Primoris Services Corp

Previous 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.

Current wording

This Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 (“Third 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 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.*

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

Previous wording

We generate our revenue from construction and engineering projects, as well as from providing a variety of infrastructure services. We depend in part on spending by companies in the communications, gas and electric utilities, energy, chemical, and pipeline industries, as well as state departments of transportation. 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 pipeline 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.

Current wording

We generate our revenue from construction and engineering projects, as well as from providing a variety of infrastructure services. We depend in part on spending by companies in the communications, gas and electric utilities, energy, chemical, and pipeline industries, as well as state departments of transportation. 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, and upgraded and expanded local highway and bridge needs. However, periodically, each of these industries and government agencies is adversely affected by macroeconomic conditions and other challenging market conditions, such as those that have caused declines in the pipeline industry. Economic and other factors outside of our control may affect the amount and size of contracts we are awarded in any particular period.

Previous wording

Fluctuations in the market prices of oil, gas and other fuel sources have affected demand for our services. 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 pipeline services, 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.

Current wording

Fluctuations in the market prices of oil, gas and other fuel sources have affected demand for our services. Volatility in the prices of oil, gas, and liquid natural gas that has occurred in the past few years has created uncertainty with respect to demand for our pipeline services, 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.

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 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.

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 September 30, 2024, $300.0 million of our variable rate debt outstanding was economically hedged. Based on our variable rate debt outstanding as of September 30, 2024, a 1.0% increase or decrease in interest rates would change annual interest expense by approximately $5.4 million.

Previous 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.

Current wording

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

Previous 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.

Current wording

Revenue was $4,625.5 million for the nine months ended September 30, 2024, an increase of $425.7 million, or 10.1%, 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 $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.

Current wording

Gross profit was $198.6 million for the three months ended September 30, 2024, an increase of $24.7 million, or 14.2%, compared to the same period in 2023. The increase was primarily due to an increase in revenue in both segments and improved margins in our Utilities segment. Gross profit as a percentage of revenue increased to 12.0% for the three months ended September 30, 2024, compared to 11.4% for the same period in 2023 primarily driven by an increase in margins in our Utilities segment.

Previous wording

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 10.8% for the six months ended June 30, 2024, compared to 9.6% for the same period in 2023, primarily driven by improved margins in both segments.

Current wording

Gross profit was $518.6 million for the nine months ended September 30, 2024, an increase of $87.8 million, or 20.4%, compared to the same period in 2023. The increase was primarily due to higher revenue in our Energy segment and improved margins in both segments. Gross profit as a percentage of revenue increased to 11.2% for the nine months ended September 30, 2024, compared to 10.3% for the same period in 2023, primarily driven by improved margins in both segments.

Previous 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.

Current wording

Selling, general and administrative (“SG&A”) expenses were $98.1 million during the three months ended September 30, 2024, an increase of $13.7 million, or 16.2%, 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 5.9% compared to 5.5% for the corresponding period in 2023.

Previous wording

SG&A expenses were $188.7 million during the six months ended June 30, 2024, an increase of $25.1 million, or 15.4%, 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 slightly to 6.3% compared to 6.1% for the corresponding period in 2023.

Current wording

SG&A expenses were $286.8 million during the nine months ended September 30, 2024, an increase of $38.8 million, or 15.7%, 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 slightly to 6.2% compared to 5.9% for the corresponding period in 2023.

Previous wording

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

Current wording

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

Previous 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.

Current wording

Interest expense, net for the three months ended September 30, 2024, decreased $3.2 million compared to the same period in 2023 primarily due to lower average debt balances, partially offset by a $1.4 million unrealized loss on our interest rate swap in 2024 compared to a $0.3 million unrealized gain in 2023.

Previous wording

Interest expense, net for the six months ended June 30, 2024, decreased $0.2 million compared to the same period in 2023 primarily due to lower average debt balances mostly offset by a $0.2 million unrealized gain on our interest rate swap in 2024 compared to a $2.7 million unrealized gain in 2023.

Current wording

Interest expense, net for the nine months ended September 30, 2024, decreased $3.5 million compared to the same period in 2023 primarily due to lower average debt balances, partially offset by a $1.2 million unrealized loss on our interest rate swap in 2024 compared to a $3.0 million unrealized gain in 2023.

Previous 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.

Current wording

The effective tax rate for the nine-month periods ended September 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 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.

Current wording

We recorded income tax expense for the nine months ended September 30, 2024, of $51.8 million compared to income tax expense of $36.1 million for the nine months ended September 30, 2023. The $15.7 million increase in income tax expense is driven by a $54.1 million increase in pretax income.

Previous 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.

Current wording

Revenue increased by $15.6 million, or 2.4%, for the three months ended September 30, 2024, compared to the same period in 2023, primarily due to increased project work in our power delivery market as well as increased activity in our communications and gas operations markets. These impacts were partially offset by completion of a major substation project in our power delivery market in the second half of 2023.

Previous wording

Gross profit for the six months ended June 30, 2024, increased by $69.6 million, or 44.4%, compared to the same period in 2023, due to higher revenue and margins. Gross profit as a percentage of revenue increased to 11.8% during the six months ended June 30, 2024, compared to 10.4% 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.

Current wording

Gross profit for the three months ended September 30, 2024, increased by $2.3 million, or 2.1%, compared to the same period in 2023, due to higher revenue, partially offset by lower margins. Gross profit as a percentage of revenue decreased to 11.0% during the three months ended September 30, 2024, compared to 12.3% in the same period in 2023. This was primarily due to higher pipeline margins on a mid-Atlantic project in 2023 that did not repeat in 2024, partially offset by strong performance on multiple industrial projects in 2024.

Previous wording

Revenue and gross profit by segment for the six months ended June 30, 2024, and 2023 were as follows:

Current wording

Revenue and gross profit by segment for the nine months ended September 30, 2024, and 2023 were as follows:

Previous wording

Revenue decreased by $28.4 million, or 4.4%, for the three 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. These impacts are partially offset by increased renewable energy substation projects in our power delivery market and increased activity in our communications market.

Current wording

Revenue decreased by $58.7 million, or 3.2%, for the nine months ended September 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 offsetting the overall decline was increased project work in our power delivery market and increased activity in our communications market.

Previous 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.

Current wording

Revenue increased by $537.8 million, or 22.5%, for the nine months ended September 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 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.

Current wording

Gross profit for the nine months ended September 30, 2024, increased by $74.3 million, or 27.9%, compared to the same period in 2023, due to higher revenue and margins. Gross profit as a percentage of revenue increased to 11.6% during the nine months ended September 30, 2024, compared to 11.1% 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. These amounts were partially offset by higher pipeline margins on a mid-Atlantic project in 2023 that did not repeat in 2024.

Previous 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.

Current wording

The majority of our revenue is derived from customers in the United States with approximately 4.9% generated from sources outside of the United States during the nine months ended September 30, 2024, principally in Canada.

Previous wording

Fixed and MSA Backlog by reporting segment for the periods ending June 30, 2024, and December 31, 2023, were as follows (in millions):

Current wording

Fixed and MSA Backlog by reporting segment at September 30, 2024, and December 31, 2023, were as follows (in millions):

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, 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

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 September 30, 2024, there were no outstanding borrowings under the Revolving Credit Facility, commercial letters of credit outstanding were $52.8 million, and available borrowing capacity was $272.2 million. In addition there were no outstanding borrowings under our Canadian credit facilities as of

Previous wording

Revolving Credit Facility, commercial letters of credit outstanding were $51.6 million, and available borrowing capacity was $273.4 million.

Current wording

September 30, 2024, commercial letters of credit outstanding were $1.0 million in Canadian dollars and available borrowing capacity was $13.0 million in Canadian dollars.

Previous 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.

Current wording

In June 2023, we entered into an Accounts Receivable Securitization Facility (“the Facility”) with PNC Bank, National Association to improve cash flows from trade accounts receivable. In July 2024 we renewed the Facility for a two-year term, added Regions Bank 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 September 30, 2024. As of September 30, 2024, we had $75.0 million in available capacity under the Facility.

Previous 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.

Current wording

Our cash and cash equivalents totaled $352.7 million as of September 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 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.

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 nine months ended September 30, 2024, we spent approximately $98.3 million for capital expenditures, which included $60.9 million on our facilities and $34.2 million for construction equipment. Capital expenditures for the remaining three months of 2024 are expected to total between $10.0 million and $20.0 million, which includes $5.0 million to $15.0 million for equipment.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

The cash flows provided by (used in) operating activities for the nine months ended September 30, 2024 and 2023 were as follows (in thousands):

Previous 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.

Current wording

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

Current wording

The significant components of the $33.8 million change in assets and liabilities for the nine months ended September 30, 2024 are summarized as follows:

Previous 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:

Current wording

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:

Previous 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.

Current wording

For the nine months ended September 30, 2024, cash used in investing activities was $0.9 million compared to $25.6 million used in the nine months ended September 30, 2023.

Previous 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.

Current wording

During the nine months ended September 30, 2024, we purchased property and equipment for $98.3 million compared to $82.5 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 $73.9 million during the six months ended June 30, 2024, compared to $23.5 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 $97.4 million during the nine months ended September 30, 2024, compared to $47.6 million during the same period in the prior year.

Previous wording

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

Current wording

Financing activities used cash of $74.0 million for the nine months ended September 30, 2024, compared to $60.0 million for the nine months ended September 30, 2023, which was primarily due to the following: