STERLING INFRASTRUCTURE, INC. (STRL) FY 2021 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is provided to assist readers in understanding our financial performance during the periods presented and significant trends that may impact our future performance. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes thereto.

OVERVIEW

General—Sterling Construction Company, Inc. operates through a variety of subsidiaries within three segments specializing in Transportation, E-Infrastructure and Building Solutions in the United States (the “U.S.”), primarily across the Southern, Northeastern and Mid-Atlantic U.S., the Rocky Mountain States, California and Hawaii, as well as other areas with strategic construction opportunities. Transportation Solutions includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, light rail, water, wastewater and storm drainage systems. E-Infrastructure Solutions projects develop advanced, large-scale site development systems and services for data centers, e-commerce distribution centers, warehousing, transportation, energy and more. Building Solutions projects include residential and commercial concrete foundations for single-family and multi-family homes, parking structures, elevated slabs and other concrete work. From strategy to operations, we are committed to sustainability by operating responsibly to safeguard and improve society’s quality of life. Caring for our people and our communities, our customers and our investors – that is The Sterling Way.

Petillo Acquisition—On December 30, 2021, we completed our acquisition of Petillo for aggregate consideration of $204.6 million. Petillo is a leading specialty site development contractor based in Flanders, New Jersey and serves the Northeastern and Mid-Atlantic States, providing large-scale site infrastructure improvement services, including full-service excavation, underground utility construction, environmental remediation, drainage systems for commercial construction and water management and distribution systems. The results of Petillo are included within our E-Infrastructure Solutions segment. See Note 3 - Acquisitions for further discussion.

Kimes Acquisition—On December 28, 2021, we completed our acquisition of Kimes & Stone (“Kimes”) for an all-cash purchase price of $7.6 million. Kimes provides a diversified services offering of soil stabilization for site development on e-commerce projects such as large fulfillment and distribution centers and data centers, as well as soil stabilization for roadways and manufacturing plant construction. The transaction includes a fleet of soil stabilization equipment and working capital. The results of Kimes are included within Plateau which is included within our E-Infrastructure Solutions segment.

Impact of COVID-19—The Company continues to monitor closely the actual and expected impacts of the COVID-19 pandemic on our business, financial condition and results of operations. To date, we have not experienced significant shutdowns of project sites or operational interruptions. While the Company has not incurred significant disruptions thus far from the COVID-19 pandemic, the pandemic may impact our business, condensed consolidated results of operations and financial condition in the future. The significance of impacts on our operations going forward is not yet certain and depends on numerous evolving factors as discussed further in Part I, Item 1A “Risk Factors” in this annual report on Form 10-K.

MARKET OUTLOOK AND TRENDS

The market outlook and trends currently reflect favorable opportunities for long-term growth despite the challenging market pressures that include inflation, supply chain issues and labor challenges. To remain competitive in the current market environments, Sterling remains focused on our strategic business elements and objectives as outlined. We continue to shift our focus from low-bid heavy highway, that now represents approximately 19% of our total revenue, and increasing margins in our E-Infrastructure and Building Solutions segments.

Transportation Solutions—Sterling’s Transportation Solutions business is primarily driven by federal, state and municipal funding. Federal funds, on average, provide 50% of annual State Department of Transportation capital outlays for highway and bridge projects. In October 2018, the Federal Aviation Administration reauthorized $3.35 billion annually through 2023. This reauthorization also includes more than $1 billion a year for airport infrastructure grants and about $1.7 billion for disaster relief. In November 2020, various state and local transportation measures were passed securing, and in some cases increasing, funding of major initiatives in Texas ($7.5 billion) and California ($520 million). On November 5, 2021 Congress passed the Infrastructure Investments and Jobs Act (“IIJA”) that provided a new five-year reauthorization of highway and public transportation programs with historic investment increases of $284 billion for all modes of transportation. With the passing of the IIJA, additional funding is reserved for transportation infrastructure with $110 billion reserved for roads and bridges, $66 billion for rail and $25 billion for airports. This bill could add additional multi-year funding for highways, rail and airports starting in 2022, however current changes for funding allocation may cause project start delays. Even though several of the states in Sterling’s key markets have instituted actions to further increase annual spending, shorter project cycles and continued fluctuations in pricing are causing delays in project awards.

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E-Infrastructure Solutions—Sterling’s E-Infrastructure Solutions business is primarily driven by investments in the development of data centers, e-commerce distribution centers and warehouses. The continued revenue growth of the Company’s complex site development business is directly related to the continued implementation of publicly announced multi-year capital infrastructure campaigns from end users, including Amazon, Facebook and Home Depot. In our growing East Coast market, project activity includes data centers, new warehouse and industrial development. Within this market, the warehouse availability rate is at 3.6%, despite over 16.7 million square feet of new building deliveries in 2021. Additionally, the market experienced over 11.8 million square feet of absorption during Q4, bringing 2021 total absorption to 34.5 million square feet, more than any other year on record. Equipment availability, material delays and fuel price increases continue to be challenging factors. With the forecasted increases expected in land prices, the customer trends show projects for full site development versus staged site development. The trend for full site development is expected to continue in 2022.

Building Solutions—Our Building Solutions segment is comprised of our residential and commercial businesses. The continued revenue growth of our residential business is directly related to the growth of new home starts in its key market of Dallas-Fort Worth, the continued expansion in the Houston market, and the mid-2021 entry into the Phoenix market. Residential’s core customer base is primarily made up of leading national home builders as well as regional and custom home builders. Over the last several quarters, the residential market has experienced significant price volatility and availability for key materials including concrete, steel and lumber, as well as increases in subcontractor labor cost. While the Company has worked with customers to pass on the increases in material and labor cost, the Company may not be successful in recouping these additional costs in the future. For our commercial business, the outlook for the multi-family market continues to decline, as developers face economic concerns due to the COVID-19 pandemic and the availability and affordability of starter single family homes continues to rise.

BACKLOG

Our backlog (“Backlog”) of construction projects is the remaining amount of contracts that we expect to recognize as revenue in future periods. The contracts in Backlog are typically completed in 6 to 36 months. Our unsigned low-bid awards (“Unsigned Low-bid Awards”) are excluded from Backlog until the contract is executed by our customer. We refer to the combination of our Backlog and Unsigned Low-bid Awards as “Combined Backlog.” Our book-to-burn ratio, a non-GAAP measure, is determined by taking our additions to Backlog and dividing it by revenue for the applicable period. This metric allows management to monitor the Company’s business development efforts to ensure we grow our Backlog and our business over time, and management believes that this measure is useful to investors for the same reason.

At December 31, 2021, our Backlog was $1.49 billion, as compared to $1.18 billion at December 31, 2020, with a book-to-burn ratio of 1.23 for the year ended December 31, 2021. Backlog includes $123.1 million and $234.2 million attributable to our share of estimated revenues related to joint ventures where we are a noncontrolling joint venture partner at December 31, 2021 and 2020, respectively. At December 31, 2021, backlog also includes $210.6 million related to the newly acquired Petillo business. We anticipate that approximately 63% of our Backlog will be recognized as revenues during 2022, with substantially all remaining recognized in the twelve months following.

Unsigned Low-bid Awards were $22.5 million at December 31, 2021 and $356.9 million at December 31, 2020. Combined Backlog totaled $1.52 billion at December 31, 2021 and $1.53 billion at December 31, 2020, with a book-to-burn ratio of 0.99 for the year ended December 31, 2021.

The Company’s margin in Backlog has increased from 12.0% at December 31, 2020 to 12.2% at December 31, 2021 and the Combined Backlog margin increased from 11.8% at December 31, 2020 to 12.2% at December 31, 2021, driven by a greater mix of E-Infrastructure Solutions awards and a shift in backlog from low-bid to design build heavy highway work.

Backlog and gross margin:

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RESULTS OF OPERATIONS

Consolidated Results

Summary—For 2021, the Company had operating income of $107.3 million, income before income taxes of $90.0 million, net income attributable to Sterling common stockholders of $62.6 million and net income per diluted share attributable to Sterling common stockholders of $2.15.

Consolidated financial highlights for 2021 as compared to 2020 are as follows:

Revenues—Revenues were $1.58 billion for 2021, an increase of $154.4 million or 10.8% compared to the prior year. The increase was driven by a $71.5 million increase in E-Infrastructure Solutions, a $41.8 million increase in Transportation Solutions and a $41.1 million increase in Building Solutions.

Gross profit—Gross profit was $214.8 million for 2021, an increase of $23.4 million or 12.2% compared to the prior year. The Company’s gross margin increased to 13.6% in 2021, as compared to 13.4% in the prior year, driven by higher volume and the ramp up of construction on large design-build joint venture projects as we continued to reduce the lower margin low-bid heavy highway revenues for Transportation Solutions.

Contracts in progress which were not substantially complete totaled approximately 200 at both December 31, 2021 and 2020. These contracts are of various sizes, of different expected profitability and in various stages of completion. The nearer a contract progresses toward completion, the more visibility the Company has in refining its estimate of total revenues (including incentives, delay penalties and change orders), costs and gross profit. Thus, gross profit as a percent of revenues can increase or decrease from comparable and subsequent quarters due to variations among contracts and depending upon the stage of completion of contracts.

General and administrative expenses—General and administrative expenses were $78.5 million, or 5.0% of revenue, for 2021, compared to $71.4 million, or 5.0% of revenue, in the prior year. The increase is primarily due to higher employee and insurance related costs.

Acquisition related costs—The Company had acquisition related costs of $3.9 million and $1.0 million in the years ended 2021 and 2020, respectively. These costs relate primarily to the acquisition of Petillo in 2021 and completing the integration of Plateau in 2020.

Other operating expense, net—Other operating expense, net, includes 50% of earnings and losses related to members’ interest of consolidated 50% owned subsidiaries, earn-out expense and other miscellaneous operating income or expense. Members’ interest earnings are treated as an expense and increase the liability account. The change in other operating expense, net, was an increase of $1.0 million during 2021 compared to the prior year. Members’ interest earnings increased by $2.0 million during 2021 to $13.1 million from $11.1 million in the prior year, as a result of improved margin mix from our 50%

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owned subsidiaries. Earn-out expense decreased by $1.0 million during 2021 to $0.5 million from $1.5 million in the prior year as the result of the end of the earn-out period in the second quarter of 2021.

Interest expense—Interest expense was $19.3 million in 2021 compared to $29.4 million in the prior year. The decrease is in part due to a 2% lower applicable interest rate provided under the amended Credit Agreement (as defined below), which was amended in the second quarter of 2021, and in part due to the Company’s declining original Term Loan Facility (as defined below) balance, as the Company has paid down $48.1 million of the balance in 2021.

Income taxes—The effective income tax rate was 27.7% in 2021 and 34.4% in the prior year. The decrease is primarily due to reduction in state income taxes and other permanent differences. Due to its net operating loss carryforwards, the Company had no cash payments for federal income taxes in 2021 or 2020. The Company makes cash payments for state income taxes in states in which the Company does not have net operating loss carryforwards. See Note 13 - Income Taxes for more information.

Segment Results

With the December 30, 2021 acquisition of Petillo, the Company realigned its operating groups to reflect management’s present oversight of operations. After realignment, the Company’s operations consist of three reportable segments: Transportation Solutions, E-Infrastructure Solutions and Building Solutions, with the commercial business reclassified from the previously reported Specialty Services operating group into the newly formed Building Solutions operating group. We incur expenses at the corporate level that relate to our business as a whole. Certain of these amounts have been charged to our business segments by various methods, largely on the basis of usage, with the unallocated remainder reported in the “Corporate” line. The segment information for the prior periods has been recast to conform to the current presentation.

Transportation Solutions

Revenues—Revenues were $795.6 million for 2021, an increase of $41.8 million or 5.5%, compared to the prior year. The increase was driven by higher heavy highway and aviation revenue, partly offset by lower water containment and treatment revenue. The increase in heavy highway revenue was primarily due to the ramp up of construction on large design-build joint venture projects. During 2021, our low-bid heavy highway revenue decreased by $79.8 million, which was offset by an increase of $126.1 million from heavy highway design build and other revenues compared to the prior year.

Operating income—Operating income was $21.5 million for 2021, an increase of $7.1 million, compared to the prior year. The increase was the result of improved margin mix with the ramp up of construction on large design-build joint venture projects and the continuation of our strategic revenue reduction from lower margin low-bid heavy highway work.

E-Infrastructure Solutions

Revenues—Revenues were $468.8 million for 2021, an increase of $71.5 million or 18.0%, compared to the prior year. The increase was primarily driven by a higher volume of site development.

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Operating income—Operating income was $80.5 million for 2021, an increase of $4.0 million, compared to the prior year. The increase was primarily driven by higher volume; however, it was partly offset by continued headwinds from supply chain issues and the related impact on productivity and efficiency.

Building Solutions

Revenues—Revenues were $317.4 million for 2021, an increase of $41.1 million or 14.9% compared to the prior year. The increase in revenue was primarily the result of a $44.5 million increase in residential revenues, partly offset by a $3.4 million decrease in commercial revenues. Despite inclement weather in Texas in the first half of 2021, the Company’s revenue increased due to a record number of concrete slabs poured in 2021. We continue to see strong demand for new housing in our Texas footprint and our expansion into the Arizona market.

Operating income—Operating income was $32.6 million for 2021, an increase of $2.1 million compared to the prior year. The increase was driven by the aforementioned higher volume; however, operating margins declined due to higher material costs for concrete, steel and lumber, and the lack of consistent availability of these materials, as well as labor shortages and increased subcontractor labor costs. While the Company has worked with customers to pass on the increases in material and labor cost, the Company may not be successful in recouping these additional costs in the future.

Corporate

Operating expense—The corporate overhead element of general and administrative expenses, which is not allocated to the business segments, was $23.4 million for 2021, a decrease of $2.1 million compared to the prior year. Corporate overhead is primarily comprised of corporate headquarters facility expense, the cost of the executive management team, and expenses pertaining to certain centralized functions that benefit the entire Company but are not directly attributable to the businesses, such as corporate human resources, legal, governance and finance functions.

LIQUIDITY AND SOURCES OF CAPITAL

Cash—Cash at December 31, 2021 was $81.8 million, and includes the following components:

The following tables set forth information about our cash flows and liquidity:

Operating Activities—During 2021, net cash provided by operating activities was $151.6 million compared to net cash provided by operating activities of $120.9 million in the prior year. Cash flows provided by operating activities were driven by higher net income, adjusted for various non-cash items and changes in accounts receivable, net contracts in progress and accounts payable balances (collectively, “Contract Capital”), as discussed below, and other accrued liabilities.

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Changes in Contract Capital—The change in operating assets and liabilities varies due to fluctuations in operating activities and investments in Contract Capital. The changes in components of Contract Capital during the years ended December 31, 2021 and 2020 were as follows:

During 2021, the change in Contract Capital increased liquidity by $31.0 million. The Company’s Contract Capital fluctuations are impacted by the mix of projects in Backlog, seasonality, the timing of new awards and related payments for work performed and the contract billings to the customer as projects are completed. Contract Capital is also impacted at period-end by the timing of accounts receivable collections and accounts payable payments for projects.

Investing Activities—During 2021, net cash used in investing activities was $223.4 million, compared to net cash used of $30.5 million in the prior year. In 2021, the cash used in investing activities was driven by acquisitions, primarily the Petillo Acquisition, and to a lesser extent, purchases of capital equipment less cash proceeds from the sale of property and equipment. Capital equipment is acquired as needed to support changing levels of production activities and to replace retiring equipment.

Financing Activities—During 2021, net cash provided by financing activities was $87.9 million compared to net cash used of $68.3 million in the prior year. In 2021, the cash provided by financing activities was driven by the $140.0 million of cash received from our amended Credit Facility (as defined below), which was utilized to fund the Petillo Acquisition. The financing inflow was partially offset by $48.1 million in repayments on the Term Loan Facility (as defined below), $2.5 million in distributions to noncontrolling interest owners and $1.3 million in payments of debt issuance costs associated with amending our Credit Facility (as defined below).

Credit Facilities, Debt and Other Capital

General—In addition to our available cash, cash equivalents and cash provided by operations, from time to time we use borrowings to finance acquisitions, our capital expenditures and working capital needs.

Credit Facility—Our amended credit agreement (as amended, the “Credit Agreement”) provides the Company with senior secured debt financing in an initial principal amount of up to $475.0 million in the aggregate (collectively, the “Credit Facility”), consisting of (i) a senior secured first lien term loan facility (the “Term Loan Facility”) in the initial aggregate principal amount of $400.0 million and (ii) a senior secured first lien revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of $75.0 million (with a $75.0 million limit for the issuance of letters of credit and a $15.0 million sublimit for swing line loans). At December 31, 2021, we had $446.9 million of outstanding borrowings under the Term Loan Facility and no outstanding borrowings under the Revolving Credit Facility. The obligations under the Credit Facility are secured by substantially all assets of the Company and the subsidiary guarantors, subject to certain permitted liens and interests of other parties. The Credit Facility will mature on October 2, 2024.

Other Debt—Other debt primarily consists of a subordinated promissory note to the Plateau seller and short-term Paycheck Protection Program loans (the “PPP Loans”) received by the Company’s two 50% owned subsidiaries.

As part of the Plateau Acquisition, the Company issued a $10.0 million subordinated promissory note to one of the Plateau sellers that bears interest at 8% with interest payments due quarterly beginning January 1, 2020. The subordinated promissory note has no scheduled payments, however, it may be repaid in whole or in part at any time, subject to certain payment restrictions under a subordination agreement with the Agent under our Credit Agreement, without premium or penalty, with final payment of all principal and interest then outstanding due on April 2, 2025. At inception, the subordinated promissory note’s interest rate approximated market.

During the second quarter of 2020, the Company’s two 50% owned subsidiaries received three short-term PPP Loans totaling approximately $9.8 million. The loans may be fully or partially forgiven if the funds are used for payroll related costs, interest on mortgages, rent and utilities, and as long as the employee headcount and salary levels remain consistent with our baseline period over an eight to twenty-four week period following the date the loans were received. Any forgiveness of the loans requires approval by the Small Business Administration (“SBA”). If the SBA determines that the loans are not fully or partially forgiven, the balance is subject to a 1% interest rate and requires repayment. During 2021, the SBA forgave two of the PPP Loans totaling approximately $5.0 million, of which the Company recorded a gain on debt extinguishment of

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approximately $2.5 million for its 50% portion of the gain. The remaining PPP Loan is classified as short-term debt under “Current Liabilities” on the Consolidated Balance Sheet at December 31, 2021, as we filed for a forgiveness determination with the SBA in 2021 and we are awaiting their decision.

Compliance and Other—The Credit Agreement contains various affirmative and negative covenants that may, subject to certain exceptions, restrict the ability of us and our subsidiaries to, among other things, grant liens, incur additional indebtedness, make loans, advances or other investments, make non-ordinary course asset sales, declare or pay dividends or make other distributions with respect to equity interests, purchase, redeem or otherwise acquire or retire capital stock or other equity interests, or merge or consolidate with any other person, among various other things. In addition, the Company is required to maintain certain financial covenants. As of December 31, 2021, we were in compliance with all of our restrictive and financial covenants. The Company’s debt is recorded at its carrying amount in the Consolidated Balance Sheets. As of December 31, 2021 and 2020, the carrying values of our debt outstanding approximated the fair values.

Borrowings—Based on our average borrowings for 2021 and our 2022 forecasted cash needs, we continue to believe that the Company has sufficient liquid financial resources to fund our requirements for the next year of operations. Furthermore, the Company is continually assessing ways to increase revenues and reduce costs to improve liquidity. However, in the event of a substantial cash constraint and if we were unable to secure adequate debt financing, our liquidity could be materially and adversely affected.

Issuance Common Stock—On December 30, 2021, in connection with the acquisition of Petillo, the Company issued 759,447 shares of the Company’s stock as consideration paid to the Petillo sellers. The value of the shares issued was $20.4 million based on Sterling’s closing stock price on December 29, 2021. See Note 3 - Acquisitions for further discussion.

Bonding—As is customary in the construction business, we are required to provide surety bonds to secure our performance under construction contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. We have pledged all proceeds and other rights under our construction contracts to our bond surety company. Events that affect the insurance and bonding markets may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. To date, we have not encountered difficulties or material cost increases in obtaining new surety bonds.

Capital Strategy—The Company will continue to explore additional revenue growth and capital alternatives to improve leverage and strengthen its financial position in order to take advantage of trends in the civil infrastructure and E-infrastructure markets. The Company expects to pursue strategic uses of its cash, such as, investing in projects or businesses that meet its gross margin targets and overall profitability and managing its debt balances.

Material Cash Requirements

The following table sets forth our material cash requirements from contractual obligations at December 31, 2021:

(1) Mandatory redemption is based on the death or disability of the interest holders. Undistributed earnings can be distributed upon unanimous consent from the members and for tax distributions. At this time we cannot predict when such distributions will be made. The Company has purchased two separate $20.0 million death and permanent total disability insurance policies to mitigate the Company’s cash draw if such events were to occur.

Capital Expenditures—Capital equipment is acquired as needed by increased levels of production and to replace retiring equipment. Capital expenditures, net of disposals, incurred in 2021 were $42.5 million. Management expects net capital expenditures in 2022 to be in the range of $50.0 to $55.0 million; however, the award of a project requiring significant purchases of equipment or other factors could result in increased expenditures.

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NEW ACCOUNTING STANDARDS

See the applicable section of Note 2 - Basis of Presentation and Significant Accounting Policies for a discussion of new accounting standards.

CRITICAL ACCOUNTING ESTIMATES

The discussion and analysis of the financial condition and results of operations are based on the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting policies generally accepted in the U.S. (“GAAP”). The preparation of these Consolidated Financial Statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. The Company continually evaluates its estimates based on historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting estimates involve more significant judgment used in the preparation of the Consolidated Financial Statements.

Revenue Recognition

Performance Obligations Satisfied Over Time—Revenue for contracts that satisfy the criteria for over time recognition is recognized as the work progresses. The Company measures transfer of control of the performance obligation utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs, such as materials and labor, and indirect costs that are attributable to contract activity. Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and is a significant factor in the accounting for such performance obligations. Significant estimates that impact the cost to complete each performance obligation are materials, components, equipment, labor and subcontracts; labor productivity; schedule durations, including subcontractor or supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingencies, among others. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on performance obligations in progress. Due to the various estimates inherent in contract accounting, actual results could differ from those estimates, which could result in material changes to the Company’s Consolidated Financial Statements and related disclosures. See “Contract Estimates” within Note 4 - Revenue from Customers for further discussion.

Fair Value Measurements

The Company may use fair value measurements that involve the input of estimates that require significant judgment. The Company’s use of these fair value measurements include:

•determining the purchase price allocation for an acquired business;

•goodwill impairment testing when a quantitative analysis is deemed necessary; and

•long-lived asset (such as property, equipment and intangible assets) impairment testing when impairment indicators are present.

When performing quantitative fair value or impairment evaluations, the Company estimates the fair value of assets by considering the results of income-based and/or a market-based valuation method. Under the income-based method, a discounted cash flow valuation model uses recent forecasts to compare the estimated fair value of each asset to its carrying value. Cash flow forecasts are discounted using the weighted-average cost of capital for the applicable reporting unit at the date of evaluation. The weighted-average cost of capital is comprised of the cost of equity and the cost of debt with a weighting for each that reflects the Company’s current capital structure. Preparation of long-term forecasts involve significant judgments involving consideration of backlog, expected future awards, customer attribution, working capital assumptions and general market trends and conditions. Significant changes in these forecasts or any valuation assumptions, such as the discount rate selected, could affect the estimated fair value of our assets and could result in impairment. Under the market-based method, market information such as multiples of comparable publicly traded companies and/or completed sales transactions are used to develop or validate our fair value conclusions, when appropriate and available.

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Purchase Price Allocations—The aggregate purchase price for the acquisition of Petillo was allocated to the major categories of assets and liabilities acquired based upon their estimated fair values as of December 30, 2021, which were based, in part, upon internal and external valuations of certain assets, including specifically identified intangible assets and property and equipment. The valuations were based on the income-based and market-based valuation methods noted above. The excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired, totaling $67.8 million, was recorded as goodwill. See Note 3 - Acquisitions for further discussion.

Goodwill—Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, absent any indicators of impairment or when other actions require an impairment assessment. The Company performs the annual impairment assessment during the fourth quarter of each year based on balances as of October 1. During the fourth quarter of 2021, 2020 and 2019, the Company performed a qualitative assessment of goodwill, and based on this assessment, no indicators of impairment were present. Factors considered include macroeconomic, industry and competitive conditions, financial performance and reporting unit specific events. These are discussed in a number of places including Item 1A “Risk Factors.” Our annual assessments indicated there was no impairment of goodwill during the years ended December 31, 2021, 2020 and 2019.

Long-lived Assets—Long-lived assets, which include property, equipment and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, the estimated future cash flow associated with the asset or asset group will be compared to their respective carrying amounts to determine if an impairment exists. Actual useful lives and cash flows could be different from those estimated by management, and this could have a material effect on operating results and financial position. For the years ended December 31, 2021, 2020 and 2019, there were no events or changes in circumstances that would indicate a material impairment of our long-lived assets.