Primoris(PRIM) - 2021 Q2 - Quarterly Report

Part I. Financial Information This section provides the company's unaudited condensed consolidated financial statements and related notes for the periods ended June 30, 2021, and December 31, 2020 Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income statements, stockholders' equity statements, and cash flow statements, along with detailed notes explaining the company's business, accounting policies, acquisitions, revenue recognition, goodwill, debt, derivatives, income taxes, dividends, equity, leases, commitments, and segment information for the periods ended June 30, 2021 and December 31, 2020 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time Condensed Consolidated Balance Sheets (In Thousands) | ASSETS (In Thousands) | June 30, 2021 | December 31, 2020 | | :---------------------- | :------------ | :------------------ | | Cash and cash equivalents | $177,979 | $326,744 | | Accounts receivable, net | $479,013 | $432,455 | | Contract assets | $386,702 | $325,849 | | Total current assets | $1,094,413 | $1,115,266 | | Property and equipment, net | $432,200 | $356,194 | | Intangible assets, net | $176,810 | $61,012 | | Goodwill | $582,106 | $215,103 | | Total assets | $2,493,807 | $1,969,580 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $265,633 | $245,906 | | Contract liabilities | $213,479 | $267,227 | | Total current liabilities | $758,675 | $764,415 | | Long-term debt, net of current portion | $592,402 | $268,835 | | Total liabilities | $1,557,317 | $1,254,788 | | Total stockholders' equity | $936,490 | $714,792 | | Total liabilities and stockholders' equity | $2,493,807 | $1,969,580 | - Total assets increased by approximately $524.2 million from December 31, 2020, to June 30, 2021, primarily driven by increases in property and equipment, intangible assets, and goodwill, largely due to the FIH acquisition. Total liabilities also increased significantly, mainly due to long-term debt, while total stockholders' equity grew by $221.7 million[9] Condensed Consolidated Statements of Income This section details the company's revenues, expenses, and net income over specific reporting periods Condensed Consolidated Statements of Income (In Thousands, Except Per Share Amounts) | (In Thousands, Except Per Share Amounts) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $881,610 | $908,216 | $1,699,939 | $1,651,459 |\n| Gross profit | $113,026 | $100,967 | $193,207 | $148,777 |\n| Operating income | $54,799 | $49,545 | $67,652 | $52,967 |\n| Net income attributable to Primoris | $36,290 | $32,959 | $42,140 | $29,222 |\n| Basic EPS | $0.68 | $0.68 | $0.82 | $0.60 |\n| Diluted EPS | $0.67 | $0.68 | $0.81 | $0.60 | - For the three months ended June 30, 2021, revenue decreased by 2.9% YoY, while gross profit increased by 12.0% and net income attributable to Primoris increased by 10.1%. For the six months ended June 30, 2021, revenue increased by 2.9% YoY, gross profit increased by 29.9%, and net income attributable to Primoris increased by 44.2%. Basic EPS for the six months increased from $0.60 to $0.82[10] Condensed Consolidated Statements of Comprehensive Income This section presents the total comprehensive income, including net income and other comprehensive income items, reflecting all changes in equity during the period Condensed Consolidated Statements of Comprehensive Income (In Thousands) | (In Thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $36,295 | $32,962 | $42,143 | $29,228 |\n| Foreign currency translation adjustments | $632 | $552 | $1,093 | $(1,185) |\n| Comprehensive income attributable to Primoris | $36,922 | $33,511 | $43,233 | $28,037 | - Comprehensive income attributable to Primoris increased by 10.2% for the three months ended June 30, 2021, and by 54.2% for the six months ended June 30, 2021, primarily driven by higher net income and positive foreign currency translation adjustments in 2021 compared to a loss in 2020[11] Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity, including common stock, additional paid-in capital, and retained earnings - Total stockholders' equity increased from $714.8 million at December 31, 2020, to $936.5 million at June 30, 2021. This increase was primarily due to net income of $42.1 million, issuance of shares (net of costs) totaling $149.3 million from a secondary offering, and $28.7 million from issuance of shares to employees and directors, partially offset by dividends declared[12][13][118] Condensed Consolidated Statements of Stockholders' Equity (In Thousands, Except Share Amounts) | (In Thousands, Except Share Amounts) | December 31, 2020 | June 30, 2021 | | :----------------------------------- | :---------------- | :------------ | | Common Stock Shares Outstanding | 48,110,442 | 53,731,206 |\n| Additional Paid-in Capital | $89,098 | $274,008 |\n| Retained Earnings | $624,694 | $660,385 |\n| Total Stockholders' Equity | $714,792 | $936,490 | Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities, providing insight into liquidity Condensed Consolidated Statements of Cash Flows (In Thousands) | (In Thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------- | :----------------------------- | :----------------------------- | | Operating Activities | $5,593 | $60,651 |\n| Investing Activities | $(659,195) | $(9,617) |\n| Financing Activities | $504,252 | $(15,266) |\n| Net change in cash and cash equivalents | $(148,765) | $35,384 |\n| Cash and cash equivalents at end of period | $177,979 | $155,670 | - Net cash provided by operating activities significantly decreased from $60.7 million in H1 2020 to $5.6 million in H1 2021, primarily due to unfavorable changes in assets and liabilities. Net cash used in investing activities surged to $659.2 million in H1 2021, mainly driven by the $607.0 million acquisition of FIH. Financing activities provided $504.3 million in H1 2021, primarily from debt issuance and common stock issuance to fund the acquisition, contrasting with cash used in H1 2020[18][214][217][220] Note 1—Nature of Business This note describes the company's core business activities and its reportable segments - Primoris Services Corporation is a leading provider of specialty contracting services in the US and Canada, offering construction, fabrication, maintenance, replacement, and engineering services across three segments: Utilities, Energy/Renewables, and Pipeline Services. The company realigned its reportable segments in Q1 2021 from five to these three, reflecting a focus on end-user markets[21][24][25] Note 2—Basis of Presentation This note explains the accounting principles and conventions used in preparing the interim condensed consolidated financial statements - The interim condensed consolidated financial statements are unaudited and prepared in accordance with Rule 10-01 of Regulation S-X. The company's top ten customers generated approximately 42.3% and 43.6% of total revenue for the three and six months ended June 30, 2021, respectively, with no single customer exceeding 10% of total revenue in 2021. In contrast, for the same periods in 2020, top ten customers accounted for 52.3% and 50.7% of revenue, with one pipeline customer representing 15.6% and 13.6% respectively[27][28][30][31] Note 3—Recent Accounting Pronouncements This note discusses the adoption of new accounting standards and their impact on the financial statements - The company adopted ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," on January 1, 2021, on a prospective basis. This adoption did not have a material impact on its consolidated financial position, results of operations, or cash flows[32] Note 4—Fair Value Measurements This note provides information on how the company measures the fair value of its financial instruments Fair Value Measurements (In Thousands) | (In Thousands) | June 30, 2021 | December 31, 2020 | | :------------- | :------------ | :---------------- | | Cash and cash equivalents (Level 1) | $177,979 | $326,744 |\n| Interest rate swap (Level 2) | $6,950 | $9,205 | - The company measures its interest rate swap at fair value using the income approach, primarily utilizing indirectly observable inputs (Level 2). The fair value of the interest rate swap liability decreased from $9.2 million at December 31, 2020, to $6.95 million at June 30, 2021[35][37] Note 5—Acquisitions This note details significant business acquisitions, including purchase price allocation and financial impact - On January 15, 2021, Primoris acquired Future Infrastructure Holdings, LLC (FIH) for approximately $604.7 million (net of cash acquired). FIH, a provider of maintenance, repair, upgrade, and installation services to telecommunication, gas utility, and infrastructure markets, was integrated into the Utilities segment. The acquisition was funded by existing cash, term loan, and revolving credit facility borrowings, with secondary offering proceeds used for repayment[38][158] FIH Acquisition Financial Impact (In Thousands) | FIH Acquisition Financial Impact (In Thousands) | Amount | | :-------------------------------------------- | :----- | | Total purchase consideration | $615,249 |\n| Net cash paid | $604,724 |\n| Goodwill recognized | $367,003 |\n| Customer relationships acquired | $118,000 |\n| Tradenames acquired | $4,400 |\n| FIH revenue contribution (3 months ended June 30, 2021) | $72,700 |\n| FIH gross profit contribution (3 months ended June 30, 2021) | $10,700 |\n| FIH revenue contribution (Jan 15 - June 30, 2021) | $133,400 |\n| FIH gross profit contribution (Jan 15 - June 30, 2021) | $20,500 | - Goodwill from the FIH acquisition, totaling $367.0 million, primarily reflects expected benefits from expanding into the telecommunications market and geographic presence, as well as the value of the assembled workforce. Intangible assets acquired include $118.0 million in customer relationships (amortized over 19 years) and $4.4 million in tradenames (amortized over one year)[45][46] Note 6—Revenue This note describes the company's revenue recognition policies and disaggregates revenue by type and segment - The company recognizes revenue over time for contracts with adequately defined scope, using an input measure (costs incurred to date). For contracts with undefined scope, revenue is recognized based on contract costs incurred. As of June 30, 2021, remaining performance obligations totaled $1.5 billion, with 73% expected to be recognized as revenue in the next four quarters[53][57] MSA and Non-MSA Revenue (In Thousands) | MSA and Non-MSA Revenue (In Thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | MSA Revenue | $413,200 | $335,311 | $751,463 | $605,719 |\n| Non-MSA Revenue | $468,410 | $572,905 | $948,476 | $1,045,740 |\n| Total Revenue | $881,610 | $908,216 | $1,699,939 | $1,651,459 | Contract Assets and Liabilities (In Thousands) | Contract Assets (In Thousands) | June 30, 2021 | December 31, 2020 | | :----------------------------- | :------------ | :---------------- | | Unbilled revenue | $257,927 | $192,176 |\n| Retention receivable | $109,979 | $115,877 |\n| Contract materials | $18,796 | $17,796 |\n| Total Contract Assets | $386,702 | $325,849 |\n| Contract Liabilities (In Thousands) | | |\n| Deferred revenue | $202,122 | $252,781 |\n| Accrued loss provision | $11,357 | $14,446 |\n| Total Contract Liabilities | $213,479 | $267,227 | Note 7—Goodwill and Intangible Assets This note provides details on the company's goodwill and other intangible assets, including changes and amortization Goodwill by Segment (In Thousands) | Goodwill by Segment (In Thousands) | December 31, 2020 | June 30, 2021 | | :--------------------------------- | :---------------- | :------------ | | Utilities | $96,344 | $463,347 |\n| Energy/Renewables | $66,344 | $66,344 |\n| Pipeline | $52,415 | $52,415 |\n| Total Goodwill | $215,103 | $582,106 | - Goodwill increased by $367.0 million during the six months ended June 30, 2021, primarily due to the FIH acquisition, which added $367.0 million to the Utilities segment. Total intangible assets, net, increased from $61.0 million to $176.8 million, with customer relationships being the largest component. Amortization expense for intangible assets was $8.8 million for the six months ended June 30, 2021, up from $4.7 million in the prior year[79][80] Note 8—Accounts Payable and Accrued Liabilities This note details the composition of accounts payable and various accrued liabilities Accrued Liabilities (In Thousands) | Accrued Liabilities (In Thousands) | June 30, 2021 | December 31, 2020 | | :--------------------------------- | :------------ | :---------------- | | Payroll and related employee benefits | $105,872 | $81,088 |\n| Current operating lease liability | $67,577 | $73,033 |\n| Casualty insurance reserves | $5,251 | $8,365 |\n| Corporate income taxes and other taxes | $17,917 | $13,783 |\n| Other | $17,325 | $24,404 |\n| Total Accrued Liabilities | $213,942 | $200,673 | - Accounts payable included retention amounts of $16.3 million at June 30, 2021, an increase from $12.6 million at December 31, 2020. Total accrued liabilities increased by $13.3 million, primarily due to higher payroll and related employee benefits[81][82] Note 9—Credit Agreements This note provides information on the company's debt facilities, including terms, covenants, and outstanding balances Long Term Debt (In Thousands) | Long Term Debt (In Thousands) | June 30, 2021 | December 31, 2020 | | :---------------------------- | :------------ | :---------------- | | Term loan | $535,094 | $192,500 |\n| Commercial equipment notes | $86,283 | $85,783 |\n| Mortgage notes | $38,144 | $38,795 |\n| Total debt, net | $654,799 | $316,557 |\n| Current portion | $(62,397) | $(47,722) |\n| Long-term debt, net of current portion | $592,402 | $268,835 | - Total debt, net, significantly increased from $316.6 million at December 31, 2020, to $654.8 million at June 30, 2021, primarily due to a $400.0 million increase in the Term Loan to finance the FIH acquisition. The weighted average interest rate on total debt decreased from 3.7% to 2.9%. The company was in compliance with all covenants under the Amended Credit Agreement at June 30, 2021[83][87][90][95] Note 10—Derivative Instruments This note describes the company's use of derivative financial instruments to manage market risks - Primoris uses an interest rate swap to manage exposure to variable interest rates on its Credit Agreement, effectively converting variable-rate debt to a fixed rate. The fair value of the interest rate swap, recorded as an other long-term liability, was $6.95 million at June 30, 2021, down from $9.21 million at December 31, 2020. For the six months ended June 30, 2021, the company recognized a $2.3 million unrealized gain on the swap, compared to a $4.9 million unrealized loss in the prior year[101][103] Note 11—Income Taxes This note provides information on the company's income tax expense, effective tax rate, and deferred tax assets and liabilities - The effective tax rate on income attributable to Primoris was 27.5% for the six months ended June 30, 2021, compared to 29.0% for the same period in 2020. This rate differs from the U.S. federal statutory rate of 21.0% primarily due to state income taxes and nondeductible per diem expenses. The company deferred $43.5 million in FICA tax payments under the CARES Act, with half due by December 31, 2021, and the other half by December 31, 2022[106][109] Note 12—Dividends and Earnings Per Share This note details dividend declarations and the calculation of basic and diluted earnings per share Dividends Per Common Share | Dividends Per Common Share | 2021 | 2020 | | :------------------------- | :--- | :--- | | Q1 Dividend | $0.06 | $0.06 |\n| Q2 Dividend | $0.06 | $0.06 |\n| Total (Six Months) | $0.12 | $0.12 | Earnings Per Share (EPS) | Earnings Per Share (EPS) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.68 | $0.68 | $0.82 | $0.60 |\n| Diluted EPS | $0.67 | $0.68 | $0.81 | $0.60 | - The company maintained a quarterly cash dividend of $0.06 per share in both 2021 and 2020. Basic EPS for the six months ended June 30, 2021, increased to $0.82 from $0.60 in the prior year, while diluted EPS rose to $0.81 from $0.60[110][113] Note 13—Stockholders' Equity This note provides further details on changes in stockholders' equity, including share issuances and repurchases - In March 2021, Primoris completed a public offering of 4.5 million common shares at $35.00 per share, generating net proceeds of approximately $149.3 million. These proceeds were used to repay a portion of the borrowings incurred for the FIH acquisition. Additionally, 1,038,309 shares were purchased by FIH employees at a 15% discount, resulting in $28.9 million in proceeds and $5.1 million in stock compensation expense[117][118] - The company's share repurchase program, authorized for $25.0 million in February 2020, expired on December 31, 2020. In the six months ended June 30, 2020, Primoris repurchased 519,562 shares for $8.3 million at an average price of $16.06[119] Note 14—Leases This note outlines the company's lease arrangements, including lease expense and liabilities Lease Expense (In Thousands) | Lease Expense (In Thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease expense | $21,168 | $23,153 | $42,824 | $46,131 | Operating Lease Liabilities (In Thousands) | Operating Lease Liabilities (In Thousands) | June 30, 2021 | December 31, 2020 | | :--------------------------------------- | :------------ | :---------------- | | Accrued liabilities | $67,577 | $73,033 |\n| Noncurrent operating lease liabilities | $123,638 | $137,913 |\n| Total Operating Lease Liabilities | $191,215 | $210,946 | - Operating lease expense decreased for both the three and six months ended June 30, 2021, compared to the prior year. Total operating lease liabilities decreased from $210.9 million at December 31, 2020, to $191.2 million at June 30, 2021[123][124] Note 15—Commitments and Contingencies This note discloses the company's various commitments and potential liabilities arising from legal claims and other obligations - The company is subject to various legal claims and proceedings, for which it accrues costs when a loss is probable and estimable. Management believes the outcome of these claims will not materially adversely affect financial results. As of June 30, 2021, bid and completion bonds totaled approximately $2.6 billion, with remaining performance obligations on bonded projects at $566.8 million[125][126][127] Note 16—Reportable Segments This note provides financial information for the company's operating segments, including revenue and gross profit - In Q1 2021, Primoris realigned its reportable segments from five to three: Utilities, Energy/Renewables, and Pipeline. The Utilities segment now includes telecommunications and natural gas/electric utility distribution/transmission. The Energy/Renewables segment covers engineering, procurement, construction, and maintenance for renewable energy, fuels, and petrochemical industries. The Pipeline segment focuses on pipeline construction, maintenance, and facility services[128][129][133][134][135] Segment Revenue (In Thousands) | Segment Revenue (In Thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Utilities | $425,421 (48.3%) | $340,123 (37.4%) | $760,433 (44.7%) | $590,077 (35.7%) |\n| Energy/Renewables | $335,010 (38.0%) | $278,534 (30.7%) | $687,874 (40.5%) | $580,300 (35.1%) |\n| Pipeline | $121,179 (13.7%) | $289,559 (31.9%) | $251,632 (14.8%) | $481,082 (29.2%) |\n| Total | $881,610 (100.0%) | $908,216 (100.0%) | $1,699,939 (100.0%) | $1,651,459 (100.0%) | Segment Gross Profit (In Thousands) | Segment Gross Profit (In Thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Utilities | $48,849 (11.5%) | $55,837 (16.4%) | $70,565 (9.3%) | $62,151 (10.5%) |\n| Energy/Renewables | $33,232 (9.9%) | $18,100 (6.5%) | $75,904 (11.0%) | $43,104 (7.4%) |\n| Pipeline | $30,945 (25.5%) | $27,030 (9.3%) | $46,738 (18.6%) | $43,522 (9.0%) |\n| Total | $113,026 (12.8%) | $100,967 (11.1%) | $193,207 (11.4%) | $148,777 (9.0%) | Note 17—Subsequent Events This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On August 3, 2021, the Board of Directors declared a cash dividend of $0.06 per share of common stock, payable on or about October 15, 2021, to stockholders of record as of September 30, 2021[141] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, recent acquisition, material trends and uncertainties, seasonality, critical accounting policies, and a detailed analysis of consolidated and segment-specific financial performance, backlog, liquidity, capital resources, cash flows, off-balance sheet transactions, and the effects of inflation Forward Looking Statements This section highlights the inherent uncertainties and risks associated with the company's future projections and business outlook - This report contains forward-looking statements regarding future results, business strategies, and financial plans, which are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially. Key risks include customer timing, project duration, weather, economic conditions, changes in customer mix, price volatility of oil/gas, cost increases, contract terminations, labor availability, bonding requirements, acquisition risks (like FIH integration), and the ongoing impact of the COVID-19 pandemic[144][145] Introduction This section provides an overview of Primoris Services Corporation, its business model, and recent strategic realignments - Primoris Services Corporation is a leading specialty contracting services provider in the US and Canada. In Q1 2021, the company realigned its five reportable segments into three: Utilities, Energy/Renewables, and Pipeline Services, to better reflect its end-user market focus. The company serves major utility, refining, petrochemical, power, midstream, and engineering companies, with projects ranging from daily work orders to 36 months or longer[149][150][151][152][153][154][155] Acquisition of Future Infrastructure Holdings, LLC. This section discusses the strategic acquisition of Future Infrastructure Holdings, LLC, and its expected impact on the company's operations and market position - On January 15, 2021, Primoris acquired Future Infrastructure Holdings, LLC (FIH) for approximately $604.7 million, net of cash acquired. This acquisition, integrated into the Utilities segment, expands service lines into telecommunication, regulated gas utility, and infrastructure markets, aligning with the strategy to grow in higher-growth, higher-margin markets and enhance utility services capabilities. The purchase was financed through existing cash, term loan, and revolving credit facility, with secondary offering proceeds used for partial repayment[158] Material trends and uncertainties This section identifies key external and internal factors that could significantly influence the company's future financial performance and operational stability - The company's revenue depends on spending in telecommunications, gas and electric utilities, energy, chemical, oil and gas, and transportation sectors. The COVID-19 pandemic has caused project interruptions, delays, and inefficiencies, though services are generally deemed essential. While a rebound is anticipated post-vaccination, continued adverse economic impacts are possible. Fluctuations in oil and gas prices create uncertainty for pipeline services, and regulatory changes can delay or cancel projects, though increased demand for renewable resources is creating new opportunities[159][160][161][163][164][165][166] Seasonality, cyclicality and variability This section explains how seasonal weather patterns, economic cycles, and project-specific factors contribute to fluctuations in the company's financial results - The company's results are subject to quarterly variations due to weather impacts (rain, ice, snow, storms) affecting construction and specialty services, and client budget cycles. Higher revenue and earnings are typically experienced in the third and fourth quarters compared to the first two. Project values range widely, and the cyclical nature of the business means financial results can fluctuate significantly quarter-to-quarter[167][168] Critical Accounting Policies and Estimates This section highlights the accounting policies that require management's most difficult, subjective, or complex judgments and estimates - The preparation of financial statements requires significant estimates and assumptions, particularly for long-term contracts, where unforeseen events can alter cost and profit estimates. There have been no material changes to the critical accounting policies since December 31, 2020[169] Results of Operations This section analyzes the company's financial performance over the reporting periods, discussing key revenue and expense drivers Consolidated Results This subsection provides an overall analysis of the company's consolidated financial performance, including revenue, gross profit, and expenses Consolidated Results (In Thousands) | (In Thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $881,610 (-2.9%) | $908,216 | $1,699,939 (+2.9%) | $1,651,459 |\n| Gross Profit | $113,026 (+12.0%) | $100,967 | $193,207 (+29.9%) | $148,777 |\n| Gross Profit % | 12.8% | 11.1% | 11.4% | 9.0% |\n| SG&A Expenses | $57,747 (+12.3%) | $51,422 | $111,179 (+16.0%) | $95,810 |\n| SG&A % Revenue | 6.6% | 5.7% | 6.5% | 5.8% |\n| Transaction Costs | $480 | — | $14,376 | — |\n| Interest Expense | $(4,825) | $(3,690) | $(9,546) | $(12,802) |\n| Income Tax Expense | $(13,597) | $(13,463) | $(15,984) | $(11,936) | - Consolidated revenue decreased by 2.9% for the three months ended June 30, 2021, but increased by 2.9% for the six months, driven by growth in Utilities and Energy/Renewables (including FIH acquisition) offsetting Pipeline segment declines. Gross profit margins improved significantly for both periods (12.8% vs 11.1% for Q2; 11.4% vs 9.0% for H1), partly due to the FIH acquisition and improved legacy margins. SG&A expenses increased due to the FIH acquisition and integration costs. Transaction costs of $14.4 million were incurred in H1 2021, primarily for the FIH acquisition. Interest expense decreased for the six-month period due to a favorable interest rate swap impact, despite higher debt balances[171][172][173][174][175][176][177][178][180][181] Segment results This subsection provides a detailed breakdown of financial performance across the company's Utilities, Energy/Renewables, and Pipeline segments Utilities Segment (In Thousands) | Utilities Segment (In Thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $425,421 (+25.1%) | $340,123 | $760,433 (+28.9%) | $590,077 |\n| Gross Profit | $48,849 (-12.5%) | $55,837 | $70,565 (+13.5%) | $62,151 |\n| Gross Profit % | 11.5% | 16.4% | 9.3% | 10.5% | - Utilities segment revenue increased significantly (25.1% for Q2, 28.9% for H1) due to the FIH acquisition ($72.7 million in Q2, $133.4 million in H1) and increased activity in California. However, Q2 gross profit decreased by 12.5% due to lower legacy margins, unfavorable weather, and customer material delays, leading to a margin drop from 16.4% to 11.5%. H1 gross profit increased by 13.5%, but margin decreased from 10.5% to 9.3% for similar reasons, partially offset by FIH's favorable margins[185][186][187][188] Energy/Renewables Segment (In Thousands) | Energy/Renewables Segment (In Thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $335,010 (+20.3%) | $278,534 | $687,874 (+18.5%) | $580,300 |\n| Gross Profit | $33,232 (+83.6%) | $18,100 | $75,904 (+76.1%) | $43,104 |\n| Gross Profit % | 9.9% | 6.5% | 11.0% | 7.4% | - Energy/Renewables segment revenue increased by 20.3% for Q2 and 18.5% for H1, primarily driven by increased renewable energy activity. Gross profit surged by 83.6% for Q2 and 76.1% for H1, with margins improving significantly (9.9% vs 6.5% for Q2; 11.0% vs 7.4% for H1). This improvement was attributed to higher revenue, better margins, and favorable claims resolution on an industrial plant project in 2021, contrasting with higher costs on specific projects in 2020[189][190][191][192] Pipeline Segment (In Thousands) | Pipeline Segment (In Thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $121,179 (-58.2%) | $289,559 | $251,632 (-47.7%) | $481,082 |\n| Gross Profit | $30,945 (+14.5%) | $27,030 | $46,738 (+7.4%) | $43,522 |\n| Gross Profit % | 25.5% | 9.3% | 18.6% | 9.0% | - Pipeline segment revenue decreased substantially (58.2% for Q2, 47.7% for H1) due to the substantial completion of large pipeline projects in 2020. Despite lower revenue, gross profit increased by 14.5% for Q2 and 7.4% for H1, leading to a significant margin expansion (25.5% vs 9.3% for Q2; 18.6% vs 9.0% for H1). This margin improvement was primarily due to favorable closeout of multiple pipeline projects in 2021 and startup costs on projects in 2020[193][194][195][196] Geographic area financial information This section provides a breakdown of the company's financial performance based on its geographic operating regions - The majority of Primoris's revenue is derived from customers in the United States. Approximately 4.0% of revenue for the six months ended June 30, 2021, was generated from sources outside the U.S., primarily Canada[198] Backlog This section defines and reports the company's backlog, providing an indicator of future revenue from existing contracts - Backlog is defined as anticipated revenue from uncompleted portions of existing contracts with defined scope (Fixed Backlog) and estimated revenue from Master Service Agreements (MSA Backlog) for the next four quarters. Total backlog at June 30, 2021, was $2.87 billion, a decrease from $2.78 billion at December 31, 2020. Approximately 86% of the total backlog at June 30, 2021, is expected to be recognized as revenue in the next four quarters[199][205] Backlog (In Millions) | Backlog (In Millions) | December 31, 2020 | June 30, 2021 | | :-------------------- | :---------------- | :------------ | | Fixed Backlog | $1,639.6 | $1,376.2 |\n| MSA Backlog | N/A | $1,493.8 |\n| Total Backlog | $2,776.6 | $2,870.0 | - Fixed Backlog decreased by $263.4 million (16.1%) from December 31, 2020, to June 30, 2021. MSA Backlog at June 30, 2021, was $1.49 billion, including $210.9 million from the FIH acquisition. Backlog is not a comprehensive indicator of future revenue as some projects are not included, and contracts can be terminated[202][204][206] Liquidity and Capital Resources This section analyzes the company's ability to generate and manage cash to meet its financial obligations and fund operations - Primoris's primary liquidity sources are cash balances and cash flows from operating activities, supplemented by credit facilities. At June 30, 2021, available borrowing capacity under the Revolving Credit Facility was $151.1 million. The company increased its Term Loan by $400.0 million to $592.5 million to finance the FIH acquisition, and raised $149.3 million net proceeds from a secondary common stock offering in March 2021 to repay a portion of these borrowings. Cash and cash equivalents totaled $178.0 million at June 30, 2021, down from $326.7 million at December 31, 2020. The company expects sufficient liquidity for the next twelve months[207][208][209][211] - Capital expenditures for the six months ended June 30, 2021, were $62.8 million, primarily for construction equipment. Anticipated capital expenditures for the remaining six months of 2021 are between $20.0 million and $40.0 million[212] Cash Flows This section provides a detailed analysis of cash generated from or used in operating, investing, and financing activities Cash Flows (In Thousands) | Cash Flows (In Thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------ | :----------------------------- | :----------------------------- | | Operating Activities | $5,593 | $60,651 |\n| Investing Activities | $(659,195) | $(9,617) |\n| Financing Activities | $504,252 | $(15,266) |\n| Net change in cash | $(148,765) | $35,384 | - Net cash provided by operating activities decreased significantly to $5.6 million in H1 2021 from $60.7 million in H1 2020, mainly due to unfavorable changes in assets and liabilities, despite increased net income. Investing activities used $659.2 million, primarily for the $607.0 million FIH acquisition and $62.8 million in property and equipment purchases. Financing activities provided $504.3 million, driven by proceeds from the amended term loan ($395.1 million) and common stock issuance ($178.7 million), partially offset by debt repayments and dividends[214][215][217][218][220][222] Off-balance sheet transactions This section describes the company's off-balance sheet arrangements, including letters of credit and bonding obligations - Primoris engages in off-balance sheet arrangements, including $49.2 million in outstanding letters of credit at June 30, 2021, used for insurance reimbursement and customer guarantees. The company also had approximately $2.6 billion in bid and completion bonds outstanding, with $566.8 million in remaining performance obligations on bonded projects. Other potential obligations include contributions to multi-employer pension plans and employment agreement payments[225][227] Effects of Inflation and Changing Prices This section discusses how inflation and changing prices for labor, equipment, and materials may impact the company's operations and financial results - The company's operations are affected by increases in prices for labor, equipment, fuel, and materials. Primoris attempts to mitigate these impacts through price escalation provisions in contracts, considering estimated effects when bidding, or entering into back-to-back contracts with suppliers. To date, operations have not been materially impacted by price increases[226] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, primarily related to fluctuations in interest rates, and its strategies for managing these risks, including the use of financial derivative instruments Interest rate risk This subsection details the company's exposure to interest rate fluctuations and its hedging strategies - Primoris is exposed to interest rate risk due to variable-rate borrowings under its Revolving Credit Facility and term loan. To manage this, the company uses interest rate swaps; as of June 30, 2021, $140.3 million of its variable rate debt was economically hedged. A 1.0% change in interest rates would impact annual interest expense by approximately $3.9 million[230] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Disclosure Controls and Procedures This subsection describes the company's controls designed to ensure timely and accurate disclosure of financial and non-financial information - As of June 30, 2021, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level. These controls ensure that information required for SEC filings is recorded, processed, summarized, and reported timely, and communicated appropriately to management[232][233][234] Changes in Internal Control Over Financial Reporting This subsection reports on any material changes to the company's internal control over financial reporting during the reporting period - There were no changes to the company's internal control over financial reporting practices or processes during the quarter ended June 30, 2021, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[235] Part II. Other Information This section includes additional information not covered in Part I, such as legal proceedings, exhibits, and required signatures Item 1. Legal Proceedings This section refers to Note 15 of the financial statements for information on legal proceedings, commitments, and contingencies - Information regarding legal proceedings is incorporated by reference from Note 15, "Commitments and Contingencies," in the unaudited notes to the condensed consolidated financial statements[236] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including merger agreements, certifications, and XBRL documents Exhibits | Exhibit Number | Description | | :------------- | :---------- | | 2.1 | Agreement and Plan of Merger, dated December 14, 2020 |\n| 2.2 | Amendment No.1 to Agreement and Plan of Merger, dated as of January 11, 2021 |\n| 31.1 | Rule 13a-14(a)/15d-14(a) Certification by the Registrant's Chief Executive Officer |\n| 31.2 | Rule 13a-14(a)/15d-14(a) Certification by the Registrant's Chief Financial Officer |\n| 32.1 | Section 1350 Certification by the Registrant's Chief Executive Officer |\n| 32.2 | Section 1350 Certification by the Registrant's Chief Financial Officer |\n| 101 INS | Inline XBRL Instance Document |\n| 104 | Cover Page Interactive Data File | Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q, confirming its submission on behalf of Primoris Services Corporation - The report was signed on August 3, 2021, by Kenneth M. Dodgen, Executive Vice President, Chief Financial Officer (Principal Financial Officer) of Primoris Services Corporation[241]