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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission file number: 1-08325

MYR GROUP INC.

(Exact name of registrant as specified in its charter)

Delaware

 

36-3158643

(State or other jurisdiction of
incorporation or organization) 

 

(I.R.S. Employer Identification No.)

1701 Golf Road, Suite 3-1012
Rolling Meadows, IL
(Address of principal executive offices)

 

60008
(Zip Code)

(847) 290-1891

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

MYRG

The Nasdaq Stock Market, LLC

(Nasdaq Global Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of July 24, 2020, there were 16,708,925 outstanding shares of the registrant’s $0.01 par value common stock.

Table of Contents

INDEX

Page

Part I—Financial Information

Item 1.

    

Financial Statements

    

 

Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019

2

Unaudited Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019

3

Unaudited Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019

4

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

5

Notes to Unaudited Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

38

Part II—Other Information

40

Item 1.

Legal Proceedings

 

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 6.

Exhibits

42

Throughout this report, references to “MYR Group,” the “Company,” “we,” “us” and “our” refer to MYR Group Inc. and its consolidated subsidiaries, except as otherwise indicated or as the context otherwise requires.

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MYR GROUP INC.

CONSOLIDATED BALANCE SHEETS

    

June 30, 

    

December 31, 

(in thousands, except share and per share data)

2020

2019

 

(unaudited)

 

  

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

9,991

$

12,397

Accounts receivable, net of allowances of $3,186 and $3,364, respectively

 

341,514

 

388,479

Contract assets, net of allowances of $393 and $147, respectively

 

224,275

 

217,109

Current portion of receivable for insurance claims in excess of deductibles

 

9,129

 

6,415

Refundable income taxes

1,973

Other current assets

 

10,007

 

12,811

Total current assets

 

594,916

 

639,184

Property and equipment, net of accumulated depreciation of $284,385 and $272,865, respectively

 

181,711

 

185,344

Operating lease right-of-use assets

 

24,555

 

22,958

Goodwill

 

66,051

 

66,060

Intangible assets, net of accumulated amortization of $13,311 and $10,880, respectively

 

52,486

 

54,940

Receivable for insurance claims in excess of deductibles

 

23,328

 

30,976

Investment in joint ventures

 

3,186

 

4,722

Other assets

 

3,853

 

3,687

Total assets

$

950,086

$

1,007,871

 

  

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

Current liabilities:

 

  

 

Current portion of long-term debt

$

7,186

$

8,737

Current portion of operating lease obligations

 

6,864

 

6,205

Current portion of finance lease obligations

 

893

 

1,135

Accounts payable

 

154,902

 

192,107

Contract liabilities

 

128,702

 

105,486

Current portion of accrued self-insurance

 

20,005

 

18,780

Other current liabilities

 

84,982

 

64,364

Total current liabilities

 

403,534

 

396,814

Deferred income tax liabilities

 

21,515

 

20,945

Long-term debt

 

74,782

 

157,087

Accrued self-insurance

 

40,946

 

48,024

Operating lease obligations, net of current maturities

 

17,788

 

16,884

Finance lease obligations, net of current maturities

 

-

 

338

Other liabilities

 

2,071

 

3,304

Total liabilities

 

560,636

 

643,396

Commitments and contingencies

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock—$0.01 par value per share; 4,000,000 authorized shares; none issued and outstanding at June 30, 2020 and December 31, 2019

 

 

Common stock—$0.01 par value per share; 100,000,000 authorized shares;

16,708,559 and 16,648,616 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

167

 

166

Additional paid-in capital

 

154,594

 

152,532

Accumulated other comprehensive loss

 

(398)

 

(446)

Retained earnings

 

235,083

 

212,219

Total stockholders’ equity attributable to MYR Group Inc.

 

389,446

 

364,471

Noncontrolling interest

 

4

 

4

Total stockholders’ equity

 

389,450

 

364,475

Total liabilities and stockholders’ equity

$

950,086

$

1,007,871

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

MYR GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Three months ended

Six months ended

June 30, 

June 30, 

(in thousands, except per share data)

    

2020

    

2019

    

2020

    

2019

Contract revenues

$

513,051

$

448,776

$

1,031,521

$

916,870

Contract costs

 

451,746

 

405,613

 

908,584

 

830,831

Gross profit

 

61,305

 

43,163

 

122,937

 

86,039

Selling, general and administrative expenses

 

41,199

 

33,944

 

86,245

 

66,931

Amortization of intangible assets

 

1,203

 

735

 

2,431

 

1,469

Gain on sale of property and equipment

 

(439)

 

(926)

 

(1,489)

 

(1,397)

Income from operations

 

19,342

 

9,410

 

35,750

 

19,036

Other income (expense):

 

 

 

 

  

Interest income

 

4

 

 

6

 

Interest expense

(1,315)

(1,168)

(2,828)

(2,373)

Other income (expense), net

 

321

 

582

 

(574)

 

1,328

Income before provision for income taxes

 

18,352

 

8,824

 

32,354

 

17,991

Income tax expense

 

4,967

 

2,466

 

9,037

 

5,013

Net income

 

13,385

 

6,358

 

23,317

 

12,978

Less: net loss attributable to noncontrolling interest

 

 

(849)

 

 

(1,582)

Net income attributable to MYR Group Inc.

$

13,385

$

7,207

$

23,317

$

14,560

Income per common share attributable to MYR Group Inc.:

 

 

 

 

  

—Basic

$

0.80

$

0.43

$

1.40

$

0.88

—Diluted

$

0.80

$

0.43

$

1.39

$

0.87

Weighted average number of common shares and potential common shares outstanding:

 

 

 

 

  

—Basic

 

16,685

 

16,600

 

16,656

 

16,557

—Diluted

 

16,765

 

16,704

 

16,751

 

16,682

 

 

 

 

  

Net income

$

13,385

$

6,358

$

23,317

$

12,978

Other comprehensive income (loss):

 

 

 

 

  

Foreign currency translation adjustment

 

(39)

 

(123)

 

48

 

(200)

Other comprehensive income (loss)

 

(39)

 

(123)

 

48

 

(200)

Total comprehensive income

 

13,346

 

6,235

 

23,365

 

12,778

Less: net loss attributable to noncontrolling interest

 

 

(849)

 

 

(1,582)

Total comprehensive income attributable to MYR Group Inc.

$

13,346

$

7,084

$

23,365

$

14,360

The accompanying notes are an integral part of these consolidated financial statements.

3

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MYR GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Accumulated

MYR

Additional

Other

Group Inc.

Preferred

Common Stock

Paid-In

Comprehensive

Retained

Stockholders’

Noncontrolling

(in thousands)

    

Stock

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Earnings

    

Equity

    

Interest

    

Total

  

  

  

  

  

  

  

  

  

Balance at December 31, 2018

 

 

16,565

$

165

$

148,276

$

(193)

$

174,736

$

322,984

$

1,480

$

324,464

Net income (loss)

 

 

 

 

 

 

7,353

 

7,353

 

(733)

 

6,620

Stock issued under compensation plans, net

 

 

68

 

 

282

 

 

 

282

 

 

282

Stock-based compensation expense

 

 

 

 

951

 

 

 

951

 

 

951

Shares repurchased

 

 

(23)

 

 

(571)

 

 

(207)

 

(778)

 

 

(778)

Other comprehensive loss

 

 

 

 

 

(77)

 

 

(77)

 

 

(77)

Stock issued - other

12

12

12

Balance at March 31, 2019

 

16,610

177

148,938

(270)

181,882

330,727

747

331,474

Net income (loss)

 

 

 

 

 

 

7,207

 

7,207

 

(849)

 

6,358

Stock issued under compensation plans, net

 

 

33

 

1

 

1

 

 

 

2

 

 

2

Stock-based compensation expense

 

 

 

 

1,202

 

 

 

1,202

 

 

1,202

Other comprehensive income

 

 

 

 

 

(123)

 

 

(123)

 

 

(123)

Stock issued - other

1

(12)

36

24

24

Balance at June 30, 2019

$

16,644

$

166

$

150,177

$

(393)

$

189,089

$

339,039

$

(102)

$

338,937

Balance at December 31, 2019

16,649

$

166

$

152,532

$

(446)

$

212,219

$

364,471

$

4

$

364,475

Net income

9,932

9,932

9,932

Adjustment to adopt ASC 326

(268)

(268)

(268)

Stock issued under compensation plans, net

55

82

82

82

Stock-based compensation expense

1,080

1,080

1,080

Shares repurchased

(20)

(241)

(185)

(426)

(426)

Other comprehensive income

87

87

87

Stock issued - other

1

24

24

24

Balance at March 31, 2020

16,685

166

153,477

(359)

221,698

374,982

4

374,986

Net income

13,385

13,385

13,385

Stock issued under compensation plans, net

23

1

1

1

Stock-based compensation expense

1,093

1,093

1,093

Other comprehensive income

(39)

(39)

(39)

Stock issued - other

1

24

24

24

Balance at June 30, 2020

$

16,709

$

167

$

154,594

$

(398)

$

235,083

$

389,446

$

4

$

389,450

The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents

MYR GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended

June 30, 

(in thousands)

    

2020

    

2019

Cash flows from operating activities:

  

  

Net income

$

23,317

$

12,978

Adjustments to reconcile net income to net cash flows provided by operating activities:

 

 

Depreciation and amortization of property and equipment

 

21,324

 

19,714

Amortization of intangible assets

 

2,431

 

1,469

Stock-based compensation expense

 

2,173

 

2,153

Deferred income taxes

 

537

 

23

Gain on sale of property and equipment

 

(1,489)

 

(1,397)

Other non-cash items

 

267

 

783

Changes in operating assets and liabilities, net of acquisitions:

 

 

Accounts receivable, net

 

46,353

 

(24,468)

Contract assets, net

 

(7,658)

 

(14,218)

Receivable for insurance claims in excess of deductibles

 

4,934

 

568

Other assets

 

7,198

 

(3,552)

Accounts payable

 

(38,342)

 

27,242

Contract liabilities

 

23,271

 

(5,035)

Accrued self insurance

 

(5,843)

 

(692)

Other liabilities

 

19,450

 

(8,169)

Net cash flows provided by operating activities

 

97,923

 

7,399

Cash flows from investing activities:

 

 

Proceeds from sale of property and equipment

 

1,633

 

1,658

Purchases of property and equipment

 

(16,938)

 

(27,961)

Net cash flows used in investing activities

 

(15,305)

 

(26,303)

Cash flows from financing activities:

 

 

Net repayments under revolving lines of credit

 

(70,423)

 

(5,896)

Borrowings under equipment notes

24,038

Payment of principal obligations under equipment notes

 

(13,433)

 

(1,455)

Payment of principal obligations under finance leases

 

(616)

 

(575)

Proceeds from exercise of stock options

 

82

 

284

Repurchase of common shares

 

(425)

 

(778)

Other financing activities

 

49

 

36

Net cash flows provided by (used in) financing activities

 

(84,766)

 

15,654

Effect of exchange rate changes on cash

 

(258)

 

98

Net decrease in cash and cash equivalents

 

(2,406)

 

(3,152)

Cash and cash equivalents:

 

  

 

Beginning of period

 

12,397

 

7,507

End of period

$

9,991

$

4,355

The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents

MYR GROUP INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization, Business and Basis of Presentation

Organization and Business

MYR Group Inc. (the “Company”) is a holding company of specialty electrical construction service providers and is currently conducting operations through wholly owned subsidiaries, including: The L. E. Myers Co., a Delaware corporation; Harlan Electric Company, a Michigan corporation; Great Southwestern Construction, Inc., a Colorado corporation; Sturgeon Electric Company, Inc., a Michigan corporation; MYR Energy Services, Inc., a Delaware corporation; E.S. Boulos Company, a Delaware corporation; High Country Line Construction, Inc., a Nevada corporation; Sturgeon Electric California, LLC, a Delaware limited liability company; GSW Integrated Services, LLC, a Delaware limited liability company; Huen Electric, Inc., a Delaware corporation; CSI Electrical Contractors, Inc., a Delaware corporation; MYR Transmission Services Canada, Ltd., a British Columbia corporation; Northern Transmission Services, Ltd., a British Columbia corporation and Western Pacific Enterprises Ltd., a British Columbia corporation.

The Company performs construction services in two business segments: Transmission and Distribution (“T&D”), and Commercial and Industrial (“C&I”). T&D customers include investor-owned utilities, cooperatives, private developers, government-funded utilities, independent power producers, independent transmission companies, industrial facility owners and other contractors. T&D provides a broad range of services, which include design, engineering, procurement, construction, upgrade, maintenance and repair services, with a particular focus on construction, maintenance and repair. C&I customers include general contractors, commercial and industrial facility owners, government agencies and developers. C&I provides a broad range of services, which include the design, installation, maintenance and repair of commercial and industrial wiring, the installation of traffic networks and the installation of bridge, roadway and tunnel lighting.

The current COVID-19 pandemic has had a significant impact on the global economy, including the US and Canadian economies, during the first and second quarters of 2020. As the situation continues to evolve, the Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our customers, subcontractors, suppliers, vendors and employees. The COVID-19 pandemic caused a slowdown of our projects due to specific state, local, municipal and customer mandated stay-at-home orders and new project requirements that were established to protect construction workers and the general public, most of which impacted our C&I segment in the second quarter of 2020. Although the majority of stay-at-home orders were phased out at the end of the second quarter, we are still experiencing impacts associated with the COVID-19 project specific protocols. We expect the project specific requirements to remain in place which will continue to impact project schedules and workflow going forward.

The Company is unable to predict the ultimate impact that COVID-19 will have on our business, employees, liquidity, financial condition, results of operations and cash flows. Most of the Company’s operations are considered critical and essential businesses, making our projects generally exempt from stay-at-home or similar orders in certain parts of the United States and western Canada. However, if this pandemic persists for a prolonged period of time our business could be more significantly impacted as a result of prolonged unfavorable economic conditions. In addition, in response to the pandemic and related mitigation measures, the Company began implementing changes in March 2020 in an effort to protect our employees and customers, and to support appropriate health and safety protocols, including implementing remote, alternative and flexible work arrangements, where possible. The situation surrounding COVID-19 remains fluid, and if disruptions do arise, they could materially adversely impact our business. The key estimates that could potentially be impacted include estimates of costs to complete contracts, the recoverability of goodwill and intangibles and allowance for doubtful accounts.

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Basis of Presentation

Interim Consolidated Financial Information

The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations, comprehensive income, stockholders’ equity and cash flows with respect to the interim consolidated financial statements, have been included. Certain reclassifications were made to prior year amounts to conform to the current year presentation. The consolidated balance sheet as of December 31, 2019 has been derived from the audited financial statements as of that date. The results of operations and comprehensive income are not necessarily indicative of the results for the full year or the results for any future periods. These financial statements should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 4, 2020 (the "2019 Annual Report").

Foreign Currency

The functional currency for the Company’s Canadian operations is the Canadian dollar. Assets and liabilities denominated in Canadian dollars are translated into U.S. dollars at the end-of-period exchange rate. Revenues and expenses are translated using average exchange rates for the periods reported. Equity accounts are translated at historical rates. Cumulative translation adjustments are included as a separate component of accumulated other comprehensive income in shareholders’ equity. Foreign currency transaction gains and losses, arising primarily from changes in exchange rates on short-term monetary assets and liabilities, and ineffective long-term monetary assets and liabilities are recorded in the “other income, net” line on the consolidated statements of operations. Foreign currency gains, recorded in other income, net, for the six months ended June 30, 2020 were not significant. Foreign currency gains, recorded in other income, net, for the six months ended June 30, 2019 were $0.1 million. Effective foreign currency transaction gains and losses, arising primarily from long-term monetary assets and liabilities, are recorded in the foreign currency translation adjustment line on the consolidated statements of comprehensive income.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates.

The most significant estimates are related to estimates of costs to complete contracts, pending change orders and claims, shared savings, insurance reserves, income tax reserves, estimates surrounding stock-based compensation, the recoverability of goodwill and intangibles and allowance for doubtful accounts. The Company estimates a cost accrual every quarter that represents costs incurred but not invoiced for services performed or goods delivered during the period, and estimates revenue from the contract cost portion of these accruals based on current gross margin rates to be consistent with its cost method of revenue recognition.

As of June 30, 2020 and 2019, the Company had recognized revenues of $40.1 million and $21.4 million, respectively, related to significant change orders and/or claims that had been included as contract price adjustments on certain contracts, some of which are multi-year projects. These change orders and/or claims are in the process of being negotiated in the normal course of business, and a portion of these recognized revenues had been included in multiple periods.

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The cost-to-cost method of accounting requires the Company to make estimates about the expected revenue and gross profit on each of its contracts in process. During the three months ended June 30, 2020, changes in estimates pertaining to certain projects increased consolidated gross margin by 0.2%, which resulted in increases in operating income of $1.2 million, net income attributable to MYR Group Inc. of $0.9 million and diluted earnings per common share attributable to MYR Group Inc. of $0.05. During the six months ended June 30, 2020, changes in estimates pertaining to certain projects decreased consolidated gross margin by 0.1%, which resulted in decreases in operating income of $0.7 million, net income attributable to MYR Group Inc. of $0.5 million and diluted earnings per common share attributable to MYR Group Inc. of $0.03.

During the three  months ended June 30, 2019, changes in estimates pertaining to certain projects decreased consolidated gross margin by 0.9%, which resulted in decreases in operating income of $4.2 million, net income attributable to MYR Group Inc. of $1.9 million and diluted earnings per common share attributable to MYR Group Inc. of $0.11. During the six months ended June 30, 2019, changes in estimates pertaining to certain projects decreased consolidated gross margin by 1.0%, which resulted in decreases in operating income of $9.1 million, net income attributable to MYR Group Inc. of $4.2 million and diluted earnings per common share attributable to MYR Group Inc. of $0.25.

Recent Accounting Pronouncements

Changes to U.S. GAAP are typically established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. The Company, based on its assessment, determined that any recently issued or proposed ASUs not listed below are either not applicable to the Company or adoption will have minimal impact on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill, through the elimination of Step 2 from the goodwill impairment test. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The Company adopted this ASU on a prospective basis in January 2020 and there was no effect on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss methodology for the measurement and recognition of credit losses on most financial instruments, including trade receivables and off-balance sheet credit exposures. Under this guidance, an entity is required to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. This ASU also requires disclosure of information regarding how a company developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. On January 1, 2020, the Company adopted this ASU resulting in a $0.3 million cumulative-effect adjustment to retained earnings associated with the increase in the Company’s allowance for doubtful accounts. Additionally, in connection with the adoption of this ASU the Company adjusted its presentation for allowance for doubtful accounts associated with unbilled revenue, which represents a portion of the Company’s contract assets, and were previously classified as accounts receivable net of allowances. Total allowance for doubtful accounts associated with contract assets as of June 30, 2020 and at the time of adopting this ASU were $0.4 million. The Company’s consolidated balance sheet as of December 31, 2019 and consolidated statements of cash flows for the year ended December 31, 2019 have not been adjusted for this change in treatment of allowance for doubtful accounts associated with unbilled revenue. See Note 3–Contract Assets and Liabilities for further information related to the Company’s contract assets.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy. The Company adopted this ASU in January 2020 and there was no effect on the consolidated financial statements or disclosures.

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Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is evaluating the impact this update will have on its financial statements.

2. Acquisition

CSI Electrical Contractors, Inc.

On July 15, 2019, the Company completed the acquisition of substantially all the assets of CSI Electrical Contractors, Inc. (“CSI”), an electrical contracting firm based in California. CSI provides services to a broad array of end markets under the Company’s C&I segment. The total consideration, after net asset adjustments of approximately $1.0 million, was $80.7 million, which was funded through borrowings under the Company’s credit facility. The Company finalized the purchase price accounting relating to the acquisition of CSI in 2019.

The purchase agreement also includes contingent consideration provisions for margin guarantee adjustments based upon contract performance subsequent to the acquisition. The contracts were valued at fair value at the acquisition date, causing no margin guarantee estimate or adjustments for fair value. Changes in contract estimates, such as modified costs to complete or change order recognition, will result in changes to these margin guarantee estimates. Changes in contingent consideration, subsequent to the acquisition, related to the margin guarantee adjustments on contracts of approximately $0.4 million were recorded in other income for the three months ended June 30, 2020 and $0.6 million were recorded in other expense for six months ended June 30, 2020. Future margin guarantee adjustments, if any, are expected to be recognized through 2020. The Company could also be required to make compensation payments contingent on the successful achievement of certain performance targets and continued employment of certain key executives of CSI. These payments are recognized as compensation expense on the Company’s consolidated statements of operations as incurred. For the three and six months ended June 30, 2020, the Company recognized $0.7 million and $1.1 million, respectively, of compensation expense associated with these contingent payments.

3. Contract Assets and Liabilities

Contracts with customers usually stipulate the timing of payment, which is defined by the terms found within the various contracts under which work was performed during the period. Therefore, contract assets and liabilities are created when the timing of costs incurred on work performed does not coincide with the billing terms, which frequently include retention provisions contained in each contract.

The Company’s consolidated balance sheets present contract assets, which contain unbilled revenue and contract retainages associated with contract work that has been completed and billed but not paid by customers, pursuant to retainage provisions, that are generally due once the job is completed and approved. The allowance for doubtful accounts associated with contract assets was $0.4 million as of June 30, 2020 and $0.1 million as of December 31, 2019.

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Contract assets consisted of the following:

    

June 30, 

    

December 31, 

    

    

(in thousands)

2020

2019

Change

Unbilled revenue, net

$

135,289

$

126,087

$

9,202

Contract retainages, net

 

88,986

 

91,022

 

(2,036)

Contract assets, net

$

224,275

$

217,109

$

7,166

The Company’s consolidated balance sheets present contract liabilities which contain deferred revenue and an accrual for contracts in a loss provision.

Contract liabilities consisted of the following:

    

June 30, 

    

December 31, 

    

    

(in thousands)

2020

2019

Change

Deferred revenue

$

126,446

$

102,673

$

23,773

Accrued loss provision

 

2,256

 

2,813

 

(557)

Contract liabilities

$

128,702

$

105,486

$

23,216

The following table provides information about contract assets and contract liabilities from contracts with customers:

    

June 30, 

    

December 31, 

    

    

(in thousands)

2020

2019

Change

Contract assets, net

$

224,275

$

217,109

$

7,166

Contract liabilities

 

(128,702)

 

(105,486)

 

(23,216)

Net contract assets (liabilities)

$

95,573

$

111,623

$

(16,050)

The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing of the Company’s billings in relation to its performance of work. The amounts of revenue recognized in the period that were included in the opening contract liability balances were $16.9 million and $43.0 million for the three and six months ended June 30, 2020, respectively. The amounts of revenue recognized in the period that were included in the opening contract liability balances were $4.4 million and $32.0 million for the three and six months ended June 30, 2019, respectively. This revenue consists primarily of work performed on previous billings to customers.

The net asset position for contracts in process consisted of the following:

    

June 30, 

    

December 31, 

(in thousands)

2020

2019

Costs and estimated earnings on uncompleted contracts

$

3,547,242

$

3,532,886

Less: billings to date

 

3,538,399

 

3,509,472

$

8,843

$

23,414

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The net asset position for contracts in process is included within the contract asset and contract liability in the accompanying consolidated balance sheets as follows:

    

June 30, 

    

December 31, 

(in thousands)

2020

2019

Unbilled revenue

$

135,289

$

126,087

Deferred revenue