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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 210 added, 150 removed, 256 unchanged (58% of the section changed)

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Market Update

Although our business continues to recover from the financial impacts of the COVID-19 pandemic and related government orders implemented to mitigate it, the broader and longer-term implications the pandemic has on the global economy continue to develop.

Economic disruptions, including supply chain, production, and other logistical issues, as well as escalating commodity prices, have and may continue to negatively impact our business.

Although our business continues to recover from the financial impacts of the COVID-19 pandemic and related government orders implemented to mitigate it, the effect of the COVID-19 pandemic may continue to disrupt our customers’ operations and our job sites, and may continue to impact supply chains.

Economic disruptions, including supply chain, production, and other logistical issues, as well as wage and general inflation, together with escalating commodity prices, have and may continue to negatively impact our business.

For example, we are experiencing lead times significantly in excess of normal levels while also experiencing the effects of inflation through increases in fuel, material, and other commodity prices.

These disruptions worsened in the first quarter of 2022 and have manifested themselves most notably through project delays and reduced labor productivity and efficiency, particularly within our United States construction segments and our United States building services segment, as described in further detail below.

These disruptions have manifested themselves most notably through project delays or scheduling impacts and reduced labor productivity and efficiency, particularly within our United States construction segments and our United States building services segment.

In response to these challenges, we continue to strive to more effectively manage our business through enhanced labor planning and project scheduling, increased pricing to the extent contractually permitted, and by leveraging our relationships with our suppliers and customers.

However, the impact of these disruptions continues to evolve and the conflict in Ukraine has added another layer of uncertainty, especially with respect to energy costs.

In addition, the market for trade labor remains tight in many of the regions in which we operate.

There can be no assurance that our actions will serve to mitigate such impacts in future periods.

Further, while we believe our remaining performance obligations are firm, and our customers have not provided us with any indications that they no longer wish to proceed with planned projects, prolonged delays in the receipt of critical equipment could result in our customers seeking to terminate existing or pending agreements.

Further, while we believe our remaining performance obligations are firm, and our customers have not provided us with any indications that they no longer wish to proceed with planned projects, prolonged delays in the receipt of critical equipment could impact our ability to convert such remaining performance obligations to revenues in the near term, or result in our customers seeking to terminate existing or pending 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 March 31, 2022 and 2021 (in thousands, except percentages and per share data):

The following table presents selected financial data for the three months ended June 30, 2022 and 2021 (in thousands, except percentages and per share data):

For the three months ended

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Diluted earnings per common share $ 1.99 $ 1.78

Revenues of $2.59 billion for the quarter ended March 31, 2022 represent an increase of 12.5% from revenues of $2.30 billion for the quarter ended March 31, 2021.

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

In addition, during the first quarter of 2022, companies acquired in 2021 generated incremental revenues of approximately $49.5 million.

Despite the increase in revenues referenced above, operating income for the quarter ended March 31, 2022 of $100.0 million, or 3.9% of revenues, represents a decrease compared to operating income of $117.0 million, or 5.1% of revenues, for the quarter ended March 31, 2021.

A decline in our consolidated gross profit margin negatively impacted our ability to convert such revenue growth into incremental operating profitability.

Notably, we experienced a decline in gross profit margin within our United States electrical construction and facilities services segment, largely as a result of a change in project mix, including a reduction in revenues from telecommunication construction projects.

Similarly, we experienced a decline in gross profit margin within our United States mechanical construction and facilities services segment, due to a greater number of projects within the manufacturing and water and wastewater market sectors for which we are acting as either the construction manager or general contractor and therefore carry lower than average gross profit margins.

In addition to the change in project mix referenced above, our United States construction segments, as well as our United States building services segment, were negatively impacted by supply chain disruptions and delays, which, in certain instances, led to either:

(a) reduced labor productivity and efficiency, (b) the under-absorption of labor costs in instances where projects were delayed pending the receipt of materials, or (c) material and commodity price escalations.

These decreases in gross profit margin were partially offset by improved gross profit margins within our United States industrial services segment, which experienced a more normalized spring turnaround season compared to the prior year, and our United Kingdom building services segment.

Revenues of $2.71 billion for the quarter ended June 30, 2022 represent an increase of 11.1% from revenues of $2.44 billion for the quarter ended June 30, 2021.

Demand for our services continues to be strong and, as described in further detail below, we experienced revenue growth within all of our reportable segments except for our United Kingdom building services segment, the reduction in revenues of which was largely due to unfavorable exchange rate movements during 2022.

During the second quarter of 2022, a company acquired in 2021 generated incremental revenues of approximately $33.7 million.

Operating income for the quarter ended June 30, 2022 was $137.6 million, or 5.1% of revenues, compared to operating income of $133.4 million, or 5.5% of revenues, for the quarter ended June 30, 2021.

The increase in operating income was a result of the aforementioned increase in revenues, while the decrease in operating margin was driven by a reduction in gross profit margin, predominantly within our United States construction segments, partially due to a change in project mix.

In addition, as described in further detail below, gross profit margin for each of our construction segments was adversely impacted by supply chain disruptions and delays, which contributed to:

(a) certain project losses recognized in the second quarter of 2022, which negatively impacted our consolidated operating margin by 40 basis points, and (b) reduced labor productivity when compared to the prior year.

These declines in gross profit margin were partially offset by a reduction in the ratio of selling, general and administrative expenses to revenues as we were able to leverage our overhead cost structure during this period of revenue growth.

Net income of $100.7 million, or $1.99 per diluted share, for the quarter ended June 30, 2022, compares favorably to net income of $97.4 million, or $1.78 per diluted share, for the quarter ended June 30, 2021.

In addition to the increase in operating income referenced above, our diluted earnings per share for the second quarter of 2022 benefited from a reduced weighted average share count given the impact of common stock repurchases made by us throughout 2021 and 2022.

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 quarter of 2022, we acquired a company for an immaterial amount.

This company provides fire protection services in the Northeastern region of the United States.

During the first half of 2022, we acquired three companies, each for an immaterial amount.

Two companies, the results of operations of which have been included within our United States mechanical construction and facilities services segment, provide fire protection services in the Northeastern and Southern regions of the United States, respectively.

The third company, the results of operations of which have been included within our United States building services segment, specializes in building automation and controls in the Southwestern region of the United States.

The results of operations of each such company were de minimis.

We acquired eight companies during calendar year 2021 for total consideration of $131.2 million.

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Results of Operations

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

For the three months ended March 31,

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,

Total 2021 % of

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Total operations $ 2,707,388 100 % $ 2,437,666 100 %

As described below in more detail, as a result of revenue growth within all of our reportable segments, our revenues for the first quarter of 2022 increased to $2.59 billion compared to $2.30 billion for the first quarter of 2021.

Revenues of our United States electrical construction and facilities services segment were $522.0 million for the three months ended March 31, 2022 compared to revenues of $459.4 million for the three months ended March 31, 2021.

This segment’s results for the 2022 period included $34.9 million of incremental revenues generated by companies acquired in 2021.

Excluding the impact of acquisitions, revenues of this segment increased by $27.7 million, primarily as a result of an increase in revenues from:

(a) the commercial market sector, (b) transmission and distribution projects, including those to support sustainable energy solutions such as solar and wind, (c) the transportation market sector, driven by large project activity within the Midwestern region of the United States, and (d) healthcare project activity throughout several of the regions in which we operate.

Despite the increase in commercial market sector revenues, this segment experienced a reduction in telecommunication construction project revenues when compared to the prior year period, partially as a result of supply chain disruptions, which have resulted in a delay in the start-up of recently awarded projects as our customers await delivery of critical equipment.

In addition, this segment’s results for the three months ended March 31, 2022 reflect a decrease in revenues from the institutional market sector, due to the completion or substantial completion of certain projects which were performed in the prior year.

Our United States mechanical construction and facilities services segment revenues for the three months ended March 31, 2022 were $1.0 billion, an $86.0 million increase compared to revenues of $914.5 million for the three months ended March 31, 2021.

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

(a) the water and wastewater market sector, given increased project activity within the Southern region of the United States, (b) the manufacturing market sector, driven by certain large food processing projects, (c) the commercial market sector, given:

(i) increased demand for our mechanical construction services by certain customers engaged in the design and manufacturing of semiconductors as well as customers within the biotech, life-sciences, and pharmaceutical industries, and (ii) 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 (d) 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.

Revenues of our United States building services segment were $627.8 million for the three months ended March 31, 2022 compared to revenues of $568.0 million for the three months ended March 31, 2021.

Excluding incremental acquisition revenues within this segment’s mobile mechanical services division of $14.6 million, this segment’s revenue growth during the 2022 period was attributable to:

(a) its commercial site-based services and government services divisions, due to the award of facilities maintenance contracts with new customers, as well as scope expansion with existing customers, and (b) its mobile mechanical services division, due to:

(i) greater service repair and maintenance volumes, partially as a result of incremental repair opportunities driven by supply chain delays, which have created a need to extend the life of existing equipment in instances when replacement equipment is not readily available, and (ii) an increase in demand for building automation and controls services, partially as our customers continue to seek ways to improve the energy efficiency of their facilities.

Revenues of our United States industrial services segment for the three months ended March 31, 2022 were $310.8 million, a $75.4 million increase compared to revenues of $235.4 million for the three months ended March 31, 2021.

While there remains significant disruption and uncertainty within the broader oil and gas industry, most notably within the upstream and midstream energy sectors, we began to experience a resumption in demand within this segment during the second half of 2021.

Such increased demand continued into the first quarter of 2022 and resulted in growth in revenues from:

(a) this segment’s field services operations, due to a more normalized spring turnaround season when compared to the prior year, and (b) this segment’s shop services operations, as a result of greater new build heat exchanger sales and an increase in maintenance, repair, and hydro blast cleaning services.

Our United Kingdom building services segment revenues were $131.5 million for the three months ended March 31, 2022 compared to revenues of $126.7 million for the three months ended March 31, 2021.

The increase in this segment’s revenues was predominantly a result of growth in project activities with existing customers, primarily within the commercial market sector, including certain telecommunication projects.

Unfavorable exchange rates for the British pound versus the United States dollar negatively impacted this segment’s revenues for the first quarter of 2022 by $3.9 million.

For the six months ended June 30,

Total 2021 % of

United States electrical construction and facilities services $ 1,086,142 20 % $ 951,525 20 %

United States mechanical construction and facilities services 2,066,817 39 % 1,883,165 40 %

United States building services 1,305,648 25 % 1,179,871 25 %

United States industrial services 595,285 11 % 470,545 10 %

Total United States operations 5,053,892 95 % 4,485,106 95 %

United Kingdom building services 246,045 5 % 256,609 5 %

Total operations $ 5,299,937 100 % $ 4,741,715 100 %

As described below in more detail, our revenues for the second quarter of 2022 increased to $2.71 billion compared to $2.44 billion for the second quarter of 2021, and our revenues for the six months ended June 30, 2022 increased to $5.30 billion compared to $4.74 billion for the six months ended June 30, 2021.

We experienced increases in revenues from all of our reportable segments, except for our United Kingdom building services segment, the reduction in revenues of which was largely due to unfavorable exchange rate movements during 2022.

Companies acquired in 2022 and 2021 generated incremental revenues of approximately $33.7 million and $83.2 million for the three and six months ended June 30, 2022, respectively.

Revenues of our United States electrical construction and facilities services segment were $564.1 million and $1,086.1 million for the three and six months ended June 30, 2022, respectively, compared to revenues of $492.1 million and $951.5 million for the three and six months ended June 30, 2021, respectively.

This segment’s results for the three and six months ended June 30, 2022 included $33.7 million and $68.6 million, respectively, of incremental revenues generated by companies acquired in 2021.

Excluding the impact of acquisitions, revenues of this segment increased by $38.3 million and $66.0 million, respectively, primarily as a result of an increase in revenues from:

(a) the commercial market sector, inclusive of both certain telecommunication and technology projects as well as traditional commercial construction projects, (b) the healthcare market sector due to large project activity, and (c) transmission and distribution projects, including those to support sustainable energy solutions such as solar and wind.

These revenue increases were partially offset by a decrease in revenues from the institutional market sector during both the three and six months ended June 30, 2022, due to the completion or substantial completion of various projects which were performed in the prior year.

Our United States mechanical construction and facilities services segment revenues for the three months ended June 30, 2022 were $1,066.3 billion, a $97.7 million increase compared to revenues of $968.7 million for the three months ended June 30, 2021.

Revenues of this segment for the six months ended June 30, 2022 were $2,066.8 million, a $183.7 million increase compared to revenues of $1,883.2 million for the six months ended June 30, 2021.

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

(a) the manufacturing market sector, driven by certain large food processing projects, (b) the water and wastewater market sector, given increased project activity within the Southern region of the United States, (c) the institutional market sector, due to

increased project activity within the Midwestern and Northeastern regions of the United States, (d) the commercial market sector, as a result of increased demand for our mechanical construction and/or fire protection services by certain customers engaged in the design and manufacturing of semiconductors as well as customers within the biotech, life-sciences, and pharmaceutical industries, and (e) 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.

In addition, revenues of this segment for the six months ended June 30, 2022 benefited from increased demand for our fire protection services within various warehousing and distribution facilities to support the build-out of our customers’ e-commerce supply chains.

Revenues of our United States building services segment were $677.8 million and $1,305.6 million for the three and six months ended June 30, 2022, respectively, compared to revenues of $611.8 million and $1,179.9 million for the three and six months ended June 30, 2021, respectively.

Excluding incremental acquisition revenues within this segment’s mobile mechanical services division of $14.6 million during the six months ended June 30, 2022, this segment’s revenue growth for both periods was primarily attributable to:

(a) its commercial site-based services division, due to the award of facilities maintenance contracts with new customers, as well as scope or site expansion and increased project work with existing customers, and (b) its mobile mechanical services division, due to:

(i) greater service repair and maintenance volumes, partially as a result of incremental repair opportunities driven by supply chain delays, which have created a need to extend the life of existing equipment in instances when replacement equipment is not readily available, and (ii) an increase in demand for HVAC system retrofits and building automation and controls services, partially as our customers continue to seek ways to improve the energy efficiency or indoor air quality of their facilities.

Revenues of our United States industrial services segment for the three months ended June 30, 2022 were $284.5 million, a $49.4 million increase compared to revenues of $235.2 million for the three months ended June 30, 2021.

Revenues of this segment for the six months ended June 30, 2022 were $595.3 million, a $124.7 million increase compared to revenues of $470.5 million for the six months ended June 30, 2021.

While there remains significant disruption and uncertainty within the broader oil and gas industry, most notably within the upstream and midstream energy sectors, we began to experience a resumption in downstream energy demand within this segment during the second half of 2021.

Such increased demand continued into the first half of 2022 and resulted in growth in revenues from:

(a) this segment’s field services operations, due to:

(i) a more normalized spring turnaround season when compared to the prior year, and (ii) an increase in maintenance and capital project activity, and (b) this segment’s shop services operations, as a result of greater new build heat exchanger sales and an increase in maintenance, repair, and hydro blast cleaning services.

Our United Kingdom building services segment revenues were $114.5 million and $246.0 million for the three and six months ended June 30, 2022, respectively, compared to revenues of $129.9 million and $256.6 million for the three and six months ended June 30, 2021, respectively.

The decrease in this segment’s revenues for both periods was predominantly a result of unfavorable exchange rate movements for the British pound versus the United States dollar, which negatively impacted this segment’s revenues by $12.5 million and $16.4 million for the three and six months ended June 30, 2022, respectively.

Excluding the impact of foreign exchange rate movements, this segment’s revenues for the six months ended June 30, 2022 increased as a result of growth in project activities with existing customers, primarily within the commercial market sector, including certain telecommunication projects.

Cost of sales and gross profit

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For the three months ended

June 30, For the six months ended

2022 2021 2022 2021

Cost of sales $ 2,324,380 $ 2,061,387 $ 4,564,374 $ 4,024,363

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Gross profit margin 14.1 % 15.4 % 13.9 % 15.1 %

Our gross profit for the three months ended March 31, 2022 was $352.6 million, or 13.6% of revenues, compared to gross profit of $341.1 million, or 14.8% of revenues, for the three months ended March 31, 2021.

The increase in gross profit was a result of increased revenue volume, which despite the decrease in gross profit margin discussed below, resulted in an increase in consolidated gross profit.

The decrease in gross profit margin for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 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, both as a result of a less favorable project mix, as well as certain discrete impacts in the period, due in part to supply chain delays and disruptions.

Our gross profit for the three months ended June 30, 2022 was $383.0 million, or 14.1% of revenues, compared to gross profit of $376.3 million, or 15.4% of revenues, for the three months ended June 30, 2021.

Gross profit for the six months ended June 30, 2022 was $735.6 million, or 13.9% of revenues, compared to gross profit of $717.4 million, or 15.1% of revenues, for the six months ended June 30, 2021.

Companies acquired in 2022 and 2021 generated incremental gross profit of approximately $5.4 million and $11.7 million for the three and six months ended June 30, 2022, respectively.

Excluding the impact of acquisitions, the increase in gross profit for both 2022 periods was a result of increased revenue volume, which despite the decrease in gross profit margin discussed below, resulted in an increase in consolidated gross profit.

The decrease in gross profit margin for both 2022 periods was primarily attributable to a reduction in gross profit margin within each of our United States construction segments, as a result of:

(a) a less favorable project mix, and (b) the impact of supply chain disruptions and delays, that contributed to:

(i) certain discrete project losses during the three and six months ended June 30, 2022, which negatively impacted our consolidated gross profit margin during such periods by 50 basis points and 40 basis points, respectively, and (ii) reduced labor productivity in instances where projects were either delayed or work was performed out of sequence as we awaited the receipt of key materials and equipment.

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

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For the three months ended

June 30, For the six months ended

2022 2021 2022 2021

Selling, general and administrative expenses $ 245,364 $ 242,921 $ 497,962 $ 466,990

SG&A margin 9.1 % 10.0 % 9.4 % 9.8 %

Our selling, general and administrative expenses for the three months ended March 31, 2022 were $252.6 million compared to selling, general and administrative expenses of $224.1 million for the three months ended March 31, 2021.

Selling, general and administrative expenses for the 2022 period included $5.2 million of incremental expenses directly related to companies acquired in 2022 and 2021, including amortization expense attributable to identifiable intangible assets of $1.0 million.

Excluding incremental expenses from businesses acquired, our selling, general and administrative expenses increased by $23.3 million for the three months ended March 31, 2022.

The organic increase in selling, general and administrative expenses for the three months ended March 31, 2022 was primarily attributable to an increase in:

(a) salaries and incentive compensation expense, as a result of an increase in headcount to support our organic revenue growth in the current period, (b) employee benefit costs, driven by greater medical claim activity, (c) computer hardware and software costs, partially as a result of various information technology and cybersecurity initiatives currently in process, and (d) travel and entertainment expenses, given a resumption in travel and business meals as COVID-19 related restrictions continue to ease.

Selling, general and administrative expenses as a percentage of revenues was 9.7% for each of the three months ended March 31, 2022 and 2021.

Our selling, general and administrative expenses for the three months ended June 30, 2022 were $245.4 million compared to selling, general and administrative expenses of $242.9 million for the three months ended June 30, 2021.

Selling, general and administrative expenses for the six months ended June 30, 2022 were $498.0 million compared to selling, general and administrative expenses of $467.0 million for the six months ended June 30, 2021.

For the three and six months ended June 30, 2022, selling, general and administrative expenses included $3.1 million and $8.4 million, respectively, of incremental expenses directly related to companies acquired in 2022 and 2021, including amortization expense attributable to identifiable intangible assets of $1.1 million and $2.1 million, respectively.

Excluding incremental expenses from businesses acquired, our selling, general and administrative expenses decreased by $0.7 million for the three months ended June 30, 2022 and increased by $22.6 million for the six months ended June 30, 2022.

The organic increase in selling, general and administrative expenses for the year-to-date period was primarily attributable to an increase in:

(a) salaries expense, as a result of an increase in headcount to support our organic revenue growth, (b) employee benefit costs, driven by greater medical claim activity, (c) travel and entertainment expenses, given a resumption in travel and business meals as COVID-19 related restrictions continue to ease, and (d) computer hardware and software costs, partially as a result of various information technology and cybersecurity initiatives currently in process.

These increases were partially offset by a reduction in our provision for credit losses as our results for the prior year period included expense of approximately $4.1 million associated with a reserve taken for a specific customer bankruptcy within our United States industrial services segment.

Selling, general and administrative expenses as a percentage of revenues were 9.1% and 10.0% for the three months ended June 30, 2022 and 2021, respectively, compared to 9.4% and 9.8% for the six months ended June 30, 2022 and 2021, respectively.

The decrease in SG&A margin for both the three and six month periods was largely 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.

Operating income (loss)

The following table presents 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 March 31,

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,

Revenues 2021 % of

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Income before income taxes $ 136,987 $ 132,964

Operating income was $100.0 million, or 3.9% of revenues, for the three months ended March 31, 2022 compared to operating income of $117.0 million, or 5.1% of revenues, for the three months ended March 31, 2021.

As described in further detail below, operating income and operating margin of each of our United States construction segments as well as our United States building services segment decreased when compared to the prior year period.

These declines were only partially offset by increases in operating income and operating margin within our United States industrial services segment and our United Kingdom building services segment.

Operating income of our United States electrical construction and facilities services segment was $20.0 million, or 3.8% of revenues, for the three months ended March 31, 2022, compared to $40.3 million, or 8.8% of revenues, for the three months ended March 31, 2021.

Companies acquired in 2021 contributed incremental operating income of $1.2 million, inclusive of $1.8 million of amortization expense associated with identifiable intangible assets, for the quarter ended March 31, 2022.

Excluding such acquisition contribution, operating income of this segment decreased by $21.5 million during the 2022 period.

The decrease in both operating income and operating margin was largely attributable to a decrease in gross profit and gross profit margin from:

(a) the commercial market sector, primarily as a result of a change in project mix, including a reduction in revenues from telecommunication construction projects given the temporary project delays previously referenced, and (b) the institutional market sector, given the favorable progression or close-out of certain projects in the prior year period.

In addition, labor productivity and efficiency within this segment was adversely impacted during the quarter as a result of supply chain disruptions and delays, which led to issues with respect to the sequencing of work on certain projects.

Our United States mechanical construction and facilities services segment’s operating income for the three months ended March 31, 2022 was $58.7 million, compared to operating income of $63.2 million for the three months ended March 31, 2021.

Despite the aforementioned increase in this segment’s revenues, operating income decreased due to a 100 basis point contraction in operating margin, largely as a result of a decline in gross profit margin given a greater number of projects within the manufacturing and water and wastewater market sectors for which we are acting as either the construction manager or general contractor and therefore carry lower than average gross profit margins.

In addition, the results of this segment for the first quarter of 2022 were negatively impacted by certain project write-downs resulting, in part, from supply chain disruptions and/or material price escalations, a portion for which we will seek recovery from our customers.

Based on an evaluation of individual projects that had revisions to total estimated costs, which resulted in a reduction of profitability in excess of $1.0 million, the operating results of our United States construction segments were negatively impacted by approximately $10.0 million during the three months ended March 31, 2022.

Of this amount, approximately $4.6 million was recorded within our United States electrical construction and facilities services segment and approximately $5.4 million was recorded withing our United States mechanical construction and facilities services segment.

These reductions in estimated project profitability negatively affected the operating margin of these segments for the first quarter of 2022 by 0.9% and 0.5%, respectively.

There were no changes in total estimated costs that had a significant impact on the operating results of these segments during the three months ended March 31, 2021.

Operating income of our United States building services segment was $23.9 million, or 3.8% of revenues, for the three months ended March 31, 2022 compared to $31.1 million, or 5.5% of revenues, for the three months ended March 31, 2021.

Given a reduction in gross profit margin within this segment, increased gross profit, resulting from the previously referenced period over period revenue growth, was more than offset by an increase in selling, general and administrative expenses, resulting in the decrease in operating income and operating margin for the first quarter of 2022.

Gross profit margin of this segment for the 2022 period was negatively impacted by:

(a) a less favorable mix of work within this segment’s mobile mechanical services division, including a greater number of fixed price capital projects, which traditionally have lower gross profit margins than the other service and repair offerings of this segment, (b) a shift from add-on project work within this segment’s commercial site-based services division, to more traditional facilities maintenance type projects, which carry lower gross profit margins, (c) supply chain disruptions, including longer lead times for certain materials and equipment, which resulted in a greater amount of unabsorbed labor costs in instances where projects were delayed pending the receipt of materials, and (d) an escalation in fuel prices for its fleet of approximately 4,000 service vehicles, a portion of which we were unable to pass along to our customers.

Our United States industrial services segment reported operating income of $13.3 million, or 4.3% of revenues, for the three months ended March 31, 2022, compared to an operating loss of $2.4 million, or (1.0)% of revenues, for the three months ended March 31, 2021.

The increase in both operating income and operating margin was due to an increase in gross profit and gross profit margin during the first quarter of 2022 from both our field services and shop services operations, given:

(a) a more normalized demand pattern, which led to increased revenue and resulted in greater gross profit contribution, and (b) improved project mix, as pricing began to recover.

In addition, operating margin of this segment benefited from a reduction in the ratio of selling, general administrative expenses to revenues as this segment was able to leverage its overhead cost structure during a period of revenue growth.

Operating income of our United Kingdom building services segment was $10.6 million, or 8.1% of revenues, for the three months ended March 31, 2022 compared to $9.4 million, or 7.4% of revenues, for the three months ended March 31, 2021.

The increase in this segment’s operating income and operating margin for the 2022 period was primarily a result of:

(a) the favorable close-out of a project within the institutional market sector and (b) an increase in gross profit and gross profit margin from projects within the commercial market sector, including the telecommunication projects referenced in the revenue commentary for this segment.

This segment’s operating income for the first quarter of 2022 was negatively impacted by $0.3 million related to the effect of unfavorable exchange rates for the British pound versus the United States dollar.

Our corporate administration expenses for the three months ended March 31, 2022 were $26.5 million compared to $24.5 million for the three months ended March 31, 2021.

The increase in corporate administration expenses was primarily due to an increase in employment costs, given an increase in headcount to support the revenue growth within our business as well as certain information technology and cybersecurity initiatives currently in process.

Net interest expense for the three months ended March 31, 2022 and 2021 was $1.3 million and $1.4 million, respectively.

For the three months ended March 31, 2022, our income tax provision was $26.5 million compared to an income tax provision of $31.6 million for the three months ended March 31, 2021.

Our income tax rate for the three months ended March 31, 2022 was 26.5% compared to an income tax rate for the three months ended March 31, 2021 of 27.2%.

The decrease in our income tax provision for the three months ended March 31, 2022 was a result of a reduction in taxable income as well as a decrease in our income tax rate during the period.

The decrease in our income tax rate for the three months ended March 31, 2022 was attributable to:

(a) a reduction in certain permanent book to tax differences, (b) the favorable impact of certain discrete tax items during the first quarter of 2022, including an increase in the income tax benefit recognized upon the issuance of common stock under our share-based compensation programs, and (c) a reduction in our state income tax rate due to a change in the allocation of earnings among the jurisdictions in which our income is taxed.

For the six months ended June 30,

Revenues 2021 % of

Operating income (loss):

United States electrical construction and facilities services $ 55,088 5.1 % $ 83,264 8.8 %

United States mechanical construction and facilities services 135,619 6.6 % 139,900 7.4 %

United States building services 62,083 4.8 % 63,658 5.4 %

United States industrial services 19,716 3.3 % (2,651) (0.6) %

Total United States operations 272,506 5.4 % 284,171 6.3 %

United Kingdom building services 17,003 6.9 % 16,458 6.4 %

Corporate administration (51,908) — (50,267) —

Total operations 237,601 4.5 % 250,362 5.3 %

Net periodic pension (cost) income 2,263 1,830

Interest expense, net (3,040) (2,679)

Income before income taxes $ 236,824 $ 249,513

Operating income was $137.6 million, or 5.1% of revenues, for the three months ended June 30, 2022 compared to operating income of $133.4 million, or 5.5% of revenues, for the three months ended June 30, 2021.

The increase in operating income for the three months ended June 30, 2022 was primarily a result of increased operating income within our United States industrial services segment and our United States building services segment, partially offset by a decline in operating income within our United States electrical construction and facilities services segment.

Operating income was $237.6 million, or 4.5% of revenues, for the six months ended June 30, 2022 compared to operating income of $250.4 million, or 5.3% of revenues, for the six months ended June 30, 2021.

The decrease in operating income for the six months ended June 30, 2022 was predominately a result of a decrease in operating income within our United States electrical construction and facilities services segment, which was only partially offset by improved operating performance within our United States industrial services segment.

The reduction in operating margin for both 2022 periods was driven by a reduction in gross profit margin, predominantly within our United States construction segments, due to a change in project mix, as well as the impact of certain project losses, which negatively impacted our consolidated operating margin by 40 basis points during each of the three and six months ended June 30, 2022.

The operating performance of each of our reportable segments is described in further detail below.

Operating income of our United States electrical construction and facilities services segment was $35.1 million, or 6.2% of revenues, for the three months ended June 30, 2022, compared to $43.0 million, or 8.7% of revenues, for the three months ended June 30, 2021.

Operating income of this segment for the six months ended June 30, 2022 was $55.1 million, or 5.1% of revenues, compared to operating income of $83.3 million, or 8.8% of revenues, for the six months ended June 30, 2021.

Companies acquired in 2021 contributed incremental operating income of $3.0 million and $4.2 million, inclusive of $0.4 million and $2.3 million of amortization expense associated with identifiable intangible assets, for the three and six months ended June 30, 2022, respectively.

Excluding such acquisition contribution, operating income of this segment decreased by $10.9 million and $32.4 million during the three and six months ended June 30, 2022, respectively.

A less favorable project mix within the commercial, institutional, and transportation market sectors, coupled with certain discrete project losses recognized during the first half of 2022, due, in part, to supply chain disruptions and delays, resulted in a decrease in gross profit and gross profit margin for both the three and six months ended June 30, 2022.

Based on an evaluation of individual projects that had revisions to total estimated costs, which resulted in a reduction of profitability in excess of $1.0 million, the operating results of our United States electrical construction and facilities services segment were negatively impacted by approximately $7.7 million and $14.3 million during the three and six months ended June 30, 2022, respectively.

These reductions in estimated project profitability negatively affected the operating margin of this segment by 140 basis points and 130 basis points for the quarter and year-to-date 2022 periods, respectively.

In addition, although improved from the first quarter of 2022, labor productivity and efficiency within this segment was adversely impacted during the first six months of 2022 as a result of increased lead times, which led to issues with respect to the sequencing of work on certain projects as we awaited delivery of key materials and equipment.

We continue to evaluate our contractual rights and are pursuing recovery for such impacts to the extent permitted.

The aforementioned reductions in gross profit margin were partially offset by a reduction in the ratio of selling, general, and administrative expense to revenues as this segment was able to successfully leverage its overhead cost structure during this period of revenue growth.

Our United States mechanical construction and facilities services segment’s operating income for the three months ended June 30, 2022 was $76.9 million, or 7.2% of revenues, compared to operating income of $76.7 million, or 7.9% of revenues, for the three months ended June 30, 2021.

Operating income of this segment for the six months ended June 30, 2022 was $135.6 million, or 6.6% of revenues, compared to operating income of $139.9 million, or 7.4% of revenues, for the six months ended June 30, 2021.

Operating margin of this segment for both the three and six month 2022 periods was negatively impacted by a reduction in gross profit margin due to:

(a) a greater number of projects within the manufacturing and water and wastewater market sectors for which we are acting as either the construction manager or general contractor and therefore carry lower than average gross profit margins, and (b) certain project write-downs, which were partially a result of supply chain disruptions and/or material price escalations, a portion of which we will seek recovery from our customers.

These reductions in operating margin resulted in a moderate decrease in this segment’s operating income for the first six months of 2022, despite the aforementioned increase in segment revenues for such period.

Based on an evaluation of individual projects that had revisions to total estimated costs, which resulted in a reduction of profitability in excess of $1.0 million, the operating results of our United States mechanical construction and facilities services segment were negatively impacted by approximately $4.1 million and $9.5 million during the three and six months ended June 30, 2022, respectively.

These reductions in estimated project profitability negatively affected the operating margin of this segment by 40 basis points for both 2022 periods.

Similar to our United States electrical construction and facilities services segment, reductions in gross profit margin for the three and six months ended June 30, 2022 were partially offset by reductions 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 our United States building services segment was $38.2 million, or 5.6% of revenues, for the three months ended June 30, 2022 compared to $32.5 million, or 5.3% of revenues, for the three months ended June 30, 2021.

The increase in both operating income and operating margin for such three month period was largely due to greater gross profit and gross profit margin from this segment’s mobile mechanical services division resulting from improved profitability across the majority of its service lines, including projects, service repair and maintenance, and building automation and controls.

These improvements were due to favorable project execution as well as certain price adjustments enacted, to the extent contractually permitted, in response to inflationary pressures, which partially offset the impact of increased material and commodity prices during the second quarter of 2022.

Operating income of this segment for the six months ended June 30, 2022 was $62.1 million, or 4.8% of revenues, compared to operating income of $63.7 million, or 5.4% of revenues, for the six months ended June 30, 2021.

The reduction in operating income and operating margin for such six month period was due to a decline in gross profit margin during the first quarter of 2022, which impacted this segment’s ability to convert revenue growth into incremental operating profit.

While conditions have improved during the second quarter of 2022, gross profit margin of this segment for the first half of the year was negatively impacted by:

(a) supply chain disruptions, including longer lead times for certain materials and equipment, which resulted in a greater amount of unabsorbed labor costs in instances where projects were delayed pending the receipt of materials, and (b) an escalation in fuel prices for its fleet of approximately 4,000 service vehicles.

On a year-to-date basis, these negative first quarter impacts more than offset the increases in operating income and operating margin experienced during the second quarter of 2022.

We continue to adjust our pricing models to address the inflationary, supply chain, and labor challenges we are experiencing.

Our United States industrial services segment reported operating income of $6.5 million, or 2.3% of revenues, for the three months ended June 30, 2022, compared to an operating loss of $0.2 million, or (0.1)% of revenues, for the three months ended June 30, 2021.

For the six months ended June 30, 2022, this segment reported operating income of $19.7 million, or 3.3% of revenues, compared to an operating loss of $2.7 million, or (0.6)% of revenues, for the six months ended June 30, 2021.

With respect to operating income, the improved performance for both 2022 periods was due to increased gross profit, resulting from the growth in this segment’s revenues referenced above, as well as a reduction in selling, general and administrative expenses, as the prior year period included a $4.1 million provision for credit losses in connection with a reserve taken for a specific customer bankruptcy.

Operating margin of this segment, for both the three and six months ended June 30, 2022, benefited from a reduction in the ratio of selling, general and administrative expenses to revenues when compared to the prior year period, given:

(a) this segment was able to leverage its overhead cost structure during a period of revenue growth and (b) the effect, in the prior year, of the previously referenced customer bankruptcy, which negatively impacted this segment’s operating margin by 180 basis points for the three months ended June 30, 2021 and 90 basis points for the six months ended June 30, 2021.

For the second quarter of 2022, this reduction in SG&A margin was partially offset by a quarterly reduction in gross profit margin, when compared to the second quarter of 2021, given a change in the composition of project work period-over-period, which in the prior year benefited from favorable progression on certain renewable energy projects.

For the six months ended June 30, 2022, however, this segment’s operating margin additionally benefited from an increase in gross profit margin driven by improved pricing for our traditional field services and shop services work, coupled with greater absorption of certain indirect cost of sales given the increase in year-to-date revenues.

Operating income of our United Kingdom building services segment was $6.4 million, or 5.6% of revenues, for the three months ended June 30, 2022 compared to $7.0 million, or 5.4% of revenues, for the three months ended June 30, 2021.

Operating income for the six months ended June 30, 2022 was $17.0 million, or 6.9% of revenues, compared to $16.5 million, or 6.4% of revenues, for the six months ended June 30, 2021.

This segment’s operating income for the three and six months ended June 30, 2022 was negatively impacted by $0.6 million and $1.0 million, respectively, related to the effect of unfavorable exchange rates for the British pound versus the United States dollar.

Excluding the impact of foreign exchange rate movements, operating income of this segment for the three months ended June 30, 2022 was essentially unchanged when compared to operating income for the three months ended June 30, 2021, while operating income for the six months ended June 30, 2022 represented a $1.5 million increase when compared to operating income for the six months ended June 30, 2021.

The increase in this segment’s operating margin for both 2022 periods was primarily a result of:

(a) the favorable close-out of a project within the institutional market sector and (b) an increase in gross profit margin from projects within the commercial market sector, including the telecommunication projects referenced in the revenue commentary for this segment.

Our corporate administration expenses for the three months ended June 30, 2022 were $25.4 million, compared to $25.8 million for the three months ended June 30, 2021.

For the six months ended June 30, 2022, our corporate administrative expenses were $51.9 million, compared to $50.3 million for the six months ended June 30, 2021.

The slight increase in corporate administration expenses for the first six months of 2022 was primarily due to an increase in employment costs, given an increase in headcount to support the revenue growth within our business as well as annual cost of living wage increases.

Net interest expense for the three months ended June 30, 2022 and 2021 was $1.8 million and $1.3 million, respectively.

Net interest expense for the six months ended June 30, 2022 and 2021 was $3.0 million and $2.7 million, respectively.

The increase in net interest expense for both 2022 periods was primarily a result of an increase in interest rates.

For the three and six months ended June 30, 2022, our income tax provision was $36.3 million and $62.8 million, respectively, compared to an income tax provision of $35.6 million and $67.2 million for the three and six months ended June 30, 2021, respectively.

Our income tax rate for both the three and six months ended June 30, 2022 was 26.5%, compared to an income tax rate for the three and six months ended June 30, 2021 of 26.8% and 27.0%, respectively.

The increase in our income tax provision for the three months ended June 30, 2022 was due to an increase in income before income taxes, while the decrease in our income tax provision for the six months ended June 30, 2022 was a result of a reduction in income before income taxes as well as a decrease in our income tax rate during the period.

The decrease in our income tax rate for the three and six months ended June 30, 2022 was attributable to:

(a) a reduction in certain permanent book-to-tax differences, (b) the favorable impact of certain discrete tax items during the first half of 2022, including an increase in the income tax benefit recognized upon the issuance of common stock under our share-based compensation programs, and (c) a reduction in our state income tax rate due to a change in the allocation of earnings among the jurisdictions in which our income is taxed.

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):

2022 % of Total December 31, 2021 % of Total March 31,

2022 % of Total December 31, 2021 % of Total June 30,

2021 % of Total

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Total operations $ 6,461,132 100 % $ 5,599,297 100 % $ 5,106,728 100 %

Remaining performance obligations increase with awards of new contracts and decrease as we perform work and recognize revenue on existing contracts.

We include a project within our remaining performance obligations at such time as the project is awarded and agreement on contract terms has been reached.

Our remaining performance obligations include amounts related to contracts for which a fixed price contract value is not assigned when a reasonable estimate of the total transaction price can be made.

Remaining performance obligations include unrecognized revenues to be realized from uncompleted construction contracts.

Although many of our construction contracts are subject to cancellation at the election of our customers, in accordance with industry practice, we do not limit the amount of unrecognized revenue included within remaining performance obligations for these contracts as the risk of cancellation is very low due to the inherent substantial economic penalty that our customers would incur upon cancellation or termination.

We believe our reported remaining performance obligations for our construction contracts are firm and contract cancellations have not had a material adverse effect on us.

Remaining performance obligations also include unrecognized revenues expected to be realized over the remaining term of service contracts.

However, to the extent a service contract includes a cancellation clause which allows for the termination of such contract by either party without a substantive penalty, the remaining contract term, and therefore, the amount of unrecognized revenues included within remaining performance obligations, is limited to the notice period required for the termination.

Our remaining performance obligations are comprised of:

(a) original contract amounts, (b) change orders for which we have received written confirmations from our customers, (c) pending change orders for which we expect to receive confirmations in the ordinary course of business, (d) claim amounts that we have made against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which the variable consideration constraint does not apply, and (e) other forms of variable consideration to the extent that such variable consideration has been included within the transaction price of our contracts.

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

Our remaining performance obligations at March 31, 2022 were $5.95 billion compared to $5.60 billion at December 31, 2021 and $4.78 billion at March 31, 2021.

The increase in remaining performance obligations at March 31, 2022, when compared to December 31, 2021, was primarily attributable to an increase in remaining performance obligations within all of our reportable segments.

Our remaining performance obligations at June 30, 2022 were $6.46 billion compared to $5.60 billion at December 31, 2021 and $5.11 billion at June 30, 2021.

The increase in remaining performance obligations at June 30, 2022, when compared to December 31, 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:

(a) our United States construction segments, driven by the award of various construction projects within:

(i) the commercial market sector, inclusive of certain telecommunications and semiconductor projects, and (ii) the institutional market sector, and (b) 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.

The increases within our United States construction segments were partially offset by a reduction in remaining performance obligations from the manufacturing and water and wastewater market sectors due to the progression on several projects within such market sectors during the first quarter of 2022.

(a) our United States construction segments, driven by the award of various construction projects within the commercial market sector, inclusive of various telecommunications projects as well as certain projects for customers within the biotech, life-sciences, and pharmaceutical industries, and (b) our United States building services segment given increased project opportunities within its mobile mechanical services division.

While the continued growth in our remaining performance obligations is largely due to the strength in demand for our services, a portion of this increase can likely be attributed to external market factors such as material and labor inflation, which has increased the price of certain of our project work, as well as supply chain delays, which has impacted the timing of conversion of our remaining performance obligations to revenue, in certain instances.

See Note 3 - Revenue from Contracts with Customers of the notes to consolidated financial statements for further disclosure regarding our remaining performance obligations.

Liquidity and Capital Resources

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While we strive to negotiate favorable billing terms, which allow us to invoice in advance of costs incurred on certain of our contracts, there can be no assurance that such terms will be agreed to by our customers.

As of March 31, 2022, we had cash and cash equivalents, excluding restricted cash, of $514.5 million, which are maintained in highly liquid investments with original maturity dates of three months or less.

As of June 30, 2022, we had cash and cash equivalents, excluding restricted cash, of $262.4 million, which are maintained in depository accounts and highly liquid investments with original maturity dates of three months or less.

Both our short-term and long-term liquidity requirements are expected to be met through our cash and cash equivalent balances, cash generated from our operations, and, if necessary, the borrowing capacity under our revolving credit facility.

Our credit agreement provides for a $1.30 billion revolving credit facility, for which there is $1.23 billion of available capacity as of March 31, 2022.

Our credit agreement provides for a $1.30 billion revolving credit facility, for which there is $1.23 billion of available capacity as of June 30, 2022.

Refer to Note 7 - Debt of the notes to consolidated financial statements for further information regarding our credit agreement.

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The following table presents a summary of our operating, investing, and financing cash flows (in thousands):

For the three months ended

For the six months ended

Net cash used in operating activities $ (18,851) $ (6,972)

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Decrease in cash, cash equivalents, and restricted cash $ (559,026) $ (233,774)

During the three months ended March 31, 2022, our cash balance, including cash equivalents and restricted cash, decreased by approximately $306.7 million from $822.6 million at December 31, 2021 to $515.9 million at March 31, 2022.

Changes in our cash position from December 31, 2021 to March 31, 2022 are described in further detail below.

During the six months ended June 30, 2022, our cash balance, including cash equivalents and restricted cash, decreased by approximately $559.0 million from $822.6 million at December 31, 2021 to $263.5 million at June 30, 2022.

Changes in our cash position from December 31, 2021 to June 30, 2022 are described in further detail below.

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 three months ended March 31, 2022 was approximately $95.8 million compared to approximately $89.0 million of net cash used in operating activities for the three months ended March 31, 2021.

Historically, our working capital needs are greater in the first quarter of each year, resulting in a use of cash to fund our operations during such period, as evidenced by the fairly consistent use of cash during each of the three months ended March 31, 2022 and 2021.

Net cash used in operating activities for the six months ended June 30, 2022 was approximately $18.9 million compared to approximately $7.0 million of net cash used in operating activities for the six months ended June 30, 2021.

Historically, our working capital needs are greater in the first half of each year, resulting in a use of cash to fund our operations during such period, as evidenced by the fairly consistent use of cash during each of the six months ended June 30, 2022 and 2021.

The modest increase in net cash used in operating activities for the first six months of 2022, compared to the first six months of 2021, was almost entirely due to the decrease in our net income period-over-period, as changes in working capital for both periods were nearly identical.

As the year progresses, we anticipate the generation of positive operating cash flow.

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 three months ended March 31, 2022 decreased by approximately $17.8 million compared to the three months ended March 31, 2021 due to a decrease in payments for business acquisitions, partially offset by higher 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 equity plans.

Net cash used in financing activities for the three months ended March 31, 2022 was $193.5 million compared to net cash used in financing activities for the three months ended March 31, 2021 of $23.9 million.

Net cash used in investing activities for the six months ended June 30, 2022 decreased by approximately $17.6 million compared to the six months ended June 30, 2021 due to a decrease in payments for business acquisitions, partially offset by higher capital expenditures used to invest in organic growth.

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

Net cash used in financing activities for the six months ended June 30, 2022 was $475.1 million compared to net cash used in financing activities for the six months ended June 30, 2021 of $157.1 million.

The $318.0 million increase in cash used in financing activities was almost entirely due to an increase in funds used for the repurchase of our common stock.

The timing of repurchases is at management’s discretion subject to securities laws and other legal requirements and will depend upon several factors, including market and business conditions, future liquidity, share price, and share availability, among others.

The repurchase program has been and will be funded from our operations.

The timing of repurchases is at management’s discretion subject to securities laws and other legal requirements and depends upon several factors, including market and business conditions, current and anticipated future liquidity, share price, and share availability, among others.

For additional detail regarding our share repurchase program, refer to Note 10 - Common Stock of the notes to consolidated financial statements.

We currently pay a regular quarterly dividend of $0.13 per share.

For the three months ended March 31, 2022 and 2021, cash payments related to dividends were $6.9 million and $7.1 million, respectively.

For the six months ended June 30, 2022 and 2021, cash payments related to dividends were $13.6 million and $14.2 million, respectively.

Subsequent to June 30, 2022, our Board of Directors announced its intention to increase the regular quarterly divided to $0.15 per share commencing with the dividend to be paid in October 2022.

Our credit agreement places limitations on the payment of dividends on our common stock.

However, we do not believe that the terms of such agreement currently materially limit our ability to pay a quarterly dividend of $0.13 per share for the foreseeable future.

However, we do not believe that the terms of such agreement currently materially limit our ability to pay such quarterly dividends for the foreseeable future.

Material Cash Requirements from Contractual and Other Obligations

As of March 31, 2022, our short-term and long-term material cash requirements for known contractual and other obligations were as follows:

Outstanding Debt and Interest Payments – As of March 31, 2022, the amount outstanding under our term loan was $256.7 million.

As of June 30, 2022, our short-term and long-term material cash requirements for known contractual and other obligations were as follows:

Outstanding Debt and Interest Payments – As of June 30, 2022, the amount outstanding under our term loan was $256.7 million.

Based on our outstanding balance, we are required to make annual principal payments of $13.9 million on December 31 of each year until maturity.

Any remaining unpaid principal is due on March 2, 2025, when the credit agreement governing our term loan expires.

We have no direct borrowings outstanding under our revolving credit facility.

As of June 30, 2022, we had no direct borrowings outstanding under our revolving credit facility.

In addition to annual principal payments, we are required to make quarterly interest payments on our outstanding indebtedness.

Future interest payments will be determined based on prevailing interest rates during that time.

Future interest payments will be determined based on prevailing interest rates during that time, which are anticipated to increase in the near term.

Refer to Note 7 - Debt of the notes to consolidated financial statements for further detail of our debt obligations, including our term loan and revolving credit facility.

Operating and Finance Leases – In the normal course of business, we lease real estate, vehicles, and equipment under various arrangements which are classified as either operating or finance leases.

Future payments for such leases, excluding leases with initial terms of one year or less, were $322.6 million at March 31, 2022, with $71.3 million payable within the next 12 months.

Open Purchase Obligations – As of March 31, 2022, we had $1.92 billion of open purchase obligations, of which payments totaling approximately $1.67 billion are expected to become due within the next 12 months.

Future payments for such leases, excluding leases with initial terms of one year or less, were $326.7 million at June 30, 2022, with $72.8 million payable within the next 12 months.

Open Purchase Obligations – As of June 30, 2022, we had $1.96 billion of open purchase obligations, of which payments totaling approximately $1.71 billion are expected to become due within the next 12 months.

These obligations represent open purchase orders to suppliers and subcontractors related to our construction and services contracts.

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Insurance Obligations – As described in further detail in Note 12 - Commitments and Contingencies of the notes to consolidated financial statements, we have loss payment deductibles and/or self-insured retentions for certain insurance matters.

As of March 31, 2022, our insurance liabilities, net of estimated recoveries, were $186.9 million.

As of June 30, 2022, our insurance liabilities, net of estimated recoveries, were $192.9 million.

Of this net amount, approximately $37.4 million is estimated to be payable within the next 12 months.

Due to many uncertainties inherent in resolving these matters, it is not practical to estimate these payments beyond such period.

Retirement Plan Obligations – As of March 31, 2022, expected future payments relating to our defined benefit post retirement plans were approximately $4.5 million per year.

To the extent that the amount required to settle claims covered by insurance continues to increase, the cost of our insurance coverage, including premiums and deductibles, is likely to increase.

Retirement Plan Obligations – As of June 30, 2022, expected future payments relating to our defined benefit post retirement plans were approximately $4.2 million per year.

We provide funding to our post retirement plans based on at least the minimum funding required by applicable regulations.

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The aggregate amount of these liabilities can change due to additional business acquisitions, settlement of outstanding liabilities, changes in the fair value of amounts owed based on performance during such post-acquisition periods, and accretion in present value.

As of March 31, 2022, the present value of expected future payments relating to these contingent consideration arrangements was $11.2 million.

As of June 30, 2022, the present value of expected future payments relating to these contingent consideration arrangements was $13.3 million.

Of this amount, $7.6 million is estimated as being payable within the next 12 months, with the remainder due substantially during the following 12 months.

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We have agreed to indemnify the surety companies for amounts, if any, paid by them in respect of surety bonds issued on our behalf.

As of March 31, 2022, 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 $1.5 billion, which represents approximately 25% of our total remaining performance obligations.

As of June 30, 2022, 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 $1.6 billion, which represents approximately 25% of our total remaining performance obligations.

Surety bonds expire at various times ranging from final completion of a project to a period extending beyond contract completion in certain circumstances.

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In addition, surety bonds or letters of credit may be issued as collateral for certain insurance obligations.

As of March 31, 2022, we satisfied approximately $48.1 million and $71.2 million of the collateral requirements of our insurance programs by utilizing surety bonds and letters of credit, respectively.

As of June 30, 2022, we satisfied approximately $48.1 million and $71.2 million of the collateral requirements of our insurance programs by utilizing surety bonds and letters of credit, respectively.

All such letters of credit were issued under our revolving credit facility, therefore reducing the available capacity of such facility.

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As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

There have been no significant changes to our critical accounting policies or methods for the three months ended March 31, 2022.

There have been no significant changes to our critical accounting policies or methods for the six months ended June 30, 2022.

We believe the following critical accounting policies govern the more significant judgments and estimates used in the preparation of our financial statements.

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For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, or changes in the estimate of transaction prices, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made.

Based on an evaluation of individual projects that had revisions to total estimated costs, which resulted in a reduction of profitability in excess of $1.0 million, our operating results were negatively impacted by approximately $10.0 million, during the three months ended March 31, 2022.

Of this amount, approximately $4.6 million was recorded within our United States electrical construction and facilities services segment and approximately $5.4 million was recorded within our United States mechanical construction and facilities services segment.

There were no changes in total estimated costs that had a significant impact on our operating results during the three months ended March 31, 2021.

Due to the significant judgments utilized in the estimation process described above, if subsequent actual results and/or updated assumptions, estimates, or projections related to our underlying project positions were to change from those utilized at March 31, 2022, it could result in a material impact to our results of operations.

For example, a 50 basis point increase or decrease in the estimated gross profit margin on our uncompleted construction projects, in the aggregate, as a result of a revision in estimated costs to complete a performance obligation or a revision in estimated transaction price, would have resulted in an increase or decrease to operating income of approximately $70 million for the three months ended March 31, 2022.

Based on an evaluation of individual projects that had revisions to total estimated costs, which resulted in a reduction of profitability in excess of $1.0 million, our operating results were negatively impacted by approximately $11.8 million and $23.8 million, during the three and six months ended June 30, 2022, respectively.

Of the amount recorded during the three months ended June 30, 2022, approximately $7.7 million was recorded within our United States electrical construction and facilities services segment and approximately $4.1 million was recorded within our United States mechanical construction and facilities services segment.

Of the amount recorded during the six months ended June 30, 2022, approximately $14.3 million was recorded within our United States electrical construction and facilities services segment and approximately $9.5 million was recorded within our United States mechanical construction and facilities services segment.

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

Due to the significant judgments utilized in the estimation process described above, if subsequent actual results and/or updated assumptions, estimates, or projections related to our underlying project positions were to change from those utilized at June 30, 2022, it could result in a material impact to our results of operations.

For example, a 50 basis point increase or decrease in the estimated gross profit margin on our uncompleted construction projects, in the aggregate, as a result of a revision in estimated costs to complete a performance obligation or a revision in estimated transaction price, would have resulted in an increase or decrease to operating income in excess of $75 million for the six months ended June 30, 2022.

See Note 3 - Revenue from Contracts with Customers of the notes to consolidated financial statements for further disclosure regarding revenue recognition.

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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 March 31, 2022 and December 31, 2021, our accounts receivable of $2,303.4 million and $2,204.5 million, respectively, were recorded net of allowances for credit losses of $23.0 million and $23.5 million, respectively.

The decrease in our allowance for credit losses was predominantly attributable to the write-off of specific amounts deemed unrecoverable.

At June 30, 2022 and December 31, 2021, our accounts receivable of $2,439.6 million and $2,204.5 million, respectively, were recorded net of allowances for credit losses of $23.9 million and $23.5 million, respectively.

The increase in our allowance for credit losses was attributable to an increase in the provision for credit losses, largely offset by the write-off of specific amounts deemed unrecoverable.

We have adjusted our allowance for credit losses during the first six months of 2022 to account for the impact of changing economic conditions, including rising interest rates.

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.

The provision for credit losses amounted to approximately $1.6 million and $5.5 million for the six months ended June 30, 2022 and 2021, respectively.

The period-over-period decrease in the provision for credit losses was a result of an approximately $4.1 million reserve taken for a specific customer bankruptcy within our United States industrial services segment in the 2021 period.

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.

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However, such obligations are difficult to assess and estimate due to numerous factors, including severity of injury, determination of liability in proportion to other parties, timely reporting of occurrences, and effectiveness of safety and risk management programs.

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 $8.3 million at March 31, 2022 compared to December 31, 2021, partially as a result of greater potential exposures.

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 $18.7 million of additional expense for the three months ended March 31, 2022.

As of March 31, 2022 and December 31, 2021, we had net deferred income tax liabilities of $51.1 million and $51.0 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 $214.6 million and $212.3 million of deferred income tax assets as of March 31, 2022 and December 31, 2021, respectively.

The total valuation allowance on deferred income tax assets was approximately $2.5 million as of both March 31, 2022 and December 31, 2021.

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.

In addition, as discussed above, an increase in the cost to settle insurance claims could result in higher insurance costs and deductibles.

Our estimated net insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims increased by $14.3 million at June 30, 2022 compared to December 31, 2021, partially as a result of greater potential exposures and an increase in certain of our deductibles or self-insured retentions.

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 $19.3 million of additional expense for the six months ended June 30, 2022.

As of June 30, 2022 and December 31, 2021, we had net deferred income tax liabilities of $52.0 million and $51.0 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 $215.0 million and $212.3 million of deferred income tax assets as of June 30, 2022 and December 31, 2021, respectively.

The total valuation allowance on deferred income tax assets was approximately $2.5 million as of both June 30, 2022 and December 31, 2021.

The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

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

As of March 31, 2022 and December 31, 2021, we had goodwill of $891.5 million and $890.3 million, respectively, arising out of the acquisition of businesses.

As of June 30, 2022 and December 31, 2021, we had goodwill of $901.2 million and $890.3 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 14 - Segment Information of the notes to consolidated financial statements.

As of March 31, 2022, approximately 18.0% of our goodwill related to our United States electrical construction and facilities services segment, approximately 34.7% related to our United States mechanical construction and facilities services segment, approximately 34.5% related to our United States building services segment, and approximately 12.8% related to our United States industrial services segment.

As of June 30, 2022, approximately 17.8% of our goodwill related to our United States electrical construction and facilities services segment, approximately 35.0% related to our United States mechanical construction and facilities services segment, approximately 34.5% related to our United States building services segment, and approximately 12.7% 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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In the case of our United States industrial services segment, however, a 10% decrease would cause the estimated fair value of this reporting unit to approximate its carrying value.

No impairment of our goodwill was recognized during the three months ended March 31, 2022 and 2021.

No impairment of our goodwill was recognized during the three and six months ended June 30, 2022 and 2021.

Identifiable Intangible Assets and Other Long-Lived Assets

As of March 31, 2022 and December 31, 2021, net identifiable intangible assets (primarily consisting of our customer relationships, subsidiary trade names, developed technology/vendor network, and contract backlog) arising out of the acquisition of businesses were $574.6 million and $589.4 million, respectively.

As of June 30, 2022 and December 31, 2021, net identifiable intangible assets (primarily consisting of our customer relationships, subsidiary trade names, developed technology/vendor network, and contract backlog) arising out of the acquisition of businesses were $577.3 million and $589.4 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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If the assets are impaired, the assets are written down to their fair values, generally determined based on their discounted estimated future cash flows.

No impairment of our identifiable intangible assets or other long-lived assets was recognized during the three months ended March 31, 2022 and 2021.

No impairment of our identifiable intangible assets or other long-lived assets was recognized during the three and six months ended June 30, 2022 and 2021.

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