Important Note about Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the Company's unaudited condensed consolidated financial statements as ofMarch 31, 2022 and notes thereto included in this document and the audited consolidated financial statements in the Company's 10-K filing for the period endedDecember 31, 2021 and the notes thereto. In addition to historical information, the following discussion and other parts of this Form 10-Q contain forward-looking information that involves risks and uncertainties. The Company's actual results could differ materially from those anticipated by such forward-looking information due to factors discussed elsewhere in this Form 10-Q. The statements that are not historical constitute "forward-looking statements." Said forward-looking statements involve risks and uncertainties that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements, express or implied by such forward-looking statements. These forward-looking statements are identified by their use of such terms and phrases as "expects," "intends," "goals," "estimates," "projects," "plans," "anticipates," "should," "future," "believes," and "scheduled." The variables which may cause differences include, but are not limited to, the following: general economic and business conditions; changes in regulatory environment; extraordinary external events such as the current pandemic health event resulting from COVID-19; competition; success of operating initiatives; operating costs; advertising and promotional efforts; the existence or absence of adverse publicity; changes in business strategy or development plans; the ability to retain management; availability, terms and deployment of capital; business abilities and judgment of personnel; availability of qualified personnel; labor and employment benefit costs; availability and costs of raw materials and supplies; and changes in, or failure to comply with various government regulations. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate; therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any person that the objectives and expectations of the Company will be achieved. 31
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Table of Contents OverviewOrbital Energy Group is a diversified infrastructure services company serving customers in the electric power, telecommunications, and renewable markets. The Company is dedicated to maximizing shareholder value through greenfield development and the acquisition of, and investment in successful, entrepreneurial led companies to profitably grow revenues by providing end-to-end solutions to customers, primarily in the renewable, electric power transmission and distribution, and telecommunications infrastructure markets. The Company is organized in three segments.The Electric Power segment consists ofFront Line Power Construction, LLC based inHouston, Texas ,Orbital Power, Inc. based inDallas, Texas , andEclipse Foundation Group based inGonzales, Louisiana . The segment provides comprehensive infrastructure solutions to customers in the electric power industry. Services performed byFront Line Power andOrbital Power, Inc. generally include but are not limited to the engineering, design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities as well as emergency restoration services.Eclipse Foundation Group , which began operations inJanuary 2021 , is a drilled shaft foundation construction company that specializes in providing services to the electric transmission and substation, industrial, telecommunication and disaster restoration market sectors, with expertise performing services in water, marsh and rock terrains. The Telecommunications segment consists ofGibson Technical Services (GTS) along with its subsidiariesIMMCO, Inc. based inAtlanta, Georgia andFull Moon Telecom, LLC based inFlorida . GTS provides engineering, design, construction, and maintenance services to the broadband and wireless telecommunication industries and was acquired by the Company effectiveApril 13, 2021 .IMMCO, Inc. provides enterprise solutions to the cable and telecommunication industries and was acquired by the Company effectiveJuly 28, 2021 .Full Moon Telecom, LLC provides telecommunication services including an extensive array of wireless service capabilities and was acquired by the Company effectiveOctober 22, 2021 . Coax Fiber Solutions was acquired as ofMarch 7, 2022 , and is aGeorgia based GDOT Certified contractor specializing in Aerial Installation, directional drilling, trenching, plowing, and missile crews for telecommunications, power, gas, water, CCTV, ATMS, and traffic signal cable installation.Orbital Solar Services, LLC (OSS), based inRaleigh, North Carolina , makes up the Renewables segment. OSS provides engineering, procurement and construction ("EPC") services that support the development of renewable energy generation focused on utility-scale solar construction. The Company has experienced rapid growth through organic growth and acquisitions as the Company benefits from its 2021 investments and acquisitions and as the economy continues to emerge from the COVID-19 induced slowdown. First Quarter 2022 revenue was over twelve times greater than the Company's total revenue from the first quarter of 2021. Improved revenues and income were as a result of the inclusion of a full quarter of operations from the November acquisition ofFront Line Construction in theElectric Power segment along with improved revenue and gross margins from the rest of the segment. The Company's results also reflect the inclusion of the 2021 Telecom acquisitions that began operations in the second quarter of 2021. The Company continues to incur professional fees related to mergers and acquisitions as the Company pursues both organic growth and growth through acquisitions. The Company's Telecommunications segment made an additional "tuck-in" acquisition in the first quarter of 2022 for cash and stock consideration of approximately$1 million . The three-month period endedMarch 31, 2022 for all segments began to see tangible benefits from the investments the Company made in 2021 through improved revenue and gross margins. The Company's results were affected negatively in the first quarter of 2022 by the$25.3 million loss on extinguishment of the Company's seller financed debt on theNovember 2021 Front Line Construction acquisition. The loss on extinguishment was primarily related to financial instruments included in the first quarter 2022 loan modification. Partially offsetting this loss was a$5.2 million gain on the forfeiture of restricted stock by a Renewable segment executive. In the first quarter of 2021, the Company incurred ramp-up costs in theElectric Power segment that put downward pressure on margins in the first quarter of 2021.The Company also incurred professional fees related to mergers and acquisitions as the Company pursued both organic and growth through acquisitions. The three-month period endedMarch 31, 2021 for both segments were also negatively affected by generally lower economic activity due to the COVID-19 pandemic that caused economic slowdowns throughout the world. For the three months endedMarch 31, 2022 ,Orbital Energy Group, Inc. had consolidated loss from operations of$1.8 million compared to consolidated loss from operations in the three months endedMarch 31, 2021 of$15.6 million . During the three months endedMarch 31, 2022 ,Orbital Energy Group, Inc. had a consolidated loss from continuing operations of$36.7 million compared to a loss of$16.3 million in the comparable prior-year period. During the three months endedMarch 31, 2022 ,Orbital Energy Group, Inc. had a consolidated net loss of$37.6 million compared to a consolidated net loss in the three months endedMarch 31, 2021 of$18.0 million . The greater net loss for the three months endedMarch 31, 2022 , was primarily the result of the loss on extinguishment of debt related to the loan modification of the seller financed debt and ongoing merger and acquisition activity. SG&A cost decreases in the Other segment relate to the 2021 cash-settled SARS mark to market adjustment along with lower employee performance bonuses. Revenues from continuing operations increased for the three months endedMarch 31, 2022 due to the continued ramp-up of theElectric Power and Renewables segments along with the addition of the Telecommunications segment which was assembled via acquisitions in 2021 and 2022. 32
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Continuing Results of Operations
The following tables set forth, for the period indicated, certain financial information regarding revenue and operating results by segment.
For the Three Months Ended
Percent of Percent of Percent of Percent of (dollars in Segment Segment Segment Segment Percent of thousands) Electric Power Revenues Telecommunications Revenues Renewables Revenues Other Revenues Total Total Revenues $% $% $% $% $% Revenues$ 39,695 100.0 % $ 16,095 100.0 %$ 14,464 100.0 % $ - - %$ 70,254 100.0 % Income (loss) from operations $ (711 ) (1.8 )% $ 477 3.0 %$ 428 3.0 %$ (1,982 ) - %$ (1,788 ) (2.5 )%
For the Three Months Ended
Percent of Percent of Percent of Percent of Percent of (dollars in Segment Segment Segment Segment Total
thousands)
Revenues Renewables Revenues Other
Revenues Total Revenues $ % $ % $ % $ % $ % Revenues $ 3,189 100.0 % $ - - %$ 2,372 100.0 % $ - - %$ 5,561 100.0 % Income (loss) from operations$ (4,264 ) (133.7 )% $ - - %$ (5,326 ) (224.5 )%$ (6,032 ) - %$ (15,622 ) (280.9 )% 33
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Table of Contents Revenue The revenues for the three months endedMarch 31, 2022 increased compared to the 2021 comparable period primarily due to the additions of the Telecommunications segment following the acquisitions of GTS in Q2 2021, IMMCO in Q3 2021, Full Moon in Q4 2021 andCoax Fiber Solutions, LLC in Q1 2022 along with the acquisition ofFront Line Power Construction, LLC to the Company'sElectric Power segment in Q4 2021. In addition,Orbital Power Inc. in theElectric Power segment has continued to ramp up operations in Q1 2022. Renewables had significantly higher revenues in the first quarter of 2022 compared to the first quarter of 2021, which was affected by supply chain issues and a general slow-down caused by the COVID-19 epidemic. The Electric Power Segment held backlogs of customer orders of approximately$217.1 million as ofMarch 31, 2022 and$207.7 million atDecember 31, 2021 . Increases to the backlog are due to the continuous growth ofFront Line Power Construction andOrbital Power Inc. The Telecommunications segment held backlogs of customer orders of approximately$189.3 million as ofMarch 31, 2022 , compared to a backlog of$194.5 million atDecember 31, 2021 . The Renewables segment had a backlog of$107.1 million as ofMarch 31, 2022 compared to$121.4 million as ofDecember 31, 2021 which is due to further work being completed and revenue being recognized in the quarter on projects that make up this backlog. Of theMarch 31, 2022 backlog totals, the amounts expected to be recognized in the twelve months following Q1 are approximately$294.6 million . The amounts expected to be recognized in the twelve months following Q1 consist of$131.6 million from theElectric Power segment,$55.9 million from the Telecommunications segment and$107.1 million from the Renewables segment. Cost of revenues 34
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For the three months endedMarch 31, 2022 , the cost of revenues as a percentage of revenue decreased to 83.5% from 145.3% respectively from the prior-year period. This decrease was primarily in theElectric Power segment and was attributable to ramp-up of revenues in the segment both organically and the addition ofFront Line Power Construction . Margin percentages will vary based upon the mix of Orbital Power Services projects including emergency response services, new crew onboarding costs, and the competitive markets in which the Company competes. The three months endedMarch 31, 2021 were affected by start-up costs at the Company's Orbital Power Services group, lower margin projects during the period for Orbital Solar Service and was also affected negatively by the COVID-19 pandemic and the resulting world-wide economic slowdown. Ramp-up costs included onboarding personnel, equipment and supplies in advance of projected work in order to obtain the necessary resources in a competitive market as the Companye prepared for forward demand expectations. Additionally, adverse weather negatively impacted severalElectric Power fixed price jobs in the first quarter of 2021. The Company expects continued improvement in margins during the remainder of 2022 as theElectric Power segment continues to gain efficiencies and increase revenues, and the Telecommunications segment sees continued synergistic benefits from the acquisitions of GTS, IMMCO, Full Moon, Coax Fiber Solutions.
Selling, General and Administrative Expenses
Selling, General and Administrative (SG&A) expenses include such items as wages, commissions, consulting, general office expenses, business promotion expenses and costs of being a public company, including legal and accounting fees, insurance and investor relations. SG&A expenses are generally associated with the ongoing activities to reach new customers, promote new product and service lines including for theElectric Power segment, Renewables segment, and Telecommunications segments. During the three months endedMarch 31, 2022 , SG&A decreased$3.9 million compared to the prior-year comparative periods. The decrease in SG&A for the quarter were due to decreased SG&A costs in the Renewables segment due to the$5.2 million forfeiture related to a Renewables Executive termination. Also contributing to the decreased SG&A was lower executive bonuses and a$0.3 million positive cash settled SARS mark-to-market fair value adjustment in 2022 compared to a$1.9 million mark to market expense in the first quarter of 2021. These decreases were partially offset by increases in SG&A in theElectric Power and Telecommunications segments primarily due to organic growth and the Company's 2021 and 2022 aquistions. 35
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Depreciation and Amortization
(dollars in thousands)
For the Three Months Ended Depreciation and amortization expense by Segment March 31, 2022 2021 $ Change % Change Electric Power$ 6,975 $ 217$ 6,758 3114.3 % Telecommunications 1,091 - 1,091 100.0 % Renewables 608 1,089 (481 ) (44.2 )% Other 16 441 (425 ) (96.4 )%
Total depreciation and amortization
Depreciation and amortization expenses are associated with depreciation on buildings, furniture, equipment, vehicles, and amortization of intangible assets over the estimated useful lives of the related assets.
Depreciation and amortization expense in the three months endedMarch 31, 2022 were up compared to the three months endedMarch 31, 2021 primarily due to additional amortization in theElectric Power and Telecommunication segments and GTS, IMMCO,Full Moon Telecom , andFront Line Power Construction acquisition intangibles that were acquired in the second, third and fourth quarter of 2021 and depreciation of equipment used by Orbital Power Services which has been ramping up their capital expenditures as more crews are added. 36
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Loss on Extinguishment of debt
Loss on extinguishment of debt in the three endedMarch 31, 2022 of$26.0 million was primarily related to loan modifications on the Company's seller financed debt with the sellers ofFront Line Power Construction and approximately$0.7 million loss on extinguishment in the first three months endedMarch 31, 2022 related to the payment of certain loans with stock-based payments. Loss on extinguishment of debt in the three months endedMarch 31, 2021 related to the removal of a conversion feature of a note payable. Other Income (Expense), net (dollars in thousands) For the Three Months Ended Other Income (Expense), net March 31, 2022 2021 $ Change % Change Foreign exchange gain (loss) (49 ) $ 95$ (144 ) (151.6 )% Financial instrument expense (928 ) -$ (928 ) (100.0 )% Interest income 78 81$ (3 ) (3.7 )% Rental income 129 113$ 16 14.2 % Other income 187 24$ 163 679.2 % Total Other income (expense) $ (583 )$ 313 $ (896 ) (286.3 )% Other income (expense) changes contributing to increased expenses was a$0.9 million mark-to-market loss on the value of a financial instrument liability related to the Company's syndicated debt offset by interest income, rental income and other income.
Interest Expense
For the three months endedMarch 31, 2022 , the Company incurred interest expense of$8.0 million compared to interest for the three months endedMarch 31, 2021 of$0.7 million . The increase in interest expense in 2022 is related to the increase in notes payable outstanding in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 primarily related to theFront Line Power Construction acquisition.
Income Tax Expense
The Company is subject to taxation in the
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For additional analysis, see Note 14, "Income Taxes," of the condensed consolidated financial statements in Part I - Item I, "Financial Statements."
Liquidity and Capital Resources
Company Conditions and Sources of Liquidity
The Company has experienced net losses and cash outflows from cash used in operating activities over the past years. As of and for the three months endedMarch 31, 2022 , the Company had an accumulated deficit of$248.5 million , loss from continuing operations of$36.7 million , and net cash used in operating activities of$1.6 million . As ofMarch 31, 2022 , the Company had cash and cash equivalents of$20.9 million available for working capital needs and planned capital asset expenditures and a working capital deficit of$65.1 million , including current maturities of debt. These factors initially raise substantial doubt about our ability to continue as a going concern, but this doubt has been alleviated by the Company's plans to raise sufficient capital to meet our current obligations over the next twelve months, in addition to the expected recovery of our assets to satisfy liabilities in the normal course of business. The Company has plans to access additional capital to meet its obligations for the twelve months from the date these financial statements are available to be issued. Historically, the Company has raised additional equity and debt financing to fund its expansion; refer to Note 15 - Notes Payable and Line of Credit. The Company has also funded some of its capital expenditures through long-term financing with lenders and other investors as also described in further detail in Note 15 - Notes Payable and Line of Credit and Note 19 - Subsequent Events. Our ability to raise the additional capital is dependent on a number of factors, including, but not limited to, the market demand for our common stock, which itself is subject to a number of business risks and uncertainties, our creditworthiness and the uncertainty that we would be able to raise such additional capital at a price that is favorable to us. As ofMarch 31, 2022 , the Company has an effective S-3 shelf registration statement with$112.0 million of aggregate offering value available for the issuance of various types of securities, including common stock, preferred stock, debt securities and/or warrants. While management will look to continue funding future acquisitions, organic growth initiatives and continuing operations by raising additional capital from sources such as sales of its debt or equity securities or notes payable in order to meet operating cash requirements, there is no assurance that management's plans will be successful. As the Company continues its progression to build a full-service infrastructure services platform, a successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows through generating adequate revenue growth to support the Company's cost structure. For the three months endedMarch 31, 2022 , our revenues have increased by$64.7 million resulting in over a 1,100% increase in revenue compared to the three-month period ended in 2021. The significant increase in revenues during the year was primarily driven by the strategic acquisitions ofFront Line Power Construction, LLC ,Gibson Technical Services ,IMMCO, Inc. , andFull Moon Telecom, LLC made coupled with organic growth withinOrbital Power Systems . In addition, two large utility scale solar projects were awarded to Orbital Solar Systems during the twelve-month period endedDecember 31, 2021 . We anticipate, based on currently proposed plans and assumptions relating to our operations, the Company to generate sufficient revenue growth required to achieve profitability and generate positive cash flows from operations over the next twelve months. No assurance can be made that we will be able to obtain profitability and positive cash flows from our continuing operations. The Company plans to meet its obligations as they become due over the next twelve months by raising additional capital through equity and debt financing sources and expected positive cash flows generated from operations. Given the considerations, we believe the mitigating effect of management's plans has alleviated any substantial doubt about the Company's ability to continue as a going concern. General As ofMarch 31, 2022 , the Company held cash and cash equivalents of$20.9 million and restricted cash of$1.2 million . Operations, investments, and equipment have been funded through cash on hand, the issuance of common stock authorized by itsJuly 2020 andFebruary 2021 S-3 filings, seller financing, and the issuance of debt and financing through the sale of future revenues. The Company filed an S-3 in February of 2021 which became effective inApril 2021 for the issuance of additional stock or public debt. In April, 2022, the Company issued 9,000,000 shares of common stock and pre-funded warrants to purchase up to 7,153,847 shares of Common Stock for a total raise of$21.0 million before expenses. In August of 2021, the Company opened a$4.0 million dollar line of credit to support additional funding. Major uses of cash in the first three months of 2022 included the purchases of property and equipment, debt payments and changes in working capital. The Company continues to work to improve its short-term liquidity through management of its working capital. Long-term liquidity is expected to benefit from revenue growth and earnings through its existing operations. Overall volume growth in the Company's businesses both organically and through acquisitions are expected to benefit cash flows as well. Cash Used in Operations
Cash used in operations of
The decrease in uses of cash in the first three months of 2022 are primarily related to higher merger and acquisition costs in the first quarter of 2021 as compared to 2022 along with company growth in 2022. Due to the large increase in revenue and associated costs both through acquisitions and organic growth, the Company was better able to cover it's fixed costs, but increased interest costs partially offset the benefits of much greater sales. Also with the growth of the company's revenue comes increased accounts receivables and accounts payable, which outside of timing, generally have offsetting cash flow effects. In the short-term, rapid growth can have a detrimental effect on cash flows as sales on account with positive gross margins waiting to be collected exceed accounts payable not yet paid. As the Company's growth begins to moderate, overall cash used in operations will continue to improve through revenue growth associated with new customers and larger projects. The change in cash used in operating activities sinceDecember 31, 2021 , exclusive of net loss, is primarily the result of the following line items: Timing of cash payments on accounts payable and accrued liabilities was a combined$12.1 million increase in cash provided by operating activities related to larger projects at Orbital SolarServices and Front Line Power . Changes in cost in excess of billing and accounts receivable fromDecember 31, 2021 was a combined$10.3 million use of cash for the period and reflects the greater revenue volumes in the first three months of 2022 compared to the first three months of 2021. 38
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Table of Contents S-3 registration The Company filed an S-3 registration statement onJuly 17, 2020 containing a prospectus that was effective inSeptember 2020 . The Company utilized this filing inJanuary 2021 to issue common stock for$45 million before costs. The Company filed a new S-3 shelf registration inJanuary 2021 , which, as amended, became effective inApril 2021 . With this filing,Orbital Energy Group may from time-to-time issue various types of securities, including common stock, preferred stock, debt securities and/or warrants, up to an aggregate amount of$150 million . The Company utilized this S-3 registration to issue additional common stock inJuly 2021 for$38 million before expenses. As the Company focuses on growing its infrastructure services market presence both organically and through strategic acquisitions, technology development, product and service line additions, and increasing Orbital's market presence, it will fund these activities together with related operating, sales and marketing efforts for its various product offerings with cash on hand, and possible proceeds from future issuances of equity through the S-3 registration statement, and available debt.Orbital Energy Group may raise additional capital needed to fund the further development and marketing of its products and services as well as payment of its debt obligations.
See the section entitled Recent Sales of
Capital Expenditures and Investments
During the first three months of 2022 and 2021,Orbital Energy Group invested$1.4 million and$2.9 million , respectively, in property and equipment. These purchases in 2022 were primarily for capital assets associated with the Company'sElectric Power segment and Telecommunications segment. These investments typically include additions to equipment including vehicles and equipment for powerline service and maintenance, engineering, furniture, computer equipment for office personnel, facilities improvements and other fixed assets as needed for operations. In addition, during the three months endedMarch 31, 2022 , the Company had proceeds from a notes receivable of$3.5 million . The Company anticipates further investment in fixed assets and acquisitions during 2022 in support of its on-going business and continued development of its infrastructure services operations.
Financing Activities
In the three months endedMarch 31, 2022 and 2021 the Company made cash payments on notes payable of$5.8 million and proceeds from notes payable of$9.7 million , respectively. The Company also received$3.5 million in proceeds from their line of credit and made$2 million in payments on this line of credit in 2022 compared to$0.4 million paid in the quarter endedMarch 31, 2021 to close its line of credit that was acquired with the Orbital Solar Services business. In the three months endedMarch 31 2022 and 2021 the Company recorded payments on finance lease obligations of$1.2 million andone thousand dollars , respectively.
Recap of Liquidity and Capital Resources
AtMarch 31, 2022 , the Company had unrestricted cash and cash equivalents balances of$20.9 million . AtMarch 31, 2022 the Company had$2.2 million of cash and cash equivalents balances at domestic financial institutions that were covered under theFDIC insured deposits programs and$0.4 million covered at foreign financial institutions.
The Company had a net loss of
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The Company expects the revenues from its continuing operations, and cash on hand, to cover operating and other expenses for the next twelve months of operations. However, in the short-term, the Company expects to continue to need cash support as the Company's businesses increase their market positions and revenue. The Company may issue additional debt or equity to support continuing operations and acquisition efforts in the remaining months of 2022. Critical Accounting Policies The Company has adopted various accounting policies to prepare the consolidated financial statements in accordance with Generally Accepted Accounting Principles, ("GAAP"). Certain of the Company's accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. In the Company's 2021 Annual Report on Form 10-K filed onMarch 31, 2022 , the Company identified the critical accounting policies that affect the Company's more significant estimates and assumptions used in preparing the Company's consolidated financial statements.
Recent Accounting Pronouncements
See Note 11 Recent Accounting Pronouncements of the condensed consolidated financial statements in Part I-Item I, "Financial Statements" for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial position, results of operations and cash flows.
Off-Balance Sheet Arrangements
See Note 20 Commitments and Contingencies of the condensed consolidated financial statements in Part I-Item I, "Financial Statements" for a description of the Company's off-balance sheet arrangements.
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