What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-12-07 compared with 2019-12-06 · 205 added, 188 removed, 284 unchanged (58% of the section changed)

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“Business” of this Annual Report on Form 10-K for a discussion of the Company’s services and corporate strategy.

IES Holdings, Inc., a Delaware corporation, is a holding company that owns and manages operating subsidiaries, comprised of providers of industrial products and infrastructure services to a variety of end markets.

IES Holdings, Inc., a Delaware corporation, is a holding company that owns and manages operating subsidiaries that design and install integrated electrical and technology systems and provide infrastructure products and services to a variety of end markets, including data centers, residential housing, and commercial and industrial facilities.

Our operations are currently organized into four principal business segments:

Commercial & Industrial, Communications, Infrastructure Solutions and Residential.

Communications, Residential, Infrastructure Solutions and Commercial & Industrial.

Industry Trends

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While there are differences among the Company’s segments, on an overall basis, increased demand for the Company’s services and the Company’s previous investment in growth initiatives and other business-specific factors discussed below resulted in aggregate year-over-year revenue growth in fiscal 2020 as compared to fiscal 2019.

Among our segments, year-over-year revenue growth rates during fiscal 2019 were driven primarily by organic growth.

Revenue growth rates during fiscal 2020 at our Communications and Residential segments were driven primarily by organic growth.

Provided that no significant deterioration in general economic conditions occurs, the Company expects total revenues from existing businesses to increase on a year-over-year basis during fiscal 2021 due to an increase in overall demand for the services we provide, efforts to increase our market share, and current backlog levels.

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We expect that our fixed asset requirements will range from $7.0 million to $10.0 million for the fiscal year ending on September 30, 2021, and we may acquire these assets either through capital expenditures or through lease agreements.

Impact of COVID-19 on Our Business

The COVID-19 pandemic and related governmental responses have caused, and are likely to continue to cause, significant disruption to the economy, the operations of our customers and vendors, and the health of millions of individuals, including our employees and

customers, across the markets in which we operate and beyond.

As such, COVID-19 has adversely affected, and is expected to continue to adversely affect, our business.

State and local governments in most of the localities where we operate have deemed most of our business activities to be essential or critical, and therefore we are generally permitted to continue operating in those localities while “stay at home” orders are in effect during this pandemic.

As a result, we are focused on protecting the health and safety of our employees while maintaining the continuity of our operations.

We have implemented operational and protective measures to protect our employees and customers, including screening for COVID-19 symptoms, providing personal protective equipment, increased cleaning and sanitizing, and physical distancing measures to the extent possible.

While most of our facilities and job sites continue to operate, certain state and local governments have recently re-imposed certain orders that could cause more shutdowns.

We have seen COVID-19 affect demand in some areas of our business, where construction or maintenance projects have been delayed;

however, there are other areas in which we have seen an increase in demand, particularly as it relates to critical infrastructure for data centers and communications.

COVID-19 presents potential new risks to our business.

There have been some adverse COVID-19 impacts on our results of operations during fiscal 2020.

We have experienced some challenges to date, including the implementation of new health and safety protocols and responding to changing federal, state and local orders.

We have also seen some delays in the awarding of new projects, as well as the progress of existing projects.

Factors that we expect will affect our results in the future include, but are not limited to, the potential impacts on our workforce of either illness or government orders forcing job sites to shut down and requiring employees to remain at home, a reduced demand for our services, increases in operating costs due to disruptions and personal protective equipment requirements, and limitations on the ability of our customers to pay us on a timely basis.

We are continuing to monitor conditions affecting our business, and will take actions as may be necessary to ensure the health and safety of our employees and to serve our customers.

Please refer to Part I.

" Risk Factors " of this Annual Report on Form 10-K for further information.

RESULTS OF OPERATIONS

We report our operating results across our four operating segments:

Commercial & Industrial, Communications, Infrastructure Solutions and Residential.

Communications, Residential, Infrastructure Solutions and Commercial & Industrial.

Expenses associated with our corporate office are classified separately.

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Year Ended September 30,

2020 2019 2018

(Dollars in thousands, Percentage of revenues)

Revenues $ 1,190,856 100.0 % $ 1,076,996 100.0 % $ 876,828 100.0 %

Cost of services 962,897 80.9 % 894,893 83.1 % 726,866 82.9 %

Gross profit 227,959 19.1 % 182,103 16.9 % 149,962 17.1 %

Selling, general and administrative expenses 170,911 14.4 % 140,575 13.1 % 123,920 14.1 %

Goodwill impairment expense 6,976 0.7 % — — % — — %

Contingent consideration (11) — % (374) — % 103 — %

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Operating income before income taxes 49,294 4.1 % 40,141 3.7 % 24,348 2.8 %

Provision (benefit) for income taxes (1)

Provision for income taxes (1)

8,740 0.7 % 6,663 0.6 % 38,151 4.4 %

Net income (loss) 40,554 3.4 % 33,478 3.1 % (13,803) (1.6) %

Net income attributable to noncontrolling interest

Net (income) loss attributable to noncontrolling interest 1,045 0.1 % (272) — % (354) — %

Net income (loss) attributable to IES Holdings, Inc.

$ 41,599 3.5 % $ 33,206 3.1 % $ (14,157) (1.6) %

(1) The year ended September 30, 2018 includes a charge of $31.3 million to re-measure our net deferred taxes in connection with the Tax Cuts and Jobs Act.

2020 Compared to 2019

Consolidated revenues for the year ended September 30, 2019 , were $ 200.2 million higher than for the year ended September 30, 2018 , an increase of 22.8% , with increases at all of our operating segments, driven by strong demand.

Our overall gross profit percentage decreased slightly to 16.9% during the year ended September 30, 2019 , as compared to 17.1% during the year ended September 30, 2018 .

Gross profit as a percentage of revenue increased at our Infrastructure Solutions and Residential segments but decreased at our Commercial & Industrial and Communications segments, as discussed in further detail for each segment below.

Consolidated revenues for the year ended September 30, 2020, were $113.9 million higher than for the year ended September 30, 2019, an increase of 10.6% with increases at our Communications and Residential segments, driven by strong demand.

Our overall gross profit percentage increased to 19.1% during the year ended September 30, 2020, as compared to 16.9% during the year ended September 30, 2019.

Gross profit as a percentage of revenue increased at our Communications, Infrastructure Solutions

and Residential segments but decreased at our Commercial & Industrial segment, as discussed in further detail with respect to each segment below.

Selling, general and administrative expenses include costs not directly associated with performing work for our customers.

These costs consist primarily of compensation and benefits related to corporate, segment and branch management (including incentive-based compensation), occupancy and utilities, training, professional services, information technology costs, consulting fees, travel and certain types of depreciation and amortization.

These costs consist primarily of compensation and benefits related to corporate, business segment and branch management (including incentive-based compensation), occupancy and utilities, training, professional services, information technology costs, consulting fees, travel and certain types of depreciation and amortization.

We allocate certain corporate selling, general and administrative costs across our segments as we believe this more accurately reflects the costs associated with operating each segment.

During the year ended September 30, 2020, our selling, general and administrative expenses were $170.9 million, an increase of $30.3 million, or 21.6% over the year ended September 30, 2019, driven by increased personnel costs at our operating segments in connection with their growth, as well as an increase in certain selling, general and administrative expenses at our Commercial & Industrial segment as described below.

This increase also includes a $1.8 million increase in expenses at the corporate level, primarily related to a severance payment to our former CEO, who stepped down in July 2020.

As a percentage of revenue, selling, general and administrative expenses increased to 14.4% for the year ended September 30, 2020 from 13.1% for the year ended September 30, 2019.

As described below, for the year ended September 30, 2020, we recognized a non-cash goodwill impairment charge of $7.0 million relating to our Commercial & Industrial segment.

2019 Compared to 2018

Consolidated revenues for the year ended September 30, 2019, were $200.2 million higher than for the year ended September 30, 2018, an increase of 22.8%, with increases at all of our operating segments, driven by strong demand.

Our overall gross profit percentage decreased slightly to 16.9% during the year ended September 30, 2019, as compared to 17.1% during the year ended September 30, 2018.

Gross profit as a percentage of revenue increased at our Infrastructure Solutions and Residential segments, but decreased at our Commercial & Industrial and Communications segments, as discussed in further detail with respect to each segment below.

During the year ended September 30, 2019, our selling, general and administrative expenses were $140.6 million, an increase of $16.7 million, or 13.4%, over the year ended September 30, 2018, driven by increased personnel costs at our operating segments in connection with their growth.

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However, selling, general and administrative expense as a percentage of revenue decreased from 14.1% for the year ended September 30, 2018, to 13.1% for the year ended September 30, 2019, as we benefited from the increased scale of our operations.

2018 Compared to 2017

Consolidated revenues for the year ended September 30, 2018 , were $ 66.1 million higher than for the year ended September 30, 2017 , an increase of 8.2% .

Revenues increased within our Commercial & Industrial, Infrastructure Solutions, and Residential segments driven by an increase in demand for their service offerings combined with continued improvement of conditions in the markets in which they operate.

Businesses acquired in fiscal 2017 and 2018 contributed $61.0 million of the revenue increase year over year, partially offset by

a $23.7 million decrease in revenue at the Denver and Roanoke branches of our Commercial & Industrial segment, where the wind-down of operations that occurred over the last 18 months is substantially complete.

Our overall gross profit percentage decreased slightly to 17.1% during the year ended September 30, 2018 , as compared to the year ended September 30, 2017 .

Businesses acquired in fiscal 2017 and 2018 contributed an additional $6.6 million of gross profits for the year ended September 30, 2018 , as compared with the year ended September 30, 2017 .

Gross profit as a percentage of revenue increased at our Commercial & Industrial and Communications segments and decreased at our Infrastructure Solutions and Residential segments, as discussed in further detail for each segment below.

During the year ended September 30, 2018 , our selling, general and administrative expenses were $ 123.9 million, an increase of $ 3.6 million, or 2.9% , as compared to the year ended September 30, 2017 .

The increase is primarily attributable to expense incurred at businesses acquired during fiscal 2017 and 2018, which contributed $6.0 million of the increase year over year.

This increase was partly offset by a reduction in variable compensation expense.

On a consolidated basis, our selling, general and administrative expense decreased slightly as a percentage of revenue from 14.8% for the year ended September 30, 2017 , to 14.1% for the year ended September 30, 2018 , largely as a result of decreased personnel costs and intangible amortization expense.

Commercial & Industrial

Communications

2020 Compared to 2019

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(Dollars in thousands, Percentage of revenues)

Revenues $ 395,141 100.0 % $ 321,246 100.0 %

Cost of services 317,013 80.2 % 264,746 82.4 %

Gross Profit 78,128 19.8 % 56,500 17.6 %

Selling, general and administrative expenses 37,674 9.5 % 31,850 9.9 %

Contingent consideration — — % (97) — %

Gain on sale of assets

(Gain)/Loss on sale of assets 8 — % (6) — %

Operating Income 40,446 10.2 % 24,753 7.7 %

Revenues in our Commercial & Industrial segment increased $ 31.3 million, or 11.4% , during the year ended September 30, 2019 , compared to the year ended September 30, 2018 .

The increase in revenue over this period was driven by an increase in large agricultural and other projects in the Midwest.

Our Communications segment’s revenues increased by $73.9 million, or 23.0%, during the year ended September 30, 2020, compared to the year ended September 30, 2019.

This increase primarily resulted from increased demand from our data center and

distribution center customers.

Revenues in our Communications segment can vary from period to period based on the capital spending cycles of our customers.

Gross Profit.

Our Commercial & Industrial segment’s gross profit during the year ended September 30, 2019 increased by $ 0.3 million, or 0.9% , as compared to the year ended September 30, 2018 .

We benefited from higher volumes;

however, these benefits were offset by certain project inefficiencies during the second half of the year.

As a percentage of revenue, gross profit decreased from 10.8% for the year ended September 30, 2018 , to 9.8% for the year ended September 30, 2019 , as a result of these project inefficiencies.

Our Communications segment’s gross profit during the year ended September 30, 2020, increased $21.6 million, or 38.3%, as compared to the year ended September 30, 2019.

Gross profit as a percentage of revenue increased to 19.8% for the year ended September 30, 2020, as we took on a larger proportion of fixed-cost arrangements and we benefited from efficiency gains from strong project execution.

Selling, General and Administrative Expenses.

Our Commercial & Industrial segment’s selling, general and administrative expenses during the year ended September 30, 2019 , increased $ 0.8 million, or 2.9% , compared to the year ended September 30, 2018 , but decreased 1.0% as a percentage of revenue, as we benefited from the increased scale of our operations and a focus on controlling costs.

Our Communications segment’s selling, general and administrative expenses increased $5.8 million, or 18.3% during the year ended September 30, 2019, as compared to the year ended September 30, 2018.

The increase is a result of higher personnel cost, particularly related to continuing investment to support the growth of the business, along with higher incentive compensation in connection with improved profitability and cash flows.

Selling, general and administrative expenses as a percentage of revenues in the Communications segment decreased from 9.9% for the year ended September 30, 2019 to 9.5% of segment revenue during the year ended September 30, 2020, as we benefited from the increased scale of our operations, as well as a temporary reduction in travel expense.

2019 Compared to 2018

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(Dollars in thousands, Percentage of revenues)

Revenues $ 321,246 100.0 % $ 219,655 100.0 %

Cost of services 264,746 82.4 % 179,518 81.7 %

Gross Profit 56,500 17.6 % 40,137 18.3 %

Selling, general and administrative expenses 31,850 9.9 % 26,003 11.8 %

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Gain on sale of assets (6) — % (4) — %

Operating income (loss)

Revenues in our Commercial & Industrial segment increased $46.7 million, or 20.5%, during the year ended September 30, 2018, as compared to the year ended September 30, 2017.

The increase in revenue over this period was driven by our 2017 business acquisitions, which contributed $42.7 million of additional revenue during the year ended September 30, 2018 compared to the year ended September 30, 2017.

This increase was partly offset by a $23.7 decrease in revenue attributable to the winding down of operations at our Denver and Roanoke locations for the year ended September 30, 2018, as compared with the year ended September 30, 2017.

Additionally, increased bid volume at several of our branches and improving market conditions in certain areas also contributed to the overall increase in revenues.

Operating Income 24,753 7.7 % 14,223 6.5 %

Our Communications segment’s revenues increased by $101.6 million, or 46.3%, during the year ended September 30, 2019, compared to the year ended September 30, 2018.

This increase primarily resulted from increased demand from several of our data center customers.

Revenues in our Communications segment can vary from period to period based on the capital spending cycles of our customers.

Gross Profit.

Our Commercial & Industrial segment’s gross profit during the year ended September 30, 2018 increased by $10.7 million, or 56.1%, as compared to the year ended September 30, 2017.

As a percentage of revenue, gross profit increased from 8.3% for the year ended September 30, 2017, to 10.8% for the year ended September 30, 2018.

The increase was driven by $5.9 million of additional gross profit contributed by our fiscal 2017 business acquisitions during the year ended September 30, 2018, compared to the year ended September 30, 2017.

Additionally, for the year ended September 30, 2018, gross margin at our Denver and Roanoke branches, where the wind down of operations is substantially complete, improved by $4.7 million compared with the year ended September 30, 2017.

This increase was partly offset by a $1.9 million charge to adjust the contract value on a large project based on the terms of a memorandum of agreement.

Our Communications segment’s gross profit during the year ended September 30, 2019, increased $16.4 million, or 40.8%, as compared to the year ended September 30, 2018.

While total gross profits increased in connection with higher volumes, gross profit as a percentage of revenue decreased from 18.3% for the year ended September 30, 2018 to 17.6% for the year ended September 30, 2019, as we took on a larger proportion of cost-plus arrangements.

These arrangements provide us with a reimbursement for our costs plus a markup, and are typically lower margin, but also lower risk, as compared with our fixed-cost arrangements.

Selling, General and Administrative Expenses.

Our Commercial & Industrial segment’s selling, general and administrative expenses during the year ended September 30, 2018, increased $6.9 million, or 34.0%, compared to the year ended September 30, 2017, and increased 1.1% as a percentage of revenue.

The increase was driven by our fiscal 2017 business acquisitions, where selling, general and administrative expense for the year ended September 30, 2018, increased by $4.1 million.

The remaining increase relates primarily to employee expense associated with management hired to provide additional oversight at the regional and branch levels.

During fiscal 2017, we completed a detailed review of the operations of our Commercial & Industrial segment and decided to wind down operations at our Denver, Colorado and Roanoke, Virginia branches within our Commercial & Industrial segment.

At September 30, 2018, we had approximately $1.5 million of backlog remaining at these branches.

The following table summarizes the results of our Denver and Roanoke branches, which are included in the consolidated Commercial & Industrial segment results shown above:

Our Communications segment’s selling, general and administrative expenses increased $5.8 million, or 22.5% during the year ended September 30, 2019, as compared to the year ended September 30, 2018.

Selling, general and administrative expenses as a percentage of revenues in the Communications segment decreased from 11.8% for the year ended September 30, 2018 to 9.9% of segment revenue during the year ended September 30, 2019, compared to the year ended September 30, 2018, as we benefited from the increased scale of our operations.

2020 Compared to 2019

Year Ended September 30,

(Dollars in thousands, Percentage of revenues)

Revenues $ 411,790 100.0 % $ 313,336 100.0 %

Cost of services 318,034 77.2 % 248,562 79.3 %

Gross Profit 93,756 22.8 % 64,774 20.7 %

Selling, general and administrative expenses 63,668 15.5 % 46,864 15.0 %

Gain on sale of assets

Operating loss

Communications

(Gain)/Loss on sale of assets 2 — % (17) — %

Operating Income 30,086 7.3 % 17,927 5.7 %

Our Residential segment’s revenues increased by $98.5 million, or 31.4%, during the year ended September 30, 2020, as compared to the year ended September 30, 2019.

The increase was driven by increases in our single-family business, where revenues increased by $26.8 million, and our multi-family businesses, where revenues excluding those provided by current year business acquisitions, increased by $61.0 million for the year ended September 30, 2020, compared with the year ended September 30, 2019.

In February 2020, we acquired Aerial Lighting & Electric, Inc., ("Aerial"), a Naugatuck, Connecticut-based electrical contractor specializing in the design and installation of electrical systems for multi-family developments.

Aerial contributed $9.3 million in revenue during the year ended September 30, 2020 subsequent to our acquisition of the business.

Gross Profit.

During the year ended September 30, 2020, our Residential segment experienced a $29.0 million, or 44.7%, increase in gross profit as compared to the year ended September 30, 2019.

The increase in gross profit was driven primarily by higher volumes and improved commodity prices.

Gross margin as a percentage of revenue increased from 20.7% to 22.8% during the year ended September 30, 2020, as compared with the year ended September 30, 2019, as we benefited from improved commodity prices and the increased scale of our operations.

Our newly acquired Aerial business contributed $1.7 million in gross profit during the year ended September 30, 2020 subsequent to our acquisition of the business .

Selling, General and Administrative Expenses.

Our Residential segment experienced a $16.8 million, or 35.9%, increase in selling, general and administrative expenses during the year ended September 30, 2020, compared to the year ended September 30, 2019.

This increase was driven by increased compensation expense in connection with a growing business, including both incentive profit sharing for division management and increased headcount, as well as $2.3 million in selling, general and administrative expenses incurred at Aerial during the year ended September 30, 2020 subsequent to our acquisition of the business, including amortization of intangible assets .

Selling, general and administrative expenses as a percentage of revenues in the Residential segment increased from 15.0% to 15.5% of segment revenue during the year ended September 30, 2020.

2019 Compared to 2018

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(Dollars in thousands, Percentage of revenues)

Revenues $ 313,336 100.0 % $ 285,711 100.0 %

Cost of services 248,562 79.3 % 227,355 79.6 %

Gross Profit 64,774 20.7 % 58,356 20.4 %

Selling, general and administrative expenses 46,864 15.0 % 41,401 14.5 %

Contingent consideration

Gain on sale of assets

(Gain)/Loss on sale of assets (17) — % 8 — %

Operating Income 17,927 5.7 % 16,947 5.9 %

Our Communications segment’s revenues increased by $ 101.6 million, or 46.3% , during the year ended September 30, 2019 , compared to the year ended September 30, 2018 .

This increase primarily resulted from increased demand from several of our data center customers.

Revenues in our Communications segment can vary from period to period based on the capital spending cycles of our customers.

Our Residential segment’s revenues increased by $27.6 million, or 9.7%, during the year ended September 30, 2019, as compared to the year ended September 30, 2018.

The increase was driven by increases in our single-family business, where revenues increased by $22.0 million, and our multi-family businesses, where revenues increased by $8.9 million for the year ended September 30, 2019, compared with the year ended September 30, 2018.

This increase was partly offset by a $3.2 million decrease in our solar and service revenues for the year ended September 30, 2019, compared with the prior year.

Gross Profit.

Our Communications segment’s gross profit during the year ended September 30, 2019 , increased $ 16.4 million, or 40.8% , as compared to the year ended September 30, 2018 .

While total gross profits increased in connection with higher volumes, gross profit as a percentage of revenue decreased 0.7% to 17.6% for the year ended September 30, 2019 , as we took on a larger proportion of cost-plus arrangements.

These arrangements provide us with a reimbursement for our costs plus a markup, and are typically lower margin, but also lower risk, as compared with our fixed-cost arrangements.

During the year ended September 30, 2019, our Residential segment experienced a $6.4 million, or 11.0%, increase in gross profit as compared to the year ended September 30, 2018.

The increase in gross profit was driven primarily by higher volumes.

Gross margin as a percentage of revenue increased from 20.4% to 20.7% during the year ended September 30, 2019, as compared with the year ended September 30, 2018, as we benefited from improved commodity prices and the increased scale of our operations.

Selling, General and Administrative Expenses.

Our Communications segment’s selling, general and administrative expenses increased $ 5.8 million, or 22.5% during the year ended September 30, 2019, as compared to the year ended September 30, 2018.

Selling, general and administrative expenses as a percentage of revenues in the Communications segment decreased by 1.9% to 9.9% of segment revenue during the year ended September 30, 2019 , compared to the year ended September 30, 2018 , as we benefited from the increased scale of our operations.

Our Residential segment experienced a $5.5 million, or 13.2%, increase in selling, general and administrative expenses during the year ended September 30, 2019, compared to the year ended September 30, 2018.

This increase was driven by increased compensation expense in connection with a growing business, including both incentive profit sharing for division management and increased headcount.

Selling, general and administrative expenses as a percentage of revenues in the Residential segment increased from 14.5% to 15.0% of segment revenue during the year ended September 30, 2019.

Infrastructure Solutions

2020 Compared to 2019

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(Dollars in thousands, Percentage of revenues)

Revenues $ 128,379 100.0 % $ 136,790 100.0 %

Cost of services 93,358 72.7 % 105,863 77.4 %

Gross Profit 35,021 27.3 % 30,927 22.6 %

Selling, general and administrative expenses 20,418 15.9 % 18,664 13.6 %

Contingent consideration — — % (277) (0.2) %

Gain on sale of assets

Loss on sale of assets 35 — % 105 0.1 %

Operating Income 14,568 11.3 % 12,435 9.1 %

Our Communications segment’s revenues decreased by $5.6 million, or 2.5%, during the year ended September 30, 2018, as compared to the year ended September 30, 2017.

This decrease in revenue was primarily the result of two large projects with non-recurring customers we completed in fiscal 2017:

$7.9 million of revenue from a large system upgrade project for a school district, and $5.6 million related to construction of a sporting venue .

The decrease in revenue was offset by growth with our data center customers, as well as the acquisition of Azimuth Communications, Inc.

(“Azimuth”), which contributed $4.3 million of additional revenue during the year ended September 30, 2018 compared to the year ended September 30, 2017.

Our revenues for the year ended September 30, 2018, were also affected by the timing of capital spending by certain of our data center customers.

Revenues in our Communications segment can vary based on the capital spending cycles of our customers.

Revenues in our Infrastructure Solutions segment decreased by $8.4 million during the year ended September 30, 2020, a decrease of 6.1% compared to the year ended September 30, 2019.

The decrease in revenue was driven primarily by the timing of project schedules at certain of our large customers, compared to unusually strong demand in the prior year.

We also experienced a decrease in demand for our motor repair services, as several of our large customers temporarily shut down facilities in response to the COVID-19 pandemic.

Plant Power and Control Systems, L.L.C.

("PPCS"), a Birmingham, Alabama-based manufacturer and installer of custom engineered power distribution equipment, which we acquired in February 2020, contributed $12.6 million in revenue during the year ended September 30, 2020 subsequent to our acquisition of the business.

Gross Profit .

Our Communications segment’s gross profit during the year ended September 30, 2018, increased $2.3 million, or 6.0%, as compared to the year ended September 30, 2017.

Gross profit as a percentage of revenue increased 1.5% to 18.3% for the year ended September 30, 2018.

The increase was driven primarily by improved project execution.

As revenue growth slowed in 2018, our margins benefitted from lower training and hiring costs that often affect us during periods of higher growth.

Additionally, our acquisition of Azimuth during fiscal 2018 contributed $1.0 million of additional gross profit during the year ended September 30, 2018, compared to the year ended September 30, 2017.

Our Infrastructure Solutions segment’s gross profit during the year ended September 30, 2020, increased by $4.1 million, as compared to the year ended September 30, 2019, primarily as a result of successful project execution.

Gross profit as a percent of revenue increased to 27.3% for the year ended September 30, 2020, as our continued focus on procurement, engineering, and quality has resulted in a decrease in operating costs .

Our newly acquired PPCS business contributed $3.4 million in gross profit during the year ended September 30, 2020 subsequent to our acquisition of the business .

Selling, General and Administrative Expenses.

Our Communications segment’s selling, general and administrative expenses increased $1.8 million, or 7.4% during the year ended September 30, 2018, as compared to the year ended September 30, 2017.

Selling, general and administrative expenses as a percentage of revenues in the Communications segment increased to 11.8% of segment revenue during the year ended September 30, 2018, compared to 10.8% for the year ended September 30, 2017.

The increase was driven by our acquisition of Azimuth during fiscal 2018, which incurred selling, general and administrative expense for the year ended September 30, 2018, of $1.6 million, which includes amortization of intangible assets.

Infrastructure

Our Infrastructure Solutions segment’s selling, general and administrative expenses during the year ended September 30, 2020, increased by $1.8 million compared to the year ended September 30, 2019, driven by $2.0 million of expense, including amortization of intangible assets, incurred at our newly acquired PPCS business.

Expenses incurred at PPCS were partly offset by a decrease in travel and healthcare costs.

The selling, general and administrative expenses as a percentage of revenue increased from 13.6% for the year ended September 30, 2019, to 15.9% for the year ended September 30, 2020.

2019 Compared to 2018

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(Dollars in thousands, Percentage of revenues)

Revenues $ 136,790 100.0 % $ 97,163 100.0 %

Cost of services 105,863 77.4 % 75,337 77.5 %

Gross Profit 30,927 22.6 % 21,826 22.5 %

Selling, general and administrative expenses 18,664 13.6 % 18,293 18.8 %

2 unchanged sentences

Operating Income 12,435 9.1 % 3,227 3.3 %

Revenues in our Infrastructure Solutions segment increased by $ 39.6 million during the year ended September 30, 2019 , an increase of 40.8% compared to the year ended September 30, 2018 .

R evenues in our Infrastructure Solutions segment increased by $39.6 million during the year ended September 30, 2019, an increase of 40.8% compared to the year ended September 30, 2018.

The increase in revenue relates primarily to our generator enclosure business, driven by increased demand for enclosures to be used at data centers.

6 unchanged sentences

However, the selling, general and administrative expenses as a percentage of revenue decreased from 18.8% for the year ended September 30, 2018, to 13.6% for the year ended September 30, 2019.

Through a focus on controlling costs, we were able to scale our business effectively without adding significant general and administrative expense.

Through a focus on controlling costs, we were able to scale our business effectively without adding significant selling, general and administrative expense.

Commercial & Industrial

2020 Compared to 2019

1 unchanged sentence

(Dollars in thousands, Percentage of revenues)

Revenue $ 255,546 100.0 % $ 305,624 100.0 %

Cost of services 234,492 91.8 % 275,722 90.2 %

Gross Profit 21,054 8.2 % 29,902 9.8 %

Selling, general and administrative expenses 32,128 12.6 % 27,815 9.1 %

Goodwill impairment expense 6,976 2.7 % — — %

Contingent consideration (11) — % — — %

(Gain)/Loss on sale of assets

Gain on sale of assets (45) — % (30) — %

Operating income (17,994) (7.0) % 2,117 0.7 %

Revenues in our Infrastructure Solutions segment increased by $13.3 million during the year ended September 30, 2018, an increase of 15.9% compared to the year ended September 30, 2017.

The increase was primarily driven by $14.0 million of additional revenue contributed by Freeman Enclosure Systems, LLC (“Freeman”), which we acquired during the second quarter of fiscal 2017.

An increase in revenues from the manufacture of bus duct was offset by a decrease in revenue from our motor repair business, which remains highly dependent on the steel industry.

Revenues in our Commercial & Industrial segment decreased $50.1 million, or 16.4%, during the year ended September 30, 2020, compared to the year ended September 30, 2019.

The decrease was largely driven by lower demand for large, industrial projects, particularly in the agricultural and food processing sectors.

We also experienced a reduction in demand for time-and-material work.

The market for this segment’s services remains highly competitive, and disruptions caused by the COVID-19 pandemic have resulted in some delays in the awarding of new projects, as well as the progress of certain existing projects.

Gross Profit .

Our Infrastructure Solutions segment’s gross profit during the year ended September 30, 2018, increased by $1.4 million, as compared to the year ended September 30, 2017.

Gross profit as a percent of revenue decreased to 22.5% for the year ended September 30, 2018.

Margins improved year over year at both our bus duct manufacturing business and our motor repair business.

However, our overall gross margin was affected by the mix of work performed, as Freeman has lower margins than our motor repair business, but represented a larger percentage of our total revenues.

Our Commercial & Industrial segment’s gross profit during the year ended September 30, 2020 decreased by $8.8 million, or 29.6%, as compared to the year ended September 30, 2019.

This was driven primarily by a decrease in volume as discussed above, and certain project inefficiencies.

As a percentage of revenue, gross profit decreased from 9.8% for the year ended September

30, 2019, to 8.2% for the year ended September 30, 2020, as a result of certain project inefficiencies, as well as a less efficient absorption of branch level overheads in connection with lower volumes.

Selling, General and Administrative Expenses.

Our Infrastructure Solutions segment’s selling, general and administrative expenses during the year ended September 30, 2018, increased by $0.4 million compared to the year ended September 30, 2017.

The increase was primarily the result of $0.3 million increase in general and administrative costs incurred at Freeman, which was acquired during the second quarter of fiscal 2017.

Additional selling and administrative costs in support of growth of the business, were largely offset by a decrease in intangible amortization expense related to the acquisition of Technibus Inc.

in fiscal 2016.

Our Commercial & Industrial segment’s selling, general and administrative expenses during the year ended September 30, 2020, increased $4.3 million, or 15.5%, compared to the year ended September 30, 2019.

The increased expense for the year ended September 30, 2020 includes a reserve for doubtful accounts related to a commercial dispute, as well as an increase in legal fees.

Additionally, we have invested in our procurement process and incurred costs in connection with changes to our organization structure, with the goal of improving gross margins in the future.

Selling, general and administrative expenses as a percentage of revenue increased to 12.6% from 9.1%, reflecting the impact of the decreased scale of our operations.

Goodwill Impairment Expense .

Throughout 2020, our Commercial & Industrial segment continued to experience operating losses.

Although the business has maintained a focus on operational improvements and cost reductions, its performance continued to be affected by the ongoing COVID-19 pandemic and other market factors.

During the third and fourth fiscal quarter, we had expected to see operational and market improvements, as government restrictions and “stay at home” orders began to expire.

However, the continuing impact of COVID-19 and the resulting increase in economic uncertainty has continued to impact customer decisions on awarding of new work.

In this increasingly competitive and uncertain environment, demand for new construction in market sectors such as retail, office, and hospitality has declined, and our backlog has decreased.

As a result of these developments, and continuing operational difficulties we experienced in the fourth fiscal quarter, we concluded in performing our annual goodwill impairment assessment that the fair value of our Commercial & Industrial reporting unit was less than its carrying amount, which resulted in the recognition of a non-cash goodwill impairment charge of $7.0 million for the year ended September 30, 2020.

2019 Compared to 2018

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(Dollars in thousands, Percentage of revenues)

Revenues $ 305,624 100.0 % $ 274,299 100.0 %

Cost of services 275,722 90.2 % 244,656 89.2 %

Selling, general and administrative expenses

(Gain)/Loss on sale of assets

Operating Income

Our Residential segment’s revenues increased by $ 27.6 million, or 9.7% , during the year ended September 30, 2019 , as compared to the year ended September 30, 2018 .

This increase was partly offset by a $3.2 million decrease in our solar and service revenues for the year ended September 30, 2019 , compared with the prior year.

Gross profit 29,902 9.8 % 29,643 10.8 %

During the year ended September 30, 2019 , our Residential segment experienced a $ 6.4 million, or 11.0% , increase in gross profit as compared to the year ended September 30, 2018 .

The increase in gross profit was driven primarily by higher volumes.

Gross margin as a percentage of revenue increased 0.3% to 20.7% during the year ended September 30, 2019 , as compared with the year ended September 30, 2018 , as we benefited from improved commodity prices and the increased scale of our operations.

Selling, general and administrative expenses 27,815 9.1 % 27,031 9.9 %

Our Residential segment experienced a $ 5.5 million, or 13.2% , increase in selling, general and administrative expenses during the year ended September 30, 2019 , compared to the year ended September 30, 2018 .

This increase was driven by increased compensation expense in connection with a growing business, including both incentive profit sharing for division management and increased headcount.

Selling, general and administrative expenses as a percentage of revenues in the Residential segment increased by 0.5% to 15.0% of segment revenue during the year ended September 30, 2019 .

2018 Compared to 2017

Year Ended September 30,

(Dollars in thousands, Percentage of revenues)

Cost of services

Selling, general and administrative expenses

Loss on sale of assets

Operating Income

Our Residential segment’s revenues increased by $11.7 million, or 4.3%, during the year ended September 30, 2018, as compared to the year ended September 30, 2017.

The increase was driven by our single-family business, where revenues increased by $28.3 million for the year ended September 30, 2018, compared with the year ended September 30, 2017.

Service and solar revenues also increased by $4.7 million for the year ended September 30, 2018, compared with the prior year.

These increases were partly offset by a decrease in multi-family revenues, which declined by $21.3 million.

While backlog was lower at the beginning of fiscal 2018, we ended fiscal 2018 with backlog up approximately 28% over prior year.

Contingent consideration — — % (100) — %

Gain on sale of assets (30) — % (37) — %

Operating income (loss) 2,117 0.7 % 2,749 1.0 %

Revenues in our Commercial & Industrial segment increased $31.3 million, or 11.4%, during the year ended September 30, 2019, compared to the year ended September 30, 2018.

The increase in revenue over this period was driven by an increase in large agricultural and other projects in the Midwest.

Gross Profit.

During the year ended September 30, 2018, our Residential segment experienced a $4.9 million, or 7.7%, decrease in gross profit as compared to the year ended September 30, 2017.

The decrease in gross profit was driven primarily by an increase in copper and other commodity prices, as well as an increase in labor costs, as a result of tightening labor markets.

Gross margin as a percentage of revenue decreased 2.7% to 20.4% during the year ended September 30, 2018, as compared with the year ended September 30, 2017.

Our Commercial & Industrial segment’s gross profit during the year ended September 30, 2019 increased by $0.3 million, or 0.9%, as compared to the year ended September 30, 2018.

We benefited from higher volumes;

however, these benefits were offset by certain project inefficiencies during the second half of the year.

As a percentage of revenue, gross profit decreased from 10.8% for the year ended September 30, 2018, to 9.8% for the year ended September 30, 2019, as a result of these project inefficiencies.

Selling, General and Administrative Expenses.

Our Residential segment experienced a $2.3 million, or 5.2%, decrease in selling, general and administrative expenses during the year ended September 30, 2018, compared to the year ended September 30, 2017, driven by decreased compensation expense, primarily as a result of a decrease of $1.2 million in variable compensation and incentive costs associated with decreased profitability, partly offset by an increase in salary and travel costs.

Selling, general and administrative expenses as a percentage of revenues in the Residential segment decreased by 1.5% to 14.5% of segment revenue during the year ended September 30, 2018.

Our Commercial & Industrial segment’s selling, general and administrative expenses during the year ended September 30, 2019, increased $0.8 million, or 2.9%, compared to the year ended September 30, 2018, but decreased from 9.9% as a percentage of revenue for the year ended September 30, 2018 to 9.1% for the year ended September 30, 2019, as we benefited from the increased scale of our operations and a focus on controlling costs.

INTEREST AND OTHER EXPENSE, NET

Year Ended September 30,

2020 2019 2018

(In thousands)

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Total interest expense 777 1,857 1,946

Other income, net

Other (income) expense, net 12 (148) (340)

Total interest and other expense, net 789 1,709 1,606

Interest Expense

During the year ended September 30, 2020, we incurred interest expense of $0.8 million primarily comprised of interest expense from our revolving credit facility with Wells Fargo Bank, N.A.

(“Wells Fargo”), an average letter of credit balance of $6.6 million under our revolving credit facility and an average unused line of credit balance of $73.7 million.

This compares to interest expense of $ 1.9 million

for the year ended September 30, 2018 , primarily comprised of interest expense from our revolving credit facility with Wells Fargo, an average letter of credit balance of $6.6 million under our revolving credit facility and an average unused line of credit balance of $63.2 million.

For the year ended September 30, 2017 , we incurred interest expense of $ 1.7 million on a debt balance primarily comprised of our revolving credit facility with Wells Fargo, an average letter of credit balance of $6.6 million under our revolving credit facility, and an average unused line of credit balance of $47.5 million.

(“Wells Fargo”) and fees on an average letter of credit balance of $6.9 million under our revolving credit facility and an average unused line of credit balance of $89.6 million.

This compares to interest expense of $1.9 million for the year ended September 30, 2019, primarily comprised of interest expense from our revolving credit facility with Wells Fargo and fees on an average letter of credit balance of $6.6 million under our revolving credit facility and an average unused line of credit balance of $73.7 million.

For the year ended September 30, 2018, we incurred interest expense of $1.9 million on a debt balance primarily comprised of our revolving credit facility with Wells Fargo and fees on an average letter of credit balance of $6.6 million under our revolving credit facility, and an average unused line of credit balance of $63.2 million.

PROVISION FOR INCOME TAXES

For the year ended September 30, 2020, we recorded income tax expense of $8.7 million.

Income tax expense was partly offset by a $4.0 million benefit related to the recognition of previously unrecognized tax benefits.

Income tax expense was partly offset by a $3.2 million benefit related to the recognition of previously unrecognized tax benefits as well as a $3.3 million benefit related to the release of valuation allowance on certain state net operating loss carryforwards.

For the year ended September 30, 2019, we recorded income tax expense of $6.7 million.

Income tax expense was partly offset by a $4.0 million benefit related to the recognition of previously unrecognized tax benefits.

Our income tax expense included a charge of $ 31.3 million to re-measure our deferred tax assets and liabilities to reflect the impact from the enactment of the Tax Cuts and Jobs Act on December 22, 2017.

For the year ended September 30, 2018, we recorded income tax expense of $38.2 million.

Income tax expense was partly offset by a $1.9 million benefit related to the recognition of previously unrecognized tax benefits.

Our income tax expense included a charge of $31.3 million to re-measure our deferred tax assets and liabilities to reflect the impact from the enactment of the Tax Cuts and Jobs Act on December 22, 2017.

WORKING CAPITAL

During the year ended September 30, 2019 , working capital exclusive of cash increased by $ 12.0 million from September 30, 2018 , reflecting a $ 41.1 million increase in current assets excluding cash and a $ 29.1 million increase in current liabilities during the period, reflecting a continued investment in growing our business.

During the year ended September 30, 2020, working capital exclusive of cash decreased by $8.6 million from September 30, 2019, reflecting a $40.4 million increase in current assets excluding cash and a $49.0 million increase in current liabilities during the period.

During the year ended September 30, 2020, our current assets exclusive of cash increased to $317.9 million, as compared to $277.5 million as of September 30, 2019.

The increase primarily relates to a $ 34.7 million increase in accounts receivable, in connection with growth in our business.

Days sales outstanding was 62 as of each of September 30, 2019 and 2018 .

The increase primarily relates to a $26.7 million increase in accounts receivable and an $11.7 million increase in retainage, in connection with growth in our business.

Days sales outstanding decreased to 61 as of September 30, 2020, from 62 as of September 30, 2019.

While the rate of collections may vary, our typically secured position, resulting from our ability in general to secure liens against our customers’ overdue receivables, offers some protection that collection will occur eventually to the extent that our security retains value.

During the year ended September 30, 2019 , our total current liabilities increase d by $ 29.1 million to $ 193.5 million, compared to $ 164.4 million as of September 30, 2018 , primarily related to an increase in accounts payable and accrued liabilities in connection with the growth of our business.

During the year ended September 30, 2020, our total current liabilities increased by $49.0 million to $242.4 million, compared to $193.5 million as of September 30, 2019, primarily related to an increase in accounts payable and accrued liabilities, and a $15.2 million increase in billings in excess of costs and estimated earnings in connection with the growth of our business.

Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a surety.

These bonds provide a guarantee to the customer that we will perform under the terms of our contract and that we will pay our subcontractors and vendors.

These bonds provide a guarantee to the customer that we will perform under the terms of our contract and that we will pay our

subcontractors and vendors.

If we fail to perform under the terms of our contract or to pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond.

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The Revolving Credit Facility

We maintain a $100 million revolving credit facility with Wells Fargo that matures September 30, 2024, (as amended, the “Amended Credit Agreement”).

Terms of the Amended Credit Agreement

Borrowings under the Credit Facility may not exceed a “borrowing base” that is determined monthly by our lenders based on available collateral, primarily certain accounts receivables, inventories, and equipment.

Under the terms of the Amended Credit Agreement, amounts outstanding bear interest at a per annum rate equal to a Daily Three Month LIBOR (as defined in the Amended Credit Agreement), plus an interest rate margin, which is determined quarterly, based on the following thresholds:

We maintain a $100 million revolving credit facility that matures on September 30, 2024 pursuant to an agreement with Wells Fargo (as amended, the “Amended Credit Agreement”).

Borrowings under the credit facility may not exceed a “borrowing base” that is determined monthly by Wells Fargo based on available collateral, primarily certain accounts receivables, inventories, and equipment.

Under the terms of the Amended Credit Agreement, amounts outstanding bear interest at a per annum rate equal to a Daily Three Month LIBOR (as defined in the Amended Credit Agreement and subject to replacement with a new benchmark as set forth therein), plus an interest rate margin, which is determined quarterly, based on the following thresholds:

Level Thresholds

Interest Rate Margin

If Liquidity is less than 35% of the Maximum Revolver Amount at any time during the period

1.75 percentage points

If Liquidity is greater than or equal to 35% of the Maximum Revolver Amount at all times during the period and less than 50% of the Maximum Revolver Amount at any time during the period

1.50 percentage points

If Liquidity is greater than or equal to 50% of the Maximum Revolver Amount at all times during the period

1.25 percentage points

In addition, we are charged monthly in arrears for (1) an unused commitment fee of 0.25% per annum, (2) a collateral monitoring fee of $5 thousand per quarter, (3) a letter of credit fee based on the then-applicable interest rate margin and (4) certain other fees and charges as specified in the Amended Credit Agreement.

The Amended Credit Agreement contains customary affirmative, negative and financial covenants, as well as events of default.

I If Liquidity is less than 35% of the Maximum Revolver Amount at any time during the period 1.75 percentage points

II If Liquidity is greater than or equal to 35% of the Maximum Revolver Amount at all times during the period and less than 50% of the Maximum Revolver Amount at any time during the period 1.50 percentage points

III If Liquidity is greater than or equal to 50% of the Maximum Revolver Amount at all times during the period 1.25 percentage points

In addition, we are charged monthly in arrears for (1) an unused commitment fee of 0.25% per annum, (2) a collateral monitoring fee of $5 thousand per quarter, (3) a letter of credit fee based on the then-applicable interest rate margin (4) appraisal fees, costs and expenses and (5) certain other fees and charges as specified in the Amended Credit Agreement.

The Amended Credit Agreement contains customary affirmative, negative and financial covenants, as well as customary events of default.

As of September 30, 2020, we were in compliance with the financial covenants under the Amended Credit Agreement, requiring that we maintain:

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Our Fixed Charge Coverage Ratio is calculated as follows (with capitalized terms as defined in the Amended Credit Agreement):

(i) our trailing twelve month EBITDA, less Non-Financed Capital Expenditures (other than capital expenditures financed by means of an advance under the credit facility), cash taxes and all Restricted Junior Payments consisting of certain Pass-Through Tax Liabilities, divided by (ii) the sum of our cash interest (other than interest paid-in-kind, amortization of financing fees, and other non-cash interest expense) and principal debt payments (other than repayment of principal on advances under the credit facility and including cash payments with respect to capital leases), any management, consulting, monitoring, and advisory fees paid to an affiliate, and all Restricted Junior Payments (other than Pass-Through Tax Liabilities) and other cash distributions;

provided, that if any Loan Party makes an acquisition consented to by Lender after the date of the Amended Credit Agreement, the components of the Fixed Charge Coverage Ratio will be calculated for such fiscal period after giving pro forma effect to the acquisition assuming that such transaction has occurred on the first day of such period (including pro forma adjustments arising out of events which are directly attributable to

such acquisition, are factually supportable, and are expected to have a continuing impact, in each case to be reasonably agreed to by the Lender).

As defined in the Amended Credit Agreement, EBITDA is calculated as consolidated net income (or loss), less extraordinary gains, interest income, non-operating income and income tax benefits and decreases in any change in LIFO reserves, plus stock compensation expense, non-cash extraordinary losses (including, but not limited to, a non-cash impairment charge or write-down), Interest Expense, income taxes, depreciation and amortization, increases in any change in LIFO reserves, and losses from the wind-down of our Denver and Roanoke branches, up to a maximum exclusion of $5 million for a given measurement period in each case, determined on a consolidated basis in accordance with GAAP;

provided, that if any Loan party makes an acquisition consented to by Lender after the date of the Amended Credit Agreement, EBITDA for such fiscal period shall be calculated after giving pro forma effect to the acquisition assuming that such transaction has occurred on the first day of such period (including pro forma adjustments arising out of events which are directly attributable to such acquisition, are factually supportable, and are expected to have a continuing impact, in each case to be reasonably agreed to by Lender).

(i) our trailing twelve month EBITDA, less Non-Financed Capital Expenditures (other than capital expenditures financed by means of an advance under the credit facility), cash taxes and all Restricted Junior Payments (as defined in the Amended Credit Agreement) consisting of certain Pass-Through Tax Liabilities (as defined in the Amended Credit Agreement), divided by (ii) the sum of our cash interest (other than interest paid-in-kind, amortization of financing fees, and other non-cash interest expense) and principal debt payments (other than repayment of principal on advances under the credit facility and including cash payments with respect to capital leases), any management, consulting, monitoring, and advisory fees paid to an affiliate, and all Restricted Junior Payments (other than Pass-Through Tax Liabilities) and other cash distributions;

provided, that if we make an acquisition consented to by Wells Fargo, the components of the Fixed Charge Coverage Ratio will be calculated for such fiscal period after giving pro forma effect to the acquisition assuming that such transaction has occurred on the first day of such period (including pro forma adjustments arising out of events which are directly attributable to such acquisition, are factually supportable, and are expected to have a continuing impact, in each case to be reasonably agreed to by Wells Fargo).

As defined in the Amended Credit Agreement, EBITDA is calculated as consolidated net income (or loss), less extraordinary gains, interest income, non-operating income and income tax benefits and decreases in any change in LIFO reserves, plus stock compensation expense, non-cash extraordinary losses (including, but not limited to, a non-cash impairment charge or write-down), Interest Expense, income taxes, depreciation and amortization, and increases in any change in LIFO reserves for such period, determined on a consolidated basis in accordance with GAAP.

If in the future our Liquidity falls below $20 million (or Excess Availability falls below 50% of our minimum Liquidity), our Fixed Charge Coverage Ratio is less than 1.1:1.0, or if we otherwise fail to perform or otherwise comply with certain of our covenants or other agreements under the Amended Credit Agreement, it would result in an event of default under the Amended Credit Agreement, which could result in some or all of any indebtedness we may take on becoming immediately due and payable.

At September 30, 2019 , we had $ 6.5 million in outstanding letters of credit with Wells Fargo and no outstanding borrowings.

At September 30, 2020, we had $5.7 million in outstanding letters of credit with Wells Fargo and $12 thousand of outstanding borrowings.

From time to time, the Company may invest in non-controlling positions in the debt or equity securities of other businesses.

Our Board of Directors has approved an investment policy that permits the Company to invest our cash in liquid and marketable securities that include equities and fixed income securities.

Equity securities may include unrestricted, publicly traded stock that is listed on a major exchange or a national, over-the-counter market and that is appropriate for our portfolio objectives, asset class, and/or investment style, and fixed income securities are required to have an investment grade credit quality at the time of purchase.

Our Board of Directors has approved an investment policy that permits the Company to invest our cash in liquid and marketable securities that include equities and fixed income securities, subject to size limits on investments individually and in the aggregate.

Equity securities may include unrestricted, publicly traded stock that is listed on a major exchange or a national, over-the-counter market and that is appropriate for our portfolio objectives, and fixed income securities are required to have an investment grade credit quality at the time of purchase.

Operating Activities

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Operating activities provided net cash of $76.7 million during the year ended September 30, 2020, as compared to $38.7 million of net cash provided in the year ended September 30, 2019.

The increase in operating cash flow resulted primarily from an increase in earnings, partly offset by an increase in working capital in support of our growth.

In particular increased accounts receivable resulted in cash outflows of $ 35.3 million, offset by cash inflows of $22.5 million driven by increased accrued liabilities.

The increase in operating cash flow resulted primarily from an increase in earnings, as well as a $9.0 million benefit from the deferral of payroll taxes as permitted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and a decrease in working capital.

Operating activities provided net cash of $38.7 million during the year ended September 30, 2019, as compared to $12.2 million of net cash provided in the year ended September 30, 2018.

The decrease in operating cash flow is the result of an investment in working capital to support the growth of our business.

In particular, costs in excess of billings increased by $18.1 million as a result of an increase in cost-plus work, where costs are typically billed later than in our typical fixed-price arrangements, as well as an increase in orders for generator enclosures, which are billed when shipped.

The increase in operating cash flow resulted primarily from an increase in earnings, partly offset by an increase in working capital in support of our growth.

In particular, increased accounts receivable resulted in cash outflows of $35.3 million, offset by cash inflows of $22.5 million driven by increased accounts payable and accrued liabilities.

Investing Activities

In the year ended September 30, 2019 , net cash used in investing activities was $ 5.7 million as compared to $ 11.9 million of net cash used by investing activities in the year ended September 30, 2018 .

In the year ended September 30, 2020, net cash used in investing activities was $33.6 million, as compared to $5.7 million of net cash used in investing activities in the year ended September 30, 2019.

Investing activities for the year ended September 30, 2020 include $4.7 million of capital expenditures and $29.0 million for the acquisition of businesses.

In the year ended September 30, 2019, net cash used in investing activities was $5.7 million, as compared to $11.9 million of net cash used in investing activities in the year ended September 30, 2018.

Investing activities for the year ended September 30, 2019, include $6.3 million of capital expenditures.

In the year ended September 30, 2018 , net cash used in investing activities was $ 11.9 million as compared to $ 24.5 million of net cash used by investing activities in the year ended September 30, 2017 .

Investing activities for the year ended September 30, 2018 , include $ 7.4 million for the acquisition of businesses, as well as $ 4.6 million of capital expenditures.

Financing Activities

Net cash used in financing activities was $8.5 million in the year ended September 30, 2020, compared to $40.3 million used in the year ended September 30, 2019.

For the year ended September 30, 2020, we used $7.7 million to repurchase our shares under our stock repurchase program, as well as to satisfy statutory withholding requirements upon the vesting of employee stock compensation.

Net cash used in financing activities was $40.3 million in the year ended September 30, 2019, compared to $2.4 million used in the year ended September 30, 2018.

For the year ended September 30, 2019, we used $119.5 million to repay a portion of our revolving credit facility, partly offset by $89.3 million of additional borrowings.

We also used $ 9.8 million to repurchase our shares in conjunction with our stock repurchase program, as well as to satisfy statutory withholding requirements upon the vesting of employee stock compensation.

Financing activities used net cash of $ 2.4 million in the year ended September 30, 2018 , compared to $ 2.7 million used in the year ended September 30, 2017 .

For the year ended September 30, 2018 , we used $ 2.1 million for the repurchase of the common stock under the Company’s stock repurchase program.

We repurchased an aggregate $1.6 million of common stock in open market transactions, pursuant to the stock repurchase program, and we used an additional $0.5 million for the repurchase of common stock to satisfy employee payroll tax withholding obligations.

We also used $9.8 million to repurchase our shares under our stock repurchase program, as well as to satisfy statutory withholding requirements upon the vesting of employee stock compensation.

CONTROLLING SHAREHOLDER

Tontine Associates, L.L.C.

("Tontine Associates"), together with its affiliates (collectively, “Tontine”), is the Company’s controlling stockholder, owning approximately 58 percent of the Company’s outstanding common stock according to a Form 4 filed with the SEC by Tontine on October 3, 2019 .

Tontine is the Company’s controlling shareholder, owning approximately 56 percent of the Company’s outstanding common stock, based on an amended Schedule 13D filed by Tontine with the SEC on October 9, 2020.

Accordingly, Tontine has the ability to exercise significant control over our affairs, including the election of directors and most actions requiring the approval of shareholders.

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The Board Observer, who shall serve at the discretion of and must be reasonably acceptable to those members of the Board who are not affiliates of Tontine, shall have no voting rights or other decision making authority.

Subject to the terms and conditions set forth in the Observer Agreement, so long as Tontine has the right to appoint a Board Observer, the Board Observer will have the right to attend and participate in meetings of the Board and the committees thereof, subject to confidentiality requirements, and to receive reimbursement for reasonable out-of-pocket expenses incurred in his or her capacity as a Board Observer and such rights to coverage under the Company’s directors’ and officers’ liability insurance policy as are available to other directors.

Gendell was appointed as a member of the Board of Directors and as Chairman of the Board in November 2016.

Gendell was appointed Chief Executive Officer of the Company effective October 1, 2020, having served as the Company's Interim Chief Executive Officer since July 31, 2020.

Gendell also serves as Chairman of the Board of Directors, a position he has held since November 2016.

He is the managing member and founder of Tontine, and the brother of David B.

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As is common in our industry, we have entered into certain off-balance sheet arrangements that expose us to increased risk.

Our significant off-balance sheet transactions include commitments associated with non-cancelable operating leases, letter of credit obligations, firm commitments for materials and surety guarantees.

We enter into operating leases for many of our vehicle and equipment needs.

These leases allow us to retain our cash when we do not own the vehicles or equipment, and we pay a monthly lease rental fee.

At the end of the lease, we have no further obligation to the lessor.

We may cancel or terminate a lease before the end of its term.

Typically, we would be liable to the lessor for various lease cancellation or termination costs and the difference between the fair market value of the leased asset and the implied book value of the leased asset as calculated in accordance with the lease agreement.

Our significant off-balance sheet transactions include letter of credit obligations, firm commitments for materials and surety guarantees.

Some of our customers and vendors require us to post letters of credit as a means of guaranteeing performance under our contracts and ensuring payment by us to subcontractors and vendors.

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To date, we have not incurred any material costs to indemnify our sureties for expenses they incurred on our behalf.

As of September 30, 2019 , our future contractual obligations due by September 30 of each of the following fiscal years for commenced agreements include (in thousands):

Long-term debt obligations

Operating lease obligations

Our other commitments expire by September 30 of each of the following fiscal years (in thousands):

Standby letters of credit

CRITICAL ACCOUNTING POLICIES

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Approximately 9% of our revenues are earned from contracts where we are paid on a time and materials basis.

Our most significant cost drivers are the cost of labor, the cost of materials and the cost of casualty and

health insurance.

Our most significant cost drivers are the cost of labor, the cost of materials and the cost of casualty and health insurance.

These costs may vary from the costs we originally estimated.

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We generally consider contracts substantially complete upon departure from the work site and acceptance by the customer.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs.

Contract costs

include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs.

Changes in job performance, job conditions, estimated contract costs, profitability and final contract settlements may result in revisions to costs and income, and the effects of such revisions are recognized in the period in which the revisions are determined.

Provisions for total estimated losses on uncompleted contracts are made in the period in which such losses are determined.

We generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project.

We generally do not incur significant costs related to obtaining or fulfilling a contract prior to the start of a project.

When significant pre‑contract costs are incurred, they will be capitalized and amortized on a percentage of completion basis over the life of the contract.

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Changes in these assumptions and estimates or significant changes to the market value of our common stock could materially impact our results of operations or financial position.

We recorded a goodwill impairment of $7.0 million during the year ended September 30, 2020.

We did not record goodwill impairment during the years ended September 30, 2019 or 2018.

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Changes in these assumptions and estimates could materially impact our results of operations or financial projections.

No impairment charges were recorded in the years ended September 30, 2019 , 2018 or 2017 .

No impairment charges related to amortizable assets were recorded in the years ended September 30, 2020, 2019 or 2018.

Current and Non-Current Accounts Receivable and Provision for Doubtful Accounts.

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We are insured for workers’ compensation, automobile liability, general liability, construction defects, pollution, employment practices and employee-related health care claims, subject to deductibles.

Our general liability program provides coverage for bodily injury and property damage.

Our general liability program provides

coverage for bodily injury and property damage.

Losses up to the deductible amounts are accrued based upon our estimates of the liability for claims incurred and an estimate of claims incurred but not reported.

7 unchanged sentences

The estimation of required valuation allowances includes estimates of future taxable income.

In assessing the realizability of deferred tax assets at September 30, 2019 , we concluded, based upon the assessment of positive and negative evidence, that it is more likely than not that the Company will generate sufficient table income within the applicable NOL carryforward periods to realize $ 40.9 million of its deferred tax assets.

In assessing the realizability of deferred tax assets at September 30, 2020, we concluded, based upon the assessment of positive and negative evidence, that it is more likely than not that the Company will generate sufficient taxable income within the applicable NOL carryforward periods to realize $33.8 million of its deferred tax assets.

We considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

An inability to generate sufficient taxable income in future periods to realize our deferred tax assets may lead to a future need for a valuation allowance and a corresponding reduction in GAAP net income.

In addition, any further reduction in the federal statutory tax rate in the future could also cause a reduction in the economic benefit of the NOL available to us and a corresponding charge to reduce the book value of the deferred tax asset recorded on our balance sheet.

Income Taxes.

11 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis