What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-12-03 compared with 2020-12-07 · 187 added, 187 removed, 302 unchanged (55% of the section changed)

6 unchanged sentences

“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 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:

IES Holdings, Inc., a Delaware corporation, designs and installs integrated electrical and technology systems and provides infrastructure products and services to a variety of end markets, including data centers, residential housing, and commercial and industrial facilities.

Our operations are organized into four principal business segments:

Communications, Residential, Infrastructure Solutions and Commercial & Industrial.

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Our performance is affected by a number of trends that drive the demand for our services.

In particular, the markets in which we operate are exposed to many regional and national trends such as the demand for single and multi-family housing, the need for mission critical facilities as a result of technology-driven advancements, the degree to which in-house maintenance departments outsource maintenance and repair work, output levels and equipment utilization at heavy industrial facilities, demand for our rail and infrastructure services and custom engineered products, and changes in commercial, institutional, public infrastructure and electric utility spending.

Over the long term, we believe that there are numerous factors that could positively drive demand and affect growth within the industries in which we operate, including (i) population growth, which will increase the need for commercial and residential facilities, (ii) aging public infrastructure, which must be replaced or repaired, (iii) an increasing demand for data storage, (iv) increased emphasis on environmental and energy efficiency, which may lead to both increased public and private spending, and (v) demand for natural gas which is expected to spur the construction of and modifications to heavy industrial facilities.

However, there can be no assurance that we will not experience a decrease in demand for our services due to economic, technological or other factors beyond our control, including weakness in the oil and gas sector, interest rate changes, increases in steel and commodity prices and other economic factors, which may reduce the demand for housing including in the Texas region, where our Residential division operates, and may impact levels of construction.

In particular, the markets in which we operate are exposed to many regional and national trends such as the demand for single and multi-family housing, the need for mission critical facilities as a result of technology-driven advancements, the degree to which in-house maintenance departments outsource maintenance and repair work, demand for back-up power, output levels and equipment utilization at heavy industrial facilities, demand for our rail and infrastructure services and custom engineered products, and changes in commercial, institutional, public infrastructure and electric utility spending.

Over the long term, we believe that there are numerous factors that could positively drive demand and affect growth within the industries in which we operate, including (i) population growth, which will increase the need for commercial and residential facilities, (ii) aging public infrastructure, which must be replaced or repaired, (iii) an increasing demand for data storage, and (iv) increased emphasis on environmental and energy efficiency, which may lead to increased public and private spending.

However, there can be no assurance that we will not experience a decrease in demand for our services due to economic, technological or other factors beyond our control, including weakness in the oil and gas sector, interest rate changes, increases in copper, aluminum, steel, fuel, electrical components, certain plastics, and other commodity prices and other economic factors, which may reduce the demand for housing in the regions where our Residential division operates, and may impact levels of construction.

For a further discussion of the industries in which we operate, please see Item 1.

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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 2021 as compared to fiscal 2020.

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

In addition, revenue growth during fiscal 2021 at our Residential and Infrastructure Solutions segments reflects the contribution of acquisitions completed during fiscal 2021.

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 2022 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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Our ability to generate cash depends on many externally influenced factors, including demand for our services, the availability of projects at margins acceptable to us, the ultimate collectability of our receivables, our ability to borrow on our credit facility, and our ability to raise funds in the capital markets, among many other factors.

We anticipate that the combination of cash on hand, cash flows from operations and available capacity under our credit facility will provide sufficient cash to enable us to meet our working capital needs, debt service requirements and capital expenditures for property and equipment through the next twelve months.

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.

We expect our capital expenditures, including the expected expansion and improvement of certain of our operating facilities in fiscal 2022, will range from $30.0 million to $35.0 million for the year ending on September 30, 2022.

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.

The COVID-19 pandemic and its ongoing impact on markets and the supply chain continue to influence trends affecting our business.

We are seeing indicators that some of our customers that delayed projects or reduced operations during the pandemic are resuming normal levels of activity.

However, we continue to experience elevated prices or limited availability for certain materials necessary for our projects, notably copper, aluminum, steel, fuel, electrical components, and certain plastics.

The COVID-19 pandemic and related responses are continuing to evolve and, therefore, continue to present potential new risks to our business, particularly in light of new variants of the virus.

To date, the COVID-19 pandemic has had a number of adverse impacts on our results of operations.

We continue to monitor and implement evolving health and safety protocols, including vaccine or testing mandates imposed by either governmental entities or our customers and the prohibitions on vaccine mandates adopted by certain of the states in which we operate that may conflict with federal vaccine mandates.

Factors that we expect will continue to affect our results of operations in the future include, but are not limited to, the potential impacts on our workforce of either illness or the shut-down of job sites;

the impact of government or customer vaccine or testing mandates on employee recruiting and retention;

a reduced demand for our services;

increases in operating costs due to disruptions, personal protective equipment requirements and other increased employment-related costs;

supply chain disruptions;

increased material prices;

and limitations on the ability of our customers to pay us on a timely basis.

We may also be more vulnerable to security breaches, cyber-attacks, computer viruses, ransomware, or other similar events, particularly with respect to employees working remotely.

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

The ultimate impact and the extent to which the COVID-19 pandemic will

continue to affect our business, results of operations and financial condition are difficult to predict and depend on numerous evolving factors outside our control including:

emergence of new variants of the virus;

government, social, business and other actions that have been and will be taken in response to the pandemic;

any additional waves of COVID-19 infections;

vaccine efficacy on new variants of the virus;

the impact of government or customer vaccine or testing mandates on employee recruiting and retention;

and the effect of the pandemic on short- and long-term general economic conditions.

We are continuing to experience elevated prices for commodities such as copper and steel, as well as electrical components.

Some materials, such as certain plastics, have also become more difficult to procure due to increased demand or limited availability.

We seek to mitigate supply chain risk by maintaining relationships with multiple vendors, and to recoup higher materials costs through adjusted pricing.

However, we may not be able to pass on all increased costs, and our suppliers may be unable to provide the materials we require.

An inability to procure materials in a timely manner, or to reflect higher materials costs in our pricing to customers, could result in a loss of revenue or lower profit margins, and could have a significant impact on our operating results.

Please refer to Part I.

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Provision for income taxes 16,231 1.1 % 8,740 0.7 % 6,663 0.6 %

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 68,676 4.5 % 40,554 3.4 % 33,478 3.1 %

Net (income) loss attributable to noncontrolling interest (2,018) (0.1) % 1,045 0.1 % (272) — %

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

Net income attributable to IES Holdings, Inc.

$ 66,658 4.3 % $ 41,599 3.5 % $ 33,206 3.1 %

(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.

2021 Compared to 2020

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.

Consolidated revenues for the year ended September 30, 2021, were $345.6 million higher than for the year ended September 30, 2020, an increase of 29.0% with increases across all segments, driven by strong demand and the contribution of acquired businesses.

Our overall gross profit percentage decreased to 18.7% during the year ended September 30, 2021, as compared to 19.1% during the year ended September 30, 2020.

Gross profit as a percentage of revenue increased at our Infrastructure Solutions and Commercial & Industrial segments, but decreased at our Communications and Residential segments.

See further discussion below of changes in gross margin for our individual segments.

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

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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, 2021, our selling, general and administrative expenses were $202.3 million, an increase of $31.3 million, or 18.3% over the year ended September 30, 2020, driven by increased personnel costs at our Communications and Residential operating segments in connection with their growth, increased incentive compensation in connection with improved results at those segments, and the impact of businesses acquired during fiscal 2021.

Selling, general and administrative expenses as a percentage of revenue decreased to 13.2% for the year ended September 30, 2021 from 14.4% for the year ended September 30, 2020.

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.

2020 Compared to 2019

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.

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.

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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.

This increase also includes a $4.2 million increase in expenses at the corporate level, primarily related to an increase in stock-based compensation expense, as well as a severance payment to our former President, who stepped down in March 2019.

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.

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.

Communications

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Selling, general and administrative expenses 41,373 9.3 % 37,674 9.5 %

Contingent consideration — — % (97) — %

(Gain)/Loss on sale of assets (4) — % 8 — %

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Our Communications segment’s revenues increased by $50.8 million, or 12.9%, during the year ended September 30, 2021, compared to the year ended September 30, 2020.

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

distribution center customers.

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.

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Our Communications segment’s gross profit during the year ended September 30, 2021, increased $6.6 million, or 8.5%, as compared to the year ended September 30, 2020.

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.

Gross profit as a percentage of revenue decreased from 19.8% for the year ended September 30, 2020 to 19.0% for the year ended September 30, 2021, as we invested in hiring and training personnel, particularly in estimating and project management, to grow the business.

Additionally, during the fourth fiscal quarter of 2020, we benefited from some larger than typical efficiency gains from strong project execution.

Selling, General and Administrative Expenses.

Our Communications segment’s selling, general and administrative expenses increased $3.7 million, or 9.8% during the year ended September 30, 2021, as compared to the year ended September 30, 2020.

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.

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

Selling, general and administrative expenses as a percentage of revenues in the Communications segment decreased from 9.5% for the year ended September 30, 2020 to 9.3% of segment revenue during the year ended September 30, 2021, as we benefited from the increased scale of our operations.

2020 Compared to 2019

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Contingent consideration — — % (97) — %

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

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

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

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 several of our data center customers.

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.

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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.

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.

Gross profit as a percentage of revenue increased to 19.8% from 17.6% for the year ended September 30, 2020, as we took on a larger proportion of fixed-cost arrangements and we benefited efficiency gains from strong project execution.

Selling, General and Administrative Expenses.

Our Communications segment’s selling, general and administrative expenses increased $5.8 million, or 18.3% during the year ended September 30, 2020, as compared to the year ended September 30, 2019.

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.

The increase was 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.

2021 Compared to 2020

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Selling, general and administrative expenses 92,761 13.5 % 63,668 15.5 %

Contingent consideration 211 — % — — %

Loss on sale of assets 86 — % 2 — %

Operating Income 40,743 5.9 % 30,086 7.3 %

Our Residential segment’s revenues increased by $275.6 million, or 66.9%, during the year ended September 30, 2021, as compared to the year ended September 30, 2020, reflecting the revenue contribution of businesses acquired in fiscal 2021, strong demand for single-family and multi-family housing and the impact of price increases in connection with a higher cost of materials.

acquired K.E.P.

Electric, Inc.

(“KEP”), Bayonet Plumbing, Heating & Air-Conditioning, LLC ("Bayonet"), and Edmonson Electric, LLC ("Edmonson") during the year ended September 30, 2021.

Collectively, these acquired businesses contributed $172.6 million of revenue for the year ended September 30, 2021.

Inclusive of these acquired businesses, revenue in our single-family business increased by $215.3 million for the year ended September 30, 2021, compared to the year ended September 30, 2020, while multi-family and other revenue increased by $60.2 million.

Excluding the impact of the businesses acquired during fiscal 2021, our Residential segment's revenues grew by 25.0% for the year ended September 30, 2021.

Gross Profit.

During the year ended September 30, 2021, our Residential segment experienced a $40.0 million, or 42.7%, increase in gross profit as compared to the year ended September 30, 2020.

The increase in gross profit was driven primarily by $27.9 million contributed by the businesses acquired in fiscal 2021, as well as higher volumes, partly offset by increased commodity prices.

Gross margin as a percentage of revenue decreased from 22.8% for the year ended September 30, 2020 to 19.5% during the year ended September 30, 2021, primarily as a result of higher commodity prices.

Selling, General and Administrative Expenses.

Our Residential segment's selling, general and administrative expenses increased $29.1 million, or 45.7%, during the year ended September 30, 2021, compared to the year ended September 30, 2020.

Selling, general and administrative expenses incurred at the businesses acquired during fiscal 2021, including amortization of intangible assets, contributed $20.1 million of the increase.

The remaining increase was driven by higher personnel cost in connection with business growth, including incentive profit sharing for division management.

Selling, general and administrative expenses as a percentage of revenues in the Residential segment decreased from 15.5% during the year ended September 30, 2020 to 13.5% during the year ended September 30, 2021, 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)/Loss on sale of assets 2 — % (17) — %

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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.

In February 2020, we acquired Aerial Lighting & Electric, Inc., ("Aerial") which contributed $9.3 million in revenue during the year ended September 30, 2020 subsequent to our acquisition of the business.

Gross Profit.

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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.

Infrastructure Solutions

2021 Compared to 2020

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Operating Income 16,976 11.5 % 14,568 11.3 %

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.

Revenues in our Infrastructure Solutions segment increased by $18.6 million, or 14.5% during the year ended September 30, 2021 compared to the year ended September 30, 2020.

Increased demand for our custom power solutions was partially offset by lower revenue from our industrial services business.

The demand for our motor repair services continues to be affected by reduced demand from customers in the steel and rail industries.

During the year ended September 30, 2021, w e acquired Wedlake Fabricating, Inc.

(“Wedlake”) , which contributed $7.1 million of revenue for the year ended September 30, 2021.

Gross Profit .

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.

Our Infrastructure Solutions segment’s gross profit for the year ended September 30, 2021, increased by $5.9 million, as compared to the year ended September 30, 2020, reflecting improved overall operational efficiencies.

Gross profit as a percent of revenue increased to 27.8% for the year ended September 30, 2021 compared to 27.3% for the year ended September 30, 2020, largely as the result of those efficiencies, as management has continued to focus on procurement, engineering, and quality.

Selling, General and Administrative Expenses.

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

Our Infrastructure Solutions segment’s selling, general and administrative expenses during the year ended September 30, 2021, increased $3.5 million compared to the year ended September 30, 2020.

The increase in fiscal 2021 includes $1.6 million of expenses incurred, including amortization of intangible assets, at our newly acquired Wedlake business.

The selling, general and administrative expenses as a percentage of revenue increased from 15.9% for the year ended September 30, 2020, to 16.3% for the year ended September 30, 2021, primarily as a result of the increase in expenses, including amortization expense, related to Wedlake.

2020 Compared to 2019

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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.

("PPCS") contributed $12.6 million in revenue during the year ended September 30, 2020 subsequent to our acquisition of the business.

Gross Profit.

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 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.

Gross profit as a percent of revenue increased from 22.6% for the year ended September 30, 2019 to 27.3% for the year ended September 30, 2020 primarily as a result of successful project execution as well as our continued focus on procurement, engineering, and quality which 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.

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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.

Commercial & Industrial

2021 Compared to 2020

1 unchanged sentence

(Dollars in thousands, Percentage of revenues)

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

Revenue $ 256,198 100.0 % $ 255,546 100.0 %

Cost of services 227,704 88.9 % 234,492 91.8 %

1 unchanged sentence

Selling, general and administrative expenses 28,172 11.0 % 32,128 12.6 %

Goodwill impairment expense — — % 6,976 2.7 %

Contingent consideration — — % ( 11 ) — %

Loss on sale of assets 105 0.1 % 18 — %

Gain on sale of assets ( 92 ) — % ( 45 ) — %

Operating Income 414 0.2 % ( 17,994 ) (7.0) %

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.

We also experienced an increase in demand for our motor repair services.

Revenues in our Commercial & Industrial segment increased $0.7 million, or 0.3%, during the year ended September 30, 2021, compared to the year ended September 30, 2020.

The market for our Commercial & Industrial segment's services remains highly competitive, and disruptions caused by the COVID-19 pandemic resulted in some delays in the awarding of new projects and the progress of certain existing projects, as well as decreased demand for new construction in certain sectors we serve, particularly through the first six months of fiscal 2021.

However, we have seen an increase in activity during the past few months, as many of our customers have reverted to more typical levels of activity.

Gross Profit .

Our Infrastructure Solutions segment’s gross profit during the year ended September 30, 2019, increased by $9.1 million, as compared to the year ended September 30, 2018, primarily as a result of increased volumes.

Gross profit as a percent of revenue slightly increased to 22.6% for the year ended September 30, 2019.

Our Commercial & Industrial segment’s gross profit during the year ended September 30, 2021 increased by $7.4 million, or 35.3%, as compared to the year ended September 30, 2020.

We have improved project efficiency, enhanced our procurement process, and focused on controlling costs.

As a result, gross profit as a percent of revenues increased from 8.2% for the year ended September 30, 2020, to 11.1% for the year ended September 30, 2021.

Selling, General and Administrative Expenses.

Our Infrastructure Solutions segment’s selling, general and administrative expenses during the year ended September 30, 2019, increased by $0.4 million compared to the year ended September 30, 2018.

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 selling, general and administrative expense.

Commercial & Industrial

Our Commercial & Industrial segment’s selling, general and administrative expenses during the year ended September 30, 2021 decreased $4.0 million, or 12.3%, compared to the year ended September 30, 2020.

The higher expense in fiscal 2020 primarily reflected a write-off recorded in 2020 related to a commercial dispute, as well as costs incurred in 2020 to improve our procurement process.

Selling, general and administrative expenses as a percentage of revenue decreased from 12.6% for the year ended September 30, 2020 to 11.0% for the year ended September 30, 2021.

2020 Compared to 2019

1 unchanged sentence

(Dollars in thousands, Percentage of revenues)

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

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

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

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

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

Operating Income (Loss) ( 17,994 ) (7.0) % 2,117 0.7 %

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.

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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.

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

Gross Profit.

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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.

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 overhead in connection with lower volumes.

Selling, General and Administrative Expenses.

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.

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

Additionally, we 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.

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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

Year Ended September 30,

(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 %

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

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

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.

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 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.

Although the business 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, which 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 declined, and our backlog decreased.

As a result of these developments, and continuing operational difficulties, 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.

INTEREST AND OTHER EXPENSE, NET

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This compares to interest expense of $0.8 million for the year ended September 30, 2020 primarily comprised of interest expense from our revolving credit facility with 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.

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.

During the year ended September 30, 2019, we incurred interest expense of $1.9 million 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.

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 $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.

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.

For the year ended September 30, 2021, we recorded income tax expense of $16.2 million, which reflects a $5.1 million benefit related to the recognition of previously unrecognized tax benefits.

For the year ended September 30, 2020, we recorded income tax expense of $8.7 million, which reflects 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, which reflects a $4.0 million benefit related to the recognition of previously unrecognized tax benefits.

WORKING CAPITAL

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 $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.

During the year ended September 30, 2021, working capital exclusive of cash increased by $74.1 million from September 30, 2020, reflecting a $143.2 million increase in current assets excluding cash and a $69.2 million increase in current liabilities during the period.

During the year ended September 30, 2021, our current assets exclusive of cash increased to $461.1 million, as compared to $317.9 million as of September 30, 2020, primarily as a result of a $73.7 million increase in trade accounts receivable, and a $43.7 million increase in inventory.

Certain materials we carry in inventory, particularly copper wire, have increased in price.

Further, we have increased the quantity of inventory we are currently carrying to manage procurement risks, as some of our key suppliers have increased lead times necessary to fill our orders.

We also acquired $13.2 million of inventory in business combinations during the year ended September 30, 2021.

Prepaid expenses and other current assets increased by $11.9 million, largely as a result of deposits made to secure future deliveries of materials.

Increased levels of business activity, as well as the addition of accounts receivable at acquired businesses, drove the increase in trade accounts receivable.

Days sales outstanding reduced to 57 as of September 30, 2021 from 61 as of September 30, 2020.

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, 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.

During the year ended September 30, 2021, our total current liabilities increased by $69.2 million to $311.6 million, compared to $242.4 million as of September 30, 2020, primarily related to an increase in accounts payable and accrued liabilities.

An increase in levels of business activity, as well as current liabilities at businesses acquired, drove the increase in accounts payable and accrued liabilities.

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 that matures on September 30, 2024 pursuant to an agreement with Wells Fargo (as amended, the “Amended Credit Agreement”).

We maintain a revolving credit facility pursuant to an agreement with Wells Fargo (as amended, the “Prior Credit Agreement”).

On December 2, 2021, we amended the Prior Credit Agreement (the “Ninth Amendment” and the Prior Credit Agreement as so amended, the “Amended Credit Agreement”) to, among other things, increase the size of the facility from $100 million to $125 million, decrease the required minimum Liquidity (as defined in the Amended Credit Facility) from $20 million to $12.5 million, and extend the maturity date from September 30, 2024 to September 30, 2026.

The Ninth Amendment also replaced the Daily Three Month London Interbank Offered Rate ("LIBOR") with the Daily Three Month Secured Overnight Financing Rate ("SOFR") (each as defined in the Amended Credit Agreement) as the benchmark rate for establishing the interest rate applicable to our borrowings under the Amended Credit Agreement.

Please see note 20 - "Subsequent Events" in the Notes to Consolidated Financial Statements included in this Form 10-K for further information about the terms of the Ninth Amendment.

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:

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

Level Thresholds

Interest Rate Margin

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

I If Liquidity is less than 35% of the Maximum Revolver Amount (as defined in the Amended Credit Agreement) 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

Effective December 2, 2021, under the Ninth Amendment, amounts outstanding bear interest at a per annum rate equal to Daily Three Month SOFR (as defined in the Amended Credit Agreement), plus an interest rate margin, which is determined quarterly, based on the following thresholds:

Interest Rate Margin

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

2.00 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

1.75 percentage points

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

1.50 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:

• a Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement), measured quarterly on a trailing

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

As of September 30, 2021, we were in compliance with the financial covenants under the Prior Credit Agreement in effect as of such date, requiring that we maintain:

• a Fixed Charge Coverage Ratio (as defined in the Prior Credit Agreement), measured quarterly on a trailing

four-quarter basis at the end of each quarter, of at least 1.1 to 1.0;

• minimum Liquidity (as defined in the Amended Credit Agreement) of at least twenty percent (20%) of the Maximum Revolver Amount (as defined in the Amended Credit Agreement), or $20 million;

with, for purposes of this covenant, at least fifty percent (50%) of our Liquidity comprised of Excess Availability (as defined in the Amended Credit Agreement).

• minimum Liquidity of at least twenty percent (20%) of the Maximum Revolver Amount, or $20 million;

with, for purposes of this covenant, at least fifty percent (50%) of our Liquidity comprised of Excess Availability.

At September 30, 2021, our Liquidity was $78.2 million and our Excess Availability was $55.1 million (or greater than 50% of minimum Liquidity), and our Fixed Charge Coverage Ratio was 12.0:1.0.

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 (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;

(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 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, 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.

There was no change to the Fixed Charge Coverage Ratio covenant under the Ninth Amendment.

The Ninth Amendment reduced the minimum Liquidity requirement from twenty percent (20%) to ten percent (10%) of the Maximum Revolver Amount, or $12.5 million.

If in the future our Liquidity falls below $12.5 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 our then-outstanding indebtedness becoming immediately due and payable.

At September 30, 2021, we had $4.5 million in outstanding letters of credit with Wells Fargo and $40.3 million of outstanding borrowings under our revolving credit facility.

From time to time, the Company invests 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, subject to size limits on investments individually and in the aggregate.

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Operating activities provided net cash of $37.9 million during the year ended September 30, 2021, as compared to $76.7 million of net cash provided in the year ended September 30, 2020.

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.

The decrease in operating cash flow resulted from an increase in working capital, particularly related to inventory.

As commodity prices increased, we also experienced longer lead times for deliveries, and reduced availability for certain products we procure, particularly copper wire.

As a result, we increased the amount of inventory we are currently carrying in an effort to ensure the availability of materials to serve our customers.

This increase in working capital was partly offset by higher earnings during the year ended September 30, 2021.

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 accounts payable and accrued liabilities.

Investing Activities

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Investing activities for the year ended September 30, 2021 include $7.4 million of capital expenditures and $92.5 million for the acquisition of businesses.

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, 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, 2019, include $6.3 million of capital expenditures.

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.

Financing Activities

Net cash provided by financing activities was $31.2 million in the year ended September 30, 2021, compared to $8.5 million used in the year ended September 30, 2020.

For the year ended September 30, 2021, we borrowed a net $40.0 million on our revolving credit facility.

In addition, we used $7.0 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 $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 under our stock repurchase program, as well as to satisfy statutory withholding requirements upon the vesting of employee stock compensation.

CONTROLLING SHAREHOLDER

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.

Tontine is the Company’s controlling shareholder, owning approximately 56 percent of the Company’s outstanding common stock as of December 1, 2021, based on a Form 4 filed by Tontine with the SEC on November 18, 2021.

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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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.

If our customer has reasonable cause to effect payment under a letter of credit,

we would be required to reimburse our creditor for the letter of credit.

At September 30, 2020, $0.2 million of our outstanding letters of credit were to collateralize our customers and vendors.

Some of our customers and vendors may 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.

If our customer has reasonable cause to effect payment under a letter of credit, we would be required to reimburse our creditor for the letter of credit.

Some of the underwriters of our casualty insurance program require us to post letters of credit as collateral, as is common in the insurance industry.

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At September 30, 2021, $4.3 million of our outstanding letters of credit were to collateralize our insurance programs.

From time to time, we may enter into firm purchase commitments for materials such as copper wire and aluminum wire, among others, which we expect to use in the ordinary course of business.

These commitments are typically for terms less than one year and require us to buy minimum quantities of materials at specified intervals at a fixed price over the term.

As of September 30, 2020, we did not have any significant open purchase commitments.

From time to time, we may enter into firm purchase commitments for materials such as copper wire and aluminum wire, which we expect to use in the ordinary course of business.

These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specified intervals at a fixed price over the term.

As of September 30, 2021, we had commitments of $12.3 million outstanding under such agreements to purchase copper wire and other materials over the next 12 months in the ordinary course of business.

Many of our customers require us to post performance and payment bonds issued by a surety.

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Judgments and estimates are based on our beliefs and assumptions derived from information available at the time such judgments and estimates are made.

Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements.

Uncertainties with respect to such

estimates and assumptions are inherent in the preparation of financial statements.

There can be no assurance that actual results will not differ from those estimates.

Accordingly, we have identified the accounting principles which we believe are most critical to our reported financial status by considering accounting policies that involve the most complex or subjective decisions or assessments.

We identified our most critical accounting policies to be those related to revenue recognition, accounting for business combinations, the assessment of goodwill and asset impairment, our allowance for doubtful accounts receivable, the recording of our insurance liabilities and estimation of the valuation allowance for deferred tax assets, and unrecognized tax benefits.

We identified our most critical accounting policies to be those related to revenue recognition, accounting for business combinations, the assessment of goodwill and asset impairment, our allowance for credit losses, the recording of our insurance liabilities and estimation of the valuation allowance for deferred tax assets, and unrecognized tax benefits.

These accounting policies, as well as others, are described in Note 2, “Summary of Significant Accounting Policies” in the notes to our Consolidated Financial Statements and at relevant sections in this discussion and analysis.

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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 and materials.

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.

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To finalize purchase accounting for significant intangible assets and liabilities, we utilize the services of independent valuation specialists to assist in the determination of the fair value.

Valuation of Intangibles and Long-Lived Assets.

We evaluate goodwill for potential impairment at least annually at year end;

however, if impairment indicators exist, we will evaluate as needed.

In evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is greater than its carrying value.

If we determine that it is more likely than not that the carrying value of a reporting unit is greater than its fair value, then we perform an impairment test by calculating the fair value of the reporting unit and comparing this calculated fair value with the carrying value of the reporting unit.

We estimate the fair value of the reporting unit based on the market approach and income approach.

Included in this evaluation are certain assumptions and estimates to determine the fair values of reporting units such as estimates of future cash flows and discount rates, as well as assumptions and estimates related to the valuation of other identified intangible assets.

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.

Each reporting period, we assess impairment indicators related to long-lived assets and intangible assets.

If we determine impairment indicators exist, we conduct an evaluation to determine whether any impairment has occurred.

This evaluation includes certain assumptions and estimates to determine fair value of asset groups, including estimates about future cash flows and discount rates, among others.

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

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.

We provide an allowance for doubtful accounts for unknown collection issues, in addition to reserves for specific accounts receivable where collection is considered doubtful.

Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, our customers’ access to capital, our customers’ willingness to pay, general economic conditions, and the ongoing relationships with our customers.

In addition to these factors, the method of accounting for construction contracts requires the review and analysis of not only the net receivables, but also the amount of billings in excess of costs and costs in excess of billings.

The analysis management utilizes to assess collectability of our receivables includes detailed review of older balances, analysis of days sales outstanding where we include in the calculation, in addition to accounts receivable balances net of any allowance for doubtful accounts, the level of costs in excess of billings netted against billings in excess of costs and the ratio of accounts receivable, net of any allowance for doubtful accounts plus the level of costs in excess of billings, to revenues.

These analyses provide an indication of those amounts billed ahead of or behind the recognition of revenue on our construction contracts and are important to consider in understanding the operational cash flows related to our revenue cycle.

Risk Management.

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.

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.

The accruals are derived from actuarial studies, known facts, historical trends and industry averages utilizing the assistance of an actuary to determine the best estimate of the ultimate expected loss.

We believe such accruals to be adequate;

however, insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents incurred but not reported and the effectiveness of our safety program.

Therefore, if actual experience differs from the assumptions used in the actuarial valuation, adjustments to the reserve may be required and would be recorded in the period that the experience becomes known.

Valuation Allowance for Deferred Tax Assets.

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

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.

In assessing the realizability of deferred tax assets at September 30, 2021, 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 $19.0 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 Consolidated Balance Sheets.

In addition, any 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 Consolidated Balance Sheets.

Income Taxes.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis