Primoris Services Corp

Previous wording

This Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 (“First Quarter 2024 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.

Current wording

This Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 (“Second Quarter 2024 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.

Previous wording

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, 2023 and our other filings with the Securities and Exchange Commission (“SEC”). You should read this First Quarter 2024 Report, our Annual Report on Form 10-K for the year ended December 31, 2023 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.*

Current wording

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, 2023 and our other filings with the Securities and Exchange Commission (“SEC”). You should read this Second Quarter 2024 Report, our Annual Report on Form 10-K for the year ended December 31, 2023 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.*

Previous wording

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 First Quarter 2024 Report. We assume no obligation to update these forward-looking statements publicly, or to update the reasons actual

Current wording

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 Second Quarter 2024 Report. We assume no obligation to update these forward-looking statements publicly, or to update the reasons actual

Previous wording

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 First Quarter 2024 Report and our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

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 Second Quarter 2024 Report and our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

We actively monitor the impact of the dynamic macroeconomic environment, including the impact of inflation, volatility in the commodities markets, 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 in 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.

Current wording

We actively monitor the impact of the dynamic macroeconomic environment, including the impact of inflation and volatility in the commodities markets, on all aspects of our business. We have experienced increased fuel and labor costs and anticipate that elevated levels of cost inflation could persist in 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.

Previous wording

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 infrastructure services, such as the need for battery storage and the construction of utility scale solar facilities.

Current wording

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 infrastructure services and additional opportunities for our Energy segment, such as the need for battery storage and the construction of utility scale solar facilities.

Previous wording

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 March 31, 2024, $300.0 million of our variable rate debt outstanding was economically hedged. Based on our variable rate debt outstanding as of March 31, 2024, a 1.0% increase or decrease in interest rates would change annual interest expense by approximately $5.7 million.

Current wording

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 June 30, 2024, $300.0 million of our variable rate debt outstanding was economically hedged. Based on our variable rate debt outstanding as of June 30, 2024, a 1.0% increase or decrease in interest rates would change annual interest expense by approximately $5.6 million.

Previous wording

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

Current wording

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

Previous wording

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, 2023. There have been no material changes to our critical accounting policies and estimates since December 31, 2023.

Current wording

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, 2023. There have been no material changes to our critical accounting policies and estimates since December 31, 2023.

Previous wording

The following discussion compares the results of the three months ended March 31, 2024, to the three months ended March 31, 2023.

Current wording

The following discussion compares the results of the three and six months ended June 30, 2024, to the three and six months ended June 30, 2023.

Previous wording

Revenue was $1,412.7 million for the three months ended March 31, 2024, an increase of $155.8 million, or 12.4%, compared to the same period in 2023. The increase was primarily due to growth in our Energy segment partially offset by a decrease in our Utilities segment .

Current wording

Revenue was $1,563.7 million for the three months ended June 30, 2024, an increase of $150.3 million, or 10.6%, compared to the same period in 2023. The increase was primarily due to growth in our Energy segment partially offset by a decrease in our Utilities segment.

Previous wording

Gross profit was $133.4 million for the three months ended March 31, 2024, an increase of $33.6 million, or 33.7%, compared to the same period in 2023. The increase was primarily due to an increase in revenue and improved margins in our Energy segment. Gross profit as a percentage of revenue increased to 9.4% for the three months ended March 31, 2024, compared to 7.9% for the same period in 2023 primarily driven by an increase in margins in our Energy segment.

Current wording

Gross profit was $186.7 million for the three months ended June 30, 2024, an increase of $29.4 million, or 18.7%, compared to the same period in 2023. The increase was primarily due to an increase in revenue in our Energy segment and improved margins in both segments. Gross profit as a percentage of revenue increased to 11.9% for the three months ended June 30, 2024, compared to 11.1% for the same period in 2023 primarily driven by an increase in margins in both segments.

Previous wording

Selling, general and administrative (“SG&A”) expenses were $88.6 million during the three months ended March 31, 2024, an increase of $10.6 million, or 13.6% compared to 2023 primarily due to increased people costs to support revenue growth and SG&A expenses as a percentage of revenue remained consistent with the prior period.

Current wording

Selling, general and administrative (“SG&A”) expenses were $100.1 million during the three months ended June 30, 2024, an increase of $14.5 million, or 17.0%, compared to 2023 primarily due to increased people costs to support revenue growth as well as higher technology costs associated with ongoing initiatives. SG&A expenses as a percentage of revenue increased to 6.4% compared to 6.1% for the corresponding period in 2023.

Previous wording

Non-operating income and expense items for the three months ended March 31, 2024, and 2023 were as follows (in thousands):

Current wording

Non-operating income and expense items for the three and six months ended June 30, 2024, and 2023 were as follows (in thousands):

Previous wording

Interest expense, net for the three months ended March 31, 2024, decreased $0.5 million compared to the same period in 2023 primarily due to lower average debt balances, partially offset by higher average interest rates.

Current wording

Interest expense, net for the three months ended June 30, 2024, increased $0.3 million compared to the same period in 2023 primarily due to a $0.4 million unrealized loss on our interest rate swap in 2024 compared to a $3.2 million unrealized gain in 2023, mostly offset by lower average debt balances.

Previous wording

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,

Current wording

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.

Previous wording

The effective tax rate for the three-month periods ended March 31, 2024 and 2023, of 29.0% and 28.0%, respectively 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.

Current wording

The effective tax rate for the six-month periods ended June 30, 2024 and 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.

Previous wording

We recorded income tax expense for the three months ended March 31, 2024, of $7.7 million compared to income tax expense of $0.5 million for the three months ended March 31, 2023. The $7.2 million increase in income tax expense is driven by a $24.9 million increase in pretax income.

Current wording

We recorded income tax expense for the six months ended June 30, 2024, of $28.0 million compared to income tax expense of $16.5 million for the six months ended June 30, 2023. The $11.5 million increase in income tax expense is driven by a $39.6 million increase in pretax income.

Previous wording

Revenue increased by $247.7 million, or 33.4%, for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to increased renewable energy and industrial activity partially offset by decreased activity in our pipeline market.

Current wording

Revenue increased by $194.8 million, or 25.0%, for the three months ended June 30, 2024, compared to the same period in 2023, primarily due to increased renewable energy and industrial activity partially offset by decreased activity in our pipeline market.

Previous wording

Gross profit for the three months ended March 31, 2024, increased by $37.7 million, or 57.0%, compared to the same period in 2023, due to higher revenue and margins. Gross profit as a percentage of revenue increased to 10.5% during the three months ended March 31, 2024, compared to 8.9% in the same period in 2023, primarily due to revenue growth in high margin renewable energy work and strong performance by our industrial group in the first quarter of 2024.

Current wording

Gross profit for the three months ended June 30, 2024, increased by $31.9 million, or 35.1%, compared to the same period in 2023, due to higher revenue and margins. Gross profit as a percentage of revenue increased to 12.6% during the three months ended June 30, 2024, compared to 11.7% in the same period in 2023, primarily due to revenue growth in higher margin renewable energy work and strong performance by our industrial group in 2024, partially offset by lower pipeline margins due to strong performance on a pipeline project in the mid-Atlantic in 2023 that did not repeat in 2024.

Previous wording

Revenue decreased by $48.4 million, or 9.0%, for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to the substantial completion of a major substation project in our power delivery market in the second half of 2023 and lower activity in our communications market.

Current wording

Revenue decreased by $74.3 million, or 6.3%, for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to the substantial completion of a major substation project in our power delivery market in the second half of 2023 and lower activity in our gas operations market, partially offset by increased renewable energy substation projects in our power delivery market.

Previous wording

Gross profit for the three months ended March 31, 2024, decreased by $4.1 million, or 12.2%, compared to the same period in 2023, primarily due to a decrease in revenue. Gross profit as a percentage of revenue decreased slightly to 6.0% during the three months ended March 31, 2024, compared to 6.2% in the same period in 2023.

Current wording

Gross profit for the six months ended June 30, 2024, decreased by $6.5 million, or 6.5%, compared to the same period in 2023, primarily due to a decrease in revenue, partially offset by increased margins. Gross profit as a percentage of revenue remained consistent at 8.4% during the six months ended June 30, 2024, compared to 8.5% in the same period in 2023.

Previous wording

The majority of our revenue is derived from customers in the United States with approximately 6.3% generated from sources outside of the United States during the three months ended March 31, 2024, principally in Canada.

Current wording

The majority of our revenue is derived from customers in the United States with approximately 5.4% generated from sources outside of the United States during the six months ended June 30, 2024, principally in Canada.

Previous wording

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 March 31, 2024, there were no outstanding borrowings under the Revolving Credit Facility, commercial letters of credit outstanding were $51.6 million, and available borrowing capacity was $273.4 million.

Current wording

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, and we have a current shelf registration statement filed with the SEC that allows for the issuance of an indeterminate amount of debt and equity securities. 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. As of June 30, 2024, there were no outstanding borrowings under the

Previous wording

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. We anticipate extending the facility at the end of the one-year term. 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 $85.0 million as of March 31, 2024. As of March 31, 2024, we had $15.0 million in available capacity under the Facility.

Current wording

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. In July 2024 we renewed the Facility for a two-year term, added Regions Bank (“Regions”) to the Facility, and increased the maximum purchase commitment to $150.0 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 $75.0 million as of June 30, 2024. As of June 30, 2024, we had $25.0 million in available capacity under the Facility, prior to the July renewal.

Previous wording

Our cash and cash equivalents totaled $177.6 million at March 31, 2024, compared to $217.8 million at December 31, 2023. We anticipate that our cash and investments on hand, existing borrowing capacity under our credit 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.

Current wording

Our cash and cash equivalents totaled $207.4 million as of June 30, 2024, compared to $217.8 million as of December 31, 2023. We anticipate that our cash and investments on hand, existing borrowing capacity under our credit facilities, access to and capacity under a shelf registration statement, 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.

Previous wording

The construction industry is capital intensive, and we expect to continue to make capital expenditures to meet anticipated needs for our services. During the three months ended March 31, 2024, we spent approximately $10.4 million for capital expenditures, which included $4.9 million for construction equipment. Capital expenditures for the remaining nine months of 2024 are expected to total between $70.0 million and $90.0 million, which includes $15.0 million to $35.0 million for equipment.

Current wording

The construction industry is capital intensive, and we expect to continue to make capital expenditures to meet anticipated needs for our services. During the six months ended June 30, 2024, we spent approximately $34.6 million for capital expenditures, which included $14.5 million for construction equipment. Capital expenditures for the remaining six months of 2024 are expected to total between $45.0 million and $65.0 million, which includes $5.0 million to $25.0 million for equipment.

Previous wording

Cash flows during the three months ended March 31, 2024 and 2023 are summarized as follows (in thousands):

Current wording

Cash flows during the six months ended June 30, 2024 and 2023 are summarized as follows (in thousands):

Previous wording

The cash flows used in operating activities for the three months ended March 31, 2024 and 2023 were as follows (in thousands):

Current wording

The cash flows used in operating activities for the six months ended June 30, 2024 and 2023 were as follows (in thousands):

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 was $28.5 million compared to $115.3 million for the three months ended March 31, 2023. 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.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 was $12.4 million compared to $80.8 million for the six months ended June 30, 2023. 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.

Previous wording

The significant components of the $66.8 million change in assets and liabilities for the three months ended March 31, 2024 are summarized as follows:

Current wording

The significant components of the $113.8 million change in assets and liabilities for the six months ended June 30, 2024 are summarized as follows:

Previous wording

The significant components of the $141.9 million change in assets and liabilities for the three months ended March 31, 2023, are summarized as follows:

Current wording

The significant components of the $164.8 million change in assets and liabilities for the six months ended June 30, 2023, are summarized as follows:

Previous wording

For the three months ended March 31, 2024, cash provided by investing activities was $4.2 million compared to $6.5 million used in the three months ended March 31, 2023.

Current wording

For the six months ended June 30, 2024, cash provided by investing activities was $39.3 million compared to $9.6 million used in the six months ended June 30, 2023.

Previous wording

During the three months ended March 31, 2024, we purchased property and equipment for $10.4 million compared to $13.8 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.

Current wording

During the six months ended June 30, 2024, we purchased property and equipment for $34.6 million compared to $42.4 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.

Previous wording

We periodically sell assets, typically to update our fleet. We received proceeds from the sale of assets of $14.6 million during the three months ended March 31, 2024, compared to $7.4 million during the same period in the prior year.

Current wording

We periodically sell assets, typically to update our fleet. We received proceeds from the sale of assets of $73.9 million during the six months ended June 30, 2024, compared to $23.5 million during the same period in the prior year.

Previous wording

Financing activities used cash of $15.1 million for the three months ended March 31, 2024, which was primarily due to the following:

Current wording

Financing activities used cash of $39.1 million for the six months ended June 30, 2024, which was primarily due to the following:

Previous wording

Financing activities used cash of $36.6 million for the three months ended March 31, 2023, which was primarily due to the following:

Current wording

Financing activities used cash of $41.1 million for the six months ended June 30, 2023, which was primarily due to the following:

Previous wording

For a description of our credit agreements, see Note 7 — “Credit Arrangements” in Item 1, Financial Statements of this First Quarter 2024 Report.

Current wording

For a description of our credit agreements, see Note 7— “Credit Arrangements” in Item 1, Financial Statements of this Second Quarter 2024 Report.

Previous wording

For a discussion of items affecting our common stock, please see Note 11 — “Stockholders’ Equity” in Item 1, Financial Statements of this First Quarter 2024 Report.

Current wording

For a discussion of items affecting our common stock, please see Note 11 — “Stockholders’ Equity” in Item 1, Financial Statements of this Second Quarter 2024 Report.

Previous wording

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

Current wording

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.