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Table of Contents 

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 June 30, 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: (214740-5600

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 July 27, 2020, 48,251,599 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

Table of Contents 

PRIMORIS SERVICES CORPORATION

INDEX

    

Page No.

Part I. Financial Information

Item 1. Financial Statements:

—Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019 (Unaudited)

3

—Condensed Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019 (Unaudited)

4

—Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019 (Unaudited)

5

—Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019 (Unaudited)

6

—Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (Unaudited)

8

—Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3. Quantitative and Qualitative Disclosures About Market Risk

42

Item 4. Controls and Procedures

43

Part II. Other Information

Item 1. Legal Proceedings

43

Item 1A. Risk Factors

43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 5. Other information

44

Item 6. Exhibits

45

Signatures

46

2

Table of Contents 

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

(Unaudited)

June 30, 

December 31, 

 

    

2020

    

2019

 

ASSETS

Current assets:

Cash and cash equivalents

$

155,670

$

120,286

Accounts receivable, net

 

468,949

 

404,911

Contract assets

 

376,733

 

344,806

Prepaid expenses and other current assets

 

45,943

 

42,704

Total current assets

 

1,047,295

 

912,707

Property and equipment, net

 

368,086

 

375,888

Operating lease assets

240,072

242,385

Deferred tax assets

1,116

1,100

Intangible assets, net

 

65,146

 

69,829

Goodwill

 

215,103

 

215,103

Other long-term assets

 

16,736

 

13,453

Total assets

$

1,953,554

$

1,830,465

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

256,980

$

235,972

Contract liabilities

 

223,077

 

192,397

Accrued liabilities

 

222,472

 

183,501

Dividends payable

 

2,893

 

2,919

Current portion of long-term debt

 

51,913

 

55,659

Total current liabilities

 

757,335

 

670,448

Long-term debt, net of current portion

 

300,899

 

295,642

Noncurrent operating lease liabilities, net of current portion

163,947

171,225

Deferred tax liabilities

 

17,820

 

17,819

Other long-term liabilities

 

68,649

 

45,801

Total liabilities

 

1,308,650

 

1,200,935

Commitments and contingencies (See Note 16)

Stockholders’ equity

Common stock—$.0001 par value; 90,000,000 shares authorized; 48,220,811 and 48,665,138 issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

5

 

5

Additional paid-in capital

 

91,257

 

97,130

Retained earnings

 

554,717

 

531,291

Accumulated other comprehensive (loss) income

(1,109)

76

Noncontrolling interest

 

34

 

1,028

Total stockholders’ equity

 

644,904

 

629,530

Total liabilities and stockholders’ equity

$

1,953,554

$

1,830,465

See Accompanying Notes to Condensed Consolidated Financial Statements

3

Table of Contents 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

 

Revenue

$

908,216

$

789,929

$

1,651,459

$

1,451,487

Cost of revenue

 

807,249

 

709,398

 

1,502,682

 

1,318,496

Gross profit

 

100,967

 

80,531

 

148,777

 

132,991

Selling, general and administrative expenses

 

51,422

 

48,719

 

95,810

 

91,650

Operating income

 

49,545

 

31,812

 

52,967

 

41,341

Other income (expense):

Foreign exchange gain (loss), net

 

(200)

 

(403)

 

(64)

 

(588)

Other income (expense), net

 

706

 

177

 

718

 

(193)

Interest income

 

64

 

219

 

345

 

568

Interest expense

 

(3,690)

 

(6,716)

 

(12,802)

 

(12,308)

Income before provision for income taxes

 

46,425

 

25,089

 

41,164

 

28,820

Provision for income taxes

 

(13,463)

 

(7,265)

 

(11,936)

 

(8,060)

Net income

32,962

17,824

29,228

20,760

Less net income attributable to noncontrolling interests

(3)

 

(37)

(6)

(1,026)

Net income attributable to Primoris

$

32,959

$

17,787

$

29,222

$

19,734

Dividends per common share

$

0.06

$

0.06

$

0.12

$

0.12

Earnings per share:

Basic

$

0.68

$

0.35

$

0.60

$

0.39

Diluted

$

0.68

$

0.35

$

0.60

$

0.39

Weighted average common shares outstanding:

Basic

 

48,270

 

50,912

 

48,429

 

50,841

Diluted

 

48,668

 

51,228

 

48,782

 

51,208

See Accompanying Notes to Condensed Consolidated Financial Statements

4

Table of Contents 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

 

Net income

$

32,962

$

17,824

$

29,228

$

20,760

Other comprehensive income, net of tax:

Foreign currency translation adjustments

552

 

362

(1,185)

736

Comprehensive income

33,514

18,186

28,043

21,496

Less net income attributable to noncontrolling interests

(3)

(37)

(6)

(1,026)

Comprehensive income attributable to Primoris

$

33,511

$

18,149

$

28,037

$

20,470

See Accompanying Notes to Condensed Consolidated Financial Statements

5

Table of Contents 

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, March 31, 2020

 

48,254,575

$

5

$

91,414

$

524,655

$

(1,661)

$

1,031

$

615,444

Net income

 

 

 

 

32,959

 

3

 

32,962

Foreign currency translation adjustments, net of tax

552

552

Issuance of shares to employees and directors

10,451

163

163

Conversion of Restricted Stock Units, net of shares withheld for taxes

13,516

(77)

(77)

Amortization of Restricted Stock Units

 

 

 

703

 

 

 

703

Dividend equivalent Units accrued - Restricted Stock Units

4

(4)

Repurchase of stock

(57,731)

(950)

(950)

Distribution of noncontrolling entities

(1,000)

(1,000)

Dividends declared ($0.06 per share)

 

 

 

 

(2,893)

 

 

(2,893)

Balance, June 30, 2020

 

48,220,811

$

5

$

91,257

$

554,717

$

(1,109)

$

34

$

644,904

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 income

 

 

 

 

29,222

 

6

 

29,228

Foreign currency translation adjustments, net of tax

(1,185)

(1,185)

Issuance of shares to employees and directors

61,719

1,337

1,337

Conversion of Restricted Stock Units, net of shares withheld for taxes

13,516

(77)

(77)

Amortization of Restricted Stock Units

1,202

1,202

Dividend equivalent Units accrued - Restricted Stock Units

8

(8)

Repurchase of stock

 

(519,562)

 

 

(8,343)

 

 

 

(8,343)

Distribution of noncontrolling entities

(1,000)

(1,000)

Dividends declared ($0.12 per share)

 

 

 

 

(5,788)

 

 

(5,788)

Balance, June 30, 2020

 

48,220,811

$

5

$

91,257

$

554,717

$

(1,109)

$

34

$

644,904

6

Table of Contents 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(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

0

Equity

 

Balance, March 31, 2019

 

50,842,902

$

5

$

147,208

$

459,959

$

(534)

$

3,747

$

610,385

Net income

 

 

 

 

17,787

 

 

37

 

17,824

Foreign currency translation adjustments, net of tax

362

362

Conversion of Restricted Stock Units, net of shares withheld for taxes

 

122,319

 

 

(1,519)

 

 

 

 

(1,519)

Amortization of Restricted Stock Units

371

371

Dividend equivalent Units accrued - Restricted Stock Units

4

(4)

Distribution of noncontrolling entities

 

 

 

 

 

(3,500)

 

(3,500)

Dividends declared ($0.06 per share)

 

 

 

 

(3,058)

 

 

 

(3,058)

Balance, June 30, 2019

 

50,965,221

$

5

$

146,064

$

474,684

$

(172)

$

284

$

620,865

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

 

 

 

 

19,734

 

 

1,026

 

20,760

Foreign currency translation adjustments, net of tax

736

736

Conversion of Restricted Stock Units, net of shares withheld for taxes

122,319

(1,519)

(1,519)

Issuance of shares to employees and directors

 

127,384

 

 

2,661

 

 

 

 

2,661

Amortization of Restricted Stock Units

858

858

Dividend equivalent Units accrued - Restricted Stock Units

16

(16)

Distribution of noncontrolling entities

(3,505)

(3,505)

Dividends declared ($0.12 per share)

 

 

 

 

(6,109)

 

 

 

(6,109)

Balance, June 30, 2019

 

50,965,221

$

5

$

146,064

$

474,684

$

(172)

$

284

$

620,865

See Accompanying Notes to Condensed Consolidated Financial Statements

7

Table of Contents 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Six Months Ended

 

June 30, 

    

2020

    

2019

 

Cash flows from operating activities:

Net income

$

29,228

$

20,760

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

 

39,231

 

43,392

Stock-based compensation expense

 

1,202

 

858

Gain on sale of property and equipment

 

(7,332)

 

(4,713)

Unrealized loss on interest rate swap

4,907

4,194

Other non-cash items

2,823

160

Changes in assets and liabilities:

Accounts receivable

 

(65,860)

 

(97,964)

Contract assets

 

(32,765)

 

(51,048)

Other current assets

 

(3,268)

 

5,309

Other long-term assets

223

(137)

Accounts payable

 

21,897

 

(31,405)

Contract liabilities

 

30,784

 

4,205

Operating lease assets and liabilities, net

 

(551)

 

(918)

Accrued liabilities

 

22,125

 

13,481

Other long-term liabilities

 

18,007

 

(2,698)

Net cash provided by (used in) operating activities

 

60,651

 

(96,524)

Cash flows from investing activities:

Purchase of property and equipment

 

(21,703)

 

(56,907)

Proceeds from sale of property and equipment

 

12,086

 

21,196

Net cash used in investing activities

 

(9,617)

 

(35,711)

Cash flows from financing activities:

Borrowings under revolving line of credit

140,000

Payments on revolving line of credit

 

 

(85,000)

Proceeds from issuance of long-term debt

 

33,873

 

23,105

Repayment of long-term debt

 

(32,469)

 

(34,320)

Proceeds from issuance of common stock purchased under a long-term incentive plan

 

578

 

1,804

Payment of taxes on conversion of Restricted Stock Units

 

(77)

 

(1,519)

Cash distribution to noncontrolling interest holders

 

(1,000)

 

(3,505)

Repurchase of common stock

(8,343)

Dividends paid

 

(5,814)

 

(6,094)

Other

(2,014)

 

(39)

Net cash (used in) provided by financing activities

 

(15,266)

 

34,432

Effect of exchange rate changes on cash and cash equivalents

(384)

854

Net change in cash and cash equivalents

 

35,384

 

(96,949)

Cash and cash equivalents at beginning of the period

 

120,286

 

151,063

Cash and cash equivalents at end of the period

$

155,670

$

54,114

See Accompanying Notes to Condensed Consolidated Financial Statements

8

Table of Contents 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands)

(Unaudited)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Six Months Ended June 30, 

 

    

2020

    

2019

 

Cash paid for interest

$

7,735

$

7,955

Cash paid for income taxes, net of refunds received

(13)

(9,599)

Leased assets obtained in exchange for new operating leases

42,450

51,060

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

Six Months Ended June 30, 

 

    

2020

    

2019

 

Dividends declared and not yet paid

$

2,893

$

3,058

See Accompanying Notes to Condensed Consolidated Financial Statements

9

Table of Contents 

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 and six month periods ended June 30, 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;