Energy Services of America (US:ESOA)2024-02-11 16:00markdown Part 1: Financial Information [Item 1. Financial Statements (Unaudited)](index=2&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for the quarterly period ended December 31, 2023. It includes the Consolidated Balance Sheets, Statements of Income, Statements of Cash Flows, Statements of Changes in Shareholders' Equity, and the accompanying Notes to the Financial Statements, which provide detailed explanations of the company's accounting policies and financial condition [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing its assets, liabilities, and shareholders' equity at specific points in time Consolidated Balance Sheet Highlights (as of Dec 31, 2023 vs. Sep 30, 2023) | Account | December 31, 2023 ($) | September 30, 2023 ($) | | :--- | :--- | :--- | | **Total Assets** | **$136.4M** | **$142.5M** | | Total Current Assets | $89.8M | $95.2M | | Cash and cash equivalents | $11.3M | $16.4M | | Accounts receivable-trade | $43.2M | $51.2M | | Contract assets | $21.8M | $16.0M | | **Total Liabilities** | **$100.7M** | **$107.9M** | | Total Current Liabilities | $74.4M | $79.9M | | Lines of credit and short term borrowings | $14.9M | $19.8M | | Long-term debt, less current maturities | $17.0M | $18.9M | | **Total Shareholders' Equity** | **$35.6M** | **$34.6M** | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) This section presents the company's financial performance over a period, outlining revenues, expenses, and net income Consolidated Statement of Income (Three Months Ended) | Metric | December 31, 2023 ($) | December 31, 2022 ($) | | :--- | :--- | :--- | | **Revenue** | **$90.2M** | **$60.0M** | | Gross Profit | $10.8M | $6.0M | | Income from Operations | $3.6M | $670,000 | | **Net Income** | **$2.0M** | **$138,000** | | Earnings Per Share (Basic) | $0.12 | $0.01 | | Earnings Per Share (Diluted) | $0.12 | $0.01 | - The company experienced significant year-over-year growth, with revenue increasing by **50.2%** and net income increasing nearly **15-fold** for the three months ended December 31, 2023, compared to the same period in 2022[11](index=11&type=chunk) [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the sources and uses of cash, categorized into operating, investing, and financing activities Consolidated Statement of Cash Flows (Three Months Ended) | Cash Flow Activity | December 31, 2023 ($) | December 31, 2022 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | $2.9M | $1.6M | | Net cash used in investing activities | ($1.0M) | ($2.3M) | | Net cash (used in) provided by financing activities | ($7.0M) | $787,000 | | **(Decrease) increase in cash** | **($5.2M)** | **$103,000** | | Cash and cash equivalents end of period | $11.3M | $7.5M | [Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This section illustrates the changes in the components of shareholders' equity over a period, including net income and dividends - For the three months ended December 31, 2023, shareholders' equity increased from **$34.6M** to **$35.6M**. The increase was driven by a net income of **$2.0M**, partially offset by dividends of **$0.99M**[15](index=15&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's accounting policies, significant transactions, and financial statement line items - The company operates primarily in the mid-Atlantic and central U.S., providing construction and services to natural gas, petroleum, water distribution, automotive, chemical, and power industries through several wholly-owned subsidiaries[16](index=16&type=chunk) - The Small Business Administration (SBA) is reviewing the company's previously forgiven Paycheck Protection Program (PPP) loans totaling **$9.8M**. Due to the uncertainty, the company has restated its financial statements to record a short-term borrowing for the full amount plus accrued interest[29](index=29&type=chunk)[67](index=67&type=chunk) Revenue by Service Line (Three Months Ended Dec 31, 2023) | Line of Service | Revenue ($) | % of Total | | :--- | :--- | :--- | | Gas & Water Distribution | $17.1M | 18.9% | | Gas & Petroleum Transmission | $28.6M | 31.7% | | Electrical, Mechanical, & General | $44.5M | 49.4% | | **Total** | **$90.2M** | **100.0%** | - As of December 31, 2023, the company had **$132.2M** in remaining unsatisfied performance obligations (backlog), which is expected to be recognized as revenue over the next twelve months[44](index=44&type=chunk) - The company's unaudited backlog was **$185.9M** at December 31, 2023, a decrease from **$229.8M** at September 30, 2023[45](index=45&type=chunk) - On November 15, 2023, the Board of Directors approved an annual dividend of $0.06 per common share, which was paid on January 2, 2024[85](index=85&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management provides a detailed analysis of the company's financial performance for the three months ended December 31, 2023, compared to the same period in 2022. The discussion covers a significant 50.2% increase in revenue, improved gross profit margins, and a substantial rise in net income. It also details the changes in the company's financial condition, liquidity position, capital resources, and critical accounting estimates [Results of Operations](index=29&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, focusing on revenue growth, gross profit margins, and net income drivers Revenue by Segment (YoY Comparison) | Segment | Q1 FY24 Revenue ($) | Q1 FY23 Revenue ($) | % Change | | :--- | :--- | :--- | :--- | | Gas & Water Distribution | $17.1M | $12.4M | +37.9% | | Gas & Petroleum Transmission | $28.6M | $16.8M | +69.6% | | Electrical, Mechanical, & General | $44.5M | $30.8M | +44.5% | | **Total** | **$90.1M** | **$60.0M** | **+50.2%** | - The increase in total revenues was driven by increased work across all business categories, particularly from gas transmission work awarded in the prior fiscal year that continued into Q1 FY24[109](index=109&type=chunk)[111](index=111&type=chunk) - Gross profit increased by **81.1%** to **$10.8M**, with the gross profit margin improving from **10.0%** to **12.0%** year-over-year[119](index=119&type=chunk) - Selling and administrative expenses increased by **$1.9M** to **$7.2M**, primarily due to hiring additional personnel to manage expected growth[124](index=124&type=chunk) - Net income for the quarter was **$2.0M**, a significant increase from **$138,000** in the prior-year period, driven by higher revenues and improved gross profit[129](index=129&type=chunk) [Comparison of Financial Condition](index=32&type=section&id=Comparison%20of%20Financial%20Condition) This section compares the company's balance sheet accounts between periods, highlighting changes in assets, liabilities, and equity - Total assets decreased by **$6.1M** to **$136.4M** at December 31, 2023, from September 30, 2023[130](index=130&type=chunk) - Key changes in assets include a **$5.2M** decrease in cash and cash equivalents and an **$8.0M** decrease in accounts receivable, offset by a **$5.8M** increase in contract assets[131](index=131&type=chunk)[132](index=132&type=chunk)[137](index=137&type=chunk) - Total liabilities decreased by **$7.2M** to **$100.7M**, primarily due to a **$4.9M** reduction in lines of credit and short-term borrowings[140](index=140&type=chunk) - Shareholders' equity increased by **$1.0M** to **$35.6M**, resulting from net income of **$2.0M** partially offset by a **$0.99M** dividend declaration[147](index=147&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term obligations and fund its operations through available cash and credit facilities - The company's operating line of credit was increased to **$30.0M** and renewed through June 28, 2024. As of December 31, 2023, **$11.3M** was available for borrowing[149](index=149&type=chunk)[150](index=150&type=chunk) - The company was in compliance with all debt covenants at December 31, 2023, as its lender agreed to omit the effect of the PPP loan restatement from compliance calculations pending a final SBA decision[151](index=151&type=chunk) - The company has multiple long-term debt agreements for acquisitions and equipment purchases, including a **$9.3M** equipment line of credit entered into in June 2023[168](index=168&type=chunk) - The company has **$98.4M** in performance bonds outstanding as of December 31, 2023, which are required for certain customer contracts[179](index=179&type=chunk) [Critical Accounting Estimates](index=42&type=section&id=Critical%20Accounting%20Estimates) This section outlines the key accounting estimates and judgments that significantly impact the company's financial reporting - Management identifies several critical accounting estimates that require significant judgment, including: - Revenue recognition, particularly estimating costs to complete projects - Allowance for doubtful accounts - Impairment of goodwill and intangible assets - Depreciation and amortization - Income taxes - Accounting for PPP loans[192](index=192&type=chunk)[193](index=193&type=chunk)[201](index=201&type=chunk)[204](index=204&type=chunk)[208](index=208&type=chunk)[213](index=213&type=chunk)[216](index=216&type=chunk) [Outlook](index=47&type=section&id=Outlook) This section provides management's perspective on future business prospects, market conditions, and strategic initiatives - The company is experiencing a significant increase in bid opportunities for its core services. The backlog at December 31, 2023, was **$185.9M**, compared to **$206.9M** a year prior[222](index=222&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Energy Services of America Corporation is not required to provide quantitative and qualitative disclosures about market risk - Disclosure is not required for a smaller reporting company[224](index=224&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation conducted by management, including the CEO and CFO, the company's disclosure controls and procedures were deemed effective as of December 31, 2023. There were no material changes to the company's internal control over financial reporting during the first quarter of fiscal year 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[225](index=225&type=chunk) - No material changes in internal control over financial reporting occurred during the first quarter of fiscal year 2024[226](index=226&type=chunk) Part II: Other Information [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in a lawsuit against a former customer where it was awarded $13.1 million; this judgment is currently under appeal and has not been recognized in the financial statements. Additionally, the company is disputing a withdrawal liability claim from a pension plan and does not expect any future liabilities related to this claim - In a lawsuit against a former customer, the company was awarded **$13.1M**. The case is currently under appeal and the amount has not been recognized in the financial statements[229](index=229&type=chunk) - The company received a withdrawal liability claim from a pension plan, which it is disputing and believes is covered by a federal law exemption. Negotiations are ongoing, and future payments have been suspended[230](index=230&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K filed with the SEC on January 16, 2024 - No material changes to risk factors have occurred since the filing of the Annual Report on Form 10-K on January 16, 2024[232](index=232&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended December 31, 2023, the company did not have any unregistered sales of equity securities. Additionally, no shares were repurchased under the company's existing share repurchase program during this period - There were no unregistered sales of equity securities during the quarter[236](index=236&type=chunk) - The company did not repurchase any of its common stock during the three months ended December 31, 2023, under its authorized share repurchase program[236](index=236&type=chunk) [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q report, which include certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act of 2002, as well as XBRL data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and XBRL Interactive Data Files[237](index=237&type=chunk)