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We are one of the largest specialty contractors in the United States and a leading provider of electrical and mechanical construction and facilities services, building services, and industrial services.
−Removed: Our services are provided to a broad range of commercial, industrial, utility, and institutional customers through approximately 90 operating subsidiaries.
+Added: Our services are provided to a broad range of commercial, industrial, healthcare, utility, and institutional customers through approximately 100 operating subsidiaries.
Such operating subsidiaries are organized into the following reportable segments:
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• United Kingdom building services.
+Added: We refer to our United States electrical construction and facilities services segment and our United States mechanical construction and facilities services segment together as our United States construction segments.
For a more complete description of our operations, refer to Item 1.
−Removed: Our reportable segments reflect certain reclassifications of prior year amounts from our United States electrical construction and facilities services segment to our United States industrial services and our United States building services segments due to changes in our internal reporting structure aimed at realigning our service offerings.
−Removed: Consequently, we have included and updated the year-over-year discussion and analysis of results of operations for 2020 compared to 2019 to reflect these changes.
−Removed: COVID-19 and Market Update
−Removed: 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.
−Removed: 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 continued to impact portions of our business in 2021.
−Removed: However, our strong balance sheet and operational flexibility have allowed us to manage through the ongoing impacts of the pandemic while protecting our cash flow and liquidity.
−Removed: Although the majority of our businesses have largely recovered from the financial impacts of the COVID-19 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.
−Removed: 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.
−Removed: Such customer actions continue to impact the demand for our service offerings within this segment.
−Removed: We continue to monitor the short- and long-term impacts of the pandemic.
−Removed: 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.
−Removed: We continue to be cautiously optimistic about the markets in which we operate and the customers we serve;
−Removed: 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 virulent, 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.
−Removed: The extent to which our business and results of operations are impacted in future periods will also depend upon a number of other factors.
−Removed: These include the duration and extent of the pandemic;
−Removed: 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;
−Removed: the cost and/or disruption of testing that may be required of our employees either by customer requirements or government mandates;
−Removed: the extent, duration, and effective execution of government stabilization and recovery efforts;
−Removed: the widespread adoption and long-term efficacy of vaccines and the availability and efficacy of other treatments;
−Removed: our customers’ demand for our services;
−Removed: our ability to continue to safely and effectively operate in this environment;
−Removed: and the ability of our customers to pay us for services rendered.
−Removed: While the emergency temporary standard 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 been withdrawn by the Occupational Safety and Health Administration (“OSHA”), and Executive Order 14042 mandating vaccination for all federal contractors and subcontractors is currently stayed by the courts, it is unclear whether OSHA or another federal agency will mandate vaccination and/or testing.
−Removed: Costs related to any mandatory testing, including both the costs of tests and the costs to compensate employees for the time to undergo such testing, 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.
−Removed: On January 10, 2022, the Biden Administration announced that it would require insurance companies and group health plans to cover the cost of at-home COVID-19 tests.
−Removed: As we are self-insured for employee-related healthcare claims, this new requirement could result in an additional expense for the Company.
−Removed: It is not possible at this time to determine the impact of this new requirement or whether it could have a material adverse effect on our financial condition and/or results of operations.
−Removed: Supply chain disruptions, material shortages, or escalating commodity prices have and may continue to negatively impact our business.
−Removed: For example, we have experienced lead times significantly in excess of normal levels and have seen the effects of inflation through increases in commodity and material prices.
−Removed: Despite these challenges, to date, we have been able to 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, resulting in only modest disruptions to our project and service work within the majority of our reportable segments.
−Removed: 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.
−Removed: While we believe our remaining performance obligations are firm, customers may also slow decision-making, delay planned work, or seek to terminate existing agreements.
+Added: Our reportable segments and related disclosures reflect certain reclassifications of prior year amounts from our United States mechanical construction and facilities services segment to our United States building services segment, and from our United States building services segment to our United States construction segments, due to changes in our internal reporting structure aimed at realigning our service offerings.
+Added: Market Update
+Added: Throughout 2022, our business and end markets remained resilient despite the impact of uncertain global economic conditions, including supply chain, production, and other logistical issues, an inflationary cost environment, rising interest rates, skilled labor shortages in certain regions, and the lingering effects of the COVID-19 pandemic.
+Added: For example, we experienced pressures in our supply chain, which resulted in material and equipment lead times significantly in excess of normal levels.
+Added: These disruptions, which are expected to persist to varying degrees in 2023, have manifested themselves 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.
+Added: Delays in critical material and equipment deliveries have additionally resulted in us funding purchases at earlier stages of project progression, or in advance of project commencement, which has and will continue to apply pressure on working capital requirements.
+Added: During 2022, we also experienced the effects of inflation through increases in fuel, material, and other commodity prices.
+Added: While current economic indicators suggest that inflation will slow, we anticipate that our business will continue to be impacted by wage and general inflation to some extent throughout 2023.
+Added: Further, in an effort to mitigate inflation, the Federal Reserve Board has increased the federal funds rate throughout 2022, raised it further in February 2023, and it is anticipated that rate increases will continue through the remainder of 2023.
+Added: These actions have resulted, and may continue to result, in an increase in our interest expense.
+Added: Beyond these impacts, the Russian invasion of Ukraine in February 2022 has created another layer of uncertainty, especially with respect to energy costs as the resulting sanctions imposed on Russian oil and gas exports caused the prices of crude oil and natural gas to increase significantly for several months.
+Added: While higher energy prices have historically led to an increase in demand for certain of our services, such as those performed by our United States industrial services segment, significant increases in the price or demand for crude oil may also result in the short-term curtailment or deferral of spending by our customers, as facility downtime to perform certain of the services we provide comes at a higher opportunity cost.
+Added: In response to these challenges, we continue to strive to manage our business more effectively through enhanced labor planning and project scheduling, increased pricing to the extent contractually permitted, and by leveraging our relationships with our suppliers and customers.
+Added: While we believe the actions we have taken continue to be effective, as evidenced in part by the sequential improvement in our operating performance throughout each quarter of 2022, the impact of these disruptions continues to evolve and there can be no assurance that our actions will serve to mitigate such impacts in future periods.
+Added: Further, while we believe our remaining performance obligations are firm, and we have not experienced any material project cancellations to date, 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 delay or terminate existing or pending agreements.
+Added: Lastly, rising interest rates may cause a decline in capital or maintenance spending of our customers or prospective customers and, therefore, the demand for our services.
Any of these events could have a material adverse effect on our business, financial condition, and/or results of operations.
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Revenues $ 11,076,120 $ 9,903,580
−Removed: Revenues increase (decrease) from prior year 12.6 % (4.1) %
+Added: Revenues increase from prior year 11.8 % 12.6 %
Gross profit $ 1,603,594 $ 1,501,737
Gross profit as a percentage of revenues 14.5 % 15.2 %
−Removed: Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets $ — $ 232,750
Operating income $ 564,877 $ 530,800
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Revenues of $11.08 billion for the year ended December 31, 2022 set a new annual record for the Company and represent an increase of 11.8% from revenues of $9.90 billion for the year ended December 31, 2021.
−Removed: As described in further detail below, we experienced revenue growth within all of our reportable segments.
+Added: 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 entirely due to unfavorable exchange rate movements during 2022, which more than offset revenue growth that was experienced on a local currency basis.
Operating income for 2022 was $564.9 million, or 5.1% of revenues, compared to operating income of $530.8 million, or 5.4% of revenues, in 2021.
−Removed: Our operating results for the year ended December 31, 2020 included $232.8 million of non-cash impairment charges, which negatively impacted the Company’s operating margin for 2020 by approximately 270 basis points.
−Removed: Excluding the impact of such impairment charges on our 2020 results, operating income increased by $41.2 million for the year ended December 31, 2021, as a result of increased operating income contribution from 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 its service offerings, as described in further detail below.
+Added: This increase resulted from greater operating income contribution, largely as a result of the aforementioned increase in revenues, from each of our reportable segments, other than our United States electrical construction and facilities services segment.
+Added: The decrease in operating margin period over period was driven by a 70 basis point reduction in consolidated gross profit margin, due to reduced gross profit margins within each of our United States construction segments.
+Added: Partially offsetting the decrease in gross profit margin was 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.
+Added: Refer to the operating income section below for further discussion regarding the operating performance of each of our reportable segments.
Net income of $406.1 million, or $8.10 per diluted share, for the year ended December 31, 2022, compares favorably to net income of $383.5 million, or $7.06 per diluted share, for the year ended December 31, 2021.
−Removed: While such increases were largely attributable to the growth in operating income referenced above, net income and diluted earnings per common share for the year ended December 31, 2021 also benefited from a more normalized income tax rate, as our tax rate in the prior year was negatively impacted by the non-cash impairment charges recorded in 2020, the majority of which were non-deductible for tax purposes.
−Removed: Our diluted earnings per share for 2021 additionally benefited from a reduced weighted average share count given the impact of common stock repurchases made by us throughout 2020 and 2021.
+Added: In addition to the increase in operating income referenced above, our diluted earnings per share for 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.
−Removed: We acquired eight companies in 2021 for total consideration of $131.2 million.
+Added: During 2022, we acquired six companies for total consideration of $100.8 million.
Such acquisitions include:
+Added: (a) a company that provides electrical construction services in the Greater Boston area, the results of operations of which have been included in our United States electrical construction and facilities services segment, and (b) five companies that enhance our presence in geographies where we have existing operations, the results of operations of which were de minimis, consisting of:
+Added: (i) two companies that provide fire protection services in the Northeastern and Southern regions of the United States, respectively, and that have been included within our United States mechanical construction and facilities services segment, (ii) two companies that specialize in either building automation and controls or mechanical services in the Southwestern and Southern regions of the United States, respectively, and that have been included within our United States building services segment, and (iii) a company that provides electrical construction services in the Midwestern region of the United States and that has been included within our United States electrical construction and facilities services segment.
+Added: We acquired eight companies during 2021 for total consideration of $131.2 million.
+Added: Such acquisitions include:
(a) two companies, the results of operations of which were de minimis, included within our United States mechanical construction and facilities services segment, consisting of:
(i) a company that provides mechanical services within the Southern region of the United States and (ii) a company that provides fire protection services in the Midwestern region of the United States, (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) four companies included within our United States building services segment, consisting of:
−Removed: (i) a company that provides mobile mechanical services across North Texas and (ii) three companies, the results of operations of which were de minimis, that bolster our presence in geographies where we have existing operations and provide either mobile mechanical services or building automation and controls solutions.
−Removed: We acquired three companies in 2020 for total consideration of $50.3 million.
−Removed: Such acquisitions include:
−Removed: (a) a company that provides building automation and controls solutions within the Northeastern region of the United States, (b) a full service provider of mechanical services within the Washington, D.C.
−Removed: metro area, and (c) a company, the results of operations of which were de minimis, that provides mobile mechanical services in the Southern region of the United States.
−Removed: The results of operations for all three companies have been included within our United States building services segment.
+Added: (i) a company that provides mobile mechanical services across North Texas and (ii) three companies, the results of operations of which were de minimis, that enhance our presence in geographies where we have existing operations and provide either mobile mechanical services or building automation and controls solutions.
Companies acquired in 2022 and 2021 generated incremental revenues of $149.7 million and incremental operating income of $3.9 million, inclusive of $7.3 million of amortization expense associated with identifiable intangible assets, for the year ended December 31, 2022.
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Total operations $ 11,076,120 100 % $ 9,903,580 100 %
−Removed: As described in more detail below, revenues for the year ended December 31, 2021 increased to $9.90 billion compared to $8.80 billion for the year ended December 31, 2020.
−Removed: The increase in revenues for the year ended December 31, 2021 was attributable to revenue growth within all of our reportable segments.
+Added: As described in more detail below, revenues for the year ended December 31, 2022 increased to $11.08 billion compared to revenues of $9.90 billion for the year ended December 31, 2021.
+Added: During 2022, 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 entirely due to unfavorable exchange rate movements, which more than offset revenue growth that was experienced on a local currency basis.
Companies acquired in 2022 and 2021 generated incremental revenues of $149.7 million in 2022.
Revenues of our United States electrical construction and facilities services segment were $2,433.1 million for the year ended December 31, 2022 compared to revenues of $2,029.9 million for the year ended December 31, 2021.
−Removed: Excluding the impact of acquisitions, the increase in revenues of this segment for the year ended December 31, 2021 was primarily attributable to:
−Removed: (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:
−Removed: (i) an increase in commercial market sector revenues and (ii) greater short-duration project volumes in the current year, (b) an increase in public works projects in the Western region of the United States, resulting in greater revenue contribution from the institutional market sector, (c) revenue growth within the healthcare market sector, due to greater construction project activity in the Northeastern region of the United
−Removed: States, and (d) an increase in telecommunication project activity within the commercial market sector.
−Removed: The results of this segment for the year ended December 31, 2021 included $93.1 million of incremental revenues generated by companies acquired in 2021.
−Removed: The revenue increases referenced above were partially offset by a reduction in revenues within the manufacturing and transportation market sectors due to the completion or substantial completion of certain projects in the Northeastern and Western regions of the United States.
+Added: This segment’s results for the year ended December 31, 2022 included $135.1 million of incremental revenues from acquired companies.
+Added: Excluding the impact of acquisitions, revenues of this segment increased by $268.1 million primarily as a result of an increase in revenues from:
+Added: (a) the commercial market sector, predominantly within the telecommunications sub-market sector, inclusive of our data center projects, and the technology sub-market sector, (b) the healthcare market sector due to large project activity, and (c) certain transmission and distribution projects, including those to support sustainable energy solutions such as solar and wind.
+Added: These revenue increases were partially offset by a reduction in transportation and institutional market sector activity due to the completion or substantial completion of various projects.
Our United States mechanical construction and facilities services segment revenues for the year ended December 31, 2022 were $4,326.7 million, a $374.1 million increase compared to revenues of $3,952.6 million for the year ended December 31, 2021.
−Removed: The increase in this segment’s revenues for the year ended December 31, 2021 was attributable to revenue growth within the majority of the market sectors in which we operate, including:
−Removed: (a) the commercial market sector, driven by:
−Removed: (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) increased demand for our mechanical construction services by customers within the biotech, life-sciences, and pharmaceutical industries, as well as certain customers engaged in the production and development of electric vehicles and/or lithium batteries, (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, (c) the manufacturing market sector, inclusive of certain large food processing projects, which began to accelerate during the second half of 2021, and (d) the water and wastewater market sector, given increased project activity within the Southern region of the United States.
−Removed: 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 within such sector during 2021.
+Added: The increase in this segment’s revenues for the year ended December 31, 2022 was primarily attributable to revenue growth within:
+Added: (a) the commercial market sector, as a result of increased demand:
+Added: (i) 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, (ii) for our fire protection services within various warehousing and distribution facilities to support the build-out of our customers’ e-commerce supply chains, and (iii) from certain of our data center customers, (b) the institutional market sector, due to project activity throughout several of the regions in which we operate, (c) the manufacturing market sector, driven by certain large food processing projects currently in process, and (d) the water and wastewater market sector, given greater project activity within the Southern region of the United States.
Revenues of our United States building services segment were $2,720.5 million and $2,424.7 million for the years ended December 31, 2022 and 2021, respectively.
−Removed: Excluding incremental acquisition revenues within this segment’s mobile mechanical services division of $103.2 million, this segment’s revenue growth for the year ended December 31, 2021 was primarily attributable to:
−Removed: (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, (c) increased customer demand, stemming in part from the COVID-19 pandemic, for certain services aimed at either:
−Removed: (i) improving the indoor air quality or (ii) enhancing the cleaning protocols within their facilities, and (d) an increase in snow removal activity year-over-year within our commercial site-based services division.
+Added: Excluding incremental acquisition revenues within this segment’s mobile mechanical services division of $14.6 million during 2022, this segment’s revenue growth was primarily attributable to:
+Added: (a) its mobile mechanical services division, due to:
+Added: (i) increased project work, including incremental 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, and (ii) 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 (b) 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.
Revenues of our United States industrial services segment for the year ended December 31, 2022 were $1,118.8 million, a $132.4 million increase compared to revenues of $986.4 million for the year ended December 31, 2021.
−Removed: The increase in this segment’s revenues for the year ended December 31, 2021 was attributable to greater revenues from both our field services and shop services operations during the second half of 2021, when compared to the same prior year period.
−Removed: While this segment’s revenues throughout the majority of both 2021 and 2020 were negatively impacted by the adverse market conditions within the oil and gas and related industrial markets, the impact on the demand for its service offerings was most severe during the second half of 2020, resulting in a favorable comparison in the current year.
−Removed: Although the demand for oil and other refined products has not returned to pre-pandemic levels, the oil and gas industry continues to recover and we remain cautiously optimistic that the demand for our traditional industrial services will continue to improve in future periods.
−Removed: Revenues of this segment for the year ended December 31, 2021 additionally benefited from the completion of a 200-megawatt solar project by certain subsidiaries of this segment during 2021.
+Added: 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.
+Added: Such increased demand continued into 2022, resulting in revenue growth within this segment.
+Added: Specifically, more normalized turnaround project demand and an increase in maintenance and capital project activity, when compared to the prior year, has resulted in increased revenues from this segment’s field services operations.
+Added: In addition, revenues of this segment’s shop services operations have increased as a result of greater maintenance, repair, and hydro blast cleaning services and a slight increase in new build heat exchanger sales.
Our United Kingdom building services segment revenues were $477.1 million in 2022 compared to $510.0 million in 2021.
−Removed: The increase in this segment’s revenues for the year ended December 31, 2021 was primarily a result of growth in project activities with existing customers, primarily within the commercial and water and wastewater market sectors, 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.
−Removed: Similar to our United States building services segment, this segment additionally experienced increased revenues resulting from greater demand for services aimed at enhancing the cleaning protocols within its customers’ facilities in response to COVID-19.
−Removed: This segment’s revenues for the year ended December 31, 2021 were positively impacted by $34.6 million related to the effect of favorable exchange rates for the British pound versus the United States dollar.
+Added: The year-over-year decrease in this segment’s revenues was entirely a result of unfavorable exchange rate movements for the British pound versus the United States dollar, which negatively impacted this segment’s revenues by $53.5 million for the year ended December 31, 2022.
+Added: Excluding the impact of foreign exchange rate movements, this segment’s revenues for 2022 increased as a result of growth in project activities with existing customers, primarily within the commercial market sector, including certain telecommunication projects, and the transportation market sector.
Cost of sales and gross profit
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Our gross profit for the year ended December 31, 2022 was $1,603.6 million, a $101.9 million increase compared to gross profit of $1,501.7 million for the year ended December 31, 2021.
−Removed: The increase in gross profit for the year ended December 31, 2021 was predominately a result of increased gross profit contribution from our United States construction segments and our United States building services segment given greater revenue volume during 2021.
−Removed: In addition, we experienced an increase in gross profit within our United Kingdom building services segment due, in part, to both increased revenue and gross profit margin expansion when compared to 2020.
+Added: Companies acquired in 2022 and 2021 generated incremental gross profit of approximately $21.1 million in 2022.
+Added: Excluding the impact of acquisitions, the increase in gross profit for 2022 was largely a result of increased revenue volume, which despite the decrease in gross profit margin discussed below, resulted in an increase in consolidated gross profit.
Our gross profit margin was 14.5% and 15.2% for 2022 and 2021, respectively.
−Removed: The decrease in gross profit margin for the year ended December 31, 2021 was predominantly attributable to a reduction in gross profit margin within all of our reportable segments, except for our United Kingdom building services segment.
−Removed: Refer to the operating income section below for further discussion regarding the operating performance of each of our reportable segments.
+Added: The decrease in gross profit margin for the year ended December 31, 2022 was primarily attributable to a reduction in gross profit margin within each of our United States construction segments, partially as a result of a less favorable project mix.
+Added: For the year ended December 31, 2022, certain discrete project losses within both our United States electrical construction and facilities services segment and our United States mechanical construction and facilities services segment negatively impacted our consolidated gross profit margin by 40 basis points.
+Added: Refer to the operating income section below for further discussion regarding the operating performance of each of our reportable segments, including the above referenced losses.
Selling, general and administrative expenses
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Excluding incremental expenses from businesses acquired, our selling, general and administrative expenses increased by $50.6 million for the year ended December 31, 2022.
−Removed: Such organic increase in selling, general and administrative expenses was primarily attributable to an increase in:
−Removed: (a) employee benefit costs, driven by greater medical claim activity related in part to the COVID-19 pandemic, (b) incentive compensation expense, predominantly within our United States construction segments and our United States building services segment given greater operating income when compared to the prior year, (c) salaries, as a result of:
−Removed: (i) an increase in headcount to support our organic revenue growth in the current year and (ii) the favorable impact in the prior year of certain short-term cost cutting measures enacted in response to the COVID-19 pandemic, including temporary furloughs and salary reductions, (d) computer hardware and software costs as a result of various information technology and cybersecurity initiatives currently in process, and (e) the provision for credit losses, within our United States industrial services segment, which included $5.8 million of expense associated with two customer bankruptcies during 2021.
+Added: The organic increase in selling, general and administrative expenses was primarily attributable to an increase in:
+Added: (a) salaries and related employment expenses, largely as a result of an increase in headcount to support our organic revenue growth, (b) incentive compensation expense within those of our reportable segments which had higher operating results than in the prior year, (c) travel and entertainment expenses, given a resumption in travel and business meals as COVID-19 related restrictions have eased, (d) rent and other occupancy costs driven by:
+Added: (i) the expansion or addition of certain fabrication facilities, which support our operations, and (ii) the impact of inflation on the real estate market, and (e) computer hardware and software costs, as a result of various information technology and cybersecurity initiatives currently in process.
Selling, general and administrative expenses as a percentage of revenues were 9.4% and 9.8% for 2022 and 2021, respectively.
−Removed: The decrease in SG&A margin for the year ended December 31, 2021 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.
−Removed: Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets
−Removed: During the second quarter of 2020, we identified certain indicators of impairment resulting from the COVID-19 pandemic and its impact on the oil and gas and related industrial markets.
−Removed: 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, during 2020, of impairment charges totaling $232.8 million within our United States industrial services segment.
−Removed: Despite the weaker results of our United States industrial services segment for the year ended December 31, 2021, when compared to historical periods, we did not identify any indicators of impairment in the current year, as the operating performance of this segment remained materially consistent with our near term expectations and forecasts.
−Removed: Further, we performed our annual impairment assessment as of October 1, 2021 and determined that the fair value of the industrial reporting unit remained in excess of its carrying value.
−Removed: However, a further deterioration in this segment’s 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.
−Removed: 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.
+Added: The year-over-year decrease in SG&A margin 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)
9 unchanged sentences
Corporate administration (110,440) — (102,031) —
−Removed: Restructuring expenses — — (2,214) —
−Removed: Impairment loss on goodwill, identifiable intangible assets,
−Removed: and other long-lived assets — — (232,750) —
Total operations 564,877 5.1 % 530,800 5.4 %
3 unchanged sentences
Income before income taxes $ 558,750 $ 529,303
−Removed: As described in more detail below, operating income was $530.8 million, or 5.4% of revenues, for the year ended December 31, 2021, compared to operating income of $256.8 million, or 2.9% of revenues, for the year ended December 31, 2020.
−Removed: Our operating results for 2020 included $232.8 million of non-cash impairment charges, which negatively impacted the Company’s operating margin in 2020 by approximately 270 basis points.
−Removed: Excluding the impact of such impairment charges on our 2020 results, operating income increased by $41.2 million for the year ended December 31, 2021, as a result of increased operating income contribution from 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 its service offerings.
+Added: As described in more detail below, operating income was $564.9 million for the year ended December 31, 2022, compared to operating income of $530.8 million for the year ended December 31, 2021.
+Added: Largely as a result of increases in revenues, we experienced greater operating income contribution from each of our reportable segments other than our United States electrical construction and facilities services segment.
Companies acquired in 2022 and 2021 generated incremental operating income of $3.9 million, inclusive of $7.3 million of amortization expense associated with identifiable intangible assets, for the year ended December 31, 2022.
−Removed: Operating income of our United States electrical construction and facilities services segment for the year ended December 31, 2021 was $168.4 million compared to operating income of $161.8 million for the year ended December 31, 2020.
−Removed: Companies acquired in 2021 contributed incremental operating income of $3.7 million, inclusive of $4.9 million of amortization expense associated with identifiable intangible assets.
−Removed: Excluding such acquisition contribution, operating income of this segment increased a modest $2.9 million for the year ended December 31, 2021.
−Removed: Gross profit gains from construction projects within the institutional and healthcare market sectors, primarily as a result of the revenue growth within these market sectors, as referenced above, were largely offset by gross profit declines within the transportation and manufacturing market sector, given the completion or close-out of certain projects in the prior year.
−Removed: Operating margins within this segment for the years ended December 31, 2021 and 2020 were 8.4% and 9.0%, respectively.
−Removed: The decrease in operating margin year-over-year was a result of a decline in this segment’s gross profit margin during 2021, predominantly within:
−Removed: (a) the commercial market sector,
−Removed: partially due to a change in the composition of project work performed period-over-period, and (b) the transportation market sector as the results for the prior year benefited from the successful close-out of several large construction projects within the Northeastern region of the United States.
+Added: Operating margin was 5.1% and 5.4% for the years ended December 31, 2022 and 2021, respectively.
+Added: The decrease in operating margin year-over-year was driven by a reduction in gross profit margin within our United States construction segments, due to a change in project mix as well as the impact of certain discrete project losses, described in further detail below.
+Added: These declines in gross profit margin were partially offset by increased gross profit margins from the remainder of our reportable segments as well as a reduction in the ratio of selling, general and administrative expenses to revenues across each of our reportable segments.
+Added: Operating income of our United States electrical construction and facilities services segment for the year ended December 31, 2022 was $148.7 million, or 6.1% of revenues, compared to operating income for the year ended December 31, 2021 of $169.4 million, or 8.3% of revenues.
+Added: This segment’s results for the year ended December 31, 2022 included incremental operating income from acquired companies of $6.3 million, inclusive of $4.7 million of amortization expense associated with identifiable intangible assets.
+Added: Excluding the contribution from acquisitions, operating income of this segment decreased by $26.9 million year-over-year.
+Added: A less favorable project mix within the institutional and transportation market sectors, coupled with certain discrete project losses recognized during 2022, due, in part, to supply chain disruptions and delays, resulted in a decrease in gross profit and gross profit margin.
+Added: Based on an evaluation of individual projects that had revisions to total estimated costs or anticipated contract value, 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 $33.5 million during the year ended December 31, 2022.
+Added: These reductions in estimated project profitability negatively affected the operating margin of this segment by 140 basis points in 2022.
+Added: In addition to the impact of supply chain disruptions, a portion of these losses were attributable to project completion delays and time extensions, beyond our control, on certain projects which were bid a number of years ago under different economic conditions.
+Added: We continue to evaluate our contractual rights and are pursuing recovery for such impacts to the extent permitted.
+Added: 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:
+Added: (a) this segment was able to successfully leverage its overhead cost structure during this period of revenue growth and (b) the reduced profitability has resulted in a decrease in incentive compensation expense for certain of the operating subsidiaries within this segment.
Our United States mechanical construction and facilities services segment’s operating income for the year ended December 31, 2022 was $332.3 million, a $17.9 million increase compared to operating income of $314.4 million for the year ended December 31, 2021.
−Removed: The increase in operating income for 2021 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.
Operating margins within this segment for the years ended December 31, 2022 and 2021 were 7.7% and 8.0%, respectively.
−Removed: The 30 basis point reduction in this segment’s operating margin in 2021 was primarily a result of a decrease in gross profit margin within the manufacturing market sector as:
−Removed: (a) the results for the prior year benefited from the favorable close-out of several projects and (b) the results for the current year 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.
−Removed: This 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.
−Removed: Operating income of our United States building services segment for the year ended December 31, 2021 was $119.0 million, or 4.8% of revenues, compared to operating income of $114.2 million, or 5.3% of revenues, for the year ended December 31, 2020.
−Removed: The increase in this segment’s operating income for 2021 was primarily due to the resumption in demand for certain of our service offerings when compared to the prior year, which led to increased gross profit from project, service repair and maintenance, and building automation and controls activities within our mobile mechanical services operations, and project volumes within our commercial site-based services operations.
−Removed: In addition, gross profit for the year ended December 31, 2021 benefited from greater snow removal activity for our customers with whom we are contracted on a per snow event basis.
−Removed: Companies acquired in 2021 and 2020, which are included within this segment’s mobile mechanical services division, generated incremental operating income of approximately $0.7 million, inclusive of $6.2 million of amortization expense associated with identifiable intangible assets, during 2021.
−Removed: The 50 basis point reduction in operating margin for the year ended December 31, 2021 was attributable to a decrease in gross profit margin, 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.
−Removed: The decline in gross profit margin resulted from 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.
−Removed: Gross profit margin of this segment in 2021 was also negatively impacted by:
−Removed: (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 over 4,000 service vans, a portion of which we were unable to pass along to our customers.
−Removed: Our United States industrial services segment reported an operating loss of $1.7 million for the year ended December 31, 2021 compared to operating income of $1.2 million for the year ended December 31, 2020.
+Added: The increase in operating income for the year ended December 31, 2022 was primarily a result of increased gross profit contribution from the commercial market sector, including profit recognized on:
+Added: (a) certain construction projects for customers engaged in the manufacturing of semiconductors and (b) several fire protection projects.
+Added: Partially offsetting the growth in operating income for the year ended December 31, 2022, and the primary factor resulting in the decline in operating margin for such period, were certain project write-downs, partially a result of supply chain disruptions and/or material price escalations, a portion of which we are seeking recovery from our customers.
+Added: Based on an evaluation of individual projects that had revisions to total estimated costs or anticipated contract value, 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 $13.7 million during the year ended December 31, 2022.
+Added: These reductions in estimated project profitability negatively affected the operating margin of this segment by 30 basis points in 2022.
+Added: Similar to our United States electrical construction and facilities services segment, operating margin of this segment for 2022 benefited from 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.
+Added: Operating income of our United States building services segment for the year ended December 31, 2022 was $144.7 million compared to operating income of $122.7 million for the year ended December 31, 2021.
+Added: The year-over-year increase in operating income was largely due to greater gross profit contribution 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.
+Added: Further contributing to the increase in operating income of this segment was an increase in gross profit contribution from its commercial site-based services division.
+Added: Despite certain economic headwinds which have impacted this segment throughout the year, including supply chain disruptions, increased fuel prices, material and wage inflation, and skilled labor shortages, operating margin of this segment was 5.3% for the year ended December 31, 2022, an increase from the operating margin of 5.1% for the year ended December 31, 2021.
+Added: This improvement in operating margin reflects our continued focus on project execution and pricing as well as disciplined cost management.
+Added: Our United States industrial services segment reported operating income of $19.8 million for the year ended December 31, 2022 compared to an operating loss of $1.7 million for the year ended December 31, 2021.
Operating margin of this segment was 1.8% and (0.2)% for 2022 and 2021, respectively.
−Removed: Despite the increase in annual revenues compared to full year 2020, this segment’s operating results continue to be negatively impacted by the adverse macroeconomic conditions within the oil and gas industry.
−Removed: For example, pricing pressure from the customers of this segment has resulted in a lower margin portfolio of work, and therefore a decrease in gross profit when compared to the prior year, within both our field services and shop services operations.
−Removed: In addition to the effect of lower gross profit, operating income of this segment was negatively impacted by an increase in the provision for credit losses, which included approximately $5.8 million of expense associated with two customer bankruptcies during 2021, which resulted in a 60 basis point reduction to this segment’s operating margin.
+Added: The improved performance for the year ended December 31, 2022 was primarily due to:
+Added: (a) the growth in this segment’s revenues referenced above, which resulted in both incremental gross profit contribution as well as greater absorption of certain indirect costs of sales, and (b) an improvement in gross profit margin, most notably from this segment’s shop services division given:
+Added: (i) a greater percentage of repair and cleaning projects, which tend to carry higher profit margins, and (ii) more favorable pricing across this division’s portfolio of work.
+Added: Operating performance of our United States industrial services segment for the year ended December 31, 2022 also benefited from a reduction in selling, general and administrative expenses as well as a decrease in the ratio of selling, general and administrative expenses to revenues, when compared to the prior year.
+Added: In addition to successfully leveraging its overhead cost structure during 2022, the year-over-year comparison was impacted by an increase in the provision for credit losses in 2021, which included $5.8 million of expense associated with two customer bankruptcies, that negatively impacted this segment’s 2021 operating margin by 60 basis points.
Our United Kingdom building services segment operating income for the year ended December 31, 2022 was $29.8 million, or 6.3% of revenues, which compares favorably to operating income of $28.0 million, or 5.5% of revenues, for the year ended December 31, 2021.
−Removed: The increase in this segment’s operating income and operating margin for 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.
−Removed: In addition, this segment’s operating income and operating margin for the year ended December 31, 2021 benefited from successful contract close-outs during 2021.
−Removed: This segment’s operating income was positively impacted by $2.1 million during 2021 related to the effect of favorable exchange rates for the British pound versus the United States dollar.
+Added: This segment’s operating income for the year ended December 31, 2022 was negatively impacted by $3.1 million related to the effect of unfavorable exchange rates for the British pound versus the United States dollar.
+Added: Excluding the impact of foreign exchange rate movements, operating income of this segment increased by $4.9 million year-over-year.
+Added: The improvement in this segment’s operating income and operating margin for 2022 was primarily a result of:
+Added: (a) an increase in gross profit and gross profit margin, primarily as a result of a change in the mix of work, which included a greater amount of revenue generated from project activity as opposed to traditional facilities maintenance services, including an increased number of telecommunication projects as referenced in the revenue commentary for this segment, and (b) the favorable close-out of certain other contracts throughout 2022.
Our corporate administration expenses were $110.4 million for 2022 compared to $102.0 million in 2021.
−Removed: The increase in corporate administration expenses for the year ended December 31, 2021 was primarily due to:
−Removed: (a) an increase in employment costs, such as:
−Removed: (i) long-term incentive compensation expense given higher projected future operating results, as our expectations during 2020 were negatively impacted by the uncertainty created by the COVID-19 pandemic, and (ii) salaries, inclusive of certain non-recurring severance expenses associated with the continued realignment of our back office functions, and (b) a net increase in computer hardware, software, and consulting costs, as a result of various information technology and cybersecurity initiatives currently in process.
+Added: The increase in corporate administration expenses for the year ended December 31, 2022 was primarily due to greater:
+Added: (a) incentive compensation expense and (b) employment costs, given an increase in headcount to support the revenue growth within our business as well as annual cost of living wage increases.
Interest expense was $13.2 million and $6.1 million for 2022 and 2021, respectively, and interest income was $2.8 million and $0.9 million for 2022 and 2021, respectively.
−Removed: The decrease in both interest expense and interest income for 2021 resulted from lower interest rates when compared to 2020.
−Removed: In addition, the decrease in interest expense was partially attributable to reduced average outstanding borrowings year-over-year.
+Added: The increase in both interest expense and interest income for 2022 resulted from higher average interest rates when compared to 2021.
+Added: In addition, the increase in interest expense was attributable to greater average outstanding borrowings year-over-year.
Our income tax provision for the year ended December 31, 2022 was $152.6 million, based on an income tax rate of 27.3%, compared to an income tax provision and an income tax rate of $145.6 million and 27.5%, respectively, for the year ended December 31, 2021.
−Removed: Our income tax rate, and resulting income tax provision, for the year ended December 31, 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 2020, the majority of which was non-deductible for tax purposes.
+Added: The increase in our income tax provision for 2022 was due to increased income before income taxes, while the slight decrease in our income tax rate for 2022 was attributable to the favorable impact of certain discrete tax items.
Remaining Unsatisfied Performance Obligations
9 unchanged sentences
Total operations $ 7,459,299 100 % $ 5,599,297 100 %
−Removed: Remaining performance obligations increase with awards of new contracts and decrease as we perform work and recognize revenue on existing contracts.
−Removed: 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.
−Removed: 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.
−Removed: Remaining performance obligations include unrecognized revenues to be realized from uncompleted construction contracts.
−Removed: 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.
−Removed: 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.
−Removed: Remaining performance obligations also include unrecognized revenues expected to be realized over the remaining term of service contracts.
−Removed: 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.
−Removed: Our remaining performance obligations are comprised of:
−Removed: (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.
−Removed: Such claim and other variable consideration amounts were immaterial for all periods presented.
Our remaining performance obligations at December 31, 2022 were $7.46 billion compared to $5.60 billion at December 31, 2021.
−Removed: The increase in remaining performance obligations year-over-year was primarily attributable to an increase in remaining performance obligations within our United States construction segments, driven by the award of various construction projects within the majority of the market sectors in which we operate, most notably:
−Removed: (a) the commercial market sector, inclusive of certain semiconductor projects, (b) the manufacturing market sector, inclusive of several food processing projects, and (c) the healthcare, institutional, and water and wastewater market sectors.
−Removed: In addition, we experienced an increase in remaining performance obligations within 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.
−Removed: Remaining performance obligations increased by $162.8 million as a result of acquisitions during 2021.
+Added: The increase in remaining performance obligations year-over-year was attributable to an increase in remaining performance obligations within all of our reportable segments.
+Added: Most notably, we experienced an increase in remaining performance obligations from:
+Added: (a) our United States construction segments, driven by the award of various construction projects within the majority of the market sectors in which we operate, and (b) our United States building services segment given increased project opportunities within its mobile mechanical services division and the award or renewal of several facilities maintenance contracts within its commercial site-based services division.
+Added: From a market sector perspective, we experienced the largest growth in remaining performance obligations within the commercial market sector, inclusive of data center, semiconductor, and other projects for customers:
+Added: (i) within the biotech, life-sciences, and pharmaceutical industries or (ii) engaged in the production and development of electric vehicles and/or lithium batteries.
+Added: Remaining performance obligations of our United Kingdom building services segment increased by $42.4 million since December 31, 2021, despite unfavorable exchange rates for the British pound versus the United States dollar, which negatively impacted this segment’s remaining performance obligations by $19.0 million.
+Added: 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.
+Added: See Note 3 - Revenue from Contracts with Customers of the notes to consolidated financial statements included in Item 8.
+Added: Financial Statements and Supplementary Data for further disclosure regarding our remaining performance obligations.
2021 versus 2020
−Removed: The following table presents selected financial data for the fiscal years ended December 31, 2020 and 2019 (in thousands, except percentages and per share data):
−Removed: Revenues $ 8,797,061 $ 9,174,611
−Removed: Revenues (decrease) increase from prior year (4.1) % 12.8 %
−Removed: Gross profit $ 1,395,382 $ 1,355,868
−Removed: Gross profit as a percentage of revenues 15.9 % 14.8 %
−Removed: Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets $ 232,750 $ —
−Removed: Operating income $ 256,834 $ 460,892
−Removed: Operating income as a percentage of revenues 2.9 % 5.0 %
−Removed: Net income attributable to EMCOR Group, Inc.
−Removed: $ 132,943 $ 325,140
−Removed: Diluted earnings per common share $ 2.40 $ 5.75
−Removed: Revenues of $8.80 billion for the year ended December 31, 2020 decreased by 4.1% from revenues of $9.17 billion for the year ended December 31, 2019.
−Removed: As discussed in further detail below, such decrease in revenues was largely attributable to revenue declines within our United States industrial services segment, as a result of a decrease in demand for our service offerings within the oil and gas and related industrial markets given the negative macroeconomic conditions impacting these markets.
−Removed: In addition, we experienced a decrease in revenues within our United States electrical construction and facilities services segment, due to:
−Removed: (a) the effects of the COVID-19 pandemic on our operations during 2020, which resulted in:
−Removed: (i) a decrease in the number of short duration projects and (ii) project delays or access restrictions resulting from the various containment and mitigation measures mandated by certain of our customers and/or governmental authorities, and (b) a reduction in commercial market sector activities given the completion or substantial completion of several projects.
−Removed: These revenue declines were partially offset by revenue growth within our United States mechanical construction and facilities services segment and our United States building services segment, inclusive of the impact of businesses acquired, as discussed below, as well as an increase in revenues of our United Kingdom building services segment.
−Removed: Operating income for 2020 was $256.8 million, or 2.9% of revenues, compared to operating income of $460.9 million, or 5.0% of revenues, in 2019.
−Removed: Our operating results for the year ended December 31, 2020 included $232.8 million of non-cash impairment charges within our United States industrial services segment, which negatively impacted the Company’s operating margin for 2020 by approximately 270 basis points.
−Removed: Excluding the impact of such impairments, operating income and operating margin for the twelve months ended December 31, 2020 increased by $28.7 million and 60 basis points, respectively, primarily as a result of favorable execution within our United States construction segments, as described in further detail below.
−Removed: Net income of $132.9 million, or $2.40 per diluted share, for the year ended December 31, 2020, compares unfavorably to net income of $325.1 million, or $5.75 per diluted share, for the year ended December 31, 2019.
−Removed: The decline in both net income and diluted earnings per common share are a result of the aforementioned impairment charges and the related tax effects as the majority of such charges were non-deductible for tax purposes.
−Removed: Impact of Acquisitions
−Removed: We acquired three companies in 2020 for total consideration of $50.3 million.
−Removed: Such acquisitions include:
−Removed: (a) a company that provides building automation and controls solutions within the Northeastern region of the United States, (b) a full service provider of mechanical services within the Washington, D.C.
−Removed: metro area, and (c) a company, the results of operations of which were de minimis, that provides mobile mechanical services in the Southern region of the United States.
−Removed: The results of operations for all three companies have been included within our United States building services segment.
−Removed: On November 1, 2019, we completed the acquisition of Batchelor & Kimball, Inc.
−Removed: (“BKI”), a leading full service provider of mechanical construction and maintenance services, for total consideration of $220.3 million.
−Removed: This acquisition strengthens our position and broadens our capabilities in the Southern and Southeastern regions of the United States, and the results of its operations have been included within our United States mechanical construction and facilities services segment.
−Removed: In addition to BKI, during 2019, we completed six other acquisitions for total consideration of $85.4 million.
−Removed: Such acquisitions include:
−Removed: (a) a company that provides electrical contracting services in central Iowa, the results of operations of which have been included within our United States electrical construction and facilities services segment, (b) a company that provides mechanical contracting services in south-central and eastern Texas, the results of operations of which have been included within our United States mechanical construction and facilities services segment, and (c) four companies included within our United States building services segment, consisting of:
−Removed: (i) a company that provides mobile mechanical services in the Southern region of the United States and (ii) three companies, the results of operations of which were de minimis, which bolster our presence in geographies where we have existing operations and provide either mobile mechanical services or building automation and controls solutions.
−Removed: Companies acquired in 2020 and 2019 generated incremental revenues of $269.6 million and incremental operating income of $15.4 million, inclusive of $16.0 million of amortization expense associated with identifiable intangible assets, for the year ended December 31, 2020.
−Removed: Discussion and Analysis of Results of Operations
−Removed: The following table presents our revenues for each of our operating segments and the approximate percentages that each segment’s revenues were of total revenues for the years ended December 31, 2020 and 2019 (in thousands, except for percentages):
−Removed: Revenues from unrelated entities:
−Removed: United States electrical construction and facilities services $ 1,806,092 20 % $ 1,961,798 21 %
−Removed: United States mechanical construction and facilities services 3,485,495 40 % 3,340,337 36 %
−Removed: United States building services 2,134,016 24 % 2,121,661 23 %
−Removed: United States industrial services 940,895 11 % 1,327,556 15 %
−Removed: Total United States operations 8,366,498 95 % 8,751,352 95 %
−Removed: United Kingdom building services 430,563 5 % 423,259 5 %
−Removed: Total operations $ 8,797,061 100 % $ 9,174,611 100 %
−Removed: As described in more detail below, revenues for the year ended December 31, 2020 decreased to $8.80 billion compared to $9.17 billion for the year ended December 31, 2019.
−Removed: Revenue declines within our United States industrial services segment, as a result of a decrease in demand for our service offerings within the oil and gas and related industrial markets, and our United States electrical construction and facilities services segment, as described in further detail below, were partially offset by revenue growth within our United States mechanical construction and facilities services segment, our United States building services segment, and our United Kingdom building services segment.
−Removed: Companies acquired in 2020 and 2019, which are reported in our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment and our United States building services segment, generated incremental revenues of $269.6 million in 2020.
−Removed: Revenues of our United States electrical construction and facilities services segment were $1,806.1 million for the year ended December 31, 2020 compared to revenues of $1,961.8 million for the year ended December 31, 2019.
−Removed: The decrease in revenues was attributable to:
−Removed: (a) the effects of the COVID-19 pandemic on our operations during 2020, which resulted in:
−Removed: (i) a decrease in the number of short duration projects and (ii) project delays or access restrictions resulting from the various containment and mitigation measures mandated by certain of our customers and/or governmental authorities, and (b) a decline in revenues from
−Removed: construction projects within the commercial market sector, as a result of the completion or substantial completion of several projects.
−Removed: The results for the year ended December 31, 2020 included $25.4 million of incremental revenues generated by a company acquired in 2019.
−Removed: Our United States mechanical construction and facilities services segment revenues for the year ended December 31, 2020 were $3,485.5 million, a $145.2 million increase compared to revenues of $3,340.3 million for the year ended December 31, 2019.
−Removed: The results for the year ended December 31, 2020 included $188.8 million of incremental revenues generated by companies acquired in 2019.
−Removed: Excluding the impact of acquisitions, revenues of this segment decreased by $43.7 million, primarily as a result of a decline in revenues from:
−Removed: (a) the manufacturing market sector, inclusive of certain large food processing construction projects, and (b) several telecommunications and technology projects.
−Removed: Similar to our United States electrical construction and facilities services segment, revenues of this segment were also negatively impacted by the effects of the COVID-19 pandemic during 2020, which resulted in project delays and temporary job site shutdowns, as well as a decrease in the number of short duration projects.
−Removed: These revenue reductions were partially offset by increased revenues from the majority of the remaining market sectors in which we operate, most notably the institutional, transportation, and commercial market sectors.
−Removed: Revenues of our United States building services segment were $2,134.0 million and $2,121.7 million for the years ended December 31, 2020 and 2019, respectively.
−Removed: Excluding acquisition revenues of $55.4 million, this segment’s revenues decreased by approximately $43.0 million during the year ended December 31, 2020.
−Removed: Such reduction in revenues was primarily attributable to:
−Removed: (a) decreased project and controls activities within our mobile mechanical services operations, largely as a result of the impact of the COVID-19 pandemic during 2020, which resulted in fewer project opportunities given the temporary closure of certain customer facilities, (b) decreased large project activity within our energy services operations, primarily as a result of the completion of certain projects which were active in 2019, and (c) the loss of certain contracts not renewed pursuant to rebid within our government services business.
−Removed: These revenue declines were partially offset by increased customer demand for certain services aimed at improving the indoor air quality within their facilities as well as an increase in revenues within our commercial site-based services operations, as a result of new contract awards and scope expansion on certain contracts with existing customers.
−Removed: Revenues of our United States industrial services segment for the year ended December 31, 2020 were $940.9 million, a $386.7 million decrease compared to revenues of $1,327.6 million for the year ended December 31, 2019.
−Removed: Revenues of this segment for the year ended December 31, 2020 were negatively impacted by adverse market conditions including unprecedented volatility in the price of crude oil, largely as a result of a decline in demand caused by the COVID-19 pandemic.
−Removed: Such macroeconomic conditions led to a decrease in demand for our services, which resulted in:
−Removed: (a) a decrease in maintenance and capital project activity within our field services operations and (b) a reduction in new build heat exchanger sales and a decrease in maintenance, repair, and hydro blast cleaning services within our shop services operations.
−Removed: In addition, revenues for the year ended December 31, 2020 were negatively impacted by project stoppages resulting from hurricanes, including certain named storms, within the Gulf Coast region.
−Removed: Our United Kingdom building services segment revenues were $430.6 million in 2020 compared to $423.3 million in 2019.
−Removed: The year-over-year increase in revenues within this segment was primarily attributable to:
−Removed: (a) an increase in revenues from new maintenance contract awards within the commercial market sector, and (b) increased project activity with existing customers, primarily within the water and wastewater market sector, despite reduced opportunities for project work brought upon by the temporary closure of certain customer facilities and the temporary suspension of capital spending as a result of the COVID-19 pandemic in the first half of 2020.
−Removed: This segment’s revenues during 2020 were positively impacted by $2.3 million related to the effect of favorable exchange rates for the British pound versus the United States dollar.
−Removed: Cost of sales and gross profit
−Removed: The following table presents cost of sales, gross profit, and gross profit margin for the years ended December 31, 2020 and 2019 (in thousands, except for percentages):
−Removed: Cost of sales $ 7,401,679 $ 7,818,743
−Removed: Gross profit $ 1,395,382 $ 1,355,868
−Removed: Gross profit margin 15.9 % 14.8 %
−Removed: Our gross profit for the year ended December 31, 2020 was $1,395.4 million, a $39.5 million increase compared to gross profit of $1,355.9 million for the year ended December 31, 2019.
−Removed: Our gross profit margin was 15.9% and 14.8% for 2020 and 2019, respectively.
−Removed: The increase in gross profit and gross profit margin for the year ended December 31, 2020 was predominantly a result of improved operating performance within both of our United States construction segments, as described in further detail below, despite the challenges brought on by the COVID-19 pandemic.
−Removed: Selling, general and administrative expenses
−Removed: The following table presents selling, general and administrative expenses and SG&A margin, for the years ended December 31, 2020 and 2019 (in thousands, except for percentages):
−Removed: Selling, general and administrative expenses $ 903,584 $ 893,453
−Removed: SG&A margin 10.3 % 9.7 %
−Removed: Our selling, general and administrative expenses for the year ended December 31, 2020 were $903.6 million compared to selling, general and administrative expenses of $893.5 million for the year ended December 31, 2019.
−Removed: For the year ended December 31, 2020, selling, general and administrative expenses included $29.6 million of incremental expenses directly related to companies acquired in 2020 and 2019, including amortization expense attributable to identifiable intangible assets of $9.5 million.
−Removed: Excluding incremental expenses from businesses acquired, our selling, general and administrative expenses for 2020 decreased by $19.4 million, primarily as a result of certain cost reductions resulting from, or actions taken in response to, the COVID-19 pandemic, including:
−Removed: (a) a reduction in certain discretionary spending, such as travel and entertainment costs, (b) a decrease in salary expense due to:
−Removed: (i) a reduction in headcount, resulting from lower revenues than in the same 2019 period, and (ii) certain short-term cost cutting measures, including temporary furloughs and salary reductions, and (c) a decrease in employee benefit costs, partially due to a decline in medical claims.
−Removed: These cost reductions were partially offset by an increase in incentive compensation expense, predominantly within our United States mechanical construction and facilities services segment, due to improved operating performance by several of our subsidiaries when compared to 2019.
−Removed: Selling, general and administrative expenses as a percentage of revenues were 10.3% and 9.7% for 2020 and 2019, respectively.
−Removed: The increase in SG&A margin for the year ended December 31, 2020 was primarily due to a reduction in revenues without a commensurate decrease in certain of our overhead costs, including:
−Removed: (a) certain fixed costs within our United States industrial services segment, despite the significant revenue decline within such segment, and (b) the above referenced increase in incentive compensation expense.
−Removed: Impairment loss on goodwill, identifiable intangible assets, and other long-lived assets
−Removed: During the second quarter of 2020, we identified certain indicators of impairment resulting from the uncertainties caused by the COVID-19 pandemic and the significant volatility in the price of crude oil.
−Removed: These uncertainties resulted in lower forecasted revenue and operating margin expectations for those of our businesses that are highly dependent on the strength of the oil and gas and related industrial markets, resulting in the recognition, during 2020, of impairment charges totaling $232.8 million within our United States industrial services segment.
−Removed: Operating income (loss)
−Removed: The following table presents by segment our operating income (loss) and each segment’s operating margin for the years ended December 31, 2020 and 2019 (in thousands, except for percentages):
−Removed: Revenues 2019 % of
−Removed: Operating income (loss):
−Removed: United States electrical construction and facilities services $ 161,810 9.0 % $ 147,817 7.5 %
−Removed: United States mechanical construction and facilities services 292,536 8.4 % 225,040 6.7 %
−Removed: United States building services 114,159 5.3 % 115,432 5.4 %
−Removed: United States industrial services 1,175 0.1 % 57,529 4.3 %
−Removed: Total United States operations 569,680 6.8 % 545,818 6.2 %
−Removed: United Kingdom building services 20,660 4.8 % 18,323 4.3 %
−Removed: Corporate administration (98,542) — (101,726) —
−Removed: Restructuring expenses (2,214) — (1,523) —
−Removed: Impairment loss on goodwill, identifiable intangible assets,
−Removed: and other long-lived assets (232,750) — — —
−Removed: Total operations 256,834 2.9 % 460,892 5.0 %
−Removed: Net periodic pension (cost) income 2,980 1,553
−Removed: Interest expense (9,009) (13,821)
−Removed: Interest income 1,521 2,265
−Removed: Income before income taxes $ 252,326 $ 450,889
−Removed: As described in more detail below, operating income was $256.8 million, or 2.9% of revenues, for the year ended December 31, 2020, compared to operating income of $460.9 million, or 5.0% of revenues, for the year ended December 31, 2019.
−Removed: Our operating results for 2020 included $232.8 million of non-cash impairment charges, which negatively impacted the Company’s operating margin in 2020 by approximately 270 basis points.
−Removed: Excluding the impact of such impairment charges on our 2020 results, operating income and operating margin for the year ended December 31, 2020 increased by $28.7 million and 60 basis points, primarily as a result of favorable execution within our United States construction segments.
−Removed: Companies acquired in 2020 and 2019, which are reported in our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment, and our United States building services segment, generated incremental operating income of $15.4 million, inclusive of $16.0 million of amortization expense associated with identifiable intangible assets, for the year ended December 31, 2020.
−Removed: Operating income of our United States electrical construction and facilities services segment for the year ended December 31, 2020 was $161.8 million, or 9.0% of revenues, compared to operating income of $147.8 million, or 7.5% of revenues, for the year ended December 31, 2019.
−Removed: A company acquired in 2019 contributed incremental operating income of $1.6 million, inclusive of $0.1 million of amortization expense associated with identifiable intangible assets, during 2020.
−Removed: The year-over-year increase in operating income and operating margin was largely attributable to an increase in gross profit and gross profit margin given favorable project execution and a more profitable mix of work within this segment during 2020.
−Removed: Improved profitability was experienced within:
−Removed: (a) the commercial market sector, inclusive of several telecommunication construction projects, despite the decrease in revenues within such market sector, (b) the manufacturing market sector, and (c) the transportation market sector, due to the successful completion or close-out of certain projects.
−Removed: These gross profit gains were partially offset by a reduction in gross profit from short duration project activities, given the effects of the COVID-19 pandemic, which led to fewer short duration project opportunities.
−Removed: Operating income of this segment for the year ended December 31, 2020 additionally benefited from a reduction in selling, general and administrative expenses, including a curtailment in certain discretionary spending, such as travel and entertainment costs, and a decrease in employee benefit costs, resulting from a decline in medical claims.
−Removed: Our United States mechanical construction and facilities services segment’s operating income for the year ended December 31, 2020 was $292.5 million, a $67.5 million increase compared to operating income of $225.0 million for the year ended December 31, 2019.
−Removed: Companies acquired in 2019 contributed incremental operating income of $9.3 million, inclusive of $12.7 million of amortization expense associated with identifiable intangible assets for the year ended December 31, 2020.
−Removed: Excluding the impact of businesses acquired, annual operating income of this segment increased by approximately $58.2 million.
−Removed: Despite the disruption caused by the COVID-19 pandemic during 2020, our United States mechanical construction and facilities services segment experienced an increase in gross profit from construction projects within the majority of the market sectors in which we operate.
−Removed: Operating margins within this segment for the years ended December 31, 2020 and 2019 were 8.4% and 6.7%, respectively.
−Removed: The year-over-year increase in operating margin for this segment was attributable to an increase in gross profit margin, primarily within:
−Removed: (a) the manufacturing market sector, driven by certain large food processing construction projects, and (b) the commercial market sector, inclusive of a number of technology and semiconductor projects, which reached substantial completion during the year.
−Removed: The increases in gross profit and gross profit margin were partially offset by an increase in selling, general and administrative expenses, as well as the ratio of selling, general and administrative expenses to revenues, largely as a result of an increase in incentive compensation expense due to the improved year-over-year operating performance and an increase in amortization expense associated with identifiable intangible assets resulting from companies acquired in 2019.
−Removed: Operating income of our United States building services segment was $114.2 million in 2020, compared to $115.4 million in 2019.
−Removed: Operating margin of this segment was 5.3% and 5.4% for 2020 and 2019, respectively.
−Removed: Companies acquired in 2020, which are included within this segment’s mobile mechanical services division, contributed incremental operating income of $4.5 million, inclusive of $3.2 million of amortization expense associated with identifiable intangible assets.
−Removed: The decrease in segment operating income for the year ended December 31, 2020 was primarily due to a decrease in gross profit resulting from:
−Removed: (a) a reduction in large project activity within our energy services operations, and (b) when excluding the impact of acquired businesses, reduced project and controls activities within our mobile mechanical services operations, largely as a result of the temporary closure of certain customer facilities impacted by the COVID-19 pandemic.
−Removed: These gross profit reductions were partially offset by increased gross profit from service repair and maintenance activities within our mobile mechanical services operations, partially as a result of increased customer demand for certain services aimed at improving the indoor air quality within their facilities.
−Removed: Operating income of this segment additionally benefited from an overall decrease in selling, general and administrative expenses due to certain cost reduction measures enacted during 2020.
−Removed: Our United States industrial services segment’s operating income for the year ended December 31, 2020 was $1.2 million, or 0.1% of revenues, compared to $57.5 million, or 4.3% of revenues, for the year ended December 31, 2019.
−Removed: As previously referenced, this segment’s results for the year ended December 31, 2020 were severely impacted by adverse macroeconomic factors impacting the oil and gas industry.
−Removed: As a result of such conditions, this segment experienced a reduction in gross profit from both our field services and shop services operations due to:
−Removed: (a) a decrease in demand for our service offerings, (b) the deferral, curtailment, or cancellation of previously scheduled projects with certain customers, and (c) an unfavorable mix of work, which included a greater number of projects with lower than typical gross profit margins.
−Removed: The aforementioned decrease in gross profit was partially offset by a reduction in selling, general and administrative expenses during the year, including:
−Removed: (a) incentive compensation and salaries, (b) employee benefit costs, and (c) certain discretionary spending, such as travel and entertainment costs.
−Removed: The decrease in operating margin for the year ended December 31, 2020 was attributable to a decrease in gross profit margin resulting from the above noted factors, as well as an increase in the ratio of selling, general and administrative expenses to revenues due to a decrease in revenue without a commensurate decrease in certain of this segment’s fixed overhead costs.
−Removed: Our United Kingdom building services segment’s operating income for the year ended December 31, 2020 was $20.7 million, or 4.8% of revenues, which compares favorably to operating income of $18.3 million, or 4.3% of revenues, for the year ended December 31, 2019.
−Removed: The increase in annual operating income of this segment was primarily a result of incremental gross profit from new maintenance contract awards.
−Removed: Exchange rate movements for the British pound versus the United States dollar did not have a significant impact on this segment’s operating income for the twelve months ended December 31, 2020.
−Removed: The year-over-year increase in this segment’s operating margin was attributable to an increase in gross profit margin, primarily as a result of a more favorable mix of work, and a decrease in the ratio of selling, general and administrative expenses to revenues.
−Removed: Our corporate administration expenses were $98.5 million for 2020 compared to $101.7 million in 2019.
−Removed: The decrease in corporate administration expenses for the year ended December 31, 2020 was primarily due to:
−Removed: (a) a decrease in long-term incentive compensation expense, (b) a decrease in salary expense as a result of:
−Removed: (i) certain short-term cost cutting measures, including temporary furloughs and salary reductions, and (ii) permanent headcount reductions resulting from the realignment of certain of our back office functions, (c) curtailment in certain discretionary spending, such as travel and entertainment costs, and (d) a reduction in professional fees.
−Removed: Interest expense was $9.0 million and $13.8 million for 2020 and 2019, respectively.
−Removed: Interest income was $1.5 million and $2.3 million for 2020 and 2019, respectively.
−Removed: The decrease in both interest expense and interest income for 2020 resulted from lower interest rates.
−Removed: The decrease in interest expense was partially offset by the impact of higher average outstanding borrowings during 2020.
−Removed: Our income tax provision for the year ended December 31, 2020 was $119.4 million based on an income tax rate of 47.3%, compared to an income tax provision and an income tax rate of $125.7 million and 27.9%, respectively, for the year ended December 31, 2019.
−Removed: Our income tax rate and income tax provision for 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 2020, the majority of which was non-deductible for tax purposes.
+Added: For discussion and analysis of results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, refer to Item 7.
+Added: Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Form 10-K for the year ended December 31, 2021.
Liquidity and Capital Resources
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Management monitors financial markets and overall economic conditions for factors that may affect our liquidity and capital resources and adjusts our capital allocation strategy as necessary.
−Removed: For example, the uncertainty brought on by the COVID-19 pandemic in 2020 resulted in the temporary suspension of acquisition and share repurchase activity, during portions of such year, while we focused on maintaining operational flexibility.
−Removed: Negative macroeconomic trends could have an adverse effect on future liquidity if we experience delays in the payment of outstanding receivables beyond normal payment terms, an increase in credit losses, or significant increases in the price of commodities or the materials and equipment utilized for our project and service work.
+Added: Negative macroeconomic trends could have an adverse effect on future liquidity if we experience delays in the payment of outstanding receivables beyond normal payment terms, an increase in credit losses, or significant increases in the price of commodities or the materials and equipment utilized for our project and service work, beyond those experienced to date.
In addition, during economic downturns, there have typically been fewer small discretionary projects from the private sector and our competitors have aggressively bid larger long-term infrastructure and public sector contracts.
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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.
−Removed: As of December 31, 2021, we had cash and cash equivalents, excluding restricted cash, of $821.3 million, which are maintained in highly liquid investments with original maturity dates of three months or less.
−Removed: 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.
+Added: As of December 31, 2022, we had cash and cash equivalents, excluding restricted cash, of $456.4 million, which are maintained in depository accounts and highly liquid investments with original maturity dates of three months or less.
+Added: 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, as 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 December 31, 2022.
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We believe that we have sufficient financial resources available to meet our short-term and foreseeable long-term liquidity requirements.
−Removed: The following table presents our net cash provided by (used in) operating activities, investing activities, and financing activities (in thousands):
+Added: The following table presents a summary of our operating, investing, and financing cash flows (in thousands):
Net cash provided by operating activities $ 497,933 $ 318,817
1 unchanged sentence
Net cash used in financing activities $ (710,118) $ (245,456)
−Removed: (Decrease) increase in cash, cash equivalents, and restricted cash $ (80,994) $ 543,642
−Removed: For the year ended December 31, 2021, our cash balance, including cash equivalents and restricted cash, decreased by approximately $81.0 million from $903.6 million as of December 31, 2020 to $822.6 million as of December 31, 2021.
+Added: Effect of exchange rate changes on cash, cash equivalents, and restricted cash $ (12,515) $ (1,279)
+Added: Decrease in cash, cash equivalents, and restricted cash $ (365,500) $ (80,994)
+Added: For the year ended December 31, 2022, our cash balance, including cash equivalents and restricted cash, decreased by $365.5 million from $822.6 million at December 31, 2021 to $457.1 million at December 31, 2022.
Changes in our cash position from December 31, 2021 to December 31, 2022 are described in further detail below.
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For 2022, net cash provided by operating activities was approximately $497.9 million compared to approximately $318.8 million of net cash provided by operating activities in 2021.
−Removed: The $487.5 million decrease in operating cash flows during 2021, when compared to 2020, 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.
−Removed: In addition, operating cash flow in 2020 benefited from the deferral of approximately
−Removed: $117.5 million of certain non-income based taxes resulting from various government measures enacted in response to the COVID-19 pandemic, of which approximately $66 million was repaid in 2021.
+Added: The $179.1 million increase in operating cash flows during 2022, when compared to 2021, was primarily a result of the collection of advanced billings on certain of our uncompleted construction projects, as evidenced in part by the growth in our contract liabilities, net of the increase in outstanding accounts receivable.
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.
For 2022, we utilized approximately $140.8 million of cash for investing activities compared to $153.1 million in 2021.
−Removed: The increase in investing cash flows year-over-year was primarily driven by a $67.9 million increase in payments for acquisitions, partially offset by a $11.8 million reduction in capital expenditures.
−Removed: 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.
+Added: The decrease in investing cash outflows year-over-year was primarily driven by a decrease in payments for business acquisitions, partially offset by higher capital expenditures used to invest in organic growth.
+Added: 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 2022 was $710.1 million compared to $245.5 million in 2021.
−Removed: The increase in cash used in financing activities in 2021, when compared to 2020, was primarily due to an $83.0 million increase in funds used for the repurchase of our common stock.
+Added: The increase in cash used in financing activities in 2022, when compared to 2021, was primarily due to the increase in funds used for the repurchase of our common stock.
During the year ended December 31, 2022, cash payments related to share repurchases were $660.6 million compared to $195.5 million for the year ended December 31, 2021.
−Removed: 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.
−Removed: The repurchase program has been and will be funded from our operations.
+Added: The timing of common stock 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 12 - Common Stock of the notes to consolidated financial statements included in Item 8.
Financial Statements and Supplementary Data.
−Removed: Throughout 2021, we paid a quarterly dividend of $0.13 per share compared to a quarterly dividend of $0.08 per share during 2020.
+Added: We currently pay a regular quarterly dividend of $0.15 per share.
For the years ended December 31, 2022 and 2021, cash payments related to dividends were $27.2 million and $28.2 million, respectively.
+Added: Subsequent to December 31, 2022, our Board of Directors announced its intention to increase the regular quarterly dividend to $0.18 per share commencing with the dividend to be paid in April 2023.
Our credit agreement places limitations on the payment of dividends on our common stock.
−Removed: 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.
+Added: 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.
+Added: Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash – We are exposed to fluctuations in foreign currency exchange rates, almost entirely with respect to the British pound.
+Added: Therefore, the $11.2 million variance between the years ended December 31, 2022 and 2021 was a direct result of unfavorable exchange rate movements for the British pound versus the United States dollar.
Material Cash Requirements from Contractual and Other Obligations
As of December 31, 2022, our short-term and long-term material cash requirements for known contractual and other obligations were as follows:
−Removed: Outstanding Debt and Interest Payments – As of December 31, 2021, the amount outstanding under our term loan was $256.7 million.
−Removed: 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.
−Removed: Any remaining unpaid principal is due on March 2, 2025, when the credit agreement governing our term loan expires.
−Removed: We have no direct borrowings outstanding under our revolving credit facility.
−Removed: In addition to annual principal payments, we are required to make quarterly interest payments on our outstanding indebtedness.
−Removed: Future interest payments will be determined based on prevailing interest rates during that time.
+Added: Outstanding Debt and Interest Payments – As of December 31, 2022, there were no direct borrowings outstanding under our revolving credit facility and the amount outstanding under our term loan was $242.8 million.
+Added: We are required to make annual principal payments on our term loan of $13.9 million on December 31 of each year until maturity.
+Added: All remaining unpaid amounts are due on March 2, 2025, when the credit agreement governing our term loan and revolving credit facility expires.
+Added: Until such time, we are required to make periodic interest payments on our outstanding indebtedness.
+Added: 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 9 - Debt of the notes to consolidated financial statements included in Item 8.
12 unchanged sentences
Due to many uncertainties inherent in resolving these matters, it is not practical to estimate these payments beyond such period.
+Added: 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 December 31, 2022, expected future payments relating to our defined benefit post retirement plans were approximately $1.5 million per year.
4 unchanged sentences
Financial Statements and Supplementary Data for further information about our post retirement plans.
−Removed: Deferred Payroll Taxes – The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) allowed U.S.
−Removed: companies to defer the employer’s portion of social security taxes between March 27, 2020 and December 31, 2020.
−Removed: Our first installment of these deferred social security taxes, totaling approximately $51 million, was paid in the fourth quarter of 2021 and our second installment of approximately $51 million is expected to be paid in the fourth quarter of 2022.
Contingent Consideration Liabilities – We have incurred liabilities related to contingent consideration arrangements associated with certain acquisitions, payable in the event discrete performance objectives are achieved by the acquired businesses during designated post-acquisition periods.
1 unchanged sentence
As of December 31, 2022, the present value of expected future payments relating to these contingent consideration arrangements was $16.9 million.
−Removed: Of this amount, $5.6 million is estimated as being payable during 2022, with the remainder due substantially during 2023.
+Added: Of this amount, $10.0 million is estimated as being payable during 2023, with the remainder due pursuant to the terms of our contractual agreements some of which extend through 2025.
In addition, material cash requirements for other potential obligations, for which we cannot reasonably estimate future payments, include the following:
22 unchanged sentences
As of December 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.
−Removed: All such letters of credit were issued under our revolving credit facility, therefore reducing the available capacity under such facility.
+Added: All such letters of credit were issued under our revolving credit facility, therefore reducing the available capacity of such facility.
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.
8 unchanged sentences
We do not have any other material financial guarantees or off-balance sheet arrangements other than those disclosed herein.
−Removed: To help mitigate the impacts of greenhouse gas emissions on climate change, EMCOR has established initial carbon-based fuel consumption and greenhouse gas emission reduction targets, and will continue to refine such targets as necessary.
+Added: To help mitigate the impacts of greenhouse gas emissions on climate change, EMCOR has established initial carbon-based fuel consumption and greenhouse gas emission reduction targets, and has committed to setting science-based targets.
Although to date we have not incurred any material costs or capital expenditures associated with achieving our targets, we could be required to expend amounts in future periods as we continue to work towards our goals.
−Removed: During 2021, EMCOR purchased carbon credits totaling nearly 25,000 metric tonnes, for approximately $0.3 million.
+Added: During 2022, EMCOR purchased carbon credits totaling 31,000 metric tons, for approximately $0.2 million.
It is not possible, at this time, to estimate the impact that future costs and/or capital expenditures may have on our business, financial condition, results of operations, or liquidity.
12 unchanged sentences
Revenue Recognition from Contracts with Customers
−Removed: For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced.
−Removed: Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts.
−Removed: Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.
−Removed: For our unit price construction contracts, progress towards complete satisfaction is measured through an output method, such as the number of units produced or delivered, when our performance does not produce significant amounts of work in process or finished goods prior to complete satisfaction of such performance obligations.
−Removed: For our services contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service.
−Removed: For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly, and the customer receives and consumes the benefits of our performance throughout the contract term.
−Removed: The timing of revenue recognition for the manufacturing of new build heat exchangers within our United States industrial services segment depends on the payment terms of the contract, as our performance does not create an asset with an alternative use to us.
−Removed: For those contracts for which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time.
−Removed: For these performance obligations, we use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts.
−Removed: However, for those contracts for which we do not have a right, at all times, to payment for performance completed to date, we recognize revenue at the point in time when control is transferred to the customer.
−Removed: For bill-and-hold arrangements, revenue is recognized when the customer obtains control of the heat exchanger, which may be prior to shipping if certain recognition criteria are met.
−Removed: For certain of our revenue streams, such as call-out repair and service work, outage services, refinery turnarounds, and specialty welding services that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.
+Added: The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services by applying the following five step model:
+Added: (1) identify the contract with a customer;
+Added: (2) identify the performance obligations in the contract;
+Added: (3) determine the transaction price;
+Added: (4) allocate the transaction price to the performance obligations in the contract;
+Added: (5) recognize revenue as performance obligations are satisfied.
The nature of our contracts gives rise to several types of variable consideration, including pending change orders and claims;
5 unchanged sentences
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.
−Removed: During each of the years ended December 31, 2021, 2020, and 2019, there were no changes in total estimated costs that had a significant impact on our operating results.
+Added: Based on an evaluation of individual projects that had revisions to total estimated costs or anticipated contract value, which resulted in a reduction of profitability in excess of $1.0 million, our operating results were negatively impacted by approximately $48.5 million during the year ended December 31, 2022.
+Added: Of this amount, approximately $33.5 million was reported within our United States electrical construction and facilities services segment, approximately $13.7 million was reported within our United States mechanical construction and facilities services segment, and approximately $1.3 million was reported within our United States building services segment.
+Added: There were no increases in total estimated costs or reductions to anticipated contract value that had a significant impact on our operating results during each of the years ended December 31, 2021 and 2020.
Additionally, there were no significant amounts of revenue recognized during the years ended December 31, 2022 or 2021 related to performance obligations satisfied in prior periods.
During the year ended December 31, 2020, we recognized revenue of $6.1 million associated with the final settlement of contract value for two projects within our United States electrical construction and facilities services segment that were completed or substantially completed in prior periods.
−Removed: For each of the years ended December 31, 2021, 2020, and 2019, there were no significant reversals of revenue recognized associated with the revision of transaction prices.
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 December 31, 2022, it could result in a material impact to our results of operations.
−Removed: 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 $60 million for the year ended December 31, 2021.
+Added: 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 nearly $90 million for the year ended December 31, 2022.
See Note 3 - Revenue from Contracts with Customers of the notes to consolidated financial statements included in Item 8.
8 unchanged sentences
At December 31, 2022 and 2021, our accounts receivable of $2,567.4 million and $2,204.5 million, respectively, were recorded net of allowances for credit losses of $22.4 million and $23.5 million, respectively.
−Removed: The increase in our allowance for credit losses was predominantly attributable to our evaluation of specific outstanding receivables within our United States industrial services segment.
+Added: The decrease in our allowance for credit losses was attributable to the write-off of specific amounts deemed uncollectible, partially offset by the provision for credit losses recorded during 2022.
+Added: We have adjusted our allowance for credit losses during 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 during 2022, 2021, and 2020 amounted to approximately $5.2 million, $8.0 million, and $3.3 million, respectively.
+Added: The decrease in the provision for credit losses for the year ended December 31, 2022, when compared to the year ended December 31, 2021, was a result of the impact, in 2021, of $5.8 million of reserves established in connection with two customer bankruptcies within our United States industrial services segment.
+Added: Such reduction was partially offset by incremental expense taken during 2022, which primarily resulted from the aforementioned change in economic conditions.
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.
8 unchanged sentences
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.
−Removed: Our estimated net insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims increased by $6.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, partially as a result of greater potential exposures, including the impact of acquired companies.
+Added: In addition, as discussed above, an increase in the cost to settle insurance claims could result in higher insurance costs and deductibles.
+Added: Our estimated net insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims increased by $22.9 million for the year ended December 31, 2022 compared to the year ended 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 $20.1 million of additional expense for the year ended December 31, 2022.
13 unchanged sentences
As of December 31, 2022, approximately 19.4% of our goodwill related to our United States electrical construction and facilities services segment, approximately 34.3% related to our United States mechanical construction and facilities services segment, approximately 33.9% related to our United States building services segment, and approximately 12.4% related to our United States industrial services segment.
+Added: Absent any earlier identified impairment indicators, we perform our annual goodwill impairment assessment on October 1 each fiscal year.
+Added: Qualitative indicators that may trigger the need for interim quantitative impairment testing include, among others, a deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of a reporting unit.
+Added: Additionally, an interim impairment test may be triggered by a significant change in business climate, a loss of a significant customer, increased competition, or a sustained decrease in share price.
+Added: In assessing whether our goodwill is impaired, we compare the fair value of the reporting unit to its carrying amount, including goodwill.
+Added: If the fair value exceeds the carrying amount, no impairment is recognized.
+Added: 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 performed our annual impairment assessment of all reporting units as of October 1, 2022 and determined there was no impairment of goodwill.
1 unchanged sentence
In completing our annual impairment assessment, we determined the fair value of each of our reporting units using an income approach whereby fair value was calculated utilizing discounted estimated future cash flows, assuming a risk-adjusted industry weighted average cost of capital.
−Removed: The weighted average cost of capital used in our annual impairment testing was 10.4% for our United States construction segments and our United States building services segment, and 11.3% for our United States industrial services segment.
+Added: The weighted average cost of capital used in our annual impairment testing was 10.3% for our United States construction segments, 10.2% for our United States building services segment, and 11.2% for our United States industrial services segment.
These weighted average cost of capital estimates were developed with the assistance of an independent third-party valuation specialist and reflect the overall level of inherent risk within the respective reporting unit and the rate of return a market participant would expect to earn.
8 unchanged sentences
Further, for each of our reporting units, other than our United States industrial services segment, a 10% decline in the estimated fair value of such reporting unit, due to other changes in our assumptions, including forecasted future cash flows, would not have significantly impacted the results of our impairment tests.
−Removed: In the case of our United States industrial services segment, however, such a 10% decrease would cause the estimated fair value of this reporting unit to approximate its carrying value.
+Added: 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.
Identifiable Intangible Assets and Other Long-Lived Assets
6 unchanged sentences
In performing this impairment assessment, we considered the sensitivity of the reported amounts to the methods, assumptions, and estimates underlying our testing.
−Removed: For example, we performed sensitivity analyses and concluded that, individually, none of the following changes in estimates or assumptions would have significantly impacted the results of our testing or resulted in an impairment of our subsidiary trade names:
+Added: For example, we performed sensitivity analyses and concluded that, individually, none of the following changes in estimates or assumptions would have significantly impacted the results of our testing or resulted in a material impairment of our subsidiary trade names:
(a) a 50 basis point increase in the discount rate utilized in our testing, (b) a 50 basis point decline in the perpetual growth rate utilized in our testing, or (c) a 10% decrease in the estimated fair value of each trade name.
−Removed: With respect to identifiable intangible assets that are being amortized as well as other long-lived assets, we did not identify any circumstances indicating that their carrying values may not be fully recoverable and, therefore, no impairment testing was required for these assets during the year ended December 31, 2021.
+Added: With respect to identifiable intangible assets that are being amortized as well as other long-lived assets, no impairment was recognized during the year ended December 31, 2022.
Other Considerations
1 unchanged sentence
In addition, estimates of weighted average costs of capital are developed with the assistance of an independent third-party valuation specialist.
−Removed: These assumptions and estimates may change in future periods, especially in consideration of the uncertainty created by the COVID-19 pandemic and its potential impact on the broader economy and our results of operations in future periods, particularly with respect to our United States industrial services segment.
−Removed: Significant adverse changes to external market conditions or our internal forecasts, if any, could result in future impairment charges.
+Added: These assumptions and estimates may change in future periods.
+Added: Significant adverse changes to external market conditions or our internal forecasts, if any, could result in future impairment charges, particularly with respect to our United States industrial services segment given that the fair value of this reporting unit more closely approximates its carrying value.
It is not possible at this time to determine if any future impairment charge will result or, if it does, whether such a charge would be material to our results of operations.
1 unchanged sentence
Financial Statements and Supplementary Data for further information about our goodwill and identifiable intangible assets as well as our impairment testing, including the $232.8 million of impairment charges recorded during the year ended December 31, 2020.
−Removed: For the year ended December 31, 2019, no impairment of our goodwill or identifiable intangible assets was recognized.
+Added: For the year ended December 31, 2021, no impairment of our goodwill, identifiable intangible assets, or other long-lived assets was recognized.
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.