Orbital Infrastructure Group has filed for Chapter 11 bankruptcy. The company, based in the Galleria, has been struggling for a while. It has negative equity of $155 million and $306 million of debt obligations.
The company was formed in Colorado in 1998 to develop thermal management solutions. In 2008, it moved its head office to Oregon with the acquisition of a business that manufactured power supplies, transformers and industrial controls. It began trading on the NASDAQ in 2012. In 2022, OIG had revenues of over $300 million but has made operating losses for the past 10 years.
OIG moved its head office to Houston in 2020, following the appointment of Jim O’Neill as its CEO. He spent 17 years at Houston-based Quanta Services, including five years as CEO before leaving in March 2016. After his appointment, the company pivoted to energy infrastructure services.
At the time of his appointment in 2019, the company had no debt! However, there have been a series of disastrous missteps.
- The company bought Reach Construction, a start-up utility-scale solar construction contractor in April 2020 for $11 million. The business was loss-making and lost $4 million in its first nine months after acquisition. The company then made the decision to scale up the business to take on larger projects.
- In October 2021, the company formed a joint venture to complete two fixed-price solar energy projects in Alabama and Arkansas. For 2022, Orbital’s share of the losses were $54 million! In April 2023, the company agreed to pay its JV partner an additional $34 million so that the partner could finish the projects. The $34 million has not yet been paid and is part of the $306 million debt obligations.
- In November 2021, the company bought Front Line Power Construction for $219 million, mostly paid in debt ($105 million) and loan notes ($86 million). The assets acquired included $70 million of goodwill and $108 million of intangible assets.
- While the performance of Front Line has been reasonably good, the solar panel project losses triggered a large decline in Orbital’s stock price in 2022. In turn, that triggered a goodwill impairment that caused all the Front Line goodwill to be written off.
- The company made four other acquisitions in 2021 and 2022. While they performed okay, they undoubtedly caused management distractions. The stock price reduction also caused another $26 million goodwill impairment.
- The legacy gas systems business in the UK was sold in 2021, resulting in an impairment of $9 million.
- An unnamed customer, one of OIG’s largest and most profitable, started its purchases from OIG in 2023 as concerns over the financial stability of the company mounted.
Front Line Power and Gibson Telecoms (one of the 2021 acquisitions) are in the process of being sold and are not part of the bankruptcy proceedings.
For a relatively small company, OIG has some highly paid executives.
- Mr. O’Neil has a base salary of $800,000.
- William Clough, Executive Chairman and former CEO, is paid $850,000
- CFO Nick Grindstaff gets $650,000. Mr. Grindstaff also gets a yearly guaranteed bonus of 100% of base salary.