# Willdan Group, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Willdan Group, Inc.](/companies/wldn.md) (CIK 1370450)
- Form: 10-Q
- Filed: 2022-11-04
- Accepted by EDGAR: Nov 3, 2022, 19:22 ET
- Period: 2022-09-30
- Accession: 0001558370-22-016314
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1370450/000155837022016314/wldn-20220930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1370450/000155837022016314/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-02 to 2022-09-30 | $121.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $315.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-02 to 2022-09-30 | $83.9m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $215.4m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2022-07-02 to 2022-09-30 | −$755.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$11.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-02 to 2022-09-30 | −$1.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | −$5.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-02 to 2022-09-30 | $76.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$8.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-02 to 2022-09-30 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.62 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-02 to 2022-09-30 | $0.01 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.62 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-02 to 2022-09-30 | 13,360,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 12,971,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $4.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $7.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $8.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $154.1m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $395.1m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $110.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $214.9m | us-gaap:Liabilities |
| Long-term debt | at 2022-09-30 | $93.9m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-09-30 | $15.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-09-30 | $180.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,453 characters.

### Our Company

We are a provider of professional, technical and consulting services to utilities, private industry, and public agencies at all levels of government. As resources and infrastructures undergo continuous change, we help organizations and their communities evolve and thrive by providing a wide range of technical services for energy solutions and government infrastructure. Through engineering, program management, policy advisory, and software and data management, we design and deliver trusted, comprehensive, innovative, and proven solutions to improve efficiency, resiliency, and sustainability in energy and infrastructure to our customers.

Our broad portfolio of services operates within two reporting segments: (1) Energy and (2) Engineering and Consulting. The interfaces and synergies between these segments are important elements of our strategy to design and deliver trusted, comprehensive, innovative, and proven solutions for our customers.

Our Energy segment provides specialized, innovative, comprehensive energy solutions to businesses, utilities, state agencies, municipalities, and non-profit organizations in the U.S. Our experienced engineers, consultants, and staff help our clients realize cost and energy savings by tailoring efficient and cost-effective solutions to assist in optimizing energy spend. Our energy efficiency services include comprehensive audit and surveys, program design, master planning, demand reduction, grid optimization, benchmarking analyses, design engineering, construction management, performance contracting, installation, alternative financing, measurement and verification services, and advances in software and data analytics.

Our Engineering and Consulting segment provides civil engineering-related construction management, building and safety, city engineering, city planning, civil design, geotechnical, material testing and other engineering consulting services to our clients. Our engineering services include rail, port, water, mining and other civil engineering projects. We also provide economic and financial consulting to public agencies along with national preparedness and interoperability services, communications, and technology solutions. Lastly, we supplement the engineering services that we offer our clients by offering expertise and support for the various financing techniques public agencies utilize to finance their operations and infrastructure. We also support the mandated reporting and other requirements associated with these financings. We provide financial advisory services for municipal securities but do not provide underwriting services.

### Historical and Current Impact of Covid-19

The coronavirus (“Covid-19”) pandemic and efforts to limit its spread negatively impacted our operations during our fiscal year 2020 and continued to impact us, albeit to a lesser extent, during fiscal year 2021. In California and New York, the states in which we have historically derived a majority of our revenue, mandatory shutdown orders were issued in March 2020 followed by phased re-openings that began in May 2020, followed by periods of curtailments as a result of resurgences of Covid-19 cases, and subsequent re-openings through 2020 and 2021. Our largest program for the Los Angeles Department of Water and Power (“LADWP”) resumed in the third quarter of fiscal 2021 and was the last program suspended due to Covid-19. In addition, through fiscal year 2020 and 2021, none of our contracts were cancelled due to Covid-19.

Through the current fiscal year 2022, though none of our current programs are under suspension due to Covid-19 restrictions, certain market segments such as small business customers of major utilities continue to experience lingering impacts of the reduced economic activity due to the Covid-19 related mandates in 2020 and 2021. As of November 2, 2022, none of our contracts were cancelled as a result of Covid-19.

#### Asset and liability valuation and other estimates used in preparation of financial statements

As of September 30, 2022, we did not have any impairment with respect to goodwill or long-lived assets, including intangible assets. Because the full extent of the impact of a resurgence in the Covid-19 outbreak and efforts to slow its spread are unknown at this time, they could, under certain circumstances, cause impairment and result in a non- cash impairment charge being recorded in future periods. Changes to the estimated future profitability of the business may require that we establish an additional valuation allowance against all or some portion of our net deferred tax assets.

#### Impact on Clients and Subcontractors and Other Risks

We primarily work for utilities, municipalities and other public agencies. Should there be a resurgence related to Covid-19, some of these customers could experience significant budget shortfalls for the current year and beyond as a result of the measures taken to mitigate the resurgence effects of the Covid-19 pandemic and/or revenue shortfalls as a result of reduced economic activity. Although none of our contracts with governmental or public agencies were materially modified during our fiscal year 2020 or fiscal year 2021, these potential budget deficits could result in delayed funding for existing contracts, postponements of new contracts or price concessions. Further, most of our clients are not committed to purchase any minimum amount of services, as our agreements with them are based on a “purchase order” or “master service agreement” model. As a result, they may discontinue utilizing some or all of our services with little or no notice.

In addition, we rely on subcontractors and material suppliers to complete a substantial portion of our work, especially in our Energy segment. If our significant subcontractors and material suppliers suffer significant economic harm and must limit or cease operations or file for bankruptcy as a result of the current economic slowdown, our subcontractors and material suppliers may not be able to fulfill their contractual obligations satisfactorily and we may not have the ability to select our subcontractors and material suppliers of choice for new contracts. If our subcontractors and material suppliers are not able to fulfill their contractual obligations, it could result in a significant increase in costs for us to complete the projects or cause significant delays to the realization of revenues under those projects. The ultimate impact of Covid-19 on our financial condition and results of operations will depend on all of the factors noted above, including other factors that we may not be able to forecast at this time. See the risk factor “*The Covid-19 pandemic and health and safety measures intended to slow its spread have adversely affected, and may continue to adversely affect, our business, results of operations and financial condition.”* under Part I. Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021. While Covid-19 has had an adverse effect on our business, financial condition and results of operations, we are unable to predict the extent or duration of future impacts at this time.

### Results of Operations

#### Third Quarter and Nine Months Overview

The following tables set forth, for the periods indicated, certain information derived from our consolidated statements of comprehensive income(1):

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2022 ​ ​ | ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ October 1, 2021 ​ ​ | ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ $ Change ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ % Change ​ ​ ​ ​ |
| --- | --- | --- | --- | ---: | --- | --- | --- | ---: | --- | --- | --- | ---: |
| Contract revenue | ​ | $121,399 |  | 100.0% |  | $98,297 |  | 100.0% |  | $23,102 |  | 23.5% |
| Direct costs of contract revenue: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Salaries and wages | ​ | ​ 21,420 | ​ | 17.6 ​ | ​ | ​ 16,346 | ​ | 16.6 ​ | ​ | ​ 5,074 | ​ | 31.0 ​ |
| Subcontractor services and other direct costs | ​ | ​ 62,457 | ​ | 51.4 ​ | ​ | ​ 43,824 | ​ | 44.6 ​ | ​ | ​ 18,633 | ​ | 42.5 ​ |
| Total direct costs of contract revenue | ​ | ​ 83,877 | ​ | 69.1 ​ | ​ | ​ 60,170 | ​ | 61.2 ​ | ​ | ​ 23,707 | ​ | 39.4 ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Gross profit | ​ | ​ 37,522 | ​ | 30.9 ​ | ​ | ​ 38,127 | ​ | 38.8 ​ | ​ | ​ (605) | ​ | (1.6) ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| General and administrative expenses: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Salaries and wages, payroll taxes and employee benefits | ​ | ​ 20,373 | ​ | 16.8 ​ | ​ | ​ 19,374 | ​ | 19.7 ​ | ​ | ​ 999 | ​ | 5.2 ​ |
| Facilities and facilities related | ​ | ​ 2,228 | ​ | 1.8 ​ | ​ | ​ 2,351 | ​ | 2.4 ​ | ​ | ​ (123) | ​ | (5.2) ​ |
| Stock-based compensation | ​ | ​ 1,607 | ​ | 1.3 ​ | ​ | ​ 4,210 | ​ | 4.3 ​ | ​ | ​ (2,603) | ​ | (61.8) ​ |
| Depreciation and amortization | ​ | ​ 4,405 | ​ | 3.6 ​ | ​ | ​ 4,267 | ​ | 4.3 ​ | ​ | ​ 138 | ​ | 3.2 ​ |
| Other | ​ | ​ 9,664 | ​ | 8.0 ​ | ​ | ​ 6,482 | ​ | 6.6 ​ | ​ | ​ 3,182 | ​ | 49.1 ​ |
| Total general and administrative expenses | ​ | ​ 38,277 | ​ | 31.5 ​ | ​ | ​ 36,684 | ​ | 37.3 ​ | ​ | ​ 1,593 | ​ | 4.3 ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Income (loss) from operations | ​ | ​ (755) | ​ | (0.6) ​ | ​ | ​ 1,443 | ​ | 1.5 ​ | ​ | ​ (2,198) | ​ | (152.3) ​ |
| Other income (expense): | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest expense | ​ | ​ (1,435) | ​ | (1.2) ​ | ​ | ​ (937) | ​ | (1.0) ​ | ​ | ​ (498) | ​ | 53.1 ​ |
| Other, net | ​ | ​ 740 | ​ | 0.6 ​ | ​ | ​ 98 | ​ | 0.1 ​ | ​ | ​ 642 | ​ | N/M ​ |
| Total other income (expense) | ​ | ​ (695) | ​ | (0.6) ​ | ​ | ​ (839) | ​ | (0.9) ​ | ​ | ​ 144 | ​ | (17.2) ​ |
| Income (Loss) before income tax expense | ​ | ​ (1,450) | ​ | (1.2) ​ | ​ | ​ 604 | ​ | 0.6 ​ | ​ | ​ (2,054) | ​ | (340.1) ​ |
| Income tax expense (benefit) | ​ | ​ (1,526) | ​ | (1.3) ​ | ​ | ​ (236) | ​ | (0.2) ​ | ​ | ​ (1,290) | ​ | 546.6 ​ |
| Net income (loss) | ​ | $76 | ​ | 0.1 ​ | ​ | $840 | ​ | 0.9 ​ | ​ | $(764) | ​ | (91.0) ​ |

*(1) Percentages are expressed as a percentage of contract revenue and may not total due to rounding.*

#### N/M = Not meaningful

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 ​ ​ | ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ October 1, 2021 ​ ​ | ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ $ Change ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ % Change ​ ​ ​ ​ |
| --- | --- | --- | --- | ---: | --- | --- | --- | ---: | --- | --- | --- | ---: |
| Contract revenue |  | $315,882 |  | 100.0% |  | $261,537 |  | 100.0% |  | $54,345 |  | 20.8% |
| Direct costs of contract revenue: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Salaries and wages | ​ | ​ 61,514 | ​ | 19.5 ​ | ​ | ​ 48,532 | ​ | 18.6 ​ | ​ | ​ 12,982 | ​ | 26.7 ​ |
| Subcontractor services and other direct costs | ​ | ​ 153,896 | ​ | 48.7 ​ | ​ | ​ 111,860 | ​ | 42.8 ​ | ​ | ​ 42,036 | ​ | 37.6 ​ |
| Total direct costs of contract revenue | ​ | ​ 215,410 | ​ | 68.2 ​ | ​ | ​ 160,392 | ​ | 61.3 ​ | ​ | ​ 55,018 | ​ | 34.3 ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Gross profit | ​ | ​ 100,472 | ​ | 31.8 ​ | ​ | ​ 101,145 | ​ | 38.7 ​ | ​ | ​ (673) | ​ | (0.7) ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| General and administrative expenses: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Salaries and wages, payroll taxes and employee benefits | ​ | ​ 60,169 | ​ | 19.0 ​ | ​ | ​ 57,530 | ​ | 22.0 ​ | ​ | ​ 2,639 | ​ | 4.6 ​ |
| Facilities and facilities related | ​ | ​ 6,999 | ​ | 2.2 ​ | ​ | ​ 7,373 | ​ | 2.8 ​ | ​ | ​ (374) | ​ | (5.1) ​ |
| Stock-based compensation | ​ | ​ 6,626 | ​ | 2.1 ​ | ​ | ​ 14,349 | ​ | 5.5 ​ | ​ | ​ (7,723) | ​ | (53.8) ​ |
| Depreciation and amortization | ​ | ​ 13,240 | ​ | 4.2 ​ | ​ | ​ 12,678 | ​ | 4.8 ​ | ​ | ​ 562 | ​ | 4.4 ​ |
| Other | ​ | ​ 25,099 | ​ | 7.9 ​ | ​ | ​ 19,033 | ​ | 7.3 ​ | ​ | ​ 6,066 | ​ | 31.9 ​ |
| Total general and administrative expenses | ​ | ​ 112,133 | ​ | 35.5 ​ | ​ | ​ 110,963 | ​ | 42.4 ​ | ​ | ​ 1,170 | ​ | 1.1 ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Income (loss) from operations | ​ | ​ (11,661) | ​ | (3.7) ​ | ​ | ​ (9,818) | ​ | (3.8) ​ | ​ | ​ (1,843) | ​ | 18.8 ​ |
| Other income (expense): | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest expense | ​ | ​ (3,216) | ​ | (1.0) ​ | ​ | ​ (3,100) | ​ | (1.2) ​ | ​ | ​ (116) | ​ | 3.7 ​ |
| Other, net | ​ | ​ 1,266 | ​ | 0.4 ​ | ​ | ​ 34 | ​ | 0.0 ​ | ​ | ​ 1,232 | ​ | N/M ​ |
| Total other income (expense) | ​ | ​ (1,950) | ​ | (0.6) ​ | ​ | ​ (3,066) | ​ | (1.2) ​ | ​ | ​ 1,116 | ​ | (36.4) ​ |
| Income (Loss) before income tax expense | ​ | ​ (13,611) | ​ | (4.3) ​ | ​ | ​ (12,884) | ​ | (4.9) ​ | ​ | ​ (727) | ​ | 5.6 ​ |
| Income tax expense (benefit) | ​ | ​ (5,588) | ​ | (1.8) ​ | ​ | ​ (5,357) | ​ | (2.0) ​ | ​ | ​ (231) | ​ | 4.3 ​ |
| Net income (loss) | ​ | $(8,023) | ​ | (2.5) ​ | ​ | $(7,527) | ​ | (2.9) ​ | ​ | $(496) | ​ | 6.6 ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |

*(1) Percentages are expressed as a percentage of contract revenue and may not total due to rounding.*

#### N/M = Not meaningful

The following tables provides information about disaggregated revenue of our two segments, Energy and Engineering and Consulting, by contract type, client type and geographical region:

*(in thousands)*

| ​ ​ ​ ​ Contract Type | ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2022 Energy Engineering and Consulting Total ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | --- |
| Time-and-materials | ​ | $7,468 ​ $13,880 ​ $21,348 |
| Unit-based | ​ | ​ 43,039 ​ ​ 3,791 ​ ​ 46,830 |
| Fixed price | ​ | ​ 52,118 ​ ​ 1,103 ​ ​ 53,221 |
| Total (1) | ​ | $102,625 ​ $18,774 ​ $121,399 |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| **Client Type** | **​** | ​ ​ ​ ​ ​ ​ ​ ​ |
| Commercial | ​ | $6,848 ​ $1,376 ​ $8,224 |
| Government | ​ | ​ 48,073 ​ ​ 17,348 ​ ​ 65,421 |
| Utilities (2) | ​ | ​ 47,704 ​ ​ 50 ​ ​ 47,754 |
| Total (1) | ​ | $102,625 ​ $18,774 ​ $121,399 |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| Geography (3) | **​** | ​ ​ ​ ​ ​ ​ ​ ​ |
| Domestic | ​ | $102,625 ​ $18,774 ​ $121,399 |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| **​** |  | **Nine months ended September 30, 2022** |
| **​** |  | **Energy** **Engineering and Consulting** **Total** |
| **​** |  | (in thousands) |
| **Contract Type** | **​** | ​ ​ ​ ​ ​ ​ ​ ​ |
| Time-and-materials | ​ | $23,873 ​ $40,221 ​ $64,094 |
| Unit-based | ​ | ​ 128,540 ​ ​ 10,530 ​ ​ 139,070 |
| Fixed price | ​ | ​ 109,773 ​ ​ 2,945 ​ ​ 112,718 |
| Total (1) | ​ | $262,186 ​ $53,696 ​ $315,882 |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| **Client Type** | **​** | ​ ​ ​ ​ ​ ​ ​ ​ |
| Commercial | ​ | $21,638 ​ $4,330 ​ $25,968 |
| Government | ​ | ​ 96,293 ​ ​ 49,139 ​ ​ 145,432 |
| Utilities (2) | ​ | ​ 144,255 ​ ​ 227 ​ ​ 144,482 |
| Total (1) | ​ | $262,186 ​ $53,696 ​ $315,882 |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| Geography (3) | **​** | ​ ​ ​ ​ ​ ​ ​ ​ |
| Domestic | ​ | $262,186 ​ $53,696 ​ $315,882 |

*(in thousands)*

| ​ ​ ​ ​ Contract Type | ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ Three months ended October 1, 2021 Energy Engineering and Consulting Total ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | --- |
| Time-and-materials | ​ | $9,104 ​ $13,160 ​ $22,264 |
| Unit-based | ​ | ​ 51,470 ​ ​ 2,650 ​ ​ 54,120 |
| Fixed price | ​ | ​ 20,950 ​ ​ 963 ​ ​ 21,913 |
| Total (1) | ​ | $81,524 ​ $16,773 ​ $98,297 |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| **Client Type** | **​** | ​ ​ ​ ​ ​ ​ ​ ​ |
| Commercial | ​ | $7,741 ​ $1,568 ​ $9,309 |
| Government | ​ | ​ 18,537 ​ ​ 15,181 ​ ​ 33,718 |
| Utilities (2) | ​ | ​ 55,245 ​ ​ 24 ​ ​ 55,269 |
| Total (1) | ​ | $81,524 ​ $16,773 ​ $98,297 |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| Geography (3) | **​** | ​ ​ ​ ​ ​ ​ ​ ​ |
| Domestic | ​ | $81,524 ​ $16,773 ​ $98,297 |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| **​** |  | **Nine months ended October 1, 2021** |
| **​** |  | **Energy** **Engineering and Consulting** **Total** |
| **​** |  | (in thousands) |
| **Contract Type** | **​** | ​ ​ ​ ​ ​ ​ ​ ​ |
| Time-and-materials | ​ | $25,060 ​ $40,444 ​ $65,504 |
| Unit-based | ​ | ​ 132,688 ​ ​ 7,817 ​ ​ 140,505 |
| Fixed price | ​ | ​ 52,229 ​ ​ 3,299 ​ ​ 55,528 |
| Total (1) | ​ | $209,977 ​ $51,560 ​ $261,537 |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| **Client Type** | **​** | ​ ​ ​ ​ ​ ​ ​ ​ |
| Commercial | ​ | $20,685 ​ $4,037 ​ $24,723 |
| Government | ​ | ​ 45,766 ​ ​ 47,391 ​ ​ 93,157 |
| Utilities (2) | ​ | ​ 143,525 ​ ​ 132 ​ ​ 143,657 |
| Total (1) | ​ | $209,977 ​ $51,560 ​ $261,537 |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| Geography (3) | **​** | ​ ​ ​ ​ ​ ​ ​ ​ |
| Domestic | ​ | $209,977 ​ $51,560 ​ $261,537 |

#### (1) Amounts may not add to the totals due to rounding.

*(2) Includes the portion of revenue related to small business programs paid by the end user/customer.*

(3) *Revenue from our foreign operations were immaterial for the three and nine months ended September 30, 2022 and October 1, 2021.*

#### Three Months Ended September 30, 2022 Compared to Three Months Ended October 1, 2021

*Contract revenue.* Consolidated contract revenue increased $23.1 million, or 23.5%, in the three months ended September 30, 2022, compared to the three months ended October 1, 2021, primarily due to incremental revenues in our Energy segment generated from new governmental construction-management and design-build projects, combined with increased governmental revenues in our Engineering and Consulting segment, partially offset by decreased utility program revenues in our Energy segment.

Contract revenue in our Energy segment increased $21.1 million, or 25.9%, in the three months ended September 30, 2022, compared to the three months ended October 1, 2021, primarily as a result of incremental revenues generated from new governmental construction-management and design-build projects, partially offset by decreases in utility program revenues. Governmental revenues increased as a result of the start-up of newly awarded contracts. Utility program revenues decreased primarily as a result of software licensing sales that occurred in the third quarter of fiscal year 2021 that did not recur in the same period for 2022, combined with decreases in our utility program revenues that were driven by temporary funding reductions.

Contract revenue in our Engineering and Consulting segment increased $2.0 million, or 11.9%, in the three months ended September 30, 2022, compared to the three months ended October 1, 2021, primarily due to increased services provided to our governmental clients.

*Direct costs of contract revenue.* Direct costs of consolidated contract revenue increased $23.7 million, or 39.4%, in the three months ended September 30, 2022, compared to the three months ended October 1, 2021, primarily due to increases in our contract revenues as described above, as well as the ramping up of new projects for which we saw higher project startup costs relative to the revenue recognized.

Direct costs of contract revenue in our Energy segment increased $23.4 million, or 45.2%, in the three months ended September 30, 2022, compared to the three months ended October 1, 2021. Direct costs of contract revenue for the Engineering and Consulting segment increased $0.3 million, or 4.1%, in the three months ended September 30, 2022, compared to the three months ended October 1, 2021.

Subcontractor services and other direct costs increased by $18.6 million, or 42.5%, and salaries and wages increased by $5.1 million, or 31.0%, in the three months ended September 30, 2022, compared to the three months ended October 1, 2021. The increases were primarily due to the increase in contract revenues as described above combined with changes in the mix of those contract revenues to those which contain a higher percentage of material costs and installation subcontracting and lower percentage of labor costs, as well as the ramping up of new projects for which we saw higher project startup costs relative to the revenue recognized.

*Gross Profit*. Gross profit decreased 1.6% to $37.5 million, or 30.9% gross margin, for the three months ended September 30, 2022, compared to gross profit of $38.1 million, or 38.8% gross margin, for the three months ended October 1, 2021. The decrease in our gross margin was primarily driven by changes in the mix of revenues as described above combined with the ramping up of new projects for which we saw higher project startup costs relative to the revenue recognized.

*General and administrative expenses.* General and administrative (“G&A”) expenses increased by $1.6 million, or 4.3%, in the three months ended September 30, 2022, compared to the three months ended October 1, 2021. The increase in G&A expenses consisted of an increase of $2.4 million in the Energy segment combined with an increase of $0.8 million in the Engineering and Consulting segment, partially offset by a decrease of $1.6 million in unallocated corporate expense. The increase in G&A expenses was primarily attributed to increased contingent consideration expense related to prior acquisitions, higher computer-related expenses, and higher salaries and wages, payroll taxes and employee benefits, partially offset by lower stock-based compensation expenses.

Within G&A expenses, the increase of $3.2 million in other general and administrative expenses combined with the increase of $1.0 million in salaries and wages, payroll taxes and employee benefits and the increase of $0.1 million in depreciation and amortization was partially offset by a decrease of $2.6 million in stock-based compensation and a decrease of $0.1 million in facilities and facility related expenses. The increase in other general and administrative expenses was primarily due to increased contingent consideration expense related to prior acquisitions, higher computer-related expenses and professional service fees. The increase in salaries and wages, payroll taxes and employee benefits was primarily due to increases in personnel. The increase in depreciation and amortization was primarily related to higher amortization of internally-developed computer software. The decrease in stock-based compensation expenses was primarily related to previously awarded stock grants reaching the end of their corresponding vesting periods. The decrease in facilities and facility related expenses was due to satisfied facility leases that were not renewed.

*Income (loss) from operations.* Operating loss was $0.8 million for the three months ended September 30, 2022, compared to an operating income of $1.4 million for the three months ended October 1, 2021, as a result of the factors noted above.

*Total other expense, net.* Total other expense, net, decreased $0.1 million, or 17.2%, for the three months ended September 30, 2022, compared to the three months ended October 1, 2021, as a result of income from indemnification agreements, partially offset by higher interest expense related to an increase in the average borrowings under our term loans.

*Income tax expense (benefit).* We recorded an income tax benefit of $1.5 million for the three months ended September 30, 2022, compared to a tax benefit of $0.2 million for the three months ended October 1, 2021. The increase in the tax benefit is primarily attributable to the loss before income tax combined with various tax deductions and tax credits.

*Net income (loss).* Our net income was $0.1 million for the three months ended September 30, 2022, as compared to a net income of $0.8 million for the three months ended October 1, 2021. The decrease in net income was primarily attributable to the decrease in gross profit combined with higher G&A, offset by higher income tax benefit.

#### Nine Months Ended September 30, 2022 Compared to Nine Months Ended October 1, 2021

*Contract revenue*. Consolidated contract revenue increased $54.3 million, or 20.8%, in the nine months ended September 30, 2022, compared to the nine months ended October 1, 2021, primarily due to incremental revenues in our Energy segment generated from new governmental construction-management and design-build projects, combined with incremental revenues from the resumption of projects that had been suspended in fiscal 2021 due to Covid-19, and increased governmental revenues in our Engineering and Consulting segment, partially offset by software licensing sales that occurred in the third quarter of fiscal year 2021 that did not recur in the same period for 2022.

Contract revenue in our Energy segment increased $52.2 million, or 24.9%, in the nine months ended September 30, 2022, compared to the nine months ended October 1, 2021, primarily as a result of incremental revenues from new governmental construction-management and design-build projects, combined with incremental revenues from the resumption of projects that had been suspended in fiscal 2021 due to Covid-19, partially offset by software licensing sales that occurred in the third quarter of fiscal year 2021 that did not recur in the same period for 2022.

Contract revenue in our Engineering and Consulting segment increased $2.1 million, or 4.1%, in the nine months ended September 30, 2022, compared to the nine months ended October 1, 2021, primarily due to increased services provided to our governmental clients.

*Direct costs of contract revenue.* Direct costs of consolidated contract revenue increased $55.0 million, or 34.3%, in the nine months ended September 30, 2022, compared to the nine months ended October 1, 2021, primarily due to increases in our contract revenues in our Energy segment as described above as well as the ramping up of new projects for which we saw higher project startup costs relative to the revenue recognized.

Direct costs of contract revenue in our Energy segment increased $55.9 million, or 41.7%, in the nine months ended September 30, 2022, compared to the nine months ended October 1, 2021. Direct costs of contract revenue for the Engineering and Consulting segment decreased $0.9 million, or 3.4%, in the nine months ended September 30, 2022, compared to the nine months ended October 1, 2021.

Subcontractor services and other direct costs increased by $42.0 million, or 37.6%, and salaries and wages increased by $13.0 million, or 26.7%, in the nine months ended September 30, 2022, compared to the nine months ended October 1, 2021, primarily due to the increases in contract revenues as described above combined with changes in the mix of those contract revenues to those which contain a higher percentage of material costs and installation subcontracting and lower percentage of labor costs, as well as the ramping up of new projects for which we saw higher project startup costs relative to the revenue recognized.

Gross Profit. Gross profit decreased 0.7% to $100.5 million, or 31.8% gross margin, for the nine months ended September 30, 2022, compared to gross profit of $101.1 million, or 38.7% gross margin, for the nine months ended October 1, 2021. The decrease in gross margin was primarily driven by changes in the mix of revenues as described above, combined with a reduction in software licensing revenues and the ramping up of new projects for which we saw higher project startup costs relative to the revenue recognized.

*General and administrative expenses.* G&A expenses increased $1.2 million, or 1.1%, in the nine months ended September 30, 2022, compared to the nine months ended October 1, 2021. The increase in G&A expenses consisted of an increase of $4.1 million in the Energy segment combined with an increase of $2.2 million in the Engineering and Consulting segment, partially offset by a decrease of $5.1 million in unallocated corporate expense. The increase in G&A expenses was primarily attributed to increased contingent consideration expense related to prior acquisitions, higher computer-related expenses, and higher salaries and wages, payroll taxes and employee benefits, partially offset by lower stock-based compensation expenses.

Within G&A expenses, the increase of $6.1 million in other general and administrative expenses combined with the increase of $2.6 million in salaries and wages, payroll taxes and employee benefits and the increase of $0.6 million in depreciation and amortization was partially offset by a decrease of $7.7 million in stock-based compensation and a decrease of $0.4 million in facilities and facility related expenses. The increase in other general and administrative expenses was primarily due to increased contingent consideration expense related to prior acquisitions, higher computer-related expenses and higher professional service fees. The increase in salaries and wages, payroll taxes and employee benefits was primarily due to increases in personnel. The increase in depreciation and amortization was primarily related to higher amortization of internally-developed computer software. The decrease in stock-based compensation expenses was primarily related to previously awarded stock grants reaching the end of their corresponding vesting periods. The decrease in facilities and facility related expenses was due to satisfied facility leases that were not renewed.

*Income (loss) from operations.* Operating loss was $11.7 million for the nine months ended September 30, 2022, compared to operating loss of $9.8 million for the three months ended October 1, 2021, as a result of the factors noted above. As a percentage of contract revenue, operating loss improved from 3.8% to 3.7% for the nine months ended September 30, 2022, compared to the nine months ended October 1, 2021.

*Total other expense, net.* Total other expense, net, decreased $1.1 million, or 36.4%, for the nine months ended September 30, 2022, compared to the nine months ended October 1, 2021, as a result of income from indemnification agreements.

*Income tax expense (benefit).* We recorded an income tax benefit of $5.6 million for the nine months ended September 30, 2022 compared to a tax benefit of $5.4 million for the nine months ended October 1, 2021. The increase in the tax benefit is primarily attributable to the increase in loss before income tax combined with various tax deductions and tax credits.

*Net income (loss).* Our net loss was $8.0 million for the nine months ended September 30, 2022, as compared to a net loss of $7.5 million for the nine months ended October 1, 2021, primarily as a result of lower gross profit, as described above, partially offset by lower total other expense, net.

### Liquidity and Capital Resources

*(in thousands)*

| ​ ​ ​ ​ ​ Net cash provided by (used in): | ​ ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 ​ ​ | ​ ​ ​ ​ | ​ ​ October 1, 2021 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Operating activities |  | $4,503 |  | $(1,710) |
| Investing activities | ​ | ​ (6,894) | ​ | ​ (4,852) |
| Financing activities | ​ | ​ (12) | ​ | ​ (17,038) |
| Net increase (decrease) in cash and cash equivalents | ​ | $(2,403) | ​ | $(23,600) |

43

#### Sources of Cash

Our primary source of liquidity for the next 12 months and beyond is cash generated from operations and borrowings under our Revolving Credit Facility. We believe that our cash and cash equivalents, cash generated by operating activities, and available borrowings under our Revolving Credit Facility and Delayed Draw Term Loan will be sufficient to finance our operating activities for at least the next 12 months. However, as a result of the recent amendment to our Revolving Credit Facility, which limits our borrowing capacity to no more than $10.0 million as described below, our liquidity may be impacted if we continue to incur higher than expected costs under certain of our utility contracts where project costs remain high relative to revenue received.

As of September 30, 2022, we had a fully drawn $100 million Term A Loan with $67.5 million outstanding, a $50.0 million Revolving Credit Facility with no borrowed amounts outstanding and $4.1 million in letters of credit issued, and a fully drawn $50.0 million Delayed Draw Term Loan with $41.8 million outstanding, each scheduled to mature on June 26, 2024. In addition, as of September 30, 2022, we had $8.8 million of cash and cash equivalents.

On November 1, 2022, we entered into the Seventh Amendment to the Credit Agreement (the “Seventh Amendment”). The Seventh Amendment, among other things, restricts our borrowing capacity under the Revolving Credit Facility to no more than $10.0 million from November 1, 2022 through the date on which financial statements and compliance documents have been received by the Administrative Agent (as defined in the Credit Agreement) for the fiscal quarter ending March 31, 2023 and condition our access to the accordion feature of the Credit Agreement to periods when our Total Leverage ratio is less than 3.0. For more information, see Part I, Item 1, Note 6, “*Debt Obligations”,* and Note 13, “*Subsequent Events”*, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

As of September 30, 2022, we were in compliance with all covenants contained in the Credit Agreement, as amended, other than the minimum Adjusted EBITDA thresholds for the test period ended September 30, 2022. Such non-compliance with the minimum Adjusted EBITDA thresholds for the test period ended September 30, 2022 was subsequently waived by the lenders under the Credit Agreement pursuant to the Seventh Amendment. To reduce the risk of future potential covenant breaches, we are in discussions with certain utilities to streamline our contract delivery requirements and eliminate certain cost inefficiencies. For information on our risks related to debt covenant defaults and our indebtedness, see Part I, Item 1A, *Risk Factors* in our Annual Report on Form 10-K for the year ended December 31, 2021.

As of September 30, 2022, borrowings under our Credit Facilities, exclusive of the effects of upfront fees, undrawn fees and issuance cost amortization, bore interest at 4.6%. See Part I, Item 1, Note 6, “*Debt Obligations”,* of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, and Part II, Item 8, Note 5, “*Debt Obligations”*, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, for information regarding our indebtedness, including information about new borrowings and repayments, principal repayment terms, interest rates, covenants, and other key terms of our outstanding indebtedness.

#### Cash Flows from Operating Activities

Cash flows provided by operating activities were $4.5 million for the nine months ended September 30, 2022, as compared to cash flows used in operating activities of $1.7 million for the nine months ended October 1, 2021. Cash flows provided by operating activities for the nine months ended September 30, 2022 primarily consists of net income, adjusted for non-cash charges, such as depreciation and amortization and stock-based compensation, plus or minus changes in operating assets and liabilities. Cash flows provided by operating activities for the nine months ended September 30, 2022, was favorably impacted by lower working capital requirements, offset by increases in operating expenses due to new contract awards. Changes in cash flows used in operating activities for the nine months ended October 1, 2021, resulted primarily due to the increased demand for working capital related to the resumption of utility programs that were suspended in 2020 and start-up costs associated with certain new contract awards.

#### Cash Flows from Investing Activities

Cash flows used in investing activities were $6.9 million for the nine months ended September 30, 2022, as compared to cash flows used in investing activities of $4.9 million for the nine months ended October 1, 2021. Cash flows used in investing activities for the nine months ended September 30, 2022 were primarily due to cash paid for the development of software and the purchase of equipment. Cash flows used in investing activities for the nine months ended October 1, 2021, were primarily due to cash paid for the development of software, the purchase of equipment and leasehold improvements.

#### Cash Flows from Financing Activities

Cash flows used in financing activities were $12,000 for the nine months ended September 30, 2022, as compared to cash flows used in financing activities of $17.0 million for the nine months ended October 1, 2021. Cash flows used in financing activities for the nine months ended September 30, 2022 were primarily attributable to payments of $10.2 million for contingent consideration related to prior acquisitions combined with repayments of $9.8 million under our term loan facility and revolving line of credit, offset by borrowings of $20.0 million under our Delayed Draw Term Loan. Cash flows used in financing activities for the nine months ended October 1, 2021 were primarily attributable to repayments of $9.8 million under our term loan facility and revolving line of credit, payments of $6.6 million for contingent consideration related to prior acquisitions, payments of taxes on stock grants of $3.1 million, payments on notes payable of $1.7 million, partially offset by $2.7 million in proceeds from sales of common stock under our employee stock purchase plan and $1.7 million in proceeds from stock option exercise.

#### Off-Balance Sheet Arrangements

We do not have any off-balance sheet financing arrangements or liabilities. In addition, our policy is not to enter into futures or forward contracts. Finally, we do not have any majority-owned subsidiaries or any interests in, or relationships with, any special-purpose entities that are not included in the consolidated financial statements. We have, however, an administrative services agreement with Genesys in which we provide Genesys with ongoing administrative, operational and other non-professional support services. We manage Genesys and have the power to direct the activities that most significantly impact Genesys’ performance, in addition to being obligated to absorb expected losses from Genesys. Accordingly, we are the primary beneficiary of Genesys and consolidate Genesys as a variable interest entity.

### Short and Long-term Uses of Cash

#### General

Our principal uses of cash are to fund operating expenses and pay down outstanding debt. From time to time, we also use cash to help fund business acquisitions. Our cash and cash equivalents are impacted by the timing of when we pay expenses as reflected in the change in our outstanding accounts payable and accrued expenses.

#### Contractual Obligations

The following table sets forth our known contractual obligations as of September 30, 2022:

*( in thousands)*

| ​ ​ Contractual Obligations ​ | ​ ​ ​ | ​ ​ ​ ​ Total | ​ ​ | ​ ​ Less than 1 Year | ​ ​ | ​ ​ ​ ​ 1 - 3 Years | ​ ​ | ​ ​ ​ ​ 3 - 5 Years | ​ ​ | ​ ​ More than 5 Years | ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Long term debt (1) | ​ | $109,422 | ​ | $15,510 | ​ | $93,912 | ​ | $— | ​ | $— | ​ |
| Interest payments on debt outstanding (2) | ​ | ​ 7,847 | ​ | ​ 4,654 | ​ | ​ 3,193 | ​ | ​ — | ​ | ​ — | ​ |
| Operating leases | ​ | 13,636 | ​ | 4,889 | ​ | 5,815 | ​ | 2,520 | ​ | 412 | ​ |
| Finance leases | ​ | 2,627 | ​ | 970 | ​ | 1,417 | ​ | 211 | ​ | 29 | ​ |
| Total contractual cash obligations | ​ | $133,532 | ​ | $26,023 | ​ | $104,337 | ​ | $2,731 | ​ | $441 | ​ |

(1) Long-term debt includes $67.5 million outstanding on our Term A Loan and $41.8 million outstanding on our Delayed Draw Term Loan as of September 30, 2022. We have assumed no future borrowings or repayments (other than at maturity) for purposes of this table. Our term loans are scheduled to mature on June 26, 2024.

(2) Borrowings under our Delayed Draw Term Loan bear interest at a variable rate. Future interest payments on our Credit Facilities are estimated using floating rates in effect as of September 30, 2022.

We are obligated to pay earn-out payments in connection with our 2019 acquisition of Energy and Environmental Economics, Inc. (“E3, Inc.”). We are obligated to pay up to $12.0 million in cash if E3, Inc. exceeds certain financial targets during the three years after the E3, Inc. closing date. As of September 30, 2022, we had estimated remaining contingent consideration payable of $2.5 million related to this acquisition. For the nine months ended September 30, 2022, our statement of operations includes $1.7 million of accretion (excluding fair value adjustments) related to the contingent consideration.

#### Outstanding Indebtedness

See Part I, Item 1, Note 6, “*Debt Obligations”*, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, and Part II, Item 8, Note 5, “*Debt Obligations”*, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, for information regarding our indebtedness, including information about new borrowings and repayments, principal repayment terms, interest rates, covenants, and other key terms of our outstanding indebtedness.

#### Interest Rate Swap

From time to time, we enter into interest rate swap agreements to moderate our exposure to fluctuations in interest rates underlying our variable rate debt. For more information, see Part I, Item 3, “*Quantitative and Qualitative Disclosures About Market Risk”*, and Note 5, “*Derivatives”*, to the Notes of Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

### Impact of Inflation

Due to the average duration of our projects and our ability to negotiate prices as contracts end and new contracts begin, our operations have not been materially impacted by inflation. However, inflationary pressures, including expectations of future inflation, may impact the customers of our utility clients, which may lead to delayed or deferred decisions regarding expenditures to improve energy efficiency, and therefore potentially impacting our future revenues.

### Components of Revenue and Expense

#### Contract Revenue

We generally provide our services under contracts, purchase orders or retainer letters. The agreements we enter into with our clients typically incorporate one of three principal types of pricing provisions: time-and-materials, unit-based, and fixed price. Revenue on our time-and-materials and unit-based contracts are recognized as the work is performed in accordance with specific terms of the contract. As of September 30, 2022, 20% of our contracts are time-and-materials contracts, 44% of our contracts are unit-based contracts, and 36% are fixed price contracts, compared to 25% for time-and-materials contracts, 54% for unit-based contracts, and 21% for fixed price contracts, as of October 1, 2021.

Some of these contracts include maximum contract prices, but contract maximums are often adjusted to reflect the level of effort to achieve client objectives and thus the majority of these contracts are not expected to exceed the maximum. Contract revenue on our fixed price contracts is determined on the percentage of completion method based generally on the ratio of direct costs incurred to date to estimated total direct costs at completion. Many of our fixed price contracts involve a high degree of subcontracted fixed price effort and are relatively short in duration, thereby lowering the risks of not properly estimating the percent complete.

Adjustments to contract cost estimates are made in the periods in which the facts requiring such revisions become known. When the revised estimate indicates a loss, such loss is recognized in the current period in its entirety. Claims and change orders that have not been finalized are evaluated to determine whether or not a change has occurred in the enforceable rights and obligations of the original contract. If these non-finalized changes qualify as a contract modification, a determination is made whether to account for the change in contract value as a modification to the existing contract, or a separate contract and revenue under the claims or change orders is recognized accordingly. Costs related to un-priced change orders are expensed when incurred, and recognition of the related revenue is based on the assessment above of whether or not a contract modification has occurred. Estimated profit for un-priced change orders is recognized only if collection is probable.

Our contracts come up for renewal periodically and at the time of renewal may be subject to renegotiation, which could impact the profitability on that contract. In addition, during the term of a contract, public agencies may request additional or revised services which may impact the economics of the transaction. Most of our contracts permit our clients, with prior notice, to terminate the contracts at any time without cause. While we have a large volume of contracts, the renewal, termination or modification of a contract, in particular contracts with Consolidated Edison, the Dormitory Authority-State of New York (“DASNY”), and utility programs associated with Los Angeles Department of Water and Power and Duke Energy Corp., may have a material effect on our consolidated operations.

Some of our contracts include certain performance guarantees, such as a guaranteed energy saving quantity. Such guarantees are generally measured upon completion of a project. In the event that the measured performance level is less than the guaranteed level, any resulting financial penalty, including any additional work that may be required to fulfill the guarantee, is estimated and charged to direct expenses in the current period. We have not experienced any significant costs under such guarantees.

#### Direct Costs of Contract Revenue

Direct costs of contract revenue consist primarily of that portion of salaries and wages that have been incurred in connection with revenue producing projects. Direct costs of contract revenue also include material costs, subcontractor services, equipment and other expenses that are incurred in connection with revenue producing projects. Direct costs of contract revenue exclude that portion of salaries and wages related to marketing efforts, vacations, holidays and other time not spent directly generating revenue under existing contracts. Such costs are included in general and administrative expenses. Additionally, payroll taxes, bonuses and employee benefit costs for all of our personnel are included in general and administrative expenses since no allocation of these costs is made to direct costs of contract revenue.

Other companies may classify as direct costs of contract revenue some of the costs that we classify as general and administrative costs. We expense direct costs of contract revenue when incurred.

#### General and Administrative Expenses

G&A expenses include the costs of the marketing and support staffs, other marketing expenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs of contract revenue for those employees who provide our services. G&A expenses also include facility costs, depreciation and amortization, professional services, legal and accounting fees and administrative operating costs. Within G&A expenses, “Other” includes expenses such as professional services, legal and accounting, computer costs, travel and entertainment, marketing costs and acquisition costs. We expense general and administrative costs when incurred.

### Critical Accounting Policies

We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). To prepare these financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses in the reporting period. Our actual results may differ from these estimates. We have adopted accounting policies and practices that are generally accepted in the industry in which we operate.

There have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for our fiscal year ended December 31, 2021. Please refer to Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a discussion of our critical accounting policies and estimates.

### Recent Accounting Standards

For a description of recently issued and adopted accounting pronouncements, including adoption dates and expected effects on our results of operations and financial condition, see Part I, Item 1, Note 2, “*Recent Accounting Pronouncements”*, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

## Market risk

As filed, 3,581 characters.

#### Interest Rate Risk

Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. Market risk is attributed to all market risk sensitive financial instruments, including long-term debt.

As of September 30, 2022, we had cash and cash equivalents of $8.8 million. This amount represents cash on hand in business checking accounts with BMO Harris Bank, N.A. We do not engage in trading activities and do not participate in foreign currency transactions.

We are subject to interest rate risk in connection with our Term A Loan and borrowings, if any, under our revolving credit facility and delayed draw term loan, each of which bears interest at variable rates. As of September 30, 2022, $67.5 million was outstanding under our Term A Loan, $41.75 million was outstanding under our delayed draw term loan, no borrowed amounts were outstanding and $4.1 million in letters of credit were issued under the revolving credit facility. Each of our Term A Loan, revolving credit facility and delayed draw term loan mature as of June 26, 2024 and are governed by our Credit Agreement, as amended.

Pursuant to the Fifth Amendment, (as described in Part I, Item 1, Note 6, “Debt Obligations,” of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q), during the Extended Covenant Relief Period, borrowings under the Credit Agreement will bear interest at either a Base Rate or SOFR (plus 0.10% or 0.15% depending on the interest period), each as defined in the Credit Agreement, at our option, and in each case, plus an applicable margin, which applicable margin will range from 0.125% to 1.50% with respect to Base Rate borrowings and 1.125% to 2.50% with respect to SOFR borrowings, depending on the Total Leverage Ratio; provided, that SOFR cannot be less than 0.00%. We will also pay a commitment fee for the unused portion of the revolving credit facility and the delayed draft term loan facility under the Credit Agreement, which will range from 0.15% to 0.45% per annum depending on the Total Leverage Ratio, and fees on the face amount of any letters of credit outstanding under the revolving credit facility, which will range from 0.84% to 1.875% per annum, in each case, depending on whether such letter of credit is a performance or financial letter of credit and the Total Leverage Ratio. Based upon the amount of our outstanding indebtedness as of September 30, 2022, a one percentage point increase in the effective interest rate would change our annual interest expense by approximately $1.1 million in 2022.

The Term A Loan amortizes quarterly in installments of $2.5 million beginning with the fiscal quarter ending September 27, 2019, with a final payment of all then remaining principal and interest due on the maturity date of June 26, 2024, subject to certain prepayment obligations based on our excess cash flow. Each borrowing under our delayed draw term loan will amortize quarterly in an amount equal to 2.5% of the aggregate outstanding borrowings under the delayed draw term loan, beginning with the first full fiscal quarter ending after the initial borrowing date, with a final payment of all then remaining principal and interest due on the maturity date of June 26, 2024, subject to certain prepayment obligations based on our excess cash flow.

## Controls and procedures

As filed, 1,678 characters.

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15-d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, Thomas D. Brisbin, and our Chief Financial Officer, Creighton K. Early, as appropriate to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of September 30, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at a reasonable assurance level, as of September 30, 2022.

No change in our internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 166 characters.

There are no material changes to the risk factors set forth in Part I, Item 1A, *Risk Factors* in our Annual Report on Form 10-K for the year ended December 31, 2021.

Filed Nov 4, 2022.
Source: SEC EDGAR, the filing index for accession 0001558370-22-016314. Last ingested by Listed: Oct 24, 2026, 15:12 ET. No prices; not investment advice.