What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-26 compared with 2023-07-27 · 145 added, 133 removed, 212 unchanged (57% of the section changed)

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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.

Our services are provided to a broad range of commercial, industrial, healthcare, utility, and institutional customers through approximately 100 operating subsidiaries.

Our services are provided to a broad range of commercial, technology, manufacturing, 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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Our business and end markets remain resilient despite the impact of uncertain global economic conditions, including supply chain, production, and other logistical issues, an inflationary cost environment, rising interest rates, and skilled labor shortages in certain regions.

The continued strength in demand for our services is reflected in our results of operations for the first half of 2023, during which we experienced an increase in both revenue and operating income when compared to the first half of 2022.

As evidenced by the growth in our remaining performance obligations, which increased to $8.29 billion at June 30, 2023, from $7.46 billion at December 31, 2022, we anticipate a similar level of demand for our services throughout the remainder of the year, provided that the business environment does not significantly deteriorate.

The continued strength in demand for our services is reflected in our results of operations for the first nine months of 2023, during which we experienced an increase in both revenue and operating income when compared to the first nine months of 2022.

As evidenced by the growth in our remaining performance obligations, which increased to $8.64 billion at September 30, 2023, from $7.46 billion at December 31, 2022, we anticipate a similar level of demand for our services throughout the remainder of the year, provided that the business environment does not significantly deteriorate.

Although improved from the year ago period, we continue to experience pressures in our supply chain, which are resulting in material and equipment lead times significantly in excess of normal levels.

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Although we experienced a reduction in commodity prices when compared to the prior year period, and current economic indicators suggest that inflation is slowing, there continues to be volatility in the price of fuel, certain materials, and other commodities used in our operations.

Further, in an effort to mitigate inflation, the Federal Reserve Board increased the federal funds rate throughout 2022 and into the first quarter of 2023.

While there remains uncertainty around further increases, interest rates, even at their current levels, will likely result in an increase in our annual interest expense.

Further, in an effort to mitigate inflation, the Federal Reserve Board increased the federal funds rate throughout 2022 and into 2023.

Our management teams continue to adapt to the challenges of the current operating environment in order to manage our business more effectively through diligent contract negotiations, enhanced labor planning and project scheduling, and increased supplier engagement.

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Any of these events could result in reduced demand for our services or affect our ability to collect payment, and therefore, have a material adverse effect on our business, financial condition, and/or results of operations.

The following table presents selected financial data for the three months ended June 30, 2023 and 2022 (in thousands, except percentages and per share data):

The following table presents selected financial data for the three months ended September 30, 2023 and 2022 (in thousands, except percentages and per share data):

For the three months ended

September 30,

Revenues $ 3,207,598 $ 2,826,361

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Operating income as a percentage of revenues 7.3 % 5.3 %

Net income $ 140,595 $ 100,664

Net income attributable to EMCOR Group, Inc.

$ 169,409 $ 105,772

Diluted earnings per common share $ 3.57 $ 2.16

Revenues of $3.05 billion for the quarter ended June 30, 2023 set a new quarterly record for the Company and represent an increase of 12.5% from revenues of $2.71 billion for the quarter ended June 30, 2022.

Revenues of $3.21 billion for the quarter ended September 30, 2023 set a new quarterly record for the Company and represent an increase of 13.5% from revenues of $2.83 billion for the quarter ended September 30, 2022.

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.

Revenues for the second quarter of 2023 were positively impacted by incremental contribution from acquired companies of approximately $40.6 million.

Operating income for the quarter ended June 30, 2023 was $196.7 million, or 6.5% of revenues, establishing new quarterly records for the Company.

This compares to operating income of $137.6 million, or 5.1% of revenues, for the quarter ended June 30, 2022.

The $59.0 million increase in operating income, and corresponding 140 basis point improvement in operating margin, were a result of improved operating performance within the majority of our reportable segments.

Revenues for the third quarter of 2023 were positively impacted by incremental contribution from acquired companies of approximately $20.4 million.

Operating income for the quarter ended September 30, 2023 was $235.0 million, or 7.3% of revenues, establishing new quarterly records for the Company with respect to both operating income and operating margin.

This compares to operating income of $150.1 million, or 5.3% of revenues, for the quarter ended September 30, 2022.

The $84.9 million increase in operating income, and corresponding 200 basis point improvement in operating margin, were a result of improved operating performance across all of our reportable segments.

As described in further detail below, these improvements in profitability were a result of:

(a) better project execution during 2023, (b) a more favorable mix of work when compared to the 2022 period, and (c) the impact in the second quarter of 2022 of certain supply chain disruptions and delays, which were greater than those experienced during the current year period.

Net income of $140.6 million, or $2.95 per diluted share, for the quarter ended June 30, 2023, compares favorably to net income of $100.7 million, or $1.99 per diluted share, for the quarter ended June 30, 2022.

In addition to the increase in operating income referenced above, our diluted earnings per share for the second quarter of 2023 benefited from a reduced weighted average share count given the impact of common stock repurchases made by us throughout 2022 and 2023.

(a) better project execution during 2023, (b) a more favorable mix of work when compared to the 2022 period, (c) the successful close-out of certain projects within our United States construction segments, and (d) a reduction in the price of certain commodities which are used as components of supplies or materials utilized in our operations.

Net income of $169.4 million, or $3.57 per diluted share, for the quarter ended September 30, 2023, compares favorably to net income of $105.8 million, or $2.16 per diluted share, for the quarter ended September 30, 2022.

In addition to the increase in operating income referenced above, our diluted earnings per share for the third quarter of 2023 benefited from a reduced weighted average share count given the impact of common stock repurchases made by us throughout 2022 and 2023.

Impact of Acquisitions

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

During the first half of 2023, we acquired five companies, each for an immaterial amount.

Two companies have been included within our Unites States mechanical construction and facilities services segment, one of which provides mechanical and pipe fabrication services, and one of which provides fire protection services, both in the Midwestern region of the United States.

The other three companies have been included within our United States building services segment and provide mechanical services in the Western and Midwestern regions of the United States.

The results of operations for all such companies were de minimis.

During the first nine months of 2023, we acquired seven companies for total consideration of $92.8 million.

Such acquisitions include:

(a) a national energy efficiency specialty services firm, the results of operations of which have been included in our United States building services segment, and (b) six companies that enhance our presence in geographies where we have existing operations, the results of operations of which were de minimis, consisting of:

(i) two companies that have been included within our Unites States mechanical construction and facilities services segment, one of which provides mechanical and pipe fabrication services, and one of which provides fire protection services, both in the Midwestern region of the United States, and (ii) four mechanical services companies in the Western and Midwestern regions of the United States, that have been included within our United States building services segment.

We acquired six companies during calendar year 2022 for total consideration of $100.8 million.

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

For the three months ended June 30,

For the three months ended September 30,

Total 2022 % of

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Total operations $ 3,207,598 100 % $ 2,826,361 100 %

For the six months ended June 30,

For the nine months ended September 30,

Total 2022 % of

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Total operations $ 9,143,652 100 % $ 8,126,298 100 %

As described below in more detail, as a result of revenue growth within the majority of our reportable segments, our consolidated revenues for the three months ended June 30, 2023 increased to $3.05 billion compared to $2.71 billion for the three months ended June 30, 2022, and our consolidated revenues for the six months ended June 30, 2023 increased to $5.94 billion compared to $5.30 billion for the six months ended June 30, 2022.

Revenues of our United States electrical construction and facilities services segment were $678.2 million and $1,322.9 million for the three and six months ended June 30, 2023, respectively, compared to revenues of $564.1 million and $1,086.1 million for the three and six months ended June 30, 2022, respectively.

This segment’s results included $40.6 million and $75.8 million of incremental acquisition revenues for the three and six months ended June 30, 2023, respectively.

Excluding the impact of acquisitions, revenues of this segment grew by $73.4 million and $160.9 million, respectively, primarily as a result of an increase in revenues within:

(a) the network and communications market sector, predominantly due to our data center projects, (b) the manufacturing and industrial market sector, from contracts with certain of our energy sector customers, including those for renewable energy projects, (c) the healthcare market sector, as a result of greater activity throughout several of the regions in which we operate, and (d) the hospitality and entertainment market sector, given an increase in projects within the Western region of the United States.

These revenue increases were partially offset by a reduction in revenues from the commercial and transportation market sectors given the completion or substantial completion of certain construction projects which were active in the year ago period.

Our United States mechanical construction and facilities services segment revenues for the three months ended June 30, 2023 were $1,194.1 million, a $136.5 million increase compared to revenues of $1,057.6 million for the three months ended June 30, 2022.

Revenues of this segment for the six months ended June 30, 2023 were $2,272.7 million, a $222.4 million increase compared to revenues of $2,050.3 million for the six months ended June 30, 2022.

As described below in more detail, as a result of revenue growth within the majority of our reportable segments, our consolidated revenues for the three months ended September 30, 2023 increased to $3.21 billion compared to $2.83 billion for the three months ended September 30, 2022, and our consolidated revenues for the nine months ended September 30, 2023 increased to $9.14 billion compared to $8.13 billion for the nine months ended September 30, 2022.

Revenues of our United States electrical construction and facilities services segment were $697.4 million and $2,020.3 million for the three and nine months ended September 30, 2023, respectively, compared to revenues of $633.4 million and $1,719.5 million for the three and nine months ended September 30, 2022, respectively.

This segment’s results included $12.7 million and $88.5 million of incremental acquisition revenues for the three and nine months ended September 30, 2023, respectively.

Excluding the impact of acquisitions, revenues of this segment grew by $51.3 million and $212.3 million for the three and nine months ended September 30, 2023, respectively, primarily as a result of an increase in revenues within the majority of the market sectors in which we operate, most notably including:

(a) the network and communications market sector, predominantly due to our data center projects, (b) the healthcare market sector, as a result of greater activity throughout several of the regions in which we operate, (c) the manufacturing and industrial market sector, from contracts with certain of our energy sector customers, including those for renewable energy projects, and (d) the hospitality and entertainment market sector, given an increase in projects within the Western region of the United States.

Partially offsetting these increases were reductions in commercial market sector and short duration project revenues.

Our United States mechanical construction and facilities services segment revenues for the three months ended September 30, 2023 were $1,329.6 million, a $220.9 million increase compared to revenues of $1,108.7 million for the three months ended September 30, 2022.

Revenues of this segment for the nine months ended September 30, 2023 were $3,602.3 million, a $443.3 million increase compared to revenues of $3,158.9 million for the nine months ended September 30, 2022.

The increase in this segment’s revenues for both 2023 periods was primarily attributable to revenue growth within:

(a) the high-tech manufacturing market sector, as a result of increased demand for our mechanical construction and/or fire protection services by certain customers:

(i) engaged in either the design and manufacturing of semiconductors or the production and development of electric vehicles and/or lithium batteries, and (ii) within the biotech, life-sciences, and pharmaceutical industries, (b) the network and communications market sector, due to increased data center project activity, and (c) the commercial market sector, inclusive of several fire protection projects within various warehousing and distribution facilities.

Revenues of our United States building services segment were $775.0 million and $1,500.4 million for the three and six months ended June 30, 2023, respectively, compared to revenues of $686.5 million and $1,322.2 million for the three and six months ended June 30, 2022, respectively.

The increase in this segment’s revenues for both 2023 periods was primarily attributable to its mechanical services division, due to increased:

(i) engaged in either the design and manufacturing of semiconductors or the production and development of electric vehicles and/or lithium batteries, and (ii) within the biotech, life-sciences, and pharmaceutical industries, (b) the network and communications market sector, due to increased data center project activity, (c) the manufacturing and industrial market sector, due in part to continued re-shoring of critical supply chain by certain of our customers, and (d) the commercial market sector, inclusive of several fire protection projects within various warehousing and distribution facilities.

Revenues of our United States building services segment were $817.7 million and $2,318.1 million for the three and nine months ended September 30, 2023, respectively, compared to revenues of $719.4 million and $2,041.6 million for the three and nine months ended September 30, 2022, respectively.

Included in this segment’s 2023 results were $7.7 million of incremental acquisition revenues.

Excluding such acquisition contribution, the increase in revenues for both 2023 periods was primarily attributable to this segment’s mechanical services division, due to increased:

(a) HVAC project and retrofit work, as a result of greater:

(i) project execution stemming from increased availability of materials and equipment when compared to the prior year period, which experienced greater supply chain disruptions and delays, and (ii) demand for system upgrades and replacements, partially as our customers continue to seek ways to improve the energy efficiency or indoor air quality of their facilities, (b) building automation and controls projects, as we continue to expand our service offerings, and (c) service repair and maintenance volumes, given growth in our service contract base.

In addition to increased revenues from its mechanical services division, this segment also experienced revenue growth during both the three and six month periods from its commercial site-based services and government site-based services divisions, 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 three months ended June 30, 2023 were $292.3 million, compared to revenues of $284.5 million for the three months ended June 30, 2022.

Revenues of this segment for the six months ended June 30, 2023 were $623.2 million, compared to revenues of $595.3 million for the six months ended June 30, 2022.

The results of operations of this segment continue to improve at a modest pace, as evidenced by the revenue growth within both this segment’s field services and shop services divisions during the first half of 2023.

In addition to steady demand for maintenance and turnaround projects, we are beginning to see increased levels of capital spending by our customers, in the form of greater new build heat exchanger orders as well as through certain renewable fuel projects, which were active during the second quarter of 2023 and are anticipated to continue through the remainder of the year.

Our United Kingdom building services segment revenues were $106.0 million and $216.9 million for the three and six months ended June 30, 2023, respectively, compared to revenues of $114.5 million and $246.0 million for the three and six months ended June 30, 2022, respectively.

Unfavorable exchange rate movements for the British pound versus the United States dollar negatively impacted this segment’s second quarter and year-to-date 2023 revenues by $0.4 million and $11.2 million, respectively.

Excluding the impact of foreign exchange rate movements, this segment’s revenues decreased by $8.1 million and $17.9 million for the three and six months ended June 30, 2023, respectively, as a result of:

(a) the loss of certain facilities maintenance contracts not renewed pursuant to rebid, and (b) a reduction in project activity, notably within the network and communications and water and wastewater market sectors.

(i) project execution stemming from the increased availability of materials and equipment when compared to the prior year period, which experienced greater supply chain disruptions and delays, and (ii) demand for system upgrades and replacements, partially as our customers continue to seek ways to improve the energy efficiency or indoor air quality of their facilities, (b) service repair and maintenance volumes, given growth in our service contract base as well as incremental demand during the peak cooling season, and (c) building automation and controls projects, as we continue to expand our service offerings.

In addition to increased revenues from its mechanical services division, this segment also experienced revenue growth during both the three and nine month periods ended September 30, 2023 from its commercial site-based services and government site-based services divisions, 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 three months ended September 30, 2023 were $252.1 million, compared to revenues of $247.2 million for the three months ended September 30, 2022.

Revenues of this segment for the nine months ended September 30, 2023 were $875.3 million, compared to revenues of $842.5 million for the nine months ended September 30, 2022.

In addition to steady demand for maintenance and turnaround projects, we are beginning to see increased levels of capital spending by our customers, in the form of greater new build heat exchanger orders as well as through certain renewable fuel projects, which were active during the second and third quarters of 2023 and are anticipated to continue through the remainder of the year.

Our United Kingdom building services segment revenues were $110.7 million for the three months ended September 30, 2023 compared to revenues of $117.7 million for the three months ended September 30, 2022.

This segment’s revenues for the quarter ended September 30, 2023 were positively impacted by $7.8 million related to the effect of favorable exchange rate movements for the British pound versus the United States dollar.

For the nine months ended September 30, 2023, revenues of this segment were $327.6 million compared to revenues of $363.7 million for nine months ended September 30, 2022.

Unfavorable exchange rate movements for the British pound versus the United States dollar negatively impacted this segment’s year-to-date 2023 revenues by $3.4 million.

Excluding the impact of foreign exchange rate movements, the decreases in this segment’s revenues during both 2023 periods were a result of:

(a) the loss of certain facilities maintenance contracts not renewed pursuant to rebid, and (b) a reduction in project activity, notably within the network and communications market sector.

Cost of sales and gross profit

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For the three months ended

June 30, For the six months ended

September 30, For the nine months ended

September 30,

2023 2022 2023 2022

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Gross profit margin 17.0 % 14.6 % 16.1 % 14.1 %

Our gross profit for the three months ended June 30, 2023 was $490.1 million, or 16.1% of revenues, compared to gross profit of $383.0 million, or 14.1% of revenues, for the three months ended June 30, 2022.

Gross profit for the six months ended June 30, 2023 was $926.1 million, or 15.6% of revenues, compared to gross profit of $735.6 million, or 13.9% of revenues, for the six months ended June 30, 2022.

While the increase in gross profit can be partially attributed to the incremental revenue contribution described above, such increase, as well as the expansion in gross profit margin, were additionally a result of stronger operating performance within the majority of our reportable segments due to improved revenue mix and/or project execution.

For the three and six months ended June 30, 2023, acquisitions contributed incremental gross profit of $5.5 million and $10.4 million, respectively, inclusive of amortization expense attributable to identifiable intangible assets of $0.9 million and $1.7 million, respectively.

Our gross profit for the three months ended September 30, 2023 was $545.5 million, or 17.0% of revenues, compared to gross profit of $413.2 million, or 14.6% of revenues, for the three months ended September 30, 2022.

Gross profit for the nine months ended September 30, 2023 was $1,471.6 million, or 16.1% of revenues, compared to gross profit of $1,148.8 million, or 14.1% of revenues, for the nine months ended September 30, 2022.

While the increase in gross profit can be partially attributed to the incremental revenue contribution described above, such increase and the expansion in gross profit margin were also the result of stronger operating performance within the majority of our reportable segments due to improved revenue mix, project execution and close-out, and/or favorable pricing.

For the three and nine months ended September 30, 2023, acquisitions contributed incremental gross profit of $3.8 million and $14.2 million, respectively, inclusive of amortization expense attributable to identifiable intangible assets of $0.9 million and $2.6 million, respectively.

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

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For the three months ended

June 30, For the six months ended

September 30, For the nine months ended

September 30,

2023 2022 2023 2022

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SG&A margin 9.6 % 9.3 % 9.7 % 9.4 %

Our selling, general and administrative expenses for the three months ended June 30, 2023 were $293.4 million, or 9.6% of revenues, compared to selling, general and administrative expenses of $245.4 million, or 9.1% of revenues, for the three months ended June 30, 2022.

Selling, general and administrative expenses for the six months ended June 30, 2023 were $574.5 million, or 9.7% of revenues, compared to selling, general and administrative expenses of $498.0 million, or 9.4% of revenues, for the six months ended June 30, 2022.

Selling, general and administrative expenses for the three and six months ended June 30, 2023 included $5.1 million and $10.4 million, respectively, of incremental expenses directly related to companies acquired in 2023 and 2022, including amortization expense attributable to identifiable intangible assets of $1.1 million and $2.4 million, respectively.

Our selling, general and administrative expenses for the three months ended September 30, 2023 were $308.1 million, or 9.6% of revenues, compared to selling, general and administrative expenses of $263.1 million, or 9.3% of revenues, for the three months ended September 30, 2022.

Selling, general and administrative expenses for the nine months ended September 30, 2023 were $882.7 million, or 9.7% of revenues, compared to selling, general and administrative expenses of $761.1 million, or 9.4% of revenues, for the nine months ended September 30, 2022.

Selling, general and administrative expenses for the three and nine months ended September 30, 2023 included $4.2 million and $14.6 million, respectively, of incremental expenses directly related to companies acquired in 2023 and 2022, including amortization expense attributable to identifiable intangible assets of $1.1 million and $3.5 million, respectively.

Excluding incremental expenses from businesses acquired, the increase in selling, general and administrative expenses, and SG&A margin, for both 2023 periods was predominantly attributable to increases in incentive compensation expense across the majority of our reportable segments, due to higher projected annual operating results compared to those which were anticipated during the same prior year period, and salaries and related employment expenses, largely as a result of additional headcount to support our organic revenue growth as well as annual cost of living adjustments.

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

For the three months ended June 30,

For the three months ended September 30,

Revenues 2022 % of

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Corporate administration (30,121) — (28,982) —

Impairment loss on long-lived assets

(2,350) — — —

Total operations 234,983 7.3 % 150,094 5.3 %

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Income before income taxes $ 234,609 $ 147,925

For the six months ended June 30,

For the nine months ended September 30,

Revenues 2022 % of

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Corporate administration (93,901) — (80,890) —

Impairment loss on long-lived assets

(2,350) — — —

Total operations 586,560 6.4 % 387,695 4.8 %

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Income before income taxes $ 581,106 $ 384,749

Operating income for the three months ended June 30, 2023 was $196.7 million, an increase of $59.0 million compared to operating income of $137.6 million for the three months ended June 30, 2022.

Operating margin for the three months ended June 30, 2023 was 6.5% compared to an operating margin of 5.1% for the three months ended June 30, 2022.

This performance established new quarterly records for the Company with respect to both operating income and operating margin.

For the six months ended June 30, 2023, operating income was $351.6 million, an increase of $114.0 million compared to operating income of $237.6 million for the six months ended June 30, 2022.

Operating margin for the six months ended June 30, 2023 was 5.9% compared to an operating margin of 4.5% for the six months ended June 30, 2022.

Similar to our quarterly performance, the results for the first six months of 2023 established new Company records with respect to operating income and operating margin for the first half of any year.

As described in more detail below, improvements in profitability were experienced within the majority of our reportable segments as a result of:

(a) better project execution during 2023, (b) a more favorable mix of work when compared to the 2022 periods, and (c) the impact in the first half of 2022 of certain supply chain disruptions and delays, which were greater than those experienced to date in 2023, and that, in the prior year, led to:

Operating income for the three months ended September 30, 2023 was $235.0 million, an increase of $84.9 million compared to operating income of $150.1 million for the three months ended September 30, 2022.

Operating margin for the three months ended September 30, 2023 was 7.3% compared to an operating margin of 5.3% for the three months ended September 30, 2022.

For the nine months ended September 30, 2023, operating income was $586.6 million, an increase of $198.9 million compared to operating income of $387.7 million for the nine months ended September 30, 2022.

Operating margin for the nine months ended September 30, 2023 was 6.4% compared to an operating margin of 4.8% for the nine months ended September 30, 2022.

This performance established new quarterly records for the Company with respect to operating income and operating margin for both a quarterly and nine month period.

As described in more detail below, improvements in profitability were a result of:

(a) better project execution during 2023, (b) a more favorable mix of work when compared to the 2022 periods, (c) the successful close-out of certain projects within our United States construction segments, and (d) the impact in the first nine months of 2022 of certain supply chain disruptions and delays, which were greater than those experienced to date in 2023, and that, in the prior year, led to:

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

Operating income of our United States electrical construction and facilities services segment was $50.7 million, or 7.5% of revenues, for the three months ended June 30, 2023, compared to $35.1 million, or 6.2% of revenues, for the three months ended June 30, 2022.

Operating income of this segment for the six months ended June 30, 2023 was $91.2 million, or 6.9% of revenues, compared to operating income of $55.1 million, or 5.1% of revenues, for the six months ended June 30, 2022.

The period-over-period increases in operating income and operating margin of this segment were largely a result of a more favorable mix of work, which resulted in increased gross profit, and gross profit margin, recognized from construction projects within the:

(a) network and communications market sector, (b) commercial market sector, and (c) healthcare market sector.

In addition to the aforementioned impact of project mix, operating income of this segment for both 2023 periods benefited from improved project execution when compared to the year ago periods.

Operating income of our United States electrical construction and facilities services segment was $63.1 million, or 9.1% of revenues, for the three months ended September 30, 2023, compared to $35.6 million, or 5.6% of revenues, for the three months ended September 30, 2022.

Operating income of this segment for the nine months ended September 30, 2023 was $154.4 million, or 7.6% of revenues, compared to operating income of $90.6 million, or 5.3% of revenues, for the nine months ended September 30, 2022.

The period-over-period increases in operating income and operating margin of this segment were largely a result of:

(a) a more favorable mix of work, (b) improved project execution, and (c) the successful close-out of certain construction projects, which positively impacted the operating margin of this segment by 60 basis points and 20 basis points for the three and nine months ended September 30, 2023, respectively.

On a year-to-date basis, the greatest increases in gross profit, and gross profit margin, were recognized within the network and communications market sector, the commercial market sector, and the healthcare market sector.

Although we continue to experience supply chain disruptions and delays, which are impacting project delivery in various ways, market conditions surrounding equipment availability have steadily improved over the last twelve months and our management teams continue to adapt to this environment.

Such developments have resulted in improved job-site and labor productivity as well as more normalized project sequencing.

These increases in gross profit, and gross profit margin, were partially offset by increased selling, general and administrative expenses and SG&A margin, largely as a result of greater incentive compensation expense recognized by several operating subsidiaries of this segment given improvements in forecasted profitability year-over-year.

For the three and six months ended June 30, 2023, this segment’s operating income included incremental acquisition contribution of $0.9 million and $1.2 million, respectively, inclusive of $1.5 million and $3.0 million of amortization expense associated with identifiable intangible assets, respectively.

Our United States mechanical construction and facilities services segment’s operating income for the three months ended June 30, 2023 was $119.8 million, or 10.0% of revenues, compared to operating income of $76.6 million, or 7.2% of revenues, for the three months ended June 30, 2022.

Operating income of this segment for the six months ended June 30, 2023 was $206.1 million, or 9.1% of revenues, compared to operating income of $135.0 million, or 6.6% of revenues, for the six months ended June 30, 2022.

The increase in operating income, and operating margin, for both 2023 periods was primarily a result of increased gross profit, and gross profit margin, from projects within the commercial market sector, including various fire protection projects.

In addition, operating income of this segment benefited from incremental gross profit contribution from the high-tech manufacturing market sector due to greater project activity, including certain construction projects for customers engaged in the manufacturing of semiconductors.

Operating income and operating margin of this segment were also favorably impacted as a result of the successful close-out of certain projects during 2023.

Based on an evaluation of individual projects that were substantially complete in prior periods but had revisions to total estimated cost or anticipated contract value, which resulted in an increase to profitability in excess of $1.0 million, this segment’s operating income for the three and six months ended June 30, 2023 was positively impacted by approximately $8.0 million and $9.0 million, respectively.

Such developments have led to improved job-site and labor productivity as well as more normalized project sequencing, resulting in fewer project write-downs when compared to the prior year period.

For example, based on an evaluation of individual projects that had revisions to total estimated costs, which resulted in a reduction of profitability in excess of $1.0 million, the operating results of our United States electrical construction and facilities services segment were negatively impacted by approximately $2.6 million and $12.2 million during the three and nine months ended September 30, 2023, respectively, compared to $10.5 million and $26.5 million during the three and nine months ended September 30, 2022, respectively.

While these reductions in estimated project profitability negatively affected operating margin of this segment by 30 basis points in the third quarter of 2023 and 60 basis points for the 2023 year-to-date period, the impact in the corresponding 2022 periods was 170 basis points and 150 basis points, respectively.

Partially offsetting the period-over-period improvements in gross profit, and gross profit margin, were increased selling, general and administrative expenses and SG&A margin, largely as a result of greater incentive compensation expense recognized by several operating subsidiaries of this segment given improvements in forecasted profitability year-over-year.

Our United States mechanical construction and facilities services segment’s operating income for the three months ended September 30, 2023 was $138.5 million, or 10.4% of revenues, compared to operating income of $90.5 million, or 8.2% of revenues, for the three months ended September 30, 2022.

Operating income of this segment for the nine months ended September 30, 2023 was $344.6 million, or 9.6% of revenues, compared to operating income of $225.5 million, or 7.1% of revenues, for the nine months ended September 30, 2022.

The increase in operating income, and operating margin, for both 2023 periods was primarily a result of increased gross profit, and gross profit margin, recognized from:

(a) the high-tech manufacturing market sector, including certain mechanical construction or fire protection projects for customers:

(i) engaged in either the design or manufacturing of semiconductors or the production and development of electric vehicles and/or lithium batteries, and (ii) within the biotech, life-sciences, and pharmaceutical industries, (b) the commercial market sector, including various fire protection projects, and (c) the manufacturing and industrial market sector, which continues to benefit from customer initiatives to re-shore their critical supply chain.

Operating income of this segment was also favorably impacted as a result of the successful close-out of certain projects during 2023, which contributed approximately $5.8 million and $18.3 million of gross profit for the three and nine months ended September 30, 2023, respectively.

These amounts resulted in incremental operating margin of 40 basis points for the quarterly period and 50 basis points for the year-to-date period.

Similar to our United States electrical construction and facilities services segment, the results for this segment in the prior year period were negatively impacted by external market conditions, which manifested themselves through price escalations, particularly for materials and commodities, such as copper and steel, that are used in our mechanical and fire protection operations.

Although there remains volatility in the pricing of these commodities, more favorable pricing year-over-year has resulted in improved profitability of this segment during the first half of 2023, as evidenced in part by the increased gross profit margin within the commercial market sector referenced above.

The increases in gross profit and gross profit margin of this segment were partially offset by increased selling, general and administrative expenses and SG&A margin, given greater:

Similar to our United States electrical construction and facilities services segment, the results for this segment in the prior year periods were negatively impacted by external market conditions, which manifested themselves through price escalations, particularly for materials and commodities, such as copper and steel, that are used in our mechanical and fire protection operations.

The improvements in gross profit and gross profit margin of this segment were partially offset by increased selling, general and administrative expenses and SG&A margin, given greater:

(a) incentive compensation expense, due to higher projected annual operating results for certain of the operating subsidiaries within this segment, and (b) salaries and related employment costs, largely as a result of additional headcount to support current and anticipated organic revenue growth.

Operating income of our United States building services segment was $46.1 million, or 6.0% of revenues, for the three months ended June 30, 2023 compared to $38.5 million, or 5.6% of revenues, for the three months ended June 30, 2022.

Operating income of this segment for the six months ended June 30, 2023 was $83.8 million, or 5.6% of revenues, compared to operating income of $62.7 million, or 4.7% of revenues, for the six months ended June 30, 2022.

The increase in operating income and operating margin for both 2023 periods was entirely attributable to this segment’s mechanical services division, largely as a result of greater gross profit and gross profit margin across the majority of its service lines, with the largest incremental contribution from projects and retrofits as well as building automation and controls.

These improvements were due to both favorable project execution and negotiated price adjustments made to customer contracts in response to inflationary pressures, such as increased material and fuel prices.

Operating margin of this segment for the three and six months ended June 30, 2023 additionally benefited from greater absorption of indirect costs as well as 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.

Our United States industrial services segment reported operating income of $7.9 million, or 2.7% of revenues, for the three months ended June 30, 2023, compared to operating income of $6.5 million, or 2.3% of revenues, for the three months ended June 30, 2022.

For the six months ended June 30, 2023, this segment reported operating income of $22.9 million, or 3.7% of revenues, compared to operating income of $19.7 million, or 3.3% of revenues, for the six months ended June 30, 2022.

In addition to the growth in this segment’s revenues referenced above, which resulted in greater gross profit contribution, the improved period-over-period operating performance was attributable to better pricing within both its field services and shop services divisions, resulting in improved gross profit margin.

Operating income of our United Kingdom building services segment was $5.9 million, or 5.6% of revenues, for the three months ended June 30, 2023 compared to $6.4 million, or 5.6% of revenues, for the three months ended June 30, 2022.

The slight decrease in second quarter operating income was a result of a reduction in gross profit period-over-period, as an improvement in gross profit margin was not enough to overcome the previously referenced decline in this segment’s quarterly revenues.

Operating income for the six months ended June 30, 2023 was $11.4 million, or 5.2% of revenues, compared to $17.0 million, or 6.9% of revenues, for the six months ended June 30, 2022.

The decrease in this segment’s operating income for the six month period was primarily a result of a reduction in gross profit due to both lower year-to-date revenues as well as a contraction in gross profit margin given a shift in the mix and size of project work.

Operating margin of this segment was negatively impacted by the decrease in gross profit margin just referenced as well as an increase in the ratio of selling, general and administrative expenses to revenues, largely given the decline in revenues thus far in 2023, without a corresponding reduction in overhead costs, as we continue to invest in the future growth of this business.

This segment’s operating income for the six months ended June 30, 2023 was negatively impacted by $0.5 million related to the effect of unfavorable exchange rate movements for the British pound versus the United States dollar.

Our corporate administration expenses for the three months ended June 30, 2023 were $33.9 million compared to $25.4 million for the three months ended June 30, 2022.

For the six months ended June 30, 2023, our corporate administrative expenses were $63.8 million, compared to $51.9 million for the six months ended June 30, 2022.

This increase in corporate expenses for both 2023 periods was primarily due to greater incentive compensation expense resulting from higher projected annual and long-term operating results, when compared to those which were anticipated during the same prior year periods.

Operating income of our United States building services segment was $57.2 million, or 7.0% of revenues, for the three months ended September 30, 2023 compared to $46.0 million, or 6.4% of revenues, for the three months ended September 30, 2022.

Operating income of this segment for the nine months ended September 30, 2023 was $140.9 million, or 6.1% of revenues, compared to operating income of $108.7 million, or 5.3% of revenues, for the nine months ended September 30, 2022.

The increase in operating income and operating margin for both 2023 periods was almost entirely attributable to this segment’s mechanical services division, as a result of greater gross profit and gross profit margin across the majority of its service lines, with the largest incremental contribution from projects and retrofits as well as building automation and controls.

These improvements were due in part to both favorable project execution and negotiated price adjustments made to customer contracts in response to inflationary pressures.

Operating margin of this segment for the nine months ended September 30, 2023 also benefited from greater absorption of indirect costs as well as 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.

Our United States industrial services segment reported an operating loss of $0.2 million, or (0.1)% of revenues, for the three months ended September 30, 2023, a slight improvement compared to an operating loss of $1.4 million, or (0.6)% of revenues, for the three months ended September 30, 2022.

For the nine months ended September 30, 2023, this segment reported operating income of $22.7 million, or 2.6% of revenues, compared to operating income of $18.3 million, or 2.2% of revenues, for the nine months ended September 30, 2022.

The improved performance for the nine months ended September 30, 2023 was due to an increase in both gross profit and gross profit margin period-over-period.

In addition to the growth in this segment’s revenues referenced above, which resulted in greater gross profit contribution, gross profit margin during the 2023 year-to-date period has benefited from better pricing, notably within this segment’s shop services division.

Operating income of our United Kingdom building services segment was $8.9 million, or 8.0% of revenues, for the three months ended September 30, 2023 compared to $8.4 million, or 7.1% of revenues, for the three months ended September 30, 2022.

Operating income of this segment for the third quarter of 2023 was positively impacted by $0.6 million related to the effect of favorable exchange rate movements for the British pound versus the United States dollar.

Excluding such impact, operating income of this segment was essentially flat when compared to the year ago quarter, while operating margin expanded by 90 basis points due to an increase in gross profit margin on certain of its facilities maintenance contracts.

Operating income for the nine months ended September 30, 2023 was $20.2 million, or 6.2% of revenues, compared to $25.4 million, or 7.0% of revenues, for the nine months ended September 30, 2022.

The decrease in this segment’s operating income for the nine month period was primarily a result of a reduction in gross profit due to lower year-to-date revenues.

Operating margin of this segment for the nine month period was negatively impacted by an increase in the ratio of selling, general and administrative expenses to revenues, largely given the decline in revenues thus far in 2023, without a corresponding reduction in overhead costs, as we continue to invest in the future growth of this business.

This segment’s operating income for the nine months ended September 30, 2023 was positively impacted by $0.2 million related to the effect of favorable exchange rate movements.

Our corporate administration expenses for the three months ended September 30, 2023 were $30.1 million, a modest increase, compared to $29.0 million for the three months ended September 30, 2022.

For the nine months ended September 30, 2023, our corporate administrative expenses were $93.9 million, compared to $80.9 million for the nine months ended September 30, 2022.

This increase in corporate expenses for the year-to-date period was primarily due to greater incentive compensation expense resulting from higher projected annual and long-term operating results, when compared to those which were anticipated during the same prior year period.

In addition to incentive compensation, we have experienced increases in:

(a) salaries, largely as a result of annual cost of living adjustments, (b) computer hardware and software costs, due to various information technology and cybersecurity initiatives currently in process, and (c) travel and entertainment expenses, given a greater level of travel and business meals.

Net interest expense for the three months ended June 30, 2023 and 2022 was $2.7 million and $1.8 million, respectively.

Net interest expense for the six months ended June 30, 2023 and 2022 was $4.5 million and $3.0 million, respectively.

The increase in net interest expense for both 2023 periods was predominantly a result of an increase in interest rates.

For the three and six months ended June 30, 2023, our income tax provision was $53.1 million and $94.4 million, respectively, compared to an income tax provision of $36.3 million and $62.8 million for the three and six months ended June 30, 2022, respectively.

The increase in our income tax provision for the three and six months ended June 30, 2023 was due to:

(a) greater income before income taxes, and (b) an increase in our effective income tax rate.

Our effective income tax rate for the three and six months ended June 30, 2023 was 27.4% and 27.3%, respectively, compared to an effective income tax rate for both the three and six months ended June 30, 2022 of 26.5%.

The change in our effective income tax rate was attributable to an increase in certain permanent book-to-tax differences.

(a) computer hardware and software costs, due to various information technology and cybersecurity initiatives currently in process, (b) travel and entertainment expenses, given a greater level of travel and business meals, and (c) salaries, largely as a result of annual cost of living adjustments.

Net interest expense for the three months ended September 30, 2023 and 2022 was $0.1 million and $3.2 million, respectively.

Net interest expense for the nine months ended September 30, 2023 and 2022 was $4.6 million and $6.2 million, respectively.

While we have experienced an increase in our interest expense due to rising interest rates, such rate increases have additionally resulted in greater returns on our invested cash, which, coupled with a decrease in average outstanding borrowings under our credit facility, has resulted in the period-over-period reductions in net interest expense.

For the three and nine months ended September 30, 2023, our income tax provision was $64.9 million and $159.3 million, respectively, compared to an income tax provision of $42.2 million and $104.9 million for the three and nine months ended September 30, 2022, respectively.

Our effective income tax rate for the three and nine months ended September 30, 2023 was 27.7% and 27.4%, respectively, compared to an effective income tax rate for the three and nine months ended September 30, 2022 of 28.5% and 27.3%, respectively.

Refer to Note 9 - Income Taxes of the notes to consolidated financial statements for further discussion regarding our income tax provision and effective income tax rate.

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

2023 % of Total December 31, 2022 % of Total June 30,

September 30,

2023 % of Total December 31, 2022 % of Total September 30,

2022 % of Total

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Total operations $ 8,635,443 100 % $ 7,459,299 100 % $ 7,101,461 100 %

Our remaining performance obligations at June 30, 2023 were $8.29 billion compared to $7.46 billion at December 31, 2022 and $6.46 billion at June 30, 2022.

The increase in remaining performance obligations at June 30, 2023, when compared to December 31, 2022, was attributable to an increase in remaining performance obligations within all of our reportable segments, except for our United Kingdom building services segment.

Our remaining performance obligations at September 30, 2023 were $8.64 billion compared to $7.46 billion at December 31, 2022 and $7.10 billion at September 30, 2022.

The increase in remaining performance obligations at September 30, 2023, when compared to December 31, 2022, was attributable to an increase in remaining performance obligations within all of our reportable segments, except for our United Kingdom building services segment.

Most notably, we experienced an increase in remaining performance obligations from:

(a) our United States construction segments, driven by the award of various 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 mechanical services division.

(a) our United States construction segments, driven by the award of various projects within the majority of the market sectors in which we operate, and (b) our United States building services segment, largely due to increased project opportunities within its mechanical services division.

From a market sector perspective, we experienced the largest growth in remaining performance obligations within:

(a) the high-tech manufacturing market sector, inclusive of projects for customers engaged in:

(i) the design and manufacturing of semiconductors, and (ii) the production and development of electric vehicles and/or lithium batteries, (b) the network and communications market sector, largely driven by data center construction projects, and (c) the manufacturing and industrial market sector, partially due to the continued re-shoring of their supply chain by certain of our customers.

Remaining performance obligations increased by $20.8 million as a result of acquisitions during 2023.

These increases were partially offset by a reduction in remaining performance obligations from the commercial market sector, given the completion of several warehouse and distribution center projects.

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.

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

As of June 30, 2023, we had cash and cash equivalents of $503.1 million, which are maintained in depository accounts and highly liquid investments with original maturity dates of three months or less.

As of September 30, 2023, we had cash and cash equivalents of $523.6 million, which are maintained in depository accounts and highly liquid investments with original maturity dates of three months or less.

Both our short-term and long-term liquidity requirements are expected to be met through our cash and cash equivalent balances, cash generated from our operations, and, 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 $1.17 billion of available capacity as of June 30, 2023.

Our credit agreement provides for a $1.30 billion revolving credit facility, for which there is $1.18 billion of available capacity as of September 30, 2023.

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

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

For the six months ended

Net cash provided by (used in) operating activities $ 214,932 $ (18,851)

For the nine months ended

September 30,

Net cash provided by operating activities $ 475,897 $ 238,354

Net cash used in investing activities $ (134,032) $ (122,898)

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Increase (decrease) in cash, cash equivalents, and restricted cash $ 66,564 $ (417,682)

During the six months ended June 30, 2023, our cash balance, including cash equivalents and restricted cash, increased by approximately $46.0 million from $457.1 million at December 31, 2022 to $503.1 million at June 30, 2023.

Changes in our cash position from December 31, 2022 to June 30, 2023 are described in further detail below.

During the nine months ended September 30, 2023, our cash balance, including cash equivalents and restricted cash, increased by approximately $66.6 million from $457.1 million at December 31, 2022 to $523.6 million at September 30, 2023.

Changes in our cash position from December 31, 2022 to September 30, 2023 are described in further detail below.

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

Net cash provided by operating activities for the six months ended June 30, 2023 was approximately $214.9 million compared to approximately $18.9 million of net cash used in operating activities for the six months ended June 30, 2022.

The favorable operating cash flow performance period-over-period was largely a result of customer deposits and advanced payments on certain construction contracts, as evidenced by the growth in our contract liabilities since December 31, 2022.

Net cash provided by operating activities for the nine months ended September 30, 2023 was approximately $475.9 million compared to approximately $238.4 million of net cash provided by operating activities for the nine months ended September 30, 2022.

The favorable operating cash flow performance period-over-period was largely a result of increased income, coupled with customer deposits and advanced payments on certain construction contracts, as evidenced by the growth in our contract liabilities since December 31, 2022.

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

Net cash used in investing activities for the six months ended June 30, 2023 decreased by approximately $4.9 million compared to the six months ended June 30, 2022

due to an increase in proceeds from the sale or disposal of property, plant and equipment as well as a decrease in payments for business acquisitions, partially offset by an increase in capital expenditures.

Net cash used in investing activities for the nine months ended September 30, 2023 increased by approximately $11.1 million compared to the nine months ended September 30, 2022, primarily due to an increase in capital expenditures to support our organic growth, partially offset by an increase in proceeds from the sale or disposal of property, plant and equipment.

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

Net cash used in financing activities for the six months ended June 30, 2023 was $126.4 million compared to net cash used in financing activities for the six months ended June 30, 2022 of $475.1 million.

The $348.7 million reduction in financing cash outflows was almost entirely due to a decrease in funds used for the repurchase of our common stock during 2023.

Net cash used in financing activities for the nine months ended September 30, 2023 was $276.2 million compared to net cash used in financing activities for the nine months ended September 30, 2022 of $512.6 million.

The $236.4 million reduction in financing cash outflows was due to a decrease in funds used for the repurchase of our common stock during 2023, partially offset by an increase in net repayments of outstanding debt under our credit agreement.

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.

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We currently pay a regular quarterly dividend of $0.18 per share.

For the six months ended June 30, 2023 and 2022, cash payments related to dividends were $15.7 million and $13.6 million, respectively.

For the nine months ended September 30, 2023 and 2022, cash payments related to dividends were $24.2 million and $20.0 million, respectively.

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

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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.

Therefore, the $17.6 million variance between the six months ended June 30, 2023 and 2022 was a direct result of favorable exchange rate movements for the British pound versus the United States dollar.

Therefore, the $21.4 million variance between the nine months ended September 30, 2023 and 2022 was a direct result of favorable exchange rate movements for the British pound versus the United States dollar.

Material Cash Requirements from Contractual and Other Obligations

As of June 30, 2023, our short-term and long-term material cash requirements for known contractual and other obligations were as follows:

Outstanding Debt and Interest Payments – As of June 30, 2023, there were no direct borrowings outstanding under our revolving credit facility and the amount outstanding under our term loan was $242.8 million.

We are required to make annual principal payments on our term loan of $13.9 million on December 31 of each year until maturity.

As of September 30, 2023, our short-term and long-term material cash requirements for known contractual and other obligations were as follows:

Outstanding Debt and Interest Payments – As of September 30, 2023, there were no direct borrowings outstanding under our revolving credit facility and the amount outstanding under our term loan was $100.0 million.

We are required to make annual principal payments on our term loan of $5.0 million on December 31, 2023 and 2024.

All remaining unpaid amounts are due on March 2, 2025, when the credit agreement governing our term loan and revolving credit facility expires.

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

Future payments for such leases, excluding leases with initial terms of one year or less, were $375.1 million at June 30, 2023, with $85.9 million payable within the next 12 months.

Open Purchase Obligations – As of June 30, 2023, we had $2.51 billion of open purchase obligations, of which payments totaling approximately $2.19 billion are expected to become due within the next 12 months.

Future payments for such leases, excluding leases with initial terms of one year or less, were $402.5 million at September 30, 2023, with $93.6 million payable within the next 12 months.

Open Purchase Obligations – As of September 30, 2023, we had $2.52 billion of open purchase obligations, of which payments totaling approximately $2.09 billion are expected to become due within the next 12 months.

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

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

As of June 30, 2023, our insurance liabilities, net of estimated recoveries, were $215.2 million.

As of September 30, 2023, our insurance liabilities, net of estimated recoveries, were $214.0 million.

Of this net amount, approximately $39.2 million is estimated to be payable within the next 12 months.

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

As of June 30, 2023, the present value of expected future payments relating to these contingent consideration arrangements was $14.3 million.

As of September 30, 2023, the present value of expected future payments relating to these contingent consideration arrangements was $11.3 million.

Of this amount, $5.6 million is estimated as being payable within the next 12 months, with the remainder due pursuant to the terms of our contractual agreements some of which extend through 2025.

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

As of June 30, 2023, based on the percentage-of-completion of our projects covered by surety bonds, our aggregate estimated exposure, assuming defaults on all our then existing contractual obligations, was approximately $1.4 billion, which represents approximately 17% of our total remaining performance obligations.

As of September 30, 2023, based on the percentage-of-completion of our projects covered by surety bonds, our aggregate estimated exposure, assuming defaults on all our then existing contractual obligations, was approximately $2.0 billion, which represents approximately 23% of our total remaining performance obligations.

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

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

As of June 30, 2023, we satisfied approximately $48.1 million and $71.1 million of the collateral requirements of our insurance programs by utilizing surety bonds and letters of credit, respectively.

As of September 30, 2023, we satisfied approximately $48.1 million and $71.1 million of the collateral requirements of our insurance programs by utilizing surety bonds and letters of credit, respectively.

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

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

There have been no significant changes to our critical accounting policies or methods during the six months ended June 30, 2023.

There have been no significant changes to our critical accounting policies or methods during the nine months ended September 30, 2023.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis