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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-23 · 102 added, 95 removed, 433 unchanged (31% of the section changed)

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The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the fiscal years ended December 31, 2021 and 2022.

For a discussion of changes from the fiscal year ended December 31, 2019 to the fiscal year ended December 31, 2020, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 (filed March 3, 2021).

For a discussion of changes from the fiscal year ended December 31, 2020 to the fiscal year ended December 31, 2021, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 (filed February 23, 2022).

Overview-Introduction

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Transmission and Distribution segment .

Our T&D segment provides comprehensive solutions to customers in the electric utility industry.

Our T&D segment provides comprehensive solutions to providers in the electric utility industry.

Our T&D segment generally serves the electric utility industry as a prime contractor to customers such as investor-owned utilities, cooperatives, private developers, government-funded utilities, independent power producers, independent transmission companies, industrial facility owners and other contractors.

We have long-standing relationships with many of our T&D customers who rely on us to construct and maintain reliable electric and other utility infrastructure.

Our T&D segment provides a broad range of services on electric transmission and distribution networks and substation facilities, which include design, engineering, procurement, construction, upgrade, maintenance and repair services, with a particular focus on construction, maintenance and repair.

Our T&D services include the construction and maintenance of high voltage transmission lines, substations, lower voltage underground and overhead distribution systems, renewable power facilities and limited gas construction services.

Our T&D segment provides a broad range of services on electric transmission and distribution networks, substation facilities and clean energy projects, which include design, engineering, procurement, construction, upgrade and maintenance and repair services.

Our T&D services include the construction and maintenance of high voltage transmission lines, substations, lower voltage underground and overhead distribution systems, clean energy facilities and limited gas construction services.

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

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Measured by revenues in our T&D segment, we provided 47.8%, 43.0% and 44.0% of our T&D services under fixed-price contracts during the years ended December 31, 2022, 2021 and 2020, respectively.

We also provide many services to our customers under multi-year maintenance service agreements and other variable service agreements.

Commercial and Industrial segment .

Our C&I segment provides a wide range of services including design, installation, maintenance and repair of commercial and industrial wiring, the installation of traffic networks and the installation of bridge, roadway and tunnel lighting.

Our C&I segment provides a wide range of services including design, installation, maintenance and repair of commercial and industrial wiring, the installation of intelligent transportation systems, roadway lighting and signalization.

In our C&I segment, we generally provide our electric construction and maintenance services as a subcontractor to general contractors in the C&I industry as well as directly to facility owners.

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

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

For the year ended December 31, 2021, our C&I revenues were $1.20 billion, or 47.9%, of our revenue, compared to $1.09 billion, or 48.6%, of our revenue for the year ended December 31, 2020 and $936.7 million, or 45.2%, of our revenue for the year ended December 31, 2019.

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

For the year ended December 31, 2022, our C&I revenues were $1.26 billion, or 42.0%, of our revenue, compared to $1.20 billion, or 47.9%, of our revenue for the year ended December 31, 2021 and $1.09 billion, or 48.6%, of our revenue for the year ended December 31, 2020.

Measured by revenues in our C&I segment, we provided 83.3%, 80.5% and 82.7% of our services under fixed-price contracts for the years ended December 31, 2022, 2021 and 2020, respectively.

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

To determine the amount of revenue to recognize over time, we utilized the cost-to-cost method as we believe cost incurred best represents the amount of work completed and remaining on our projects, and is the most common basis for computing percentage of completion in our industry.

To determine the amount of revenue to recognize over time, we utilize the cost-to-cost method as we believe cost incurred best represents the amount of work completed and remaining on our projects, and is the most common basis for computing percentage of completion in our industry.

As the cost-to-cost method is driven by incurred cost, we calculate the percentage of completion by dividing costs incurred to date by the total estimated cost.

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These factors include:

the mix of revenue derived from the industries we serve, the size and duration of our projects, the mix of business conducted in different parts of the United States and Canada, the mix in service and maintenance work compared to new construction work, the amount of work that we subcontract, the amount of material we supply, changes in labor, equipment or insurance costs, seasonal weather patterns, changes in fleet utilization, pricing pressures due to competition, efficiency of work performance, fluctuations in commodity prices of materials, delays in the timing of projects and other factors.

the mix of revenue derived from the industries we serve, the size and duration of our projects, the mix of business conducted in different parts of the United States and Canada, the mix of service and maintenance work compared to new construction work, the amount of work that we subcontract, the amount of material we supply, changes in labor, equipment or insurance costs, seasonal weather patterns, changes in fleet utilization, pricing pressures due to competition, efficiency of work performance, fluctuations in commodity prices of materials, delays in the timing of projects and other factors.

The gross margins we record in the current period may not be indicative of margins in future periods.

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

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

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

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

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

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

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

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 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 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.

We believe 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 clean energy spending.

We believe the 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 cost volatility due to supply chain disruptions, inflationary pressures, tariffs and regulatory slowdowns which may result in decelerations in project opportunities and awards.

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 clean energy sources.

Consequently, we believe 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 2022 will likely not begin until 2023.

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.

Significant construction on any large, multi-year projects awarded in 2023 will not likely have a large impact on our 2023 results.

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

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.

In 2022, we continued 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 and destruction caused by wildfires will cause a push to strengthen utility distribution systems against catastrophic damage.

We believe the increased storm activity and 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.

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

We expect to see an incremental increase in distribution opportunities in the United States and in Ontario, Canada in 2022.

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.

Our C&I bidding opportunities could be impacted by market disruptions, and as a result, the growth of our C&I market will be heavily dependent on the timing and pace of the overall market recovery.

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

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.

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

We expect the long-term growth in our C&I segment to generally track the overall 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.

Through 2021, we continued to implement strategies that further expand our capabilities and effectively allocate capital.

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 Canada.

On July 15, 2019, we completed the acquisition of substantially all the assets of CSI Electrical Contractors, Inc.

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

Additionally, we ended 2021 with $362.7 million available under our credit facility.

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 continued to implement strategies that further expand our capabilities and effectively allocate capital.

We have focused on strengthening our balance sheet by reducing our variable rate outstanding debt in the current higher interest rate environment, which has increased our liquidity and allows us to take advantage of future opportunities as they arise.

Additionally, 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.

During 2022, the Company repurchased 442,167 shares of its common stock under repurchase programs at a weighted-average price of $ 83.64 per share.

As of December 31, 2022, we had $ 75.0 million of remaining availability to purchase shares under our current program, which continues in effect until May 8, 2023, or until the authorized funds are exhausted.

We continue to manage our increasing operating costs, 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 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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In addition, successful completion of our contracts may depend on whether our subcontractors successfully fulfill their contractual obligations.

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

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

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Interest expense (3,563) (0.1) (1,799) (0.1)

Other expense, net (525) — (606) —

Other income (expense), net 2,673 0.1 (525) —

Income before provision for income taxes 114,204 3.8 116,306 4.6

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Revenues increased $510.2 million, or 20.4%, to $3.01 billion for the year ended December 31, 2022 from $2.50 billion for the year ended December 31, 2021.

The increase was primarily due to an increase in revenue on various-sized C&I projects in certain geographic areas and an increase in revenue on distribution projects and large-sized T&D projects.

Additionally, revenues during the year ended December 31, 2020 were negatively impacted by a slight slowdown of C&I work in certain geographic areas related to the COVID-19 pandemic.

The increase was primarily due to an increase in revenue on transmission projects, an increase in revenues on distribution projects, including incremental distribution revenues from the Powerline Plus Companies, and an increase in C&I revenue in certain geographical areas.

Gross margin.

Gross margin increased to 13.0% for the year ended December 31, 2021 from 12.3% for the year ended December 31, 2020.

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

These improvements were partially offset by labor and equipment inefficiencies on certain projects and unfavorable 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 0.8% for the years ended December 31, 2021 and 2020, respectively.

Gross margin decreased to 11.4% for the year ended December 31, 2022 from 13.0% for the year ended December 31, 2021.

The decrease in gross margin was primarily due to overall cost increases mainly associated with supply chain disruptions and inflation.

Gross margin was also negatively impacted by labor and equipment inefficiencies, unfavorable change order adjustments and inclement weather experienced on certain projects.

These margin decreases were partially offset by favorable job close outs, better-than-anticipated productivity on certain projects and favorable change order adjustments on certain projects.

Changes in estimates of gross profit on certain projects resulted in a gross margin decrease of 0.4% and an increase of 0.4% for the years ended December 31, 2022 and 2021, respectively.

Gross profit.

Gross profit increased $49.1 million, or 17.8%, to $325.0 million for year ended December 31, 2021 from $275.9 million for the year ended December 31, 2020, due to higher revenues and margins.

Gross profit increased $19.0 million, or 5.8%, to $344.0 million for year ended December 31, 2022 from $325.0 million for the year ended December 31, 2021, due to higher revenues, partially offset by lower margins.

Selling, general and administrative expenses.

SG&A, was $222.4 million for the year ended December 31, 2022, an increase of $15.2 million from $207.2 million for the year ended December 31, 2021.

The year-over-year increase 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.

The year-over-year increase was primarily due to the acquisition of the Powerline Plus Companies and an increase in employee-related expenses to support the growth in our operations, partially offset by a decrease in employee incentive compensation costs.

Amortization of intangible assets .

Amortization of intangible assets was $9.0 million for the year ended December 31, 2022 compared to $2.3 million for the year ended December 31, 2021.

The period-over-period increase of $6.7 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 in the year ended December 31, 2022 were $2.4 million compared to $3.1 million in the year ended December 31, 2021.

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.

Gains from the sale of property and equipment are attributable to routine sales of property and equipment that is no longer useful or valuable to our ongoing operations.

Interest expense.

Interest expense was $3.6 million for the year ended December 31, 2022 compared to $1.8 million for the year ended December 31, 2021.

This decrease was primarily attributable to a decrease in our outstanding debt during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

This increase was primarily attributable to higher outstanding debt and interest rates during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Other income (expense), net .

Other income was $2.7 million for the year ended December 31, 2022 compared to other expense of $0.5 million for the year ended December 31, 2021.

The change was largely due to funds received under the Canadian Emergency Wage Subsidy program, which were attributable to a C&I segment company.

Other income was also positively impacted by an adjustment to contingent earn-out consideration related to the acquisition of the Powerline Plus Companies.

Income tax expense.

Income tax expense was $30.8 million for the year ended December 31, 2022, with an effective tax rate of 27.0%, compared to $31.3 million for the year ended December 31, 2021, with an effective tax rate of 26.9%.

The decrease in the tax rate for the year ended December 31, 2021 was primarily due to the impact of the global intangible low tax income (“GILTI”) during the year ended December 31, 2020.

Net income increased to $85.0 million for the year ended December 31, 2021 from $58.8 million for the year ended December 31, 2020.

The increase was primarily for the reasons stated above.

The increase in the tax rate for the year ended December 31, 2022 was primarily due to adjustments associated with the prior year global intangible low tax income (“GILTI”), partially offset by a favorable impact from stock compensation excess tax benefits.

Net income decreased to $83.4 million for the year ended December 31, 2022 from $85.0 million for the year ended December 31, 2021.

The decrease was primarily for the reasons stated above.

Segment Results

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Revenues for our T&D segment for the year ended December 31, 2022 were $1.75 billion compared to $1.30 billion for the year ended December 31, 2021, an increase of $444.2 million, or 34.1%.

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

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

Operating income for our T&D segment for the year ended December 31, 2022 was $138.9 million compared to $132.7 million for the year ended December 31, 2021, an increase of $6.2 million, or 4.6%.

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.

Operating income, as a percentage of revenues, for our T&D segment increased to 10.2% for the year ended December 31, 2021 from 9.5% for the year ended December 31, 2020.

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 $6.7 million of amortization related to certain intangibles acquired with the Powerline Plus Companies and an unfavorable change order adjustment on a project.

Operating income was also negatively impacted by overall cost increases from supply chain disruptions, labor inefficiencies, inflation and inclement weather experienced on certain projects.

Operating income, as a percentage of revenues, for our T&D segment decreased to 8.0% for the year ended December 31, 2022 from 10.2% for the year ended December 31, 2021.

Commercial & Industrial

Revenues for our C&I segment for the year ended December 31, 2021 were $1.20 billion compared to $1.09 billion for the year ended December 31, 2020, an increase of $103.7 million, or 9.5%, primarily due to an increase in revenue on various-sized projects in certain geographic areas.

Additionally, revenues during the year ended December 31, 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 year ended December 31, 2021 was $54.4 million compared to $37.2 million for the year ended December 31, 2020, an increase of $17.2 million, or 46.1%.

The year-over-year increase in operating income was primarily due to higher revenues, better-than-anticipated productivity on certain projects and a favorable change order on a project.

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

Operating income, as a percentage of revenues, for our C&I segment increased to 4.5% for the year ended December 31, 2021 from 3.4% for the year ended December 31, 2020.

The increase in corporate expenses for the year ended December 31, 2021 was primarily attributable to higher incentive compensation and other employee-related expenses to support operations.

Revenues for our C&I segment for the year ended December 31, 2022 were $1.26 billion compared to $1.20 billion for the year ended December 31, 2021, an increase of $66.1 million, or 5.5%, primarily due to an increase in revenue in certain geographic areas.

Operating income for our C&I segment for the year ended December 31, 2022 was $43.2 million compared to $54.4 million for the year ended December 31, 2021, a decrease of $11.2 million, or 20.7%.

The year-over-year decrease in operating income was primarily due to overall cost increases mainly associated with supply chain disruptions and inflation.

Operating income was also negatively impacted by labor inefficiencies on certain projects and an unfavorable change order adjustment on a project.

The decrease in operating income was partially offset by better-than-anticipated productivity on various projects, favorable change order adjustments on certain projects and a favorable job close out.

Operating income, as a percentage of revenues, for our C&I segment decreased to 3.4% for the year ended December 31, 2022 from 4.5% for the year ended December 31, 2021.

The decrease in corporate expenses for the year ended December 31, 2022 was primarily attributable to a decrease in employee incentive compensation costs, partially offset by an increase in employee-related expenses to support the growth in our operations.

Non-GAAP Measures

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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.

however, as we use capital and intangible assets to generate revenues, depreciation and amortization are necessary elements of our costs and ability to generate revenue.

Finally, EBITDA excludes income taxes;

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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 attributable to MYR Group Inc.

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Working Capital

Working capital is a non-GAAP measure, we believe that working capital is useful to investors and other external users of our Consolidated Financial Statements in evaluating our operating performance.

Working capital is a non-GAAP measure.

We believe working capital is useful to investors and other external users of our Consolidated Financial Statements in evaluating our operating performance.

The Company defines working capital as total current assets less total current liabilities.

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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 decline in cash provided by operating activities was primarily due to unfavorable net changes in operating assets and liabilities of $74.3 million, partially offset by a $26.2 million increase in net income, a $8.9 million increase in deferred income taxes and a $1.8 million increase in non-cash stock compensation expense.

The unfavorable change in operating assets and liabilities was primarily due to net unfavorable year-over-year changes in various working capital accounts that relate primarily to the timing of costs incurred on work performed that does not coincide with the billing terms (accounts receivable, contract assets, accounts payable and contract liabilities) of $28.8 million, unfavorable changes of $34.8 million in other liabilities was primarily due to payments related to our deferral under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in 2020, timing of other employee related wage and tax payments and higher employee incentive compensation accruals.

In addition we used cash of $9.9 million in prepaid expenses and other assets.

The $30.3 million year-over-year increase in cash provided by operating activities was primarily due to favorable net changes in operating assets and liabilities of $15.1 million, partially offset by a $1.6 million decrease in net income.

The favorable change in operating assets and liabilities was primarily due to the favorable change of $27.0 million in prepaid expenses and other assets, partially offset by the net unfavorable changes of $16.6 million in other liabilities.

The favorable change in prepaid expenses and other assets was primarily due to the timing of insurance payments and the prepayment of materials required for certain projects.

The unfavorable change in other liabilities was primarily due to lower bonus and profit sharing accruals, and payments related to our deferral under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") partially offset by the timing of other employee related wage and tax payments.

In addition, the net favorable year-over-year changes in various working capital accounts that relate primarily to the timing of costs incurred on work performed that does not coincide with the billing terms (accounts receivable, contract assets, accounts payable and contract liabilities) was $0.3 million.

During the years ended December 31, 2022 and 2021, we used net cash of $185.7 million and $49.3 million, respectively, in investing activities.

The $49.3 million of cash used in investing activities in the year ended December 31, 2021 consisted of $52.4 million for capital expenditures, partially offset by $3.1 million of proceeds from the sale of equipment.

The $185.7 million of cash used in investing activities in the year ended December 31, 2022 consisted of $110.7 million to acquire the Powerline Plus Companies, $77.1 million for capital expenditures, partially offset by $2.0 million of proceeds from the sale of equipment.

During the years ended December 31, 2022 and 2021, we used cash of $9.3 million, and $28.1 million, respectively in financing activities.

The $28.1 million of cash used in financing activities in the year ended December 31, 2021 consisted primarily of $24.9 million of net repayments under our master equipment loan agreements and $3.4 million of cash used to purchase shares surrendered by employees to satisfy tax obligations under our stock compensation programs during the year ended December 31, 2021.

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

These uses of cash during the year ended December 31, 2020, were partially offset by $0.7 million of cash provided by proceeds from the exercise of stock options.

We believe that our $362.7 million borrowing availability under our revolving line of credit at December 31, 2021, 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 CARES Act, which will be paid by the end of next year.

We believe that we have an adequate source of liquidity to meet our long-term liquidity needs and foreseeable material cash requirements, including those associated with the acquisition of the Powerline Companies on January 4, 2022, which was funded through a combination of cash on hand and borrowings under our line of credit.

The $9.3 million of cash used in financing activities in the year ended December 31, 2022 consisted primarily of $37.0 million of shares repurchases under our share repurchase program, $6.8 million of shares repurchased to satisfy tax obligations under our stock compensation programs, $1.6 million of repayments of finance lease obligations and $1.0 million of net repayments under our master equipment loan agreements.

These uses of cash during the year ended December 31, 2022, were partially offset by $24.2 million of borrowing under our equipment notes and $12.9 million of net borrowing under our revolving line of credit.

The $28.1 million of cash used in financing activities in the year ended December 31, 2021 consisted primarily of $24.9 million of net repayments under our master equipment loan agreements, and $3.4 million of cash used to purchase shares surrendered by employees to satisfy tax obligations under our stock compensation programs.

We believe our $349.3 million borrowing availability under our revolving line of credit at December 31, 2022, future cash flow from operations and our ability to utilize short-term and long-term leases will provide sufficient liquidity for our short-tern and long-term needs.

Our primary short-term liquidity needs include cash for operations, debt service requirements, capital expenditures, acquisition and joint venture opportunities.

We believe we have adequate sources of liquidity to meet our long-term liquidity needs and foreseeable material cash requirements, including those associated with funding future acquisition opportunities.

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or (2) Adjusted LIBO Rate (as defined in the Credit Agreement) plus an applicable margin ranging from 1.00% to 1.75%.

Once LIBOR is no longer available, we will amend the Credit Agreement to transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”) or will elect the Alternate Base Rate.

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).

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

As of December 31, 2021 and 2020, we had no debt outstanding under the Facility.

As of December 31, 2022 we had $12.9 million debt outstanding under the Facility.

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.

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

Such letters of credit are generally issued by a bank or similar financial institution typically pursuant to our senior credit facility.

Each 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.

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.

At December 31, 2021, we had $12.3 million in letters of credit outstanding under our Credit Agreement at an interest rate of 1.125%, which are almost entirely related to the Company's payment obligation under its insurance programs.

At December 31, 2020, we had $10.4 million in letters of credit outstanding under our Credit Agreement, including $9.8 million, at an interest rate of 1.125%, related to the Company’s payment obligation under its insurance programs and approximately $0.6 million, at an interest rate of 0.625%, related to contract performance obligations.

As of December 31, 2022, and 2021 we had $12.8 million and $12.3 million, respectively, in nonperformance letters of credit outstanding under our Credit Agreement which were almost entirely related to the Company's payment obligation under its insurance programs.

These are irrevocable, standby letters of credit with maturities expiring at various times throughout 2023.

We expect to renew the letters of credit related to the insurance programs for subsequent one-year periods upon their maturity.

We are not aware of any claims currently asserted or threatened under any of these letters of credit that are material, individually or in the aggregate.

However, to the extent payment is required for any of such claims, the amount paid could be material and could adversely affect cash flows.

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 Note”).

The Master Loan Agreements may be used for financing of equipment between us and the lenders 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 December 31, 2022, we had two outstanding Equipment Notes collateralized by equipment and vehicles owned by us.

As of December 31, 2022, we also had one other equipment note outstanding collateralized by a vehicle owned by us.

The outstanding balance of all Equipment Notes was $27.6 million as of December 31, 2022, of which $5.1 million was due in the next twelve months.

As of 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 December 31, 2021.

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

In addition to regularly scheduled payments we retired three of our Equipment Notes during the year ended December 31, 2021.

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

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

As of December 31, 2020, we had outstanding short-term and long-term Equipment Notes of approximately $4.4 million and $25.0 million, respectively.

The outstanding balance of these Equipment Notes was $4.5 million as of December 31, 2021, of which $1.0 million was due in the next twelve months.

Lease Obligations

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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 six 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.

The Company’s leases have remaining terms ranging from one to seven 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 Company may exercise some of these purchase options when the need for equipment is ongoing and the purchase option price is attractive.

The outstanding balance of operating lease obligations was $30.5 million as of December 31, 2022.

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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.

As of December 31, 2022, we had $3.4 million outstanding finance lease obligations, consisting of short-term and long-term finance lease obligations of approximately $1.1 million and $2.3 million, respectively.

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

As of December 31, 2020, our outstanding short-term finance lease obligations was $0.3 million.

Purchase Commitments for Construction Equipment

As of December 31, 2021, we had approximately $9.2 million in outstanding purchase obligations for certain construction equipment to be paid with cash outlays scheduled to occur over the first eight months of 2022.

As of December 31, 2022, we had approximately $14.1 million in outstanding purchase obligations for certain construction equipment to be paid with cash outlays scheduled to occur over the first four months of 2023.

Performance and Payment Bonds and Parent Guarantees

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The foregoing factors as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit between periods.

During the year ended December 31, 2022, changes in estimates pertaining to certain projects decreased consolidated gross margin by 0.4%.

During the year ended December 31, 2021, changes in estimates pertaining to certain projects increased consolidated gross margin by 0.4%.

During the year ended December 31, 2020 and 2019, changes in estimates pertaining to certain projects decreased consolidated gross margin by 0.8%.

During the year ended December 31, 2020, changes in estimates pertaining to certain projects decreased consolidated gross margin by 0.8%.

We provide warranties to customers on a basis customary to the industry;

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

We also maintain excess umbrella coverage providing higher layers of insurance coverage for losses that exhaust the limits of underlying coverage.

A layer of this umbrella coverage requires us to pay a portion of any loss within a certain loss range and our potential exposure for such losses is up to approximately $3.8 million.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis