ATLAS TECHNICAL CONSULTANTS, INC. The following discussion and analysis should be read in conjunction with our
unaudited financial statements and accompanying notes included herein. This
discussion contains "forward-looking statements" reflecting our current
expectations, estimates and assumptions concerning events and financial trends
that may affect our future operating results or financial position. Actual
results and the timing of events may differ materially from those contained in
these forward-looking statements due to a number of factors. Factors that could
cause or contribute to such differences include, but are not limited to,
economic and competitive conditions, regulatory changes and other uncertainties,
as well as those factors included in our Annual Report on Form 10-K for the year
ended
For purposes of this section, "we," "us," "our," the "Company" and "Atlas"
refers to
OVERVIEW
Company Overview
On
Following the consummation of the Atlas Business Combination, we are organized in an "Up-C" structure in which the business of Atlas Intermediate and its subsidiaries is held by Holdings and continues to operate through the subsidiaries of Atlas Intermediate, and in which our only direct assets consist of common units of Holdings (the "Holdings Units"). We are the sole manager of Holdings in accordance with the terms of the Amended and Restated Limited Liability Company Agreement of Holdings entered into in connection with the consummation of the Atlas Business Combination.
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Headquartered in
We act as a trusted advisor to our clients, helping our clients design, engineer, inspect, manage and maintain civil and commercial infrastructure, servicing the existing structures as well as helping to build new structures. However, we do not perform any construction, and do not take any direct construction risk or engage in any product manufacturing.
We provide a broad range of mission-critical technical services, ranging from
providing inspection services in small projects to managing significant aspects
of large, multi-year projects. For the year ended
? performed approximately 40,000 projects, with average revenue per
project of less than $10,000 ; and
? delivered approximately 90% of our projects under "time & materials"
and "cost-plus" contracts.
We have long-term relationships with a diverse set of clients, providing a base
of repeating clients, projects and revenues. Approximately 90% of our revenues
are derived from clients who have used our services at least twice in the past
three years and more than 95% of our revenues are generated from client
relationships longer than 10 years, with greater than 25% of revenues generated
from relationships longer than 30 years. Examples of such long-term customers
include the
Our broad base of customers spans a diverse set of end markets including the transportation, commercial, water, government, education, industrial, healthcare and power sectors. Our customers include government agencies, quasi-public entities, schools, hospitals, utilities and airports, as well as private sector clients across many industries.
Our services require a high degree of technical expertise, as our clients rely
on us to provide testing, inspection and quality assurance services to ensure
that structures are designed, engineered, built and maintained in accordance
with building codes, regulations and the highest safety standards. As such, our
services are delivered by a highly-skilled, technical employee base that
includes scientists, engineers, inspectors and other field experts. As of
Our services are typically provided under contracts, some of which are long-term
with long lead times between when contracts are signed and when our services are
performed. As such, we have a significant amount of contracted backlog,
providing for a high degree of visibility with respect to revenues expected to
be generated from such backlog. As of
COVID-19 Pandemic
See Note 14 to the consolidated financial statements for a discussion of the COVID-19 Pandemic.
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Recent Accounting Pronouncements
See Note 2. "Summary of Significant Accounting Policies," to the Consolidated Financial Statements for a description of the recent accounting pronouncements.
HOW WE EVALUATE OUR OPERATIONS
We use a variety of financial and other information in monitoring the financial condition and operating performance of our business. Some of this information is financial information that is prepared in accordance with generally accepted accounting principles ("GAAP"), while other information may be financial in nature and may not be prepared in accordance with GAAP. Historical information is periodically compared to budgets, as well as against industry-wide information. We use this information for planning and monitoring our business, as well as in determining management and employee compensation.
We evaluate our overall business performance based primarily on a combination of four financial metrics: revenue, backlog, adjusted EBITDA and liquidity measures. These are key measures used by our management team and Board to understand and evaluate our operational performance, to establish budgets and to develop short and long-term operational goals.
Revenue
Revenues for services are derived from billings under contracts (which are typically of short duration) that provide for specific time, material and equipment charges, or lump sum payments and are reported net of any taxes collected from customers. We recognize revenue as it is earned at estimated collectible amounts.
Revenue is recognized as services are performed and amounts are earned in accordance with the terms of a contract. We generally contract for services to customers based on either hourly rates or a fixed fee. In such contracts, our efforts, measured by time incurred, typically are provided in less than a year and represent the contractual milestones or output measure, which is the contractual earnings pattern. For contracts with fixed fees, we recognize revenues as amounts become billable in accordance with contract terms, provided the billable amounts are consistent with the services delivered and are earned. Expenses associated with performance of work may be reimbursed with a markup depending on contractual terms. Revenues include the markup, if any, earned on reimbursable expenses. Reimbursements include billings for travel and other out-of-pocket expenses and third-party costs, such as equipment rentals, materials, subcontractor costs and outside laboratories, which is included in cost of revenues in the accompanying combined statement of income.
Backlog
Effective for the quarter ended
We use backlog to evaluate Company revenue growth as it typically follows growth in backlog. As backlog is not a defined accounting term, our computation of backlog may not be comparable with that of our peers.
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COMPONENTS & FACTORS AFFECTING OUR OPERATING RESULTS
Revenue
We generate revenue primarily by providing infrastructure-based testing, inspection, certification, engineering, and compliance services to a wide range of public- and private-sector clients. Our revenue consists of both services provided by our employees and pass-through fees from subcontractors and other direct costs.
Cost of Revenue
Cost of revenue reflects the cost of personnel and specifically identifiable costs associated with revenue.
Operating Expense
Operating expense includes corporate expenses, including personnel, occupancy, and administrative expenses, including depreciation and amortization.
Interest Expense
Interest expense consists of contractual interest expense on outstanding debt obligations including amortization of deferred financing costs and other related financing expenses.
Income Tax Expense
Following the consummation of the Atlas Business Combination, we are organized in an "Up-C" structure in which the business of Atlas Intermediate and its subsidiaries is held by Holdings and will continue to operate through the subsidiaries of Atlas Intermediate, and in which our only direct assets consist of common units of Holdings. We are the sole manager of Holdings in accordance with the terms of the Holdings LLC Agreement entered into in connection with the consummation of the Atlas Business Combination.
Previously, Atlas Intermediate was treated as a partnership for federal and
state income tax purposes with all income tax liabilities and/or benefits of the
Company being passed through to the partners and members. As such, no
recognition of federal or state income taxes have been provided for in the
accompanying consolidated financial statements with the exception of income
taxes relating to the
Subsequent to the Atlas Business Combination, income taxes relating to the C-Corps owned directly by Atlas Intermediate and the State of Texas Margin tax are considered within the provision of non-controlling interest as it is generated through the results of Atlas Intermediate and its subsidiaries.
Net Income (loss) From Continuing Operations
Net income (loss) from continuing operations reflects our operating income after taking into account costs and expenses for a given period, while excluding any gain or loss from discontinued operations.
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Provision for Non-controlling Interest
Our ownership and voting structure is comprised of holders of our Class A common
stock that participate 100% in the results of
Due to the participation of the holders of our Class B common stock in the results of Atlas Intermediate and subsidiaries, a non-controlling interest was deemed to exist. Consolidated net income includes earnings attributable to both the shareholders and the non-controlling interests.
The provision for non-controlling interest relates to pre-tax income subsequent to the Atlas Business Combination and includes a pro-rata share of taxes as federal and state income taxes relating to the C-Corps directly owned by Atlas Intermediate and the State of Texas Margin tax as it is generated through the results of Atlas Intermediate and its subsidiaries.
Upon the close of the Atlas Business Combination, the holders of our Class B
common stock participated in 80.6% of the results of Atlas Intermediate and its
subsidiaries. This percentage has declined over the course of the year due to
the exchange of Atlas Intermediate units, together with Class B common shares,
for Class A common shares and the exchange of our public and private placement
warrants for Class A common shares during November and
Redeemable Preferred Stock Dividends
On
The GSO Placement was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), and/or Regulation D promulgated thereunder.
On
On
Net Income (loss) Attributable to Class A Common Stock (Previously Members)
Net income (loss) attribution to holders of our Class A common stock represents our results after the provision for non-controlling interest, the effect of all taxes under the Up-C structure for the period subsequent to the Atlas Business Combination, and dividends due on redeemable preferred stock.
Net income (loss) for the historical results of Atlas Intermediate prior to the Atlas Business Combination are also reported within this line item.
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Financial Overview
We had a successful first quarter in 2021 with strong execution from operations,
good bookings of new work that gives us a record backlog entering the second
quarter of 2021, a new capital structure from the recapitalization of our
balance sheet, and the announcement of a definitive agreement to acquire
The first quarter of 2021 financial results reflect
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