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, 2023

OR

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

For the transition period from                    to                      .

Commission file number 001-34145

Primoris Services Corporation

(Exact name of registrant as specified in its charter)

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

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

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	PRIM	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 November 3, 2023, 53,360,411 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

PRIMORIS SERVICES CORPORATION

INDEX

	Page No.
Part I. Financial Information
Item 1. Financial Statements:
—Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022 (Unaudited)	3
—Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	4
—Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	5
—Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	6
—Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (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	40
Item 4. Controls and Procedures	40
Part II. Other Information
Item 1. Legal Proceedings	41
Item 5. Other Information	41
Item 6. Exhibits	41
Signatures	42

2

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,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	160,736	$	248,692
Accounts receivable, net		851,612		663,119
Contract assets		743,836		616,224
Prepaid expenses and other current assets		134,967		176,350
Total current assets		1,891,151		1,704,385
Property and equipment, net		489,395		493,859
Operating lease assets		308,111		202,801
Intangible assets, net		232,752		249,381
Goodwill		857,650		871,808
Other long-term assets		24,112		21,786
Total assets	$	3,803,171	$	3,544,020
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	500,093	$	534,956
Contract liabilities		387,767		275,947
Accrued liabilities		321,639		245,837
Dividends payable		3,203		3,187
Current portion of long-term debt		85,233		78,137
Total current liabilities		1,297,935		1,138,064
Long-term debt, net of current portion		1,013,519		1,065,315
Noncurrent operating lease liabilities, net of current portion		222,524		130,787
Deferred tax liabilities		29,235		57,101
Other long-term liabilities		43,150		43,915
Total liabilities		2,606,363		2,435,182
Commitments and contingencies (See Note 14)
Stockholders’ equity
Common stock—$0.0001 par value; 90,000,000 shares authorized; 53,352,611 and 53,124,899 issued and outstanding at September 30, 2023 and December 31, 2022, respectively		6		6
Additional paid-in capital		272,800		263,771
Retained earnings		926,569		847,681
Accumulated other comprehensive income		(2,567)		(2,620)
Total stockholders’ equity		1,196,808		1,108,838
Total liabilities and stockholders’ equity	$	3,803,171	$	3,544,020

See Accompanying Notes to Condensed Consolidated Financial Statements

3

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,
	2023		2022		2023		2022
Revenue	$	1,529,486	$	1,284,128	$	4,199,760	$	3,091,461
Cost of revenue		1,355,591		1,129,221		3,768,869		2,787,960
Gross profit		173,895		154,907		430,891		303,501
Selling, general and administrative expenses		84,404		75,721		247,984		190,905
Transaction and related costs		1,084		12,706		4,677		18,228
Gain on sale and leaseback transaction		—		—		—		(40,084)
Operating income		88,407		66,480		178,230		134,452
Other income (expense):
Foreign exchange (loss) gain, net		(1)		(683)		1,301		(239)
Other income, net		467		128		1,540		274
Interest expense, net		(21,065)		(13,075)		(56,443)		(20,656)
Income before provision for income taxes		67,808		52,850		124,628		113,831
Provision for income taxes		(19,664)		(9,810)		(36,142)		(22,311)
Net income		48,144		43,040		88,486		91,520
Dividends per common share	$	0.06	$	0.06	$	0.18	$	0.18
Earnings per share:
Basic	$	0.90	$	0.81	$	1.66	$	1.72
Diluted	$	0.89	$	0.80	$	1.63	$	1.70
Weighted average common shares outstanding:
Basic		53,339		53,181		53,275		53,228
Diluted		54,351		53,748		54,171		53,778

See Accompanying Notes to Condensed Consolidated Financial Statements

4

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income	$	48,144	$	43,040	$	88,486	$	91,520
Other comprehensive income, net of tax:
Foreign currency translation adjustments		(1,440)		(4,058)		53		(3,881)
Comprehensive income	$	46,704	$	38,982	$	88,539	$	87,639

See Accompanying Notes to Condensed Consolidated Financial Statements

5

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)

									Accumulated
				Additional					Other		Total
	Common Stock			Paid-in		Retained			Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		0	Income		Equity
Balance, June 30, 2023	53,328,873	$	6	$	269,031	$	881,628		$	(1,127)	$	1,149,538
Net income	—		—		—		48,144			—		48,144
Foreign currency translation adjustments, net of tax	—		—		—		—			(1,440)		(1,440)
Issuance of shares	15,074		—		479		—			—		479
Conversion of Restricted Stock Units, net of shares withheld for taxes	8,664		—		(278)		—			—		(278)
Stock-based compensation	—		—		3,568		—			—		3,568
Dividends declared ($0.06 per share)	—		—		—		(3,203)			—		(3,203)
Balance, September 30, 2023	53,352,611	$	6	$	272,800	$	926,569		$	(2,567)	$	1,196,808

									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	—		—		—		88,486			—		88,486
Foreign currency translation adjustments, net of tax	—		—		—		—			53		53
Issuance of shares	65,023		—		1,742		—			—		1,742
Conversion of Restricted Stock Units, net of shares withheld for taxes	162,689		—		(1,668)		—			—		(1,668)
Stock-based compensation	—		—		8,955		—			—		8,955
Dividends declared ($0.18 per share)	—		—		—		(9,598)			—		(9,598)
Balance, September 30, 2023	53,352,611	$	6	$	272,800	$	926,569		$	(2,567)	$	1,196,808

6

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, June 30, 2022	53,209,461	$	6	$	262,394	$	769,523		$	875		$	1,032,798
Net income	—		—		—		43,040			—			43,040
Foreign currency translation adjustments, net of tax	—		—		—		—			(4,058)			(4,058)
Issuance of shares	19,631		—		393		—			—			393
Conversion of Restricted Stock Units, net of shares withheld for taxes	11,215		—		(104)		—			—			(104)
Stock-based compensation	—		—		1,753		—			—			1,753
Purchase of stock	(129,200)		—		(2,620)		—			—			(2,620)
Dividends declared ($0.06 per share)	—		—		—		(3,194)			—			(3,194)
Balance, September 30, 2022	53,111,107	$	6	$	261,816	$	809,369		$	(3,183)		$	1,068,008

									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 income	—		—		—		91,520			—			91,520
Foreign currency translation adjustments, net of tax	—		—		—		—			(3,881)			(3,881)
Issuance of shares	62,013		—		1,464		—			—			1,464
Conversion of Restricted Stock Units, net of shares withheld for taxes	131,709		—		(1,324)		—			—			(1,324)
Stock-based compensation	—		—		5,748		—			—			5,748
Purchase of stock	(277,200)		—		(5,990)								(5,990)
Dividends declared ($0.18 per share)	—		—		—		(9,584)			—			(9,584)
Balance, September 30, 2022	53,111,107	$	6	$	261,816	$	809,369		$	(3,183)		$	1,068,008

See Accompanying Notes to Condensed Consolidated Financial Statements

7

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	88,486	$	91,520
Adjustments to reconcile net income to net cash used in operating activities (net of effect of acquisitions):
Depreciation and amortization		81,454		69,348
Stock-based compensation expense		8,955		5,748
Gain on sale of property and equipment		(29,603)		(17,987)
Gain on sale and leaseback transaction		—		(40,084)
Unrealized gain on interest rate swap		(3,001)		(5,616)
Other non-cash items		1,546		1,877
Changes in assets and liabilities:
Accounts receivable		(185,815)		(122,867)
Contract assets		(128,360)		(148,044)
Other current assets		32,961		(98,489)
Other long-term assets		633		1,975
Accounts payable		(34,855)		133,731
Contract liabilities		106,042		(10,364)
Operating lease assets and liabilities, net		3,114		(896)
Accrued liabilities		51,182		40,016
Other long-term liabilities		114		(1,903)
Net cash used in operating activities		(7,147)		(102,035)
Cash flows from investing activities:
Purchase of property and equipment		(82,500)		(75,696)
Proceeds from sale of assets		47,579		19,237
Proceeds from sale and leaseback transaction, net of related expenses		—		49,887
Cash paid for acquisitions, net of cash and restricted cash acquired		9,300		(478,438)
Net cash used in investing activities		(25,621)		(485,010)
Cash flows from financing activities:
Borrowings under revolving lines of credit		440,223		169,943
Payments on revolving lines of credit		(420,223)		(19,804)
Proceeds from issuance of long-term debt		—		469,531
Payments on long-term debt		(66,055)		(77,751)
Proceeds from issuance of common stock		681		596
Debt issuance costs		—		(6,643)
Dividends paid		(9,582)		(9,583)
Purchase of common stock		—		(5,990)
Other		(5,067)		(4,947)
Net cash (used in) provided by financing activities		(60,023)		515,352
Effect of exchange rate changes on cash, cash equivalents and restricted cash		346		(924)
Net change in cash, cash equivalents and restricted cash		(92,445)		(72,617)
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	$	166,546	$	133,026

See Accompanying Notes to Condensed Consolidated Financial Statements

8

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands)

(Unaudited)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Nine Months Ended September 30,
	2023		2022
Cash paid for interest	$	57,351	$	20,025
Cash paid for income taxes, net of refunds received		(6,622)		2,540
Leased assets obtained in exchange for new operating leases		181,328		40,144

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

	Nine Months Ended September 30,
	2023		2022
Dividends declared and not yet paid	$	3,203	$	3,195

See Accompanying Notes to Condensed Consolidated Financial Statements

9

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, maintenance, replacement, fabrication and engineering services to a diversified base of customers through our two segments.

We have longstanding customer relationships with 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 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 — Through the end of 2022, we segregated our business into three reportable segments: the Utilities segment, the Energy/Renewables segment, and the Pipeline Services (“Pipeline”) segment. In the first quarter of 2023, we changed our reportable segments in connection with the realignment of our internal organization and management structure. The segment changes reflect the focus of our Chief Operating Decision Maker (“CODM”) on the range of services we provide to our end user markets. Our CODM regularly reviews our operating and financial performance based on these new segments.

The current reportable segments include the Utilities segment and the Energy segment, and the Energy segment is made up of our former Energy/Renewables and Pipeline segments. See Note 15 – “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.

Note 2—Basis of Presentation

Interim condensed consolidated financial statements — The interim condensed consolidated financial statements for the three and nine months ended September 30, 2023 and 2022 have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934, as amended. As such, certain disclosures, which would substantially duplicate the disclosures contained in our Annual Report on Form 10-K, filed on February 28, 2023, which contains our audited consolidated financial statements for the year ended December 31, 2022, 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. 

10

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 September 30, 2023 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):

	September 30,
	2023		2022
Cash and cash equivalents	$	160,736	$	111,937
Restricted cash included in prepaid expenses and other current assets		5,810		21,089
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	166,546	$	133,026

	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

Accounts Receivable Securitization Facility — In June 2023, we entered into an Accounts Receivable Securitization Facility (“the Facility”) with PNC Bank, National Association ("PNC") to improve cash flows from trade accounts receivable. The Facility has a one-year term, and the maximum purchase commitment by PNC is $100.0 million, at any one time.

Under the Facility, certain of our designated subsidiaries may sell their trade accounts receivable as they are originated to a wholly owned bankruptcy remote Special Purpose Entity (“SPE”) created specifically for this purpose. We control and, therefore, consolidate the SPE in our consolidated financial statements. The SPE transfers ownership and control of qualifying accounts receivable to PNC up to the maximum purchase commitment. We and our related subsidiaries have no continuing involvement in the transferred accounts receivable, other than collection and administrative responsibilities, and, once sold, the accounts receivable are no longer available to satisfy our creditors or our related subsidiaries. We account for accounts receivable sold to the banking counterparty as a sale of financial assets and derecognize the trade accounts receivable from our Consolidated Balance Sheets.

The total outstanding balance of trade accounts receivable that have been sold and derecognized is $65.0 million as of September 30, 2023. The SPE owned $145.7 million of trade accounts receivable as of September 30, 2023, which are included in Accounts receivable, net on the Consolidated Balance Sheets. For the three and nine months ended September 30, 2023, we received $40.0 million and $65.0 million, respectively, in cash proceeds from the Facility, which are included in cash from operating activities in the Consolidated Statements of Cash Flows. As of September 30, 2023, we had $35.0 million available capacity under the Facility.

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 customers vary from year to year.

For the three and nine months ended September 30, 2023, approximately 44.1% and 38.2%, respectively, of total revenue was generated from our top ten customers and no one customer accounted for more than 10% of our total revenue.

For the three and nine months ended September 30, 2022, approximately 53.3% and 48.4%, respectively, of total revenue was generated from our top ten customers. For the three months ended September 30, 2022, one renewable energy customer represented approximately 11.3% of total revenue and for the nine months ended September 30, 2022, no one customer accounted for more than 10% of our total revenue.

11

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.

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 September 30, 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 September 30, 2023:
Cash and cash equivalents	$	160,736	$	—	$	—
Interest rate swap		—		4,236		—
Liabilities as of September 30, 2023:
Contingent consideration		—		—		68
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 Statements 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 a 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.

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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 nine months ended September 30, 2023, related to the ASP performance target contemplated in their purchase agreement and decreased the liability by $0.9 million with a corresponding increase in non-operating income.

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.

During the second quarter of 2023, we finalized the estimate of fair values of the assets acquired and liabilities assumed of PLH. The table below represents the purchase consideration and the 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 $24.1 million of project adjustments increasing the fair value of contract liabilities acquired, a $18.8 million change in deferred taxes, 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 $11.7 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 $34.8 million since the third quarter of 2022. Adjustments recorded to the estimated fair values of the assets acquired and liabilities assumed are recognized in the period in which the adjustments are determined and calculated as if the accounting had been completed as of the acquisition date.

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

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Identifiable assets acquired and liabilities assumed (in thousands)
Cash, cash equivalents and restricted cash	$	43,152
Accounts receivable		74,739
Contract assets		74,700
Prepaid expenses and other current assets		10,858
Property, plant and equipment		51,824
Operating lease assets		16,340
Deferred tax asset		21,731
Intangible assets:
Customer relationships		77,300
Tradename		11,600
Other long-term assets		6,466
Accounts payable and accrued liabilities		(105,427)
Contract liabilities		(49,629)
Long-term debt (including current portion)		(3,313)
Noncurrent operating lease liabilities, net of current		(12,004)
Other long-term liabilities		(7,445)
Total identifiable net assets		210,892
Goodwill		261,301
Total purchase consideration	$	472,193

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.

Supplemental Unaudited Pro Forma Information for the three and nine months ended September 30, 2022

The following pro forma information for the three and nine months ended September 30, 2022 presents our results of operations as if the acquisition of PLH had occurred at the beginning of 2021. 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 18.6% and 19.6% for the three and nine months ended September 30, 2022, respectively.

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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, 2021. 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		Nine Months Ended
	September 30, 2022		September 30, 2022
	(unaudited)		(unaudited)
Revenue	$	1,339,477	$	3,485,099
Income before provision for income taxes		62,760		101,760
Net income		51,111		81,815
Weighted average common shares outstanding:
Basic		53,181		53,228
Diluted		53,748		53,778
Earnings per share:
Basic	$	0.96	$	1.54
Diluted		0.95		1.52

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. During the second quarter of 2023, we finalized the estimate of fair values of the assets acquired and liabilities assumed of B Comm. The 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 $10.0 million of goodwill. 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.

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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 September 30, 2023, we had $5.0 billion of remaining performance obligations. We expect to recognize approximately 57.7% of our remaining performance obligations as revenue during the next 12 months and substantially all of the remaining balance in the 12 to 18 months thereafter.

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 nine months ended September 30, 2023, revenue recognized related to performance obligations satisfied in previous periods was $5.8 million and $7.0 million, respectively. 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

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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 September 30, 2023, we had approximately $181.4 million of unapproved contract modifications included in the aggregate transaction prices. These contract modifications were in the process of being negotiated in the normal course of business. Approximately $164.6 million of the contract modifications had been recognized as revenue on a cumulative catch-up basis through September 30, 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;

● 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):

	September 30,		December 31,
	2023		2022
Unbilled revenue	$	505,002	$