Basis of Presentation and Significant Accounting Policies |
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Mar. 31, 2025 | |||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||
| Basis of Presentation and Significant Accounting Policies | Basis of Presentation and Significant Accounting Policies Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions among consolidated entities were eliminated upon consolidation. The
unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial reporting. As permitted under those rules, certain footnotes or other financial information can be condensed or omitted. These condensed consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 31, 2025 ("2024 Form 10-K").
These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal and recurring adjustments that are necessary for a fair statement of the Company’s consolidated financial information. The interim results of operations are not necessarily indicative of the results that may be expected for the full year, or for any other future annual or interim period.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Accounting estimates and assumptions are inherently uncertain. Management bases its estimates and assumptions on current facts, historical experience and various other factors believed to be reasonable under the circumstances. Actual results could differ materially and adversely from these estimates. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, cost-to-cost (input) revenue recognition method, fair value of warrant issuances, allowance for expected credit losses, useful lives and recoverability of long-lived assets, valuation of deferred tax assets, accrued insurance, stock-based compensation and operating lease right-of-use assets and liabilities.
Reclassifications
Certain reclassifications have been made to the condensed consolidated statement of cash flows for the three months ended March 31, 2024 for consistency with the presentation of the condensed consolidated statement of cash flows for the three months ended March 31, 2025. Certain amounts in the condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2024 have been reclassified to conform to current period presentation. There was no effect on the Company's financial position, net loss or stockholders' equity as of and for the periods ended March 31, 2025 and 2024.
Risks and Uncertainties
The Company is currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine, as well as Israel and Hamas. The Company’s financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
Market uncertainty stemming from the new administration’s policies and Department of Government Efficiency (“DOGE”) cost cutting efforts may further impact customers’ ability to commit to future projects. This is particularly relevant to our Water Service Lines business whose customers are heavily reliant on Environmental Protection Agency ("EPA") funding under the Lead and Copper Rule. The Company is monitoring and adjusting expectations accordingly, but the market uncertainty will remain likely until the new administration’s policies are clarified.
International trade policies, including tariffs, sanctions, and trade barriers, may negatively impact the Company's business, financial condition, results of operations, and growth prospects. The Company's operations rely on a global network of third-party suppliers for critical equipment and materials, including excavating machinery and tools essential for constructing fiber optic lines and digging slant wells. Tariffs or other trade restrictions could increase costs for equipment, raw materials, and components sourced, adding complexity to the supply chain, causing potential disruptions, or delaying procurement timelines for items critical to construction projects. While the Company actively monitors these risks, the ultimate effects of current or future trade restrictions remain uncertain.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Summary of Significant Accounting Policies
Reference is made to Note 2 Basis of Presentation and Significant Accounting Policies in the 2024 Form 10-K for a detailed description of significant accounting policies. There have been no significant changes to the Company's accounting policies as disclosed in the 2024 Form 10-K.
Concentrations of Risk and Significant Customers and Vendors
The Company maintains its cash accounts with financial institutions, ensuring all deposits remain fully protected by utilizing insured cash sweep accounts. As a result, no cash balances exceed the Federal Deposit Insurance Corporation limits, providing complete coverage and safeguarding the Company's funds through March 31, 2025.
The Company’s customers are generally large public or private companies with good credit and payment practices and a positive reputation in the industry at the time that the contracts are entered into. Furthermore, because it has the ability to stop transferring promised goods and services if payment is not received, the Company has concluded that collection risk is minimal.
Three customers accounted for 87% of the condensed consolidated accounts and retention receivables as of March 31, 2025. The Company's accounts and retention receivables are related to the Fiber Optics, Slant Wells, and Element 82 operating segments with the following concentration: Customer B at 36%, Customer A at 28%, and Customer E at 23%. Three customers accounted for 83% of the consolidated accounts and retention receivables as of December 31, 2024.
The Company’s revenue is generated from its Fiber Optics, Slant Wells, and Element 82 operating segments. Two customers of Fiber Optics and Slant Wells accounted for approximately 91% of the condensed consolidated revenue for the three months ended March 31, 2025, with the following breakdown: Customer E at 46% and Customer B at 45%. Three customers of Fiber Optics accounted for approximately 93% of the condensed consolidated revenue for the three months ended March 31, 2024.
The Company’s vendor purchases primarily included costs associated with professional fees, subcontractor labor, equipment purchases and leases, and purchases of other supplies and materials. Any disruptions in the Company’s vendor relationships could have a material adverse effect on the Company’s business, results of operations and financial condition. One vendor of Fiber Optics, Horizon HDD, LLC ("Horizon HDD"), a related party, accounted for approximately 38% of the condensed consolidated accounts payable and accounts payable - related party balances as of March 31, 2025. Two vendors of Fiber Optics accounted for approximately 66% of the consolidated accounts payable and accounts payable - related party balances as of December 31, 2024.
For three months ended March 31, 2025, the costs incurred with Horizon HDD accounted for 26% of total cost of revenue. There were no significant concentrations in costs incurred with any vendor for the three months ended March 31, 2024.
Allowance for Expected Credit Losses
The allowance for expected credit losses is based on the Company’s assessment of the collectibility of its customer accounts and retention receivables, contract assets and note receivables, all of which fall within the scope of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") 326, Financial Instruments - Credit Losses. In estimating the allowance for expected credit losses, the Company considers factors such as historical experience, industry data, credit quality, age of balances, and current economic conditions that may affect a customer’s ability to pay. There are a few contracts, where the Company performs as a subcontractor, which contain “pay when paid” provisions that allow the general contractor to hold payment until they have received payment from the owner related to the work performed. Because these provisions do not impose any additional obligations on the Company (i.e., there are no conditions remaining to fulfill to receive payment), the Company considers receivables billed under these provisions to be subject only to the passage of time. The Company performs a risk assessment on any trade receivables with customers where the Company operated as a subcontractor and agreed to a "pay when paid" clause. The assessment primarily relates to the anticipated timing of payment and whether there are any collection risks. The Company records an allowance for expected credit losses, when appropriate, using these factors along with reasonable supportable forecasts. The Company regularly assesses the state of its billings in order to identify issues, which may impact the collectibility of these receivables or reserve estimates. Uncollectible amounts are written off when all efforts to collect have been exhausted and recoveries are recognized when they are recovered. Actual write-offs may be in excess of the Company’s estimated allowance. The Company’s allowance for expected credit losses was $0.3 million and $4,000 as of March 31, 2025 and December 31,
2024, respectively. The Company recognized $0.3 million in credit loss expense during the three months ended March 31, 2025.
Impairment of Long-lived Assets
The Company reviews long-lived assets (including property and equipment, lease related right-of-use assets, and definite-lived intangible assets) for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Recoverability of assets is determined by first grouping the long-lived assets at the lowest level for which there are identifiable cash flows, and then comparing the carrying value of each asset group to its forecasted undiscounted cash flows. If the evaluation of the forecasted cash flows indicates that the carrying value of an asset group is not recoverable, an impairment measurement of the asset group is performed. Impairment is recognized if the carrying amount of the asset group exceeds its fair value. Any impairment loss is allocated to the long-lived assets of the asset group on a pro rata basis using the relative carrying amounts of those assets, except that the carrying amount of an individual long-lived asset cannot be reduced below its fair value. For the three months ended March 31, 2025 and 2024, the Company did not record any significant impairment related to intangible assets.
Fair Value Measurement
The Company follows the accounting guidance in ASC 820, Fair Value Measurement, for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company did not have significant assets or liabilities measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024.
Warrants
The Company estimates the fair value of certain common stock warrants issued both before and after June 30, 2024, using the Black-Scholes option pricing model. This model requires management to make significant estimates and assumptions, including the expected volatility of the Company’s stock price, the expected term of the warrants, the risk-free interest rate, and expected dividends.
Common Stock Warrants Issued Before June 30, 2024:
These warrants are classified as liabilities as their settlement terms preclude equity classification. The warrants were recorded at fair value upon issuance and are subsequently remeasured at fair value at each balance sheet date, with changes in fair value recognized within other expense, net in the Company’s consolidated statements of operations and comprehensive loss.
The change in fair value of warrant liabilities was zero and $23,000 for three months ended March 31, 2025 and 2024, respectively. The fair value of warrant liabilities was insignificant as of March 31, 2025 and December 31, 2024.
Common Stock Warrants Issued After June 30, 2024:
Warrants issued after June 30, 2024 have been classified within stockholders' equity as they meet the criteria for equity classification. Specifically, these warrants are indexed to the Company’s common stock and do not contain settlement provisions that would preclude them from equity classification. Upon issuance, the fair value of these equity-classified warrants was recorded in additional paid-in capital with no subsequent remeasurement required.
The following key assumptions were used in the Black-Scholes model to estimate fair value:
•Volatility: Based on historical volatility of comparable companies
•Expected Term: Estimated based on the contractual term of the warrants
•Risk-Free Interest Rate: Based on U.S. Treasury yields at the time of issuance
•Dividend Yield: Assumed to be zero, as the Company does not expect to pay dividends to common stockholders
The Company had warrants to purchase 45,000 shares of its Series E preferred stock. The warrants were classified as liability and had nominal value as of March 31, 2025 and December 31, 2024.
Segment Reporting
Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. Operating segments are aggregated into a reportable segment if the operating segments have similar quantitative economic characteristics and if the operating segments are similar in the following qualitative characteristics: (i) nature of products and services; (ii) nature of production processes; (iii) type or class of customer for their products and services; (iv) methods used to distribute the products or provide services; and (v) if applicable, the nature of the regulatory environment. The Company has not aggregated operating segments based on similarity in economic characteristics, other qualitative factors and the objectives and principals of ASC 280, Segment Reporting. Refer to Note 11 — Segment Reporting.
Retention Receivables
The Company’s Fiber Optics customers have a contractual right to withhold payment of a retainage amount that typically ranges between 5% to 10% of the total contract consideration. The retainage can be utilized by customers for any claims that may arise after work is completed through one year after project completion. The retainage amount is expected to be collected upon the project's completion and acceptance by the customer. As of March 31, 2025 and December 31, 2024, the Company has recorded a retainage receivable of $0.3 million and $0.3 million, respectively, which is a component of the accounts and retention receivables, net balance in the condensed consolidated balance sheets.
Contract Assets
The Company records contract assets for revenue recognized in excess of billings, representing amounts due from customers where revenue has been recognized based on the satisfaction of performance obligations but for which billing has not yet occurred. Contract assets, including unbilled receivables, are recorded when the Company has an enforceable right to payment, and are subsequently reclassified to accounts and retention receivables when the right to bill the customer arises.
As of March 31, 2025, the Company's contract assets included unbilled receivables totaling $2.7 million, compared to $2.1 million as of December 31, 2024.
The following table provides a rollforward of the contract assets activity for the three months ended March 31, 2025:
Deferred Revenue and Contract Liabilities
The Company records deferred revenue as contract liabilities when it receives payments from customers in advance of performing the contracted services or delivering goods. Deferred revenue is recognized as revenue in the period when the services are performed or the goods are delivered, satisfying the Company's obligations under the contract terms. In instances where significant judgments are required to estimate completion, management reviews and adjusts deferred revenue balances periodically to reflect performance progress accurately.
In instances where anticipated costs to complete a contract are expected to exceed the contract’s total revenue, the Company recognizes an estimated loss on the contract. This estimated loss is accrued as a liability and recognized in full in the period the loss is identified, ensuring the contract assets and liabilities accurately represent the Company’s financial position. As of March 31, 2025 and December 31, 2024, the estimated accrued loss on contracts was $0.2 million and $0.2 million, respectively, included in the accrued project costs, which is a component of the accrued expenses and other current liabilities in the condensed consolidated balance sheets.
As of March 31, 2025 and December 31, 2024, there were no contract liabilities.
Derivatives and Hedging
The Company evaluates all features contained in financing agreements to determine if there are any embedded derivatives that require separate accounting from the underlying agreement under ASC 815, Derivatives and Hedging. An embedded derivative that requires separation is accounted for as a separate liability or asset from the host agreement. The separated embedded derivative is accounted for at fair market value, with changes in fair value recognized in the consolidated statements of operations and comprehensive loss under the fair value change in derivative liability line item. The Company determined that certain features under the Liqueous Equity Line of Credit ("ELOC") Purchase Agreement (See Note 6 — Stockholders’ Equity) qualified as an embedded derivative to be bifurcated and separately accounted for. The bifurcated derivative had a nominal value as of December 31, 2024. The Liqueous ELOC Agreement was terminated effective on April 18, 2025, due to the material breach by Liqueous for failure to timely pay amounts owed to the Company. The estimated fair value of the derivative liability was zero as of March 31, 2025.
Recent Accounting Pronouncements Not Yet Adopted
In October 2023, the FASB issued Accounting Standards Update ("ASU") 2023-06, Disclosure Improvements: Codification Amendments in Response to the Securities and Exchange Commission’s Disclosure Update and Simplification Initiative. ASU 2023-06 incorporates 14 of the 27 disclosure requirements published in SEC Release No. 33-10532: Disclosure Update and Simplification into various topics within the ASC. ASU 2023-06’s amendments represent clarifications to, or technical corrections of, current requirements. For SEC registrants, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. The amendments in ASU 2023-06 should be applied prospectively. Early adoption is prohibited. The Company does not expect the standard to have a material impact on its consolidated financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company is currently evaluating the impact that the updated standard will have on its consolidated financial statement disclosures.
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