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Table of Contents 

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, 2019

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: (214740-5600

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

The Nasdaq Stock Market LLC

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 4, 2019, 50,982,098 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

Table of Contents 

PRIMORIS SERVICES CORPORATION

INDEX

    

Page No.

Part I. Financial Information

Item 1. Financial Statements:

—Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018 (Unaudited)

3

—Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2019 and 2018 (Unaudited)

4

—Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018 (Unaudited)

5

—Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (Unaudited)

6

—Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (Unaudited)

8

—Notes to Condensed Consolidated Financial Statements (Unaudited)

10

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

31

Item 3. Quantitative and Qualitative Disclosures About Market Risk

45

Item 4. Controls and Procedures

46

Part II. Other Information

Item 1. Legal Proceedings

46

Item 1A. Risk Factors

46

Item 6. Exhibits

47

Signatures

48

2

Table of Contents 

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, 

    

2019

    

2018

 

ASSETS

Current assets:

Cash and cash equivalents

$

43,837

$

151,063

Accounts receivable, net

 

551,543

 

372,695

Contract assets

 

331,910

 

364,245

Prepaid expenses and other current assets

 

34,222

 

36,444

Total current assets

 

961,512

 

924,447

Property and equipment, net

 

379,739

 

375,884

Operating lease assets

228,100

Deferred tax assets

888

1,457

Intangible assets, net

 

72,581

 

81,198

Goodwill

 

215,103

 

206,159

Other long-term assets

 

11,046

 

5,002

Total assets

$

1,868,969

$

1,594,147

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

219,792

$

249,217

Contract liabilities

 

189,664

 

189,539

Accrued liabilities

 

219,472

 

117,527

Dividends payable

 

3,059

 

3,043

Current portion of long-term debt

 

60,104

 

62,488

Total current liabilities

 

692,091

 

621,814

Long-term debt, net of current portion

 

307,397

 

305,669

Noncurrent operating lease liabilities, net of current portion

162,418

Deferred tax liabilities

 

3,611

 

8,166

Other long-term liabilities

 

49,289

 

51,515

Total liabilities

 

1,214,806

 

987,164

Commitments and contingencies (See Note 17)

Stockholders’ equity

Common stock—$.0001 par value; 90,000,000 shares authorized; 50,982,098 and 51,715,518 issued and outstanding at September 30, 2019 and December 31, 2018

 

5

 

5

Additional paid-in capital

 

146,765

 

144,048

Retained earnings

 

507,269

 

461,075

Accumulated other comprehensive loss

(338)

(908)

Noncontrolling interest

 

462

 

2,763

Total stockholders’ equity

 

654,163

 

606,983

Total liabilities and stockholders’ equity

$

1,868,969

$

1,594,147

See Accompanying Notes to Condensed Consolidated Financial Statements

3

Table of Contents 

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, 

    

2019

    

2018

    

2019

    

2018

 

Revenue

$

865,064

$

908,902

$

2,316,551

$

2,061,808

Cost of revenue

 

756,643

 

802,397

 

2,075,139

 

1,839,324

Gross profit

 

108,421

 

106,505

 

241,412

 

222,484

Selling, general and administrative expenses

 

49,827

 

51,604

 

141,477

 

132,049

Merger and related costs

3,827

13,190

Operating income

 

58,594

 

51,074

 

99,935

 

77,245

Other income (expense):

Foreign exchange (loss) gain

 

(136)

 

(69)

 

(724)

 

1,444

Other income (expense), net

 

(2,928)

 

32

 

(3,121)

 

(751)

Interest income

 

42

 

932

 

610

 

1,544

Interest expense

 

(5,186)

 

(6,448)

 

(17,494)

 

(11,637)

Income before provision for income taxes

 

50,386

 

45,521

 

79,206

 

67,845

Provision for income taxes

 

(14,560)

 

(10,716)

 

(22,620)

 

(14,633)

Net income

35,826

34,805

56,586

53,212

Less net income attributable to noncontrolling interests

(178)

 

(2,114)

(1,204)

(8,118)

Net income attributable to Primoris

$

35,648

$

32,691

$

55,382

$

45,094

Dividends per common share

$

0.06

$

0.06

$

0.18

$

0.18

Earnings per share:

Basic

$

0.70

$

0.64

$

1.09

$

0.88

Diluted

$

0.70

$

0.63

$

1.08

$

0.87

Weighted average common shares outstanding:

Basic

 

50,976

 

51,403

 

50,887

 

51,471

Diluted

 

51,215

 

51,735

 

51,210

 

51,760

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2019

    

2018

    

2019

    

2018

 

Net income

$

35,826

$

34,805

$

56,586

$

53,212

Other comprehensive income, net of tax:

Foreign currency translation adjustments

(166)

 

200

570

577

Comprehensive income

35,660

35,005

57,156

53,789

Less net income attributable to noncontrolling interests

(178)

(2,114)

(1,204)

(8,118)

Comprehensive income attributable to Primoris

$

35,482

$

32,891

$

55,952

$

45,671

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)

Accumulated

Additional

Other

Non

Total

 

Common Stock

Paid-in

Retained

Comprehensive

Controlling

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Earnings

0

Loss

    

Interest

    

Equity

 

Balance, June 30, 2019

 

50,965,221

$

5

$

146,064

$

474,684

$

(172)

$

284

$

620,865

Net income

 

 

 

 

35,648

 

178

 

35,826

Foreign currency translation adjustments, net of tax

(166)

(166)

Issuance of shares to directors

 

16,877

 

 

337

 

 

 

337

Amortization of Restricted Stock Units

360

360

Dividend equivalent Units accrued - Restricted Stock Units

4

(4)

Dividends declared ($0.06 per share)

 

 

 

 

(3,059)

 

 

(3,059)

Balance, September 30, 2019

 

50,982,098

$

5

$

146,765

$

507,269

$

(338)

$

462

$

654,163

Accumulated

Additional

Other

Non

Total

 

Common Stock

Paid-in

Retained

Comprehensive

Controlling

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Earnings

0

Loss

    

Interest

    

Equity

 

Balance, December 31, 2018

 

50,715,518

$

5

$

144,048

$

461,075

$

(908)

$

2,763

$

606,983

Net income

 

 

 

 

55,382

 

1,204

 

56,586

Foreign currency translation adjustments, net of tax

570

570

Issuance of shares to employees and directors

144,261

2,998

2,998

Conversion of Restricted Stock Units, net of shares withheld for taxes

 

122,319

 

 

(1,519)

 

 

 

(1,519)

Amortization of Restricted Stock Units

1,218

1,218

Dividend equivalent Units accrued - Restricted Stock Units

20

(20)

Distribution of noncontrolling entities

(3,505)

(3,505)

Dividends declared ($0.18 per share)

 

 

 

 

(9,168)

 

 

(9,168)

Balance, September 30, 2019

 

50,982,098

$

5

$

146,765

$

507,269

$

(338)

$

462

$

654,163

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)

Accumulated

Additional

Other

Non

Total

 

Common Stock

Paid-in

Retained

Comprehensive

Controlling

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Earnings

0

Loss

    

Interest

0

Equity

 

Balance, June 30, 2018

 

51,530,572

$

5

$

162,928

$

402,158

$

377

$

11,719

$

577,187

Net income

 

 

 

 

32,691

 

 

2,114

 

34,805

Foreign currency translation adjustments, net of tax

200

200

Issuance of shares to directors

 

10,092

 

 

271

 

 

 

 

271

Amortization of Restricted Stock Units

318

318

Dividend equivalent Units accrued - Restricted Stock Units

13

(13)

Distribution of noncontrolling entities

(8,750)

(8,750)

Repurchase of stock

 

(335,705)

 

 

(8,479)

 

 

 

 

(8,479)

Dividends declared ($0.06 per share)

 

 

 

 

(3,072)

 

 

 

(3,072)

Balance, September 30, 2018

 

51,204,959

$

5

$

155,051

$

431,764

$

577

$

5,083

$

592,480

Accumulated

Additional

Other

Non

Total

 

Common Stock

Paid-in

Retained

Comprehensive

Controlling

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Earnings

0

Loss

    

Interest

0

Equity

 

Balance, December 31, 2017

 

51,448,753

$

5

$

160,502

$

395,961

$

$

5,715

$

562,183

Net income

 

 

 

 

45,094

 

 

8,118

 

53,212

Foreign currency translation adjustments, net of tax

577

577

Issuance of shares to employees and directors

 

91,911

 

 

2,245

 

 

 

 

2,245

Amortization of Restricted Stock Units

748

748

Dividend equivalent Units accrued - Restricted Stock Units

35

(35)

Distribution of noncontrolling entities

(8,750)

(8,750)

Repurchase of stock

 

(335,705)

 

 

(8,479)

 

 

 

 

(8,479)

Dividends declared ($0.18 per share)

 

 

 

 

(9,256)

 

 

 

(9,256)

Balance, September 30, 2018

 

51,204,959

$

5

$

155,051

$

431,764

$

577

$

5,083

$

592,480

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Nine Months Ended September 30, 

    

2019

    

2018

 

Cash flows from operating activities:

Net income

$

56,586

$

53,212

Adjustments to reconcile net income to net cash used in operating activities (net of effect of acquisitions):

Depreciation

 

55,936

 

47,708

Amortization of intangible assets

 

8,617

 

8,287

Stock-based compensation expense

 

1,218

 

748

Gain on sale of property and equipment

 

(7,017)

 

(3,212)

Other non-cash items

240

180

Changes in assets and liabilities:

Accounts receivable

 

(177,942)

 

(78,819)

Contract assets

 

32,274

 

(85,817)

Other current assets

 

1,219

 

11,061

Other long-term assets

167

(957)

Accounts payable

 

(29,757)

 

24,099

Contract liabilities

 

(3,915)

 

(11,061)

Operating lease assets and liabilities, net

 

(1,489)

 

Accrued liabilities

 

17,662

 

16,400

Other long-term liabilities

 

6,085

 

5,298

Net cash used in operating activities

 

(40,116)

 

(12,873)

Cash flows from investing activities:

Purchase of property and equipment

 

(78,255)

 

(80,766)

Issuance of a note receivable

 

 

(15,000)

Proceeds from a note receivable

15,000

Proceeds from sale of property and equipment

 

24,393

 

9,655

Cash paid for acquisitions, net of cash and restricted cash acquired

 

 

(111,030)

Net cash used in investing activities

 

(53,862)

 

(182,141)

Cash flows from financing activities:

Borrowings under revolving line of credit

212,880

170,000

Payments on revolving line of credit

 

(212,880)

 

(170,000)

Proceeds from issuance of long-term debt

 

55,008

 

239,467

Repayment of long-term debt

 

(55,824)

 

(127,291)

Proceeds from issuance of common stock purchased under a long-term incentive plan

 

1,804

 

1,498

Payment of taxes on conversion of Restricted Stock Units

 

(1,519)

 

Payment of contingent earnout liability

(1,200)

Cash distribution to noncontrolling interest holders

 

(3,505)

 

(8,750)

Repurchase of common stock

 

 

(8,479)

Dividends paid

 

(9,152)

 

(9,271)

Other

(328)

 

(1,113)

Net cash (used in) provided by financing activities

 

(13,516)

 

84,861

Effect of exchange rate changes on cash and cash equivalents

268

(193)

Net change in cash and cash equivalents

 

(107,226)

 

(110,346)

Cash and cash equivalents at beginning of the period

 

151,063

 

170,385

Cash and cash equivalents at end of the period

$

43,837

$

60,039

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands)

(Unaudited)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Nine Months Ended September 30, 

 

    

2019

    

2018

 

(Unaudited)

Cash paid for interest

$

12,400

$

11,658

Cash (received) paid for income taxes, net

$

(1,421)

$

5,379

Leased assets obtained in exchange for new operating leases

$

118,755

$

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

Nine Months Ended September 30, 

 

    

2019

    

2018

 

(Unaudited)

Dividends declared and not yet paid

$

3,059

$

3,072

See Accompanying Notes to Condensed Consolidated Financial Statements

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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 a holding company of various construction and product engineering subsidiaries. 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 — We segregate our business into five reportable segments: the Power, Industrial and Engineering (“Power”) segment, the Pipeline and Underground (“Pipeline”) segment, the Utilities and Distribution (“Utilities”) segment, the Transmission and Distribution (“Transmission”) segment, and the Civil segment. See Note 18 – “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.

Acquisition of Willbros Group, Inc. — On June 1, 2018, we completed our acquisition of Willbros Group, Inc. (“Willbros”) for approximately $110.6 million, net of cash and restricted cash acquired. Willbros was a specialty energy infrastructure contractor serving the oil and gas and power industries through its utility transmission and distribution, oil and gas, and Canadian operations, which principally provides unit-price maintenance services in existing operating facilities and executes industrial and power projects. The utility transmission and distribution operations formed the Transmission segment, the oil and gas operations are included in the Pipeline segment, and the Canadian operations are included in the Power segment. See Note 5— “Business Combinations”.

Joint Ventures — We own a 50% interest in the Carlsbad Power Constructors joint venture (“Carlsbad”), which engineered and constructed a gas-fired power generation facility located in Southern California, and its operations are included as part of the Power segment. As a result of determining that we are the primary beneficiary of the variable interest entity (“VIE”), the results of the Carlsbad joint venture are consolidated in our financial statements. The project was substantially complete as of December 31, 2018, and the warranty period expires in December 2020.

We owned a 50% interest in the “ARB Inc. & B&M Engineering Co.” joint venture (“Wilmington”), which engineered and constructed a gas-fired power generation facility in Southern California, and its operations were included as part of the Power segment. As a result of determining that we were the primary beneficiary of the VIE, the results of the Wilmington joint venture were consolidated in our financial statements. The project has been completed, the project warranty period expired, and dissolution of the joint venture was completed in the first quarter of 2019.

Financial information for the joint ventures is presented in Note 11 – “Noncontrolling Interests”.

Note 2—Basis of Presentation

Interim condensed consolidated financial statements The interim condensed consolidated financial statements for the three and nine month periods ended September 30, 2019 and 2018 have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, certain disclosures, which would substantially duplicate the disclosures contained in our Annual Report on Form 10-K, filed on February 28, 2019, which contains our audited consolidated financial statements for the year ended December 31, 2018, have been omitted.

This Third Quarter 2019 Report on 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. 

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Customer concentration — We operate in multiple industry segments 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 50% of total revenue; however, the group that comprises the top ten customers varies from year to year.

During the three and nine months ended September 30, 2019, revenue generated by the top ten customers was approximately $415.7 million and $1,112.1 million, respectively, which represented 48.0% and 48.0%, respectively of total revenue during the period. During the three and nine months ended September 30, 2019, a Midwest utility customer represented 9.0% and 7.6% of total revenue, respectively, and a Texas utility customer represented 5.6% and 7.3% of total revenue, respectively.

During the three and nine months ended September 30, 2018, revenue generated by the top ten customers was approximately $483.0 million and $1,045.9 million, respectively, which represented 53.1% and 50.7%, respectively, of total revenue during the period. During the three and nine months ended September 30, 2018, a California utility customer represented 8.2% and 8.6% of total revenue, respectively, and a Midwest utility customer represented 7.9% and 8.4% of total revenue, respectively.

At September 30, 2019, approximately 12.2% of our accounts receivable was due from a state department of transportation customer, and that customer provided 5.5% of our revenue for the nine months ended September 30, 2019.

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