What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-03 compared with 2020-03-04 · 121 added, 156 removed, 384 unchanged (42% of the section changed)

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We also provide many services to our customers under multi-year master service agreements (“MSAs”) and other variable-term service agreements.

For the year ended December 31, 2019, our T&D revenues were $1.134 billion, or 54.8%, of our revenue, compared to $893.1 million, or 58.3%, of our revenue for the year ended December 31, 2018 and $879.4 million, or 62.7%, of our revenue for the year ended December 31, 2017.

For the year ended December 31, 2020, our T&D revenues were $1.15 billion, or 51.4%, of our revenue, compared to $1.13 billion, or 54.8%, of our revenue for the year ended December 31, 2019 and $893.1 million, or 58.3%, of our revenue for the year ended December 31, 2018.

Revenues from transmission projects represented 64.6%, 68.1%, and 62.6% of T&D segment revenue for the years ended December 31, 2020, 2019 and 2018, respectively.

Our T&D segment also provides restoration services in response to hurricanes, ice storms or other storm related events, which typically account for less than 5% of our annual revenues in 2019, 2018 and 2017.

Our T&D segment also provides restoration services in response to hurricanes, ice storms or other storm related events, which accounted for less than 5% of our annual revenues in 2020, 2019 and 2018.

Measured by revenues in our T&D segment, we provided 43.9%, 49.7% and 40.5% of our T&D services under fixed-price contracts during the years ended December 31, 2020, 2019 and 2018, respectively.

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We concentrate our efforts on projects where our technical and project management expertise are critical to successful and timely execution.

The majority of C&I contracts cover electrical contracting services for airports, hospitals, data centers, hotels, stadiums, convention centers, renewable energy projects, manufacturing plants, processing facilities, waste-water treatment facilities, mining facilities and transportation control and management systems.

For the year ended December 31, 2019, our C&I revenues were $936.7 million, or 45.2%, of our revenue, compared to $638.1 million, or 41.7%, of our revenue for the year ended December 31, 2018 and $523.9 million, or 37.3%, of our revenue for the year ended December 31, 2017.

The majority of C&I contracts cover electrical contracting services for airports, hospitals, data centers, hotels, stadiums, convention centers, renewable energy projects, manufacturing plants, processing facilities, water treatment facilities, mining facilities and transportation control and management systems.

For the year ended December 31, 2020, our C&I revenues were $1.09 billion, or 48.6%, of our revenue, compared to $936.7 million, or 45.2%, of our revenue for the year ended December 31, 2019 and $638.1 million, or 41.7%, of our revenue for the year ended December 31, 2018.

Measured by revenues in our C&I segment, we provided 82.5%, 75.2% and 71.0% of our services under fixed-price contracts for the years ended December 31, 2020, 2019 and 2018, respectively.

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Revenue Recognition.

On January 1, 2018, we adopted accounting standards update (“ASU”) No.

2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018.

Results for reporting periods beginning after December 31, 2017 are presented under this new pronouncement, while prior period amounts were not adjusted and continue to be reported under the accounting standard Revenue Recognition Topic 605, which was in effect for those periods.

Under Topic 606, we recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that we expect to be entitled to in exchange for goods or services provided.

We recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that we expect to be entitled to in exchange for goods or services provided.

Revenue associated with contracts with customers is recognized over time as our performance creates or enhances customer controlled assets or creates or enhances an asset with no alternative use, for which we have an enforceable right to receive compensation as defined under the contract.

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Additionally, contract costs incurred to date and expected total contract costs are continuously monitored during the term of the contract.

Changes in the job performance, job

conditions and final contract settlements are factors that influence management’s assessment of total contract value and the total estimated costs to complete those contracts, and therefore, profit and revenue recognition.

Prior to 2018, under Topic 605, we recognized revenue on the percentage-of-completion method of accounting, which was commonly used in the construction industry.

The percentage-of-completion accounting method resulted in recognizing contract revenues and earnings ratably over the contract term in proportion to our incurrence of contract costs.

The profits or losses recognized on individual contracts were based on estimates of contract revenues, costs and profitability.

Contract losses were recognized in full when determined, and contract profit estimates were adjusted based on ongoing reviews of contract profitability.

Changes in job performance, labor costs, equipment costs, job conditions, weather, estimated profitability and final contract settlements sometimes resulted in revisions to costs and income and their effects were recognized in the period in which the revisions were determined.

We recorded adjustments to estimated costs of contracts when we believed the change in estimate was probable and the amounts could be reasonably estimated.

These adjustments could have resulted in either increases or decreases in profit margins.

Changes in the job performance, job conditions and final contract settlements are factors that influence management’s assessment of total contract value and the total estimated costs to complete those contracts, and therefore, profit and revenue recognition.

Gross Margins.

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actively monitoring the costs of completing our projects;

holding customers accountable for costs related to changes to contract specifications;

and rewarding our employees for controlling costs.

holding customers accountable for costs related to changes to contract specifications and rewarding our employees for controlling costs.

The demand for construction and maintenance services from our customers has been, and will likely continue to be, cyclical in nature and vulnerable to downturns in the markets we serve as well as the economy in general.

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Changes in technology, tax and other incentives and new or changing regulatory requirements affecting the industries we serve can impact demand for our services.

Additionally, continued economic slowdowns related to the current worldwide COVID-19 pandemic could have a significant impact on our business.

While we actively monitor economic, industry and market factors affecting our business, we cannot predict the impact such factors may have on our future results of operations, liquidity and cash flows.

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During the winter months, demand for our T&D work may be high, but our work can be delayed due to inclement weather.

During the summer months, the demand for our T&D work may be affected by fewer available system outages, due to peak electrical demands caused by warmer

weather, which limits our ability to perform electrical line service work.

During the summer months, the demand for our T&D work may be affected by fewer available system outages, due to peak electrical demands caused by warmer weather, which limits our ability to perform electrical line service work.

During the spring and fall months, the demand for our T&D work may increase due to improved weather conditions and system availability;

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Our business is directly impacted by the level of spending on T&D infrastructure and the level of C&I electrical construction activity across the United States and western Canada.

We are optimistic about infrastructure spending and believe that improving industry activity will continue in both our transmission and distribution market segments and the drivers for utility investment will remain intact.

We believe that regulatory reform, state renewable portfolio standards, the aging of the electric grid, and the general improvement of the economy will positively impact the level of spending by our customers in all of the markets we serve.

We are optimistic about infrastructure spending and believe that industry activity will continue in both our transmission and distribution market segments and the drivers for utility investment will remain intact.

We believe that regulatory reform, state renewable portfolio standards, the aging of the electric grid, and potential overall improvement of the economy will positively impact the level of spending by our customers in all of the markets we serve.

Although competition remains strong, we see these trends as positive factors for us in the future.

Since March 2020, the COVID-19 pandemic has had a significant impact on the global economy, including the US and Canadian economies.

As the situation continues to evolve, we are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it impacts our customers, subcontractors, suppliers, vendors and employees.

The COVID-19 pandemic caused a slowdown of certain projects due to specific state, local, municipal and customer mandated stay-at-home orders and new project requirements that were established to protect construction workers and the general public, most of which continue to impact our C&I segment.

Although the majority of stay-at-home orders have been phased-out, we continue to experience impacts associated with the COVID-19 project-specific protocols.

We expect the project-specific requirements to remain in place which will continue to impact project schedules and workflow going forward.

We are unable to predict the ultimate impact that COVID-19 will have on our business, employees, liquidity, financial condition, results of operations and cash flows.

Most of the Company’s operations are considered critical and essential businesses, making our projects generally exempt from stay-at-home or similar orders in certain parts of the United States and western Canada.

However, if this pandemic persists for an extended timeframe our business could be more significantly impacted as a result of prolonged unfavorable economic conditions.

The Company began implementing changes in March of 2020 in an effort to protect our employees and customers and to support appropriate health and safety protocols, including implementing alternative and flexible work arrangements where possible.

As the conditions surrounding the ongoing COVID-19 pandemic remain fluid, and if disruptions do re-emerge, they could materially adversely impact our business.

Our key estimates that could potentially be impacted include estimates of costs to complete contracts, the recoverability of goodwill and intangibles and allowance for doubtful accounts.

We continue to expect long-term growth in the transmission market, although the timing of large bids and subsequent construction will likely continue to be highly variable from year to year.

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We believe there is an ongoing need for utilities to sustain investment in their transmission systems to improve reliability, reduce congestion and connect to new sources of renewable generation.

Consequently, we believe we will continue to see significant bidding activity on large transmission projects over the next two years.

The timing of multi-year transmission project awards and substantial construction activity is difficult to predict due to regulatory requirements and the permitting needed to commence construction.

Significant construction on any large, multi-year projects awarded in 2020 will not likely occur until 2021.

Bidding and construction activity for small to medium-size transmission projects and upgrades remains strong, and we expect this trend to continue, primarily due to reliability and economic drivers.

We also believe the need for distribution services will continue to grow.

Significant construction on any large, multi-year projects awarded in the second half of 2021 will not likely occur until 2022.

Bidding and construction activity for small to medium-size transmission projects and upgrades remain active, and we expect this trend to continue, primarily due to reliability and economic drivers.

However, in light of the uncertain COVID-19 environment, there may be a potential slowdown of construction activity in the transmission market, the recovery of which will be dependent upon the pace and timing of the United States overall recovery from the COVID-19 pandemic.

Because of reduced spending by United States utilities on their distribution systems for several years, we believe there is a need for sustained investment by utilities on their distribution systems to properly maintain or meet reliability requirements.

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Several industry and market trends are also prompting customers in the electric utility industry to seek outsourcing partners rather than performing projects internally.

These trends include an aging electric utility workforce, increasing costs and

staffing constraints.

These trends include an aging electric utility workforce, increasing costs and staffing constraints.

We believe electric utility employee retirements could increase with further economic recovery, which may result in an increase in outsourcing opportunities.

We expect to see an incremental increase in distribution opportunities in the United States in 2020, and we believe these opportunities will continue to be bid in a competitive market.

We expect to see continued improvement in bidding opportunities in our C&I segment in 2020.

According to FMI, the primary growth sectors in 2020 are expected to include office, educational, public safety, transportation, conservation and development, and manufacturing, all with positive forecasted growth rates.

In addition to these growth sectors, we believe that recent state legislation requiring the increased production of energy from renewable sources will increase activity in solar plant and other renewable forms of energy.

We believe much of this potential will continue to be driven by advancements in technology, such as artificial intelligence, self-driving vehicles, and robotics.

We also believe these technological advancements will continue to offer new opportunities in many of the markets we serve including data centers, manufacturing plants, and higher education.

In addition, the United States has experienced a decade of privately funded economic expansion which has challenged the capacity of public water and transportation infrastructure forcing states and municipalities to seek creative means to fund needed expansion.

We expect to see an incremental increase in distribution opportunities in the United States in 2021, however, in light of the uncertain COVID-19 environment, there may be a potential slowdown of construction activity in distribution systems, the recovery of which will be dependent upon the pace and timing of the United States overall recovery from the COVID-19 pandemic.

Amid the ongoing COVID-19 pandemic, we expect C&I bidding opportunities to be impacted and market uncertainty could contribute to an overall deceleration in projects coming out to bid.

Recovery of the C&I market will be heavily dependent on overall economic recovery.

We are hopeful that stimulus packages will provide greater opportunity and are encouraged by the possible approval of a long-awaited infrastructure bill.

We believe that the primary markets we serve may be somewhat less vulnerable to economic slowing, such as health care, transportation, data centers, warehousing, renewable energy and water projects.

We are hopeful that the service industry and small project market could quickly rebound in the near future as pent-up demand will need to be addressed.

In addition, the United States has experienced a decade of economic expansion which has challenged the capacity of public water and transportation infrastructure forcing states and municipalities to seek creative means to fund needed expansion.

We believe the need for expanding public infrastructure will offer opportunity in our C&I segment for several years.

We expect the long-term growth in our C&I segment to generally track the economic growth of the regions we serve.

We also expect to see increased bidding opportunities in the new C&I markets we recently entered through strategic acquisitions and organic expansions.

We strive to maintain our status as a preferred provider to our T&D and C&I customers.

In an effort to support our growth strategy and maximize stockholder returns, we seek to efficiently manage our capital.

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(“CSI”), which expanded our C&I operations in California.

The total consideration was approximately $80.7 million, funded through borrowings under our credit facility.

On July 2, 2018, we completed the acquisition of substantially all the assets of the Huen Electric, Inc., Huen Electric New Jersey Inc., and Huen New York, Inc.

(collectively, the “Huen Companies”), which expanded our C&I operations in Illinois, New York and New Jersey.

On September 13, 2019, the Company entered into a five-year second amended and restated credit agreement (the “Credit Agreement”) with a syndicate of banks led by JPMorgan Chase Bank, N.A.

and Bank of America, N.A.

The Credit Agreement expands our capacity to borrow and enter into letters of credit, and increases our ability to expand our borrowing capacity under certain circumstances.

Borrowings under the Credit Agreement are expected to be used to refinance existing indebtedness and for working capital, capital expenditures, acquisitions and other general corporate purposes.

We continue to invest in developing key management and craft personnel in both our T&D and C&I markets and in procuring the specialty equipment and tooling needed to win and execute projects of all sizes and complexity.

Additionally, we ended 2020 with $364.6 million available under our credit facility.

We believe that our financial position, positive cash flows and other operational strengths will enable us to manage the challenges and uncertainties in the markets we serve, including new challenges and uncertainties associated with the ongoing COVID-19 pandemic, and give us the flexibility to successfully execute our strategies.

We continue to invest in developing key management and craft personnel in both our T&D and C&I markets and in procuring the specific specialty equipment and tooling needed to win and execute projects of all sizes and complexity.

In 2020 and 2019, we invested in capital expenditures of approximately $44.4 million and $57.8 million, respectively.

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Our investment strategy is based on our belief that spending in transmission and distribution projects will continue to remain strong over the next several years as electric utilities, cooperatives and municipalities make up for the lack of infrastructure spending in the past, combined with the overall need to integrate new generation into the electric power grid, and our belief that distribution demand will increase over the next several years.

We believe that our financial position and operational strengths will enable us to manage the current challenges and uncertainties in the markets we serve and give us the flexibility to successfully execute our strategies.

Understanding Backlog

We define backlog as our estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue we have recognized under such contracts.

Backlog may not accurately represent the revenues that we expect to realize during any particular

Backlog may not accurately represent the revenues that we expect to realize during any particular period.

Several factors, such as the timing of contract awards, the type and duration of contracts, and the mix of subcontractor and material costs in our projects, can impact our backlog at any point in time.

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Some of our time-and-equipment, time-and-materials and cost-plus contracts include shared savings clauses, in which the contract includes a target price and we agree to share savings from that target price with our customer.

The timing of accounting recognition of such savings can impact our margins.

Additionally, new construction work has a higher gross margin than maintenance and repair work.

New construction work is often obtained on a fixed-price basis, which carries a higher risk than other types of pricing arrangements because a contractor can bear the risk of increased expenses.

As such, we generally bid fixed-price contracts with higher profit margins.

We typically derive approximately 20% to 45% of our revenue from maintenance and repair work that is performed under pre-established or negotiated prices or cost-plus pricing arrangements which generally allow us a set margin above our costs.

Thus, the mix between new construction work, at fixed-price, and maintenance and repair work, at cost-plus, in a given period will impact gross margin in that period.

The timing of accounting recognition of such savings can

impact our margins.

In addition, change orders and claims can impact our margins.

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It is typical during the winter months that parts of the country may experience snow or rainfall, which can affect our crews’ ability to work efficiently.

Additionally, our T&D customers often cannot remove their T&D

lines from service during the summer months, when consumer demand for electricity is at its peak, delaying maintenance and repair services.

Additionally, our T&D customers often cannot remove their T&D lines from service during the summer months, when consumer demand for electricity is at its peak, delaying maintenance and repair services.

In both cases, projects may be delayed or temporarily placed on hold.

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Depreciation and Amortization.

We include depreciation on equipment and capital lease amortization in contract costs.

We include depreciation on equipment and finance lease amortization in contract costs.

This is common practice in our industry, but can make comparability to other companies difficult.

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We believe the investment in specialized equipment helps to reduce our costs, improve our margins and provide us with valuable flexibility to take on additional and complex projects.

Service and Maintenance Compared to New Construction.

In general, new construction work has a higher gross margin than maintenance and repair work.

New construction work is often obtained on a fixed-price basis, which carries a higher risk than other types of pricing arrangements because a contractor can bear the risk of increased expenses.

As such, we generally bid fixed-price contracts with higher profit margins.

We typically derive approximately 20% to 40% of our revenue from maintenance and repair work that is performed under pre-established or negotiated prices or cost-plus pricing arrangements which generally allow us a set margin above our costs.

Thus, the mix between new construction work, at fixed-price, and maintenance and repair work, at cost-plus, in a given period will impact gross margin in that period.

Material and Subcontract Costs.

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If our subcontractors fail to satisfactorily perform their contractual obligations as a result of financial or other difficulties, we may be required to incur additional costs and provide additional services in order to make up such shortfalls.

Additionally, we are required to allocate more working capital to projects when we are required to provide materials.

Gross margins could be impacted by fluctuations in insurance accruals related to our deductibles and loss history in the period in which such adjustments are made.

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Contract costs 1,971,539 87.7 1,857,001 89.7

Gross profit 275,853 12.3 214,158 10.3

Selling, general and administrative expenses 188,535 8.4 156,674 7.6

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Interest expense (4,563) (0.2) (6,225) (0.3)

Other income (expense), net

Income before income tax expense

Other expense, net (606) — (515) —

Income before provision for income taxes 81,385 3.6 50,442 2.4

Income tax expense 22,626 1.0 14,228 0.7

Net income 58,759 2.6 36,214 1.7

net income (loss) attributable to noncontrolling interest — — (1,476) (0.1)

Net income attributable to MYR Group Inc.

$ 58,759 2.6 % $ 37,690 1.8 %

Revenues increased $176.2 million, or 8.5%, to $2.25 billion for the year ended December 31, 2020 from $2.07 billion for the year ended December 31, 2019.

The increase was primarily due to increases in volume across both segments and incremental revenues from the acquisitions of CSI and the Huen Companies, which were acquired in the third quarter of 2019 and 2018, respectively.

The increase was primarily due to incremental revenues from the CSI acquisition, partially offset by impacts related to the COVID-19 pandemic primarily associated with our C&I segment.

Gross margin.

Gross margin decreased to 10.3% for the year ended December 31, 2019 from 10.9% for the year ended December 31, 2018.

The decrease in gross margin was primarily due to inclement weather on certain projects and material delays associated with a substantially completed joint venture project in which we own the majority controlling interest, which were partially offset by net loss attributable to noncontrolling interest.

The joint venture project, along with other acquired projects, are subject to margin guarantees for which an offset is recognized in other income.

Gross margin was also negatively impacted by certain projects with changes in estimates relating to inclement weather conditions and labor inefficiencies for which we are in ongoing negotiations to receive reimbursement.

These margin decreases were partially

offset by better than anticipated productivity on certain projects, a favorable claim settlement and successful change order negotiations.

Changes in estimates resulted in gross margin decreases of 0.8% and 0.7% for the years ended December 31, 2019 and 2018, respectively.

Gross margin increased to 12.3% for the year ended December 31, 2020 from 10.3% for the year ended December 31, 2019.

The increase in gross margin was primarily due to an increase in higher margin and storm-related work as well as better-than-anticipated productivity on certain projects.

These increases were partially offset by labor inefficiencies as well as unfavorable settlements on certain projects.

Additionally, gross margin during the year ended December 31, 2019 was negatively impacted by projects at lower than historical margins and inefficiencies associated with a joint venture project, that has since been completed.

Changes in estimates resulted in gross margin decreases of 0.8% for the years ended December 31, 2020 and 2019, respectively.

Gross profit.

Gross profit increased $47.1 million, or 28.2%, to $214.2 million for year ended December 31, 2019 from $167.1 million for the year ended December 31, 2018, due to higher revenues, partially offset by lower margins.

Gross profit increased $61.7 million, or 28.8%, to $275.9 million for year ended December 31, 2020 from $214.2 million for the year ended December 31, 2019, due to higher margins and revenues.

Selling, general and administrative expenses.

SG&A, was $188.5 million for the year ended December 31, 2020, an increase of $31.8 million from $156.7 million for the year ended December 31, 2019.

The year-over-year increase was primarily due to the acquisitions of CSI and the Huen Companies, along with higher incentive compensation and other employee-related expenses to support the growth in our operations.

As a percentage of revenues, SG&A decreased to 7.6% for the year ended December 31, 2019 from 7.8% for the year ended December 31, 2018.

The year-over-year increase was primarily due to the acquisition of CSI and higher employee incentive compensation costs.

Gain on sale of property and equipment.

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Interest expense was $4.6 million for the year ended December 31, 2020 compared to $6.2 million for the year ended December 31, 2019.

This increase was primarily attributable to increased borrowing related to the acquisition of CSI, an increase in our working capital needs to support higher volume and an increase in our weighted average interest rate during 2019 as compared to 2018.

Other expense.

This decrease was primarily attributable to a decrease in our outstanding debt and a decrease in our weighted average interest rate during the year ended December 31, 2020 as compared to the year ended December 31, 2019, partially offset by prepayment penalties from early retirements of equipment notes.

Other expense, net.

Other expense was $0.6 million for the year ended December 31, 2020 compared to other expense of $0.5 million for the year ended December 31, 2019.

The change was primarily attributable to a reduction in contingent consideration related to margin guarantees on certain contracts associated with the acquisition of the Huen Companies partially offset by margin guarantees on certain contracts associated with the acquisition of CSI.

The change was primarily attributable to contingent consideration related to margin guarantees on certain contracts associated with the acquisition of CSI recognized in the year ended December 31, 2020.

Income tax expense.

Income tax expense was $22.6 million for the year ended December 31, 2020, with an effective tax rate of 27.8%, compared to $14.2 million for the year ended December 31, 2019, with an effective tax rate of 28.2%.

The increase in the tax rate for the year ended December 31, 2019 was primarily due to foreign earnings and the associated impact of the global intangible low tax income (“GILTI”).

The decrease in the tax rate for the year ended December 31, 2020 was primarily due to a favorable impact from stock compensation excess tax benefits, partially offset by the impact of the global intangible low tax income (“GILTI”).

Net income attributable to MYR Group Inc.

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For the Year Ended December 31,

(dollars in thousands)

(dollars in thousands) Amount Percent Amount Percent

Contract revenues:

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Commercial & Industrial 1,093,014 48.6 936,748 45.2

Total $ 2,247,392 100.0 $ 2,071,159 100.0

Operating income (loss):

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Commercial & Industrial 37,247 3.4 30,506 3.3

Total 146,634 6.5 104,086 5.0

Corporate (60,089) (2.7) (46,908) (2.2)

Consolidated $ 86,545 3.8 % $ 57,178 2.8 %

Transmission & Distribution

Revenues for our T&D segment for the year ended December 31, 2019 were $1.134 billion compared to $893.1 million for the year ended December 31, 2018, an increase of $241.3 million, or 27.0%.

The increase in revenue was primarily due to an increase in revenue on small- to medium-sized transmission and distribution projects.

Revenues for our T&D segment for the year ended December 31, 2020 were $1.15 billion compared to $1.13 billion for the year ended December 31, 2019, an increase of $20.0 million, or 1.8%.

The increase in revenue was primarily related to an increase in revenue on distribution projects which include an increase in storm work related to certain weather events, partially offset by a decrease in revenue on transmission projects.

Revenues from transmission projects represented 64.6% and 68.1% of T&D segment revenue for the years ended December 31, 2020 and 2019, respectively.

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Operating income for our T&D segment for the year ended December 31, 2020 was $109.4 million compared to $73.6 million for the year ended December 31, 2019, an increase of $35.8 million, or 48.7%.

The increase in T&D operating income from the prior year was primarily due to higher revenue on transmission and distribution projects, better than anticipated productivity on certain projects, a favorable claim settlement, and successful change order negotiations.

This improvement from the prior year was partially offset by lower margins and changes in estimates of gross profit on certain projects.

These estimate changes were primarily due to inclement weather on certain projects and an increase in non-reimbursable cost on a project.

The increase in T&D operating income from the prior year was primarily due to better-than-anticipated productivity on certain projects, and an increase in higher margin and storm related work.

These increases were partially offset by labor and material inefficiencies and inclement weather experienced on certain projects.

Operating income, as a percentage of revenues, for our T&D segment increased to 9.5% for the year ended December 31, 2020 from 6.5% for the year ended December 31, 2019.

Commercial & Industrial

Revenues for our C&I segment for the year ended December 31, 2019 were $936.7 million compared to $638.1 million for the year ended December 31, 2018, an increase of $298.6 million, or 46.8%, primarily due to increases in volume across all project sizes and incremental revenues from the acquisitions of CSI, and the Huen Companies in the second half of 2019 and 2018, respectively.

Revenues for our C&I segment for the year ended December 31, 2020 were $1.09 billion compared to $936.7 million for the year ended December 31, 2019, an increase of $156.3 million, or 16.7%, primarily due to incremental revenues from the CSI acquisition, partially offset by impacts related to the COVID-19 pandemic.

Measured by revenue in our C&I segment, we provided 82.5% of our services under fixed-price contracts for the year ended December 31, 2020, compared to 75.2% for the year ended December 31, 2019.

Operating income for our C&I segment for the year ended December 31, 2019 was $30.5 million compared to $34.1 million for the year ended December 31, 2018, a decrease of $3.6 million, or 10.6%.

The year-over-year decrease in operating income was primarily due to changes in estimates of gross profit on

certain projects and an increase in amortization expense of $2.3 million related to certain intangibles acquired with CSI and the Huen Companies.

These estimate changes were primarily due to unanticipated overtime and material delays associated with a substantially completed joint venture project in which we own the majority controlling interest, which were partially offset by net loss attributable to noncontrolling interest.

The joint venture project, along with other acquired projects, are subject to margin guarantees for which an offset is recognized in other income.

Operating income was also negatively impacted by projects with changes in estimates relating to inclement weather conditions, and labor inefficiencies for which we are in ongoing negotiations to receive reimbursement.

The decrease in operating income was also due to a favorable claim settlement in the prior year.

These impacts were partially offset by higher revenues.

Operating income for our C&I segment for the year ended December 31, 2020 was $37.2 million compared to $30.5 million for the year ended December 31, 2019, an increase of $6.7 million, or 22.1%.

The year-over-year increase in operating income was primarily due to higher revenues, an increase in higher margin work on certain projects and better-than-anticipated productivity on certain projects, partially offset by labor inefficiencies as well as unfavorable settlements on certain projects.

As a percentage of revenues, operating income for our C&I segment was 3.4% and 3.3% for the years ended December 31, 2020 and 2019, respectively.

The increase in corporate expenses in 2019 was primarily attributable to higher incentive compensation and other employee-related expenses to support operations.

The increase in corporate expenses for the year ended December 31, 2020 was primarily attributable to higher incentive compensation and other employee-related expenses to support operations.

Liquidity and Capital Resources

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We define working capital, a non-GAAP measure, as current assets less current liabilities.

During the year ended December 31, 2019, the operating activities of our business provided cash of $64.9 million, compared to providing cash of $84.8 million for the year ended December 31, 2018.

During the year ended December 31, 2020, the operating activities of our business provided cash of $175.2 million, compared to $64.9 million for the year ended December 31, 2019.

Cash flow from operations is primarily influenced by demand for our services, operating margins, timing of contract performance and the type of services we provide to our customers.

The $19.9 million year-over-year decline in cash provided by operating activities was primarily due to unfavorable net changes in operating assets and liabilities of $31.7 million, partially offset by increases of $4.9 million in net income, $4.6 million in depreciation and amortization, and $1.2 million in non-cash stock compensation expense.

The unfavorable change in operating assets and liabilities was primarily due to unfavorable changes of $18.7 million in other liabilities and $12.6 million in other assets and net unfavorable year-over-year changes in various working capital accounts that relate primarily to construction activities (accounts receivable, contract assets, accounts payable and contract liabilities) of $4.0 million.

The decrease in cash provided by other liabilities was primarily due to the payment of net asset adjustments related to the acquisition of the Huen Companies, the timing of tax payments and lower incentive compensation accruals in 2018.

The decrease in cash provided by other assets was primarily due to higher prepaid expenses and higher investments on joint ventures.

The increase in cash provided by working capital accounts, primarily related to construction activities, was due to the timing of cash payments and receipts related to work on our contracts.

The $110.3 million year-over-year increase in cash provided by operating activities was primarily due to favorable net changes in operating assets and liabilities of $89.1 million, $22.5 million in net income, $1.9 million in depreciation and amortization, and $1.3 million in non-cash stock compensation expense.

The favorable change in operating assets and liabilities was primarily due to net favorable year-over-year changes in various working capital accounts that relate primarily to the timing of costs incurred on work performed that does not coincide with the billing terms (accounts receivable, contract assets, accounts payable and contract liabilities) of $49.6 million and favorable changes of $46.2 million in other liabilities (of which $26.1 million was due to the timing of payroll and the related tax payments, that we elected to defer under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act")), partially offset by a decrease of $5.1 million in other assets.

The increase in cash provided by other liabilities was primarily due to the payment of net asset adjustments related to favorable changes in contract assets and contract liabilities due to the timing of billings and payments under our contracts.

During the years ended December 31, 2020 and 2019, we used net cash of $40.9 million and $133.5 million, respectively, in investing activities.

The $40.9 million of cash used in investing activities in the year ended December 31, 2020 consisted of $44.4 million for capital expenditures, partially offset by $3.4 million of proceeds from the sale of equipment.

The $133.5 million of cash used in investing activities in the year ended December 31, 2019 consisted of $57.8 million for capital expenditures and $79.7 million to acquire CSI, partially offset by $4.0 million of proceeds from the sale of equipment.

The $93.2 million of cash used in investing activities in the year ended December 31, 2018 consisted of $50.7 million for capital expenditures and $47.1 million to acquire the Huen Companies, partially offset by $4.6 million of proceeds from the sale of equipment.

Financing activities provided cash of $73.4 million and, $10.6 million during the years ended December 31, 2019 and 2018, respectively.

Financing activities used cash of $124.3 million, compared to $73.4 million of cash provided, during the years ended December 31, 2020 and 2019, respectively.

The $124.3 million of cash used in financing activities in the year ended December 31, 2020 consisted primarily of $103.8 million of net repayments under our revolving line of credit, $32.6 million of net repayments under our master equipment loan agreements and $1.2 million of repayments of finance lease obligations, $0.7 million of cash used to purchase shares surrendered by employees to satisfy tax obligations under our stock compensation programs during the year ended December 31, 2020, partially offset by $0.7 million of proceeds from the exercise of stock options.

The $73.4 million of cash provided by financing activities in the year ended December 31, 2019 consisted primarily of $45.5 million of net borrowings under our revolving line of credit, primarily to fund the CSI acquisition, $35.1 million of new equipment notes under our master equipment loan agreements and $0.3 million of proceeds from the exercise of stock options, which were partially offset by $4.6 million of repayments of principal obligations under equipment notes, $1.1 million of debt refinancing costs related to the amendment to the Credit Agreement, $1.2 million of repayments of finance lease obligations and share repurchases of $0.8 million, all of which represented shares surrendered to satisfy tax obligations under our stock compensation programs during the year ended December 31, 2019.

The $10.6 million of cash provided in financing activities in the year ended December 31, 2018 consisted primarily of $31.5 million of borrowings under our Master Loan Agreement with BofA and $1.9 million

of proceeds from the exercise of stock options, partially offset by $20.7 million of repayments under our revolving lines of credit, $1.1 million of payments under our capital lease obligations and $1.0 million of cash used to purchase shares surrendered by employees to satisfy employee tax obligations under our stock compensation program.

We anticipate that our $260.6 million borrowing availability under our revolving line of credit at December 31, 2019 and future cash flow from operations will provide sufficient cash to enable us to meet our future operating needs, debt service requirements, capital expenditures, acquisition and joint venture opportunities.

We anticipate that our $364.6 million borrowing availability under our revolving line of credit at December 31, 2020 and future cash flow from operations will provide sufficient cash to enable us to meet our future operating needs, debt service requirements, capital expenditures, acquisition and joint venture opportunities, share repurchases, and any new challenges and uncertainties associated with the COVID-19 pandemic.

Although we believe that we have adequate cash and borrowing capacity to meet our liquidity needs, any large projects or acquisitions may require additional capital.

Additionally, in light of the uncertainties around the economic impacts from the ongoing COVID-19 pandemic, we are focused on controlling our costs and capital expenditures to preserve our ability to continue to fund our operations;

however, we continue to invest in developing key management and craft personnel in both our T&D and C&I markets and in procuring the specific specialty equipment and tooling needed to win and execute projects of all sizes and complexity.

We have not historically paid dividends and currently do not expect to pay dividends.

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Credit Agreement

On September 13, 2019, we entered into the Credit Agreement with a syndicate of banks led by JPMorgan Chase Bank, N.A.

On September 13, 2019, we entered into a five-year amended and restated credit agreement (the “Credit Agreement”) with a syndicate of banks led by JPMorgan Chase Bank, N.A.

and Bank of America, N.A.

The Credit Agreement provides for a facility of $375 million (the “Facility”) that may be used for revolving loans of which $150 million may be used for letters of credit.

The Credit Agreement provides for a facility of $375 million (the “Facility”), subject to certain financial covenants as defined in the Credit Agreement, that may be used for revolving loans of which $150 million may be used for letters of credit.

The Facility also allows for revolving loans and letters of credit in Canadian dollars and other currencies, up to the U.S.

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If an event of default occurs and is continuing, on the terms and subject to the conditions set forth in the Credit Agreement, amounts outstanding under the Facility may be accelerated and may become or be declared immediately due and payable.

Borrowings under the Facility are used for refinancing existing debt, working capital, capital expenditures, acquisitions and other general corporate purposes.

Borrowings under the Facility are used for refinancing existing debt, working capital, capital expenditures, acquisitions, share repurchases and other general corporate purposes.

Amounts borrowed under the Credit Agreement bear interest, at our option, at a rate equal to either (1) the Alternate Base Rate (as defined in the Credit Agreement), plus an applicable margin ranging from 0.00% to 0.75%;

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The Credit Agreement restricts certain types of payments when our consolidated Leverage Ratio exceeds 2.50 or our consolidated Liquidity (as defined in the Credit Agreement) is less than $50 million.

Under the Credit Agreement, we are subject to certain financial covenants and must maintain a maximum consolidated Leverage Ratio of 3.0 and a minimum interest coverage ratio of 3.0.

Under the Credit Agreement, we are subject to certain financial covenants and are limited to a maximum consolidated Leverage Ratio of 3.0 and a minimum interest coverage ratio of 3.0.

The minimum interest coverage ratio is defined in the Credit Agreement as Consolidated EBITDA (as defined in the Credit Agreement) divided by interest expense (as defined in the Credit Agreement).

1 unchanged sentence

We were in compliance with all of the financial covenants under the Credit Agreement as of December 31, 2020.

As of December 31, 2019, we had $103.8 million of debt outstanding under the Facility and letters of credit outstanding of approximately $10.6 million.

As of December 31, 2020, we had no debt outstanding under the Facility and letters of credit outstanding of approximately $10.4 million.

As of December 31, 2019, we had $103.8 million of debt outstanding under the Facility and letters of credit outstanding of approximately $10.6 million.

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Each Equipment Note constitutes a separate, distinct and independent financing of equipment and contractual obligation.

As of December 31, 2019, we had executed nine Equipment Notes that are collateralized by equipment and vehicles owned by us.

As of December 31, 2020, we had four executed and outstanding Equipment Notes that are collateralized by equipment and vehicles owned by us.

In addition to regularly schedule payments we retired five of our Equipment Notes during the year ended December 31, 2020.

The outstanding balance of these Equipment Notes was $29.4 million as of December 31, 2020.

As of December 31, 2018, we had executed five Equipment Notes that are collateralized by equipment and vehicles owned by us.

As of December 31, 2019, we had executed nine Equipment Notes that are collateralized by equipment and vehicles owned by us.

The outstanding balance of these Equipment Notes was $62.0 million as of December 31, 2019.

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Purchase Commitments for Construction Equipment

As of December 31, 2019, we had approximately $5.4 million in outstanding purchase obligations for certain construction equipment to be paid, with cash outlay scheduled to occur over the first three months of 2020.

As of December 31, 2020, we had approximately $9.5 million in outstanding purchase obligations for certain construction equipment to be paid with cash outlays scheduled to occur over the first nine months of 2021.

Letters of Credit

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Under our continuing indemnity and security agreements with our sureties, with the consent of our lenders under the Credit Agreement, we have granted security interests in certain of our assets to collateralize our obligations to the surety.

We may be required to post letters of credit or other

collateral in favor of the surety or our customers.

We may be required to post letters of credit or other collateral in favor of the surety or our customers.

Posting letters of credit in favor of the surety or our customers reduces the borrowing availability under the Credit Agreement.

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We believe that it is unlikely that we will have to fund significant claims under our surety arrangements.

As of December 31, 2019, an aggregate of approximately $902.0 million in original face amount of bonds issued by our sureties were outstanding.

As of December 31, 2020, an aggregate of approximately $1.33 billion in original face amount of bonds issued by our sureties were outstanding.

Our estimated remaining cost to complete these bonded projects was approximately $629.1 million as of December 31, 2020.

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As of December 31, 2020, our future contractual obligations are as follows:

(in thousands)

(in thousands) Total Less than

1 Year 1 – 3 Years 3 – 5 Years More than

5 Years Other

Short and long term debt (1)

$ 29,420 $ 4,381 $ 9,156 $ 9,291 $ 6,592 $ —

Operating lease obligations 26,803 9,111 12,998 3,899 795 —

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Income tax contingencies 422 — — — — 422

Total $ 66,457 $ 23,304 $ 22,154 $ 13,190 $ 7,387 $ 422

___________________________

(1) Includes obligations under the Facility and obligations under Equipment Notes.

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Revenue Recognition.

On January 1, 2018, we adopted ASU No.

2014-09 , Revenue from Contracts with Customers (Topic 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018.

Results for reporting periods beginning after January 1, 2018 are presented under this new pronouncement, while prior period amounts were not adjusted and continue to be reported under the accounting standard Revenue Recognition Topic 605 , which was in effect for those periods.

Differences in revenue recognition under Topic 606 were due to accelerated recognition of contract provisions related to variable consideration previously not permitted to be recognized under Topic 605 until no remaining contingency existed related to this consideration.

We recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that we expect to be entitled to in exchange for goods or services provided.

Revenue associated with contracts with customers is recognized over time as our performance creates or enhances customer-controlled assets or creates or enhances an asset with no alternative use, for which we have an enforceable right to receive compensation as defined under the contract.

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If the recognized revenue is greater than the amount billed to the customer, a contract asset is recorded.

Additionally, the contract asset

includes retainage billed to the customer that cannot be collected until the contract work has been completed and approved.

Additionally, the contract asset includes retainage billed to the customer that cannot be collected until the contract work has been completed and approved.

Conversely, if the amount billed to the customer is greater than the recognized revenue, a contract liability is recorded.

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Sales tax and value added tax collected from customers is included in other current liabilities on our consolidated balance sheets.

Prior to January 1, 2018 we reported revenue under the accounting standard Revenue Recognition Topic 605 , under which revenues under contracts were accounted for using the percentage-of-completion method of accounting.

Under the percentage-of-completion method, we estimated profit as the difference between total estimated revenue and total estimated cost of a contract and recognized that profit over the contract term based on costs incurred under the cost-to-cost method.

Under Topic 605, revenues from our construction services were performed under fixed-price, time-and-equipment, time-and-materials, unit-price, and cost-plus fee contracts.

For fixed-price and unit-price contracts, we used the ratio of cost incurred on the contract (excluding uninstalled direct materials) to management’s estimate of the contract’s total cost, to determine the percentage of completion on each contract.

This method was used as management considered expended costs to be the best available measure of progression of these contracts.

Contract cost included all direct costs on contracts, including labor and material, subcontractor costs and those indirect costs related to contract performance, such as supplies, fuel, tool repairs and depreciation.

We recognized revenues from construction services with fees based on time-and-materials, or cost-plus fee as the services were performed and amounts were earned.

If contracts included contract incentive or bonus provisions, they were included in estimated contract revenues only when the achievement of such incentive or bonus was reasonably certain.

Under Topic 605, contract costs incurred to date and expected total contract costs were continuously monitored during the term of the contract.

Changes in job performance, job conditions and final contract settlements were factors that influenced management’s assessment of total contract value and the total estimated costs to complete those contracts and therefore, our profit recognition.

These changes, which included contracts with estimated costs in excess of estimated revenues, were recognized in contract costs in the period in which the revisions were determined.

At the point we anticipated a loss on a contract, we estimated the ultimate loss through completion and recognized that loss in the period in which the possible loss was identified.

We carry insurance policies, which are subject to certain deductibles, for workers’ compensation, general liability, automobile liability and other coverages.

Our deductible for each line of coverage is up to $1.0 million, except for wildfire coverage which has a deductible of $2.0 million.

Certain health benefit plans are subject to a deductible up to $0.2 million, for qualified individuals.

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

Certain health benefit plans are subject to stop-loss limits of up to $0.2 million, for qualified individuals.

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

The insurance and claims accruals are based on known facts, actuarial estimates and historical trends.

1 unchanged sentence

Stock-Based Compensation.

We determine compensation expense for stock-based awards based on the estimated fair values at the grant date and recognize the related compensation expense over the vesting period.

We use the straight-line amortization method to recognize compensation expense related to stock-based awards, such as restricted stock, restricted stock units and phantom stock units, that have only service conditions.

We determine compensation expense for stock-based awards based on the estimated fair values at the grant date and recognize the related compensation expense ratably over the vesting period.

We use the straight-line amortization method to recognize compensation expense related to stock-based awards, such as restricted stock and restricted stock units, that have only service conditions.

This method recognizes stock compensation expense on a straight-line basis over the requisite service period for the entire award.

We recognize compensation expense related to performance awards that vest based on internal performance metrics and service conditions on a straight-line basis over

the service period, but adjust inception-to-date expense based upon our determination of the expected achievement of the performance target at each reporting date.

We recognize compensation expense related to performance awards that vest based on internal performance metrics and service conditions on a straight-line basis over the service period, but adjust inception-to-date expense based upon our determination of the expected achievement of the performance target at each reporting date.

We recognize compensation expense related to performance awards with market-based performance metrics on a straight-line basis over the requisite service period.

Upon adoption of ASU No.

2016-09, Compensation — Stock Compensation (Topic 718) in January of 2017, we elected to discontinue estimating future forfeitures and recognize forfeitures as they occur.

Prior to the adoption, we used historical data to estimate the forfeiture rate applied to stock grants.

We recognize forfeitures as they occur.

Shares issued under the Company’s stock-based compensation program are taken out of authorized but unissued shares.

2 unchanged sentences

Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives.

We review goodwill and intangible assets with indefinite lives for impairment on an annual basis at the beginning of the fourth quarter, or when circumstances change, such as a significant adverse change in the business climate or the decision to sell a business, both of which would indicate that impairment may have occurred.

We perform either a qualitative or quantitative assessment to review goodwill and intangible assets with indefinite lives for impairment on an annual basis.

This assessment is performed at the beginning of the fourth quarter, or when circumstances change, such as a significant adverse change in the business climate or the decision to sell a business, both of which would indicate that impairment may have occurred.

Intangible assets with finite lives are also reviewed for impairment and tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

We may perform either a qualitative assessment or a two-step goodwill impairment test.

The qualitative assessment considers financial, industry, segment and macroeconomic factors.

If the qualitative assessment indicates a potential for impairment, the two-step method is used to determine if impairment exists.

The two-step method begins with a comparison of the fair value of the reporting unit with its carrying value.

If the carrying amount of the reporting unit exceeds its fair value, the second step of the process involves a comparison of the implied fair value and carrying value of the goodwill of that reporting unit.

The company also performs a qualitative assessment on intangible assets with indefinite lives.

If the qualitative assessment indicates a potential for impairment, a quantitative impairment test would be performed to compare the fair value of the indefinite-lived intangible asset with its carrying value.

A qualitative assessment considers financial, industry, segment and macroeconomic factors, if the qualitative assessment indicates a potential for impairment, a quantitative assessment is performed to determine if impairment exists.

The quantitative assessment begins with a comparison of the fair value of the reporting unit or intangible asset with its carrying value.

If the carrying amount of the reporting unit or intangible asset exceeds its fair value, an impairment loss would be recognized in an amount equal to that excess, limited to the total amount of the goodwill allocated to the reporting unit or intangible asset.

If the carrying value of goodwill or other indefinite lived assets exceeds its implied fair value, an impairment charge would be recorded in the statement of operations.

As a result of the annual qualitative review process in 2019 we determined it was not necessary to perform a two-step analysis.

In 2018, we performed a two-step analysis on our goodwill and intangible assets with indefinite lives.

The first step involves a comparison of the fair value of the reporting unit with its carrying value.

If the carrying value of goodwill exceeds its implied fair value, an impairment charge is recorded in the statement of operations.

The step-one analysis did not indicate that our goodwill or indefinite lived intangible assets were impaired.

As a result, no step-two analysis was performed.

As a result of the annual qualitative review process in 2020 and 2019, we determined it was not necessary to perform a qualitative assessment.

In 2018, we performed a quantitative assessment on our goodwill and intangible assets with indefinite lives, this assessment did not indicate that our goodwill or indefinite lived intangible assets were impaired.

Accounts Receivable and Allowance for Doubtful Accounts.

5 unchanged sentences

In the event that a customer balance is deemed to be uncollectible the account balance is written-off against the allowance for doubtful accounts.

TABLE OF CONTENTS

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