ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K. Also see “Forward-Looking Statements” discussion.
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Introduction and Overview
We are a national provider of comprehensive mechanical and electrical installation, renovation, maintenance, repair and replacement services within the mechanical and electrical services industries. We operate primarily in the commercial, industrial and institutional markets and perform most of our work in manufacturing, healthcare, education, office, technology, retail and government facilities. We operate our business in two business segments: mechanical and electrical.
Nature and Economics of Our Business
In our mechanical business segment, customers hire us to ensure heating, ventilation and air conditioning (“HVAC”) systems deliver specified or generally expected heating, cooling, conditioning and circulation of air in a facility. This entails installing core system equipment such as packaged heating and air conditioning units, or in the case of larger facilities, separate core components such as chillers, boilers, air handlers, and cooling towers. We also typically install connecting and distribution elements such as piping and ducting.
In our electrical business segment, our principal business activity is electrical construction and engineering in the commercial and industrial fields. We also perform electrical logistics services and electrical service work.
In both our mechanical and electrical business segments, our responsibilities usually require conforming the systems to pre-established engineering drawings and equipment and performance specifications, which we frequently participate in establishing. Our project management responsibilities include staging equipment and materials to project sites, deploying labor to perform the work, and coordinating with other service providers on the project, including any subcontractors we might use to deliver our portion of the work.
Approximately 92.7% of our revenue is earned on a project basis for installation services in newly constructed facilities or for replacement of systems in existing facilities. When competing for project business, we usually estimate the costs we will incur on a project and then propose a bid to the customer that includes a contract price and other performance and payment terms. Our bid price and terms are intended to cover our estimated costs on the project and provide a profit margin to us commensurate with the value of the installed system to the customer, the risk that project costs or duration will vary from estimate, the schedule on which we will be paid, the opportunities for other work that we might forego by committing capacity to this project, and other costs that we incur to support our operations but which are not specific to the project. Typically, customers will seek pricing from competitors for a given project. While the criteria on which customers select a provider vary widely and include factors such as quality, technical expertise, on-time performance, post-project support and service, and company history and financial strength, we believe that price for value is the most influential factor for most customers in choosing a mechanical or electrical installation and service provider.
After a customer accepts our bid, we generally enter into a contract with the customer that specifies what we will deliver on the project, what our related responsibilities are and how much and when we will be paid. Our overall price for the project is typically set at a fixed amount in the contract, although changes in project specifications or work conditions that result in unexpected additional work are usually subject to additional payment from the customer via what are commonly known as change orders. Project contracts typically provide for periodic billings to the customer as we meet progress milestones or incur costs on the project. Project contracts in our industry also frequently allow for a small portion of progress billings or contract price to be withheld by the customer until after we have completed the work. Amounts withheld under this practice are known as retention or retainage.
Labor, materials and overhead costs account for the majority of our cost of service. Accordingly, labor management and utilization have the most impact on our project performance. Given the fixed price nature of much of our project work, if our initial estimate of project costs is wrong or we incur cost overruns that cannot be recovered in change orders, we can experience reduced profits or even significant losses on fixed price project work. We also perform some project work on a cost-plus or a time and materials basis, under which we are paid our costs incurred plus an agreed-upon profit margin, and such projects are sometimes subject to a guaranteed maximum cost. These margins are frequently less than fixed-price contract margins because there is less risk of unrecoverable cost overruns in cost-plus or time and materials work.
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As of December 31, 2025, we had 8,427 projects in process. Our average project takes six to nine months to complete, with an average contract price of approximately $2.9 million. Our projects generally require working capital funding of equipment and labor costs. Customer payments on periodic billings generally do not recover these costs until late in the job. Our average project duration, together with typical retention terms as discussed above, generally allow us to complete the realization of revenue and earnings in cash within one year. We have what we consider to be a well-diversified distribution of revenue across end-use sectors that we believe reduces our exposure to negative developments in any given sector. Because of the integral nature of our services to most buildings, we have the legal right in almost all cases to attach liens to buildings or related funding sources when we have not been fully paid for installing systems, except with respect to some government buildings. The service work that we do, which is discussed further below, usually does not give rise to lien rights.
We also perform larger projects. Taken together, projects with contract prices of $2 million or more totaled $22.44 billion of aggregate contract value as of December 31, 2025, or approximately 93%, out of a total contract value for all projects in progress of $24.17 billion. Generally, projects closer in size to $2 million will be completed in one year or less. It is unusual for us to work on a project that exceeds two years in length.
A stratification of projects in progress as of December 31, 2025, by contract price, is as follows:
Aggregate
Contract
Price Value
Contract Price of Project
Projects
(in millions)
Under $2 million
$2 million - $10 million
$10 million - $20 million
$20 million - $40 million
Greater than $40 million
Total
In addition to project work, approximately 7.3% of our revenue represents maintenance and repair service on already installed HVAC, electrical, and controls systems. This kind of work usually takes from a few hours to a few days to perform. Prices to the customer are based on the equipment and materials used in the service as well as technician labor time. We usually bill the customer for service work when it is complete, typically with payment terms of up to thirty days. We also provide maintenance and repair services under ongoing contracts. Under these contracts, we are paid regular monthly or quarterly amounts and provide specified service based on customer requirements. These agreements typically are for one or more years and frequently contain 30- to 60-day cancellation notice periods.
A relatively small portion of our revenue comes from national and regional account customers. These customers typically have multiple sites and contract with us to perform maintenance and repair service. These contracts may also provide for us to perform new or replacement systems installation. We operate a national call center to dispatch technicians to sites requiring service. We perform the majority of this work with our own employees, with the balance being subcontracted to third parties that meet our performance qualifications.
Profile and Management of Our Operations
We manage our 50 operating units based on a variety of factors. Financial measures we emphasize include profitability and use of capital as indicated by cash flow and by other measures of working capital principally involving project cost, billings and receivables. We also monitor selling, general, administrative and indirect project support expense, backlog, workforce size and mix, growth in revenue and profits, variation of actual project cost from original estimate, and overall financial performance in comparison to budget and updated forecasts. Operational factors we emphasize include project selection, estimating, pricing, safety, management and execution practices, labor utilization, training, and the make-up of both existing backlog as well as new business being pursued, in terms of project size, technical application, facility type, end-use customers and industries and location of the work.
Most of our operations compete on a local or regional basis. Attracting and retaining effective operating unit managers is an important factor in our business, particularly in view of the relative uniqueness of each market and operation, the importance of relationships with customers and other market participants, such as architects and consulting engineers, and the high degree of competition and low barriers to entry in most of our markets. Accordingly,
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we devote considerable attention to operating unit management quality, stability, and contingency planning, including related considerations of compensation and non-competition protection where applicable.
Economic and Industry Factors
As a mechanical and electrical services provider, we operate in the broader nonresidential construction services industry and are affected by trends in this sector. While we do not have operations in all major cities of the United States, we believe our national presence is sufficiently large that we experience trends in demand for and pricing of our services that are consistent with trends in the national nonresidential construction sector. As a result, we monitor the views of major construction sector forecasters along with macroeconomic factors they believe drive the sector, including trends in gross domestic product, interest rates, business investment, employment, demographics and the fiscal condition of federal, state and local governments.
Spending decisions for building construction, renovation and system replacement are generally made on a project basis, usually with some degree of discretion as to when and if projects proceed. With larger amounts of capital, time, and discretion involved, spending decisions are affected to a significant degree by uncertainty, particularly concerns about economic and financial conditions and trends. We have experienced periods of time when economic weakness caused a significant slowdown in decisions to proceed with installation and replacement project work.
Operating Environment and Management Emphasis
We have experienced increasing demand since 2022, culminating in an unprecedented overall demand environment in 2025. We currently expect that the demand environment, especially for manufacturing and technology customers, will remain at high levels during 2026. Over the last several years, we have also experienced increases in labor costs and delays in delivery of certain materials and equipment. We anticipate that cost pressures and intermittent delays in our supply chain will persist over the next several quarters.
We have a credit facility in place with terms we believe are favorable that does not expire until October 2030. As of December 31, 2025, we had $921.0 million of credit available to borrow under our credit facility. We have strong surety relationships to support our bonding needs, and we believe our relationships with the surety markets are strong and benefit from our operating history and financial position. We have generated positive free cash flow in each of the last 27 calendar years and will continue our emphasis in this area. We believe that the relative size and strength of our Balance Sheet and surety relationships, as compared to most companies in our industry, represent competitive advantages for us.
As discussed at greater length in “Results of Operations” below, we expect price competition to continue as local and regional industry participants compete for customers.
Critical Accounting Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that can have a meaningful effect on the amounts reported within our consolidated financial statements. Note 2, “Summary of Significant Accounting Policies and Estimates” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances. The Company has identified the following as its critical accounting estimates:
Revenue Recognition – The Company recognizes revenue based on the extent of progress towards completion of the performance obligation using the cost-to-cost input method of accounting, as it best depicts the transfer of assets to the customer that occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The cost-to-cost input method of accounting is also affected by changes in job performance, job conditions, and final contract settlements. These factors may result in revisions to estimated costs and, therefore, revenue. Such revisions are frequently based on further estimates and subjective assessments. Variations from
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estimated project costs could have a significant impact on our operating results, depending on project size, and the recoverability of the variation from change orders collected from customers.
Accounting for Self-Insurance Liabilitie s – We are substantially self-insured for workers’ compensation, employer’s liability, auto liability, general liability and employee group health claims, in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. Losses are estimated and accrued based upon known facts, historical trends and industry averages. Insurance liabilities are difficult to estimate due to various required judgements, including the severity of an injury, the determination of our liability in proportion to other parties, timely reporting of occurrences, ongoing treatment or loss mitigation, general trends in litigation recovery outcomes and the effectiveness of safety and risk management programs.
Accounting for Income Taxes – Our provision for income taxes, deferred tax assets and liabilities, and liabilities for uncertain tax positions reflect management’s best estimate of current and future taxes to be paid. Significant judgments and estimates are required in the determination of our income taxes, including the ability to recover our deferred tax assets based on assumptions about future taxable income. We record liabilities for uncertain tax positions when we determine whether it is more likely than not that the positions will be sustained based on their technical merits, and we recognize tax benefits that are more than 50 percent likely to be realized upon ultimate settlement with the relevant taxing authority.
Acquisitions – We recognize assets acquired and liabilities assumed in business combinations based on fair value estimates as of the date of acquisition. In certain acquisitions, we agree to pay additional amounts to sellers contingent upon achievement by the acquired businesses of certain predetermined profitability targets. We recognize liabilities for these contingent obligations based on their estimated fair value at the date of acquisition. Key assumptions used to determine the fair value of contingent obligations include, but are not limited to, future cash flows and operating income, probabilities of achieving such future cash flows and operating income and a weighted average cost of capital.
Recoverability of Goodwill and Identifiable Intangible Assets – Determining whether impairment indicators exist and estimating the fair value of the Company’s goodwill reporting units and intangible assets for impairment testing requires significant judgment.
In the evaluation of goodwill for impairment, we have to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of one of our reporting units is greater than its carrying value. If we perform a quantitative assessment, then we calculate the fair value of the reporting unit and compare the fair value with the carrying value of the reporting unit. We estimate the fair value of the reporting unit based on a market approach and an income approach, which utilizes discounted future cash flows. Assumptions critical to the fair value estimates under the discounted cash flow model include discount rates, cash flow projections, projected long-term growth rates and the determination of terminal values. Key assumptions in the market approach include multiples used to value each reporting unit.
We amortize identifiable intangible assets with finite lives over their estimated useful lives. Changes in strategy and/or market condition may result in adjustments to recorded intangible asset balances or their useful lives.
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Results of Operations (in thousands, except percentages):
Year Ended December 31,
Revenue
Cost of services
Gross profit
Selling, general and administrative expenses
Gain on sale of assets
Operating income
Interest income
Interest expense
Changes in the fair value of contingent earn-out obligations
Other income (expense)
Income before income taxes
Provision for income taxes
Net income
2025 Compared to 2024
We had 47 operating locations as of December 31, 2024. In the first quarter of 2025, we completed the acquisition of Century Contractors, LLC (“Century”), which reports as a separate operating location. In the second quarter of 2025, we combined two operating locations into one operating location. Additionally, we completed the acquisition of Right Way Plumbing & Mechanical LLC (“Right Way”), which reports as a separate operating location. In the fourth quarter of 2025, we completed the acquisitions of Feyen-Zylstra Holdings, LLC (“Feyen Zylstra”) and Meisner Electric, Inc. (“Meisner”), which both report as separate operating locations. We had 50 operating locations as of December 31, 2025. Acquisitions are included in our results of operations from the respective acquisition date. The same-store comparison from 2025 to 2024, as described below, excludes Feyen Zylstra, which was acquired on October 1, 2025, Meisner, which was acquired on October 1, 2025, Right Way, which was acquired May 1, 2025, Century, which was acquired on January 1, 2025, one month of results for Summit Industrial Construction, LLC (“Summit”), which was acquired on February 1, 2024 and one month of results for J & S Mechanical Contractors, Inc. (“J&S”), which was acquired on February 1, 2024. An operating location is included in the same-store comparison on the first day it has comparable prior year operating data, except for immaterial acquisitions that are often absorbed and integrated with existing operations.
Revenue —Revenue increased $2.07 billion, or 29.5%, to $9.10 billion in 2025 compared to 2024. The increase included a 3.4% increase related to the Feyen Zylstra , Meisner, Right Way, Century, Summit and J&S acquisitions, as well as a 26.1% increase in revenue related to same-store activity. The same-store revenue growth was largely driven by strong market conditions, including the increase in our backlog. The increase in demand has been especially strong in the technology sector, particularly for data centers.
The following table presents our operating segment revenue (in thousands, except percentages):
Year Ended December 31,
Revenue:
Mechanical Segment
Electrical Segment
Total
Revenue for our mechanical segment increased $1.15 billion, or 20.7%, to $6.67 billion in 2025 compared to 2024. Of this increase, $169.3 million resulted from the acquisition of Right Way, Century, Summit and J&S, and $976.8 million was attributable to same-store activity. The same-store revenue increase primarily resulted from an increase in activity in the technology sector at one of our North Carolina operations ($267.5 million), our Texas modular operation ($206.5 million), one of our Indiana operations ($137.2 million) and one of our Virginia operations ($109.7 million).
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Revenue for our electrical segment increased $928.0 million, or 61.9%, to $2.43 billion in 2025 compared to 2024. Of this increase, $66.8 million resulted from the acquisition of Feyen Zylstra and Meisner, and $861.2 million was attributable to same-store activity. The same-store revenue increase primarily resulted from an increase in activity in the technology sector at our Texas electrical operation ($649.3 million).
Backlog reflects revenue still to be recognized under contracted or committed installation and replacement project work. Project work generally lasts less than one year. Service agreement revenue, service work and short duration projects, which are generally billed as performed, do not flow through backlog. Accordingly, backlog represents only a portion of our revenue for any given future period, and it represents revenue that is likely to be reflected in our operating results over the next six to twelve months. As a result, we believe the predictive value of backlog information is limited to indications of general revenue direction over the near term, and should not be interpreted as indicative of ongoing revenue performance over several quarters.
The following table presents our operating segment backlog (in thousands, except percentages):
December 31, 2025
December 31, 2024
Backlog:
Mechanical Segment
Electrical Segment
Total
Backlog as of December 31, 2025 was $11.94 billion, a 27.4% increase from September 30, 2025 backlog of $9.38 billion and a 99.3% increase from December 31, 2024 backlog of $5.99 billion. The sequential backlog increase included the acquisitions of Feyen Zylstra ($90.9 million) and Meisner ($72.5 million), as well as a same-store increase of $2.40 billion, or 25.6%. Same-store sequential backlog increased primarily due to increased project bookings and strong market conditions in the technology sector at our Texas modular operation ($1.20 billion) and one of our Texas operations ($539.9 million) and in the manufacturing sector at one of our North Carolina operations ($372.2 million). The year-over-year backlog increase included the acquisitions of Right Way ($106.2 million), Century ($91.6 million), Feyen Zylstra ($90.9 million) and Meisner ($72.5 million), as well as a same-store increase of $5.59 billion, or 93.2%. Same-store year-over-year backlog increased primarily due to increased project bookings and strong market conditions in the technology sector at our Texas modular operation ($1.48 billion), one of our North Carolina operations ($1.26 billion), one of our Indiana operations ($901.1 million), one of our Texas operations ($850.2 million) and at our Texas electrical operation ($803.4 million).
Gross Profit —Gross profit increased $719.5 million, or 48.7%, to $2.20 billion in 2025 as compared to 2024. The increase included a $44.8 million, or 3.0%, increase related to the Feyen Zylstra , Meisner, Right Way, Century, Summit and J&S acquisitions, as well as a $674.6 million, or 45.7%, increase on a same-store basis. The same-store increase in gross profit was primarily driven by both higher revenues in the current year as well as improved execution in our operations, including increased volumes at our Texas electrical operation ($161.5 million), one of our North Carolina operations ($71.6 million) and one of our Indiana operations ($76.0 million). Additionally, we achieved improvements in project execution at our Texas modular operation ($124.3 million). As a percentage of revenue, gross profit increased from 21.0% in 2024 to 24.1% in 2025, primarily due to the factors discussed above and improvements in our mechanical segment gross profit margin.
Selling, General and Administrative Expenses (“SG&A”) —SG&A increased $153.2 million, or 21.0%, to $883.3 million for 2025 as compared to 2024. On a same-store basis, excluding amortization expense, SG&A increased $124.9 million, or 18.5%. The same-store increase is primarily due to higher same-store revenue and increased compensation costs ($96.6 million), largely attributable to increased headcount and increased cost of labor. Amortization expense for intangible assets increased $5.5 million during the period primarily as a result of the Right Way, Century and Summit acquisitions. As a percentage of revenue, SG&A decreased from 10.4% in 2024 to 9.7% in 2025 due to leverage resulting from the increase in revenue.
We have included same-store SG&A, excluding amortization expense, because we believe it is an effective measure of comparative results of operations. However, same-store SG&A, excluding amortization, is not considered under generally accepted accounting principles to be a primary measure of an entity’s financial results, and accordingly, should not be considered an alternative to SG&A as shown in our Consolidated Statements of Operations.
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Year Ended December 31,
(in thousands)
Less: SG&A from companies acquired
Less: Amortization expense
Same-store SG&A, excluding amortization expense
Interest Income —Interest income increased $10.1 million, or 87.0%, in 2025 as compared to 2024. The increase in interest income is due to an increase in our average cash balance compared to the prior year.
Interest Expense —Interest expense increased $2.4 million, or 35.5%, in 2025 as compared to 2024. The increase in interest expense is primarily due to an increase in our average outstanding debt balance compared to the prior year. Additionally, we expensed $0.3 million in 2025 related to unamortized debt issuance costs for lenders who exited the credit facility when we amended our senior credit facility in August of 2025.
Changes in the Fair Value of Contingent Earn-out Obligations —The contingent earn-out obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings. Expense from changes in the fair value of contingent earn-out obligations decreased $54.7 million, or 62.0%, in 2025 compared to 2024. This decrease was primarily caused by lower earn-out expenses for Summit, driven by larger changes in their forecasted results in the prior year and as a result of them reaching their maximum cumulative earn-out target.
Provision for Income Taxes —We conduct business throughout the United States in virtually all fifty states. Our effective tax rate changes based upon our relative profitability, or lack thereof, in the federal and various state jurisdictions with differing tax rates and rules. In addition, discrete items, such as tax law changes, judgments and legal structures can impact our effective tax rate. These items can also include the tax treatment for impairment of goodwill and other intangible assets, changes in fair value of acquisition-related assets and liabilities, uncertain tax positions, and accounting for losses associated with underperforming operations.
Our provision for income taxes for 2025 was $270.9 million with an effective tax rate of 20.9%, as compared to the provision for income taxes of $144.1 million with an effective tax rate of 21.6% for 2024. The effective rate for 2025 was slightly lower than the 21% federal statutory rate primarily due to a $30.5 million credit for increasing research activities (“R&D tax credit”) (2.4%) partially offset by $30.3 million of net state income taxes (2.3%). The effective rate for 2024 was slightly higher than the 21% federal statutory rate primarily due to $21.6 million of net state income taxes (3.2%) partially offset by a $23.2 million R&D tax credit (3.5%). Refer to Note 11 in the Consolidated Financial Statements for a reconciliation of the federal statutory rates to the effective tax rates reflected in our financial statements.
2024 Compared to 2023
For a discussion of the period-to-period comparison of 2024 to 2023, please refer to “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—2024 Compared to 2023” in our Annual Report on Form 10-K for the year ended December 31, 2024.
Outlook
We experienced an unprecedented demand environment in 2025, and we continue to experience increased labor costs and intermittent supply chain shortages, including delays in delivery of certain materials and equipment. We are recognizing these challenges in our job planning and pricing, and we are ordering materials on an earlier timeline and seeking to collaborate with customers to share supply risks and to mitigate the effects of these challenges. We have been generally successful in maintaining productivity and in procuring needed materials despite ongoing challenges.
We have a good pipeline of opportunities and potential backlog. Considering our substantial advance bookings, we anticipate high ongoing demand leading to solid earnings in 2026. Although we are preparing for a wide range of future challenges and economic circumstances, including a potential recession, we currently expect that supportive conditions for our industry, especially for our industrial and technology customers, are likely to continue in 2026.
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Liquidity and Capital Resources
Year Ended December 31,
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase in cash and cash equivalents
Free cash flow:
Net cash provided by operating activities
Purchases of property and equipment
Proceeds from sales of property and equipment
Free cash flow
Cash Flow
Our business does not require significant amounts of investment in long-term fixed assets. The substantial majority of the capital used in our business is working capital that funds our costs of labor and installed equipment deployed in project work until our customer pays us. Customary terms in our industry allow customers to withhold a small portion of the contract price until after we have completed the work, typically for six months. Amounts withheld under this practice are known as retention or retainage. Our average project duration, together with typical retention terms, generally allows us to complete the realization of revenue and earnings in cash within one year.
2025 Compared to 2024
Net Cash Provided by Operating Activities —Cash flow from operations is primarily influenced by demand for our services and operating margins but can also be influenced by working capital needs associated with the various types of services that we provide. In particular, working capital needs may increase when we commence large volumes of work under circumstances where project costs, primarily associated with labor, equipment and subcontractors, are required to be paid before the receivables resulting from the work performed are billed and collected. Working capital needs are generally higher during the late winter and spring months as we prepare and plan for the increased project demand when favorable weather conditions exist in the summer and fall months. Conversely, working capital assets are typically converted to cash during the late summer and fall months as project completion is underway. These seasonal trends are sometimes offset by changes in the timing of major projects, which can be impacted by the weather, project delays or accelerations and other economic factors that may affect customer spending.
We generated $1.19 billion of net cash flow from operating activities during 2025 compared to $849.1 million during 2024. The $337.3 million increase in cash provided by operating activities was primarily driven by higher earnings before non-cash expenses such as amortization of intangible assets in the current year and an $877.9 million benefit from changes in billings in excess of costs and estimated earnings and deferred revenue driven by the timing of customer billings and payments. These increases were partially offset by a $778.9 million decrease in accounts payable and other current liabilities driven by the size and timing of payments. We made an $80.0 million federal tax payment in the first quarter of 2025 that otherwise would have been paid in the second half of 2024, as a result of tax relief from the Internal Revenue Service due to Hurricane Beryl. In 2023, we filed our 2022 federal tax return requesting a refund of our $107.1 million overpayment, which was received in April 2025 and positively impacted our second quarter cashflows. Along with the refund, we received $11.3 million (or $8.9 million, net of tax) of interest income that reduced our provision for income taxes in the first quarter of 2025.
Net Cash Used in Investing Activities —Cash used in investing activities was $467.3 million for 2025 compared to $343.5 million during 2024. The $123.8 million increase in cash used primarily relates to an increase in cash paid (net of cash acquired) for acquisitions and purchases of property and equipment in the current year compared to 2024.
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Net Cash Used in Financing Activities —Cash used in financing activities was $287.1 million for 2025 compared to $160.8 million during 2024. The $126.3 million increase in cash used is primarily due to an increase in share repurchases of $158.1 million and an increase in payments of dividends to stockholders of $26.1 million in the current year. These increases were partially offset by higher net borrowings of debt in the current year compared to 2024.
2024 Compared to 2023
For a discussion of the period-to-period comparison of 2024 to 2023, please refer to “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—2024 Compared to 2023” in our Annual Report on Form 10-K for the year ended December 31, 2024.
Free Cash Flow
We define free cash flow as cash provided by operating activities, less customary capital expenditures, plus the proceeds from asset sales. We believe free cash flow, by encompassing both profit margins and the use of working capital over our approximately one year working capital cycle, is an effective measure of operating effectiveness and efficiency. We have included free cash flow information here for this reason, and because we are often asked about it by third parties evaluating us. However, free cash flow is not considered under generally accepted accounting principles to be a primary measure of an entity’s financial results, and accordingly free cash flow should not be considered an alternative to operating income, net income, or amounts shown in our Consolidated Statements of Cash Flows as determined under generally accepted accounting principles. Free cash flow may be defined differently by other companies.
Share Repurchase Program
On March 29, 2007, our Board approved a stock repurchase program to acquire up to 1.0 million shares of our outstanding common stock. Subsequently, the Board has from time to time increased the number of shares that may be acquired under the program and approved extensions of the program. On May 16, 2025, the Board approved an extension to the program by increasing the shares authorized for repurchase by 0.4 million shares. Since the inception of the repurchase program, the Board has approved 11.8 million shares to be repurchased. As of December 31, 2025, we have repurchased a cumulative total of 10.9 million shares at an average price of $50.15 per share under the repurchase program.
The share repurchases will be made from time to time at our discretion in the open market or privately negotiated transactions, including pursuant to Rule 10b5-1 share repurchase plans, as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The Board may modify, suspend, extend or terminate the program at any time. During the year ended December 31, 2025, we repurchased 0.4 million shares for approximately $217.9 million, inclusive of the applicable excise tax, at an average price of $489.40 per share.
Debt
Revolving Credit Facility
On August 27, 2025, we amended our senior credit facility (as amended, the “Facility”) arranged by Wells Fargo Bank, National Association, as administrative agent, and provided by a syndicate of banks, which increases our borrowing capacity from $ 850.0 million to $ 1.10 billion. The Facility is composed of a revolving credit line guaranteed by certain of our subsidiaries, in the amount of $1.10 billion. The Facility also provides for an accordion or increase option not to exceed the greater of (a) $500 million and (b) 1.0x Credit Facility Adjusted EBITDA (as defined below), in the form of additional revolving commitments or incremental term loans. The line of credit includes a sublimit for up to $200.0 million of letters of credit and a sublimit for up to $75.0 million of swingline loans. The Facility expires on October 1, 2030 and is secured by a first lien on substantially all of our personal property except for assets related to projects subject to surety bonds and the equity of, and assets held by, certain unrestricted subsidiaries and our wholly owned captive insurance company, and a second lien on our assets related to projects subject to surety bonds. As a result of the amendment, $0.3 million of unamortized costs associated with lenders who exited the Facility were written off to interest expense in the third quarter of 2025. The remaining $1.0 million of unamortized costs from the previous facility will be deferred and amortized over the term of the new Facility. In 2025, we incurred approximately $3.7 million in
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financing and professional costs in connection with the amendment to the Facility, which, combined with previously unamortized costs of $ 1.0 million, are being amortized on a straight-line basis as a non-cash charge to interest expense over the remaining term of the Facility. As of December 31, 2025, we had $100.0 million of outstanding borrowings on the revolving credit facility, $79.0 million in letters of credit outstanding and $921.0 million of credit available.
There are two interest rate options for borrowings under the Facility, the Base Rate Loan (as defined in the Facility) option and the Secured Overnight Financing Rate (“SOFR”) Loan option. These rates are floating rates determined by the broad financial markets, meaning they can and do move up and down from time to time. Additional margins are then added to these two rates.
Certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf, such as to beneficiaries under our self-funded insurance programs. We have also occasionally used letters of credit to guarantee performance under our contracts and to ensure payment to our subcontractors and vendors under those contracts. Our lenders issue such letters of credit through the Facility. A letter of credit commits the lenders to pay specified amounts to the holder of the letter of credit if the holder demonstrates that we have failed to perform specified actions. If this were to occur, we would be required to reimburse the lenders for amounts they fund to honor the letter of credit holder’s claim. Absent a claim, there is no payment or reserving of funds by us in connection with a letter of credit. However, because a claim on a letter of credit would require immediate reimbursement by us to our lenders, letters of credit are treated as a use of Facility capacity. The letter of credit fees range from 1.00% to 2.00% per annum, based on the Net Leverage Ratio.
Commitment fees are payable on the portion of the revolving loan capacity not in use for borrowings or letters of credit at any given time. These fees range from 0.15% to 0.25% per annum, based on the Net Leverage Ratio.
Interest expense included the following primary elements (in thousands):
Year Ended December 31,
Interest expense on notes to former owners
Interest expense on borrowings and unused commitment fees
Letter of credit fees
Amortization of debt financing costs
Total
The Facility contains financial covenants defining various financial measures and the levels of these measures with which we must comply. Covenant compliance is assessed as of each quarter end for the four fiscal quarters then ended. Credit Facility Adjusted EBITDA is defined under the Facility for financial covenant purposes as consolidated net income for the four fiscal quarters ending as of any given quarterly covenant compliance measurement date, plus the corresponding amounts for (a) interest expense; (b) provision for income taxes; (c) depreciation and amortization; (d) stock or equity compensation; and (e) other non-cash charges, in each case calculated on a pro forma basis for acquisitions or dispositions during such measurement period. The Facility’s principal financial covenants include:
Net Leverage Ratio —The Facility requires that the ratio of (a) our Consolidated Total Indebtedness (as defined in the Facility) minus unrestricted cash and cash equivalents up to $100,000,000, to (b) our Credit Facility Adjusted EBITDA not exceed 3.50 to 1.00 as of the end of each fiscal quarter ; provided that, for the first four fiscal quarters ending after a material acquisition, such maximum Net Leverage Ratio steps up to 4.00 to 1.00.
Interest Coverage Ratio —The Facility requires that the ratio of (a) Credit Facility Adjusted EBITDA to (b) consolidated interest expense, defined as all interest paid or accrued on indebtedness during the period excluding amortization of debt incurrence expenses, original issue discount, and mark-to-market interest expense, be at least 3.00 to 1.00.
Other Restrictions —The Facility (a) permits unlimited acquisitions when the Company’s Net Leverage Ratio is less than or equal to 3.25 to 1.00 ; or 3.75 to 1.00 for the first four fiscal quarters ending after a material acquisition, (b) expands certain baskets for permitted indebtedness and liens, and (c) permits unlimited distributions, stock repurchases, and investments when the Net Leverage Ratio is less than or equal to 2.75 to 1.00.
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While the Facility’s financial covenants do not specifically govern capacity under the Facility, if our debt level under the Facility at a quarter-end covenant compliance measurement date were to cause us to violate the Facility’s Net Leverage Ratio covenant, our borrowing capacity under the Facility and the favorable terms that we currently have could be negatively impacted.
We were in compliance with all of our financial covenants as of December 31, 2025.
Notes to Former Owners
We have outstanding notes to the former owners of acquired companies. Together, these notes had an outstanding balance of $44.6 million as of December 31, 2025. At December 31, 2025, future principal payments of notes to former owners by maturity year were as follows (dollars in thousands):
Balance at
Range of Stated
December 31, 2025
Interest Rates
Total
Outlook
We have generated positive net free cash flow for the last 27 calendar years, much of which occurred during challenging economic and industry conditions. We also continue to have significant borrowing capacity under our credit facility, and we maintain what we feel are reasonable cash balances. We believe these factors will provide us with sufficient liquidity to fund our operations for the foreseeable future.
Other Commitments
As is common in our industry, we have entered into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected in our Consolidated Balance Sheets, such as obligations involving letters of credit and surety guarantees.
Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a financial institution known as a surety. If we fail to perform under the terms of a contract or to pay subcontractors and vendors who provided goods or services under a contract, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the sureties for any expenses or outlays they incur. To date, we are not aware of any losses to our sureties in connection with bonds the sureties have posted on our behalf, and we do not expect such losses to be incurred in the foreseeable future.
Under standard terms in the surety market, sureties issue bonds on a project-by-project basis and can decline to issue bonds at any time. Historically, approximately 10% to 20% of our business has required bonds. While we currently have strong surety relationships to support our bonding needs, future market conditions or changes in the sureties’ assessments of our operating and financial risk could cause our sureties to decline to issue bonds for our work. If that were to occur, our alternatives include doing more business that does not require bonds, posting other forms of collateral for project performance, such as letters of credit or cash, and seeking bonding capacity from other sureties. We would likely also encounter concerns from customers, suppliers and other market participants as to our creditworthiness. While we believe our general operating and financial characteristics would enable us to ultimately respond effectively to an interruption in the availability of bonding capacity, such an interruption would likely cause our revenue and profits to decline in the near term.
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Material Cash Requirements
Our material cash expenditures consist of normal operating expenditures, such as personnel costs, as well as the items noted in the following table. The table below summarizes current and long-term material cash requirements as of December 31, 2025, which we expect to fund primarily with operating cash flows (in thousands):
Twelve Months Ending December 31,
Thereafter
Total
Revolving credit facility
Notes to former owners
Other debt
Interest payable
Operating lease obligations
Total
As of December 31, 2025, we have $79.0 million in letter of credit commitments, of which $60.7 million will expire in 2026 and $18.3 million will expire in 2027. The substantial majority of these letters of credit are posted with insurers who disburse funds on our behalf in connection with our workers’ compensation, auto liability and general liability insurance program. These letters of credit provide additional security to the insurers that sufficient financial resources will be available to fund claims on our behalf, many of which develop over long periods of time, should we ever encounter financial duress. Posting of letters of credit for this purpose is a common practice for entities that manage their self-insurance programs through third-party insurers as we do. While some of these letter of credit commitments expire in 2026, we expect nearly all of them, particularly those supporting our insurance programs, will be renewed annually.
As discussed in Note 11 “Income Taxes,” included in our Consolidated Balance Sheet at December 31, 2025 is $37.1 million of liabilities for uncertain tax positions, or unrecognized tax benefits.
Other than the lease obligations discussed in Note 10 “Leases,” we have no significant purchase or operating commitments outside of commitments to deliver equipment and provide labor in the ordinary course of performing project work.
