Quarterly report pursuant to Section 13 or 15(d)

Accounting Standards

v3.20.2
Accounting Standards
6 Months Ended
Jun. 30, 2020
Accounting Changes and Error Corrections [Abstract]  
Accounting Standards
Accounting Standards
Recently Adopted Accounting Standards
New Revenue Recognition Standard

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), as amended by subsequent ASUs (collectively, “ASC Topic 606”) which amends the existing accounting standards for revenue recognition and establishes principles for recognizing revenue upon the transfer of promised goods or services to customers based on the expected consideration to be received in exchange for those goods or services. Effective December 31, 2019, management adopted ASC Topic 606 for the annual and quarterly periods beginning after January 1, 2019 using a modified retrospective transition approach. The financial information for the three and six months ended June 30, 2019 has been recast to conform to the new standard.

The adoption of ASC Topic 606 did not have an impact on revenue of our fixed-price and other service contracts. However, it did impact revenue of our construction-type contracts within our construction and service segments specifically in accounting for warranties. For many of our construction-type contracts, we previously included assurance-type warranties in total estimated project costs. Under ASC Topic 606, the estimated cost of satisfying assurance-type warranties is accrued in accordance with the guidance in ASC Topic 460, Guarantees. Upon adoption of ASC Topic 606, we removed estimated and actual warranty costs at the contract level and recognized a warranty liability and expense in direct proportion to the cost-to-cost method progress towards completion of the associated contract, which had a $0.6 million effect on our opening accumulated deficit balance at January 1, 2019.

The Company also offers service-type warranties on certain construction-type projects. These service-type warranties were not accounted for as a separate performance obligation prior to the adoption of ASC Topic 606. Upon adoption of ASC Topic 606, we allocated a portion of the contract's transaction price to the service-type warranty based on its estimated standalone selling price. The accounting for service-type warranties under ASC Topic 606 did not have a material impact on the condensed consolidated financial statements.

In addition, as of January 1, 2019, we began to separately present contract assets and liabilities on the consolidated balance sheets. Contract assets include amounts due under contractual retainage provisions that were previously included in accounts receivable as well as costs and estimated earnings in excess of billings on uncompleted contracts that were previously separately presented. Contract liabilities include billings in excess of costs and estimated earnings on uncompleted contracts that were previously separately presented and provisions for losses. See Note 5 - Contract Assets and Liabilities for further information.

The adoption of ASC Topic 606 had no impact on the cash flows provided by operating activities in the Company's condensed consolidated statements of cash flows.

Notes 2, 4, 5, and 16 include additional information relating to our adoption of ASC Topic 606. Note 12 includes information regarding our revenue disaggregated by segment.

Refer to the section, Effects of Adoption of ASC 606 and ASC 842 on Condensed Consolidated Financial Statements, below for additional disclosures around the quantitative impacts that the adoption of ASC Topic 606 had on our condensed consolidated financial statements.

New Leasing Standard

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as amended and supplemented by subsequent ASUs (collectively, “ASC Topic 842”). ASC Topic 842 amends the existing guidance in Accounting Standards Codification (“ASC”) 840, Leases. This ASU requires, among other things, the recognition of lease right-of-use (“ROU”) assets and lease liabilities by lessees for those leases currently classified as operating leases. Effective December 31, 2019, management adopted ASC Topic 606 for the annual and quarterly periods beginning after January 1, 2019 using a modified retrospective transition approach. The financial information for the quarter-ended June 30, 2019 has been recast to conform to the new standard.

The Company elected the package of practical expedients which provides relief from having to reassess (1) whether any expired or existing contracts contain leases, (2) lease classification (as operating or financing) for any expired or existing leases, and (3) initial direct costs for any existing leases. The Company also elected not to separate non-lease components from lease components and did not elect the hindsight practical expedient.

The adoption of ASC Topic 842 had no impact to the Company's condensed consolidated statements of operations or the consolidated cash flows provided by operating and financing activities in the Company's condensed consolidated statements of cash flows.

Refer to Note 13 - Leases for additional information regarding the impact of the adoption of ASC Topic 842 on the Company's financial position.

Additionally, refer to the section, Effects of Adoption of ASC 606 and ASC 842 on Condensed Consolidated Financial Statements, below for additional disclosures around the quantitative impacts that the adoption of ASC Topic 842 had on our condensed consolidated financial statements.

Effects of Adoption of ASC 606 and ASC 842 on Condensed Consolidated Financial Statements

The effect of the changes made to the Company's condensed consolidated June 30, 2019 balance sheet and condensed consolidated statement of operations for the three and six month periods ended June 30, 2019 for the adoption of ASC Topic 606 and ASC Topic 842 were as follows:
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
Previously Reported Balance as of June 30, 2019(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
Balance as of June 30, 2019 (As Recast)
Assets
 
 
 
 
 
 
 
Accounts receivable, net (b)
142,761

 
(31,236
)
 

 
111,525

Contract assets

 
68,285

 

 
68,285

Costs and estimated earnings in excess of billings on uncompleted contracts
36,030

 
(36,030
)
 

 

Other current assets
4,637

 
1

 

 
4,638

Operating lease right-of-use assets (c)

 

 
22,685

 
22,685

Deferred tax asset
4,170

 
(207
)
 

 
3,963

 

 

 

 

Liabilities
 
 
 
 
 
 
 
Contract liabilities

 
44,131

 

 
44,131

Billings in excess of costs and estimated earnings on uncompleted contracts
46,536

 
(46,536
)
 

 

Accrued expenses and other current liabilities
24,575

 
2,663

 

 
27,238

Current portion of long-term debt
2,173

 

 
62

 
2,235

Current operating lease liabilities (c)

 

 
3,824

 
3,824

Long-term debt
39,983

 

 
65

 
40,048

Long-term operating lease liabilities (c)

 

 
19,656

 
19,656

Other long-term liabilities
2,498

 

 
(794
)
 
1,704

 

 

 

 

Stockholders' Equity
 
 
 
 
 
 
 
Accumulated deficit
(7,782
)
 
555

 
(128
)
 
(7,355
)
(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
(b) Prior to the adoption of ASC Topic 606, retainage receivable was included within accounts receivable, net.
(c) Prior to the adoption of ASC Topic 842, operating lease right-of-use assets and current and long-term operating lease liabilities were not recorded on the Company's condensed consolidated balance sheets.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three months ended June 30, 2019
(in thousands)
Previously Reported(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
As Recast
Revenue
 
 
 
 
 
 
 
   Construction
$
104,925

 
$
(166
)
 

 
$
104,759

   Service
27,828

 
16

 

 
27,844

Total revenue
132,753

 
(150
)
 

 
132,603

Cost of revenue
 
 
 
 
 
 
 
   Construction
94,503

 
(427
)
 

 
94,076

   Service
20,849

 
(17
)
 

 
20,832

Total cost of revenue
115,352

 
(444
)
 

 
114,908

Gross profit
17,401

 
294

 

 
17,695

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative expenses
17,079

 

 

 
17,079

Amortization of intangibles
175

 

 

 
175

Total operating expenses
17,254

 

 

 
17,254

Operating income
147

 
294

 

 
441

Other income (expenses):
 
 
 
 
 
 
 
Interest expense, net
(1,597
)
 

 

 
(1,597
)
Gain on disposition of property and equipment
9

 

 

 
9

    Loss on debt extinguishment
(513
)
 

 

 
(513
)
    Loss on change in fair value of warrant liability
(103
)
 

 

 
(103
)
Total other expenses
(2,204
)
 

 

 
(2,204
)
Income before income taxes
(2,057
)
 
294

 

 
(1,763
)
Income tax provision (benefit)
(553
)
 
79

 

 
(474
)
Net loss
$
(1,504
)
 
$
215

 
$

 
$
(1,289
)
(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2019.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Six months ended June 30, 2019
(in thousands)
Previously Reported(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
As Recast
Revenue
 
 
 
 
 
 
 
   Construction
$
209,599

 
$
(380
)
 
$

 
$
209,219

   Service
57,105

 
26

 

 
57,131

Total revenue
266,704

 
(354
)
 

 
266,350

Cost of revenue
 
 
 
 
 
 

   Construction
185,864

 
(244
)
 

 
185,620

   Service
43,406

 
5

 

 
43,411

Total cost of revenue
229,270

 
(239
)
 

 
229,031

Gross profit
37,434

 
(115
)
 

 
37,319

Operating expenses:
 
 
 
 
 
 

Selling, general and administrative expenses
33,124

 

 

 
33,124

Amortization of intangibles
350

 

 

 
350

Total operating expenses
33,474

 

 

 
33,474

Operating income
3,960

 
(115
)
 

 
3,845

Other income (expenses):
 
 
 
 
 
 
 
Interest expense, net
(2,430
)
 

 

 
(2,430
)
Gain on disposition of property and equipment
21

 

 

 
21

    Loss on debt extinguishment
(513
)
 

 

 
(513
)
    Loss on change in fair value of warrant liability
(103
)
 

 

 
(103
)
Total other expenses
(3,025
)
 

 

 
(3,025
)
Income before income taxes
935

 
(115
)
 

 
820

Income tax provision (benefit)
293

 
(32
)
 

 
261

Net income
$
642

 
$
(83
)
 
$

 
$
559

(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the six months ended June 30, 2019.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss methodology for the measurement and recognition of credit losses on most financial instruments, including trade receivables and off-balance sheet credit exposure. Under this guidance, an entity is required to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. This ASU also requires disclosure of information regarding how a company developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. The guidance is effective for smaller reporting companies on January 1, 2023 with early adoption permitted. The adoption of this standard will be through a cumulative-effect adjustment to retained earnings as of the effective date. Based on our historical experience, the Company does not expect that this pronouncement will have a significant impact in its financial statements or on the estimate of the allowance for doubtful accounts.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which affects general principles within Topic 740, and is meant to simplify and reduce the cost of accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and simplifies areas including franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, the incremental approach for intraperiod tax allocation, interim period income tax accounting for year-to-date losses that exceed anticipated losses and enacted changes in tax laws in interim periods. The changes are effective for annual periods beginning after December 15, 2020. Management is currently assessing the impact of this pronouncement on its condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, which makes improvements to financial instruments guidance. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. With regard to amendments related to Issue 1, Issue 2, Issue 4 and Issue 5, for public business entities, the amendments are effective upon issuance of this final ASU. With regard to amendments related to Issue 6 and Issue 7, for entities that have not yet adopted the guidance in Update 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016-13. For entities that have adopted the guidance in ASU 2016-13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We do not expect the adoption of this pronouncement to have a material impact on our condensed consolidated financial statements or presentation thereof.
The FASB also issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting in March 2020. The new guidance provides optional expedients for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance is effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. We do not expect the adoption of this ASU to have a material impact on our condensed consolidated financial statements or presentation thereof.