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, 2022

☐

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 August 1, 2022, 53,211,894 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

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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,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	91,254	$	200,512
Accounts receivable, net		597,195		471,656
Contract assets		484,724		423,659
Prepaid expenses and other current assets		144,774		86,263
Total current assets		1,317,947		1,182,090
Property and equipment, net		462,801		433,279
Operating lease assets		139,037		158,609
Deferred tax assets		1,286		1,307
Intangible assets, net		176,077		171,320
Goodwill		591,646		581,664
Other long-term assets		25,036		15,058
Total assets	$	2,713,830	$	2,543,327
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	345,476	$	273,463
Contract liabilities		250,225		240,412
Accrued liabilities		227,319		174,821
Dividends payable		3,192		3,192
Current portion of long-term debt		63,116		67,230
Total current liabilities		889,328		759,118
Long-term debt, net of current portion		637,914		594,232
Noncurrent operating lease liabilities, net of current portion		79,629		98,059
Deferred tax liabilities		38,501		38,510
Other long-term liabilities		35,660		63,353
Total liabilities		1,681,032		1,553,272
Commitments and contingencies (See Note 14)
Stockholders’ equity
Common stock—$.0001 par value; 90,000,000 shares authorized; 53,209,461 and 53,194,585 issued and outstanding at June 30, 2022 and December 31, 2021, respectively		6		6
Additional paid-in capital		262,394		261,918
Retained earnings		769,523		727,433
Accumulated other comprehensive income		875		698
Total stockholders’ equity		1,032,798		990,055
Total liabilities and stockholders’ equity	$	2,713,830	$	2,543,327

See Accompanying Notes to Condensed Consolidated Financial Statements

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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,
	2022		2021		2022		2021
Revenue	$	1,022,948	$	881,610	$	1,807,333	$	1,699,939
Cost of revenue		930,839		768,584		1,658,739		1,506,732
Gross profit		92,109		113,026		148,594		193,207
Selling, general and administrative expenses		59,730		57,747		115,184		111,179
Transaction and related costs		5,199		480		5,522		14,376
Gain on sale and leaseback transaction		(40,084)		—		(40,084)		—
Operating income		67,264		54,799		67,972		67,652
Other income (expense):
Foreign exchange gain (loss), net		560		(466)		444		(443)
Other income, net		155		379		146		374
Interest expense, net		(4,705)		(4,820)		(7,581)		(9,456)
Income before provision for income taxes		63,274		49,892		60,981		58,127
Provision for income taxes		(13,120)		(13,597)		(12,501)		(15,984)
Net income		50,154		36,295		48,480		42,143

Dividends per common share	$	0.06	$	0.06	$	0.12	$	0.12

Earnings per share:
Basic	$	0.94	$	0.68	$	0.91	$	0.82
Diluted	$	0.93	$	0.67	$	0.90	$	0.81

Weighted average common shares outstanding:
Basic		53,263		53,729		53,251		51,634
Diluted		53,852		54,285		53,815		52,137

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)


									Accumulated
				Additional					Other		Total
	Common Stock			Paid-in		Retained			Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		0	Income		Equity
Balance, March 31, 2022	53,308,136	$	6	$	263,486	$	722,561		$	1,711	$	987,764
Net income	—		—		—		50,154			—		50,154
Foreign currency translation adjustments, net of tax	—		—		—		—			(836)		(836)
Issuance of shares	8,952				210		—			—		210
Conversion of Restricted Stock Units, net of shares withheld for taxes	40,373				(374)		—			—		(374)
Stock-based compensation	—		—		2,442		—			—		2,442
Purchase of stock	(148,000)		—		(3,370)		—			—		(3,370)
Dividends declared ($0.06 per share)	—		—		—		(3,192)			—		(3,192)
Balance, June 30, 2022	53,209,461	$	6	$	262,394	$	769,523		$	875	$	1,032,798


									Accumulated
				Additional					Other		Total
	Common Stock			Paid-in		Retained			Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		0	Income		Equity
Balance, December 31, 2021	53,194,585	$	6	$	261,918	$	727,433		$	698	$	990,055
Net income	—		—		—		48,480			—		48,480
Foreign currency translation adjustments, net of tax	—		—		—		—			177		177
Issuance of shares	42,382		—		1,071		—			—		1,071
Conversion of Restricted Stock Units, net of shares withheld for taxes	120,494		—		(1,220)		—			—		(1,220)
Stock-based compensation	—		—		3,995		—			—		3,995
Purchase of stock	(148,000)		—		(3,370)		—			—		(3,370)
Dividends declared ($0.12 per share)	—		—		—		(6,390)			—		(6,390)
Balance, June 30, 2022	53,209,461	$	6	$	262,394	$	769,523		$	875	$	1,032,798

See Accompanying Notes to Condensed Consolidated Financial Statements

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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			Total
	Common Stock			Paid-in		Retained			Comprehensive			Stockholders’
	Shares	Amount		Capital		Earnings		0	Income		0	Equity
Balance, March 31, 2021	53,723,988	$	6	$	272,584	$	627,355		$	1,419		$	901,364
Net income	—		—		—		36,295			—			36,295
Foreign currency translation adjustments, net of tax	—		—		—		—			632			632
Issuance of shares, net of issuance costs	7,218		—		90		—			—			90
Stock-based compensation	—		—		1,333		—			—			1,333
Dividend equivalent Units accrued - Restricted Stock Units	—		—		1		(1)			—			—
Dividends declared ($0.06 per share)	—		—		—		(3,224)			—			(3,224)
Balance, June 30, 2021	53,731,206	$	6	$	274,008	$	660,425		$	2,051		$	936,490


									Accumulated
				Additional					Other			Total
	Common Stock			Paid-in		Retained			Comprehensive			Stockholders’
	Shares	Amount		Capital		Earnings		0	Income		0	Equity
Balance, December 31, 2020	48,110,442	$	5	$	89,098	$	624,731		$	958		$	714,792
Net income	—		—		—		42,143			—			42,143
Foreign currency translation adjustments, net of tax	—		—		—		—			1,093			1,093
Issuance of shares, net of issuance costs	5,581,000		1		178,022		—			—			178,023
Conversion of Restricted Stock Units, net of shares withheld for taxes	39,764		—		(599)		—			—			(599)
Stock-based compensation	—		—		7,485		—			—			7,485
Dividend equivalent Units accrued - Restricted Stock Units	—		—		2		(2)			—			—
Dividends declared ($0.12 per share)	—		—		—		(6,447)			—			(6,447)
Balance, June 30, 2021	53,731,206	$	6	$	274,008	$	660,425		$	2,051		$	936,490

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


	Six Months Ended
	June 30,
	2022		2021
Cash flows from operating activities:
Net income	$	48,480	$	42,143
Adjustments to reconcile net income to net cash provided by operating activities (net of effect of acquisitions):
Depreciation and amortization		40,778		51,702
Stock-based compensation expense		3,995		7,485
Gain on sale of property and equipment		(9,972)		(7,110)
Gain on sale and leaseback transaction		(40,084)		—
Unrealized gain on interest rate swap		(4,571)		(2,255)
Other non-cash items		579		566
Changes in assets and liabilities:
Accounts receivable		(105,690)		11,357
Contract assets		(63,640)		(27,733)
Other current assets		(54,142)		(19,448)
Other long-term assets		(13,118)		(181)
Accounts payable		62,877		6,900
Contract liabilities		9,798		(56,688)
Operating lease assets and liabilities, net		(1,088)		(1,831)
Accrued liabilities		34,932		6,266
Other long-term liabilities		(247)		(5,010)
Net cash (used in) provided by operating activities		(91,113)		6,163
Cash flows from investing activities:
Purchase of property and equipment		(65,815)		(62,755)
Proceeds from sale of assets		11,184		10,534
Proceeds from sale and leaseback transaction, net of related expenses		49,887		—
Cash paid for acquisitions, net of cash acquired		(39,631)		(606,974)
Net cash used in investing activities		(44,375)		(659,195)
Cash flows from financing activities:
Borrowings under revolving line of credit		65,000		100,000
Payments on revolving line of credit		—		(100,000)
Borrowings under Canadian credit facility		12,379		—
Payments under Canadian credit facility		(12,379)		—
Proceeds from issuance of long-term debt		30,000		421,000
Payments on long-term debt		(55,957)		(79,515)
Proceeds from issuance of common stock		—		178,712
Debt issuance costs		—		(4,876)
Dividends paid		(6,390)		(6,110)
Purchase of common stock		(3,370)		—
Other		(3,083)		(4,959)
Net cash provided by financing activities		26,200		504,252
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(45)		585
Net change in cash, cash equivalents and restricted cash		(109,333)		(148,195)
Cash, cash equivalents and restricted cash at beginning of the period		205,643		330,975
Cash, cash equivalents and restricted cash at end of the period	$	96,310	$	182,780

See Accompanying Notes to Condensed Consolidated Financial Statements

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Restricted cash — Restricted cash consists primarily of contract retention payments made by customers into escrow bank accounts and are included in prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets. Escrow cash accounts are released to us by customers as projects are completed in accordance with contract terms. The following tables provide a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the totals of such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands):


	June 30,
	2022		2021
Cash and cash equivalents	$	91,254	$	177,979
Restricted cash included in prepaid expense and other current assets		5,056		4,801
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	96,310	$	182,780



	December 31,
	2021		2020
Cash and cash equivalents	$	200,512	$	326,744
Restricted cash included in prepaid expense and other current assets		5,131		4,231
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	205,643	$	330,975

Depreciation — Effective January 1, 2022, we changed our estimates of the useful lives of certain equipment to better reflect the estimated periods during which these assets will remain in service. The estimated useful lives of equipment that previously ranged three to seven years were increased to a range of three to ten years. The effect of this change in estimate reduced depreciation expense by $5.3 million, increased net income by $4.2 million, and increased basic and diluted earnings per share by $0.08 for the three months ended June 30, 2022. The effect of this change in estimate reduced depreciation expense by $11.1 million, increased net income by $8.8 million, and increased basic and diluted earnings per share by $0.16 for the six months ended June 30, 2022.

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 40% to 50% of total revenue; however, the companies that comprise the top ten vary from year to year.

For the three and six months ended June 30, 2022, approximately 50.8% and 47.4%, respectively, of total revenue was generated from our top ten customers and no one customer accounted for more than ten percent of our total revenue.

For the three and six months ended June 30, 2021, approximately 42.3% and 43.6%, respectively, of total revenue was generated from our top ten customers and no one customer accounted for more than ten percent of our total revenue.

Note 3—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.

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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 June 30, 2022 and December 31, 2021 (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 June 30, 2022:
Cash and cash equivalents	$	91,254	$	—	$	—
Interest rate swap		—		225		—
Liabilities as of June 30, 2022:
Contingent consideration		—		—		2,770

Assets as of December 31, 2021:
Cash and cash equivalents		200,512		—		—
Liabilities as of December 31, 2021:
Interest rate swap	$	—	$	4,346	$	—

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.

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.

On a quarterly basis, we assess the estimated fair value of the contractual obligation to pay the contingent consideration and any changes in estimated fair value are recorded as non-operating income or expense in our Statement of Income. Fair value is determined utilizing a discounted cash flow analysis based on management’s estimate of the probability of the acquired company meeting the contractual operating performance target discounted using our weighted average cost of capital. Significant changes in either management’s estimate of the probability of meeting the performance target or our estimated discount rate would result in a different fair value measurement. Generally, a change in the assumption of the probability of meeting the performance target is accompanied by a directionally similar change in the fair value of contingent consideration liability, whereas a change in assumption of the estimated discount rate is accompanied by a directionally opposite change in the fair value of contingent consideration liability.

Upon meeting the target, we reflect the full liability on the balance sheet and record an adjustment to “Other income (expense), net” for the change in the fair value of the liability from the prior period.

The March 1, 2022 acquisition of Alberta Screw Piles, Ltd. (“ASP”) (as discussed in Note 4) includes an earnout of up to $3.2 million, contingent upon meeting certain performance targets over the one and two year periods ending March 1, 2023 and March 1, 2024, respectively. The estimated fair value of the contingent consideration on the acquisition date was $2.8 million. Under ASC 805, “Business Combinations”, we are required to estimate the fair value of contingent consideration based on facts and circumstances that existed as of the acquisition date and remeasure to fair value at each reporting date until the contingency is resolved. Since March 1, 2022, there have been no changes to the estimated fair value of the contingent consideration other than accretion of the liability.

Note 4—Acquisitions

Acquisition of PLH

On June 24, 2022, we entered into a definitive merger agreement to acquire PLH Group, Inc. (“PLH”) in an all-cash transaction valued at approximately $470.0 million. PLH is a utility-focused specialty construction company with

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concentrations in growing regions of the United States. The transaction directly aligns with our strategic focus on higher-growth, higher margin markets and expands our capabilities in the power delivery, communications, and gas utilities markets.

On August 1, 2022, we closed on the PLH acquisition. Since the closing of the PLH acquisition occurred subsequent to our quarter-end, our preliminary estimate of assets acquired and liabilities assumed, which is subject to a formal valuation process, has not yet been completed. We will reflect the preliminary estimates in our third quarter 2022 10-Q filing, and we will finalize the estimates as soon as practicable within the measurement period, but not later than one year following the acquisition close date. The total purchase price was funded through a combination of borrowings under our term loan facility and borrowings under our revolving credit facility. We will incorporate the majority of the PLH operations into our Utilities segment with the remaining operations going to our Energy/Renewables and Pipeline segments.

Acquisition of B Comm Holdco, LLC

On June 8, 2022 we acquired B Comm Holdco, LLC (“B Comm”) for approximately $35.6 million, net of cash acquired. B Comm is a provider of maintenance, repair, upgrade and installation services to the communications markets. The transaction directly aligns with the strategy to grow our MSA revenue base and expand our communication services within the utility markets. The preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date consisted of $4.8 million of fixed assets, $13.2 million of working capital, $11.8 million of intangible assets and $8.1 million of goodwill. The final determination of fair value for the assets acquired and liabilities assumed is subject to further change and will be completed as soon as possible, but no later than one year from the acquisition date. The preliminary estimates that are not yet finalized relate to fixed assets, identifiable intangible assets, and working capital. We incorporated the operations of B Comm into our Utilities segment. Goodwill associated with the B Comm acquisition principally consists of the value of the assembled workforce. Based on the current tax treatment, goodwill is expected to be deductible for income tax purposes over a 15-year period.

Acquisition of Alberta Screw Piles, Ltd.

On March 1, 2022, we acquired ASP for a cash price of approximately $4.1 million. In addition, the sellers could receive a contingent earnout payment of up to $3.2 million based on achievement of certain operating targets over the one and two year periods ending March 1, 2023 and March 1, 2024, respectively. The estimated fair value of the contingent consideration on the acquisition date was $2.8 million. The preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date consisted of $3.1 million of fixed assets, $1.9 million of working capital, and $1.9 million of goodwill. The final determination of fair value for the assets acquired and liabilities assumed is subject to further change and will be completed as soon as possible, but no later than one year from the acquisition date. The preliminary estimates that are not yet finalized relate to accounts receivable, prepaid expenses and accrued liabilities. We incorporated the operations of ASP into our Energy/Renewables segment. Goodwill associated with the ASP acquisition principally consists of the value of the assembled workforce. Based on the current Canadian tax treatment, goodwill is expected to be deductible at a rate of 5% per year.

Acquisition of Future Infrastructure Holdings, LLC.

On January 15, 2021, we acquired Future Infrastructure Holdings, LLC (“FIH”) for approximately $604.7 million, net of cash acquired. FIH is a provider of non-discretionary maintenance, repair, upgrade, and installation services to the communication, regulated gas utility, and infrastructure markets. FIH furthers our strategic plan to expand our service lines, enter new markets, and grow our MSA revenue base. The transaction directly aligns with our strategy to grow in large, higher growth, higher margin markets, and expands our utility services capabilities.

We incorporated the operations of FIH into our Utilities segment. For the three months ended June 30, 2021, FIH contributed revenue of $72.7 million and gross profit of $10.7 million. For the period from January 15, 2021, the acquisition date, to June 30, 2021, FIH contributed revenue of $133.4 million and gross profit of $20.5 million.

Acquisition related costs were $0.3 million and $13.8 million for the three and six months ended June 30, 2021, respectively, and are included in “Transaction and related costs” on the Condensed Consolidated Statements of Income. Such costs primarily consisted of professional fees paid to advisors and expense associated with the purchase of Primoris common stock by certain employees of FIH at a 15 percent discount.

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Supplemental Unaudited Pro Forma Information for the three and six months ended June 30, 2021

The following pro forma information for the three and six months ended June 30, 2021 presents our results of operations as if the acquisition of FIH had occurred at the beginning of 2020. On October 30, 2020, FIH acquired Pridemore Case Holdings, Inc. (“Pride”), which expanded FIH’s operations. Therefore, we have included Pride’s results of operations for the three and six months ended June 30, 2020 in the pro forma information. The supplemental pro forma information has been adjusted to include:

●

the pro forma impact of amortization of intangible assets and depreciation of property, plant and equipment;

●

the pro forma impact of nonrecurring transaction and related costs directly attributable to the acquisition; and

●

the pro forma tax effect of both income before income taxes, and the pro forma adjustments, calculated using a tax rate of 27.5% for the three and six months ended June 30, 2021.

The pro forma results are presented for illustrative purposes only and are not necessarily indicative of, or intended to represent, the results that would have been achieved had the FIH acquisition been completed on January 1, 2020. For example, the pro forma results do not reflect any operating efficiencies and associated cost savings that we might have achieved with respect to the acquisition (in thousands, except per share amounts):


		Three Months Ended		Six Months Ended
		June 30, 2021		June 30, 2021
	(unaudited)		(unaudited)
Revenue	$	881,610	$	1,704,385
Income before provision for income taxes		51,314		67,239
Net income		37,321		48,746

Weighted average common shares outstanding:
Basic		53,891		51,796
Diluted		54,466		52,318

Earnings per share:
Basic	$	0.69	$	0.94
Diluted		0.69		0.93

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, each of which has a different risk profile. A substantial portion of our revenue is derived from contracts where scope is adequately defined, and therefore we can reasonably estimate total contract value. For these contracts, revenue 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 certain contracts, where scope is not adequately defined and we can’t reasonably estimate total contract value, revenue is recognized either on an input basis, based on contract costs incurred as defined within the respective contracts, or an output basis, based on units completed. 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 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

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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 June 30, 2022, we had $3.0 billion of remaining performance obligations. We expect to recognize approximately 63.3% of our remaining performance obligations as revenue during the next four quarters and substantially all of the remaining balance by June 30, 2024.

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 and six months ended June 30, 2022, revenue recognized related to performance obligations satisfied in previous periods was $1.7 million and $2.8 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 the reversal of 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 June 30, 2022, we had approximately $105.8 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 business. Approximately $94.3 million of the contract modifications had been recognized as revenue on a cumulative catch-up basis through June 30, 2022.


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Part I. Financial Information

Item 1. Financial Statements:

—Condensed Consolidated Balance Sheets at June 30, 2022 and December 31, 2021 (Unaudited)		3

—Condensed Consolidated Statements of Income for the three and six months ended June 30, 2022 and 2021 (Unaudited)		4

—Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021 (Unaudited)		5

—Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021 (Unaudited)		6

—Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (Unaudited)		8

—Notes to Condensed Consolidated Financial Statements (Unaudited)		10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28

Item 3. Quantitative and Qualitative Disclosures About Market Risk		42

Item 4. Controls and Procedures		42

Part II. Other Information

Item 1. Legal Proceedings		43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43

Item 6. Exhibits		44

Signatures		45


	Six Months Ended June 30,
	2022		2021
Cash paid for interest	$	11,586	$	11,234
Cash paid for income taxes, net of refunds received		2,145		17,609
Leased assets obtained in exchange for new operating leases		12,865		10,673