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.

12

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	$	420,511
Retention receivable		208,533		174,149
Contract materials (not yet installed)		30,301		21,564
	$	743,836	$	616,224

Contract assets increased by $127.6 million compared to December 31, 2022 primarily due to higher unbilled revenue and retention receivable.

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.

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Contract liabilities consist of the following (in thousands):

	September 30,		December 31,
	2023		2022
Deferred revenue	$	382,350	$	269,853
Accrued loss provision		5,417		6,094
	$	387,767	$	275,947

Contract liabilities increased by $111.8 million compared to December 31, 2022 primarily due to higher deferred revenue.

Revenue recognized for the nine months ended September 30, 2023, that was included in the contract liability balance at December 31, 2022, was approximately $228.3 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 September 30, 2023
Segment	MSA		Non-MSA		Total
Utilities	$	505,301	$	139,338	$	644,639
Energy		78,725		806,122		884,847
Total	$	584,026	$	945,460	$	1,529,486

	For the nine months ended September 30, 2023
Segment	MSA		Non-MSA		Total
Utilities	$	1,354,642	$	459,126	$	1,813,768
Energy		222,649		2,163,343		2,385,992
Total	$	1,577,291	$	2,622,469	$	4,199,760

	For the three months ended September 30, 2022
Segment	MSA		Non-MSA		Total
Utilities	$	516,363	$	96,645	$	613,008
Energy		89,484		581,636		671,120
Total	$	605,847	$	678,281	$	1,284,128

	For the nine months ended September 30, 2022
Segment	MSA		Non-MSA		Total
Utilities	$	1,226,511	$	221,346		1,447,857
Energy		224,879		1,418,725		1,643,604
Total	$	1,451,390	$	1,640,071	$	3,091,461

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

	For the three months ended September 30, 2023
Segment	Fixed-price		Unit-price		Cost reimbursable (1)		Total
Utilities	$	106,267		406,368	$	132,004	$	644,639
Energy		535,987		168,146		180,714		884,847
Total	$	642,254	$	574,514	$	312,718	$	1,529,486

(1) Includes time and material and cost reimbursable plus fee contracts.

	For the nine months ended September 30, 2023
Segment	Fixed-price		Unit-price		Cost reimbursable (1)		Total
Utilities	$	290,320	$	1,131,044	$	392,404	$	1,813,768
Energy		1,548,206		446,704		391,082		2,385,992
Total	$	1,838,526	$	1,577,748	$	783,486	$	4,199,760

(1) Includes time and material and cost reimbursable plus fee contracts.

	For the three months ended September 30, 2022
Segment	Fixed-price		Unit-price		Cost reimbursable (1)		Total
Utilities	$	58,602	$	397,204	$	157,202	$	613,008
Energy		440,041		152,501		78,578		671,120
Total	$	498,643	$	549,705	$	235,780	$	1,284,128

(1) Includes time and material and cost reimbursable plus fee contracts.

	For the nine months ended September 30, 2022
Segment	Fixed-price		Unit-price		Cost reimbursable (1)		Total
Utilities	$	123,742	$	988,477	$	335,638	$	1,447,857
Energy		1,080,069		340,890		222,645		1,643,604
Total	$	1,203,811	$	1,329,367	$	558,283	$	3,091,461

(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 nine months ended September 30, 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		(12,822)		(1,336)		(14,158)
Balance at September 30, 2023	$	703,462	$	154,188	$	857,650

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

	September 30, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Intangible assets, net		Gross Carrying Amount		Accumulated Amortization		Intangible assets, net
Tradenames	$	32,820		(28,716)		4,104	$	32,820	$	(25,611)	$	7,209
Customer relationships		301,927		(73,279)		228,648		301,927		(59,755)		242,172
Total	$	334,747	$	(101,995)	$	232,752	$	334,747	$	(85,366)	$	249,381

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Amortization expense of intangible assets was $5.2 million and $6.7 million for the three months ended September 30, 2023 and 2022, respectively, and $16.6 million and $13.8 million for the nine months ended September 30, 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 three months)	$	5,204
2024		19,701
2025		17,661
2026		16,141
2027		15,604
Thereafter		158,441
	$	232,752

Note 7—Accounts Payable and Accrued Liabilities

At September 30, 2023 and December 31, 2022, accounts payable included retention amounts of approximately $26.9 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):

	September 30,		December 31,
	2023		2022
Payroll and related employee benefits	$	140,770	$	114,053
Current operating lease liability		89,253		72,565
Casualty insurance reserves		18,890		19,935
Corporate income taxes and other taxes		39,853		16,213
Other		32,873		23,071
	$	321,639	$	245,837

Note 8 — Credit Arrangements

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

	September 30,		December 31,
	2023		2022
Term loan	$	897,752	$	933,188
Revolving credit facility		120,000		100,000
Commercial equipment notes		68,089		98,064
Mortgage notes		19,838		20,483
Total debt		1,105,679		1,151,735
Unamortized debt issuance costs		(6,927)		(8,283)
Total debt, net	$	1,098,752	$	1,143,452
Less: current portion		(85,233)		(78,137)
Long-term debt, net of current portion	$	1,013,519	$	1,065,315

The weighted average interest rate on total debt outstanding at September 30, 2023 and December 31, 2022 was 6.9% and 6.2%, respectively.

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 “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 September 30, 2023, commercial letters of credit outstanding were $37.8 million. In addition to the commercial letters of credit, there were $120.0 million of outstanding borrowings under the Revolving Credit Facility, and available borrowing capacity was $167.2 million at September 30, 2023.

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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 September 30, 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, plus an applicable margin. The interest rate swap matured 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, which was 2.25% at September 30, 2023. The interest rate swap matures on January 31, 2025. See Note 9 – “Derivative Instruments”.

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 September 30, 2023, commercial letters of credit outstanding were $0.7 million in Canadian dollars and there were no outstanding borrowings. Available capacity at September 30, 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 was adjusted down each quarter by a portion of the required principal payments made on the 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 September 30, 2023, and December 31, 2022, our outstanding interest rate swap agreements contained a notional amount of $300.0 million and $121.7 million, respectively, with $115.5 million that matured 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):

		September 30,		December 31,
	Balance Sheet Location	2023		2022
Interest rate swap	Other current assets	$	—	$	1,235
Interest rate swap	Other long-term assets		4,236		—

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

		Three Months Ended				Nine Months Ended
	Location of Gain	September 30,				September 30,
	Recognized on Derivatives	2023		2022		2023		2022
Interest rate swap	Interest expense, net	$	1,307	$	854	$	6,904	$	3,797

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, which can cause variability in the effective tax rate from quarter to quarter. We recognize interest and penalties related to uncertain tax positions, if any, as an income tax expense.

The effective tax rate on income for the nine months ended September 30, 2023, and 2022 is 29.0% and 19.6%, respectively. For the first nine months of 2023, our tax rate differs from the U.S. federal statutory rate of 21.0% primarily due to the impact of state income taxes and nondeductible components of per diem expenses. For the first nine months of 2022, our tax rate differed from the U.S. federal statutory rate of 21.0% primarily due to the impact of state income taxes and the release of valuation allowances during the second and third quarters of 2022.

Our U.S. federal income tax returns are generally no longer subject to examination for tax years before 2019. The statutes of limitation of state and foreign jurisdictions generally vary between 3 to 5 years. Accordingly, our state and foreign income tax returns are generally no longer subject to examination for tax years before 2017.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting bases and tax bases of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based upon consideration of available evidence, including future reversals of existing taxable temporary differences, future projected taxable income, the length of the tax asset carryforward periods and tax planning strategies. The effects of remeasurement of deferred tax assets and liabilities resulting from changes in tax rates are recognized in income in the period of enactment.

Note 11—Dividends and Earnings Per Share

We paid cash dividends during 2023 and 2022 as follows:

Declaration Date	Record Date	Date Paid	Amount Per Share
February 24, 2022	March 31, 2022	April 15, 2022		0.06
May 4, 2022	June 30, 2022	July 15, 2022		0.06
August 3, 2022	September 30, 2022	October 15, 2022		0.06
November 3, 2022	December 31, 2022	January 13, 2023		0.06
February 22, 2023	March 31, 2023	April 14, 2023		0.06
May 3, 2023	June 30, 2023	July 14, 2023		0.06
August 2, 2023	September 29, 2023	October 13, 2023		0.06

The payment of future dividends is contingent upon our revenue and earnings, capital requirements and our general financial condition, as well as contractual restrictions and other considerations deemed relevant by the Board of Directors.

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The table below presents the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2023 and 2022 (in thousands, except per share amounts).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:
Net income	$	48,144	$	43,040	$	88,486	$	91,520
Denominator:
Weighted average shares for computation of basic earnings per share:		53,339		53,181		53,275		53,228
Dilutive effect of stock-based awards		1,012		567		896		550
Weighted average shares for computation of diluted earnings per share		54,351		53,748		54,171		53,778
Earnings per share:
Basic	$	0.90	$	0.81	$	1.66	$	1.72
Diluted	$	0.89	$	0.80	$	1.63	$	1.70

Note 12—Stockholders’ Equity

Common stock

We issued 21,245 and 23,782 shares of common stock in the nine months ended September 30, 2023 and 2022, respectively, under our long-term retention plan (“LTR Plan”). The shares were purchased by the participants in the LTR Plan with payment made to us of $0.3 million and $0.6 million in the nine months ended September 30, 2023 and 2022, respectively. Our LTR Plan for certain managers and executives allows participants to use a portion of their annual bonus amount to purchase our common stock at a discount from the market price. The shares purchased in the nine months ended September 30, 2023 were a portion of bonus amounts earned in 2022, and the number of shares purchased was calculated based on 75% of the average daily closing market price of our common stock during December 2022. The shares purchased in the nine months ended September 30, 2022 were for bonus amounts earned in 2021, and the number of shares was calculated at 75% of the average daily closing market price during December 2021.

During the three months ended September 30, 2023 and 2022, we issued 8,856 and 9,688 shares of common stock, respectively, as part of the quarterly compensation of the non-employee members of the Board of Directors. During the nine months ended September 30, 2023 and 2022, we issued 31,240 and 28,288 shares of common stock, respectively, as part of the quarterly compensation of the non-employee members of the Board of Directors.

During the three and nine months ended September 30, 2023, a total of 8,664 and 162,689 restricted stock units (“RSUs”), net of forfeitures for tax withholdings, respectively, were converted to common stock. There were 11,215 and 131,709 RSUs, net of forfeitures for tax withholdings, converted to common stock during the three and nine months ended September 30, 2022, respectively.

Employee Stock Purchase Plan

In May 2022, our shareholders approved the 2022 Primoris Services Corporation Employee Stock Purchase Plan (the “ESPP”) for which, eligible full-time employees can purchase shares of our common stock at a discount. The purchase price of the stock is 90% of the lower of the market price at the beginning of the offering period or the end of the offering period. Purchases occur semi-annually, approximately 30 days following the filing of our Annual Report on Form 10-K for the fiscal year ended December 31 of each year, but in no cases can extend beyond March 31 of the period or year, and approximately 30 days following the filing of our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30 of each year. For the three months ended September 30, 2023, 6,218 shares were purchased at an average discounted purchase price of $29.86 per share. For the nine months ended September 30, 2023, 12,538 shares were purchased at an average discounted purchase price of $25.85 per share. For the three and nine months ended September 30, 2022, 9,943 shares were purchased at a discounted purchase price of $17.44 per share.

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Share Purchase Plan

In November 2021, our Board of Directors authorized a $25.0 million share purchase program. Under the share purchase program, we can, depending on market conditions, share price and other factors, acquire shares of our common stock on the open market or in privately negotiated transactions. In February 2022, our Board of Directors replenished the limit to $25.0 million. During the nine months ended September 30, 2023 we did not purchase any shares of common stock. During the nine months ended September 30, 2022, we purchased and cancelled 277,200 shares of common stock, which in the aggregate equaled $6.0 million at an average share price of $21.61. As of September 30, 2023, we had $19.0 million remaining for purchase under the share purchase program. The share purchase plan expires on December 31, 2023.

Note 13—Leases

We lease administrative and operational facilities, which are generally longer-term, project specific facilities or yards, and construction equipment under non-cancelable operating leases. We determine if an arrangement is a lease at inception. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Operating leases are included in operating lease assets, accrued liabilities, and noncurrent operating lease liabilities on our Condensed Consolidated Balance Sheets.

Operating lease assets and operating lease liabilities are recognized at commencement date based on the present value of the future minimum lease payments over the lease term. In determining our lease term, we include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments. Lease expense from minimum lease payments is recognized on a straight-line basis over the lease term.

Our leases have remaining lease terms that expire at various dates through 2031, some of which may include options to extend the leases for up to 5 years. The exercise of lease extensions is at our sole discretion. Periodically, we sublease excess facility space, but any sublease income is generally not significant. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease expense are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023			2022
Operating lease expense (1)	$	31,370	$	19,101	$	79,352	$	54,123

________________________________________

(1) Includes short-term leases which are immaterial.

Our operating lease liabilities are reported on the Condensed Consolidated Balance Sheets as follows (in thousands):

	September 30,		December 31,
	2023			2022
Accrued liabilities	$	89,253	$	72,565
Noncurrent operating lease liabilities, net of current portion		222,524		130,787
	$	311,777	$	203,352

Sale and Leaseback Transaction

On June 22, 2022, we completed a sale and leaseback transaction of land and buildings located in Carson, California for an aggregate sales price, net of closing costs, of $49.9 million. Under the transaction, the land, buildings and improvements were sold and leased back for an initial term of three years. The aggregate initial annual rent payment for the property is approximately $1.2 million and includes annual rent increases of 3.0% over the initial lease term. The property qualified for sale and leaseback treatment and is classified as an operating lease. Therefore, we recorded a gain on the transaction of $40.1 million. The gain is included in Gain on sale and leaseback transaction on our Condensed Consolidated Statements of Income for the nine months ended September 30, 2022.

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Note 14—Commitments and Contingencies

Legal proceedings — We are subject to claims and legal proceedings arising out of our business. We provide for costs related to contingencies when a loss from such claims is probable and the amount is reasonably estimable. In determining whether it is possible to provide an estimate of loss, or range of possible loss, we review and evaluate our litigation and regulatory matters on a quarterly basis in light of potentially relevant factual and legal developments. If we determine an unfavorable outcome is not probable, or probable but not reasonably estimable, we do not accrue for a potential litigation loss.

Management is unable to ascertain the ultimate outcome of claims and legal proceedings; however, after review and consultation with counsel and taking into consideration relevant insurance coverage and related deductibles/self-insurance retention, management believes that it has meritorious defenses to such claims and believes that the reasonably possible outcome of such claims will not, individually or in the aggregate, have a material adverse effect on our consolidated results of operations, financial condition or cash flow.

Bonding — At September 30, 2023 and December 31, 2022, we had bid and completion bonds issued and outstanding totaling approximately $6.0 billion and $4.3 billion, respectively. The remaining performance obligation on those bonded projects totaled approximately $2.7 billion and $1.7 billion at September 30, 2023 and December 31, 2022, respectively.

Note 15—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 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 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, which is made up of our former Energy/Renewables and Pipeline Services segments.

Each of our reportable segments is composed of similar business units that specialize in services unique to the segment. Driving the end-user focused segments are differences in the economic characteristics of each segment, the nature of the services provided by each segment; the production processes of each segment, the type or class of customer using the segment’s services, the methods used by the segment to provide the services, and the regulatory environment of each segment’s customers.

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.

The following is a brief description of the reportable segments:

The Utilities segment operates throughout the United States and specializes in a range of services, including the installation and maintenance of new and existing natural gas and electric utility distribution and transmission systems, and communications systems.

The Energy segment operates throughout the United States and in Canada and specializes in a range of services that include engineering, procurement, and construction, retrofits, highway and bridge construction, demolition, site work, soil stabilization, mass excavation, flood control, upgrades, repairs, outages, pipeline construction and maintenance, pipeline integrity services, and maintenance services for entities in the renewable energy and energy storage, renewable fuels, and petroleum and petrochemical industries, as well as state departments of transportation.

All intersegment revenue and gross profit, which was immaterial, has been eliminated in the following tables. Total assets by segment is not presented as our Chief Operating Decision Maker as defined by ASC 280 does not review or allocate resources based on segment assets.

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Segment Revenue

Revenue by segment was as follows (in thousands):

	For the three months ended September 30,
	2023			2022
			% of			% of
			Total			Total
Segment	Revenue		Revenue	Revenue		Revenue
Utilities	$	644,639	42.1%	$	613,008	47.7%
Energy		884,847	57.9%		671,120	52.3%
Total	$	1,529,486	100.0%	$	1,284,128	100.0%

	For the nine months ended September 30,
	2023			2022
			% of			% of
			Total			Total
Segment	Revenue		Revenue	Revenue		Revenue
Utilities	$	1,813,768	43.2%	$	1,447,857	46.8%
Energy		2,385,992	56.8%		1,643,604	53.2%
Total	$	4,199,760	100.0%	$	3,091,461	100.0%

Segment Gross Profit

Gross profit by segment was as follows (in thousands):

	For the three months ended September 30,
	2023			2022
			% of			% of
			Segment			Segment
Segment	Gross Profit		Revenue	Gross Profit		Revenue
Utilities	$	64,654	10.0%	$	78,046	12.7%
Energy		109,241	12.3%		76,861	11.5%
Total	$	173,895	11.4%	$	154,907	12.1%

	For the nine months ended September 30,
	2023			2022
			% of			% of
			Segment			Segment
Segment	Gross Profit		Revenue	Gross Profit		Revenue
Utilities	$	164,244	9.1%	$	140,755	9.7%
Energy		266,647	11.2%		162,746	9.9%
Total	$	430,891	10.3%	$	303,501	9.8%

Segment Goodwill

The amount of goodwill recorded by each segment at September 30, 2023 and at December 31, 2022 is presented in Note 6 – “Goodwill and Intangible Assets”.

Geographic Region — Revenue and Total Assets

The majority of our revenue is derived from customers in the United States with approximately 5.6% and 6.2% generated from sources outside of the United States during the nine months ended September 30, 2023 and 2022, respectively, principally in Canada. At September 30, 2023 and December 31, 2022, approximately 3.8% and 4.2%, respectively, of total assets were located outside of the United States, principally in Canada.

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PRIMORIS SERVICES CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Forward Looking Statements

This Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 (“Third Quarter 2023 Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, growth opportunities, the effects of regulation and the economy, generally. Forward-looking statements include all statements that are not historical facts and usually can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.

Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of regulation and the economy, generally. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results may differ materially as a result of a number of factors, including, among other things, customer timing, project duration, weather, and general economic conditions; changes in our mix of customers, projects, contracts and business; regional or national and/or general economic conditions and demand for our services; price, volatility, and expectations of future prices of oil, natural gas, and natural gas liquids; variations and changes in the margins of projects performed during any particular quarter; increases in the costs to perform services caused by changing conditions; the termination, or expiration of existing agreements or contracts; the budgetary spending patterns of customers; inflation and other increases in construction costs that we may be unable to pass through to our customers; cost or schedule overruns on fixed-price contracts; availability of qualified labor for specific projects; changes in bonding requirements and bonding availability for existing and new agreements; the need and availability of letters of credit; increases in interest rates and slowing economic growth or recession; the instability in the banking system as a result of recent bank failures; costs we incur to support growth, whether organic or through acquisitions; the timing and volume of work under contract; losses experienced in our operations; the results of the review of prior period accounting on certain projects and the impact of adjustments to accounting estimates; developments in governmental investigations and/or inquiries; intense competition in the industries in which we operate; failure to obtain favorable results in existing or future litigation or regulatory proceedings, dispute resolution proceedings or claims, including claims for additional costs; failure of our partners, suppliers or subcontractors to perform their obligations; cyber-security breaches; failure to maintain safe worksites; risks or uncertainties associated with events outside of our control, including conflicts in the Gaza Strip and between Russia and Ukraine, severe weather conditions, public health crises and pandemics, political crises or other catastrophic events; client delays or defaults in making payments; the cost and availability of credit and restrictions imposed by credit facilities; failure to implement strategic and operational initiatives; risks or uncertainties associated with acquisitions, dispositions and investments; possible information technology interruptions or inability to protect intellectual property; the Company’s failure, or the failure of our agents or partners, to comply with laws; the Company's ability to secure appropriate insurance; new or changing legal requirements, including those relating to environmental, health and safety matters; the loss of one or a few clients that account for a significant portion of the Company's revenues; asset impairments; and risks arising from the inability to successfully integrate acquired businesses. We discuss many of these risks in detail in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 and our other filings with the Securities and Exchange Commission (“SEC”). You should read this Third Quarter 2023 Report, our Annual Report on Form 10-K for the year ended December 31, 2022 and our other filings with the SEC completely and with the understanding that our actual future results may be materially different from what we expect.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Third Quarter 2023 Report. We assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available.

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The following discussion and analysis should be read in conjunction with the unaudited financial statements and the accompanying notes included in Part 1, Item 1 of this Third Quarter 2023 Report and our Annual Report on Form 10-K for the year ended December 31, 2022.

Introduction

We are 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 the end of 2022, we segregated our business into three reportable segments: the Utilities segment, the Energy/Renewables segment, and the 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, which is made up of our former Energy/Renewables and Pipeline Services segments. The Utilities segment operates throughout the United States and specializes in a range of services, including the installation and maintenance of new and existing natural gas and electric utility distribution and transmission systems, and communication systems.

The Energy segment operates throughout the United States and in Canada and specializes in a range of services that include engineering, procurement, and construction, retrofits, highway and bridge construction, demolition, site work, soil stabilization, mass excavation, flood control, upgrades, repairs, outages, pipeline construction and maintenance, pipeline integrity services, and maintenance services for entities in the renewable energy and energy storage, renewable fuels, and petroleum and petrochemical industries, as well as state departments of transportation.

We have completed major underground and industrial projects for a number of large natural gas transmission and petrochemical companies in the United States, major electrical and gas projects for a number of large utility companies in the United States, significant renewable energy projects for energy companies, as well as projects for our engineering customers. We enter into a large number of contracts each year, and the projects can vary in length from daily work orders to as long as 36 months, and occasionally longer, for completion on larger projects. Although we have not been dependent upon any one customer in any year, a small number of customers tend to constitute a substantial portion of our total revenue in any given year.

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 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.

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.

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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. PLH is a utility-focused specialty construction company with concentration in key fast-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 utility markets including power delivery, communications, and gas utilities. The total purchase price was funded through a combination of borrowings under our Third Amended and Restated Credit Agreement, dated as of August 1, 2022, which increased our term loan to an aggregate principal amount of $945.0 million (the “Term Loan”) and borrowings under our revolving credit facility, in which the lenders agreed to make loans on a revolving basis from time to time and to issue letters of credit for up to $325.0 million (the “Revolving Credit Facility”). We incorporated the majority of the PLH operations into our Utilities segment with the remaining operations going to our Energy segment.

Acquisition of B Comm Holdco, LLC

On June 8, 2022, we acquired B Comm Holdco, LLC (“B Comm”) in an all-cash transaction of approximately $36.0 million, net of cash acquired. B Comm was incorporated into our Utilities segment and is a provider of maintenance, repair, upgrade and installation services to the communications markets. The transaction directly aligns with the strategy to grow our Master Services Agreement (“MSA”) revenue base and expand our communication services within the utility markets. The total purchase price was funded with borrowings under our Revolving Credit Facility.

Acquisition of Alberta Screw Piles, Ltd.

On March 1, 2022, we acquired Alberta Screw Piles, Ltd. (“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. We incorporated the operations of ASP into our Energy segment.

Material trends and uncertainties

We generate our revenue from construction and engineering projects, as well as from providing a variety of specialty construction services. We depend in part on spending by companies in the communications, gas and electric utilities, energy, chemical, and oil and gas industries, as well as state departments of transportation and municipal water and wastewater customers. Over the past several years, each segment has benefited from demand for more efficient and more environmentally friendly energy and power facilities, more reliable gas and electric utility infrastructure, upgraded and expanded local highway and bridge needs, and from the activity level in the oil and gas industry. However, periodically, each of these industries and government agencies is adversely affected by macroeconomic conditions. Economic and other factors outside of our control may affect the amount and size of contracts we are awarded in any particular period.

We actively monitor the impact of the dynamic macroeconomic environment, including the impact of inflation and the instability in the banking sector, on all aspects of our business. We have experienced increased fuel and labor costs and anticipate that elevated levels of cost inflation could persist into 2024. In an effort to mitigate the impacts of inflation on our operations, we attempt to recover increases in the cost of labor, equipment, fuel and materials through price escalation provisions that allow us to adjust billing rates for certain major contracts annually; by considering the estimated effect of such increases when bidding or pricing new work; or by entering into back-to-back contracts with suppliers and subcontractors. However, the annual adjustment provided by certain contracts is typically subject to a cap and there can be an extended period of time between the impact of inflation on our costs and when billing rates are adjusted. In some cases, our actual cost increases have exceeded the contractual caps, and therefore negatively impacted our operations. We have been successful in renegotiating some of our major contracts to address the increased costs on future work and will continue to address this with our customers going forward.

Fluctuations in the market prices of oil, gas and other fuel sources have affected demand for our services. While we have seen a recovery in the price of oil and natural gas, the volatility in the prices of oil, gas, and liquid natural gas that has occurred in the past few years could create uncertainty with respect to demand for our oil and gas pipeline services, specifically in our pipeline services operations, both in the near term and for future projects. While the construction of gathering lines within the oil shale formations may remain at lower levels for an extended period, we believe that over time, the need for pipeline infrastructure for mid-stream and gas utility companies will result in a continuing need for our services.

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The continuing changes in the regulatory environment have affected the demand for our services, either by increasing our work, delaying projects, or cancelling projects. For example, environmental laws and regulations have provided challenges to pipeline projects, resulting in delays or cancellations that impact the timing of revenue recognition. However, environmental laws and new pipeline regulations could increase the demand for our pipeline maintenance and integrity services. In addition, the regulatory environment in certain states has resulted in delays for the construction of gas-fired power plants. However, the increased demand for renewable resources is also creating demand for our construction and specialty services, such as the need for battery storage and the construction of utility scale and distributed generation solar facilities.

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. Our Revolving Credit Facility and Term Loan bear interest at a variable rate which exposes us to interest rate risk. From time to time, we may use certain derivative instruments to hedge our exposure to variable interest rates. As of September 30, 2023, $300.0 million of our variable rate debt outstanding was economically hedged. Based on our variable rate debt outstanding as of September 30, 2023, a 1.0% increase or decrease in interest rates would change annual interest expense by approximately $7.2 million.

Seasonality, cyclicality and variability

Our results of operations are subject to quarterly variations. Some of the variation is the result of weather, particularly rain, ice, snow, and named storms, which can impact our ability to perform construction and specialty services. These seasonal impacts can affect revenue and profitability in all of our businesses. Any quarter can be affected either negatively, or positively by atypical weather patterns in any part of the country. In addition, demand for new projects in our Utilities segment tends to be lower during the early part of the calendar year due to clients’ internal budget cycles. As a result, we usually experience higher revenue and earnings in the second, third and fourth quarters of the year as compared to the first quarter.

Our project values range in size from several hundred dollars to several hundred million dollars. The bulk of our work is comprised of project sizes that average less than $3.0 million. We also perform construction projects which tend not to be seasonal, but can fluctuate from year to year based on customer timing, project duration, weather, and general economic conditions. Our business may be affected by declines, or delays in new projects, or by client project schedules. Because of the cyclical nature of our business, the financial results for any period may fluctuate from prior periods, and our financial condition and operating results may vary from quarter to quarter. Results from one quarter may not be indicative of our financial condition, or operating results for any other quarter, or for an entire year.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and that affect the amounts of revenue and expenses reported for each period. These estimates and assumptions must be made because certain information that is used in the preparation of our financial statements cannot be calculated with a high degree of precision from data available, is dependent on future events, or is not capable of being readily calculated based on generally accepted methodologies. Often, these estimates are particularly difficult to determine, and we must exercise significant judgment. Actual results could differ significantly from our estimates, and our estimates could change if they were made under different assumptions or conditions. Our critical accounting policies and estimates are described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to our critical accounting policies and estimates since December 31, 2022.

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Results of Operations

Consolidated Results

The following discussion compares the results of the three and nine months ended September 30, 2023, to the three and nine months ended September 30, 2022.

Revenue

Revenue was $1,529.5 million for the three months ended September 30, 2023, an increase of $245.4 million, or 19.1%, compared to the same period in 2022. The increase was primarily due to revenue growth in both our Energy and Utilities segments, and the acquisition of PLH in August 2022.

Revenue was $4,199.8 million for the nine months ended September 30, 2023, an increase of $1,108.3 million, or 35.9%, compared to the same period in 2022. The increase was primarily due to revenue growth in both segments, and the acquisitions of PLH and B Comm in August 2022 and June 2022, respectively.

Gross Profit

Gross profit was $173.9 million for the three months ended September 30, 2023, an increase of $19.0 million, or 12.3%, compared to the same period in 2022. The increase was primarily due to an increase in revenue and the acquisition of PLH. Gross profit as a percentage of revenue decreased to 11.4% for the three months ended September 30, 2023, compared to 12.1% for the same period in 2022 primarily driven by a decrease in margins in our Utilities segment, partially offset by an increase in margins in our Energy segment.

Gross profit was $430.9 million for the nine months ended September 30, 2023, an increase of $127.4 million, or 42.0%, compared to the same period in 2022. The increase was primarily due to an increase in revenue. Gross profit as a percentage of revenue increased to 10.3% for the nine months ended September 30, 2023, compared to 9.8% for the same period in 2022 driven by improved margins in our Energy segment.

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses were $84.4 million during the three months ended September 30, 2023, an increase of $8.7 million, or 11.5% compared to 2022 primarily due to higher incentive compensation costs associated with improved operational performance and an increase in headcount. SG&A expenses as a percentage of revenue decreased to 5.5% compared to 5.9% for the corresponding period in 2022 due to increased revenue.

SG&A expenses were $248.0 million during the nine months ended September 30, 2023, an increase of $57.1 million, or 29.9% compared to 2022 primarily due to the acquisitions of PLH and B Comm. Also contributing to the increase was higher incentive compensation costs associated with improved operational performance and an increase in headcount. SG&A expenses as a percentage of revenue decreased to 5.9% compared to 6.2% for the corresponding period in 2022 primarily due to increased revenue.

Transaction and related costs

Transaction and related costs were $1.1 million and $12.7 million for the three months ended September 30, 2023, and 2022, respectively. The decrease was due to professional fees paid to advisors for the acquisition of PLH in 2022.

Transaction and related costs were $4.7 million and $18.2 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease was due to professional fees paid to advisors for the acquisitions of B Comm and PLH in 2022.

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Gain on Sale and Leaseback Transaction

On June 22, 2022, we completed a sale and leaseback transaction of land and buildings located in Carson, California for an aggregate sales price, net of closing costs, of $49.9 million. Under the transaction, the land, buildings, and improvements were sold and leased back for an initial term of three years. The property qualified for sale and leaseback treatment and is classified as an operating lease. Therefore, we recorded a gain on the transaction of $40.1 million. The gain is included in “Gain on sale and leaseback transaction” on our Condensed Consolidated Statements of Income for the nine months ended September 30, 2022.

Other income and expense

Non-operating income and expense items for the three and nine months ended September 30, 2023, and 2022 were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Foreign exchange 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)
Total other expense	$	(20,599)	$	(13,630)	$	(53,602)	$	(20,621)

Interest expense, net for the three months ended September 30, 2023, increased $8.0 million compared to the same period in 2022 primarily due to higher average debt balances from the borrowings incurred related to the PLH acquisition and higher average interest rates.

Interest expense, net for the nine months ended September 30, 2023, increased $35.8 million compared to the same period in 2022 primarily due to higher average debt balances from the borrowings incurred related to the PLH acquisition and higher average interest rates.

Provision for 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, which can cause variability in the effective tax rate from quarter to quarter. We recognize interest and penalties related to uncertain tax positions, if any, as income tax expense.

The effective tax rate for the nine-month period ended September 30, 2023, of 29.0% differs from the U.S. federal statutory rate of 21.0% primarily due to the impact of state income taxes and nondeductible components of per diem expenses. For the first nine months of 2022, our effective tax rate of 19.6% differed from the U.S. federal statutory rate of 21.0% primarily due to state income taxes net of the effects of a release in valuation allowances during the second and third quarters of 2022.

We recorded income tax expense for the nine months ended September 30, 2023, of $36.1 million compared to income tax expense of $22.3 million for the nine months ended September 30, 2022. The $13.8 million increase in income tax expense is primarily driven by a higher effective tax rate in 2023 and by a $10.8 million increase in pretax income.

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Segment results

Utilities Segment

Revenue and gross profit for the Utilities segment for the three and nine months ended September 30, 2023, and 2022 were as follows:

	Three Months Ended September 30,
	2023			2022
			% of			% of
			Segment			Segment
	(Thousands)		Revenue	(Thousands)		Revenue
Utilities Segment
Revenue	$	644,639		$	613,008
Gross profit		64,654	10.0%		78,046	12.7%

	Nine Months Ended September 30,
	2023			2022
			% of			% of
			Segment			Segment
	(Thousands)		Revenue	(Thousands)		Revenue
Utilities Segment
Revenue	$	1,813,768		$	1,447,857
Gross profit		164,244	9.1%		140,755	9.7%

Revenue increased by $31.6 million, or 5.2%, for the three months ended September 30, 2023, compared to the same period in 2022, primarily due to increased activity in power delivery and the acquisition of PLH in 2022.

Revenue increased by $365.9 million, or 25.3%, for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to the acquisitions of PLH and B Comm in 2022 and increased activity in our power delivery and communications markets.

Gross profit for the three months ended September 30, 2023, decreased by $13.4 million, or 17.2%, compared to the same period in 2022, primarily due to a decrease in margins, partially offset by growth in revenue. Gross profit as a percentage of revenue decreased to 10.0% during the three months ended September 30, 2023, compared to 12.7% in the same period in 2022, primarily due to productivity issues on some legacy PLH projects that are nearing completion and a shift in the revenue mix in 2023.

Gross profit for the nine months ended September 30, 2023, increased by $23.5 million, or 16.7%, compared to the same period in 2022, primarily due to revenue growth, partially offset by a decrease in margins. Gross profit as a percentage of revenue decreased to 9.1% during the nine months ended September 30, 2023, compared to 9.7% in the same period in 2022, primarily due to productivity issues on some legacy PLH projects that are nearing completion, higher costs associated with a communication project in 2023, and a shift in the revenue mix in 2023.

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Energy Segment

Revenue and gross profit for the Energy segment for the three and nine months ended September 30, 2023, and 2022 were as follows:

	Three Months Ended September 30,
	2023			2022
			% of			% of
			Segment			Segment
	(Thousands)		Revenue	(Thousands)		Revenue
Energy Segment
Revenue	$	884,847		$	671,120
Gross profit		109,241	12.3%		76,861	11.5%

	Nine Months Ended September 30,
	2023			2022
			% of			% of
			Segment			Segment
	(Thousands)		Revenue	(Thousands)		Revenue
Energy Segment
Revenue	$	2,385,992		$	1,643,604
Gross profit		266,647	11.2%		162,746	9.9%

Revenue increased by $213.7 million, or 31.8%, for the three months ended September 30, 2023, compared to the same period in 2022, primarily due to increased renewable energy, industrial, and pipeline activity.

Revenue increased by $742.4 million, or 45.2%, for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to increased renewable energy, industrial, and pipeline activity and the PLH acquisition.

Gross profit for the three months ended September 30, 2023, increased by $32.4 million, or 42.1%, compared to the same period in 2022, primarily due to higher revenue and margins. Gross profit as a percentage of revenue increased to 12.3% during the three months ended September 30, 2023, compared to 11.5% in the same period in 2022, primarily due to growth in high margin renewable energy work, strong performance on a pipeline project in the mid-Atlantic in 2023, and higher relative carrying costs for equipment and personnel in 2022 caused by lower than anticipated pipeline volumes.

Gross profit for the nine months ended September 30, 2023, increased by $103.9 million, or 63.8%, compared to the same period in 2022, primarily due to higher revenue and margins. Gross profit as a percentage of revenue increased to 11.2% during the nine months ended September 30, 2023, compared to 9.9% in the same period in 2022, primarily due to strong performance on a pipeline project in the mid-Atlantic in 2023, and higher costs on a separate pipeline project in the mid-Atlantic from unfavorable weather conditions experienced in 2022 and higher relative carrying costs for equipment and personnel in 2022 caused by lower than anticipated pipeline volumes.

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Geographic area financial information

The majority of our revenue is derived from customers in the United States with approximately 5.6% generated from sources outside of the United States during the nine months ended September 30, 2023, principally in Canada.

Backlog

For companies in the construction industry, backlog can be an indicator of future revenue streams. Different companies define and calculate backlog in different manners. We define backlog as a combination of: (1) anticipated revenue from the uncompleted portions of existing contracts where scope is adequately defined, and therefore we can reasonably estimate total contract value (“Fixed Backlog”), and (2) the estimated revenue on MSA work for the next four quarters (“MSA Backlog”). We do not include certain contracts in the calculation of backlog where scope, and therefore contract value, is not adequately defined.

The two components of backlog, Fixed Backlog and MSA Backlog, are detailed below.

Fixed Backlog

Fixed Backlog by reportable segment as of December 31, 2022 and September 30, 2023 and the changes in Fixed Backlog for the nine months ended September 30, 2023 are as follows (in millions):

	Beginning Fixed						Ending Fixed				Revenue				Total Revenue
	Backlog at		Net Contract		Revenue		Backlog at				Recognized from				for Nine Months
	December 31,		Additions to		Recognized from		September 30,				Non-Fixed				ended September 30,
Reportable Segment	2022		Fixed Backlog		Fixed Backlog		2023		00	00	Backlog Projects		00	00	2023
Utilities	$	183.3	$	374.4	$	461.0	$	96.7			$	1,352.8			$	1,813.8
Energy		3,391.7		3,272.8		2,133.6		4,530.9				252.4				2,386.0
Total	$	3,575.0	$	3,647.2	$	2,594.6	$	4,627.6			$	1,605.2			$	4,199.8

Revenue recognized from non-Fixed Backlog projects shown above is generated by MSA projects and projects completed under time and material and cost reimbursable plus fee contracts where scope, and therefore contract value, is not adequately defined, or are generated from the sale of construction materials, such as rock or asphalt to outside third parties.

At September 30, 2023, our total Fixed Backlog was $4.63 billion representing an increase of $1.05 billion, or 29.4% compared to $3.58 billion at December 31, 2022.

MSA Backlog

The following table outlines historical MSA revenue for the past seven quarters (in millions):

	Quarterly MSA Revenue
	2022		2023
First Quarter	$	349.3	$	449.1
Second Quarter		496.2		544.1
Third Quarter		605.9		584.0
Fourth Quarter		571.6

MSA Backlog includes anticipated MSA revenue for the next twelve months. We estimate MSA revenue based on historical trends, anticipated seasonal impacts, inflation adjustments, and estimates of customer demand based on information from our customers.

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The following table shows our estimated MSA Backlog at September 30, 2023 by reportable segment (in millions):

	MSA Backlog
	at September 30,
Reportable Segment:	2023
Utilities	$	1,818.3
Energy		241.0
Total	$	2,059.3

Total Backlog

The following table shows total backlog (Fixed Backlog plus MSA Backlog), by reportable segment as of the quarter-end dates shown below (in millions):

Reportable Segment:	September 30, 2022		December 31, 2022		March 31, 2023		June 30, 2023		September 30, 2023
Utilities	$	1,888.8	$	1,833.2	$	1,957.1	$	1,979.9	$	1,915.0
Energy		3,583.5		3,650.3		3,602.2		4,609.3		4,771.9
Total	$	5,472.3	$	5,483.5	$	5,559.3	$	6,589.2	$	6,686.9

We expect that during the next four quarters, we will recognize as revenue approximately 69% of the total backlog at September 30, 2023, composed of backlog of approximately: 100% of the Utilities segment and 56% of the Energy segment.

Backlog should not be considered a comprehensive indicator of future revenue, as a percentage of our revenue is derived from projects that are not part of a backlog calculation. The backlog estimates include amounts from estimated MSA contracts, but our customers are not contractually obligated to purchase an amount of services from us under the MSAs. Any of our contracts may be terminated by our customers on relatively short notice. In the event of a project cancellation, we may be reimbursed for certain costs, but typically we have no contractual right to the total revenue reflected in backlog. Projects may remain in backlog for extended periods of time as a result of customer delays, regulatory requirements or project specific issues. Future revenue from certain projects completed under time and material and cost reimbursable plus fee contracts may not be included in our estimated backlog amount.

Liquidity and Capital Resources

Liquidity represents our ability to pay our liabilities when they become due, fund business operations, and meet our contractual obligations and execute our business plan. Our primary sources of liquidity are our cash balances at the beginning of each period and our cash flows from operating activities. If needed, we have availability under our lines of credit to augment liquidity needs. Our short-term and long-term cash requirements consist primarily of working capital, investments to support revenue growth and maintain our equipment and facilities, general corporate needs, and to service our debt obligations. At September 30, 2023, there was $120.0 million of outstanding borrowings under the Revolving Credit Facility, commercial letters of credit outstanding were $37.8 million, and available borrowing capacity was $167.2 million.

In June 2023, we entered into an Accounts Receivable 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 created specifically for this purpose. The total outstanding balance of trade accounts receivable that have been sold and derecognized is $65.0 million as of September 30, 2023. As of September 30, 2023, we had $35.0 million in available capacity under the Facility.

In order to maintain sufficient liquidity, we evaluate our working capital requirements on a regular basis. We may elect to raise additional capital by issuing common stock, convertible notes, term debt or increasing the borrowing capacity under our credit facilities as necessary to fund our operations or to fund the acquisition of new businesses.

Our cash and cash equivalents totaled $160.7 million at September 30, 2023, compared to $248.7 million at December 31, 2022. We anticipate that our cash and investments on hand, existing borrowing capacity under our credit

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facilities, and our future cash flows from operations will provide sufficient funds to enable us to meet our operating needs, our planned capital expenditures, and settle our commitments and contingencies for the next twelve months and the foreseeable future.

The construction industry is capital intensive, and we expect to continue to make capital expenditures to meet anticipated needs for our services. During the nine months ended September 30, 2023, we spent approximately $82.5 million for capital expenditures, which included $31.4 million for construction equipment. Capital expenditures for the remaining three months of 2023 are expected to total between $10 million and $20 million, which includes $5 million to $10 million for equipment.

Cash Flows

Cash flows during the nine months ended September 30, 2023 and 2022 are summarized as follows (in thousands):

	Nine months ended
	September 30,
	2023		2022
Change in cash:
Net cash used in operating activities	$	(7,147)	$	(102,035)
Net cash used in investing activities		(25,621)		(485,010)
Net cash (used in) provided by financing activities		(60,023)		515,352
Effect of exchange rate changes		346		(924)
Net change in cash, cash equivalents and restricted cash	$	(92,445)	$	(72,617)

Operating Activities

The cash flows used in operating activities for the nine months ended September 30, 2023 and 2022 were as follows (in thousands):

	Nine months ended
	September 30,
	2023		2022		Change
Operating Activities:
Net income	$	88,486	$	91,520	$	(3,034)
Depreciation and amortization		81,454		69,348		12,106
Gain on sale and leaseback transaction		—		(40,084)		40,084
Changes in assets and liabilities		(154,984)		(206,841)		51,857
Gain on sale of property and equipment		(29,603)		(17,987)		(11,616)
Other		7,500		2,009		5,491
Net cash used in operating activities	$	(7,147)	$	(102,035)	$	94,888

Net cash used by operating activities for the nine months ended September 30, 2023 was $7.1 million compared to $102.0 million used by operating activities for the nine months ended September 30, 2022. The change year-over-year was primarily due to improvement in the impact from the changes in assets and liabilities and an increase in net income (after adjusting for cash from gains reported in investing activities).

The significant components of the $155.0 million change in assets and liabilities for the nine months ended September 30, 2023 are summarized as follows:

● Accounts receivable increased by $185.8 million, primarily due to increased revenue and the timing of collecting from our customers;

● Contract assets increased by $128.4 million, primarily due to increased revenue;

● Contract liabilities increased $106.0 million, primarily due to higher deferred revenue;

● Other current assets decreased by $33.0 million due primarily to a $20.0 million income tax refund; and

● Accounts payable and accrued liabilities increased $16.3 million primarily due to revenue growth and the timing of our payments to vendors.

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The significant components of the $206.8 million change in assets and liabilities for the nine months ended September 30, 2022, are summarized as follows:

● Contract assets increased by $148.0 million, primarily due to significant revenue growth in 2022;

● Accounts receivable increased by $122.9 million, primarily due to increased revenue;

● Other current assets increased by $98.5 million primarily due to a $82.1 million increase in prepaid material purchases related to our solar projects; and

● Accounts payable and accrued liabilities increased $173.7 million primarily due to revenue growth and the timing of payments to our vendors.

Investing activities

For the nine months ended September 30, 2023, we used $25.6 million in cash for investing activities compared to $485.0 million for the nine months ended September 30, 2022.

During the nine months ended September 30, 2022, we used $478.4 million for acquisitions.

During the nine months ended September 30, 2023, we purchased property and equipment for $82.5 million compared to $75.7 million during the same period in the prior year. We believe the ownership or long-term leasing of equipment is generally preferable to renting equipment on a project-by-project basis, as this strategy helps to ensure the equipment is available for our projects when needed. In addition, this approach has historically resulted in lower overall equipment costs.

We periodically sell assets, typically to update our fleet. We received proceeds from the sale of assets of $47.6 million during the nine months ended September 30, 2023, compared to $19.2 million during the same period in the prior year. Additionally, we received proceeds of $49.9 million, net from a sale and leaseback transaction of land and buildings during the nine months ended September 30, 2022.

Financing activities

Financing activities used cash of $60.0 million for the nine months ended September 30, 2023, which was primarily due to the following:

● Payments of long-term debt of $66.1 million;

● Dividend payments to our stockholders of $9.6 million; and

● Net borrowings on our credit facilities of $20.0 million.

Financing activities provided cash of $515.4 million for the nine months ended September 30, 2022, which was primarily due to the following:

● Proceeds from the entry into an amended and upsized term loan of $462.9 million, net of debt issuance costs paid;

● Net borrowings on our credit facilities of $150.1 million;

● Payment of long-term debt of $77.8 million; and

● Dividend payments to our stockholders of $9.6 million.

Credit Agreements

For a description of our credit agreements, see Note 8 — “Credit Arrangements” in Item 1, Financial Statements of this Third Quarter 2023 Report.

Common stock

For a discussion of items affecting our common stock, please see Note 12 — “Stockholders’ Equity” in Item 1, Financial Statements of this Third Quarter 2023 Report.

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Off-balance sheet transactions

We enter into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected on our balance sheet. We have no off-balance sheet financing arrangement with VIEs. The following represents transactions, obligations or relationships that could be considered material off-balance sheet arrangements.

● At September 30, 2023, we had letters of credit outstanding of $38.2 million under the terms of our credit agreements. These letters of credit are used by our insurance carriers to ensure reimbursement for amounts that they are disbursing on our behalf, such as beneficiaries under our self-funded insurance program. In addition, from time to time, certain customers require us to post a letter of credit to ensure payments to our subcontractors or guarantee performance under our contracts. Letters of credit reduce our borrowing availability under our Amended Credit Agreement and our Canadian credit facilities. If these letters of credit were drawn on by the beneficiary, we would be required to reimburse the issuer of the letter of credit, and we may be required to record a charge to earnings for the reimbursement. As of the date of this Third Quarter 2023 Report, we do not believe that it is likely that any material claims will be made under a letter of credit;

● In the ordinary course of our business, we may be required by our customers to post surety bid or completion bonds in connection with services that we provide. At September 30, 2023, we had bid and completion bonds issued and outstanding totaling approximately $6.0 billion. The remaining performance obligation on those bonded projects totaled approximately $2.7 billion at September 30, 2023. As of the date of this Third Quarter 2023 Report, we do not anticipate that we would have to fund material claims under our surety arrangements;

● Certain of our subsidiaries are parties to collective bargaining agreements with unions. In most instances, these agreements require that we contribute to multi-employer pension and health and welfare plans. For many plans, the contributions are determined annually and required future contributions cannot be determined since contribution rates depend on the total number of union employees and actuarial calculations based on the demographics of all participants. The Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Multi-Employer Pension Amendments Act of 1980, subjects employers to potential liabilities in the event of an employer’s complete or partial withdrawal of an underfunded multi-employer pension plan. The Pension Protection Act of 2006 added new funding rules for multi-employer plans that are classified as “endangered”, “seriously endangered”, or “critical”. We do not currently anticipate withdrawal from any multi-employer pension plans. Withdrawal liabilities or requirements for increased future contributions could negatively impact our results of operations and liquidity;

● We enter into employment agreements with certain employees which provide for compensation and benefits under certain circumstances and which may contain a change of control clause. We may be obligated to make payments under the terms of these agreements; and

● From time to time, we make other guarantees, such as guaranteeing the obligations of our subsidiaries.

Effects of Inflation and Changing Prices

Our operations are affected by increases in prices, whether caused by inflation or other economic factors. We attempt to recover anticipated increases in the cost of labor, equipment, fuel and materials through price escalation provisions that allow us to adjust billing rates for certain major contracts annually; by considering the estimated effect of such increases when bidding or pricing new work; or by entering into back-to-back contracts with suppliers and subcontractors. However, the annual adjustment provided by certain contracts is typically subject to a cap and there can be an extended period of time between the impact of inflation on our costs and when billing rates are adjusted. In some cases, our actual cost increases have exceeded the contractual caps, and therefore negatively impacted our operations. We have been able to renegotiate some of our major contracts to address the increased costs on future work and will continue to address this with our customers going forward.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the ordinary course of business, we are exposed to risks related to market conditions. These risks primarily include fluctuations in foreign currency exchange rates, interest rates and commodity prices. We may seek to manage these risks through the use of financial derivative instruments. These instruments may include foreign currency exchange contracts and interest rate swaps.

Interest rate risk. Our Revolving Credit Facility and Term Loan bear interest at a variable rate which exposes us to interest rate risk. From time to time, we may use certain derivative instruments to hedge our exposure to variable interest rates. As of September 30, 2023, $300.0 million of our variable rate debt outstanding was economically hedged. Based on our variable rate debt outstanding as of September 30, 2023, a 1.0% increase or decrease in interest rates would change annual interest expense by approximately $7.2 million.

We do not execute transactions or use financial derivative instruments for trading or speculative purposes. We generally enter into transactions with counterparties that are financial institutions as a means to limit significant exposure with any one party.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of September 30, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our “disclosure controls and procedures”, as such term is defined under Exchange Act Rules 13a-15(e) and 15d-15(e).

Based on this evaluation, our CEO and CFO concluded that, at September 30, 2023, the disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their stated objectives.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting practices or processes that occurred during the quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

See Note 14 — “Commitments and Contingencies”, included in the unaudited notes to our condensed consolidated financial statements included in item 1. Financial Statements of this Third Quarter 2023 Report.

Item 5. Other Information

None of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarterly period covered by this report.

Item 6. Exhibits

The following exhibits are filed as part of this Quarterly Report on Form 10-Q.

Exhibit Number	Description
31.1	Rule 13a-14(a)/15d-14(a) Certification by the Registrant’s Chief Executive Officer (*)
31.2	Rule 13a-14(a)/15d-14(a) Certification by the Registrant’s Chief Financial Officer (*)
32.1	Section 1350 Certification by the Registrant’s Chief Executive Officer (**)
32.2	Section 1350 Certification by the Registrant’s Chief Financial Officer (**)
101 INS	Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (*)
101 SCH	Inline XBRL Taxonomy Extension Schema Document (*)
101 CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document (*)
101 LAB	Inline XBRL Taxonomy Extension Label Linkbase Document (*)
101 PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document (*)
101 DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document (*)
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(*) Filed herewith.

(**) Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PRIMORIS SERVICES CORPORATION
Date: November 7, 2023	/s/ Kenneth M. Dodgen
	Kenneth M. Dodgen
	Executive Vice President, Chief Financial Officer (Principal Financial Officer)

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