10-Q 1 myrg-20220331.htm 10-Q myrg-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission file number: 1-08325
_____________________________________________________________
MYR GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware36-3158643
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
12150 East 112th Avenue
Henderson,CO80640
(Address of principal executive offices)(Zip Code)
(303) 286-8000
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)
_____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueMYRGThe Nasdaq Stock Market, LLC
(Nasdaq Global Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x
As of April 22, 2022, there were 17,004,490 outstanding shares of the registrant’s $0.01 par value common stock.




INDEX
Page
Throughout this report, references to “MYR Group,” the “Company,” “we,” “us” and “our” refer to MYR Group Inc. and its consolidated subsidiaries, except as otherwise indicated or as the context otherwise requires.
1

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
MYR GROUP INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)March 31,
2022
December 31,
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$18,732 $82,092 
Accounts receivable, net of allowances of $2,385 and $2,441, respectively
386,193 375,353 
Contract assets, net of allowances of $403 and $385, respectively
243,654 225,075 
Current portion of receivable for insurance claims in excess of deductibles11,388 11,078 
Refundable income taxes5,557 9,228 
Prepaid expenses and other current assets50,071 45,564 
Total current assets715,595 748,390 
Property and equipment, net of accumulated depreciation of $331,174 and $322,128, respectively
206,969 196,092 
Operating lease right-of-use assets32,438 20,971 
Goodwill110,594 66,065 
Intangible assets, net of accumulated amortization of $19,571 and $16,779, respectively
102,916 49,054 
Receivable for insurance claims in excess of deductibles30,602 32,443 
Investment in joint ventures2,792 3,978 
Other assets3,673 4,099 
Total assets$1,205,579 $1,121,092 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt$1,039 $1,039 
Current portion of operating lease obligations9,270 7,765 
Current portion of finance lease obligations1,374  
Accounts payable223,703 200,744 
Contract liabilities165,127 167,931 
Current portion of accrued self-insurance25,916 24,242 
Accrued income taxes2,866 2,021 
Other current liabilities68,969 94,857 
Total current liabilities498,264 498,599 
Deferred income tax liabilities24,627 24,620 
Long-term debt48,657 3,464 
Accrued self-insurance48,794 50,816 
Operating lease obligations, net of current maturities23,180 13,230 
Finance lease obligations, net of current maturities3,001  
Other liabilities22,778 11,261 
Total liabilities669,301 601,990 
Commitments and contingencies
Stockholders’ equity:
Preferred stock—$0.01 par value per share; 4,000,000 authorized shares; none issued and outstanding at March 31, 2022 and December 31, 2021
  
Common stock—$0.01 par value per share; 100,000,000 authorized shares; 16,995,250 and 16,870,636 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
170 168 
Additional paid-in capital159,256 163,754 
Accumulated other comprehensive income1,824 173 
Retained earnings375,028 355,007 
Total stockholders’ equity536,278 519,102 
Total liabilities and stockholders’ equity$1,205,579 $1,121,092 
The accompanying notes are an integral part of these consolidated financial statements.
2

MYR GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three months ended
March 31,
(in thousands, except per share data)20222021
Contract revenues$636,624 $592,486 
Contract costs556,139 515,533 
Gross profit80,485 76,953 
Selling, general and administrative expenses53,564 49,647 
Amortization of intangible assets2,767 578 
Gain on sale of property and equipment(748)(683)
Income from operations24,902 27,411 
Other income (expense):
Interest income8 13 
Interest expense(451)(475)
Other income (expense), net(15)41 
Income before provision for income taxes24,444 26,990 
Income tax expense3,756 7,062 
Net income$20,688 $19,928 
Income per common share:
—Basic$1.22 $1.19 
—Diluted$1.21 $1.17 
Weighted average number of common shares and potential common shares outstanding:
—Basic16,916 16,760 
—Diluted17,133 17,045 
Net income$20,688 $19,928 
Other comprehensive income:
Foreign currency translation adjustment1,651 253 
Other comprehensive income:1,651 253 
Total comprehensive income$22,339 $20,181 
The accompanying notes are an integral part of these consolidated financial statements.
3

MYR GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

PreferredCommon StockAdditional
Paid-In
Accumulated
Other
Comprehensive
RetainedMYR
Group Inc.
Stockholders’
Noncontrolling
(in thousands)StockSharesAmountCapitalIncome (Loss)EarningsEquityInterestTotal
Balance at December 31, 2020$ 16,734 $167 $158,618 $23 $270,480 $429,288 $4 $429,292 
Net income— — — — — 19,928 19,928 — 19,928 
Stock issued under compensation plans, net— 123 1 109 — — 110 — 110 
Stock-based compensation expense— — — 1,487 — — 1,487 — 1,487 
Shares repurchased— (41)— (2,231)— (387)(2,618)— (2,618)
Other comprehensive income— — — — 253 — 253 — 253 
Stock issued - other— 1 — 12 — — 12 — 12 
Balance at March 31, 2021$ 16,817 $168 $157,995 $276 $290,021 $448,460 $4 $448,464 
Balance at December 31, 2021$ 16,871 $168 $163,754 $173 $355,007 $519,102 $ $519,102 
Net income— — — — — 20,688 20,688 — 20,688 
Stock issued under compensation plans, net— 193 2 2 — — 4 — 4 
Stock-based compensation expense— — — 1,624 — — 1,624 — 1,624 
Shares repurchased— (69)— (6,124)— (667)(6,791)— (6,791)
Other comprehensive income— — — — 1,651 — 1,651 — 1,651 
Balance at March 31, 2022$ 16,995 $170 $159,256 $1,824 $375,028 $536,278 $ $536,278 
The accompanying notes are an integral part of these consolidated financial statements.
4

MYR GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
March 31,
(in thousands)20222021
Cash flows from operating activities:
Net income$20,688 $19,928 
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization of property and equipment11,904 11,293 
Amortization of intangible assets2,767 578 
Stock-based compensation expense1,624 1,487 
Deferred income taxes(1)(47)
Gain on sale of property and equipment(748)(683)
Other non-cash items886 529 
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable, net2,902 12,592 
Contract assets, net(5,745)(6,991)
Receivable for insurance claims in excess of deductibles1,531 802 
Other assets281 15,314 
Accounts payable15,613 29,198 
Contract liabilities(4,470)(18,087)
Accrued self-insurance(352)(285)
Other liabilities(25,413)(6,238)
Net cash flows provided by operating activities21,467 59,390 
Cash flows from investing activities:
Proceeds from sale of property and equipment1,027 651 
Cash paid for acquired business, net of cash acquired(110,576) 
Purchases of property and equipment(14,037)(7,031)
Net cash flows used in investing activities(123,586)(6,380)
Cash flows from financing activities:
Net borrowings under revolving lines of credit45,193  
Payment of principal obligations under finance leases(437)(273)
Proceeds from exercise of stock options4 110 
Payments related to tax withholding for stock-based compensation(6,791)(2,618)
Other financing activities 12 
Net cash flows provided by (used in) financing activities37,969 (2,769)
Effect of exchange rate changes on cash790 160 
Net increase (decrease) in cash and cash equivalents(63,360)50,401 
Cash and cash equivalents:
Beginning of period82,092 22,668 
End of period$18,732 $73,069 
The accompanying notes are an integral part of these consolidated financial statements.
5

MYR GROUP INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Business and Basis of Presentation
Organization and Business
MYR Group Inc. (the “Company”) is a holding company of specialty electrical construction service providers and is currently conducting operations through wholly owned subsidiaries. The Company performs construction services in two business segments: Transmission and Distribution (“T&D”), and Commercial and Industrial (“C&I”). T&D customers include investor-owned utilities, cooperatives, private developers, government-funded utilities, independent power producers, independent transmission companies, industrial facility owners and other contractors. T&D provides a broad range of services on electric transmission, distribution networks, substation facilities and clean energy projects include design, engineering, procurement, construction, upgrade, maintenance and repair services. C&I customers include general contractors, commercial and industrial facility owners, government agencies and developers. C&I provides a broad range of services, which include the design, installation, maintenance and repair of commercial and industrial wiring. Typical C&I contracts cover electrical contracting services for airports, hospitals, data centers, hotels, stadiums, convention centers, clean energy projects, manufacturing plants, processing facilities, water/waste-water treatment facilities, mining facilities, intelligent transportation systems and roadway lighting.
Basis of Presentation
Interim Consolidated Financial Information
The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations, comprehensive income, stockholders’ equity and cash flows with respect to the interim consolidated financial statements, have been included. Certain reclassifications were made to prior year amounts to conform to the current year presentation. The consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements as of that date. The results of operations and comprehensive income are not necessarily indicative of the results for the full year or the results for any future periods. These financial statements should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 23, 2022 (the "2021 Annual Report").
Joint Ventures and Noncontrolling Interests
The Company accounts for investments in joint ventures using the proportionate consolidation method for income statement reporting and under the equity method for balance sheet reporting, unless the Company has a controlling interest causing the joint venture to be consolidated with equity owned by other joint venture partners recorded as noncontrolling interests. Under the proportionate consolidation method, joint venture activity is allocated to the appropriate line items found on the consolidated statements of operations in proportion to the percentage of participation the Company has in the joint venture. Under the equity method the net investment in joint ventures is stated as a single item on the Company’s consolidated balance sheets. If an investment in a joint venture contains a recourse or unfunded commitments to provide additional equity, distributions and/or losses in excess of the investment, a liability is recorded in other current liabilities on the Company’s consolidated balance sheets.
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For joint ventures in which the Company does not have a controlling interest, the Company’s share of any profits and assets and its share of any losses and liabilities are recognized based on the Company’s stated percentage partnership interest in the joint venture, and are normally recorded by the Company one month in arrears. The investments in joint ventures are recorded at cost and the carrying amounts are adjusted to recognize the Company’s proportionate share of cumulative income or loss, additional contributions made and dividends and capital distributions received. The Company records the effect of any impairment or any other-than-temporary decrease in the value of the joint venture investment as incurred, which may or may not be one month in arrears, depending on when the Company obtains the joint venture activity information. Additionally, the Company continually assesses the fair value of its investment in unconsolidated joint ventures despite using information that is one month in arrears for regular reporting purposes. The Company includes only its percentage ownership of each joint venture in its backlog.
Foreign Currency
The functional currency for the Company’s Canadian operations is the Canadian dollar. Assets and liabilities denominated in Canadian dollars are translated into U.S. dollars at the end-of-period exchange rate. Revenues and expenses are translated using average exchange rates for the periods reported. Equity accounts are translated at historical rates. Cumulative translation adjustments are included as a separate component of accumulated other comprehensive income in shareholders’ equity. Foreign currency transaction gains and losses, arising primarily from changes in exchange rates on short-term monetary assets and liabilities, and ineffective long-term monetary assets and liabilities are recorded in the “other income (expense), net” line on the Company’s consolidated statements of operations. Foreign currency gains and losses, recorded in other income, net, for the three months ended March 31, 2022 and 2021 were not significant. Effective foreign currency transaction gains and losses, arising primarily from long-term monetary assets and liabilities, are recorded in the foreign currency translation adjustment line on the Company’s consolidated statements of comprehensive income.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates.
The most significant estimates are related to estimates of costs to complete contracts, pending change orders and claims, shared savings, insurance reserves, income tax reserves, estimates surrounding stock-based compensation, acquisition-related contingent earn-out consideration liabilities, the recoverability of goodwill and intangibles and allowance for doubtful accounts. The Company estimates a cost accrual every quarter that represents costs incurred but not invoiced for services performed or goods delivered during the period, and estimates revenue from the contract cost portion of these accruals based on current gross margin rates to be consistent with its cost method of revenue recognition.
As of March 31, 2022 and 2021, the Company had recognized revenues of $11.4 million and $14.0 million, respectively, related to large change orders and/or claims that had been included as contract price adjustments on certain contracts, some of which are multi-year projects. These change orders and/or claims are in the process of being negotiated in the normal course of business, and a portion of these recognized revenues had been included in multiple periods.
The cost-to-cost method of accounting requires the Company to make estimates about the expected revenue and gross profit on each of its contracts in process. During the three months ended March 31, 2022, changes in estimates pertaining to certain projects increased consolidated gross margin by 0.5%, which resulted in increases in operating income of $3.8 million, net income of $2.7 million and diluted earnings per common share of $0.16.
During the three months ended March 31, 2021, changes in estimates pertaining to certain projects increased consolidated gross margin by 0.1%, which resulted in increases in operating income of $0.6 million, net income of $0.4 million and diluted earnings per common share of $0.02.
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Recent Accounting Pronouncements
Changes to U.S. GAAP are typically established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. The Company, based on its assessment, determined that any recently issued or proposed ASUs not listed below are either not applicable to the Company or adoption will have minimal impact on its consolidated financial statements.
Recently Issued Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. Under the new guidance the acquirer is required to recognize contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if the acquirer had originated the contracts. The update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in an interim period, for any period for which financial statements have not yet been issued. However, adoption in an interim period other than the first fiscal quarter requires an entity to apply the new guidance to all prior business combinations that have occurred since the beginning of the annual period in which the new guidance is adopted. The Company is currently evaluating the adoption date and impact, if any, this update will have on its financial position and results of operations.
2. Acquisition
Powerline Plus Ltd
On January 4, 2022, the Company acquired all issued and outstanding shares of capital stock of Powerline Plus Ltd. and its affiliate PLP Redimix Ltd. (collectively, the “Powerline Plus Companies"), a full-service electrical distribution construction company based in Toronto, Ontario. Consideration paid, funded through a combination of cash on hand and borrowings under the Facility (as defined below), was $110.6 million, net of cash acquired, and is subject to working capital and net asset adjustments. Additionally, the acquisition includes contingent earn-out consideration that may be payable if the Powerline Plus Companies achieve certain performance targets over a three-year post-acquisition period. As of the acquisition date, the fair value of the contingent earn-out consideration was $10.6 million. The future payout of the contingent earn-out consideration, if any, is unlimited and could be significantly higher than the acquisition date fair value. If the minimum thresholds of the performance targets are achieved the contingent earn-out consideration payment will be approximately $17.7 million. There were no changes in contingent earn-out consideration, subsequent to the acquisition, for the three months ended March 31, 2022. The results of the Powerline Plus Companies is included in the Company’s consolidated financial statements beginning on the transaction date. Approximately $0.1 million of acquisition-related costs associated with this acquisition were expensed by the Company during the three months ended March 31, 2022.
The purchase agreement also includes contingent consideration provisions for down-side margin guarantee adjustments based upon certain contract performance subsequent to the acquisition. The contracts were valued at fair value at the acquisition date, causing no margin guarantee estimate or adjustments for fair value. Unfavorable changes in contract estimates, such as modified costs to complete or change order recognition, will result in changes to these margin guarantee estimates. Changes in margin guarantee adjustments on contracts, subsequent to the acquisition, were recorded in other income and were not significant for the three months ended March 31, 2022. Future margin guarantee adjustments, if any, are expected to be recognized through 2022 and possibly in early 2023.
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The following table summarizes the allocation of the opening balance sheet as of the date of the Powerline Plus Companies acquisition:
(in thousands)(as of acquisition date) January 4, 2022
Cash paid$114,429 
Contingent consideration - fair value at acquisition date10,608 
Preliminary estimated net asset adjustments563 
Total consideration, net of estimated net asset adjustments125,600 
Less: Acquired cash(3,853)
Total consideration less cash acquired, net of estimated net asset adjustments$121,747 
Cash and cash equivalents$3,853 
Accounts receivable, net12,131 
Contract assets, net12,443 
Refundable income taxes394 
Prepaid expenses and other current assets1,233 
Property and equipment10,366 
Operating lease right-of-use assets6,631 
Accounts payable(8,095)
Contract liabilities(1,597)
Accrued income taxes(686)
Current portion of operating lease obligations(1,224)
Current portion of finance lease obligations(1,492)
Deferred income tax liabilities(672)
Operating lease obligations, net of current maturities(4,897)
Finance lease obligations, net of current maturities(3,243)
Net identifiable assets and liabilities25,145 
Unallocated intangible assets56,650 
Total acquired assets and liabilities81,795 
Goodwill$43,805 
The Company has developed preliminary estimates of fair value of the assets acquired and liabilities assumed for the purposes of allocating the purchase price. The goodwill to be recognized, which represents the excess of the purchase price over the net amount of the fair values assigned to assets acquired and liabilities assumed, is primarily attributable to the value of an assembled workforce and other non-identifiable assets. No synergies were anticipated in the acquisition as the Powerline Plus Companies will function as an individual business within the Company’s operating structure. Further adjustments are expected to the allocation as third party valuations of contingent earn-out consideration, acquired right-of-use assets and lease liabilities and identifiable intangible assets, including backlog, customer relationships, trade name and off-market component, are determined, and as net asset adjustments are finalized. Additionally, the Company is currently performing an analysis of the purchase price allocation and will make appropriate adjustments based on the analysis. A portion of the goodwill and identifiable intangible assets are expected to be tax deductible per applicable Canadian Revenue Authority regulations.
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3. Contract Assets and Liabilities
Contracts with customers usually stipulate the timing of payment, which is defined by the terms found within the various contracts under which work was performed during the period. Therefore, contract assets and liabilities are created when the timing of costs incurred on work performed does not coincide with the billing terms, which frequently include retention provisions contained in each contract.
The Company’s consolidated balance sheets present contract assets, which contain unbilled revenue and contract retainages associated with contract work that has been completed and billed but not paid by customers, pursuant to retainage provisions, that are generally due once the job is completed and approved. The allowance for doubtful accounts associated with contract assets was $0.4 million as of March 31, 2022 and December 31, 2021.
Contract assets consisted of the following:
(in thousands)March 31,
2022
December 31,
2021
Change
Unbilled revenue, net$140,242 $134,187 $6,055 
Contract retainages, net103,412 90,888 12,524 
Contract assets, net$243,654 $225,075 $18,579 
The Company’s consolidated balance sheets present contract liabilities which contain deferred revenue and an accrual for contracts in a loss provision.
Contract liabilities consisted of the following:
(in thousands)March 31,
2022
December 31,
2021
Change
Deferred revenue$162,584 $165,699 $(3,115)
Accrued loss provision2,543 2,232 311 
Contract liabilities$165,127 $167,931 $(2,804)
The following table provides information about contract assets and contract liabilities from contracts with customers:
(in thousands)March 31,
2022
December 31,
2021
Change
Contract assets, net$243,654 $225,075 $18,579 
Contract liabilities(165,127)(167,931)2,804 
Net contract assets (liabilities)$78,527 $57,144 $21,383 
The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing of the Company’s billings in relation to its performance of work. The amounts of revenue recognized in the period that were included in the opening contract liability balances were $17.9 million and $41.4 million for the three months ended March 31, 2022 and 2021, respectively.
The net asset position for contracts in process consisted of the following:
(in thousands)March 31,
2022
December 31,
2021
Costs and estimated earnings on uncompleted contracts$4,153,142 $4,130,621 
Less: billings to date4,175,484 4,162,133 
$(22,342)$(31,512)
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The net asset position for contracts in process is included within the contract asset and contract liability in the accompanying consolidated balance sheets as follows:
(in thousands)March 31,
2022
December 31,
2021
Unbilled revenue $140,242 $134,187 
Deferred revenue (162,584)(165,699)
$(22,342)$(31,512)

4. Lease Obligations
From time-to-time, the Company enters into non-cancelable leases for some of our facility, vehicle and equipment needs. These leases allow the Company to conserve cash by paying a monthly lease rental fee for the use of facilities, vehicles and equipment rather than purchasing them. The Company’s leases have remaining terms ranging from one to eight years, some of which may include options to extend the leases for up to five years, and some of which may include options to terminate the leases within one year. Currently, all the Company’s leases contain fixed payment terms. The Company may decide to cancel or terminate a lease before the end of its term, in which case we are typically liable to the lessor for the remaining lease payments under the term of the lease. Additionally, all of the Company's month-to-month leases are cancelable, by the Company or the lessor, at any time and are not included in our right-of-use asset or liability. At March 31, 2022, the Company had several leases with residual value guarantees. 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. Leases are accounted for as operating or finance leases, depending on the terms of the lease.
The following is a summary of the lease-related assets and liabilities recorded:
March 31,
2022
December 31,
2021
(in thousands)Classification on the Consolidated Balance Sheet
Assets
Operating lease right-of-use assetsOperating lease right-of-use assets$32,438 $20,971 
Finance lease right-of-use assetsProperty and equipment, net of accumulated depreciation4,829  
Total right-of-use lease assets$37,267 $20,971 
Liabilities
Current
Operating lease obligationsCurrent portion of operating lease obligations$9,270 $7,765 
Finance lease obligationsCurrent portion of finance lease obligations1,374  
Total current obligations10,644 7,765 
Non-current
Operating lease obligationsOperating lease obligations, net of current maturities23,180 13,230 
Finance lease obligationsFinance lease obligations, net of current maturities3,001  
Total non-current obligations26,181 13,230 
Total lease obligations$36,825 $20,995 
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The following is a summary of the lease terms and discount rates:
March 31,
2022
December 31,
2021
Weighted-average remaining lease term - finance leases2.4 years0.0 years
Weighted-average remaining lease term - operating leases3.9 years2.9 years
Weighted-average discount rate - finance leases2.6 % %
Weighted-average discount rate - operating leases3.9 %3.9 %
The following is a summary of certain information related to the lease costs for finance and operating leases:
(in thousands)Three months ended
March 31,
20222021
Lease cost:
Finance lease cost:
Amortization of right-of-use assets$609 $189 
Interest on lease liabilities28 3 
Operating lease cost3,122 2,486 
Variable lease costs91 76 
Total lease cost$3,850 $2,754 
The following is a summary of other information and supplemental cash flow information related to finance and operating leases:
Three months ended March 31,
(in thousands)20222021
Other information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$3,179 $2,540 
Right-of-use asset obtained in exchange for new operating lease obligations$4,392 $1,502 
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The future undiscounted minimum lease payments, as reconciled to the discounted minimum lease obligation indicated on the Company’s consolidated balance sheets, under financial leases, less interest, and under operating leases, less imputed interest, as of March 31, 2022 were as follows:
(in thousands)Finance
Lease Obligations
Operating Lease
Obligations
Total
Lease
Obligations
Remainder of 2022
$1,158 $9,132 $10,290 
20231,157 10,174 11,331 
20242,056 7,178 9,234 
2025186 5,080 5,266 
2026 3,963 3,963 
2027 770 770 
Thereafter 1,398 1,398 
Total minimum lease payments4,557 37,695 42,252 
Financing component(182)(5,245)(5,427)
Net present value of minimum lease payments4,375 32,450 36,825 
Less: current portion of finance and operating lease obligations(1,374)(9,270)(10,644)
Long-term finance and operating lease obligations$3,001 $23,180 $26,181 
The financing component for operating lease obligations represents the effect of discounting the lease payments to their present value.
Certain subsidiaries of the Company have operating leases for facilities from third party companies that are owned, in whole or part, by employees of the subsidiaries. The terms and rental rates of these leases are at or below market rental rates. As of March 31, 2022, the minimum lease payments required under these leases totaled $8.7 million, which are due over the next 4.8 years.
5. Fair Value Measurements
The Company uses the three-tier hierarchy of fair value measurement, which prioritizes the inputs used in measuring fair value based upon their degree of availability in external active markets. These tiers include: Level 1 (the highest priority), defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 (the lowest priority), defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
As of March 31, 2022 and December 31, 2021, the Company determined that the carrying value of cash and cash equivalents approximated fair value based on Level 1 inputs. As of March 31, 2022 and December 31, 2021, the fair values of the Company’s long-term debt and finance lease obligations were based on Level 2 inputs. The Company’s long-term debt was based on variable and fixed interest rates at March 31, 2022 and December 31, 2021, for new issues with similar remaining maturities, and approximated carrying value. In addition, based on borrowing rates currently available to the Company for borrowings with similar terms, the carrying values of the Company’s finance lease obligations also approximated fair value.
As of March 31, 2022, the fair values of the Company’s contingent earn-out consideration liability associated with the acquisition of the Powerline Plus Companies was based on Level 3 inputs. The contingent earn-out consideration recorded represent the estimated fair values of future amounts potentially payable to the former owners of the acquired Powerline Plus Companies and was initially determined using a Monte Carlo simulation valuation methodology based on probability-weighted performance projections and other inputs, including a discount rate and an expected volatility factor. The fair value of this contingent earn-out consideration liability will be evaluated on an ongoing basis by management. Accordingly, the level of inputs used for these fair value measurements is the lowest level (Level 3). Significant changes in any of these assumptions could result in a significantly higher or lower potential liability.
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6. Debt
The table below reflects the Company’s total debt, including borrowings under its credit agreement and master loan agreements for equipment notes:
(dollar amounts in thousands)Inception DateStated Interest
Rate (per annum)
Payment
Frequency
Term
(years)
Outstanding
Balance as of
March 31, 2022
Outstanding
Balance as of
December 31, 2021
Credit Agreement
Revolving loans9/13/2019VariableVariable5$45,193 $ 
Equipment Notes
Equipment Note 812/27/20192.75%Semi-annual54,503 4,503 
4,503 4,503 
Total debt49,696 4,503 
Less: current portion of long-term debt(1,039)(1,039)
Long-term debt$48,657 $3,464 
Credit Agreement
On September 13, 2019, the Company 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, that provides for a $375 million facility (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. 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. 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 Credit Agreement are used for refinancing existing indebtedness, working capital, capital expenditures, acquisitions, share repurchases, 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 0.00% 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%. The applicable margin is determined based on the Company’s consolidated leverage ratio (the “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 the Company’s consolidated Leverage Ratio. The Company is subject to a commitment fee of 0.15% to 0.25%, based on the Company’s consolidated Leverage Ratio, on any unused portion of the Facility. The Credit Agreement restricts certain types of payments when the Company’s consolidated Leverage Ratio exceeds 2.50 or the Company's consolidated Liquidity (as defined in the Credit Agreement) is less than $50 million. The weighted average interest rate on borrowings outstanding on the Facility for the three months ended March 31, 2022 was 1.34% per annum.
Under the Credit Agreement, the Company is subject to certain financial covenants and is 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 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 March 31, 2022.
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As of March 31, 2022, the Company had $45.2 million of debt outstanding under the Facility and letters of credit outstanding under the Facility of approximately $12.3 million, which are almost entirely related to the Company's payment obligation under its insurance programs.
As of December 31, 2021, the Company had no debt outstanding under the Facility and letters of credit outstanding under the Facility of approximately $12.3 million, which are almost entirely related to the Company's payment obligation under its insurance programs.
The Company had remaining deferred debt issuance costs totaling $0.8 million as of March 31, 2022, related to the line of credit. As permitted, debt issuance costs have been deferred and are presented as an asset within other assets, which is amortized as interest expense over the term of the line of credit.
Equipment Notes
The Company has entered into Master Equipment Loan and Security Agreements (the “Master Loan Agreements”) with multiple banks. The Master Loan Agreements may be used for the financing of equipment between the Company and the lending banks pursuant to one or more equipment notes ("Equipment Note"). Each Equipment Note executed under the Master Loan Agreements constitutes a separate, distinct and independent financing of equipment and a contractual obligation of the Company, which may contain prepayment clauses.
As of March 31, 2022, the Company had one Equipment Note outstanding under the Master Loan Agreements that is collateralized by equipment and vehicles owned by the Company. The following table sets forth our remaining principal payments for the Company’s outstanding Equipment Note as of March 31, 2022:
(in thousands)Future
Equipment Notes
Principal Payments
Remainder of 2022
$1,039 
20231,067 
20242,397 
Total future principal payments4,503 
Less: current portion of equipment notes(1,039)
Long-term principal obligations$3,464 
7. Revenue Recognition
Disaggregation of Revenue
A majority of the Company’s revenues are earned through contracts with customers that normally provide for payment upon completion of specified work or units of work as identified in the contract. Although there is considerable variation in the terms of these contracts, they are primarily structured as fixed-price contracts, under which the Company agrees to perform a defined scope of a project for a fixed amount, or unit-price contracts, under which the Company agrees to do the work at a fixed price per unit of work as specified in the contract. The Company also enters into time-and-equipment and time-and-materials contracts under which the Company is paid for labor and equipment at negotiated hourly billing rates and for other expenses, including materials, as incurred at rates agreed to in the contract. Finally, the Company sometimes enters into cost-plus contracts, where the Company is paid for costs plus a negotiated margin. On occasion, time-and-equipment, time-and-materials and cost-plus contracts require the Company to include a guaranteed not-to-exceed maximum price.
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Historically, fixed-price and unit-price contracts have had the highest potential margins; however, they have had a greater risk in terms of profitability because cost overruns may not be recoverable. Time-and-equipment, time-and-materials and cost-plus contracts have historically had less margin upside, but generally have had a lower risk of cost overruns. The Company also provides services under master service agreements (“MSAs”) and other variable-term service agreements. MSAs normally cover maintenance, upgrade and extension services, as well as new construction. Work performed under MSAs is typically billed on a unit-price, time-and-materials or time-and-equipment basis. MSAs are typically one to three years in duration; however, most of the Company’s contracts, including MSAs, may be terminated by the customer on short notice, typically 30 to 90 days, even if the Company is not in default under the contract. Under MSAs, customers generally agree to use the Company for certain services in a specified geographic region. Most MSAs include no obligation for the contract counterparty to assign specific volumes of work to the Company and do not require the counterparty to use the Company exclusively, although in some cases the MSA contract gives the Company a right of first refusal for certain work. Additional information related to the Company’s market types is provided in Note 11–Segment Information.
The components of the Company’s revenue by contract type for the three months ended March 31, 2022 and 2021 were as follows:
Three months ended March 31, 2022
T&DC&ITotal
(dollars in thousands)AmountPercentAmountPercentAmountPercent
Fixed price$150,904 41.4 %$218,577 80.4 %$369,481 58.0 %
Unit price104,321 28.6 14,803 5.4 119,124 18.7 
T&E109,631 30.0 38,388 14.2 148,019 23.3 
$364,856 100.0 %$271,768 100.0 %$636,624 100.0 %
Three months ended March 31, 2021
T&DC&ITotal
(dollars in thousands)AmountPercentAmountPercentAmountPercent
Fixed price$152,067 48.3 %$227,670 82.0 %$379,737 64.1 %
Unit price85,345 27.1 18,427 6.6 103,772 17.5 
T&E77,496 24.6 31,481 11.4 108,977 18.4 
$314,908 100.0 %$277,578 100.0 %$592,486 100.0 %
The components of the Company’s revenue by market type for the three months ended March 31, 2022 and 2021 were as follows:
Three months ended March 31, 2022Three months ended March 31, 2021
(dollars in thousands)AmountPercentSegmentAmountPercentSegment
Transmission
$221,607 34.8 %T&D$211,227 35.7 %T&D
Distribution
143,249 22.5 T&D103,681 17.5 T&D
Electrical construction
271,768 42.7 C&I277,578 46.8 C&I
Total revenue$636,624 100.0 %$592,486 100.0 %
Remaining Performance Obligations
As of March 31, 2022, the Company had $2.28 billion of remaining performance obligations. The Company’s remaining performance obligations include projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions.
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The following table summarizes the amount of remaining performance obligations as of March 31, 2022 that the Company expects to be realized and the amount of the remaining performance obligations that the Company reasonably estimates will not be recognized within the next twelve months.
Remaining Performance Obligations at March 31, 2022
(in thousands)TotalAmount estimated to not be
recognized within 12 months
Total at December 31, 2021
T&D$1,007,561 $223,496 $572,032 
C&I1,275,188 472,744 1,105,866 
Total$2,282,749 $696,240 $1,677,898 
The Company expects a vast majority of the remaining performance obligations to be recognized within twenty-four months, although the timing of the Company’s performance is not always under its control. Additionally, the difference between the remaining performance obligations and backlog is due to the exclusion of a portion of the Company’s MSAs under certain contract types from the Company’s remaining performance obligations as these contracts can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer. Additional information related to backlog is provided in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
8. Income Taxes
The U.S. federal statutory tax rate was 21% for each of the three months ended March 31, 2022 and 2021. The Company’s effective tax rate for the three months ended March 31, 2022 was 15.4% of pretax income compared to the effective tax rate for the three months ended March 31, 2021 of 26.2%.
The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate for the three months ended March 31, 2022, was primarily due to a favorable impact from stock compensation excess tax benefits partially offset by state income taxes, foreign earnings and other permanent difference items.
The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate for the three months ended March 31, 2021, was primarily due to state income taxes and foreign earnings and the associated impact of the global intangible low tax income (“GILTI”) and other permanent difference items, partially offset by a favorable impact from stock compensation excess tax benefits.
The Company had unrecognized tax benefits of approximately $0.4 million as of March 31, 2022 and December 31, 2021, which were included in other liabilities in the accompanying consolidated balance sheets.
The Company’s policy is to recognize interest and penalties related to income tax liabilities as a component of income tax expense in the consolidated statements of operations. The amount of interest and penalties charged to income tax expense related to unrecognized tax benefits was not significant for the three months ended March 31, 2022 and 2021.
The Company is subject to taxation in various jurisdictions. The Company’s 2018 through 2020 tax returns are subject to examination by U.S. federal authorities. The Company’s tax returns are subject to examination b