MasTec (MTZ) 10-Q2021 Q3 Quarterly report

MASTEC, INC.

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

MasTec, Inc. (collectively with its subsidiaries, “MasTec” or the “Company”) is a leading infrastructure construction company operating mainly throughout North America across a range of industries. The Company’s primary activities include the engineering, building, installation, maintenance and upgrade of communications, energy, utility and other infrastructure, such as: wireless, wireline/fiber and customer fulfillment activities; power generation, primarily from clean energy and renewable sources; pipeline infrastructure; electrical utility transmission and distribution; heavy civil; and industrial infrastructure. MasTec’s customers are primarily in these industries. MasTec reports its results under 5 reportable segments: (1) Communications; (2) Clean Energy and Infrastructure; (3) Oil and Gas; (4) Electrical Transmission; and (5) Other. See Note 13 - Segments and Related Information.

The accompanying consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in the annual audited consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying consolidated balance sheet as of December 31, 2020 is derived from the Company’s audited financial statements as of that date. Because certain information and footnote disclosures have been condensed or omitted, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2020 contained in the Company’s 2020 Annual Report on Form 10-K (the “2020 Form 10-K”). In management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included. When necessary, certain prior year amounts have been reclassified to conform to the current period presentation. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The Company believes that the disclosures made in these consolidated financial statements are adequate to make the information not misleading.

The accompanying consolidated financial statements include MasTec, Inc. and its subsidiaries and include the accounts of all majority owned subsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. Other parties’ interests in entities that MasTec consolidates are reported as non-controlling interests within equity, except for mandatorily redeemable non-controlling interests, which are recorded within other liabilities. Net income or loss attributable to non-controlling interests is reported as a separate line item below net income or loss. The Company applies the equity method of accounting for its investments in entities for which it does not have a controlling financial interest, but over which it has the ability to exert significant influence. See Note 4 - Fair Value of Financial Instruments. For equity investees in which the Company has an undivided interest in the assets, liabilities and profits or losses of an unincorporated entity, but does not exercise control over the entity, the Company consolidates its proportional interest in the accounts of the entity.

The assets and liabilities of foreign subsidiaries with a functional currency other than the U.S. dollar are translated into U.S. dollars at period-end exchange rates, with resulting translation gains or losses included within other comprehensive income or loss. Revenue and expenses are translated into U.S. dollars at average rates of exchange during the applicable period. Substantially all of the Company’s foreign operations use their local currency as their functional currency. For foreign operations for which the local currency is not the functional currency, the operation’s non-monetary assets are remeasured into U.S. dollars at historical exchange rates. All other accounts are remeasured at current exchange rates. Gains or losses from remeasurement are included in other income or expense, net. Currency gains or losses resulting from transactions executed in currencies other than the functional currency are included in other income or expense, net.

In these consolidated financial statements, “$” means U.S. dollars unless otherwise noted.

Key estimates include: the recognition of revenue and project profit or loss, which the Company defines as project revenue, less project costs of revenue, including project-related depreciation, in particular, on construction contracts accounted for under the cost-to-cost method, for which the recorded amounts require estimates of costs to complete and the amount and probability of variable consideration included in the contract transaction price; fair value estimates, including those related to acquisitions, valuations of goodwill, intangible and other assets, acquisition-related contingent consideration and other liabilities, equity investments and other long-lived assets; allowances for credit losses; asset lives used in

The novel coronavirus (“COVID-19”) pandemic disrupted business activities and significantly affected global economic conditions at the beginning of 2020 and continuing into 2021 as federal, state and local governments imposed restrictions and mitigation measures to contain COVID-19 or slow its spread, including a recently proposed vaccine mandate, resulting in workforce, supply chain and production disruptions and creating significant uncertainties in the U.S. and global economies. While the adverse effects of these restrictions and mitigation measures partially subsided in the United States beginning in the second half of 2020, the COVID-19 pandemic varies by region and the possibility of future restrictions remains, particularly as new variants of COVID-19 arise.

As a provider of essential services, all of the Company’s business segments have continued to operate throughout the pandemic, and, where safe and possible, the Company was generally directed by its customers to maintain normal work schedules. The Company’s business model has, thus far, proven resilient, and management continues to adapt to the changing operational and economic environment that has resulted from the COVID-19 pandemic. Management’s top priority has been to take appropriate actions to protect the health and safety of its employees, customers and business partners. The Company has adjusted its standard operating procedures within its business operations to ensure employee and customer safety and is continually monitoring evolving health guidelines and responding to changes as appropriate. The COVID-19 pandemic has had a negative impact on the Company’s operations since 2020 and may continue to affect its future business activities. These impacts include lost productivity from governmental permitting approval delays, reduced crew productivity due to social distancing and other mitigation measures, the health and availability of work crews or other key personnel, including subcontractors, supply chain disruptions and/or delayed project start dates, project shutdowns or cancellations that may be mandated or requested by governmental authorities or others, all of which could result in lower revenue or higher operating costs and/or create lower levels of overhead cost absorption.

Several relief measures have been enacted in response to the effects of the COVID-19 pandemic, including the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and the Coronavirus Response and Relief Supplemental Appropriations Act (the “Coronavirus Relief Act”).  The CARES Act permitted deferral and/or reduction of certain federal and payroll tax amounts, certain of which the Company pursued, including the deferral of approximately $59 million of payroll taxes, half of which are due by December 31, 2021, with the remainder due by December 31, 2022. The Company will continue to monitor and evaluate the potential effects, usefulness of, and qualification for, additional COVID-19 relief measures on the Company’s financial position, results of operations and cash flows.

Notwithstanding moderation of the COVID-19 pandemic and easing of governmental and other restrictions, the Company may continue to experience negative effects on its business and operations from possible longer-term changes in consumer and customer behavior, and/or from continuing negative economic conditions or from the effects of the recently proposed vaccine mandate. The Company believes that it has taken appropriate steps to mitigate the impacts of the COVID-19 pandemic on its business; however, the potential effects of the COVID-19 pandemic are uncertain, as they depend upon numerous evolving factors that management may not be able to accurately predict. The availability, acceptance, administration, effectiveness, and the duration of such effectiveness, of vaccines and treatments, along with the length and extent of any continuing economic and market disruptions are unknown, and, therefore, any future impacts on our business, financial condition and/or results of operations cannot be quantified or predicted with specificity.

The Company recognizes revenue from contracts with customers under Accounting Standards Codification (“ASC”) Topic 606 (“Topic 606”). Under Topic 606, revenue is recognized when, or as, control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. Revenue is primarily recognized by the Company over time utilizing the cost-to-cost measure of progress, which best depicts the continuous transfer of control of goods or services to the customer, and correspondingly, when performance obligations are satisfied for the related contracts.

For certain master service and other service agreements under which the Company performs installation and maintenance services, primarily for install-to-the-home service providers in its Communications segment, revenue is recognized at a point in time. This is generally when the work order has been fulfilled, which is typically the same day the work is initiated. Point in time revenue accounted for approximately 4% of consolidated revenue for both the three month periods ended September 30, 2021 and 2020, and accounted for approximately 4% and 5% of consolidated revenue for the nine month periods ended September 30, 2021 and 2020, respectively. Substantially all of the Company’s other revenue is recognized over time.

The total contract transaction price and cost estimation processes used for recognizing revenue over time under the cost-to-cost method is based on the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and the Company’s profit recognition. Changes in these factors could result in revisions to revenue in the period in which

The Company may incur certain costs that can be capitalized, such as initial set-up or mobilization costs. Such capitalized costs, which are amortized over the life of the respective projects, were $1.8 million and $5.5 million as of September 30, 2021 and December 31, 2020, respectively.

Remaining performance obligations represent the amount of unearned transaction prices under contracts for which work is wholly or partially unperformed, including the Company’s share of unearned transaction prices from its proportionately consolidated non-controlled joint ventures. As of September 30, 2021, the amount of the Company’s remaining performance obligations was $4.2 billion. Based on current expectations, the Company anticipates it will recognize approximately $1.3 billion of its remaining performance obligations as revenue during 2021, with the majority of the remaining balance to be recognized in 2022.

As of September 30, 2021 and December 31, 2020, the Company included approximately $97 million and $51 million, respectively, of change orders and/or claims in transaction prices for certain contracts that were in the process of being resolved in the ordinary course of business, including through negotiation, arbitration and other proceedings. These transaction price adjustments, when earned, are included within contract assets or accounts receivable, net of allowance, as appropriate. As of both September 30, 2021 and December 31, 2020, these change orders and/or claims related to projects across the Company’s segments. The Company actively engages with its customers to complete the final approval process and generally expects these processes to be completed within one year. Amounts ultimately realized upon final agreement by customers could be higher or lower than such estimated amounts.

The discussion below describes the effects of recent accounting pronouncements, as updated from the discussion in the Company’s 2020 Form 10-K.

The following table provides details underlying the Company’s earnings per share calculations for the periods indicated (in thousands):

For the nine month period ended September 30, 2021, goodwill included additions of $95.4 million from new business combinations and a net increase of $0.1 million from measurement period adjustments. Currency translation effects related to goodwill and accumulated impairment losses for the nine month period ended September 30, 2021 totaled approximately $0.5 million of gains and $0.4 million of losses, respectively.

The Company seeks to grow and diversify its business both organically and through acquisitions and/or strategic arrangements in order to deepen its market presence, broaden its geographic reach and expand its service offerings.

The following table summarizes the estimated fair values of consideration paid and net assets acquired for the 2021 acquisitions, as adjusted (in millions):

For the three and nine month periods ended September 30, 2021, the Company’s consolidated results of operations included acquisition-related revenue of approximately $344.4 million and $702.7 million, respectively, and included acquisition-related net losses of approximately $6.6 million and $1.3 million, respectively, based on the Company’s consolidated effective tax rates. For the three and nine month periods ended September 30, 2020, the Company’s consolidated results of operations included acquisition-related revenue of approximately $69.3 million and $182.4 million, respectively, and included acquisition-related net losses of approximately $4.3 million and $5.0 million, respectively, based on the Company’s consolidated effective tax rates. These acquisition-related results include amortization of intangible assets and exclude the effects of acquisition costs and interest expense associated with consideration paid for the related acquisitions.

The Company’s financial instruments are primarily composed of cash and cash equivalents, accounts and notes receivable, cash collateral deposited with insurance carriers, life insurance assets, equity investments, deferred compensation plan assets and liabilities, accounts payable and other current liabilities, acquisition-related contingent consideration, mandatorily redeemable non-controlling interests and debt obligations.

Fair value is the price that would be received to sell an asset or the amount paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value guidance establishes a valuation hierarchy, which requires maximizing the use of observable inputs when measuring fair value. The three levels of inputs that may be used are: (i) Level 1 - quoted market prices in active markets for identical assets or liabilities; (ii) Level 2 - observable market-based inputs or other observable inputs; and (iii) Level 3 - significant unobservable inputs that cannot be corroborated by observable market data, which are generally determined using valuation models incorporating management estimates of market participant assumptions.

Acquisition-related contingent consideration and other liabilities is composed of earn-outs, which represent the estimated fair value of future amounts payable for businesses, including for mandatorily redeemable non-controlling interests (together, “Earn-outs”), that are contingent upon the acquired business achieving certain levels of earnings in the future. As of September 30, 2021 and December 31, 2020, the estimated fair value of the Company’s Earn-out liabilities totaled $114.2 million and $135.2 million, respectively, of which $15.8 million and $18.8 million, respectively, related to mandatorily redeemable non-controlling interests. Earn-out liabilities included within other current liabilities totaled approximately $51.2 million and $48.1 million as of September 30, 2021 and December 31, 2020, respectively. The fair values of the Company’s Earn-out liabilities are estimated using income approaches such as discounted cash flows or option pricing models, both of which incorporate significant inputs not observable in the market (Level 3 inputs), including management’s estimates and entity-specific assumptions, and are evaluated on an ongoing basis. Key assumptions include the discount rate, which, as of September 30, 2021, ranged from 12.0% to 23.5%, with a weighted average rate of 13.0% based on the relative fair value of each instrument, and probability-weighted projections of earnings before interest, taxes, depreciation and amortization (“EBITDA”). Significant changes in any of these assumptions could result in significantly higher or lower potential Earn-out liabilities. The ultimate payment amounts for the Company’s Earn-out liabilities will be determined based on the actual results achieved by the acquired businesses. As of September 30, 2021, the range of potential undiscounted Earn-out liabilities was estimated to be between $25 million and $157 million; however, there is no maximum payment amount.

Earn-out activity consists primarily of additions from new business combinations; changes in the expected fair value of future payment obligations; and payments. There were no additions from new business combinations in either of the three month periods ended September 30, 2021 or 2020, and for the nine month periods ended September 30, 2021 and 2020, additions totaled $40.1 million and $7.2 million, respectively. There were no measurement period adjustments in either of the three or nine month periods ended September 30, 2021. For the three and nine month periods ended September 30, 2021, fair value adjustments totaled net decreases of $4.8 million and $14.1 million, respectively, including a $1.0 million decrease related to mandatorily redeemable non-controlling interests for both the three and nine month periods ended September 30, 2021. These fair value adjustments related to decreases in the Company’s Oil and Gas and Clean Energy and Infrastructure segments, partially offset by increases in the Company’s Communications segment. There were no fair value adjustments for the three month period ended September 30, 2020, and for the nine month period ended September 30, 2020, fair value adjustments, net, and measurement period adjustments totaled increases of $1.7 million and $1.1 million, respectively, and related to businesses in the Company’s Oil and Gas and Communications segments. Earn-out payments totaled $0.8 million and $47.0 million for the three and nine month periods ended September 30, 2021, respectively, including approximately $2.1 million related to mandatorily redeemable non-controlling interests for the nine month period ended September 30, 2021. There were no Earn-out payments for the three month period ended September 30, 2020, and for the nine month period ended September 30, 2020, Earn-out payments totaled $50.4 million. Earn-out payments, to the extent they relate to estimated liabilities as of the date of acquisition, are classified within financing activities in the consolidated statements of cash flows, whereas Earn-out payments in excess of acquisition date liabilities are classified within operating activities in the consolidated statements of cash flows. The method of determining the amount of excess of acquisition-date liabilities was revised in the fourth quarter of 2020 to more closely align the cash flow presentation for such amounts with the economics of the contingent consideration arrangement. Accordingly, all prior year periods have been updated to conform with the current year presentation.

The Company’s equity investments as of September 30, 2021 include: (i) the Company’s 33% equity interests in Trans-Pecos Pipeline, LLC (“TPP”) and Comanche Trail Pipeline, LLC (“CTP,” and together with TPP, the “Waha JVs”); (ii) a 15% equity interest in Cross Country Infrastructure Services, Inc. (“CCI”); (iii) the Company’s 50% equity interests in each of FM Technology Holdings, LLC, FM USA Holdings, LLC and All Communications Solutions Holdings, LLC, collectively “FM Tech”; (iv) the Company’s equity interests in American Virtual Cloud Technologies, Inc., or “AVCT”; (v) the Company’s interests in certain proportionately consolidated non-controlled contractual joint ventures; and (vi) certain other equity investments.

Equity investments, other than those accounted for as equity method investments or those that are proportionately consolidated, are measured at fair value if their fair values are readily determinable. Equity investments that do not have readily determinable fair values are measured at cost, adjusted for changes from observable market transactions, if any, less impairment (“adjusted cost basis”). As of September 30, 2021 and December 31, 2020, the aggregate carrying value of the Company’s equity investments, including equity investments measured on an adjusted cost basis, totaled approximately $250 million and $220 million, respectively. As of September 30, 2021 and December 31, 2020, equity investments measured on an adjusted cost basis, including the Company’s $15 million investment in CCI, totaled approximately $18 million and $17 million, respectively. There were no impairments related to these investments during any of the three or nine month periods ended September 30, 2021 or 2020.

The Waha JVs are party to separate non-recourse financing facilities, each of which are secured by pledges of the equity interests in the respective entities, as well as a first lien security interest over virtually all of their assets. The Waha JVs are also party to certain interest rate swaps (the “Waha JV swaps”), which are accounted for as qualifying cash flow hedges. The Company reflects its proportionate share of any unrealized fair market value gains or losses from fluctuations in interest rates associated with these swaps within other comprehensive income or loss, as appropriate. For the three and nine month periods ended September 30, 2021, the Company’s proportionate share of unrecognized unrealized activity on the Waha JV swaps totaled gains of approximately $1.8 million and $14.1 million, respectively, or $1.3 million and $10.7 million, net of tax, respectively. For the three and nine month periods ended September 30, 2020, the Company’s proportionate share of unrecognized unrealized activity on the Waha JV swaps totaled gains of approximately $2.5 million and losses of approximately $29.5 million, respectively, or gains of $1.9 million and losses of $22.4 million, net of tax, respectively.

During the first quarter of 2021, MasTec committed to fund up to $2.5 million for a 75% equity interest in Confluence Networks, LLC (“Confluence”), an undersea fiber-optic communications systems developer and VIE, of which $0.3 million and $1.3 million were funded during the three and nine month periods ended September 30, 2021, respectively. Equity in losses related to the Company’s proportionate share of income from this investment totaled $0.2 million and $0.6 million for the three and nine month periods ended September 30, 2021, respectively. As of September 30, 2021, MasTec had less than a majority of the members on the board and determined that it did not have a controlling financial interest. The Company has the ability to exert significant influence over the VIE, and, as a result, the Company’s investment in Confluence was accounted for as an equity method investment as of September 30, 2021.

The Company has equity interests in certain telecommunications entities that are accounted for as equity method investments, for which the Company had an aggregate investment of $20 million and $19 million, respectively, including $17 million and $16 million, respectively, for FM Tech, as of September 30, 2021 and December 31, 2020. The initial investment in FM Tech provided for an additional $9 million of purchase price upon resolution of certain contingencies, of which $2 million was paid in the first quarter of 2021. As of September 30, 2021, approximately $3 million of contingent payment liabilities were included within other current liabilities. For the three month period ended September 30, 2021, the Company made no equity contributions related to these telecommunications entities, and for the nine month period ended September 30, 2021, made equity contributions of approximately $2 million. Equity in earnings, net, related to the Company’s proportionate share of income from these telecommunications entities totaled approximately $1 million for the three month period ended September 30, 2021, and for the nine month period ended September 30, 2021, equity in losses was de minimis. For the three month period ended September 30, 2020, equity in losses related to these telecommunications entities was de minimis, and for the nine month period ended September 30, 2020, totaled approximately $1 million.

Certain of these entities provide services to MasTec. Expense recognized in connection with services provided by these entities totaled $3.2 million and $2.7 million for the three month periods ended September 30, 2021 and 2020, respectively, and totaled $7.3 million and $9.0 million for the nine month periods ended September 30, 2021 and 2020, respectively. As of both September 30, 2021 and December 31, 2020, related amounts payable to these entities totaled $0.2 million. In addition, the Company has an employee leasing arrangement with one of these entities. Charges to this entity were de minimis for both the three and nine month periods ended September 30, 2021, and totaled $0.1 million and $0.3 million for the three and nine month periods ended September 30, 2020, respectively. As of September 30, 2021 and December 31, 2020, related amounts receivable totaled $0.5 million and $0.4 million, respectively. There were no amounts advanced to these entities for the three month period ended September 30, 2021, and for the nine month period ended September 30, 2021, amounts advanced totaled $0.2 million, which amount was outstanding as of September 30, 2021.

As of both September 30, 2021 and December 31, 2020, the gross carrying amount of the Company’s 4.50% senior notes due August 15, 2028 (the “4.50% Senior Notes”) totaled $600 million, and their estimated fair value, as determined based on an exit price approach using Level 1 inputs, totaled $624.0 million and $625.5 million, respectively.

Contract liabilities consist primarily of deferred revenue. Under certain contracts, the Company may be entitled to invoice the customer and receive payments in advance of performing the related contract work. In those instances, the Company recognizes a liability for advance billings in excess of revenue recognized, which is referred to as deferred revenue. Contract liabilities also include the amount of any accrued project losses.

The Company is party to non-recourse financing arrangements in the ordinary course of business, under which certain receivables are settled with the customer’s bank in return for a nominal fee. Discount charges related to these arrangements, which are included within interest expense, net, totaled approximately $0.8 million and $0.9 million for the three month periods ended September 30, 2021 and 2020, respectively, and totaled $2.3 million and $4.1 million for the nine month periods ended September 30, 2021 and 2020, respectively.

The following table provides details of property and equipment, net, including property and equipment held under finance leases as of the dates indicated (in millions):

As of September 30, 2021, the Company’s senior secured credit facility (the “Credit Facility”) has aggregate borrowing commitments totaling approximately $1.75 billion, which amount is composed of $1.35 billion of revolving commitments and a term loan with an original principal amount of $400 million. The term loan is subject to amortization in quarterly principal installments of $2.5 million, which commenced in December 2020. Quarterly principal installments on the term loan are subject to adjustment, if applicable, for certain prepayments.

As of September 30, 2021 and December 31, 2020, outstanding revolving loans, which included $26 million and $33 million, respectively, of borrowings denominated in foreign currencies, accrued interest at weighted average rates of approximately 1.38% and 1.87% per annum, respectively. The term loan accrued interest at rates of 1.33% and 1.40% as of September 30, 2021 and December 31, 2020, respectively. Letters of credit of approximately $108.7 million and $133.6 million were issued as of September 30, 2021 and December 31, 2020, respectively. As of both September 30, 2021 and December 31, 2020, letter of credit fees accrued at 0.375% per annum for performance standby letters of credit and at 1.25% per annum for financial standby letters of credit. Outstanding letters of credit mature at various dates and most have automatic renewal provisions,

The Credit Facility is guaranteed by certain subsidiaries of the Company (the “Guarantor Subsidiaries”) and obligations under the Credit Facility are secured by substantially all of the Company’s and the Guarantor Subsidiaries’ respective assets, subject to certain exceptions.

The 4.50% Senior Notes are fully and unconditionally guaranteed on a senior unsecured, joint and several basis by the Company’s wholly-owned domestic restricted subsidiaries that guarantee its existing credit facilities, subject to certain exceptions. MasTec was in compliance with the provisions and covenants of its outstanding debt instruments as of both September 30, 2021 and December 31, 2020.

As of September 30, 2021 and December 31, 2020, accrued interest payable, which is recorded within other accrued expenses in the consolidated balance sheets, totaled $5.0 million and $12.4 million, respectively. In the third quarter of 2020, the Company redeemed its previously outstanding $400 million 4.875% Senior Notes due in 2023 and recognized a pre-tax debt extinguishment loss of approximately $5.6 million, including $3.3 million of early repayment premiums and $2.3 million of unamortized deferred financing costs. For additional information pertaining to the Company’s debt instruments, see Note 7 - Debt in the Company’s 2020 Form 10-K.

For the three month periods ended September 30, 2021 and 2020, rent expense for leases that have terms in excess of one year totaled approximately $26.1 million and $25.6 million, respectively, of which $2.4 million and $2.3 million, respectively, represented variable lease costs. For the nine month periods ended September 30, 2021 and 2020, rent expense for such leases totaled approximately $81.6 million and $87.7 million, respectively, of which $7.5 million and $8.0 million, respectively, represented variable lease costs. The Company also incurred rent expense for leases with terms of one year or less totaling approximately $158.3 million and $74.0 million for the three month periods ended September 30, 2021 and 2020, respectively. Rent expense for such leases totaled approximately $399.2 million and $224.4 million for the nine month periods ended

Future minimum lease commitments as of September 30, 2021 were as follows (in millions):

The Company has stock-based compensation plans, under which shares of the Company’s common stock are reserved for issuance, including the MasTec, Inc. Amended and Restated 2013 Incentive Compensation Plan (the “Restated 2013 Incentive Plan”), which became effective in May 2021, and which amends and restates the MasTec, Inc. 2013 Incentive Compensation Plan (as amended from time to time, the “2013 Incentive Plan”). The Restated 2013 Incentive Plan increases the total number of shares of MasTec, Inc. common stock reserved and available for delivery pursuant to awards under the Restated 2013 Incentive Plan by 1,150,000 shares. Under all stock-based compensation plans in effect as of September 30, 2021, there were approximately 3,673,000 shares available for future grant.

Non-cash stock-based compensation expense under all plans totaled $6.1 million and $5.6 million for the three month periods ended September 30, 2021 and 2020, respectively, and totaled $17.7 million and $15.5 million for the nine month periods ended September 30, 2021 and 2020, respectively. Income tax benefits associated with stock-based compensation arrangements, including from the vesting of share-based payment awards, totaled $1.2 million and $1.4 million for the three month periods ended September 30, 2021 and 2020, respectively, and totaled $3.4 million and $3.6 million for the nine month periods ended September 30, 2021 and 2020, respectively.

MasTec grants restricted stock awards and restricted stock units (together, “restricted shares”) to eligible participants, which are valued based on the closing market share price of MasTec common stock (the “market price”) on the date of grant. During the restriction period, holders of restricted stock awards are entitled to vote the shares. As of September 30, 2021, total unearned compensation related to restricted shares was approximately $34.5 million, which amount is expected to be recognized over a weighted average period of approximately 1.9 years. The fair value of restricted shares that vested, which is based on the market price on the date of vesting, totaled $0.3 million and $0.2 million for the three month periods ended September 30, 2021 and 2020, respectively, and totaled $11.6 million and $6.7 million for the nine month periods ended September 30, 2021 and 2020, respectively.

The Company has certain employee stock purchase plans (collectively, “ESPPs”), under which shares of the Company’s common stock are available for purchase by eligible participants. Effective January 1, 2021, the Company’s ESPPs were amended (the “Amended ESPPs”), eliminating the look-back option and changing the offering period from three months to two weeks. Under the Amended ESPPs, eligible participants are permitted to purchase MasTec, Inc. common stock at 85% of the fair market value of the shares on the date of purchase, which occurs on the last trading day of each two week offering period. Previously, these plans allowed participants to purchase MasTec, Inc. common stock at 85% of the fair market value of the shares at the lower of (i) the date of commencement of the offering period or (ii) the last day of the offering period, as defined in the plan documents. Prior to January 1, 2021, the fair value of purchases under the ESPPs was estimated using the Black-Scholes option-pricing valuation model. The Company may issue common shares to plan participants or reacquire common shares on the open market or in privately negotiated transactions, at the Company’s discretion.

For the three and nine month periods ended September 30, 2021, 21,636 shares and 60,669 shares, respectively, were purchased by participants under the Company’s ESPPs for $1.8 million and $5.0 million, respectively, which shares were reacquired by the Company on the open market. For the three and nine month periods ended September 30, 2020, 39,596 shares and 193,655 shares, respectively, were purchased by participants for $1.5 million and $5.5 million, respectively, which shares were newly issued by the Company. Compensation expense associated with the Company’s ESPPs totaled approximately $0.3 million and $0.5 million for the three month periods ended September 30, 2021 and 2020, respectively, and totaled approximately $0.9 million and $1.7 million for the nine month periods ended September 30, 2021 and 2020, respectively.

Unrealized foreign currency translation activity, net, for each of the three and nine month periods ended September 30, 2021 and 2020 relates to the Company’s operations in Canada and Mexico. For the three and nine month periods ended September 30, 2021, unrealized investment activity includes unrealized gains on the Waha JV swaps and unrealized losses on the AVCT convertible debentures prior to their conversion in the third quarter of 2021. The net unrealized gain on the AVCT convertible debentures was reclassified into other income, net in the third quarter of 2021 in conjunction with the conversion into shares of AVCT common stock. For the three month period ended September 30, 2020, unrealized investment activity includes unrealized gains on both the Waha JV swaps and the AVCT convertible debentures, and for the nine month period ended September 30, 2020, includes unrealized losses on the Waha JV swaps, offset, in part, by unrealized gains on the AVCT convertible debentures. See Note 4 - Fair Value of Financial Instruments for additional information pertaining to the Waha JV swaps and AVCT convertible debentures.

In determining the quarterly provision for income taxes, management uses an estimated annual effective tax rate based on forecasted annual pre-tax income, permanent tax differences, statutory tax rates and tax planning opportunities in the various jurisdictions in which the Company operates. The effect of significant discrete items is separately recognized in the quarter(s) in which they occur. For the three month periods ended September 30, 2021 and 2020, the Company’s consolidated effective tax rates were 19.7% and 25.7%, respectively. For the nine month periods ended September 30, 2021 and 2020, the Company’s consolidated effective tax rates were 24.8% and 22.7%, respectively. The Company’s effective tax rate for the nine month period ended September 30, 2021 included the negative effect of $2.3 million related to non-deductible share-based compensation, offset by a benefit from adjustments related to the third quarter 2021 finalization of the Company’s 2020 tax returns. For the nine month period ended September 30, 2020, the Company’s tax rate benefited from the release of approximately $9.6 million of certain valuation allowances on Canadian deferred tax assets that were no longer necessary, as well as from adjustments related to the finalization of the Company’s 2019 tax returns.

The Company manages its operations under 5 operating segments, which represent its 5 reportable segments: (1) Communications; (2) Clean Energy and Infrastructure; (3) Oil and Gas; (4) Electrical Transmission and (5) Other. This structure is generally focused on broad end-user markets for the Company’s labor-based construction services. All 5 reportable segments derive their revenue from the engineering, installation and maintenance of infrastructure, primarily in North America.

The Communications segment performs engineering, construction, maintenance and customer fulfillment activities related to communications infrastructure, primarily for wireless and wireline/fiber communications and install-to-the-home customers, as well as infrastructure for utilities, among others. The Clean Energy and Infrastructure segment primarily serves energy, utility, government and other end-markets through the installation and construction of power generation facilities, primarily from clean energy and renewable sources, such as wind, solar, biomass, natural gas and hydrogen, as well as battery storage for renewable energy and various types of heavy civil and industrial infrastructure. The Company performs engineering, construction and maintenance services for pipelines and processing facilities for the energy and utilities industries through its Oil and Gas segment. The Electrical Transmission segment primarily serves the energy and utility industries through the engineering, construction and maintenance of electrical transmission lines and substations, including electrical distribution network systems. The Other segment includes certain equity investees, the services of which vary from those provided by the Company’s primary segments, as well as other small business units that perform construction and other services for a variety of international end-markets.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. As appropriate, the Company supplements the reporting of its consolidated financial information determined in accordance with U.S. GAAP with certain non-U.S. GAAP financial measures, including EBITDA. The Company believes these non-U.S. GAAP measures provide meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. The Company uses EBITDA to evaluate its performance, both internally and as compared with its peers, because it excludes certain items that may not be indicative of the Company’s core operating results for its reportable segments, as well as items that can vary widely across different industries or among companies within the same industry. Segment EBITDA is calculated in a manner consistent with consolidated EBITDA.

Summarized financial information for MasTec’s reportable segments is presented and reconciled to consolidated financial information for total MasTec in the following tables, including a reconciliation of consolidated income before income taxes to EBITDA, all of which are presented in millions. The tables below may contain slight summation differences due to rounding.

Revenue concentration information for significant customers as a percentage of total consolidated revenue was as follows:

The Company has other investment and strategic arrangements, under which it may incur costs or provide financing, performance, financial and/or other guarantees. See Note 4 - Fair Value of Financial Instruments and Note 15 - Related Party Transactions for additional information pertaining to the Company’s investment and strategic arrangements.

The Company is required to post collateral, generally in the form of letters of credit, surety bonds and cash to certain of its insurance carriers. Insurance-related letters of credit for the Company’s workers’ compensation, general liability and automobile liability policies amounted to $64.1 million and $59.3 million as of September 30, 2021 and December 31, 2020, respectively. Outstanding surety bonds related to self-insurance programs amounted to $39.0 million and $37.4 million as of September 30, 2021 and December 31, 2020, respectively.

The Company currently contributes, and in the past, has contributed to, plans that are underfunded, and, therefore, could have potential liability associated with a voluntary or involuntary withdrawal from, or termination of, these plans. As of September 30, 2021, the Company does not have plans to withdraw from, and is not aware of circumstances that would reasonably lead to material claims against it, in connection with the MEPPs in which it participates. There can be no assurance, however, that the Company will not be assessed liabilities in the future, including in the form of a surcharge on future benefit contributions or increased contributions on underfunded plans. The amount the Company could be obligated to pay or contribute in the future cannot be estimated, as these amounts are based on future levels of work of the union employees covered by these plans, investment returns, which could be negatively affected by economic and market conditions, and the level of underfunding of such plans.

MasTec purchases, rents and leases equipment and purchases various types of supplies and services used in its business, including ancillary construction services, project-related site restoration and marketing and business development activities from a number of different vendors on a non-exclusive basis, and, from time to time, rents equipment to, sells certain supplies, or performs construction services on behalf of, entities in which members of subsidiary management have ownership or commercial interests. For the three month periods ended September 30, 2021 and 2020, such payments to related party entities totaled approximately $20.7 million and $23.8 million, respectively, and for the nine month periods ended September 30, 2021 and 2020, totaled approximately $71.8 million and $65.3 million, respectively. Payables associated with such arrangements totaled approximately $0.6 million and $8.9 million as of September 30, 2021 and December 31, 2020, respectively. Revenue from such related party arrangements totaled approximately $0.8 million and $0.9 million for the three month periods ended September 30, 2021 and 2020, respectively, and totaled approximately $2.9 million and $3.2 million for the nine month periods ended September 30, 2021 and 2020, respectively. Related amounts receivable, net, totaled approximately $0.3 million and $0.5 million as of September 30, 2021 and December 31, 2020, respectively.

The Company rents and leases equipment and purchases certain supplies and servicing from CCI. Juan Carlos Mas, who is the brother of Jorge Mas, Chairman of MasTec’s Board of Directors and José R. Mas, MasTec’s Chief Executive Officer, serves as the chairman of CCI, and a member of management of a MasTec subsidiary and an entity that is owned by the Mas family are minority owners. MasTec paid CCI $8.0 million and $1.8 million, net of rebates, respectively, for the three month periods ended September 30, 2021 and 2020, and paid approximately $18.6 million and $3.2 million, respectively, for the nine month periods ended September 30, 2021 and 2020 related to this activity. Amounts payable to CCI, net of rebates receivable, totaled approximately $3.4 million and $4.2 million as of September 30, 2021 and December 31, 2020, respectively.

MasTec has a subcontracting arrangement with an entity for the performance of construction services, the minority owners of which include an entity controlled by Jorge Mas and José R. Mas, along with 2 members of management of a MasTec subsidiary. For the three month period ended September 30, 2021, MasTec incurred subcontracting expenses of approximately $41.1 million under these arrangements, and no subcontracting expenses were incurred for the three month period ended September 30, 2020. For the nine month period ended September 30, 2021, MasTec incurred subcontracting expenses under these arrangements of approximately $86.9 million, and for the nine month period ended September 30, 2020, incurred approximately $0.6 million, net. As of September 30, 2021 and December 31, 2020, related amounts payable totaled approximately $7.1 million and $1.4 million, respectively.

MasTec has a leasing arrangement for an aircraft that is owned by an entity that Jorge Mas owns. For both the three month periods ended September 30, 2021 and 2020, MasTec paid approximately $0.6 million related to this leasing arrangement, and paid approximately $1.9 million for both the nine month periods ended September 30, 2021 and 2020.

MasTec performs construction services on behalf of a professional Miami soccer franchise (the “Franchise”) in which Jorge Mas and José R. Mas are minority owners. Services provided by MasTec include the construction of a soccer facility and stadium as well as wireless infrastructure services. For both the three and nine month periods ended September 30, 2021, charges under these arrangements were de minimis, and for the three and nine month periods ended September 30, 2020, MasTec charged approximately $0.7 million and $6.2 million, respectively. Related amounts outstanding as of both September 30, 2021 and December 31, 2020 were de minimis. Payments for other expenses related to the Franchise for the nine month periods ended September 30, 2021 and 2020 totaled approximately $0.3 million and $0.2 million, respectively, for which there were no amounts outstanding as of either September 30, 2021 or December 31, 2020.

MasTec leases employees and provides satellite communication services to a customer in which Jorge Mas and José R. Mas own a majority interest. Charges to this customer under these arrangements totaled approximately $0.3 million for both the three month periods ended September 30, 2021 and 2020, and for the nine month periods ended September 30, 2021 and 2020, totaled approximately $0.9 million and $1.0 million, respectively. As of September 30, 2021 and December 31, 2020, related amounts receivable totaled approximately $0.8 million and $0.9 million, respectively.

Amounts outstanding, net, for advances made by the Company on behalf of a construction management firm specializing in steel building systems that was acquired by MasTec, of which Juan Carlos Mas was a minority owner at the time of acquisition, were de minimis as of both September 30, 2021 and December 31, 2020. Outstanding amounts are expected to be settled under customary terms associated with the related purchase agreement. During the third quarter of 2021, certain provisions relating to contingent consideration within the purchase agreement were clarified, for which the net impact is expected to be insignificant. For the three month period ended September 30, 2021, the Company paid $0.8 million of contingent consideration related to this agreement.

The Company, through a second quarter 2020 acquisition, has a 25% interest in an entity, under which the acquired business and the 25%-owned entity have a subcontracting arrangement. The Company’s interest in this entity, for which post-acquisition operating activity is de minimis, is accounted for as an equity method investment. As of September 30, 2021 and December 31, 2020, the Company’s net investment in this entity was a liability of approximately $1.6 million and $2.0 million, respectively, which net amount includes approximately $2.3 million and $1.9 million, respectively, of accounts receivable, net, less deferred revenue, related to the subcontracting arrangement. Additionally, the Company has certain arrangements with an entity in which members of management have an ownership interest, including a fee arrangement in conjunction with a $15.0 million letter of credit issued by the Company on behalf of this entity. For the three and nine month periods ended September 30, 2021, approximately $0.2 million and $0.6 million, respectively, of income was recognized in connection with these arrangements, and for both the three and nine month periods ended September 30, 2020, approximately $0.6 million of income was recognized. As of September 30, 2021 and December 31, 2020, related amounts receivable totaled $0.2 million and $0.4 million, respectively.

MasTec has split dollar life insurance agreements with trusts, for one of which Jorge Mas is a trustee, and for one of which José R. Mas is a trustee. For both the three month periods ended September 30, 2021 and 2020, the Company paid $0.6 million in connection with the agreements for Jorge Mas, and no payments were made for José R. Mas. For both the nine month periods ended September 30, 2021 and 2020, the Company paid $1.1 million in connection with the agreements for Jorge Mas, and paid $0.7 million for José R. Mas. As of September 30, 2021 and December 31, 2020, life insurance assets associated with these agreements totaled approximately $24.0 million and $22.2 million, respectively.

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts but are the intent, belief, or current expectations of our business and industry and the assumptions upon which these statements are based. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenue and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions, dispositions or other strategic arrangements. Words such as “anticipates,” “expects,” “intends,” “will,” “could,” “would,” “should,” “may,” “plans,” “believes,” “seeks,” “estimates,” “forecasts,” “targets” and variations of these words and negatives thereof and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Additionally, many of these risks and uncertainties could be amplified by the ongoing COVID-19 pandemic.

These risks and uncertainties include those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report and in our 2020 Form 10-K, including those described under “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors,” as updated by Item 1A, “Risk Factors” in this report and other filings we make with the SEC. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. Readers are cautioned to not place undue reliance on forward-looking statements, which reflect management’s view only as of the date of this report. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.

The following is a discussion and analysis of our business, financial condition and results of operations as of and for the three and nine month periods ended September 30, 2021 and 2020. This discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto in Item 1 of this Quarterly Report on Form 10-Q (this “Form 10-Q”), and the audited consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contained in our 2020 Form 10-K. In this MD&A, “$” means U.S. dollars unless specified otherwise.

The COVID-19 pandemic disrupted business activities and significantly affected global economic conditions at the beginning of 2020 and continuing into 2021 as federal, state and local governments imposed restrictions and mitigation measures to contain COVID-19 or slow its spread, including a recently proposed vaccine mandate, resulting in workforce, supply chain and production disruptions and creating significant uncertainties in the U.S. and global economies. While the adverse effects of these restrictions and mitigation measures partially subsided in the United States beginning in the second half of 2020, the COVID-19 pandemic varies by region and the possibility of future restrictions remains, particularly as new variants of COVID-19 arise. The extent to which the COVID-19 pandemic could affect our business, operations and financial results will depend upon numerous evolving factors that we may not be able to accurately predict, including the availability, acceptance, administration, effectiveness, and the duration of such effectiveness, of vaccines and treatments, along with the length and extent of any continuing economic and market disruptions.

As a provider of essential services, all of our business segments have continued to operate throughout the pandemic, and where safe and possible, our customers generally directed us to maintain normal work schedules. Our business model has, thus far, proven resilient, and we continue to adapt to the changing operational and economic environment that has resulted from the COVID-19 pandemic. Our top priority has been to take appropriate actions to protect the health and safety of our employees, customers and business partners. We adjusted our standard operating procedures within our business operations to ensure employee and customer safety and continually monitor evolving health guidelines and respond to changes as appropriate. These procedures have included implementation of specialized training programs, appropriate social distancing procedures and required use of personal protective equipment for our crew operations, as well as appropriate sanitation measures for key equipment and facilities, along with limiting non-essential business travel and incorporating work-at-home programs as appropriate for our administrative offices. In 2021, we began to reduce certain business travel restrictions and implement a phased-in return to our offices where COVID-related restrictions have eased, though certain work-at-home programs are still in place. For in-office operations, appropriate safety and social distancing measures have been incorporated. We have also developed human resource guidance to assist our employees. In certain locations where our operations experienced challenges as a result of the pandemic, we have actively collaborated with our customers to minimize potential service disruptions and operational impacts.

The COVID-19 pandemic has had a negative impact on our operations since 2020 and may continue to affect our business activities in the future. These impacts include lost productivity from governmental permitting approval delays, reduced crew productivity due to social distancing and other mitigation measures, the health and availability of work crews or other key personnel, including subcontractors, supply chain disruptions and/or delayed project start dates, project shutdowns or cancellations that may be mandated or requested by governmental authorities or others, all of which could result in lower revenue or higher operating costs and/or create lower levels of overhead cost absorption. We continue to actively monitor the effects of the COVID-19 pandemic on our operations and may take further actions, as necessary, that we determine to be in the best interests of our employees, customers, business partners and stakeholders, or as required by federal, state, or local authorities. Additionally, disruptions in economic activity as a result of the COVID-19 pandemic have had, and may continue to have, adverse effects across our end markets, particularly in the oil and gas sector. To the extent that future business activities are adversely affected by the pandemic, we intend to take appropriate actions to mitigate any such impacts.

Several relief measures have been enacted in response to the effects of the COVID-19 pandemic, including the CARES Act and the Coronavirus Relief Act.  We have deferred approximately $59 million of payroll taxes under the CARES Act, half of which are due by December 31, 2021, with the remainder due by December 31, 2022. We will continue to monitor and evaluate the potential effects, usefulness of, and qualification

Notwithstanding moderation of the COVID-19 pandemic and easing of governmental and other restrictions, we may continue to experience negative effects on our business and operations from possible longer-term changes in consumer and customer behavior, and/or from continuing negative economic conditions or from the effects of the recently proposed vaccine mandate. We believe that we have taken appropriate steps to mitigate the impacts of the COVID-19 pandemic on our business; however, the potential effects of the COVID-19 pandemic are uncertain, as they depend upon numerous evolving factors that we may not be able to accurately predict, and therefore, any future impacts on our business, financial condition and/or results of operations cannot be quantified or predicted with specificity.

As of September 30, 2021, we maintained a strong balance sheet, have strong relationships with our banking partners and had ample liquidity totaling approximately $1.3 billion, comprising $1.0 billion of availability under our Credit Facility and $240 million of cash, notwithstanding substantial strategic business acquisition activity in the first half of 2021. We believe that our financial position, strong cash flows and operational strengths will enable us to manage the current challenges and uncertainties resulting from the COVID-19 pandemic. Our business operations typically generate significant cash flow, affording us the flexibility to invest strategically in our efforts to maximize shareholder value through acquisitions and other strategic arrangements, share repurchases and capital expenditures. We continue to manage liquidity and are monitoring any potential effects from the pandemic on our financial results, cash flows and/or working capital, and intend to take appropriate actions in efforts to mitigate any impacts.

We are a leading infrastructure construction company operating mainly throughout North America across a range of industries. Our primary activities include the engineering, building, installation, maintenance and upgrade of communications, energy, utility and other infrastructure, such as: wireless, wireline/fiber and customer fulfillment activities; power generation, primarily from clean energy and renewable sources; pipeline infrastructure; electrical utility transmission and distribution; heavy civil; and industrial infrastructure. Our customers are primarily in these industries. Including our predecessor companies, we have been in business for over 90 years. For the twelve month period ended September 30, 2021, we had an average of approximately 540 locations and 23,000 employees, and, as of September 30, 2021, we had approximately 25,000 employees. We offer our services primarily under the MasTec service mark. We have been consistently ranked among the top specialty contractors by Engineering News-Record for the past several years.

We provide our services to a diversified base of customers. We often provide services under master service and other service agreements, which are generally multi-year agreements. The remainder of our work is generated pursuant to contracts for specific projects or jobs that require the construction or installation of an entire infrastructure system or specified units within an infrastructure system.

We manage our operations under five operating segments, which represent our five reportable segments: (1) Communications; (2) Clean Energy and Infrastructure; (3) Oil and Gas; (4) Electrical Transmission and (5) Other. This structure is generally focused on broad end-user markets for our labor-based construction services. See Note 13 - Segments and Related Information and Note 14 - Commitments and Contingencies in the notes to the consolidated financial statements, which are incorporated by reference, for segment results and information and significant customer concentrations.

Estimated backlog represents the amount of revenue we expect to realize over the next 18 months from future work on uncompleted construction contracts, including new contracts under which work has not begun, as well as revenue from change orders and renewal options. Our estimated backlog also includes amounts under master service and other service agreements and includes our proportionate share of estimated revenue from proportionately consolidated non-controlled contractual joint ventures. Estimated backlog for work under master service and other service agreements is determined based on historical trends, anticipated seasonal impacts, experience from similar projects and estimates of customer demand based on communications with our customers. Based on current expectations of our customers’ requirements, we anticipate we will realize approximately 20% of our estimated September 30, 2021 backlog in 2021. The following table presents 18-month estimated backlog by reportable segment as of the dates indicated:

Backlog is a common measurement used in our industry. Our methodology for determining backlog may not, however, be comparable to the methodologies used by others. Backlog differs from the amount of our remaining performance obligations, which are described in Note 1 - Business, Basis of Presentation and Significant Accounting Policies in the notes to the consolidated financial statements, which is incorporated by reference. As of September 30, 2021, total 18-month backlog differed from the amount of our remaining performance obligations due primarily to the inclusion of $5.2 billion of estimated future revenue under master service and other service agreements within our backlog estimates, as described above, and the exclusion of approximately $0.9 billion of remaining performance obligations and estimated future revenue under master service and other service agreements in excess of 18 months, which amount is not included in the backlog estimates above. Backlog expected to be realized in 2021 differed from the amount of remaining performance obligations expected to be recognized for the same period due primarily to the inclusion of approximately $0.4 billion of estimated future revenue under master service and other service agreements that is included within the related backlog estimate.

In addition to the effects of the pandemic noted above, we closely monitor the effects of changes in economic and market conditions on our customers. Changes in general economic and market conditions, including from climate-related matters, can either negatively or positively affect demand for our customers’ products and services, which can affect our customers’ planned capital and maintenance budgets in certain end-markets. Market, regulatory and industry factors could affect demand for our services, or the cost to provide such services, including (i) changes to our customers’ capital spending plans, including any potential effects from the recent COVID-19 pandemic, including supply chain or inflationary issues or the recently proposed vaccine mandate; (ii) new or changing regulatory requirements, governmental policy changes, and customer or industry initiatives, including with respect to climate change, sustainability and related environmental concerns, and/or from changes in governmental permitting; (iii) economic, political or other market developments or uncertainty, including access to capital for customers in the industries we serve; (iv) changes in technology, tax and other incentives; and (v) mergers, acquisitions or other business transactions among the customers we serve. Changes in demand for, and/or fluctuations in market prices for oil, gas and other fuel sources, including from renewable energy sources, and availability of transportation and transmission capacity can also affect demand for our services, in particular, on energy generation, electric grid and pipeline construction projects, including from carbon capture and other initiatives. These fluctuations, as well as the highly competitive nature of our industry, can result in changes in the levels of activity, the project mix, and the profitability of the services we provide. In the face of increased pricing pressure or other market developments, we strive to maintain our profit margins through productivity improvements, cost reduction programs and/or business streamlining efforts. While we actively monitor economic, industry and market factors that could affect our business, we cannot predict the effect that changes in such factors may have on our future results of operations, liquidity and cash flows, and we may be unable to fully mitigate, or benefit from, such changes.

Our revenue and results of operations can be subject to seasonal and other variations. These variations are influenced by weather, customer spending patterns, bidding seasons, project schedules, public health matters, such as the COVID-19 pandemic, holidays, regulatory matters and/or timing, in particular, for large non-recurring projects. Typically, our revenue is lowest at the beginning of the year and during the winter months because cold, snowy or wet conditions can cause project delays. Revenue is generally higher during the summer and fall months due to increased demand for our services when favorable weather conditions exist in many of the regions in which we operate, but continued cold and wet weather can often affect second quarter productivity. In the fourth quarter, many projects tend to be completed by customers seeking to spend their capital budgets before the end of the year, which generally has a positive effect on our revenue. However, the holiday season and inclement weather can cause delays, which can reduce revenue and increase costs on affected projects. Any quarter may be positively or negatively affected by adverse or unusual weather patterns, including warm winter weather, excessive rainfall, flooding or natural catastrophes such as wildfires, hurricanes or other severe weather, making it difficult to predict quarterly revenue and margin variations.

Additionally, our industry can be highly cyclical. Fluctuations in end-user demand within the industries we serve, or in the supply of services within those industries, can affect demand for our services. As a result, our business may be adversely affected by industry declines or by delays in new projects. Variations in project schedules or unanticipated changes in project schedules, in particular, in connection with large construction and installation projects, can create fluctuations in revenue, which may adversely affect us in a given quarter, even if not for the full year. In addition, revenue from master service and other service agreements, while generally predictable, can be subject to volatility. The financial condition of our customers and their access to capital; variations in project margins; regional, national and global economic, political and market conditions; regulatory or environmental influences, including climate-related matters; and acquisitions, dispositions or strategic investments/other arrangements can also materially affect quarterly results in a given period. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period. The effects of the COVID-19 pandemic could also result in greater seasonal and cyclical volatility than would otherwise exist under normal conditions.

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, including the potential effects of the COVID-19 pandemic, climate change, and other relevant global and/or macroeconomic trends and events. These estimates form the basis for making judgments about our operating results, including the results of construction contracts accounted for under the cost-to-cost method, and the carrying values of assets and liabilities, that are not readily apparent from other sources. Given that management estimates, by their nature, involve judgments regarding future uncertainties, actual results could differ materially from these estimates if conditions change or if certain key assumptions used in

We believe that our accounting estimates pertaining to: the recognition of revenue and project profit or loss, which we define as project revenue, less project costs of revenue, including project-related depreciation, in particular, on construction contracts accounted for under the cost-to-cost method, for which the recorded amounts require estimates of costs to complete and the amount and probability of variable consideration included in the contract transaction price; fair value estimates, including those related to acquisitions, valuations of goodwill, indefinite-lived intangible assets and acquisition-related contingent consideration; equity investments; income taxes; self-insurance liabilities; and litigation and other contingencies, are the most critical in the preparation of our consolidated financial statements as they are important to the portrayal of our financial condition and require significant or complex judgment and estimates on the part of management. Actual results could, however, vary materially from these accounting estimates.

Refer to Note 1 - Business, Basis of Presentation and Significant Accounting Policies in the notes to the consolidated financial statements, which is incorporated by reference, and to our 2020 Form 10-K for discussion of our significant accounting policies, and refer to Note 3 - Goodwill and Other Intangible Assets in the notes to the consolidated financial statements, which is incorporated by reference, for details of our third quarter 2021 quarterly review of goodwill and indefinite-lived intangible assets for indicators of impairment.

The following table, which may contain slight summation differences due to rounding, reflects our consolidated results of operations in dollar and percentage of revenue terms for the periods indicated (dollar amounts in millions). Our consolidated results of operations are not necessarily comparable from period to period due to the effect of recent acquisitions and certain other items, which are described in the comparison of results section below. In this discussion, “acquisition” results are defined as results from acquired businesses for the first twelve months following the dates of the respective acquisitions, with the balance of results for a particular item attributed to “organic” activity.