Primoris(PRIM) - 2023 Q4 - Annual Report

Part I Business Primoris Services Corporation is a leading provider of infrastructure services in the United States and Canada, operating through its Utilities and Energy segments - In the first quarter of 2023, the company realigned its business from three segments (Utilities, Energy/Renewables, Pipeline) into two: Utilities and Energy[18][19][20] - The company's strategy emphasizes controlled expansion, growth in recurring revenue from Master Service Agreements (MSAs), and a conservative capital structure[27][35] - The top ten customers accounted for 41.1% of total revenue in 2023, a decrease from 46.1% in 2022 and 42.9% in 2021[34] Revenue from Master Service Agreements (MSAs) | Year | MSA Revenue as % of Total Revenue | | :--- | :--- | | 2023 | 36.7% | | 2022 | 45.8% | | 2021 | 45.9% | Employee Profile and Safety Metrics (as of Dec 31, 2023) | Metric | Value | | :--- | :--- | | Salaried Employees | 2,773 | | Hourly Employees | 11,285 | | Unionized Hourly Employees | ~30.6% | | Lost Time Injury Rate (LTIR) | 0.07 (vs. industry avg. of 1.0) | | Total Recordable Incident Rate (TRIR) | 0.46 (vs. industry avg. of 2.4) | Risk Factors The company faces risks from financial variability, cyclical markets, regulatory changes, fixed-price contracts, customer concentration, and cybersecurity threats - Financial and operating results are subject to significant quarterly and annual fluctuations due to factors like weather, customer spending patterns, and contract mix[78][83] - Demand for services is cyclical and can decrease during economic downturns, while regulatory changes related to climate change could impact client projects[80][89][94] - A substantial portion of revenue is generated from fixed-price and unit-price contracts, which exposes the company to risks of cost overruns[112] - The business is dependent on a concentrated customer base, with the top ten customers accounting for 41.1% of revenue in 2023[103][107] - The company faces significant cybersecurity risks that could disrupt operations, compromise confidential data, and result in financial loss or reputational damage[145][146] - As of December 31, 2023, approximately 30.6% of the hourly workforce was covered by collective bargaining agreements, posing risks of work stoppages[134][136] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[163] Cybersecurity Primoris maintains a comprehensive cybersecurity risk management program based on the NIST Framework, with oversight from the Audit Committee - The company's cybersecurity program is based on the National Institute of Standards and Technology (NIST) Framework and is integrated into its Enterprise Risk Management Program[164][165] - Oversight is managed by the Audit Committee of the Board of Directors and a cross-functional management Security Steering Committee (SSC)[168] - Primoris engages third parties for regular assessments and maintains multiple managed Security Operations Centers (SOCs) for continuous monitoring and response[165] Properties The company owns or leases various facilities across North America and prefers to own its construction equipment to ensure availability and control costs - As of December 31, 2023, the company owned 54 facilities and leased the remainder of its operational properties[171] - Capital expenditures in 2023 totaled approximately $103.0 million, including $34.0 million for construction equipment purchases[172] Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 12 of the Notes to Consolidated Financial Statements - For details on legal proceedings, the company refers to Note 12 — "Commitments and Contingencies" in the financial statements[175] Mine Safety Disclosures This item is not applicable to the company - Not applicable[176] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE under "PRIM", with a history of paying quarterly dividends and a revised peer group for performance comparison - The company's common stock is listed on the New York Stock Exchange under the symbol "PRIM"[179] - Primoris has paid consecutive quarterly cash dividends since 2008 and expects to continue doing so in the foreseeable future[180] - In 2023, the peer group for the stock performance graph was modified to better reflect the company's operations and market capitalization[183] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 29.3% to $5.7 billion in 2023, but net income declined due to prior-year gains and higher interest expense, while backlog grew to $10.9 billion Results of Operations Consolidated revenue grew 29.3% to $5.7 billion, while net income declined to $126.1 million due to higher interest and tax expenses - SG&A expenses increased by 16.7% to $328.7 million in 2023, but decreased as a percentage of revenue to 5.8% from 6.4% in 2022[252] - Net interest expense rose to $78.2 million in 2023 from $39.2 million in 2022, driven by higher average debt balances and increased interest rates[257] - The effective tax rate for 2023 was 29.0%, a significant increase from 16.5% in 2022, which was favorably impacted by a valuation allowance release[259][260] Consolidated Results of Operations (in millions, except EPS) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $5,715.3 | $4,420.6 | 29.3% | | Gross Profit | $587.5 | $456.9 | 28.6% | | Gross Margin | 10.3% | 10.3% | 0 bps | | Operating Income | $253.1 | $195.3 | 29.6% | | Net Income | $126.1 | $133.0 | (5.2%) | | Diluted EPS | $2.33 | $2.47 | (5.7%) | Segment Results The Energy segment drove growth with a 39.2% revenue increase and improved margins, while the Utilities segment saw margin contraction Utilities Segment Performance | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $2,380.2 M | $2,024.3 M | | Gross Profit | $207.0 M | $210.7 M | | Gross Margin | 8.7% | 10.4% | Energy Segment Performance | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $3,335.1 M | $2,396.3 M | | Gross Profit | $380.5 M | $246.2 M | | Gross Margin | 11.4% | 10.3% | Liquidity and Capital Resources The company maintained a solid liquidity position, improved operating cash flow to $198.6 million, and utilized a new Accounts Receivable Facility - At December 31, 2023, the company had $217.8 million in cash and cash equivalents and $273.4 million in available borrowing capacity under its Revolving Credit Facility[273][276] - In June 2023, the company entered into a $100.0 million Accounts Receivable Facility, of which $75.0 million was utilized as of December 31, 2023[274] - Capital expenditures were $103.0 million in 2023 and are expected to be between $80.0 million and $100.0 million in 2024[277] Cash Flow Summary (in millions) | Cash Flow Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $198.6 | $83.3 | $79.7 | | Net cash used in investing activities | ($30.0) | ($481.9) | ($691.3) | | Net cash (used in) from financing activities | ($205.3) | $452.0 | $485.8 | Backlog Total backlog increased 19.8% to $10.9 billion at year-end 2023, driven by growth in the Energy segment - The Next 12 Months backlog increased to $4.8 billion at year-end 2023, compared to $4.0 billion at year-end 2022[312] Backlog by Segment (in millions) | Segment | Total Backlog Dec 31, 2023 | Total Backlog Dec 31, 2022 | | :--- | :--- | :--- | | Utilities | $5,189.9 | $5,150.4 | | Energy | $5,705.0 | $3,944.6 | | Total | $10,894.9 | $9,095.0 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its variable-rate debt, which it partially mitigates using interest rate swaps - The company's main market risk is from interest rate changes on its variable-rate debt[315][318] - As of December 31, 2023, $300.0 million of the company's variable-rate debt was economically hedged through an interest rate swap[318] - A hypothetical 1.0% increase or decrease in interest rates would change the company's annual interest expense by approximately $5.7 million[318] Financial Statements and Supplementary Data This section incorporates the company's audited consolidated financial statements, supplementary data, and financial statement schedules by reference - The company's financial statements, supplementary data, and schedules are included starting on page F-1 of the report[320] Changes In and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[321] Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of year-end 2023 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[324] - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2023[328] - The independent registered public accounting firm issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[329] Other Information The company reports no other information under this item - None[331] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[332] Part III Part III incorporates information by reference from the company's 2024 Proxy Statement regarding directors, compensation, and ownership Directors, Executive Officers and Corporate Governance Information is incorporated by reference from the company's 2024 Proxy Statement Executive Compensation Information is incorporated by reference from the company's 2024 Proxy Statement Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information is incorporated by reference from the company's 2024 Proxy Statement Certain Relationships and Related Transactions, and Director Independence Information is incorporated by reference from the company's 2024 Proxy Statement Principal Accountant Fees and Services Information is incorporated by reference from the company's 2024 Proxy Statement Part IV Part IV contains the list of exhibits filed with the Form 10-K, including governance documents, material contracts, and certifications Exhibits and Financial Statement Schedules This section lists all documents filed as part of the report, including financial statements and required exhibits Form 10-K Summary The company reports no summary under this item - None[349]