Tutor Perini Corp: Form 10-Q for the period ended Jun 30, 2024

The following discussion and analysis of our financial position as of June 30, 2024 and the results of our operations for the three and six months ended June 30, 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 statement that refers to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events, outcomes or circumstances, or the timing of those events, outcomes 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;
• 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;
• 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;
• 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;
• Increased competition and failure to secure new contracts;
• A significant slowdown or decline in economic conditions, such as those presented during a recession;
• Decreases in the level of government spending for infrastructure and other public projects;
• 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;
• 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;
• Failure to meet our obligations under our debt agreements (especially in a high interest rate environment);
• Downgrades in our credit ratings;
• Violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws;
• 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 and six months ended June 30, 2024 was $1.1 billion and $2.2 billion, respectively, compared to $1.0 billion and $1.8 billion for the same periods in 2023. The growth for both periods was primarily driven by increased project execution activities on certain Building segment projects, including various healthcare and educational facility projects in California and a detention facility project in New York. The growth for both periods was also due to increased project execution activities on various Civil segment projects, including certain mass-transit projects in California, two airport projects in the Northern Mariana Islands and the tunneling component of an energy project in British Columbia, as well as the absence of certain prior-year net unfavorable adjustments, as discussed in more detail below in Results of Segment Operations. The growth for both periods was partially offset by reduced project execution activities on a completed transportation project in the Northeast.

Income from construction operations for the three and six months ended June 30, 2024 was $40.5 million and $89.3 million, respectively, compared to income from construction operations of $2.4 million and loss from construction operations of $79.6 million for the same periods in 2023. For the second quarter of 2024, the increase was principally due to contributions related to the increased project execution activities discussed above and the absence of certain prior-year net unfavorable adjustments, as discussed further below in Results of Segment Operations. The increase was partially offset by an unfavorable adjustment in the second quarter of 2024 of $12.4 million due to the impact of a settlement on two completed Civil segment highway projects in the Northeast. For the first six months of 2024, the improvement was due to the same factors mentioned above for the second quarter, as well as 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, partially offset 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. Furthermore, income from construction operations for the three and six months ended June 30, 2024 was negatively impacted by an increase in share-based compensation expense of $14.3 million and $16.8 million, respectively, as compared to the same periods in 2023. The increase in share-based compensation expense in both 2024 periods was primarily due to a substantial increase in the Company’s stock price during the first and second quarters of 2024, which impacted the fair value of liability-classified awards. These awards are remeasured at fair value at the end of each reporting period with the change in fair value recognized in earnings.

Income tax expense was $7.3 million and $14.6 million for the three and six months ended June 30, 2024, respectively, compared to income tax expense of $0.2 million for the three months ended June 30, 2023, and an income tax benefit of $47.9 million for the six months ended June 30, 2023. See Corporate, Tax and Other Matters below for a discussion of the changes in the effective tax rate.

Diluted earnings per common share for the three and six months ended June 30, 2024 was $0.02 and $0.31, respectively, compared to diluted loss per common share of $0.72 and $1.68, respectively, for the same periods in 2023. The improvement for both periods in 2024 was primarily due to the factors discussed above that resulted in the positive change in income (loss) from construction operations for such periods.

Consolidated new awards for the three and six months ended June 30, 2024 totaled $1.6 billion and $2.4 billion, respectively, compared to $4.0 billion and $4.7 billion for the same periods in 2023. The 2023 periods included the award of the $2.95 billion Brooklyn Jail project in New York. The Civil and Building segments were the primary contributors to the new awards activity in the second quarter of 2024. The most significant new awards and contract adjustments in the second quarter of 2024 included the Company’s proportionate share of its contract value for a $1.3 billion bridge replacement project in Connecticut; a $216 million airport terminal connectors project at Fort Lauderdale-Hollywood International Airport in Florida; $144 million of additional funding for certain mass-transit projects in California; a $136 million highway and bridge project in the Midwest; a $127 million electrical project in New York; a $74 million military facilities project in Guam; and $71 million of additional funding for various healthcare projects in California.

Consolidated backlog as of June 30, 2024 was $10.4 billion, up slightly compared to $10.2 billion as of December 31, 2023. As of June 30, 2024, the mix of backlog by segment was approximately 42% for Civil, 40% for Building and 18% for Specialty Contractors.

The following table presents the Company’s backlog by business segment, reflecting changes from December 31, 2023 to June 30, 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 yet 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.

Since 2014, voters in 43 states have approved 85 percent of over 3,000 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 healthcare, educational, and correctional and detention facilities, among others. Many economists believe that interest rates will begin to fall as early as September 2024, though the actual timing and extent of any reductions remains uncertain. Lower interest rates could support additional demand for continued infrastructure spending. In contrast, should interest rates rise, they could reach levels that may further negatively impact demand, especially for certain types of Building segment projects that have already been experiencing such impacts, 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 Investment and Jobs Act (the “Bipartisan Infrastructure Law” or “BIL”), enacted into law in November 2021, 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 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 June 30, 2024 decreased slightly compared to the same period in 2023, primarily due to the absence of prior-year favorable adjustments, as described in the paragraph below, largely offset by a net increase in project execution activities in the current-year period. The net increase in project execution activities was primarily driven by certain mass-transit projects in California, two airport projects in the Northern Mariana Islands and the tunneling component of an energy project in British Columbia, partially offset by reduced project execution activities on a completed transportation project in the Northeast and a mass-transit project in the Midwest that is nearing completion. Revenue for the six months ended June 30, 2024 increased 13% compared to the same period in 2023, primarily due to net increased project execution activities on the same projects discussed above, partially offset by the absence of certain prior-year net favorable adjustments, as described in the paragraph below.

Income from construction operations for the three and six months ended June 30, 2024 was $75.6 million and $146.3 million, respectively, compared to $105.4 million and $123.4 million for the same periods in 2023. For the second quarter of 2024, the decrease was primarily due to the absence of prior-year favorable adjustments totaling $58.1 million on a mass-transit project in California associated with changes in estimates due to improved performance, as well as a current-year unfavorable adjustment of $12.4 million due to the impact of a settlement on two completed highway projects in the Northeast. The impact of these unfavorable changes was partially offset by contributions related to the net increased project execution activities discussed above. For the first six months of 2024, the increase was due to contributions related to the net increased project execution activities discussed above and a $10.2 million favorable adjustment on a mass-transit project in California related to a dispute resolution and associated expected cost savings. The increase was also due to the absence of a prior-year unfavorable adjustment of $13.1 million on a completed transportation project in the Northeast, split evenly between the Civil and Building segments, due to the settlement of certain change orders during project closeout. These improvements were mostly offset by the absence of prior-year net favorable adjustments totaling $30.1 million on a mass-transit project in California associated with changes in estimates due to improved performance and the unfavorable adjustment that impacted the second quarter of 2024, as discussed above.

Operating margin was 13.8% and 14.4% for the three and six months ended June 30, 2024, respectively, compared to 19.0% and 13.7% for the same periods in 2023. The changes in operating margin were 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 $814.5 million and $1.1 billion for the three and six months ended June 30, 2024, respectively, compared to $689.7 million and $1.1 billion for the same periods in 2023. The most significant new awards and contract adjustments in the second quarter of 2024 included the Company’s proportionate share of its contract value for a $1.3 billion bridge replacement project in Connecticut; $144 million of additional funding for certain mass-transit projects in California; a $136 million highway and bridge project in the Midwest; a $74 million military facilities project in Guam; and a $54 million bridge project in Minnesota.

Backlog for the Civil segment was $4.4 billion as of June 30, 2024 compared to $4.6 billion as of June 30, 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, the BIL, and by public agencies’ long-term spending plans. We believe that the Civil segment is well-positioned to capture its share of these prospective projects, but the timing of new awards remains uncertain.

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 June 30, 2024 increased 26% compared to the same period in 2023, primarily due to increased project execution activities on various healthcare and educational facility projects in California and a detention facility project in New York. Revenue for the six months ended June 30, 2024 increased 48% compared to the same period in 2023, primarily due to contributions from the increased project execution activities mentioned above, 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 and six months ended June 30, 2024 was $5.0 million and $21.2 million, respectively, compared to loss from construction operations of $13.8 million and $84.0 million for the same periods in 2023. For the second quarter of 2024, the improvement was primarily due to the increased project execution activities discussed above, as well as the absence of a prior-year unfavorable adjustment of $13.1 million on a completed transportation project in the Northeast, split evenly between the Civil and Building segments, due to the settlement of certain change orders during project closeout. For the first six months of 2024, the significant improvement was principally due to the absence of the aforementioned 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 $72.2 million impacted the Building segment, as well as contributions related to the increased project execution activities discussed above.

Operating margin was 1.2% and 2.6% for the three and six months ended June 30, 2024, respectively, compared to (4.2)% and (15.0)% for the same periods in 2023. The improvements in operating margin were 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 $436.7 million and $841.0 million for the three and six months ended June 30, 2024, respectively, compared to $2.6 billion and $2.8 billion for the same periods in 2023. The 2023 periods included the award of the Brooklyn Jail project in New York. The most significant new awards and contract adjustments in the second quarter of 2024 included a $216 million airport terminal connectors project at Fort Lauderdale-Hollywood International Airport in Florida; $71 million of additional funding for various healthcare projects in California; and a $49 million government facility rehabilitation project in California. The proliferation of remote and hybrid work settings at many companies, along with continued 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, healthcare, 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 June 30, 2024, down 6% compared to $4.5 billion as of June 30, 2023. We believe that 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, but the timing of new awards remains uncertain.

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 June 30, 2024 increased 20% compared to the same period in 2023, partially due to the absence of prior-year unfavorable adjustments related to changes in estimates on the electrical and mechanical scope of a completed transportation project in the Northeast associated with a change in the expected recovery on certain unapproved change orders, as well as a prior-year adverse legal ruling on an educational facilities project in New York. The increase was partially offset by reduced project execution activities on an industrial facility project in Arizona and various electrical and mechanical projects in New York, all of which are complete or nearing completion. Revenue for the six months ended June 30, 2024 decreased 2% compared to the same period in 2023.

Loss from construction operations for the three and six months ended June 30, 2024 was $7.8 million and $26.2 million, respectively, compared to loss from construction operations of $69.8 million and $82.3 million for the same periods in 2023. For the second quarter of 2024, the improvement was primarily due to the absence of prior-year unfavorable adjustments, including $35.8 million due to changes in estimates on the electrical and mechanical scope of the above-mentioned transportation project in the Northeast, as well as a non-cash charge of $24.7 million on an educational facilities project in New York that resulted from an adverse court ruling. For the first six months of 2024, the improvement was primarily due to the absence of the same prior-year unfavorable adjustments as discussed above for the second quarter of 2024, as well as 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. The improvement was partially offset by an unfavorable adjustment of $12.0 million in the first quarter of 2024 due to an arbitration ruling pertaining to a completed electrical project in New York that only provided a partial award to the Company.

Operating margin was (4.8)% and (8.0)% for the three and six months ended June 30, 2024, respectively, compared to (51.2)% and (24.7)% for the same periods in 2023. The changes in operating margin were 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 $313.0 million and $453.3 million for the three and six months ended June 30, 2024, respectively, compared to $716.3 million and $870.4 million for the same periods in 2023. The most significant new award in the second quarter of 2024 was a $127 million electrical project in New York.

Backlog for the Specialty Contractors segment was $1.9 billion as of June 30, 2024, up 2.1% compared to $1.8 billion as of June 30, 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. We believe that 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 $31.5 million and $51.3 million during the three and six months ended June 30, 2024, respectively, compared to $18.6 million and $35.0 million for the same periods in 2023. The increase in the three and six months ended June 30, 2024 was primarily due to higher compensation-related expenses, mainly attributable to higher share-based compensation expense. The increase in share-based compensation expense was primarily due to a substantial increase in the Company’s stock price during the 2024 periods, which impacted the fair value of liability-classified awards. These awards are remeasured at fair value at the end of each reporting period with the change in fair value recognized in earnings.

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

(in millions)

Other income, net for the three and six months ended June 30, 2024 increased $2.7 million and $1.6 million, respectively, compared to the same periods in 2023.

Interest expense for the three months ended June 30, 2024 increased by $1.1 million compared to the same period in 2023. Interest expense for the six months ended June 30, 2024 decreased by $1.1 million compared to the same period in 2023.

The Company recognized an income tax expense of $7.3 million and $14.6 million for the three and six months ended June 30, 2024, respectively. The effective income tax rate was 31.3% and 25.1% for the three and six months ended June 30, 2024, respectively. The effective income tax rate for both the three and six months ended June 30, 2024 was higher than the 21.0% federal statutory income tax rate primarily due to non-deductible expenses and state income taxes (net of the federal tax benefit), partially offset by the earnings attributable to noncontrolling interests (for which income taxes are not the responsibility of the Company).

The Company recognized an income tax expense of $0.2 million for the three months ended June 30, 2023 and an income tax benefit of $47.9 million for the six months ended June 30, 2023. The effective income tax rate was (1.2)% and 42.2% for the three and six months ended June 30, 2023, respectively. The effective income tax rate for the three months ended June 30, 2023 was lower than the 21.0% federal statutory rate primarily due to the impact of a cumulative catch-up adjustment associated with the change in the Company’s projected 2023 effective tax rate that resulted from the revision of the Company’s forecast. The effective income tax rates for both periods were impacted by relatively large tax benefits generated against a forecasted pre-tax loss for the year, which magnified the impact these tax benefits had on the effective income tax rate. In periods with pre-tax losses, tax benefits generated during the period increase the effective income tax rate (and, thus, the income tax benefit to the Company) rather than decreasing the effective rate, as in periods with pre-tax income. The tax benefits that caused a higher effective tax rate primarily included 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 $170.0 million, 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 June 30, 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 six months 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. For example, the cash collections associated with the above-mentioned settlement on two completed Civil segment highway projects in the Northeast are expected to have a significant positive impact on the Company’s third-quarter cash generated from operations. 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 $267.1 million as of June 30, 2024 compared to $380.6 million as of December 31, 2023. Cash immediately available for general corporate purposes was $84.1 million and $145.1 million as of June 30, 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 $146.6 million as of June 30, 2024 compared to $144.4 million as of December 31, 2023. Restricted cash and restricted investments at June 30, 2024 were primarily held to secure insurance-related contingent obligations and deposits.

During the six months ended June 30, 2024, net cash provided by operating activities was $151.4 million, the second-largest result for the first six 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 reduction in net project working capital. The reduction in net 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 six months ended June 30, 2023, net cash provided by operating activities was $77.7 million. The net cash provided by operating activities for the 2023 period was primarily due to a reduction in net project working capital, partially offset by cash utilized by earnings sources. The reduction in net project working capital was primarily due to a decrease in costs and estimated earnings in excess of billings (“CIE”) and an increase in BIE, partially offset by an increase in accounts receivable.

Cash flow from operating activities for the first six months of 2024 increased $73.8 million compared to the same period in 2023. The increase in cash flow from operating activities for the first six 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 reduction in net project working capital in the current period compared to the prior-year period. The smaller reduction in net project working capital in the 2024 period was primarily due to a current-year increase in CIE compared to a decrease last year, and a current-year decrease in BIE compared to an increase 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 six months of 2024 was $24.0 million primarily due to the acquisition of property and equipment for projects (i.e., capital expenditures) totaling $21.4 million and net cash used in investment transactions of $4.1 million. Net cash used in investing activities during the first six months of 2023 was $29.2 million primarily due to the acquisition of property and equipment for projects totaling $30.6 million, as well as net cash used in investment transactions of $5.3 million, partially offset by proceeds from the sale of property and equipment of $6.8 million.

Net cash used in financing activities was $242.6 million for the first six months of 2024, which was primarily driven by a $202.9 million net repayment of debt (including the 2024 Senior Notes issuance of $400.0 million and the 2017 Senior Notes redemption of $500.0 million, as well as the $91.0 million principal repayment on the Term Loan B, all of which are discussed below in Debt), $25.1 million of payments for debt issuance costs related to debt transactions during the period and $12.4 million of distributions to noncontrolling interests. Net cash used in financing activities was $47.9 million for the first six months of 2023, which was primarily driven by a $33.8 million net repayment of debt and $13.3 million of net distributions to noncontrolling interests.

At June 30, 2024, we had working capital of $1.3 billion, a ratio of current assets to current liabilities of 1.65 and a ratio of debt to equity of 0.51, 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

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 2024 Senior Notes at a redemption price of 111.875% of their principal amount with the “net cash proceeds” received by the Company from one or more equity offerings, as described in the indenture. On or after April 30, 2026, the Company may redeem the 2024 Senior Notes at specified redemption prices described in the indenture. If the Company experiences certain change of control events, 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 and includes customary events of default.

The proceeds of the 2024 Senior Notes, together with cash on hand, were used to redeem in full, all of the outstanding obligations in respect of the 2017 Senior Notes. The redemption of the 2017 Senior Notes occurred on May 2, 2024 (the “2017 Senior Notes Redemption”).

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 originally provided for a $425.0 million term loan B facility (the “Term Loan B”) and a $175.0 million revolving credit facility (the “Revolver”), which was subsequently reduced to $170.0 million following the effectiveness of the 2024 Amendment (as defined and discussed below), 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. Prior to the 2017 Senior Notes Redemption, if any of the 2017 Senior Notes had remained outstanding beyond certain dates, the maturities of the Term Loan B and the Revolver would have been subject to acceleration (“spring-forward maturity”). However, following the 2017 Senior Notes Redemption and the consummation of the 2024 Amendment, the spring-forward maturity of the Term Loan B is no longer in effect and the spring-forward maturity of the Revolver has been extended (as described below).

On April 15, 2024, the Company entered into an amendment in respect of the 2020 Credit Agreement (the “2024 Amendment”) which, among other changes, (1) extends the existing Revolver maturity date from August 18, 2025 to (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 and (2) permanently reduces the aggregate commitments in respect of the Revolver by $5.0 million from $175.0 million to $170.0 million. The 2024 Amendment became effective on May 2, 2024 upon the completion of the 2017 Senior Notes Redemption.

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.

As of June 30, 2024, the Revolver had unused available borrowing capacity of $170.0 million, and the outstanding balance of the Term Loan B and the 2024 Senior Notes were $274.0 million and $400.0 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 and the Revolver for the six months ended June 30, 2024 were approximately 10.2% and 12.0%, respectively. At June 30, 2024, the borrowing rates on the Term Loan B and the Revolver were 10.2% and 12.0%, 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:

The 2020 Credit Agreement requires, solely with respect to the Revolver, the Company and its restricted subsidiaries to maintain a maximum First Lien Net Leverage Ratio of 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 June 30, 2024, we were in compliance and expect to continue to be in compliance with the covenants under the 2020 Credit Agreement.

Contractual Obligations

Other than the issuance of the 2024 Senior Notes and redemption of our 2017 Senior Notes, as discussed above in Debt, 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 Quarterly Report on Form 10-Q 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.