What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-28 compared with 2021-07-29 · 192 added, 176 removed, 363 unchanged (50% of the section changed)

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As a result of the COVID-19 pandemic, we experienced significant disruptions throughout calendar year 2020, which impacted our ability to execute on our remaining performance obligations in many of the markets in which we operate.

The impact of the pandemic, which was greatest during the second quarter of 2020, negatively affected our results of operations during such period.

The economic and operational impact of the pandemic, which were most acute during the second quarter of 2020, negatively affected our results of operations during such period and continue to impact portions of our business in 2021.

However, our strong balance sheet and operational flexibility have allowed us to successfully manage through the ongoing impacts of the pandemic while protecting our cash flow and liquidity.

Although the majority of our businesses have largely recovered from the financial impacts of the pandemic, as evidenced by our consolidated performance and the growth in our remaining performance obligations, our United States industrial services segment continues to be negatively impacted by the lingering effects of the pandemic.

While this segment has experienced modest sequential growth since the second half of 2020, the prolonged impacts of lower demand and the overall lagging recovery of the oil and gas market has resulted in customers of this segment canceling or deferring projects, reducing capital spending, implementing various cost cutting measures, and closing certain of their facilities.

Although the majority of our businesses have largely recovered from the financial impacts of the pandemic experienced in 2020, as evidenced by our consolidated performance and the growth in our remaining performance obligations, our United States industrial services segment continues to be negatively impacted by the lingering effects of the pandemic.

The prolonged impacts of lower demand and the overall lagging recovery of the oil and gas market have resulted in customers of this segment canceling or deferring regularly scheduled maintenance projects, reducing capital spending, implementing various cost cutting measures, and closing certain of their facilities.

Such customer actions continue to impact the demand for our service offerings within this segment.

We continue to monitor the short- and long-term impacts of the pandemic.

While our employees and customers have adapted to a new work environment and there continues to be scientific, societal, and economic progress to address the effects of COVID-19, including the widespread availability of effective vaccines in the markets we serve, there remains significant uncertainty about the future impacts of the pandemic, or any resulting market disruption or volatility, including the potential effects on our operations.

We continue to be cautiously optimistic about the markets in which we operate and the customers we serve;

however, should there be a slowdown in economic activity due to an increase in more contagious variants of the virus or surges in the number of cases, it is possible that projects could be delayed or canceled or that we could experience access restrictions to our customers’ facilities, preventing us from performing maintenance and service projects.

however, should there be a slowdown in economic activity due to surges in the number of cases, or an increase in variants of the virus that are more contagious or against which current vaccines are less effective, it is possible that projects could be delayed or canceled or that we could experience access restrictions to our customers’ facilities, preventing us from performing maintenance and service projects.

The extent to which our business and results of operations are impacted in future periods will also depend upon a number of other factors.

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limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to quarantine;

the cost and disruption of mandatory testing that may be required of unvaccinated employees;

the extent, duration, and effective execution of ongoing government stabilization and recovery efforts;

the efficacy and adoption of vaccines or other preventative treatments;

the widespread adoption and long-term efficacy of vaccines and the availability and efficacy of other preventative treatments;

our customers’ demand for our services;

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and the ability of our customers to pay us for services rendered.

To date, we have been able to source the supplies and materials needed to operate our business with minimal disruptions and recent volatility in commodity prices has not had a significant impact on us.

However, the impact of the COVID-19 pandemic on our vendors and the materials utilized in our operations continues to evolve and may have an adverse impact on our operations in future periods.

On September 8, 2021, President Biden directed the Occupational Safety and Health Administration to implement an emergency temporary standard (“ETS”) requiring employers with 100 or more employees to ensure their workforce is fully vaccinated or to require unvaccinated workers to produce a negative test result on at least a weekly basis.

The ETS has not yet been issued and, as of the date of this report, many details of the testing requirements are unknown, including the requirements for testing, the types of tests that will be acceptable, who will bear the costs of the tests, and whether or not employees’ time to undergo testing will be compensated.

The costs related to mandatory testing, however, will likely represent a substantial expense to the Company, which could have a material adverse effect on our business, financial condition, and/or results of operations to the extent that a significant portion of our workforce does not choose to become vaccinated.

Supply chain disruptions, material shortages, or escalating commodity prices could negatively impact our business.

To date, we have been able to source the supplies and materials needed to operate our business with only modest disruptions, and recent volatility in commodity prices has not had a significant impact on us.

However, the impact of the COVID-19 pandemic on our vendors and the pricing and availability of materials or supplies utilized in our operations continues to evolve and may have an adverse impact on our operations in future periods.

While we believe our remaining performance obligations are firm, customers may also slow down decision-making, delay planned work, or seek to terminate existing agreements.

Any of these events could have a material adverse effect on our business, financial condition, and/or results of operations.

The following table presents selected financial data for the three months ended June 30, 2021 and 2020 (in thousands, except percentages and per share data):

The following table presents selected financial data for the three months ended September 30, 2021 and 2020 (in thousands, except percentages and per share data):

For the three months ended

September 30,

Revenues $ 2,521,672 $ 2,201,714

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Gross profit as a percentage of revenues 15.1 % 16.5 %

Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets $ — $ 232,750

Operating income (loss) $ 133,358 $ (122,638)

Operating income (loss) as a percentage of revenues 5.5 % (6.1) %

Net income (loss) attributable to EMCOR Group, Inc.

Operating income $ 137,421 $ 135,855

Operating income as a percentage of revenues 5.4 % 6.2 %

Net income attributable to EMCOR Group, Inc.

$ 99,740 $ 61,186

Diluted earnings (loss) per common share $ 1.78 $ (1.52)

The results for the three months ended June 30, 2021 set new company records for a second quarter in terms of revenues, gross profit, operating income, net income, and diluted earnings per common share.

Revenues of $2.44 billion for the second quarter of 2021 represent an increase of 21.0% from revenues of $2.01 billion for the second quarter of 2020.

As described in further detail below, such increase in revenues was attributable to revenue growth within all of our reportable segments, except for our United States industrial services segment.

The results for the second quarter of 2020 were negatively impacted by the COVID-19 pandemic, which resulted in:

(a) project delays or access restrictions for certain of the construction projects within our United States construction segments, (b) a reduction in the number of call-out service and repair project activities within our United States and United Kingdom building services segments, and (c) a decline in the demand for our service offerings within our United States industrial services segment.

Operating income for the three months ended June 30, 2021 was $133.4 million, or 5.5% of revenues, compared to an operating loss of $122.6 million, or (6.1)% of revenues, for the three months ended June 30, 2020.

The operating loss incurred in the 2020 period resulted from $232.8 million of non-cash goodwill, identifiable intangible asset, and other long-lived asset impairment charges recorded during such prior year period, as discussed in further detail in Note 7 - Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets of the notes to consolidated financial statements included in Item 1.

Financial Statements.

Excluding the impact of such impairments, operating income increased by $23.2 million for the second quarter of 2021, as a result of improved operating performance within all of our reportable segments, except for our United States industrial services segment, which continues to be impacted by the effect of adverse market conditions on the demand for their service offerings.

Diluted earnings per common share $ 1.85 $ 1.11

Revenues of $2.52 billion for the quarter ended September 30, 2021 set a new quarterly record for the Company and represent an increase of 14.5% from revenues of $2.20 billion for the quarter ended September 30, 2020.

As described in further detail below, we experienced revenue growth within all of our reportable segments.

In addition, during the third quarter of 2021, companies acquired in 2021 and 2020 generated incremental revenues of approximately $50.3 million.

Operating income for the quarter ended September 30, 2021 of $137.4 million represents a marginal increase compared to operating income of $135.9 million for the quarter ended September 30, 2020.

Despite the growth in operating income, operating margin of 5.4% for the third quarter of 2021 decreased when compared to operating margin of 6.2% for the third quarter of 2020.

Declines in gross profit margin within our United States construction segments as well as our United States building services segment were only partially offset by a reduction in the ratio of selling, general and administrative expenses to revenues across each such segment.

Net income of $99.7 million, or $1.85 per diluted share, for the quarter ended September 30, 2021 compares favorably to net income of $61.2 million, or $1.11 per diluted share, for the quarter ended September 30, 2020.

While such increases were partially attributable to the growth in operating income referenced above, both net income and diluted earnings per common share for the third quarter of 2021 also benefited from:

(a) a more normalized tax rate, as our income tax rate in the prior year period was negatively impacted by the non-cash impairment charges recorded in the second quarter of 2020, the majority of which were non-deductible for tax purposes, and (b) a reduced weighted average share count in the 2021 period given the impact of common stock repurchases made by us throughout 2020 and 2021.

Impact of Acquisitions

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The amounts discussed reflect the acquired companies’ operating results in the current reported period only for the time period these entities were not owned by EMCOR in the comparable prior reported period.

During the first half of 2021, we acquired three companies, including:

(a) a company, the results of operations of which were de minimis, that provides mechanical services within the Southern region of the United States and has been included in our United States mechanical construction and facilities services segment, (b) a company that provides electrical construction services for a broad array of customers in the Midwestern region of the United States, the results of operations of which have been included in our United States electrical construction and facilities services segment, and (c) a company that provides mobile mechanical services across North Texas, the results of operations of which have been included in our United States building services segment.

During the first nine months of 2021, we acquired five companies, including:

(a) a company, the results of operations of which were de minimis, that provides mechanical services within the Southern region of the United States and has been included in our United States mechanical construction and facilities services segment, (b) two companies that provide electrical construction services for a broad array of customers in the Midwestern region of the United States, the results of operations of which have been included in our United States electrical construction and facilities services segment, and (c) two companies included within our United States building services segment, consisting of:

(i) a company that provides mobile mechanical services across North Texas and (ii) a company, the results of operations of which were de minimis, that provides building automation and controls solutions in the Southern region of the United States.

During calendar year 2020, we acquired three companies, including:

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The results of operations for all three companies have been included within our United States building services segment.

For the three months ended June 30, 2021, companies acquired in 2021 and 2020 generated incremental revenues of approximately $53.8 million and incremental operating income of approximately $2.7 million, inclusive of approximately $3.2 million of amortization expense associated with identifiable intangible assets.

Results of Operations

The following tables present our operating segment revenues from unrelated entities and their respective percentages of total revenues (in thousands, except for percentages):

For the three months ended June 30,

For the three months ended September 30,

Total 2020 % of

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Total operations $ 2,521,672 100 % $ 2,201,714 100 %

For the six months ended June 30,

For the nine months ended September 30,

Total 2020 % of

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Total operations $ 7,263,387 100 % $ 6,515,567 100 %

As described below in more detail, our revenues for the second quarter of 2021 increased to $2.44 billion compared to $2.01 billion for the second quarter of 2020, and our revenues for the six months ended June 30, 2021 increased to $4.74 billion compared to $4.31 billion for the six months ended June 30, 2020.

The increase in revenues for both periods was attributable to revenue growth within all of our reportable segments, except for our United States industrial services segment.

Companies acquired in 2021 and 2020 generated incremental revenues of approximately $53.8 million and $82.9 million for the three and six months ended June 30, 2021, respectively.

Revenues of our United States electrical construction and facilities services segment were $489.5 million and $945.7 million for the three and six months ended June 30, 2021, respectively, compared to revenues of $410.4 million and $872.2 million for the three and six months ended June 30, 2020, respectively.

The increase in revenues of this segment, for both periods, was primarily attributable to revenue growth within:

(a) the commercial market sector, as:

(i) we experienced an increase in telecommunication construction project activity and (ii) the results for the three and six months of 2020 were negatively impacted by project delays or access restrictions caused by the various containment and mitigation measures mandated by certain of our customers and/or governmental authorities in response to the COVID-19 pandemic, (b) the institutional market sector given an increase in public works projects in the Western region of the United States, and (c) the healthcare market sector, due to greater project activity in the Northeastern region of the United States.

In addition, the results of this segment for the three and six months ended June 30, 2021 included $8.6 million and $15.1 million, respectively, of incremental revenues generated by a company acquired in 2021.

The increased revenue for the six months ended June 30, 2021 was partially offset by a reduction in revenues within the manufacturing market sector due to the completion or substantial completion of certain projects in the Western region of the United States.

Our United States mechanical construction and facilities services segment revenues for the three months ended June 30, 2021 were $958.7 million, a $168.2 million increase compared to revenues of $790.4 million for the three months ended June 30, 2020.

Revenues of this segment for the six months ended June 30, 2021 were $1,862.6 million, a $238.1 million increase compared to revenues of $1,624.6 million for the six months ended June 30, 2020.

The increase in this segment’s revenues for both periods was primarily attributable to revenue growth within:

As described below in more detail, our revenues for the third quarter of 2021 increased to $2.52 billion compared to $2.20 billion for the third quarter of 2020, and our revenues for the nine months ended September 30, 2021 increased to $7.26 billion compared to $6.52 billion for the nine months ended September 30, 2020.

The increase in revenues for both periods was attributable to revenue growth within all of our reportable segments except, in the case of the nine months ended September 30, 2021, our United States industrial services segment.

Companies acquired in 2021 and 2020 generated incremental revenues of approximately $50.3 million and $133.2 million for the three and nine months ended September 30, 2021, respectively.

Revenues of our United States electrical construction and facilities services segment were $527.9 million and $1,473.6 million for the three and nine months ended September 30, 2021, respectively, compared to revenues of $472.1 million and $1,344.3 million for the three and nine months ended September 30, 2020, respectively.

Excluding the impact of acquisitions, the increase in revenues of this segment, for both periods, was primarily attributable to:

(a) a resumption of project activity within certain major metropolitan areas, where work was previously postponed due to access restrictions caused by the various containment and mitigation measures mandated in the prior year by certain of our customers and/or governmental authorities in response to the COVID-19 pandemic, leading to:

(i) an increase in commercial market sector revenues and (ii) greater short-duration project volumes in the current year, (b) revenue growth within the healthcare market sector, due to greater construction project activity in the Northeastern region of the United States, and (c) an increase in public works projects in the Western region of the United States, resulting in greater revenue contribution from the institutional market sector.

In addition, for the nine months ended September 30, 2021, this segment’s revenues were positively impacted by an increase in telecommunication construction project activity within the commercial market sector.

The results of this segment for the three and nine months ended September 30, 2021 included $29.5 million and $44.5 million, respectively, of incremental revenues generated by companies acquired in 2021.

The revenue increases referenced above were partially offset by a reduction in revenues within the transportation and manufacturing market sectors due to the completion or substantial completion of certain projects in the Northeastern and Western regions of the United States.

Our United States mechanical construction and facilities services segment revenues for the three months ended September 30, 2021 were $999.6 million, a $108.1 million increase compared to revenues of $891.5 million for the three months ended September 30, 2020.

Revenues of this segment for the nine months ended September 30, 2021 were $2,862.2 million, a $346.1 million increase compared to revenues of $2,516.1 million for the nine months ended September 30, 2020.

The increase in this segment’s revenues for both 2021 periods was attributable to revenue growth within the majority of the market sectors in which we operate, including:

(a) the commercial market sector, driven by:

(i) the continued build-out of our customers’ e-commerce supply chains, which has resulted in increased demand for our fire protection services within their warehousing and distribution facilities, (ii) continued growth in digital processing, cloud computing, and data storage, which has resulted in an increase in telecommunication construction project opportunities, and (iii) a greater number of mechanical tenant-fit out projects, and (b) the healthcare market sector due to increased mechanical system retrofits and installations as our healthcare customers seek to upgrade their existing facilities or build new facilities.

These increases were partially offset by the completion or substantial completion of certain projects within:

(a) the institutional market sector, which resulted in a reduction of revenues during both the three and six months ended June 30, 2021, and (b) the manufacturing market sector, inclusive of certain large food processing projects, which resulted in a reduction of revenues during the six months ended June 30, 2021.

Similar to our United States electrical construction and facilities services segment, revenues of this segment during the prior year periods were negatively impacted by the effects of the COVID-19 pandemic, which resulted in project delays due to access restrictions and temporary job site shutdowns.

Revenues of our United States building services segment were $624.5 million and $1,206.3 million for the three and six months ended June 30, 2021, respectively, compared to revenues of $479.0 million and $1,006.6 million for the three and six months ended June 30, 2020, respectively.

Excluding acquisition revenues within this segment’s mobile mechanical services division of $45.2 million and $67.8 million for the three and six months ended June 30, 2021, respectively, this segment’s revenue growth for both 2021 periods was primarily attributable to:

(a) a resumption in demand for certain of our service offerings when compared to the prior year, which was negatively impacted by the COVID-19 pandemic given the temporary closure of certain customer facilities, resulting in:

(i) greater project, service repair and maintenance, and building automation and controls activities within our mobile mechanical services operations and (ii) an increase in project volume within our commercial site-based services operations, (b) a net increase in facilities maintenance contract revenues, partially as a result of new contract awards, and (c) increased customer demand for certain services aimed at improving the indoor air quality within their facilities.

In addition, revenues for the six months ended June 30, 2021 benefited from an increase in snow removal activity year-over-year within our commercial site-based services division.

Revenues of our United States industrial services segment for the three months ended June 30, 2021 were $235.2 million compared to revenues of $241.1 million for the three months ended June 30, 2020.

Revenues for the six months ended June 30, 2021 were $470.5 million compared to revenues of $605.0 million for the six months ended June 30, 2020.

Revenues of this segment continue to be negatively impacted by adverse market conditions within the oil and gas and related industrial markets, including sustained lower demand for oil and other refined products, which has not returned to pre-pandemic levels.

Such macroeconomic conditions, which began to significantly impact our businesses in the second quarter of 2020, have continued into the current year, leading to a decrease in demand for this segment’s service offerings, including:

(a) a decrease in maintenance, capital project, and construction activities within our field services operations and (b) a reduction in new build heat exchanger sales and related services within our shop services operations.

Our United Kingdom building services segment revenues were $129.9 million and $256.6 million for the three and six months ended June 30, 2021, respectively, compared to revenues of $93.1 million and $205.5 million for the three and six months ended June 30, 2020, respectively.

The increase in this segment’s revenues for both the three and six month periods was primarily a result of growth in project activities with existing customers, primarily within the commercial market sector, partially as a result of a resumption in demand as customers began to release projects which were previously deferred due to the uncertainty created by the COVID-19 pandemic.

In addition, this segment’s revenues for the three and six months ended June 30, 2021 were positively impacted by $14.5 million and $24.0 million, respectively, related to the effect of favorable exchange rates for the British pound versus the United States dollar.

(i) the continued build-out of our customers’ e-commerce supply chains, which has resulted in increased demand for our fire protection services within their warehousing and distribution facilities, and (ii) continued growth in digital processing, cloud computing, and data storage, which has resulted in an increase in telecommunication construction project opportunities, (b) the healthcare market sector, due to increased mechanical system retrofits and installations as our healthcare customers seek to upgrade their existing facilities or build new facilities, and (c) the manufacturing market sector, inclusive of certain large food processing projects, which began to accelerate during the third quarter of 2021.

These increases were partially offset by the completion or substantial completion of certain projects within the institutional market sector, which resulted in a reduction of revenues during both the three and nine months ended September 30, 2021.

Revenues of our United States building services segment were $632.5 million and $1,838.8 million for the three and nine months ended September 30, 2021, respectively, compared to revenues of $556.5 million and $1,563.1 million for the three and nine months ended September 30, 2020, respectively.

Excluding acquisition revenues within this segment’s mobile mechanical services division of $20.8 million and $88.6 million for the three and nine months ended September 30, 2021, respectively, this segment’s revenue growth for both 2021 periods was primarily attributable to:

(a) greater project, service repair and maintenance, and building automation and controls activities within our mobile mechanical services operations as well as an increase in project volume within our commercial site-based services operations, in both cases, partially as a result of a resumption in demand for certain of our service offerings when compared to the prior year, which was negatively impacted by the COVID-19 pandemic given the temporary closure of certain customer facilities, (b) a net increase in facilities maintenance contract revenues, partially as a result of new contract awards, and (c) increased customer demand for certain services aimed at improving the indoor air quality within their facilities.

In addition, revenues for the nine months ended September 30, 2021 benefited from an increase in snow removal activity year-over-year within our commercial site-based services division.

Revenues of our United States industrial services segment for the three months ended September 30, 2021 were $232.2 million, a $60.7 million increase compared to revenues of $171.5 million for the three months ended September 30, 2020.

While, in comparison to the prior year, we experienced improved demand for the service offerings of both our field services and shop services divisions during the third quarter of 2021, revenues of this segment for the nine months ended September 30, 2021 were $702.8 million, a reduction of $73.8 million versus the comparable 2020 period.

This segment’s results for the 2021 year-to-date period have been negatively impacted by the market conditions within the oil and gas and related industrial markets, including sustained lower demand for oil and other refined products, which, although recovering, has not returned to pre-pandemic levels.

These market conditions have resulted in:

(a) a decrease in maintenance and capital project activities within our field services operations and (b) a reduction in new build heat exchanger sales and related services within our shop services operations.

Our United Kingdom building services segment revenues were $129.5 million and $386.1 million for the three and nine months ended September 30, 2021, respectively, compared to revenues of $110.1 million and $315.6 million for the three and nine months ended September 30, 2020, respectively.

The increase in this segment’s revenues for both the three and nine month periods was primarily a result of growth in project activities with existing customers, primarily within the commercial market sector, partially as a result of a resumption in demand as customers began to release projects which were previously deferred due to the uncertainty created by the COVID-19 pandemic.

In addition, this segment’s revenues for the three and nine months ended September 30, 2021 were positively impacted by $8.0 million and $32.0 million, respectively, related to the effect of favorable exchange rates for the British pound versus the United States dollar.

Cost of sales and gross profit

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For the three months ended

June 30, For the six months ended

September 30, For the nine months ended

September 30,

2021 2020 2021 2020

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Gross profit margin 15.1 % 16.5 % 15.1 % 15.5 %

Our gross profit for the three months ended June 30, 2021 was $376.3 million, or 15.4% of revenues, compared to gross profit of $315.3 million, or 15.7% of revenues, for the three months ended June 30, 2020.

Gross profit for the six months ended June 30, 2021 was $717.4 million, or 15.1% of revenues, compared to gross profit of $648.3 million, or 15.0% of revenues, for the six months ended June 30, 2020.

The increase in gross profit for both periods was a result of an increase in gross profit from all of our reportable segments except, in the case of the six months ended June 30, 2021, our United States industrial services segment, which experienced a decrease in gross profit when compared to the prior year given the negative macroeconomic conditions previously referenced.

The decrease in gross profit margin for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020, was primarily attributable to a reduction in gross profit margin within our United States building services segment given a greater number of fixed price capital projects, which traditionally have lower gross profit margins, within this segment’s mobile mechanical services division, and a less favorable mix of work within this segment’s government services division during the quarter.

Our gross profit for the three months ended September 30, 2021 was $381.3 million, or 15.1% of revenues, compared to gross profit of $363.2 million, or 16.5% of revenues, for the three months ended September 30, 2020.

Gross profit for the nine months ended September 30, 2021 was $1,098.7 million, or 15.1% of revenues, compared to gross profit of $1,011.5 million, or 15.5% of revenues, for the nine months ended September 30, 2020.

The increase in gross profit for both periods was a result of increased revenue volume, which resulted in an increase in gross profit from all of our reportable segments except, in the case of the nine months ended September 30, 2021, our United States industrial services segment, which experienced a decrease in gross profit when compared to the prior year given the negative macroeconomic conditions previously referenced.

The decrease in gross profit margin for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, was primarily attributable to a reduction in gross profit margin within each of our United States construction segments as well as our United States building services segment.

The decrease in gross profit margin for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, was predominantly attributable to a reduction in gross profit margin within our United States building services segment.

Refer to the operating income section below for further discussion regarding the operating performance of each of our reportable segments.

Selling, general and administrative expenses

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For the three months ended

June 30, For the six months ended

September 30, For the nine months ended

September 30,

2021 2020 2021 2020

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SG&A margin 9.7 % 10.3 % 9.8 % 10.1 %

Our selling, general and administrative expenses for the three months ended June 30, 2021 were $242.9 million compared to selling, general and administrative expenses of $205.2 million for the three months ended June 30, 2020.

Selling, general and administrative expenses for the six months ended June 30, 2021 were $467.0 million compared to selling, general and administrative expenses of $432.2 million for the six months ended June 30, 2020.

For the three and six months ended June 30, 2021, selling, general and administrative expenses included $4.4 million and $6.8 million, respectively, of incremental expenses directly related to companies acquired in 2021 and 2020, including amortization expense attributable to identifiable intangible assets of $1.2 million and $2.0 million, respectively.

Excluding incremental expenses from businesses acquired, our selling, general and administrative expenses increased by $33.4 million and $28.0 million for the three and six months ended June 30, 2021, respectively.

The increase in selling, general and administrative expenses for both the three and six month periods was primarily attributable to an increase in:

(a) incentive compensation expense, due to higher projected annual operating results than those which were anticipated during the same prior year period, as our expectations during the second quarter of 2020 were negatively impacted by the uncertainty created by the COVID-19 pandemic, (b) salaries, as a result of:

(i) an increase in headcount to support our organic revenue growth in the current year, and (ii) the favorable impact in the prior year periods of certain short-term cost cutting measures enacted in response to the COVID-19 pandemic, including temporary furloughs and salary reductions, (c) employee benefit costs, driven by greater medical claim activity, and (d) the provision for credit losses, within our United States industrial services segment as discussed in further detail below.

Selling, general and administrative expenses as a percentage of revenues were 10.0% and 10.2% for the three months ended June 30, 2021 and 2020, respectively, compared to 9.8% and 10.0% for the six months ended June 30, 2021 and 2020, respectively.

The decrease in SG&A margin for both the three and six month periods was a result of an increase in revenues without a commensurate increase in certain of our overhead costs, as we were able to leverage our overhead cost structure.

Our selling, general and administrative expenses for the three months ended September 30, 2021 were $243.9 million compared to selling, general and administrative expenses of $226.8 million for the three months ended September 30, 2020.

Selling, general and administrative expenses for the nine months ended September 30, 2021 were $710.9 million compared to selling, general and administrative expenses of $659.0 million for the nine months ended September 30, 2020.

For the three and nine months ended September 30, 2021, selling, general and administrative expenses included $5.3 million and $12.1 million, respectively, of incremental expenses directly related to companies acquired in 2021 and 2020, including amortization expense attributable to identifiable intangible assets of $1.2 million and $3.1 million, respectively.

Excluding incremental expenses from businesses acquired, our selling, general and administrative expenses increased by $11.9 million and $39.9 million for the three and nine months ended September 30, 2021, respectively.

The organic increase in selling, general and administrative expenses for both the three and nine month periods was primarily attributable to an increase in:

(a) employee benefit costs, driven by greater medical claim activity, and (b) salaries, as a result of:

In addition, the increase in selling, general and administrative expenses for the nine months ended September 30, 2021 was partially a result of greater incentive compensation expense, due to higher projected annual operating results than those which were anticipated during the same prior year period.

Selling, general and administrative expenses as a percentage of revenues were 9.7% and 10.3% for the three months ended September 30, 2021 and 2020, respectively, and 9.8% and 10.1% for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in SG&A margin for both the three and nine month periods was a result of an increase in revenues without a commensurate increase in overhead costs, as we were able to leverage our existing overhead cost structure.

Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets

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These adverse conditions resulted in lower forecasted revenue and operating margin expectations for those of our businesses that are highly dependent on the strength of such markets, resulting in the recognition of a $232.8 million impairment charge within our United States industrial services segment.

Despite the weaker results of our United States industrial services segment for the quarter and year-to-date periods of 2021, when compared to the same periods of 2020, we did not identify any indicators of impairment in the current year, as the operating performance and near term expectations of this segment are consistent with the forecasts utilized in our most recent impairment test.

However, significant adverse changes to external market conditions or our internal forecasts, if any, could result in the identification of future impairment indicators and potentially future goodwill impairment charges.

Despite the weaker results of our United States industrial services segment for the year-to-date 2021 period, when compared to the prior year, we did not identify any indicators of impairment in the current year, as the operating performance and near term expectations of this segment are materially consistent with the forecasts utilized in our most recent impairment test.

However, a further deterioration in our operating performance, significant adverse changes to external market conditions or the assumptions utilized in our impairment tests, such as the weighted average cost of capital and our internal forecasts, if any, could result in the identification of future impairment indicators and potentially future goodwill impairment charges.

It is not possible at this time to determine if any future impairment charge will result or, if it does, whether such charge would be material to our results of operations.

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The following tables present our operating income (loss) and operating margin (operating income (loss) as a percentage of segment revenues) (in thousands, except for percentages):

For the three months ended June 30,

For the three months ended September 30,

Revenues 2020 % of

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Corporate administration (24,095) — (24,454) —

Impairment loss on goodwill, identifiable intangible assets,

and other long-lived assets — — (232,750) —

Restructuring expenses — — (536) —

Total operations 137,421 5.4 % 135,855 6.2 %

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Interest expense, net (1,286) (1,484)

Income (loss) before income taxes $ 132,964 $ (124,030)

For the six months ended June 30,

Income before income taxes $ 137,043 $ 135,122

For the nine months ended September 30,

Revenues 2020 % of

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Interest expense, net (3,965) (6,082)

Income (loss) before income taxes $ 249,513 $ (19,781)

As described below in more detail, operating income was $133.4 million, or 5.5% of revenues, for the three months ended June 30, 2021, compared to an operating loss of $122.6 million, or (6.1)% of revenues, for the three months ended June 30, 2020.

Operating income was $250.4 million, or 5.3% of revenues, for the six months ended June 30, 2021, compared to an operating loss of $16.6 million, or (0.4)% of revenues, for the six months ended June 30, 2020.

The operating loss incurred in both 2020 periods resulted from $232.8 million of non-cash goodwill, identifiable intangible asset, and other long-lived asset impairment charges recorded during such prior year periods.

Excluding the impact of such impairments on our 2020 results, operating income increased by $23.2 million and $34.3 million for the three and six months ended June 30, 2021, respectively, as a result of improved operating performance within all of our reportable segments, except for our United States industrial services segment, which continues to be impacted by the effect of adverse market conditions on the demand for their service offerings.

Companies acquired in 2021 and 2020 generated incremental operating income of $2.7 million and $3.6 million, inclusive of $3.2 million and $5.3 million of amortization expense associated with identifiable intangible assets, for the three and six months ended June 30, 2021, respectively.

Operating income of our United States electrical construction and facilities services segment for the three months ended June 30, 2021 was $42.7 million, or 8.7% of revenues, compared to operating income of $31.6 million, or 7.7% of revenues, for the three months ended June 30, 2020.

Operating income of this segment for the six months ended June 30, 2021 was $83.0 million, or 8.8% of revenues, compared to operating income of $71.9 million, or 8.2% of revenues, for the six months ended June 30, 2020.

The increase in operating income for both the three and six months ended June 30, 2021 was predominantly a result of increased gross profit from construction projects within the institutional and commercial market sectors, largely as a result of the revenue growth within these market sectors, as referenced above.

Income before income taxes $ 386,556 $ 115,341

Operating income for the three months ended September 30, 2021 of $137.4 million represents a marginal increase compared to operating income of $135.9 million for the three months ended September 30, 2020.

Despite the growth in operating income, operating margin of 5.4% for the three months ended September 30, 2021 decreased when compared to operating margin of 6.2% for the three months ended September 30, 2020.

As described below in more detail, the declines in gross profit margin within our United States construction segments as well as our United States building services segment were only partially offset by a reduction in the ratio of selling, general and administrative expenses to revenues across such segments.

Operating income for the nine months ended September 30, 2021 was $387.8 million, or 5.3% of revenues, and compares favorably to operating income of $119.2 million, or 1.8% of revenues, for the nine months ended September 30, 2020.

Our operating results for the 2020 year-to-date period included $232.8 million of non-cash goodwill, identifiable intangible asset, and other long-lived asset impairment charges recorded during the second quarter of 2020.

Excluding the impact of such impairment charges on our 2020 results, operating income increased by $35.8 million for the nine months ended September 30, 2021, largely as a result of greater organic operating income contribution from our United States mechanical construction and facilities services segment.

Companies acquired in 2021 and 2020 generated incremental operating income of $3.5 million, inclusive of $8.6 million of amortization expense associated with identifiable intangible assets, for the nine months ended September 30, 2021.

Operating income of our United States electrical construction and facilities services segment for the three months ended September 30, 2021 was $44.1 million, a slight reduction compared to operating income of $45.9 million for the three months ended September 30, 2020.

Operating income of this segment for the nine months ended September 30, 2021 was $127.0 million, compared to operating income of $117.9 million for the nine months ended September 30, 2020.

The increase in operating income for nine months ended September 30, 2021 was predominantly a result of increased gross profit from construction projects within the institutional, commercial, and healthcare market sectors, largely as a result of the revenue growth within these market sectors, as referenced above.

These increases were partially offset by a decline in gross profit from the transportation and manufacturing market sectors due to the completion or close-out of certain projects in the prior year.

In addition, a company acquired during the first quarter of 2021 contributed incremental operating income of $0.8 million and $1.2 million, inclusive of $0.6 million and $1.0 million of amortization expense associated with identifiable intangible assets, for the three and six months ended June 30, 2021, respectively.

The increase in operating margin for both 2021 periods was a result of an increase in gross profit margin due to a favorable revenue mix and improved project execution throughout this segment.

Our United States mechanical construction and facilities services segment’s operating income for the three months ended June 30, 2021 was $79.3 million, or 8.3% of revenues, compared to operating income of $66.9 million, or 8.5% of revenues, for the three months ended June 30, 2020.

The increase in operating income for such period was primarily a result of greater gross profit resulting from the increase in project activities within the commercial market sector, as referenced within the revenue commentary for this segment.

The 20 basis point reduction in this segment’s operating margin for the three months ended June 30, 2021, when compared to the three months ended June 30, 2020, was a result of a decrease in gross profit margin, due to the composition of project work performed during each period, partially offset by a reduction in the ratio of selling, general and administrative expenses to revenues given an increase in revenues without a commensurate increase in certain overhead costs.

Operating income of this segment for the six months ended June 30, 2021 was $144.2 million, or 7.7% of revenues, compared to operating income of $112.1 million, or 6.9% of revenues, for the six months ended June 30, 2020.

The increase in operating

income for the six months ended June 30, 2021 was a result of an increase in gross profit from construction projects within the majority of the market sectors in which we operate.

The improvement in operating margin for such period was attributable to:

(a) an increase in gross profit margin, given increased profitability resulting from the favorable progression on certain large food processing projects reported within the manufacturing market sector, and (b) a decrease in the ratio of selling, general and administrative expenses to revenues, as referenced above.

Operating income of our United States building services segment for the three months ended June 30, 2021 was $30.3 million, or 4.9% of revenues, compared to operating income of $26.6 million, or 5.6% of revenues, for the three months ended June 30, 2020.

Operating income of this segment for the six months ended June 30, 2021 was $59.6 million, or 4.9% of revenues, compared to operating income of $47.9 million, or 4.8% of revenues, for the six months ended June 30, 2020.

The increase in this segment’s operating income for the three and six months ended June 30, 2021 was primarily due to the resumption in demand for certain of our service offerings when compared to the prior year periods, which led to increased gross profit from:

(a) project, service repair and maintenance, and building automation and controls activities within our mobile mechanical services operations, and (b) project volumes within our commercial site-based services operations.

In addition, gross profit for the six months ended June 30, 2021 benefited from greater snow removal activity for our customers with whom we are contracted on a per snow event basis.

The decrease in operating margin for the three months ended June 30, 2021 was primarily attributable to a decrease in gross profit margin given a greater number of fixed price capital projects, which traditionally have lower gross profit margins, within this segment’s mobile mechanical services division, and a less favorable mix of work within this segment’s government services division during the quarter.

Companies acquired in 2021 and 2020, which are included within this segment’s mobile mechanical services division, contributed incremental operating income of approximately $2.0 million and $2.6 million, inclusive of $2.5 million and $4.1 million of amortization expense associated with identifiable intangible assets, during the three and six months ended June 30, 2021, respectively.

Our United States industrial services segment reported an operating loss of $0.2 million, or (0.1)% of revenues, for the three months ended June 30, 2021, compared to operating income of $3.3 million, or 1.4% of revenues, for the three months ended June 30, 2020.

This segment reported an operating loss of $2.7 million, or (0.6)% of revenues, for the six months ended June 30, 2021, compared to operating income of $18.7 million, or 3.1% of revenues, for the six months ended June 30, 2020.

As previously referenced, this segment’s results continue to be severely impacted by adverse macroeconomic factors affecting the oil and gas industry.

Given such conditions, and the ensuing decrease in demand for its service offerings, this segment’s operating results for the six months ended June 30, 2021 reflect a reduction in gross profit and gross profit margin from both our field services and shop services operations when compared to the six months ended June 30, 2020.

Despite these challenges, the results of operations of this segment for the three months ended June 30, 2021 reflect an increase in both gross profit and gross profit margin, driven by our field services operations, which began to experience more normalized profit margins when compared to the second quarter of 2020.

For both the three and six months ended June 30, 2021, this segment experienced an increase in the ratio of selling, general and administrative expenses to revenues, partially as a result of a $4.1 million increase in the provision for credit losses in connection with a specific customer bankruptcy, which negatively impacted the segment’s operating margin for the three and six months ended June 30, 2021 by 180 basis points and 90 basis points, respectively, and offset the improved gross profit performance during the quarter.

In addition to the impact of the aforementioned provision for credit losses, the increase in SG&A margin for both 2021 periods was attributable to a decrease in revenues without a commensurate decrease in this segment’s SG&A expenses given its overhead structure includes a larger percentage of fixed costs when compared to our other reportable segments.

Our United Kingdom building services segment’s operating income for the three months ended June 30, 2021 was $7.0 million compared to operating income of $5.4 million for the three months ended June 30, 2020.

Operating income for the six months ended June 30, 2021 was $16.5 million compared to operating income of $11.1 million for the six months ended June 30, 2020.

The increase in operating income of this segment for both periods was primarily a result of an increase in gross profit from greater project activities within the commercial market sector, partially offset by an increase in selling, general and administrative expenses.

In addition, this segment’s operating income for the three and six months ended June 30, 2021 was positively impacted by $0.8 million and $1.6 million, respectively, related to the effect of favorable exchange rates for the British pound versus the United States dollar.

Operating margin of this segment for the three and six months ended June 30, 2021 was 5.4% and 6.4%, respectively, compared to operating margin of 5.7% and 5.4% for the three and six months ended June 30, 2020, respectively.

The decrease in this segment’s operating margin for the three months ended June 30, 2021 was partially a result of an increase in the ratio of selling, general and administrative expenses to revenues in the current year as the prior year period benefited from certain short-term cost cutting initiatives enacted in response to the COVID-19 pandemic.

The increase in this segment’s operating margin for the six months ended June 30, 2021 was attributable to gross profit margin expansion as a result of:

(a) successful contract close-outs during the first quarter of the current year and (b) a more favorable mix of work, including projects within the commercial and water and wastewater market sectors.

Despite the increase in selling, general and administrative expenses referenced above, the ratio of this segment’s selling, general and administrative expenses to revenues for the six months ended June 30, 2021 remained consistent with that of the prior year as the local management team was able to effectively leverage the segment’s overhead cost structure during this period of revenue growth.

Our corporate administration operating loss for the three and six months ended June 30, 2021 was $25.8 million and $50.3 million, respectively, compared to $23.7 million and $45.6 million for the three and six months ended June 30, 2020, respectively.

The increase in corporate administration expenses for the 2021 periods was primarily due to:

(a) an increase in incentive compensation expense due to higher projected annual operating results than those which were anticipated during the same prior year period, partially as our expectations in the prior year were negatively impacted by the uncertainty created by the COVID-19 pandemic, and (b) an increase in computer hardware and software costs, including depreciation, as a result of various information technology and security initiatives currently in process.

Companies acquired in 2021 contributed incremental operating income of $0.9 million and $2.1 million, inclusive of $1.8 million and $2.8 million of amortization expense associated with identifiable intangible assets, for the three and nine months ended September 30, 2021, respectively.

Operating margin of this segment was 8.3% and 9.7% for the three months ended September 30, 2021 and 2020, respectively, and 8.6% and 8.8% for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in operating margin for both 2021 periods was a result of a decline in this segment’s gross profit margin during the third quarter of 2021, predominantly within the commercial and transportation market sectors, partially due to a change in the composition of project work performed period-over-period.

In addition, gross profit margin for the prior year periods benefited from the settlement of the final contract value on certain projects within the transportation and institutional market sectors, which favorably impacted this segment’s gross profit margin by 0.7% and 0.4% for the three and nine months ended September 30, 2020, respectively.

Such decreases in gross profit margin were partially offset by a reduction in the ratio of selling, general and administrative expenses to revenues during the 2021 three and nine month periods.

Our United States mechanical construction and facilities services segment’s operating income for the three months ended September 30, 2021 was $82.3 million, a slight increase compared to operating income of $80.0 million for the three months ended September 30, 2020.

Operating margin of this segment was 8.2% and 9.0% for the three months ended September 30, 2021 and 2020, respectively.

The 80 basis point reduction in this segment’s operating margin period-over-period was primarily a result of a decrease in gross profit margin within the manufacturing market sector as:

(a) the results for the prior year period benefited from the favorable close-out of several projects and (b) the results for the current quarter include increased revenues from certain large food processing projects, for which we are acting as the construction manager and therefore carry lower than average gross profit margins.

The quarterly decrease in gross profit margin was partially offset by a reduction in the ratio of selling, general and administrative expenses to revenues given an increase in segment revenues without a commensurate increase in overhead costs.

Operating income of this segment for the nine months ended September 30, 2021 was $226.5 million, compared to operating income of $192.2 million for the nine months ended September 30, 2020.

The $34.4 million increase in operating income for the nine month period was a result of an increase in gross profit from construction projects within the majority of the market sectors in which we operate, driven by increased revenue volume year- over-year.

Despite the reduction in operating margin during the third quarter of 2021, the operating margin of this segment for the nine month period ended September 30, 2021 of 7.9%, represents an improvement from the 7.6% operating margin for the nine months ended September 30, 2020.

A slight reduction in this segment’s gross profit margin for the year-to-date period was more than offset by a decrease in the ratio of selling, general and administrative expenses to revenues, as referenced above.

Operating income of our United States building services segment for the three months ended September 30, 2021 was $31.6 million, or 5.0% of revenues, compared to operating income of $38.4 million, or 6.9% of revenues, for the three months ended September 30, 2020.

Despite an increase in quarterly revenues, gross profit remained consistent with the prior year period, as a result of lower gross profit margins across this segment’s portfolio of work, most notably within its mobile mechanical services division.

Flat gross profit, combined with an increase in selling, general and administrative expenses to support the revenue growth within this segment, resulted in a decrease in operating income quarter over quarter.

The decrease in operating margin for the quarterly period was a direct result of the reduced gross profit margin just referenced.

Operating income of this segment for the nine months ended September 30, 2021 was $91.2 million, or 5.0% of revenues, compared to operating income of $86.3 million, or 5.5% of revenues, for the nine months ended September 30, 2020.

The increase in this segment’s operating income for the year-to-date 2021 period was primarily due to the resumption in demand for certain of our service offerings when compared to the prior year period, which led to increased gross profit from:

(a) project, service repair and maintenance, and building automation and controls activities within our mobile mechanical services operations, and (b)

project volumes within our commercial site-based services operations.

In addition, gross profit for the nine months ended September 30, 2021 benefited from greater snow removal activity for our customers with whom we are contracted on a per snow event basis.

Companies acquired in 2021 and 2020, which are included within this segment’s mobile mechanical services division, generated incremental operating income of approximately $1.6 million, inclusive of $5.6 million of amortization expense associated with identifiable intangible assets, during the nine months ended September 30, 2021.

The decrease in operating margin for the nine month period was primarily attributable to a decrease in gross profit margin given a less favorable mix of work within this segment’s mobile mechanical services and government services divisions, including, with respect to the mobile mechanical services division, a greater number of fixed price capital projects, which traditionally have lower gross profit margins.

The decreases in gross profit margin for both the three and nine month periods were partially offset by a reduction in the ratio of selling, general and administrative expenses to revenues as this segment was able to effectively leverage its overhead cost structure during this period of revenue growth.

Our United States industrial services segment reported an operating loss of $3.0 million, or (1.3)% of revenues, for the three months ended September 30, 2021, compared to an operating loss of $8.9 million, or (5.2)% of revenues, for the three months ended September 30, 2020.

This segment reported an operating loss of $5.7 million, or (0.8)% of revenues, for the nine months ended September 30, 2021, compared to operating income of $9.8 million, or 1.3% of revenues, for the nine months ended September 30, 2020.

Despite the improved quarterly operating performance compared to the prior year, this segment’s results continue to be negatively impacted by the effects of adverse macroeconomic conditions within the oil and gas industry, as demonstrated by the unfavorable comparison for the year-to-date period.

Given such conditions, which began to significantly impact our business starting with the second quarter of 2020, this segment’s operating results for the nine months ended September 30, 2021 reflect a reduction in gross profit and gross profit margin from both our field services and shop services operations when compared to the nine months ended September 30, 2020.

In addition, the results of this segment for the nine months ended September 30, 2021 include a $4.1 million increase in the provision for credit losses in connection with a specific customer bankruptcy, which negatively impacted the segment’s operating margin for the nine months ended September 30, 2021 by 60 basis points.

Our United Kingdom building services segment’s operating income for the three months ended September 30, 2021 was $6.6 million, or 5.1% of revenues, compared to operating income of $5.3 million, or 4.8% of revenues, for the three months ended September 30, 2020.

Operating income for the nine months ended September 30, 2021 was $23.0 million, or 6.0% of revenues, compared to operating income of $16.4 million, or 5.2% of revenues, for the nine months ended September 30, 2020.

The increase in this segment’s operating income and operating margin for the three and nine months ended September 30, 2021 was primarily a result of an increase in gross profit and gross profit margin from projects within the commercial market sector, partially offset by an increase in selling, general and administrative expenses to support the segment’s revenue growth.

In addition, this segment’s operating income and operating margin for the nine months ended September 30, 2021 benefited from successful contract close-outs during the first quarter of the year.

This segment’s operating income for the three and nine months ended September 30, 2021 was positively impacted by $0.4 million and $2.0 million, respectively, related to the effect of favorable exchange rates for the British pound versus the United States dollar.

Our corporate administration operating loss for the three and nine months ended September 30, 2021 was $24.1 million and $74.4 million, respectively, compared to $24.5 million and $70.0 million for the three and nine months ended September 30, 2020, respectively.

The increase in corporate administration expenses for the nine months ended September 30, 2021 was primarily due to:

(a) an increase in computer hardware and software costs, including depreciation, as a result of various information technology and cyber security initiatives currently in process, and (b) an increase in incentive compensation expense due to higher projected annual operating results than those which were anticipated during the same prior year period.

These increases were partially offset by a decrease in salary expense given the realignment of certain of our back office functions in 2020.

Net interest expense for the three months ended June 30, 2021 and 2020 was $1.3 million and $2.1 million, respectively.

Net interest expense for the six months ended June 30, 2021 and 2020 was $2.7 million and $4.6 million, respectively.

Net interest expense for the three months ended September 30, 2021 and 2020 was $1.3 million and $1.5 million, respectively.

Net interest expense for the nine months ended September 30, 2021 and 2020 was $4.0 million and $6.1 million, respectively.

The decrease in net interest expense for the 2021 periods resulted from both lower interest rates and reduced average outstanding borrowings.

For the three and six months ended June 30, 2021, our income tax provision was $35.6 million and $67.2 million, respectively, compared to an income tax benefit of $40.3 million and $11.8 million for the three and six months ended June 30, 2020, respectively.

Our income tax rate for the three and six months ended June 30, 2021 was 26.8% and 27.0%, respectively, compared to an income tax rate for the three and six months ended June 30, 2020 of (32.5)% and (59.4)%, respectively.

Our income tax rate, and resulting income tax benefit, for the three and six months ended June 30, 2020 were impacted by the tax effect of the $232.8 million of non-cash goodwill, identifiable intangible asset, and other long-lived asset impairment charges recorded during the second quarter of 2020, the majority of which was non-deductible for tax purposes.

For the three and nine months ended September 30, 2021, our income tax provision was $37.3 million and $104.5 million, respectively, compared to an income tax provision of $73.9 million and $62.2 million for the three and nine months ended September 30, 2020, respectively.

Our income tax rate for the three and nine months ended September 30, 2021 was 27.2% and 27.1%, respectively, compared to an income tax rate for the three and nine months ended September 30, 2020 of 54.7% and 53.9%, respectively.

Our income tax rate, and resulting income tax provision, for the three and nine months ended September 30, 2020 were impacted by the tax effect of the $232.8 million of non-cash goodwill, identifiable intangible asset, and other long-lived asset impairment charges recorded during the second quarter of 2020, the majority of which was non-deductible for tax purposes.

Remaining Unsatisfied Performance Obligations

The following table presents the transaction price allocated to remaining unsatisfied performance obligations (“remaining performance obligations”) for each of our reportable segments and their respective percentage of total remaining performance obligations (in thousands, except for percentages):

June 30, 2021 % of Total December 31, 2020 % of Total June 30, 2020 % of Total

September 30, 2021 % of Total December 31, 2020 % of Total September 30, 2020 % of Total

Remaining performance obligations:

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Such claim and other variable consideration amounts were immaterial for all periods presented.

Our remaining performance obligations at June 30, 2021 were $5.11 billion compared to $4.59 billion at December 31, 2020 and June 30, 2020.

The increase in remaining performance obligations at June 30, 2021 was attributable to an increase in remaining performance obligations within all of our reportable segments.

Our remaining performance obligations at September 30, 2021 were $5.38 billion compared to $4.59 billion at December 31, 2020 and $4.53 billion at September 30, 2020.

The increase in remaining performance obligations at September 30, 2021 was attributable to an increase in remaining performance obligations within all of our reportable segments.

Most notably, we experienced an increase in remaining performance obligations within our United States construction segments, driven by the award of certain telecommunications, food processing, and water and wastewater construction projects, as well as our United States building services segment given increased project opportunities within its mobile mechanical services division and the award of several facilities maintenance contracts within its commercial site-based services division.

Liquidity and Capital Resources

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Our long-term liquidity requirements can be expected to be met initially through cash generated from operating activities and, if necessary, the borrowing capacity available under our revolving credit facility.

Based upon our current credit ratings and financial position, we can also reasonably expect to be able to secure long-term debt financing if required to achieve our strategic objectives.

Over the long term, our primary revenue risk factor continues to be the level of demand for non-residential construction as well as building and industrial services, all of which are influenced by macroeconomic trends including interest rates and governmental economic policy.

Based upon our current credit rating and financial position, we can also reasonably expect to be able to secure long-term debt financing if required to achieve our strategic objectives.

In addition, our ability to perform work is critical to meeting our long-term liquidity requirements.

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The following table presents our net cash provided by (used in) operating activities, investing activities, and financing activities (in thousands):

For the six months ended

Net cash (used in) provided by operating activities $ (6,972) $ 276,743

For the nine months ended

September 30,

Net cash provided by operating activities $ 113,941 $ 546,834

Net cash used in investing activities $ (137,486) $ (77,219)

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(Decrease) increase in cash, cash equivalents, and restricted cash $ (238,542) $ 320,717

During the six months ended June 30, 2021, our cash balance, including cash equivalents and restricted cash, decreased by approximately $233.8 million from $903.6 million at December 31, 2020 to $669.8 million at June 30, 2021.

During the nine months ended September 30, 2021, our cash balance, including cash equivalents and restricted cash, decreased by approximately $238.5 million from $903.6 million at December 31, 2020 to $665.0 million at September 30, 2021.

Operating Activities – Operating cash flows generally represent our net income as adjusted for certain non-cash items and changes in assets and liabilities.

Net cash used in operating activities for the six months ended June 30, 2021 was approximately $7.0 million compared to approximately $276.7 million of cash provided by operating activities for the six months ended June 30, 2020.

The $283.7 million variance in operating cash flows was primarily attributable to:

(a) strong organic revenue growth in the current year, which resulted in an increase in working capital balances, most notably accounts receivable, (b) an increase in federal, state, and local income tax payments of approximately $74.4 million, largely as a result of extended deadlines for making estimated federal tax payments in the prior year, and (c) the payment, by our United Kingdom building services segment during the first quarter of 2021, of nearly $15.0 million in value-added tax, which was deferred from the prior year.

In addition, operating cash flow for the six months ended June 30, 2020 benefited from the deferral of nearly $33.0 million of payroll tax payments given the enactment of the Coronavirus Aid, Relief, and Economic Security Act, which allowed employers to defer payment of the employer’s portion of Social Security taxes throughout the majority of calendar year 2020.

Net cash provided by operating activities for the nine months ended September 30, 2021 was approximately $113.9 million compared to approximately $546.8 million of net cash provided by operating activities for the nine months ended September 30, 2020.

The $432.9 million decrease in operating cash flows was primarily attributable to strong organic revenue growth in the current year, which resulted in an increase in working capital balances, most notably accounts receivable and contract assets.

In addition, operating cash flow for the nine months ended September 30, 2020 benefited from the deferral of approximately $67.3 million of payroll tax payments given the enactment of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which allowed employers to defer payment of the employer’s portion of Social Security taxes throughout the majority of calendar year 2020.

Investing Activities – Investing cash flows consist primarily of payments for the acquisition of businesses, capital expenditures, and proceeds from the sale or disposal of property, plant, and equipment.

Net cash used in investing activities for the six months ended June 30, 2021 increased by approximately $42.6 million compared to the six months ended June 30, 2020 due to an increase in payments for business acquisitions, partially offset by lower capital expenditures.

Net cash used in investing activities for the nine months ended September 30, 2021 increased by approximately $60.3 million compared to the nine months ended September 30, 2020 due to an increase in payments for business acquisitions, partially offset by lower capital expenditures.

Financing Activities – Financing cash flows consist primarily of the issuance and repayment of short-term and long-term debt, repurchases of common stock, payment of dividends to stockholders, and the issuance of common stock through certain employee equity plans.

Net cash used in financing activities for the six months ended June 30, 2021 was $157.1 million compared to net cash used in financing activities for the six months ended June 30, 2020 of $121.3 million.

The $35.8 million increase in cash used in financing activities was primarily due to an increase in funds used for the repurchase of our common stock.

Net cash used in financing activities for the nine months ended September 30, 2021 was $213.1 million compared to net cash used in financing activities for the nine months ended September 30, 2020 of $147.6 million.

The $65.5 million increase in cash used in financing activities was primarily due to an $84.2 million increase in funds used for the repurchase of our common stock, partially offset by a reduction in repayments of our outstanding debt given a voluntary prepayment of $22.5 million in the prior year period.

Until March 2, 2020, we had a credit agreement dated as of August 3, 2016, which provided for a $900.0 million revolving credit facility (the “2016 Revolving Credit Facility”) and a $400.0 million term loan (the “2016 Term Loan”) (collectively referred to as the “2016 Credit Agreement”).

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At the Company’s election, borrowings under the 2020 Credit Agreement bear interest at either:

(1) a base rate plus a margin of 0.00% to 0.75%, based on certain financial tests, or (2) United States dollar LIBOR (0.10% at June 30, 2021) plus 1.00% to 1.75%, based on certain financial tests.

(1) a base rate plus a margin of 0.00% to 0.75%, based on certain financial tests, or (2) United States dollar LIBOR (0.08% at September 30, 2021) plus 1.00% to 1.75%, based on certain financial tests.

The base rate is determined by the greater of:

(a) the prime commercial lending rate announced by Bank of Montreal from time to time (3.25% at June 30, 2021), (b) the federal funds effective rate, plus ½ of 1.00%, (c) the daily one month LIBOR rate, plus 1.00%, or (d) 0.00%.

The interest rate in effect at June 30, 2021 was 1.10%.

(a) the prime commercial lending rate announced by Bank of Montreal from time to time (3.25% at September 30, 2021), (b) the federal funds effective rate, plus ½ of 1.00%, (c) the daily one month LIBOR rate, plus 1.00%, or (d) 0.00%.

The interest rate in effect at September 30, 2021 was 1.08%.

A commitment fee is payable on the average daily unused amount of the 2020 Revolving Credit Facility, which ranges from 0.10% to 0.25%, based on certain financial tests.

The fee was 0.10% of the unused amount as of June 30, 2021.

The fee was 0.10% of the unused amount as of September 30, 2021.

Fees for letters of credit issued under the 2020 Revolving Credit Facility range from 0.75% to 1.75% of the respective face amounts of outstanding letters of credit, depending on the nature of the letter of credit, and are computed based on certain financial tests.

As of June 30, 2021 and December 31, 2020, the balance of the 2020 Term Loan was $270.6 million.

As of June 30, 2021 and December 31, 2020, there were no direct borrowings outstanding under the 2020 Revolving Credit Facility;

As of September 30, 2021 and December 31, 2020, the balance of the 2020 Term Loan was $270.6 million.

As of September 30, 2021 and December 31, 2020, there were no direct borrowings outstanding under the 2020 Revolving Credit Facility;

however, we had $71.3 million of letters of credit outstanding, which reduce the available capacity under such facility.

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The 2020 Credit Agreement contains various covenants providing for, among other things, the maintenance of certain financial ratios and certain limitations on the payment of dividends, common stock repurchases, investments, acquisitions, indebtedness, and capital expenditures.

We were in compliance with all such covenants as of June 30, 2021 and December 31, 2020.

We were in compliance with all such covenants as of September 30, 2021 and December 31, 2020.

We are required to make annual principal payments on the 2020 Term Loan.

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Since the inception of the repurchase program, the Board has authorized us to repurchase up to $1.15 billion of our outstanding common stock.

During the six months ended June 30, 2021, we repurchased approximately 1.1 million shares of our common stock for approximately $138.0 million.

Since the inception of the repurchase program through June 30, 2021, we have repurchased approximately 18.7 million shares of our common stock for approximately $1,042.1 million.

As of June 30, 2021, there remained authorization for us to repurchase approximately $107.9 million of our shares.

During the nine months ended September 30, 2021, we repurchased approximately 1.5 million shares of our common stock for approximately $183.2 million.

Since the inception of the repurchase program through September 30, 2021, we have repurchased approximately 19.1 million shares of our common stock for approximately $1.09 billion.

As of September 30, 2021, there remained authorization for us to repurchase approximately $62.7 million of our shares.

Subsequent to September 30, 2021, the Board authorized us to repurchase up to an additional $300.0 million of our outstanding common stock.

The repurchase program has no expiration date, does not obligate the Company to acquire any particular amount of common stock, and may be suspended, recommenced, or discontinued at any time or from time to time without prior notice.

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Public sector contracts require Surety Bonds more frequently than private sector contracts and, accordingly, our bonding requirements typically increase as the amount of our public sector work increases.

As of June 30, 2021, based on the percentage-of-completion of our projects covered by Surety Bonds, our aggregate estimated exposure, assuming defaults on all our then existing contractual obligations, was approximately $1.4 billion, which represents approximately 27% of our total remaining performance obligations.

As of September 30, 2021, based on the percentage-of-completion of our projects covered by Surety Bonds, our aggregate estimated exposure, assuming defaults on all our then existing contractual obligations, was approximately $1.4 billion, which represents approximately 27% of our total remaining performance obligations.

In addition, Surety Bonds are sometimes provided to secure obligations for wages and benefits payable to or for certain of our employees, at the request of labor unions representing such employees, or as collateral for certain insurance obligations.

As of June 30, 2021, we satisfied approximately $37.5 million of the collateral requirements of our insurance programs by utilizing Surety Bonds.

As of September 30, 2021, we satisfied approximately $37.5 million of the collateral requirements of our insurance programs by utilizing Surety Bonds.

We are not aware of any losses in connection with Surety Bonds that have been posted on our behalf, and we do not expect to incur significant losses in the foreseeable future.

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We do not have any other material financial guarantees or off-balance sheet arrangements other than those disclosed herein.

Deferred Payroll Taxes

As allowed under the CARES Act, we deferred payment of approximately $102.5 million of employer payroll taxes during the year ended December 31, 2020.

These temporary deferrals are to be paid in two equal installments with the first due on or before January 3, 2022 and the second due on or before January 3, 2023.

Legal Proceedings

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Certain Insurance Matters

As of June 30, 2021 and December 31, 2020, we utilized approximately $71.2 million of letters of credit obtained under our 2020 Revolving Credit Facility as collateral for insurance obligations.

As of June 30, 2021 and December 31, 2020, we satisfied an additional $37.5 million of these collateral requirements by utilizing Surety Bonds.

As of September 30, 2021 and December 31, 2020, we utilized approximately $71.2 million of letters of credit obtained under our 2020 Revolving Credit Facility as collateral for insurance obligations.

As of September 30, 2021 and December 31, 2020, we satisfied an additional $37.5 million of these collateral requirements by utilizing Surety Bonds.

New Accounting Pronouncements

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When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

For the three and six months ended June 30, 2021 and 2020, there were no changes in total estimated costs that had a significant impact on our operating results.

In addition, there were no significant losses recognized during the three and six months ended June 30, 2021 and 2020.

For the three and nine months ended September 30, 2021 and 2020, there were no changes in total estimated costs that had a significant impact on our operating results.

In addition, there were no significant losses recognized during the three and nine months ended September 30, 2021 and 2020.

The timing of revenue recognition may differ from the timing of invoicing to customers.

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In addition to monitoring delinquent accounts, management reviews the credit quality of its receivables by, among other things, obtaining credit ratings of significant customers, assessing economic and market conditions, and evaluating material changes to a customer’s business, cash flows, and financial condition.

At June 30, 2021 and December 31, 2020, our accounts receivable of $2,102.7 million and $1,922.1 million, respectively, were recorded net of allowances for credit losses of $22.5 million and $18.0 million, respectively.

The increase in our allowance for credit losses was predominantly attributable to our evaluation of a specific outstanding receivable within our United States industrial services segment.

At September 30, 2021 and December 31, 2020, our accounts receivable of $2,181.7 million and $1,922.1 million, respectively, were recorded net of allowances for credit losses of $22.6 million and $18.0 million, respectively.

The increase in our allowance for credit losses was predominantly attributable to our evaluation of a specific outstanding receivable within our United States industrial services segment during the second quarter of 2021.

Allowances for credit losses are based on the best facts available and are reassessed and adjusted on a regular basis as additional information is received.

Should anticipated collections fail to materialize, or if future economic conditions compare unfavorably to our forecasts, we could experience an increase in our allowances for credit losses.

The provision for credit losses amounted to approximately $5.5 million and $5.0 million for the six months ended June 30, 2021 and 2020, respectively.

The provision for credit losses amounted to approximately $5.8 million and $3.4 million for the nine months ended September 30, 2021 and 2020, respectively.

Insurance Liabilities

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Therefore, if our actual experience differs from the assumptions and estimates used for recording the liabilities, adjustments may be required and will be recorded in the period that the experience becomes known.

Our estimated net insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims increased by $3.8 million at June 30, 2021 compared to December 31, 2020, partially as a result of greater potential exposures, including the impact of acquired companies.

If our estimated insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims were to increase by 10%, it would have resulted in $17.6 million of additional expense for the six months ended June 30, 2021.

Our estimated net insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims increased by $3.0 million at September 30, 2021 compared to December 31, 2020, partially as a result of greater potential exposures, including the impact of acquired companies.

If our estimated insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims were to increase by 10%, it would have resulted in $17.5 million of additional expense for the nine months ended September 30, 2021.

Deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement and income tax bases of assets and liabilities as well as for net operating loss and tax credit carryforwards.

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In making such determination, we consider all available evidence, including projections of future taxable income, tax-planning strategies, and recent results of operations.

At June 30, 2021 and December 31, 2020, we had net deferred income tax liabilities of $31.5 million and $29.4 million, respectively, primarily resulting from differences between the carrying value and income tax bases of certain identifiable intangible assets, goodwill, and depreciable fixed assets.

Included within these net deferred income tax liabilities are $221.4 million and $217.1 million of deferred income tax assets as of June 30, 2021 and December 31, 2020, respectively.

The total valuation allowance on deferred income tax assets, primarily related to state net operating loss carryforwards, was approximately $3.9 million as of both June 30, 2021 and December 31, 2020.

At September 30, 2021 and December 31, 2020, we had net deferred income tax liabilities of $29.6 million and $29.4 million, respectively, primarily resulting from differences between the carrying value and income tax bases of certain identifiable intangible assets, goodwill, and depreciable fixed assets.

Included within these net deferred income tax liabilities are $228.0 million and $217.1 million of deferred income tax assets as of September 30, 2021 and December 31, 2020, respectively.

The total valuation allowance on deferred income tax assets, primarily related to state net operating loss carryforwards, was approximately $3.9 million as of both September 30, 2021 and December 31, 2020.

Based on our taxable income, which has generally exceeded the amount of our net deferred income tax asset balance, as well as current projections of future taxable income, we have determined that it is more likely than not that our net deferred income tax assets will be realized.

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Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets

As of June 30, 2021 and December 31, 2020, we had goodwill of $868.8 million and $851.8 million, respectively, arising out of the acquisition of businesses.

As of September 30, 2021 and December 31, 2020, we had goodwill of $888.3 million and $851.8 million, respectively, arising out of the acquisition of businesses.

Goodwill is not amortized but instead allocated to its respective reporting unit and evaluated for impairment annually, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired.

We have determined that our reporting units are consistent with the reportable segments identified in Note 15 - Segment Information of the notes to consolidated financial statements.

As of June 30, 2021, approximately 16.4% of our goodwill related to our United States electrical construction and facilities services segment, approximately 34.8% related to our United States mechanical construction and facilities services segment, approximately 35.7% related to our United States building services segment, and approximately 13.1% related to our United States industrial services segment.

As of September 30, 2021, approximately 17.9% of our goodwill related to our United States electrical construction and facilities services segment, approximately 34.1% related to our United States mechanical construction and facilities services segment, approximately 35.2% related to our United States building services segment, and approximately 12.8% related to our United States industrial services segment.

Absent any earlier identified impairment indicators, we perform our annual goodwill impairment assessment on October 1 each fiscal year.

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However, if the carrying amount of the reporting unit exceeds the fair value, the goodwill of the reporting unit is impaired and an impairment loss in the amount of the excess is recognized and charged to operations.

We did not identify any impairment indicators during the three and six months ended June 30, 2021 that would necessitate an interim impairment assessment of our goodwill and no impairment of our goodwill was recognized during such periods.

We did not identify any impairment indicators during the three and nine months ended September 30, 2021 that would necessitate an interim impairment assessment of our goodwill and no impairment of our goodwill was recognized during such periods.

However, our operations were significantly impacted by the COVID-19 pandemic starting with the second quarter of 2020.

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Consequently, in the second quarter of 2020, we revised our near-term revenue and operating margin expectations for such segment and concluded that a triggering event had occurred which indicated that it was more likely than not that its fair value was less than its carrying amount.

Based on the outcome of our second quarter 2020 interim goodwill impairment test, we concluded that the carrying amount of our United States industrial services segment exceeded its fair value by $225.5 million, resulting in the recognition of a non-cash goodwill impairment charge in that amount, which was included within our results of operations for the three and six months ended June 30, 2020.

We did not identify impairment indicators related to any other reporting unit that would have required an interim impairment assessment.

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In addition, keeping all other assumptions constant, a 50 basis point reduction in the perpetual growth rate would cause the estimated fair values of our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment, our United States building services segment, and our United States industrial services segment to decrease by approximately $31.0 million, $58.9 million, $33.5 million, and $9.7 million, respectively.

Given the amounts by which the fair

value exceeds the carrying value for each of our reporting units, other than our United States industrial services segment, the decreases in estimated fair values described above would not have significantly impacted the results of our impairment tests.

Given the amounts by which the fair value exceeds the carrying value for each of our reporting units, other than our United States industrial services segment, the decreases in estimated fair values described above would not have significantly impacted the results of our impairment tests.

In the case of our United States industrial services segment, however, such decreases would cause the estimated fair value of such reporting unit to approximate its carrying value.

Identifiable Intangible Assets and Other Long-Lived Assets

As of June 30, 2021 and December 31, 2020, net identifiable intangible assets (primarily consisting of our contract backlog, developed technology/vendor network, customer relationships, and subsidiary trade names) arising out of the acquisition of businesses were $587.2 million and $582.9 million, respectively.

As of September 30, 2021 and December 31, 2020, net identifiable intangible assets (primarily consisting of our contract backlog, developed technology/vendor network, customer relationships, and subsidiary trade names) arising out of the acquisition of businesses were $602.2 million and $582.9 million, respectively.

The determination of related estimated useful lives for identifiable intangible assets and whether those assets are impaired involves significant judgments based upon short- and long-term projections of future performance.

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We subsequently (as of October 1, 2020) performed our annual impairment assessment of all subsidiary trade names that are not subject to amortization and determined there was no incremental impairment of these assets.

Additionally, we have not identified any impairment indicators during the three and six months ended June 30, 2021 that would necessitate an interim impairment assessment of either our identifiable intangible assets or other long-lived assets, and no impairment of these assets was recognized during such 2021 periods.

Additionally, we have not identified any impairment indicators during the three and nine months ended September 30, 2021 that would necessitate an interim impairment assessment of either our identifiable intangible assets or other long-lived assets, and no impairment of these assets was recognized during such 2021 periods.

Other Considerations

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis