What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-26 compared with 2022-10-26 · 95 added, 161 removed, 240 unchanged (52% of the section changed)

5 unchanged sentences

Overview and Outlook

We are a holding company of specialty electrical construction service providers that was established through the merger of long-standing specialty contractors.

We are a holding company of specialty electrical construction service providers that was established in 1995 through the merger of long-standing specialty contractors.

Through our subsidiaries, we serve the electric utility infrastructure, commercial and industrial construction markets.

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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, regulatory slowdowns and the continued market disruption from the COVID-19 pandemic, which may result in decelerations in project opportunities and awards.

We had consolidated revenues for the nine months ended September 30, 2022 of $2.14 billion, of which 57.5% was attributable to our T&D customers and 42.5% was attributable to our C&I customers.

Our consolidated revenues for the nine months ended September 30, 2021 were $1.85 billion.

For the nine months ended September 30, 2022, our net income and EBITDA (1) were $58.8 million and $123.8 million, respectively, compared to $64.3 million and $122.8 million, respectively, for the nine months ended September 30, 2021.

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 had consolidated revenues for the three months ended March 31, 2023 of $811.6 million, of which 54.9% was attributable to our T&D customers and 45.1% was attributable to our C&I customers.

Our consolidated revenues for the three months ended March 31, 2022 were $636.6 million.

For the three months ended March 31, 2023, our net income and EBITDA (1) were $23.2 million and $41.3 million, respectively, compared to $20.7 million and $39.6 million, respectively, for the three months ended March 31, 2022.

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 anticipate that we will continue to see significant bidding activity on large transmission projects going forward.

Consequently, we believe that we will continue to see significant bidding activity on large transmission projects going forward.

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

Significant construction on any large, multi-year projects awarded in the remainder of 2022 will not likely begin until 2023.

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

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

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We believe the increased storm activity and destruction caused by wildfires will cause a push to strengthen utility distribution systems against catastrophic damage.

Distribution systems may also require upgrades to accommodate additional distributed energy resources and increased electrification.

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

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

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

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 markets we serve during the rest of 2023.

We expect C&I bidding opportunities to be impacted by continued 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 may be somewhat less vulnerable to economic slowing, such as health care, transportation, data centers, warehousing, clean energy and water projects.

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.

Our C&I bidding opportunities could be impacted by continued 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 that 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.

Legislation and regulation that promotes domestic manufacturing could also create opportunity for our C&I segment.

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.

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

During the nine months ended September 30, 2022, the Company repurchased 398,152 shares of its common stock under our current repurchase program at a weighted-average price of $83.81 per share.

As of September 30, 2022, we had $41.6 million of remaining availability to purchase shares under the program, which continues in effect until November 7, 2022, or until the authorized funds are exhausted.

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.

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 our markets 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, as of March 31, 2023, we had $75.0 million of remaining availability to purchase shares under our share repurchase 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 strategy.

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 6–Revenue Recognition in the accompanying notes to our Consolidated Financial Statements.

Our backlog was $2.48 billion at September 30, 2022, compared to $1.79 billion at December 31, 2021 and $1.63 billion at September 30, 2021.

Our backlog at September 30, 2022 increased $31.4 million from June 30, 2022.

Backlog in the T&D segment decreased $40.6 million and C&I backlog increased $72.0 million compared to June 30, 2022.

Our backlog as of September 30, 2022 included our proportionate share of joint venture backlog totaling $23.6 million, compared to $3.7 million at June 30, 2022.

Our backlog was $2.67 billion at March 31, 2023, compared to $2.50 billion at December 31, 2022 and $2.41 billion at March 31, 2022.

Our backlog at March 31, 2023 increased $166.5 million from December 31, 2022.

Backlog in the T&D segment increased $216.6 million and C&I backlog decreased $50.2 million compared to December 31, 2022.

Our backlog as of March 31, 2023 included our proportionate share of joint venture backlog totaling $29.9 million, compared to $30.8 million at December 31, 2022.

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, 2022

Backlog at March 31, 2023

(in thousands) Total Amount estimated to not

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Three months ended

September 30, Nine months ended

September 30,

2022 2021 2022 2021

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

(dollars in thousands) Amount Percent Amount Percent

Contract revenues $ 811,616 100.0 % $ 636,624 100.0 %

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Interest expense (586) (0.1) (451) (0.1)

Other income, net 223 — 69 — 2,485 0.1 190 —

Other expense, net (90) — (15) —

Income before provision for income taxes 27,071 3.3 24,444 3.8

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Net income $ 23,163 2.9 % $ 20,688 3.2 %

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Revenues were $799.8 million for the three months ended September 30, 2022 compared to $610.2 million for the three months ended September 30, 2021.

The increase of $189.6 million, or 31.1%, 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.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Revenues were $811.6 million for the three months ended March 31, 2023 compared to $636.6 million for the three months ended March 31, 2022.

The increase of $175.0 million, or 27.5%, was primarily due to an increase in C&I revenue in certain geographical areas and an increase in revenue on both transmission and distribution projects.

Clean energy projects drove revenue increases in both of our segments during the three months ended March 31, 2023.

Gross margin.

Gross margin was 10.8% for the three months ended September 30, 2022 compared to 13.8% for the three months ended September 30, 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 inefficiencies and inclement weather experienced on certain projects.

These margin decreases were partially offset by a favorable change order adjustment and better-than-anticipated productivity on certain projects.

Changes in estimates of gross profit on certain projects resulted in a gross margin decrease of 0.3% and an increase of 1.4% for the three months ended September 30, 2022 and 2021, respectively.

Gross margin was 10.4% for the three months ended March 31, 2023 compared to 12.6% for the three months ended March 31, 2022.

The decrease in gross margin was primarily due to labor inefficiencies, some of which were caused by inclement weather and supply chain disruptions experienced on certain projects.

Gross margin was also negatively impacted by an increase in cost associated with an adjustment to sales tax accruals for prior periods in one of our operating areas as well as rising costs associated with inflation.

These margin decreases were partially offset by better-than-anticipated productivity on a project.

Changes in estimates of gross profit on certain projects resulted in a gross margin decrease of 0.6% and an increase of 0.5% for the three months ended March 31, 2023 and 2022, respectively.

Gross profit.

Gross profit was $86.3 million for the three months ended September 30, 2022 compared to $83.9 million for the three months ended September 30, 2021.

Gross profit was $84.4 million for the three months ended March 31, 2023 compared to $80.5 million for the three months ended March 31, 2022.

The increase of $3.9 million, or 4.9%, was due to higher revenues, partially offset by lower margins.

Selling, general and administrative expenses.

Selling, general and administrative expenses ("SG&A") were $58.9 million for the three months ended September 30, 2022 compared to $53.1 million for the three months ended September 30, 2021.

The period-over-period increase of $5.8 million was primarily due to an increase in employee-related expenses to support the growth in our operations and the acquisition of the Powerline Plus Companies, partially offset by a decrease in employee incentive compensation costs.

Gain on sale of property and equipment .

Gains from the sale of property and equipment for the three months ended September 30, 2022 were $0.3 million compared to $0.7 million for the three months ended September 30, 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.

Interest expense.

Interest expense was $1.1 million for three months ended September 30, 2022 compared to $0.3 million for the three months ended September 30, 2021.

This increase was primarily attributable to higher outstanding debt and interest rates during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Income tax expense.

Income tax expense was $7.7 million for the three months ended September 30, 2022, with an effective tax rate of 29.4%, compared to the expense of $7.6 million for the three months ended September 30, 2021, with an effective tax rate of 24.6%.

The increase in the tax rate for the three months ended September 30, 2022 was primarily due to an increase in permanent difference items and a tax benefit associated with the reversal of the global intangible low tax income (“GILTI”) during the three months ended September 30, 2021.

Net income was $18.4 million for the three months ended September 30, 2022 compared to $23.2 million for the three months ended September 30, 2021.

The decrease 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 $ 452,014 56.5 % $ 306,546 50.2 %

Commercial & Industrial 347,834 43.5 303,636 49.8

Total $ 799,848 100.0 % $ 610,182 100.0 %

Operating income (loss):

Transmission & Distribution $ 34,315 7.6 % $ 35,301 11.5 %

Commercial & Industrial 10,876 3.1 14,139 4.7

Total 45,191 5.7 49,440 8.1

General Corporate (18,216) (2.3) (18,488) (3.0)

Consolidated $ 26,975 3.4 % $ 30,952 5.1 %

Transmission & Distribution

Revenues for our T&D segment for the three months ended September 30, 2022 were $452.0 million compared to $306.5 million for the three months ended September 30, 2021, an increase of $145.5 million, or 47.5%.

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

Revenues from transmission projects represented 58.4% and 54.1% of T&D segment revenue for the three months ended September 30, 2022 and 2021, respectively.

Operating income for our T&D segment for the three months ended September 30, 2022 was $34.3 million, a decrease of $1.0 million, or 2.8%, from the three months ended September 30, 2021.

The decrease in T&D operating income from the prior year was primarily due to labor inefficiencies on a project and overall cost increases from supply chain disruptions, inflation and inclement weather experienced on certain projects.

These decreases were partially offset by higher revenues.

As a percentage of revenues, operating income for our T&D segment was 7.6% for the three months ended September 30, 2022 compared to 11.5% for the three months ended September 30, 2021.

Commercial & Industrial

Revenues for our C&I segment for the three months ended September 30, 2022 were $347.8 million compared to $303.6 million for the three months ended September 30, 2021, an increase of $44.2 million, or 14.6%, primarily due to higher revenue in certain geographical areas.

Operating income for our C&I segment for the three months ended September 30, 2022 was $10.9 million, a decrease of $3.3 million, over the three months ended September 30, 2021.

The period-over-period 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.

The decrease in operating income was partially offset by a favorable change order adjustment and better-than-anticipated productivity on certain projects.

As a percentage of revenues, operating income for our C&I segment was 3.1% for the three months ended September 30, 2022 compared to 4.7% for the three months ended September 30, 2021.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Revenues were $2.14 billion for the nine months ended September 30, 2022 compared to $1.85 billion for the nine months ended September 30, 2021.

The increase of $292.4 million, or 15.8%, 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 was 11.5% for the nine months ended September 30, 2022 compared to 13.1% for the nine months ended September 30, 2021.

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

Gross margin was also negatively impacted by an unfavorable change order adjustment on a project and inclement weather experienced on certain projects.

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

Changes in estimates of gross profit on certain projects were not significant for the nine months ended September 30, 2022 and resulted in gross margin increase of 0.4% for the nine months ended September 30, 2021.

Gross profit.

Gross profit was $247.7 million for the nine months ended September 30, 2022 compared to $241.9 million for the nine months ended September 30, 2021, the increase of $5.8 million, or 2.4% was due to higher revenues, partially offset by lower margins.

Selling, general and administrative expenses.

SG&A was $164.5 million for the nine months ended September 30, 2022 compared to $154.6 million for the nine months ended September 30, 2021.

The period-over-period increase of $9.9 million was primarily due to the acquisition of 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 $6.8 million for the nine months ended September 30, 2022 compared to $1.7 million for the nine months ended September 30, 2021.

The period-over-period increase of $5.1 million was primarily due to amortization related to certain intangibles acquired with the Powerline Plus Companies.

Selling, general and administrative expenses were $57.0 million for the three months ended March 31, 2023 compared to $53.6 million for the three months ended March 31, 2022.

The period-over-period increase of $3.4 million was primarily due to an increase in employee-related expenses to support the growth in our operations and an increase in employee incentive compensation costs.

Gain on sale of property and equipment .

Gains from the sale of property and equipment for the nine months ended September 30, 2022 were $1.7 million compared to $2.5 million for the nine months ended September 30, 2021.

Gains from the sale of property and equipment for the three months ended March 31, 2023 were $1.2 million compared to $0.7 million for the three months ended March 31, 2022.

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 $2.2 million for the nine months ended September 30, 2022 compared to $1.5 million for the nine months ended September 30, 2021.

This increase was primarily attributable to higher outstanding debt and interest rates during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Other income, net .

Other income was $2.5 million for the nine months ended September 30, 2022 compared to other income of $0.2 million for the nine months ended September 30, 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.

Interest expense was $0.6 million for three months ended March 31, 2023 compared to $0.5 million for the three months ended March 31, 2022.

This increase was primarily attributable to higher interest rates, partially offset by lower average debt balances, during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Income tax expense.

Income tax expense was $19.6 million for the nine months ended September 30, 2022, with an effective tax rate of 25.0%, compared to the expense of $22.5 million for the nine months ended September 30, 2021, with an effective tax rate of 25.9%.

The decrease in the tax rate for the nine months ended September 30, 2022 was primarily due to a favorable impact from stock compensation excess tax benefits, partially offset by an increase in other permanent difference items.

Net income was $58.8 million for the nine months ended September 30, 2022 compared to $64.3 million for the nine months ended September 30, 2021.

The decrease was primarily due to the reasons stated earlier.

Income tax expense was $3.9 million for the three months ended March 31, 2023, with an effective tax rate of 14.4%, compared to the expense of $3.8 million for the three months ended March 31, 2022, with an effective tax rate of 15.4%.

The decrease in the tax rate for the three months ended March 31, 2023 was primarily due to a higher favorable impact from stock compensation excess tax benefits, partially offset by higher other permanent difference items.

Net income was $23.2 million for the three months ended March 31, 2023 compared to $20.7 million for the three months ended March 31, 2022.

The increase was primarily due to the reasons stated earlier.

Segment Results

Nine months ended September 30,

Three months ended March 31,

(dollars in thousands) Amount Percent Amount Percent

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Transmission & Distribution

Revenues for our T&D segment for the nine months ended September 30, 2022 were $1.23 billion compared to $948.3 million for the nine months ended September 30, 2021, an increase of $283.8 million, or 29.9%.

Revenues from transmission projects represented 59.7% and 62.0% of T&D segment revenue for the nine months ended September 30, 2022 and 2021, respectively.

Operating income for our T&D segment for the nine months ended September 30, 2022 was $97.6 million, an increase of $0.9 million, or 0.8%, from the nine months ended September 30, 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 $5.1 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.

As a percentage of revenues, operating income for our T&D segment was 7.9% for the nine months ended September 30, 2022 compared to 10.2% for the nine months ended September 30, 2021.

Revenues for our T&D segment for the three months ended March 31, 2023 were $445.3 million compared to $364.9 million for the three months ended March 31, 2022, an increase of $80.4 million, or 22.1%.

The increase in revenue was primarily related to an increase in revenue on transmission projects, including revenues related to clean energy, and an increase in revenues on distribution projects.

Revenues from transmission projects represented 66.9% and 60.7% of T&D segment revenue for the three months ended March 31, 2023 and 2022, respectively.

Operating income for our T&D segment for the three months ended March 31, 2023 was $32.8 million, an increase of $2.4 million, or 7.9%, from the three months ended March 31, 2022.

The increase in T&D operating income from the prior year was primarily due to higher revenues.

As a percentage of revenues, operating income for our T&D segment was 7.4% for the three months ended March 31, 2023 compared to 8.3% for the three months ended March 31, 2022.

The decrease in T&D operating income as a percentage of revenues was primarily due to labor inefficiencies caused by inclement weather and supply chain disruptions experienced on certain projects.

Commercial & Industrial

Revenues for our C&I segment for the nine months ended September 30, 2022 were $912.5 million compared to $904.0 million for the nine months ended September 30, 2021, an increase of $8.5 million, or 0.9%, primarily due to higher revenue in certain geographical areas.

Operating income for our C&I segment for the nine months ended September 30, 2022 was $30.5 million, a decrease of $12.4 million over the nine months ended September 30, 2021.

The period-over-period decrease in operating income was primarily due to overall cost increases mainly associated with supply chain disruptions, inflation and continued 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 better-than-anticipated productivity on various projects, favorable change order adjustments on certain projects and a favorable job close out.

As a percentage of revenues, operating income for our C&I segment was 3.3% for the nine months ended September 30, 2022 compared to 4.7% for the nine months ended September 30, 2021.

Revenues for our C&I segment for the three months ended March 31, 2023 were $366.3 million compared to $271.8 million for the three months ended March 31, 2022, an increase of $94.5 million, or 34.8%, primarily due to higher revenue in certain geographical areas including revenues related to clean energy.

Operating income for our C&I segment for the three months ended March 31, 2023 was $10.6 million, an increase of $0.5 million, over the three months ended March 31, 2022.

The period-over-period increase in operating income was primarily due to higher revenues.

As a percentage of revenues, operating income for our C&I segment was 2.9% for the three months ended March 31, 2023 compared to 3.7% for the three months ended March 31, 2022.

The decrease in C&I operating income as a percentage of revenues was primarily due to labor inefficiencies, some of which were caused by inclement weather and supply chain disruptions, as well as an increase in cost associated with an adjustment to sales tax accruals for prior periods in one of our operating areas.

C&I operating income margin was also negatively impacted by rising costs associated with inflation.

These decreases were partially offset by better-than-anticipated productivity on a project.

Non-GAAP Measure—EBITDA

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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;

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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 to EBITDA:

Three months ended

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(in thousands) 2023 2022

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Liquidity, Capital Resources and Material Cash Requirements

As of September 30, 2022, we had working capital of $249.8 million.

As of March 31, 2023, we had working capital of $223.5 million.

We define working capital as current assets less current liabilities.

During the nine months ended September 30, 2022, operating activities of our business provided net cash of $73.7 million, compared to $108.2 million of cash provided for the nine months ended September 30, 2021.

During the three months ended March 31, 2023, operating activities of our business provided net cash of $37.2 million, compared to $21.5 million of cash provided for the three months ended March 31, 2022.

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

The $34.5 million year-over-year decrease in cash provided by operating activities was primarily due to unfavorable net changes in operating assets and liabilities of $39.5 million, partially offset by an increase in depreciation and amortization of $8.5 million.

The unfavorable change in operating assets and liabilities was primarily due to the net unfavorable year-over-year changes in various working capital accounts that relate primarily to construction activities (accounts receivable, contract assets, accounts payable and contract liabilities) of $65.2 million, partially offset by the net favorable change of $29.1 million in other assets.

The unfavorable changes in cash provided by working capital accounts, mainly related to construction activities, was primarily due to unfavorable changes in accounts receivable due to the timing of billings and payments under our contracts.

The favorable change in other assets was primarily due to the timing of insurance payments partially offset by incremental prepayment of materials required for certain projects.

In the nine months ended September 30, 2022, we used net cash of $157.5 million in investing activities consisting of $110.7 million to acquire the Powerline Plus Companies and $48.5 million for capital expenditures, partially offset by $1.6 million of proceeds from the sale of equipment.

In the nine months ended September 30, 2022, financing activities provided net cash of $41.7 million, consisting primarily of $57.7 million of borrowing under our revolving line of credit and $24.2 million of borrowing under our equipment notes.

The impact of these borrowing was partially offset by share repurchases of $31.7 million under our share repurchase program and $6.8 million of shares repurchased to satisfy tax obligations under our stock compensation programs.

We believe that our $303.9 million borrowing availability under our revolving line of credit at September 30, 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, share repurchases and $9.8 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 adequate sources of liquidity to meet our long-term liquidity needs and foreseeable material cash requirements.

The $15.7 million year-over-year increase in cash provided by operating activities was primarily due to favorable net changes in operating assets and liabilities of $14.8 million, and an increase of $2.5 million in net income.

The favorable change in operating assets and liabilities was primarily due to the favorable change of $15.6 million in other assets and the favorable change of $15.3 million in other liabilities 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 $11.8 million.

The favorable change of $15.6 million in other assets was primarily due to the timing of prepayments related to materials required for certain projects.

The favorable change of $15.3 million in other liabilities was primarily due to changes in our employee incentive compensation accruals.

The net unfavorable changes of $11.8 million in cash provided by working capital accounts, mainly related to construction activities, were primarily due to unfavorable changes in accounts payable and contract assets partially offset by favorable changes in accounts receivable, these changes are due to the timing of billings and payments under our contracts.

In the three months ended March 31, 2023, we used net cash of $18.1 million in investing activities consisting of $19.6 million for capital expenditures, partially offset by $1.5 million of proceeds from the sale of equipment.

In the three months ended March 31, 2023, financing activities used net cash of $23.1 million, consisting primarily of $12.9 million of net repayments under our revolving line of credit, $7.9 million of shares repurchased to satisfy tax obligations under our stock compensation programs and $2.0 million of payments under our equipment notes.

We believe our $363.3 million borrowing availability under our revolving line of credit at March 31, 2023, future cash flow from operations and our ability to utilize short-term and long-term leases will provide sufficient liquidity for our short-term 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 that 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, the Company 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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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, 2022.

We had $57.7 million of debt outstanding under the Facility as of September 30, 2022.

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

We were in compliance with all of the financial covenants under the Credit Agreement as of March 31, 2023.

We had no debt outstanding under the Facility as of March 31, 2023.

We had $12.9 million of debt outstanding under the Facility as of December 31, 2022.

Letters of Credit

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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 September 30, 2022 and December 31, 2021, we had $13.3 million and $12.3 million, respectively, in letters of credit outstanding under our Credit Agreement, which are almost entirely related to the Company's payment obligation under its insurance programs.

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

As of March 31, 2023 and December 31, 2022, we had $11.7 million and $12.8 million, respectively, in letters of credit outstanding under our Credit Agreement, which were 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, 2022, we had two outstanding Equipment Notes collateralized by equipment and vehicles owned by us.

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

As of September 30, 2022, we also had one other equipment note outstanding collateralized by a vehicle owned by us.

The outstanding balance of all equipment notes was $28.2 million as of September 30, 2022 and $4.5 million as of December 31, 2021.

As of September 30, 2022 we had outstanding short-term and long-term equipment notes of approximately $5.1 million and $23.1 million, respectively.

As of March 31, 2023, we had two outstanding Equipment Notes collateralized by equipment and vehicles owned by us.

As of December 31, 2022, we had two outstanding Equipment Notes collateralized by equipment and vehicles owned by us.

As of March 31, 2023 and 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 $25.7 million as of March 31, 2023 and $27.6 million as of December 31, 2022.

As of March 31, 2023, we had outstanding short-term and long-term equipment notes of approximately $5.2 million and $20.5 million, respectively.

As of December 31, 2022, we had an outstanding short-term and long-term Equipment Notes of approximately $5.1 million and $22.6 million, respectively.

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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 $31.4 million as of September 30, 2022, consisting of short-term and long-term operating lease obligations of approximately $9.8 million and $21.6 million, respectively.

The outstanding balance of operating lease obligations was $29.4 million as of March 31, 2023, consisting of short-term and long-term operating lease obligations of approximately $10.0 million and $19.4 million, respectively.

The outstanding balance of operating lease obligations was $30.5 million as of December 31, 2022, consisting of short-term and long-term operating lease obligations of approximately $9.7 million and $20.8 million, respectively.

The outstanding balance of finance lease obligations was $3.7 million as of September 30, 2022, consisting of short-term and long-term finance lease obligations of approximately $1.2 million and $2.6 million, respectively.

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

The outstanding balance of finance lease obligations was $3.1 million as of March 31, 2023, consisting of short-term and long-term finance lease obligations of approximately $1.1 million and $2.0 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.

Purchase Commitments for Construction Equipment

As of September 30, 2022, we had approximately $26.2 million in outstanding purchase obligations for certain construction equipment to be paid with cash outlays scheduled to occur over the next seven months.

As of March 31, 2023, we had approximately $26.0 million in outstanding purchase obligations for certain construction equipment to be paid with cash outlays scheduled to occur in 2023 and 2024.

Performance and Payment Bonds and Parent Guarantees

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

As of September 30, 2022, an aggregate of approximately $1.78 billion in original face amount of bonds issued by our sureties were outstanding.

Our estimated remaining cost to complete these bonded projects was approximately $861.1 million as of September 30, 2022.

As of March 31, 2023, an aggregate of approximately $2.03 billion in original face amount of bonds issued by our sureties were outstanding.

Our estimated remaining cost to complete these bonded projects was approximately $733.3 million as of March 31, 2023.

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.

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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, 2022 and 2021, none of our customers individually exceeded 10% of consolidated accounts receivable.

As of March 31, 2023 and 2022, 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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While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict, and many of which are beyond our control.

In addition, many of these risks, contingencies and uncertainties are currently amplified by, and may continue to be amplified by, the COVID-19 pandemic.

These and other important factors, including those discussed under the caption “Forward-Looking Statements” and in Item 1A.

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• Our industry is highly competitive.

• Negative economic and market conditions including tariffs on materials and recessionary 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 and recessionary conditions may in the future adversely impact our customers’ 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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• 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.

• Risks associated with operating in the Canadian market could impact our profitability.

• 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.

• 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.

• Pandemic outbreaks of disease, such as the COVID-19 pandemic, have in the past had and may in the future 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.

• Our participation in joint ventures and other projects with third parties may expose us to liability for failures of our partners.

• Legislative or regulatory actions relating to electricity transmission and renewable energy may impact demand for our services.

• Legislative or regulatory actions relating to electricity transmission and clean energy may impact demand for our services.

• We may incur liabilities and suffer negative financial or reputational impacts relating to occupational health and safety matters, including those related to environmental hazards such as wildfires and other natural disasters.

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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