Energy Services of America (ESOA) - 2022 Q4 - Annual Report

Part I Business Energy Services of America, a mid-Atlantic and central U.S. contractor, significantly grew FY2022 revenue and backlog through strategic acquisitions - The company provides construction, replacement, and repair services for natural gas pipelines, storage facilities, and offers electrical and mechanical services to various industries including power, chemical, and automotive[9] Consolidated Operating Revenues by Segment (FY 2022 vs. FY 2021) | Service Line | FY 2022 Revenue ($) | % of Total | FY 2021 Revenue ($) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Electrical, mechanical, and general contract | $86.0M | 43.5% | $59.9M | 48.9% | | Gas & petroleum transmission | $58.3M | 29.5% | $22.1M | 18.1% | | Gas & water distributions | $53.3M | 27.0% | $40.4M | 33.0% | | Total | $197.6M | 100.0% | $122.5M | 100.0% | - The company's backlog of work on existing contracts increased significantly to $142.3 million at September 30, 2022, compared to $72.2 million at September 30, 2021[42] - In fiscal year 2022, the company completed two key acquisitions: Tri-State Paving & Sealcoating, LLC in April 2022 and Ryan Environmental, LLC in August 2022, expanding its service offerings in utility paving and directional drilling[28][30] - As of September 30, 2022, the company had 1,055 employees, including 353 full-time non-union employees, with a substantial portion of the construction workforce unionized[15][58] Risk Factors The company faces diverse operational, business, industry, and financial risks, including integration, contract profitability, labor, and credit availability - Operational Risks: Operating results vary significantly by quarter due to seasonality, weather, and project mix, and future acquisitions could disrupt business and strain resources[64][65] - Business Risks: Profitability can be affected by contract type, ability to obtain surety bonds, potential cancellations, and retaining skilled labor[68][69][71][72] - COVID-19 & PPP Loan Risks: The company faces pandemic economic effects and potential SBA review of its forgiven $9.8 million PPP loan, risking penalties or repayment[84][87][88] - Industry & Financial Risks: Business is susceptible to energy sector downturns, intense competition, project delays, and reliance on credit lines, risking curtailed operations[90][92][95] - Compliance & Legal Risks: The company is subject to ordinary course lawsuits, occupational health and safety, and environmental regulations, with non-compliance risking significant liabilities[98][100][104] - Stock Ownership Risks: Common stock is not heavily traded, leading to price volatility, and directors' 36.1% beneficial ownership provides substantial influence[105][107] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[108] Properties The company and its subsidiaries own headquarters and key offices, while other facilities are leased, all deemed adequate for current operations - The company owns its headquarters in Huntington, WV, and several subsidiary offices, with other facilities in St. Albans, WV, Hurricane, WV, and Bridgeport, WV being leased[109] Legal Proceedings The company was awarded a $13.1 million judgment in November 2022, currently under appeal, and is negotiating a pension plan withdrawal liability claim - On November 21, 2022, the company was awarded a $13.1 million judgment against a former customer, including a $5.8 million jury award, $1.6 million in attorney's fees, and $5.7 million in penalties and interest, with the defendant filing an appeal on December 16, 2022[110] - The company received a disputed pension plan withdrawal liability claim, complying with federal payment demands while negotiating a resolution, having expensed $164,000 in payments as of September 30, 2022[112] Mine Safety Disclosures This section is not applicable to the company - None[117] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock uplisted to Nasdaq in March 2022, with no dividends paid or shares repurchased in FY2022 despite a repurchase authorization - On March 23, 2022, the company's common stock was uplisted to the Nasdaq Capital Market under the symbol "ESOA"[114] Quarterly Common Stock Price Range (Fiscal Years 2021-2022) | Period | High | Low | | :--- | :--- | :--- | | Fiscal 2021 | | | | Q1 (ended 12/31/20) | $1.30 | $0.81 | | Q2 (ended 03/31/21) | $2.45 | $1.02 | | Q3 (ended 06/30/21) | $2.40 | $1.96 | | Q4 (ended 09/30/21) | $2.40 | $1.62 | | Fiscal 2022 | | | | Q1 (ended 12/31/21) | $3.65 | $1.32 | | Q2 (ended 03/31/22) | $4.68 | $2.30 | | Q3 (ended 06/30/22) | $3.25 | $1.90 | | Q4 (ended 09/30/22) | $3.49 | $1.77 | - On July 6, 2022, the Board of Directors authorized a share repurchase program for up to 1,000,000 shares of common stock, with no repurchases made during fiscal year 2022[123] - The company did not pay any dividends on common stock during fiscal years 2022 and 2021[119] Reserved This item is reserved and contains no information - None Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2022, revenue increased 61.3% to $197.6 million, driving a turnaround in operating income, though net income decreased due to prior-year PPP loan forgiveness Results of Operations FY2022 revenue surged 61.3% to $197.6 million, with gross profit up 73.1%, and operating income improving, though net income fell due to prior-year PPP loan forgiveness Revenue by Segment (FY 2022 vs. FY 2021) | Segment | FY 2022 Revenue ($) | FY 2021 Revenue ($) | % Change | | :--- | :--- | :--- | :--- | | Gas & Water Distribution | $53.3M | $40.4M | +31.8% | | Gas & Petroleum Transmission | $58.3M | $22.1M | +163.3% | | Electrical, Mechanical, and General | $86.0M | $59.9M | +43.6% | | Total | $197.6M | $122.5M | +61.3% | - Revenue growth in Gas & Water Distribution was driven by the acquisition of Tri-State Paving ($4.9 million revenue) and a full year of West Virginia Pipeline revenue ($3.1 million additional), while Electrical, Mechanical, & General growth was primarily from SQP, which increased revenues by $19.3 million[135][137] Gross Profit by Segment (FY 2022 vs. FY 2021) | Segment | FY 2022 Gross Profit ($) | FY 2021 Gross Profit ($) | % Change | | :--- | :--- | :--- | :--- | | Gas & Water Distribution | $11.6M | $8.0M | +45.3% | | Gas & Petroleum Transmission | $3.4M | $4.9M | -30.3% | | Electrical, Mechanical, and General | $6.9M | $4.3M | +59.1% | | Total Gross Profit | $22.4M | $12.9M | +73.1% | - The decrease in Gas & Petroleum Transmission gross profit was primarily due to a projected loss of $2.1 million on a single gas transmission project[146] - Net income available to common stockholders was $3.9 million ($0.24 per diluted share) in FY2022, compared to $8.8 million ($0.52 per diluted share) in FY2021, with the decrease due to the one-time $9.8 million PPP loan forgiveness in FY2021[158][315] Liquidity and Capital Resources The company manages liquidity through operations and a $15.0 million credit line, with total debt at $30.6 million, and significant off-balance sheet arrangements including $82.8 million in performance bonds - The company has a $15.0 million operating line of credit, having borrowed the full $12.5 million available under the primary tranche as of September 30, 2022, and received a waiver for covenant non-compliance[177][181] Maturities of Total Debt as of Sept 30, 2022 | Year | Amount ($) | | :--- | :--- | | 2023 | $17,140,336 | | 2024 | $4,061,665 | | 2025 | $4,170,114 | | 2026 | $3,569,091 | | 2027 | $1,069,272 | | Thereafter | $623,942 | | Total | $30,634,420 | - The company has significant off-balance sheet arrangements, including $82.8 million in outstanding performance bonds and rental agreements that resulted in $9.8 million of expense in FY2022[204][208] - Cash and cash equivalents decreased from $8.2 million to $7.4 million, primarily due to $8.3 million used in investing activities (mainly acquisitions), partially offset by $8.3 million in cash provided by operations[167][320] Critical Accounting Estimates The company's financial statements rely on critical accounting estimates for revenue recognition, goodwill impairment, depreciation, and income taxes, with revenue recognition being particularly sensitive to cost estimates - Revenue for Lump Sum and Unit Price contracts is recognized over time using a cost-to-cost input method, which relies on estimates of total contract cost and profitability[226][331] Contract Assets and Liabilities Summary | Description | Sept 30, 2022 ($) | Sept 30, 2021 ($) | | :--- | :--- | :--- | | Costs and estimated earnings in excess of billings (Contract Asset) | $16,109,593 | $8,730,402 | | Billings in excess of costs and estimated earnings (Contract Liability) | $6,027,578 | $3,153,290 | - Goodwill and intangible assets are tested for impairment by first assessing qualitative factors, with no impairment recorded for goodwill at September 30, 2022[238][461] - The effective income tax rate was 37.0% in FY2022, compared to (0.3%) in FY2021, with the low 2021 rate significantly impacted by the non-taxable $9.8 million PPP loan forgiveness[250][251] Quantitative and Qualitative Disclosures about Market Risk This disclosure is not required for smaller reporting companies - Not required for smaller reporting companies[260] Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements for FY2022 and FY2021, with an unqualified auditor's opinion highlighting critical audit matters - The independent auditor, Baker Tilly US, LLP, issued an unqualified opinion on the consolidated financial statements[296] - Critical Audit Matters identified were Over-Time Revenue Recognition due to judgment in estimating contract costs, and Valuation of Goodwill and Intangible Assets from business combinations due to estimation uncertainty[301][302][306] Consolidated Balance Sheet Highlights (as of Sept 30, 2022) | Category | Amount ($) | | :--- | :--- | | Assets | | | Total Current Assets | $70,392,493 | | Total Assets | $112,626,845 | | Liabilities & Equity | | | Total Current Liabilities | $55,336,983 | | Total Liabilities | $74,301,770 | | Total Shareholders' Equity | $38,325,075 | Consolidated Income Statement Highlights (Year Ended Sept 30, 2022) | Category | Amount ($) | | :--- | :--- | | Revenue | $197,590,000 | | Gross Profit | $22,370,748 | | Income from Operations | $6,492,610 | | Net Income | $3,850,073 | | Diluted EPS | $0.24 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting principles or financial disclosure - None[262] Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of September 30, 2022, with no material weaknesses or changes - Management concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year[263] - Based on the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of September 30, 2022, and no material weaknesses were identified[266] - No changes in internal control over financial reporting occurred during the fourth quarter of fiscal 2022 that materially affected, or are reasonably likely to materially affect, these controls[269] Other Information There is no other information to report under this item - None[274] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This disclosure is not applicable to the company - Not Applicable[275] Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's definitive Proxy Statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive Proxy Statement[271] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's definitive Proxy Statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive Proxy Statement[272] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details securities authorized for issuance under the 2022 Equity Incentive Plan, with 1,500,000 shares available, and incorporates security ownership information by reference Equity Compensation Plan Information as of September 30, 2022 | Plan Category | Securities to be issued upon exercise | Weighted average exercise price | Securities remaining available for issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | — | — | 1,500,000 | | Equity compensations plans not approved by stockholders | — | — | — | | Total | — | — | 1,500,000 | - Information on security ownership of certain beneficial owners and management is incorporated by reference from the Proxy Statement[276][281] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related party transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the company's definitive Proxy Statement[282] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the company's definitive Proxy Statement[283] Part IV Exhibits and Financial Statement Schedules This section lists financial statements and exhibits filed as part of the Form 10-K, including corporate governance documents, material contracts, and required certifications - The consolidated financial statements are included as part of the report[286] - A list of exhibits filed with the report includes corporate governance documents, material contracts like the 2022 Equity Incentive Plan, a list of subsidiaries, consent of the public accounting firm, and required CEO/CFO certifications[289] Form 10-K Summary There is no summary provided under this item - None[290]