Primoris Services Corp - Annual Report: 2023 (Form 10-K)

PRIMORIS SERVICES CORPORATION

INDEX TO FINANCIAL STATEMENTS


	Page
Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Dallas, TX, PCAOB ID:)	F-2
Consolidated Balance Sheets as of December 31, 2023 and 2022	F-5
Consolidated Statements of Income for the Years Ended December 31, 2023, 2022 and 2021	F-6
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023, 2022 and 2021	F-7
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023, 2022 and 2021	F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021	F-9
Notes to Consolidated Financial Statements	F-11

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Primoris Services Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Primoris Services Corporation (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are

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recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Estimated contract costs and variable consideration estimates: As described in Note 5 to the consolidated financial statements, for the year ended December 31, 2023, the Company’s consolidated revenue was $5,715 million, of which, $3,900 million was derived from contracts where scope was adequately defined, and was recognized over time as work is completed because of the continuous transfer of control to the customer. Under this method, the costs incurred to date as a percentage of total estimated costs at completion are used to calculate revenue. Total estimated costs at completion, and thus revenue and margin, are impacted by many factors, which can cause significant changes in estimates during the life cycle of a project. Changes in these estimates could have a significant impact on the amount of revenue and profit recognized. Additionally, the nature of the Company’s contracts give rise to several types of variable consideration. The Company’s estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on their assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available.

Based on the significant judgment required by management and high degree of subjectivity involved in the determination of both total estimated costs at completion and variable consideration, which in turn led to a high degree of auditor judgment, effort and subjectivity in performing procedures and evaluating audit evidence, we have identified auditing these estimates as a critical audit matter.

The primary procedures we performed to address this critical audit matter included:

•

Tested the design and operating effectiveness of internal controls over the contract management cycle, including those related to the accumulation of the estimated costs to complete a contract and the estimation of variable consideration.

•

Tested a selection of contracts where scope was adequately defined, including evaluating the reasonableness of the significant assumptions and judgments underlying the accounting for these selected contracts as follows:

o

Inquired with and inspected questionnaires prepared by project personnel to understand the status of the contract, changes from prior periods, key assumptions underlying the revenue and costs, and the existence of any claims or litigation and corroborating such information.

o

Assessed the reasonableness of estimated costs to complete by analyzing historical contract performance relative to overall contractual commitments and estimated gross margin at year end. We assessed management’s assumptions on future contract costs by comparing them with executed change

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orders, estimate documentation, correspondence with the customer, and job cost details with supporting third-party evidence.

o

Tested management’s estimation process by performing lookback analyses at the contract level to evaluate estimated costs and variable consideration settled in the current year compared to management’s prior year estimates.

o

Evaluated the appropriateness of the Company’s inclusion or exclusion of variable consideration from the work-in-process schedule in the selection of contracts.

/s/ Moss Adams LLP

February 26, 2024

We have served as the Company’s auditor since 2006.

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PRIMORIS SERVICES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)


		December 31,		December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$		$
Accounts receivable, net
Contract assets
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease assets
Intangible assets, net
Goodwill
Other long-term assets
Total assets	$		$
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$		$
Contract liabilities
Accrued liabilities
Dividends payable
Current portion of long-term debt
Total current liabilities
Long-term debt, net of current portion
Noncurrent operating lease liabilities, net of current portion
Deferred tax liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (See Note 12)
Stockholders’ equity
Common stock—$ par value; shares authorized; and issued and outstanding at December 31, 2023 and December 31, 2022, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income		()		()
Total stockholders’ equity
Total liabilities and stockholders’ equity	$		$

See accompanying notes.

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PRIMORIS SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)



	Year Ended December 31,
	2023		2022		2021
Revenue	$		$		$
Cost of revenue
Gross profit
Selling, general and administrative expenses
Transaction and related costs
Gain on sale and leaseback transaction		—		()		—
Operating income
Other income (expense):
Foreign exchange gain (loss), net						()
Other income, net
Interest expense, net		()		()		()
Income before provision for income taxes
Provision for income taxes		()		()		()
Net income

Dividends per common share	$		$		$

Earnings per share:
Basic	$		$		$
Diluted	$		$		$

Weighted average common shares outstanding:
Basic
Diluted

See accompanying notes.

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PRIMORIS SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)



	Year Ended December 31,
	2023	2022		2021
Net income	$	$		$
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			()		()
Comprehensive income	$	$		$

See accompanying notes.

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PRIMORIS SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share Amounts)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

Shares

Amount

Capital

Earnings

Income (Loss)

Equity

Balance, December 31, 2020

$

Net income

—

Foreign currency translation adjustments, net of tax

—

()

Issuance of shares, net of issuance costs

—

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

—

()

—

()

Stock-based compensation

—

Dividend equivalent Units accrued - Restricted Stock Units

—

()

—

Purchase of stock

()

—

()

—

()

Distribution of noncontrolling entities

—

()

—

()

Dividends declared ($ per share)

—

()

—

()

Balance, December 31, 2021

$

Net income

—

Foreign currency translation adjustments, net of tax

—

()

Issuance of shares

—

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

—

()

—

()

Stock-based compensation

—

Purchase of stock

()

—

()

—

()

Dividends declared ($ per share)

—

()

—

()

Balance, December 31, 2022

$

()

$

Net income

—

Foreign currency translation adjustments, net of tax

—

Issuance of shares

—

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

—

()

—

()

Stock-based compensation

—

Dividends declared ($ per share)

—

()

—

()

Balance, December 31, 2023

$

()

$

See accompanying notes.

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PRIMORIS SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


	Year Ended
	December 31,
	2023		2022		2021
Cash flows from operating activities:
Net income	$		$		$
Adjustments to reconcile net income to net cash provided by operating activities (net of effect of acquisitions):
Depreciation and amortization
Stock-based compensation expense
Gain on sale of property and equipment		()		()		()
Gain on sale and leaseback transaction		—		()		—
Unrealized gain on interest rate swap		()		()		()
Other non-cash items
Changes in assets and liabilities:
Accounts receivable		()		()
Contract assets		()		()		()
Other current assets				()		()
Net deferred tax liabilities
Other long-term assets						()
Accounts payable
Contract liabilities				()		()
Operating lease assets and liabilities, net		()		()		()
Accrued liabilities		()				()
Other long-term liabilities						()
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment		()		()		()
Proceeds from sale of assets
Proceeds from sale and leaseback transaction, net of related expenses		—				—
Cash paid for acquisitions, net of cash and restricted cash acquired				()		()
Net cash used in investing activities		()		()		()
Cash flows from financing activities:
Borrowings under revolving lines of credit
Payments on revolving lines of credit		()		()		()
Proceeds from issuance of long-term debt
Payments on long-term debt		()		()		()
Proceeds from issuance of common stock
Debt issuance costs		—		()		()
Dividends paid		()		()		()
Purchase of common stock		—		()		()
Other		()		()		()
Net cash (used in) provided by financing activities		()
Effect of exchange rate changes on cash, cash equivalents and restricted cash				()
Net change in cash, cash equivalents and restricted cash		()				()
Cash, cash equivalents and restricted cash at beginning of the year
Cash, cash equivalents and restricted cash at end of the year	$		$		$

See accompanying notes

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PRIMORIS SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION


	Year Ended December 31,
	2023	2022	2021
Cash paid for interest	$	$	$
Cash paid for income taxes, net of refunds received
Leased assets obtained in exchange for new operating leases

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES


	Year Ended December 31,
	2023	2022	2021
Dividends declared and not yet paid	$	$	$

See accompanying notes.

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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 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, which is made up of our former Energy/Renewables and Pipeline segments. See Note 13 – “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.

Seasonality — 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 infrastructure 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.

Variability — 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 $ million. We also perform large 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 financial condition or operating results for any other quarter or for an entire year.

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$

Restricted cash included in prepaid expenses and other current assets

Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows

$

term, and the maximum purchase commitment by PNC is $ million, at any one time. Fees associated with the Facility for the year ended December 31, 2023 were $ million and are included in interest expense in the Consolidated Statement of Income.

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 $ million as of December 31, 2023. The SPE owned $ million of trade accounts receivable as of December 31, 2023, which are included in Accounts receivable, net on the Consolidated Balance Sheet. For the year ended December 31, 2023, we received $ million in cash proceeds from the Facility, which are included in cash from operating activities in the Consolidated Statement of Cash Flows. As of December 31, 2023, we had $ million available capacity under the Facility.

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. We have claims receivable and retention due from various customers and others that are currently in dispute, the realization of which is subject to binding arbitration, final negotiation or litigation, all of which may extend beyond one calendar year.

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million and $ million, respectively. Our cash balances are held in high credit quality financial institutions in order to mitigate the risk of holding funds not backed by the federal government or in excess of federally backed limits.

% of our hourly employees, primarily consisting of field laborers, were covered by collective bargaining agreements in 2023. Upon renegotiation of such agreements, we could be exposed to increases in hourly costs and work stoppages.

million per claim. We maintained a self-insurance reserve totaling $ million and $ million at December 31, 2023 and 2022,

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million and $ million, respectively.

million, or $ per share (basic and diluted) for the year ended December 31, 2023.

customers in any calendar year account for approximately % to % of total revenue; however, the group that comprises the top customers varies from year to year. For the years ended December 31, 2023, 2022 and 2021, approximately %, % and %, respectively, of total revenue was generated from our top customers in each year. In each of the years, a different group of customers comprised the top customers by revenue, and no one customer accounted for more than 10% of total revenue.

. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in operating income.

We assess the recoverability of property and equipment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. We perform an analysis to determine if an impairment exists. The amount of property and equipment impairment, if any, is measured based on fair value and is charged to operations in the period in which the impairment is determined by management. For the years ended December 31, 2023, 2022 and 2021, our management has not identified any material impairment of its property and equipment.

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were increased to a range of three to . The effect of this change in estimate reduced depreciation expense by $ million, increased net income by $ million, and increased basic and diluted earnings per share by $ for the year ended December 31, 2022.

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$

—

$

—

Interest rate swap

—

Liabilities as of December 31, 2023:

Contingent consideration

—

Assets as of December 31, 2022:

Cash and cash equivalents

—

Interest rate swap

—

Liabilities as of December 31, 2022:

Contingent consideration

$

—

$

—

$

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 a comparison with current prevailing market rates for loans of similar risks and maturities.

The interest rate swap is 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 10 – “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 Statement 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 contingent consideration liability, whereas a change in assumption of the estimated discount rate is accompanied by a directionally opposite change in the fair value of contingent consideration liability.

Upon meeting the target, we reflect the full liability on the balance sheet and record an adjustment to “Other income (expense), net” for the change in the fair value of the liability from the prior period.

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million, contingent upon meeting certain performance targets over the periods ending March 1, 2023 and March 1, 2024, respectively. The estimated fair value of the contingent consideration on the acquisition date was $ 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 in 2023 related to the ASP performance target contemplated in their purchase agreement and decreased the liability by $ million with a corresponding increase in non-operating income.

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 $ million of project adjustments increasing the fair value of contract liabilities acquired, a $ million change in deferred taxes, a $ million reduction in the fair value of acquired intangibles, a $ million decrease in the purchase consideration for a working capital true-up, and a $ million reduction in the fair value of fixed assets acquired. As a result of this and other adjustments to the initial estimated fair values of the assets acquired and liabilities assumed, goodwill increased by approximately $ 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.

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Less cash and restricted cash acquired

()

Net cash paid

$

Accounts receivable

Contract assets

Prepaid expenses and other current assets

Property, plant and equipment

Operating lease assets

Deferred tax asset

Intangible assets:

Customer relationships

Tradename

Other long-term assets

Accounts payable and accrued liabilities

()

Contract liabilities

()

Long-term debt (including current portion)

()

Noncurrent operating lease liabilities, net of current

()

Other long-term liabilities

()

Total identifiable net assets

Goodwill

Total purchase consideration

$

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 $ million and Tradenames of $ million. The Customer relationships and Tradenames are being amortized over a weighted average useful life of and years, respectively. For the period from August 1, 2022, the acquisition date, to December 31, 2022, PLH contributed revenue of $ million and gross profit of $ million. It is impractical to segregate and identify revenue and gross profit for PLH in 2023 as we have integrated PLH into our existing operations.

Acquisition costs related to PLH were $ million for the year ended December 31, 2022, and are included in “Transaction and related costs” on the Condensed Consolidated Statements of Income. Such costs primarily consisted of professional fees paid to advisors.

Acquisition of B Comm, LLC

On June 8, 2022 we acquired B Comm, LLC (“B Comm”) in an all-cash transaction of approximately $ 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 $ million of fixed assets, $ million of working capital, $ million of intangible assets and $ 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

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million. In addition, the sellers could receive a contingent earnout payment of up to $ million based on achievement of certain operating targets over the periods ending March 1, 2023 and March 1, 2024, respectively. The estimated fair value of the contingent consideration on the acquisition date was $ million.

During the first quarter of 2023, we finalized the estimate of fair values of the assets acquired and liabilities assumed of ASP. The preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date consisted of $ million of fixed assets and working capital, and $ 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 % per year.

Acquisition of Future Infrastructure Holdings, LLC.

On January 15, 2021, we acquired Future Infrastructure Holdings, LLC (“FIH”) for approximately $ million, net of cash acquired. FIH is a provider of non-discretionary maintenance, repair, upgrade, and installation services to the communications, regulated gas utility, and infrastructure markets. FIH furthers our strategic plan to expand our service lines, enter new markets, and grow our MSA revenue base. The transaction directly aligns with our strategy to grow in large, higher growth, higher margin markets, and expands our utility services capabilities.

During the fourth quarter of 2021, we finalized the estimate of fair values of the assets acquired and liabilities assumed of FIH. The tables below represent the purchase consideration and estimated fair values of the assets acquired and liabilities assumed. Significant changes since our initial estimates reported in the first quarter of 2021 primarily relate to a $ million reduction in the purchase consideration for the final working capital true-up and a $ million increase in the final valuation of intangible assets. As a result of these and other adjustments to the initial estimated fair values of the assets acquired and liabilities assumed, goodwill decreased by approximately $ million since the first quarter of 2021. 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.

Less cash and restricted cash acquired

()

Net cash paid

$

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Accounts receivable

Contract assets

Prepaid expenses and other current assets

Property, plant and equipment

Operating lease assets

Intangible assets:

Customer relationships

Tradename

Other long-term assets

Accounts payable and accrued liabilities

()

Contract liabilities

()

Long-term debt (including current portion)

()

Noncurrent operating lease liabilities, net of current

()

Other long-term liabilities

()

Total identifiable net assets

Goodwill

Total purchase consideration

$

We incorporated the operations of FIH into our Utilities segment. Goodwill associated with the FIH acquisition principally consists of expected benefits from the expansion of our services into the communications 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 expected to be deductible for income tax purposes over a 15-year period.

The intangible assets acquired with the FIH acquisition consisted of Customer relationships of $ million and Tradenames of $ million. The Customer relationships and Tradenames are being amortized over a weighted average useful life of and , respectively.

For the period from January 15, 2021, the acquisition date, to December 31, 2021, FIH contributed revenue of $ million and gross profit of $ million.

Acquisition related costs were $ million for the year ended December 31, 2021, and are included in “Transaction and related costs” on the Consolidated Statements of Income. Such costs primarily consisted of professional fees paid to advisors and the expense associated with the purchase of Primoris common stock by certain employees of FIH at a percent discount.

Supplemental Unaudited Pro Forma Information for the twelve months ended December 31, 2022 and 2021

The following pro forma information for the twelve months ended December 31, 2022 and 2021 presents our results of operations as if the acquisition of PLH had occurred at the beginning of 2021 and FIH had occurred at the beginning of 2020. 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 primarily consisting of advisor fees and transaction bonuses payments to select PLH employees directly attributable to the acquisition; and

●

the pro forma tax effect of both income before income taxes, and the pro forma adjustments, calculated using an effective tax rate of % and % for the twelve months ended December 31, 2022 and 2021, respectively.

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$

Income before provision for income taxes

Net income

Weighted average common shares outstanding:

Basic

Diluted

Earnings per share:

Basic

$

Diluted

billion, $ billion, and $ billion, respectively 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.

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 December 31, 2023, we had $ billion of remaining performance obligations. We expect to recognize approximately % of our remaining performance obligations as revenue during the next 12 months and substantially all of the remaining balance in the to 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

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million and $ 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 previously recognized profit, in the period it is identified and recognized as an “accrued loss provision” which is included in “Contract liabilities” on the 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 December 31, 2023, we had approximately $ 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 $ million of the unapproved contract modifications had been recognized as revenue on a cumulative catch-up basis through December 31, 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.

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$

Retention receivable

Contract materials (not yet installed)

$

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

The caption “Contract liabilities” in the Consolidated Balance Sheets represents the following:

●

deferred revenue on billings in excess of contract revenue recognized to date, and

●

the accrued loss provision.

$

Accrued loss provision

$

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

Revenue recognized for the years ended December 31, 2023 and 2022, that was included in the contract liability balance at the beginning of each year was approximately $ million and $ million, respectively.

The following tables present our revenue disaggregated into various categories.

$

Energy

Total

$


	For the year ended December 31, 2022
Segment	MSA	Non-MSA	Total
Utilities	$	$	$
Energy
Total	$	$	$

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$

Energy

Total

$

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

For the year ended December 31, 2023

Segment

Fixed-price

Unit-price

Cost reimbursable (1)

Total

Utilities

$

Energy

Total

$

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

For the year ended December 31, 2022

Segment

Fixed-price

Unit-price

Cost reimbursable (1)

Total

Utilities

$

Energy

Total

$

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

For the year ended December 31, 2021

Segment

Fixed-price

Unit-price

Cost reimbursable (1)

Total

Utilities

$

Energy

Total

$

(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.

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$

Buildings

Leasehold improvements

Various*

Office equipment

-

Construction equipment

-

Solar equipment

Construction in progress

Less: accumulated depreciation and amortization

()

Property and equipment, net

$

* Leasehold improvements are depreciated over the shorter of the life of the leasehold improvement or the lease term.

Depreciation expense was $ million, $ million and $ million for the years ended December 31, 2023, 2022 and 2021, respectively.

Goodwill acquired during the period

Balance at December 31, 2022

Goodwill adjustments during the period

()

Balance at December 31, 2023

$

There were impairments of goodwill for the years ended December 31, 2023, 2022 and 2021.

()

$

()

$

Customer relationships

()

Total

$

()

$

()

$

Amortization expense of intangible assets was $ million, $ million and $ million for the years ended December 31, 2023, 2022 and 2021, respectively.

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2025

2026

2027

2028

Thereafter

$

million and $ million, respectively. These amounts owed to subcontractors have been retained pending contract completion and customer acceptance of jobs.

$

Current operating lease liability

Casualty insurance reserves

Corporate income taxes and other taxes

Other

$

Revolving credit facility

—

Commercial equipment notes

Mortgage notes

Total debt

Unamortized debt issuance costs

()

Total debt, net

$

Less: current portion

()

Long-term debt, net of current portion

$

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

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2025

2026

2027

2028

Thereafter

$

Commercial Notes Payable and Mortgage Notes Payable

From time to time, we enter into commercial equipment notes payable with various equipment finance companies and banks. At December 31, 2023, interest rates ranged from % to % per annum and maturity dates range from April 2024 through February 2027. The notes are secured by certain construction equipment.

From time to time, we enter into secured mortgage notes payable with various banks. At December 31, 2023, interest rates ranged from % to % per annum and maturity dates range from January 2025 through October 2030. These notes are secured by certain real estate.

Credit Agreement

On September 29, 2017, we entered into an amended and restated credit agreement, as amended July 9, 2018 and August 3, 2018 (the “Credit Agreement”) with CIBC Bank USA, as administrative agent (the “Administrative Agent”) and co-lead arranger, and the financial parties thereto (collectively, the “Lenders”). The Credit Agreement consisted of a $ million term loan (the “Term Loan”) and a $ million revolving credit facility (“Revolving Credit Facility”), whereby the Lenders agreed to make loans on a revolving basis from time to time and to issue letters of credit for up to the $ million committed amount. The Credit Agreement contained an accordion feature that would allow us to increase the Term Loan or the borrowing capacity under the Revolving Credit Facility by up to $ million.

On January 15, 2021, we entered into the Second Amended and Restated Credit Agreement with the Administrative Agent and the Lenders, amending and restating our Credit Agreement to increase the Term Loan by $ million to an aggregate principal amount of $ million and to extend the maturity date of the Credit Agreement from July 9, 2023 to January 15, 2026. The proceeds from the additional borrowings under the Second Amended and Restated Credit Agreement were used to finance the acquisition of FIH.

On August 1, 2022, we entered into the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with Administrative Agent and the Lenders that increased the Term Loan by $ million to an aggregate principal amount of $ million (as amended, the “New Term Loan”). The Amended Credit Agreement is scheduled to mature on August 1, 2027.

In addition to the New Term Loan, the Amended Credit Agreement increased the existing $ million Revolving Credit Facility, whereby the Lenders agreed to make loans on a revolving basis from time to time and to issue letters of credit, to $ million. At December 31, 2023, commercial letters of credit outstanding were $ million. There were outstanding borrowings under the Revolving Credit Facility, and available borrowing capacity was $ million at December 31, 2023.

Under the Amended Credit Agreement, we must make quarterly principal payments on the New Term Loan in an amount equal to approximately $ million, with the balance due on August 1, 2027. The proceeds from the New Term Loan and additional borrowings under the Revolving Credit Facility were used to finance the acquisition of PLH.

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million of debt issuance costs during 2022 associated with the Amended Credit Agreement that is being amortized as interest expense over the life of the Amended Credit Agreement. In addition, we recorded a loss on extinguishment of debt during 2022 of $ million related to the Amended Credit Agreement.

The principal amount of all loans under the Amended Credit Agreement will bear interest at either: (i) the Secured Overnight Financing Rate (“SOFR”) plus an applicable margin as specified in the Amended Credit Agreement (based on our net senior debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio as defined in the Amended Credit Agreement), or (ii) the Base Rate (which is the greater of (a) the Federal Funds Rate plus % or (b) the prime rate as announced by the Administrative Agent) plus an applicable margin as specified in the Amended Credit Agreement. Quarterly non-use fees, letter of credit fees and administrative agent fees are payable at rates specified in the Amended Credit Agreement.

The principal amount of any loan drawn under the Amended Credit Agreement may be prepaid in whole or in part at any time, with a minimum prepayment of $ million.

Loans made under the Amended Credit Agreement are secured by our assets, including, among others, our cash, inventory, equipment (excluding equipment subject to permitted liens), and accounts receivable. Certain subsidiaries have issued joint and several guaranties in favor of the Lenders for all amounts under the Amended Credit Agreement.

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 % of our total assets.

We were in compliance with the covenants for the Amended Credit Agreement at December 31, 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 % of the debt outstanding under our Term Loan from variable LIBOR to a fixed rate of % per annum, in each case plus an applicable margin. The interest rate swap matured on July 10, 2023. See Note 10 – “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 $ million of the debt outstanding under our New Term Loan from variable to a fixed rate of % per annum, plus an applicable margin which was % at December 31, 2023. The interest rate swap matures on January 31, 2025. See Note 10 – “Derivative Instruments”.

Canadian Credit Facilities

We have credit facilities totaling $ million in Canadian dollars for the purposes of issuing commercial letters of credit and providing funding for working capital. At December 31, 2023, commercial letters of credit outstanding were $ million in Canadian dollars and there were outstanding borrowings. Available capacity at December 31, 2023, was $ million in Canadian dollars.

of our derivative instruments are used for trading purposes.

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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 $ 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 December 31, 2023, and December 31, 2022, our outstanding interest rate swap agreements contained a notional amount of $ million and $ million, respectively, with $ million that matured on July 10, 2023, and $ 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.

Interest rate swap

Other long-term assets

—

$

the leases for up to . The exercise of lease extensions is at our sole discretion. Periodically, we

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$

________________________________________

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

$

Noncurrent operating lease liabilities, net of current portion

$

The future minimum lease payments under non-cancelable operating leases are as follows (in thousands):.

2025

2026

2027

2028

Thereafter

Total lease payments

$

Less imputed interest

()

Total

$

Weighted-average remaining lease term on operating leases (years)

Weighted-average discount rate on operating leases

%

.

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 $ 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 $ million and includes annual rent increases of % 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 $ million. The gain is included in Gain on sale and leaseback transaction on our Consolidated Statements of Income for the year ended December 31, 2022.

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billion and $ billion, respectively. The remaining performance obligation on those bonded projects totaled approximately $ billion and $ billion, respectively.

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 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 CODM as defined by ASC 280 does not review or allocate resources based on segment assets.

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%

$

%

$

%

Energy

%

Total

$

%

$

%

$

%

Segment Gross Profit

Gross profit by segment for the years ended December 31, 2023, 2022 and 2021 was as follows (in thousands):

For the year ended December 31,

2023

2022

2021

% of

Segment

Gross Profit

Revenue

Gross Profit

Revenue

Gross Profit

Revenue

Utilities

$

%

$

%

$

%

Energy

%

Total

$

%

$

%

$

%

Geographic Region — Revenue and Total Assets

The majority of our revenue is derived from customers in the United States with approximately %, % and % generated from sources outside of the United States, principally Canada, for the years ended December 31, 2023, 2022 and 2021, respectively. At December 31, 2023 and 2022, approximately % and %, respectively of total assets were located outside of the United States.

million, $ million, and $ million, to multiemployer pension plans for the years ended December 31, 2023, 2022 and 2021, respectively. These costs were charged to the related construction contracts in process. Contributions during 2023 were higher than 2022 as a result of a greater number of man-hours worked by our union labor and the acquisition of PLH.

The financial risks of participating in multiemployer plans are different from single-employer plans in the following respects:

●

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

●

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

●

If a participating employer chooses to stop participating in the plan, a withdrawal liability may be created based on the unfunded vested benefits for all employees in the plan.

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pension plans. Based upon the most recent and available plan financial information, we made contributions to the Construction Laborers Pension Trust for Southern California, the Pipeline Industry Benefit Fund, the Southern California Pipe Trades Trust Funds and the Minnesota Laborers Pension Fund that represented more than 5% of the plan’s total contributions for the 2023 plan year. None of the other significant pension plans we contributed to below listed us in the plan’s Form 5500 as providing more than 5% of the plan’s total contributions during the years ended December 31, 2023, 2022 and 2021.

Our participation in significant plans for the years ended December 31, 2023, 2022 and 2021 is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three digit plan number. The “Zone Status” is based on the latest information that we received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. The “Surcharge Imposed” column includes plans in a red zone status that require a payment of a surcharge in excess of regular contributions. The next column lists the expiration date of our collective bargaining agreement related to the plan.

$

Laborers Pension Trust Fund for Northern California

94-6277608/001

Green as of May 31, 2023

Green as of May 31, 2022

No

6/30/2027

Construction Laborers Pension Trust for Southern California

43-6159056/001

Green as of December 31, 2022

Green as of December 31, 2021

No

6/30/2026

Operating Engineer Trust Funds

95-6032478/001

Yellow as of June 30, 2023

Yellow as of June 30, 2022

No

6/30/2025

Pipeline Industry Benefit Fund

73-6146433/001

Green as of December 31, 2022

Green as of December 31, 2021

No

6/1/2023

Southern California Pipe Trades Trust Funds

51-6108443/001

Green as of December 31, 2022

Green as of December 31, 2021

No

8/31/2026

Minnesota Laborers Pension Fund

41-6159599/001

Green as of December 31, 2022

Green as of December 31, 2021

No

6/1/2025

Contributions to significant plans

Contributions to other multiemployer plans

Total contributions made

$

such additional contributions were made during 2021 through 2023. Matching contributions to all defined contribution plans for the years ended December 31, 2023, 2022 and 2021 were $ million, $ million, and $ million, respectively. The increase in matching contributions in 2023 and 2022 is primarily due to an increase in headcount from the PLH acquisition. We have no other post-retirement benefits.

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million, which was included in “Other Long-term Liabilities” in the accompanying Consolidated Balance Sheet. To provide for future obligations related to these deferred compensation plans, we have invested in corporate-owned life insurance (“COLI”) policies covering certain participants in the deferred compensation plans, the underlying investments of which are intended to be aligned with the investment alternatives elected by plan participants. The COLI assets are recorded at their cash surrender value, which is considered their fair market value, and as of December 31, 2023, the fair market was $ million, which was included in “Other Long-term Assets” in the accompanying Consolidated Balance Sheet.

million shares to executives, directors and certain senior managers. Grants of awards to employees are approved by the Compensation Committee of the Board of Directors and grants to independent members of the Board of Directors are approved by the Board of Directors. As of December 31, 2023, there were million shares of common stock remaining available for grant under the 2023 Equity Plan.

Under guidance of ASC 718, “Compensation — Stock Compensation”, stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the stock-based award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the award). We settle the vesting of RSUs and PSUs through the issuance of new shares of common stock. Forfeitures of stock-based awards are recognized as they occur.

Restricted Stock Units

We grant time-vested stock awards in the form of restricted stock units. The fair value of the RSUs is based on the closing market price of our common stock on the day prior to the date of the grant. Stock compensation expense for the RSUs is amortized using the straight-line method over the service period. Time-vested stock awards granted to eligible employees in 2023 vest % in year one, % in year two, and % in year three.

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$

Granted

Vested

()

Forfeited

()

Balance at December 31, 2023

During 2022, RSUs were granted with a weighted-average grant date fair value per unit of $. The total fair value of RSUs that vested during 2023, 2022 and 2021 was $ million, $ million and $ million, respectively. At December 31, 2023, approximately $ million of unrecognized compensation expense remains for the RSUs, which will be recognized over a weighted average period of years.

Performance Stock Units

Shares of our common stock may be earned based on our performance compared to defined metrics. The number of shares earned under a performance award can vary from to % of the target shares awarded, based upon our performance compared to the metrics. The metrics used for the grant are determined by the Compensation Committee of the Board of Directors and may be either based on internal measures such as our financial performance compared to target or on a market-based metric such as our stock performance compared to a peer group. Performance awards vest over based upon attainment of at least the minimum stated performance targets and minimum service requirements. For performance awards, we recognize stock-based compensation expense based on the grant date fair value of the award. The fair value of internal metric-based performance awards is determined by the market price of our common stock on the day prior to the date of the grant. Stock compensation expense for the PSUs is amortized using the straight-line method over the service period. We adjust the stock-based compensation expense related to internal metric-based performance awards according to our determination of the shares expected to vest at each reporting date. Stock-based compensation expense related to market metric-based performance awards is expensed at their grant date fair value regardless of performance.

The table below presents PSU activity for 2023:

$

Granted

Vested

Forfeited

()

Balance at December 31, 2023

At December 31, 2023, approximately $ million of unrecognized compensation expense remains for the PSUs, which will be recognized over a weighted average period of years.

Stock-based Compensation Expense

For the years ended December 31, 2023, 2022 and 2021, we recognized $ million, $ million, and $ million, respectively, in compensation expense for both RSUs and PSUs.

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$

Foreign

Total

$

State

Foreign

Deferred provision (benefit)

Federal

State

()

Foreign

()

Total

$

A reconciliation of income tax expense compared to the amount of income tax expense that would result by applying the U.S. federal statutory income tax rate to pre-tax income is as follows:

%

State taxes, net of federal income tax impact

Tax credits

()

Income taxed at rates greater than U.S.

Nondeductible meals & entertainment

Nondeductible compensation

Capital loss utilization - release of valuation allowance

()

Other items

()

Effective tax rate

%

The provision for income taxes has been determined based upon the tax laws and rates in the countries in which we operate. Our operations in the United States are subject to federal income tax rates of % and varying state income tax rates. Our principal international operations are in Canada. Our subsidiaries in Canada are subject to a corporate income tax rate of %. We did not have any non-taxable foreign earnings from tax holidays for taxable years 2020 through 2023.

Deferred taxes are recognized for temporary differences between the financial reporting bases and tax bases of assets and liabilities and are measured using 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.

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$

Accrued workers compensation

Net operating losses

Disallowed interest

Lease liabilities

Insurance reserves

Loss reserves

Tax credits

Capitalized research

Other

Total deferred tax assets

Deferred tax liabilities

Depreciation and amortization

()

Prepaid expenses and other

()

Lease assets

()

Total deferred tax liabilities

()

Valuation allowance

()

Net deferred tax liabilities

$

()

$

()

As of December 31, 2023, we have recorded a deferred tax asset of $ million reflecting the tax benefit of approximately $ million of federal and state income tax net operating loss carryforwards, some of which were acquired in the acquisitions of PLH and other companies. Our tax credits of $ million generally expire between and after they are generated. Our U.S. federal net operating losses expire beginning in 2031, and our state net operating losses generally expire after the period in which the losses were incurred.

The valuation allowances for deferred income tax assets at December 31, 2023 and 2022 were $ million and $ million, respectively. The $ million decrease in valuation allowances during 2023 was primarily due to finalizing the fair value of acquired PLH state net operating losses in the second quarter of 2023. These remaining valuation allowances primarily relate to state net operating loss carryforwards established due to uncertainty in Primoris’ outlook as to the amount of future taxable income required in particular tax jurisdictions in order to utilize certain tax losses, considering also the tax regulations which limit the annual utilization of acquired losses. Primoris believes it is more likely than not that it will realize the benefit of its deferred tax assets net of existing valuation allowances.

$

Increases in balances for tax positions taken during the current year

(Decreases) increases in balances for tax positions taken during prior years

()

Settlements and effective settlements with tax authorities

—

()

Lapse of statute of limitations

()

Total

$

We recognize accrued interest and penalties related to uncertain tax positions in income tax expense, which were not material for the three years presented.

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million of unrecognized tax benefits could occur in the next twelve months due to the expiration of statutes of limitation and settlements with tax authorities.

Our federal income tax returns are generally no longer subject to examination for tax years before 2020. The statutes of limitation of state and foreign jurisdictions generally vary between to . Accordingly, our state and foreign income tax returns are generally no longer subject to examination for tax years before 2018.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted by the US Government in response to the COVID-19 pandemic. We deferred approximately $ million of FICA tax payments during part of 2020 as allowed under the CARES Act. The unpaid deferral was $ million at December 31, 2022, and was included in Accrued liabilities on our Consolidated Balance Sheet. We paid all remaining payments to the U.S. Treasury on January 3, 2023.

ASU No. 2013-11, "Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, requires certain unrecognized tax benefits to be shown as a reduction to another asset or liability. Accordingly, this resulted in a decrease to the December 31, 2022, income tax receivable of $ million.

May 4, 2021

June 30, 2021

July 15, 2021

August 3, 2021

September 30, 2021

October 15, 2021

November 3, 2021

December 31, 2021

January 14, 2022

February 24, 2022

March 31, 2022

April 15, 2022

May 4, 2022

June 30, 2022

July 15, 2022

August 3, 2022

September 30, 2022

October 15, 2022

November 3, 2022

December 31, 2022

January 13, 2023

February 22, 2023

March 31, 2023

April 14, 2023

May 3, 2023

June 30, 2023

July 14, 2023

August 2, 2023

September 29, 2023

October 13, 2023

November 2, 2023

December 29, 2023

January 12, 2024

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 our Board of Directors.

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$

Denominator:

Weighted average shares for computation of basic earnings per share:

Dilutive effect of stock-based awards

Weighted average shares for computation of diluted earnings per share

Earnings per share:

Basic

$

Diluted

$

shares of $ par value preferred stock. shares of Preferred Stock were outstanding at December 31, 2023 and 2022.

Common Stock

We are authorized to issue shares of $ par value common stock, of which and shares were issued and outstanding as of December 31, 2023 and 2022, respectively.

We issued shares of common stock in 2023, shares of common stock in 2022, and shares of common stock in 2021 under our LTR Plan. The shares were purchased by the participants in the LTR Plan with payments made to us of $ million in 2023, $ million in 2022, and $ million in 2021. Our LTR Plan for 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 2023, 2022 and 2021 were for bonus amounts earned in 2022, 2021 and 2020 and the number of shares was calculated at % of the average closing price for December of the previous year.

During the years ended December 31, 2023, 2022, and 2021, we issued , , and shares of common stock, respectively, as part of the quarterly compensation of the non-employee members of the Board of Directors. The shares were fully vested upon issuance and have a trading restriction.

During the years ended December 31, 2023, 2022, and 2021 , , and RSUs, net of forfeitures for tax withholdings, respectively, were converted to common stock.

In connection with the acquisition of FIH, we offered certain FIH employees the option to purchase shares of our common stock at a percent discount of the closing market price of our common stock on the date of the acquisition. During the year ended December 31, 2021, such employees purchased shares of common stock, net of forfeitures for tax withholdings, with payment made to us of $ million, resulting in the recognition of $

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% 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 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 following the filing of our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30 of each year. In 2023, shares were purchased at an average price of $ per share. In 2022, shares were purchased at an average purchase price of $ per share.

Secondary Offering

In March 2021, we entered into an underwriting agreement with Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC and UBS Securities LLC, as representatives of the underwriters, in connection with a public offering, pursuant to which we agreed to issue and sell shares of common stock, par value $ per share. The shares were offered and sold at a public offering price of $ per share. Our gross proceeds of the offering, before deducting underwriting discounts, commissions and offering expenses, were approximately $ million. Our net proceeds were approximately $ million and were used to repay a portion of the borrowings incurred in connection with the acquisition of FIH.

Share Purchase Plan

In November 2021, our Board of Directors authorized a $ 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 $ million. During the year ended December 31, 2023 we did not purchase any shares of common stock. During the year ended December 31, 2022, we purchased and cancelled shares of common stock, which in the aggregate equaled $ million at an average share price of $. During the year ended December 31, 2021, we purchased and cancelled shares of common stock, which in the aggregate equaled $ million at an average share price of $. In November 2023, the Board of Directors replenished the limit to $ million and extended the program to December 31, 2024.

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$

Gross profit

Net income

Earnings per share:

Basic earnings per share

$

Diluted earnings per share

Weighted average shares outstanding

Basic

Diluted

Year Ended December 31, 2022

1st

2nd

3rd

4th

Quarter

Revenue

$

Gross profit

Net (loss) income

()

Earnings per share:

Basic (loss) earnings per share

$

()

$

Diluted (loss) earnings per share

()

Weighted average shares outstanding

Basic

Diluted

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Primoris Services Corp - Annual Report: 2023 (Form 10-K)

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