UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter)
| ||
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) | |
(Address of Principal Executive Offices) | (Zip Code) |
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 |
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.
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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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.:
| 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
As of July 29, 2024,
PRIMORIS SERVICES CORPORATION
INDEX
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRIMORIS SERVICES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
(Unaudited)
June 30, | December 31, | |||||
| 2024 |
| 2023 | |||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
| |
| | ||
Contract assets |
| |
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Prepaid expenses and other current assets |
| |
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Total current assets |
| |
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Property and equipment, net |
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Operating lease assets | | | ||||
Intangible assets, net |
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Goodwill |
| |
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Other long-term assets |
| |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Contract liabilities |
| |
| | ||
Accrued liabilities |
| |
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Dividends payable |
| |
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Current portion of long-term debt |
| |
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Total current liabilities |
| |
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Long-term debt, net of current portion |
| |
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Noncurrent operating lease liabilities, net of current portion | | | ||||
Deferred tax liabilities |
| |
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Other long-term liabilities |
| |
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Total liabilities |
| |
| | ||
Commitments and contingencies (See Note 13) | ||||||
Stockholders’ equity | ||||||
Common stock—$ |
| |
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Additional paid-in capital |
| |
| | ||
Retained earnings |
| |
| | ||
Accumulated other comprehensive income | ( | ( | ||||
Total stockholders’ equity |
| |
| | ||
Total liabilities and stockholders’ equity | $ | | $ | | ||
See Accompanying Notes to Condensed Consolidated Financial Statements
3
PRIMORIS SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Revenue | $ | | $ | | $ | | $ | | ||||
Cost of revenue |
| |
| |
| |
| | ||||
Gross profit |
| |
| |
| |
| | ||||
Selling, general and administrative expenses |
| |
| |
| |
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Transaction and related costs | |
| | |
| | ||||||
Operating income |
| |
| |
| |
| | ||||
Other income (expense): | ||||||||||||
Foreign exchange gain, net | | | | | ||||||||
Other income (expense), net |
| |
| |
| ( |
| | ||||
Interest expense, net |
| ( |
| ( |
| ( |
| ( | ||||
Income before provision for income taxes |
| |
| |
| |
| | ||||
Provision for income taxes |
| ( |
| ( |
| ( |
| ( | ||||
Net income | | | | | ||||||||
Dividends per common share | $ | | $ | | $ | | $ | | ||||
Earnings per share: | ||||||||||||
Basic | $ | | $ | | $ | | $ | | ||||
Diluted | $ | | $ | | $ | | $ | | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic |
| |
| |
| |
| | ||||
Diluted |
| |
| |
| |
| | ||||
See Accompanying Notes to Condensed Consolidated Financial Statements
4
PRIMORIS SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income (loss), net of tax: | ||||||||||||
Foreign currency translation adjustments | ( |
| | ( | | |||||||
Comprehensive income | $ | | $ | | $ | | $ | | ||||
See Accompanying Notes to Condensed Consolidated Financial Statements
5
PRIMORIS SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
Accumulated | |||||||||||||||||
Additional | Other | Total | |||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Stockholders’ | |||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings | 0 | Income |
| Equity | ||||||
Balance, March 31, 2024 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
Net income |
| — |
| — |
| — |
| | — |
| | ||||||
Foreign currency translation adjustments, net of tax | — | — | — | — | ( | ( | |||||||||||
Issuance of shares | |
| — |
| |
| — | — |
| | |||||||
Conversion of stock based awards, net of shares withheld for taxes | | — | ( | — | — | ( | |||||||||||
Stock-based compensation |
| — |
| — |
| |
| — | — |
| | ||||||
Dividends declared ($ |
| — |
| — |
| — |
| ( | — |
| ( | ||||||
Balance, June 30, 2024 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
Accumulated | |||||||||||||||||
Additional | Other | Total | |||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Stockholders’ | |||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings | 0 | Income |
| Equity | ||||||
Balance, December 31, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
Net income |
| — |
| — |
| — |
| | — |
| | ||||||
Foreign currency translation adjustments, net of tax | — | — | — | — | ( | ( | |||||||||||
Issuance of shares |
| | — | | — | — |
| | |||||||||
Conversion of stock based awards, net of shares withheld for taxes | | — | ( | — | — | ( | |||||||||||
Stock-based compensation | — | — | | — | — | | |||||||||||
Dividends declared ($ |
| — | — | — | ( | — |
| ( | |||||||||
Balance, June 30, 2024 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
6
PRIMORIS SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
Accumulated | |||||||||||||||||
Additional | Other | Total | |||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Stockholders’ | |||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings | 0 | Income | 0 | Equity | ||||||
Balance, March 31, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
Net income |
| — |
| — |
| — |
| |
| — |
| | |||||
Foreign currency translation adjustments, net of tax | — | — | — | — | | | |||||||||||
Issuance of shares |
| |
| — |
| |
| — |
| — |
| | |||||
Conversion of stock based awards, net of shares withheld for taxes | | — | ( | — | — | ( | |||||||||||
Stock-based compensation | — | — | | — | — | | |||||||||||
Dividends declared ($ |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||
Balance, June 30, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
Accumulated | |||||||||||||||||
Additional | Other | Total | |||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Stockholders’ | |||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings | 0 | Income | 0 | Equity | ||||||
Balance, December 31, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
Net income |
| — |
| — |
| — |
| |
| — |
| | |||||
Foreign currency translation adjustments, net of tax | — | — | — | — | | | |||||||||||
Issuance of shares |
| |
| — |
| |
| — |
| — |
| | |||||
Conversion of Restricted Stock Units, net of shares withheld for taxes | | — | ( | — | — | ( | |||||||||||
Stock-based compensation | — | — | | — | — | | |||||||||||
Dividends declared ($ |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||
Balance, June 30, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
See Accompanying Notes to Condensed Consolidated Financial Statements
7
PRIMORIS SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended | ||||||
June 30, | ||||||
| 2024 |
| 2023 | |||
Cash flows from operating activities: | ||||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash used in operating activities (net of effect of acquisitions): | ||||||
Depreciation and amortization |
| |
| | ||
Stock-based compensation expense |
| |
| | ||
Gain on sale of property and equipment |
| ( |
| ( | ||
Unrealized gain on interest rate swap | ( | ( | ||||
Other non-cash items | | | ||||
Changes in assets and liabilities: | ||||||
Accounts receivable |
| ( |
| ( | ||
Contract assets |
| ( |
| ( | ||
Other current assets |
| ( |
| | ||
Other long-term assets | ( | ( | ||||
Accounts payable | ( | ( | ||||
Contract liabilities |
| |
| | ||
Operating lease assets and liabilities, net |
| ( |
| | ||
Accrued liabilities |
| |
| | ||
Other long-term liabilities |
| |
| | ||
Net cash used in operating activities |
| ( |
| ( | ||
Cash flows from investing activities: | ||||||
Purchase of property and equipment |
| ( |
| ( | ||
Proceeds from sale of assets |
| |
| | ||
Cash paid for acquisitions, net of cash and restricted cash acquired |
| — |
| | ||
Net cash provided by (used in) investing activities |
| |
| ( | ||
Cash flows from financing activities: | ||||||
Borrowings under revolving lines of credit | — | | ||||
Payments on revolving lines of credit |
| — |
| ( | ||
Payments on long-term debt |
| ( |
| ( | ||
Payments related to tax withholding for stock-based compensation | ( | ( | ||||
Dividends paid |
| ( |
| ( | ||
Other | ( |
| ( | |||
Net cash used in financing activities |
| ( |
| ( | ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | | ||||
Net change in cash, cash equivalents and restricted cash |
| ( |
| ( | ||
Cash, cash equivalents and restricted cash at beginning of the period |
| |
| | ||
Cash, cash equivalents and restricted cash at end of the period | $ | | $ | | ||
See Accompanying Notes to Condensed Consolidated Financial Statements
8
PRIMORIS SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
(Unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Six Months Ended June 30, | ||||||
| 2024 |
| 2023 | |||
Cash paid for interest | $ | | $ | | ||
Cash paid for income taxes, net of refunds received | | ( | ||||
Leased assets obtained in exchange for new operating leases | | | ||||
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Six Months Ended June 30, | ||||||
| 2024 |
| 2023 | |||
Dividends declared and not yet paid | $ | | $ | | ||
See Accompanying Notes to Condensed Consolidated Financial Statements
9
PRIMORIS SERVICES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Amounts)
(Unaudited)
Note 1—Nature of Business
Organization and operations — Primoris Services Corporation is one of the leading providers of infrastructure services operating mainly in the United States and Canada. We provide a wide range of construction, maintenance, replacement, fabrication and engineering services to a diversified base of customers through our two segments.
We have longstanding customer relationships with utility, refining, petrochemical, power, midstream, and engineering companies, and state departments of transportation. We provide our services to a diversified base of customers, under a range of contracting options. A portion of our services are provided under Master Service Agreements (“MSA”), which are generally multi-year agreements. The remainder of our services are generated from contracts for specific construction or installation projects.
We are incorporated in the State of Delaware, and our corporate headquarters are located at 2300 N. Field Street, Suite 1900, Dallas, Texas 75201. Unless specifically noted otherwise, as used throughout these consolidated financial statements, “Primoris”, “the Company”, “we”, “our”, “us” or “its” refers to the business, operations and financial results of the Company and its wholly-owned subsidiaries.
Reportable Segments — The current reportable segments include the Utilities segment and the Energy segment. See Note 14 – “Reportable Segments” for a brief description of the reportable segments and their operations.
The classification of revenue and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses, were made.
Note 2—Basis of Presentation
Interim condensed consolidated financial statements — The interim condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934, as amended. As such, certain disclosures, which would substantially duplicate the disclosures contained in our Annual Report on Form 10-K, filed on February 27, 2024, which contains our audited consolidated financial statements for the year ended December 31, 2023, have been omitted.
This Form 10-Q should be read in conjunction with our most recent Annual Report on Form 10-K. The interim financial information is unaudited. In the opinion of management, the interim information includes all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the interim financial information.
Reclassification — Certain previously reported amounts have been reclassified to conform to the current year
presentation.
10
Restricted cash — Restricted cash consists primarily of cash balances that are restricted as to withdrawal or usage and contract retention payments made by customers into escrow bank accounts and are included in prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets. Escrow cash accounts are released to us by customers as projects are completed in accordance with contract terms.
June 30, | ||||||
| 2024 |
| 2023 | |||
Cash and cash equivalents | $ | | $ | | ||
| | |||||
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | $ | | $ | | ||
|
| |||||
December 31, | ||||||
| 2023 |
| 2022 | |||
Cash and cash equivalents | $ | | $ | | ||
| | |||||
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | $ | | $ | | ||
Accounts Receivable Securitization Facility — In June 2023, we entered into an Accounts Receivable Securitization Facility (“the Facility”) with PNC Bank, National Association ("PNC") to improve cash flows from trade accounts receivable. In July 2024, we renewed the Facility for a
Under the Facility, certain of our designated subsidiaries may sell their trade accounts receivable as they are originated to a wholly owned bankruptcy remote Special Purpose Entity (“SPE”) created specifically for this purpose. We control and, therefore, consolidate the SPE in our consolidated financial statements. The SPE transfers ownership and control of qualifying accounts receivable to PNC and Regions up to the maximum purchase commitment. We and our related subsidiaries have no continuing involvement in the transferred accounts receivable, other than collection and administrative responsibilities, and, once sold, the accounts receivable are no longer available to satisfy our creditors or our related subsidiaries. We account for accounts receivable sold to the banking counterparty as a sale of financial assets and derecognize the trade accounts receivable from our Condensed Consolidated Balance Sheets.
The total outstanding balance of trade accounts receivable that have been sold and derecognized is $
Customer concentration — We operate in multiple industry sectors encompassing the construction of commercial, industrial and public works infrastructure assets primarily throughout the United States. Typically, the top
For the three and six months ended June 30, 2024, approximately
For the three and six months ended June 30, 2023, approximately
11
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” which changes the accounting and reporting of segment disclosure requirements primarily through enhanced disclosure about significant segment expenses in accordance with FASB Accounting Standards Codification 280, Segment Reporting. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied prospectively on or after the effective date. We adopted the new standard on January 1, 2024, on a prospective basis. This ASU will likely result in us including additional required disclosures in the financial statement footnotes in our annual report on form 10-K commencing with the year ending December 31, 2024, but is not expected to have an effect on our consolidated financial position, results of operations or cash flows.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” that requires presentation of specific categories of reconciling items, as well reconciling items that meet a quantitative threshold, in the reconciliation between the income tax provision and the income tax provision using statutory tax rates. The standard also requires disclosure of income taxes paid disaggregated by jurisdiction with separate disclosure of income taxes paid to individual jurisdictions that meet a quantitative threshold. ASU No. 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied prospectively; however, entities have the option to apply retrospectively for each period presented. We do not expect the adoption of this new standard in 2025 to have an impact on our consolidated financial position, results of operations or cash flows.
Note 3—Fair Value Measurements
ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC Topic 820”), defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles (“GAAP”) and requires certain disclosures about fair value measurements. ASC Topic 820 addresses fair value GAAP for financial assets and financial liabilities that are re-measured and reported at fair value at each reporting period and for non-financial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis.
In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs use data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are “unobservable data points” for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.
The following table presents, for each of the fair value hierarchy levels identified under ASC Topic 820, our financial assets and liabilities that are required to be measured at fair value as of June 30, 2024 and December 31, 2023 (in thousands):
Fair Value Measurements at Reporting Date | |||||||||
|
| Significant |
| ||||||
Quoted Prices | Other | Significant | |||||||
in Active Markets | Observable | Unobservable | |||||||
for Identical Assets | Inputs | Inputs | |||||||
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets as of June 30, 2024: | |||||||||
Cash and cash equivalents | $ | |
| $ | — |
| $ | — | |
Interest rate swap | — | | — | ||||||
Assets as of December 31, 2023: | |||||||||
Cash and cash equivalents | |
| — |
| — | ||||
Interest rate swap | — | | — | ||||||
Other financial instruments not listed in the table consist of accounts receivable, accounts payable and certain accrued liabilities. These financial instruments generally approximate fair value based on their short-term nature. The carrying value of our long-term debt approximates fair value based on comparison with current prevailing market rates for loans of similar risks and maturities.
12
The interest rate swap is measured at fair value using the income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations primarily utilize indirectly observable inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals. See Note 8 – “Derivative Instruments” for additional information.
Note 4—Revenue
We generate revenue under a range of contracting types, including fixed-price, unit-price, time and material, and cost reimbursable plus fee contracts, each of which has a different risk profile. For the six months ended June 30, 2024 and 2023, $
We evaluate whether two or more contracts should be combined and accounted for as one single performance obligation and whether a single contract should be accounted for as more than one performance obligation. ASC 606, Revenue from Contracts with Customers, defines a performance obligation as a contractual promise to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our evaluation requires significant judgment and the decision to combine a group of contracts or separate a contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. The majority of our contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and, therefore, is not distinct. However, occasionally we have contracts with multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the observable standalone selling price, if available, or alternatively our best estimate of the standalone selling price of each distinct performance obligation in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach for each performance obligation.
As of June 30, 2024, we had $
Accounting for long-term contracts involves the use of various techniques to estimate total transaction price and costs. For long-term contracts, transaction price, estimated cost at completion and total costs incurred to date are used to calculate revenue earned. Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract. Total estimated costs, and thus contract revenue and income, can be impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and approvals, labor availability, governmental regulation, politics and pandemics may affect the progress of a project’s completion, and thus the timing of revenue recognition. To the extent that original cost estimates are modified, estimated costs to complete increase, delivery schedules are delayed, or progress under a contract is otherwise impeded, cash flow, revenue recognition and profitability from a particular contract may be adversely affected.
The nature of our contracts gives rise to several types of variable consideration, including contract modifications (change orders and claims), liquidated damages, volume discounts, performance bonuses, incentive fees, and other terms that can either increase or decrease the transaction price. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent we believe we have an enforceable right, and it is probable that a significant reversal of cumulative revenue recognized will not occur. Our estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us at this time.
13
Contract modifications result from changes in contract specifications or requirements. We consider unapproved change orders to be contract modifications for which customers have not agreed to both scope and price. We consider claims to be contract modifications for which we seek, or will seek, to collect from customers, or others, for customer-caused changes in contract specifications or design, or other customer-related causes of unanticipated additional contract costs on which there is no agreement with customers. Claims can also be caused by non-customer-caused changes, such as rain or other weather delays. Costs associated with contract modifications are included in the estimated costs to complete the contracts and are treated as project costs when incurred. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. In some cases, settlement of contract modifications may not occur until after completion of work under the contract.
As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the cumulative impact of the profit adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. In the three months ended June 30, 2024, revenue was positively impacted by $
As of June 30, 2024, we had approximately $
In all forms of contracts, we estimate the collectability of contract amounts at the same time that we estimate project costs. If we anticipate that there may be issues associated with the collectability of the full amount calculated as the transaction price, we may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection. For example, when a cost reimbursable project exceeds the client’s expected budget amount, the client frequently requests an adjustment to the final amount. Similarly, some utility clients reserve the right to audit costs for significant periods after performance of the work.
The timing of when we bill our customers is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the work, or when services are provided. Sometimes, billing occurs subsequent to revenue recognition, resulting in unbilled revenue, which is a contract asset. Also, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in deferred revenue, which is a contract liability.
The caption “Contract assets” in the Condensed Consolidated Balance Sheets represents the following:
| ● | unbilled revenue, which arises when revenue has been recorded but the amount will not be billed until a later date; |
| ● | retainage amounts for the portion of the contract price earned by us for work performed, but held for payment by the customer as a form of security until we reach certain construction milestones; and |
| ● | contract materials for certain job specific materials not yet installed, which are valued using the specific identification method relating to the cost incurred to a specific project. |
14
Contract assets consist of the following (in thousands):
June 30, | December 31, | |||||
| 2024 |
| 2023 | |||
Unbilled revenue | $ | | $ | | ||
Retention receivable | | | ||||
Contract materials (not yet installed) |
| |
| | ||
$ | | $ | | |||
Contract assets increased by $
The caption “Contract liabilities” in the Condensed Consolidated Balance Sheets represents the following:
| ● | deferred revenue, which arises when billings are in excess of revenue recognized to date; and |
| ● | the accrued loss provision. |
Contract liabilities consist of the following (in thousands):
June 30, | December 31, | |||||
| 2024 |
| 2023 | |||
Deferred revenue | $ | | $ | | ||
Accrued loss provision |
| |
| | ||
$ | | $ | | |||
Contract liabilities increased by $
Revenue recognized for the six months ended June 30, 2024, that was included in the contract liability balance as of December 31, 2023, was approximately $
The following tables present our revenue disaggregated into various categories.
MSA and Non-MSA revenue was as follows (in thousands):
For the three months ended June 30, 2024 | |||||||||
Segment |
| MSA |
| Non-MSA |
| Total | |||
Utilities | $ | |
| $ | |
|
| | |
Energy | | | | ||||||
Intersegment Eliminations | ( | ( | ( | ||||||
Total | $ | |
| $ | |
| $ | | |
For the six months ended June 30, 2024 | |||||||||
Segment |
| MSA |
| Non-MSA |
| Total | |||
Utilities | $ | | $ | | $ | | |||
Energy | | | | ||||||
Intersegment Eliminations | ( | ( | ( | ||||||
Total | $ | |
| $ | |
| $ | | |
For the three months ended June 30, 2023 | |||||||||
Segment | MSA |
| Non-MSA |
| Total | ||||
Utilities | $ | |
| $ | |
| $ | | |
Energy | | | | ||||||
Intersegment Eliminations | ( | ( | ( | ||||||
Total | $ | |
| $ | |
| $ | | |
15