Tutor Perini Corp: Form 10-Q for the period ended Mar 31, 2024

The following discussion and analysis of our financial position as of March 31, 2024 and the results of our operations for the three months ended March 31, 2024 should be read in conjunction with other information, including the unaudited Condensed Consolidated Financial Statements and notes included in Part I, Item 1, Financial Information, of this Quarterly Report on Form 10‑Q, the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10‑K for the year ended December 31, 2023, and the information contained under the heading “Risk Factors” in our Annual Report on Form 10‑K for the year ended December 31, 2023 and in Part II, Item 1A below.

Forward-Looking Statements

This Quarterly Report on Form 10‑Q, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results, which are intended to be covered by the safe harbor provision for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. Words such as “achieve,” “anticipate,” “assumes,” “believes,” “continue,” “could,” “estimate,” “expects,” “forecast,” “hope,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “would,” variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Although such statements are based on currently available financial and economic data, as well as management’s estimates and expectations, forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause our actual results to differ materially from what may be inferred from the forward-looking statements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors potentially contributing to such differences include, among others:

• Unfavorable outcomes of existing or future litigation or dispute resolution proceedings against us or customers (project owners, developers, general contractors, etc.), subcontractors or suppliers, as well as failure to promptly recover significant working capital invested in projects subject to such matters;
• Revisions of estimates of contract risks, revenue or costs; economic factors such as inflation; the timing of new awards; or the pace of project execution, which has resulted and may continue to result in losses or lower than anticipated profit;
• Increased competition and failure to secure new contracts;
• Contract requirements to perform extra work beyond the initial project scope, which has and in the future could result in disputes or claims and adversely affect our working capital, profits and cash flows;
• Risks and other uncertainties associated with estimates and assumptions used to prepare our financial statements;
• A significant slowdown or decline in economic conditions, such as those presented during a recession;
• Failure to meet contractual schedule requirements, which could result in higher costs and reduced profits or, in some cases, exposure to financial liability for liquidated damages and/or damages to customers, as well as damage to our reputation;
• Failure to meet our obligations under our debt agreements (especially in a high interest rate environment);
• Inability to attract and retain our key officers, and to adequately plan for their succession, and hire and retain personnel required to execute and perform on our contracts;
• Possible systems and information technology interruptions and breaches in data security and/or privacy;
• An inability to obtain bonding could have a negative impact on our operations and results;
• The impact of inclement weather conditions and other events outside of our control on projects;
• Risks related to our international operations, such as uncertainty of U.S. government funding, as well as economic, political, regulatory and other risks, including risks of loss due to acts of war, labor conditions and other unforeseeable events in countries where we do business, which could adversely affect our revenue and earnings;
• Decreases in the level of government spending for infrastructure and other public projects;
• Downgrades in our credit ratings;
• Client cancellations of, or reductions in scope under, contracts reported in our backlog;
• Risks related to government contracts and related procurement regulations;
• Failure of our joint venture partners to perform their venture obligations, which could impose additional financial and performance obligations on us, resulting in reduced profits or losses and/or reputational harm;
• Violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws;
• Significant fluctuations in the market price of our common stock, which could result in substantial losses for stockholders and potentially subject us to securities litigation;
• Public health crises, such as COVID-19, have adversely impacted, and could in the future adversely impact, our business, financial condition and results of operations by, among other things, delaying the timing of project bids and/or awards and the timing of dispute resolutions and associated collections;
• Physical and regulatory risks related to climate change;
• Impairment of our goodwill or other indefinite-lived intangible assets; and
• The exertion of influence over the Company by our chairman and chief executive officer due to his position and significant ownership interest.

Executive Overview

Operating Results

Consolidated revenue for the three months ended March 31, 2024 was $1.05 billion compared to $776.3 million for the same period in 2023. The change was primarily driven by increased project execution activities on a Civil segment mass-transit project in California, a Building segment detention facility project in New York and a Building segment mass-transit project in California, as well as by the absence of certain prior-year unfavorable adjustments, as discussed in more detail below in Results of Segment Operations.

Income from construction operations for the three months ended March 31, 2024 was $48.8 million, an improvement of $130.7 million compared to loss from construction operations of $81.9 million for the same period in 2023. The significant improvement was principally due to the absence of certain prior-year unfavorable adjustments, as discussed further below in Results of Segment Operations, as well as contributions related to the increased project execution activities discussed above. The improvement was also due to a favorable adjustment in the first quarter of 2024 of $10.2 million on a Civil segment mass-transit project in California related to a dispute resolution and associated expected cost savings. The results for the first quarter of 2024 were negatively impacted by an unfavorable adjustment of $12.0 million due to an arbitration ruling that only provided a partial award to the Company pertaining to a completed Specialty Contractors segment electrical project in New York.

The effective tax rate was 21.0% for the three months ended March 31, 2024 compared to 49.6% for the comparable period in 2023. See Corporate, Tax and Other Matters below for a discussion of the change in the effective tax rate.

Diluted earnings per common share for the three months ended March 31, 2024 was $0.30, compared to diluted loss per common share of $0.95 for the same period in 2023. The improvement for the first quarter of 2024, as compared to the same quarter last year, was primarily due to the factors discussed above that resulted in the change in income (loss) from construction operations.

Consolidated new awards for the three months ended March 31, 2024 totaled $872.8 million compared to $766.7 million for the same period in 2023. The Building and Civil segments were the primary contributors to the new award activity in the first quarter of 2024. The most significant new awards and contract adjustments in the first quarter of 2024 included a $243 million health care facility project in California; a $73 million airport hangar project in Florida; $66 million of additional funding for several other health care projects in California; $55 million for three U.S. Navy projects in Diego Garcia; and $52 million of additional funding for three mass-transit projects in California.

Consolidated backlog as of March 31, 2024 was $10.0 billion, down slightly compared to $10.2 billion as of December 31, 2023. As of March 31, 2024, the mix of backlog by segment was approximately 41% for Civil, 42% for Building and 17% for Specialty Contractors.

The following table presents the Company’s backlog by business segment, reflecting changes from December 31, 2023 to March 31, 2024:

(in millions)

(a) New awards consist of the original contract price of projects added to backlog plus or minus subsequent changes to the estimated total contract price of existing contracts.

(b) Backlog may differ from the transaction prices allocated to the remaining performance obligations as disclosed in Note 3 of the Notes to Condensed Consolidated Financial Statements. Such differences relate to the timing of executing a formal contract or receiving a notice to proceed. More specifically, backlog may include awards for which a contract has not yet been executed or a notice to proceed has not been issued, but for which there are no remaining major uncertainties that we will proceed with our work on the project (e.g., adequate funding is in place, we have received a notice of intent to award a contract, etc.).

The outlook for the Company’s revenue growth over the next several years remains favorable. However, revenue growth could be hampered by unanticipated project delays or the timing of project bids, awards, commencements, ramp-up activities and completions. We anticipate that we will continue to win our share of significant new project awards resulting from long-term, well-funded capital spending plans by state, local and federal customers, as well as limited competition for some of the largest project opportunities.

In elections over the past decade, voters have approved thousands of state and local ballot measures, raising an estimated $342 billion in new and renewed revenue funding for transportation investments. The largest of these was in Los Angeles County, where Measure M, a half-cent sales tax increase, was approved in 2016 and is expected to generate $120 billion of funding over 40 years. Funding from this measure is supporting, and is expected to continue to support, several of the Company’s current and prospective projects. Despite numerous interest rate increases since March 2022, rates are still at levels that we believe are conducive to continued spending on certain types of projects that have strong end-market demand with adequate available funding, such as mass transit, transportation, bridges, and health care, educational, and correctional and detention facilities, among others. Many economists believe that interest rates will begin falling sometime during 2024, although the timing and extent of any reductions remains uncertain as a result of continued inflation volatility. Lower interest rates would likely support additional demand for continued infrastructure spending. In contrast, should interest rates rise further, they could reach levels that may negatively impact demand, especially for certain types of Building segment projects, such as commercial offices and tenant improvement projects, which tend to be more economically sensitive than projects handled by our Civil segment.

The Bipartisan Infrastructure Law was enacted into law in November 2021, and provides for $1.2 trillion of federal infrastructure funding, including $550 billion in new spending for improvements to the country’s surface-transportation network and enhancements to core infrastructure. The law initiated the largest federal investment in public transit ever, the single largest dedicated bridge investment since the construction of the interstate highway system and the largest federal investment in passenger rail since the creation of Amtrak, all in addition to providing for regular annual spending for numerous infrastructure projects. This significant incremental funding is anticipated to be spent over the next 10 years from its enactment through 2031, and much of it is allocated for investment in end markets that are directly aligned with the Company’s market focus. Accordingly, the Company believes that this significant level of sustained, incremental funding has benefited, and will continue to favorably impact, the Company’s current work and prospective opportunities over the next decade.

For a more detailed discussion of the operating performance of each business segment, corporate general and administrative expenses and other items, see Results of Segment Operations, Corporate, Tax and Other Matters and Liquidity and Capital Resources below.

Results of Segment Operations

The results of our Civil, Building and Specialty Contractors segments are discussed below.

Civil Segment

Revenue and income from construction operations for the Civil segment are summarized as follows:

(in millions)

Revenue for the three months ended March 31, 2024 increased 35% compared to the same period in 2023. The growth was largely due to increased project execution activities on a mass-transit project in California and the tunneling component of an energy project in British Columbia. The change was also favorably impacted by the absence of a prior-year unfavorable adjustment, as further discussed in the paragraph below.

Income from construction operations for the three months ended March 31, 2024 was $70.7 million, up 293% compared to $18.0 million for the same period in 2023. The increase was primarily due to the absence of a prior-year temporary unfavorable impact of $28.0 million from the successful negotiation of significant lower margin (and lower risk) change orders on a mass-transit project in California, as well as contributions related to the increased project execution activities discussed above. The increase was also due to a $10.2 million favorable adjustment in the first quarter of 2024 on a mass-transit project in California related to a dispute resolution and associated expected cost savings.

Operating margin was 15.0% for the three months ended March 31, 2024 compared to 5.1% for the same period in 2023. The increase in operating margin was principally due to the above-mentioned factors that drove the changes in revenue and income from construction operations.

New awards in the Civil segment totaled $328.2 million for the three months ended March 31, 2024 compared to $379.1 million for the same period in 2023. The most significant new awards and contract adjustments in the first quarter of 2024 included $55 million for three U.S. Navy projects in Diego Garcia and $52 million of additional funding for three mass-transit projects in California.

Backlog for the Civil segment was $4.1 billion as of March 31, 2024 compared to $4.4 billion as of March 31, 2023. The segment continues to experience strong demand reflected in a large, multi-year pipeline of prospective projects, supported by substantial anticipated funding from various voter-approved transportation measures and the BIL, and by public agencies’ long-term spending plans. The Civil segment is well-positioned to capture its share of these prospective projects.

Building Segment

Revenue and income (loss) from construction operations for the Building segment are summarized as follows:

(in millions)

Revenue for the three months ended March 31, 2024 increased 79% compared to the same period in 2023 primarily due to increased project execution activities on a detention facility project in New York, a mass-transit project in California and a health care facility project in California, as well as the absence of a prior-year unfavorable adjustment related to an adverse legal ruling on a completed mixed-use project in New York.

Income from construction operations for the three months ended March 31, 2024 was $16.1 million compared to loss from construction operations of $70.2 million for the same period in 2023. The significant improvement was principally due to the absence of the aforementioned unfavorable adjustment related to the adverse legal ruling on a completed mixed-use project in New York that resulted in a non-cash charge of $83.6 million, of which $72.2 million impacted the Building segment. The improvement was also driven by contributions related to increased project execution activities in revenue discussed above, as well as an immaterial favorable adjustment in the 2024 period resulting from a legal ruling related to a completed hospitality and gaming project.

Operating margin was 3.9% for the three months ended March 31, 2024 compared to (30.6)% for the same period in 2023. The change in operating margin was principally due to the aforementioned factors that drove the changes in revenue and income (loss) from construction operations.

New awards in the Building segment totaled $404.3 million for the three months ended March 31, 2024 compared to $233.5 million for the same period in 2023. The most significant new awards and contract adjustments in the first quarter of 2024 included a $243 million health care facility project in California; a $73 million airport hangar project in Florida; and $66 million of additional funding for several other health care projects in California. The lingering effects of COVID-19, including the proliferation of remote and hybrid work for many businesses, as well as slowed economic conditions caused by inflation and higher interest rates, could continue to result in certain delayed or even canceled Building segment project opportunities, particularly in the corporate office end market. However, other Building segment end markets, such as correctional and detention facilities, health care, education, industrial/manufacturing, and hospitality and gaming, continue to show strong demand for new and renovated facilities.

Backlog for the Building segment was $4.2 billion as of March 31, 2024, up 87% compared to $2.2 billion as of March 31, 2023. The Building segment continues to experience strong customer demand as reflected by a large volume of prospective projects across various end markets and geographic locations.

Specialty Contractors Segment

Revenue and loss from construction operations for the Specialty Contractors segment are summarized as follows:

(in millions)

Revenue for the three months ended March 31, 2024 decreased 16% compared to the same period in 2023. The decrease was principally due to reduced project execution activities on an industrial facility project in Arizona and the electrical and mechanical components of a completed transportation project in the Northeast. The decrease was also the result of an unfavorable adjustment in the first quarter of 2024 due to an arbitration ruling that only provided a partial award to the Company pertaining to a completed electrical project in New York. The revenue decline was partially offset by the absence of a prior-year unfavorable adjustment related to the adverse legal ruling on a completed mixed-use project in New York.

Loss from construction operations for the three months ended March 31, 2024 was $18.3 million compared to $12.4 million for the same period in 2023. The change was primarily the result of an unfavorable adjustment in the first quarter of 2024 of $12.0 million due to the above-mentioned arbitration ruling on a completed electrical project in New York, as well as an immaterial unfavorable adjustment due to a settlement on a completed mass-transit project in California. The impact of these unfavorable adjustments was largely offset by the absence of a prior-year unfavorable adjustment related to the adverse legal ruling on a completed mixed-use project in New York that resulted in a non-cash charge of $83.6 million, of which $11.4 million impacted the Specialty Contractors segment.

Operating margin was (11.1)% for the three months ended March 31, 2024 compared to (6.3)% for the same period in 2023. The change in operating margin was principally due to the aforementioned factors that drove the changes in revenue and loss from construction operations.

New awards in the Specialty Contractors segment totaled $140.3 million for the three months ended March 31, 2024, slightly down compared to $154.1 million for the same period in 2023.

Backlog for the Specialty Contractors segment was $1.7 billion as of March 31, 2024, up 37.6% compared to $1.2 billion as of March 31, 2023. The Specialty Contractors segment continues to be primarily focused on servicing the Company’s current and prospective large Civil and Building segment projects, particularly in the Northeast and California. The segment remains well-positioned to capture its share of new projects, leveraging the size and scale of our business units that operate in New York, Texas, Florida and California and the strong reputation held by these business units for high-quality work on large, complex projects.

Corporate, Tax and Other Matters

Corporate General and Administrative Expenses

Corporate general and administrative expenses were $19.7 million and $16.4 million during the three months ended March 31, 2024 and 2023, respectively. The increase in the three months ended March 31, 2024 was primarily due to higher compensation-related expenses, mainly attributable to higher share-based compensation expense on liability-classified awards resulting from the impact of the increase in the Company’s stock price during the 2024 period.

Other Income, Net, Interest Expense and Income Tax (Expense) Benefit

(in millions)

34

Other income, net for the three months ended March 31, 2024 decreased by $1.1 million compared to the same period in 2023.

Interest expense for the three months ended March 31, 2024 decreased by $2.2 million compared to the same period in 2023. The decrease in the 2024 period was substantially due to absence of Revolver borrowings, as well as a lower balance of outstanding Term Loan B borrowings, primarily resulting from the $91.0 million prepayment of Term Loan B principal in February 2024, as discussed below in Liquidity and Capital Resources.

The Company recognized an income tax expense for the three months ended March 31, 2024 of $7.3 million resulting in an effective income tax rate of 21.0%. The effective income tax rate for the three months ended March 31, 2024 was consistent with the 21.0% federal statutory rate as the impacts of rate reductions from earnings attributable to noncontrolling interests (for which income taxes are not the responsibility of the Company) and federal income tax credits were offset by non-deductible expenses, share-based compensation adjustments and state income taxes (net of federal tax benefit).

The effective income tax rate was 49.6% for the three months ended March 31, 2023. The effective income tax rate for the 2023 period was higher than the 21.0% federal statutory rate primarily due to the pre-tax loss for the period and projected for the year. In periods reporting pre-tax losses, a tax benefit increases the effective income tax rate because it increases the tax benefit generated from the pre-tax loss. The tax benefits that caused a higher effective tax rate were primarily the earnings attributable to noncontrolling interests (for which income taxes are not the responsibility of the Company) and state income taxes (net of the federal tax benefit), partially offset by non-deductible expenses.

Liquidity and Capital Resources

Liquidity is provided by available cash and cash equivalents, cash generated from operations, credit facilities and access to capital markets. We have a committed line of credit totaling $175.0 million (to be reduced to $170.0 million as discussed further in Debt and in Note 19 of the Notes to Condensed Consolidated Financial Statements), which may be used for revolving loans, letters of credit and/or general purposes. We believe that cash generated from operations, along with our unused credit capacity and available cash balances as of March 31, 2024, will be sufficient to fund working capital needs and debt maturities for the next 12 months and beyond, as discussed further in Debt below. We generated significant operating cash flow in the first quarter of 2024 as discussed below in Cash and Working Capital. We expect strong operating cash flow to continue for the remainder of 2024, based on projected cash collections, both from project execution activities and the resolution of additional outstanding claims and unapproved change orders, including COVID-19-related cost recoveries from certain customers. In addition, we expect to benefit from the utilization of available net operating loss carryforwards to reduce our cash outflows for income taxes.

Cash and Working Capital

Cash and cash equivalents were $358.3 million as of March 31, 2024 compared to $380.6 million as of December 31, 2023. Cash immediately available for general corporate purposes was $128.9 million and $145.1 million as of March 31, 2024 and December 31, 2023, respectively, with the remainder being amounts held by our consolidated joint ventures and also our proportionate share of cash held by our unconsolidated joint ventures. Cash held by our joint ventures is available only for joint venture-related uses, including distributions to joint venture partners. In addition, our restricted cash and restricted investments totaled $145.2 million as of March 31, 2024 compared to $144.4 million as of December 31, 2023. Restricted cash and restricted investments at March 31, 2024 were primarily held to secure insurance-related contingent obligations and deposits.

During the three months ended March 31, 2024, net cash provided by operating activities was $98.3 million, the second-largest result for the first three months of any year since the merger between Tutor-Saliba Corporation and Perini Corporation in 2008. The net cash provided by operating activities for the 2024 period was primarily due to cash generated by earnings sources and a decrease in investment in project working capital. The decrease in investment in project working capital was primarily due to an increase in accounts payable, as a result of the timing of payments to subcontractors and vendors, partially offset by a decrease in billings in excess of costs and estimated earnings (“BIE”). During the three months ended March 31, 2023, net cash provided by operating activities was $21.3 million. The net cash provided by operating activities for the 2023 period was primarily due to a decrease in investments in project working capital, partially offset by cash utilized by earnings sources. The decrease in investments in project working capital was primarily due to a decrease in costs and estimated earnings in excess of billings (“CIE”) and decreases in accounts receivable and retention receivable that resulted from improved collection activity.

Cash flow from operating activities increased $76.9 million when comparing the first three months of 2024 with the same period in 2023. The increase in cash flow from operating activities for the first three months of 2024 compared to 2023 primarily reflects cash generated by earning sources in the current period compared to cash used by earnings sources in the same period last year, partially offset by a smaller decrease in investment in working capital in the current period compared to the prior-year period. The smaller decrease in investment in working capital in the 2024 period was primarily due to a current- year decrease in BIE compared to an increase last year, a current-year increase in CIE compared to a decrease last year and a current-year increase in accounts receivable compared to a decrease last year, partially offset by a current-year increase in accounts payable compared to a decrease last year. Both periods were positively impacted by collections associated with previously disputed matters.

Net cash used in investing activities during the first three months of 2024 was $10.3 million primarily due to the acquisition of property and equipment for projects (i.e., capital expenditures) totaling $10.4 million. Net cash used in investing activities during the first three months of 2023 was $6.9 million primarily due to the acquisition of property and equipment for projects totaling $17.8 million, partially offset by proceeds from the sale of property and equipment of $6.5 million and net proceeds from investment transactions of $4.4 million.

Net cash used in financing activities was $109.6 million for the first three months of 2024, which was primarily driven by $100.2 million of repayments of debt (including the $91.0 million principal repayment on the Term Loan B as discussed below in Debt) and $7.4 million of distributions to noncontrolling interests. Net cash provided by financing activities was $14.4 million for the first three months of 2023, which was primarily driven by $21.4 million of net proceeds from borrowings, partially offset by $6.5 million of net distributions to noncontrolling interests.

At March 31, 2024, we had working capital of $1.4 billion, a ratio of current assets to current liabilities of 1.70 and a ratio of debt to equity of 0.61, compared to working capital of $1.4 billion, a ratio of current assets to current liabilities of 1.66 and a ratio of debt to equity of 0.70 at December 31, 2023.

Debt

2020 Credit Agreement

On August 18, 2020, the Company entered into a credit agreement (as amended, the “2020 Credit Agreement”) with BMO Bank N.A. (f/k/a BMO Harris Bank N.A.), as Administrative Agent, Swing Line Lender and L/C Issuer and other lenders. The 2020 Credit Agreement provides for a $425.0 million term loan B facility (the “Term Loan B”) and a $175.0 million revolving credit facility (the “Revolver”), which will be reduced to $170.0 million following the effectiveness of the amendment to the 2020 Credit Agreement entered into on April 15, 2024, as described further detail below and in Note 19 of the Notes to Condensed Consolidated Financial Statements, with sub-limits for the issuance of letters of credit and swing line loans up to the aggregate amounts of $75.0 million and $10.0 million, respectively.

Subject to certain exceptions, at any time prior to maturity, the 2020 Credit Agreement provides the Company with the right to increase the commitments under the Revolver and/or to establish one or more term loan facilities in an aggregate amount up to (i) the greater of $173.5 million and 50% LTM EBITDA (as defined in the 2020 Credit Agreement) plus (ii) additional amounts if (A) in the case of pari passu first lien secured indebtedness, the First Lien Net Leverage Ratio (as defined in the 2020 Credit Agreement) does not exceed 1.35:1.00, (B) in the case of junior lien secured indebtedness, the Total Net Leverage Ratio, as defined in the 2020 Credit Agreement, does not exceed 3.50:1.00, and (C) in the case of unsecured indebtedness, (x) the Total Net Leverage Ratio does not exceed 3.50:1.00 or (y) the Fixed Charge Coverage Ratio (as defined in the 2020 Credit Agreement) is no less than 2.00:1.00. The balances of indebtedness used in the calculations of the First Lien Net Leverage Ratio and the Total Net Leverage Ratio include offsets for cash and cash equivalents available for general corporate purposes.

The Term Loan B will mature on August 18, 2027, except that if any of the 2017 Senior Notes (defined below) remain outstanding beyond future dates specified below, the maturity of certain amounts of the Term Loan B will be accelerated (“spring-forward maturity”). The spring-forward maturity provisions are as follows: (i) if, on January 30, 2025, any of the 2017 Senior Notes remain outstanding, the maturity date for one tranche of the Term Loan B (representing 10.2% of the principal balance) shall be January 30, 2025 (which is 91 days prior to the maturity of the 2017 Senior Notes) and (ii) if on April 21, 2025, any of the 2017 Senior Notes remain outstanding, the maturity date for another tranche of the Term Loan B (representing 89.8% of the principal balance) shall be April 21, 2025 (which is 10 days prior to the maturity of the 2017 Senior Notes), subject to certain further exceptions. However, following the redemption of the 2017 Senior Notes, which will occur on May 2, 2024 (as described in further detail below), the spring-forward maturity in respect of both tranches of the Term Loan B will no longer be in effect.

The Revolver will mature on August 18, 2025, unless any of the 2017 Senior Notes are outstanding on January 30, 2025, in which case any extensions of credit under the Revolver will mature and the commitments available under the Revolver will be reduced to zero, in each case, on January 30, 2025, subject to certain further exceptions. However, following the effectiveness of the April 15, 2024 amendment discussed below, the Revolver will mature (a) if any tranche of the Term Loan B, any incremental term loan or any refinancing term loan (or any refinancing or replacement thereof) remains outstanding, the earlier of (i) May 20, 2027 and (ii) the date that is ninety (90) days prior to the final maturity of any tranche of the Term Loan B, any incremental term loan or any refinancing term loan (or any refinancing or replacement thereof), as applicable and (b) if no obligations are outstanding with respect to any tranche of the Term Loan B, any incremental term loan or any refinancing term loan, August 18, 2027.

On April 15, 2024, as described in further detail in Note 19 of the Notes to the Condensed Consolidated Financial Statements, the Company entered into an amendment in respect of the 2020 Credit Agreement to, among other things, extend the maturity of the Revolver (as described above) and permanently reduce the aggregate commitments in respect of the Revolver by $5.0 million from $175.0 million to $170.0 million. The effectiveness of the amendment is subject to the satisfaction or waiver of certain conditions precedent more fully described in Note 19 of the Notes to Condensed Consolidated Financial Statements.

As of March 31, 2024, the Revolver had unused available borrowing capacity of $175.0 million, and the outstanding balance of the Term Loan B and the 2017 Senior Notes were $275.1 million and $500.0 million, respectively.

The 2020 Credit Agreement requires the Company to make prepayments on the Term Loan B in connection with certain asset sales, receipts of insurance proceeds, incurrences of certain indebtedness and annual excess cash flow (in each case, subject to certain customary exceptions). At December 31, 2023, current maturities of long-term debt in the accompanying Condensed Consolidated Balance Sheets included $91.0 million of principal on the Term Loan B, relating to the mandatory prepayment provision of the 2020 Credit Agreement in respect of annual excess cash flow. The $91.0 million principal prepayment, which was due by the first week of April 2024, was paid in February 2024.

Borrowings under the 2020 Credit Agreement bear interest at variable rates, which have increased since the latter part of 2022 due to changes in market conditions that resulted in increases in the Secured Overnight Financing Rate (“SOFR”) (and the London Interbank Offered Rate (“LIBOR”) prior to the transition to SOFR), in the case of the Term Loan B, and the administrative agent’s prime lending rate, in the case of the Revolver. Effective May 2, 2023, the 2020 Credit Agreement was amended to transition the Company’s original LIBOR option in respect of the Term Loan B to Adjusted Term SOFR. The average borrowing rates on the Term Loan B for the three months ended March 31, 2024 was approximately 9.2%. There were no borrowings under the Revolver during the three months ended March 31, 2024. At March 31, 2024, the borrowing rates on the Term Loan B and the Revolver were 10.2% and 12.3%, respectively. For more information regarding the terms of our 2020 Credit Agreement, refer to Note 9 of the Notes to Condensed Consolidated Financial Statements.

The table below presents our actual and required First Lien Net Leverage ratio under the 2020 Credit Agreement for the period, which is calculated on a rolling four-quarter basis:

On October 31, 2022, the 2020 Credit Agreement was amended to increase the maximum First Lien Net Leverage Ratio covenant level for certain fiscal quarters. On March 10, 2023, the 2020 Credit Agreement was further amended to set the maximum First Lien Net Leverage Ratio covenant level to 3.50:1.00, effective the fiscal quarter ended December 31, 2022, and increasing to 3.75:1.00 for the fiscal quarter ending March 31, 2023 and subsequently stepping down to 3.00:1.00 for the fiscal quarter ending June 30, 2023, 2.50:1.00 for the fiscal quarter ending September 30, 2023 and 2.25:1.00 for the fiscal quarter ending December 31, 2023 and each fiscal quarter thereafter. As of March 31, 2024, we were in compliance and expect to continue to be in compliance with the covenants under the 2020 Credit Agreement.

2024 Senior Notes Issuance and 2017 Senior Notes Redemption

On April 22, 2024, the Company issued $400.0 million in aggregate principal amount of 11.875% Senior Notes due April 30, 2029 (the “2024 Senior Notes”) in a private placement offering. Interest on the 2024 Senior Notes is payable in arrears semi-annually in April and October of each year, beginning in October 2024.

Prior to April 30, 2026, the Company may redeem the 2024 Senior Notes at a redemption price equal to 100% of the principal amount plus a “make-whole” premium described in the indenture. In addition, prior to April 30, 2026, the Company may redeem up to 40% of the original aggregate principal amount of the notes at a redemption price of 111.875% of their principal amount with the proceeds received by the Company from any offering of the Company’s equity. On or after April 30, 2026, the Company may redeem the 2024 Senior Notes at specified redemption prices described in the indenture. Upon a change of control, holders of the 2024 Senior Notes may require the Company to repurchase all or part of the 2024 Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.

The 2024 Senior Notes are senior unsecured obligations of the Company and are guaranteed by the Company’s existing and future subsidiaries that also guarantee obligations under the Company’s 2020 Credit Agreement. In addition, the indenture for the 2024 Senior Notes provides for customary covenants on certain payments and includes customary events of default.

The proceeds of the 2024 Senior Notes, together with cash on hand, will be used to redeem in full, all of the outstanding obligations in respect of the 2017 Senior Notes, resulting in a total net reduction to the Company’s outstanding principal debt balance of $100.0 million. A Notice of Conditional Full Redemption was delivered to holders of the 2017 Senior Notes on April 17, 2024, and the redemption of the 2017 Senior Notes will occur on May 2, 2024.

Contractual Obligations

Other than the issuance of the 2024 Senior Notes and redemption of our 2017 Senior Notes, as discussed above in Debt and in Note 19 of the Notes to Condensed Consolidated Financial Statements, there have been no material changes in our contractual obligations from those described in our Annual Report on Form 10‑K for the year ended December 31, 2023.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10‑K for the year ended December 31, 2023. Our critical accounting estimates are also identified and discussed in Part II, Item 7 of our Annual Report on Form 10‑K for the year ended December 31, 2023.

Recently Issued Accounting Pronouncements

See Note 2 of the Notes to Condensed Consolidated Financial Statements.

There has been no material change in our exposure to market risk from that described in Part II, Item 7A of our Annual Report on Form 10‑K for the year ended December 31, 2023.

Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10‑Q was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (a) were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to our risk factors as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.