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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 September 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 October 30, 2020, 48,096,318 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 September 30, 2020 and December 31, 2019 (Unaudited)

3

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

4

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

5

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

6

—Condensed Consolidated Statements of Cash Flows for the nine months ended September 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 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)

September 30, 

December 31, 

 

    

2020

    

2019

 

ASSETS

Current assets:

Cash and cash equivalents

$

228,546

$

120,286

Accounts receivable, net

 

494,453

 

404,911

Contract assets

 

361,099

 

344,806

Prepaid expenses and other current assets

 

32,977

 

42,704

Total current assets

 

1,117,075

 

912,707

Property and equipment, net

 

366,721

 

375,888

Operating lease assets

221,615

242,385

Deferred tax assets

1,134

1,100

Intangible assets, net

 

62,994

 

69,829

Goodwill

 

215,103

 

215,103

Other long-term assets

 

14,860

 

13,453

Total assets

$

1,999,502

$

1,830,465

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

251,979

$

235,972

Contract liabilities

 

256,021

 

192,397

Accrued liabilities

 

223,637

 

183,501

Dividends payable

 

2,887

 

2,919

Current portion of long-term debt

 

47,708

 

55,659

Total current liabilities

 

782,232

 

670,448

Long-term debt, net of current portion

 

281,360

 

295,642

Noncurrent operating lease liabilities, net of current portion

151,777

171,225

Deferred tax liabilities

 

17,820

 

17,819

Other long-term liabilities

 

82,791

 

45,801

Total liabilities

 

1,315,980

 

1,200,935

Commitments and contingencies (See Note 16)

Stockholders’ equity

Common stock—$.0001 par value; 90,000,000 shares authorized; 48,096,318 and 48,665,138 issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

5

 

5

Additional paid-in capital

 

88,363

 

97,130

Retained earnings

 

595,769

 

531,291

Accumulated other comprehensive (loss) income

(651)

76

Noncontrolling interest

 

36

 

1,028

Total stockholders’ equity

 

683,522

 

629,530

Total liabilities and stockholders’ equity

$

1,999,502

$

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

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

 

Revenue

$

942,700

$

865,064

$

2,594,159

$

2,316,551

Cost of revenue

 

819,019

 

756,643

 

2,321,701

 

2,075,139

Gross profit

 

123,681

 

108,421

 

272,458

 

241,412

Selling, general and administrative expenses

 

57,097

 

49,827

 

152,907

 

141,477

Operating income

 

66,584

 

58,594

 

119,551

 

99,935

Other income (expense):

Foreign exchange loss, net

 

(77)

 

(136)

 

(141)

 

(724)

Other income (expense), net

 

98

 

(2,928)

 

816

 

(3,121)

Interest income

 

13

 

42

 

358

 

610

Interest expense

 

(4,728)

 

(5,186)

 

(17,530)

 

(17,494)

Income before provision for income taxes

 

61,890

 

50,386

 

103,054

 

79,206

Provision for income taxes

 

(17,947)

 

(14,560)

 

(29,883)

 

(22,620)

Net income

43,943

35,826

73,171

56,586

Less net income attributable to noncontrolling interests

(2)

 

(178)

(8)

(1,204)

Net income attributable to Primoris

$

43,941

$

35,648

$

73,163

$

55,382

Dividends per common share

$

0.06

$

0.06

$

0.18

$

0.18

Earnings per share:

Basic

$

0.91

$

0.70

$

1.51

$

1.09

Diluted

$

0.90

$

0.70

$

1.50

$

1.08

Weighted average common shares outstanding:

Basic

 

48,253

 

50,976

 

48,370

 

50,887

Diluted

 

48,574

 

51,215

 

48,712

 

51,210

See Accompanying Notes to Condensed Consolidated Financial Statements

4

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

 

Net income

$

43,943

$

35,826

$

73,171

$

56,586

Other comprehensive income, net of tax:

Foreign currency translation adjustments

458

 

(166)

(727)

570

Comprehensive income

44,401

35,660

72,444

57,156

Less net income attributable to noncontrolling interests

(2)

(178)

(8)

(1,204)

Comprehensive income attributable to Primoris

$

44,399

$

35,482

$

72,436

$

55,952

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, June 30, 2020

 

48,220,811

$

5

$

91,257

$

554,717

$

(1,109)

$

34

$

644,904

Net income

 

 

 

 

43,941

 

2

 

43,943

Foreign currency translation adjustments, net of tax

458

458

Issuance of shares to employees and directors

9,086

157

157

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

41,119

(471)

(471)

Amortization of Restricted Stock Units

 

528

 

528

Dividend equivalent Units accrued - Restricted Stock Units

2

(2)

Repurchase of stock

(174,698)

(3,110)

(3,110)

Dividends declared ($0.06 per share)

 

 

 

 

(2,887)

 

 

(2,887)

Balance, September 30, 2020

 

48,096,318

$

5

$

88,363

$

595,769

$

(651)

$

36

$

683,522

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

 

 

 

 

73,163

 

8

 

73,171

Foreign currency translation adjustments, net of tax

(727)

(727)

Issuance of shares to employees and directors

70,805

1,494

1,494

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

54,635

(548)

(548)

Amortization of Restricted Stock Units

1,730

1,730

Dividend equivalent Units accrued - Restricted Stock Units

10

(10)

Repurchase of stock

 

(694,260)

(11,453)

 

(11,453)

Distribution of noncontrolling entities

(1,000)

(1,000)

Dividends declared ($0.18 per share)

 

(8,675)

 

(8,675)

Balance, September 30, 2020

 

48,096,318

$

5

$

88,363

$

595,769

$

(651)

$

36

$

683,522

6

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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, June 30, 2019

 

50,965,221

$

5

$

146,064

$

474,684

$

(172)

$

284

$

620,865

Net income

 

 

 

 

35,648

 

 

178

 

35,826

Foreign currency translation adjustments, net of tax

(166)

(166)

Issuance of shares to directors

 

16,877

 

 

337

 

 

 

 

337

Amortization of Restricted Stock Units

360

360

Dividend equivalent Units accrued - Restricted Stock Units

4

(4)

Dividends declared ($0.06 per share)

 

 

 

 

(3,059)

 

 

 

(3,059)

Balance, September 30, 2019

 

50,982,098

$

5

$

146,765

$

507,269

$

(338)

$

462

$

654,163

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

 

 

 

 

55,382

 

 

1,204

 

56,586

Foreign currency translation adjustments, net of tax

570

570

Issuance of shares to employees and directors

 

144,261

 

 

2,998

 

 

 

 

2,998

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

122,319

(1,519)

(1,519)

Amortization of Restricted Stock Units

1,218

1,218

Dividend equivalent Units accrued - Restricted Stock Units

20

(20)

Distribution of noncontrolling entities

(3,505)

(3,505)

Dividends declared ($0.18 per share)

 

 

 

 

(9,168)

 

 

 

(9,168)

Balance, September 30, 2019

 

50,982,098

$

5

$

146,765

$

507,269

$

(338)

$

462

$

654,163

See Accompanying Notes to Condensed Consolidated Financial Statements

7

Table of Contents 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Nine Months Ended

 

September 30, 

    

2020

    

2019

 

Cash flows from operating activities:

Net income

$

73,171

$

56,586

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

Depreciation and amortization

 

58,728

 

64,553

Stock-based compensation expense

 

1,730

 

1,218

Gain on sale of property and equipment

 

(6,198)

 

(7,017)

Unrealized loss on interest rate swap

3,856

4,854

Other non-cash items

4,125

240

Changes in assets and liabilities:

Accounts receivable

 

(91,741)

 

(177,942)

Contract assets

 

(16,783)

 

32,274

Other current assets

 

9,707

 

1,219

Other long-term assets

1,073

167

Accounts payable

 

16,533

 

(29,757)

Contract liabilities

 

63,682

 

(3,915)

Operating lease assets and liabilities, net

 

3,250

 

(1,489)

Accrued liabilities

 

36,394

 

17,662

Other long-term liabilities

 

33,952

 

1,231

Net cash provided by (used in) operating activities

 

191,479

 

(40,116)

Cash flows from investing activities:

Purchase of property and equipment

 

(54,404)

 

(78,255)

Proceeds from sale of property and equipment

 

17,710

 

24,393

Net cash used in investing activities

 

(36,694)

 

(53,862)

Cash flows from financing activities:

Borrowings under revolving line of credit

212,880

Payments on revolving line of credit

 

 

(212,880)

Proceeds from issuance of long-term debt

 

33,873

 

55,008

Repayment of long-term debt

 

(56,321)

 

(55,824)

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

 

(548)

 

(1,519)

Cash distribution to noncontrolling interest holders

 

(1,000)

 

(3,505)

Repurchase of common stock

(10,959)

Dividends paid

 

(8,707)

 

(9,152)

Other

(2,888)

 

(328)

Net cash used in financing activities

 

(45,972)

 

(13,516)

Effect of exchange rate changes on cash and cash equivalents

(553)

268

Net change in cash and cash equivalents

 

108,260

 

(107,226)

Cash and cash equivalents at beginning of the period

 

120,286

 

151,063

Cash and cash equivalents at end of the period

$

228,546

$

43,837

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

Nine Months Ended September 30, 

 

    

2020

    

2019

 

Cash paid for interest

$

13,433

$

12,400

Cash paid for income taxes, net of refunds received

5,288

(1,421)

Leased assets obtained in exchange for new operating leases

51,664

118,755

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

Nine Months Ended September 30, 

 

    

2020

    

2019

 

Dividends declared and not yet paid

$

2,887

$

3,059

See Accompanying Notes to Condensed Consolidated Financial Statements

9

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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 nine month periods ended September 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; however, the companies that comprise the top ten vary from year to year.

10

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For the three and nine months ended September 30, 2020, approximately 49.2% and 49.3%, respectively, of total revenue was generated from our top ten customers. For the three months ended September 30, 2020 no one customer accounted for more than 10% of total revenue and for the nine months ended September 30, 2020, one pipeline customer represented approximately 10.5% of total revenue.

For each of the three and nine months ended September 30, 2019, approximately 48.0% of total revenue was generated from our top ten customers, and no one customer accounted for more than 10% of total revenue, respectively.

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 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 amen