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Dynamic quotes 
OFFON

DYCOM INDUSTRIES, INC.

(DY)
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DYCOM INDUSTRIES : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

09/02/2021 | 08:23am EDT
The following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and the accompanying notes thereto
included elsewhere in this Quarterly Report on Form 10-Q and with our Annual
Report on Form 10-K for fiscal 2021. Our Annual Report on Form 10-K for fiscal
2021 was filed with the SEC on March 5, 2021, and is available on the SEC's
website at www.sec.gov and on our website at www.dycomind.com.

Introduction


We are a leading provider of specialty contracting services throughout the
United States. These services include program management; planning; engineering
and design; aerial, underground, and wireless construction; maintenance; and
fulfillment services for telecommunications providers. Additionally, we provide
underground facility locating services for various utilities, including
telecommunications providers, and other construction and maintenance services
for electric and gas utilities. We supply the labor, tools, and equipment
necessary to provide these services to our customers.

Significant demand for broadband is driven by applications that require high
speed connections as well as the everyday use of mobile data devices. To respond
to this demand and other advances in technology, major industry participants are
constructing or upgrading significant wireline networks across broad sections of
the country. These wireline networks are generally designed to provision 1
gigabit network speeds to individual consumers and businesses, either directly
or wirelessly using 5G technologies. Industry participants have stated their
belief that a single high capacity fiber network can most cost effectively
deliver services to both consumers and businesses, enabling multiple revenue
streams from a single investment. We believe this view is increasing the
appetite for fiber deployments and that the industry effort to deploy high
capacity fiber networks continues to meaningfully broaden our industry's set of
opportunities. Increasing access to high-capacity telecommunications continues
to be crucial to society, especially in rural America. The wide and active
participation in the
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Federal Communications Commission ("FCC") Rural Digital Opportunity Fund
("RDOF") auction augurs well for dramatically increased rural network
investment. In addition, an increasing number of states are commencing
initiatives that will provide funding for telecommunications networks separate
from the FCC RDOF program.

We are providing program management, planning, engineering and design, aerial,
underground, and wireless construction and fulfillment services for 1 gigabit
deployments. These services are being provided across the country in numerous
geographic areas to multiple customers including customers who have initiated
broad fiber deployments as well as customers who have resumed broad deployments.
These deployments include networks consisting entirely of wired network elements
as well as converged wireless/wireline multi-use networks. Fiber network
deployment opportunities are increasing in rural America as new industry
participants respond to emerging societal incentives. We continue to provide
integrated planning, engineering and design, procurement and construction and
maintenance services to several industry participants.

Telephone companies are deploying fiber-to-the-home to enable 1 gigabit
high-speed connections. Increasingly, rural electric utilities are doing the
same. Cable operators are deploying fiber to small and medium businesses and
enterprises. A portion of these deployments are in anticipation of the customer
sales process. Deployments to expand capacity as well as new build opportunities
are underway. Dramatically increased speeds to consumers are being provisioned
and consumer data usage is growing, particularly upstream. Wireless construction
activity in support of newly available spectrum bands is beginning and expected
to increase next year. Customers are consolidating supply chains creating
opportunities for market share growth and increasing the long-term value of our
maintenance and operations business.

The cyclical nature of the industry we serve affects demand for our services.
The capital expenditure and maintenance budgets of our customers, and the
related timing of approvals and seasonal spending patterns, influence our
contract revenues and results of operations. Factors affecting our customers and
their capital expenditure budgets include, but are not limited to, overall
economic conditions, the introduction of new technologies, our customers' debt
levels and capital structures, our customers' financial performance, our
customers' positioning and strategic plans, and any potential effects from the
COVID-19 pandemic. Other factors that may affect our customers and their capital
expenditure budgets include new regulations or regulatory actions impacting our
customers' businesses, merger or acquisition activity involving our customers,
and the physical maintenance needs of our customers' infrastructure.

Our operations expose us to risks associated with pandemics, epidemics or other
public health emergencies, such as COVID-19. Since March 2020, the economy of
the United States has been severely impacted by the nation's response to
COVID-19. Measures taken in response to the COVID-19 pandemic have included
travel restrictions, social distancing requirements, quarantines, and shelter in
place orders. As a result, businesses have been closed and certain business
activities curtailed for varying periods of time and in varying geographic
regions.

During the COVID-19 pandemic, our services have generally been considered
essential in nature and have not been materially interrupted. As the situation
continues to evolve, we are closely monitoring the impact of the COVID-19
pandemic on all aspects of our business, including its effects on our customers,
subcontractors, suppliers, vendors and employees, in addition to how the
COVID-19 pandemic impacts our ability to provide services to our customers. We
believe the continuing impact of the COVID-19 pandemic on our operating results,
cash flows and financial condition is likely to be determined by factors which
are uncertain, unpredictable and outside of our control, including vaccination
rates and extent of infections caused by new variants. The situation surrounding
COVID-19 remains fluid, and if disruptions do arise, they could materially
adversely impact our business.

In addition, the ability of our employees and our suppliers' and customers'
employees to work may be significantly impacted by individuals contracting or
being exposed to COVID-19, or as a result of the control measures noted above.
Our customers may be directly impacted by business curtailments or weak market
conditions and may not be willing to continue investments in the services we
provide. Furthermore, the COVID-19 pandemic has caused delays, and increases the
risk of further delays, in our provision of construction services due to delays
in our ability to obtain permits from government agencies. For further
discussion of this matter, refer to Part I. Item 1A of our Annual Report on Form
10-K for fiscal 2021.

Customer Relationships and Contractual Arrangements


We have established relationships with many leading telecommunications
providers, including telephone companies, cable multiple system operators,
wireless carriers, telecommunications equipment and infrastructure providers, as
well as electric and gas utilities. Our customer base is highly concentrated,
with our top five customers during each of the six months ended July 31, 2021
and July 25, 2020 accounting for approximately 66.5% and 77.5%, respectively, of
our total contract revenues.

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The following reflects the percentage of total contract revenues from customers
who contributed at least 2.5% to our total contract revenues during the three
and six months ended July 31, 2021 or July 25, 2020:
                                                      For the Three Months Ended                                   For the Six Months Ended
                                            July 31, 2021                    July 25, 2020              July 31, 2021                    July 25, 2020
AT&T Inc.                                       22.5%                            16.3%                      22.0%                            17.6%
Comcast Corporation                             15.5%                            15.9%                      16.7%                            15.2%
Verizon Communications Inc.                     11.5%                            19.8%                      12.0%                            20.7%
Lumen Technologies(1)                           12.1%                            19.2%                      12.0%                            18.7%
Frontier Communications Corporation              4.0%                             1.5%                       3.8%                             1.5%
Windstream Corporation                           3.4%                             5.3%                       3.9%                             5.2%

(1) Formerly known as CenturyLink, Inc.


In addition, another customer contributed 3.2% and 1.0% to our total contract
revenues during the three months ended July 31, 2021 and July 25, 2020,
respectively. During the six months ended July 31, 2021 and July 25, 2020 this
customer contributed 3.3% and 0.8%, respectively.

We perform a majority of our services under master service agreements and other
contracts that contain customer-specified service requirements. These agreements
include discrete pricing for individual tasks. We generally possess multiple
agreements with each of our significant customers. To the extent that such
agreements specify exclusivity, there are often exceptions, including the
ability of the customer to issue work orders valued above a specified dollar
amount to other service providers, the performance of work with the customer's
own employees, and the use of other service providers when jointly placing
facilities with another utility. In many cases, a customer may terminate an
agreement for convenience. Historically, multi-year master service agreements
have been awarded primarily through a competitive bidding process; however, we
occasionally are able to negotiate extensions to these agreements. We provide
the remainder of our services pursuant to contracts for specific projects. These
contracts may be long-term (with terms greater than one year) or short-term
(with terms less than one year) and often include customary retainage provisions
under which the customer may withhold 5% to 10% of the invoiced amounts pending
project completion and closeout.

The following table summarizes our contract revenues from multi-year master
service agreements and other long-term contracts, as a percentage of contract
revenues:
                                            For the Three Months Ended                         For the Six Months Ended
                                      July 31, 2021            July 25, 2020            July 31, 2021            July 25, 2020
Multi-year master service
agreements                                     76.0  %                  72.2  %                  76.4  %                  71.1  %
Other long-term contracts                      13.8                     18.6                     14.4                     19.5
Total long-term contracts                      89.8  %                  90.8  %                  90.8  %                  90.6  %


Critical Accounting Policies and Estimates


The discussion and analysis of our financial condition and results of operations
is based on our condensed consolidated financial statements. These statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP"). In conformity with GAAP, the
preparation of financial statements requires management to make estimates and
assumptions that affect the amounts reported in these condensed consolidated
financial statements and accompanying notes. These estimates and assumptions
require the use of judgment as to the likelihood of various future outcomes and,
as a result, actual results could differ materially from these estimates. There
have been no material changes to our significant accounting policies and
critical accounting estimates described in our Annual Report on Form 10-K for
fiscal 2021.

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Understanding Our Results of Operations
The following information is presented so that the reader may better understand
certain factors impacting our results of operations and should be read in
conjunction with our condensed consolidated financial statements and the
accompanying notes thereto included elsewhere in this Quarterly Report on Form
10-Q and Critical Accounting Policies and Estimates within Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, as
well as Note 2, Significant Accounting Policies and Estimates, in the Notes to
the Consolidated Financial Statements included in our Annual Report on Form 10-K
for fiscal 2021.

The Company uses a 52/53 week fiscal year ending on the last Saturday in January. Fiscal 2021 consisted of 53 weeks of operations and fiscal year ending January 29, 2022 consists of 52 weeks of operations.


Contract Revenues. We perform the majority of our services under master service
agreements and other contracts that contain customer-specified service
requirements. These agreements include discrete pricing for individual tasks
including, for example, the placement of underground or aerial fiber,
directional boring, and fiber splicing, each based on a specific unit of
measure. A contractual agreement exists when each party involved approves and
commits to the agreement, the rights of the parties and payment terms are
identified, the agreement has commercial substance, and collectability of
consideration is probable. Our services are performed for the sole benefit of
our customers, whereby the assets being created or maintained are controlled by
the customer and the services we perform do not have alternative benefits for
us. Contract revenue is recognized over time as services are performed and
customers simultaneously receive and consume the benefits we provide. Output
measures such as units delivered are utilized to assess progress against
specific contractual performance obligations for the majority of our services.
The selection of the method to measure progress towards completion requires
judgment and is based on the nature of the services to be provided. For us, the
output method using units delivered best represents the measure of progress
against the performance obligations incorporated within the contractual
agreements. This method captures the amount of units delivered pursuant to
contracts and is used only when our performance does not produce significant
amounts of work in process prior to complete satisfaction of the performance
obligation. For a portion of contract items, units to be completed consist of
multiple tasks. For these items, the transaction price is allocated to each task
based on relative standalone measurements, such as selling prices for similar
tasks, or in the alternative, the cost to perform the tasks. Contract revenue is
recognized as these tasks are completed as a measurement of progress in the
satisfaction of the corresponding performance obligation, and represented
approximately 5% and approximately 15% of contract revenues during the six
months ended July 31, 2021 and July 25, 2020, respectively.

For certain contracts, representing less than 5% of contract revenues during
each of the six months ended July 31, 2021 and July 25, 2020, we use the
cost-to-cost measure of progress. These contracts are generally projects that
are completed over a period of less than twelve months. Under the cost-to-cost
measure of progress, the extent of progress toward completion is measured based
on the ratio of costs incurred to date to the total estimated costs. Contract
costs include direct labor, direct materials, and subcontractor costs, as well
as an allocation of indirect costs. Contract revenues are recorded as costs are
incurred. We accrue the entire amount of a contract loss, if any, at the time
the loss is determined to be probable and can be reasonably estimated.

Costs of Earned Revenues. Costs of earned revenues includes all direct costs of
providing services under our contracts, including costs for direct labor
provided by employees, services by independent subcontractors, operation of
capital equipment (excluding depreciation), direct materials, costs of insuring
our risks, and other direct costs. Under our insurance program, we retain the
risk of loss, up to certain limits, for matters related to automobile liability,
general liability (including damages associated with underground facility
locating services), workers' compensation, and employee group health.

General and Administrative Expenses. General and administrative expenses
primarily consist of employee compensation and related expenses, including
performance-based compensation and stock-based compensation, legal, consulting
and professional fees, information technology and development costs, provision
for or recoveries of bad debt expense, acquisition and integration costs of
businesses acquired, and other costs not directly related to the provision of
our services under customer contracts. Our provision for bad debt expense is
determined by evaluating specific accounts receivable and contract asset
balances based on historical collection trends, the age of outstanding
receivables, and the creditworthiness of our customers. We incur information
technology and development costs primarily to support and enhance our operating
efficiency. Our executive management team and the senior management of our
subsidiaries perform substantially all of our sales and marketing functions as
part of their management responsibilities.

Goodwill. Goodwill and other indefinite-lived intangible assets are assessed
annually for impairment, or more frequently, if events occur that would indicate
a potential reduction in the fair value of a reporting unit below its carrying
value. We perform our annual impairment review of goodwill at the reporting unit
level. Each of our operating segments with goodwill represents a
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reporting unit for the purpose of assessing impairment. If we determine the fair
value of the reporting unit's goodwill or other indefinite-lived intangible
assets is less than their carrying value as a result of an annual or interim
test, an impairment loss is recognized and reflected in operating income or loss
in the condensed consolidated statements of operations during the period
incurred.

Depreciation and Amortization. Our property and equipment primarily consist of
vehicles, equipment and machinery, and computer hardware and software. We
depreciate property and equipment on a straight-line basis over the estimated
useful lives of the assets. In addition, we have intangible assets, including
customer relationships and trade names, which we amortize over their estimated
useful lives. We recognize amortization of customer relationship intangibles on
an accelerated basis as a function of the expected economic benefit and
amortization of other finite-lived intangibles on a straight-line basis over
their estimated useful life.

Interest Expense, Net. Interest expense, net, consists of interest incurred on
outstanding variable rate and fixed rate debt and certain other obligations.
Interest expense also includes the non-cash amortization of our convertible
senior notes debt discount and amortization of debt issuance costs. See Note 13,
Debt, in the notes to the condensed consolidated financial statements for
information on the non-cash amortization of the debt discount and debt issuance
costs.

Other Income, Net. Other income, net, primarily consists of gains or losses from
sales of fixed assets. Other income, net also includes discount fee expense
associated with the collection of accounts receivable under a customer-sponsored
vendor payment program.

Seasonality and Fluctuations in Operating Results. Our contract revenues and
results of operations exhibit seasonality as we perform a significant portion of
our work outdoors. Consequently, adverse weather, which is more likely to occur
with greater frequency, severity, and duration during the winter, as well as
reduced daylight hours, impact our operations during the fiscal quarters ending
in January and April. In addition, a disproportionate number of holidays fall
within the fiscal quarter ending in January, which decreases the number of
available workdays. Because of these factors, we are most likely to experience
reduced revenue and profitability during the fiscal quarters ending in January
and April compared to the fiscal quarters ending in July and October.

We may also experience variations in our profitability driven by a number of
factors. These factors include variations and fluctuations in contract revenues,
job specific costs, insurance claims, the allowance for doubtful accounts,
accruals for contingencies, stock-based compensation expense for
performance-based stock awards, the fair value of reporting units for the
goodwill impairment analysis, the valuation of intangibles and other long-lived
assets, gains or losses on the sale of fixed assets from the timing and levels
of capital assets sold, the employer portion of payroll taxes as a result of
reaching statutory limits, and our effective tax rate.

Accordingly, operating results for any fiscal period are not necessarily indicative of results we may achieve for any subsequent fiscal period.

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Results of Operations

The following table sets forth our condensed consolidated statements of
operations for the periods indicated. Percentages represent the result of
dividing each item by contract revenues (totals may not add due to rounding)
(dollars in millions):
                                                     For the Three Months Ended                                                       For the Six Months Ended
                                        July 31, 2021                          July 25, 2020                            July 31, 2021                            July 25, 2020
Contract revenues              $      787.6            100.0  %       $      823.9            100.0  %       $    1,515.1               100.0  %       $     1,638.2            100.0  %
Expenses:
Costs of earned revenues,
excluding depreciation and
amortization                          651.4             82.7                 658.0             79.9               1,271.4                83.9                1,338.2             81.7
General and administrative             64.7              8.2                  67.4              8.2                 131.7                 8.7                  133.2              8.1
Depreciation and amortization          38.5              4.9                  44.1              5.4                  77.5                 5.1                   90.0              5.5
Goodwill impairment charge                -                -                     -                -                     -                   -                   53.3              3.3
Total                                 754.6             95.8                 769.4             93.4               1,480.7                97.7                1,614.7             98.6
Interest expense, net                  (9.3)            (1.2)                 (7.9)            (1.0)                (15.2)               (1.0)                 (20.3)            (1.2)
(Loss) gain on debt
extinguishment                            -                -                  (0.5)            (0.1)                 (0.1)                  -                   12.0              0.7
Other income, net                       1.0              0.1                   3.1              0.4                   3.7                 0.2                    4.2              0.3
Income before income taxes             24.7              3.1                  49.3              6.0                  22.8                 1.5                   19.5              1.2
Provision for income taxes              6.5              0.8                  12.2              1.5                   3.8                 0.2                   14.9              0.9
Net income                     $       18.2              2.3  %       $       37.0              4.5  %       $       19.1                 1.3  %       $         4.6              0.3  %



Contract Revenues. Contract revenues were $787.6 million during the three months
ended July 31, 2021 compared to $823.9 million during the three months ended
July 25, 2020. There were no acquired revenues or significant revenues from
storm restoration services in the current or prior year quarter.

Contract revenues decreased by $36.4 million during the three months ended July
31, 2021 compared to the three months ended July 25, 2020. Contract revenues
decreased by $72.2 million for a large telecommunications customer, primarily
related to fiber deployments and by $62.9 million for a large telecommunications
customer for services performed under existing contracts. In addition, contract
revenues decreased by $17.0 million for a telecommunications customer in
connection with rural services and by $9.6 million from a leading cable multiple
system operator for construction and maintenance services. Partially offsetting
these decreases, contract revenues increased by $42.9 million for a large
telecommunications customer improving its network and by $19.7 million for a
telecommunications customer for fiber deployments. All other customers had net
increases in contract revenues of $62.7 million on a combined basis during the
three months ended July 31, 2021 compared to the three months ended July 25,
2020.

The percentage of our contract revenues by customer type from telecommunications, underground facility locating, and electric and gas utilities and other customers, was 88.6%, 8.3%, and 3.1%, respectively, for the three months ended July 31, 2021 compared to 90.6%, 7.2%, and 2.2%, respectively, for the three months ended July 25, 2020.


Contract revenues were $1.515 billion during the six months ended July 31, 2021
compared to $1.638 billion during the six months ended July 25, 2020.
Additionally, we earned $3.9 million of contract revenues from storm restoration
services during the six months ended July 31, 2021, which was primarily earned
during the first quarter of fiscal 2022. There were no significant contract
revenues from storm restoration services during the six months ended July 25,
2020. There were no acquired revenues during either six month period.


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Excluding amounts generated from storm restoration services, contract revenues
decreased by $127.0 million during the six months ended July 31, 2021 compared
to the six months ended July 25, 2020. Contract revenues decreased by
$156.8 million for a large telecommunications customer, primarily related to
fiber deployments. In addition, contract revenues decreased by $126.2 million
for a large telecommunications customer primarily for decreases in services
performed under existing contracts and by $29.9 million for a telecommunications
customer in connection with rural services. Partially offsetting these
decreases, contract revenues increased by approximately $44.3 million for a
large telecommunications customer improving its network, by $32.3 million for a
telecommunications customer for fiber deployments and by $3.0 million from a
leading cable multiple system operator for construction and maintenance
services. All other customers had net increases in contract revenues of
$106.2 million on a combined basis during the six months ended July 31, 2021
compared to the six months ended July 25, 2020.

The percentage of our contract revenues by customer type from
telecommunications, underground facility locating, and electric and gas
utilities and other customers, was 88.3%, 8.6%, and 3.1%, respectively, for the
six months ended July 31, 2021 compared to 89.9%, 6.9%, and 3.2%, respectively,
for the six months ended July 25, 2020.

Costs of Earned Revenues. Costs of earned revenues decreased to $651.4 million,
or 82.7% of contract revenues, during the three months ended July 31, 2021
compared to $658.0 million, or 79.9% of contract revenues, during the three
months ended July 25, 2020. The primary components of the decrease were a
$12.5 million decrease in direct materials expense, and $7.7 million decrease in
other direct costs, including other operating and insurance claims expenses.
Partially offsetting these decreases were a $9.3 million aggregate increase in
direct labor and subcontractor costs, and a $4.4 million increase in equipment
and fuel costs combined.

Costs of earned revenues as a percentage of contract revenues increased 2.8%
during the three months ended July 31, 2021 compared to the three months ended
July 25, 2020. As a percentage of contract revenues, labor and subcontracted
labor costs increased 4.0% primarily due to the mix of work performed. Direct
materials decreased 1.2%, primarily as a result of our mix of work in which we
provide materials for our customers. Equipment and fuel costs combined increased
0.7% as a percentage of contract revenues primarily resulting from an increase
in fuel prices. Other direct costs decreased 0.7% as a percentage of contract
revenues during the three months ended July 31, 2021.

Costs of earned revenues decreased to $1.271 billion, or 83.9% of contract
revenues, during the six months ended July 31, 2021 compared to $1.338 billion,
or 81.7% of contract revenues, during the six months ended July 25, 2020. The
primary components of the decrease were a $38.1 million decrease direct
materials expense, a $16.9 million aggregate decrease in direct labor and
subcontractor costs, and a $14.1 million decrease in other direct costs,
including other operating and insurance claim expenses. Partially offsetting
these decreases was a $2.3 million increase in equipment and fuel costs
combined.

Costs of earned revenues as a percentage of contract revenues increased 2.2%
during the six months ended July 31, 2021 compared to the six months ended July
25, 2020. As a percentage of contract revenues, labor and subcontracted labor
costs increased 3.8% primarily due to the mix of work performed. Direct material
decreased 1.8%, primarily as a result of our mix of work in which we provide
materials for our customer. Equipment and fuel costs combined increased 0.5% as
a percentage of contract revenues primarily resulting from an increase in fuel
prices. Other direct costs decreased 0.3% as a percentage of contract revenues
during the six months ended July 31, 2021.

General and Administrative Expenses. General and administrative expenses
decreased to $64.7 million, or 8.2% of contract revenues, during the three
months ended July 31, 2021 compared to $67.4 million, or 8.2% of contract
revenues, during the three months ended July 25, 2020. The decrease in total
general and administrative expenses during the three months ended July 31, 2021
primarily resulted from a decrease in stock-based and performance compensation,
partially offset by an increase in administrative, payroll and other costs.

General and administrative expenses decreased to $131.7 million, or 8.7% of
contract revenues, during the six months ended July 31, 2021 compared to $133.2,
or 8.1% of contract revenues, during the six months ended July 25, 2020.
The decrease in total general and administrative expenses during the six months
ended July 31, 2021 is mainly attributable to a decrease in stock-based and
performance compensation, partially offset by an increase in administrative,
payroll and other costs, including bad debt expense.

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Depreciation and Amortization. Depreciation expense was $33.8 million, or 4.3%
of contract revenues, during the three months ended July 31, 2021 compared to
$39.0 million, or 4.7% of contract revenues, during the three months ended July
25, 2020. The decrease in depreciation expense during the three months ended
July 31, 2021 is primarily due to certain assets becoming fully depreciated or
sold and reduced capital expenditures during fiscal 2021 compared to prior
periods. Depreciation expense was $68.2, or 4.5% of contract revenues, during
the six months ended July 31, 2021 compared to $79.6 million, or 4.9% of
contract revenues, during the six months ended July 25, 2020. The decrease in
depreciation expense during the six months ended July 31, 2021 is primarily the
result of reduced capital expenditures.

Amortization expense was $4.7 million and $5.2 million during the three months
ended July 31, 2021 and July 25, 2020, respectively, and $9.4 and $10.4 million
during the six months ended July 31, 2021 and July 25, 2020.

Goodwill Impairment Charge. During the first quarter of fiscal 2021, we recognized a goodwill impairment charge of $53.3 million on our Broadband reporting unit as the result of an interim impairment test.


Interest Expense, Net. Interest expense, net was $9.3 million and $7.9 million
during the three months ended July 31, 2021 and July 25, 2020, respectively.
Interest expense includes $0.7 million and $1.7 million for the non-cash
amortization of the debt discount associated with 0.75% convertible senior notes
due September 2021 (the "2021 Convertible Notes") during the three months ended
July 31, 2021 and July 25, 2020, respectively. Excluding this amortization,
interest expense, net increased to $8.7 million during the three months ended
July 31, 2021 from $6.1 million during the three months ended July 25, 2020 as a
result of higher interest rates on funded debt balances during the current
period.

Interest expense, net was $15.2 million and $20.3 million during the six months
ended July 31, 2021 and July 25, 2020, respectively. Interest expense includes
$1.3 million and $6.1 million for the non-cash amortization of the debt discount
associated with 0.75% convertible senior notes due September 2021 (the "2021
Convertible Notes") during the six months ended July 31, 2021 and July 25, 2020,
respectively. Excluding this amortization, interest expense, net decreased to
$13.9 million during the six months ended July 31, 2021 from $14.2 million
during the six months ended July 25, 2020 as a result of lower outstanding
borrowings.

Other Income, Net. Other income, net was $1.0 million and $3.1 million during
the three months ended July 31, 2021 and July 25, 2020, respectively, and $3.7
and $4.2 million during the six months ended July 31, 2021 and July 25, 2020,
respectively. Gain on sale of fixed assets was $1.0 million and $3.4 million
during the three months ended July 31, 2021 and July 25, 2020, respectively, and
$3.8 million and $5.2 million during the six months ended July 31, 2021 and July
25, 2020, respectively. The change in other income, net is primarily a function
of the number of assets sold and prices obtained for those assets during each
respective period. Other income, net also reflects $0.4 million and $0.5 million
of expense during the three months ended July 31, 2021 and July 25, 2020
respectively, and $0.9 million and $1.3 million during the six months ended July
31, 2021 and July 25, 2020 respectively, associated with the non-recourse sale
of accounts receivable under a customer-sponsored vendor payment program.

Income Taxes. The following table presents our income tax provision and effective income tax rate for the three and six months ended July 31, 2021 and July 25, 2020 (dollars in millions):

                                          For the Three Months Ended                    For the Six Months Ended
                                     July 31, 2021          July 25, 2020         July 31, 2021          July 25, 2020
Income tax provision                $        6.5           $       12.2          $        3.8           $       14.9
Effective income tax rate                   26.3   %               24.9  %               16.5   %               76.4  %



Our effective income tax rate was 26.3% and 24.9% for the three months ended
July 31, 2021 and July 25, 2020, respectively, and 16.5% and 76.4% for the six
months ended July 31, 2021 and July 25, 2020, respectively. The effective tax
rate differs from the statutory rate primarily due to the impact of the vesting
and exercise of share-based awards during the six months ended July 31, 2021.
Other fluctuations in our effective income tax rate from the statutory rate each
period are mainly attributable to the difference in income tax rates from state
to state where work was performed, changes in unrecognized tax benefits, tax law
changes, tax credits recognized, and variances in non-deductible and non-taxable
items. Additionally, during the six months ended July 25, 2020, our effective
tax rate was impacted by the $53.3 million goodwill impairment charge which was
mostly non-deductible for income tax purposes, and the benefit from a $2.6
million tax loss carryback technical correction under the CARES Act.

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During the second quarter of fiscal 2022, we were notified by the Internal
Revenue Service that our federal income tax return for fiscal 2020 was selected
for examination. We believe our provision for income taxes is adequate; however,
any assessment may affect our results of operations and cash flows.
Net Income. Net income was $18.2 million for the three months ended July 31,
2021 compared to $37.0 million for the three months ended July 25, 2020. Net
income was $19.1 million for the six months ended July 31, 2021 compared to $4.6
million for the six months ended July 25, 2020.

Non-GAAP Adjusted EBITDA. Adjusted EBITDA is a Non-GAAP measure, as defined by
Regulation G of the SEC. We define Adjusted EBITDA as net income before
interest, taxes, depreciation and amortization, gain on sale of fixed assets,
stock-based compensation expense, and certain non-recurring items. Management
believes Adjusted EBITDA is a helpful measure for comparing the Company's
operating performance with prior periods as well as with the performance of
other companies with different capital structures or tax rates. The following
table provides a reconciliation of net income to Non-GAAP Adjusted EBITDA
(dollars in thousands):
                                           For the Three Months Ended                     For the Six Months Ended
                                      July 31, 2021          July 25, 2020          July 31, 2021          July 25, 2020
Net income                           $     18,165           $      37,024          $     19,063           $       4,606
Interest expense, net                       9,334                   7,853                15,211                  20,310
Provision for income taxes                  6,496                  12,244                 3,772                  14,921
Depreciation and amortization              38,462                  44,129                77,542                  90,001
Earnings Before Interest, Taxes,
Depreciation & Amortization
("EBITDA")                                 72,457                 101,250               115,588                 129,838
Gain on sale of fixed assets                 (992)                 (3,418)               (3,844)                 (5,206)
Stock-based compensation expense            2,309                   4,373                 6,049                   6,694
Loss (gain) on debt extinguishment              -                     458                    62                 (12,046)
Goodwill impairment charge                      -                       -                     -                  53,264

Non-GAAP Adjusted EBITDA             $     73,774           $     102,663          $    117,855           $     172,544
Non-GAAP Adjusted EBITDA % of
contract revenues                             9.4   %                12.5  %                7.8   %                10.5  %


Liquidity and Capital Resources


We are subject to concentrations of credit risk relating primarily to our cash
and equivalents, accounts receivable, and contract assets. Cash and equivalents
primarily include balances on deposit with banks and totaled $261.9 million as
of July 31, 2021 compared to $11.8 million as of January 30, 2021. We maintain
our cash and equivalents at financial institutions we believe to be of high
credit quality. To date, we have not experienced any loss or lack of access to
cash in our operating accounts.

In connection with the issuance of the 2021 Convertible Notes, we entered into
privately-negotiated convertible note hedge transactions with certain
counterparties. We are subject to counterparty risk with respect to these
convertible note hedge transactions. The hedge counterparties are financial
institutions, and we are subject to the risk that they might default under the
convertible note hedge transactions. To mitigate that risk, we contracted with
institutional counterparties who met specific requirements under our risk
assessment process. Additionally, the transactions are subject to a netting
arrangement, which also reduces credit risk.

Sources of Cash. Our sources of cash are operating activities, long-term debt,
equity offerings, bank borrowings, proceeds from the sale of idle and surplus
equipment and real property, and stock option proceeds. 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
services that we provide. In particular, working capital needs may increase when
we have growth in operations and where project costs, primarily associated with
labor, subcontractors, equipment, and materials, are required to be paid before
the related customer balances owed to us are invoiced and collected. Our working
capital (total current assets less total current liabilities, excluding the
current portion of debt) was $1,096.8 million as of July 31, 2021 compared to
$801.9 million as of January 30, 2021.

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  Table of Contents
Capital resources are used primarily to purchase equipment and maintain
sufficient levels of working capital to support our contractual commitments to
customers. We periodically borrow from and repay our revolving credit facility
depending on our cash requirements. We currently intend to retain any earnings
for use in the business and other capital allocation strategies which may
include share repurchases, investment in acquisitions, and extinguishment of
debt. Consequently, we do not anticipate paying any cash dividends on our common
stock in the foreseeable future.

Our level of capital expenditures can vary depending on the customer demand for
our services, the replacement cycle we select for our equipment, and overall
growth. We intend to fund these expenditures primarily from operating cash
flows, availability under our credit agreement and cash on hand. We expect
capital expenditures, net of disposals, to range from $105.0 million to $125.0
million during fiscal 2022 to support growth opportunities and replacement of
certain fleet assets.

Sufficiency of Capital Resources. We believe that our capital resources,
including existing cash balances and amounts available under our Credit
Agreement, are sufficient to meet our financial obligations. These obligations
include interest and principal payments required on the 2021 Convertible Notes,
2029 Notes, outstanding term loan, and revolver borrowings under our Credit
Agreement, working capital requirements, and the normal replacement of equipment
at our expected level of operations for at least the next 12 months. Our capital
requirements may increase to the extent we seek to grow by acquisitions that
involve consideration other than our stock, experience difficulty or delays in
collecting amounts owed to us by our customers, increase our working capital in
connection with new or existing customer programs, or to the extent we
repurchase our common stock, repay credit agreement borrowings, or redeem or
convert the 2021 Convertible Notes. Changes in financial markets or other
components of the economy could adversely impact our ability to access the
capital markets, in which case we would expect to rely on a combination of
available cash and our credit agreement to provide short-term funding.
Management regularly monitors the financial markets and assesses general
economic conditions for possible impact on our financial position. We believe
our cash investment policies are prudent and expect that any volatility in the
capital markets would not have a material impact on our cash investments.

Net Cash Flows. The following table presents our net cash flows for the six months ended July 31, 2021 and July 25, 2020 (dollars in millions):

                                                      For the Six Months Ended
                                                  July 31, 2021          July 25, 2020
Net cash flows:
Provided by operating activities             $       58.8               $   

167.5

Used in investing activities                 $      (64.1)              $   

(20.8)

Provided by (used in) financing activities   $      255.5               $   

(178.9)




Cash Provided by Operating Activities. Depreciation and amortization, non-cash
lease expense, stock-based compensation, amortization of debt discount and debt
issuance costs, deferred income taxes, gain on sale of fixed assets, goodwill
impairment charge, gain and loss on debt extinguishment and provision for bad
debt were the primary non-cash items in cash flows from operating activities
during the current and prior periods.

During the six months ended July 31, 2021, net cash generated from operating
activities was $58.8 million. Changes in working capital (excluding cash) and
changes in other long-term assets and liabilities used $68.1 million of
operating cash flow during the six months ended July 31, 2021. Changes that used
operating cash flow during the six months ended July 31, 2021 included a
decrease in accrued liabilities of $10.7 million and an increase in accounts
receivable, income tax receivable and other current assets and inventories of
$73.9 million, $14.2 million and $13.1 million, respectively, each primarily as
a result of the timing of payments. Working capital changes that provided
operating cash flow during the six months ended July 31, 2021 included a
decrease in contract assets, net of $32.8 million and other assets of
$2.2 million and an increase in accounts payable of $8.7 million.

Days sales outstanding ("DSO") is calculated based on the ending balance of
total current accounts receivable (including unbilled accounts receivable), net
of the allowance for doubtful accounts, and current contract assets, net of
contract liabilities, divided by the average daily revenue for the most recently
completed quarter. Long-term contract assets are excluded from the calculation
of DSO, as these amounts represent payments made to customers pursuant to
long-term agreements and are recognized as a reduction of contract revenues over
the period for which the related services are provided to the customers.
Including these balances in DSO is not meaningful to the average time to collect
accounts receivable and current contract asset balances. Our DSO was 125 days as
of July 31, 2021 compared to 126 as of July 25, 2020. The decrease in our DSO
was primarily a result of a decrease in outstanding balances for a large
customer program. This program consists of multiple tasks which will be billed
as the tasks are completed.
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See Note 5, Accounts Receivable, Contract Assets, and Contract Liabilities, for
further information on our customer credit concentration as of July 31, 2021 and
January 30, 2021 and Note 18, Customer Concentration and Revenue Information,
for further information on our significant customers. We believe that none of
our significant customers were experiencing financial difficulties that would
materially impact the collectability of our total accounts receivable and
contract assets, net as of July 31, 2021 or January 30, 2021.

During the six months ended July 25, 2020, net cash generated from operating
activities was $167.5 million. Changes in working capital (excluding cash) and
changes in other long-term assets and liabilities provided $22.4 million of
operating cash flow during the six months ended July 25, 2020. Working capital
changes that provided operating cash flow during the six months ended July 25,
2020 included an aggregate increase in accounts payable and accrued liabilities
of $84.9 million and a net decrease in income tax receivable of $15.1 million,
other assets of $3.7 million, and other current assets and inventories of
$2.4 million, each primarily as a result of the timing of payments. Working
capital that used operating cash flow during the six months ended July 25, 2020
included increases in accounts receivable of $81.3 million and contract assets,
net of $2.4 million.

Cash Used in Investing Activities. Net cash used in investing activities was
$64.1 million during the six months ended July 31, 2021 compared to $20.8
million during the six months ended July 25, 2020. During the six months ended
July 31, 2021 and July 25, 2020, capital expenditures were $68.4 million and
$26.7 million, respectively. Capital expenditures increased during the six
months ended July 31, 2021, primarily as a result of spending for new work
opportunities and the replacement of certain fleet assets. These expenditures
were offset in part by proceeds from the sale of assets of $4.2 million and $6.0
million during the six months ended July 31, 2021 and July 25, 2020,
respectively.
Cash Provided by (Used in) Financing Activities. Net cash provided by financing
activities was $255.5 million during the six months ended July 31, 2021. The
primary source of cash provided by financing activities during the six months
ended July 31, 2021 was the $500.0 million principal amount of 4.50% senior
notes due 2029 (the "2029 Notes") issued in a private placement in April 2021.
During the six months ended July 31, 2021 we paid approximately $11.6 million in
issuance costs and third party fees and expenses related to our financing
transactions. We used $105.0 million of the proceeds of the 2029 Notes offering
to repay outstanding borrowings under the revolving portion of our Credit
Agreement and approximately $71.9 million to repay term loan borrowings under
our Credit Agreement. We repurchased 631,638 shares of our common stock in open
market transactions, at an average price of $79.16 per share, for $50.0 million.
The exercise of stock options provided $0.4 million during the six months ended
July 31, 2021 and we paid $6.4 million to tax authorities in order to meet the
payroll tax withholding obligations on restricted share units that vested during
the six months ended July 31, 2021.

Net cash used in financing activities was $178.9 million during the six months
ended July 25, 2020. During the six months ended July 25, 2020, borrowings under
our Credit Agreement, net of repayments, were $188.8 million. We also purchased
$401.7 million of our 2021 Convertible Notes for $371.4 million, including
interest and fees, resulting in a $30.8 million redemption discount on
convertible debt. In connection with the purchase, we unwound convertible note
hedge transactions and warrants proportionally to the number of 2021 Convertible
Notes. We received $7.2 million for the settlement of the convertible note
hedges and paid $7.2 million for the warrants. The exercise of stock options
provided $3.6 million during the six months ended July 25, 2020. Partially
offsetting this, we paid $0.3 million to tax authorities in order to meet the
payroll tax withholding obligations on restricted share units that vested during
the six months ended July 25, 2020. The 2021 Convertible Notes mature on
September 15, 2021.

Compliance with Credit Agreement. On April 1, 2021, the Company and certain of
its subsidiaries amended its credit agreement, dated as of October 19, 2018,
with the various lenders party thereto and Bank of America, N.A., as
administrative agent (the "Credit Agreement") to among other things, decrease
the maximum revolver commitment to $650.0 million from $750.0 million and
decrease the term loan facility to $350.0 million from $416.3 million. The
Credit Agreement includes a $200.0 million sublimit for the issuance of letters
of credit and a $50.0 million sublimit for swingline loans. The maturity date of
the Credit Agreement was also extended to April 1, 2026.

Subject to certain conditions, the Credit Agreement provides us with the
ability to enter into one or more incremental facilities either by increasing
the revolving commitments under the Credit Agreement and/or by establishing one
or more additional term loans, up to the sum of (i) $350.0 million and (ii) an
aggregate amount such that, after giving effect to such incremental facilities
on a pro forma basis (assuming that the amount of the incremental commitments
are fully drawn and funded), the consolidated senior secured net leverage ratio
does not exceed 2.25 to 1.00. The consolidated senior secured net leverage ratio
is the ratio of our consolidated senior secured indebtedness reduced by
unrestricted cash and equivalents in excess of $25.0 million to our trailing
twelve-month consolidated earnings before interest, taxes, depreciation, and
amortization, as defined by the Credit Agreement ("EBITDA"). Borrowings under
the Credit Agreement are guaranteed by substantially all of our domestic
subsidiaries and secured by 100% the equity interests of our direct and indirect
domestic subsidiaries and 65%
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Table of Contents of the voting equity interests and 100% of the non-voting interests of our first-tier foreign subsidiaries (subject to customary exceptions).


Under our Credit Agreement, borrowings bear interest at the rates described
below based upon our consolidated net leverage ratio, which is the ratio of our
consolidated total funded debt reduced by unrestricted cash and equivalents in
excess of $25.0 million to our trailing twelve-month consolidated EBITDA, as
defined by our Credit Agreement. In addition, we incur certain fees for unused
balances and letters of credit at the rates described below, also based upon our
consolidated net leverage ratio.
Borrowings - Eurodollar Rate Loans     1.25% - 2.00% plus LIBOR(1)
Borrowings - Base Rate Loans           0.25% - 1.00% plus Base rate(2)
Unused Revolver Commitment             0.20% - 0.40%
Standby Letters of Credit              1.25% - 2.00%
Commercial Letters of Credit           0.625% - 1.000%



(1) To address the transition in financial markets away from LIBOR by the end of
2021, the Credit Agreement includes provisions related to the replacement of
LIBOR with a LIBOR Successor Rate (as defined in the Credit Agreement), which
may be a rate based on the secured overnight financing rate published by the
Federal Reserve Bank of New York.
(2) Base rate is described in the Credit Agreement as the highest of (i) the
Federal Funds Rate plus 0.50%, (ii) the administrative agent's prime rate, and
(iii) the Eurodollar rate plus 1.00% and if such rate is less than zero, such
rate shall be deemed zero.

Standby letters of credit of approximately $46.3 million and $52.2 million, issued as part of our insurance program, were outstanding under the Credit Agreement as of July 31, 2021 and January 30, 2021, respectively.

The weighted average interest rates and fees for balances under our Credit Agreement as of July 31, 2021 and January 30, 2021 were as follows:

                                           Weighted Average Rate End of 

Period

                                     July 31, 2021                  January 30, 2021
Borrowings - Term loan facility          1.72%                           

1.63%

Borrowings - Revolving facility           -%                             2.14%
Standby Letters of Credit                1.75%                           1.50%
Unused Revolver Commitment               0.35%                           0.25%



The Credit Agreement contains a financial covenant that requires us to maintain
a consolidated net leverage ratio of not greater than 3.50 to 1.00, as measured
at the end of each fiscal quarter, and provides for certain increases to this
ratio in connection with permitted acquisitions. The agreement also contains a
financial covenant that requires us to maintain a consolidated interest coverage
ratio, which is the ratio of our trailing twelve-month consolidated EBITDA to
our consolidated interest expense, each as defined by the Credit Agreement, of
not less than 3.00 to 1.00, as measured at the end of each fiscal quarter. At
July 31, 2021 and January 30, 2021, we were in compliance with the financial
covenants of our Credit Agreement and had borrowing availability under the
revolving facility of $273.9 million and $558.7 million, respectively, as
determined by the most restrictive covenant. For calculation purposes,
applicable cash on hand is netted against the funded debt amount as permitted in
the Credit Agreement.

The indenture governing the 2029 Notes contains certain covenants that limit,
among other things, our ability and the ability of certain of our subsidiaries
to (i) incur additional debt and issue certain preferred stock, (ii) pay certain
dividends on, repurchase, or make distributions in respect of, our and our
Subsidiaries'capital stock or make other payments restricted by the indenture,
(iii) enter into agreements that place limitations on distributions made from
certain of our subsidiaries, (iv) guarantee certain debt, (v) make certain
investments, (vi) sell or exchange certain assets, (vii) enter into transactions
with affiliates, (viii) create certain liens, and (ix) consolidate, merge or
transfer all or substantially all of our or our Subsidiaries'assets. These
covenants are subject to a number of exceptions, limitations and qualifications
as set forth in the indenture governing the 2029 Notes.
                                       40

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Table of Contents Contractual Obligations. The following table sets forth our outstanding contractual obligations as of July 31, 2021 (dollars in thousands):

                                                Less than 1                                                    Greater than 5
                                                   Year              Years 1 - 3           Years 3 - 5             Years                Total
2029 Notes                                     $        -          $       

- $ - $ 500,000 $ 500,000 2021 Convertible Notes

                             58,264                     -                     -                    -               58,264
Credit agreement - revolving facility                   -                     -                     -                    -                    -
Credit agreement - term loan facility               8,750                35,000               306,250                    -              350,000
Fixed interest payments on long-term debt(1)       22,718                45,000                45,000               67,500              180,218
Obligations under long-term operating
leases(2)                                          28,733                32,877                 9,451                1,636               72,697
Obligations under short-term operating
leases(3)                                           1,544                     -                     -                    -                1,544
Employment agreements                              16,115                 5,531                   921                    -               22,567
Deferral of tax payments(4)                        18,647                18,716                     -                    -               37,363
Purchase and other contractual obligations(5)      68,772                 5,364                     -                    -               74,136
Total                                          $  223,543          $    142,488          $    361,622          $   569,136          $ 1,296,789



(1) Includes interest payments on our $58.3 million principal amount of 2021
Convertible Notes outstanding, and our $500.0 million principal amount of 2029
Notes outstanding, and excludes interest payments on our variable rate debt.
Variable rate debt as of July 31, 2021 consisted of $350.0 million outstanding
under our term loan facility.

(2)Amounts represent undiscounted lease obligations under long-term operating leases.

(3)Amounts represent lease obligations under short-term operating leases that are not recorded on our condensed consolidated balance sheet as of July 31, 2021.


(4) Amounts represent deferral of payroll tax payments, 50% of which are due by
December 31, 2021 and the remainder of which are due by December 31, 2022, as
permitted by the CARES Act.

(5) We have committed capital for the expansion of our vehicle fleet in order to
accommodate manufacturer lead times. As of July 31, 2021, purchase and other
contractual obligations includes approximately $64.3 million for issued orders
with delivery dates scheduled to occur over the next 12 months.

We have excluded contractual obligations under the multi-employer defined pension plans that cover certain of our employees, as these obligations are determined based on our future union employee payrolls, which cannot be reliably determined as of July 31, 2021.


Our condensed consolidated balance sheet as of July 31, 2021 includes a
long-term liability of approximately $60.7 million for accrued insurance claims.
This liability has been excluded from the table above as the timing of payments
is uncertain.

The liability for unrecognized tax benefits for uncertain tax positions was
approximately $6.3 million and $5.9 million as of July 31, 2021 and January 30,
2021, respectively, and is included in other liabilities in the condensed
consolidated balance sheets. This amount has been excluded from the contractual
obligations table because we are unable to reasonably estimate the timing of the
resolution of the underlying tax positions with the relevant tax authorities.

Performance and Payment Bonds and Guarantees. We have obligations under
performance and other surety contract bonds related to certain of our customer
contracts. Performance bonds generally provide a customer with the right to
obtain payment and/or performance from the issuer of the bond if we fail to
perform our contractual obligations. As of July 31, 2021 and January 30, 2021 we
had $232.5 million and $208.7 million of outstanding performance and other
surety contract bonds, respectively. The estimated cost to complete projects
secured by our outstanding performance and other surety contract bonds was
approximately $126.0 million as of July 31, 2021. In addition to performance and
other surety contract bonds, as part of our insurance program we also provide
surety bonds that collateralize our obligations to our insurance carriers. As of
July 31, 2021 and January 30, 2021, we had $20.3 million and $20.9 million,
respectively, of outstanding surety bonds related to our insurance obligations.
Additionally, we periodically guarantee certain obligations of our subsidiaries,
including obligations in connection with obtaining state contractor licenses and
leasing real property and equipment.

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  Table of Contents
Letters of Credit. We have standby letters of credit issued under our Credit
Agreement as part of our insurance program. These letters of credit
collateralize obligations to our insurance carriers in connection with the
settlement of potential claims. In connection with these collateral obligations,
we had $46.3 million and $52.2 million outstanding standby letters of credit
issued under our Credit Agreement as of July 31, 2021 and January 30, 2021,
respectively.

Backlog. Our backlog is an estimate of the uncompleted portion of services to be
performed under contractual agreements with our customers and totaled $5.895
billion and $6.810 billion at July 31, 2021 and January 30, 2021, respectively.
We expect to complete 45.0% of the July 31, 2021 total backlog during the next
twelve months. Our backlog represents an estimate of services to be performed
pursuant to master service agreements and other contractual agreements over the
terms of those contracts. These estimates are based on contract terms and
evaluations regarding the timing of the services to be provided. In the case of
master service agreements, backlog is estimated based on the work performed in
the preceding twelve month period, when available. When estimating backlog for
newly initiated master service agreements and other long and short-term
contracts, we also consider the anticipated scope of the contract and
information received from the customer during the procurement process. A
significant majority of our backlog comprises services under master service
agreements and other long-term contracts.

In many instances, our customers are not contractually committed to procure
specific volumes of services under a contract. Contract revenue estimates
reflected in our backlog can be subject to change due to a number of factors,
including contract cancellations or changes in the amount of work we expect to
be performed at the time the estimate of backlog is developed. In addition,
contract revenues reflected in our backlog may be realized in different periods
from those previously reported due to these factors as well as project
accelerations or delays due to various reasons, including, but not limited to,
changes in customer spending priorities, scheduling changes, commercial issues
such as permitting, engineering revisions, job site conditions, adverse weather,
and the potential adverse effects of the COVID-19 pandemic. The amount or timing
of our backlog can also be impacted by the merger or acquisition activity of our
customers. Many of our contracts may be cancelled by our customers, or work
previously awarded to us pursuant to these contracts may be cancelled,
regardless of whether or not we are in default. The amount of backlog related to
uncompleted projects in which a provision for estimated losses was recorded is
not material.

Backlog is not a measure defined by United States generally accepted accounting
principles; however, it is a common measurement used in our industry. Our
methodology for determining backlog may not be comparable to the methodologies
used by others.

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