What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-26 compared with 2023-04-26 · 154 added, 91 removed, 244 unchanged (50% of the section changed)

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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 had consolidated revenues for the six months ended June 30, 2023 of $1.70 billion, of which 55.8% was attributable to our T&D customers and 44.2% was attributable to our C&I customers.

Our consolidated revenues for the six months ended June 30, 2022 were $1.34 billion.

For the six months ended June 30, 2023, our net income and EBITDA (1) were $45.4 million and $88.4 million, respectively, compared to $40.4 million and $83.5 million, respectively, for the six months ended June 30, 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.

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

(1) EBITDA is a non-GAAP measure.

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

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

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

We believe there is a need for further investment by utilities on their distribution systems to properly maintain or meet reliability requirements.

We continue to see increased bidding activity in some of our electric distribution markets.

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

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We expect to see an incremental increase in distribution opportunities in the markets we serve during the rest of 2023.

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.

(1) EBITDA is a non-GAAP measure.

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

Although our C&I bidding opportunities remain strong, we may see impacts due to continued market disruptions and overall market volatility which could result in slower growth of our C&I Segment.

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.

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

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

We have focused on strengthening our balance sheet by maintaining a low level of variable rate outstanding debt in the current higher interest rate environment and increasing our revolving credit facility to $490 million.

This expanded availability of liquidity will allow us to take advantage of future opportunities as they arise.

Additionally, as of June 30, 2023, we had $75.0 million of remaining availability to purchase shares under our share repurchase program, which continues in effect until November 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.

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

We refer to our estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue we have recognized under such contracts, as “backlog.” A customer’s intention to award us work under a fixed-price contract is not included in backlog unless there is an actual written award to perform a specific scope of work at specific terms and pricing.

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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 $2.67 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.

Our backlog was $2.73 billion at June 30, 2023, compared to $2.50 billion at December 31, 2022 and $2.44 billion at June 30, 2022.

Our backlog at June 30, 2023 increased $66.0 million from March 31, 2023.

Backlog in the T&D segment decreased $100.9 million and C&I backlog increased $166.9 million compared to March 31, 2023.

Our backlog as of June 30, 2023 included our proportionate share of joint venture backlog totaling $29.0 million, compared to $29.9 million at March 31, 2023.

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 March 31, 2023

Backlog at June 30, 2023

(in thousands) Total Amount estimated to not

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Three months ended

(dollars in thousands) Amount Percent Amount Percent

June 30, Six months ended

2023 2022 2023 2022

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

Contract revenues $ 888,616 100.0 % $ 708,114 100.0 % $ 1,700,232 100.0 % $ 1,344,738 100.0 %

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Interest expense (1,154) (0.1) (650) (0.1) (1,740) (0.1) (1,101) (0.1)

Other expense, net (90) — (15) —

Other income, net 120 — 2,277 0.3 30 — 2,262 0.2

Income before provision for income taxes 31,597 3.5 27,878 3.9 58,668 3.4 52,322 3.9

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Net income $ 22,273 2.5 % $ 19,684 2.8 % $ 45,436 2.7 % $ 40,372 3.0 %

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.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Revenues were $888.6 million for the three months ended June 30, 2023 compared to $708.1 million for the three months ended June 30, 2022.

The increase of $180.5 million, or 25.5%, 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.

Clean energy projects increased revenues in both of our segments during the three months ended June 30, 2023.

Gross margin.

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 margin was 10.1% for the three months ended June 30, 2023 compared to 11.4% for the three months ended June 30, 2022.

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

Gross margin was also negatively impacted by rising costs associated with inflation.

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

Changes in estimates of gross profit on certain projects resulted in gross margin decreases of 1.3% and 0.1% for the three months ended June 30, 2023 and 2022, respectively.

Gross profit.

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.

Gross profit was $90.1 million for the three months ended June 30, 2023 compared to $80.9 million for the three months ended June 30, 2022.

The increase of $9.2 million, or 11.5%, was due to higher revenues, partially offset by lower margins.

Selling, general and administrative expenses.

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.

Selling, general and administrative expenses (“SG&A”) were $57.8 million for the three months ended June 30, 2023 compared to $52.0 million for the three months ended June 30, 2022.

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 an increase 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 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 for the three months ended June 30, 2023 were $1.3 million compared to $0.7 million for the three months ended June 30, 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 $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.

Interest expense was $1.2 million for three months ended June 30, 2023 compared to $0.7 million for the three months ended June 30, 2022.

This increase was primarily attributable to higher interest rates, partially offset by lower average debt balances, during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Income tax expense.

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.

Income tax expense was $9.3 million for the three months ended June 30, 2023, with an effective tax rate of 29.5%, compared to the expense of $8.2 million for the three months ended June 30, 2022, with an effective tax rate of 29.4%.

The increase in the tax rate for the three months ended June 30, 2023 was primarily due to higher other permanent difference items.

Net income was $22.3 million for the three months ended June 30, 2023 compared to $19.7 million for the three months ended June 30, 2022.

The increase was primarily due to the reasons stated earlier.

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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 March 31,

Three months ended June 30,

(dollars in thousands) Amount Percent Amount Percent

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Transmission & Distribution

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.

Revenues for our T&D segment for the three months ended June 30, 2023 were $503.7 million compared to $415.2 million for the three months ended June 30, 2022, an increase of $88.5 million, or 21.3%.

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

Revenues from transmission projects represented 64.0% and 60.2% of T&D segment revenue for the three months ended June 30, 2023 and 2022, respectively.

Operating income for our T&D segment for the three months ended June 30, 2023 was $37.7 million, an increase of $4.9 million, or 15.0%, from the three months ended June 30, 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.

As a percentage of revenues, operating income for our T&D segment was 7.5% for the three months ended June 30, 2023 compared to 7.9% for the three months ended June 30, 2022.

The decrease in T&D operating income as a percentage of revenues was primarily due to labor and project inefficiencies, some of which were caused by inclement weather on certain projects, partially offset by better-than-anticipated productivity on a project.

Commercial & Industrial

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.

Revenues for our C&I segment for the three months ended June 30, 2023 were $384.9 million compared to $292.9 million for the three months ended June 30, 2022, an increase of $92.0 million, or 31.4%, primarily due to higher revenue related to clean energy projects in certain geographical areas.

Operating income for our C&I segment for the three months ended June 30, 2023 was $12.6 million, an increase of $3.1 million, over the three months ended June 30, 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.

As a percentage of revenues, operating income for our C&I segment was 3.3% for the three months ended June 30, 2023 compared to 3.2% for the three months ended June 30, 2022.

The increase in C&I operating income as a percentage of revenues was primarily due to better-than-anticipated productivity on certain projects and a favorable change order.

These increases were partially offset by labor and project inefficiencies, some of which were caused by supply chain disruptions, as well as rising costs associated with inflation.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Revenues were $1.70 billion for the six months ended June 30, 2023 compared to $1.34 billion for the six months ended June 30, 2022.

The increase of $355.5 million, or 26.4%, 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 increased revenue in both of our segments during the six months ended June 30, 2023.

Gross margin.

Gross margin was 10.3% for the six months ended June 30, 2023 compared to 12.0% for the six months ended June 30, 2022.

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

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

Changes in estimates of gross profit on certain projects resulted in a gross margin decrease of 1.0% for the six months ended June 30, 2023 and resulted in a gross margin increase of 0.3% for the six months ended June 30, 2022.

Gross profit.

Gross profit was $174.5 million for the six months ended June 30, 2023 compared to $161.3 million for the six months ended June 30, 2022, the increase of $13.2 million, or 8.2% was due to higher revenues, partially offset by lower margins.

Selling, general and administrative expenses.

SG&A was $114.7 million for the six months ended June 30, 2023 compared to $105.6 million for the six months ended June 30, 2022.

The period-over-period increase of $9.1 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 six months ended June 30, 2023 were $2.5 million compared to $1.4 million for the six months ended June 30, 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 $1.7 million for the six months ended June 30, 2023 compared to $1.1 million for the six months ended June 30, 2022.

This increase was primarily attributable to higher interest rates, partially offset by lower average debt balances during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Income tax expense.

Income tax expense was $13.2 million for the six months ended June 30, 2023, with an effective tax rate of 22.6%, compared to the expense of $12.0 million for the six months ended June 30, 2022, with an effective tax rate of 22.8%.

The decrease in the tax rate for the six months ended June 30, 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 $45.4 million for the six months ended June 30, 2023 compared to $40.4 million for the six months ended June 30, 2022.

The increase was primarily due to the reasons stated earlier.

Segment Results

Six months ended June 30,

(dollars in thousands) Amount Percent Amount Percent

Contract revenues:

Transmission & Distribution $ 949,060 55.8 % $ 780,091 58.0 %

Commercial & Industrial 751,172 44.2 564,647 42.0

Total $ 1,700,232 100.0 % $ 1,344,738 100.0 %

Operating income (loss):

Transmission & Distribution $ 70,554 7.4 % $ 63,240 8.1 %

Commercial & Industrial 23,250 3.1 19,602 3.5

Total 93,804 5.5 82,842 6.2

General Corporate (33,940) (2.0) (31,695) (2.4)

Consolidated $ 59,864 3.5 % $ 51,147 3.8 %

Transmission & Distribution

Revenues for our T&D segment for the six months ended June 30, 2023 were $949.1 million compared to $780.1 million for the six months ended June 30, 2022, an increase of $169.0 million, or 21.7%.

Revenues from transmission projects represented 65.4% and 60.5% of T&D segment revenue for the six months ended June 30, 2023 and 2022, respectively.

Operating income for our T&D segment for the six months ended June 30, 2023 was $70.6 million, an increase of $7.4 million, or 11.6%, from the six months ended June 30, 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 six months ended June 30, 2023 compared to 8.1% for the six months ended June 30, 2022.

The decrease in T&D operating income as a percentage of revenues was primarily due to labor and project inefficiencies some of which were caused by inclement weather.

Commercial & Industrial

Revenues for our C&I segment for the six months ended June 30, 2023 were $751.2 million compared to $564.6 million for the six months ended June 30, 2022, an increase of $186.6 million, or 33.0%, primarily due to higher revenue related to clean energy projects in certain geographical areas.

Operating income for our C&I segment for the six months ended June 30, 2023 was $23.3 million, an increase of $3.7 million over the six months ended June 30, 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 3.1% for the six months ended June 30, 2023 compared to 3.5% for the six months ended June 30, 2022.

The decrease in C&I operating income as a percentage of revenues was primarily due to labor and project inefficiencies, some of which were caused by supply chain disruptions, and 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.

These decreases were partially offset by better-than-anticipated productivity on a project and a favorable change order.

Non-GAAP Measure—EBITDA

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June 30, Six months ended

(in thousands) 2023 2022 2023 2022

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Certain material covenants contained within our credit agreement (the “Credit Agreement”) are based on EBITDA with certain additional adjustments.

Non-compliance with these financial covenants under the Credit Agreement — our interest coverage ratio which is defined in the Credit Agreement as Consolidated EBITDA (as defined in the Credit Agreement) divided by interest expense (as defined in the Credit Agreement) and our leverage ratio, which is defined in the Credit Agreement as Consolidated Total Indebtedness (as defined in the Credit Agreement), divided by Consolidated EBITDA (as defined in the Credit Agreement) — could result in our lenders requiring us to immediately repay all amounts borrowed.

Non-compliance with these financial covenants under the Credit Agreement — our interest coverage ratio which is defined in the Credit Agreement as Consolidated EBITDA (as defined in the Credit Agreement) divided by interest expense (as defined in the Credit Agreement) and our net leverage ratio, which is defined in the Credit Agreement as Total Net Indebtedness (as defined in the Credit Agreement), divided by Consolidated EBITDA (as defined in the Credit Agreement) — could result in our lenders requiring us to immediately repay all amounts borrowed.

If we anticipated a potential covenant violation, we would seek relief from our lenders, likely causing us to incur additional cost, and such relief might not be available, or if available, might not be on terms as favorable as those in the Credit Agreement.

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Three months ended

June 30, Six months ended

(in thousands) 2023 2022 2023 2022

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Liquidity, Capital Resources and Material Cash Requirements

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

As of June 30, 2023, we had working capital of $255.6 million.

We define working capital as current assets less current liabilities.

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.

During the six months ended June 30, 2023, operating activities of our business provided net cash of $15.8 million, compared to $60.1 million of cash provided for the six months ended June 30, 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 $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 $44.3 million year-over-year decrease in cash provided by operating activities was primarily due to unfavorable net changes in operating assets and liabilities of $46.4 million, offset by an increase of $5.1 million in net income.

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 $71.0 million partially offset by the favorable change of $18.6 million in other liabilities and by the favorable change of $8.1 million in other assets.

The net unfavorable changes of $71.0 million in cash provided by working capital accounts, mainly related to construction activities, was due to the timing of billings and payments under our contracts.

The favorable change of $18.6 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.

The favorable change of $8.1 million in other assets was primarily due to the timing of prepayments related to materials required for certain projects.

In the six months ended June 30, 2023, we used net cash of $38.4 million in investing activities consisting of $41.7 million for capital expenditures, partially offset by $3.3 million of proceeds from the sale of equipment.

In the six months ended June 30, 2023, financing activities used net cash of $6.0 million, consisting primarily of $7.9 million of shares repurchased to satisfy tax obligations under our stock compensation programs, $7.1 million of net borrowings under our revolving line of credit, $2.5 million of payments under our equipment notes and $2.1 million of debt refinancing costs.

We believe our $451.0 million borrowing availability under our revolving line of credit at June 30, 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.

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

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Credit Agreement

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

On May 31, 2023, the Company entered into a five-year third amended and restated credit agreement (the “Credit Agreement”) with a syndicate of banks led by JPMorgan Chase Bank, N.A.

and Bank of America, N.A.

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

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

that provides for a $490 million revolving credit facility (the “Facility”), subject to certain financial covenants as defined in the Credit Agreement.

The Facility allows for revolving loans in Canadian dollars and other non- US currencies, up to the U.S.

dollar equivalent of $150 million.

We have an expansion option to increase the commitments under the Facility or enter into incremental term loans, subject to certain conditions, by up to an additional $200 million upon receipt of additional commitments from new or existing lenders.

Subject to certain exceptions, the Facility is secured by substantially all of our assets and the assets of our domestic subsidiaries and by a pledge of substantially all of the capital stock of our domestic subsidiaries and 65% of the capital stock of our direct foreign subsidiaries.

Additionally, subject to certain exceptions, our domestic subsidiaries also guarantee the repayment of all amounts due under the Credit Agreement.

Of the Facility, up to $75 million may be used for letters of credit, with an additional $75 million available for letters of credit, subject to the sole discretion of each issuing bank.

The Facility also allows for $15 million to be used for swingline loans.

The Company has an expansion option to increase the commitments under the Facility or enter into incremental term loans, subject to certain conditions, by up to an additional $200 million upon receipt of additional commitments from new or existing lenders.

Subject to certain exceptions, the Facility is secured by substantially all of the assets of the Company and its domestic subsidiaries, and by a pledge of substantially all of the capital stock of the Company’s domestic subsidiaries and 65% of the capital stock of the direct foreign subsidiaries of the Company.

Additionally, subject to certain exceptions, the Company’s domestic subsidiaries also guarantee the repayment of all amounts due under the Credit Agreement.

The Credit Agreement provides for customary events of default.

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

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

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

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

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).

Letters of credit issued under the Facility are subject to a letter of credit fee of 1.00% to 1.75% for non-performance letters of credit or 0.50% to 0.875% for performance letters of credit, based on our consolidated Leverage Ratio.

We are subject to a commitment fee of 0.15% to 0.25%, based on our consolidated Leverage Ratio, on any unused portion of the Facility.

The Credit Agreement restricts certain types of payments when our consolidated Leverage Ratio exceeds 2.50 or our consolidated Liquidity (as defined in the Credit Agreement) is less than $50.0 million.

Under the Credit Agreement, we are subject to certain financial covenants and are limited to a maximum consolidated Leverage Ratio of 3.0 and a minimum interest coverage ratio of 3.0, which is defined in the Credit Agreement as Consolidated EBITDA (as defined in the Credit Agreement) divided by interest expense (as defined in the Credit Agreement).

The Credit Agreement also contains a number of covenants, including limitations on asset sales, investments, indebtedness and liens.

We were in compliance with all of the financial covenants under the Credit Agreement as of 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.

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

Amounts borrowed under the Credit Agreement bear interest, at the Company’s option, at a rate equal to either (1) the Alternate Base Rate (as defined in the Credit Agreement), plus an applicable margin ranging from 0.25% to 1.00%;

or (2) the Term Benchmark Rate (as defined in the Credit Agreement) plus an applicable margin ranging from 1.25% to 2.00%.

The applicable margin is determined based on the Company’s Net Leverage Ratio (as defined in the Credit Agreement).

The Credit Agreement establishes Adjusted Term Secured Overnight Financing Rate (“SOFR”) (as defined in the Credit Agreement) as the benchmark rate, in replacement of LIBOR.

Letters of credit issued under the Facility are subject to a letter of credit fee of 1.25% to 2.00% for non-performance letters of credit or 0.625% to 1.00% for performance letters of credit, based on the Company’s Net Leverage Ratio.

The Company is subject to a commitment fee of 0.20% to 0.30%, based on the Company’s Net Leverage Ratio, on any unused portion of the Facility.

The Credit Agreement restricts certain types of payments when the Company’s Net Leverage Ratio, after giving pro forma effect thereto, exceeds 2.75.

Under the Credit Agreement, the Company is subject to certain financial covenants including a maximum Net Leverage Ratio of 3.0 and a minimum Interest Coverage Ratio (as defined in the Credit Agreement) of 3.0.

The Credit Agreement also contains covenants including limitations on asset sales, investments, indebtedness and liens.

The Company was in compliance with all of its financial covenants under the Credit Agreement as of June 30, 2023.

We had $20.0 million of borrowings outstanding under the Facility as of June 30, 2023.

We had $12.9 million of borrowings outstanding under our revolving credit facility under our previous credit agreement as of December 31, 2022.

Letters of Credit

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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.

As of June 30, 2023, we had $19.0 million in letters of credit outstanding under our Credit Agreement, including $11.7 million related to the Company's payment obligation under its insurance programs and approximately $7.3 million related to contract performance obligations.

As of December 31, 2022, we had $12.8 million in letters of credit outstanding under our previous 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 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 June 30, 2023 and December 31, 2022, we had two outstanding Equipment Notes collateralized by equipment and vehicles owned by us.

As of June 30, 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 $25.1 million as of June 30, 2023 and $27.6 million as of December 31, 2022.

As of June 30, 2023, we had outstanding short-term and long-term equipment notes of approximately $5.2 million and $20.0 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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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 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.

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.

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

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

The outstanding balance of operating lease obligations was $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 $28.5 million as of June 30, 2023, consisting of short-term and long-term operating lease obligations of approximately $9.8 million and $18.6 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 $3.1 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.

The outstanding balance of finance lease obligations was $2.9 million as of June 30, 2023, consisting of short-term and long-term finance lease obligations of approximately $2.3 million and $0.6 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 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.

As of June 30, 2023, we had approximately $24.7 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 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.

As of June 30, 2023, an aggregate of approximately $2.14 billion in original face amount of bonds issued by our sureties were outstanding.

Our estimated remaining cost to complete these bonded projects was approximately $765.0 million as of June 30, 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 March 31, 2023 and 2022, none of our customers individually exceeded 10% of consolidated accounts receivable.

As of June 30, 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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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