cui20190930_10q.htm

10-Q 1 oeg20210331_10q.htm FORM 10-Q cui20190930_10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2021

☐	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 0-29923

Orbital Energy Group, Inc.

(Exact name of registrant as specified in its charter)

Colorado		84-1463284
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

	1924 Aldine Western
	Houston, Texas 77038

(Address of principal executive offices and zip code)

(832) 467-1420

(Registrant’s telephone number, including area code)

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate 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 Exchange Act).

YES ☐ NO ☒

There were 52,220,786 shares of the registrant's common stock, par value $0.001 per share, outstanding as of May 17, 2021.

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, $0.001 par value.	OEG	Nasdaq Capital Market

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INDEX

		Page
	Part I

Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets (Unaudited)	2
	Condensed Consolidated Statements of Operations (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income and Loss (Unaudited)	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
	Overview	32
	Results of Operations	33
	Liquidity and Capital Resources	37
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	40
Item 4.	Controls and Procedures	42
	Part II

Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds. Common Stock Issued	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
	Exhibit Index	44
	Signatures	45

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Orbital Energy Group, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
(in thousands, except share and per share amounts)	2021			2020

Assets:
Current Assets:
Cash and cash equivalents	$	34,733		$	3,046
Restricted cash - current		153			452
Trade accounts receivable, net of allowance of $1,208 and $1,227 at March 31, 2021 and December 31, 2020, respectively		6,840			8,487
Inventories		974			1,123
Contract assets		4,200			7,860
Note receivable, current portion		520			44
Prepaid expenses and other current assets		3,016			3,786
Total current assets		50,436			24,798


Property and equipment, less accumulated depreciation of $2,484 and $2,158 at March 31, 2021 and December 31, 2020, respectively		8,669			6,395
Investment		1,063			1,063
Right of use assets - Operating leases		9,264			7,054
Goodwill		7,006			7,006
Other intangible assets, net		14,221			13,697
Restricted cash		1,026			1,026
Note receivable		3,091			3,602
Deposits and other assets		170			1,404
Total assets	$	94,946		$	66,045

Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable	$	4,141		$	9,913
Notes payable, current		16,798			12,246
Line of credit		—			441
Operating lease obligations - current portion		2,348			1,784
Accrued expenses		4,703			5,882
Contract liabilities		4,024			6,810
Total current liabilities		32,014			37,076
Notes payable, less current portion		8,756			5,056
Operating lease obligations, less current portion		6,636			5,211
Contingent consideration		720			720
Other long-term liabilities		2,720			835
Total liabilities		50,846			48,898

Commitments and contingencies

Stockholders' Equity:
Preferred stock, par value $0.001; 10,000,000 shares authorized; no shares issued at March 31, 2021 or December 31, 2020		—			—
Common stock, par value $0.001; 325,000,000 shares authorized; 46,839,982 shares issued and 46,486,919 shares outstanding at March 31, 2021 and 31,029,642 shares issued and 30,676,579 shares outstanding at December 31, 2020		47			31
Additional paid-in capital		216,527			171,616
Treasury stock at cost; 353,063 shares held at March 31, 2021 and December 31, 2020		(413	)		(413	)
Accumulated deficit		(167,633	)		(149,681	)
Accumulated other comprehensive loss		(4,428	)		(4,406	)
Total stockholders' equity		44,100			17,147
Total liabilities and stockholders' equity	$	94,946		$	66,045

See accompanying notes to condensed consolidated financial statements

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Orbital Energy Group, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Three Months
(in thousands, except share and per share amounts)	Ended March 31,
	2021			2020

Revenues	$	9,491		$	5,688

Cost of revenues		10,797			5,129

Gross profit (loss)		(1,306	)		559

Operating expenses:
Selling, general and administrative expense		14,460			7,192
Depreciation and amortization		1,515			407
Research and development		1			17
(Recovery) provision for bad debt		(19	)		6

Total operating expenses		15,957			7,622

Loss from operations		(17,263	)		(7,063	)

Other income (expense)		63			(1,032	)
Interest expense		(736	)		(11	)

Loss from continuing operations before income taxes and net loss of affiliate		(17,936	)		(8,106	)
Net loss of affiliate		—			(446	)
Loss from continuing operations before income taxes		(17,936	)		(8,552	)
Income tax expense (benefit)		16			(1,600	)

Loss from continuing operations, net of income taxes		(17,952	)		(6,952	)

Discontinued operations (Note 3)
Loss from operations of discontinued power and electromechanical components businesses		—			(486	)
Income tax benefit		—			(57	)
Income from discontinued operations, net of income taxes		—			(429	)

Net loss	$	(17,952	)	$	(7,381	)

Basic and diluted weighted average common shares outstanding		44,564,868			28,420,730

Loss from continuing operations per common share - basic and diluted	$	(0.40	)	$	(0.24	)

Income from discontinued operations - basic and diluted		0.00			(0.02	)

Loss per common share - basic and diluted	$	(0.40	)	$	(0.26	)

See accompanying notes to condensed consolidated financial statements

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Orbital Energy Group, Inc.

Condensed Consolidated Statements of Comprehensive Income and Loss

(Unaudited)

	For the Three Months
(in thousands)	Ended March 31,
	2021			2020
Net loss	$	(17,952	)	$	(7,381	)

Other comprehensive income (loss)
Foreign currency translation adjustment		(22	)		415
Comprehensive loss	$	(17,974	)	$	(6,966	)

See accompanying notes to condensed consolidated financial statements

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Orbital Energy Group, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

(in thousands, except share amounts)	Common Stock						Treasury Stock
	Shares		Amount		Additional Paid-in Capital		Shares			Amount			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity

Balance, December 31, 2020		31,029,642	$	31	$	171,616		(353,063	)	$	(413	)	$	(149,681	)	$	(4,406	)	$	17,147
Issuance of common stock via equity raises		15,555,556		16		42,360		—			—			—			—			42,376
Common stock issued for cashless exercises of stock options		214,596		—		—		—			—			—			—			—
Common stock issued and vesting of restricted stock for compensation, services and royalty payments		40,188		—		2,551		—			—			—			—			2,551
Net loss		—		—		—		—			—			(17,952	)		—			(17,952	)
Other comprehensive income		—		—		—		—			—			—			(22	)		(22	)
Balance, March 31, 2021		46,839,982	$	47	$	216,527		(353,063	)	$	(413	)	$	(167,633	)	$	(4,428	)	$	44,100

(in thousands, except share amounts)	Common Stock						Treasury Stock
	Shares		Amount		Additional Paid-in Capital		Shares			Amount			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity

Balance, December 31, 2019		28,736,436	$	29	$	170,106		(353,063	)	$	(413	)	$	(122,234	)	$	(4,371	)	$	43,117

Common stock issued for royalty payments		37,312		—		9		—			—			—			—			9
Net loss		—		—		—		—			—			(7,381	)		—			(7,381	)
Other comprehensive income		—		—		—		—			—			—			415			415
Balance, March 31, 2020		28,773,748	$	29	$	170,115		(353,063	)	$	(413	)	$	(129,615	)	$	(3,956	)	$	36,160

See accompanying notes to condensed consolidated financial statements

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Orbital Energy Group, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Three Months
(in thousands)	Ended March 31,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(17,952	)	$	(7,381	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		316			154
Amortization of intangibles		1,431			332
Amortization of note receivable discount		(74	)		(69	)
Stock issued and stock to be issued for compensation, royalties and services		2,559			3
Change in fair value related to stock appreciation rights		1,908			—
Amortization of debt discount		140			—
Loss on extinguishment of debt		250			—
Non-cash loss on equity method investment in affiliate		—			446
(Recovery) provision for bad debt		(19	)		6
Deferred income taxes		—			10
Inventory reserve		(72	)		(113	)
Non-cash unrealized foreign currency (gains) losses		(100	)		1,256
Change in operating assets and liabilities:
Trade accounts receivable		1,689			1,502
Inventories		225			(1,839	)
Contract assets		156			(480	)
Prepaid expenses and other current assets		783			(875	)
Right of use assets - Operating leases		(2,209	)		(703	)
Deposits and other assets		—			(874	)
Accounts payable		(4,343	)		301
Operating lease liabilities		1,987			581
Accrued expenses		1,286			(245	)
Contract liabilities		(1,443	)		264
NET CASH USED IN OPERATING ACTIVITIES		(13,482	)		(7,724	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(2,946	)		(1,278	)
Cash paid for working capital adjustment on Power group disposition		—			(2,804	)
Purchase of other intangible assets		(692	)		(4	)
Purchase of convertible notes receivable		—			(200	)
Cash paid for related party note receivable		—			(3,000	)
Purchase of investment		—			(97	)
Proceeds from notes receivable		100			—
NET CASH USED IN INVESTING ACTIVITIES		(3,538	)		(7,383	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit		(441	)		—
Payments on financing lease obligations		(1	)		(1	)
Proceeds from notes payable		9,701			—
Payments on notes payable		(3,238	)		(428	)
Proceeds from sales of common stock		42,376			—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		48,397			(429	)

Effect of exchange rate changes on cash		11			(48	)
Net increase (decrease) in cash, cash equivalents and restricted cash		31,388			(15,584	)
Cash, cash equivalents and restricted cash at beginning of period		4,524			23,351

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	35,912		$	7,767

See accompanying notes to condensed consolidated financial statements

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Orbital Energy Group, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(Unaudited)

	For the Three Months
(in thousands)	Ended March 31,
	2021			2020
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid (net refunded)	$	(570	)	$	19
Interest paid	$	499		$	12

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Financing note payable issued for payment on certain insurance policies	$	—		$	921
Accrued property and equipment purchases	$	291		$	16

See accompanying notes to condensed consolidated financial statements

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Orbital Energy Group, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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

Nature of Operations

Orbital Energy Group, Inc. (Orbital Energy Group, "OEG," "The Company") is a platform company composed of three segments, the Electric Power and Solar Infrastructure Services segment, the Integrated Energy Infrastructure Solutions and Services segment, and the Other segment. In 2019, the Company divested of most of its previous Power and Electromechanical segment and the remaining portion of that segment was divested in 2020.

The Electric Power and Solar Infrastructure Services segment consists of Orbital Solar Services based in Sanford, North Carolina, Orbital Power Services based in Dallas, Texas, and Eclipse Foundation Group based in Gonzales, Louisiana. The segment provides comprehensive network solutions to customers in the electric power, telecom and solar industries. 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. Services performed by Orbital Power Services generally include the design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities as well as emergency restoration services, including the repair of infrastructure damaged by inclement weather. 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 (drilled piers), industrial, communication towers and disaster restoration market sectors, with expertise in water, marsh and rock terrains.

The Company’s Integrated Energy Infrastructure Solutions and Services segment is made up of Orbital Gas Systems Ltd. (Orbital-UK) and Orbital Gas Systems, North America, Inc. (Orbital North America), collectively referred to as ("Orbital Gas Systems"). Orbital-UK is based in the United Kingdom and Orbital North America is based in Houston, Texas. Orbital Gas Systems is a provider of natural gas infrastructure and advanced technology, including metering, odorization, remote telemetry units (‘‘RTU’’) and provides a diverse range of personalized gas engineering solutions to the gas utilities, power generation, emissions, manufacturing and automotive industries. GasPT® and VE Technology® products are sold through Orbital Gas Systems.

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, 2020. The condensed consolidated balance sheet as of December 31, 2020 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, 2020.

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, 2021.

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

	For the Three Months
(in thousands)	Ended March 31,
	2021		2020
Cash and cash equivalents at beginning of period	$	3,046	$	23,351
Restricted cash at beginning of period (1)		1,478		—
Cash, cash equivalents and restricted cash at beginning of period	$	4,524	$	23,351

Cash and cash equivalents at end of period	$	34,733	$	6,740
Restricted cash at end of period (1)		1,179		1,027
Cash, cash equivalents and restricted cash at end of period	$	35,912	$	7,767

(1) Restrictions on cash at March 31, 2021 and March 31, 2020 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 review the Company’s impairments and estimations of long-lived assets, revenue recognition on cost-to-cost-method type contracts, inventory valuation, warranty reserves, valuations of non-cash capital stock issuances, valuation for acquisitions, the valuation allowance on deferred tax assets, note receivable interest imputation, and the incremental borrowing rate used in determining the value of right of use 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 conditions.

Reclassifications

Certain reclassifications have been made to the 2020 segment classifications in order to conform to the 2021 presentation.

Goodwill

Upon acquisition of Reach Construction Group, LLC, (name changed to Orbital Solar Services) the Company recorded $7.0 million of goodwill. Goodwill was valued as of April 1, 2020 by a third-party valuation expert and was recorded following the recognition of Orbital Solar Service's tangible assets and liabilities and $13.7 million of finite-lived identifiable intangible assets. Factors that contributed to the Company's goodwill are Orbital Solar Service's skilled workforce and reputation within its industry. The Company also expected to achieve future synergies between the Orbital Solar Services and Orbital Power Services businesses. These synergies were expected to be achieved in the form of power line work necessary when bringing new solar power systems online. Management completed a qualitative analysis to determine whether it was more likely than not that the fair value of its reporting unit was less than its carrying amount, including goodwill. To complete the qualitative review, management evaluated the fair value of the Goodwill and considered all known events and circumstances that might trigger an impairment of goodwill. During management's review of goodwill as of March 31, 2021, the Company determined that there were not indicators present to suggest that it was more likely than not that the fair value of the Orbital Solar Services reporting unit was less than its carrying amount and thus no impairment was necessary.

Company Conditions

Orbital Solar Services has seen increasing customer opportunities including its recently announced association with the new Black Sunrise Investment fund. The fund has identified through its investors and others, several projects of scale and for which Orbital Solar Services will be awarded significant work. Orbital Power Services began operations during the first quarter of 2020 with work progressing under master service agreements with several new customers. Eclipse Foundation Group began operations in January 2021 and has begun work on projects for utility customers. Orbital Gas Systems, Ltd. continues to face issues surrounding COVID-19, Brexit and the overall economy in the United Kingdom. Orbital Gas Systems, North America, Inc. has experienced a significant delay in customer projects and orders related to COVID-19 and the impact of pricing pressure on oil and gas industry customers.

The Company had a net loss of $18.0 million, a negative gross margin of $1.3 million, and cash used in operating activities of $13.5 million during the three months ended March 31, 2021. As of March 31, 2021, our accumulated deficit is $167.6 million and we had working capital of $18.4 million.

COVID-19 Assessment and Liquidity

In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects can be severe. While the Company expects the effects of the pandemic to negatively impact its results from operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time. The Company has experienced customer delays and extensions for projects, supply chain delays, furloughs of personnel, increased utilization of telework, increased safety protocols to address COVID-19 risks, decreased field service work and other impacts from the COVID-19 pandemic. The Company is proactively working to adjust its operations to properly reflect the market environment during the immediate pandemic while maintaining sufficient resources for the expected rebound later this year. Events and changes in circumstances arising after March 31, 2021, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

Management believes the Company's present cash flows will meet its obligations for twelve months from the date these financial statements are available to be issued. Including our cash balance, we continue to manage working capital primarily related to trade accounts receivable, notes receivable, prepaid assets, contract assets and our inventory less current liabilities that we will manage during the next twelve months. In 2020 and the first three months of 2021, the Company has entered into various long and short-term debt agreements (Note 16. Notes Payable). In addition, the Company has secured funding and has an available S-3 registration statement allowing the Company to issue various types of securities including common stock, preferred stock, debt securities and/or warrants, up to an aggregate amount of $150 million. Considering these above factors, management believes the Company can meet its obligations for the twelve-month period from the date the financial statements are available to be issued.

The Company’s available capital may be consumed faster than anticipated due to other events, including the length and severity of the global novel coronavirus disease pandemic and measures taken to control the spread of COVID-19, as well as changes in and progress of our development activities and the impact of commercialization efforts due to the COVID-19 pandemic. The Company may seek to obtain additional capital as needed through equity financings, debt or other financing arrangements, but given the impact of COVID-19 on the U.S. and global financial markets, the Company may be unable to access further equity or debt financing when needed. As such, there can be no assurance that the Company will be able to raise additional capital when needed or under acceptable terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding common shares.

Restructuring Charges

During the fourth quarter of 2019, the Company completed the sale of its largest group within the Power and Electromechanical segment. The Company completed the sale of its Japan operations as of September 30, 2020. In conjunction with the 2019 sale, it was concluded that should the remaining power and electromechanical operations not sell, the Company will fulfill its backlog obligations and wind down the remaining operations of CUI-Canada during 2020. As of December 31, 2020, the Company had remaining an accrued liability for estimated employee termination costs of $0.4 million related to the discontinued operations. The Company paid out an additional $0.2 million of termination benefits in the first three months of 2021 and expect the remaining $0.2 million to be paid out during the remainder of 2021.

Activity in the termination benefit liability in 2021 is as follows:

CUI-Canada termination benefits (in thousands)

December 31, 2020	$	371
Severance payouts		(190	)
Translation		3
March 31, 2021	$	184

Estimated total termination benefits paid and to be paid	$	2,822

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2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are detailed in "Note 2 Summary of Significant Accounting Policies" within Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 30, 2021. Changes to the Company's accounting policies are discussed below:

Adoption of new accounting standards

On January 1, 2021, the Company adopted ASU No. 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASU 2020-04 provides optional expedients and exceptions related to contract modifications and hedge accounting to address the transitions from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance permits an entity to consider contract modification due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. ASU 2020-04 also temporarily allows hedge relationships to continue without de-designation upon changes due to reference rate reform. The standard is effective upon issuance and can be applied as of March 12, 2020 through December 31, 2022. There is not a material effect on the Company's financial statements due to the Company not having any current financial instruments that are affected by this new guidance.

On January 1, 2021, the Company adopted ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives, and is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. The amendments in ASU 2020-01 are effective for the Company's 2021 fiscal year, including interim periods. The new guidance does not currently have a material impact on the Company's consolidated financial statements due to the Company currently not having any equity-method investments or any derivative instruments.

On January 1, 2021, the Company adopted ASU 2019-12, Simplifying the Accounting for Income Taxes, which is guidance intended to simplify various aspects related to accounting for income taxes, eliminate certain exceptions within ASC 740 and clarify certain aspects of the current guidance to promote consistency among reporting entities. The pronouncement is effective for the Company's 2021 fiscal year, including interim periods. The ASU does not have a material impact on the Company's consolidated financial statements.

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3.	DISCONTINUED OPERATIONS AND SALE OF A BUSINESS

As part of the Company’s previously stated strategy to transform Orbital Energy Group, Inc. into a diversified infrastructure services platform serving North American and U.K. customers, in 2019 the Company’s Board of Directors made the decision to divest of its Power and Electromechanical businesses. On September 30, 2019, Orbital Energy Group, Inc. entered into an asset sale agreement by and among, CUI, Inc. ("Seller"), a wholly owned subsidiary of the Company ("Parent"), and Back Porch International, Inc. ("Buyer") to sell the Company’s Electromechanical business to a management led group. In November 2019, Orbital Energy Group, Inc. entered into an asset sale agreement by and among, the Seller and Bel Fuse, Inc. to sell the domestic Power supply business. Both sales closed in 2019. On September 30, 2020, the Company sold the CUI Japan operations to Back Porch International for approximately $163 thousand. The assets of the Company's CUI-Canada subsidiary were divested in the fourth quarter of 2020.

The associated results of operations of the discontinued Power and Electromechanical segment are separately reported as Discontinued Operations for 2020 on the Condensed Consolidated Statements of Operations. Cash flows from these discontinued businesses are included in the Condensed Consolidated Cash Flow statements. See below for additional information on operating and investing cash flows of the discontinued operations. Results from continuing operations for the Company and segment highlights exclude the former Power and Electromechanical segment, which is included in these discontinued operations.

The former Power and Electromechanical segment consisted of the wholly owned subsidiaries: CUI, Inc. (CUI), based in Tualatin, Oregon; CUI Japan, based in Tokyo, Japan; CUI-Canada, based in Toronto, Canada; and the entity that previously held the corporate building, CUI Properties. The subsidiaries were providers of power and electromechanical components for Original Equipment Manufacturers (OEMs).

Selected data for these discontinued businesses consisted of the following:

Reconciliation of the Major Classes of Line Items Constituting Pretax Income from

Discontinued Operations to the After-Tax Income from Discontinued Operations That Are

Presented in the Condensed Consolidated Statement of Operations

(Unaudited)

(in thousands)		For the Three Months
	Ended March 31,
Major classes of line items constituting pretax profit (loss) of discontinued operations:	2021		2020

Revenues	$	—	$	2,033
Cost of revenues		—		(1,986	)
Selling, general and administrative expense		—		(385	)
Other expense		—		(148	)
Pretax loss of discontinued operations related to major classes of pretax loss		—		(486	)
Income tax benefit		—		(57	)
Total loss from discontinued operations that is presented in the statement of operations	$	—	$	(429	)

Net cash used in operating activities of discontinued operations for the three months ended March 31, 2020 was $1.1 million.

There was zero net cash provided by or (used in) investing activities of discontinued operations for the three months ended March 31, 2020.

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4.	REVENUE FROM CONTRACTS WITH CUSTOMERS

Electric Power and Solar Infrastructure Services segment and Integrated Energy Infrastructure and Services segment

The Electric Power and Solar Infrastructure Services segment provides full service building, maintenance and support to the electrical power distribution, transmission, substation, renewables, and emergency response sectors of North America through Orbital Power Services and Eclipse Foundation Group, and Orbital Solar Services provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility scale solar and community solar construction.

The Integrated Energy Infrastructure Solutions and Services segment subsidiaries, collectively referred to as Orbital Gas Systems, generate their revenue from a portfolio of products, services and resources that offer a diverse range of personalized gas engineering solutions to the gas utilities, power generation, petrochemical, emissions, manufacturing and automotive industries among others.

Orbital Gas Systems accounts for a majority of its contract revenue proportionately over time. For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

For our construction contracts, revenue is generally recognized over time. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

The timing of revenue recognition for Integrated Energy Infrastructure products also depends on the payment terms of the contract, as our performance does not create an asset with an alternative use to us. For those contracts where the Company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced or for which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. As discussed above, these performance obligations use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. However, for those contracts for which we do not have a right, at all times, to payment for performance completed to date and we are not enhancing a customer controlled asset, we recognize revenue at the point in time when control is transferred to the customer, generally when the product is shipped.

For our service contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly, and the customer receives and consumes the benefits of our performance throughout the contract term.

Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicates a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

Product-type contracts (for example, sale of GasPT units) for which revenue does not qualify to be recognized over time are recognized at a point in time. Revenues from extended warranty and maintenance activities are recognized ratably over the term of the warranty and maintenance period. Extended warranties are not a material portion of our revenue.

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Accounts Receivable, Contract Assets and Contract Liabilities

Accounts receivable are recognized in the period when our right to consideration is unconditional. We also assess our customer's ability and intention to pay, which is based on a variety of factors, including our historical payment experience with and the financial condition of our customers. Payment terms and conditions vary by contract, although our standard terms include a requirement of payment within 30 days. Accounts receivable are recognized net of an allowance for doubtful accounts.

SEC Form 10-Q filed by Orbital Energy Group, Inc.