What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-27 compared with 2021-10-27 · 119 added, 152 removed, 213 unchanged (56% of the section changed)

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”).

This management’s discussion and analysis provides a narrative on the Company’s financial performance and condition that 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, 2021 (the “2021 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.

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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.

contractors servicing the T&D sector of the electric utility industry and provide T&D services throughout the United States and in Ontario, 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.

We have 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.

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We believe the proposed legislative actions are likely to provide greater long-term opportunity in both of our reporting segments.

However both of our segments and supporting operations may be subject to delays and pricing volatility due to the continued market disruption from the COVID-19 pandemic and regulatory slowdowns.

These delays and pricing volatility could result in decelerations in project opportunities and awards.

We had consolidated revenues for the nine months ended September 30, 2021 of $1.85 billion, of which 51.2% was attributable to our T&D customers and 48.8% was attributable to our C&I customers.

Our consolidated revenues for the nine months ended September 30, 2020 were $1.64 billion.

For the nine months ended September 30, 2021, our net income and EBITDA (1) were $64.3 million and $122.8 million, respectively, compared to $40.6 million and $95.2 million, respectively, for the nine months ended September 30, 2020.

However both of our segments and supporting operations may be subject to delays and cost volatility due to the continued market disruption from the COVID-19 pandemic, inflationary pressures, supply chain disruptions, tariffs and regulatory slowdowns.

These delays and cost volatility could result in decelerations in project opportunities and awards.

We had consolidated revenues for the three months ended March 31, 2022 of $636.6 million, of which 57.3% was attributable to our T&D customers and 42.7% was attributable to our C&I customers.

Our consolidated revenues for the three months ended March 31, 2021 were $592.5 million.

For the three months ended March 31, 2022, our net income and EBITDA (1) were $20.7 million and $39.6 million, respectively, compared to $19.9 million and $39.3 million, respectively, for the three months ended March 31, 2021.

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.

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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 begin until 2022.

Significant construction on any large, multi-year projects awarded in the remainder of 2022 will not likely have a large impact on 2022 results.

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.

(1) EBITDA is a non-GAAP measure.

Refer to “Non-GAAP Measure—EBITDA” for a discussion of this measure.

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 on their distribution systems to properly maintain or meet reliability requirements.

We continue to see increased bidding activity in some of our electric distribution markets, as economic conditions improved in those areas.

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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.

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

We expect to see an incremental increase in distribution opportunities in the United States and in Ontario, Canada during the rest of 2022, due to the acquisition of the Powerline Plus Companies.

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 believe that the primary markets we serve may be somewhat less vulnerable to economic slowing, such as health care, transportation, data centers, warehousing, clean 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.

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

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

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We continue to implement strategies that further expand our capabilities and allow opportunities to provide prudent capital returns.

We ended the third quarter of 2021 with $362.7 million available under our credit facility.

On January 4, 2022, we acquired all issued and outstanding shares of capital stock of Powerline Plus Ltd.

and its affiliate (collectively, the “Powerline Plus Companies"), which expanded our distribution operations in Ontario, Canada.

We continue to manage our increasing costs for supporting our operations, including increasing insurance, equipment, labor and material costs.

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 believe that our financial position, positive cash flows and other operational strengths will enable us to manage our markets 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.

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Additional information related to our remaining performance obligations is provided in Note 7–Revenue Recognition in the accompanying notes to our Consolidated Financial Statements.

Our backlog was $1.63 billion at September 30, 2021, compared to $1.65 billion at December 31, 2020 and $1.72 billion at September 30, 2020.

Our backlog at September 30, 2021 increased 4.3% from June 30, 2021.

Backlog in the T&D segment increased $17.1 million and C&I backlog increased $49.7 million compared to June 30, 2021.

Our backlog as of September 30, 2021 included our proportionate share of joint venture backlog totaling $10.2 million, compared to $15.2 million at June 30, 2021.

Our backlog was $2.41 billion at March 31, 2022, compared to $1.79 billion at December 31, 2021 and $1.64 billion at March 31, 2021.

Our backlog at March 31, 2022 increased 34.5% from December 31, 2021.

Backlog in the T&D segment increased $446.8 million and C&I backlog increased $169.6 million compared to December 31, 2021.

Our backlog as of March 31, 2022 included our proportionate share of joint venture backlog totaling $4.2 million, compared to $5.4 million at December 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 September 30, 2021

Backlog at March 31, 2022

(in thousands) Total Amount estimated to not

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Total $ 2,405,529 $ 696,240 $ 1,789,144

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 September 30, 2021, we had approximately $1.28 billion in original face amount of surety bonds outstanding.

Our estimated remaining cost to complete these bonded projects was approximately $531.5 million as of September 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

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(dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent

(dollars in thousands) Amount Percent Amount Percent

Contract revenues $ 636,624 100.0 % $ 592,486 100.0 %

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Net income $ 20,688 3.2 % $ 19,928 3.4 %

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Revenues were $610.2 million for the three months ended September 30, 2021 compared to $607.9 million for the three months ended September 30, 2020.

The increase of $2.3 million, or 0.4%, was primarily due to an increase in revenue on distribution projects partially offset by a decrease in revenue on transmission projects and a decrease in volume on C&I projects in certain geographic areas.

Gross margin.

Gross margin was 13.8% for the three months ended September 30, 2021 compared to 12.6% for the three months ended September 30, 2020.

The increase in gross margin was primarily due to better-than-anticipated productivity on certain projects, favorable job close-outs and favorable change orders on certain projects.

These improvements were partially offset by labor and equipment inefficiencies on certain projects.

Changes in estimates of gross profit on certain projects resulted in a gross margin increase of 1.4% and decrease of 0.3% for the three months ended September 30, 2021 and 2020, respectively.

Gross profit.

Gross profit was $83.9 million for the three months ended September 30, 2021 compared to $76.5 million for the three months ended September 30, 2020.

The increase of $7.4 million, or 9.7%, was due to higher margins and revenues.

Selling, general and administrative expenses.

Selling, general and administrative expenses ("SG&A") were $53.1 million for the three months ended September 30, 2021 compared to $51.4 million for the three months ended September 30, 2020.

The period-over-period increase of $1.7 million was primarily due to an increase in employee-related expenses to support the growth in our operations.

Gain on sale of property and equipment .

Gains from the sale of property and equipment for the three months ended September 30, 2021 were $0.7 million compared to $0.5 million for the three months ended September 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 $0.3 million for the three months ended September 30, 2021 compared to $1.1 million for the three months ended September 30, 2020.

The period-over-period decrease of $0.8 million was primarily due to the decrease in our outstanding debt during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, and prepayment penalties from early retirement of equipment notes during the three months ended September 30, 2020.

Income tax expense.

Income tax expense was $7.6 million for the three months ended September 30, 2021, with an effective tax rate of 24.6%, compared to the expense of $6.5 million for the three months ended September 30, 2020, with an effective tax rate of 27.4%.

The decrease in the tax rate for the three months ended September 30, 2021 was primarily due to the reduction of the impact of the global intangible low tax income (“GILTI”) and a favorable impact from stock compensation excess tax benefits.

Net income was $23.2 million for the three months ended September 30, 2021 compared to $17.3 million for the three months ended September 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 September 30,

(dollars in thousands) Amount Percent Amount Percent

Contract revenues:

Transmission & Distribution $ 306,546 50.2 % $ 299,739 49.3 %

Commercial & Industrial 303,636 49.8 308,162 50.7

Total $ 610,182 100.0 % $ 607,901 100.0 %

Operating income (loss):

Transmission & Distribution $ 35,301 11.5 % $ 32,387 10.8 %

Commercial & Industrial 14,139 4.7 11,732 3.8

Total 49,440 8.1 44,119 7.3

General Corporate (18,488) (3.0) (19,190) (3.2)

Consolidated $ 30,952 5.1 % $ 24,929 4.1 %

Transmission & Distribution

Revenues for our T&D segment for the three months ended September 30, 2021 were $306.5 million compared to $299.7 million for the three months ended September 30, 2020, an increase of $6.8 million, or 2.3%.

The increase in revenue was primarily related to an increase in revenue on distribution projects partially offset by a decrease in revenue on transmission projects.

Revenues from transmission projects represented 54.1% and 61.7% of T&D segment revenue for the three months ended September 30, 2021 and 2020, respectively.

Operating income for our T&D segment for the three months ended September 30, 2021 was $35.3 million, an increase of $2.9 million, or 9.0%, from the three months ended September 30, 2020.

The increase in T&D operating income from the prior year was primarily due to higher revenues, favorable job close-outs and change orders and better-than-anticipated productivity on certain projects.

These improvements were partially offset by labor and equipment inefficiencies on certain projects.

As a percentage of revenues, operating income for our T&D segment was 11.5% for the three months ended September 30, 2021 compared to 10.8% for the three months ended September 30, 2020.

Commercial & Industrial

Revenues for our C&I segment for the three months ended September 30, 2021 were $303.6 million compared to $308.2 million for the three months ended September 30, 2020, a decrease of $4.6 million, or 1.5%, primarily due to a decrease in volume on various-sized projects in certain geographic areas.

Operating income for our C&I segment for the three months ended September 30, 2021 was $14.1 million, an increase of $2.4 million, over the three months ended September 30, 2020.

The period-over-period increase in operating income was due to better-than-anticipated productivity on certain projects and favorable change orders.

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 4.7% for the three months ended September 30, 2021 compared to 3.8% for the three months ended September 30, 2020.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Revenues were $1.85 billion for the nine months ended September 30, 2021 compared to $1.64 billion for the nine months ended September 30, 2020.

The increase of $212.8 million, or 13.0%, was primarily due to an increase in revenue on various-sized C&I projects in certain geographic areas, an increase in revenue on distribution projects and large-sized T&D projects.

Additionally, revenues during the nine months ended September 30, 2020 were negatively impacted by a slight slowdown of C&I work in certain geographic areas related to the COVID-19 pandemic.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Revenues were $636.6 million for the three months ended March 31, 2022 compared to $592.5 million for the three months ended March 31, 2021.

The increase of $44.1 million, or 7.4%, was primarily due to an increase in revenue on distribution projects, incremental revenues from the Powerline Plus Companies and an increase in revenue from transmission projects, partially offset by a decrease in C&I revenue in certain geographical areas.

Gross margin.

Gross margin was 13.1% for the nine months ended September 30, 2021 compared to 12.2% for the nine months ended September 30, 2020.

The increase in gross margin was primarily due to better-than-anticipated productivity on certain projects, favorable job close-outs and a favorable change order on a project.

These improvements were partially offset by labor and equipment inefficiencies on certain projects and unfavorable pending change order adjustments on certain projects.

Changes in estimates of gross profit on certain projects resulted in a gross margin increase of 0.4% and a decrease of 0.4% for the nine months ended September 30, 2021 and 2020, respectively.

Gross margin was 12.6% for the three months ended March 31, 2022 compared to 13.0% for the three months ended March 31, 2021.

The decrease in gross margin was primarily due to overall cost increases mainly associated with supply chain disruptions and impacts from the COVID-19 pandemic some of which also caused labor and material inefficiencies on certain projects, as well as inclement weather experienced on certain projects.

These margin decreases were partially offset by favorable job close outs and net favorable change order adjustments on certain projects.

Changes in estimates of gross profit on certain projects resulted in a gross margin increases of 0.5% and 0.1% for the three months ended March 31, 2022 and 2021, respectively.

Gross profit.

Gross profit was $241.9 million for the nine months ended September 30, 2021 compared to $199.4 million for the nine months ended September 30, 2020, the increase of $42.5 million, or 21.3% was due to higher revenues and margins.

Gross profit was $80.5 million for the three months ended March 31, 2022 compared to $77.0 million for the three months ended March 31, 2021.

The increase of $3.5 million, or 4.6%, was due to higher revenues partially offset by lower margins.

Selling, general and administrative expenses.

SG&A was $154.6 million for the nine months ended September 30, 2021 compared to $137.7 million for the nine months ended September 30, 2020.

The period-over-period increase of $16.9 million was primarily due to higher employee incentive compensation costs, contingent compensation expense related to prior acquisitions and an increase in employee-related expenses to support the growth in our operations.

Selling, general and administrative expenses ("SG&A") were $53.6 million for the three months ended March 31, 2022 compared to $49.6 million for the three months ended March 31, 2021.

The period-over-period increase of $4.0 million was primarily due to the acquisition of the Powerline Plus Companies.

Amortization of intangible assets.

Amortization of intangible assets was $2.8 million for the three months ended March 31, 2022 compared to $0.6 million for the three months ended March 31, 2021.

The period-over-period increase of $2.2 million was primarily due to amortization related to certain intangibles acquired with the Powerline Plus Companies.

Gain on sale of property and equipment .

Gains from the sale of property and equipment for the nine months ended September 30, 2021 were $2.5 million compared to $2.0 million for the nine months ended September 30, 2020.

Gains from the sale of property and equipment for the three months ended March 31, 2022 and 2021 were $0.7 million.

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 $1.5 million for the nine months ended September 30, 2021 compared to $3.9 million for the nine months ended September 30, 2020.

This decrease was primarily attributable to a decrease in our outstanding debt during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Income tax expense.

Income tax expense was $22.5 million for the nine months ended September 30, 2021, with an effective tax rate of 25.9%, compared to the expense of $15.6 million for the nine months ended September 30, 2020, with an effective tax rate of 27.7%.

The decrease in the tax rate for the nine months ended September 30, 2021 was primarily due to a favorable impact from stock compensation excess tax benefits and the reduction of the impact of GILTI.

Net income was $64.3 million for the nine months ended September 30, 2021 compared to $40.6 million for the nine months ended September 30, 2020.

Income tax expense was $3.8 million for the three months ended March 31, 2022, with an effective tax rate of 15.4%, compared to the expense of $7.1 million for the three months ended March 31, 2021, with an effective tax rate of 26.2%.

The decrease in the tax rate for the three months ended March 31, 2022 was primarily due to a favorable impact from stock compensation excess tax benefits and the reduction of the impact of the global intangible low tax income (“GILTI”).

Net income was $20.7 million for the three months ended March 31, 2022 compared to $19.9 million for the three months ended March 31, 2021.

The increase was primarily due to the reasons stated earlier.

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Transmission & Distribution

Revenues for our T&D segment for the nine months ended September 30, 2021 were $948.3 million compared to $835.8 million for the nine months ended September 30, 2020, an increase of $112.5 million, or 13.5%.

The increase in revenue was primarily related to an increase in revenue on distribution projects and large-sized projects.

Revenues from transmission projects represented 62.0% and 64.3% of T&D segment revenue for the nine months ended September 30, 2021 and 2020, respectively.

Operating income for our T&D segment for the nine months ended September 30, 2021 was $96.7 million, an increase of $22.5 million, or 30.4%, from the nine months ended September 30, 2020.

The increase in T&D operating income from the prior year was primarily due to higher revenues, favorable job close-outs, better-than-anticipated productivity on certain projects and a favorable change order on a project, partially offset by labor and equipment inefficiencies.

As a percentage of revenues, operating income for our T&D segment was 10.2% for the nine months ended September 30, 2021 compared to 8.9% for the nine months ended September 30, 2020.

Revenues for our T&D segment for the three months ended March 31, 2022 were $364.9 million compared to $314.9 million for the three months ended March 31, 2021, an increase of $50.0 million, or 15.9%.

The increase in revenue was primarily related to an increase in revenue on distribution projects, incremental revenues from the Powerline Plus Companies and an increase in revenue from transmission projects.

Revenues from transmission projects represented 60.7% and 67.1% of T&D segment revenue for the three months ended March 31, 2022 and 2021, respectively.

Operating income for our T&D segment for the three months ended March 31, 2022 was $30.4 million, an increase of $1.8 million, or 6.1%, from the three months ended March 31, 2021.

The increase in T&D operating income from the prior year was primarily due to higher revenues and a favorable job close-out.

These increases were partially offset by the additional $2.2 million of amortization related to certain intangibles acquired with the Powerline Plus Companies and overall cost increases from supply chain disruptions, impacts from the COVID-19 pandemic and inclement weather experienced on certain projects.

As a percentage of revenues, operating income for our T&D segment was 8.3% for the three months ended March 31, 2022 compared to 9.1% for the three months ended March 31, 2021.

Commercial & Industrial

Revenues for our C&I segment for the nine months ended September 30, 2021 were $904.0 million compared to $803.7 million for the nine months ended September 30, 2020, an increase of $100.3 million, or 12.5%, primarily due an increase in revenues on various-sized projects in certain geographic areas.

Additionally, revenues during the nine months ended September 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 nine months ended September 30, 2021 was $42.9 million, an increase of $12.9 million over the nine months ended September 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 labor and equipment inefficiencies and unfavorable change order adjustments on certain projects.

As a percentage of revenues, operating income for our C&I segment was 4.7% for the nine months ended September 30, 2021 compared to 3.7% for the nine months ended September 30, 2020.

Revenues for our C&I segment for the three months ended March 31, 2022 were $271.8 million compared to $277.6 million for the three months ended March 31, 2021, a decrease of $5.8 million, or 2.1%, primarily due to a decrease in revenue in certain geographical areas.

Operating income for our C&I segment for the three months ended March 31, 2022 was $10.1 million, a decrease of $4.2 million, over the three months ended March 31, 2021.

The period-over-period decrease in operating income was primarily due to overall cost increases mainly associated with supply chain disruptions and impacts from the COVID-19 pandemic some of which also caused labor and material inefficiencies on certain projects.

The decrease in operating income was partially offset by a favorable job close out and net favorable change order adjustments on certain projects.

As a percentage of revenues, operating income for our C&I segment was 3.7% for the three months ended March 31, 2022 compared to 5.1% for the three months ended March 31, 2021.

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.

We define EBITDA, a performance measure used by management, as net income plus 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.

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EBITDA $ 39,558 $ 39,323

Liquidity and Capital Resources

As of September 30, 2021, we had working capital of $244.9 million.

Liquidity, Capital Resources and Material Cash Requirements

As of March 31, 2022, we had working capital of $217.3 million.

We define working capital as current assets less current liabilities.

During the nine months ended September 30, 2021, operating activities of our business provided net cash of $108.2 million, compared to $128.6 million of cash provided for the nine months ended September 30, 2020.

During the three months ended March 31, 2022, operating activities of our business provided net cash of $21.5 million, compared to $59.4 million of cash provided for the three months ended March 31, 2021.

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 $37.9 million year-over-year decrease in cash provided by operating activities was primarily due to unfavorable net changes in operating assets and liabilities of $42.0 million, partially offset by an increase in net income of $0.8 million.

The unfavorable change in operating assets and liabilities was primarily due to an unfavorable change of $34.0 million in other liabilities and an unfavorable change of $12.9 million in other assets, partially offset by the net favorable 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 $1.5 million.

The unfavorable change of $34.0 million in other liabilities was primarily due to higher bonus accruals and the timing of employee related wage and tax payments.

The unfavorable change in other assets was primarily due to the prepayment of materials required for a large project.

The favorable changes in cash provided by working capital accounts, primarily related to construction activities, was primarily due to favorable changes in contract assets and contract liabilities due to the timing of billings and payments under our contracts.

In the nine months ended September 30, 2021, we used net cash of $30.2 million in investing activities consisting of $32.7 million for capital expenditures, partially offset by $2.5 million of proceeds from the sale of equipment.

In the nine months ended September 30, 2021, financing activities used net cash of $27.6 million, consisting primarily of payment of principal obligations under equipment notes of $24.4 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 September 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 $13.4 million of remaining payroll tax deferrals provided under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which will be paid by the end of next year.

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.

The unfavorable change in operating assets and liabilities was primarily due to an unfavorable change of $19.2 million in other liabilities and an unfavorable change of $15.0 million in other assets, partially offset by 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 $8.4 million.

The unfavorable change of $19.2 million in other liabilities was primarily due to the timing of employee incentive compensation payments.

The unfavorable change in other assets was primarily due to the incremental prepayment of materials required for a large project offset by a decrease in our prepaid insurance.

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.

In the three months ended March 31, 2022, we used net cash of $123.6 million in investing activities consisting of $110.6 million to acquire the Powerline Plus Companies and $14.0 million for capital expenditures, partially offset by $1.0 million of proceeds from the sale of equipment.

In the three months ended March 31, 2022, financing activities provided net cash of $38.0 million, consisting primarily of $45.2 million of borrowing under our revolving line of credit, partially offset by share repurchases of $6.8 million, all of which represented shares surrendered to satisfy tax obligations under our stock compensation programs.

We believe that our $317.5 million borrowing availability under our revolving line of credit at March 31, 2022, future cash flow from operations and our ability to utilize short- and long-term leases will provide sufficient liquidity for our short- and long-term needs.

Our primary short-term liquidity needs include cash for operations, debt service requirements, capital expenditures, acquisition and joint venture opportunities and $12.6 million of remaining payroll tax deferrals provided under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which are expected to be paid by the end of 2022.

We believe that we have an adequate source of liquidity to meet our long-term liquidity needs and foreseeable material cash requirements.

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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 September 30, 2021.

We had no debt outstanding under the Facility as of September 30, 2021 and December 31, 2020, and letters of credit outstanding of approximately $12.3 million and $10.4 million as of September 30, 2021 and December 31, 2020, respectively.

We were in compliance with all of the financial covenants under the Credit Agreement as of March 31, 2022.

We had $45.2 million of debt outstanding under the Facility as of March 31, 2022.

We had no debt outstanding under the Facility as of December 31, 2021.

Letters of Credit

Some of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf, such as to beneficiaries under our insurance programs.

In addition, from time-to-time certain customers require us to post letters of credit to ensure payment to our subcontractors and vendors under those contracts and to guarantee performance under our contracts.

Such letters of credit are generally issued by a bank or similar financial institution.

The letter of credit commits the issuer to pay specified amounts to the holder of the letter of credit if the holder claims that we have failed to perform specified actions in accordance with the terms of the letter of credit.

If this were to occur, we would be required to reimburse the issuer of the letter of credit.

Depending on the circumstances of such a reimbursement, we may also have to record a charge to earnings for the reimbursement.

Currently, we do not believe that it is likely that any claims will be made under any letter of credit.

As of March 31, 2022 and December 31, 2021, we had $12.3 million in letters of credit outstanding under our Credit Agreement, which are almost entirely related to the Company's payment obligation under its insurance programs.

Equipment Notes

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

As of September 30, 2021, we had one executed and outstanding Equipment Note that is collateralized by equipment and vehicles owned by us.

In addition to regularly scheduled payments, we retired three of our Equipment Notes during the nine months ended September 30, 2021, one of which contained a prepayment penalty.

The outstanding balance of our Equipment Notes was $5.0 million and $29.4 million as of September 30, 2021 and December 31, 2020, respectively.

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.

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.

As of March 31, 2022 and December 31, 2021, we had one outstanding Equipment Note collateralized by equipment and vehicles owned by us.

The outstanding balance of this Equipment Note was $4.5 million as of March 31, 2022 and December 31, 2021.

As of March 31, 2022 and December 31, 2021, we had outstanding short-term and long-term Equipment Notes of approximately $1.0 million and $3.5 million, respectively.

Lease Obligations

From time-to-time, the Company enters into non-cancelable leases for some of our facility, vehicle and equipment needs.

These leases allow the Company to conserve cash by paying a monthly lease rental fee for the use of facilities, vehicles and equipment rather than purchasing them.

The Company’s leases have remaining terms ranging from one to eight years, some of which may include options to extend the leases for up to five years, and some of which may include options to terminate the leases within one year.

Typically, the Company has purchase options on the equipment underlying its long-term leases and many of its short-term rental arrangements.

The Company may exercise some of these purchase options when the need for equipment is on-going and the purchase option price is attractive.

The outstanding balance of operating lease obligations was $32.5 million as of March 31, 2022.

As of March 31, 2022, we had outstanding short-term and long-term operating lease obligations of approximately $9.3 million and $23.2 million, respectively.

The outstanding balance of operating lease obligations was $21.0 million as of December 31, 2021.

As of December 31, 2021, we had outstanding short-term and long-term operating lease obligations of approximately $7.8 million and $13.2 million, respectively.

The outstanding balance of finance lease obligations was $4.4 million as of March 31, 2022.

As of March 31, 2022 we had outstanding short-term and long-term finance lease obligations of approximately $1.4 million and $3.0 million, respectively.

As of December 31, 2021 we had no outstanding finance lease obligations.

Purchase Commitments for Construction Equipment

As of March 31, 2022, we had approximately $17.2 million in outstanding purchase obligations for certain construction equipment to be paid with cash outlays scheduled to occur over the next nine months.

Performance and Payment Bonds and Parent Guarantees

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

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

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

We must reimburse our sureties for any expenses or outlays they incur.

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.

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

To date, we have not been required to make any reimbursements to any of our sureties for bond-related costs.

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

As of March 31, 2022, an aggregate of approximately $1.46 billion in original face amount of bonds issued by our sureties were outstanding.

Our estimated remaining cost to complete these bonded projects was approximately $579.7 million as of March 31, 2022.

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.

Concentration of Credit Risk

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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 September 30, 2021 and 2020, none of our customers individually exceeded 10% of consolidated accounts receivable.

As of March 31, 2022 and 2021, 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.

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• 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.

• Negative economic and market conditions including tariffs on materials 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.

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• 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 an increase in cost, unavailability or cancellation of third party insurance coverages would increase our overall risk exposure and could disrupt our operations and reduce our profitability.

• 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 an increase in cost, or the unavailability or cancellation of third party insurance coverages would increase our overall risk exposure and could disrupt our operations and reduce our profitability.

• Risks associated with operating in the Canadian market could restrict our ability to expand and harm our business and prospects.

• 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.

• Health outbreaks such as the COVID-19 pandemic may have an adverse impact on our business, employees, liquidity, financial condition, results of operations and cash flows.

• Our dependence on suppliers, subcontractors and equipment manufacturers could expose us to the risk of loss in our operations.

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• 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.

• An increase in the cost or availability for items such as materials, parts, commodities, equipment and tooling may also be impacted by trade regulations, tariffs, taxes, transportation costs and inflation which 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.

• Work stoppages or other labor issues with our unionized workforce could adversely affect our business, and we may be subject to unionization attempts.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis