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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 1-33891

ORION GROUP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

State of Incorporation

26-0097459

IRS Employer Identification Number

12000 Aerospace Avenue, Suite 300

Houston, Texas 77034

Address of Principal Executive Office

(713) 852-6500

Registrant’s telephone number (including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

    

Trading Symbol(s)

    

Name of Each Exchange on Which Registered

Common stock, $0.01 par value per share

ORN

The New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:   Yes No

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:    Yes No

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:    Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files

Yes   No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer”, "accelerated filer", "small reporting" company and "emerging growth" company in Rule 12b-2 of the Exchange Act (Check One):

Large Accelerated Filer 

Accelerated Filer 

Non-accelerated filer

Smaller reporting company 

Emerging growth company 

If an emerging growth company, initiate by check mark if the registrant has elected not to use the extended transition period for complying with any, new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes  No

There were 30,415,095 shares of common stock outstanding as of October 29, 2020.

Table of Contents

ORION GROUP HOLDINGS, INC.

Quarterly Report on Form 10-Q for the period ended September 30, 2020

Index

Page

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019

3

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019

6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

50

Item 4.

Controls and Procedures

50

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

51

Item 1A.

Risk Factors

51

Item 2.

Unregistered Sale of Equity Securities and Use of Proceeds

52

Item 3.

Defaults upon Senior Securities

52

Item 4.

Mine Safety Disclosures

52

Item 5.

Other Information

52

Item 6.

Exhibits

52

SIGNATURES

54

2

Table of Contents

Part

PART I.FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Information)

    

September 30,

    

December 31,

2020

    

2019

ASSETS

 

(Unaudited)

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

2,732

$

128

Restricted cash

958

Accounts receivable:

 

  

 

  

Trade, net of allowance for credit losses of $411 and $2,600, respectively

 

90,612

 

116,540

Retainage

 

36,230

 

42,547

Income taxes receivable

 

962

 

962

Other current

 

25,931

 

2,680

Inventory

 

1,936

 

1,114

Costs and estimated earnings in excess of billings on uncompleted contracts

 

43,196

 

41,389

Prepaid expenses and other

 

4,593

 

5,647

Total current assets

 

206,192

 

211,965

Property and equipment, net of depreciation

 

125,911

 

132,348

Operating lease right-of-use assets, net of amortization

15,619

17,997

Financing lease right-of-use assets, net of amortization

12,775

7,896

Inventory, non-current

 

6,506

 

7,037

Intangible assets, net of amortization

 

10,595

 

12,147

Deferred income tax asset

67

85

Other non-current

 

4,855

 

5,369

Total assets

$

382,520

$

394,844

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Current debt, net of debt issuance costs

$

4,347

$

3,668

Accounts payable:

 

 

  

Trade

 

47,810

 

70,421

Retainage

 

590

 

562

Accrued liabilities

 

45,925

 

16,966

Income taxes payable

 

486

 

1,523

Billings in excess of costs and estimated earnings on uncompleted contracts

 

40,967

 

48,781

Current portion of operating lease liabilities

4,766

5,043

Current portion of financing lease liabilities

4,543

2,788

Total current liabilities

149,434

149,752

Long-term debt, net of debt issuance costs

 

36,285

 

68,029

Operating lease liabilities

11,545

13,596

Financing lease liabilities

7,670

3,760

Other long-term liabilities

 

20,053

 

20,436

Deferred income tax liability

 

214

 

205

Interest rate swap liability

 

1,795

 

1,045

Total liabilities

 

226,996

256,823

Stockholders’ equity:

 

  

 

  

Preferred stock -- $0.01 par value, 10,000,000 authorized, none issued

 

 

Common stock -- $0.01 par value, 50,000,000 authorized, 31,126,326 and 30,303,395 issued; 30,415,095 and 29,592,164 outstanding at September 30, 2020 and December 31, 2019, respectively

 

311

 

303

Treasury stock, 711,231 shares, at cost, as of September 30, 2020 and December 31, 2019, respectively

 

(6,540)

 

(6,540)

Accumulated other comprehensive loss

 

(1,795)

 

(1,045)

Additional paid-in capital

 

184,214

 

182,523

Retained loss

 

(20,666)

 

(37,220)

Total stockholders’ equity

 

155,524

 

138,021

Total liabilities and stockholders’ equity

$

382,520

$

394,844

The accompanying notes are an integral part of these condensed consolidated financial statements

3

Table of Contents

Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Information)

(Unaudited)

Three months ended September 30, 

Nine months ended September 30,

    

2020

    

2019

    

2020

    

2019

    

Contract revenues

$

189,433

$

199,507

$

539,766

$

508,597

Costs of contract revenues

 

166,932

 

178,614

 

476,763

 

463,645

Gross profit

 

22,501

 

20,893

 

63,003

 

44,952

Selling, general and administrative expenses

 

15,270

 

14,590

 

47,651

 

44,677

Amortization of intangible assets

519

662

1,552

1,980

Gain on disposal of assets, net

 

(6,373)

 

(451)

 

(7,734)

 

(1,197)

Operating income (loss)

 

13,085

 

6,092

 

21,534

 

(508)

Other (expense) income:

 

  

 

  

 

  

 

  

Other income

 

115

 

17

 

251

 

574

Interest income

 

57

 

75

 

151

 

317

Interest expense

 

(1,151)

 

(1,678)

 

(3,722)

 

(4,981)

Other expense, net

 

(979)

 

(1,586)

 

(3,320)

 

(4,090)

Income (loss) before income taxes

 

12,106

 

4,506

 

18,214

 

(4,598)

Income tax expense

 

303

 

467

 

1,660

 

920

Net income (loss)

$

11,803

$

4,039

$

16,554

$

(5,518)

Basic earnings (loss) per share

$

0.39

$

0.14

$

0.55

$

(0.19)

Diluted earnings (loss) per share

$

0.39

$

0.14

$

0.55

$

(0.19)

Shares used to compute income (loss) per share:

 

  

 

  

 

  

 

  

Basic

 

30,372,310

 

29,544,288

 

30,020,258

 

29,240,979

Diluted

 

30,372,310

 

29,547,185

 

30,020,258

 

29,240,979

The accompanying notes are an integral part of these condensed consolidated financial statements

4

Table of Contents

Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

(Unaudited)

Three months ended September 30, 

Nine months ended September 30, 

    

2020

    

2019

    

2020

    

2019

    

Net income (loss)

$

11,803

$

4,039

$

16,554

$

(5,518)

Change in fair value of cash flow hedge, net of tax expense of $44 and tax benefit of $173 for the three and nine months ended September 30, 2020, respectively and net of tax benefit of $55 and $280 for the three and nine months ended September 30, 2019.

150

 

(148)

 

(577)

 

(938)

Total comprehensive income (loss)

$

11,953

$

3,891

$

15,977

$

(6,456)

The accompanying notes are an integral part of these condensed consolidated financial statements

5

Table of Contents

Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(In Thousands, Except Share and Per Share Information)

(Unaudited)

   

Common

   

Treasury

   

Accumulated Other

   

Additional

   

   

Stock

Stock

 

Comprehensive

 

Paid-In

 

Retained

Shares

   

Amount

Shares

   

Amount

 

Loss

 

Capital

Earnings (Loss)

Total

Balance, December 31, 2019

 

30,303,395

$

303

 

(711,231)

$

(6,540)

$

(1,045)

$

182,523

$

(37,220)

$

138,021

Stock-based compensation

 

 

 

 

 

 

462

 

 

462

Issuance of restricted stock

 

185,356

 

2

 

 

 

 

(2)

 

 

Forfeiture of restricted stock

 

(3,351)

 

 

 

 

 

 

 

Cash flow hedge

 

 

 

 

 

(984)

 

 

 

(984)

Net income

 

 

 

 

 

 

 

2,723

 

2,723

Balance, March 31, 2020

 

30,485,400

$

305

 

(711,231)

$

(6,540)

$

(2,029)

$

182,983

$

(34,497)

$

140,222

Stock-based compensation

 

 

 

 

 

 

1,167

 

 

1,167

Issuance of restricted stock

 

638,938

 

6

 

 

 

 

(6)

 

 

Forfeiture of restricted stock

 

(54,510)

 

 

 

 

 

 

 

Purchase of vested stock-based awards

(9,727)

(24)

(24)

Cash flow hedge

 

 

 

 

 

40

 

 

 

40

Net income

 

 

 

 

 

 

 

2,028

 

2,028

Balance, June 30, 2020

 

31,060,101

$

311

 

(711,231)

$

(6,540)

$

(1,989)

$

184,120

$

(32,469)

$

143,433

Stock-based compensation

 

 

 

 

 

 

258

 

 

258

Issuance of restricted stock

 

118,750

 

1

 

 

 

 

(1)

 

 

Purchase of vested stock-based awards

(52,525)

(1)

(163)

(164)

Cash flow hedge

 

 

 

 

 

194

 

 

 

194

Net income

 

 

 

 

 

 

 

11,803

 

11,803

Balance, September 30, 2020

 

31,126,326

$

311

 

(711,231)

$

(6,540)

$

(1,795)

$

184,214

$

(20,666)

$

155,524

   

Common

   

Treasury

   

Accumulated Other

   

Additional

   

   

Stock

Stock

 

Comprehensive

 

Paid-In

 

Retained

Shares

   

Amount

Shares

   

Amount

 

Loss

 

Capital

Earnings

Total

Balance, December 31, 2018

29,611,989

$

296

(711,231)

$

(6,540)

$

(52)

$

179,742

$

(31,861)

$

141,585

Stock-based compensation

664

664

Exercise of stock options

7,021

35

35

Issuance of restricted stock

185,204

1

(1)

Forfeiture of restricted stock

(18,207)

Cash flow hedge

(284)

(284)

Net loss

 

(7,924)

(7,924)

Balance, March 31, 2019

29,786,007

$

297

 

(711,231)

$

(6,540)

$

(336)

$

180,440

$

(39,785)

$

134,076

Stock-based compensation

1,064

1,064

Issuance of restricted stock

479,590

6

(6)

Forfeiture of restricted stock

(50,513)

(1)

1

Cash flow hedge

(758)

(758)

Net loss

 

(1,633)

(1,633)

Balance, June 30, 2019

30,215,084

$

302

 

(711,231)

$

(6,540)

$

(1,094)

$

181,499

$

(41,418)

$

132,749

Stock-based compensation

564

564

Issuance of restricted stock

46,500

1

(1)

Cash flow hedge

(176)

(176)

Net income

 

4,039

4,039

Balance, September 30, 2019

30,261,584

$

303

 

(711,231)

$

(6,540)

$

(1,270)

$

182,062

$

(37,379)

$

137,176

The accompanying notes are an integral part of these condensed consolidated financial statements

6

Table of Contents

Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Nine months ended September 30,

    

2020

    

2019

Cash flows from operating activities:

 

  

 

  

Net income (loss)

$

16,554

$

(5,518)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

  

Operating activities:

 

 

  

Depreciation and amortization

 

18,175

 

19,609

Amortization of ROU operating leases

4,449

4,145

Amortization of ROU finance leases

2,487

1,733

Unamortized debt issuance costs upon debt modification

 

 

399

Amortization of deferred debt issuance costs

529

312

Deferred income taxes

 

27

 

44

Stock-based compensation

 

1,887

 

2,292

Gain on disposal of assets, net

 

(7,734)

 

(1,197)

Allowance for credit losses

 

(487)

 

Change in operating assets and liabilities:

 

 

Accounts receivable

 

12,151

 

(35,242)

Income tax receivable

 

 

(330)

Inventory

 

(291)

 

310

Prepaid expenses and other

 

1,667

 

1,674

Costs and estimated earnings in excess of billings on uncompleted contracts

 

(1,807)

 

(29,063)

Accounts payable

 

(22,583)

 

13,702

Accrued liabilities

 

26,282

 

1,660

Operating lease liabilities

(4,079)

(4,434)

Income tax payable

 

(1,037)

 

755

Billings in excess of costs and estimated earnings on uncompleted contracts

 

(7,814)

 

27,252

Net cash provided by (used in) operating activities

 

38,376

 

(1,897)

Cash flows from investing activities:

 

  

 

  

Proceeds from sale of property and equipment

 

5,821

 

1,363

Purchase of property and equipment

 

(9,444)

 

(13,035)

Contributions to CSV life insurance

 

(99)

 

(550)

Insurance claim proceeds related to property and equipment

1,525

2,574

Net cash used in investing activities

 

(2,197)

 

(9,648)

Cash flows from financing activities:

 

 

Borrowings from Credit Facility

 

10,000

 

49,000

Payments made on borrowings from Credit Facility

 

(41,225)

 

(59,460)

Proceeds from sale-leaseback arrangement

18,210

Loan costs from Credit Facility

 

(369)

 

(1,430)

Payments of finance lease liabilities

(2,751)

(2,144)

Purchase of vested stock-based awards

(188)

Exercise of stock options

 

 

35

Net cash (used in) provided by financing activities

 

(34,533)

 

4,211

Net change in cash, cash equivalents and restricted cash

 

1,646

 

(7,334)

Cash, cash equivalents and restricted cash at beginning of period

 

1,086

 

8,684

Cash, cash equivalents and restricted cash at end of period

$

2,732

$

1,350

Supplemental disclosures of cash flow information:

 

  

 

  

Cash paid during the period for:

 

  

 

  

Interest

$

2,676

$

5,202

Taxes, net of refunds

$

2,500

$

444

The accompanying notes are an integral part of these condensed consolidated financial statements

7

Table of Contents

Orion Group Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in thousands, Except Share and per Share Amounts)

(Unaudited)

1.Description of Business and Basis of Presentation

Description of Business

Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the "Company"), provide a broad range of specialty construction services in the infrastructure, industrial, and building sectors of the continental United States, Alaska, Canada and the Caribbean Basin. The Company’s marine segment services the infrastructure sector through marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services. Its concrete segment services the building sector by providing turnkey concrete construction services including pour and finish, dirt work, layout, forming, rebar, and mesh across the light commercial, structural and other associated business areas. The Company is headquartered in Houston, Texas with offices throughout its operating areas.

The tools used by the chief operating decision maker ("CODM") to allocate resources and assess performance are based on two reportable and operating segments: marine, which operates under the Orion brand and logo, and concrete, which operates under the TAS Commercial Concrete brand and logo.

Although we describe the business in this report in terms of the services the Company provides, its base of customers and the areas in which it operates, the Company has determined that its operations currently comprise two reportable segments pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting.

In making this determination, the Company considered the similar economic characteristics of its operations that comprise its marine segment. For the marine segment, the methods used, and the internal processes employed, to deliver marine construction services are similar throughout the segment, including standardized estimating, project controls and project management. This segment has the same customers with similar funding drivers, and it complies with regulatory environments driven through Federal agencies such as the U.S. Army Corps of Engineers, U.S. Fish and Wildlife Service, U.S. Environmental Protection Agency and U.S. Occupational Safety and Health Administration ("OSHA"), among others. Additionally, the segment is driven by macro-economic considerations including the level of import/export seaborne transportation, development of energy-related infrastructure, cruise line expansion and operations, marine bridge infrastructure development, waterway pipeline crossings and the maintenance of waterways. These considerations, and others, are key catalysts for future prospects and are similar across the segment.

For the concrete segment, the Company also considered the similar economic characteristics of these operations. The methods used, and the internal processes employed, to deliver concrete construction services are similar throughout the segment, including standardized estimating, project controls and project management. This segment complies with regulatory environments such as OSHA. Additionally, this segment is driven by macro-economic considerations, including movements in population, commercial real estate development, institutional funding and expansion, and recreational development, specifically in metropolitan areas of Texas. These considerations, and others, are key catalysts for future prospects and are similar across the segment.

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Table of Contents

Basis of Presentation

The accompanying condensed consolidated financial statements and financial information included herein have been prepared pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. Readers of this report should also read the Company’s condensed consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Form 10-K”) as well as Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations also included in its 2019 Form 10-K.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal recurring nature. Interim results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation in the Company’s condensed consolidated statement of operations. As part of the Company’s Invest, Scale and Grow (“ISG”) initiative it realigned its project management personnel within the operating groups for the combined company. As a result of the realignment, beginning in the second quarter of 2019, the Company has elected to classify certain project management costs in Cost of contract revenue in its Condensed Consolidated Statements of Operations (the “Statements of Operations”) to better represent how those costs are managed and controlled. For periods reported prior to the second quarter of 2019, certain project management costs were included in Selling, general and administrative (“SG&A”) expenses. The Company’s SG&A expense for 2019 included project management costs of $1.1 million incurred in the first quarter of 2019.

2.Summary of Significant Accounting Policies

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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.  Management’s estimates, judgments and assumptions are continually evaluated based on available information and experience; however, actual amounts could differ from those estimates.

On an ongoing basis, the Company evaluates the significant accounting policies used to prepare its condensed consolidated financial statements, including, but not limited to, those related to:

Revenue recognition from construction contracts;
Accounts receivable and allowance for credit losses;
Property, plant and equipment;
Leases;
Finite and infinite-lived intangible assets, testing for indicators of impairment;
Stock-based compensation;

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Income taxes; and
Self-insurance

Revenue Recognition

The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018, using the modified retrospective method. The Company recognized the cumulative effect of initially adopting Topic 606 guidance as an adjustment to the beginning balance of retained earnings. Contracts with customers that were not substantially complete in both the Company’s marine and concrete segments were evaluated in order to determine the impact as of the date of adoption.

The Company’s revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services. The Company’s projects are typically short in duration and usually span a period of less than one year. The Company determines the appropriate accounting treatment for each contract before work begins and generally records revenue on contracts over time.

Performance obligations are promises in a contract to transfer distinct goods or services to the customer and are the unit of account under Topic 606. The Company’s contracts and related change orders typically represent a single performance obligation because the Company provides a significant integrated service and individual goods and services are not separately identifiable. Revenue is recognized over time because control is continuously transferred to the customer. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the stand-alone selling price of each distinct good or service. Progress is measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract. This method is used because management considers contract costs incurred to be the best available measure of progress on these contracts. Contract costs include all direct costs, such as material and labor, and those indirect costs incurred that are related to contract performance such as payroll taxes and insurance. General and administrative costs are charged to expense as incurred. Upfront costs, such as costs to mobilize personnel and equipment prior to satisfying a performance obligation are capitalized and amortized over the contract performance period.

Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and reported revenue and are recognized in the period in which the revisions are determined. The effect of changes in estimates of contract revenue or contract costs is recognized as an adjustment to recognized revenue on a cumulative catch-up basis. When losses on uncompleted contracts are anticipated, the entire loss is recognized in the period in which such losses are determined. Revenue is recorded net of any sales taxes collected and paid on behalf of the customer, if applicable.

Contract revenue is derived from the original contract price as modified by agreed-upon change orders and estimates of variable consideration related to incentive fees and change orders or claims for which price has not yet been agreed by the customer. The Company estimates variable consideration based on its assessment of the most likely amount to which it expects to be entitled. Variable consideration is included in the estimated recognition of revenue to the extent it is probable that a significant reversal of cumulative recognized revenue will not occur. A determination that the collection of a claim is probable is based upon compliance with the terms of the contract and the extent to which the Company performed in accordance therewith but does not guarantee collection in full.

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Table of Contents

Contract assets and liabilities include the following:

Accounts Receivable: Trade, net of allowance - Represent amounts billed and currently due from customers and are stated at their estimated net realizable value.
Accounts Receivable: Retainage - Represent amounts which have not been billed to or paid by customers due to retainage provisions in construction contracts, which amounts generally become payable upon contract completion and acceptance by the customer.
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts - Represent revenues recognized in excess of amounts billed, which management believes will be billed and collected within one year of the completion of the contract (i.e. Contract Assets) and are recorded as a current asset, until such amounts are either received or written off.
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts - Represent billings in excess of revenues recognized (i.e. Contract Liabilities) and are recorded as a current liability, until the underlying obligation has been performed or discharged.

Remaining performance obligations represent the transaction price of firm orders or other written contractual commitments from customers for which work has not been performed or is partially completed and excludes unexercised contract options and potential orders. As of September 30, 2020, the aggregate amount of the remaining performance obligations was approximately $428.8 million. Of this amount, the current expectation of the Company is that it will recognize $386.6 million, or 90%, in the next 12 months and the remaining balance thereafter.

Classification of Current Assets and Liabilities

The Company includes in current assets and liabilities amounts realizable and payable in the normal course of contract completion.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At times, cash held by financial institutions may exceed federally insured limits. The Company has not historically sustained losses on its cash balances in excess of federally insured limits. Cash equivalents at September 30, 2020 and December 31, 2019 consisted primarily of overnight bank deposits.

Restricted cash of $1.0 million at December 31, 2019 consisted of collateral related to a marine project that was completed during the quarter ended June 30, 2020. The Company had no restricted cash as of September 30, 2020.

Risk Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of accounts receivable.

The Company depends on its ability to continue to obtain federal, state and local governmental contracts, and indirectly, on the amount of funding available to these agencies for new and current governmental projects. Therefore, a portion of the Company’s operations is dependent upon the level and timing of government

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funding. Statutory mechanics liens provide the Company high priority in the event of lien foreclosures following financial difficulties of private owners, thus minimizing credit risk with private customers.

Accounts Receivable

Accounts receivable are stated at the historical carrying value, net of allowances for credit losses. The Company has significant investments in billed and unbilled receivables as of September 30, 2020 and December 31, 2019. Billed receivables represent amounts billed upon the completion of small contracts and progress billings on large contracts in accordance with contract terms and milestone achievements. Unbilled receivables on contracts, which are included in costs in excess of billings, arise as revenues are recognized over time. Unbilled amounts on contracts represent recoverable costs and accrued profits not yet billed. Revenue associated with these billings is recorded net of any sales tax, if applicable.

Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. In establishing an allowance for credit losses, the Company evaluates its contract receivables and costs in excess of billings and thoroughly reviews historical collection experience, the financial condition of its customers, billing disputes and other factors. The Company writes off potentially uncollectible accounts receivable against the allowance for credit losses if it is determined that the amounts will not be collected or if a settlement is reached for an amount that is less than the carrying value. As of September 30, 2020, and December 31, 2019, the Company has recorded an allowance for credit losses of $0.4 million and $2.6 million, respectively.

Balances billed to customers but not paid pursuant to retainage provisions in construction contracts generally become payable upon contract completion and acceptance by the owner. Retainage at September 30, 2020 totaled $36.2 million, of which $7.2 million is expected to be collected beyond September 30, 2021. Retainage at December 31, 2019 totaled $42.5 million.

The Company negotiates change orders and claims with its customers. Unsuccessful negotiations of claims could result in a change to contract revenue that is less than amounts previously recorded, which could result in the recording of a loss in the amount of the shortfall. Successful claims negotiations could result in the recovery of previously recorded losses. Significant losses on receivables could adversely affect the Company’s financial position, results of operations and overall liquidity.

Advertising Costs