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, 2023

☐

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	New York Stock Exchange

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 May 1, 2023, 53,282,636 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)


		March 31,		December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	94,756	$	248,692
Accounts receivable, net		746,493		663,119
Contract assets		721,905		616,224
Prepaid expenses and other current assets		118,585		176,350
Total current assets		1,681,739		1,704,385
Property and equipment, net		483,612		493,859
Operating lease assets		219,150		202,801
Intangible assets, net		243,307		249,381
Goodwill		871,712		871,808
Other long-term assets		23,200		21,786
Total assets	$	3,522,720	$	3,544,020
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	561,277	$	534,956
Contract liabilities		268,070		275,947
Accrued liabilities		224,083		245,837
Dividends payable		3,196		3,187
Current portion of long-term debt		77,538		78,137
Total current liabilities		1,134,164		1,138,064
Long-term debt, net of current portion		1,034,855		1,065,315
Noncurrent operating lease liabilities, net of current portion		142,876		130,787
Deferred tax liabilities		54,766		57,101
Other long-term liabilities		46,946		43,915
Total liabilities		2,413,607		2,435,182
Commitments and contingencies (See Note 14)
Stockholders’ equity
Common stock—$0.0001 par value; 90,000,000 shares authorized; 53,282,636 and 53,124,899 issued and outstanding at March 31, 2023 and December 31, 2022, respectively		6		6
Additional paid-in capital		265,817		263,771
Retained earnings		845,795		847,681
Accumulated other comprehensive income		(2,505)		(2,620)
Total stockholders’ equity		1,109,113		1,108,838
Total liabilities and stockholders’ equity	$	3,522,720	$	3,544,020

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

(Unaudited)


	Three Months Ended
	March 31,
	2023		2022
Revenue	$	1,256,896	$	784,384
Cost of revenue		1,157,164		727,898
Gross profit		99,732		56,486
Selling, general and administrative expenses		78,009		55,455
Transaction and related costs		2,695		323
Operating income		19,028		708
Other income (expense):
Foreign exchange gain (loss), net		926		(116)
Other income (expense), net		331		(9)
Interest expense, net		(18,465)		(2,876)
Income (loss) before provision for income taxes		1,820		(2,293)
(Provision) benefit for income taxes		(510)		619
Net income (loss)		1,310		(1,674)

Dividends per common share	$	0.06	$	0.06

Earnings (loss) per share:
Basic	$	0.02	$	(0.03)
Diluted	$	0.02	$	(0.03)

Weighted average common shares outstanding:
Basic		53,184		53,240
Diluted		53,944		53,240

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, December 31, 2022	53,124,899	$	6	$	263,771	$	847,681		$	(2,620)	$	1,108,838
Net income	—		—		—		1,310			—		1,310
Foreign currency translation adjustments, net of tax	—		—		—		—			115		115
Issuance of shares	39,685		—		1,006		—			—		1,006
Conversion of Restricted Stock Units, net of shares withheld for taxes	118,052		—		(1,339)		—			—		(1,339)
Stock-based compensation	—		—		2,379		—			—		2,379
Dividends declared ($0.06 per share)	—		—		—		(3,196)			—		(3,196)
Balance, March 31, 2023	53,282,636	$	6	$	265,817	$	845,795		$	(2,505)	$	1,109,113


									Accumulated
				Additional					Other			Total
	Common Stock			Paid-in		Retained			Comprehensive			Stockholders’
	Shares	Amount		Capital		Earnings		0	Income		0	Equity
Balance, December 31, 2021	53,194,585	$	6	$	261,918	$	727,433		$	698		$	990,055
Net loss	—		—		—		(1,674)			—			(1,674)
Foreign currency translation adjustments, net of tax	—		—		—		—			1,013			1,013
Issuance of shares	33,430		—		861		—			—			861
Conversion of Restricted Stock Units, net of shares withheld for taxes	80,121		—		(846)		—			—			(846)
Stock-based compensation	—		—		1,553		—			—			1,553
Dividends declared ($0.06 per share)	—		—		—		(3,198)			—			(3,198)
Balance, March 31, 2022	53,308,136	$	6	$	263,486	$	722,561		$	1,711		$	987,764

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	1,310	$	(1,674)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities (net of effect of acquisitions):
Depreciation and amortization		27,733		20,172
Stock-based compensation expense		2,379		1,553
Gain on sale of property and equipment		(5,798)		(4,538)
Unrealized loss (gain) on interest rate swap		469		(2,896)
Other non-cash items		491		345
Changes in assets and liabilities:
Accounts receivable		(71,939)		25,691
Contract assets		(82,783)		(45,972)
Other current assets		29,836		(32,570)
Other long-term assets		148		(12,826)
Accounts payable		26,282		12,114
Contract liabilities		(12,000)		51,969
Operating lease assets and liabilities, net		(1,263)		(255)
Accrued liabilities		(30,565)		(4,524)
Other long-term liabilities		363		(12)
Net cash (used in) provided by operating activities		(115,337)		6,577
Cash flows from investing activities:
Purchase of property and equipment		(13,847)		(33,165)
Proceeds from sale of assets		7,377		4,354
Cash paid for acquisitions, net of cash and restricted cash acquired		—		(4,063)
Net cash used in investing activities		(6,470)		(32,874)
Cash flows from financing activities:
Borrowings under revolving lines of credit		75,000		—
Payments on revolving lines of credit		(75,000)		—
Proceeds from issuance of long-term debt		—		30,000
Payments on long-term debt		(31,511)		(26,462)
Proceeds from issuance of common stock		489		422
Dividends paid		(3,187)		(3,192)
Other		(2,392)		(1,994)
Net cash used in financing activities		(36,601)		(1,226)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(79)		502
Net change in cash, cash equivalents and restricted cash		(158,487)		(27,021)
Cash, cash equivalents and restricted cash at beginning of the period		258,991		205,643
Cash, cash equivalents and restricted cash at end of the period	$	100,504	$	178,622

See Accompanying Notes to Condensed Consolidated Financial Statements

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Restricted cash — Restricted cash consists primarily of cash balances that are restricted as to withdrawal or usage and 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. As a result of the PLH acquisition (as defined below), we acquired cash pledged to secure letters of credit, which is recorded as restricted cash at December 31, 2022. As of March 31, 2023 substantially all of the restricted cash from the PLH acquisition had been released. 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):


	March 31,
	2023		2022
Cash and cash equivalents	$	94,756	$	173,505
Restricted cash included in prepaid expenses and other current assets		5,748		5,117
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	100,504	$	178,622



	December 31,
	2022		2021
Cash and cash equivalents	$	248,692	$	200,512
Restricted cash included in prepaid expense and other current assets		10,299		5,131
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	258,991	$	205,643

Customer concentration — We operate in multiple industry sectors 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 months ended March 31, 2023 and 2022, approximately 42.3% and 45.4%, respectively, of total revenue was generated from our top ten customers. For the three months ended March 31, 2023, no one customer accounted for more than 10% of total revenue and for the three months ended March 31, 2022, one solar energy customer represented approximately 10.1% of our total revenue.

Note 3—Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC Topic 820”), defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles (“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 March 31, 2023 and December 31, 2022 (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, 2023:
Cash and cash equivalents	$	94,756	$	—	$	—
Interest rate swaps		—		767		—
Liabilities as of March 31, 2023:
Contingent consideration		—		—		672

Assets as of December 31, 2022:
Cash and cash equivalents		248,692		—		—
Interest rate swap		—		1,235		—
Liabilities as of December 31, 2022:
Contingent consideration	$	—	$	—	$	925

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 swaps are 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 Operations. 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 – “Acquisitions”) includes an earnout of up to $3.2 million, contingent upon meeting certain performance targets over the one 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” (“ASC 805”), 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. As a result of that remeasurement we reduced the fair value of the contingent consideration during the first quarter of 2023 related to the ASP performance target contemplated in their purchase agreement and decreased the liability by $0.3 million with a corresponding increase in non-operating income.

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Note 4—Acquisitions

Acquisition of PLH

On August 1, 2022, we acquired PLH Group, Inc. (“PLH”) in an all-cash transaction valued at approximately $429.0 million, net of cash acquired (the “PLH acquisition”). PLH is a utility-focused specialty construction company with 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. The total purchase price was funded through a combination of borrowings under our term loan facility and borrowings under our revolving credit facility.

The table below represents the purchase consideration and the preliminary estimated fair values of the assets acquired and liabilities assumed from PLH as of the acquisition date. Significant changes since our initial estimates reported in the third quarter of 2022 primarily relate to $22.6 million of project adjustments increasing the fair value of contract liabilities acquired, a $13.7 million reduction in the fair value of acquired intangibles, a $9.3 million decrease in the purchase consideration for a working capital true-up, and a $5.8 million reduction in the fair value of fixed assets acquired. As a result of these and other adjustments to the initial estimated fair values of the assets acquired and liabilities assumed, goodwill increased by approximately $48.8 million since the third quarter of 2022. The final determination of fair value for certain assets and liabilities is subject to further change and will be completed as soon as the information necessary to complete the analysis is obtained. These amounts, which may differ materially from these preliminary estimates, will continue to be refined during the one-year measurement period, as defined in ASC 805, which ends during the third quarter of 2023. The primary areas of the preliminary estimates that are not yet finalized relate to contract assets and liabilities, deferred income taxes, uncertain tax positions, the fair value of certain contractual obligations, and accounts receivable.


Purchase consideration (in thousands)
Total purchase consideration	$	472,193
Less cash and restricted cash acquired		(43,152)
Net cash paid	$	429,041


Identifiable assets acquired and liabilities assumed (in thousands)
Cash, cash equivalents and restricted cash	$	43,152
Accounts receivable		74,918
Contract assets		75,359
Prepaid expenses and other current assets		13,590
Property, plant and equipment		57,696
Operating lease assets		16,340
Intangible assets:
Customer relationships		77,300
Tradename		11,600
Other long-term assets		6,466
Accounts payable and accrued liabilities		(104,176)
Contract liabilities		(48,134)
Long-term debt (including current portion)		(3,313)
Noncurrent operating lease liabilities, net of current		(12,004)
Deferred tax liability		(2,894)
Other long-term liabilities		(8,984)
Total identifiable net assets		196,916
Goodwill		275,277
Total purchase consideration	$	472,193

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We incorporated the majority of the PLH operations into our Utilities segment with the remaining operations going to our Energy segment. Goodwill associated with the PLH acquisition principally consists of expected benefits from the expansion of our services into the utilities market and the expansion of our geographic presence. Goodwill also includes the value of the assembled workforce. Based on the current tax treatment, goodwill is not expected to be deductible for income tax purposes.

The intangible assets acquired with the PLH acquisition consisted of Customer relationships of $77.3 million and Tradenames of $11.6 million. The Customer relationships and Tradenames are being amortized over a weighted average useful life of 15 years and 1.9 years, respectively. It is impractical to segregate and identify revenue and gross profit for PLH as we have integrated a material portion of PLH into our existing operations.

Acquisition costs related to PLH were $0.8 million for the three months ended March 31, 2023, and are included in “Transaction and related costs” on the Condensed Consolidated Statements of Operations. Such costs primarily consisted of professional fees paid to advisors.

Supplemental Unaudited Pro Forma Information for the three months ended March 31, 2022

The following pro forma information for the three months ended March 31, 2022 presents our results of operations as if the acquisition of PLH had occurred at the beginning of 2022. 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 27.0% for the three months ended March 31, 2022.

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 PLH acquisition been completed on January 1, 2022. 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 March 31,
	2022
	(unaudited)
Revenue	$	963,560
Loss before benefit for income taxes		(10,140)
Net loss		(7,402)

Weighted average common shares outstanding:
Basic		53,240
Diluted		53,240

Loss per share:
Basic	$	(0.14)
Diluted		(0.14)

Acquisition of B Comm Holdco, LLC

On June 8, 2022 we acquired B Comm, LLC (“B Comm”) in an all-cash transaction of approximately $36.0 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, $10.2 million of intangible assets and $10.1 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

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year from the acquisition date. The preliminary estimates that are not yet finalized relate to accounts receivable. 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-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.

During the first quarter of 2023, we finalized the estimate of fair values of the assets acquired and liabilities assumed of ASP. The fair values of the assets acquired and liabilities assumed consisted of $2.6 million of fixed assets and working capital, and $4.8 million of goodwill. We incorporated the operations of ASP into our Energy 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.

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 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, 2023, we had $3.8 billion of remaining performance obligations. We expect to recognize approximately 61.9% of our remaining performance obligations as revenue during the next four quarters and substantially all of the remaining balance by December 31, 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,

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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, 2023, revenue recognized related to performance obligations satisfied in previous periods was $0.7 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 March 31, 2023, we had approximately $130.6 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 $119.5 million of the contract modifications had been recognized as revenue on a cumulative catch-up basis through March 31, 2023.

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 arises when revenue has been recorded but the amount will not be billed until a later date;

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●

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,
	2023		2022
Unbilled revenue	$	467,748	$	420,511
Retention receivable		208,697		174,149
Contract materials (not yet installed)		45,460		21,564
	$	721,905	$	616,224

Contract assets increased by $105.7 million compared to December 31, 2022 primarily due to higher unbilled revenue and retention receivable as well as an increase in contract materials not yet installed related to our solar projects.

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

●

deferred revenue, which arises when billings are in excess of revenue recognized to date; and

●

the accrued loss provision.

Contract liabilities consist of the following (in thousands):


	March 31,		December 31,
	2023		2022
Deferred revenue	$	261,212	$	269,853
Accrued loss provision		6,858		6,094
	$	268,070	$	275,947

Contract liabilities decreased by $7.9 million compared to December 31, 2022 primarily due to lower deferred revenue.

Revenue recognized for the three months ended March 31, 2023, that was included in the contract liability balance at December 31, 2022, was approximately $169.3 million.

The following tables present our revenue disaggregated into various categories.

MSA and Non-MSA revenue was as follows (in thousands):


	For the three months ended March 31, 2023
Segment	MSA		Non-MSA		Total
Utilities	$	372,304	$	156,588	$	528,892
Energy		76,813		651,191		728,004
Total	$	449,117	$	807,779	$	1,256,896


	For the three months ended March 31, 2022
Segment	MSA		Non-MSA		Total
Utilities	$	290,366	$	68,362	$	358,728
Energy		58,929		366,727		425,656
Total	$	349,295	$	435,089	$	784,384

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


	For the three months ended March 31, 2023
Segment	Fixed-price		Unit-price		Cost reimbursable (1)		Total
Utilities	$	84,630	$	323,349	$	120,913	$	528,892
Energy		528,133		125,491		74,380		728,004
Total	$	612,763	$	448,840	$	195,293	$	1,256,896

(1)

Includes time and material and cost reimbursable plus fee contracts.


	For the three months ended March 31, 2022
Segment	Fixed-price		Unit-price		Cost reimbursable (1)		Total
Utilities	$	31,517		242,309	$	84,902	$	358,728
Energy		274,173		83,237		68,246		425,656
Total	$	305,690	$	325,546	$	153,148	$	784,384

(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.

Note 6—Goodwill and Intangible Assets

The change in goodwill by segment for the three months ended March 31, 2023 was as follows (in thousands):


	Utilities		Energy		Total
Balance at December 31, 2022		716,284		155,524		871,808
Adjustments to identifiable assets acquired and liabilities assumed		(405)		309		(96)
Balance at March 31, 2023	$	715,879	$	155,833	$	871,712

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


	March 31, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Intangible assets, net		Gross Carrying Amount		Accumulated Amortization		Intangible assets, net
Tradenames	$	32,820		(27,217)		5,603	$	32,820	$	(25,611)	$	7,209
Customer relationships		301,927		(64,223)		237,704		301,927		(59,755)		242,172
Total	$	334,747	$	(91,440)	$	243,307	$	334,747	$	(85,366)	$	249,381

Amortization expense of intangible assets was $6.1 million and $3.6 million for the three months ended March 31, 2023 and 2022, respectively. Estimated future amortization expense for intangible assets is as follows (in thousands):


	Estimated
	Intangible
	Amortization
For the Years Ending December 31,	Expense
2023 (remaining nine months)	$	15,740
2024		19,701
2025		17,661
2026		16,141
2027		15,604
Thereafter		158,460
	$	243,307

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Note 7—Accounts Payable and Accrued Liabilities

At March 31, 2023 and December 31, 2022, accounts payable included retention amounts of approximately $22.2 million and $21.5 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,
	2023		2022
Payroll and related employee benefits	$	92,566	$	114,053
Current operating lease liability		75,563		72,565
Casualty insurance reserves		21,333		19,935
Corporate income taxes and other taxes		10,165		16,213
Other		24,456		23,071
	$	224,083	$	245,837

Note 8 — Credit Arrangements

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


	March 31,		December 31,
	2023		2022
Term loan	$	909,564	$	933,188
Revolving credit facility		100,000		100,000
Commercial equipment notes		90,391		98,064
Mortgage notes		20,269		20,483
Total debt		1,120,224		1,151,735
Unamortized debt issuance costs		(7,831)		(8,283)
Total debt, net	$	1,112,393	$	1,143,452
Less: current portion		(77,538)		(78,137)
Long-term debt, net of current portion	$	1,034,855	$	1,065,315

The weighted average interest rate on total debt outstanding at March 31, 2023 and December 31, 2022 was 6.2%.

On August 1, 2022, we entered into the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), which increased our term loan to an aggregate principal amount of $945.0 million (the “New Term Loan”) and increased our revolving credit facility to $325.0 million (the “Revolving Credit Facility”), under which the lenders agreed to make loans on a revolving basis from time to time and to issue letters of credit for up to the $325.0 million committed amount. The maturity date of the Amended Credit Agreement is August 1, 2027. At March 31, 2023, commercial letters of credit outstanding were $47.3 million. In addition to the commercial letters of credit, there were $100.0 million of outstanding borrowings under the Revolving Credit Facility, and available borrowing capacity was $177.7 million at March 31, 2023.

The Amended Credit Agreement contains various restrictive and financial covenants including, among others, a net senior debt/EBITDA ratio and minimum EBITDA to cash interest ratio. In addition, the Amended Credit Agreement includes restrictions on investments, change of control provisions and provisions in the event we dispose of more than 20% of our total assets. We were in compliance with the covenants for the Amended Credit Agreement at March 31, 2023.

On September 13, 2018, we entered into an interest rate swap agreement to manage our exposure to the fluctuations in variable interest rates. The swap effectively exchanged the interest rate on $165.0 million of the debt outstanding under our Term Loan from variable LIBOR to a fixed rate of 2.89% per annum, in each case plus an applicable margin, which was 2.25% at March 31, 2023. The interest rate swap matures on July 10, 2023. See Note 9 – “Derivative Instruments”.

On January 31, 2023, we entered into a second interest rate swap agreement to manage our exposure to the fluctuations in variable interest rates. The swap effectively exchanged the interest rate on $300.0 million of the debt outstanding under our Term Loan from variable to a fixed rate of 4.095% per annum, plus an applicable margin. The interest rate swap matures on January 31, 2025. See Note 9 – “Derivative Instruments”.

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Canadian Credit Facilities

We have credit facilities totaling $14.0 million in Canadian dollars for the purposes of issuing commercial letters of credit and providing funding for working capital. At March 31, 2023, commercial letters of credit outstanding were $0.7 million in Canadian dollars and there were no outstanding borrowings. Available capacity at March 31, 2023 was $13.3 million in Canadian dollars.

Note 9 — Derivative Instruments

We are exposed to certain market risks related to changes in interest rates. To monitor and manage these market risks, we have established risk management policies and procedures. We do not enter into derivative instruments for any purpose other than hedging interest rate risk. None of our derivative instruments are used for trading purposes.

Interest Rate Risk. We are exposed to variable interest rate risk as a result of variable-rate borrowings under our Amended Credit Agreement. To manage fluctuations in cash flows resulting from changes in interest rates on a portion of our variable-rate debt, we entered into an interest rate swap agreement on September 13, 2018, with an initial notional amount of $165.0 million. The notional amount of the swap is adjusted down each quarter by a portion of the required principal payments made on the New Term Loan. On January 31, 2023, we entered into a second interest rate swap agreement with a notional amount of $300.0 million. Neither swap was designated as a hedge for accounting purposes. The swaps effectively change the variable-rate cash flow exposure on the debt obligations to fixed rates. The fair value of outstanding interest rate swap derivatives can vary significantly from period to period depending on the total notional amount of swap derivatives outstanding and fluctuations in market interest rates compared to the interest rates fixed by the swap. As of March 31, 2023, and December 31, 2022, our outstanding interest rate swap agreements contained a notional amount of $418.6 million and $121.7 million, respectively, with a $118.6 million maturing on July 10, 2023, and $300.0 million maturing on January 31, 2025.

Credit Risk. By using derivative instruments to economically hedge exposures to changes in interest rates, we are exposed to counterparty credit risk. Credit risk is the failure of a counterparty to perform under the terms of a derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, we do not possess credit risk. We minimize the credit risk in derivative instruments by entering into transactions with high quality counterparties. We have entered into netting agreements, including International Swap Dealers Association (“ISDA”) Agreements, which allow for netting of contract receivables and payables in the event of default by either party.

The following table summarizes the fair value of our derivative contracts included in the Condensed Consolidated Balance Sheets (in thousands):


		March 31,		December 31,
	Balance Sheet Location	2023		2022
Interest rate swap	Other current assets	$	690	$	1,235
Interest rate swap	Other long-term assets		77		—

The following table summarizes the amounts recognized with respect to our derivative instruments within the Condensed Consolidated Statements of Operations (in thousands):


		Three Months Ended
	Location of Gain	March 31,
	Recognized on Derivatives	2023		2022
Interest rate swap	Interest expense, net	$	966	$	1,967

Cash flows from derivatives settled are reported as cash flows from operating activities.

Note 10—Income Taxes

We are subject to tax liabilities imposed by multiple jurisdictions. We determine our best estimate of the annual effective tax rate at each interim period using expected annual pre-tax earnings, statutory tax rates and available tax planning opportunities. Certain significant or unusual items are separately recognized in the quarter in which they occur


		Page No.

Part I. Financial Information

Item 1. Financial Statements:

—Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022 (Unaudited)		3

—Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited)		4

—Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022 (Unaudited)		5

—Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2023 and 2022 (Unaudited)		6

—Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (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		34

Item 4. Controls and Procedures		35

Part II. Other Information

Item 1. Legal Proceedings		36

Item 6. Exhibits		36

Signatures		37


	Three Months Ended March 31,
	2023		2022
Cash paid for interest	$	17,368	$	5,489
Cash paid for income taxes, net of refunds received		(16,622)		(347)
Leased assets obtained in exchange for new operating leases		33,281		3,411