10-Q 1 prim-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2024

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 001-34145

Primoris Services Corporation

(Exact name of registrant as specified in its charter)

Delaware

    

20-4743916

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

2300 N. Field Street, Suite 1900

Dallas, Texas

75201

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (214740-5600

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, $0.0001 par value

PRIM

New York Stock Exchange

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 (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).  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 

On May 6, 2024, 53,640,127 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

PRIMORIS SERVICES CORPORATION

INDEX

    

Page No.

Part I. Financial Information

Item 1. Financial Statements:

—Condensed Consolidated Balance Sheets at March 31, 2024 and December 31, 2023 (Unaudited)

3

—Condensed Consolidated Statements of Income for the three months ended March 31, 2024 and 2023 (Unaudited)

4

—Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023 (Unaudited)

5

—Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (Unaudited)

6

—Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (Unaudited)

7

—Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk

32

Item 4. Controls and Procedures

32

Part II. Other Information

Item 1. Legal Proceedings

33

Item 5. Other Information

33

Item 6. Exhibits

33

Signatures

34

2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

(Unaudited)

March 31,

December 31,

    

2024

    

2023

ASSETS

Current assets:

Cash and cash equivalents

$

177,600

$

217,778

Accounts receivable, net

 

811,945

 

685,439

Contract assets

 

871,911

 

846,176

Prepaid expenses and other current assets

 

138,027

 

135,840

Total current assets

 

1,999,483

 

1,885,233

Property and equipment, net

 

462,992

 

475,929

Operating lease assets

393,879

360,507

Intangible assets, net

 

222,369

 

227,561

Goodwill

 

857,650

 

857,650

Other long-term assets

 

18,074

 

20,547

Total assets

$

3,954,447

$

3,827,427

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

632,452

$

628,962

Contract liabilities

 

440,180

 

366,476

Accrued liabilities

 

283,006

 

263,492

Dividends payable

 

3,222

 

3,202

Current portion of long-term debt

 

89,530

 

72,903

Total current liabilities

 

1,448,390

 

1,335,035

Long-term debt, net of current portion

 

862,216

 

885,369

Noncurrent operating lease liabilities, net of current portion

287,024

263,454

Deferred tax liabilities

 

59,482

 

59,565

Other long-term liabilities

 

47,930

 

47,912

Total liabilities

 

2,705,042

 

2,591,335

Commitments and contingencies (See Note 13)

Stockholders’ equity

Common stock—$0.0001 par value; 90,000,000 shares authorized; 53,630,490 and 53,366,327 issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

6

 

6

Additional paid-in capital

 

274,711

 

275,846

Retained earnings

 

976,749

 

961,028

Accumulated other comprehensive income

(2,061)

(788)

Total stockholders’ equity

 

1,249,405

 

1,236,092

Total liabilities and stockholders’ equity

$

3,954,447

$

3,827,427

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

March 31, 

2024

    

2023

Revenue

$

1,412,707

$

1,256,896

Cost of revenue

 

1,279,331

 

1,157,164

Gross profit

 

133,376

 

99,732

Selling, general and administrative expenses

 

88,588

 

78,009

Transaction and related costs

550

2,695

Operating income

 

44,238

 

19,028

Other income (expense):

Foreign exchange gain, net

560

926

Other (expense) income, net

 

(126)

 

331

Interest expense, net

 

(17,992)

 

(18,465)

Income before provision for income taxes

 

26,680

 

1,820

Provision for income taxes

 

(7,737)

 

(510)

Net income

18,943

1,310

Dividends per common share

$

0.06

$

0.06

Earnings per share:

Basic

$

0.35

$

0.02

Diluted

$

0.35

$

0.02

Weighted average common shares outstanding:

Basic

 

53,490

 

53,184

Diluted

 

54,414

 

53,944

See Accompanying Notes to Condensed Consolidated Financial Statements

4

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

Three Months Ended

March 31, 

2024

    

2023

Net income

$

18,943

$

1,310

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments

(1,273)

115

Comprehensive income

$

17,670

$

1,425

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, December 31, 2023

 

53,366,327

$

6

$

275,846

$

961,028

$

(788)

$

1,236,092

Net income

 

 

 

 

18,943

 

18,943

Foreign currency translation adjustments, net of tax

(1,273)

(1,273)

Issuance of shares

28,444

 

 

1,098

 

 

1,098

Conversion of stock based awards, net of shares withheld for taxes

235,719

(4,639)

(4,639)

Stock-based compensation

 

 

 

2,406

 

 

2,406

Dividends declared ($0.06 per share)

 

 

 

 

(3,222)

 

(3,222)

Balance, March 31, 2024

 

53,630,490

$

6

$

274,711

$

976,749

$

(2,061)

$

1,249,405

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Earnings

0

Income

0

Equity

Balance, December 31, 2022

 

53,124,899

$

6

$

263,771

$

847,681

$

(2,620)

$

1,108,838

Net income

 

 

 

 

1,310

 

 

1,310

Foreign currency translation adjustments, net of tax

115

115

Issuance of shares

 

39,685

 

 

1,006

 

 

 

1,006

Conversion of stock based awards, net of shares withheld for taxes

118,052

(1,339)

(1,339)

Stock-based compensation

2,379

2,379

Dividends declared ($0.06 per share)

 

 

 

 

(3,196)

 

 

(3,196)

Balance, March 31, 2023

 

53,282,636

$

6

$

265,817

$

845,795

$

(2,505)

$

1,109,113

See Accompanying Notes to Condensed Consolidated Financial Statements

6

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Three Months Ended

March 31, 

    

2024

    

2023

Cash flows from operating activities:

Net income

$

18,943

$

1,310

Adjustments to reconcile net income to net cash used in operating activities (net of effect of acquisitions):

Depreciation and amortization

 

24,581

 

27,733

Stock-based compensation expense

 

2,406

 

2,379

Gain on sale of property and equipment

 

(9,141)

 

(5,798)

Unrealized (gain) loss on interest rate swap

(662)

469

Other non-cash items

2,149

491

Changes in assets and liabilities:

Accounts receivable

 

(129,344)

 

(71,939)

Contract assets

 

(26,511)

 

(82,783)

Other current assets

 

562

 

29,836

Other long-term assets

(650)

148

Accounts payable

4,022

26,282

Contract liabilities

 

73,710

 

(12,000)

Operating lease assets and liabilities, net

 

(5,530)

 

(1,263)

Accrued liabilities

 

14,841

 

(30,565)

Other long-term liabilities

 

2,160

 

363

Net cash used in operating activities

 

(28,464)

 

(115,337)

Cash flows from investing activities:

Purchase of property and equipment

 

(10,434)

 

(13,847)

Proceeds from sale of assets

 

14,621

 

7,377

Net cash provided by (used in) investing activities

 

4,187

 

(6,470)

Cash flows from financing activities:

Borrowings under revolving lines of credit

75,000

Payments on revolving lines of credit

 

 

(75,000)

Payments on long-term debt

 

(6,978)

 

(31,511)

Proceeds from issuance of common stock

620

489

Payments related to tax withholding for stock-based compensation

(4,639)

(1,339)

Dividends paid

 

(3,202)

 

(3,187)

Other

(907)

 

(1,053)

Net cash used in financing activities

 

(15,106)

 

(36,601)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(314)

(79)

Net change in cash, cash equivalents and restricted cash

 

(39,697)

 

(158,487)

Cash, cash equivalents and restricted cash at beginning of the period

 

223,542

 

258,991

Cash, cash equivalents and restricted cash at end of the period

$

183,845

$

100,504

See Accompanying Notes to Condensed Consolidated Financial Statements

7

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands)

(Unaudited)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Three Months Ended March 31, 

    

2024

    

2023

Cash paid for interest

$

6,830

$

17,368

Cash paid for income taxes, net of refunds received

(24)

(16,622)

Leased assets obtained in exchange for new operating leases

60,127

33,281

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

Three Months Ended March 31, 

    

2024

    

2023

Dividends declared and not yet paid

$

3,222

$

3,196

See Accompanying Notes to Condensed Consolidated Financial Statements

8

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 operationsPrimoris 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 months ended March 31, 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.

9

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. The following tables provide a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the totals of such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands):

March 31,

    

2024

    

2023

Cash and cash equivalents

$

177,600

$

94,756

Restricted cash included in prepaid expenses and other current assets

6,245

5,748

Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows

$

183,845

$

100,504

    

    

December 31,

    

2023

    

2022

Cash and cash equivalents

$

217,778

$

248,692

Restricted cash included in prepaid expense and other current assets

5,764

10,299

Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows

$

223,542

$

258,991

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. The Facility has a one-year term, and the maximum purchase commitment by PNC is $100.0 million, at any one time. Fees associated with the Facility for the three months ended March 31, 2024 were $1.3 million and are included in interest expense in the Condensed Consolidated Statements of Income.

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 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 $85.0 million as of March 31, 2024. The SPE owned $230.5 million of trade accounts receivable as of March 31, 2024, which are included in Accounts receivable, net on the Condensed Consolidated Balance Sheets. For the three months ended March 31, 2024, we received $10.0 million in cash proceeds from the Facility, which are included in cash from operating activities in the Condensed Consolidated Statements of Cash Flows. As of March 31, 2024, we had $15.0 million available capacity under the Facility.

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 ten customers in any one calendar year generate revenue that is approximately 40% to 50% of total revenue; however, the companies that comprise the top ten customers vary from year to year.

For the three months ended March 31, 2024 and 2023, approximately 46.4% and 42.3%, respectively, of total revenue was generated from our top ten customers and no one customer accounted for more than 10% of our total revenue.

10

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 at March 31, 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 March 31, 2024:

Cash and cash equivalents

$

177,600

 

$

 

$

Interest rate swap

2,294

Assets as of December 31, 2023:

Cash and cash equivalents

217,778

 

 

Interest rate swap

1,633

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.

11

The interest rate swaps are 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 three months ended March 31, 2024 and 2023, $1,103.4 million, and $871.8 million, respectively, of our revenue is derived from contracts where scope is adequately defined, and therefore we can reasonably estimate total contract value. For these contracts, revenue is recognized over time as work is completed because of the continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). For certain contracts, where scope is not adequately defined and we can’t reasonably estimate total contract value, revenue is recognized either on an input basis, based on contract costs incurred as defined within the respective contracts, or an output basis, based on units completed. Costs to obtain contracts are generally not significant and are expensed in the period incurred.

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 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 March 31, 2024, we had $5.1 billion of remaining performance obligations. We expect to recognize 56.2% of our remaining performance obligations as revenue during the next 12 months and substantially all of the remaining balance in the 12 to 18 months thereafter.

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.

12

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 March 31, 2024, revenue recognized related to performance obligations satisfied in previous periods was $3.9 million. If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized in full, including the reversal of any previously recognized profit, in the period it is identified and recognized as an “accrued loss provision” which is included in “Contract liabilities” on the Condensed Consolidated Balance Sheets. For contract revenue recognized over time, the accrued loss provision is adjusted so that the gross profit for the contract remains zero in future periods.

At March 31, 2024, we had approximately $188.8 million of unapproved contract modifications included in the aggregate transaction prices. These contract modifications were in the process of being negotiated in the normal course of business. Approximately $170.0 million of the contract modifications had been recognized as revenue on a cumulative catch-up basis through March 31, 2024.

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 the cost incurred to a specific project.

13

Contract assets consist of the following (in thousands):

March 31, 

December 31, 

    

2024

    

2023

Unbilled revenue

$

626,734

$

604,166

Retention receivable

202,875

202,358

Contract materials (not yet installed)

 

42,302

 

39,652

$

871,911

$

846,176

Contract assets increased by $25.7 million compared to December 31, 2023, primarily due to higher unbilled revenue.

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):

March 31, 

December 31, 

    

2024

    

2023

Deferred revenue

$

438,616

$

363,159

Accrued loss provision

 

1,564

 

3,317

$

440,180

$

366,476

Contract liabilities increased by $73.7 million compared to December 31, 2023, due to higher deferred revenue.

Revenue recognized for the three months ended March 31, 2024, that was included in the contract liability balance at December 31, 2023, was approximately $233.1 million.

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 March 31, 2024

Segment

    

MSA

    

Non-MSA

    

Total

Utilities

$

383,633

$

107,177

$

490,810

Energy

93,925

895,107

989,032

Intersegment Eliminations

(3,486)

(63,649)

(67,135)

Total

$

474,072

 

$

938,635

 

$

1,412,707

For the three months ended March 31, 2023

Segment

MSA

Non-MSA

Total

Utilities

$

378,428

$

160,793

$

539,221

Energy

80,200

661,115

741,315

Intersegment Eliminations

(9,510)

(14,130)

(23,640)

Total

$

449,118

 

$

807,778

 

$

1,256,896

14

Revenue by contract type was as follows (in thousands):

For the three months ended March 31, 2024

Segment

    

Fixed-price

    

Unit-price

    

Cost reimbursable (1)

    

Total

Utilities

$

87,459

$

299,849

$

103,502

$

490,810

Energy

623,915

142,789

222,328

989,032

Intersegment Eliminations

(42,026)

(4,175)

(20,934)

(67,135)

Total

$

669,348

 

$

438,463

 

$

304,896

 

$

1,412,707

(1)Includes time and material and cost reimbursable plus fee contracts.

For the three months ended March 31, 2023

Segment

Fixed-price

Unit-price

Cost reimbursable (1)

Total

Utilities

$

86,134

328,385

$

124,702

$

539,221

Energy

532,217

129,358

79,740

741,315

Intersegment Eliminations

(5,588)

(8,902)

(9,150)

(23,640)

Total

$

612,763

 

$

448,841

 

$

195,292

 

$

1,256,896

(1)Includes time and material and cost reimbursable plus fee contracts.

Each of these contract types has a different risk profile. Typically, we assume more risk with fixed-price contracts. Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular fixed-price contract. However, these types of contracts offer additional profits when we complete the work for less cost than originally estimated. Unit-price and cost reimbursable contracts generally subject us to lower risk. Accordingly, the associated fees are usually lower than fees earned on fixed-price contracts. Under these contracts, our profit may vary if actual costs vary significantly from the negotiated rates.

Note 5—Goodwill and Intangible Assets

The carrying amount of goodwill by reportable segment was as follows (in thousands):

March 31, 

December 31, 

Reporting Segment

    

2024

    

2023

Utilities

 

$

703,462

$

703,462

Energy

 

 

154,188

 

154,188

Total Goodwill

$

857,650

$

857,650

The table below summarizes the intangible asset categories and amounts, which are amortized on a straight-line basis (in thousands):

March 31, 2024

December 31, 2023

Gross Carrying
Amount

    

Accumulated
Amortization

    

Intangible assets, net

    

Gross Carrying
Amount

    

Accumulated
Amortization

    

Intangible assets, net

Tradenames

$

19,220

(16,483)

2,737

$

19,220

$

(15,799)

$

3,421

Customer relationships

 

295,977

(76,345)

219,632

 

295,977

 

(71,837)

 

224,140

Total

$

315,197

$

(92,828)

$

222,369

$

315,197

$

(87,636)

$

227,561

15

Amortization expense of intangible assets was $5.2 million and $6.1 million for the three months ended March 31, 2024, and 2023, respectively. Estimated future amortization expense for intangible assets is as follows (in thousands):

Estimated

Intangible

Amortization

For the Years Ending December 31, 

    

Expense

2024 (remaining nine months)

$

14,497

2025

17,661

2026

 

16,141

2027

 

15,604

2028

 

14,381

Thereafter

 

144,085

$

222,369

Note 6—Accounts Payable and Accrued Liabilities

At March 31, 2024, and December 31, 2023, accounts payable included retention amounts of approximately $28.1 million and $24.7 million, respectively. These amounts owed to subcontractors have been retained pending contract completion and customer acceptance of jobs.

The following is a summary of accrued liabilities (in thousands):

March 31, 

December 31, 

    

2024

    

2023

Payroll and related employee benefits

$

105,737

$

108,618

Current operating lease liability

100,679

96,411

Casualty insurance reserves

 

17,218

 

18,015

Corporate income taxes and other taxes

 

20,604

 

14,203

Other

 

38,768

 

26,245

$

283,006

$

263,492

Note 7 — Credit Arrangements

Long-term debt and credit facilities consist of the following (in thousands):

March 31, 

December 31, 

    

2024

    

2023

Term loan

$

874,128

$

874,128

Revolving credit facility

Commercial equipment notes

64,229

71,004

Mortgage notes

 

19,407

 

19,615

Total debt

957,764

964,747

Unamortized debt issuance costs

(6,018)

(6,475)

Total debt, net

$

951,746

$

958,272

Less: current portion

 

(89,530)

 

(72,903)

Long-term debt, net of current portion

$

862,216

$

885,369

The weighted average interest rate on total debt outstanding at March 31, 2024 and December 31, 2023 was 6.6% and 6.8%, respectively.

On August 1, 2022, we entered into the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), which increased our term loan to an aggregate principal amount of $945.0 million (the “Term Loan”) and increased our revolving credit facility to $325.0 million (the “Revolving Credit Facility”), under which the lenders agreed to make loans on a revolving basis from time to time and to issue letters of credit for up to the $325.0 million committed amount. The maturity date of the Amended Credit Agreement is August 1, 2027. At March 31, 2024, commercial letters of credit outstanding were $51.6 million. There were no outstanding borrowings under the Revolving Credit Facility, and available borrowing capacity was $273.4 million at March 31, 2024.

The Amended Credit Agreement contains various restrictive and financial covenants including, among others, a net senior debt/EBITDA ratio and minimum EBITDA to cash interest ratio. In addition, the Amended Credit Agreement

16

includes restrictions on investments, change of control provisions and provisions in the event we dispose of more than 20% of our total assets. We were in compliance with the covenants for the Amended Credit Agreement at March 31, 2024.

On January 31, 2023, we entered into an interest rate swap agreement to manage our exposure to the fluctuations in variable interest rates. The swap effectively exchanged the interest rate on $300.0 million of the debt outstanding under our Term Loan from variable to a fixed rate of 4.095% per annum, plus an applicable margin, which was 2.00% at March 31, 2024. The interest rate swap matures on January 31, 2025. See Note 8 – “Derivative Instruments”.

Canadian Credit Facilities

We have credit facilities totaling $14.0 million in Canadian dollars for the purposes of issuing commercial letters of credit and providing funding for working capital. At March 31, 2024, commercial letters of credit outstanding were $0.9 million in Canadian dollars and there were no outstanding borrowings. Available capacity at March 31, 2024 was $13.1 million in Canadian dollars.

Note 8 — Derivative Instruments

We are exposed to certain market risks related to changes in interest rates. To monitor and manage these market risks, we have established risk management policies and procedures. We do not enter into derivative instruments for any purpose other than hedging interest rate risk. None of our derivative instruments are used for trading purposes.

Interest Rate Risk. We are exposed to variable interest rate risk as a result of variable-rate borrowings under our Amended Credit Agreement. To manage fluctuations in cash flows resulting from changes in interest rates on a portion of our variable-rate debt, we entered into an interest rate swap agreement on January 31, 2023, with a notional amount of $300.0 million. The swap was not designated as a hedge for accounting purposes. The swap effectively changes the variable-rate cash flow exposure on the debt obligations to fixed rates. The fair value of outstanding interest rate swap derivatives can vary significantly from period to period depending on the total notional amount of swap derivatives outstanding and fluctuations in market interest rates compared to the interest rates fixed by the swap. As of March 31, 2024, and December 31, 2023, our outstanding interest rate swap agreement contained a notional amount of $300.0 million maturing on January 31, 2025.

Credit Risk. By using derivative instruments to economically hedge exposures to changes in interest rates, we are exposed to counterparty credit risk. Credit risk is the failure of a counterparty to perform under the terms of a derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, we do not possess credit risk. We minimize the credit risk in derivative instruments by entering into transactions with high quality counterparties. We have entered into netting agreements, including International Swap Dealers Association (“ISDA”) Agreements, which allow for netting of contract receivables and payables in the event of default by either party.

The following table summarizes the fair value of our derivative contracts included in the Condensed Consolidated Balance Sheets (in thousands):

    

    

    

March 31, 

    

December 31, 

Balance Sheet Location

2024

2023

Interest rate swap

 

Other current assets

$

2,294

$

Interest rate swap

Other long-term assets

1,633

The following table summarizes the amounts recognized with respect to our derivative instruments within the Condensed Consolidated Statements of Income (in thousands):

Three Months Ended

Location of Gain

March 31, 

    

Recognized on Derivatives

2024

    

2023

Interest rate swap

 

Interest expense, net

$

1,673

$

966

Cash flows from derivatives settled are reported as cash flows from operating activities.

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Note 9—Income Taxes

We are subject to tax liabilities imposed by multiple jurisdictions. We determine our best estimate of the annual effective tax rate at each interim period using expected annual pre-tax earnings, statutory tax rates and available tax planning opportunities. Certain significant or unusual items are separately recognized in the quarter in which they occur, which can cause variability in the effective tax rate from quarter to quarter. We recognize interest and penalties related to uncertain tax positions, if any, as an income tax expense.

The effective tax rate on income for the three months ended March 31, 2024, and 2023 is 29.0% and 28.0%, respectively. For the first three months of 2024 and 2023, our tax rate differed from the U.S. federal statutory rate of 21.0% primarily due to the impact of state income taxes and nondeductible components of per diem expenses.

Our U.S. federal income tax returns are generally no longer subject to examination for tax years before 2020. The statutes of limitation of state and foreign jurisdictions generally vary between 3 to 5 years. Accordingly, our state and foreign income tax returns are generally no longer subject to examination for tax years before 2018.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting bases and tax bases of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based upon consideration of available evidence, including future reversals of existing taxable temporary differences, future projected taxable income, the length of the tax asset carryforward periods and tax planning strategies. The effects of remeasurement of deferred tax assets and liabilities resulting from changes in tax rates are recognized in income in the period of enactment.

Note 10—Dividends and Earnings Per Share

We paid cash dividends during 2024 and 2023 as follows:

Declaration Date

    

Record Date

    

Date Paid

    

Amount Per Share

February 22, 2023

March 31, 2023

April 14, 2023

0.06

May 3, 2023

June 30, 2023

July 14, 2023

0.06

August 2, 2023

September 29, 2023

October 13, 2023

0.06

November 2, 2023

December 29, 2023

January 12, 2024

0.06

February 21, 2024

March 28, 2024

April 15, 2024

0.06

The payment of future dividends is contingent upon our revenue and earnings, capital requirements and our general financial condition, as well as contractual restrictions and other considerations deemed relevant by the Board of Directors.

The table below presents the computation of basic and diluted earnings per share for the three months ended March 31, 2024 and 2023 (in thousands, except per share amounts).

Three Months Ended March 31, 

2024

    

2023

Numerator:

Net income

$

18,943

$

1,310

Denominator:

Weighted average shares for computation of basic earnings per share:

 

53,490

 

53,184

Dilutive effect of stock-based awards

 

924

 

760

Weighted average shares for computation of diluted earnings per share

 

54,414

 

53,944

Earnings per share:

Basic

$

0.35

$

0.02

Diluted

$

0.35

$

0.02

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Note 11—Stockholders’ Equity

Common stock

We issued 11,359 and 21,245 shares of common stock in the three months ended March 31, 2024, and 2023, respectively, under our long-term retention plan (“LTR Plan”). The shares were purchased by the participants in the LTR Plan with payment made to us of $0.3 million in the three months ended March 31, 2024, and 2023, respectively. Our LTR Plan for certain managers and executives allows participants to use a portion of their annual bonus amount to purchase our common stock at a discount from the market price. The shares purchased in the three months ended March 31, 2024, were a portion of bonus amounts earned in 2023, and the number of shares purchased was calculated based on 75% of the average daily closing market price of our common stock during December 2023. The shares purchased in the three months ended March 31, 2023, were for bonus amounts earned in 2022, and the number of shares was calculated based on 75% of the average daily closing market price during December 2022.

During the three months ended March 31, 2024, and 2023, we issued 7,984 and 12,120 shares of common stock, respectively, as part of the quarterly compensation of the non-employee members of the Board of Directors.

During the three months ended March 31, 2024, and 2023, a total of 235,719 and 118,052 restricted and performance stock units, net of forfeitures for tax withholdings, respectively, were converted to common stock.

Employee Stock Purchase Plan

In May 2022, our shareholders approved the 2022 Primoris Services Corporation Employee Stock Purchase Plan (the “ESPP”), for which eligible full-time employees can purchase shares of our common stock at a discount. The purchase price of the stock is 90% of the lower of the market price at the beginning of the offering period or the end of the offering period. Purchases occur semi-annually, approximately 30 days following the filing of our Annual Report on Form 10-K for the fiscal year ended December 31 of each year, but in no cases can extend beyond March 31 of the period or year, and approximately 30 days following the filing of our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30 of each year. For the three months ended March 31, 2024, 9,101 shares were purchased at an average discounted purchase price of $35.52 per share. For the three months ended March 31, 2023, 6,320 shares were purchased at an average discounted purchase price of $21.83 per share.

Share Purchase Plan

In November 2021, our Board of Directors authorized a $25.0 million share purchase program. Under the share purchase program, we can, depending on market conditions, share price and other factors, acquire shares of our common stock on the open market or in privately negotiated transactions. In November 2023, our Board of Directors replenished the limit to $25.0 million and extended the program to December 31, 2024. During the three months ended March 31, 2024 and 2023, we did not purchase any shares of common stock.

Note 12—Leases

We lease administrative and operational facilities, which are generally longer-term, project specific facilities or yards, and construction equipment under non-cancelable operating leases. We determine if an arrangement is a lease at inception. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Operating leases are included in “Operating lease assets”, “Accrued liabilities”, and “Noncurrent operating lease liabilities, net of current portion” on our Condensed Consolidated Balance Sheets. We also made an accounting policy election in which leases with an initial term of 12 months or less are not recorded on the balance sheet and lease payments are recognized in the Condensed Consolidated Statements of Income on a straight-line basis over the lease term.

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Operating lease assets and operating lease liabilities are recognized at commencement date based on the present value of the future minimum lease payments over the lease term. In determining our lease term, we include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. For our leases that do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments. Lease expense from minimum lease payments is recognized on a straight-line basis over the lease term.

Our leases have remaining lease terms that expire at various dates through 2034, some of which may include options to extend the leases for up to 5 years. The exercise of lease extensions is at our sole discretion. Periodically, we sublease excess facility space, but any sublease income is generally not significant. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease expense are as follows (in thousands):