Primoris(PRIM) - 2021 Q4 - Annual Report

Forward-Looking Statements The report contains forward-looking statements subject to 'safe harbor' provisions, covering future operations, strategies, and financial impacts, with actual results potentially differing due to various factors - The report contains forward-looking statements subject to 'safe harbor' provisions, which include information on future operations, strategies, financing, competitive position, industry environment, growth opportunities, and the effects of regulation and the economy[11][12] - Actual results may differ materially due to various factors, including customer timing, project duration, weather, economic conditions, changes in customer mix, cost increases, contract terminations, budgetary patterns, inflation, labor availability, bonding requirements, and risks associated with acquisitions, cybersecurity, and external events like COVID-19[12] Part I This section provides an overview of Primoris Services Corporation's business, including its segments, strategy, customer relationships, competitive landscape, and human capital management Item 1. Business Primoris Services Corporation is a leading provider of specialty contracting services in the U.S. and Canada, operating through three segments: Utilities, Energy/Renewables, and Pipeline. The company focuses on growth through controlled expansion, emphasizing Master Service Agreement (MSA) revenue, maintaining a stable workforce, and selective bidding. Key operational aspects include customer relationships, seasonality, competitive landscape, contract types, risk management, and human capital management Business Overview Primoris Services Corporation provides specialty contracting services across the U.S. and Canada, including construction, maintenance, and engineering, with a substantial portion under multi-year Master Service Agreements - Primoris Services Corporation is a leading provider of specialty contracting services primarily in the United States and Canada[15] - Services include specialty construction, maintenance, replacement, fabrication, and engineering for a diversified customer base[15] - A substantial portion of services are provided under multi-year Master Service Agreements (MSAs), with the remainder from specific construction or installation projects[16] Reportable Segments The company operates through three reportable segments: Utilities, Energy/Renewables, and Pipeline, each specializing in distinct infrastructure services across the U.S. and Canada - The company operates through three reportable segments: Utilities, Energy/Renewables, and Pipeline Services[15] - Utilities segment: Specializes in installation and maintenance of natural gas distribution, electric utility distribution and transmission, and communications systems across the U.S[17] - Energy/Renewables segment: Provides engineering, procurement, construction, retrofits, highway/bridge construction, demolition, and maintenance for renewable energy, energy storage, renewable fuels, petroleum, refining, petrochemical industries, and state DOTs in the U.S. and Canada[18] - Pipeline segment: Focuses on pipeline construction and maintenance, facility and integrity services, and installation of compressor/pump stations for petroleum, petrochemical, gas, water, and sewer utilities in the U.S[19] Acquisitions Primoris acquired Future Infrastructure Holdings, LLC (FIH) for approximately $604.7 million in 2021 to expand service lines and MSA revenue, and continues to seek strategic acquisition opportunities in high-growth markets - On January 15, 2021, Primoris acquired Future Infrastructure Holdings, LLC (FIH) for approximately $604.7 million (net of cash acquired)[21] - FIH provides non-discretionary maintenance, repair, upgrade, and installation services to communications, regulated gas utility, and infrastructure markets, aligning with Primoris' strategy to expand service lines, enter new markets, and grow MSA revenue[21] - The company continues to seek acquisition opportunities, particularly in renewable energy, gas and electric utilities, and communications, to deepen market presence and expand service offerings[22] Strategy The company's strategy emphasizes controlled expansion into high-growth markets, increasing recurring MSA revenue, maintaining a skilled workforce, selective bidding for profitability, and a conservative capital structure - Key strategic elements include growth through controlled expansion (new services, geographic markets, customer acquisition, and strategic acquisitions in high-growth markets like renewables, utilities, and communications)[23] - Emphasis on MSA revenue growth and retention of existing customers to drive recurring revenue[23] - Maintaining a stable, skilled workforce and owning/long-term leasing equipment to ensure reliable access and favorable costs[23] - Selective bidding on projects that meet profitability objectives or offer entry into promising new markets, while minimizing customer/industry concentration[23] - Maintaining a strong balance sheet and conservative capital structure, relying on operating cash flows and a revolving credit facility for liquidity[23][24] Backlog Backlog information is incorporated by reference from Item 7, 'Management's Discussion and Analysis of Financial Condition and Results of Operations' - Backlog information is incorporated by reference from Item 7, 'Management's Discussion and Analysis of Financial Condition and Results of Operations'[25] Customers Primoris maintains long-standing relationships with major utility, energy, and government clients, with a small number of customers consistently contributing a substantial portion of annual revenue - Primoris maintains longstanding relationships with major utility, refining, petrochemical, power, renewable energy, communications, midstream, and engineering companies, and state departments of transportation[26] - A small number of customers constitute a substantial portion of total revenue annually, though the top ten customers vary year-to-year[26][29] Revenue from Top Ten Customers | Year | % of Total Revenue from Top Ten Customers | | :--- | :----------------------------------------: | | 2021 | 42.9% | | 2020 | 47.0% | | 2019 | 47.2% | Revenue from MSA Projects | Year | % of Total Revenue from MSA Projects | | :--- | :-----------------------------------: | | 2021 | 45.9% | | 2020 | 39.0% | | 2019 | 43.7% | Seasonality, cyclicality and variability Operations are subject to quarterly variations due to weather and client budget cycles, typically resulting in higher revenue and earnings in the latter half of the year, with project values fluctuating widely - Operations are subject to quarterly variations due to weather conditions (rain, ice, snow, storms) affecting construction and specialty services, impacting revenue and profitability[32] - Demand for new projects is typically lower in the early calendar year due to client budget cycles, leading to higher revenue and earnings in the third and fourth quarters[32] - Project values range widely, with the bulk averaging less than $5.0 million, and large construction projects can fluctuate based on customer timing, project duration, weather, and economic conditions[33] Competition The company faces intense competition from regional and national contractors, with competitive factors including price, reputation, safety, experience, and financial strength - The company faces competition from regional and national contractors (including larger firms with greater resources) for large projects, and a mix of large and smaller contractors for small projects[34] - Competitors vary by end market, including Quanta Services, Inc. and MasTec, Inc. in utilities; PCL, Cajun Construction, and Boh Brothers in industrial; Blattner Energy and Mortenson in renewables; and Sterling Construction Company and Zachry Construction Company in highway services[35] - Primary competitive factors are price, reputation for quality, safety, schedule certainty, relevant experience, availability of skilled labor and equipment, financial strength, and local market knowledge[36] Contract Provisions and Subcontracting Contracts are typically structured as unit-price, time and material, fixed-price, or cost reimbursable plus fixed fee, with the company acting as prime contractor and self-performing most work - Contracts are typically structured as unit-price, time and material, fixed-price, or cost reimbursable plus fixed fee[37] - A substantial portion of revenue comes from MSAs, often unit-price or time and material, while specific construction projects use multiple pricing options[37] - The company acts as prime contractor on most projects, self-performing the majority of work while subcontracting specialized activities[43] - Most contracts allow for termination at the owner's or contractor's convenience, with reimbursement for costs and demobilization[42] Risk Management, Insurance and Bonding The company maintains comprehensive insurance policies with self-insured retention, a diligent safety program, and relies on surety bonds for performance guarantees on contracts - The company maintains comprehensive insurance policies with deductibles/self-insured retention of up to $500,000 per occurrence[44] - A diligent safety and risk management program has resulted in a favorable loss experience factor, though preventing all injuries/claims cannot be assured[45] - Surety bonds are generally required for performance guarantees on contracts, with the ability to obtain them depending on capitalization, working capital, backlog, and past performance[46] Regulation, Environmental and Climate Change Impacts Operations are subject to extensive federal, state, municipal, and international regulatory requirements, including environmental laws, with potential for liability and impact on future costs - Operations are subject to federal, state, municipal, and international regulatory requirements, including licensing, worker safety (OSHA), wage/hour, transportation, building codes, anti-corruption, and environmental laws[47][48][57] - The company is subject to environmental laws governing hazardous substances and wastes, emissions, and discharges, with potential for liability for cleanup regardless of direct causation[51][52] - Compliance with environmental laws has not materially affected operations historically, but future changes or stricter regulations could impact permitting and costs[53] Human Capital Management The company manages human capital through a stable workforce, diversity and inclusion initiatives, professional development, a strong safety culture, competitive compensation, and a comprehensive Code of Conduct Employee Profile As of December 31, 2021, the company employed 1,925 salaried and 8,885 hourly employees, with nearly half of hourly staff covered by collective bargaining agreements - As of December 31, 2021, the company employed 1,925 salaried and 8,885 hourly employees[56] - Approximately 47.4% of hourly employees were covered by collective bargaining agreements as of December 31, 2021[55] - The company emphasizes maintaining a stable, loyal workforce through continuous work and recruits skilled workers via internal/external resources and technical school partnerships[54] Diversity and Inclusion The company maintains a policy against discrimination and actively works to foster a more inclusive and diverse workplace through a dedicated committee - The company has a policy forbidding discrimination based on age, culture, gender, national origin, sexual orientation, physical appearance, race, or religion[59] - A Diversity and Inclusion committee works to identify and advance efforts for a more inclusive and diverse workplace[59] Professional and Career Development The company invests in professional and career development through various training programs and company-owned facilities to maintain a skilled labor advantage - The company provides on-site and off-site training programs, project management training, and leadership development programs to foster a skilled labor advantage[60] - Company-owned training facilities support continuous skills training, including apprentice-to-journeyman programs[60] Safety, Health and Wellness The company prioritizes employee health, safety, and wellness, maintaining above-average workplace safety metrics and implementing significant operating changes in response to COVID-19 - The company is committed to employee health, safety, and wellness, maintaining above-average workplace safety[61] Safety Metrics (Year Ended December 31, 2021) | Metric | Company Rate | Industry Average (U.S. Bureau of Labor) | | :----- | :-----------: | :-------------------------------------: | | LTIR | 0.07 | 1.1 | | TRIR | 0.49 | 2.5 | - Implemented significant operating changes in response to COVID-19, including PPE, health screenings, social distancing, and remote work options[62] Compensation and Benefits Compensation programs are designed to be market competitive and performance-aligned, complemented by a comprehensive benefits package including a 401(k) plan, healthcare, and paid time off - Compensation programs are designed to be market competitive and align with company and individual performance, including fixed and variable components for leadership[63] - Benefits include a 401(k) Plan with company match, healthcare, insurance, health savings/flexible spending accounts, paid time off, family leave, flexible work schedules, and employee assistance programs[64] Code of Conduct All employees are subject to the Code of Conduct, which covers business ethics, conflicts of interest, anti-corruption, and data security - All employees are subject to the Code of Conduct, covering business ethics, conflicts of interest, anti-corruption, harassment, discrimination, data security, privacy, and insider trading[65][66] Website Access and Other Information The company's website provides free electronic copies of SEC filings and committee charters under the 'Investors' tab - The company's website (www.primoriscorp.com) provides free electronic copies of SEC filings (10-K, 10-Q, 8-K) and committee charters under the 'Investors' tab[67] Item 1A. Risk Factors The company's business is exposed to a variety of risks, including significant quarterly and annual fluctuations in financial results due to weather, economic conditions, and project-specific factors. Demand for services can decrease during economic downturns or due to changes in government funding and regulations, particularly affecting pipeline and renewable energy projects. Operational risks include potential cost overruns, inability to secure subcontractors or supplies, joint venture failures, client payment delays, and liabilities from health/safety issues or cyberattacks. Financial risks involve reliance on estimates, potential goodwill impairments, tax law changes, and interest rate volatility. Risks related to common stock include potential dilution from equity issuances Risks Related Primarily to Operating our Business The company faces operational risks from fluctuating financial results due to external factors, decreased demand from economic downturns or regulatory changes, intense competition, customer concentration, and potential liabilities from project execution or external events - Financial and operating results can vary significantly quarter-to-quarter and year-to-year due to weather, changes in customer/project mix, economic conditions, cost increases, contract terminations, and labor availability[72][75] - Demand for services may decrease during economic recessions, volatile economic cycles, or due to reduced capital expenditures by customers, especially in highway markets dependent on government funding[76][77] - Industry trends and government regulations (e.g., fracking limitations, pipeline permitting, climate change policies) could reduce demand for pipeline construction services or impact profitability[79][80][85][86] - Natural disasters, public health crises (like COVID-19), political crises, or other catastrophic events can disrupt operations, delay/cancel projects, and lead to inefficiencies[92][93][95] - The company faces intense competition, and failure to win bids at acceptable profit margins or generate internal growth (attracting customers, hiring personnel, securing equipment) could adversely affect the business[98][99][100][101] - Reliance on a few key customers (top ten accounted for 42.9% of 2021 revenue) means the loss of one or more could significantly impact revenue[103][104] - International operations (4.5% of 2021 revenue, primarily Canada) expose the company to legal, political, economic, and currency exchange rate risks, including compliance with anti-bribery laws like FCPA[107][108] - Backlog may not be realized or profitable due to customer terminations, project delays, or poor execution, as customers are not contractually obligated to purchase all MSA services[109][110][111] - Actual project costs may exceed estimates, leading to lower profits or losses, influenced by changes in labor, materials, equipment, productivity, scheduling, and external factors[113][114] - Inability to retain necessary subcontractors or obtain supplies can cause delays and increase costs, negatively impacting project profitability[116][117] - Joint ventures carry risks of partner non-performance, potentially imposing additional financial obligations on Primoris[119] - Delays or defaults in client payments, or paying suppliers/subcontractors before receiving client payments, could adversely affect financial condition and cash flows[120] - Failure to recover on contract modifications or performance guarantees (e.g., liquidated damages) could result in additional costs or reduced profits[121][122] - Dependence on surety bonds means inability to obtain them could limit competition for projects; bonding requirements may also restrict incurring additional indebtedness[123][124][126] - The company is self-insured up to certain limits ($500,000 per occurrence for employer's liability, general liability, auto, workers' compensation; $425,000 per individual claim for health insurance), and actual losses could exceed estimates[129][131] - Inability to attract and retain qualified managers and skilled employees, or potential work stoppages from the unionized workforce (47.4% of hourly employees), could increase operating costs and adversely affect operations[133][134] - Withdrawal from multiemployer pension plans could result in substantial liabilities, and new funding rules may require additional contributions[136][137] - Loss of key personnel or failure to integrate acquisitions successfully could lead to operational challenges and adverse effects on the business[139][140] - Higher costs to lease, acquire, and maintain equipment, or difficulties working in challenging environments, could increase project costs and reduce profitability[141][142][143] - Health and safety incidents could lead to liabilities, penalties, civil litigation, or reputational damage[144] - Interruptions in operational systems or successful cybersecurity attacks could adversely impact operations, financial reporting, and business, with insurance potentially inadequate to cover all costs[145][146][147] - Future capital needs for working capital, expenditures, or acquisitions may not be met on favorable terms, impairing business operations or growth objectives[148][149] Risks Related Primarily to the Financial Accounting of our Business Financial results depend on estimates and assumptions that may differ from actual outcomes, potentially leading to material adverse effects, including goodwill impairments, tax law changes, and interest rate volatility - Financial results rely on estimates and assumptions (e.g., revenue recognition, allowance for doubtful accounts, asset impairments, self-insured claims, income taxes) that may differ from actual results, potentially causing material adverse effects[150] - Accounting for revenue recognized over time, particularly for long-term contracts, involves estimating total transaction price and costs, which can be altered by unforeseen events, leading to potential reductions or eliminations of previously reported revenue and profit[151] - Impairments of goodwill ($581.7 million at Dec 31, 2021) or other identifiable intangible assets ($171.3 million at Dec 31, 2021) could negatively impact results of operations, as these assets are tested annually for impairment[152] - Compliance with and changes in tax laws (e.g., Tax Cuts and Jobs Act) could adversely affect performance, as significant judgment is required in determining income tax provisions, and audits may lead to adjustments[155] - Failure to meet Sarbanes-Oxley Act internal control requirements could decrease stock value, reduce financing ability, or lead to penalties[156][157] - Variable rate indebtedness ($386.2 million unhedged at Dec 31, 2021) exposes the company to interest rate risk; a 1.0% increase would raise annual interest expense by approximately $3.9 million[158] - Regulatory changes like the LIBOR phase-out could lead to interest rate volatility and increased debt costs[159] Risks Related to our Common Stock Issuance of common or preferred stock may dilute stockholders' ownership, and certain charter provisions could impede a takeover or change in control - Issuance of common stock and preferred stock (90.0 million shares authorized, 53.2 million outstanding at Dec 31, 2021) for acquisitions or incentive plans can dilute stockholders' ownership and earnings per share[161][162] - Delaware law and charter documents (e.g., restrictions on written consent, special meetings, director nominations, preferred share issuance) may impede or discourage a takeover or change in control, potentially limiting stockholders' ability to obtain a premium for their shares[163] Item 1B. Unresolved Staff Comments There are no unresolved staff comments - No unresolved staff comments were reported[164] Item 2. Properties The company leases its executive offices and owns/leases other facilities (offices, production yards, maintenance shops, training facilities) across the U.S. and Canada. As of December 31, 2021, 44 facilities were owned. The construction industry is capital intensive, with significant capital expenditures for equipment, totaling $133.8 million in 2021, including $119.4 million for construction equipment. Ownership or long-term leasing of equipment is preferred for availability and cost efficiency Facilities The company leases its executive offices and owns or leases numerous other facilities across the U.S. and Canada, which are considered adequate for current and foreseeable needs - The company leases its executive offices in Dallas, Texas, and owns/leases other facilities (offices, production yards, maintenance shops, training facilities) throughout the United States and Canada[165] - As of December 31, 2021, 44 facilities were owned, with the remainder leased, and are considered adequate for current and foreseeable requirements[165] Property, Plant and Equipment The capital-intensive construction industry necessitates continued capital expenditures for equipment, with the company preferring ownership or long-term leasing for cost efficiency and availability - The construction industry is capital intensive, and the company plans continued capital expenditures to meet service needs[166] Capital Expenditures | Year | Total Capital Expenditures (approx.) | | :--- | :---------------------------------: | | 2021 | $133.8 million | | 2021 | $119.4 million (construction equipment) | - Ownership or long-term leasing of equipment is preferred over renting to ensure availability and lower overall costs[168] - Maintenance facilities are present at most regional offices and major project sites for equipment service and repair[169] Item 3. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 13 — 'Commitments and Contingencies' of the Notes to Consolidated Financial Statements - Legal proceedings information is incorporated by reference from Note 13 — 'Commitments and Contingencies'[170] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[171] Part II This section details the market for Primoris's common equity, related stockholder matters, issuer purchases of equity securities, management's discussion and analysis of financial condition and results of operations, and disclosures about market risk and internal controls Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Primoris common stock is listed on Nasdaq under 'PRIM'. As of February 21, 2022, there were 53,219,187 shares outstanding and 378 stockholders of record. The company has paid consecutive quarterly cash dividends since 2008 and expects to continue, contingent on financial performance. In Q4 2021, the company purchased and cancelled 635,763 shares for $14.7 million under a $25.0 million share purchase program authorized in November 2021, with $10.3 million remaining - Common stock is listed on the Nasdaq Global Market under the symbol 'PRIM'[174] - As of February 21, 2022, there were 53,219,187 shares of common stock outstanding and 378 stockholders of record[174] - The company has paid consecutive quarterly cash dividends since 2008 and expects to continue, subject to revenue, earnings, capital requirements, and board discretion[175] Share Purchase Program Activity (Q4 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Remaining Value Under Program | | :---------------------- | :--------------------: | :--------------------------: | :---------------------------: | | November 1 - 30, 2021 | 255,263 | $23.71 | $18,948,531 | | December 1 - 31, 2021 | 380,500 | $22.78 | $10,280,534 | | Total (Q4 2021) | 635,763 | $23.15 | $10,280,534 | - A $25.0 million share purchase program was authorized in November 2021, expiring December 31, 2022[176] Item 6. Reserved This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Primoris's financial condition and results of operations, including business trends, critical accounting policies, and detailed financial performance. The company realigned its segments in 2021 to Utilities, Energy/Renewables, and Pipeline. It discusses growth opportunities across its end markets, material trends and uncertainties like COVID-19 impacts and fluctuating oil prices, and the seasonal nature of its business. Key financial results for 2021 include a slight revenue increase, significant gross profit growth, and a decrease in net cash from operating activities. The company's liquidity is supported by cash balances, credit facilities, and future cash flows, with substantial capital expenditures planned for equipment. Backlog increased significantly in 2021, indicating future revenue potential Introduction Primoris, a leading specialty contracting services provider, realigned its segments in 2021 to Utilities, Energy/Renewables, and Pipeline Services, and acquired Future Infrastructure Holdings, LLC for approximately $604.7 million - Primoris is a leading provider of specialty contracting services in the U.S. and Canada, offering construction, maintenance, fabrication, and engineering services[183] - In Q1 2021, the company realigned its reportable segments to Utilities, Energy/Renewables, and Pipeline Services, reflecting a focus on end-user markets[184][185] - The Utilities segment now includes previous Utilities and Distribution and Transmission and Distribution segments[186] - The Energy/Renewables segment now includes previous Power, Industrial and Engineering and Civil segments[187] - The Pipeline and Underground segment became the new Pipeline segment[188] - Revenue is generated from various contract types (fixed-price, unit-price, time and material, cost reimbursable plus fee), with revenue recognized over time for adequately defined scopes[191] - On January 15, 2021, Primoris acquired Future Infrastructure Holdings, LLC (FIH) for approximately $604.7 million, integrating its operations into the Utilities segment[193] Business Environment The company maintains a positive long-term outlook with growth opportunities across its end markets, driven by regulatory changes, infrastructure enhancements, and increasing demand for alternative energy - The company maintains a positive long-term outlook with growth opportunities across its served industries, supported by full-service operations, broad geographic reach, financial position, and technical expertise[194] - Anticipates changes to regulatory and environmental requirements for infrastructure projects, potentially improving project timing and certainty[195] - Outlook for major end markets includes: continued demand for pipeline inspection/maintenance due to regulatory requirements, growth in gas and electric utility infrastructure enhancements, communications construction opportunities (ReConnect, Rural Broadband, Infrastructure Bill), and increased construction of alternative energy facilities (solar, wind, battery storage)[195][196][198] - Expects continued construction opportunities for natural gas-fired power plants despite environmental concerns, driven by population growth and renewable intermittency[198] Material trends and uncertainties Revenue depends on spending by various industries and government agencies, which can be affected by macroeconomic conditions, COVID-19 impacts, fluctuating oil prices, and changes in the regulatory environment - Revenue depends on spending by communications, gas/electric utility, energy, chemical, oil/gas industries, and government agencies, which can be affected by macroeconomic conditions[199][200] - COVID-19 caused project interruptions, restrictions, and temporary work stoppages in 2020 and inefficiencies from absenteeism in 2021, with the ultimate impact remaining uncertain[201][202][203] - Fluctuations in oil, gas, and liquid natural gas prices create uncertainty for oil and gas pipeline services, potentially delaying midstream pipeline opportunities[205] - Changes in the regulatory environment (e.g., environmental laws, pipeline permitting) can increase, delay, or cancel projects, while demand for renewable resources creates new construction opportunities[206] Seasonality, cyclicality and variability Quarterly results are subject to variations due to weather conditions and client budget cycles, typically leading to higher revenue and earnings in the third and fourth quarters - Quarterly results are subject to variations due to weather conditions (rain, ice, snow, storms) impacting construction and specialty services[208] - Demand for new projects is typically lower in the early calendar year due to client budget cycles, leading to higher revenue and earnings in the third and fourth quarters[208] - Project values range from hundreds of dollars to hundreds of millions, with most averaging less than $5.0 million; large projects fluctuate based on customer timing, duration, weather, and economic conditions[209] Critical Accounting Policies and Estimates The preparation of financial statements requires significant estimates and assumptions for revenue recognition, business combinations, goodwill impairment, income taxes, and litigation, which can materially impact reported results General Financial statement preparation relies on significant estimates and assumptions for various accounts, where different estimates or changes could materially impact consolidated financial statements - Preparation of financial statements requires significant estimates and assumptions (e.g., revenue recognition, allowance for doubtful accounts, asset impairments, self-insured claims, deferred income taxes) due to inherent uncertainties and future events[210] - Critical accounting policies involve estimates based on highly uncertain assumptions, where different estimates or changes could materially impact consolidated financial statements[211] Revenue recognition Revenue is recognized over time for adequately defined contracts, with estimates for transaction price and costs subject to change, and adjustments recognized under the cumulative catch-up method - Revenue is generated from fixed-price, unit-price, time and material, and cost reimbursable plus fee contracts, each with different risk profiles[213] - For contracts with adequately defined scope, revenue is recognized over time using an input measure (costs incurred to date relative to total estimated costs at completion)[213] - Accounting for long-term contracts involves estimating total transaction price and costs, which can be impacted by changes in productivity, scheduling, labor/material costs, and external factors like weather or client delays[216] - Variable consideration (e.g., contract modifications, liquidated damages, performance bonuses) is estimated as the most likely amount, included in transaction price if an enforceable right exists and significant revenue reversal is improbable[217] - Adjustments to estimated profit on contracts are recognized under the cumulative catch-up method; projected losses are recognized in full when identified[219] - As of December 31, 2021, $86.9 million of unapproved contract modifications were included in aggregate transaction prices, with $79.5 million recognized as revenue[220] Business combinations Business combinations are accounted for using the acquisition method, requiring fair value estimates of acquired assets and liabilities, which can be finalized within a one-year measurement period - Business combinations are accounted for using the acquisition method, determining fair value of consideration paid and assets/liabilities acquired[223] - Fair value determination requires estimates and judgments of future cash flow expectations for tangible and intangible assets[223] - A 'measurement period' of up to one year allows for finalization of fair value estimates, with adjustments recorded in the period new information is discovered[226][420] Goodwill and Indefinite-Lived Intangible Assets Goodwill and indefinite-lived intangible assets are not amortized but are annually assessed for impairment through qualitative and quantitative tests, with no impairments recorded in recent years - Goodwill and indefinite-lived intangible assets are not amortized but are assessed for impairment annually (as of October 1) or more frequently if triggering events occur[228][229] - Impairment assessment involves qualitative factors (macroeconomic, industry, cost, financial performance) and a quantitative test comparing fair value (discounted cash flow analysis) to carrying amount[230] - No goodwill impairments were recorded for the years ended December 31, 2021, 2020, and 2019[231] Income taxes Income taxes are accounted for using the asset and liability method, recognizing deferred taxes for temporary differences, with a valuation allowance applied if realization is not probable - Income taxes are accounted for under the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences using enacted tax rates[233] - Deferred tax assets may be reduced by a valuation allowance if realization is not more likely than not, based on future taxable income and tax planning strategies[234] - Tax positions are recognized as a benefit only if it's more likely than not they will be sustained in an examination[235] - A one-percentage point increase in the effective tax rate for 2021 would have increased income tax expense by approximately $1.5 million[237] Litigation and contingencies Costs related to contingencies are recorded when a loss is probable and estimable, with management believing that reasonably possible outcomes will not materially adversely affect financial results - Costs related to contingencies are recorded when a loss is probable and reasonably estimable[238] - Management believes that the reasonably possible outcome of other claims and legal proceedings will not materially adversely affect consolidated results, financial condition, or cash flows[238] Results of Operations This section details the consolidated and segment-specific financial performance, including revenue, gross profit, SG&A expenses, transaction costs, other income/expense, and income tax provisions Consolidated Results Consolidated results show a slight revenue increase in 2021, significant gross profit growth, and increased SG&A and transaction costs, while interest expense decreased due to an interest rate swap Revenue Consolidated revenue increased slightly by 0.2% in 2021, driven by growth in Energy/Renewables and Utilities segments, including the FIH acquisition, largely offset by a decrease in the Pipeline segment Consolidated Revenue (in millions) | Year | Revenue | YoY Change | | :--- | :----------- | :--------- | | 2021 | $3,497.6 | +0.2% | | 2020 | $3,491.5 | +12.4% | | 2019 | $3,106.3 | | - The 0.2% revenue increase in 2021 was primarily due to growth in Energy/Renewables and Utilities segments, including $266.6 million from the FIH acquisition, largely offset by a decrease in the Pipeline segment[240] - The 12.4% revenue increase in 2020 was primarily due to growth in the Pipeline and Energy/Renewables segments, partially offset by lower revenue in the Utilities segment[241] Gross Profit Consolidated gross profit increased by 12.5% in 2021, primarily due to the FIH acquisition, leading to an improved gross profit margin of 11.9% Consolidated Gross Profit (in millions) | Year | Gross Profit | % of Revenue | YoY Change (Gross Profit) | | :--- | :----------- | :----------- | :------------------------: | | 2021 | $416.7 | 11.9% | +12.5% | | 2020 | $370.2 | 10.6% | +11.9% | | 2019 | $330.9 | 10.7% | | - The 12.5% gross profit increase in 2021 was primarily due to the FIH acquisition ($43.6 million), with gross profit margin increasing to 11.9% from 10.6%[242] - The 11.9% gross profit increase in 2020 was primarily due to increased revenue, with gross profit margin comparable to 2019[243][244] Selling, general and administrative expenses Consolidated SG&A expenses increased by 13.4% in 2021, mainly due to the FIH acquisition and lower revenue from legacy operations, raising SG&A as a percentage of revenue to 6.6% Consolidated SG&A Expenses (in millions) | Year | SG&A Expenses | % of Revenue | YoY Change (SG&A) | | :--- | :------------ | :----------- | :----------------: | | 2021 | $230.1 | 6.6% | +13.4% | | 2020 | $202.8 | 5.8% | +6.7% | | 2019 | $189.1 | 6.1% | | - The 13.4% SG&A increase in 2021 was mainly due to $28.7 million from the FIH acquisition and lower revenue from legacy operations, increasing SG&A as a percentage of revenue to 6.6%[246] - The 6.7% SG&A increase in 2020 was primarily due to a $7.4 million increase in compensation and a $3.4 million increase in IT system expenses, but SG&A as a percentage of revenue decreased to 5.8% due to increased revenue[247] Transaction and related costs Consolidated transaction and related costs increased significantly in 2021 by $13.0 million, primarily due to professional fees for the FIH acquisition and stock purchase expenses Consolidated Transaction and Related Costs (in millions) | Year | Transaction and Related Costs | | :--- | :---------------------------: | | 2021 | $16.4 | | 2020 | $3.4 | | 2019 | $0.9 | - The $13.0 million increase in 2021 was primarily due to professional fees for the FIH acquisition and expense from Primoris common stock purchase by FIH employees at a discount[248] - The $2.5 million increase in 2020 was primarily due to professional fees incurred for the FIH acquisition[249] Other income and expense Total other expense remained stable at $18.3 million in 2021 and 2020, with a decrease in interest expense in 2021 due to an interest rate swap and lower weighted average interest rates Consolidated Other Income and Expense (in millions) | Item | 2021 | 2020 | 2019 | | :--------------------------------- | :----- | :----- | :----- | | Foreign exchange (loss) gain, net | $(0.1) | $0.4 | $(0.7) | | Other income (expense), net | $0.3 | $1.2 | $(3.1) | | Interest expense, net | $(18.5) | $(19.9) | $(19.2) | | Total other expense | $(18.3) | $(18.3) | $(23.0) | - Foreign exchange fluctuations are primarily related to Canadian engineering operations[250] - The change in Other income (expense), net, from 2019 to 2020/2021 is mainly due to a $2.9 million loss in 2019 from the sale of a utility customer's pre-petition bankruptcy accounts receivable[251] - Interest expense, net, decreased by $1.4 million in 2021 due to a $4.9 million unrealized gain on interest rate swap and a lower weighted average interest rate, partially offset by higher average debt balances from the FIH acquisition[253] Weighted Average Interest Rate on Total Debt | Year | Weighted Average Interest Rate | | :--- | :----------------------------: | | 2021 | 2.8% | | 2020 | 3.7% | | 2019 | 4.0% | Provision for income taxes The consolidated provision for income taxes decreased by $4.5 million in 2021, primarily due to a temporary law change allowing full deductibility of per diem expenses, resulting in an effective tax rate of 23.8% Consolidated Provision for Income Taxes (in millions) | Year | Provision for Income Taxes | Effective Tax Rate | | :--- | :------------------------: | :----------------: | | 2021 | $36.1 | 23.8% | | 2020 | $40.7 | 27.9% | | 2019 | $33.8 | 28.7% | - The $4.5 million decrease in 2021 was primarily due to a temporary law change allowing full deductibility of per diem expenses, partially offset by tax on increased pre-tax profits[255] - The $6.8 million increase in 2020 was primarily due to increased pre-tax profits, partially offset by a reduction in state income taxes[256] Segment Results Segment results show varied performance, with Utilities and Energy/Renewables experiencing revenue and gross profit growth in 2021, while the Pipeline segment saw significant declines Utilities Segment The Utilities segment's 2021 revenue increased by 21.4% due to the FIH acquisition and electric utility activity, while gross profit margin decreased to 11.2% due to weather and project delays Utilities Segment Performance (in millions) | Year | Revenue | Gross Profit | % of Segment Revenue | | :--- | :--------- | :----------- | :-------------------: | | 2021 | $1,658.0 | $186.3 | 11.2% | | 2020 | $1,365.6 | $177.8 | 13.0% | | 2019 | $1,383.8 | $139.2 | 10.1% | - 2021 revenue increased by $292.4 million (+21.4%) due to the FIH acquisition ($266.6 million) and increased electric utility activity, partially offset by lower gas utility activity and project/material delays[259] - 2021 gross profit increased by $8.5 million (+4.8%) due to FIH ($43.6 million), but gross profit margin decreased to 11.2% from 13.0% due to unfavorable weather, project/material delays, and less high-margin storm work, partially offset by FIH's favorable margins[260] - 2020 revenue decreased by $18.2 million (-1.3%) due to decreased activity with utility customers in Texas, Midwest, and Southeast, offset by increases in other regions[261] - 2020 gross profit increased by $38.6 million (+27.7%) due to higher margins, with gross profit margin increasing to 13.0% from 10.1% due to favorable project margins, selective higher-margin work, and increased storm work[262] Energy/Renewables Segment The Energy/Renewables segment saw a 14.6% revenue increase and a 58.3% gross profit increase in 2021, driven by renewable energy activity and favorable claims resolution, improving gross profit margin to 10.7% Energy/Renewables Segment Performance (in millions) | Year | Revenue | Gross Profit | % of Segment Revenue | | :--- | :--------- | :----------- | :-------------------: | | 2021 | $1,408.2 | $150.3 | 10.7% | | 2020 | $1,228.8 | $94.9 | 7.7% | | 2019 | $1,217.4 | $130.2 | 10.7% | - 2021 revenue increased by $179.4 million (+14.6%) primarily due to increased renewable energy activity ($286.2 million), partially offset by completion of industrial projects in 2020[265] - 2021 gross profit increased by $55.4 million (+58.3%) due to higher revenue and margins, with gross profit margin increasing to 10.7% from 7.7% due to favorable claims resolution and lower costs on an LNG plant project[266] - 2020 revenue increased by $11.4 million (+0.9%) due to solar energy projects and an industrial project in California ($129.8 million combined), partially offset by completion of a carbon monoxide/hydrogen plant and lower Canadian industrial operations[267] - 2020 gross profit decreased by $35.3 million (-27.1%) due to lower margins, with gross profit margin decreasing to 7.7% from 10.7% due to higher costs on an LNG plant project, partially offset by strong solar project performance and Canadian Emergency Wage Subsidy[268] Pipeline Segment The Pipeline segment experienced a significant 51.9% revenue decrease in 2021 due to project completions and declining market demand, but gross profit margin increased to 18.6% from favorable project closeouts Pipeline Segment Performance (in millions) | Year | Revenue | Gross Profit | % of Segment Revenue | | :--- | :--------- | :----------- | :-------------------: | | 2021 | $431.5 | $80.1 | 18.6% | | 2020 | $897.0 | $97.5 | 10.9% | | 2019 | $505.2 | $61.6 | 12.2% | - 2021 revenue decreased by $465.5 million (-51.9%) due to substantial completion of several pipeline projects in 2020 ($416.7 million) and a decline in midstream pipeline market demand, along with permitting challenges[271] - 2021 gross profit decreased by $17.4 million (-17.8%) due to lower revenue, but gross profit margin increased to 18.6% from 10.9% due to favorable closeout of multiple pipeline projects and higher costs on 2020 projects[272] - 2020 revenue increased by $391.8 million (+77.6%) primarily due to Texas pipeline projects ($481.8 million combined), partially offset by reduced activity on a cancelled Mid-Atlantic project and completion of a 2019 project[273] - 2020 gross profit increased by $35.9 million (+58.3%) due to revenue growth, but gross profit margin decreased to 10.9% from 12.2% due to higher costs on Virginia and Texas pipeline projects, partially offset by strong performance on a Texas project[274] Liquidity and Capital Resources The company's liquidity is primarily supported by cash balances and operating cash flows, augmented by credit facilities and a shelf registration statement, with significant capital expenditures planned for equipment and facilities Cash Needs The company's liquidity is primarily derived from cash balances and operating cash flows, supplemented by credit lines and a shelf registration statement, to meet working capital, investment, and debt service requirements - Primary liquidity sources are cash balances and cash flows from operating activities, augmented by credit lines and a shelf registration statement for debt/equity issuance[275] - Short-term and long-term cash requirements include working capital, investments for growth, equipment/facilities maintenance, general corporate needs, and debt service[275] - On January 15, 2021, the Term Loan was increased by $400.0 million to $592.5 million to finance the FIH acquisition[276] - In March 2021, a public offering of 4,500,000 common shares generated $149.3 million net proceeds, used to repay a portion of FIH acquisition borrowings[277] Cash and Cash Equivalents (in millions) | Date | Amount | | :--------------- | :------- | | December 31, 2021 | $200.5 | | December 31, 2020 | $326.7 | - Capital expenditures for 2021 were $133.8 million ($119.4 million for construction equipment); expected for 2022 are $120.0-$140.0 million ($70.0-$90.0 million for construction equipment)[281] Cash Flows Cash flows from operating activities decreased significantly in 2021, while investing activities saw a substantial increase in cash used due to the FIH acquisition, and financing activities provided cash from new debt and equity issuances Operating Activities Net cash provided by operating activities decreased significantly by $233.3 million in 2021, primarily due to an unfavorable impact from changes in assets and liabilities Net Cash Provided by Operating Activities (in millions) | Year | Net Cash Provided by Operating Activities | | :--- | :---------------------------------------: | | 2021 | $79.7 | | 2020 | $313.0 | | 2019 | $118.9 | - Net cash from operating activities decreased by $233.3 million in 2021 compared to 2020, primarily due to an unfavorable impact from changes in assets and liabilities[284] - Significant components of the $132.7 million change in assets and liabilities in 2021 include increases in contract assets ($67.0 million) and other current assets ($54.7 million), and a decrease in contract liabilities ($29.1 million)[286] - Net cash from operating activities increased by $194.1 million in 2020 compared to 2019, due to a favorable impact from changes in assets and liabilities and increased net income[284] - Significant components of the $128.2 million change in assets and liabilities in 2020 include increases in contract liabilities ($74.8 million), accounts payable and accrued liabilities ($29.7 million), and other long-term liabilities ($23.0 million), partially offset by a decrease in contract assets ($19.3 million) and an increase in accounts receivable ($30.0 million)[285][293] Investing activities Net cash used in investing activities increased substantially to $691.3 million in 2021, primarily driven by $607.0 million for acquisitions, mainly the FIH acquisition Net Cash Used in Investing Activities (in millions) | Year | Net Cash Used in Investing Activities | | :--- | :-----------------------------------: | | 2021 | $(691.3) | | 2020 | $(42.5) | | 2019 | $(65.8) | - In 2021, $607.0 million was used for acquisitions, primarily the FIH acquisition[290] Property and Equipment Purchases (in millions) | Year | Purchases | | :--- | :-------- | | 2021 | $133.8 | | 2020 | $64.4 | | 2019 | $94.5 | Proceeds from Sale of Assets (in millions) | Year | Proceeds | | :--- | :------- | | 2021 | $49.5 | | 2020 | $21.9 | | 2019 | $28.6 | Financing activities Financing activities provided $485.8 million in cash in 2021, a reversal from prior years, primarily due to term loan proceeds and common stock issuance, partially offset by debt payments and stock repurchases Net Cash Provided by (Used in) Financing Activities (in millions) | Year | Net Cash Provided by (Used in) Financing Activities | | :--- | :------------------------------------------------: | | 2021 | $485.8 | | 2020 | $(62.9) | | 2019 | $(83.3) | - 2021 cash provided by financing activities ($485.8 million) was primarily from $395.1 million in term loan proceeds, $178.7 million from common stock issuance, and $61.7 million from equipment debt, partially offset by $113.9 million in debt payments, $14.7 million in stock purchases, and $12.6 million in dividends[294] - 2020 cash used in financing activities ($62.8 million) included $68.9 million in debt payments, $11.6 million in dividends, and $11.5 million in stock purchases, partially offset by $33.9 million from equipment/real estate debt[294] - 2019 cash used in financing activities ($83.3 million) included $72.1 million in debt payments, $50.0 million in stock purchases, and $12.2 million in dividends, partially offset by $55.0 million from equipment/real estate debt[294][296] Debt Activities The company increased its Term Loan by $400.0 million to $592.5 million in 2021 to finance the FIH acquisition, maintaining compliance with all covenants and hedging 75% of the variable interest rate with an interest rate swap - On January 15, 2021, the Second Amended and Restated Credit Agreement increased the Term Loan by $400.0 million to $592.5 million, extending maturity to January 15, 2026, to finance the FIH acquisition[297][493] - The Amended Credit Agreement includes a $200.0 million revolving credit facility and an accordion feature for up to $75.0 million increase[298][494] - As of February 21, 2022, there were no outstanding borrowings under the Revolving Credit Facility, with $42.0 million in commercial letters of credit and $158.0 million available borrowing capacity[299] - The Term Loan requires quarterly principal payments of approximately $7.4 million, with the balance due January 15, 2026[299] - Loans bear interest at LIBOR plus an applicable margin or Base Rate plus an applicable margin[300] - The company made additional payments of $42.6 million on the New Term Loan in 2021[301] - Loans are secured by company assets, and certain domestic subsidiaries provide joint and several guaranties[302] - The company was in compliance with all covenants of the Amended Credit Agreement at December 31, 2021[303] - An interest rate swap agreement (entered Sept 13, 2018) hedges 75% of the Term Loan's variable interest rate to a fixed rate of 2.89% plus an applicable margin[304][503] Canadian Credit Facilities The company maintains a $4.0 million Canadian dollar demand credit facility for letters of credit and a $10.0 million Canadian dollar working capital facility, both with available capacity at year-end 2021 - A **$4.0 million