities, including income tax payable, totaled $10.3 million at June 30, 2023, a decrease of $948,000 from the prior fiscal year end balance of $11.3 million. The decrease was due to the timing of accrued expense payments, as compared to September 30, 2022.
Shareholders’ equity was $28.9 million at June 30, 2023, an increase of $627,000 from the prior fiscal year end balance of $28.2 million. The increase was due to net income of $1.7 million for the nine months ended June 30, 2023, partially offset by common stock dividend payments of $833,000, and treasury stock repurchases of $220,000.
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Liquidity and Capital Resources
Operating Line of Credit
On July 13, 2022, the Company received a one-year extension on its $15.0 million operating line of credit effective June 28, 2022. The interest rate on the line of credit is the “Wall Street Journal” Prime Rate (the index) with a floor of 4.99%. Based on a borrowing base calculation, the Company had borrowed all $12.5 million available on the line of credit as of September 30, 2022. The interest rate at September 30, 2022, was 5.5%.
On January 19, 2023, the Company received an amendment to the agreement which increased the line of credit to $30.0 million with a maturity date of June 28, 2023. On June 1, 2023, the agreement was renewed through June 28, 2024. The line of credit is limited to a borrowing base calculation, which was approximately $24.4 million at June 30, 2023. The outstanding balance on the line of credit was $16.2 million at June 30, 2023. The line of credit has a variable interest rate equal to the “Wall Street Journal” Prime Rate with a floor of 4.5%, which was 9.25% at June 30, 2023.
The modified financial covenants for the quarter ended June 30, 2023, and all subsequent quarters, are below:
| ● | Minimum tangible net worth of $28.0 million, |
| ● | Minimum traditional debt service coverage of 1.50x on a rolling twelve- month basis, |
| ● | Minimum current ratio of 1.20x, |
| ● | Maximum debt to tangible net worth ratio (“TNW”) of 2.75x, |
| ● | Each ratio and covenant shall be determined, tested, and measured as of each calendar quarter beginning June 30, 2023, |
| ● | The Company shall maintain a ratio of Maximum Senior Funded Debt (“SFD”) to Earnings before Interest, Taxes, Depreciation and Amortization (“EBDITA”) equal to or less than 3.5:1. SFD shall mean any funded debt or lease of the Company, other than subordinated debt. The covenant shall be tested quarterly, at the end of each fiscal quarter, with EBITDA based on the preceding four quarters. |
The Company was not in compliance with all covenants at June 30, 2023; however, a waiver was received from the Company’s lender. The Company projects to meet all covenant requirements for the next twelve months.
Insurance Premiums Financed
The Company also finances insurance policy premiums on a short-term basis through a financing company. These insurance policies include workers’ compensation, general liability, automobile, umbrella, and equipment policies. The Company makes a down payment in January and finances the remaining premium amount over eleven monthly payments. At June 30, 2023 and September 30, 2022, the remaining balance of the insurance premiums was $1.9 million and $580,000, respectively.
Paycheck Protection Program Loans
Due to the economic uncertainties created by COVID-19 and limited operating funds available, the Company applied for loans under the PPP. On April 15, 2020, the Company and its subsidiaries, C.J. Hughes, Contractors Rental and Nitro, entered into separate PPP notes effective April 7, 2020, with the Lender, in an aggregate principal amount of $13.1 million pursuant to the PPP Loans. In a special meeting held on April 27, 2020, the Board of Directors of the Company unanimously voted to return $3.3 million of the PPP Loans after discussing the financing needs of the Company and subsidiaries. That left the Company and subsidiaries with $9.8 million in PPP Loans to fund operations. During fiscal year 2021, the Company received notice that the SBA had granted forgiveness of the $9.8 million of PPP Loans and the SBA repaid the Lender in full. The forgiveness was recorded as other income for the fiscal year ended September 30, 2021.
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During April 2023, management received notification from the SBA that one of the Company’s forgiveness applications related to the PPP Loans was under review. As part of the review, the SBA requested additional payroll information. Additionally, the SBA requested information regarding the ability of the Company’s affiliates to meet SBA size standards and/or PPP corporate maximum limits. The requested information was subsequently provided to the SBA through the Lender. The Company recognizes that there is a possibility that the SBA could reverse its previous determination on the forgiveness of the PPP Loans. As a result of this uncertainty, on May 12, 2023, the audit committee of the Board of Directors of Energy Services, after considering the recommendation of management, concluded: that (a) the Company’s previously issued audited consolidated financial statements for the fiscal years ended September 30, 2022 and 2021, and the related reports of its independent registered public accounting firm, Baker Tilly, included in the Company’s annual reports on Form 10-K for the fiscal years ended September 30, 2022 and 2021, and (b) the Company’s unaudited consolidated financial statements for the periods ended June 30, 2021, December 31, 2021, March 31, 2022, June 30, 2022 and December 31, 2022 as reported in the Company’s quarterly reports on Form 10-Q for those periods should no longer be relied upon and have been restated. The Company has recorded a short-term borrowing due to the SBA inquiry for the full $9.8 million, plus accrued interest for all periods presented.
During July 2023, management received notification from the SBA that two additional forgiveness applications related to the PPP Loans were under review. As part of the review, the SBA requested information regarding the ability of the Company's affiliates to meet SBA size standards and/or PPP corporate maximum limits. The requested information was subsequently provided to the SBA through the Lender.
Borrowers must retain PPP documentation for at least six years after the date the loan is forgiven or paid in full, and the SBA and SBA Inspector General must be granted these files upon request. The SBA could revisit its forgiveness decision and determine that the Company does not qualify in whole or in part for loan forgiveness and demand repayment of the loans. In addition, it is unknown what type of penalties could be assessed against the Company if the SBA disagrees with the Company’s certification. Any penalties in addition to the potential repayment of the PPP Loans could negatively impact the Company’s business, financial condition and results of operations and prospects.
Long-Term Debt
On December 16, 2014, the Company’s Nitro subsidiary entered into a 20-year $1.2 million loan agreement with a bank to purchase the office building and property it had previously been leasing for $6,300 monthly. The interest rate on this loan agreement is 4.82% with monthly payments of $7,800. The interest rate on this note is subject to change from time to time based on changes in the U.S. Treasury yield, adjusted to a constant maturity of three years as published by the Federal Reserve weekly. As of June 30, 2023, the Company had made principal payments of $373,000. The loan is collateralized by the building purchased under this agreement. The note is currently held by Peoples Bank, Inc., formerly First Bank of Charleston, Inc. (West Virginia).
On November 13, 2015, the Company entered into a 10-year $1.1 million loan agreement with United Bank to purchase the fabrication shop and property Nitro had previously been leasing for $12,900 each month. The variable interest rate on the loan agreement is 9.0% at June 30, 2023 with monthly payments of $12,500. As of June 30, 2023, the Company had made principal payments of $775,000. The loan is collateralized by the building and property purchased under this agreement.
On December 31, 2020, West Virginia Pipeline Acquisition Company, later renamed West Virginia Pipeline, Inc., entered into a $3.0 million sellers’ note agreement with David and Daniel Bolton for the remaining purchase price of West Virginia Pipeline, Inc. For the purchase price allocation, the $3.0 million note had a fair value of $2.85 million. As part of the $6.35 million acquisition price, the Company paid $3.5 million in cash in addition to the note. The unsecured five-year term note requires annual payments of at least $500,000 with a fixed interest rate of 3.25% on the $3.0 million sellers’ note, which equates to 5.35% on the carrying value of the note. The Company has made principal payments of $1.3 million on this note as of June 30, 2023.
On January 4, 2021, the Company entered into a $3.0 million Non-Revolving Note agreement with United Bank. This five-year agreement gave the Company access to a $3.0 million line of credit (“Equipment Line of Credit 2021”), specifically for the purchase of equipment, for a period of twelve months with a variable interest rate initially established at 4.25% as based on the Prime Rate as published by The Wall Street Journal. After twelve months, all borrowings against the Equipment Line of Credit 2021 were converted to a four-year term note agreement with a variable interest rate initially established at 4.25%. The loan is collateralized by the equipment purchased under this agreement. As of June 30, 2023, the Company borrowed $3.0 million against this line of credit with monthly payments of $68,000 that started in February 2022. The interest rate at June 30, 2023 was 9.25%. The Company has made principal payments of $969,000 on this note as of June 30, 2023.
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On April 2, 2021, the Company entered into a $3.5 million Non-Revolving Note agreement with United Bank. This five-year agreement repaid the outstanding $3.5 million line of credit that was used for the down payment on the West Virginia Pipeline acquisition. This loan has monthly installment payments of $65,000 and has a fixed interest rate of 4.25%. The loan is collateralized by the Company’s equipment and receivables. As of June 30, 2023, the Company had made principal payments of $1.5 million.
On April 29, 2022, the Company entered into a $7.5 million Non-Revolving Note agreement with United Bank. This five-year agreement was used to finance the purchase of Tri-State Paving and has monthly payments of $129,910 with a fixed interest rate of 4.25%. The Company has made principal payments of $1.5 million on this note as of June 30, 2023.
On April 29, 2022, the Company entered into a $1.0 million promissory note agreement with Corns Enterprises, a related party, as partial consideration for the purchase of Tri-State Paving. This four-year agreement requires $250,000 principal installment payments on or before the end of each twelve (12) full calendar month period beginning April 29, 2022. Interest payments due shall be calculated on the principal balance remaining and shall be at the stated rate of 3.5% per year. The Company had made principal payments of $250,000 on this note as of June 30, 2023.
On October 10, 2022, the Company entered into a $3.1 million promissory note agreement with United Bank. This five-year agreement financed the previous cash value of equipment purchased in the Ryan Construction acquisition. This loan has monthly installment payments of $60,000 and has a fixed interest rate of 6.0%. The loan is collateralized by the Company’s equipment and receivables. As of June 30, 2023, the Company had made principal payments of $360,000.
On June 1, 2023, the Company entered into a $9.3 million Non-Revolving Note agreement with United Bank. This five-year agreement gave the Company access to a $9.3 million line of credit ("Equipment Line of Credit 2023"), specifically for the purchase of equipment, for a period of six months with a fixed interest rate of 7.25%. After six months, all borrowings against the Equipment Line of Credit 2023 will convert to a fifty-four-month term note agreement with a fixed interest rate of 7.25%. The loan will be collateralized by the equipment purchased under this agreement. As of June 30, 2023, the Company had not borrowed against this line of credit.
Lease Obligations
The Company leases office space for SQP for $1,500 per month. The lease, signed on March 25, 2021, is for a period of two years with five one-year renewals available immediately following the end of the base term. Rental terms for the option periods shall be negotiated and agreed mutually between the parties and shall not exceed five percent increases to rent, if any.
The Company has two lease agreements for construction equipment with a combined amount of $160,000. The leases have a term of twenty-two months with a stated interest rate of 0%, combined monthly installment payments of $6,645 and are cancellable at any time without penalty. The Company has the right to purchase the equipment at the expiration of the leases by applying the two-month deposit paid. The related assets and finance lease obligations associated with these lease agreements are included in the consolidated balance sheets within property, plant and equipment and long-term debt.
The Company has two right-of-use operating leases acquired on April 29, 2022, as part of the Tri-State Paving, LLC transaction. The first operating lease, for the Hurricane, West Virginia facility, had a net present value of $236,000 at inception, and a carrying value of $148,000 at June 30, 2023. The second operating lease, for the Chattanooga, Tennessee facility, had a net present value of $144,000 at inception, and a carrying value of $72,000 at June 30, 2023. The 4.5% interest rate on the operating leases is based on the Company’s incremental borrowing rate at inception.
The Company has a right-of-use operating lease with Enterprise Fleet Management, Inc. acquired on August 11, 2022, as part of the Ryan Environmental acquisition. This lease agreement was initially for thirty-one vehicles with a net present value of $1.2 million. The Company has subsequently added twenty-six leased vehicles with a net present value of $2.4 million. The right-of-use operating lease has a carrying value of $3.2 million at June 30, 2023. The 4.5% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.
The Company has a right-of-use operating lease with RICA Developers, LLC acquired on August 12, 2022, as part of the Ryan Environmental acquisition. This lease, for the Bridgeport, West Virginia facility, had a net present value of $140,000 at inception and a carrying value of $21,000 at June 30, 2023. The 4.5% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.
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The Company has a right-of-use operating lease acquired on March 28, 2023. This lease, for the Winchester, Kentucky facility, had a net present value of $290,000 at inception and a carrying value of $247,000 at June 30, 2023. The 7.75% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.
Off-Balance Sheet Arrangements
Due to the nature of our industry, we often enter into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected in our balance sheets. Though for the most part not material in nature, some of these are:
Rental Agreements
The Company rents equipment for use on construction projects with rental agreements being week to week or month to month. Rental expense can vary by reporting period due to equipment requirements on construction projects and the availability of Company owned equipment. Rental expense, which is included in cost of goods sold on the consolidated statements of income was $2.5 million and $1.7 million, respectively, for the three months ended June 30, 2023 and 2022 and $6.8 million and $5.3 million, respectively, for the nine months ended June 30, 2023 and 2022.
Letters of Credit
Certain customers or vendors may require letters of credit to secure payments that the vendors are making on our behalf or to secure payments to subcontractors and vendors on various customer projects. At June 30, 2023, the Company did not have any letters of credit outstanding.
Performance Bonds
Some customers, particularly new ones or governmental agencies require the Company to post bid bonds, performance bonds and payment bonds (collectively, performance bonds). These performance bonds are obtained through insurance carriers and guarantee to the customer that we will perform under the terms of a contract and that we will pay subcontractors and vendors. If the Company fails to perform under a contract or to pay subcontractors and vendors, the customer may demand that the insurer make payments or provide services under the bond. The Company must reimburse the insurer for any expenses or outlays it is required to make.
Currently, the Company has an agreement with a surety company to provide bonding which will suit the Company’s immediate needs. The ability to obtain bonding for future contracts is an important factor in the contracting industry with respect to the type and value of contracts that can be bid. Depending upon the size and conditions of a particular contract, the Company may be required to post letters of credit or other collateral in favor of the insurer. Posting these letters or other collateral will reduce our borrowing capabilities. The Company does not anticipate any claims in the foreseeable future. At June 30, 2023, the Company had $139.8 million in performance bonds outstanding.
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Concentration of Credit Risk
In the ordinary course of business, the Company grants credit under normal payment terms, generally without collateral, to our customers, which include natural gas and oil companies, general contractors, and various commercial and industrial customers located within the United States. Consequently, the Company is subject to potential credit risk related to business and economic factors that would affect these companies. However, the Company generally has certain statutory lien rights with respect to services provided. Under certain circumstances such as foreclosure, the Company may take title to the underlying assets in lieu of cash in settlement of receivables.
Please see the tables below for customers that represent 10.0% or more of the Company’s revenue for the three and nine months ended June 30, 2023 and 2022:
|
| Three Months Ended |
| ||
Revenue |
| June 30, 2023 |
| June 30, 2022 |
|
NiSource | | 15.5 | % | * | |
TransCanada Corporation |
| 15.1 | % | 19.1 | % |
All other |
| 69.4 | % | 80.9 | % |
Total |
| 100.0 | % | 100.0 | % |
* Less than 10.0% and included in “All other” if applicable
| | Nine Months Ended |
| ||
Revenue |
| June 30, 2023 |
| June 30, 2022 | |
TransCanada Corporation | | 11.1 | % | 16.4 | % |
NiSource | | 10.7 | % | * | |
All other | | 78.2 | % | 83.6 | % |
Total | | 100.0 | % | 100.0 | % |
* Less than 10.0% and included in “All other” if applicable
Please see the tables below for customers that represent 10.0% or more of the Company’s accounts receivable, net of retention at June 30, 2023 and September 30, 2022:
Accounts receivable, net of retention |
| June 30, 2023 |
| September 30, 2022 |
|
NiSource |
| 21.5 | % | * | |
TransCanada Corporation | | 12.2 | % | * | |
All other |
| 66.3 | % | 100.0 | % |
Total |
| 100.0 | % | 100.0 | % |
* Less than 10.0% and included in “All other” if applicable
Litigation
In February 2018, the Company filed a lawsuit against a former customer (“Defendant”) in the United States District Court for the Western District of Pennsylvania. The lawsuit is related to a dispute over work performed on a pipeline construction project. On November 21, 2022, a Judgment Order was issued, and the Company was awarded $13.1 million, of which $5.8 million was the jury award, $1.6 million was for attorney’s fees, and $5.7 million was for penalties and interest. The amounts awarded by the Judgment Order have not been recognized in the Company’s consolidated financial statements as of June 30, 2023. The Company’s attorney’s fees have been expensed as incurred. The case has been appealed to the United States Court of Appeals for the Third Circuit and is expected to be heard within the next 10 to 12 months.
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On November 12, 2021, the Company received a withdrawal liability claim from a pension plan to which the Company made pension contributions for union construction employees performing covered work in a particular jurisdiction. The Company has not performed covered work in their jurisdiction since 2011; however, the Company disagrees with the withdrawal claim and believes it is covered by an exemption under federal law. The demand called for thirty-four quarterly installment payments of $41,000 starting December 15, 2021. The Company must comply with the demand under federal pension law; however, the Company firmly believes no withdrawal liability exists. The Company is in negotiations with the pension fund to resolve the matter and all future payments have been suspended as part of the negotiation. The Company has expensed all $164,000 in payments made through June 30, 2023 and does not expect any future liabilities related to this claim.
Other than described above, at June 30, 2023, the Company was not involved in any legal proceedings other than in the ordinary course of business. The Company is a party from time to time 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 and/or property damages, punitive damages, civil penalties, or other losses, or injunctive or declaratory relief. With respect to all such lawsuits, claims, and proceedings, we record reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. At June 30, 2023, the Company does not believe that any of these proceedings, separately or in aggregate, would be expected to have a material adverse effect on our financial position, results of operations or cash flows.
Related Party Transactions
We intend that all transactions between us and our executive officers, directors, holders of 10% or more of the shares of any class of our common stock and affiliates thereof, will be on terms no less favorable than those terms given to unaffiliated third parties and will be approved by a majority of our independent outside directors not having any interest in the transaction.
On December 16, 2014, the Company’s Nitro subsidiary entered into a 20-year $1.2 million loan agreement with First Bank of Charleston, Inc. (West Virginia) to purchase the office building and property it had previously been leasing for $6,300 each month. The interest rate on the loan agreement is 4.82% with monthly payments of $7,800. As of March 31, 2023, the Company had paid approximately $373,000 in principal and approximately $424,000 in interest since the beginning of the loan. Mr. Douglas Reynolds, President of Energy Services, was a director and secretary of First Bank of Charleston. Mr. Samuel Kapourales, a director of Energy Services, was also a director of First Bank of Charleston. On October 15, 2018, First Bank of Charleston was merged into Premier Bank, Inc., a wholly owned subsidiary of Premier Financial Bancorp, Inc. Mr. Marshall Reynolds, Chairman of the Board of Energy Services, held the same position with Premier Financial Bancorp, Inc. Mr. Douglas Reynolds is the president and a director of Energy Services and was a director of Premier Financial Bancorp, Inc. On September 17, 2021, Peoples Bancorp, Inc., parent company of Peoples Bank, completed an acquisition of Premier Financial Bancorp, Inc. and its wholly owned subsidiaries, Premier Bank and Citizens Deposit Bank & Trust. On October 26, 2021, Mr. Douglas Reynolds was elected director of Peoples Bancorp, Inc., and its subsidiary Peoples Bank (collectively “Peoples Bank”). On February 21, 2023, Mr. Reynolds resigned from the board of directors of Peoples Bank.
On April 29, 2022, the Company entered into a $1.0 million promissory note agreement with Corns Enterprises as partial consideration for the purchase of Tri-State Paving. This four-year agreement requires $250,000 principal installment payments on or before the end of each twelve (12) full calendar month period beginning April 29, 2022. Interest payments due shall be calculated on the principal balance remaining and shall be at the stated rate of 3.5% per year.
Subsequent to the April 29, 2022 acquisition of Tri-State Paving, the Company entered into an operating lease for facilities in Hurricane, West Virginia with Corns Enterprises. This thirty-six-month lease is treated as a right-of-use asset and has payments of $7,000 per month. The total net present value was $236,000 at inception, and had a carrying value of $148,000 at June 30, 2023.
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SQP made an equity investment of $156,000 in 1030 Quarrier Development, LLC (“Development”) in August 2022. Development is a variable interest entity (“VIE”) that is 75% owned by 1030 Quarrier Ventures, LLC (“Ventures”) and 25% owned by SQP. SQP is not the primary beneficiary of the VIE and therefore, will not consolidate Development into its consolidated financial statements. Instead, SQP will apply the equity method of accounting for its investment in Development. Development, a 1% owner, and United Bank, a 99% owner, formed 1030 Quarrier Landlord, LLC (“Landlord”). Landlord decided to pursue the following development project (the “Project”): a historical building at 1030 Quarrier Street, Charleston, West Virginia as well as associated land (the “Property”) was purchased to be developed/rehabilitated into a commercial project including apartments and commercial space. Upon the completion of development, the Property will be used to generate rental income. SQP has been awarded the construction contract for the Project. United Bank provided $5.0 million in loans to fund the Project. SQP and Ventures have jointly provided an unconditional guarantee for the $5.0 million of obligations associated with the Project. As of June 30, 2023, there is no significant impact on our consolidated financial statements in connection with this investment by SQP.
Other than mentioned above, there were no new material related party transactions entered into during the three months ended June 30, 2023.
Certain Energy Services subsidiaries routinely engage in transactions in the normal course of business with each other, including sharing employee benefit plan coverage, payment for insurance and other expenses on behalf of other affiliates, and other services incidental to business of each of the affiliates. All revenue and related expense transactions, as well as the related accounts payable and accounts receivable have been eliminated in consolidation.
Inflation
Most significant project materials, such as pipe or electrical wire, are provided by the Company’s customers. When possible, the Company attempts to lock in pricing with vendors and include qualifications regarding material costs increases in bids. Where allowed by contract, the Company will address fuel cost increases with customers. Significant inflation or supply chain issues could cause customers to delay or cancel planned projects; however, inflation did not have a significant effect on our results for the nine months ended June 30, 2023 and 2022.
Critical Accounting Estimates
The discussion and analysis of the Company’s financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates. Management believes the following accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenues
The Company recognizes revenue as performance obligations are satisfied and control of the promised good and service is transferred to the customer. For Lump Sum and Unit Price contracts, revenue is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward complete satisfaction of the performance obligation(s) using an input (i.e., “cost to cost”) method. For Cost Plus and Time and Material (“T&M”) contracts, revenue is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward satisfaction of the performance obligation(s) using an output method. The Company also does certain T&M service work that is generally completed in a short duration and is recognized at a point in time.
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The accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the cost to complete each project. We believe our experience allows us to create materially reliable estimates. There are a number of factors that can contribute to changes in estimates of contract cost and profitability.
The most significant of these include:
| ● | the completeness and accuracy of the original bid; |
| ● | costs associated with scope changes; |
| ● | changes in costs of labor and/or materials; |
| ● | extended overhead and other costs due to owner, weather and other delays; |
| ● | subcontractor performance issues; |
| ● | changes in productivity expectations; |
| ● | site conditions that differ from those assumed in the original bid; |
| ● | changes from original design on design-build projects; |
| ● | the availability and skill level of workers in the geographic location of the project; |
| ● | a change in the availability and proximity of equipment and materials; |
| ● | our ability to fully and promptly recover on affirmative claims and back charges for additional contract costs; and |
| ● | the customer’s ability to properly administer the contract. |
The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit from period to period. Significant changes in cost estimates, particularly in our larger, more complex projects could have a significant effect on our profitability.
Our contract assets include cost and estimated earnings in excess of billings that represent amounts earned and reimbursable under contracts, including claim recovery estimates, but have a conditional right for billing and payment such as achievement of milestones or completion of the project. With the exception of customer affirmative claims, generally, such unbilled amounts will become billable according to the contract terms and generally will be billed and collected over the next three months. Settlement with the customer of outstanding affirmative claims is dependent on the claims resolution process and could extend beyond one year. Based on our historical experience, we generally consider the collection risk related to billable amounts to be low. When events or conditions indicate that it is probable that the amounts outstanding become unbillable, the transaction price and associated contract asset is reduced.
Our contract liabilities consist of provisions for losses and billings in excess of costs and estimated earnings. Provisions for losses are recognized in the consolidated statements of income at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue. Billings in excess of costs and estimated earnings are billings to customers on contracts in advance of work performed, including advance payments negotiated as a contract condition. Generally, unearned project-related costs will be earned over the next twelve months.
The following table presents our costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings at June 30, 2023 and September 30, 2022:
|
| June 30, 2023 |
| September 30, 2022 | ||
Costs incurred on contracts in progress | | $ | 165,370,815 | | $ | 192,957,145 |
Estimated earnings, net of estimated losses |
| | 19,220,491 |
| | 28,150,060 |
|
| | 184,591,306 |
| | 221,107,205 |
Less billings to date |
| | 188,968,569 |
| | 211,025,190 |
| | $ | (4,377,263) |
| $ | 10,082,015 |
| |
| |
| |
|
Costs and estimated earnings in excess of billed on uncompleted contracts | | $ | 12,198,918 | | $ | 16,109,593 |
| | | | | | |
Less billings in excess of costs and estimated earnings on uncompleted contracts | |
| 16,576,181 | |
| 6,027,578 |
| | | | | | |
| | $ | (4,377,263) | | $ | 10,082,015 |
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Allowance for doubtful accounts
The Company provides an allowance for doubtful accounts when collection of an account is considered doubtful. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates relating to, among others, our customers’ access to capital, our customers’ willingness or ability to pay, general economic conditions and the ongoing relationship with the customers. While most of our customers are large well capitalized companies, should they experience material changes in their revenues and cash flows or incur other difficulties and not be able to pay the amounts owed, this could cause reduced cash flows and losses in excess of our current reserves.
Materially incorrect estimates of bad debt reserves could result in an unexpected loss in profitability for the Company. Additionally, frequently changing reserves could be an indication of risky or unreliable customers. At June 30, 2023, the management review deemed that the allowance for doubtful accounts was adequate.
Please see the allowance for doubtful accounts table below:
|
| June 30, 2023 |
| September 30, 2022 | ||
| | | | | | |
Beginning balance | | $ | 70,310 | | $ | 70,310 |
Charged to expense | |
| — | |
| — |
Deductions for uncollectible receivables written off, net of recoveries | |
| 19,247 | |
| — |
Ending Balance | | $ | 51,063 | | $ | 70,310 |
Impairment of goodwill and intangible assets
The Company follows the guidance of ASC Topic 350, Intangibles-Goodwill and Other, which requires a company to record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value. Under the current guidance, companies can first choose to assess any impairment based on qualitative factors (Step 0). If a company fails this test or decides to bypass this step, it must proceed with a quantitative assessment of goodwill impairment. The Company did not have a goodwill impairment at June 30, 2023 or September 30, 2022.
Materially incorrect estimates could cause an impairment to goodwill or intangible assets and result in a loss in profitability for the Company.
A table of the Company’s intangible assets subject to amortization is below:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Amortization | | Amortization | | | | |||
| | | | | | | Accumulated | | Accumulated | | and Impairment | | and Impairment | | | | ||||
|
| Remaining Life |
| | |
| Amortization and |
| Amortization and |
| Three Months | | Nine Months | | | |||||
| | (in months) at | | | | | Impairment at | | Impairment at | | Ended June 30, | | Ended June 30, | | Net Book Value | |||||
Intangible assets: |
| June 30, 2023 | | Original Cost |
| June 30, 2023 |
| September 30, 2022 |
| 2023 |
| 2023 |
| at June 30, 2023 | ||||||
| | | | | | | | | | | | | | | | | | | | |
West Virginia Pipeline: | | | | | | | | | | | | | | | | | | | | |
Customer Relationships | | 90 | | $ | 2,209,724 | | $ | 573,225 | | $ | 386,693 | | $ | 65,643 | | $ | 186,532 | | $ | 1,636,499 |
Tradename | | 90 | | | 263,584 | | | 65,909 | | | 46,136 | | | 6,591 | | | 19,773 | | | 197,675 |
Non-competes | | — | | | 83,203 | | | 83,203 | | | 72,806 | | | — | | | 10,397 | | | — |
| | | | | | | | | | | | | | | | | | | | |
Revolt Energy: |
|
|
| |
|
| |
|
| |
|
| |
| | |
| |
| |
| | | | | | | | | | | | | | | | | | | | |
Employment agreement/non-compete |
| — |
| | 100,000 |
| | 100,000 |
| | 77,779 |
| | 13,887 | | | 22,221 | |
| — |
| | | | | | | | | | | | | | | | | | | | |
Tri-State Paving: | | | | | | | | | | | | | | | | | | | | |
Customer Relationships | | 106 | | | 1,649,159 | | | 190,468 | | | 66,781 | | | 41,229 | | | 123,687 | | | 1,458,691 |
Tradename | | 106 | | | 203,213 | | | 23,609 | | | 8,368 | | | 5,080 | | | 15,241 | | | 179,604 |
Non-competes | | — | | | 39,960 | | | 39,960 | | | 16,590 | | | 3,390 | | | 23,370 | | | — |
| | | | | | | | | | | | | | | | | | | | |
Total intangible assets | | | | $ | 4,548,843 | | $ | 1,076,374 | | $ | 675,153 | | $ | 135,820 | | $ | 401,221 | | $ | 3,472,469 |
35
Depreciation and Amortization
The purpose of depreciation and amortization is to represent an accurate value of assets on the books. Every year, as assets are used, their values are reduced on the balance sheet and expensed on the income statement. As depreciation and amortization are a noncash expense, the amount must be estimated. Each year a certain amount of depreciation and amortization is written off and the book value of the asset is reduced.
Property and equipment are recorded at cost. Costs which extend the useful lives or increase the productivity of the assets are capitalized, while normal repairs and maintenance that do not extend the useful life or increase productivity of the asset are expensed as incurred. Property and equipment are depreciated principally on the straight-line method over the estimated useful lives of the assets: buildings 39 years; operating equipment and vehicles 5-7 years; and office equipment, furniture and fixtures 5-7 years.
Acquired intangible assets subject to amortization are amortized on a straight-line basis, which approximates the pattern in which the economic benefit of the respective intangible assets is realized, over their respective estimated useful lives. The definite-lived identifiable intangible assets recognized as part of the Company’s business combinations are recorded at their estimated fair value.
The Company’s depreciation expense for the nine months ended June 30, 2023 and 2022 was $5.4 million and $4.0 million, respectively. In general, depreciation is included in “cost of revenues” on the Company’s consolidated statements of income.
The Company’s intangible amortization expense for the nine months ended June 30, 2023 and 2022 was $401,000 and $308,000, respectively. In general, amortization is included in “selling and administrative expenses” on the Company’s consolidated statements of income.
Materially incorrect estimates of depreciation and amortization and/or the useful lives of assets could significantly impact the value of long-lived assets on the Company’s consolidated financial statements. A material overvaluation could result in impairment charges and reduced profitability for the Company.
Income Taxes
The Company’s income tax expenses and deferred tax assets and liabilities reflect management’s best estimate of current and future taxes to be paid. Significant judgments and estimates are required in the determination of the consolidated income tax expense. The Company’s provision for income taxes is computed by applying a federal rate of 21.0% and a state rate of 6.0% (net of federal tax benefit) to taxable income or loss after consideration of non-taxable and non-deductible items.
Permanent income tax differences result in an increase or decrease in taxable income and impact the Company’s effective tax rates, which were 30.5% and 29.0%, as restated, for the three months ended June 30, 2023, and 2022, respectively. The effective income tax rate for the nine months ended June 30, 2023 was 31.4%, as compared to 30.7%, as restated, for the same period in the prior year. Our tax rate is affected by recurring items, such as non-deductible expenses, which we expect to be fairly consistent in the near term.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future. At June 30, 2023, the Company had a net deferred income tax liability of $5.2 million as compared to $4.5 million at September 30, 2022. The Company’s deferred income tax liabilities at June 30, 2023 totaled $8.5 million and primarily related to depreciation on property and equipment. The Company’s deferred income tax assets at June 30, 2023, totaled $3.4 million and primarily related to a NOL carryforward. The Company believes that it is more likely than not that all NOL carryforwards will be realized.
Accounting for PPP loans
The Company’s accounting for PPP loans reflects management’s best estimate of current and future amounts to be paid. The Company applies significant judgment regarding the determination of PPP loan forgiveness based on the rules established, and subsequently clarified by the SBA, including rules related to the Company’s affiliations and meeting SBA size standards.
Refer to Note 3 “Restatement of Previously Issued Financial Statements” in the accompanying consolidated financial statements for additional details.
36
New Accounting Pronouncements
On October 28, 2021, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments of this ASU require entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The amendments are effective for public business entities for the fiscal years, including interim periods within those the fiscal years, beginning after December 15, 2022. For all other entities they are effective for the fiscal years, including interim periods within those the fiscal years, beginning after December 15, 2023. Entities should apply the amendments prospectively to business combinations that occur after the effective date. Early adoption is permitted, including in any interim period, for public business entities for periods for which financial statements have not yet been issued, and for all other entities for periods for which financial statements have not yet been made available for issuance. The Company is currently assessing the effect that ASU 2021-08 will have on their results of operations, financial position and cash flows; however, the Company does not expect a significant impact.
The FASB recently issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which aims to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the financial statements. Entities are required to provide the new disclosures prospectively for all transactions with a government entity that are accounted for under either a grant or a contribution accounting model and are reflected in the financial statements at the date of initially applying the new amendments, and to new transactions entered into after that date. Retrospective application of the guidance is permitted. The guidance in ASU 2021-10 is effective for financial statements of all entities for annual periods beginning after December 15, 2021, with early application permitted.The Company adopted ASU 2021-10 on October 1, 2022, and its adoption did not have a significant impact on the Company’s consolidated financial statements.
Subsequent Events
Management has evaluated all subsequent events for accounting and disclosure. There have been no other material events during the period, other than noted above, that would either impact the results reflected in the report or the Company’s results going forward.
Outlook
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.
The Company is seeing a significant increase in bid opportunities for natural gas transmission and distribution projects along with electrical, mechanical, and general construction projects. The Company’s backlog at June 30, 2023 was $185.9 million, as compared to $135.0 million and $142.3 million at June 30, 2022, and September 30, 2022, respectively. While adding additional projects appears likely, no assurances can be given that the Company will be successful in bidding on projects that become available. Moreover, even if the Company obtains contracts, there can be no guarantee that the projects will go forward.
ITEM 3. Quantitative and Quantitative Disclosures About Market Risk
Not required for a smaller reporting company.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
37
The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report. Based upon that evaluation, management identified a material weakness in our internal control over financial reporting which was also disclosed in our Amendment No. 1 to the Annual Report on Form 10-K/A. As a result of this material weakness, management concluded that our disclosure controls and procedures were not effective as of September 30, 2022, March 31, 2023, and June 30, 2023.
Remediation Plan and Status
In response to the identified material weakness, our management, with the oversight of the Audit Committee of our Board of Directors, has dedicated significant resources, including the involvement of outside advisors, and efforts to improve our internal control over financial reporting and has taken immediate action to remediate the material weakness identified. Certain remedial actions have been completed including ongoing involvement of outside advisors to review compliance with the SBA’s rules and regulations for loan forgiveness. The Company will further enhance these controls over the remainder of fiscal year 2023.
Inherent Limitations on Control Systems
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
Except as noted above, no changes in the Company’s internal control over financial reporting occurred during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
38
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
In February 2018, the Company filed a lawsuit against a former customer (“Defendant”) in the United States District Court for the Western District of Pennsylvania. The lawsuit is related to a dispute over work performed on a pipeline construction project. On November 21, 2022, a Judgment Order was issued, and the Company was awarded $13.1 million, of which $5.8 million was the jury award, $1.6 million was for attorney’s fees, and $5.7 million was for penalties and interest. The amounts awarded by the Judgment Order have not been recognized in the Company’s consolidated financial statements as of June 30, 2023. The Company’s attorney’s fees have been expensed as incurred. The case has been appealed to the United States Court of Appeals for the Third Circuit and is expected to be heard within the next 10 to 12 months.
On November 12, 2021, the Company received a withdrawal liability claim from a pension plan to which the Company made pension contributions for union construction employees performing covered work in a particular jurisdiction. The Company has not performed covered work in their jurisdiction since 2011; however, the Company disagrees with the withdrawal claim and believes it is covered by an exemption under federal law. The demand called for thirty-four quarterly installment payments of $41,000 starting December 15, 2021. The Company must comply with the demand under federal pension law; however, the Company firmly believes no withdrawal liability exists. The Company is in negotiations with the pension fund to resolve the matter and all future payments have been suspended as part of the negotiation. The Company has expensed all $164,000 in payments made through June 30, 2023 and does not expect any future liabilities related to this claim.
Other than described above, at June 30, 2023, the Company was not involved in any legal proceedings other than in the ordinary course of business. The Company is a party from time to time 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 and/or property damages, punitive damages, civil penalties, or other losses, or injunctive or declaratory relief. With respect to all such lawsuits, claims, and proceedings, we record reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. At June 30, 2023, the Company does not believe that any of these proceedings, separately or in aggregate, would be expected to have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 1A. Risk Factors
There have been no material changes in our risk factors from those previously disclosed in Item 1A of Part 1 of our Amendment No.1 to the Annual Report on Form 10-K/A for the year ended September 30, 2022.
39
ITEM 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
| (a) | There have been no unregistered sales of equity securities during the period covered by the report. |
| (b) | None. |
The repurchases of Energy Services of America Corporation’s shares of its common stock during the three months ended June 30, 2023 was as follows:
|
| |
| | |
| Value of Shares |
| Maximum Number of | |
| | | | | | | Purchased as Part of | | Shares That May Yet Be | |
| | Total Number of Shares | | Average Price | | Publicly Announced | | Purchased Under the | ||
Period | | Purchased | | Paid Per Share | | Plans or Programs (1) | | Plans or Programs | ||
April 1, 2023-April 30, 2023 | | 31,047 | | | 2.21 | | $ | 68,498 | | 936,772 |
May 1, 2023-May 30, 2023 | | 36,772 | | | 2.16 | | | 79,462 | | 900,000 |
June 1, 2023-June 30, 2023 |
| — | | | — | | | — |
| 900,000 |
Total |
| 67,819 | | $ | 2.18 | | $ | 147,960 |
|
|
| (1) | On July 6, 2022 the Company announced that the Board of Directors authorized a stock repurchase program under which the Company would repurchase up to 1,000,000 shares, or approximately 6%, of the Company’s issued and outstanding stock. The repurchase program started on August 16, 2022 and has no expiration date. |
40
ITEM 6. Exhibits
31.1 |
| |
| |
|
31.2 | | |
| |
|
32 | | |
| |
|
101.INS | | XBRL Instance Document |
| |
|
101.SCH | | XBRL Taxonomy Extension Schema Document |
| |
|
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| |
|
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| |
|
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| |
|
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENERGY SERVICES OF AMERICA CORPORATION
Date: August 14, 2023 | By: | /s/ Douglas V. Reynolds |
|
| Douglas V. Reynolds |
|
| Chief Executive Officer |
|
| |
Date: August 14, 2023 | By: | /s/ Charles P. Crimmel |
|
| Charles P. Crimmel |
|
| Chief Financial Officer |
42
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Douglas V. Reynolds, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Energy Services of America Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | August 14, 2023 | | /s/ Douglas V. Reynolds | |
| | Douglas V. Reynolds | ||
| | Chief Executive Officer | ||
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Charles P. Crimmel, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Energy Services of America Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | August 14, 2023 | | /s/ Charles P. Crimmel | |
| | Charles P. Crimmel | ||
| | Chief Financial Officer | ||
Exhibit 32
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Douglas V. Reynolds, Chief Executive Officer and Charles P. Crimmel, Chief Financial Officer of Energy Services of America Corporation (the “Company”) each certify in their capacity as officers of the Company that they have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 and that to the best of their knowledge:
1. | the report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | August 14, 2023 | | /s/ Douglas V. Reynolds | |
| | Douglas V. Reynolds | ||
| | Chief Executive Officer | ||
| | | ||
| | | ||
Date: | August 14, 2023 | | /s/ Charles P. Crimmel | |
| | Charles P. Crimmel | ||
| | Chief Financial Officer | ||