Primoris(US:PRIM)2022-08-08 21:42Part I. Financial Information Financial Statements This section presents the unaudited condensed consolidated financial statements for Primoris Services Corporation as of June 30, 2022, including balance sheets, income statements, and cash flows, along with detailed notes on accounting policies and significant events Condensed Consolidated Balance Sheets As of June 30, 2022, total assets increased to $2.71 billion from $2.54 billion at year-end 2021, while total liabilities grew to $1.68 billion from $1.55 billion, and stockholders' equity rose to $1.03 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $1,317,947 | $1,182,090 | | Total assets | $2,713,830 | $2,543,327 | | Total current liabilities | $889,328 | $759,118 | | Total liabilities | $1,681,032 | $1,553,272 | | Total stockholders' equity | $1,032,798 | $990,055 | Condensed Consolidated Statements of Income For Q2 2022, revenue increased to $1.02 billion from $881.6 million year-over-year, with net income significantly rising to $50.2 million, or $0.93 per diluted share, aided by a $40.1 million gain on a sale and leaseback transaction Q2 and H1 2022 vs 2021 Income Statement (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,022,948 | $881,610 | $1,807,333 | $1,699,939 | | Gross Profit | $92,109 | $113,026 | $148,594 | $193,207 | | Operating Income | $67,264 | $54,799 | $67,972 | $67,652 | | Gain on sale and leaseback | $40,084 | $— | $40,084 | $— | | Net Income | $50,154 | $36,295 | $48,480 | $42,143 | | Diluted EPS | $0.93 | $0.67 | $0.90 | $0.81 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash used in operating activities was $91.1 million, a significant shift from the $6.2 million provided in 2021, primarily due to increases in accounts receivable and contract assets Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(91,113) | $6,163 | | Net cash used in investing activities | $(44,375) | $(659,195) | | Net cash provided by financing activities | $26,200 | $504,252 | | Net change in cash | $(109,333) | $(148,195) | Notes to Condensed Consolidated Financial Statements The notes detail key accounting policies and events, including a change in equipment useful lives reducing depreciation by $11.1 million, the completion of two acquisitions (B Comm and ASP) and announcement of a third (PLH), a $40.1 million gain from a sale-leaseback, and a subsequent amendment to the credit facility for the PLH acquisition - Effective January 1, 2022, the company changed its estimate for the useful lives of certain equipment, which reduced depreciation expense by $11.1 million and increased net income by $8.8 million for the six months ended June 30, 202226 - Acquisitions in 2022 include B Comm Holdco, LLC for approximately $35.6 million (June) and Alberta Screw Piles, Ltd. for approximately $4.1 million (March)3741 - A definitive agreement was signed to acquire PLH Group, Inc. for approximately $470.0 million, which closed on August 1, 202242 - As of June 30, 2022, the company had $3.0 billion of remaining performance obligations, with approximately 63.3% expected to be recognized as revenue in the next four quarters54 - A sale and leaseback of property in Carson, California on June 22, 2022, resulted in a gain of $40.1 million112114 - Subsequent to quarter-end, on August 1, 2022, the company amended its credit agreement, increasing its term loan to $945.0 million and its revolving credit facility to $325.0 million to finance the PLH acquisition131132 Management's Discussion and Analysis (MD&A) Management discusses financial results, highlighting a 16.0% revenue increase in Q2 2022 to $1.02 billion, driven by Energy/Renewables and Utilities segments, while gross profit decreased to 9.0% of revenue due to cost inflation and Pipeline segment performance Results of Operations Consolidated revenue for Q2 2022 increased 16.0% year-over-year to $1.02 billion, driven by Energy/Renewables and Utilities, while gross profit for Q2 2022 fell 18.5% to $92.1 million, with margins contracting to 9.0% due to negative margins in the Pipeline segment and cost pressures Q2 2022 vs Q2 2021 Revenue and Gross Profit | Metric | Q2 2022 | Q2 2021 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,022.9M | $881.6M | +$141.3M | +16.0% | | Gross Profit | $92.1M | $113.0M | -$20.9M | -18.5% | | Gross Margin | 9.0% | 12.8% | -3.8 p.p. | - | - The decrease in gross margin was primarily due to negative gross margins in the Pipeline segment, the favorable closeout of pipeline projects in 2021, and increased labor, material, and fuel costs in the Utilities segment in 2022177178 - A $40.1 million gain on a sale and leaseback transaction was recorded in Q2 2022185 - The effective tax rate for H1 2022 was 20.5%, compared to 27.5% in H1 2021, mainly due to the release of a valuation allowance following the capital gain from the property sale91193 Segment Results In Q2 2022, Utilities revenue grew 11.9% to $476.1 million but gross margin fell to 8.5% due to cost inflation, while Energy/Renewables revenue surged 45.2% to $486.3 million with improved gross margin at 10.9%, and Pipeline revenue declined 50.1% to $60.5 million, posting a negative gross margin of -2.3% Q2 2022 Segment Performance (in thousands) | Segment | Revenue | % Change YoY | Gross Profit | Gross Margin % | | :--- | :--- | :--- | :--- | :--- | | Utilities | $476,121 | +11.9% | $40,356 | 8.5% | | Energy/Renewables | $486,349 | +45.2% | $53,143 | 10.9% | | Pipeline | $60,478 | -50.1% | $(1,390) | -2.3% | - Utilities: Gross margin declined from 11.5% in Q2 2021 due to increased fuel and labor costs from inflation, as cost increases exceeded contractual caps on MSA billing rate adjustments197 - Energy/Renewables: Revenue growth was driven by a $98.6 million increase in renewable energy activity, and gross margin improved from 9.9% in Q2 2021199201 - Pipeline: Revenue decline was due to the substantial completion of four major projects in 2021, and the negative gross margin was caused by lower volumes leading to high carrying costs for equipment and personnel204206 Backlog Total backlog reached a record $4.57 billion at June 30, 2022, up from $4.00 billion at year-end 2021, consisting of $2.81 billion in Fixed Backlog and $1.76 billion in estimated 12-month MSA Backlog, with the Energy/Renewables segment accounting for the largest portion Total Backlog by Segment (in millions) | Reportable Segment | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Utilities | $1,558.4 | $1,383.6 | | Energy/Renewables | $2,878.6 | $2,455.3 | | Pipeline | $134.6 | $163.9 | | Total | $4,571.6 | $4,002.8 | - Fixed Backlog increased by 13.3% to $2.81 billion at June 30, 2022, from $2.48 billion at December 31, 2021211212 - Estimated 12-month MSA Backlog was $1.76 billion, with the Utilities segment contributing $1.55 billion214 Liquidity and Capital Resources The company ended Q2 2022 with $91.3 million in cash, with net cash used in operations at $91.1 million for H1 2022, and subsequently amended its credit agreement to increase its term loan to $945.0 million and revolving credit facility to $325.0 million to finance the PLH acquisition - Cash and cash equivalents decreased to $91.3 million at June 30, 2022, from $200.5 million at December 31, 2021220 - Net cash used by operating activities was $91.1 million for H1 2022, primarily due to a $105.7 million increase in accounts receivable and a $63.6 million increase in contract assets223224225 - On August 1, 2022, the company amended its credit agreement, increasing the Term Loan to $945.0 million and the Revolving Credit Facility to $325.0 million, with available borrowing capacity of $170.7 million as of that date218 - Capital expenditures for the remaining six months of 2022 are projected to be between $60.0 million and $70.0 million221 Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from fluctuations in interest rates on its variable-rate debt, with a hypothetical 1.0% change impacting annual interest expense by approximately $4.4 million on the unhedged portion - The company's primary market risk is interest rate fluctuations on its variable-rate credit facility and term loan239 - A 1.0% increase or decrease in interest rates would change annual interest expense by approximately $4.4 million, based on variable rate debt outstanding at June 30, 2022239 Controls and Procedures Management, including the CEO and CFO, concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective242 - No material changes were made to internal control over financial reporting during the quarter ended June 30, 2022244 Part II. Other Information Legal Proceedings The company is subject to various claims and legal proceedings in the ordinary course of business, which management believes will not have a material adverse effect on its financial condition or results of operations - The company is subject to claims and legal proceedings arising from its business but does not expect them to have a material adverse effect; see Note 14 for details115116245 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 148,000 shares of its common stock for $3.4 million under its authorized share purchase program, with $21.6 million remaining available for purchase as of June 30, 2022 Share Repurchase Activity (Q2 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2022 | — | — | | May 2022 | 148,000 | $22.77 | | June 2022 | — | — | | Total | 148,000 | $22.77 | - As of June 30, 2022, $21.6 million remained available for repurchase under the company's share purchase program246 Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including the merger agreement for the PLH acquisition, various employment agreements, and CEO/CFO certifications - Exhibits filed with the report include the PLH Group, Inc. merger agreement, employment agreements, and required certifications249