What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-10-26 · 108 added, 209 removed, 148 unchanged (68% of the section changed)

12 unchanged sentences

Business of our Form 10-K for the year ended December 31, 2023.

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 due to changes in our internal reporting structure aimed at realigning our service offerings.

Market Update

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 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.

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.

While we generally strive to negotiate advanced payments or billing terms with our customers that allow us to invoice for these amounts, such purchases may apply pressure on our working capital requirements in future periods.

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 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.

As contractually permitted, and in order to combat inflationary pressures, we have and will continue to seek increases in pricing to the extent we experience increases in our costs.

While we believe the actions we have taken continue to be effective, as evidenced in part by our operating performance and operating cash flow to date, 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.

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.

Lastly, the current interest rate environment may cause a decline in capital or maintenance spending of our customers or prospective customers, particularly as it pertains to short duration project work.

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 September 30, 2023 and 2022 (in thousands, except percentages and per share data):

The following table presents selected financial data for the three months ended March 31, 2024 and 2023 (in thousands, except percentages and per share data):

For the three months ended

September 30,

Revenues $ 3,432,276 $ 2,890,432

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Operating income as a percentage of revenues 7.6 % 5.4 %

Net income attributable to EMCOR Group, Inc.

$ 197,149 $ 111,473

Diluted earnings per common share $ 4.17 $ 2.32

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 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, (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.

Revenues of $3.43 billion for the quarter ended March 31, 2024 set a new first quarter record for the Company and represent an increase of 18.7% from revenues of $2.89 billion for the quarter ended March 31, 2023.

Demand for our services continues to be strong across the majority of the market sectors we serve 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 first quarter of 2024 included incremental acquisition contribution of approximately $7.9 million.

Operating income for the quarter ended March 31, 2024 was $260.0 million, or 7.6% of revenues, establishing new first quarter records for the Company with respect to both operating income and operating margin.

This compares to operating income of $154.9 million, or 5.4% of revenues, for the quarter ended March 31, 2023.

The $105.0 million increase in operating income, and corresponding 220 basis point expansion in operating margin, were predominantly a result of improved operating performance within our United States construction segments, as described in further detail below.

Net income of $197.1 million, or $4.17 per diluted share, for the quarter ended March 31, 2024, compares favorably to net income of $111.5 million, or $2.32 per diluted share, for the quarter ended March 31, 2023.

While the majority of the increase in our diluted earnings per share was a result of the increased operating income referenced above, diluted earnings per share for the quarter ended March 31, 2024 additionally benefited from a reduced weighted average share count given the impact of common stock repurchases made by us throughout 2023 and the first quarter of 2024.

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 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.

For further discussion regarding our acquisitions, refer to Note 4 - Acquisitions of Businesses of the notes to consolidated financial statements.

We acquired eight companies during calendar year 2023 for total consideration of $99.6 million.

Such acquisitions include:

(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:

(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.

(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) seven companies, the results of operations of which were de minimis, consisting of:

(i) three companies that have been included within our United States mechanical construction and facilities services segment, one of which provides mechanical and pipe fabrication services in the Midwestern region of the United States, and two of which add capabilities to our national fire protection services, 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 and enhance our presence in geographies where we have existing operations.

Results of Operations

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

For the three months ended September 30,

Total 2022 % of

United States electrical construction and facilities services $ 697,406 22 % $ 633,383 22 %

United States mechanical construction and facilities services 1,329,600 41 % 1,108,655 39 %

United States building services 817,718 26 % 719,383 26 %

United States industrial services 252,148 8 % 247,239 9 %

Total United States operations 3,096,872 97 % 2,708,660 96 %

United Kingdom building services 110,726 3 % 117,701 4 %

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

For the nine months ended September 30,

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

For the three months ended March 31,

Total 2023 % of

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Total operations $ 3,432,276 100 % $ 2,890,432 100 %

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 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, (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:

As described below in more detail, as a result of revenue growth within the majority of our reportable segments, our consolidated revenues for the first quarter of 2024 increased to $3.43 billion compared to $2.89 billion for the first quarter of 2023.

Revenues of our United States electrical construction and facilities services segment were $764.7 million for the three months ended March 31, 2024 compared to revenues of $644.7 million for the three months ended March 31, 2023.

The $120.0 million increase in this segment’s revenues was primarily a result of revenue growth within the network and communications market sector, predominantly due to our data center projects.

Increased demand for cloud computing, data storage, and the emergence of artificial intelligence has resulted in a greater number of construction project opportunities for us in several of the geographies in which we operate.

Our United States mechanical construction and facilities services segment revenues for the three months ended March 31, 2024 were $1,427.7 million, a $349.1 million increase compared to revenues of $1,078.6 million for the three months ended March 31, 2023.

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

(a) the high-tech manufacturing market sector, as a result of stronger 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 manufacturing and industrial market sector, due to continued re-shoring of critical supply chain by certain of our customers as well as an increase in food processing project revenue, (c) the institutional market sector, given several public sector projects which were active during the first quarter of 2024, and (d) the network and communications market sector, due to increased data center project activity as this segment benefited from the same market demand described above within our United States electrical construction and facilities services segment.

In addition, revenues of this segment were positively impacted by greater levels of short duration projects and service work.

Revenues of our United States building services segment were $781.2 million for the three months ended March 31, 2024 compared to revenues of $725.4 million for the three months ended March 31, 2023.

Included in this segment’s results for the first quarter of 2024 were $7.9 million of incremental acquisition revenues.

Excluding such acquisition contribution, the $47.9 million increase in revenues 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 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.

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 nine months 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 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:

(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, and (c) building automation and controls projects, as we continue to expand our service offerings.

Revenues of our United States industrial services segment for the three months ended March 31, 2024 were $354.1 million compared to revenues of $330.9 million for the three months ended March 31, 2023.

This $23.2 million increase was largely driven by this segment’s field services division due to:

(a) greater turnaround project demand, including scope growth on certain projects that were active in the first quarter of 2024, and (b) an increase in renewable fuel project revenues.

Our United Kingdom building services segment revenues were $104.7 million for the three months ended March 31, 2024 compared to revenues of $110.9 million for the three months ended March 31, 2023.

The decrease in this segment’s revenues was 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.

Partially offsetting these decreases was the impact of favorable exchange rate movements for the British pound versus the United States dollar, which positively impacted this segment’s revenues by $4.4 million during the first quarter of 2024.

Cost of sales and gross profit

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For the three months ended

September 30, For the nine months ended

September 30,

2023 2022 2023 2022

Cost of sales $ 2,842,967 $ 2,454,370

1 unchanged sentence

Gross profit margin 17.2 % 15.1 %

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.

Our gross profit for the three months ended March 31, 2024 was $589.3 million, or 17.2% of revenues, compared to gross profit of $436.1 million, or 15.1% of revenues, for the three months ended March 31, 2023.

The increase in gross profit and the expansion in gross profit margin were the result of stronger operating performance within the majority of our reportable segments due to an improved revenue mix, excellent project execution, and/or favorable pricing.

Our gross profit for the first quarter of 2024 included incremental acquisition contribution of $1.8 million.

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

2 unchanged sentences

For the three months ended

September 30, For the nine months ended

September 30,

2023 2022 2023 2022

Selling, general and administrative expenses $ 329,356 $ 281,152

SG&A margin 9.6 % 9.7 %

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.

In addition to these increases in employment costs, our SG&A for both 2023 periods included incremental:

(a) computer hardware and software costs, as a result of various information technology and cybersecurity initiatives currently in process, (b) travel and entertainment expenses, and (c) rent and other occupancy costs driven by:

(i) the expansion or addition of certain fabrication facilities, which support our operations, and (ii) the impact of inflation on the real estate market.

Our selling, general and administrative expenses for the three months ended March 31, 2024 were $329.4 million, or 9.6% of revenues, compared to selling, general and administrative expenses of $281.2 million, or 9.7% of revenues, for the three months ended March 31, 2023.

Selling, general and administrative expenses for the first quarter of 2024 included $3.0 million of incremental expenses directly related to companies acquired in 2023, including amortization expense attributable to identifiable intangible assets of $1.0 million.

Excluding incremental expenses from businesses acquired, the increase in selling, general and administrative expenses period-over-period was predominantly attributable to increases in:

(a) 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, (b) incentive compensation expense across the majority of our reportable segments, due to higher projected annual operating results, and (c) the provision for credit losses, primarily due to a reserve taken for a specific customer bankruptcy within our United States building services segment.

Operating income (loss)

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 September 30,

The following table presents 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 March 31,

Revenues 2023 % of

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Corporate administration (39,158) — (29,927) —

Impairment loss on long-lived assets

(2,350) — — —

Total operations 259,953 7.6 % 154,910 5.4 %

Net periodic pension (cost) income (284) 1,025

Interest expense, net (90) (3,194)

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

For the nine months ended September 30,

Revenues 2022 % of

Operating income (loss):

United States electrical construction and facilities services $ 154,365 7.6 % $ 90,646 5.3 %

United States mechanical construction and facilities services 344,550 9.6 % 225,545 7.1 %

United States building services 140,943 6.1 % 108,698 5.3 %

United States industrial services 22,733 2.6 % 18,324 2.2 %

Total United States operations 662,591 7.5 % 443,213 5.7 %

United Kingdom building services 20,220 6.2 % 25,372 7.0 %

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

Impairment loss on long-lived assets

Net periodic pension income (cost)

Interest income (expense), net

7,541 (1,832)

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

Net periodic pension (cost) income (840) 3,288

Interest expense, net (4,614) (6,234)

Income before income taxes $ 267,716 $ 152,804

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 $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 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:

Operating income for the three months ended March 31, 2024 was $260.0 million, an increase of $105.0 million compared to operating income of $154.9 million for the three months ended March 31, 2023.

Operating margin for the three months ended March 31, 2024 was 7.6% compared to an operating margin of 5.4% for the three months ended March 31, 2023.

As described in more detail below, this increase in profitability was predominantly a result of improved operating performance within our United States construction segments, due to a more favorable mix of work and better project execution, including enhanced productivity, due in part to investments in virtual design and construction, prefabrication, and automation.

Operating income of our United States electrical construction and facilities services segment was $91.6 million, or 12.0% of revenues, for the three months ended March 31, 2024, compared to $40.5 million, or 6.3% of revenues, for the three months ended March 31, 2023.

The $51.1 million increase in operating income and the 570 basis point improvement in operating margin of this segment were largely a result of greater gross profit and gross profit margin from projects within the majority of the market sectors in which we operate, due to both an increase in quarterly revenues as well as a more favorable mix of work.

The most notable increases in gross profit were experienced within the network and communications market sector, the commercial market sector, and the manufacturing and industrial market sector.

Our United States mechanical construction and facilities services segment’s operating income for the three months ended March 31, 2024 was $150.7 million, or 10.6% of revenues, compared to operating income of $86.2 million, or 8.0% of revenues, for the three months ended March 31, 2023.

The $64.5 million increase in operating income and the 260 basis point improvement in operating margin of this segment were primarily a result of contribution from projects within:

(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 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.

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 nine months of 2023.

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 $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) 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.

While the most significant increases in gross profit were seen within the above referenced market sectors, this segment also experienced increases in gross profit within the majority of the other market sectors in which we operate.

In addition to the increases in gross profit margin referenced above, operating margin of each of our United States construction segments 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.

Operating income of our United States building services segment was $33.5 million, or 4.3% of revenues, for the three months ended March 31, 2024 compared to $37.7 million, or 5.2% of revenues, for the three months ended March 31, 2023.

The operating results of this segment for the first quarter of 2024 were positively impacted by increased gross profit and gross profit margin, primarily from continued strength in its mechanical services division, including greater profitability from HVAC projects and retrofits.

However, operating income and operating margin decreased when compared to the same prior year period, due to an $11.0 million reserve taken within this segment’s commercial site-based services division for a specific customer bankruptcy, which negatively impacted the operating margin of this segment by 140 basis points for the three months ended March 31, 2024.

Our United States industrial services segment reported operating income of $18.0 million, or 5.1% of revenues, for the three months ended March 31, 2024 compared to operating income of $15.0 million, or 4.5% of revenues, for the three months ended March 31, 2023.

In addition to a slight increase in gross profit margin period-over-period, this segment benefited from greater overhead absorption given the previously referenced increase in quarterly revenues.

For the three months ended March 31, 2024 and 2023, operating income of our United Kingdom building services segment was essentially flat at $5.4 million for each period and operating margin was 5.1% and 4.9%, respectively.

Despite the reduction in quarterly segment revenues discussed above, we continue to optimize our project and service mix while seeking to more effectively leverage the overhead cost structure of this segment, resulting in the modest improvement in operating margin period-over-period.

Operating income of this segment for the first quarter of 2024 was positively impacted by $0.2 million related to the effect of favorable exchange rate movements for the British pound versus the United States dollar.

Our corporate administration expenses for the three months ended March 31, 2024 were $39.2 million compared to $29.9 million for the three months ended March 31, 2023.

This increase in corporate expenses was primarily due to greater employment compensation costs, including certain severance expenses as well as an increase in share-based compensation expense.

In addition to the above, we have experienced an increase in computer hardware and software costs, due to various information technology and cybersecurity initiatives currently in process.

As a result of an increase in our average daily invested cash balance, coupled with the repayment, in December of 2023, of all previously outstanding borrowings under our credit facility, we generated net interest income for the three months ended March 31, 2024 of $7.5 million compared to net interest expense of $1.8 million for the three months ended March 31, 2023.

For the three months ended March 31, 2024, our income tax provision was $70.6 million compared to an income tax provision of $41.3 million for the three months ended March 31, 2023.

Our effective income tax rate for the three months ended March 31, 2024 was 26.4% compared to an effective income tax rate for the three months ended March 31, 2023 of 27.0%.

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):

September 30,

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

2022 % of Total

% of Total December 31, 2023 % of Total March 31,

Remaining performance obligations:

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Total operations $ 9,175,352 100 % $ 8,847,421 100 % $ 7,873,143 100 %

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, 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 institutional market sector.

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

Our remaining performance obligations at March 31, 2024 were $9.18 billion compared to $8.85 billion at December 31, 2023 and $7.87 billion at March 31, 2023.

The increase in remaining performance obligations at March 31, 2024, when compared to December 31, 2023, was attributable to an increase in remaining performance obligations within all of our reportable segments, except for our United States industrial services segment, which experienced a slight decrease in remaining performance obligations period-over-period.

From a market sector perspective, we experienced the largest growth in our remaining performance obligations within the network and communications market sector, driven by data center construction projects.

In addition to the network and communications market sector, the increase in our remaining performance obligations was due to continued strength in the following market sectors:

(a) institutional, (b) healthcare, (c) manufacturing and industrial, (d) transportation, and (e) hospitality and entertainment.

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.

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

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The following section discusses our principal liquidity and capital resources, as well as our primary liquidity requirements and sources and uses of cash.

We are focused on the efficient conversion of operating income into cash to provide for the Company’s material cash requirements, including working capital needs, investment in our growth strategies through business acquisitions and capital expenditures, satisfaction of contractual commitments, including principal and interest payments on our outstanding indebtedness, and shareholder return through dividend payments and share repurchases.

We are focused on the efficient conversion of operating income into cash to provide for the Company’s material cash requirements, including working capital needs, investment in our growth strategies through business acquisitions and capital expenditures, satisfaction of contractual commitments, including principal and interest payments on any outstanding indebtedness, and shareholder return through dividend payments and share repurchases.

We strive to maintain a balanced approach to capital allocation in order to achieve growth, deliver value, and minimize risk.

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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 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.

As of March 31, 2024, we had cash and cash equivalents, excluding restricted cash, of $841.0 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 $1.18 billion of available capacity as of September 30, 2023.

Our credit agreement provides for a $1.30 billion revolving credit facility, for which there is $1.21 billion of available capacity as of March 31, 2024.

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 nine months ended

September 30,

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

For the three months ended

Net cash provided by (used in) operating activities

$ 132,264 $ (84,583)

Net cash used in investing activities $ (19,439) $ (25,405)

Net cash used in financing activities $ (276,157) $ (512,598)

Net cash (used in) provided by financing activities

$ (58,948) $ 71,506

Effect of exchange rate changes on cash, cash equivalents, and restricted cash $ (1,140) $ 2,239

Increase (decrease) in cash, cash equivalents, and restricted cash $ 52,737 $ (36,243)

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.

During the three months ended March 31, 2024, our cash balance, including cash equivalents and restricted cash, increased by approximately $52.7 million from $789.8 million at December 31, 2023 to $842.5 million at March 31, 2024.

Changes in our cash position from December 31, 2023 to March 31, 2024 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 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 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.

Net cash provided by operating activities for the three months ended March 31, 2024 was approximately $132.3 million compared to approximately $84.6 million of net cash used in operating activities for the three months ended March 31, 2023.

In addition to the increase in our income, the favorable operating cash flow performance period-over-period was largely a result of the timing of cash receipts from our customers and payments to our vendors as we continue to effectively manage our working capital.

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

Net cash used in investing activities for the three months ended March 31, 2024 decreased by approximately $6.0 million compared to the three months ended March 31, 2023, primarily due to a decrease in payments for acquired businesses, partially offset by a reduction 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 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.

Net cash used in financing activities for the three months ended March 31, 2024 was $58.9 million compared to net cash provided by financing activities for the three months ended March 31, 2023 of $71.5 million.

The $130.5 million variance was primarily due to:

(a) the impact in the first quarter of 2023 of $100.0 million of proceeds from our revolving credit facility and (b) a $23.0 million increase in common stock repurchases made by us during the first quarter of 2024.

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 10 - Common Stock of the notes to consolidated financial statements.

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

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

We currently pay a regular quarterly dividend, which, commencing with the dividend to be paid on April 30, 2024, will increase from $0.18 per share to $0.25 per share.

For the three months ended March 31, 2024 and 2023, cash payments related to dividends were $8.5 million and $7.2 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 $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.

Therefore, the $3.4 million variance between the three months ended March 31, 2024 and 2023 was a direct result of exchange rate movements for the British pound versus the United States dollar.

Material Cash Requirements from Contractual and Other Obligations

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.

Until such time, we are required to make periodic interest payments on our outstanding indebtedness.

Future interest payments will be determined based on prevailing interest rates during that time, which may fluctuate in the near term.

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

As of March 31, 2024, our short-term and long-term material cash requirements for known contractual and other obligations were as follows:

Outstanding Debt and Interest Payments – As of March 31, 2024, there were no direct borrowings outstanding under our revolving credit facility.

Interest payments on any future borrowings will be determined based on prevailing interest rates at that time.

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

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

Future payments for such leases, excluding leases with initial terms of one year or less, were $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.

Future payments for such leases, excluding leases with initial terms of one year or less, were $394.2 million at March 31, 2024, with $91.0 million payable within the next 12 months.

Open Purchase Obligations – As of March 31, 2024, we had $2.30 billion of open purchase obligations, of which payments totaling approximately $1.92 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 September 30, 2023, our insurance liabilities, net of estimated recoveries, were $214.0 million.

As of March 31, 2024, our insurance liabilities, net of estimated recoveries, were $225.4 million.

Of this net amount, approximately $40.1 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 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.

As of March 31, 2024, the present value of expected future payments relating to these contingent consideration arrangements was $8.5 million.

Of this amount, $5.0 million is estimated as being payable within the next 12 months, with the remainder due before the end of 2025.

In addition, material cash requirements for other potential obligations, for which we cannot reasonably estimate future payments, include the following:

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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 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.

As of March 31, 2024, 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 $2.2 billion, which represents approximately 24% 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 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.

As of March 31, 2024, 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 nine months ended September 30, 2023.

There have been no significant changes to our critical accounting policies or methods during the three months ended March 31, 2024.

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