Orbital Infrastructure Group Reports Third Quarter 2022 Results

Orbital Infrastructure Group, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

September 30,

December 31,

(in thousands, except share and per share amounts)

2022

2021

Assets:

Current Assets:

Cash and cash equivalents

$

27,960

$

26,865

Restricted cash - current

123

150

Trade accounts receivable, net of allowance of $921 and $1,487, respectively

50,803

48,752

Inventories

1,408

1,335

Contract assets

23,735

7,478

Note receivable, current portion

1,421

3,536

Prepaid expenses and other current assets

8,268

6,919

Assets held for sale - current

1,814

6,679

Total current assets

115,532

101,714

Property and equipment, less accumulated depreciation

25,889

29,638

Investment

1,063

1,063

Right of use assets - Operating leases

17,333

18,247

Right of use assets - Financing leases

9,341

14,702

Goodwill

7,006

100,899

Other intangible assets, net

123,853

142,656

Restricted cash

486

1,026

Note receivable

—

836

Deposits and other assets

1,606

1,558

Total assets

$

302,109

$

412,339

Liabilities and Stockholders' Equity:

Current Liabilities:

Accounts payable

$

35,595

$

10,111

Notes payable, current

129,034

72,774

Line of credit

4,000

2,500

Operating lease obligations - current portion

4,451

4,674

Financing lease obligations - current portion

5,167

4,939

Accrued expenses

30,296

28,301

Contract liabilities

351

6,503

Financial instrument liability, current portion

25,320

825

Liabilities held for sale, current

—

4,367

Total current liabilities

234,214

134,994

Financial instrument liability, noncurrent portion

15,609

—

Warrant liabilities

5,492

—

Deferred tax liabilities

260

260

Notes payable, less current portion

107,738

156,605

Operating lease obligations, less current portion

13,150

13,555

Financing lease obligations, less current portion

9,023

9,939

Other long-term liabilities

720

720

Total liabilities

386,206

316,073

Commitments and contingencies

Stockholders' Equity:

Preferred stock, par value $0.001; 10,000,000 shares authorized; no shares issued at September 30, 2022 or December 31, 2021

—

—

Common stock, par value $0.001; 325,000,000 shares authorized; 124,935,259 shares issued and 124,582,196 shares outstanding at September 30, 2022 and 82,259,739 shares issued and 81,906,676 shares outstanding at December 31, 2021

125

82

Additional paid-in capital

338,565

311,487

Treasury stock at cost; 353,063 shares held at September 30, 2022 and December 31, 2021

(413)

(413)

Accumulated deficit

(421,424)

(210,934)

Accumulated other comprehensive loss

(687)

(3,995)

Total Orbital Energy Group, Inc.'s stockholders' equity

(83,834)

96,227

Noncontrolling interest

(263)

39

Total stockholders' equity (deficit)

(84,097)

96,266

Total liabilities and stockholders' equity

$

302,109

$

412,339

Orbital Infrastructure Group, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

For the Three Months

For the Nine Months

(in thousands, except share and per share amounts)

Ended September 30,

Ended September 30,

2022

2021

2022

2021

Revenues

$

99,822

$

24,822

$

263,989

$

41,902

Cost of revenues

105,671

22,523

248,439

44,982

Gross profit

(5,849)

2,299

15,550

(3,080)

Operating expenses:

Selling, general and administrative expense

12,746

11,729

33,790

37,491

Depreciation and amortization

5,465

1,333

16,193

3,418

Impairment of goodwill and intangible assets

100,275

—

100,275

—

Impairment of financing leased assets

4,467

—

4,467

—

(Recovery of) provision for bad debt

19

93

(519)

93

Other operating expense

(111)

(6)

(451)

(15)

Total operating expenses

122,861

13,149

153,755

40,987

Loss from operations

(128,710)

(10,850)

(138,205)

(44,067)

Gain (loss) on extinguishment of debt

(1,122)

723

(29,354)

1,633

Loss on financial instrument

(3,109)

—

(17,911)

—

Gain on warrant liabilities

2,423

—

7,369

—

Other income (expense)

(1,128)

(203)

(1,834)

370

Interest expense

(9,714)

(1,266)

(27,566)

(3,096)

Loss from continuing operations before income taxes

(141,360)

(11,596)

(207,501)

(45,160)

Income tax expense (benefit)

207

(2,098)

830

(11,035)

Loss from continuing operations, net of income taxes

(141,567)

(9,498)

(208,331)

(34,125)

Discontinued operations

Income (loss) from operations of discontinued businesses

(666)

(649)

(2,461)

(2,187)

Net loss

(142,233)

(10,147)

(210,792)

(36,312)

Less: net loss attributable to noncontrolling interest

(167)

—

(302)

—

Net loss attributable to Orbital Infrastructure Group, Inc.

$

(142,066)

$

(10,147)

$

(210,490)

$

(36,312)

Basic and diluted weighted average common shares outstanding

115,637,323

62,823,330

98,209,495

53,142,557

Loss from continuing operations per common share - basic and diluted

$

(1.22)

$

(0.15)

$

(2.12)

$

(0.64)

Loss from discontinued operations - basic and diluted

(0.01)

(0.01)

(0.03)

(0.04)

Loss per common share - basic and diluted

$

(1.23)

$

(0.16)

$

(2.15)

$

(0.68)

Orbital Infrastructure Group, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

For the Nine Months

(in thousands)

Ended September 30,

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(210,792)

$

(36,312)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation

11,860

2,671

Amortization of intangibles

15,039

4,262

Amortization of debt discount

7,335

2,016

Amortization of note receivable discount

(63)

(237)

Stock-based compensation and expense, net of forfeitures

(1,914)

9,833

Fair value adjustment to liability for stock appreciation rights

(269)

2,543

Fair value adjustment to financial instrument liabilities

17,912

—

Fair value adjustment to warrant liabilities

(7,369)

—

Loss (gain) on extinguishment of debt and debt modifications

29,354

(2,400)

Gain on sale of business

(299)

—

(Recovery of) provision for bad debt

(497)

65

Deferred income taxes

6

(11,176)

Impairment of goodwill and intangible assets

100,275

—

Impairment of financing leased assets

4,467

—

Inventory reserve

(3)

(291)

Gain on sale of assets

(391)

(15)

Non-cash unrealized foreign currency loss

(1)

233

Liquidated damages from debt

2,271

—

Change in operating assets and liabilities, net of acquisition:

Trade accounts receivable

466

(5,396)

Inventories

334

(189)

Contract assets

(14,940)

(2,077)

Prepaid expenses and other current assets

1,993

1,944

Right of use assets/lease liabilities, net

415

(21)

Deposits and other assets

(29)

(259)

Accounts payable

24,688

(2,529)

Accrued expenses

12,182

1,950

Contract liabilities

(5,385)

(1,421)

NET CASH USED IN OPERATING ACTIVITIES

(13,355)

(36,806)

CASH FLOWS FROM INVESTING ACTIVITIES:

Cash paid for acquisitions, net of cash received

(773)

(36,890)

Cash paid for working capital adjustment on Front Line Power acquisition

(9,500)

—

Purchases of property and equipment

(3,722)

(6,594)

Deposits on financing lease property and equipment

128

(481)

Proceeds from sale of businesses, net of cash included in the business

1,026

—

Proceeds from sale of property and equipment and businesses

483

93

Purchases of investments

(469)

—

Purchase of other intangible assets

(74)

(702)

Proceeds from notes receivable

3,500

621

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

(9,401)

(43,953)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from line of credit

3,500

—

Payments on line of credit

(2,000)

(441)

Payments on financing lease obligations

(3,810)

(897)

Proceeds from notes payable

41,150

19,400

Payments on notes payable

(35,530)

(7,490)

Proceeds from sales of common stock and warrants

20,272

78,046

NET CASH PROVIDED BY FINANCING ACTIVITIES

23,582

88,618

Effect of exchange rate changes on cash

(298)

(28)

Net increase in cash, cash equivalents and restricted cash

528

7,831

Cash, cash equivalents and restricted cash at beginning of period

28,041

4,524

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

$

28,569

$

12,355

Orbital Infrastructure Group, Inc.

Reconciliation of Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA from Continuing Operations

(Unaudited)

The following table presents reconciliations of the non-GAAP financial measures of EBITDA and Adjusted EBITDA from continuing operations to loss from continuing operations, net of income taxes for the three and nine months ended September 30, 2022 and 2021. These reconciliations are intended to provide useful information to investors and analysts as they evaluate the Company's performance. EBITDA from continuing operations is defined as loss from continuing operations before interest, taxes, depreciation and amortization, and Adjusted EBITDA from continuing operations is defined as EBITDA from continuing operations adjusted for certain other items as described below. We believe that the exclusion of these items from loss from continuing operations enables management and investors to more effectively evaluate the Company's operations period over period and to identify operating trends that might not be apparent when including the excluded items. However, these measures should not be considered as an alternative to loss from continuing operations or other measures of performance that are derived in accordance with GAAP.

As to certain of the items in the table below: (i) stock-based compensation and expense may vary from period to period due to fair value adjustments from changes in market conditions, forfeiture rates, accelerated vesting and amounts granted; (ii) acquisition costs vary from period to period depending on the level of the Company's acquisition activity; (iii) gains and losses on the disposal of assets varies from period to period depending on operational wear and tear and the condition of the Company's long-lived assets; (iv) gains and losses on extinguishment and modification of debt varies from period to period depending on changes in the Company's financing activities; and (v) gains and losses on financials instruments varies from period to period depending on changes in the share price of the Company's common stock and certain fair value assumptions; (vi) impairments of goodwill and other intangible assets can vary from period to period depending on changes in market and macroeconomic conditions, the Company's operational performance, and other factors; (vii) impairments of financed lease assets can vary from period to period depending on changes in the Company's operations and use of equipment.

Because EBITDA and adjusted EBITDA from continuing operations, as defined, exclude some, but not all, items that affect loss from continuing operations, such measures may not be comparable to similarly titled measures of other companies. The most comparable GAAP financial measure, loss from continuing operations, net of income taxes and information reconciling the GAAP and non-GAAP financial measures, are included below.

For the Three Months Ended

For the Nine Months Ended

(In thousands)

September 30,

September 30,

2022

2021

2022

2021

Loss from continuing operations, net of income taxes (GAAP)

$

(141,567)

$

(9,498)

$

(208,331)

$

(34,125)

Interest expense, net

9,694

1,185

27,449

2,852

Income tax expense (benefit)

207

(2,098)

830

(11,035)

Depreciation and amortization

8,914

2,495

26,899

5,684

EBITDA from continuing operations (a)

(122,752)

(7,916)

(153,153)

(36,624)

Stock-based compensation and expense, net of forfeitures (b)

274

1,370

(2,183)

11,284

Acquisition costs (c)

—

250

32

1,153

(Gain) loss on disposal of assets (d)

136

(6)

(305)

(15)

(Gain) loss on extinguishment and modification of debt (e)

2,316

44

31,625

(1,633)

(Gain) loss on financial instruments, net (f)

686

—

10,542

—

Impairment of goodwill and other intangible assets (g)

100,275

—

100,275

—

Impairment of financed leased assets (h)

4,467

—

4,467

—

Adjusted EBITDA from continuing operations (a)

$

(14,598)

$

(6,258)

$

(8,700)

$

(25,835)

See notes to follow.

Orbital Infrastructure Group, Inc.

Reconciliation of Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA from Continuing Operations

(Unaudited)

(a)

The calculations of EBITDA and Adjusted EBITDA from continuing operations for the three and nine months ended September 30, 2021 have been amended to conform to the current period calculations.

(b)

The amounts include non-cash expenses recognized from the vesting of stock-based compensation awards issued to employees, executives, directors and consultants for services provided, net of forfeitures. The amount for the nine months ended September 30, 2022 includes non-cash expenses recognized on the modification of executive stock appreciation rights (SARS) compensation awards.

(c)

The amounts for the nine months ended September 30, 2022 include costs incurred on the acquisition of Coax Fiber Solutions. The amounts for the three and nine months ended September 30, 2021 include costs incurred on the acquisitions of Gibson Technical Services and IMMCO, Inc.

(d)

The amounts relate to net gains and losses recognized on the disposal of the Company's long-lived assets.

(e)

The amounts for the three and nine months ended September 30, 2022 relate to loss on extinguishment of certain notes payable through the issuance of shares of common stock at a discount to the stock's fair value and liquidated damages on debt incurred during the year. The amounts for the nine months ended September 30, 2022 also include a loss on the modification of seller financed notes payable related to the acquisition of Front Line Power Construction, LLC. The amounts for the nine months ended September 30, 2021 relate to gains on the forgiveness of payroll protection loans by the U.S. government offset by a loss on modification of convertible notes payable.

(f)

The amounts for the three and nine months ended September 30, 2022 represent a loss related to the fair value remeasurement of financial instruments associated with the Front Line Power Construction seller financed notes payable and syndicated debt agreements, partially offset by a gain on the fair value remeasurement of certain warrant liabilities.

(g)

The amounts for the three and nine months ended September 30, 2022 include losses on the impairment of goodwill and customer relationship intangible assets of $96.0 million and $4.3 million, respectively, resulting from a sustained decrease in the Company's share price and overall market capitalization and recurring losses related to the Renewables segment.

(h)

The amounts for the three and nine months ended September 30, 2022 includes asset impairment charges related to the discontinued use of certain financed leased equipment associated with the restructuring of the Eclipse Foundation Group.

Orbital Infrastructure Group, Inc.

Reconciliation of Non-GAAP Financial Measures

Estimated EBITDA and Adjusted EBITDA from Continuing Operations

(Unaudited)

The following table presents reconciliations of the non-GAAP financial measures of EBITDA and Adjusted EBITDA from continuing operations to loss from continuing operations, net of income taxes for the full year ended December 31, 2022. These reconciliations are intended to provide useful information to investors and analysts as they evaluate the Company's expected future performance. EBITDA from continuing operations is defined as loss from continuing operations before interest, taxes, depreciation and amortization, and Adjusted EBITDA from continuing operations is defined as EBITDA from continuing operations adjusted for certain other items as described below. We believe that the exclusion of these items from loss from continuing operations enables management and investors to more effectively evaluate the Company's operations period over period and to identify operating trends that might not be apparent when including the excluded items. However, these measures should not be considered as an alternative to loss from continuing operations or other measures of performance that are derived in accordance with GAAP.

As to certain of the items in the table below: (i) stock-based compensation and expense may vary from period to period due to fair value adjustments from changes in market conditions, forfeiture rates, accelerated vesting and amounts granted; (ii) acquisition costs vary from period to period depending on the level of the Company's acquisition activity; (iii) gains and losses on the disposal of assets varies from period to period depending on operational wear and tear and the condition of the Company's long-lived assets; (iv) gains and losses on extinguishment and modification of debt varies from period to period depending on changes in the Company's financing activities; and (v) gains and losses on financials instruments varies from period to period depending on changes in the share price of the Company's common stock and certain fair value assumptions; (vi) impairments of goodwill and other intangible assets can vary from period to period depending on changes in market and macroeconomic conditions, the Company's operational performance, and other factors; (vii) impairments of financed lease assets can vary from period to period depending on changes in the Company's operations and use of equipment.

Because EBITDA and adjusted EBITDA from continuing operations, as defined, exclude some, but not all, items that affect loss from continuing operations, such measures may not be comparable to similarly titled measures of other companies. The most comparable GAAP financial measure, loss from continuing operations, net of income taxes and information reconciling the GAAP and non-GAAP financial measures, are included below.

Estimated Range

(In thousands)

Full Year Ending

December 31, 2022

Loss from continuing operations, net of income taxes (GAAP)

$

(212,871)

$

(210,971)

Interest expense, net

36,450

36,450

Income tax expense (benefit) (a)

1,150

1,250

Depreciation and amortization

33,925

33,925

EBITDA from continuing operations

(141,346)

(139,346)

Stock-based compensation and expense, net of forfeitures (b)

(1,290)

(1,290)

Acquisition costs (c)

32

32

(Gain) loss on disposal of assets (d)

(305)

(305)

(Gain) loss on extinguishment and modification of debt (e)

31,625

31,625

(Gain) loss on financial instruments, net (f)

10,542

10,542

Impairment of goodwill and other intangible assets (g)

100,275

100,275

Impairment of financed leased assets (h)

4,467

4,467

Adjusted EBITDA from continuing operations

$

4,000

$

6,000

See notes to follow.

Orbital Infrastructure Group, Inc.

Reconciliation of Non-GAAP Financial Measures

Estimated EBITDA and Adjusted EBITDA from Continuing Operations

(Unaudited)

(a)

These amounts relate to estimated state minimum tax expenses determined using the statutory tax rates of the jurisdictions where taxable income is expected to be earned. These amounts do not include federal and foreign income tax expense (benefits) as the Company does not expect to generate taxable income related to its US and foreign jurisdictions and expects valuation allowance reserves to be recognized on any deferred tax assets realized during the full year 2022.

(b)

The amount includes non-cash expenses recognized from the vesting of stock-based compensation awards issued to employees, executives, directors and consultants for services provided, net of forfeitures, and modifications of executive stock appreciation rights (SARS) compensation awards.

(c) 

The amount includes costs incurred for the acquisition of Coax Fiber Solutions, Inc.

(d)

The amount includes net gains and losses recognized on the disposal of the Company's long-lived assets.

(e)

The amount includes losses on the modification of the seller financed notes payable issued for the acquisition of Front Line Power Construction, LLC., the extinguishment of certain notes payable through the issuance of shares of common stock at a discount to the stock's fair value and liquidated damages on debt incurred during the year.

(f)

The amount represents a net loss related to the fair value remeasurement of financial instruments associated with the Front Line Power Construction seller financed notes payable and syndicated debt agreements, partially offset by gains on the fair value remeasurement of warrant liabilities.

(g)

The amount includes impairment charges to goodwill and customer relationship intangible assets of $96.0 million and $4.3 million, respectively.

(h)

The amount includes impairment charges related to the discontinued use of certain financed leased equipment associated with the restructuring of the Eclipse Foundation Group.