What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-12-06 compared with 2021-12-03 · 143 added, 177 removed, 312 unchanged (51% of the section changed)

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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:

Our operations are organized into four 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, 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.

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, capital spending on data centers, distribution centers, and high-tech manufacturing facilities, 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.

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 interest rate changes, increases in the price of 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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In addition, revenue growth during fiscal 2022 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.

We remain focused on controlled growth within many of our markets, which continue to experience highly competitive margins and increasing costs.

Our business segments each have their own unique set of factors influencing demand for our services, While we are entering the year with strong backlog levels in each of our business segments, we are also closely monitoring weakness in the residential construction market and, more generally, heightened uncertainty regarding the future direction of the overall economy.

Based on current trends in demand for housing heading into fiscal 2023, we expect that a revenue decline in our single-family housing business, where we typically do not enter into long-term contracts, will offset, or more than offset, revenue growth from our multi-family housing and other backlog-driven businesses during the year.

Nevertheless, we remain focused on monitoring costs, improving margins, and capitalizing on opportunities to expand our service lines and gain market share, as many of our markets continue to experience highly competitive margins and increasing costs.

Further, we believe our strong balance sheet and flexible operating model position us to navigate challenges we may encounter in a more uncertain economy.

To continue to grow our business, including through acquisitions and the funding of working capital, we may require a significant amount of cash.

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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 12 months.

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 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 expect our capital expenditures will range from $12.0 million to $17.0 million for the year ending on September 30, 2023.

Current Market and Operating Conditions

The Federal Reserve has raised the target federal funds rate six times since the beginning of calendar 2022 and has announced an expectation that it will continue to raise the target rate through the end of 2022 and into 2023.

This has resulted in higher mortgage rates, which when combined with elevated materials and labor costs, have had a substantial impact on the affordability of housing.

There continue to be several trends, such as rising household formation and population growth in our key markets, that we expect will drive long-term demand for our services in the single-family housing market.

However, going into fiscal 2023, we do expect housing affordability to cause a near-term decrease in demand for our services in this market.

The COVID-19 pandemic and its impact on markets, the supply chain and the labor force continued to influence trends affecting our business throughout fiscal 2022.

While commodity prices for some of the materials we procure recently have begun to stabilize, concerns remain around limited availability or delays in deliveries for certain materials necessary for our projects, notably copper, steel, aluminum, electronic components, and certain plastics.

Reduced availability of certain materials has resulted in a continuing need to take actions such as carrying higher levels of inventory than we typically hold, or, in some cases, substituting higher-cost materials or sourcing materials from new suppliers which may offer less favorable terms or pricing than our usual suppliers.

Such actions have resulted in elevated levels of working capital throughout fiscal 2022.

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.

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

However, we are not able to pass on all increased costs, and our suppliers are facing challenges in providing the materials we require.

We have also experienced, and may continue to experience, workforce disruptions related to exposure to, or illness from, COVID-19, resulting in production inefficiencies and delays, higher overtime costs, and the need to outsource activities or use more expensive contract labor.

An inability to procure materials in a timely manner, to complete work on schedule, and to reflect higher materials or labor costs in our pricing to customers has had, and could continue to have, a significant impact on our operating results.

RESULTS OF OPERATIONS

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Contingent consideration 277 — % 211 — % (11) — %

Loss (gain) on sale of assets (47) — % — — % 52 — %

Gain on sale of assets (69) — % (47) — % — — %

Operating income 56,008 2.6 % 85,583 5.6 % 50,083 4.2 %

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2022 Compared to 2021

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.

Consolidated revenues for the year ended September 30, 2022, were $630.3 million higher than for the year ended September 30, 2021, an increase of 41.0%, with increases at all four of our operating segments, driven by strong demand and the contribution of businesses acquired in fiscal 2021.

Our overall gross profit percentage decreased to 14.7% during the year ended September 30, 2022, as compared to 18.7% during the year ended September 30, 2021.

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

Gross profit as a percentage of revenue decreased at all four of our operating segments.

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

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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, 2022, our selling, general and administrative expenses were $262.7 million, an increase of $60.5 million, or 29.9% over the year ended September 30, 2021, driven by increased personnel costs, primarily at our Residential operating segment, in connection with its growth, and the impact of businesses acquired during fiscal 2021, including amortization of intangible assets.

Selling, general and administrative expenses as a percentage of revenue decreased to 12.1% for the year ended September 30, 2022 from 13.2% for the year ended September 30, 2021, as we benefited from the increased scale of our operations.

2021 Compared to 2020

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, as discussed in further detail with respect to each segment below.

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

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.

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.

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.

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Our Communications segment’s revenues increased by $113.8 million, or 25.5%, during the year ended September 30, 2022, compared to the year ended September 30, 2021.

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

Gross Profit.

Our Communications segment’s gross profit during the year ended September 30, 2022, decreased $16.0 million, or 18.8%, as compared to the year ended September 30, 2021.

Gross profit as a percentage of revenue decreased from 19.0% for the year ended September 30, 2021 to 12.3% for the year ended September 30, 2022.

During fiscal 2022, we expanded our offerings to our data center customers into a new, adjacent service area;

however, we had execution issues and recorded a combined loss of $19.9 million on a series of these projects for the year ended September 30, 2022.

As a result of this loss, we are no longer pursuing work in this service area.

As of September 30, 2022, our work on such projects was substantially complete.

Our operating margins for the year ended September 30, 2022 were also negatively impacted by a shift in our mix of customers, as well as a more competitive bidding environment in the distribution center and warehouse market, which has experienced slowing activity following a period of significant pandemic-related growth.

Supply chain challenges and workforce disruptions related to COVID-19 have also continued to affect project efficiency.

Finally, we continue to invest in hiring and training personnel, particularly in estimating and project management, to grow the business.

Selling, General and Administrative Expenses.

Our Communications segment’s selling, general and administrative expenses increased $5.3 million, or 12.9% during the year ended September 30, 2022, as compared to the year ended September 30, 2021.

The increase is a result of higher personnel cost in connection with the growth of our business, as well as higher wages in an increasingly competitive labor market.

We also experienced a more typical level of selling expense for the year ended September 30, 2022 as compared to the year ended September 30, 2021, when travel and other activities were curtailed due to the pandemic.

Selling, general and administrative expenses as a percentage of revenue in the Communications segment were 8.3% during the year ended September 30, 2022, compared to 9.3% for the year ended September 30, 2021, as we have benefited from the scale of our operations.

2021 Compared to 2020

Year Ended September 30,

(Dollars in thousands, Percentage of revenues)

Revenues $ 445,968 100.0 % $ 395,141 100.0 %

Cost of services 361,197 81.0 % 317,013 80.2 %

Gross Profit 84,771 19.0 % 78,128 19.8 %

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

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

Operating Income 43,402 9.7 % 40,446 10.2 %

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.

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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.

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.

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 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.

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Contingent consideration 277 — % 211 — %

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

Loss on sale of assets 20 — % 86 — %

Operating Income 58,856 5.2 % 40,743 5.9 %

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.

Our Residential segment’s revenues increased by $444.1 million, or 64.6%, during the year ended September 30, 2022, as compared to the year ended September 30, 2021, reflecting a full year of revenue contribution from 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.

Businesses acquired in fiscal 2021 contributed $233.1 million of the total increase for the year ended September 30, 2022 compared to the year ended September 30, 2021.

Inclusive of these acquired businesses, revenue in our single-family business increased by $371.1 million for the year ended September 30, 2022, compared to the year ended September 30, 2021, while multi-family and other revenue increased by $73.0 million.

Gross Profit.

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% 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.

During the year ended September 30, 2022, our Residential segment gross profit increased by $69.5 million, or 51.9%, as compared to the year ended September 30, 2021.

The increase in gross profit was driven primarily by contributions from the businesses acquired in fiscal 2021 and higher volumes, partly offset by increased commodity prices.

Gross margin as a percentage of revenue decreased to 18.0% during the year ended September 30, 2022 from 19.5% for the year ended September 30, 2021, primarily as a result of increased commodity prices and a reduction in project efficiency related to supply-chain challenges and the COVID-19 pandemic.

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.

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.

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.

Our Residential segment's selling, general and administrative expenses increased by $51.3 million, or 55.3%, during the year ended September 30, 2022, compared to the year ended September 30, 2021.

Selling, general and administrative expenses incurred at the businesses acquired during fiscal 2021, including amortization of intangible assets, contributed $21.3 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 to 12.7% during the year ended September 30, 2022, from 13.5% during the year ended September 30, 2021, as we benefited from the increased scale of our operations.

2021 Compared to 2020

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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.

Businesses acquired in fiscal 2021 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.

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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.

Infrastructure Solutions

2022 Compared to 2021

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Selling, general and administrative expenses 25,129 15.0 % 23,966 16.3 %

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

Gain on sale of assets ( 46 ) — % ( 10 ) — %

Operating Income 3,586 2.1 % 16,976 11.5 %

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

Revenues in our Infrastructure Solutions segment increased by $20.1 million, or 13.7% during the year ended September 30 , 2022 compared to the year ended September 30, 2021.

The increase in revenue was driven primarily by increased demand at our generator enclosure business as well as the acquisition of Wedlake Fabricating, Inc.

("Wedlake") during the first quarter of fiscal 2021, which contributed $16.9 million of the increase.

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.

Our Infrastructure Solutions segment’s gross profit for the year ended September 30 , 2022 , decreased by $12.3 million, as compared to the year ended September 30, 2021, reflecting the impact of supply chain disruptions on our generator enclosure business, COVID-19 related labor inefficiencies, and operating inefficiencies in connection with the relocation of the Wedlake business to a new, larger facility that expands capacity while allowing for improved workflow and process efficiency.

The transition to and setup of the new facility were completed during the third quarter of fiscal 2022.

Gross profit as a percent of revenue decreased to 17.2% for the year ended September 30 , 2022 compared to 27.8% for the year ended September 30, 2021.

Additionally, during the year ended September 30, 2021, we benefited from workers' compensation refunds received from the State of Ohio.

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.

Infrastructure Solutions

Our Infrastructure Solutions segment’s selling, general and administrative expenses during the year ended September 30 , 2022 , increased $1.2 million compared to the year ended September 30, 2021, primarily as a result of expenses incurred at the Wedlake business acquired during the first fiscal quarter of 2021.

Selling, general and administrative expenses as a percentage of revenue decreased from 16.3% for the year ended September 30, 2021, to 15.0% for the year ended September 30 , 2022 .

2021 Compared to 2020

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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.

During the year ended September 30, 2021, the Wedlake business acquired during the first fiscal quarter 2021 contributed $7.1 million of revenue for the year ended September 30, 2021.

Gross Profit .

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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 increase in fiscal 2021 includes $1.6 million of expenses incurred, including amortization of intangible assets, at our 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.

Commercial & Industrial

2022 Compared to 2021

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(Dollars in thousands, Percentage of revenues)

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

Revenue $ 308,504 100.0 % $ 256,198 100.0 %

Cost of services 290,314 94.1 % 227,704 88.9 %

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Selling, general and administrative expenses 30,557 9.9 % 28,172 11.0 %

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

Loss on sale of assets 35 — % 105 0.1 %

Gain on sale of assets ( 55 ) — % ( 92 ) — %

Operating Income ( 12,312 ) (4.0) % 414 0.2 %

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

Revenues in our Commercial & Industrial segment increased $52.3 million, or 20.4%, during the year ended September 30 , 2022 , compared to the year ended September 30, 2021.

During the year ended September 30 , 2022 , we benefited from the start-up of projects that were delayed in fiscal 2021.

While activity in this segment was curtailed earlier in the COVID-19 pandemic, many customers have returned to more typical levels of activity.

However, this market remains highly competitive.

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.

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.

Our Commercial & Industrial segment’s gross profit during the year ended September 30 , 2022 decreased by $10.3 million, or 36.2%, as compared to the year ended September 30, 2021.

During the year ended September 30 , 2022 , one of our Commercial & Industrial branches experienced execution issues on a large contract, resulting in significant project rework.

As a result, we incurred additional expense related to this project including the accrual of estimated costs to complete the project, including demolition, purchase of replacement materials, and performance of the rework.

Additionally, a second job at that same branch was affected by costs associated with a delay in receiving materials from a supplier.

These two projects collectively impacted gross profit for the year ended September 30, 2022 by $16.7 million.

As a result, gross profit as a percentage of revenue decreased from 11.1% for the year ended September 30, 2021, to 5.9% for the year ended September 30 , 2022 .

Selling, General and Administrative Expenses.

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.

Commercial & Industrial

Our Commercial & Industrial segment’s selling, general and administrative expenses during the year ended September 30 , 2022 increased $2.4 million, or 8.5%, compared to the year ended September 30, 2021.

The increase was driven primarily by higher pay rates in an increasingly competitive labor market, as well as $2.3 million of reserves in connection with legal matters related to certain contractual disputes.

Selling, general and administrative expenses as a percentage of revenue decreased from 11.0% for the year ended September 30, 2021 to 9.9% for the year ended September 30 , 2022 .

2021 Compared to 2020

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(Dollars in thousands, Percentage of revenues)

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

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

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

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

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

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

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 .

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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

Year Ended September 30,

(Dollars in thousands, Percentage of revenues)

Revenues $ 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 on sale of assets ( 45 ) — % ( 30 ) — %

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.

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 resulted in some delays in the awarding of new projects, as well as the progress of certain existing projects.

Gross Profit.

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 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 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.

Goodwill Impairment Expense.

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

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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Total interest and other expense, net 3,007 676 789

During the year ended September 30, 2021, we incurred interest expense of $1.0 million primarily comprised of interest expense from our revolving credit facility with Wells Fargo Bank, N.A.

(“Wells Fargo”) and fees on an average letter of credit balance of $5.7 million under our revolving credit facility and an average unused line of credit balance of $77.4 million.

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.

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.

During the year ended September 30, 2022, we incurred interest expense of $3.0 million primarily comprised of interest expense from our revolving credit facility and fees on an average letter of credit balance of $4.5 million under our revolving credit facility and an average unused line of credit balance of $49.2 million.

This compares to interest expense of $1.0 million for the year ended September 30, 2021 primarily comprised of interest expense from our revolving credit facility and fees on an average letter of credit balance of $5.7 million under our revolving credit facility and an average unused line of credit balance of $77.4 million.

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 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.

PROVISION FOR INCOME TAXES

For the year ended September 30, 2022, we recorded income tax expense of $12.8 million, which reflects a $0.8 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, 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.

WORKING CAPITAL

During the year ended September 30, 2022, working capital exclusive of cash increased by $48.2 million from September 30, 2021, reflecting a $138.5 million increase in current assets excluding cash and a $90.3 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.

During the year ended September 30, 2022, our current assets exclusive of cash increased to $599.6 million, as compared to $461.1 million as of September 30, 2021.

An increase in business activity drove an $84.0 million increase in trade accounts receivable.

Days sales outstanding increased to 58 at September 30, 2022 from 57 at September 30, 2021.

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, 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.

Retainage increased by $23.7 million as a result of growth in the Residential multi-family business, as well as the timing of projects in the Commercial & Industrial business.

Additionally, inventory increased by $27.8 million in connection with rising commodity prices as well as growth of our business.

Further, we have increased the quantity of inventory we are currently carrying to manage procurement risks.

Costs and estimated earnings in excess of billings increased by $8.7 million as a result of increased levels of activity at our Communications business, as well as supply chain disruptions in our Infrastructure Solutions business.

During the year ended September 30, 2022, our total current liabilities increased by $90.3 million to $401.9 million, compared to $311.6 million as of September 30, 2021, driven by increased levels of business activity, offset in part by remittance of payroll taxes deferred under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act").

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

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In addition, if we are awarded a project for which a surety bond is required but we are unable to obtain a surety bond, the result could be a claim for damages by the customer for the costs of replacing us with another contractor.

As of September 30, 2021, the estimated cost to complete our bonded projects was approximately $80.3 million.

We believe the bonding capacity currently provided by our sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future.

As of September 30, 2022, the estimated cost to complete our bonded projects was approximately $107.6 million.

LIQUIDITY AND CAPITAL RESOURCES

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The Revolving Credit Facility

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 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:

On April 28, 2022, we entered into a Third Amended and Restated Credit and Security Agreement (the "Amended Credit Agreement"), which increased our maximum borrowing amount from $125 million to $150 million.

The Amended Credit Agreement also removed the aggregate cap on our investments in certain securities and the cap on our ability to make stock repurchases, in each case subject to the satisfaction of certain liquidity requirements.

All other customary affirmative, negative and financial covenants and events of default were unchanged by the amendment.

Borrowings under the Amended Credit Agreement may not exceed a "Borrowing Base,” as defined in the Amended Credit Agreement, determined monthly based on available collateral, primarily certain accounts receivables, inventories, and equipment.

Amounts outstanding bear interest at a per annum rate equal to the Daily Three Month Secured Overnight Financing Rate ("SOFR"), plus an interest rate margin, which is determined quarterly, based on the following thresholds:

Level Thresholds

Interest Rate Margin

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

I If Liquidity is less than 35% of the Maximum Revolver Amount (each as defined in the Amended Credit Agreement) at any time during the period 2.00 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 1.75 percentage points

III If Liquidity is greater than or equal to 50% of the Maximum Revolver Amount at all times during the period 1.50 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 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

As of September 30, 2022, 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

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

• 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.

• minimum Liquidity of at least 10% of the Maximum Revolver Amount, or $15.0 million;

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

At September 30, 2022, our Liquidity was $88.1 million, our Excess Availability was $63.3 million (or greater than 50% of minimum Liquidity), and our Fixed Charge Coverage Ratio was 1.6:1.0.

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 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).

provided, that if we make an acquisition consented to by our lenders, 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 our lenders).

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.

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 $15.0 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.

At September 30, 2022, we had $4.1 million in outstanding letters of credit and $82.7 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.

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however, a seasonal decline in working capital may be offset by needs associated with higher growth or acquisitions.

Currently, our working capital needs are higher than they have been historically, as a result of growth of our business, elevated commodity prices,and the steps taken to mitigate the impact of supply chain disruptions.

Operating activities provided net cash of $16.3 million during the year ended September 30, 2022, as compared to $37.9 million of net cash provided in the year ended September 30, 2021.

The decrease in operating cash flow resulted from lower earnings and an increase in working capital, particularly due to increased trade accounts receivable and inventory during the year ended September 30, 2022 in support of the growth of the business.

We also remitted $7.0 million of payroll taxes previously deferred under the CARES Act.

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 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.

As a result, we increased the amount of inventory carried 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, 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.

Investing Activities

In the year ended September 30, 2021, net cash used in investing activities was $99.6 million, as compared to $33.6 million of net cash used in investing activities in the year ended September 30, 2020.

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.

Net cash used in investing activities was $29.5 million for the year ended September 30, 2022, compared to $99.6 million of net cash used in investing activities in the year ended September 30, 2021.

We used $29.3 million for capital expenditures in the year ended September 30, 2022, primarily related to the acquisition of a new operating facility for our Wedlake business, as well as an additional facility to support the growth of our Residential business in Florida.

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.

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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.

Financing Activities

Net cash provided by financing activities was $15.0 million in the year ended September 30, 2022, compared to $31.2 million in the year ended September 30, 2021.

Net cash provided by financing activities for the year ended September 30, 2022 included net borrowing on our credit facility of $42.3 million, partly offset by $18.6 million used for repurchase of our common stock, including repurchases to satisfy statutory withholding requirements upon the vesting of employee stock compensation.

Additionally, we distributed $7.0 million to noncontrolling interests under operating agreements in connection with certain acquisitions.

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.

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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.

CONTROLLING SHAREHOLDER

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.

Tontine Associates, L.L.C.

("Tontine Associates"), together with its affiliates (collectively, "Tontine") is the Company's controlling stockholder, owning approximately 57 percent of the Company’s outstanding common stock based on the Form 4 filed by Tontine with the SEC on December 3, 2021 and the Company's shares outstanding as of December 2, 2022.

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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Gendell, who has served as a member of our Board of Directors since February 2012, and who previously served as Interim Director of Operations from November 2017 to January 2019, as Vice Chairman of the Board from November 2016 to November 2017 and as Chairman of the Board from January 2015 to November 2016.

Gendell was an employee of Tontine from 2004 until December 31, 2017.

Gendell was an employee of Tontine from 2004 until January 2018.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

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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.

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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 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 contracts, or initial set-up or mobilization costs, 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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The estimation of required valuation allowances includes estimates of future taxable income.

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.

In assessing the realizability of deferred tax assets at September 30, 2022, 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 its $20.5 million of deferred tax assets.

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

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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