What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-22 · 104 added, 101 removed, 434 unchanged (32% of the section changed)

18 unchanged sentences

Our C&I customers include facility owners and general contractors.

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

We believe that we have a number of competitive advantages in both of our segments, including our skilled workforce, extensive centralized fleet, proven safety performance and reputation for timely completion of quality work that allows us to compete favorably in our markets.

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

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

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

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

Our T&D services include the construction and maintenance of high voltage transmission lines, substations and lower voltage underground and overhead distribution systems, clean energy projects and electric vehicle charging infrastructure.

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

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Commercial and Industrial segment .

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

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

1 unchanged sentence

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

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

The majority of C&I contracts cover electrical contracting services for airports, hospitals, data centers, hotels, stadiums, commercial and industrial facilities, clean energy projects, manufacturing plants, processing facilities, water/waste-water treatment facilities, mining facilities, intelligent transportation systems, roadway lighting, signalization and electric vehicle charging infrastructure.

For the year ended December 31, 2023, our C&I revenues were $1.55 billion, or 42.7%, of our revenue, compared to $1.26 billion, or 42.0%, of our revenue for the year ended December 31, 2022 and $1.20 billion, or 47.9%, of our revenue for the year ended December 31, 2021.

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These factors include:

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

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

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

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Our business is directly impacted by the level of spending on T&D infrastructure and the level of C&I electrical construction activity across the United States and Canada.

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

We are optimistic about infrastructure spending and believe related investment activity will continue to positively impact both our T&D and C&I markets for the foreseeable future.

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

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We believe legislative actions aimed at supporting infrastructure improvements in the United States may positively impact long-term demand, particularly in connection with electric power infrastructure, transportation and clean energy spending.

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

However both of our segments and supporting operations may be subject to delays and cost volatility due to supply chain disruptions, inflationary pressures, tariffs and regulatory slowdowns which may result in decelerations in project opportunities and awards.

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

However, we expect our financial results, in both of our segments, to continue to be affected by delays and cost volatility through 2024, due to supply chain disruptions, inflationary pressures, tariffs and regulatory slowdowns.

These factors will cause us to carry impacted projects at lower margins until their completion and may result in decelerations in project opportunities and awards.

We believe there is an ongoing need for utilities to sustain investment in their transmission systems to improve reliability, reduce congestion and connect to new clean energy sources.

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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.

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.

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

In 2023, we continued to see increased bidding activity in some of our electric distribution markets, as economic conditions improved in those areas.

We believe the increased 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.

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

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

In addition, the United States has experienced decades of underfunded economic expansion and aging infrastructure which have 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.

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.

During 2023 and 2022, the Company repurchased 25,042 and 442,167 shares, respectively of its common stock under repurchase programs at a weighted-average price of $114.55 and $83.64 per share, respectively.

As of December 31, 2023, we had $72.5 million of remaining availability to purchase shares under our current program, which continues in effect until May 8, 2024, 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.

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

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

We continue to manage our increasing operating costs, including increasing insurance, equipment, labor and material costs.

We believe that our financial position, positive cash flows and other operational strengths will enable us to manage our markets and give us the flexibility to successfully execute our strategies.

We believe that our financial position, positive cash flows and other operational strengths will enable us to respond to challenges and uncertainties in the markets we serve 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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Our estimated backlog also includes our proportionate share of our unconsolidated joint venture contracts.

Changes in backlog from period to period are primarily the result of fluctuations in the timing of awards and revenue recognition of contracts.

Changes in backlog from period to period are primarily the result of fluctuations in the timing of awards, type of awards and revenue recognition of contracts.

Backlog should not be relied upon as a stand-alone indicator of future events.

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Seasonal, Weather and Geographical.

Seasonal patterns, primarily related to weather conditions and the availability of system outages, can have a significant impact on gross margins in a given period.

Seasonal and changing patterns, primarily related to weather conditions and the availability of system outages, can have a significant impact on gross margins in a given period.

It is typical during the winter months that parts of the country may experience snow or rainfall, which can affect our crews’ ability to work efficiently.

Recent abnormal weather patterns including those related to excessive rainfall and increased thaw and freeze cycles also affect our crews’ ability to work efficiently.

Additionally, our T&D customers often cannot remove their T&D lines from service during the summer months, when consumer demand for electricity is at its peak, delaying maintenance and repair services.

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Net income 90,990 2.5 83,381 2.8

net loss attributable to noncontrolling interest — — (4) —

Net income attributable to MYR Group Inc.

$ 83,381 2.8 % $ 85,010 3.4 %

Revenues increased $635.4 million, or 21.1%, to $3.64 billion for the year ended December 31, 2023 from $3.01 billion for the year ended December 31, 2022.

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

The increase was primarily due to an increase of $297.5 million in revenue on transmission projects, an increase of $291.9 million in C&I revenue across certain geographical areas and an increase of $45.9 million in revenue on distribution projects.

Clean energy projects increased revenue in both of our segments during the year ended December 31, 2023.

Gross margin.

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

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

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

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

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

Gross margin for the year ended December 31, 2023 decreased to 10.0% compared to 11.4% for the year ended December 31, 2022.

The decrease in gross margin was primarily impacted by significant changes in our estimated gross profit on certain projects resulting in a net gross margin decrease of 1.7 % for the year ended December 31, 2023, compared to a net decrease of 0.4% for the year ended December 31, 2022.

During the year ended December 31, 2023, significant estimate changes negatively impacted gross margin by 2.1% and largely related to labor and project inefficiencies, some of which were caused by rising costs associated with supply chain disruptions, inflation and inclement weather experienced on certain projects.

In addition, significant estimate changes in gross profit positively impacted gross margin by 0.4% and mainly related to favorable change orders, better-than-anticipated productivity and favorable weather on a project.

Gross margin was also negatively impacted by inflation and an adjustment of $3.2 million associated with sales tax accruals for prior periods in one of our operating areas.

Gross profit.

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SG&A was $234.6 million for the year ended December 31, 2023, an increase of $12.2 million from $222.4 million for the year ended December 31, 2022.

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

The year-over-year increase was primarily due to an increase in employee-related expenses to support the growth in our operations and an increase of $5.0 million related to contingent compensation expense related to a prior acquisition.

Amortization of intangible assets .

Amortization of intangible assets was $4.9 million for the year ended December 31, 2023 compared to $9.0 million for the year ended December 31, 2022.

The period-over-period increase of $6.7 million was primarily due to amortization related to certain intangibles acquired with the Powerline Plus Companies.

The period-over-period decrease of $4.1 million was primarily due to $4.0 million of intangible amortization associated with the one-year amortization of backlog acquired with the Powerline Plus Companies during the year end December 31, 2022.

Gain on sale of property and equipment.

Gains from the sale of property and equipment in the year ended December 31, 2023 were $4.2 million compared to $2.4 million in the year ended December 31, 2022.

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

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

Interest expense.

Interest expense was $4.9 million for the year ended December 31, 2023 compared to $3.6 million for the year ended December 31, 2022.

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

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

Other income (expense), net .

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

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

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

Other income was not significant for the year ended December 31, 2023 compared to other expense of $2.7 million for the year ended December 31, 2022.

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

Income tax expense.

Income tax expense was $34.0 million for the year ended December 31, 2023, with an effective tax rate of 27.2%, compared to $30.8 million for the year ended December 31, 2022, with an effective tax rate of 27.0%.

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

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

The decrease was primarily for the reasons stated above.

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

Net income increased to $91.0 million for the year ended December 31, 2023 from $83.4 million for the year ended December 31, 2022.

The increase was primarily for the reasons stated above.

Segment Results

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Revenues for our T&D segment for the year ended December 31, 2023 were $2.09 billion compared to $1.75 billion for the year ended December 31, 2022, an increase of $343.4 million, or 19.7%.

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

The increase in revenue was related to an increase of $297.5 million in revenue on transmission projects, primarily related to an increase in revenue on clean energy projects, and an increase of $45.9 million in revenue on distribution projects.

Revenues from transmission projects represented 66.1% and 62.1%, of T&D segment revenue for the year ended December 31, 2023 and 2022, respectively.

Operating income for our T&D segment for the year ended December 31, 2023 was $149.7 million compared to $138.9 million for the year ended December 31, 2022, an increase of $10.8 million, or 7.8%.

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

These increases were partially offset by the additional $6.7 million of amortization related to certain intangibles acquired with the Powerline Plus Companies and an unfavorable change order adjustment on a project.

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

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

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

As a percentage of revenues operating income for our T&D segment was 7.2% for the year ended December 31, 2023 compared to 8.0% for the year ended December 31, 2022.

Operating income margin was impacted by significant changes in our estimated gross profit on certain projects resulting in a net operating income margin decrease of 1.5% for the year ended December 31, 2023, compared to a net decrease of 0.1% for the year ended December 31, 2022.

During the year ended December 31, 2023, significant estimated gross profit changes negatively impacted operating income as a percentage of revenues by 1.7% and largely related to labor and project inefficiencies, some of which were associated with clean energy projects, inclement weather, supply chain disruptions and inflation.

These decreases were partially offset by positive significant estimated gross profit changes totaling 0.2% of revenues mostly related to favorable change orders, better-than-anticipated productivity and favorable weather on a project.

Additionally, T&D operating income for the year ended December 31, 2022, was negatively impacted by $4.0 million of amortization related to the one-year amortization of backlog acquired with the Powerline Plus Companies.

Commercial & Industrial

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

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

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

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

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

Revenues for our C&I segment for the year ended December 31, 2023 were $1.55 billion compared to $1.26 billion for the year ended December 31, 2022, an increase of $291.9 million, or 23.1%, primarily due to higher revenue related to clean energy projects in certain geographical areas.

The increase in revenue included an increase of $223.4 million in revenue on fixed priced contracts, an increase of $54.8 million on T&E contracts and an increase of $13.9 million in revenues on unit price work.

Operating income for our C&I segment for the year ended December 31, 2023 was $45.9 million compared to $43.2 million for the year ended December 31, 2022, an increase of $2.7 million, or 6.3%.

The year-over-year increase in operating income was primarily due to higher revenues as discussed above.

Operating income, as a percentage of revenues, for our C&I segment decreased to 3.0% for the year ended December 31, 2023 from 3.4% for the year ended December 31, 2022.

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

Operating income margin was impacted by significant changes in our estimated gross profit on certain projects resulting in a net operating income margin decrease of 2.0% for the year ended December 31, 2023, compared to a net decrease of 0.7% for the year ended December 31, 2022.

Significant estimated gross profit changes negatively impacted operating income as a percentage of revenues by 2.6% and largely related to labor and project inefficiencies, some of which were caused by supply chain disruptions and by rising costs associated with inflation.

These decreases were partially offset by positive significant estimated gross profit changes totaling 0.6% of revenues mostly related to favorable change orders and better-than-anticipated productivity.

Additionally, C&I operating income margin was negatively impacted by an adjustment of $3.2 million associated with an adjustment to sales tax accruals for prior periods in one of our operating areas, partially offset by improved productivity on a project that started in 2023 and favorable joint venture results.

Corporate expenses for the year ended December 31, 2023 were consistent with corporate expenses for the year ended December 31, 2022.

Non-GAAP Measures

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

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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During the year ended December 31, 2023, our operating activities provided cash of $71.0 million, compared to $167.5 million for the year ended December 31, 2022.

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

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

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

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

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

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

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 $96.5 million year-over-year decline in cash provided by operating activities was primarily due to unfavorable net changes in operating assets and liabilities of $93.9 million, offset by a $7.6 million increase 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 $133.0 million, partially offset by the favorable change of $43.6 million in other liabilities.

The net unfavorable changes of $133.0 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 $43.6 million in other liabilities was primarily due to the timing of employee related wage and tax payments.

During the years ended December 31, 2023 and 2022, we used net cash of $79.1 million and $185.7 million, respectively, in investing activities.

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

The $79.1 million of cash used in investing activities in the year ended December 31, 2023 consisted of $84.7 million for capital expenditures, partially offset by $5.6 million of proceeds from the sale of equipment.

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

During the years ended December 31, 2023 and 2022, we used cash of $18.4 million, and $9.3 million, respectively in financing activities.

The $18.4 million of cash used in financing activities in the year ended December 31, 2023 consisted primarily of $7.9 million of shares repurchased to satisfy tax obligations under our stock compensation programs, $4.6 million of payments under our equipment notes, $2.9 million of share repurchases under our share repurchase program, $2.1 million of debt refinancing costs and $1.1 million of repayments of finance lease obligations, partially offset by $0.3 million of net borrowings under our revolving line of credit.

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

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

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

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

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

We believe our $442.4 million borrowing availability under our revolving line of credit at December 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, and acquisition and joint venture opportunities.

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

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 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.

and Bank of America, N.A.

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

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

dollar equivalent of $75 million.

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

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

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

On May 31, 2023, the Company entered into a five-year third amended and restated credit agreement with a maturity date of May 31, 2028, (the “Credit Agreement”) through a syndicate of banks led by JPMorgan Chase Bank, N.A.

and Bank of America, N.A, 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.

dollars equivalent of $150 million.

Up to $75 million of the Facility 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, share repurchases 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, we will amend the Credit Agreement to transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”) or will elect the Alternate Base Rate.

The applicable margin is determined based on our consolidated leverage ratio (“Leverage Ratio”) which is defined in the Credit Agreement as Consolidated Total Indebtedness (as defined in the Credit Agreement) divided by Consolidated EBITDA (as defined in the Credit Agreement).

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 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.

The minimum interest coverage ratio 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 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 December 31, 2023.

As of December 31, 2023, we had $13.2 million debt outstanding under the Facility.

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

We had $12.9 million debt outstanding under a previous facility as of December 31, 2022.

Letters of Credit

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

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

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

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

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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.

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

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

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

As of December 31, 2023, we had $34.4 million in letters of credit outstanding under our Credit Agreement, including $27.1 million related to the Company's payment obligations 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 obligations under its insurance programs.

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

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

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

Equipment Notes

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

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

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

As of December 31, 2023 and 2022, we had two outstanding Equipment Notes collateralized by equipment and vehicles owned by us.

As of December 31, 2023 and 2022, we also had one other equipment note outstanding collateralized by a vehicle owned by us.

The outstanding balance of all Equipment Notes was $23.0 million as of December 31, 2023, of which $7.1 million was due in the next twelve months.

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

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

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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 ten years, some of which may include options to extend the leases for up to six 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.

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As of December 31, 2023, we had $2.3 million outstanding finance lease obligations, consisting of short-term and long-term finance lease obligations of approximately $2.0 million and $0.3 million, respectively.

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

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

As of December 31, 2023, we had approximately $32.5 million in outstanding purchase obligations for certain construction equipment to be paid with cash outlays scheduled to occur in 2024.

Performance and Payment Bonds and Parent Guarantees

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

Many customers, particularly in connection with new construction, require us to post performance and payment bonds typically issued by a surety or insurance company.

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

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

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

Under our continuing indemnity and security agreements with our sureties, with the consent of our lenders under the Credit Agreement, we have granted security interests in certain of our assets to collateralize our obligations to the surety.

We may be required to post letters of credit or other collateral in favor of the surety or our customers.

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

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

We must reimburse the respective issuers of the bonds for any claim expenses or outlays they incur.

Under our continuing indemnity and security agreements with the issuers of the bonds, we may be required to grant them a security interest relating to a particular project.

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

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During the year ended December 31, 2023, changes in estimates pertaining to certain projects decreased consolidated gross margin by 1.7%.

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

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

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

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

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We carry insurance policies, which are subject to certain deductibles, for workers’ compensation, general liability, automobile liability and other coverages.

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

Our deductible for each line of coverage is up to $1.0 million.

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

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We determine compensation expense for stock-based awards based on the estimated fair values at the grant date and recognize the related compensation expense ratably over the vesting period.

We use the straight-line amortization method to recognize compensation expense related to stock-based awards, such as restricted stock and restricted stock units, that have only service conditions.

We use the straight-line amortization method to recognize compensation expense related to stock-based awards, such as restricted stock units, that have only service conditions.

This method recognizes stock compensation expense on a straight-line basis over the requisite service period for the entire award.

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If the carrying value of goodwill or other indefinite lived assets exceeds its implied fair value, an impairment charge would be recorded in the statement of operations.

As a result of the annual qualitative review process in 2022 and 2020, we determined it was not necessary to perform a qualitative assessment.

In 2021, we performed a quantitative assessment on our goodwill and intangible assets with indefinite lives, this assessment did not indicate that our goodwill or indefinite lived intangible assets were impaired.

As a result of the annual qualitative review process in 2023 and 2022, we determined it was not necessary to perform a quantitative assessment.

In 2021, we performed a quantitative assessment on our goodwill and intangible assets with indefinite lives;

this assessment did not indicate that our goodwill or indefinite lived intangible assets were impaired.

Accounts Receivable and Allowance for Doubtful Accounts.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis