UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2020

OR

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

For the transition period from                    to                      .

Commission file number 001-34145

Primoris Services Corporation

(Exact name of registrant as specified in its charter)

Delaware	20-4743916
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
2300 N. Field Street, Suite 1900
Dallas, Texas	75201
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (214) 740-5600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	PRIM	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ⌧  No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer  ⌧	Accelerated filer  ☐
Non-accelerated filer  ☐	Smaller reporting company   ☐
	Emerging growth company   ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐  No ⌧

At April 27, 2020, 48,260,436 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

PRIMORIS SERVICES CORPORATION

INDEX

	Page No.
Part I. Financial Information
Item 1. Financial Statements:
—Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019 (Unaudited)	3
—Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (Unaudited)	4
—Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2020 and 2019 (Unaudited)	5
—Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (Unaudited)	6
—Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (Unaudited)	7
—Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3. Quantitative and Qualitative Disclosures About Market Risk	35
Item 4. Controls and Procedures	35
Part II. Other Information
Item 1. Legal Proceedings	36
Item 1A. Risk Factors	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 6. Exhibits	37
Signatures	38

2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

(Unaudited)

		March 31,		December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	93,474	$	120,286
Accounts receivable, net		416,412		404,911
Contract assets		359,370		344,806
Prepaid expenses and other current assets		47,409		42,704
Total current assets		916,665		912,707
Property and equipment, net		363,993		375,888
Operating lease assets		253,117		242,385
Deferred tax assets		1,090		1,100
Intangible assets, net		67,460		69,829
Goodwill		215,103		215,103
Other long-term assets		17,675		13,453
Total assets	$	1,835,103	$	1,830,465
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	258,962	$	235,972
Contract liabilities		176,847		192,397
Accrued liabilities		192,648		183,501
Dividends payable		2,895		2,919
Current portion of long-term debt		52,430		55,659
Total current liabilities		683,782		670,448
Long-term debt, net of current portion		290,749		295,642
Noncurrent operating lease liabilities, net of current portion		176,546		171,225
Deferred tax liabilities		17,820		17,819
Other long-term liabilities		50,762		45,801
Total liabilities		1,219,659		1,200,935
Commitments and contingencies (See Note 16)
Stockholders’ equity
Common stock—$.0001 par value; 90,000,000 shares authorized; 48,254,575 and 48,665,138 issued and outstanding at March 31, 2020 and December 31, 2019, respectively		5		5
Additional paid-in capital		91,414		97,130
Retained earnings		524,655		531,291
Accumulated other comprehensive (loss) income		(1,661)		76
Noncontrolling interest		1,031		1,028
Total stockholders’ equity		615,444		629,530
Total liabilities and stockholders’ equity	$	1,835,103	$	1,830,465

See Accompanying Notes to Condensed Consolidated Financial Statements

3

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended
	March 31,
	2020		2019
Revenue	$	743,243	$	661,558
Cost of revenue		695,433		609,098
Gross profit		47,810		52,460
Selling, general and administrative expenses		44,388		42,931
Operating income		3,422		9,529
Other income (expense):
Foreign exchange gain (loss)		136		(185)
Other income (expense), net		12		(370)
Interest income		281		349
Interest expense		(9,112)		(5,592)
(Loss) income before provision for income taxes		(5,261)		3,731
Benefit (provision) for income taxes		1,527		(795)
Net (loss) income		(3,734)		2,936
Less net income attributable to noncontrolling interests		(3)		(989)
Net (loss) income attributable to Primoris	$	(3,737)	$	1,947
Dividends per common share	$	0.06	$	0.06
(Loss) earnings per share:
Basic	$	(0.08)	$	0.04
Diluted	$	(0.08)	$	0.04
Weighted average common shares outstanding:
Basic		48,588		50,770
Diluted		48,588		51,188

See Accompanying Notes to Condensed Consolidated Financial Statements

4

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In Thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2020		2019
Net (loss) income	$	(3,734)	$	2,936
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(1,737)		374
Comprehensive (loss) income		(5,471)		3,310
Less net income attributable to noncontrolling interests		(3)		(989)
Comprehensive (loss) income attributable to Primoris	$	(5,474)	$	2,321

See Accompanying Notes to Condensed Consolidated Financial Statements

5

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)

									Accumulated
				Additional					Other		Non		Total
	Common Stock			Paid-in		Retained			Comprehensive		Controlling		Stockholders’
	Shares	Amount		Capital		Earnings		0	Loss		Interest		Equity
Balance, December 31, 2019	48,665,138	$	5	$	97,130	$	531,291		$	76	$	1,028	$	629,530
Net (loss) income	—		—		—		(3,737)			—		3		(3,734)
Foreign currency translation adjustments, net of tax	—		—		—		—			(1,737)		—		(1,737)
Issuance of shares to employees and directors	51,268		—		1,174		—			—		—		1,174
Amortization of Restricted Stock Units	—		—		499		—			—		—		499
Dividend equivalent Units accrued - Restricted Stock Units	—		—		4		(4)			—		—		—
Repurchase of stock	(461,831)		—		(7,393)		—			—		—		(7,393)
Dividends declared ($0.06 per share)	—		—		—		(2,895)			—		—		(2,895)
Balance, March 31, 2020	48,254,575	$	5	$	91,414	$	524,655		$	(1,661)	$	1,031	$	615,444

									Accumulated
				Additional					Other		Non			Total
	Common Stock			Paid-in		Retained			Comprehensive		Controlling			Stockholders’
	Shares	Amount		Capital		Earnings		0	Loss		Interest		0	Equity
Balance, December 31, 2018	50,715,518	$	5	$	144,048	$	461,075		$	(908)	$	2,763		$	606,983
Net income	—		—		—		1,947			—		989			2,936
Foreign currency translation adjustments, net of tax	—		—		—		—			374		—			374
Issuance of shares to employees and directors	127,384		—		2,661		—			—		—			2,661
Amortization of Restricted Stock Units	—		—		487		—			—		—			487
Dividend equivalent Units accrued - Restricted Stock Units	—		—		12		(12)			—		—			—
Distribution of noncontrolling entities	—		—		—		—			—		(5)			(5)
Dividends declared ($0.06 per share)	—		—		—		(3,051)			—		—			(3,051)
Balance, March 31, 2019	50,842,902	$	5	$	147,208	$	459,959		$	(534)	$	3,747		$	610,385

See Accompanying Notes to Condensed Consolidated Financial Statements

6

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2020		2019
Cash flows from operating activities:
Net (loss) income	$	(3,734)	$	2,936
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		19,797		21,700
Stock-based compensation expense		499		487
Gain on sale of property and equipment		(2,311)		(2,217)
Unrealized loss on interest rate swap		4,970		1,447
Other non-cash items		1,821		80
Changes in assets and liabilities:
Accounts receivable		(13,911)		(24,722)
Contract assets		(15,682)		(2,328)
Other current assets		(4,849)		(2,231)
Other long-term assets		204		182
Accounts payable		23,934		(59,198)
Contract liabilities		(15,389)		2,590
Operating lease assets and liabilities, net		119		(1,447)
Accrued liabilities		(179)		(9,663)
Other long-term liabilities		(756)		288
Net cash used in operating activities		(5,467)		(72,096)
Cash flows from investing activities:
Purchase of property and equipment		(9,311)		(14,377)
Proceeds from sale of property and equipment		6,902		4,398
Net cash used in investing activities		(2,409)		(9,979)
Cash flows from financing activities:
Borrowings under revolving line of credit		—		40,000
Payments on revolving line of credit		—		(40,000)
Proceeds from issuance of long-term debt		6,800		23,105
Repayment of long-term debt		(14,976)		(17,170)
Proceeds from issuance of common stock purchased under a long-term incentive plan		578		1,804
Repurchase of common stock		(7,393)		—
Dividends paid		(2,919)		(3,043)
Other		(1,285)		(26)
Net cash (used in) provided by financing activities		(19,195)		4,670
Effect of exchange rate changes on cash and cash equivalents		259		327
Net change in cash and cash equivalents		(26,812)		(77,078)
Cash and cash equivalents at beginning of the period		120,286		151,063
Cash and cash equivalents at end of the period	$	93,474	$	73,985

See Accompanying Notes to Condensed Consolidated Financial Statements

7

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands)

(Unaudited)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Three Months Ended March 31,
	2020		2019
Cash paid for interest	$	4,061	$	4,065
Cash paid for income taxes, net of refunds received		(369)		(707)
Leased assets obtained in exchange for new operating leases		34,711		8,847

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

	Three Months Ended March 31,
	2020		2019
Dividends declared and not yet paid	$	2,895	$	3,051

See Accompanying Notes to Condensed Consolidated Financial Statements

8

PRIMORIS SERVICES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars In Thousands, Except Share and Per Share Amounts)

(Unaudited)

Note 1—Nature of Business

Organization and operations — Primoris Services Corporation is one of the leading providers of specialty contracting services operating mainly in the United States and Canada. We provide a wide range of specialty construction services, fabrication, maintenance, replacement, and engineering services to a diversified base of customers through our five segments.

We have longstanding customer relationships with major utility, refining, petrochemical, power, midstream, and engineering companies, and state departments of transportation. We provide our services to a diversified base of customers, under a range of contracting options. A substantial portion of our services are provided under Master Service Agreements (“MSA”), which are generally multi-year agreements. The remainder of our services are generated from contracts for specific construction or installation projects.

We are incorporated in the State of Delaware, and our corporate headquarters are located at 2300 N. Field Street, Suite 1900, Dallas, Texas 75201. Unless specifically noted otherwise, as used throughout these consolidated financial statements, “Primoris”, “the Company”, “we”, “our”, “us” or “its” refers to the business, operations and financial results of the Company and its wholly-owned subsidiaries.

Reportable Segments — We segregate our business into five reportable segments: the Power, Industrial and Engineering (“Power”) segment, the Pipeline and Underground (“Pipeline”) segment, the Utilities and Distribution (“Utilities”) segment, the Transmission and Distribution (“Transmission”) segment, and the Civil segment. See Note 17 – “Reportable Segments” for a brief description of the reportable segments and their operations.

The classification of revenue and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses were made.

Joint Ventures — We own a 50% interest in the Carlsbad Power Constructors joint venture (“Carlsbad”), which engineered and constructed a gas-fired power generation facility located in Southern California, and its operations are included as part of the Power segment. As a result of determining that we are the primary beneficiary of the variable interest entity (“VIE”), the results of the Carlsbad joint venture are consolidated in our financial statements. The project was substantially complete as of December 31, 2018, and the warranty period expires in December 2020.

Financial information for the joint ventures is presented in Note 10 – “Noncontrolling Interests”.

Note 2—Basis of Presentation

Interim condensed consolidated financial statements — The interim condensed consolidated financial statements for the three month period ended March 31, 2020 and 2019 have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, certain disclosures, which would substantially duplicate the disclosures contained in our Annual Report on Form 10-K, filed on February 24, 2020, which contains our audited consolidated financial statements for the year ended December 31, 2019, have been omitted.

This Form 10-Q should be read in conjunction with our most recent Annual Report on Form 10-K. The interim financial information is unaudited.  In the opinion of management, the interim information includes all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the interim financial information. 

Customer concentration — We operate in multiple industry segments encompassing the construction of commercial, industrial and public works infrastructure assets primarily throughout the United States. Typically, the top ten customers in any one calendar year generate revenue that is approximately 50% of total revenue; however, the group that comprises the top ten customers varies from year to year. For the three months ended March 31, 2020 and 2019,

9

approximately 50.1% and 49.1%, respectively, of total revenue was generated from our top ten customers. For the three months ended March 31, 2020, one pipeline customer represented approximately 11.3% of total revenue and for the three months ended March 31, 2019 no one single customer represented greater than 10.0% of total revenue.

Note 3—Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introduced an expected credit loss methodology for the measurement and recognition of credit losses on most financial assets, including trade accounts receivables. The expected credit loss methodology under ASU 2016-13 is based on historical experience, current conditions and reasonable and supportable forecasts, and replaces the probable/incurred loss model for measuring and recognizing expected losses under current GAAP. The ASU also requires disclosure of information regarding how a company developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. The ASU and its related clarifying updates are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. We adopted the new standard on January 1, 2020, and it did not have a material impact on our estimate of the allowance for uncollectable accounts.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which eliminates certain disclosure requirements for recurring and nonrecurring fair value measurements. The ASU eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and adds new disclosure requirements for Level 3 measurements. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. We adopted the new standard on January 1, 2020, and it did not have a material impact on our disclosures.

Recently issued accounting pronouncements not yet adopted

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective, or prospective basis. We are currently evaluating the potential effects of adopting the provisions of ASU No. 2019-12.

Note 4—Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures”, defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. ASC Topic 820 addresses fair value GAAP for financial assets and financial liabilities that are re-measured and reported at fair value at each reporting period and for non-financial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis.

In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs use data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are “unobservable data points” for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.

10

The following table presents, for each of the fair value hierarchy levels identified under ASC Topic 820, our financial assets and liabilities that are required to be measured at fair value at March 31, 2020 and December 31, 2019 (in thousands):

	Fair Value Measurements at Reporting Date
			Significant
	Quoted Prices		Other		Significant
	in Active Markets		Observable		Unobservable
	for Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets as of March 31, 2020:
Cash and cash equivalents	$	93,474	$	—	$	—
Contingent consideration		—		—		938
Liabilities as of March 31, 2020:
Interest rate swap	$	—	$	11,414	$	—
Assets as of December 31, 2019:
Cash and cash equivalents	$	120,286	$	—	$	—
Contingent consideration		—		—		938
Liabilities as of December 31, 2019:
Interest rate swap	$	—	$	6,443	$	—

Other financial instruments not listed in the table consist of accounts receivable, accounts payable and certain accrued liabilities. These financial instruments generally approximate fair value based on their short-term nature. The carrying value of our long-term debt approximates fair value based on comparison with current prevailing market rates for loans of similar risks and maturities.

In the second quarter of 2019, we sold certain assets that included an earnout of $2.0 million, contingent upon the buyer meeting a certain performance target. The estimated fair value of the contingent consideration on the sale date was approximately $0.9 million. We measured the fair value of the contingent consideration using the income approach, which discounts the future cash payments expected upon meeting the performance target to present value. The fair value of the contingent consideration was impacted by two unobservable inputs, management’s estimate of the probability of meeting the performance target and the estimated discount rate (a rate that approximates our cost of capital). Significant changes in either of those inputs in isolation would result in a different fair value measurement. During the first quarter of 2020, there was no change to the fair value of the contingent consideration.

The interest rate swap is measured at fair value using the income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations primarily utilize indirectly observable inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals. See Note 9 – “Derivative Instruments” for additional information.

Note 5—Revenue

We generate revenue under a range of contracting types, including fixed-price, unit-price, time and material, and cost reimbursable plus fee contracts. A substantial portion of our revenue is derived from contracts that are fixed-price or unit-price and is recognized over time as work is completed because of the continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). For time and material and cost reimbursable plus fee contracts, revenue is recognized primarily on an input basis, based on contract costs incurred as defined within the respective contracts. Costs to obtain contracts are generally not significant and are expensed in the period incurred.

We evaluate whether two or more contracts should be combined and accounted for as one single performance obligation and whether a single contract should be accounted for as more than one performance obligation. ASC 606 defines a performance obligation as a contractual promise to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our evaluation requires significant judgment and the decision to combine a group of contracts or separate a contract into multiple performance obligations could change the amount of revenue and profit

11

recorded in a given period. The majority of our contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and, therefore, is not distinct. However, occasionally we have contracts with multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the observable standalone selling price, if available, or alternatively our best estimate of the standalone selling price of each distinct performance obligation in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach for each performance obligation.

As of March 31, 2020, we had $2.08 billion of remaining performance obligations. We expect to recognize approximately 58% of our remaining performance obligations as revenue during the next four quarters and substantially all of the remaining balance by the first quarter of 2022.

Accounting for long-term contracts involves the use of various techniques to estimate total transaction price and costs. For long-term contracts, transaction price, estimated cost at completion and total costs incurred to date are used to calculate revenue earned. Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract. Total estimated costs, and thus contract revenue and income, can be impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and approvals, labor availability, governmental regulation, politics and any prevailing impacts from the pandemic caused by the coronavirus may affect the progress of a project’s completion, and thus the timing of revenue recognition. To the extent that original cost estimates are modified, estimated costs to complete increase, delivery schedules are delayed, or progress under a contract is otherwise impeded, cash flow, revenue recognition and profitability from a particular contract may be adversely affected.

The nature of our contracts gives rise to several types of variable consideration, including contract modifications (change orders and claims), liquidated damages, volume discounts, performance bonuses, incentive fees, and other terms that can either increase or decrease the transaction price. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent we believe we have an enforceable right, and it is probable that a significant reversal of cumulative revenue recognized will not occur. Our estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us at this time.

Contract modifications result from changes in contract specifications or requirements. We consider unapproved change orders to be contract modifications for which customers have not agreed to both scope and price. We consider claims to be contract modifications for which we seek, or will seek, to collect from customers, or others, for customer-caused changes in contract specifications or design, or other customer-related causes of unanticipated additional contract costs on which there is no agreement with customers. Claims can also be caused by non-customer-caused changes, such as rain or other weather delays. Costs associated with contract modifications are included in the estimated costs to complete the contracts and are treated as project costs when incurred. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. In some cases, settlement of contract modifications may not occur until after completion of work under the contract.

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the cumulative impact of the profit adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. In the three months ended March 31, 2020, revenue recognized from performance obligations satisfied in previous periods was $3.6 million. If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized in full, including any previously recognized profit, in the period it is identified and recognized as an “accrued loss provision” which is included in “Contract liabilities” on the Condensed Consolidated Balance Sheets. For contract revenue recognized over time, the accrued loss provision is adjusted so that the gross profit for the contract remains zero in future periods.

At March 31, 2020, we had approximately $94.4 million of unapproved contract modifications included in the aggregate transaction prices. These contract modifications were in the process of being negotiated in the normal course of

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business. Approximately $80.6 million of the contract modifications had been recognized as revenue on a cumulative catch-up basis through March 31, 2020.

In all forms of contracts, we estimate the collectability of contract amounts at the same time that we estimate project costs. If we anticipate that there may be issues associated with the collectability of the full amount calculated as the transaction price, we may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection. For example, when a cost reimbursable project exceeds the client’s expected budget amount, the client frequently requests an adjustment to the final amount. Similarly, some utility clients reserve the right to audit costs for significant periods after performance of the work.

The timing of when we bill our customers is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the work, or when services are provided. Sometimes, billing occurs subsequent to revenue recognition, resulting in unbilled revenue, which is a contract asset. Also, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in deferred revenue, which is a contract liability.

The caption “Contract assets” in the Condensed Consolidated Balance Sheets represents the following:

● unbilled revenue, which arise when revenue has been recorded but the amount will not be billed until a later date;

● retainage amounts for the portion of the contract price earned by us for work performed, but held for payment by the customer as a form of security until we reach certain construction milestones; and

● contract materials for certain job specific materials not yet installed, which are valued using the specific identification method relating the cost incurred to a specific project.

Contract assets consist of the following (in thousands):

	March 31,		December 31,
	2020		2019
Unbilled revenue	$	268,282	$	251,429
Retention receivable		78,216		81,393
Contract materials (not yet installed)		12,872		11,984
	$	359,370	$	344,806

Contract assets increased by $14.6 million compared to December 31, 2019 due primarily to higher unbilled revenue.

The caption “Contract liabilities” in the Condensed Consolidated Balance Sheets represents deferred revenue on billings in excess of contract revenue recognized to date, and the accrued loss provision.

Contract liabilities consist of the following (in thousands):

	March 31,		December 31,
	2020		2019
Deferred revenue	$	171,553	$	186,081
Accrued loss provision		5,294		6,316
	$	176,847	$	192,397

Contract liabilities decreased by $15.6 million compared to December 31, 2019 due primarily to lower deferred revenue.

Revenue recognized for the three months ended March 31, 2020, that was included in the contract liability balance at December 31, 2019 was approximately $97.9 million.

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The following tables present our revenue disaggregated into various categories.

Master Service Agreements (“MSA”) and Non-MSA revenue was as follows (in thousands):

	For the three months ended March 31, 2020
Segment	MSA		Non-MSA		Total
Power	$	37,095		159,098		196,193
Pipeline		46,732		144,791		191,523
Utilities		104,011		43,159		147,170
Transmission		81,774		21,010		102,784
Civil		796		104,777		105,573
Total	$	270,408	$	472,835	$	743,243

	For the three months ended March 31, 2019
Segment	MSA		Non-MSA		Total
Power	$	49,195	$	96,188	$	145,383
Pipeline		21,849		112,965		134,814
Utilities		119,462		26,744		146,206
Transmission		101,723		16,720		118,443
Civil		650		116,062		116,712
Total	$	292,879	$	368,679	$	661,558

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

	For the three months ended March 31, 2020
Segment	Fixed-price		Unit-price		Cost reimbursable (1)		Total
Power	$	144,850		181		51,162		196,193
Pipeline		15,345		81,830		94,348		191,523
Utilities		24,089		80,639		42,442		147,170
Transmission		13,636		88,789		359		102,784
Civil		19,859		75,447		10,267		105,573
Total	$	217,779	$	326,886	$	198,578	$	743,243

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

	For the three months ended March 31, 2019
Segment	Fixed-price		Unit-price		Cost reimbursable (1)		Total
Power	$	75,143	$	6,613	$	63,627	$	145,383
Pipeline		17,227		374		117,213		134,814
Utilities		22,767		67,878		55,561		146,206
Transmission		8,463		105,841		4,139		118,443
Civil		22,685		78,494		15,533		116,712
Total	$	146,285	$	259,200	$	256,073	$	661,558

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

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

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Note 6—Goodwill and Intangible Assets

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

	March 31,		December 31,
Reporting Segment	2020		2019
Power	$	26,194	$	26,194
Pipeline		52,415		52,415
Utilities		37,312		37,312
Transmission		59,032		59,032
Civil		40,150		40,150
Total Goodwill	$	215,103	$	215,103

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

		March 31, 2020						December 31, 2019
	Weighted Average Life	Gross Carrying Amount		Accumulated Amortization		Intangible assets, net		Gross Carrying Amount		Accumulated Amortization		Intangible assets, net
Tradename	9 years	$	16,040		(13,714)		2,326	$	16,040	$	(13,216)	$	2,824
Customer relationships	17 years		91,000		(26,128)		64,872		91,000		(24,353)		66,647
Non-compete agreements	5 years		1,900		(1,653)		247		1,900		(1,580)		320
Other	3 years		275		(260)		15		275		(237)		38
Total	16 years	$	109,215	$	(41,755)	$	67,460	$	109,215	$	(39,386)	$	69,829

Amortization expense of intangible assets was $2.4 million and $2.7 million for the three months ended March 31, 2020 and 2019, respectively. Estimated future amortization expense for intangible assets is as follows (in thousands):

	Estimated
	Intangible
	Amortization
For the Years Ending December 31,	Expense
2020 (remaining nine months)	$	6,448
2021		7,577
2022		6,416
2023		5,581
2024		4,862
Thereafter		36,576
	$	67,460

Note 7—Accounts Payable and Accrued Liabilities

At March 31, 2020 and December 31, 2019, accounts payable included retention amounts of approximately $10.9 million and $11.3 million, respectively.  These amounts owed to subcontractors have been retained pending contract completion and customer acceptance of jobs.

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

	March 31,		December 31,
	2020		2019
Payroll and related employee benefits	$	74,008	$	64,705
Current operating lease liability		79,532		74,036
Casualty insurance reserves		9,902		9,918
Corporate income taxes and other taxes		6,822		9,027
Other		22,384		25,815
	$	192,648	$	183,501

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Note 8—Credit Arrangements

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

	March 31,	December 31,
	2020	2019
Term loan	$