Note 1 - Nature of Operations, Basis of Presentation and Company Conditions

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND COMPANY CONDITIONS

Nature of Operations

Orbital Infrastructure Group, Inc. f/k/a Orbital Energy Group, Inc. (Orbital Infrastructure Group, "OIG," "The Company") is a diversified infrastructure services company serving customers in the electric power, telecommunications, and renewable markets. The Company’s reportable segments are the Electric Power segment, the Telecommunications segment, and the Renewables segment. In  December 2021, the Company announced the planned divestiture of its previously reported Integrated Energy Infrastructure Solutions and Services segment. 

The Electric Power segment consists of Front Line Power Construction, LLC based in Houston, Texas (acquired November 17, 2021), Orbital Power, Inc. based in Dallas, Texas, (began operations in Q1 2020) and Eclipse Foundation Group which began operations in Q1 2021. The segment provides comprehensive infrastructure solutions to customers in the electric power industry. Services performed by Front Line Power and Orbital 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 in  January 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. In the third quarter of 2022, in order to streamline operations, the Eclipse business was integrated into Front Line Power Construction, LLC, and ceased to be a separate business unit.

The Telecommunications segment is made up of Gibson Technical Services, Inc. (“GTS”) (acquired  April 13, 2021) and subsidiaries. GTS is an Atlanta-based telecommunications company providing diversified telecommunications services nationally since 1990 and is the parent of IMMCO, Inc., Full Moon Telecom, LLC, and Coax Fiber Solutions, LLC. IMMCO, Inc. (acquired  July 28, 2021), which includes two Indian subsidiaries, is an Atlanta-based, full-service telecom engineering and network design company providing diversified engineering services and customized software solutions to a global customer base since 1992. Full Moon Telecom, LLC (acquired  October 22, 2021) is a Florida-based telecommunications service provider that offers an extensive array of wireless service capabilities and experience including Layer 2/Layer 3 Transport, Radio Access Network (“RAN”) Integration, test and turn-up of Small Cell systems and Integration/Commissioning of Distributed Antenna (“DAS”) systems. Coax Fiber Solutions, LLC (acquired March 7, 2022), is based in Loganville, Georgia. Founded in 2016, Coax Fiber Solutions is a 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.

The Renewables segment consists of Orbital Solar Services based in Raleigh, North Carolina. Orbital Solar Services provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility-scale solar construction. The Company serves a wide variety of project types, including commercial, substation, solar farms, and public utility projects.

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information, which includes condensed consolidated financial statements. Accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2022. The Condensed Consolidated Balance Sheet as of  December 31, 2022 has been derived from the audited financial statements as of that date included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

At a special stockholders meeting held April 18, 2023, the Company’s stockholders approved an amendment to the Company’s Certificate of Formation to effect a reverse stock split of the Company’s outstanding common stock at a ratio ranging from any whole number between 10-for-1 and 40-for-1 in order to achieve a minimum bid price of $1.00 per share for a minimum of 10 consecutive trading days, as required for continued listing of the common stock on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The board of directors authorized a 1-for-40 ratio for the reverse stock split, which became effective on April 21, 2023. The accompanying condensed consolidated financial statements and notes to the condensed consolidated financial statements give retroactive effect to the reverse stock split for all periods presented.

It is management's opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. All intercompany accounts and transactions have been eliminated in consolidation. The results for the interim period are not necessarily indicative of the results to be expected for the remaining quarters or year ending December 31, 2023.

Reconciliation of Cash, Cash Equivalents, and Restricted Cash on Condensed Consolidated Statements of Cash Flows

	For the Three Months
(in thousands)	Ended March 31,
	2023		2022
Cash and cash equivalents at beginning of period	$	21,489	$	26,865
Restricted cash at beginning of period (1)		609		1,176
Cash, cash equivalents and restricted cash at beginning of period	$	22,098	$	28,041
Cash and cash equivalents at end of period	$	23,993	$	20,949
Restricted cash at end of period (1)		699		1,172
Cash, cash equivalents and restricted cash at end of period	$	24,692	$	22,121

(1) Restrictions on cash at March 31, 2023 and March 31, 2022 relate to collateral for several bank-issued letters of credit for contract guaranties. 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to record purchase price allocations for the Company's acquisitions, fair value measurements used in goodwill impairment tests, impairment estimations of long-lived assets, revenue recognition on cost-to-cost type contracts, allowances for uncollectible accounts, valuations of non-cash capital stock issuances, estimates of the incremental borrowing rate for long-term leases, fair value estimates and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results  may differ from these estimates under different assumptions or conditions.

Reclassifications

Certain reclassifications have been made to the 2022 classifications in order to conform to the 2023 presentation.

Company Conditions and Sources of Liquidity

The Company has experienced net losses, cash outflows from cash used in operating activities and a decline in share value over the past years. As of and for the three months ended March 31, 2023, the Company had an accumulated deficit of $507.3 million, loss from continuing operations of $20.3 million, and net cash provided by operating activities of $0.8 million. Further, as of March 31, 2023, the Company had a working capital deficit of $302.6 million, including current maturities of debt, and cash and cash equivalents of $24.0 million available for working capital needs and planned capital asset expenditures.  As a result of the foregoing, the Company does not have sufficient liquidity and capital resources to meet its obligations and fund its operations for the twelve months following the issuance of these financial statements. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern.

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 16 — 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 16 — Notes Payable and Line of Credit. 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 of March 31, 2023, the Company has an effective S-3 shelf registration statement for the issuance of various types of securities, including common stock, preferred stock, debt securities and/or warrants in the aggregate of up to $64.0 million.

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 forecasted positive cash flows generated from operations. There can be no assurance that the Company will succeed in executing these plans. If unsuccessful, the Company will not have sufficient liquidity and capital resources to repay its indebtedness when it matures, or otherwise meet its cash requirements over the next twelve months, as noted above.

Restructuring Costs

In September 2022, the Company fully impaired its finance lease equipment related to the Eclipse Foundation Group in the Electric Power segment. These pieces of equipment are drilling specific and at this time, the Company does not plan to use the equipment for the remaining term of the leases. As these leases are non-cancelable and do not include a sub-leasing option, the full finance lease assets related to Eclipse were removed from the balance sheet and an equal impairment was recognized in the amount of $4.5 million in the third quarter of 2022. Future payments related to these leases will be approximately $4.4 million paid through June 2026.

Sale of Orbital U.K.

On May 11, 2022, the Company completed the sale of its Orbital U.K. operations for the agreed upon amount of 3,000,000 GBP. The Company received 1,575,000 GBP on the settlement date and the remaining 1,425,000 GBP was received on July 11, 2022. The Company could receive additional consideration if certain events transpire during the 12-month restricted period following the settlement date. In addition, the Company will receive a “royalty” of 15% on any sales of the GasPT device related to Snam Rete Gas and/or the Future Billing Methodology (FBM) Project.

Goodwill and Indefinite-lived intangible assets

The Company had goodwill from acquisitions made in 2020, 2021 and 2022. Goodwill in the Front Line Power and GTS reporting units was impaired in 2022 for $70.2 million and $25.8 million respectively due to triggering events in the third quarter related to a continued decline in the Company's market capitalization, significant losses in the Renewables segment and interest rate increases and limitations on accessing capital, which raised substantial doubt regarding the Company's ability to continue as a going concern. The fair value of the reporting units was valued using a market approach. The impairment assessment concluded that the fair value of the Renewables reporting unit was in excess of its carrying amount, which was negative. After impairments, the Company had $7.0 million of goodwill remaining at December 31, 2022 associated with Orbital Solar Services ("OSS) acquired in 2020. At the same time as the goodwill impairment, the Company assessed the other intangibles in the Renewables segment and determined the Customer relationship intangible was fully impaired and the remaining $4.3 million of book value was written off in the third quarter of 2022.

During the fourth quarter of 2022, triggering events of the same nature led to further valuation of the Company's indefinite-lived intangible assets using a relief from royalties method which resulted in impairment. The impairment assessment included significant assumptions related to revenue growth rates, royalty rates, and discount rates. For the year ended December 31, 2022, management concluded that indefinite-lived intangibles were impaired by $9.3 million dollars primarily attributable to the Front Line and GTS trade names. 

The Company tests for impairment of indefinite-lived intangibles and goodwill in the second quarter of each year and when events or circumstances indicate that the carrying amount of goodwill exceeds its fair value and may not be recoverable. 

Under current accounting guidance, Orbital Infrastructure Group is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance includes a number of factors to consider in conducting the qualitative assessment. 

During the first quarter of 2023, management considered all known events and circumstances that might trigger an impairment of goodwill, noting none. The remaining goodwill of $7.0 million dollars is associated with OSS which has a negative carrying value.

Accrued expenses

Accrued expenses are liabilities that reflect expenses on the statement of operations that have not been paid or recorded in accounts payable at the end of the period. At March 31, 2023 and  December 31, 2022, accrued expenses of $45.2 million and $39.1 million, respectively included the following components:

(in thousands)	March 31		December 31
	2023		2022
Accrued bonding	$	1,962	$	1,920
Accrued compensation		4,559		5,589
Working capital adjustment on Front Line Power Construction acquisition		4,592		4,592
Accrued interest payable		6,886		5,885
Accrued taxes payable		669		248
Accrued subcontractor expenses		16,274		11,299
Accrued union dues		874		937
Accrued vendor invoices and accrued other expenses		9,382		8,595
Total accrued expense	$	45,198	$	39,065