Our Company
We are a provider of professional, technical and consulting services to
utilities, private industry, and public agencies at all levels of government. As
resources and infrastructures undergo continuous change, we help organizations
and their communities evolve and thrive by providing a wide range of technical
services for energy solutions and government infrastructure. Through
engineering, program management, policy advisory, and software and data
management, we design and deliver trusted, comprehensive, innovative, and proven
solutions to improve efficiency, resiliency, and sustainability in energy and
infrastructure to our customers.
Our broad portfolio of services operates within two reporting segments: (1)
Energy and (2) Engineering and Consulting. The interfaces and synergies between
these segments are important elements of our strategy to design and deliver
trusted, comprehensive, innovative, and proven solutions for our customers.
Our Energy segment provides specialized, innovative, comprehensive energy
solutions to businesses, utilities, state agencies, municipalities, and
non-profit organizations in the
staff help our clients realize cost and energy savings by tailoring efficient
and cost-effective solutions to assist in optimizing energy spend. Our energy
efficiency services include comprehensive audit and surveys, program design,
master planning, demand reduction, grid optimization, benchmarking analyses,
design engineering, construction management, performance contracting,
installation, alternative financing, measurement and verification services, and
advances in software and data analytics.
Our Engineering and Consulting segment provides civil engineering-related
construction management, building and safety, city engineering, city planning,
civil design, geotechnical, material testing and other engineering consulting
services to our clients. Our engineering services include rail, port, water,
mining and other civil engineering projects. We also provide economic and
financial consulting to public agencies along with national preparedness and
interoperability services, communications, and technology solutions. Lastly, we
supplement the engineering services that we offer our clients by offering
expertise and support for the various financing techniques public agencies
utilize to finance their operations and infrastructure. We also support the
mandated reporting and other requirements associated with these financings. We
provide financial advisory services for municipal securities but do not provide
underwriting services.
Historical and Current Impact of Covid-19
The coronavirus (“Covid-19”) pandemic and efforts to limit its spread negatively
impacted our operations during our fiscal year 2020 and continued to impact us,
albeit to a lesser extent, during fiscal year 2021. In
the states in which we have historically derived a majority of our revenue,
mandatory shutdown orders were issued in
re-openings that began in
result of resurgences of Covid-19 cases, and subsequent re-openings through 2020
and 2021. Our largest program for the
(“LADWP”) resumed in the third quarter of fiscal 2021 and was the last program
suspended due to Covid-19. In addition, through fiscal year 2020 and 2021, none
of our contracts were cancelled due to Covid-19.
Through the current fiscal year 2022, though none of our current programs are
under suspension due to Covid-19 restrictions, certain market segments such as
small business customers of major utilities continue to experience lingering
impacts of the reduced economic activity due to the Covid-19 related mandates in
2020 and 2021. As of
result of Covid-19.
Asset and liability valuation and other estimates used in preparation of
financial statements
As of
long-lived assets, including intangible assets. Because the full extent of the
impact of a resurgence in the Covid-19 outbreak and efforts to slow its spread
are unknown at this time, they could, under certain circumstances, cause
impairment and result in a non-cash
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impairment charge being recorded in future periods. Changes to the estimated
future profitability of the business may require that we establish an additional
valuation allowance against all or some portion of our net deferred tax assets.
Impact on Clients and Subcontractors and Other Risks
We primarily work for utilities, municipalities and other public agencies.
Should there be a resurgence related to Covid-19, some of these customers could
experience significant budget shortfalls for the current year and beyond as a
result of the measures taken to mitigate the resurgence effects of the Covid-19
pandemic and/or revenue shortfalls as a result of reduced economic activity.
Although none of our contracts with governmental or public agencies were
materially modified during our fiscal year 2020 or fiscal year 2021, these
potential budget deficits could result in delayed funding for existing
contracts, postponements of new contracts or price concessions. Further, most of
our clients are not committed to purchase any minimum amount of services, as our
agreements with them are based on a “purchase order” or “master service
agreement” model. As a result, they may discontinue utilizing some or all of our
services with little or no notice.
In addition, we rely on subcontractors and material suppliers to complete a
substantial portion of our work, especially in our Energy segment. If our
significant subcontractors and material suppliers suffer significant economic
harm and must limit or cease operations or file for bankruptcy as a result of
the current economic slowdown, our subcontractors and material suppliers may not
be able to fulfill their contractual obligations satisfactorily and we may not
have the ability to select our subcontractors and material suppliers of choice
for new contracts. If our subcontractors and material suppliers are not able to
fulfill their contractual obligations, it could result in a significant increase
in costs for us to complete the projects or cause significant delays to the
realization of revenues under those projects. The ultimate impact of Covid-19 on
our financial condition and results of operations will depend on all of the
factors noted above, including other factors that we may not be able to forecast
at this time. See the risk factor “The Covid-19 pandemic and health and safety
measures intended to slow its spread have adversely affected, and may continue
to adversely affect, our business, results of operations and financial
condition.” under Part I. Item 1A. “Risk Factors” of our Annual Report on Form
10-K for the year ended
effect on our business, financial condition and results of operations, we are
unable to predict the extent or duration of future impacts at this time.
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Results of Operations
Second Quarter and First Half Overview
The following tables set forth, for the periods indicated, certain information
derived from our consolidated statements of comprehensive income(1):
Three Months Ended
July 1, July 2,
2022 2021 $ Change % Change
(in
thousands, except percentages)
Contract revenue
Direct costs of contract revenue:
Salaries and wages 21,284 20.7 16,366 19.4 4,918 30.1
Subcontractor services and other direct
costs 49,771 48.5 36,902 43.9 12,869 34.9
Total direct costs of contract revenue 71,055 69.2
53,268 63.3 17,787 33.4
Gross profit 31,590 30.8 30,886 36.7 704 2.3
General and administrative expenses:
Salaries and wages, payroll taxes and
employee benefits 20,439 19.9 18,712 22.2 1,727 9.2
Facilities and facilities related 2,373 2.3 2,379 2.8 (6) (0.3)
Stock-based compensation 1,714 1.7 5,933 7.1 (4,219) (71.1)
Depreciation and amortization 4,426 4.3 4,224 5.0 202 4.8
Other 7,936 7.7 6,710 8.0 1,226 18.3
Total general and administrative expenses 36,888 35.9 37,958 45.1 (1,070) (2.8)
Income (loss) from operations (5,298) (5.2)
(7,072) (8.4) 1,774 (25.1)
Other income (expense):
Interest expense (1,030) (1.0) (1,099) (1.3) 69 (6.3)
Other, net 329 0.3 (93) (0.1) 422 N/M
Total other income (expense) (701) (0.7) (1,192) (1.4) 491 (41.2)
Income (Loss) before income tax expense (5,999) (5.8) (8,264) (9.8)
2,265 (27.4)
Income tax expense (benefit) (1,673) (1.6)
(3,663) (4.4) 1,990 (54.3)
Net income (loss)
(1) Percentages are expressed as a percentage of contract revenue and may not
total due to rounding.
N/M = Not meaningful
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Six Months Ended
July 1, July 2,
2022 2021 $ Change % Change
(in thousands, except percentages)
Contract revenue
Direct costs of contract revenue:
Salaries and wages 40,094 20.6 32,186 19.7 7,908 24.6
Subcontractor services and other
direct costs 91,439 47.0 68,036 41.7 23,403 34.4
Total direct costs of contract
revenue 131,533 67.6 100,222 61.4 31,311 31.2
Gross profit 62,950 32.4 63,018 38.6 (68) (0.1)
General and administrative
expenses:
Salaries and wages, payroll taxes
and employee benefits 39,796 20.5 38,156 23.4 1,640 4.3
Facilities and facilities related 4,771 2.5 5,022 3.1 (251) (5.0)
Stock-based compensation 5,019 2.6 10,139 6.2 (5,120) (50.5)
Depreciation and amortization 8,835 4.5 8,411 5.2 424 5.0
Other 15,435 7.9 12,551 7.7 2,884 23.0
Total general and administrative
expenses 73,856 38.0 74,279 45.5 (423) (0.6)
Income (loss) from operations (10,906) (5.6) (11,261)
(6.9) 355 (3.2)
Other income (expense):
Interest expense (1,781) (0.9) (2,163) (1.3) 382 (17.7)
Other, net 526 0.3 (64) (0.0) 590 N/M
Total other income (expense) (1,255) (0.6) (2,227) (1.4) 972 (43.6)
Income (Loss) before income tax
expense (12,161) (6.3) (13,488) (8.3) 1,327 (9.8)
Income tax expense (benefit) (4,062) (2.1) (5,121)
(3.1) 1,059 (20.7)
Net income (loss)
(2) Percentages are expressed as a percentage of contract revenue and may not
total due to rounding.
N/M = Not meaningful
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The following tables provides information about disaggregated revenue of our two
segments, Energy and Engineering and Consulting, by contract type, client type
and geographical region:
Three months ended July 1, 2022
Engineering and
Energy Consulting Total
(in thousands)
Contract Type
Time-and-materials
Unit-based 42,544 3,755 46,299
Fixed price 34,545 874 35,419
Total (1)
Client Type
Commercial
Government 29,861 16,338 46,199
Utilities (2) 48,114 156 48,270
Total (1)
Geography (3)
Domestic
Six months ended July 1, 2022
Engineering and
Energy Consulting Total
(in thousands)
Contract Type
Time-and-materials
Unit-based 85,501 6,739 92,240
Fixed price 57,655 1,842 59,497
Total (1)
Client Type
Commercial
Government 48,220 31,791 80,011
Utilities (2) 96,551 177 96,728
Total (1)
Geography (3)
Domestic
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Three months ended July 2, 2021
Engineering and
Energy Consulting Total
(in thousands)
Contract Type
Time-and-materials
Unit-based 41,604 2,722 44,326
Fixed price 15,786 1,123 16,909
Total (1)
Client Type
Commercial
Government 13,675 16,281 29,956
Utilities (2) 45,756 55 45,811
Total (1)
Geography (3)
Domestic
Six months ended July 2, 2021
Engineering and
Energy Consulting Total
(in thousands)
Contract Type
Time-and-materials
Unit-based 81,218 5,167 86,385
Fixed price 31,279 2,336 33,615
Total (1)
Client Type
Commercial
Government 27,229 32,210 59,439
Utilities (2) 88,280 108 88,388
Total (1)
Geography (3)
Domestic
(1) Amounts may not add to the totals due to rounding.
(2) Includes the portion of revenue related to small business programs paid by
the end user/customer.
(3) Revenue from our foreign operations were immaterial for the three and six
months ended
Three Months Ended
Contract revenue. Consolidated contract revenue increased
22.0%, in the three months ended
ended
generated from new governmental construction management projects, combined with
incremental revenues from the resumption of Covid-19 suspended projects for
utilities.
Contract revenue in our Energy segment increased
three months ended
2021
governmental construction management projects, combined with incremental
revenues from the resumption of Covid-19 suspended projects. Governmental
revenues increased as a result of the start-up of newly awarded contracts.
Covid-19 suspended projects resumed as a result of the lifting of business
suspensions resulting from the Covid-19 pandemic and efforts to limit its spread
that impacted projects during the first half of fiscal 2021.
Contract revenue in our Engineering and Consulting segment was relatively flat
for the three months ended
2, 2021
Direct costs of contract revenue. Direct costs of consolidated contract revenue
increased
compared to the three months ended
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increases in our contract revenues in our Energy segment as described above, as
well as the ramping up of new projects for which we saw higher project startup
costs relative to the revenue recognized.
Direct costs of contract revenue in our Energy segment increased
or 41.6%, in the three months ended
ended
Consulting segment decreased
Subcontractor services and other direct costs increased by
34.9%, and salaries and wages increased by
months ended
primarily due to the increases in contract revenues as described above combined
with changes in the mix of those contract revenues to those which contain a
higher percentage of material costs and installation subcontracting and lower
percentage of labor costs, as well as the ramping up of new projects for which
we saw higher project startup costs relative to the revenue recognized.
Gross Profit. Gross profit increased 2.3% to
margin, for the three months ended
The decrease in our gross margin was primarily driven by changes in the mix of
revenues as described above combined with the ramping up of new projects for
which we saw higher project startup costs relative to the revenue recognized.
General and administrative expenses. General and administrative (“G&A”) expenses
decreased by
compared to the three months ended
consisted of a decrease of
partially offset by an increase of
increase of
in G&A expenses was primarily attributed to lower stock-based compensation
expenses, partially offset by higher salaries and wages, payroll taxes and
employee benefits combined with higher computer-related expenses and
professional service fees.
Within G&A expenses, the decrease of
was partially offset by an increase of
payroll taxes and employee benefits, combined with an increase of
in other general and administrative expenses, and an increase of
depreciation and amortization. Facilities and facility related expenses were
relatively flat for the three months ended
months ended
primarily related to previously awarded stock grants reaching the end of their
corresponding vesting periods. The increase in salaries and wages, payroll taxes
and employee benefits was primarily due to increases in personnel. The increase
in other general and administrative expenses was primarily due to higher
computer-related expenses and professional service fees. The increase in
depreciation and amortization was primarily related to higher depreciation of
internally-developed computer software.
Income (loss) from operations. Operating loss was
months ended
percentage of contract revenue, operating loss decreased from 8.4% to 5.2% for
the three months ended
2021
Total other expense, net. Total other expense, net, decreased
41.2%, for the three months ended
ended
lower interest expense related to principal reductions in term loans.
Income tax expense (benefit). We recorded an income tax benefit of
for the three months ended
million
primarily attributable to a one-time benefit derived from the CARES Act that was
realized in the three months ended
three months ended
Net income (loss). Our net loss was
1, 2022
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the increase in gross profit combined with lower G&A and lower total other
expense, net, partially offset by lower income tax benefits.
Six Months Ended
Contract revenue. Consolidated contract revenue increased
19.1%, in the six months ended
generated from new governmental construction management projects, combined with
incremental revenues from the resumption of Covid-19 suspended projects for
utilities.
Contract revenue in our Energy segment increased
six months ended
primarily as a result of incremental revenues generated from new government
projects, combined with incremental revenues from the resumption of Covid-19
suspended projects, as described above.
Contract revenue in our Engineering and Consulting segment was relatively flat
for the six months ended
2021
Direct costs of contract revenue. Direct costs of consolidated contract revenue
increased
compared to the six months ended
contract revenues in our Energy segment as described above as well as the
ramping up of new projects for which we saw higher project startup costs
relative to the revenue recognized.
Direct costs of contract revenue in our Energy segment increased
or 39.6%, in the six months ended
Consulting segment decreased
1, 2022
Subcontractor services and other direct costs increased by
34.4%, and salaries and wages increased by
months ended
primarily due to the increases in contract revenues as described above combined
with changes in the mix of those contract revenues to those which contain a
higher percentage of material costs and installation subcontracting and lower
percentage of labor costs, as well as the ramping up of new projects for which
we saw higher project startup costs relative to the revenue recognized.
Gross Profit. Gross profit was relatively flat for the six months ended
2022
General and administrative expenses. G&A expenses were relatively flat for the
six months ended
G&A expenses consisted of a decrease of
expense, partially offset by an increase of
combined with an increase of
segment. The decrease in G&A expenses was primarily attributed to lower
stock-based compensation expenses, partially offset by higher computer-related
expenses and higher professional service fee, combined with higher salaries and
wages, payroll taxes and employee benefits.
Within G&A expenses, the decrease of
combined with the decrease of
expense was partially offset by an increase of
administrative expenses, combined with an increase of
and wages, payroll taxes and employee benefits, and an increase of
in depreciation and amortization. The decrease in stock-based compensation
expenses was primarily related to previously awarded stock grants reaching the
end of their corresponding vesting periods. The decrease in facilities and
facility related expense was primarily attributed to satisfied facility leases
that were not renewed. The increase in salaries and wages, payroll taxes and
employee benefits was primarily due to increases in personnel. The increase in
other general and administrative expenses was primarily due to higher computer-
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related expenses and professional service fees. The increase in depreciation and
amortization was primarily related to higher depreciation of
internally-developed computer software.
Income (loss) from operations. Operating loss was
months ended
percentage of contract revenue, operating loss decreased from 6.9% to 5.6% for
the six months ended
2021
Total other expense, net. Total other expense, net, decreased
43.6%, for the six months ended
interest expense related to principal reductions in term loans.
Income tax expense (benefit). We recorded an income tax benefit of
for the six months ended
for the six months ended
attributable to a one-time benefit derived from the CARES Act that was realized
in the six months ended
ended
Net income (loss). Our net loss was
1, 2022
2021
combined with lower total other expense, net, partially offset by lower income
tax benefit.
Liquidity and Capital Resources
Six Months Ended
July 1, July 2,
2022 2021
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities (4,271) (3,057)
Financing activities 2,430 (15,226)
Net increase (decrease) in cash and cash equivalents
Sources of Cash
We believe that our cash and cash equivalents, cash generated by operating
activities, and available borrowings under our Revolving Credit Facility and
Delayed Draw Term Loan will be sufficient to finance our operating activities
for at least the next 12 months. As a result of forecasted increased working
capital requirements related to our California Investor-Owned Utility Contracts
and other organic growth, on
among other things, adjust certain covenants to ensure an adequate margin for
compliance obligations through fiscal year 2022. On
our Credit Agreement to increase the purchase money indebtedness and Capitalized
Lease Obligations (as defined in the Credit Agreement) limit. For more
information, see Part I, Item 1, Note 6, “Debt Obligations”, and Note 13,
“Subsequent Events”, of the Notes to Condensed Consolidated Financial Statements
included in this Quarterly Report on Form 10-Q.
As of
million
amounts outstanding and
drawn
scheduled to mature on
the next 12 months and beyond is cash generated from operations and borrowings
under our Revolving Credit Facility.
As of
effects of upfront fees, undrawn fees and issuance cost amortization, bore
interest at 3.9%. See Part I, Item 1, Note 6, “Debt Obligations”, of the Notes
to Condensed Consolidated Financial Statements included in this Quarterly Report
on Form 10-Q, and Part II, Item 8, Note
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5, “Debt Obligations”, of the Notes to the Consolidated Financial Statements
included in our Annual Report on Form 10-K for the fiscal year ended
31, 2021
about new borrowings and repayments, principal repayment terms, interest rates,
covenants, and other key terms of our outstanding indebtedness.
Cash Flows from Operating Activities
Cash flows used in operating activities were
ended
activities primarily consists of net income, adjusted for non-cash charges, such
as depreciation and amortization and stock-based compensation, plus or minus
changes in operating assets and liabilities. Cash flows used in operating
activities for the six months ended
changing mix of revenues, combined with the increased demand for working capital
related to the resumption of our utility programs that were suspended in 2021
and start-up costs associated with certain new contract awards. Changes in cash
flows used in operating activities for the six months ended
resulted primarily due to the changing mix of revenues and start-up costs
associated with certain new contract awards.
Cash Flows from Investing Activities
Cash flows used in investing activities were
ended
activities for the six months ended
for the development of software, and the purchase of equipment. Cash flows used
in investing activities for the six months ended
to cash paid for the development of software, the purchase of equipment and
leasehold improvements.
Cash Flows from Financing Activities
Cash flows provided by financing activities were
ended
financing activities for the six months ended
attributable to borrowings of
partially offset by payments of
related to prior acquisitions combined with repayments of
term loan facility and revolving line of credit. Cash flows used in financing
activities for the six months ended
payments of
acquisitions, repayments of
revolving line of credit, payments of taxes on stock grants of
payments on notes payable of
proceeds from sales of common stock under our employee stock purchase plan and
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing arrangements or liabilities. In
addition, our policy is not to enter into futures or forward contracts. Finally,
we do not have any majority-owned subsidiaries or any interests in, or
relationships with, any special-purpose entities that are not included in the
consolidated financial statements. We have, however, an administrative services
agreement with Genesys in which we provide Genesys with ongoing administrative,
operational and other non-professional support services. We manage Genesys and
have the power to direct the activities that most significantly impact Genesys’
performance, in addition to being obligated to absorb expected losses from
Genesys. Accordingly, we are the primary beneficiary of Genesys and consolidate
Genesys as a variable interest entity.
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Short and Long-term Uses of Cash
General
Our principal uses of cash are to fund operating expenses and pay down
outstanding debt. From time to time, we also use cash to help fund business
acquisitions. Our cash and cash equivalents are impacted by the timing of when
we pay expenses as reflected in the change in our outstanding accounts payable
and accrued expenses.
Contractual Obligations
The following table sets forth our known contractual obligations as of
2022
Less than More than
Contractual Obligations Total 1 Year 1 – 3 Years 3 – 5 Years 5 Years
( in thousands)
Long term debt (1)
Interest payments on debt outstanding (2) 7,631 4,005
3,626 – –
Operating leases 14,391 5,435 5,667 2,890 399
Finance leases 2,304 891 1,251 155 7
Total contractual cash obligations
107,665
(1) Long-term debt includes
We have assumed no future borrowings or repayments (other than at maturity)
for purposes of this table. Our term loans are scheduled to mature on June
26, 2024.
(2) Borrowings under our Delayed Draw Term Loan bear interest at a variable rate.
Future interest payments on our Credit Facilities are estimated using
floating rates in effect as of
We are obligated to pay earn-out payments in connection with our 2019
acquisition of
obligated to pay up to
financial targets during the three years after the
our statement of operations includes
value adjustments) related to the contingent consideration.
Outstanding Indebtedness
See Part I, Item 1, Note 6, “Debt Obligations”, of the Notes to Condensed
Consolidated Financial Statements included in this Quarterly Report on Form
10-Q, and Part II, Item 8, Note 5, “Debt Obligations”, of the Notes to the
Consolidated Financial Statements included in our Annual Report on Form 10-K for
the fiscal year ended
indebtedness, including information about new borrowings and repayments,
principal repayment terms, interest rates, covenants, and other key terms of our
outstanding indebtedness.
Interest Rate Swap
From time to time, we enter into interest rate swap agreements to moderate our
exposure to fluctuations in interest rates underlying our variable rate debt.
For more information, see Part I, Item 3, “Quantitative and Qualitative
Disclosures About Market Risk”, and Note 5, “Derivatives”, to the Notes of
Condensed Consolidated Financial Statements included in this Quarterly Report on
Form 10-Q.
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Impact of Inflation
Due to the average duration of our projects and our ability to negotiate prices
as contracts end and new contracts begin, our operations have not been
materially impacted by inflation. However, inflationary pressures, including
expectations of future inflation, may impact the customers of our utility
clients, which may lead to delayed or deferred decisions regarding expenditures
to improve energy efficiency, and therefore potentially impacting our future
revenues.
Components of Revenue and Expense
Contract Revenue
We generally provide our services under contracts, purchase orders or retainer
letters. The agreements we enter into with our clients typically incorporate one
of three principal types of pricing provisions: time-and-materials, unit-based,
and fixed price. Revenue on our time-and-materials and unit-based contracts are
recognized as the work is performed in accordance with specific terms of the
contract. As of
contracts, 47% of our contracts are unit-based contracts, and 31% are fixed
price contracts, compared to 26% for time-and-materials contracts, 53% for
unit-based contracts, and 21% for fixed price contracts, as of
Some of these contracts include maximum contract prices, but contract maximums
are often adjusted to reflect the level of effort to achieve client objectives
and thus the majority of these contracts are not expected to exceed the maximum.
Contract revenue on our fixed price contracts is determined on the percentage of
completion method based generally on the ratio of direct costs incurred to date
to estimated total direct costs at completion. Many of our fixed price contracts
involve a high degree of subcontracted fixed price effort and are relatively
short in duration, thereby lowering the risks of not properly estimating the
percent complete.
Adjustments to contract cost estimates are made in the periods in which the
facts requiring such revisions become known. When the revised estimate indicates
a loss, such loss is recognized in the current period in its entirety. Claims
and change orders that have not been finalized are evaluated to determine
whether or not a change has occurred in the enforceable rights and obligations
of the original contract. If these non-finalized changes qualify as a contract
modification, a determination is made whether to account for the change in
contract value as a modification to the existing contract, or a separate
contract and revenue under the claims or change orders is recognized
accordingly. Costs related to un-priced change orders are expensed when
incurred, and recognition of the related revenue is based on the assessment
above of whether or not a contract modification has occurred. Estimated profit
for un-priced change orders is recognized only if collection is probable.
Our contracts come up for renewal periodically and at the time of renewal may be
subject to renegotiation, which could impact the profitability on that contract.
In addition, during the term of a contract, public agencies may request
additional or revised services which may impact the economics of the
transaction. Most of our contracts permit our clients, with prior notice, to
terminate the contracts at any time without cause. While we have a large volume
of contracts, the renewal, termination or modification of a contract, in
particular contracts with Consolidated Edison, the
New York
of Water and Power
consolidated operations.
Some of our contracts include certain performance guarantees, such as a
guaranteed energy saving quantity. Such guarantees are generally measured upon
completion of a project. In the event that the measured performance level is
less than the guaranteed level, any resulting financial penalty, including any
additional work that may be required to fulfill the guarantee, is estimated and
charged to direct expenses in the current period. We have not experienced any
significant costs under such guarantees.
Direct Costs of Contract Revenue
Direct costs of contract revenue consist primarily of that portion of salaries
and wages that have been incurred in connection with revenue producing projects.
Direct costs of contract revenue also include material costs,
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subcontractor services, equipment and other expenses that are incurred in
connection with revenue producing projects. Direct costs of contract revenue
exclude that portion of salaries and wages related to marketing efforts,
vacations, holidays and other time not spent directly generating revenue under
existing contracts. Such costs are included in general and administrative
expenses. Additionally, payroll taxes, bonuses and employee benefit costs for
all of our personnel are included in general and administrative expenses since
no allocation of these costs is made to direct costs of contract revenue.
Other companies may classify as direct costs of contract revenue some of the
costs that we classify as general and administrative costs. We expense direct
costs of contract revenue when incurred.
General and Administrative Expenses
G&A expenses include the costs of the marketing and support staffs, other
marketing expenses, management and administrative personnel costs, payroll
taxes, bonuses and employee benefits for all of our employees and the portion of
salaries and wages not allocated to direct costs of contract revenue for those
employees who provide our services. G&A expenses also include facility costs,
depreciation and amortization, professional services, legal and accounting fees
and administrative operating costs. Within G&A expenses, “Other” includes
expenses such as professional services, legal and accounting, computer costs,
travel and entertainment, marketing costs and acquisition costs. We expense
general and administrative costs when incurred.
Critical Accounting Policies
We have prepared the accompanying unaudited Condensed Consolidated Financial
Statements in accordance with generally accepted accounting principles in the
must make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amount
of revenue and expenses in the reporting period. Our actual results may differ
from these estimates. We have adopted accounting policies and practices that are
generally accepted in the industry in which we operate.
There have been no material changes in our critical accounting policies and
estimates from those disclosed in our Annual Report on Form 10-K for our fiscal
year ended
Report on Form 10-K for the fiscal year ended
of our critical accounting policies and estimates.
Recent Accounting Standards
For a description of recently issued and adopted accounting pronouncements,
including adoption dates and expected effects on our results of operations and
financial condition, see Part I, Item 1, Note 2, “Recent Accounting
Pronouncements”, of the Notes to Condensed Consolidated Financial Statements
included in this Quarterly Report on Form 10-Q.
45
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