ATLAS TECHNICAL CONSULTANTS, INC. - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 30, 2022

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: 001-38745

ATLAS TECHNICAL CONSULTANTS, INC.

(Exact name of registrant as specified in its charter)

(512) 851-1501

(Registrant’s telephone number, including area code)

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

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 Exchange 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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $198,210,597.

As of March 13, 2023, 38,452,047 shares of the registrant’s Class A common stock, par value $0.0001 per share, and 1,268,253 shares of the registrant’s Class B common stock, par value $0.0001 per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

ATLAS TECHNICAL CONSULTANTS, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this Annual Report on Form 10-K are based on our current expectations and beliefs concerning future developments and their potential effects on us. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included elsewhere in this report. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to:

Should one or more of these risks or uncertainties materialize, they could cause our actual results to differ materially from the forward-looking statements. Forward-looking statements speak only as of the date they were made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. You should not take any statement regarding past trends or activities as a representation that the trends or activities will continue in the future. Accordingly, you should not put undue reliance on these statements.

This Annual Report on Form 10-K includes market share data, industry data and forecasts that we obtained from internal company surveys (including estimates based on our knowledge and experience in the industry in which we operate), market research, consultant surveys, publicly available information, industry publications and surveys. These sources include, but are not limited to, IBISWorld, FMI, Engineering News Record and the American Society of Civil Engineers. Industry surveys and publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. Although we believe such information is accurate and reliable, we have not independently verified any of the data from third-party sources cited or used for our management’s industry estimates, nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our position relative to our competitors or as to markets in which we operate refer to the most recent available data.

Risk Factor Summary

Our business is subject to significant risks and uncertainties of which you should be aware before making an investment decision in our business. Below is a bulleted summary of our principal risk factors, however this list does not fully represent all of our known risk factors. You should take time to carefully review and consider the full discussion of our risk factors (See Item 1A. Risk Factors).

Risks Relating to Our Business and Industry

Risks Related to Our Common Stock

General Risk Factors

PART I

ITEM 1. BUSINESS

Overview

Headquartered in Austin, Texas, we are an infrastructure and environmental solutions company and a provider of professional testing, inspection, engineering, environmental, program management and consulting services, offering solutions to public and private sector clients in the transportation, commercial, water, government, education, industrial, healthcare and power markets.

With approximately 126 offices located throughout the United States, we provide a broad range of mission-critical technical services, helping our clients test, inspect, plan, design, certify and manage a wide variety of projects across diverse end markets.

We act as a trusted advisor to our clients, helping our clients design, engineer, inspect, manage and maintain civil and commercial infrastructure, servicing existing structures as well as helping to build new structures. However, we do not perform any construction and do not take any direct construction risk.

Our services range from providing inspection services in small projects to managing significant aspects of large, multi-year projects. For the year ended December 30, 2022, we:

We have long-term relationships with a diverse set of clients, providing a base of repeating clients, projects and revenues. Approximately 90% of our revenues were derived from clients that have used our services at least twice in the past three years and more than 95% of our revenues were generated from client relationships longer than ten years, with greater than 25% of revenues generated from relationships longer than thirty years. Examples of such long-term customers include the Texas and Georgia Departments of Transportation, U.S. Postal Service, Gwinnett County Georgia, New York City Housing Authority, Stanford University, Port of Oakland, United Rentals, Inc., Speedway (7-Eleven), Walmart Inc., Caltrans, Sound Transit, Phillips 66 and Google.

Our services require a high degree of technical expertise, as our clients rely on us to provide testing, inspection and quality assurance services to ensure that structures are designed, engineered, built and maintained in accordance with building codes, regulations and the highest safety standards. As such, our services are delivered by a highly-skilled, technical employee base that includes engineers, inspectors, scientists and other field experts. As of December 30, 2022, our technical staff represented nearly 85% of our approximately 3,450 employees. Our services are typically provided under contracts, some of which are long-term with long lead times between when contracts are signed and when our services are performed. As such, we have a significant amount of contracted backlog, providing for a high degree of visibility with respect to revenues expected to be generated from such backlog. As of December 30, 2022, our contracted backlog was estimated to be approximately $877 million. See “— Backlog” below for additional information relating to our backlog.

For the year ended December 30, 2022, we recognized approximately $604.8 million of gross revenues, ($8.1) million of net loss, and $87.2 million of adjusted EBITDA (non-GAAP). See “—Non-GAAP Financial Measures” below for a reconciliation of adjusted EBITDA to net loss.

Company History

Since our inception, we have strategically strengthened our capabilities and widened our footprint through organic growth and acquisitions of premier national and large regional technical service companies to create an industry-leading platform. Prior to the consummation of the Atlas Business Combination (as defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview”), in 2017, we sequentially acquired three regional market leaders in each of Texas (PAVETEX Engineering LLC), Georgia (Moreland Altobelli Associates, LLC), and California (Consolidated Engineering Laboratories ). These businesses established our core services and capabilities. In 2018, we further augmented our core services and regional leadership through the acquisitions of Piedmont Geotechnical Consultants (Georgia) and SCST, Inc. (California). In January 2019, we acquired ATC Group Services LLC, an environmental and engineering consulting services company with over 1,700 employees across North America. In the year ended December 31, 2020, we acquired (i) Long Engineering LLC (“LONG”), a land surveying and engineering company headquartered in Atlanta, Georgia; (ii) Alta Vista Solutions (“Alta Vista”), a key provider of transportation-related testing and inspection services headquartered in Oakland, California; and (iii) WesTest LLC (“WesTest”), a key provider of transportation-related testing and inspection services headquartered in Lakewood, Colorado. In the year ended December 31, 2021, we acquired (i) Atlantic Engineering Laboratories, Inc. and Atlantic Engineering Laboratories of New York, Inc. (“AEL”), a full-service materials testing and inspection firm providing on-site quality control and quality assurance services in New York and New Jersey and (ii) O’Neill Services Group (“O’Neill”), a quality assurance and environmental services firm that services clients throughout the Pacific Northwest. In the year ended December 30, 2022, we acquired (1) TranSmart Technologies Inc. (“TranSmart”) which specializes in Intelligent Transportation Systems (ITS) and engineering for transportation agencies and customers throughout the Midwest and (ii) 1 Alliance Geomatics, LLC (“1 Alliance”), a provider of geospatial services to transportation and water resources clients from its four offices within the Pacific Northwest. As a result of these acquisitions of key providers of technical services, we continue to expand our national platform.

Prior to February 14, 2020, Boxwood was a special purpose acquisition company incorporated in Delaware on June 28, 2017. On February 14, 2020, the Company consummated the Atlas Business Combination pursuant to the Purchase Agreement. Following the consummation of the Atlas Business Combination, the combined company is organized in an “Up-C” structure in which the business of Atlas Intermediate Holdings LLC (“Atlas Intermediate”) and its subsidiaries is held by Atlas TC Holdings LLC (“Holdings”) and will continue to operate through the subsidiaries of Atlas Intermediate, and in which the Company’s only direct assets will consist of Holdings Units. The Company is the sole manager of Holdings in accordance with the terms of the Amended and Restated Limited Liability Company Agreement of Holdings (the “Holdings LLC Agreement”) entered into in connection with the consummation of the Atlas Business Combination.

On January 30, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GI Apple Midco LLC, a Delaware limited liability company (“Parent”) and GI Apple Merger Sub LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving company in the Merger. Parent and Merger Sub are controlled by investment funds advised by GI Manager L.P. (“GI Partners”).

The Company’s board of directors (the “Board”) has unanimously determined that the Merger Agreement is in the best interests of the Company and its stockholders, and declared it advisable, to enter into the Merger Agreement and consummate the Merger, approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, directed that the adoption of the Merger Agreement be submitted for consideration by the Company’s stockholders at a meeting thereof and resolved to recommend that the Company’s stockholders adopt the Merger Agreement.

Our Core Values

We strive to be the most sought-after infrastructure and environmental solutions provider, known for our unique values-driven approach and brought to life by the industry’s most exceptional people.

At Atlas, we apply the following core values in all that we do:

Focus on Sustainability and the Environment

As an infrastructure and environmental solutions provider, we are committed to applying our expertise and values to help our clients improve sustainable infrastructure and ensure a safe and healthy environment through the services we provide. We aim to assist our clients in the effective management of their environmental risks, including those related to climate change, while also minimizing our own environmental footprint.

Through our transportation and infrastructure services, we are committed to the continuous evaluation of opportunities and implementation of solutions to maximize energy efficiency, renewable energy and low-carbon technologies where appropriate. Additionally, we aim to help our clients manage and respond to climate-related impacts through our disaster response and recovery services, while also contributing to community resiliency through our engineering and design services.

Industry Overview

We operate within the broader U.S. infrastructure services market, providing a diversified set of technical services to a variety of end markets. Services include, but are not limited to, testing, inspection and certification, environmental services, engineering and design and program management, construction management and quality management. The relevant addressable market for U.S. infrastructure and construction testing, inspection and certification (“TIC”) and environmental consulting is an estimated $30 billion and growing. Our clients and projects vary in size and scope and come from all sectors including U.S. federal, state, municipal and local governments, quasi-public and private clients from the education, healthcare and utilities industries, and large multinational corporations and others.

Historically, the infrastructure and construction, TIC and environmental consulting industry have exhibited growth corresponding with market tailwinds, including heightened expenditure on public infrastructure, increasing complexity of regulatory requirements, aging transportation, water and utility systems and growing outsourcing trends among public agencies and private entities. In addition to market tailwinds, the industry has additional growth potential as TIC and quality assurance continue to increase as a percentage of overall construction value.

The following key market tailwinds are expected to drive future demand for U.S. infrastructure and construction TIC and environmental consulting:

End Markets

The end markets we serve are characterized by various public and private clients that are faced with deteriorating asset conditions, outdated systems and expanding regulations. We operate across the entire built environment for a variety of end markets including, but not limited to, transportation, commercial, education, industrial, environmental, water, healthcare and power. Each of these end markets are experiencing tailwinds that drive ongoing maintenance and capital investment.

Transportation. The U.S. transportation market has experienced broad increases in federal funding for U.S. Department of Transportation initiatives. Additionally, there is a renewed focus by the current U.S. presidential administration on infrastructure investment and a growing number of government projects focused on roads, bridges and airports. The current installed transportation base is aging and both public and private entities are increasingly outsourcing testing, inspection and program management services for their assets. At the state level, our presence in Georgia, Texas, California and New York positions us to capitalize on the potential increase in infrastructure funding in these states, as these states in particular have historically demonstrated higher than average investment in transportation infrastructure. Illustrative projects in the transportation market include airports, bridges, tollways, railways, highways, waterways, ports, tunnels, pedestrian routes and others. 

Commercial. Asset operators are faced with increasing complexity of, and scrutiny around, regulatory requirements, which is driving demand for turnkey solutions and the professionalization of maintenance services. Additionally, corporations are increasing investment in information technology and smart-building features, frequently undergoing corporate relocations, and exhibiting a need for bespoke and unique facilities. The increase in outdated facilities alongside new technological and logistical needs has driven additional spend for warehouse and distribution facilities, as well as development spend across sports, recreation and stadiums. Illustrative projects in the commercial market include healthcare facilities, offices, multi-family properties, retail outlets, data centers, corporate headquarters, parking structures and religious facilities.

Education. Population growth and increasing access to education is driving enrollments and creating a need for new and updated facilities. Academic institutions are placing a growing focus on environmental impacts and sustainability as seen through the implementation of smart- and green-building technologies. Illustrative projects in the education market include colleges, universities, K-12 facilities, service academies, stadiums, athletic facilities, research facilities and theatres.

Industrial and Environmental. New quality, health, safety and environmental regulations are driving demand for compliance systems and services in industrial businesses. Extreme weather requires services such as hurricane, storm and flood clean-up efforts as seen in the Carolinas, Florida and Texas. Illustrative projects in the industrial and environmental markets include manufacturing, refineries, agricultural, utilities, petrochemicals, nuclear, midstream, disaster response and mitigation, and pulp and paper.

Water. Broadening stress on the U.S. water network from outdated systems, population growth and extreme weather patterns has resulted in systems that are approaching the end of their useful lives. The aging water infrastructure must also be renovated to meet expanding government regulations and energy-efficiency standards. Illustrative projects in the water market include dams, levees, recycling facilities, drinking water, storage, inland waterways, wastewater and treatment plants. 

Government. Over time, municipalities, local, state and federal governments are increasingly tasked with the mandate to operate on leaner, more efficient budgets. We understand the many challenges associated with development, transportation and land-use for the government sector and we use our in-depth knowledge of social, political, and economic conditions to deliver sustainable projects to the communities that we serve. We partner with our clients and stakeholders to support the cost-effective use of public funds and deliver better public infrastructure projects from concept to completion. Illustrative projects include program, construction and quality management projects for county, state and federal governments, disaster relief coordination and engineering and design of roadways and bridges.

Healthcare. From acute care hospitals to alcohol and drug treatment units, we provide services to assist our clients’ compliance with the Joint Commission Environment of Care, Centers for Disease Control and Prevention (CDC), and other applicable regulatory standards. Our nationwide network enables us to mobilize quickly, often avoiding disruption to our clients’ staff and patient populations. Illustrative projects include asset tagging, compliance assessment and permitting, construction materials testing, and site assessments.

Power. Whether our clients are considering new generation development, movement away from unregulated markets with renewed investment in regulated transmission and distribution, or retirement of older, less efficient generating assets, we understand the complexities of grid improvement and expansion projects and are poised to provide services such as siting and corridor studies, permitting, and real estate/right-of-way acquisition support. We assist our clients in determining where to add capacity, plan for construction, or build a new power plant, solar array, or wind turbine field. After construction, we are positioned to support the long-term safe and regulatory compliant operation of power assets. Illustrative projects include renewable development support services, environmental services, compliance assessment and permitting and construction management.

Service Lines

Testing, Inspection and Certification (“TIC”)

Any time a structure in the built environment is designed, built, repaired, refurbished or sold, our clients require critical path services to ensure infrastructure compliance, quality and integrity. We offer a comprehensive suite of TIC services to support a vast array of assets across different types, stages of life and end markets. In 2022, our TIC services represented approximately 32% of our revenues.

Illustrative services include:

Environmental Services

Safeguarding the environment requires proactively providing sustainable solutions while understanding and assisting our clients in complying with current regulatory demands. We utilize our technical staff, specialized equipment, and long-term relationships to manage a broad range of our clients’ environmental needs and assist our clients in overcoming environmental and regulatory challenges across a wide range of industries. By integrating environmental management into our clients’ business plans and goals, we endeavor to assist them in reducing potential crisis management costs and liabilities, thereby allowing them to focus on their core competencies and improve the health and livability of their communities. We provide comprehensive solutions to our clients’ most challenging ecological issues. Through our highly trained team of engineers, geologists, hydrogeologists, archaeologists, inspectors and other specialty environmental professionals, we have the capability to manage every aspect of a project’s environmental needs. In 2022, environmental services represented roughly 38% of our revenues.

Illustrative services include:

Engineering and Design (“E&D”)

We offer a full-service suite of civil, transportation, structural and architectural solutions for clients ranging from private developers to large federal agencies. We utilize our specialized expertise across a variety of disciplines to offer technical and project management solutions in order to assist clients in meeting their most demanding, large-scale challenges.

Our service offerings in E&D rest upon a foundation of years of experience in the design of a broad range of transportation and civil infrastructure projects, strong lines of communication, qualified planning and design professionals, and meticulous quality control measures throughout all stages of a project’s development. Our practice of knowledge-sharing among team members promotes continuous improvement of operations and is intended to provide maximum value for the client and reduce the likelihood of unforeseen problems during construction. Our E&D business has likewise been involved in supporting transportation and infrastructure work. In 2022, E&D represented 15% of our revenues.

Illustrative services include:

Program Management/Construction Management/Quality Management (“PCQM”).

We provide public and private sector clients with comprehensive support in managing large-scale improvement programs. We believe in a strong work ethic of transparency and collaboration between all parties involved and are uniquely connected to the communities we serve.

Our program management experience spans a broad spectrum of industries including hospitality, healthcare, education, industrial and municipal projects throughout the United States for both public and private sector clients. We are involved with projects totaling more than $2 billion of in-place construction, and we manage large and small-scale facility improvement programs and multi-year local option sales tax programs and provide comprehensive program support. We work hand-in-hand with governments and institutions during each stage of a capital improvement program. In 2022, our PCQM service offerings made up roughly 15% of our revenues.

Illustrative services include:

Key Clients and Projects

We currently serve over 10,000 different clients annually. While our ten largest clients accounted for approximately 19% of our consolidated revenue during the fiscal year ended December 30, 2022, no single client accounted for more than 10% during that period. Although we serve a highly diverse client base, approximately 50% of our net revenues were attributable to public and quasi-public sector clients. In this regard, public sector clients include U.S. federal, state and local government departments, agencies, systems and authorities, including Departments of Transportation, educational systems and public housing authorities, while quasi-public sector clients include utility service providers and energy producers. Of our private sector clients, our largest clients are commercial companies and contractors. Although we anticipate public and quasi-public sector clients to represent the majority of our revenues for the foreseeable future, we intend to continue expanding our service offerings to private sector clients.

During our history in the testing and inspection business, we have worked with such clients on such well-known projects as (in alphabetical order):

Contracts

We enter into contracts that contain two principal types of pricing provisions: (1) time and materials/cost-reimbursable; and (2) fixed price. For the year ended December 30, 2022, approximately 90% of our revenue was recognized from time and materials/cost-reimbursable contracts, with approximately 10% from fixed price contracts.

Cost-reimbursable contracts. Cost-reimbursable contracts consist of the following:

Fixed price. Fixed price contracts consist of the following:

Revenues from engineering services are recognized in accordance with the accrual basis of accounting. Revenues under cost-reimbursable contracts are recognized when services are performed or over time.

Backlog

As of December 30, 2022, we had $877 million of backlog, of which $526 million, or approximately 60%, is expected to be recognized over the next twelve months and the majority of the balance over the next 24 months.

We analyze our backlog, which we define to include the total estimated future revenue streams associated with fully executed contracts as well as an estimate of highly probable revenues from recurring, task order-based contracts. Our contracted backlog includes revenue we expect to record in the future from signed contracts. In order to calculate backlog, we determine the amounts for contracted projects that are fully funded, and then determine the respective revenues expected to be realized upon completion of work. We use backlog to evaluate Company revenue growth as it typically follows growth in backlog. As backlog is not a defined accounting term, our computation of backlog may not be comparable with that of our peers. In addition, project cancellations and scope adjustments may occur from time to time. For example, certain contracts are terminable at the discretion of the client, with or without cause. These types of backlog reductions could adversely affect our revenue and margins. Our backlog for the period beyond the next twelve months may be subject to variation from the prior year as existing contracts are completed, delayed or renewed or new contracts are awarded, delayed or canceled. In addition, our contracts may contain option periods which must be evaluated. Accordingly, our backlog as of any particular date is an uncertain indicator of future earnings.

Offices

Our principal executive offices are located at 13215 Bee Cave Parkway, Building B, Suite 230, Austin, Texas 78738, which we have leased through October 2024 with annual lease terms of $0.4 million plus operating expenses over the life of the lease. We do not own any significant real property. We currently operate out of approximately 126 leased locations. Our lease terms vary from month-to-month to multi-year commitments. We do not consider any of these leased properties to be materially important to our overall operations. While we do believe it is necessary to maintain offices through which our services are coordinated, we feel there are an ample number of available office rental properties that could adequately serve our needs should we need to relocate or expand our operations.

Atlas Geographic Footprint

Human Capital Management

At Atlas, our employees are our assets; they are the very foundation of our success, the heart of our organization and the drivers of our future potential. As of December 30, 2022, we had approximately 3,450 employees, approximately 91% of which were full-time employees and approximately 85% of which represent technical staff with specialized expertise such as engineers, inspectors, scientists and other field experts. We consider our employee relations to be good.

Our employee attrition rate for 2022 among all staff, part-time and full-time, was approximately 23%. To date, we have been able to locate and engage highly qualified employees as needed and we do not expect our growth efforts to be constrained by a lack of qualified personnel. However, our ability to attract, retain, engage and support a diverse and highly qualified workforce is important to our future success. As such, we prioritize diversity within our employee population, proactively seek to foster a culture of inclusion throughout our organization, and prioritize the health, safety and wellbeing of our employees.

Focus on Diversity, Equity and Inclusion

To achieve our vision we seek to hire, develop, and promote a talented and diverse team of professionals nationwide. We believe leveraging the power of our different backgrounds, beliefs, perspectives and capabilities creates value for our Company and our stockholders.

At Atlas, we define diversity, equity and inclusion as follows:

We formed the Atlas Diversity, Equity and Inclusion Council (the “DE&I Council”) comprised of employee representatives from varying backgrounds, geographic regions, functional groups and levels of seniority within our organization to focus on diversity, equity and inclusion strategy development, initiative execution and measurement of outcomes. The DE&I Council’s work is streamlined into three targeted programs: Employee Resources, Talent & Training and Community Outreach.

We also appointed Jamie Myers as our Chief Diversity Officer and launched seven employee resource groups (“ERGs”), which are voluntary, employee-led groups that strive to foster a diverse, inclusive workplace aligned with our core values. Our ERGs exist to provide support, career development and networking opportunities as well as create a safe space where employees can be their authentic selves. Each ERG is open to all employees and cross-collaboration across ERGs is encouraged. When we work together to foster an open, diverse workplace, mentoring and support can engender inclusivity in our culture.

Atlas Employee Resource Groups

Employee Health, Safety and Wellbeing

We prioritize the health, safety and wellbeing of our employees in our business and operations. We are committed to providing a safe and healthy work environment for our team and aim to reduce risks and hazards throughout all of our offices and operations. We are committed to mitigating risks by providing health and safety training for all employees and communicating our health and safety practices throughout our business. We also strive to comply with all applicable health and safety requirements and regulations at the local, state and national levels throughout all operations and projects.

At Atlas, we continuously emphasize the three underlying principles of safety:

The overall wellbeing, including the mental health, of our employees is of utmost important to us. We provide an Employee Assistance Program free of charge to all employees, through which a third-party provider offers confidential guidance for personal issues that employees may be facing, including substance abuse, mental health, work, familial, financial and legal matters.

Competition

The U.S. infrastructure and construction TIC and environmental consulting market is generally highly fragmented and competitive due to the breadth of services offered and the technical complexity needed to meet increasingly stringent regulatory standards.

Industry participants compete on the strength of client relationships, expertise in local markets, technical capabilities, reputation for quality of service and reliability, and price. The ability to compete effectively also depends on employing highly skilled, qualified personnel to meet technical qualification and staffing requirements.

Barriers to entry in the industry are created by the requirement for technical capabilities, a reputation for expertise and reliability and deep relationships with both clients and prime contractors. Scale and breadth of service offerings can also be a barrier to entry for companies that do not have adequate resources or capacity to complete complex and large-scale projects. Customers are increasingly emphasizing safe work practices by placing a premium on limiting liability, creating an additional barrier to entry for those who cannot demonstrate a safety record at or above industry standards.

The firms operating in our industry range from large, global companies with broad service offerings to small-scale providers that typically service regional markets or offer specialized, niche services. Competitive dynamics in the industry are variable across end markets, localities, geographies and types and scopes of services, among other factors. With respect to engineering and design, we view our principal competitors to be AECOM, Jacobs Engineering Group Inc., NV5 Global, Inc., Parsons Corporation, Stantec Inc., Tetra Tech, Inc. and WSP Global Inc. In the area of testing and inspection, we view our principal competitors to be Applus Services, S.A., ALS Limited, Bureau Veritas S.A., Intertek Group plc and SGS S.A. With respect to professional services, we view our principal competitors to be Accenture plc, Booz Allen Hamilton Inc., CGI Inc., FTI Consulting, Inc., Huron Consulting Group Inc. and ICF International, Inc. In all of the aforementioned industries there are also other small- and mid-sized regional players with whom we compete. Our ability to compete successfully depends upon the effectiveness of our marketing efforts, the strength of our client relationships, our ability to accurately estimate costs, the quality of the work we perform, our ability to hire and train qualified personnel and our ability to obtain insurance on commercially reasonable terms.

Information About Our Executive Officers

This information appears in Item 10 of this Annual Report on Form 10-K and is incorporated herein by reference.

Seasonality

Due primarily to inclement weather conditions, which lead to project delays and slower completion of contracts, and a greater number of holidays in the United States, our operating results during the months of December, January and February are generally lower than our operating results during other months. As a result, our revenue and net income for the first and fourth quarters of a fiscal year may be lower than our results for the second and third quarters of a fiscal year.

Insurance and Risk Management

We maintain insurance covering professional liability and claims involving bodily injury and property damage. We consider our present limits of coverage, deductibles and reserves to be adequate. Wherever possible, we endeavor to eliminate or reduce the risk of loss on a project through the use of quality assurance and control, risk management, workplace safety and similar methods.

Risk management is an integral part of project management. We have a strict project review framework including escalation to senior management for any fixed price contracts above $5 million.

Regulation

We are regulated in a number of fields in which we operate. We contract with various U.S. governmental agencies and entities, and when working with such governmental agencies and entities, we must comply with laws and regulations relating to the formation, administration and performance of contracts. These laws and regulations contain terms that, among other things:

To help ensure compliance with these laws and regulations, employees are sometimes required to complete tailored ethics and other compliance training relevant to their position and our operations.

Legal and Environmental

From time to time, we are subject to various legal proceedings that arise out of our normal course of business or otherwise. We are not currently a party to any legal proceedings that, individually or in the aggregate, are expected to materially impact our business, financial position, results of operations and cash flows, taken as a whole.

We must comply with a number of federal, tribal, state and local laws and regulations that strictly regulate the handling, removal, treatment, transportation and disposal of toxic and hazardous substances, or that otherwise relate to health and safety or the protection of the environment. Liabilities related to environmental contamination or human exposure to hazardous substances, or a failure to comply with applicable regulations, could result in substantial costs, including clean-up costs; fines and administrative, civil or criminal sanctions; third-party claims for property damage or personal injury; or implementation of remediation activities, including investigation, assessment and short- or long-term monitoring activities.

Available Information

We make available free of charge on our website, www.oneatlas.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such information with, or furnish it to, the SEC. These documents are also available on the SEC’s website at www.sec.gov. The information on our website is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any of our other filings with the SEC.

ITEM 1A. RISK FACTORS

RISK FACTORS

You should carefully consider the following risk factors, together with all of the other information included in this Annual Report on Form 10-K, as these risks could have a material adverse effect on our business, results of operations and financial condition.

Additionally, the risks and uncertainties described in this Annual Report on Form 10-K are not the only risks and uncertainties that we may face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. Furthermore, the ongoing global pandemic related to COVID-19 may amplify many of the risks discussed below to which we are subject and, given the unpredictable, unprecedented and fluid nature of the pandemic, it may materially and adversely affect us in ways that are not anticipated by or known to us or that we do not currently consider to present significant risk. Therefore, at this time, we are unable to estimate the extent to which the pandemic and its related impacts will adversely affect our business, financial condition and results of operations.

Risks Relating to Our Business and Industry

Outbreaks of communicable diseases, including the ongoing global pandemic related to COVID-19, have had an adverse effect on our business, financial condition and results of operations and could in the future have, directly or indirectly, a material adverse effect on our business, financial condition and results of operations. The duration and extent to which this will impact our future financial condition and results of operations remains uncertain.

Global or national health concerns, including the outbreak of a pandemic or contagious disease, can negatively impact the global economy and, therefore, demand and pricing for our services. For example, the outbreak of the COVID-19 pandemic and the measures being taken to address and limit the spread of the virus have adversely affected the U.S. economy and financial markets, resulting in an economic downturn that has negatively impacted the demand for our services. In response to market conditions, during the second quarter of 2020, we reduced our workforce through various actions. The full impact of the COVID-19 outbreak continues to evolve.

Furthermore, the COVID-19 pandemic also raises the possibility of an extended global economic downturn and has caused volatility in financial markets, which could affect demand for our services and impact our financial condition and results of operations even after the pandemic is fully contained. For example, if a client’s financial difficulties become severe, the client may be unwilling or unable to pay our invoices in the ordinary course of business, which could adversely affect collections of both our accounts receivable and unbilled services. We continue to monitor the impact of the COVID-19 pandemic on our cash flows and on the credit and financial markets.

As a safety focused organization, since the outbreak of COVID-19 and continuing throughout 2022, we have encouraged our employees to work from home wherever possible and to honor all shelter in place rules put forth by their state or local governments. As a result, we may have increased cybersecurity and data security risks, due to increased use of home Wi-Fi networks and virtual private networks, as well as increased disbursement of physical machines. While we continue to implement information technology controls to reduce the risk of a cybersecurity or data security breach, there is no guarantee that these measures will be adequate to safeguard all systems with an increased number of employees working remotely.

We are currently monitoring, and will continue to monitor, the safety of our employees during the COVID-19 pandemic. We are evaluating, and will continue to evaluate, the impact of COVID-19 on current projects, but the full effects of COVID-19 on our operations are still unknown. The duration and extent of the impact from the COVID-19 pandemic continues to be evaluated by governments and experts and depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, the long-term efficacy of COVID-19 vaccines, the emergence of new strains of the virus and the impact of these and other factors on our employees and clients. In the event of a reinstitution of shelter-in-place orders within the cities and municipalities where we operate, our future results could be further negatively impacted and could result in the re-designation of infrastructure spending to other uses. Disruptions to capital markets due to the uncertainty surrounding the length and severity of the COVID-19 pandemic could also delay the timing of our customers’ capital projects.

Our business strategy relies in part on acquisitions to sustain our growth. Acquisitions of other companies present certain risks and uncertainties.

Our business strategy involves growth through, among other things, the acquisition of other companies. We may finance these acquisitions or other strategic investments with cash, the issuance of equity or equity-linked securities or a combination of the foregoing, and therefore any such acquisition or strategic investment could be dilutive to our existing stockholders. We try to acquire companies that we believe will strategically fit into our business and growth objectives, including, for example, our acquisition of ATC Group Services LLC in January 2019, LONG in February 2020, Alta Vista in September 2020, WesTest in December 2020, AEL in April 2021, O’Neill in July 2021, and TranSmart and 1 Alliance in March 2022. We are continuously evaluating multiple acquisition or strategic investment opportunities, some of which may be material to our results of operations and financial condition. If we are unable to successfully integrate and develop acquired businesses, we could fail to achieve anticipated synergies and cost savings, including any expected increases in revenues and operating results, which could have a material adverse effect on our financial results.

We may not be able to identify suitable acquisition or strategic investment opportunities or may be unable to obtain the required consent of our lenders and, therefore, may not be able to complete such acquisitions or strategic investments. We may incur expenses associated with sourcing, evaluating and negotiating acquisitions (including those that we do not complete), and we may also pay fees and expenses associated with financing acquisitions to investment banks and other advisors. Any of these amounts may be substantial, and together with the size, timing and number of acquisitions we pursue, may negatively affect and cause significant volatility in our financial results.

In addition, we have assumed, and may in the future assume, liabilities of the company we are acquiring. While we retain third-party advisors to assist with due diligence and consult on potential liabilities related to these acquisitions, there can be no assurances that all potential liabilities will be identified or known to us. If there are unknown liabilities or other unforeseen obligations, our business could be materially adversely affected.

We cannot assure you that we will achieve synergies and cost savings in connection with prior or future acquisitions.

We actively pursue acquisition opportunities consistent with our growth strategy. We may not achieve anticipated cost savings in connection with prior or future acquisitions within the anticipated time frames or at all. A variety of risks could cause us not to realize some or all of these expected benefits. These risks include, among others, higher than expected standalone overhead expenses, delays in the anticipated timing of activities related to cost saving initiatives and the incurrence of other unexpected costs associated with operating the acquired business. Moreover, our implementation of cost savings initiatives may disrupt our operations and performance, and our estimated cost savings from such initiatives may be based on assumptions that prove to be inaccurate. If, for any reason, the benefits we realize are less than our estimates or our improvement initiatives adversely affect our operations or cost more or take longer to implement than we project, or if our assumptions prove inaccurate, our results of operations may be materially and adversely affected.

In addition, our operating results from these acquisitions could, in the future, result in impairment charges for any of our intangible assets, including goodwill, or other long-lived assets, particularly if economic conditions worsen unexpectedly. These changes could materially adversely affect our results of operations, financial condition, stockholders’ equity, and cash flows.

If we are unable to integrate acquired businesses successfully, our business could be harmed.

As part of our business strategy to pursue accretive acquisitions, we intend to selectively pursue targets that provide complementary, low-risk services and expand our national platform. Our inability to successfully integrate future acquisitions could impede us from realizing all of the benefits of those acquisitions and could weaken our business operations. The integration process of any particular acquisition may disrupt our business and, if implemented ineffectively, may preclude realization of the full benefits expected by us and could harm our results of operations. In addition, the overall integration process may result in unanticipated problems, expenses, liabilities and competitive responses and may cause our stock price to decline.

The difficulties of integrating acquisitions include, among other things:

In addition, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of such acquisition, including the synergies, cost savings or growth opportunities that we expect. These expected benefits may not be achieved within the anticipated time frame or at all.

Further, we have assumed, and may in the future assume, liabilities of the company we are acquiring. While we retain third-party advisors to assist with due diligence and consult on potential liabilities related to these acquisitions, there can be no assurances that all potential liabilities will be identified or known to us. If there are unknown liabilities or other unforeseen obligations, our business could be materially adversely affected. Acquisitions may also cause us to:

Our continued success is dependent upon our ability to hire, retain and utilize qualified personnel.

The success of our business and our ability to operate profitably is dependent upon our ability to hire, retain and utilize qualified personnel, including engineers, architects, designers, craft personnel and corporate management professionals who have the required experience and expertise at a reasonable cost. The market for these and other personnel is competitive. From time to time, it may be difficult to attract and retain qualified individuals with the expertise, and in the timeframe, demanded by our clients, or to replace such personnel when needed in a timely manner. In certain geographic areas, for example, we may not be able to satisfy the demand for our services because of our inability to successfully hire and retain a sufficient amount of qualified personnel. Furthermore, some of our personnel hold government-granted clearance that may be required to obtain government projects. If we were to lose some or all of these personnel, they would be difficult to replace. Loss of the services of, or failure to recruit, qualified technical and management personnel could limit our ability to successfully complete existing projects and compete for new projects.

In addition, if any of our key personnel retire or otherwise leave the Company, we must have appropriate succession plans in place and successfully implement such plans, which requires devoting time and resources toward identifying and integrating new personnel into leadership roles and other key positions. Our inability to attract and retain qualified personnel or effectively implement appropriate succession plans could have a material adverse impact on our business, financial condition and results of operations.

The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability. For example, the uncertainty of contract award timing can present difficulties in matching our workforce size with our contracts. If an expected contract award is delayed or not received, we could incur costs resulting from excess staff, reductions in staff, or redundancy of facilities that could have a material adverse impact on our business, financial condition and results of operations.

Our profitability could suffer if we are not able to maintain adequate utilization of our workforce.

The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability. The rate at which we utilize our workforce is affected by several factors, including:

If we are not able to successfully manage our growth strategy, our business operations and financial results may be adversely affected.

Our expected future growth presents numerous managerial, administrative and operational challenges. Our ability to manage the growth of our operations will require us to continue to improve our management information systems and our other internal systems and controls. In addition, our growth will increase our need to attract, develop, motivate, and retain both our management and professional employees. The inability of our management to effectively manage our growth or the inability of our employees to achieve anticipated performance could have a material adverse effect on our business.

Construction and maintenance sites are inherently dangerous workplaces. If we, the owner, or others working at a project site fail to maintain a safe work site, we can be exposed to significant financial losses and reputational harm, as well as civil and criminal liabilities.

Construction and maintenance sites often put our employees and others in proximity to large pieces of mechanized equipment, moving vehicles, chemical and manufacturing processes and highly regulated materials in a challenging environment. If we fail to implement safety procedures, or if the procedures we implement are ineffective, or if others working at the site fail to implement and follow appropriate safety procedures, our employees and others may become injured, disabled or even lose their lives, the completion or commencement of our projects may be delayed and we may be exposed to litigation, investigations, fines, penalties or claims for damages. Unsafe work sites also have the potential to increase employee turnover, increase the cost of a project to our clients and raise our operating and insurance costs. Any of the foregoing could result in financial losses or reputational harm, which could have a material adverse impact on our business, financial condition and results of operations.

In addition, our projects can involve the handling of hazardous and other highly regulated materials, which, if improperly handled or disposed of, could subject us to civil and/or criminal liabilities. We are also subject to regulations dealing with occupational health and safety. Although we maintain functional groups whose primary purpose is to ensure we implement effective HSE work procedures throughout our organization, including construction sites and maintenance sites, the failure to comply with such regulations could subject us to liability. In addition, despite the work of our functional groups, we cannot guarantee the safety of our personnel or that there will be no damage to or loss of our work, equipment or supplies.

Our safety record is critical to our reputation. Many of our clients require that we meet certain safety criteria to be eligible to bid for contracts, and many contracts provide for automatic termination or forfeiture of some or all of our contract fees or profits in the event that we fail to meet certain measures. Accordingly, if we fail to maintain adequate safety standards, we could suffer reduced profitability or the loss of projects or clients, which could have a material adverse impact on our business, financial condition and results of operations.

Demand from clients is cyclical and vulnerable to economic downturns. If the economy weakens or client spending declines, our financial results may be impacted.

Demand for services from our clients is cyclical and vulnerable to economic downturns, which may result in clients delaying, curtailing or canceling proposed and existing projects. Our business traditionally lags the overall recovery in the economy. If the economy weakens or client spending declines, then our revenue, profits and overall financial condition may deteriorate.

In addition, if there is an economic downturn, our existing and potential clients may either postpone entering into new contracts or request price concessions. Difficult financing and economic conditions may cause some of our clients to demand better pricing terms or delay payments for services we perform, thereby increasing the average number of days our receivables are outstanding and the potential of increased credit losses on uncollectible invoices. Further, these conditions may result in the inability of some of our clients to pay us for services that we have already performed. Accordingly, these factors affect our ability to forecast our future revenue and earnings from business areas that may be adversely impacted by market conditions.

Our results of operations depend on the award of new contracts and the timing of the performance of these contracts.

Our revenues are derived from new contract awards. Delays in the timing of awards or cancellations of such prospects as a result of economic conditions, material and equipment pricing and availability or other factors could impact our long-term projected results. It is particularly difficult to predict whether or when we will receive large-scale projects as these contracts frequently involve a lengthy and complex bidding and selection process, which is affected by several factors, such as market conditions or governmental and environmental approvals. Since a significant portion of our revenues is generated from such projects, our results of operations and cash flows can fluctuate significantly from quarter to quarter depending on the timing of our contract awards and the commencement or progress of work under awarded contracts. Furthermore, many of these contracts are subject to financing contingencies and, as a result, we are subject to the risk that the customer will not be able to secure the necessary financing for the project.

In addition, certain contracts require us to satisfy specific progress or performance milestones in order to receive payment from the customer. As a result, we may incur significant costs for engineering, materials, components, equipment, labor or subcontractors prior to receipt of payment from a customer.

The uncertainty of contract award timing can also present difficulties in matching workforce size with contract requirements. In some cases, we maintain and bear the cost of a ready workforce that is larger than necessary under existing contracts in anticipation of future workforce needs for expected contract awards. If an expected contract award is delayed or not received, we may incur additional costs resulting from reductions in staff or redundancy of facilities, which could have a material adverse effect on our business, financial condition and results of operations.

The contracts in our backlog may be adjusted, cancelled or suspended by our clients and, therefore, our backlog is not necessarily indicative of our future revenues or earnings. Additionally, even if fully performed, our backlog is not a good indicator of future gross margins.

Backlog represents the total dollar amount of revenues we expect to record in the future as a result of performing work under contracts that have been awarded to us. As of December 30, 2022, our backlog totaled approximately $877 million. There is no assurance that backlog will be realized as revenues in the amounts reported or, if realized, will result in profits. In accordance with industry practice, substantially all of our contracts are subject to cancellation, termination or suspension at the discretion of the client. In the event of a project cancellation, we would generally have no contractual right to the total revenue reflected in our backlog. Projects can remain in backlog for extended periods of time depending on the nature of the project and the timing of the services required by the project. The risk of contracts in backlog being cancelled or suspended generally increases during periods of widespread economic slowdowns or in response to changes in commodity prices.

The contracts in our backlog are subject to changes in the scope of services to be provided as well as adjustments to the costs relating to the contracts. The revenue for certain contracts included in backlog is based on estimates. Additionally, the way we perform on our individual contracts can greatly affect our gross margins and future profitability.

If our clients delay in paying or fail to pay amounts owed to us, our business operations and financial results may be adversely impacted.

Our accounts receivable are a significant asset on our balance sheet. While we take steps to evaluate and manage the credit risks relating to our clients, economic downturns or other events can adversely affect the markets we serve and our clients’ ability to pay, which could reduce our ability to collect amounts due from clients. We may be unable to collect amounts due or damages we are awarded from certain clients, and our efforts to collect such amounts may damage our client relationships. The disruptions caused by the COVID-19 pandemic have heightened the risk that we may not receive payment for services performed. If our clients delay in paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, results of operations, and financial condition.

Our services expose us to significant risks of liability, and our insurance policies may not provide adequate coverage.

If we fail to provide our services in accordance with applicable professional standards or contractual requirements, we could be exposed to significant monetary damages or even criminal violations. Our engineering practice, for example, involves professional judgments regarding the planning, design, development, construction, operations and management of industrial facilities and public infrastructure projects. While we do not generally accept liability for consequential damages in our contracts, and although we have adopted a range of insurance, risk management and risk avoidance programs designed to reduce potential liabilities, a catastrophic event at one of our project sites or completed projects resulting from the services we have performed could result in significant professional or product liability, and warranty or other claims against us as well as reputational harm, especially if public safety is negatively impacted. These liabilities could exceed our insurance limits or the fees we generate, may not be covered by insurance at all due to various exclusions in our coverage and self-insured retention amounts, and could impact our ability to obtain insurance in the future or increase the cost of obtaining such insurance. Further, we do not have insurance against all foreseeable risks, either because insurance is not available or because of the high premium cost. Even where coverage applies, the policies have deductibles, which result in our assumption of exposure for certain amounts with respect to any claim filed against us. In addition, clients or subcontractors who have agreed to indemnify us against any such liabilities or losses might refuse or be unable to pay us. An uninsured claim, either in part or in whole, as well as any claim covered by insurance but subject to a high deductible, if successful and of a material magnitude, could have a material adverse impact on our business, financial condition and results of operations.

Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure as well as disrupt the management of our business operations.

We maintain insurance coverage from third-party insurers as part of our overall risk management strategy, and some of our contracts require us to maintain specific insurance coverage limits. If any of our third-party insurers fail, suddenly cancel coverage or are otherwise unable to provide us with adequate insurance coverage, our overall risk exposure and operational expenses would increase and the management of our business operations would be disrupted. In addition, there can be no assurance that any of our existing insurance coverage will be renewable upon the expiration of the coverage period or that future coverage will be affordable at the required limits.

Catastrophic events may adversely impact our business operations.

Our business operations may be adversely impacted by force majeure or extraordinary events beyond the control of the contracting parties, such as natural and man-made disasters as well as terrorist attacks. Such events could result in the closure of offices, interruption of projects and the relocation of employees. We typically remain obligated to perform our services after a terrorist attack or natural disaster unless the contract contains a force majeure clause that relieves us of our contractual obligations. If we are not able to react quickly to a force majeure event, our operations may be affected significantly, which would have a negative impact on our business operations.

Further, we rely on our network and third-party infrastructure and enterprise applications, internal technology systems and our website for our development, marketing, operational, support, hosted services and sales activities. Despite our implementation of network security measures, we are vulnerable to disruption, infiltration or failure of these systems or third-party hosted services in the event of a major earthquake, fire, power loss, telecommunications failure, cyberattack, war, terrorist attack or other catastrophic event, and any such occurrence could cause system interruptions, reputational harm, loss of intellectual property, lengthy interruptions in our services, breaches of data security and loss of critical data and could harm our future operating results.

We engage in a highly competitive business. If we are unable to compete effectively, we could lose market share and our business and results of operations could be negatively impacted.

We face intense competition to provide testing, inspection, engineering, environmental, program management and consulting services to clients. The markets we serve are highly competitive and we compete against many regional, national and multinational companies.

The extent of our competition varies by industry, geographic area and project type. Our projects are frequently awarded through a competitive bidding process, which is standard in our industry. We are constantly competing for project awards based on pricing, schedule and the breadth and technical sophistication of our services. Competition can place downward pressure on our contract prices and profit margins and may force us to accept contractual terms and conditions that are less favorable to us, thereby increasing the risk that, among other things, we may not realize profit margins at the same rates as we have seen in the past or may become responsible for costs or other liabilities we have not accepted in the past. If we are unable to compete effectively, we may experience a loss of market share or reduced profitability or both, which, if significant, could have a material adverse impact on our business, financial condition and results of operations.

The nature of our contracts, particularly those that are fixed price, subject us to risks of cost overruns. We may experience reduced profits or, in some cases, losses if costs increase above budgets or estimates or if projects experience schedule delays.

As of December 30, 2022, approximately 10% of our revenues were earned under fixed price contracts. Fixed price contracts require us to estimate the total cost of the project in advance of performing it. For fixed price contracts, we may benefit from any cost savings, but we bear greater risk of paying some, if not all, of any cost overruns. Fixed price contracts are established in part on partial or incomplete designs, cost and scheduling estimates that are based on several assumptions, including those about future economic conditions, commodity and other materials pricing and availability of labor, equipment and materials, in addition to other exigencies. If the design or the estimates prove inaccurate or if circumstances change due to, among other things, unanticipated technical problems, difficulties in obtaining permits or approvals, changes in local laws or labor conditions, weather or other delays beyond our control, changes in the costs of equipment or raw materials, our vendors’ or subcontractors’ inability or failure to perform or changes in general economic conditions, then cost overruns may occur and we could experience reduced profits or, in some cases, a loss for that project. These risks are exacerbated for projects with long-term durations because there is an increased risk that the circumstances on which we based our original estimates will change in a manner that increases costs. If the project is significant, or there are one or more issues that impact multiple projects, cost overruns could have a material adverse impact on our business, financial condition and results of operations.

We derive a large portion of our gross revenues from government agencies, and any disruption in government funding or in our relationship with those agencies could adversely affect our business.

During fiscal 2022, approximately 50% of our gross revenues was derived from federal, state and local government related projects. The demand for our government-related services is generally driven by the level of government program funding. Each year, client funding for some of our U.S. government contracts may directly or indirectly rely on government appropriations or public-supported financing. Legislatures may appropriate funds for a given project on a year-by-year basis, even though the project may take more than one year to perform. In addition, public-supported financing such as U.S. state and local municipal bonds may be only partially raised to support existing projects. Similarly, an economic downturn may make it more difficult for U.S. state and local governments to fund projects. In addition to the state of the economy and competing political priorities, public funds and the timing of payment of these funds may be influenced by:

These and other factors could cause government agencies to delay or cancel programs, to reduce their orders under existing contracts, to exercise their rights to terminate contracts, or not to exercise contract options for renewals or extensions. Any of these actions could have a material adverse effect on our revenue or timing of contract payments from these agencies.

Governmental agencies may modify, curtail or terminate our contracts at any time prior to their completion and, if we do not replace them, we may suffer a decline in revenue.

Most government contracts may be modified, curtailed or terminated by the government either at their discretion or upon the default of the contractor. If the government terminates a contract at its discretion, then we typically can recover only costs incurred or committed, settlement expenses and profit on work completed prior to termination, which could prevent us from recognizing all our potential revenue and profits from that contract. In addition, for some assignments, the U.S. government may attempt to “insource” the services to government employees rather than outsource to a contractor. If a government terminates a contract due to our default, we could be liable for excess costs incurred by the government in obtaining services from another source.

Our failure to comply with a variety of complex procurement rules and regulations could damage our reputation and result in our being liable for penalties, including termination of our government contracts, disqualification from bidding on future government contracts and suspension or debarment from government contracting.

We must comply with laws and regulations relating to government contracts, which affect how we do business with our customers and may impose added costs on our business. Some significant laws and regulations that affect us include:

Government agencies routinely audit and review a contractor’s performance on government contracts, indirect cost rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. Any failure to comply with applicable laws and regulations could result in civil or criminal penalties or administrative sanctions such as contract termination, forfeiture of profits, damage to our reputation, price or fee reductions or suspension or debarment from contracting with the government, each of which could materially adversely affect our business, results of operations and financial condition.

In addition, federal, state and local government entities may revise existing contract rules and regulations or adopt new contract rules and regulations at any time and may also face restrictions or pressure regarding the type and amount of services that they may obtain from private contractors. Any of these changes could impair our ability to obtain new contracts or renew contracts under which we currently perform when those contracts are eligible for recompetition.

We are dependent on third parties to complete certain elements of our contracts.

We hire third-party subcontractors to perform certain work under our contracts. We also rely on third-party equipment manufacturers or suppliers to provide equipment and materials used for certain of our projects. If we are unable to hire qualified subcontractors or find qualified equipment manufacturers or suppliers, our ability to successfully complete certain projects could be impaired. If we are not able to locate qualified third-party subcontractors, or the amount we are required to pay for subcontractors or equipment and supplies exceeds what we have estimated, especially in a lump sum or a fixed price contract, we may suffer losses on these contracts. If a subcontractor, supplier or manufacturer fails to provide services, supplies or equipment as required under a contract for any reason, we may be required to source these services, equipment or supplies to other third parties on a delayed basis or on less favorable terms, which could negatively impact contract profitability. There is a risk that we may have disputes with our subcontractors relating to, among other things, the quality and timeliness of work performed, customer concerns about a subcontractor or our failure to extend existing task orders or issue new task orders under a contract. In addition, faulty workmanship, equipment or materials could impact the overall project, resulting in claims against us for failure to meet required project specifications, imposition of financial penalties or requirements to provide additional services to ensure the adequate performance and delivery of the contracted services. We may be jointly and severally liable for the third party’s actions or contract performance.

Third parties may find it difficult to obtain sufficient financing to fund their operations, and such inability could adversely affect such third party’s ability to provide materials, equipment or services, which could have a material adverse impact on our business, financial condition and results of operations. In addition, a failure by a third-party subcontractor, supplier or manufacturer to comply with applicable laws, regulations or client requirements could negatively impact our business and, for government clients, could result in fines, penalties, suspension or even debarment being imposed on us, which could have a material adverse impact on our business, financial condition and results of operations.

We may be precluded from providing certain services due to conflict of interest issues.

Many of our clients are concerned about potential or actual conflicts of interest in retaining management consultants. U.S. federal government agencies have formal policies against continuing or awarding contracts that would create actual or potential conflicts of interest with other activities of a contractor. These policies may prevent us from bidding for or performing government contracts resulting from or relating to certain work we have performed. In addition, services performed for a commercial or government client may create a conflict of interest that precludes or limits our ability to obtain work from other public or private organizations. Any conflicts of interest that preclude us from providing certain services could have a material adverse impact on our business, financial condition and results of operations.

If we fail to comply with federal, state and local governmental requirements, our business may be adversely affected.

We are subject to U.S. federal, state and local laws and regulations that affect our business. Although we have policies and procedures to comply with U.S. trade laws, the violation of such laws could subject us and our employees to civil or criminal penalties, including substantial monetary fines, or other adverse actions including debarment from participation in U.S. government contracts and could damage our reputation and our ability to do business.

If we fail to maintain an effective system of internal control, we may not be able to accurately report our financial results.

We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), which requires, among other things, a company to evaluate annually the effectiveness of its internal control over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of its internal control over financial reporting in its Annual Report on Form 10-K. Effective internal control over financial reporting is necessary to provide reliable financial reports and to help prevent fraud. The Company’s management team and other personnel are required to devote a substantial amount of time to these compliance requirements. Moreover, these rules and regulations increase legal and financial compliance costs and make some activities more time-consuming and costly. Despite best efforts, we cannot be certain that we will be able to maintain adequate internal controls over our financial processes and reporting in the future or that we will be able to comply with our obligations under Section 404 of Sarbanes-Oxley.

An impairment charge on our goodwill or intangible assets could have a material adverse impact on our financial position and results of operations.

Because we have grown in large part through acquisitions, goodwill and intangible assets represent a substantial portion of our assets. Under U.S. GAAP, we are required to test goodwill and intangible assets carried in our consolidated balance sheet for possible impairment on an annual basis based upon a fair value approach. As of December 30, 2022, we have $241.2 million of goodwill and intangible assets, representing 49% of our total assets of $487.4 million. We also are required to test goodwill and intangible assets for impairment between annual tests if events occur or circumstances change that would more likely than not reduce our enterprise fair value below our book value. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in a reporting unit’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of our business, potential government actions toward our facilities, and other factors.

If our market capitalization drops significantly below the amount of net equity recorded on our balance sheet, this might indicate a decline in our fair value and would require us to further evaluate whether our goodwill has been impaired. If the fair value of our reporting units is less than their carrying value, we could be required to record an impairment charge. The amount of any impairment could be significant and could have a material adverse impact on our financial position and results of operations for the period in which the charge is taken.

Rising inflation, interest rates and/or construction costs could reduce the demand for our services as well as decrease our profit on our existing contracts, in particular with respect to our fixed price contracts.

Rising inflation, interest rates, or construction costs could reduce the demand for our services. In addition, we bear all the risk of rising inflation with respect to those contracts that are fixed price. Because a portion of our revenues are earned from fixed price contracts (approximately 10% as of December 30, 2022), the effects of inflation on our financial condition and results of operations over the past few years have been generally minor. However, if we expand our business into markets and geographic areas where fixed price and lump sum work is more prevalent, inflation may have a larger impact on our results of operations in the future. In addition, there is a time lag in recovering labor cost increases from our clients on time and materials/cost reimbursable contracts. Therefore, increases in inflation, interest rates or construction costs could have a material adverse impact on our business, financial condition and results of operations.

We are subject to professional standards, duties and statutory obligations on professional reports and opinions we issue, which could subject us to liability and monetary damages.

We issue reports and opinions to clients based on our professional engineering expertise as well as our other professional credentials that subject us to professional standards, duties and obligations regulating the performance of our services. If a client or another third party alleges that our report or opinion is incorrect or it is improperly relied upon and we are held responsible, we could be subject to significant liability or claims for damages. In addition, our reports and other work product may need to comply with professional standards, licensing requirements, securities regulations and other laws and rules governing the performance of professional services in the jurisdiction where the services are performed. We could be liable to third parties who use or rely upon our reports and other work product even if we are not contractually bound to those third parties. These events could in turn result in monetary damages and penalties.

Certain of our services involve assisting our clients’ compliance with environmental, health, and safety laws and regulations that may require substantial costs to comply with, and our failure to effectively assist our client’s compliance with such laws and regulations may expose us to significant penalties, damages, or costs of remediation. Changes in such laws or regulations could also directly or indirectly reduce the demand for our services or make our operations more costly.

Our operations and our clients’ projects are subject to federal, tribal, regional, state, and local laws and regulations relating to protection of natural resources and the environment, health and safety of our employees and the public, and waste management. These laws and regulations impose numerous obligations, including the acquisition of permits to conduct regulated activities, the incurrence of capital or other substantial expenditures to prevent releases of regulated materials, the imposition of substantial liabilities for pollution or other harm to species or the environment resulting from our clients’ operations or other harm to species or the environment, and the applicability of specific health and safety protections for our employees, our clients’ employees and the public.

Examples of laws and regulations that govern the environmental aspects of our clients’ businesses, and our provision of environmental compliance services to our clients, include the following:

Any failure on our part to comply with laws and regulations such as those listed above, or to effectively assist our clients’ compliance with such laws and regulations, may result in increases in operational costs or project delays to our clients and could ultimately lead to claims against us. In addition, environmental laws and regulations have been subject to frequent changes over the years and tend to become more stringent over time, and the imposition of more stringent or complex laws and regulations could increase the likelihood that we may fail to comply with, or to effectively assist our clients’ compliance with, such laws and regulations. Our failure to comply with applicable environmental, health, and safety laws and regulations, our failure to effectively assist our clients’ compliance with such laws and regulations in connection with projects, or the failure of any of our subcontractors to comply with such laws and regulations could trigger a variety of administrative, civil, and criminal enforcement measures, including investigations, the assessment of monetary penalties, the imposition of remedial requirements or other corrective measures, and the issuance of directives or orders enjoining existing or future operations or projects, any of which could have a material adverse effect on the financial condition of our business.

Changes in natural resource management, climate change or infrastructure industry laws, regulations, and programs could directly or indirectly reduce the demand for our services, or could make our operations more costly, which could in turn negatively impact our revenue.

Our business and results of operations could be adversely affected by the passage of climate change, defense, environmental, infrastructure and other legislation, policies and regulations. Growing concerns about climate change may result in the imposition of additional environmental regulations. For example, legislation, international protocols, regulation or other restrictions on emissions could increase the costs of projects for our clients or, in some cases, prevent a project from going forward, thereby potentially reducing the need for our services. Furthermore, compliance with these laws and regulations may, from time to time, increase the costs associated with our operations; delay our clients’ projects or operations; or result in liabilities for personal injuries, property damage, discharge of hazardous materials, remediation and clean-up costs, and other environmental damages. In addition, relaxation or repeal of laws and regulations, or changes in governmental policies regarding environmental, defense, infrastructure or other industries we serve could result in a decline in demand for our services, which could in turn negatively impact our revenues. We cannot predict when or whether any of these various proposals may be enacted or what their effect will be on us or on our clients.

Finally, environmental, social, and governance (“ESG”) goals and programs, which typically include extra legal targets related to environmental stewardship, social responsibility, and corporate governance, have become an increasing focus of investors, stockholders and activists across many industries. Access to capital and investors is likely to favor companies with robust ESG programs in place.

To the extent we become subject to legal requirements to calculate ESG metrics and/or conduct ESG reporting in the future or are subject to stakeholder pressure to conduct such activities, our costs of planning, designing, measuring and monitoring, and reporting on our operations could increase and we could be exposed to greater reputational, regulatory, and litigation risk. Further, if we do not adapt to or meet evolving investor or other stakeholder expectations and standards or meet the goals and targets we have set with respect to ESG matters such as climate change, regardless of whether there is a regulatory or legal requirement to do so, we may suffer from an erosion of stakeholder trust, reputational damage and/or material and adverse effects to our business, financial condition and/or stock price.

If we fail to complete a project in a timely manner, miss a required performance standard, or otherwise fail to adequately perform on a project, then we may incur a loss on that project, which may reduce or eliminate our overall profitability.

Our engagements often involve large-scale, complex projects. The quality of our performance on such projects depends in large part upon our ability to manage the relationship with our clients and our ability to effectively manage the project and deploy appropriate resources, including third-party contractors and our own personnel, in a timely manner. We may commit to a client that we will complete a project by a scheduled date. We may also commit that a project, when completed, will achieve specified performance standards. If the project is not completed by the scheduled date or fails to meet required performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or failure to achieve the required performance standards. The uncertainty of the timing of a project can present difficulties in planning the amount of personnel needed for the project. If the project is delayed or canceled, we may bear the cost of an underutilized workforce that was dedicated to fulfilling the project. In addition, performance of projects can be affected by a number of factors beyond our control, including:

To the extent these events occur, the total costs of the project could exceed our estimates, and we could experience reduced profits or, in some cases, incur a loss on a project, which may reduce or eliminate our overall profitability. Further, any defects or errors, or failures to meet our clients’ expectations, could result in claims for damages against us. Failure to meet performance standards or complete performance on a timely basis could also adversely affect our reputation.

The outcome of pending and future claims and litigation could have a material adverse impact on our business, financial condition and results of operations.

We are a party to claims and litigation in the normal course of business. Since we engage in testing, inspection, engineering and other activities for large facilities and projects where design, construction or systems failures can result in substantial injury or death of employees or others or in damage to property, we are exposed to claims and litigation and investigations if there is a failure at any such facility or project. Such claims could relate to, among other things, personal injury, loss of life, business interruption, property damage, pollution and environmental damage and be brought by our clients or third parties, such as those who use or reside near our clients’ projects. We can also be exposed to claims if we agreed that a project will achieve certain performance standards or satisfy certain technical requirements and those standards or requirements are ultimately not met. In many of our contracts with clients, subcontractors and vendors, we agree to retain or assume potential liabilities for damages, penalties, losses and other exposures relating to projects that could result in claims that greatly exceed the anticipated profits relating to those contracts. In addition, while clients and subcontractors may agree to indemnify us against certain liabilities, such third parties may refuse or be unable to pay us if such indemnification obligations arise.

State and other public employee unions may bring litigation that seeks to limit the ability of public agencies to contract with private firms to perform government employee functions in the area of public improvements. Judicial determinations in favor of these unions could affect our ability to compete for contracts and may have an adverse effect on our financial results.

State and other public employee unions have challenged the validity of propositions, legislation, charters, and other government regulations that allow public agencies to contract with private firms to provide services in the fields of engineering, design, and construction of public improvements that might otherwise be provided by public employees. These challenges could have the effect of eliminating or severely restricting the ability of municipalities to hire private firms and otherwise require them to use union employees to perform the services. If a state or other public employee union is successful in its challenge, this may result in additional litigation which could affect our ability to compete for contracts.

Our credit agreements contain a number of restrictive covenants which could limit our ability to finance future operations, acquisitions or capital needs or engage in other business activities that may be in our interest.

In the first quarter of 2021, Atlas Intermediate, as the borrower, entered into two new credit facilities, as described further in Note 6 “Long-Term Debt” within the Consolidated Financial Statements. The credit agreements include a number of customary negative covenants. Such covenants, among other things, limit or restrict the ability of each of Holdings, Atlas Intermediate and all of their direct and indirect subsidiaries to:

These restrictions are subject to certain exceptions including (i) the ability to incur additional indebtedness, liens, investments, dividends and distributions, and prepayments of junior indebtedness subject, in each case, to compliance with certain financial metrics and/or certain other conditions and (ii) a number of other traditional exceptions that grant the Company continued flexibility to operate and develop its business.

In addition, the credit agreements also require Holdings, Atlas Intermediate and all of their direct and indirect subsidiaries on a consolidated basis to comply with certain financial ratio covenants, including a total net leverage ratio, which is tested on a quarterly basis, and a fixed charge coverage ratio, which is tested on a quarterly basis if our revolving loan balance is greater than $0 or our outstanding letters of credit are $5.0 million or more. Our ability to comply with these ratios may be affected by events beyond our control. These restrictions could limit our ability to plan for or react to market or economic conditions or meet capital needs or otherwise restrict our activities or business plans, and could adversely affect our ability to finance our operations, acquisitions, investments or strategic alliances or other capital needs or to engage in other business activities that would otherwise be in our interest. A breach of any of these covenants or our inability to comply with the required financial ratios could result in a default under our debt instruments. If an event of default occurs, our creditors could elect to declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable, terminate any existing commitments to lend and foreclose on any of our assets securing their loans. Any such acceleration or termination of commitments could have a material adverse effect on our financial position and ability to conduct our business.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under the Credit Agreements (described further in Note 6 “Long-Term Debt” within the Consolidated Financial Statements) bear interest at variable rates, exposing us to interest rate risk. If the interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed would remain the same, and our results of operations and cash flows for servicing our indebtedness would decrease.

Risks Related to Our Common Stock

Our quarterly results may fluctuate significantly, which could have a material negative effect on the price of our Class A common stock.

Our quarterly operating results may fluctuate due to several factors, including:

If our quarterly operating results fluctuate significantly, causing our operating results to fall below the expectations of securities analysts, the price of our Class A common stock may decrease substantially, which could have a material negative impact on our financial condition and results of operations.

We are an “emerging growth company” and are thus able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, pursuant to Section 107 of the JOBS Act, as an “emerging growth company” we intend to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

We may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.

Although we conducted due diligence prior to the Atlas Business Combination, we cannot assure you that this diligence revealed all material issues that may be present in our business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of our control will not later arise. As a result, the Company may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in losses. Even if the due diligence successfully identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that the Company reports charges of this nature could contribute to negative market perceptions about the Company or our securities. In addition, charges of this nature may cause the Company to violate net worth or other covenants to which we may be subject. Accordingly, our stockholders could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy solicitation or tender offer materials, as applicable, relating to the Atlas Business Combination contained an actionable material misstatement or material omission.

To the extent that shares of Class A common stock are issued pursuant to the terms of the Holdings LLC Agreement, the number of shares eligible for resale in the public market will increase.

Pursuant to the terms of the Holdings LLC Agreement, the Continuing Members may redeem any or all of the shares of Class B common stock issued to them along with a corresponding number of Holdings Units, for an equal number of shares of Class A common stock.

To the extent that any shares of Class A common stock are issued pursuant to the terms of the Holdings LLC Agreement, there will be an increase in the number of shares of Class A common stock eligible for resale in the public market. Sales of a substantial number of such shares in the public market could adversely affect the market price of our Class A common stock.

If we raise capital in the future by issuing shares of common or preferred stock or other equity or equity-linked securities, convertible debt or other hybrid equity securities, our then existing stockholders may experience dilution, such new securities may have rights senior to those of our common stock, and the market price of our common stock may be adversely affected.

 If we raise capital in the future our then existing stockholders may experience dilution. Our third amended and restated certificate of incorporation (our “Charter”) provides that preferred stock may be issued from time to time in one or more series. Our board of directors (“Board”) is authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. Our Board may, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the shares of common stock and could have anti-takeover effects. For example, the Board might grant holders of a class or series of our preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. The ability of our Board to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control of us or the removal of existing management. Similarly, the repurchase or redemption rights or liquidation preferences the Board might assign to holders of our preferred stock could affect the residual value of our common stock. The issuance of any such securities may have the impact of adversely affecting the market price of our common stock.

The issuance of additional stock as consideration for acquisitions will dilute existing stockholdings and may have an adverse effect on the market price of our common stock.

In March 2022, we acquired TranSmart and 1 Alliance. The purchase price for the acquisitions included an equity component pursuant to which we issued 872,752 and 355,649 shares of Class A common stock, respectively, to the former owners and certain former employees. The issuance of our Class A common stock as consideration for the acquisitions of TranSmart and 1 Alliance, or any future acquisition, result in dilution of our existing stockholders and may adversely affect the market price of our common stock.

Provisions in our Charter and Delaware law may have the effect of discouraging lawsuits against our directors and officers.

Our Charter requires, unless we consent in writing to the selection of an alternative forum, that (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim against us, our directors, officers or employees arising pursuant to any provision of the DGCL or our Charter or our second amended and restated bylaws, or (iv) any action asserting a claim against us, our directors, officers or employees governed by the internal affairs doctrine may be brought only in the Court of Chancery in the State of Delaware, except any claim (A) as to which the Court of Chancery of the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, (C) for which the Court of Chancery does not have subject matter jurisdiction, or (D) any action arising under the Securities Act, as to which the Court of Chancery and the federal district court for the District of Delaware shall have concurrent jurisdiction. If an action is brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, a court may determine that this provision is unenforceable, and to the extent it is enforceable, the provision may have the effect of discouraging lawsuits against our directors and officers, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder.

Notwithstanding the foregoing, our Charter provides that the exclusive forum provision will not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.

Provisions in our Charter may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Class A common stock and could entrench management.

Our Charter contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include a staggered board of directors and the controlling provisions of the Nomination Agreement we entered into with Bernhard Capital Partners in connection with the Atlas Business Combination (the “Nomination Agreement”)

Concentration of ownership of our common stock among certain large stockholders may prevent new investors from influencing significant corporate decisions or adversely affect the trading price of our common stock.

Holders of our common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or our Charter. Certain of our stockholders own large portions of the voting power of our common stock and as a result exercise significant influence over the outcome of certain matters requiring stockholder approval, including mergers and other material transactions, the composition of our Board or a change in control of the Company that could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the Company. The existence of significant stockholders may also have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in the best interests of the Company.

So long as a small number of stockholders continues to control a significant amount of our common stock, they will continue to be able to strongly influence all matters requiring stockholder approval, regardless of whether or not other stockholders believe that a potential transaction is in their own best interests. In any of these matters, the interests of such stockholders may differ or conflict with the interests of our other stockholders. In addition, our significant stockholders and their affiliates, as well as members of our Board, may, from time to time, acquire interests in businesses that directly or indirectly compete with our business, as well as businesses that are significant existing or potential customers. Moreover, this concentration of stock ownership may also adversely affect the trading price of our common stock to the extent investors perceive a disadvantage in owning stock of a company with a concentrated stock ownership.

The market price of our common stock may be affected by low trading volume.

Although a trading market for our Class A common stock exists on the NASDAQ, the trading volume has not been significant, due in part to a substantial number of our outstanding shares of our common stock either being held by a single stockholder or subject to contractual lock-ups and other legal restrictions. Additionally, a portion of our common stock is currently made up of Class B common stock, which is not listed on a public exchange but is exchangeable (along with Holdings Units) for shares of Class A common stock. When trading volume is low, significant price movement can be caused by the trading in a relatively small number of shares. Low volume can also reduce liquidity, which could adversely affect the market price of our shares of common stock.

If securities or industry analysts adversely change their recommendations regarding our Class A common stock or if our operating results do not meet their expectations, our stock price could decline.

The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of the Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover the Company downgrades our Class A common stock, or if our operating results do not meet their expectations, our stock price could decline. 

There can be no assurance that we will be able to comply with the continued listing standards of NASDAQ.

Our continued eligibility for listing on NASDAQ depends on a number of factors. If NASDAQ delists the Class A common stock from trading on its exchange for failure to meet the listing standards, we and our stockholders could face significant material adverse consequences including:

We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy certain of our financial obligations and to make dividend payments.

We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our subsidiaries. As a result, our ability to satisfy our financial obligations and to make dividend payments in the future depends on our subsidiaries and their ability to distribute funds to us. If we are unable to obtain funds from our subsidiaries, we may be unable to satisfy certain of our financial obligations or our board of directors may exercise its discretion not to declare or pay dividends. We do not intend to obtain funds from other sources to pay dividends.

In addition, the declaration and payment of dividends, if any, will always be subject to the discretion of the board of directors, and restrictions contained in our existing debt agreements. The timing and amount of any dividends declared will depend on, among other things, the Company’s earnings, financial condition and cash requirements and availability, the ability to obtain debt and equity financing on acceptable terms, the terms of its outstanding indebtedness and the ability of the Company’s subsidiaries to distribute funds to it.

General Risk Factors

Negative conditions in the credit and financial markets and delays in receiving client payments could result in liquidity problems, increasing our cost of borrowing and adversely affecting our business.

Although we finance much of our operations using cash provided by operations, at times we depend on the availability of credit to grow our business and help fund acquisitions. Instability in the credit markets in the U.S. or abroad could cause credit to be relatively difficult or expensive to obtain at competitive rates, on commercially reasonable terms or in sufficient amounts. This situation could make it more difficult or more expensive for us to access funds, refinance our existing indebtedness, enter into agreements for new indebtedness or obtain funding through the issuance of securities, or such additional capital may not be available on terms acceptable to us or at all. We may also enter into business acquisition agreements that require us to access credit, which if not available at the closing of the acquisition could result in a breach of the acquisition agreement and a resulting claim for damages by the sellers of such business. In addition, market conditions could negatively impact our clients’ ability to fund their projects and, therefore, utilize our services, which could have a material adverse impact on our business, financial condition and results of operations.

Some of our customers, suppliers and subcontractors depend on access to commercial financing and capital markets to fund their operations. Disruptions in the credit or capital markets could adversely affect our clients’ ability to finance projects and could result in contract cancellations or suspensions, project delays and payment delays or defaults by our clients. In addition, clients may be unable to fund new projects, may choose to make fewer capital expenditures or otherwise slow their spending on our services or to seek contract terms more favorable to them. Our government clients may face budget deficits that prohibit them from funding proposed and existing projects or that cause them to exercise their right to terminate our contracts with little or no prior notice. In addition, any financial difficulties suffered by our subcontractors or suppliers could increase our cost or adversely impact project schedules. These disruptions could materially negatively impact our backlog and have a material adverse impact on our business, financial condition and results of operations.

Cybersecurity breaches of our systems and information technology could adversely impact our ability to operate.

We need to protect our own and our clients’ internal trade secrets and other confidential business information from disclosure. We face the threat to our computer systems of unauthorized access, computer hackers, computer viruses, malicious code, organized cyberattacks and other security problems and system disruptions, including possible unauthorized access to our and our clients’ proprietary, classified or confidential information. We rely on industry-accepted security measures and technology to securely maintain all confidential and proprietary information on our information systems. We have devoted and will continue to devote significant resources to the security of our computer systems, but they are still vulnerable to these threats. A user who circumvents security measures can misappropriate confidential or proprietary information, including information regarding us, our personnel and/or our clients, or cause interruptions or malfunctions in operations. As a result, we can be required to expend significant resources to protect against the threat of these system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches. There has been an overall increase in the frequency and sophistication of the cyber and security threats we face, with attacks ranging from those common to businesses generally to those that are more advanced and persistent, which may target us because we hold sensitive information. As a result, we and our vendors face a heightened risk of a security breach or disruption resulting from an attack by computer hackers, foreign governments, and cyber terrorists. While we put in place policies, controls and technologies to help detect and protect against such attacks, we cannot guarantee that future incidents will not occur, and if an incident does occur, we may not be able to successfully mitigate the impact. We have been the target of these types of attacks in the past and future attacks are likely to occur. If successful, these types of attacks on our network or other systems or service failures could have a material adverse effect on our business, financial condition and results of operations, due to, among other things, the loss of client or proprietary data, interruptions or delays in our clients’ businesses and damage to our reputation. In addition, the failure or disruption of our systems, communications, vendors, or utilities could cause us to interrupt or suspend our operations, which could have a material adverse effect on our business, financial condition and results of operations. In addition, if our employees inadvertently do not adhere to appropriate information security protocols, our protocols are inadequate, or our employees intentionally avoid these protocols, our or our clients’ sensitive information may be released, thereby causing significant negative impacts to our reputation and exposing us or our clients to liability. Any of these events can damage our reputation and have a material adverse effect on our business, financial condition, results of operations and cash flows.

We rely on third-party internal and outsourced software to run our critical accounting, project management and financial information systems. As a result, any sudden loss, disruption or unexpected costs to maintain these systems could significantly increase our operational expense and disrupt the management of our business operations.

We rely on third-party software to run our critical accounting, project management and financial information systems. We also depend on our software vendors to provide long-term software maintenance support for our information systems. Software vendors may decide to discontinue further development, integration or long-term software maintenance support for our information systems, in which case we may need to abandon one or more of our current information systems and migrate some or all of our accounting, project management and financial information to other systems, thus increasing our operational expense as well as disrupting the management of our business operations.

Changes in tax laws could increase our tax rate and materially affect our results of operations.

We are subject to tax laws in the U.S. It is not currently known what changes Congress, working with the President, may make to existing tax laws and how those changes (if any) will affect the economy, our business, results of operations, financial condition and cash flows. These and other changes in tax laws and regulations could increase our effective tax rate and harm our results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our principal executive office, which is leased, is located at 13215 Bee Cave Parkway, Building B, Suite 230, Austin, Texas 78738. We do not own any significant real property. We currently operate out of approximately 126 leased locations. Our lease terms vary from month-to-month to multi-year commitments. We do not consider any of these leased properties to be materially important to our overall operations.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are subject to various legal proceedings that arise out of our normal course of business or otherwise. We are not currently a party to any legal proceedings that, individually or in the aggregate, are expected to materially impact our business, financial position, results of operations and cash flows, taken as a whole.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our Class A common stock is listed on the Nasdaq under the symbol “ATCX.”. On March 13, 2023, the closing price per share of our Common Stock as reported on the Nasdaq was $12.12.

Holders of Record

As of March 13, 2023, there were approximately 44 holders of record of our Class A common stock and 56 holders of record of our Class B common stock.

Dividends

We have not paid any cash or stock dividends on our Class A common stock to date. The payment of dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any dividends will be within the discretion of the Board at such time and the Board is not currently contemplating and does not anticipate declaring stock dividends in the foreseeable future. Further, under the terms of our debt agreements, our ability to declare dividends is restricted.

Unregistered Sales of Equity Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Neither we, nor any affiliated purchaser, purchased any of our equity securities during the quarter ended December 30, 2022. 

ITEM 6. [reserved]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our audited financial statements and accompanying notes included herein. This discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future operating results or financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. Factors that could cause or contribute to such differences include, but are not limited to, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors included in this Annual Report on Form 10-K, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements.

For purposes of this section, “we,” “us,” “our,” the “Company” and “Atlas” refers to Atlas Technical Consultants, Inc. (formerly named Boxwood Merger Corp.) and its subsidiaries. The Atlas Business Combination (as defined below) was accounted for as a reverse recapitalization where the Company was the legal acquirer but treated as the accounting acquiree. All references to operations prior to the Atlas Business Combination reflect the results of Atlas Intermediate Holdings LLC, a Delaware limited liability company (“Atlas Intermediate”) and its subsidiaries. Since Atlas Intermediate was determined to be the accounting acquirer, the information included below will include the results of Atlas Intermediate and its subsidiaries through the Atlas Business Combination and will include the Company, including Atlas Intermediate, for transactions occurring after the Atlas Business Combination.

This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

OVERVIEW

Atlas Technical Consultants, Inc. (the “Company”, “We”, or “Atlas” and formerly named Boxwood Merger Corp. (“Boxwood”)) was a blank check company, incorporated in Delaware on June 28, 2017. The Company was formed for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, recapitalization, or other similar business transaction, one or more operating businesses or assets.

On February 14, 2020 (the “Closing Date”), the Company consummated its acquisition of Atlas Intermediate pursuant to the Unit Purchase Agreement, dated as of August 12, 2019, as amended on January 22, 2020 (the “Purchase Agreement”), by and among the Company, Atlas TC Holdings LLC, a wholly-owned subsidiary of the Company and a Delaware limited liability company (“Holdings”), Atlas TC Buyer LLC, a wholly-owned subsidiary of Holdings and a Delaware limited liability company, Atlas Intermediate and Atlas Technical Consultants Holdings LP, a Delaware limited partnership (the “Seller”). The acquisition of Atlas Intermediate pursuant to the Purchase Agreement together with the other transactions contemplated by the Purchase Agreement is referred to herein as the “Atlas Business Combination.”

Following the consummation of the Atlas Business Combination, we are organized in an “Up-C” structure in which the business of Atlas Intermediate and its subsidiaries is held by Holdings and continues to operate through the subsidiaries of Atlas Intermediate, and in which our only direct assets consist of common units of Holdings (the “Holdings Units”). We are the sole manager of Holdings in accordance with the terms of the Amended and Restated Limited Liability Company Agreement of Holdings entered into in connection with the consummation of the Atlas Business Combination.

Headquartered in Austin, Texas, we are an infrastructure and environmental solutions company and a provider of professional testing, inspection, engineering, environmental, program management and consulting services, offering solutions to public and private sector clients in the transportation, commercial, water, government, education, industrial, healthcare and power markets.

With approximately 126 offices located throughout the United States, we provide a broad range of mission-critical technical services, helping our clients test, inspect, plan, design, certify and manage a wide variety of projects across diverse end markets.

We act as a trusted advisor to our clients, helping our clients design, engineer, inspect, manage and maintain civil and commercial infrastructure, servicing existing structures as well as helping to build new structures. However, we do not perform any construction and do not take any direct construction risk.

We provide a broad range of mission-critical technical services, ranging from providing inspection services in small projects to managing significant aspects of large, multi-year projects. For the year ended December 30, 2022, we:

We have long-term relationships with a diverse set of clients, providing a base of repeating clients, projects and revenues. Approximately 90% of our revenues were derived from clients that have used our services at least twice in the past three years and more than 95% of our revenues were generated from client relationships longer than ten years, with greater than 25% of revenues generated from relationships longer than thirty years. Examples of such long-term customers include the Texas and Georgia Departments of Transportation, U.S. Postal Service, Gwinnett County Georgia, New York City Housing Authority, Stanford University, Port of Oakland, United Rentals, Inc., Speedway (7-Eleven), Walmart Inc., Caltrans, Sound Transit, Phillips 66 and Google.

Our services require a high degree of technical expertise, as our clients rely on us to provide testing, inspection and quality assurance services to ensure that structures are designed, engineered, built and maintained in accordance with building codes, regulations and the highest safety standards. As such, our services are delivered by a highly-skilled, technical employee base that includes engineers, inspectors, scientists and other field experts. As of December 30, 2022, our technical staff represented nearly 85% of our approximately 3,450 employees. Our services are typically provided under contracts, some of which are long-term with long lead times between when contracts are signed and when our services are performed. As such, we have a significant amount of contracted backlog, providing for a high degree of visibility with respect to revenues expected to be generated from such backlog. As of December 30, 2022, our contracted backlog was estimated to be approximately $877 million. See “— Backlog” below for additional information relating to our backlog.

Recent Accounting Pronouncements

See Note 2 “Summary of Significant Accounting Policies,” to the Consolidated Financial Statements for a description of the recent accounting pronouncements.

HOW WE EVALUATE OUR OPERATIONS

We use a variety of financial and other information in monitoring the financial condition and operating performance of our business. Some of this information is financial information that is prepared in accordance with generally accepted accounting principles (“GAAP”), while other information may be financial in nature and may not be prepared in accordance with GAAP. Historical information is periodically compared to budgets, as well as against industry-wide information. We use this information for planning and monitoring our business, as well as in determining management and employee compensation.

We evaluate our overall business performance based primarily on a combination of four financial metrics: revenue, backlog, adjusted EBITDA and liquidity measures. These are key measures used by our management team and Board to understand and evaluate our operational performance, to establish budgets and to develop short and long-term operational goals.

Revenue

Revenues for services are derived from billings under contracts (which are typically of short duration) that provide for specific time, material and equipment charges, or lump sum payments and are reported net of any taxes collected from customers. We recognize revenue as it is earned at estimated collectible amounts.

Revenue is recognized as services are performed and amounts are earned in accordance with the terms of a contract. We generally contract for services to customers based on either hourly rates or a fixed fee. In such contracts, our efforts, measured by time incurred, typically are provided in less than a year and represent the contractual milestones or output measure, which is the contractual earnings pattern. For contracts with fixed fees, we recognize revenues as amounts become billable in accordance with contract terms, provided the billable amounts are consistent with the services delivered and are earned. Expenses associated with performance of work may be reimbursed with a markup depending on contractual terms. Revenues include the markup, if any, earned on reimbursable expenses. Reimbursements include billings for travel and other out-of-pocket expenses and third-party costs, such as equipment rentals, materials, subcontractor costs and outside laboratories, which is included in cost of revenues in the accompanying combined statement of income.

Backlog

We define backlog to include the total estimated future revenue streams associated with fully executed contracts as well as an estimate of highly probable revenues from recurring, task order-based contracts.

We use backlog to evaluate Company revenue growth as it typically follows growth in backlog. As backlog is not a defined accounting term, our computation of backlog may not be comparable with that of our peers.

Adjusted EBITDA

We view adjusted EBITDA, which is a non-GAAP financial measure, as an important indicator of performance. We define adjusted EBITDA as net income before interest expense, income taxes, depreciation and amortization and adjustments for certain one- time or non-recurring items adjustments. For more information on adjusted EBITDA, as well as a reconciliation to the most directly comparable GAAP measure, please see “—Non-GAAP Financial Measures” below.

COMPONENTS AND FACTORS AFFECTING OUR OPERATING RESULTS

Revenue

We generate revenue primarily by providing infrastructure-based testing, inspection, certification, engineering, and compliance services to a wide range of public- and private-sector clients. Our revenue consists of both services provided by our employees and pass-through fees from subcontractors and other direct costs.

Subcontractor Costs and Other Costs of Revenues

Total costs of revenues reflects subcontractor costs, the cost of personnel and specifically identifiable costs associated with revenue, and other direct costs.

Operating Expense

Total operating expense includes corporate expenses, including personnel, occupancy, and administrative expenses, including depreciation and amortization and changes in fair value of contingent consideration.

Interest Expense

Interest expense consists of contractual interest expense on outstanding debt obligations including amortization of deferred financing costs and other related financing expenses.

Income Tax Expense

Following the consummation of the Atlas Business Combination, we are organized in an “Up-C” structure in which the business of Atlas Intermediate and its subsidiaries is held by Holdings and will continue to operate through the subsidiaries of Atlas Intermediate, and in which our only direct assets consist of common units of Holdings. We are the sole manager of Holdings in accordance with the terms of the Holdings LLC Agreement entered into in connection with the consummation of the Atlas Business Combination.

Previously, Atlas Intermediate was treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to the partners and members. As such, no recognition of federal or state income taxes have been provided for in the accompanying consolidated financial statements with the exception of income taxes relating to the C-Corp subsidiaries directly owned by Atlas Intermediate and the State of Texas Margin tax.

Subsequent to the Atlas Business Combination, income taxes relating to the C-Corps owned directly by Atlas Intermediate and the State of Texas Margin tax are considered within the provision of non-controlling interest as it is generated through the results of Atlas Intermediate and its subsidiaries.

Net Income (loss)

Net income from continuing operations reflects our operating income after taking into account costs and expenses for a given period, while excluding any gain or loss from discontinued operations.

Provision for Non-controlling Interest

Our ownership and voting structure are comprised of holders of our Class A common stock that participate 100% in the results of Atlas Technical Consultants, Inc. and 96.6% in Atlas Intermediate and its subsidiaries and holders of our Class B common stock that participate in the results of Atlas Intermediate and its subsidiaries until their Class B common stock is converted to Class A common stock. In connection with the Atlas Business Combination, it was determined that the results of Atlas Intermediate and its subsidiaries would be fully consolidated within the results of the Company.

Due to the participation of the holders of our Class B common stock in the results of Atlas Intermediate and subsidiaries, a non-controlling interest was deemed to exist. Consolidated net income (loss) includes earnings attributable to both the stockholders and the non-controlling interests.

The provision for non-controlling interest relates to pre-tax income subsequent to the Atlas Business Combination and includes a pro-rata share of taxes as federal and state income taxes relating to the C-Corps directly owned by Atlas Intermediate and the State of Texas Margin tax as it is generated through the results of Atlas Intermediate and its subsidiaries.

Upon the close of the Atlas Business Combination, the holders of our Class B common stock participated in 80.6% of the results of Atlas Intermediate and its subsidiaries. This percentage has declined since the Atlas Business Combination due to the exchange of Atlas Intermediate units, together with Class B common shares, for Class A common stock as contractual lock-ups have expired and the exchange of our public and private placement warrants for Class A common stock during November and December 2020 because of our tender offer and warrant exchange.

Redeemable Preferred Stock Dividends

On February 14, 2020, in connection with the consummation of the Atlas Business Combination, Holdings and GSO COF III AIV-2 LP (“GSO AIV-2”) entered into a subscription agreement (the “Subscription Agreement”) pursuant to which GSO AIV-2 purchased 145,000 units of a new class of Series A Senior Preferred Units of Holdings (the “Preferred Units”) at a price per Preferred Unit of $978.21, for an aggregate cash purchase price of $141,840,450, which represented a 2.179% original issue discount on the Preferred Units (such purchase, the “GSO Placement”).

The GSO Placement was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and/or Regulation D promulgated thereunder.

On February 25, 2021, the Company, in its capacity as the managing member of Holdings, entered into Amendment No. 1 to the Holdings LLC Agreement to allow Holdings, at the direction of the Board, to redeem all of the Preferred Units at any time using the proceeds from the refinancing of the Atlas Credit Agreement (as defined below) and entry into the Credit Agreements (as defined below).

On February 25, 2021, following the execution of Amendment No. 1 to the Holdings LLC Agreement, Holdings elected to redeem all of the 145,000 Preferred Units then outstanding and held by GSO AIV-2 for $1,084.96 per Preferred Unit for a total redemption price of $157.4 million which included dividends accrued for as of December 31, 2020 (the “Redemption”). Following the Redemption, (i) the Preferred Units are no longer deemed outstanding, (ii) all dividends on the Preferred Units ceased to accrue, and (iii) all rights of the holders thereof as holders of Preferred Units ceased and terminated, except for the right to receive payment under the Redemption.

Net Income (loss) Attributable to Class A Common Stock (Previously Members)

Net income (loss) attribution to holders of our Class A common stock represents our results after the provision for non-controlling interest, the effect of all taxes under the Up-C structure for the period subsequent to the Atlas Business Combination, and dividends due on redeemable preferred stock.

Net income (loss) for the historical results of Atlas Intermediate prior to the Atlas Business Combination are also reported within this line item.

RESULTS OF OPERATIONS

Overview of Financial Results

During the year ended December 30, 2022, we continued to execute on our growth strategy increasing revenues by 12% compared to the year ended December 31, 2021. Organic growth was 7% as we capitalize on strong market demand for infrastructure and environmental professional services, continue to win larger projects and benefit from our expanded service capabilities with two new acquisitions in 2022. We also maintained our gross margins rates compared to the prior year. As the Company grows, we continue to see economies of scale with our efficient overhead structure which has resulted in significantly higher operating income compared to the prior year. 

We are focusing on providing infrastructure and environmental professional services without undertaking direct construction risk. Our environmental technical expertise continues to position us to assist our clients in addressing their ongoing Environmental, Social and Governance (“ESG”) objectives and maintaining compliance with local laws and regulations.

Backlog has grown to a record $877 million driven by key transportation, government and power contracts.

 Merger Agreement

On January 30, 2023, the Company entered into the Merger Agreement with Parent and the Merger Sub. Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving company in the Merger. Parent and Merger Sub are controlled by investment funds advised by GI Partners.

The Company’s board of directors (the “Board”) has unanimously determined that the Merger Agreement is in the best interests of the Company and its stockholders, and declared it advisable, to enter into the Merger Agreement and consummate the Merger, approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, directed that the adoption of the Merger Agreement be submitted for consideration by the Company’s stockholders at a meeting thereof and resolved to recommend that the Company’s stockholders adopt the Merger Agreement.

Solicitation

From and after January 30, 2023, the Company must comply with customary non-solicitation restrictions, except that the Company may engage in discussions, negotiations and other otherwise prohibited activities with any party from which the Company receives an unsolicited competing acquisition proposal that the Board determines constitutes, or would reasonably likely lead to, a Superior Proposal (as defined in the Merger Agreement) and if the failure to take such action would reasonably be expected to be inconsistent with the directors’ fiduciary duties.

Subject to certain exceptions, the Board is required to recommend that the Company’s stockholders adopt the Merger Agreement and may not withhold, withdraw, amend, qualify or modify in a manner adverse to Parent such recommendation or take certain similar actions that are referred to in the Merger Agreement as a “Company Board Recommendation Change”. However, the Board may, before the adoption of the Merger Agreement by the Company’s stockholders, make a Company Board Recommendation Change in connection with a Superior Proposal or Intervening Event (as defined in the Merger Agreement) if the Company complies with certain notice and other requirements set forth in the Merger Agreement. Upon closing, the Company will no longer be a publicly traded company.

Financing

Funds advised by GI Partners each committed to provide capital to Parent with an equity contribution of $1,068,000,000, subject to the terms and conditions set forth in the equity commitment letter, and have each agreed to fund certain other obligations of Parent and Merger Sub in connection with the Merger, including payment of a termination fee of $45,750,000 from Parent, subject to the terms and conditions set forth in that certain limited guarantee agreement in favor of the Company. The net proceeds contemplated by the equity commitment letter will in the aggregate be sufficient for Parent and Merger Sub to pay the aggregate Per Share Price, the equity award consideration and any other amount (including fees or expenses) required to be paid by Parent or Merger Sub in connection with the consummation of the Merger and the transactions contemplated by the Merger Agreement.

Consolidated Results of Operations

The following table represents our selected results of operations for the periods indicated (in thousands, except per share data).

Comparison of the Year Ended December 30, 2022 to the Year Ended December 31, 2021:

Revenue

Revenue for the year ended December 30, 2022 increased by $66.0 million, or 12.2%, to $604.8 million as compared to $538.8 million for the corresponding prior year period. The acquisitions of TranSmart and 1 Alliance contributed $27.0 million to the Company’s revenues for the year ended December 30, 2022. Additionally, we have experienced growth in revenues in transportation projects as we expand our services across new geographies and expand our range of services to existing customers and have been successful in updating and increasing our pricing with customers to mitigate greater U.S. labor issues.

Subcontractor Costs

Subcontractor costs for the year ended December 30, 2022 increased $25.7 million, or 25.1%, to $127.7 million, as compared to $102.0 million for the corresponding prior year period. The increase is due to the increase in revenues and the timing of work where subcontractor costs are required. During the year ended December 30, 2022, there was an increase in the percentage of subcontractor costs compared to revenues from 18.9% in the prior year to 21.1% in the current year. This percentage varies from period to period based on the timing of large projects that require higher percentage subcontractor use but has historically been 20% over a number of periods.

Other Costs of Revenues and Gross Profit

Other costs of revenue for the year ended December 30, 2022 increased $16.4 million, or 9.0%, to $198.3 million, as compared to $182.0 million for the corresponding prior year period. The increase in other cost of revenues was due to the increase in revenues and was consistent as a percentage of revenues for each year. The company has been able to achieve consistent gross margins with a significant amount of work done on a cost reimbursable basis along with other projects where pricing increases have been achieved.

Operating Expense

Operating expense for the year ended December 30, 2022 increased by $11.5 million, or 5.1%, to $238.7 million as compared to $227.2 million for the corresponding prior year period. For the year ended December 30, 2022, operating expense, as a percentage of revenue, decreased to 39.5% from 42.2% for the year ended December 31, 2021 as the Company has been able to scale the business and manage costs. Depreciation and amortization expense increased due to the additional intangible assets recorded in connection with the acquisitions completed since December 31, 2021.

Interest Expense

Interest expense for the year ended December 30, 2022 decreased by $8.5 million, or -15.4%, to $46.4 million, as compared to $54.8 million for the corresponding prior year period. The prior year period included a write-off of deferred financing costs of $15.2 million in connection with the Atlas 2021 Credit Agreement, which were completed in 2021. Excluding this from the prior period results in interest expense increasing $6.7 million from the additional debt related to the costs of the acquisitions completed since December 31, 2021 as well as an approximate 2% increase in the average borrowing rate as the Company’s debt is partly based on LIBOR rates which have increased over the prior period.

Income Tax Expense

Income tax expense for the year ended December 30, 2022 was $1.7 million, compared to income tax expense of $2.5 million for the year ended December 31, 2021. The Company’s overall effective tax rate is low as the Company is in a loss position and does not have prior year income taxes to apply the losses to and recover prior taxes.

Provision for Non-controlling Interest

The provision for non-controlling interest for the year ended December 30, 2022 decreased by $12.6 million or -95.7% to $0.6 million from $13.2 million for the corresponding period as a function of the level of participation of the non-controlling interests which was 5.9% in the current period compared to 22.7% in the prior period.

Redeemable Preferred Stock Dividends

We redeemed the Preferred Units in February 2021 and therefore had no redeemable preferred stock dividends for the year ended December 30, 2022. Redeemable preferred stock dividends for the year ended December 31, 2021 were $5.9 million.

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA

We view adjusted EBITDA, which is a non-GAAP financial measure, as an important indicator of performance. We define adjusted EBITDA as net income before interest expense, provision for income taxes, depreciation, and amortization, further adjusted to reflect non-cash equity compensation as well as certain one-time or non-recurring items.

We believe adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at adjusted EBITDA because these amounts are either non-recurring or can vary substantially within the industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income determined in accordance with GAAP. Certain items excluded from adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in adjusted EBITDA. Our presentation of adjusted EBITDA should not be construed as an indication that results will be unaffected by the items excluded from adjusted EBITDA. Our computations of adjusted EBITDA may not be identical to other similarly titled measures of other companies.

The following table presents reconciliations of adjusted EBITDA to net income, our most directly comparable financial measure calculated and presented in accordance with GAAP.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity and capital resources are our cash and cash equivalents balances, cash flow from operations, borrowings under the Credit Agreements (as defined below), and access to financial markets. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures, repayment of debt and acquisition expenditures. We believe our sources of liquidity, including cash flow from operations, existing cash and cash equivalents and borrowing capacity under the Credit Agreements will be sufficient to meet projected cash requirements for at least the next twelve months.

As of December 30, 2022, we had total liquidity of $52.8 million compared to liquidity of $50.7 million as of December 31, 2021.

The Company has experienced increased working capital outflows relating to the increase in interest charges and from overall growth in operations.

On June 6, 2022, we entered into an interest rate cap as described in “Note 6 — Long-Term Debt” to the consolidated financial statements to hedge against the risk of Adjusted LIBOR exceeding 3%.

On August 4, 2022, we entered into an agreement to amend the ABL Revolver Agreement to increase the revolving credit facility to $60.0 million as described in “Note 6 — Long-Term Debt” to the consolidated financial statements.

Cash Flows

The following table sets forth our cash flows for the periods indicated.

Comparison of the Year Ended December 30, 2022 to the Year Ended December 31, 2021

Cash and Cash Equivalents.

At December 30, 2022 and December 31, 2021, we had $5.8 million and $10.7 million of cash and cash equivalents, respectively.

Operating Activities

Cash flow from operating activities is primarily generated from operating income from our professional and technical testing, inspection, engineering and consulting services.

Net cash provided by operating activities was $2.2 million for the year ended December 30, 2022, compared to $29.1 million for the year ended December 31, 2021. The decrease of $26.9 million was primarily due to higher interest expense and a higher use of cash related to working capital.

Investing Activities

Net cash used in investing activities was ($38.1) million for the year ended December 30, 2022, compared to ($36.5) million for the year ended December 31, 2021. The usage of cash was related to our acquisitions of TranSmart and 1 Alliance in March 2022 and other capital expenditures. The prior year period included the cash cost of the AEL and O’Neill acquisitions which were slightly higher cash outflows compared to the current period acquisitions.

Financing Activities

Net cash provided by financing activities was $31.0 million for the year ended December 30, 2022, compared to $4.1 million provided by during the year ended December 31, 2021. The $26.9 million increase to net cash provided by financing activities was due to borrowings on the Term Loan and Line of Credit to fund the 2022 acquisitions described above and to fund operations.

Working Capital

Working capital, or current assets less current liabilities, increased by $20.9 million, or 25.6%, to $102.2 million at December 30, 2022 from $81.3 million at December 31, 2021. This increase was due primarily to the acquisitions in 2022.

Debt Arrangements

On February 25, 2021, Atlas Intermediate, as the borrower, entered into two new credit facilities consisting of (i) a $432.0 million senior secured term loan at closing and, subject to the satisfaction of certain terms and conditions, a committed delayed draw term loan facility to be used for future acquisitions, within 18 months of February 25, 2021 and subject to certain conditions, in an aggregate principal amount of up to $75.0 million, of which $61 million was used (no remaining amounts are available as the 18 month period has expired), and an uncommitted incremental term loan facility that may be incurred after closing (the “Term Loan”) pursuant to a Credit Agreement dated February 25, 2021, by and among Holdings, Atlas Intermediate, Wilmington Trust, National Association, as administrative agent and collateral agent, and certain lenders thereto, including certain Blackstone entities, which may include, Blackstone Alternative Credit Advisors LP, and its managed funds and accounts, and its affiliates, Blackstone Holdings Finance Co. L.L.C. and its affiliates, and/or certain other of their respective funds, accounts, clients managed, advised or sub-advised, or any of their respective affiliates (the “Term Loan Agreement”) and (ii) a $40.0 million senior secured revolver which aggregate principal amount may be increased, subject to the satisfaction of certain terms and conditions, including obtaining commitments therefor, by up to $20.0 million (the “Revolver”) pursuant to the Credit Agreement dated February 25, 2021, by and among Holdings, Intermediate, JPMorgan Chase Bank, N.A., as administrative agent, swingline lender, issuing bank, lender, sole bookrunner and sole lead arranger (the “ABL Revolver Agreement,” and together with the Term Loan Agreement, collectively the “Credit Agreements”). The Term Loan Agreement refinances the Credit Agreement dated as of February 14, 2020, with Macquarie Capital Funding LLC, as administrative agent and certain lenders (“Atlas Credit Agreement”), which repayment was effectuated partially in cash and partially by way of a cashless exchange of existing term loans and preferred equity for Term Loans.

The Term Loan Agreement and ABL Revolver Agreement are collectively referred to as the “Credit Agreements” by the Company.

The initial Term Loan will mature on February 25, 2028 and the Revolver will mature on February 25, 2026.

On August 4, 2022, Holdings, Intermediate, certain subsidiaries of Holdings (collectively with Holdings and Intermediate, the “Loan Parties”) and the Administrative Agent (as defined below) entered into the First Amendment to Credit Agreement (the “Credit Agreement Amendment”), which amends that certain Credit Agreement, dated as of February 25, 2021 by and among the Loan Parties and JPMorgan Chase Bank, N.A., as administrative agent, swingline lender, issuing bank, lender, sole bookrunner and sole lead arranger (the “Administrative Agent”). The Credit Agreement Amendment amended the Credit Agreement to, among other matters, increase the revolving credit facility thereunder by $20.0 million to an aggregate principal amount of $60.0 million.

Interest on any outstanding borrowings is payable monthly under the ABL Revolver Agreement, quarterly under the Term Loan Agreement or, in each case, at the end of the applicable interest period in arrears. The cash interest rates under the Term Loan Agreement will be equal to either (i) the Adjusted LIBO Rate (as defined in the Term Loan Agreement), plus 5.50%, or (ii) an Alternate Base Rate (as defined in the Term Loan Agreement), plus 4.50%. In addition, the term loan requires an additional 2.0% interest that can be made at the option of the Company in cash or payment-in-kind (PIK). The interest rates under the ABL Revolver Agreement will be equal to either (i) the Adjusted LIBO Rate (as defined in the ABL Revolver Agreement), plus 2.50%, or (ii) the ABR (as defined in the ABL Revolver Agreement), plus 1.50%.

The Credit Agreements are guaranteed by Holdings and secured by (i) in the case of the ABL Revolver Agreement, a first priority security interest in the current assets, including accounts receivable, of Holdings, Intermediate and its subsidiaries and (ii) in the case of the Term Loan Agreement, a pledge of the equity interests of the subsidiaries of Holdings and Intermediate, and subject to the first lien security interest on current assets under the Revolver, a first priority lien on substantially all other assets of Holdings, Intermediate and all of their direct and indirect subsidiaries.

The Term Loan Agreement contains a financial covenant which requires Holdings, Atlas Intermediate and all of their direct and indirect subsidiaries on a consolidated basis to maintain a Total Net Leverage Ratio (as defined in each of the Credit Agreements) tested on a quarterly basis that does not exceed (i) 8.25 to 1.00 with respect to the fiscal quarters ending on April 2, 2021 and July 2, 2021, (ii) 8.00 to 1.00 for the fiscal quarters ending October 1, 2021 and December 31, 2021, (iii) 7.50 to 1.00 for the fiscal quarters ending April 1, 2022 and July 1, 2022, (iv) 7.25 to 1.00 for the fiscal quarters ending September 30, 2022 and December 30, 2022, (v) 7.00 to 1.00 for the fiscal quarters ending March 31, 2023 and June 30, 2023, (vi) 6.75 to 1.00 for the fiscal quarters ending September 29, 2023 and December 29, 2023, and (vii) 6.50 to 1.00 for March 29, 2024 and each fiscal quarter ending thereafter.

The ABL Revolver Agreement contains a “springing” financial covenant which requires Holdings, Intermediate and all their direct and indirect subsidiaries on a consolidated basis to maintain a Fixed Charge Coverage Ratio (as defined in the ABL Revolver Agreement) of no less than 1.10 to 1.00 when the outstanding principal amount of loans under the Revolver exceeds $0 or the aggregate exposure for letters of credit under the Revolver exceeds $5.0 million.

The Company has been in compliance with the terms of the Credit Agreements as of December 30, 2022 and December 31, 2021, respectively.

Our debt balances are summarized as follows:

The following table presents, in thousands, scheduled maturities of the Company’s debt as of December 30, 2022:

The Credit Agreements require annual amortization of principal amounts of 1% or 2.5% depending on certain ratios. The Company is currently within the ratio that requires 1% annual amortization. Principal repayments commenced during the second quarter 2022.

 Effective Interest Rate

Our average effective interest rate on our total debt, exclusive of amortization of deferred debt issuance costs, during the year ended December 30, 2022 and December 31, 2021 was 9.4% and 8.2%, respectively.

Interest expense, inclusive of amortization of deferred debt issuance costs, in the consolidated statements for the year ended December 30, 2022 and December 31, 2021 was $46.4 million and $54.8 million, respectively. If the amortization of deferred debt issuance costs were excluded, interest expense would be $44.9 million and $39.6 million for the years ended December 30, 2022 and December 31, 2021, respectively.

Interest Rate Cap

In June 2022, the Company entered into a deferred premium interest rate cap which limits the Adjusted LIBOR rate noted above to 3%. The interest rate cap hedges $500.0 million of debt and has a three-year term and will be paid for monthly at an annual rate of 0.69% or approximately $10.5 million over the three-year period. As a result, the Company initially recorded an asset and a corresponding liability for $10.5 million. Six monthly payments have been made as of December 30, 2022. The Company applies hedge accounting and records any change in fair value as a component of stockholders’ equity. The fair value of the interest rate cap as of December 30, 2022 increased $9.1 million and therefore there was a gain of $11.5 million recorded in OCI for the year ended December 30, 2022. The asset is included in other long-term assets and the liability is recorded as an other current liability of $3.4 million and an other long-term liability of $4.9 million as of December 30, 2022. The interest rate cap has already provided benefit to the Company with LIBOR rates exceeding 3% as of December 30, 2022.

Other Commitments and Contingencies

In connection with our acquisitions, we may be required to pay earnout bonuses upon the achievement of certain performance targets. This amount may be paid in installments over the first, second and third anniversaries of the acquisitions and may be paid in cash or stock. We have currently accrued $23.1 million as the fair value of that liability within our Consolidated Balance Sheet at December 30, 2022. Actual payouts may vary based on achievement of future results.

As part of our self-insurance policies, we are required to furnish standby letters of credit to our reinsurers. We had $3.7 million of standby letters of credit in effect as of December 30, 2022.

The Company enters into operating leases relating to office space and equipment leases in the ordinary course of business. Remaining amounts due, in thousands, as of December 30, 2022 are as follows:

During 2020, the Company entered into an agreement with its fleet management company pursuant to which it would receive rebates of $1.3 million to be repaid over three years at an interest rate of 2.85% per annum. The rebates were secured by title to selected vehicles within the Company’s owned fleet of vehicles in Georgia and California.

During the fourth quarter of the year ended December 31, 2021, the Company entered into a similar agreement with its fleet management company in which it would receive $1.6 million secured by vehicles owned by O’Neill. Financial terms for the O’Neill transaction were similar to the agreement entered into during 2020.

Remaining payments are as follows (in millions):

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements and related disclosures 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 income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:

Revenue Recognition

Our accounting policies establish principles for recognizing revenue upon the transfer of control of promised goods or services to customers. We generally recognize revenues over time as performance obligations are satisfied. In the course of providing these services, we may subcontract for services and incur other direct costs on behalf of our clients. These costs are passed through to clients, and in accordance with accounting rules, are included in our revenue and cost of revenue. Please refer to Note 2 “Summary of Significant Accounting Policies,” to the Consolidated Financial Statements for further information.

Recent accounting pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.

Off-Balance Sheet Arrangements

As of December 30, 2022, we had no material off-balance sheet arrangements.

Effects of Inflation

Based on the analysis of the periods presented, we believe that inflation has not had a material effect on our operating results for the year ended December 30, 2022. However, interest rates have continued to rise and the additional interest expense expected to be paid over the next twelve months will be higher than the previous twelve months. For every 1% increase in LIBOR, we would experience $5 million in additional interest (see disclosures related to the interest rate cap entered into during the second quarter of 2022). In addition, the Company has experienced higher costs to replace comparable employees as certain labor markets have tightened and for employees opting to return to work post COVID-19.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and related notes required by this item are included in Part IV of this Annual Report on Form 10-K. 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of December 30, 2022, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of December 30, 2022, our disclosure controls and procedures were effective.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Management’s Report on Internal Controls Over Financial Reporting

As required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at December 30, 2022. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments and those criteria, management determined that we maintained effective internal control over financial reporting as of December 30, 2022.

This Annual Report on Form 10-K does not include an attestation report of internal controls from our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

As of the date of this Annual Report on Form 10-K, our directors and officers are as follows:

Brian K. Ferraioli has served as Executive Chairman of the Board, and as a director of the Company, since February 2020. Mr. Ferraioli is also an Operating Partner at Bernhard Capital Partners, and has worked with the firm since 2019. Mr. Ferraioli served as Executive Vice President and Chief Financial Officer of KBR, Inc., an engineering, construction and professional services company, from 2013 to 2017. Prior to KBR, Mr. Ferraioli was Executive Vice President and Chief Financial Officer at The Shaw Group, Inc. (“The Shaw Group”), an engineering, technology and services company, from July 2007 to February 2013, when the company was acquired by another public company which is now part of McDermott International, Ltd.. Prior to joining The Shaw Group, Mr. Ferraioli served as Vice President and Controller of Foster Wheeler, AG, a global engineering conglomerate which is now part of John Wood Group, PLC. Mr. Ferraioli is a director and former chair of the audit committee of Vistra Corp. a leading Fortune 275 integrated retail electricity and power generation company. Mr. Ferraioli also previously served as a director and chair of the audit committee for Team, Inc., Charah Solutions, Inc., and Babcok & Wilcox Enterprises. Mr. Ferraioli has approximately 40 years of experience in senior finance and accounting roles in the engineering and technical services industries and is also a National Association of Corporate Directors Governance Fellow. Mr. Ferraioli received his B.S. in accounting from Seton Hall University and his M.B.A. from Columbia University. The Board believes Mr. Ferraioli’s extensive leadership experience as both an executive and director of engineering and technical services companies, in addition to his wealth of knowledge pertaining to public company corporate governance, provides significant contributions to the Board.

L. Joe Boyer has served as a director since February 2020 and as the Company’s Chief Executive Officer since October 2017. Prior to becoming the Company’s Chief Executive Officer, Mr. Boyer served as a consultant to Bernhard Capital Partners in connection with its infrastructure delivery services business from August 2016 to October 2017. From March 2013 to February 2016, Mr. Boyer was Chief Executive Officer of Atkins’ North American arm. From 2003 to 2013, Mr. Boyer held several senior management positions at Shaw Environmental & Infrastructure, most notably as President for its Federal Division. Mr. Boyer served on the Board of Directors and Compensation Committee of Municipal Utility District 5 in Austin from 2016 to 2017. Mr. Boyer holds an M.B.A. from Pepperdine University and a B.S. in Architectural Engineering from The University of Texas at Austin. The Board believes Mr. Boyer’s leadership roles within our Company and his extensive industry experience provide an exceptional breadth and depth of knowledge and understanding of both our Company and the professional testing, inspection, engineering, environmental and consulting industry as a whole.

R. Foster Duncan has served as a director of the Company since February 2020. Mr. Duncan joined Bernhard Capital Partners as an Operating Partner in December 2013. Mr. Duncan has more than 30 years of senior corporate, private equity and investment banking experience. Previously, Mr. Duncan held various positions in the private equity industry, including Managing Member of KD Capital L.L.C., an affiliate of Kohlberg Kravis Roberts & Co. L.P. (“KKR”), a global investment firm. Mr. Duncan was located in KKR’s New York office and worked exclusively with KKR and its portfolio companies in connection with creating value and identifying and investing in the energy, utility, natural resources and infrastructure sectors. Previously, Mr. Duncan was Executive Vice President and CFO of Cinergy Corporation (“Cinergy”), a Fortune 250 energy and utility company, Chairman of Cinergy’s Investment Committee and CEO and President of Cinergy’s Commercial Business Unit. Prior to his time at Cinergy, he held senior management positions with LG&E Energy Corp., a utilities company, as a member of the Office of the Chairman and Executive Vice President and CFO. Mr. Duncan serves on the board of directors of Atlantic Power Corporation in Boston, Massachusetts where he is chairman of the audit committee, and is also a member of the compensation, operating and nominating and governance committees. He also previously served as a director of Essential Power, LLC, a portfolio company of Industry Funds Management (US), LLC and the Advisory Council of Greentech Capital Advisors in New York. Mr. Duncan graduated with distinction from the University of Virginia and received his M.B.A. from the A.B. Freeman Graduate School of Business at Tulane University. The Board believes Mr. Duncan’s extensive financial and executive leadership experience brings invaluable expertise and skill to the Board.

Leonard K. Lemoine has served as a director of the Company since February 2020. Mr. Lemoine is the President and Chief Executive Officer of the Lemoine Company, LLC (“Lemoine”), a position he has held since January 2011. Mr. Lemoine founded Lemoine in 1975 and the company has steadily grown from a small construction company to one of the most respected, full-service contracting and construction management firms in the Southeastern United States. Lemoine constructs and manages projects ranging from minor interior renovations to some of the most complex healthcare facilities, commercial public and industrial landmarks in the Southeastern United States. Mr. Lemoine received his B.S. from Louisiana State University in 1979. The Board believes Mr. Lemoine provides valuable insights to the Board due to his extensive expertise and understanding of the construction management industry built through decades of industry experience.

Daniel G. Weiss has served as a director of the Company since February 2020. Mr. Weiss has been co-founder and Managing Partner of Angeleno Group LLC (“AG”), a Los Angeles-based private equity firm with a global platform focused on high growth investments in next generation clean energy and climate solutions technology companies, since AG’s founding in 2001. In addition to his firm management responsibilities, Mr. Weiss leads investments and serves on boards of multiple AG portfolio companies. Prior to the formation of AG, Mr. Weiss was an attorney at O’Melveny & Myers in Los Angeles from 1998 to 1999. Mr. Weiss has served as a member of the board of directors of TPI Composites, Inc., a renewable energy manufacturing company, since 2009. Currently, Mr. Weiss serves on boards or public commissions for a number of non-profit and government organizations including the California Community Foundation, World Resources Institute, and the UCLA Institute of the Environment and Sustainability (where he serves as co-Chair). Mr. Weiss holds a J.D. from Stanford Law School, an M.A. from Stanford University and a B.A. with high honors from U.C. Berkeley. The Board believes Mr. Weiss brings to the Board a deep understanding of both the private and public sectors in which the Company operates, as well as unique and valuable expertise in the environmental and sustainability space.

Thomas H. Henley has served as a director of the Company since March 2020. Mr. Henley joined Bernhard Capital Partners as a member of the firm’s Investment Committee in February 2019. Prior to Bernhard Capital Partners, Mr. Henley served as the Senior Managing Director of Strategic Opportunities for the UAW Retiree Medical Benefits Trust, a purchaser of retiree healthcare benefits, from March 2016 to February 2019. Mr. Henley currently serves as a member of the board of directors for Lazarus Energy Holdings, an investment holding company, and has served in such capacity since 2006. Mr. Henley received his B.S. in Petroleum Engineering from Stanford University and his M.B.A. from the Anderson Graduate School of Management at UCLA. The Board believes Mr. Henley’s advisory and investment experience and business acumen brings important insight to the Board.

Raquel G. Richmond has served as a director of the Company since November 2020. Ms. Richmond has been a Senior Account Manager at Greenup Industries, LLC since January 2019 and has been a realtor for Greenup & Associates, LLC in New Orleans since June 2015. Ms. Richmond previously served as the President of Rock Consulting Services, LLC in New Orleans and as Project Manager at the U.S. Army Corps of Engineers on the Hurricane Storm Damage Risk Reduction System (HSDRRS), a $14 billion infrastructure system in Southern Louisiana. Ms. Richmond has over fifteen years of experience working on federal, state and local infrastructure projects and over twenty years of experience in the professional services sector. She holds an M.A. in Education Administration and a B.A. in Psychology, both from the University of New Orleans. The Board believes Ms. Richmond’s extensive experience in the professional services sector and experience with federal, state and local infrastructure projects brings significant contributions to the Board.

Collis Temple, III has served as a director of the Company since April 2021. Mr. Temple is a National Sales Director and agency owner with Primerica, an international financial and insurance services organization, where he has held various leadership positions of increasing responsibility since joining in 2004. Mr. Temple has served on the Louisiana Board of Regents since 2015, on the board of directors of the Knock Knock Children’s Museum since 2018 and on the 100 Black Men of Metro Baton Rouge and Career Compass since 2010. He also served on the board of directors of Mary Bird Perkins Cancer Center from 2018 to 2020. Mr. Temple received a B.S. in General Business and a M.S. in Sports Management from Louisiana State University. The Board believes Mr. Temple brings significant leadership experience and financial acumen to the Board, as well as a strong network of long-standing professional relationships built on decades spent in the Southeastern United States.

David D. Quinn Sr. has served as the Company’s Chief Financial Officer since May 2020. Prior to becoming Chief Financial Officer, Mr. Quinn served as the Company’s Executive Vice President, Corporate Affairs beginning in September 2019. Prior to joining the Company, Mr. Quinn held multiple executive level financial, administrative and operational roles. Mr. Quinn spent much of his early career, nearly 18 years, working within The Shaw Group family of companies, beginning in September 1996 with the OHM Corporation. Mr. Quinn held the role of Vice President of Business Management with The Shaw Group when ultimately acquired by Chicago Bridge and Iron in February 2013. In July 2013, Mr. Quinn joined Atkins North America where he served in the Chief Financial Officer, Chief Operating Officer and Chief Executive Officer capacities. Mr. Quinn served on the Board of Directors of Atkins North America from 2014 to 2019. Mr. Quinn obtained a B.A. in political science and economics from the University of Massachusetts, an M.B.A. from Norwich University, an executive certificate in management and leadership from the MIT Sloan School of Management, and a leadership certificate from the University of Oxford Saïd Business School.

Kenneth J. Burns, Jr. has served as the Company’s Chief Operating Officer since July 2021. Mr. Burns has more than 33 years of delivery experience that includes business operations, program and project delivery expertise, and strategy and sales for transportation and infrastructure businesses. Prior to joining the Company, Mr. Burns served as Chief Operating Officer for Atkins, NA (“Atkins”) from June 2019 to June 2021 and as DOT Business Unit Director for Atkins from 2016 to June 2019. In overseeing Atkins’ business units, Mr. Burns established a strong operational and financial performance matrix and ensured compliance with safety, quality, commercial and operational protocols. Mr. Burns is a proven leader with extensive management and operational experience delivering for diverse clients including private, local, state, and federal agencies. Before becoming Chief Operating Officer at Atkins, Mr. Burns managed the two largest national business for Atkins spanning the transportation and municipal infrastructure industries. A graduate of the University of Tennessee, he holds a B.S. in civil engineering and is registered as a professional engineer in seven states and the territory of Guam.

Harshal B. Desai has served as the Company’s Chief Growth Officer since March 2023 and is responsible for driving organic growth by focusing on major accounts and marquee projects in key end markets. Mr. Desai brings over 20 years of experience in the architectural engineering and construction industry and has been involved with major infrastructure projects in U.S. and beyond, with end markets including transportation, water, federal, and power. Prior to joining the Company, he served as Building Business Development and Strategy Director for Atkins’ beginning in 2015. Mr. Desai is a registered professional engineer with a B.S. in Civil Engineering from Gujarat University, and a Master’s in Civil Engineering from Purdue University.

Walter G. Powell has served as the Company’s Chief Accounting Officer since May 2020. Prior to becoming Chief Accounting Officer, Mr. Powell served as the Company’s Chief Financial Officer beginning in November 2017. Prior to becoming Chief Financial Officer of the Company, Mr. Powell served as an audit partner with Deloitte & Touche LLP for ten years, responsible for audits of public and private companies ranging in size from $20 million in revenue to $40 billion in revenue. Mr. Powell holds a B.S. in accounting from the University of New Orleans. He is a Certified Public Accountant and a member of the American Institute of CPAs.

John A. Mollere has served as the Company’s Chief Administrative Officer since January 2019. Mr. Mollere brings over 25 years of experience and leadership in corporate administration. Prior to joining the Company, Mr. Mollere served most recently as Chief Administrative Officer of ATC Group Services, a leading environmental consulting and engineering firm with locations across the United States which merged with the Company in 2019, from September 2005 to January 2019. There, Mr. Mollere led a diverse team of administrative professionals including legal, risk management, health and safety, procurement, information technology, and marketing communications. Prior to joining ATC Group Services, Mr. Mollere held a leadership position for over a decade in the risk management division of Fortune 500 company, The Shaw Group (now part of McDermott International, Inc.), where he served in multiple management roles from August 1994 to September 2005. Mr. Mollere has a B.S. in Toxicology from Northeast Louisiana University and is a Certified Safety Professional.

Jonathan M. Parnell has served as the Company’s Chief Strategy Officer since February 2021. Prior to that, Mr. Parnell was Vice President — Mergers and Acquisitions since February 2020 and Director of M&A and Integration from January 2019 to February 2020. Under both roles, Mr. Parnell led the Company’s Mergers & Acquisitions department. Prior to joining the Company, Mr. Parnell was the Director of Mergers & Acquisitions and Integration with ATC Group Services from April 2018 to January 2019 and Integration Manager for ATC from July 2016 to April 2018. Prior to ATC, he was the Commercial Manager for ARMS Reliability from May 2015 to July 2016. Mr. Parnell holds a B.S. in Business Administration from Louisiana State University and an M.B.A. from the McCombs School of Business at the University of Texas at Austin.

Information Concerning the Board, Committees and Governance

The Board is divided into three classes with only one class of directors being elected each year. The term of office of the Class I directors, consisting of Ms. Richmond and Messrs. Boyer and Ferraioli, will expire at the 2023 annual meeting. The term of office of the Class II directors, consisting of Messrs. Duncan and Weiss, will expire at the 2024 annual meeting. The term of the Class III directors, consisting of Messrs. Henley, Lemoine and Temple, will expire at the 2025 annual meeting. The NASDAQ listing standards require that a majority of the Board be independent. The Board has determined that each of Ms. Richmond and Messrs. Duncan, Ferraioli, Henley, Lemoine, Temple and Weiss are independent within the meaning of NASDAQ Listing Rule 5605(a)(2). In addition, the Board determined Mr. Boyer is not independent due to his service as our Chief Executive Officer.

We have adopted corporate governance guidelines and charters for the Audit, Compensation and Nominating, Corporate Governance and Sustainability Committees of the Board intended to satisfy NASDAQ listing standards. We have also adopted a code of business conduct and ethics for our directors, officers and employees intended to satisfy NASDAQ listing standards and the definition of a “code of ethics” set forth in applicable SEC rules. Our corporate governance guidelines, code of business conduct and ethics and committee charters are available on our website at www.oneatlas.com under the “Investors” tab. The information on our website is not part of or incorporated by reference into this Annual Report.

The Board held eight meetings during 2022. During 2022, each of our incumbent directors attended at least 75% of the meetings of the Board held during the period in which such incumbent director served on the Board. During 2022, Mr. Duncan served as the Chair of the Audit Committee of the Board (the “Audit Committee”). Mr. Weiss served as the Chair of the Compensation Committee. Mr. Henley served as the Chair of the Nominating, Corporate Governance and Sustainability Committee. We have a policy that all directors of the Board must attend the annual meeting, absent unusual circumstances. In 2022, all of the then-current directors of the Board attended the annual meeting.

Committees of the Board

Members of our Audit, Compensation, and Nominating, Corporate Governance and Sustainability Committees serve on these committees until their resignation or until otherwise determined by the Board.

Audit Committee

The NASDAQ rules and Section 10A of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors. We have established the Audit Committee, which consisted of Messrs. Duncan, Ferraioli and Temple, with Mr. Duncan serving as the Chair of the Audit Committee. The Board has determined that each of Messrs. Duncan, Ferraioli and Temple meets the independent director standards under NASDAQ listing standards and under Rule 10A-3(b)(1) of the Exchange Act. The Company also believes that each of Messrs. Duncan and Ferraioli qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC. The Audit Committee held four meetings during 2022. During 2022, each member of the Audit Committee attended at least 75% of the meetings occurring during such member’s tenure on the Audit Committee.

The principal functions of the Audit Committee are detailed in the Audit Committee charter, which is available on the Company’s website at www.oneatlas.com, under the “Investors” tab and include, among others:

Compensation Committee

We have established the Compensation Committee, which during 2022 consisted of Messrs. Duncan, Lemoine and Weiss, with Mr. Weiss serving as the Chair of the Compensation Committee. The Board has determined that Messrs. Duncan, Lemoine and Weiss meet the independent director standards under NASDAQ listing standards, including the heightened standards that apply to compensation committee members. The Compensation Committee held five meetings during 2022. During 2022, each member of the Compensation Committee attended at least 75% of the meetings occurring during such member’s tenure on the Compensation Committee.

The principal functions of the Compensation Committee are detailed in the Compensation Committee charter, which is available on the Company’s website at www.oneatlas.com, under the “Investors” tab and include, among others:

The charter also provides that the Compensation Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other advisor and will be directly responsible for the appointment, compensation and oversight of the work of any such advisor. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other advisor, the Compensation Committee will consider the independence of each such advisor, including the factors required by NASDAQ and the SEC.

Nominating, Corporate Governance and Sustainability Committee

We have established the Nominating, Corporate Governance and Sustainability Committee, which during 2022 consisted of Ms. Richmond and Messrs. Henley and Weiss, with Mr. Henley serving as the Chair of the Nominating, Corporate Governance and Sustainability Committee. The Board has determined that each of Ms. Richmond and Messrs. Henley and Weiss meet the independent director standard under NASDAQ listing standards. The Nominating, Corporate Governance and Sustainability Committee held three meetings in 2022, and each member of the Nominating, Corporate Governance and Sustainability Committee during 2022 attended at least 75% of those meetings during such member’s tenure on the Nominating, Corporate Governance and Sustainability Committee.

The principal functions of the Nominating, Corporate Governance and Sustainability Committee are detailed in the Nominating, Corporate Governance and Sustainability Committee charter, which is available on the Company’s website at www.oneatlas.com, under the “Investors” tab and include, among others:

The Nominating, Corporate Governance and Sustainability Committee also develops and recommends to the Board corporate governance principles and practices and assists in implementing them, including conducting a regular review of our corporate governance principles and practices.

The Nominating, Corporate Governance and Sustainability Committee has not established any minimum qualifications for non-employee director candidates that it recommends for nomination. Subject to the Nomination Agreement discussed under Item 13 in this Annual Report, which provides certain of our stockholders with rights to designate director nominees, the Nominating, Corporate Governance and Sustainability Committee expects to use a variety of methods for identifying and evaluating nominees for director. In recommending director nominees to the Board apart from those nominees designated pursuant to the Nomination Agreement, the Nominating, Corporate Governance and Sustainability Committee will identify and screen director candidates (including incumbent directors for potential re-nomination and candidates recommended by stockholders in accordance with the Company’s policies as set forth in its proxy statement) consistent with criteria approved by the Board.

The Nominating, Corporate Governance and Sustainability Committee may also engage the services and pay the fees of external counsel and expert advisors, at the Company’s expense, to assist it in identifying potential director nominees or otherwise carrying out its duties and responsibilities. Subject to the Nomination Agreement, the Nominating, Corporate Governance and Sustainability Committee will assess the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. If vacancies are anticipated, or otherwise arise, and the designation provisions of the Nomination Agreement do not apply, the Nominating, Corporate Governance and Sustainability Committee will consider whether and how to fill those vacancies and, if applicable, will consider various potential director candidates. Since the Atlas Business Combination, the Nominating, Corporate Governance and Sustainability has nominated, and the Board has approved, the appointment of two directors to the Board who are not affiliated with our sponsor, Boxwood Sponsor, LLC ( “Boxwood Sponsor”), thus increasing the number of independent directors on the Board under SEC and NASDAQ rules. Each of Messrs. Duncan, Henley, Ferraioli and Lemoine was appointed to the Board pursuant to the Nomination Agreement.

The Nominating, Corporate Governance and Sustainability Committee has not adopted specific, minimum qualifications or specific qualities or skills that must be met by a Nominating, Corporate Governance and Sustainability Committee-recommended nominee. The Nominating, Corporate Governance and Sustainability Committee will seek to ensure that the membership of the Board and each committee of the Board satisfies all relevant NASDAQ listing standard requirements and applicable laws and regulations and all requirements of our governance documents. The nature of the specific qualifications, qualities, experience or skills (including international versus domestic background, diversity, age, and legal and regulatory requirements) that the Nominating, Corporate Governance and Sustainability Committee may look for in any particular director nominee who is not a designee under the Nomination Agreement will depend on the qualifications, qualities and skills of the rest of the directors at the time of any vacancy on the Board. The Nominating, Corporate Governance and Sustainability Committee does not have a formal policy regarding the consideration of diversity in identifying director nominees beyond being seeking to establish a board that contains a diversity of viewpoints, backgrounds and experiences.

The Nominating, Corporate Governance and Sustainability Committee will also consider director candidates recommended for nomination by our stockholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting. Our stockholders that wish to nominate a director for election to the Board should follow the procedures set forth in our certificate of incorporation and bylaws.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The code of business conduct and ethics is available on our website at www.oneatlas.com, under the “Investors” tab. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of the code of business conduct and ethics applicable to the principal executive officer, principal financial officer, principal accounting officer and other persons performing similar functions by posting such information in the “Investors” subsection of the Company’s website at www.oneatlas.com.

Insider Trading and Policy on Hedging or Pledging of Stock

We have adopted an insider trading policy that contains stringent restrictions on transactions in Company stock by executive officers, directors and certain other Company personnel. All trades by executive officers and directors must be pre-cleared and may only occur during a quarterly permitted period based on the timing of the release of the Company’s quarterly or annual financial results. Senior personnel of the Company are prohibited from selling any equity security of the Company if such person either (a) does not own the security sold or (b) does not deliver the security against such sale within twenty days thereafter or does not within five days after such sale deposit the security in the mails or other usual channels of transportation. Further, senior personnel of the Company are prohibited from purchasing, selling or engaging in any other transaction involving any derivative securities related to any equity securities of the Company. A “derivative security” includes any option, warrant, convertible security, stock appreciation right or similar security with an exercise or conversion price or other value related to the value of any equity security of the Company.

Board Leadership Structure and Role in Risk Oversight

Brian Ferraioli serves as the Chairman of the Board and L. Joe Boyer serves as our Chief Executive Officer. We believe that the most effective leadership structure at the present time is to have separate Chairman and Chief Executive Officer positions because this allows the Board to benefit from having two strong voices bringing separate views and perspectives to meetings. The Board periodically reviews the leadership structure and may make changes in the future.

The Board is responsible for overseeing the overall risk management process of the Company. Risk management is considered a strategic activity within the Company and responsibility for managing risk currently rests with executive management, while the Board participates in the oversight of the process. The oversight responsibility of the Board is enabled by management reporting processes designed to provide visibility to the Board about the identification, assessment and management of critical risks. Those areas of focus include strategic, operational, financial and reporting, compliance and other risks. The Audit Committee enhances the Board’s oversight of risk management and discusses with management, the independent auditor and the internal auditor policies with respect to risk assessment and risk management, including significant operating and financial risk exposures and the steps management has taken to monitor, control and report such exposures. Further, the Compensation Committee enhances the Board’s oversight of risk management by considering the impact of the Company’s compensation plans, and the incentives created by the Company’s compensation plans, on the Company’s risk profile.

Stockholder and Interested Party Communications

Stockholders are invited to communicate to the Board or its committees by writing to: Atlas Technical Consultants, Inc., Attention: Board of Directors, c/o L. Joe Boyer, Chief Executive Officer and Director, 13215 Bee Cave Parkway, Building B, Suite 230, Austin, Texas 78738. In addition, interested parties may communicate with the Chairman of the Board or with the non-management and independent directors of the Board as a group by writing to: Atlas Technical Consultants, Inc., Attention: Chairman of the Board of Directors, c/o Brian Ferraioli, Chairman of the Board, 13215 Bee Cave Parkway, Building B, Suite 230, Austin, Texas 78738.

Executive Sessions of Non-Management Directors

The Board has a practice of holding executive sessions of the independent directors. In addition, in order to comply with the listing requirements of NASDAQ and promote good governance, our governance guidelines require that the Board hold regular executive sessions in which the non-management directors meet without any members of management present, no less frequently than twice annually, and provide that in the event that the non-management directors include directors who are not independent under the listing requirements of NASDAQ, then at least once a year, there will be an executive session including only independent directors. Each year, the Company consistently holds a number of executive sessions of independent directors at most meetings exceeding the minimum required under our governance guidelines. The purpose of these executive sessions is to promote open and candid discussion among the independent and non-management directors.

Committee Reports

Audit Committee Report

The principal purposes of the Audit Committee are to (i) oversee (a) the quality and integrity of the financial statements of the Company; (b) the Company’s financial reporting processes and financial statement audits; (c) the independent registered public accounting firm’s qualifications and independence; (d) the performance of the Company’s internal audit function and independent registered public accounting firm; (e) the Company’s system of internal controls over financial reporting, accounting, legal and regulatory compliance, and ethics, including the effectiveness of disclosure controls and controls over processes that could have a significant impact on the Company’s financial statements; and (f) the systems of disclosure controls and procedures; (ii) foster open communications among the independent registered public accounting firm, financial and senior management, internal audit and the Board; and (iii) encourage continuous improvement and foster adherence to the Company’s policies, procedures and practices at all levels. The role and responsibilities of the Audit Committee are fully set forth in the Audit Committee’s written charter, which was approved by the Board and is available on the Company’s website at www.oneatlas.com, under the “Investors” tab.

2022 Committee Engagement

In addition to the matters discussed below, the Audit Committee engages proactively with Grant Thornton and management as needed to understand the status and strategy of the Company’s audit and to discuss new accounting standards or potentially significant events that may impact the Company’s financial reporting.

Committee Composition

The Audit Committee consists of Company directors who satisfy the requirements of independence, financial literacy and other qualifications under applicable law and regulations of the SEC and the NASDAQ and is chaired by R. Foster Duncan. The Board annually reviews these standards and has determined that each of Messrs. Duncan and Ferraioli is an “audit committee financial expert” as defined by SEC and NASDAQ rules. The Audit Committee has directed the preparation of this audit committee report and has approved its content and submission to the stockholders.

Required Communications with Grant Thornton

The Audit Committee has discussed with Grant Thornton, the independent registered public accounting firm for the Company, the matters that are required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standards. The Audit Committee has received the written disclosures and letter from Grant Thornton, as required by the PCAOB, regarding Grant Thornton’s communications with the Audit Committee concerning independence and has discussed with Grant Thornton its independence. The Audit Committee has received reports from Grant Thornton and Company management relating to services provided by Grant Thornton and associated fees. In this regard, the Audit Committee has considered whether or not the provision of non-audit services by Grant Thornton for the year 2022 is compatible with maintaining the independence of the firm.

Committee Oversight and Assessment of Grant Thornton

In connection with the evaluation, appointment and retention of the independent registered public accounting firm, each year the Audit Committee reviews and evaluates the qualifications, performance and independence of the independent registered public accounting firm and lead partner, including consideration of input from management. In doing so, the Audit Committee considers various factors including, but not limited to: the quality of services provided; technical expertise and knowledge of the industry and the Company’s business and operations; effective communication; objectivity; independence; and the potential impact of changing the independent registered public accounting firm.

Committee Oversight of Financial Statements

The Audit Committee reviewed and discussed with Company management and Grant Thornton the audited consolidated financial statements of the Company for 2022. The Audit Committee also discussed with Grant Thornton those matters required to be discussed by the applicable requirements of the PCAOB and SEC concerning the quality of the Company’s accounting principles as applied in our financial statements. In general, these auditing standards require the independent registered public accounting firm to communicate to the Audit Committee certain matters that are incidental to the audit, such as any initiation of, or changes to, significant accounting policies, management judgments, accounting estimates and audit adjustments; disagreements with management; the independent registered public accounting firm’s judgment about the quality of our accounting principles; significant audit risks identified and any changes from planned audit strategy; the use of specialists on the audit team; and issues for which the independent registered public accounting firm have consulted outside the engagement team.

Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Compensation Committee Report

As an emerging growth company, the Company is not required to include a Compensation Discussion and Analysis section or the related Compensation Committee Report in this Annual Report. We have elected to comply with these reduced compensation disclosure requirements, as permitted under the Jumpstart our Business Startups Act of 2012, as amended.

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee serves, or served during the fiscal year ended December 31, 2022, as a member of the board of directors or compensation committee of a company that has one or more executive officers serving as a member of the Board or Compensation Committee.

ITEM 11. EXECUTIVE COMPENSATION

The following disclosure describes the material components of the compensation for the Company’s three most highly compensated executive officers, who are referred to in this section as “Named Executive Officers,” for the fiscal year ended December 31, 2022. The Company is an “emerging growth company” as defined under the Jumpstart Our Business Startups (JOBS) Act. As such, the Company meets the disclosure requirements of Item 402 of Regulation S-K by providing the reduced disclosures required of a “smaller reporting company.”

Named Executive Officers

For the fiscal year ended December 31, 2022, the Company’s Named Executive Officers were as follows:

L. Joe Boyer, Chief Executive Officer;

David D. Quinn, Sr., Chief Financial Officer; and

Ken Burns, Jr., Chief Operating Officer.

The Named Executive Officers and their titles listed in this section are as of the fiscal year ended December 31, 2022. The Named Executive Officers are employed by Atlas Technical Consultants LLC (formerly Atlas Technical Consultants Intermediate Holdco LLC), an indirect, wholly-owned subsidiary of Atlas Intermediate Holdings LLC (“Atlas Intermediate”).

Summary Compensation Table

The following table presents summary information regarding the total compensation paid to, earned by and awarded to each of the Named Executive Officers during the fiscal years ended December 31, 2022 and 2021.

Narrative Disclosure to Summary Compensation Table

Base Salary

Each Named Executive Officer’s base salary is a fixed component of annual compensation for performing specific job duties and functions. The Board has established the annual base salary for each of the Named Executive Officers at a level necessary to retain the individual’s services. For each Named Executive Officer other than the Chief Executive Officer, the Board reviews base salaries on an annual basis in consultation with the Chief Executive Officer. Subject to provisions of their respective employment agreements, as applicable, the Board has the ability to make adjustments to the base salary rates of the Named Executive Officers upon consideration of any factors that it deems relevant, including but not limited to: (a) any increase or decrease in the executive’s responsibilities, (b) the executive’s job performance and (c) the level of compensation paid to executives of other companies with which the Company competes for executive talent, as estimated based on publicly available information and the experience of members of the Board and the Chief Executive Officer. In March 2022, the Board determined to provide for base salary rate increases for the Named Executive Officers based on cost-of-living adjustments and merit. The increases were as follows: Mr. Boyer’s base salary rate increased from $600,000 to $618,000, Mr. Quinn’s base salary rate increased from $388,500 to $400,155 and Mr. Burns’s base salary rate increased from $365,000 to $372,300.

Annual Cash Incentive Plan

The Company’s annual cash incentive plan bonuses have historically been of a discretionary nature and subject to performance targets established annually by the Compensation Committee. To be eligible to receive their bonus, our Named Executive Officers must generally be employed on the last day of the applicable performance period. For 2022, each Named Executive Officer was eligible to receive a target annual bonus of the following percentage of the executive’s base salary if all performance targets were met or exceeded: 100% for Mr. Boyer, 75% for Mr. Quinn, 75% for Mr. Burns.

The amounts of the annual cash incentive plan bonuses for 2022 were determined and paid in February 2023 following the Compensation Committee’s year-end review of the applicable performance criteria. The actual amounts paid to each Named Executive Officer for service in 2022 were as follows:

Long Term Incentive Compensation

LTI Awards.    On February 14, 2020, the Board adopted the Atlas Technical Consultants, Inc. 2019 Omnibus Incentive Plan (the “Incentive Plan”) previously approved by the stockholders of the Company at the Company’s special meeting of stockholders held on February 11, 2020, effective upon the consummation of the Atlas Business Combination. The Company began offering long-term incentives to the Named Executive Officers in 2020 through grants of RSUs under the Incentive Plan.

For 2022, each of our Named Executive Officers were eligible to receive a mix of RSUs and PSUs (with Mr. Boyer receiving a mix of 40% and 60%, respectively, and the Messrs. Quinn and Burns receiving a mix of 50% and 50%, respectively) as part of their long-term incentive awards. The number of RSUs and the target number of PSUs were determined by taking each Named Executive Officer’s 2022 long-term incentive target value and dividing it by the 20-day volume weighted average price of the Company’s Class A common stock for each of the 20 trading days prior to the grant date. The resulting number of shares was then used to determine the number of RSUs and target PSUs granted to each Named Executive Officer.

Restricted Stock Unit (RSU) Awards.   

The Named Executive Officers received an award of RSUs, which vest in equal increments over a three-year period on first three anniversaries of the grant date, subject to the executive’s continued service through each applicable vesting date. For 2022, the Named Executive Officers received an award of RSUs in the following amounts: 44,077 for Mr. Boyer, 18,366 for Mr. Quinn and 18,366 for Mr. Burns. Each RSU represents the right to receive one share of Class A common stock of the Company.

Performance Stock Unit (PSU) Awards.   

For 2022, the Named Executive Officers received an award of PSUs, which vest subject to performance measures over a three-year period, in the following target amounts: 66,116 for Mr. Boyer, 18,365 for Mr. Quinn and 18,365 for Mr. Burns. The number of shares of class A common stock that will be delivered to the executive will range between 0-200% of the target number of PSUs provided in the executive’s award agreement and will be based on three performance measures over the award’s performance period, each accounting for one-third of the total number of shares (if any) to be delivered following the end of the performance period: (1) Total StockholderReturn (TSR) spread vs. TMI index; (2) Revenue (actual vs. target); and (3) Adjusted EBITDA (actual vs. target). The applicable performance period for each of the Named Executive Officers is January 1, 2022 through January 3, 2025. The executive must generally be employed on the date of settlement in order to receive their award.

Performance Stock Options.    

For 2021, Messrs. Boyer and Quinn received PSOs in the following amounts: 324,465 PSOs for Mr. Boyer and 102,739 PSOs for Mr. Quinn. These PSOs are subject to both service- and performance-based vesting conditions. Generally, the award will vest in four equal installments, in each case on the later of (i) the award’s second, third, fourth and fifth anniversary or (ii) if the Threshold Stock Price equals or exceeds $20, $25, $30 or $35, respectively; provided, that in each case, the Named Executive Officer must remain in continued service through the applicable vesting date. Any portion of the award that remains unvested or unexercised as of August 18, 2027 shall be forfeited. For purposes of this award, “Threshold Stock Price” means the average closing price per share of the Company’s common stock over any preceding 60 calendar days. No PSOs were granted to the Named Executive Officers during 2022.

Health and Retirement Benefits

The Company provides medical, dental, vision, life insurance and disability benefits to all eligible employees. The Named Executive Officers are eligible to participate in these benefits on the same basis as all other employees. The Company also maintains an executive medical reimbursement plan for certain members of senior management, including the Named Executive Officers, which provides up to 100% reimbursement for specified medical, prescription, dental and vision expenses, up to a maximum of $20,000 per year per Named Executive Officer.

The Company maintains a 401(k) savings plan that allows participants, including the Named Executive Officers, to defer cash compensation (subject to applicable Internal Revenue Service (“IRS”) guidelines). All of the Company’s employees are eligible participants. The Named Executive Officers are eligible to participate in the 401(k) plan on the same basis as all other employees. The Company may provide employer matching contributions under the 401(k) plan. In 2022, the Company’s matching contributions were equal to 100% of the first 3% of eligible compensation deferred by an employee and 50% of the next 2% of eligible compensation deferred, up to the annual allowable IRS limits. Matching contributions are 100% vested when made. In addition, the Company provides certain other perquisites to certain of the Named Executive Officers, including a car allowance and employer-paid life insurance premiums.

Employment Agreements

The Company has entered into employment agreements with each of the Named Executive Officers, the relevant terms of which are summarized below. Capitalized terms appearing in the following descriptions but not defined therein are as defined in the applicable employment agreement. The below summary is qualified in all respects by reference to the underlying employment agreement.

L. Joe Boyer.    Mr. Boyer is party to an amended and restated employment agreement with Atlas Technical Consultants LLC, effective December 17, 2021 (the “Boyer Agreement”), pursuant to which Mr. Boyer serves as Chief Executive Officer of the Company. The initial term of the Boyer Agreement is three years, with automatic one-year renewals thereafter unless either party provides at least 90 days’ prior notice of nonrenewal or otherwise terminates the agreement. Under the terms of the Boyer Agreement, Mr. Boyer initially was entitled to an annual base salary of $550,000 and an annual bonus target opportunity of 100% of Mr. Boyer’s then-current base salary (up to a maximum of 200% of Mr. Boyer’s then-current base salary), with the amount payable to be determined based on financial metrics decided by the Compensation Committee in good faith consultation with Mr. Boyer. Mr. Boyer is also eligible to receive, pursuant to the Incentive Plan, annual equity grants with a target grant date value of no less than 100% of Mr. Boyer’s then-current base salary, subject to such terms and conditions as the Compensation Committee decides. In addition to being eligible to participate in the Company’s employee benefit plans, Mr. Boyer is also eligible to receive a Company-paid life insurance policy and a monthly car allowance of no less than $1,400. Under the Boyer Agreement, Mr. Boyer is subject to certain restrictive covenants, including indefinite confidentiality and non-disparagement provisions and a 24-month post-termination non-competition and non-solicitation provisions.

David D. Quinn, Sr.    Mr. Quinn is party to an amended and restated employment agreement with Atlas Technical Consultants LLC, effective December 17, 2021 (the “Quinn Agreement”), pursuant to which Mr. Quinn serves as Chief Financial Officer. The initial term of the Quinn Agreement is three years, with automatic one-year renewals thereafter unless either party provides notice of nonrenewal or otherwise terminates the agreement. Under the terms of the Quinn Agreement, Mr. Quinn initially was eligible for an annual base salary of $370,000, an annual bonus target opportunity of 75% of Mr. Quinn’s then-current base salary and an annual equity grant pursuant to the Incentive Plan. In addition to being eligible for the Company’s employee benefit plans, Mr. Quinn is also eligible for a monthly car allowance of $1,400. Under the Quinn Agreement, Mr. Quinn is subject to certain restrictive covenants, including indefinite confidentiality and non-disparagement provisions and a 12-month post-termination non-competition and non-interference provisions; provided, that upon a termination without Cause, the non-competition covenant shall not apply and upon a termination that occurs within the 90-day period prior to or the two year period immediately following a Change in Control, the non-interference covenant shall apply for 24 months instead of 12 months.

Ken Burns, Jr.    Mr. Burns is party to an employment agreement with Atlas Technical Consultants LLC, effective December 17, 2021 (the “Burns Agreement”), pursuant to which Mr. Burns serves as Chief Operating Officer. The initial term of the Burns Agreement is three years, with automatic one-year renewals thereafter unless either party provides notice of nonrenewal or otherwise terminates the agreement. Under the terms of the Burns Agreement, Mr. Burns initially was eligible for an annual base salary of $365,000, an annual bonus target opportunity of 50-75% of Mr. Burns’ then-current base salary and an annual equity grant pursuant to the Incentive Plan. In addition to being eligible for the Company’s employee benefit plans, Mr. Burns is also eligible for a monthly car allowance of $1,400. Under the Burns Agreement, Mr. Burns is also subject to the same restrictive covenants as those described above under the Quinn Agreement.

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes, for each of the Named Executive Officers, the number of PSOs, RSUs, and PSUs in the Company held as of December 31, 2022.