MYR GROUP INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the accompanying unaudited consolidated financial statements and with our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”). In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed herein under the captions “Cautionary Statement Concerning Forward-Looking Statements and Information” and “Risk Factors,” as well as in the 2020 Annual Report. We assume no obligation to update any of these forward-looking statements. Overview and Outlook We are a holding company of specialty electrical construction service providers that was established through the merger of long-standing specialty contractors. Through our subsidiaries, we serve the electric utility infrastructure, commercial and industrial construction markets. We manage and report our operations through two electrical contracting service segments: Transmission and Distribution (“T&D”) and Commercial and Industrial (“C&I”). We have operated in the transmission and distribution industry since 1891. We are one of the largest U.S. contractors servicing the T&D sector of the electric utility industry and provide T&D services throughout the United States and western Canada. Our T&D customers include many of the leading companies in the electric utility industry. We have also provided electrical contracting services for commercial and industrial construction since 1912. Our C&I segment provides services in the United States and in western Canada. Our C&I customers include facility owners and general contractors. We believe that we have a number of competitive advantages in both of our segments, including our skilled workforce, extensive centralized fleet, proven safety performance and reputation for timely completion of quality work that allows us to compete favorably in our markets. In addition, we believe that we are better capitalized than some of our competitors, which provides us with valuable flexibility to take on additional and more complex projects. We believe proposed legislative actions aimed at supporting infrastructure improvements in the United States may positively impact long-term demand, particularly in connection with electric power infrastructure, transportation and renewable energy spending. We believe the proposed legislative actions are likely to provide greater opportunity in both of our reporting segments. However due to the market disruption associated with the COVID-19 pandemic and market uncertainty, both of our segments may be subject to pricing volatility and materials availability delays which could contribute to an overall deceleration in project opportunities and awards. We had consolidated revenues for the six months ended June 30, 2021 of $1.24 billion, of which 51.7% was attributable to our T&D customers and 48.3% was attributable to our C&I customers. Our consolidated revenues for the six months ended June 30, 2020 were $1.03 billion. For the six months ended June 30, 2021, our net income and EBITDA (1) were $41.1 million and $80.5 million, respectively, compared to $23.3 million and $58.9 million, respectively, for the six months ended June 30, 2020. 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 anticipate that we will continue to see significant bidding activity on large transmission projects going forward. 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 the remainder 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. As a result 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 in their distribution systems to properly maintain or meet reliability requirements. In 2021, we continue to see increased bidding activity in some of our electric distribution markets, as economic conditions improved in those areas. We believe the increased hurricane activity over the past several years and recent destruction caused by wildfires will cause a push to strengthen utility distribution systems against catastrophic damage. 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. We believe electric utility employee retirements could increase with further economic recovery, which may result in an increase in outsourcing opportunities. (1) EBITDA is a non-GAAP measure. Refer to “Non-GAAP Measure—EBITDA” for a discussion of this measure. 21 Table of Contents We expect C&I bidding opportunities to continue to be impacted by various recent market disruptions, and as a result the ultimate recovery of the C&I market will be heavily dependent on the timing and pace of the United States and Canada economic recoveries. 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 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 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. We continue to implement strategies that further expand our capabilities and allow opportunities to provide prudent capital returns. We ended the second quarter of 2021 with $362.7 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 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. Backlog We refer to 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, as “backlog.” A customer’s intention to award us work under a fixed-price contract is not included in backlog unless there is an actual written award to perform a specific scope of work at specific terms and pricing. For many of our unit-price, time-and-equipment, time-and-materials and cost plus contracts, we only include projected revenue for a three-month period in the calculation of backlog, although these types of contracts are generally awarded as part of master service agreements that typically have a one-year to three-year duration from execution. 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. Some of our revenue does not appear in our periodic backlog reporting because the award of the project, as well as the execution of the work, may all take place within the period. Our backlog includes projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions. Backlog should not be relied upon as a stand-alone indicator of future events. The difference between our backlog and remaining performance obligations is due to the exclusion of a portion of our master service agreements under certain contract types from our remaining performance obligations as these contracts can be canceled for convenience at any time by us or the customer without considerable cost incurred by the customer. Our estimated backlog also includes our proportionate share of unconsolidated joint venture contracts. Additional information related to our remaining performance obligations is provided in Note 6–Revenue Recognition in the accompanying notes to our Consolidated Financial Statements. Our backlog was $1.57 billion at June 30, 2021, compared to $1.65 billion at December 31, 2020 and $1.55 billion at June 30, 2020. Our backlog at June 30, 2021 decreased 4.7% from March 31, 2021. Backlog in the T&D segment decreased $59.4 million and C&I backlog decreased $17.2 million compared to March 31, 2021. Our backlog as of June 30, 2021 included our proportionate share of joint venture backlog totaling $15.2 million, compared to $19.2 million at March 31, 2021. The following table summarizes that amount of our backlog that we believe to be firm as of the dates shown and the amount of our current backlog that we reasonably estimate will not be recognized within the next twelve months: Backlog at June 30, 2021 (in thousands) Total Amount estimated to not be recognized within 12 months Total backlog at December 31, 2020 T&D $ 635,094 $ 125,748 $ 753,932 C&I 931,642 163,142 895,524 Total $ 1,566,736 $ 288,890 $ 1,649,456 22 Table of Contents Project Bonding Requirements and Parent Guarantees A substantial portion of our business requires performance and payment bonds or other means of financial assurance to secure contractual performance. These bonds are typically issued at the face value of the contract awarded. If we fail to perform or pay our subcontractors or vendors, the customer may demand that the surety provide services or make payments under the bond. In such a case, we would likely be required to reimburse the surety for any expenses or outlays it incurs. To date, we have not been required to make any reimbursements to our sureties for claims against our surety bonds. As of June 30, 2021, we had approximately $1.30 billion in original face amount of surety bonds outstanding. Our estimated remaining cost to complete these bonded projects was approximately $605.4 million as of June 30, 2021. From time to time, we guarantee the obligations of our wholly owned subsidiaries, including obligations under certain contracts with customers, certain lease agreements, and, in some states, obligations in connection with obtaining contractors’ licenses. Additionally, from time to time, we are required to post letters of credit to guarantee the obligations of our wholly owned subsidiaries, which reduces the borrowing availability under our credit facility. Consolidated Results of Operations The following table sets forth selected consolidated statements of operations data and such data as a percentage of revenues for the periods indicated: Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 (dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent Contract revenues $ 649,573 100.0 % $ 513,051 100.0 % $ 1,242,059 100.0% $ 1,031,521 100.0 % Contract costs 568,551 87.5 451,746 88.1 1,084,084 87.3 908,584 88.1 Gross profit 81,022 12.5 61,305 11.9 157,975 12.7 122,937 11.9 Selling, general and administrative expenses 51,890 8.0 41,199 8.0 101,537 8.1 86,245 8.4 Amortization of intangible assets 578 0.1 1,203 0.2 1,156 0.1 2,431 0.2 Gain on sale of property and equipment (1,111) (0.2) (439) (0.1) (1,794) (0.1) (1,489) (0.2) Income from operations 29,665 4.6 19,342 3.8 57,076 4.6 35,750 3.5 Other income (expense): Interest income 15 — 4 — 28 — 6 — Interest expense (678) (0.1) (1,315) (0.3) (1,153) (0.1) (2,828) (0.3) Other income (expense), net 80 — 321 0.1 121 — (574) (0.1) Income before provision for income taxes 29,082 4.5 18,352 3.6 56,072 4.5 32,354 3.1 Income tax expense 7,863 1.2 4,967 1.0 14,925 1.2 9,037 0.8 Net income $ 21,219 3.3 % $ 13,385 2.6 % $ 41,147 3.3 % $ 23,317 2.3 % Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 Revenues. Revenues were $649.6 million for the three months ended June 30, 2021 compared to $513.1 million for the three months ended June 30, 2020. The increase of $136.5 million, or 26.6%, was primarily due to an increase in revenue on large-sized T&D projects as well as an increase in revenue on various-sized C&I projects. Additionally, revenues during the three months ended June 30, 2020 were negatively impacted by a slight slowdown of C&I work in certain geographic areas related to the COVID-19 pandemic. Gross margin. Gross margin was 12.5% for the three months ended June 30, 2021 compared to 11.9% for the three months ended June 30, 2020. The increase in gross margin was primarily due to better-than-anticipated productivity on certain projects and favorable job close-outs, partially offset by labor and equipment inefficiencies on certain projects. Changes in estimates of gross profit on certain projects resulted in a gross margin increases of 0.8% and 0.2% for the three months ended June 30, 2021 and 2020, respectively. 23 Table of Contents Gross profit. Gross profit was $81.0 million for the three months ended June 30, 2021 compared to $61.3 million for the three months ended June 30, 2020. The increase of $19.7 million, or 32.2%, was due to higher revenues and margins. Selling, general and administrative expenses. Selling, general and administrative expenses ("SG&A") were $51.9 million for the three months ended June 30, 2021 compared to $41.2 million for the three months ended June 30, 2020. The period-over-period increase of $10.7 million was primarily due to higher employee incentive compensation costs and contingent compensation expense related to prior acquisitions. Gain on sale of property and equipment . Gains from the sale of property and equipment for the three months ended June 30, 2021 were $1.1 million compared to $0.4 million for the three months ended June 30, 2020. Gains from the sale of property and equipment are attributable to routine sales of property and equipment no longer useful or valuable to our ongoing operations. Interest expense . Interest expense was $0.7 million for the three months ended June 30, 2021 compared to $1.3 million for the three months ended June 30, 2020. The period-over-period decrease of $0.6 million was primarily due to the decrease in our outstanding debt during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, partially offset by a prepayment penalty from an early retirement of an equipment note during the three months ended June 30, 2021. Income tax expense. Income tax expense was $7.9 million for the three months ended June 30, 2021, with an effective tax rate of 27.0%, compared to the expense of $5.0 million for the three months ended June 30, 2020, with an effective tax rate of 27.1%. The decrease in the tax rate for the three months ended June 30, 2021 was primarily due to a favorable impact from stock compensation excess tax benefits, partially offset by excess tax expense pertaining to the impact of global intangible low tax income (“GILTI”). Net income. Net income was $21.2 million for the three months ended June 30, 2021 compared to $13.4 million for the three months ended June 30, 2020. The increase was primarily due to the reasons stated earlier. Segment Results The following table sets forth, for the periods indicated, statements of operations data by segment, segment net sales as percentage of total net sales and segment operating income as a percentage of segment net sales: Three months ended June 30, 2021 2020 (dollars in thousands) Amount Percent Amount Percent Contract revenues: Transmission & Distribution $ 326,831 50.3 % $ 276,759 53.9 % Commercial & Industrial 322,742 49.7 236,292 46.1 Total $ 649,573 100.0 % $ 513,051 100.0 % Operating income (loss): Transmission & Distribution $ 32,764 10.0 % $ 23,838 8.6 % Commercial & Industrial 14,523 4.5 8,958 3.8 Total 47,287 7.3 32,796 6.4 General Corporate (17,622) (2.7) (13,454) (2.6) Consolidated $ 29,665 4.6 % $ 19,342 3.8 % Transmission & Distribution Revenues for our T&D segment for the three months ended June 30, 2021 were $326.8 million compared to $276.8 million for the three months ended June 30, 2020, an increase of $50.0 million, or 18.1%. The increase in revenue was primarily related to an increase in revenue on two large-sized projects associated with accelerated schedule requirements at the beginning of a project and battery delivery and installation at the close-out of another. Revenues from transmission projects represented 64.5% and 65.5% of T&D segment revenue for the three months ended June 30, 2021 and 2020, respectively. 24 Table of Contents Operating income for our T&D segment for the three months ended June 30, 2021 was $32.8 million, an increase of $9.0 million, or 37.4%, from the three months ended June 30, 2020. The increase in T&D operating income from the prior year was primarily due to higher revenues, favorable job close-outs and better-than-anticipated productivity on certain projects, partially offset by labor and equipment inefficiencies on certain projects. As a percentage of revenues, operating income for our T&D segment was 10.0% for the three months ended June 30, 2021 compared to 8.6% for the three months ended June 30, 2020. Commercial & Industrial Revenues for our C&I segment for the three months ended June 30, 2021 were $322.7 million compared to $236.3 million for the three months ended June 30, 2020, an increase of $86.4 million, or 36.6%, primarily due to an increase in revenue on various-sized projects and accelerated schedules on two projects. Additionally, revenues during the three months ended June 30, 2020 were negatively impacted by a slight slowdown of work in certain geographic areas related to the COVID-19 pandemic. Operating income for our C&I segment for the three months ended June 30, 2021 was $14.5 million, an increase of $5.5 million, over the three months ended June 30, 2020. The period-over-period increase in operating income was due to higher revenues and better-than-anticipated productivity on certain projects. These increases were partially offset by labor and equipment inefficiencies on certain projects. As a percentage of revenues, operating income for our C&I segment was 4.5% for the three months ended June 30, 2021 compared to 3.8% for the three months ended June 30, 2020. Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Revenues. Revenues were $1.24 billion for the six months ended June 30, 2021 compared to $1.03 billion for the six months ended June 30, 2020. The increase of $210.6 million, or 20.4%, was primarily due to an increase in revenue on large-sized T&D projects as well as an increase in revenue on various-sized C&I projects. Additionally, revenues during the six months ended June 30, 2020 were negatively impacted by a slight slowdown of C&I work in certain geographic areas related to the COVID-19 pandemic. Gross margin. Gross margin was 12.7% for the six months ended June 30, 2021 compared to 11.9% for the six months ended June 30, 2020. The increase in gross margin was primarily due to better-than-anticipated productivity on certain projects and favorable job close-outs. These improvements were partially offset by labor and equipment inefficiencies on certain projects, unfavorable pending change order adjustments on certain projects and inclement weather experienced on a project. Changes in estimates of gross profit on certain projects resulted in gross margin increase of 0.3% and decrease of 0.1% for the six months ended June 30, 2021 and 2020, respectively. Gross profit. Gross profit was $158.0 million for the six months ended June 30, 2021 compared to $122.9 million for the six months ended June 30, 2020, the increase of $35.1 million, or 28.5% was due to higher revenues and margins. Selling, general and administrative expenses. SG&A was $101.5 million for the six months ended June 30, 2021 compared to $86.2 million for the six months ended June 30, 2020. The period-over-period increase of $15.3 million was primarily due to higher employee incentive compensation costs and contingent compensation expense related to prior acquisitions. Gain on sale of property and equipment. Gains from the sale of property and equipment for the six months ended June 30, 2021 were $1.8 million compared to $1.5 million for the six months ended June 30, 2020. Gains from the sale of property and equipment are attributable to routine sales of property and equipment no longer useful or valuable to our ongoing operations. Interest expense. Interest expense was $1.2 million for the six months ended June 30, 2021 compared to $2.8 million for the six months ended June 30, 2020. This decrease was primarily attributable to a decrease in our outstanding debt during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, partially offset by a prepayment penalty from an early retirement of an equipment note during the six months ended June 30, 2021. Income tax expense. Income tax expense was $14.9 million for the six months ended June 30, 2021, with an effective tax rate of 26.6%, compared to the expense of $9.0 million for the six months ended June 30, 2020, with an effective tax rate of 27.9%. The decrease in the tax rate for the six months ended June 30, 2021 was primarily due to a favorable impact from stock compensation excess tax benefits, partially offset by excess tax expense pertaining to the impact of GILTI. 25 Table of Contents Net income . Net income was $41.1 million for the six months ended June 30, 2021 compared to $23.3 million for the six months ended June 30, 2020. The increase was primarily due to the reasons stated earlier. Segment Results The following table sets forth, for the periods indicated, statements of operations data by segment, segment net sales as percentage of total net sales and segment operating income as a percentage of segment net sales: Six months ended June 30, 2021 2020 (dollars in thousands) Amount Percent Amount Percent Contract revenues: Transmission & Distribution $ 641,739 51.7 % $ 536,029 52.0 % Commercial & Industrial 600,320 48.3 495,492 48.0 Total $ 1,242,059 100.0 % $ 1,031,521 100.0 % Operating income (loss): Transmission & Distribution $ 61,437 9.6 % $ 41,802 7.8 % Commercial & Industrial 28,796 4.8 18,270 3.7 Total 90,233 7.3 60,072 5.8 General Corporate (33,157) (2.7) (24,322) (2.3) Consolidated $ 57,076 4.6 % $ 35,750 3.5 % Transmission & Distribution Revenues for our T&D segment for the six months ended June 30, 2021 were $641.7 million compared to $536.0 million for the six months ended June 30, 2020, an increase of $105.7 million, or 19.7%. The increase in revenue was primarily related to an increase in revenue on large-sized projects. Revenues from transmission projects represented 65.8% of T&D segment revenue for each of the six months ended June 30, 2021 and 2020. Operating income for our T&D segment for the six months ended June 30, 2021 was $61.4 million, an increase of $19.6 million, or 47.0%, from the six months ended June 30, 2020. The increase in T&D operating income from the prior year was primarily due to higher revenues, favorable job close-outs and better-than-anticipated productivity on certain projects. These increases were partially offset by labor and equipment inefficiencies and inclement weather experienced on a project. As a percentage of revenues, operating income for our T&D segment was 9.6% for the six months ended June 30, 2021 compared to 7.8% for the six months ended June 30, 2020. Commercial & Industrial Revenues for our C&I segment for the six months ended June 30, 2021 were $600.3 million compared to $495.5 million for the six months ended June 30, 2020, an increase of $104.8 million, or 21.2%, primarily due an increase in revenues on various-sized projects. Additionally, revenues during the six months ended June 30, 2020 were negatively impacted by a slight slowdown of work in certain geographic areas related to the COVID-19 pandemic. Operating income for our C&I segment for the six months ended June 30, 2021 was $28.8 million, an increase of $10.5 million over the six months ended June 30, 2020. The period-over-period increase in operating income was primarily due to higher revenues and better-than-anticipated productivity on certain projects. These increases were partially offset by unfavorable change order adjustments on certain projects and labor and equipment inefficiencies on a project. As a percentage of revenues, operating income for our C&I segment was 4.8% for the six months ended June 30, 2021 compared to 3.7% for the six months ended June 30, 2020. 26 Table of Contents Non-GAAP Measure—EBITDA We define EBITDA, a performance measure used by management, as net income plus net income from noncontrolling interest, interest expense net of interest income, provision for income taxes and depreciation and amortization. EBITDA, a non-GAAP financial measure, does not purport to be an alternative to net income as a measure of operating performance or to net cash flows provided by operating activities as a measure of liquidity. We believe that EBITDA is useful to investors and other external users of our Consolidated Financial Statements in evaluating our operating performance and cash flow because EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, useful lives placed on assets, capital structure and the method by which assets were acquired. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly-titled measures of other companies. We use, and we believe investors benefit from, the presentation of EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. Using EBITDA as a performance measure has material limitations as compared to net income, or other financial measures as defined under accounting principles generally accepted in the United States of America (“U.S. GAAP”), as it excludes certain recurring items, which may be meaningful to investors. EBITDA excludes interest expense net of interest income; however, as we have borrowed money to finance transactions and operations, or invested available cash to generate interest income, interest expense and interest income are elements of our cost structure and can affect our ability to generate revenue and returns for our stockholders. Further, EBITDA excludes depreciation and amortization; however, as we use capital and intangible assets to generate revenues, depreciation and amortization are a necessary element of our costs and ability to generate revenue. Finally, EBITDA excludes income taxes; however, as we are organized as a corporation, the payment of taxes is a necessary element of our operations. As a result of these exclusions from EBITDA, any measure that excludes interest expense net of interest income, depreciation and amortization and income taxes has material limitations as compared to net income. When using EBITDA as a performance measure, management compensates for these limitations by comparing EBITDA to net income in each period, to allow for the comparison of the performance of the underlying core operations with the overall performance of the company on a full-cost, after-tax basis. Using both EBITDA and net income to evaluate the business allows management and investors to (a) assess our relative performance against our competitors and (b) monitor our capacity to generate returns for our stockholders. The following table provides a reconciliation of net income to EBITDA: Three months ended June 30, Six months ended June 30, (in thousands) 2021 2020 2021 2020 Net income 21,219 13,385 41,147 23,317 Add: Interest expense, net 663 1,311 1,125 2,822 Income tax expense 7,863 4,967 14,925 9,037 Depreciation & amortization 11,457 11,886 23,328 23,755 EBITDA $ 41,202 $ 31,549 $ 80,525 $ 58,931 We also use EBITDA as a liquidity measure. Certain material covenants contained within our credit agreement (the “Credit Agreement”) are based on EBITDA with certain additional adjustments. Non-compliance with these financial covenants under the Credit Agreement — our interest coverage ratio which 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) and our leverage ratio, which is defined in the Credit Agreement as Consolidated Total Indebtedness (as defined in the Credit Agreement), divided by Consolidated EBITDA (as defined in the Credit Agreement) — could result in our lenders requiring us to immediately repay all amounts borrowed. If we anticipated a potential covenant violation, we would seek relief from our lenders, likely causing us to incur additional cost, and such relief might not be available, or if available, might not be on terms as favorable as those in the Credit Agreement. In addition, if we cannot satisfy these financial covenants, we would be prohibited under the Credit Agreement from engaging in certain activities, such as incurring additional indebtedness, making certain payments, and acquiring or disposing of assets. Based on the information above, management believes that the presentation of EBITDA as a liquidity measure is useful to investors and relevant to their assessment of our capacity to service or incur debt, fund capital expenditures, finance acquisitions and expand our operations. 27 Table of Contents The following table provides a reconciliation of net cash flows provided by operating activities to EBITDA: Three months ended June 30, Six months ended June 30, (in thousands) 2021 2020 2021 2020 Provided by Operating Activities: Net cash flows provided by operating activities $ 29,172 $ 62,680 $ 88,562 $ 97,923 Add/(subtract): Changes in operating assets and liabilities 5,710 (35,882) (20,595) (49,363) Adjustments to reconcile net income to net cash flows provided by operating activities (13,663) (13,413) (26,820) (25,243) Depreciation & amortization 11,457 11,886 23,328 23,755 Income tax expense 7,863 4,967 14,925 9,037 Interest expense, net 663 1,311 1,125 2,822 EBITDA $ 41,202 $ 31,549 $ 80,525 $ 58,931 Liquidity and Capital Resources As of June 30, 2021, we had working capital of $221.5 million. We define working capital as current assets less current liabilities. During the six months ended June 30, 2021, operating activities of our business provided net cash of $88.6 million, compared to $97.9 million of cash provided for the six months ended June 30, 2020. 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 $9.4 million year-over-year decrease in cash used by operating activities was primarily due to unfavorable net changes in operating assets and liabilities of $28.8 million and an increase in net income of $17.8 million. The unfavorable change in operating assets and liabilities was primarily due to the 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 $18.2 million and an unfavorable change of $16.8 million in other liabilities. The unfavorable changes in cash provided by working capital accounts, primarily related to construction activities, was primarily due to unfavorable changes in contract assets and contract liabilities due to the timing of billings and payments under our contracts. The unfavorable change of $16.8 million in other liabilities was primarily due to higher bonus accruals and the timing of employee related wage and tax payments. In the six months ended June 30, 2021, we used net cash of $19.4 million in investing activities of consisting of $21.0 million for capital expenditures, partially offset by $1.6 million of proceeds from the sale of equipment. In the six months ended June 30, 2021, financing activities used net cash of $23.9 million, consisting primarily of payment of principal obligations under equipment notes of $20.6 million and share repurchases of $3.4 million, all of which represented shares surrendered to satisfy tax obligations under our stock compensation programs. We anticipate that our borrowing availability of $362.7 million at June 30, 2021 under our revolving line of credit 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 $25.4 million of remaining payroll tax deferrals provided under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which will be paid within the next two years. 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. 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. 28 Table of Contents Debt Instruments Credit Agreement 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”), 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. dollar equivalent of $75 million. We have an expansion option to increase the commitments under the Facility or enter into incremental term loans, subject to certain conditions, by up to an additional $200 million upon receipt of additional commitments from new or existing lenders. Subject to certain exceptions, the Facility is secured by substantially all of our assets and the assets of our domestic subsidiaries and by a pledge of substantially all of the capital stock of our domestic subsidiaries and 65% of the capital stock of our direct foreign subsidiaries. Additionally, subject to certain exceptions, our domestic subsidiaries also guarantee the repayment of all amounts due under the Credit Agreement. 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. 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%; or (2) Adjusted LIBO Rate (as defined in the Credit Agreement) plus an applicable margin ranging from 1.00% to 1.75%. The applicable margin is determined based on our consolidated leverage ratio (“Leverage Ratio”) which is defined in the Credit Agreement as Consolidated Total Indebtedness (as defined in the Credit Agreement) divided by Consolidated EBITDA (as defined in the Credit Agreement). Letters of credit issued under the Facility are subject to a letter of credit fee of 1.00% to 1.75% for non-performance letters of credit or 0.50% to 0.875% for performance letters of credit, based on our consolidated Leverage Ratio. We are subject to a commitment fee of 0.15% to 0.25%, based on our consolidated Leverage Ratio, on any unused portion of the Facility. 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 $50.0 million. 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, which 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). The Credit Agreement also contains a number of covenants, including limitations on asset sales, investments, indebtedness and liens. We were in compliance with all of the financial covenants under the Credit Agreement as of June 30, 2021. We had no debt outstanding under the Facility as of June 30, 2021 and December 31, 2020, and letters of credit outstanding of approximately $12.3 million and $10.4 million as of June 30, 2021 and December 31, 2020, respectively. Equipment Notes We have entered into multiple Master Loan Agreements with multiple banks. The Master Loan Agreements may be used for financing of equipment between us and the lending banks pursuant to one or more equipment notes ("Equipment Notes"). Each Equipment Note constitutes a separate, distinct and independent financing of equipment and contractual obligation. As of June 30, 2021, we had two executed and outstanding Equipment Notes that are collateralized by equipment and vehicles owned by us. In addition to regularly scheduled payments, we retired two of our Equipment Notes during the six months ended June 30, 2021, one of which contained a prepayment penalty. The outstanding balance of our Equipment Notes was $8.8 million and $29.4 million as of June 30, 2021 and December 31, 2020, respectively. On July 2, 2021, we prepaid our $3.8 million Equipment Note 9 using cash on hand. This prepayment included an insignificant amount of accrued interest and there was no associated prepayment penalty. Off-Balance Sheet Transactions As is common in our industry, we enter into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected on our balance sheets. Our significant off-balance sheet transactions, such as liabilities associated with letter of credit obligations and surety guarantees related to performance bonds, could be entered into in the normal course of business. We have not engaged in any off-balance sheet financing arrangements through special purpose entities. 29 Table of Contents For a discussion regarding off-balance sheet transactions, please refer to Note 8–Commitments and Contingencies in the accompanying notes to our Consolidated Financial Statements. Concentration of Credit Risk We grant trade credit under normal payment terms, generally without collateral, to our customers, which include high credit quality electric utilities, governmental entities, general contractors and builders, owners and managers of commercial and industrial properties located in the United States. Consequently, we are subject to potential credit risk related to changes in business and economic factors throughout the United States. However, we generally have certain statutory lien rights with respect to services provided. Under certain circumstances such as foreclosures or negotiated settlements, we may take title to the underlying assets in lieu of cash in settlement of receivables. As of June 30, 2021 and 2020, none of our customers individually exceeded 10% of consolidated accounts receivable. Management believes the terms and conditions in its contracts, billing and collection policies are adequate to minimize the potential credit risk. New Accounting Pronouncements For a discussion regarding new accounting pronouncements, please refer to Note 1–Organization, Business and Basis of Presentation—Recent Accounting Pronouncements in the accompanying notes to our Consolidated Financial Statements. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates. For further information regarding our critical accounting policies and estimates, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” included in our 2020 Annual Report. Cautionary Statement Concerning Forward-Looking Statements and Information We are including the following discussion to inform you of some of the risks and uncertainties that can affect our company and to take advantage of the protections for forward-looking statements that applicable federal securities law affords. Statements in this Quarterly Report on Form 10-Q contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), which represent our management’s beliefs and assumptions concerning future events. When used in this document and in documents incorporated by reference, forward-looking statements include, without limitation, statements regarding financial forecasts or projections, and our expectations, beliefs, intentions or future strategies that are signified by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “likely,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should”, "unlikely,” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to update these statements (unless required by securities laws), and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict, and many of which are beyond our control. In addition, many of these risks, contingencies and uncertainties are currently amplified by, and may continue to be amplified by, the COVID-19 pandemic. These and other important factors, including those discussed under the caption “Forward-Looking Statements” and in Item 1A. “Risk Factors” in our 2020 Annual Report, and in any risk factors or cautionary statements contained in our other filings with the Securities and Exchange Commission, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. 30 Table of Contents These risks, contingencies and uncertainties include, but are not limited to, the following: • Our operating results may vary significantly from period to period. • Our industry is highly competitive. • Negative economic and market conditions may adversely impact our customers’ future spending and, as a result, our operations and growth. • We may be unsuccessful in generating internal growth, which could impact the projects available to the Company. • Our inability to successfully execute or integrate acquisitions or joint ventures may have an adverse impact on our growth strategy and business. • Project performance issues, including those caused by third parties, or certain contractual obligations may result in additional costs to us, reductions or delays in revenues or the payment of penalties, including liquidated damages. • We may be unable to attract and retain qualified personnel. • The timing of new contracts and termination of existing contracts may result in unpredictable fluctuations in our cash flows and financial results. • During the ordinary course of our business, we may become subject to lawsuits or indemnity claims. • Backlog may not be realized or may not result in profits and may not accurately represent future revenue. • Our insurance has limits and exclusions that may not fully indemnify us against certain claims or losses, including claims resulting from wildfires or other natural disasters, and the unavailability or cancellation of third party insurance coverages would increase our overall risk exposure and could disrupt our operations. • Changes in tax laws or our interpretations of tax laws could materially impact our income tax liabilities. • The nature of our business exposes us to potential liability for warranty claims and faulty engineering, which may reduce our profitability. • Risks associated with operating in the Canadian market could restrict our ability to expand and harm our business and prospects. • Our dependence on suppliers, subcontractors and equipment manufacturers could expose us to the risk of loss in our operations. • Our participation in joint ventures and other projects with third parties may expose us to liability for failures of our partners. • Legislative or regulatory actions relating to electricity transmission and renewable energy may impact demand for our services. • We may incur liabilities and suffer negative financial or reputational impacts relating to occupational health and safety matters, including those related to environmental hazards such as wildfires and other natural disasters. • Our failure to comply with environmental and other laws and regulations could result in significant liabilities. • Our business may be affected by seasonal and other variations, including severe weather conditions and the nature of our work environment. • Opportunities associated with government contracts could lead to increased governmental regulation applicable to us. • We are subject to risks associated with climate change including financial risks and physical risks such as an increase in extreme weather events (such as floods, wildfires or hurricanes), rising sea levels and limitations on water availability and quality. • Our use of percentage-of-completion accounting could result in a reduction or reversal of previously recognized revenues and profits. • Our financial results are based upon estimates and assumptions that may differ from actual results. • Our actual costs may be greater than expected in performing our fixed-price and unit-price contracts. • An increase in the prices of certain materials and commodities used in our business could adversely affect our business. • We may not be able to compete for, or work on, certain projects if we are not able to obtain necessary bonds, letters of credit, bank guarantees or other financial assurances. • COVID-19 may have an adverse impact on our business, employees, liquidity, financial condition, results of operations and cash flows. 31 Table of Contents • Work stoppages or other labor issues with our unionized workforce could adversely affect our business, and we may be subject to unionization attempts. • Multi-employer pension plan obligations related to our unionized workforce could adversely impact our earnings. • We rely on information, communications and data systems in our operations and we or our business partners may be subject to failures, interruptions or breaches of such systems, which could affect our operations or our competitive position, expose sensitive information or damage our reputation.