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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 March 31, 2021

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 May 3, 2021, 53,723,988 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 March 31, 2021 and December 31, 2020 (Undaudited)

3

—Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (Unaudited)

4

—Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020 (Unaudited)

5

—Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020 (Unaudited)

6

—Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (Unaudited)

7

—Notes to Condensed Consolidated Financial Statements (Unaudited)

9

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

25

Item 3. Quantitative and Qualitative Disclosures About Market Risk

37

Item 4. Controls and Procedures

38

Part II. Other Information

Item 1. Legal Proceedings

38

Item 1A. Risk Factors

38

Item 6. Exhibits

39

Signatures

40

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)

March 31,

December 31,

 

    

2021

    

2020

 

ASSETS

Current assets:

Cash and cash equivalents

$

212,770

$

326,744

Accounts receivable, net

 

478,972

 

432,455

Contract assets

 

366,343

 

325,849

Prepaid expenses and other current assets

 

46,158

 

30,218

Total current assets

 

1,104,243

 

1,115,266

Property and equipment, net

 

414,990

 

356,194

Operating lease assets

205,725

207,320

Deferred tax assets

1,934

1,909

Intangible assets, net

 

181,226

 

61,012

Goodwill

 

588,845

 

215,103

Other long-term assets

 

18,471

 

12,776

Total assets

$

2,515,434

$

1,969,580

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

258,748

$

245,906

Contract liabilities

 

256,478

 

267,227

Accrued liabilities

 

216,824

 

200,673

Dividends payable

 

3,223

 

2,887

Current portion of long-term debt

 

61,480

 

47,722

Total current liabilities

 

796,753

 

764,415

Long-term debt, net of current portion

 

592,087

 

268,835

Noncurrent operating lease liabilities, net of current portion

136,682

137,913

Deferred tax liabilities

 

13,548

 

13,548

Other long-term liabilities

 

75,000

 

70,077

Total liabilities

 

1,614,070

 

1,254,788

Commitments and contingencies (See Note 15)

Stockholders’ equity

Common stock—$.0001 par value; 90,000,000 shares authorized; 53,723,988 and 48,110,442 issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

6

 

5

Additional paid-in capital

 

272,584

 

89,098

Retained earnings

 

627,320

 

624,694

Accumulated other comprehensive income

1,419

958

Noncontrolling interest

 

35

 

37

Total stockholders’ equity

 

901,364

 

714,792

Total liabilities and stockholders’ equity

$

2,515,434

$

1,969,580

See Accompanying Notes to Condensed Consolidated Financial Statements

3

Table of Contents 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

(Unaudited)

Three Months Ended

March 31, 

2021

    

2020

 

Revenue

$

818,329

$

743,243

Cost of revenue

 

738,148

 

695,433

Gross profit

 

80,181

 

47,810

Selling, general and administrative expenses

 

53,432

 

44,388

Transaction and related costs

13,896

Operating income

 

12,853

 

3,422

Other income (expense):

Foreign exchange gain, net

 

23

 

136

Other (expense) income, net

 

(5)

 

12

Interest income

 

85

 

281

Interest expense

 

(4,721)

 

(9,112)

Income (loss) before provision for income taxes

 

8,235

 

(5,261)

(Provision) benefit for income taxes

 

(2,387)

 

1,527

Net income (loss)

5,848

(3,734)

Net loss (income) attributable to noncontrolling interests

2

(3)

Net income (loss) attributable to Primoris

$

5,850

$

(3,737)

Dividends per common share

$

0.06

$

0.06

Earnings (loss) per share:

Basic

$

0.12

$

(0.08)

Diluted

$

0.12

$

(0.08)

Weighted average common shares outstanding:

Basic

 

49,503

 

48,588

Diluted

 

50,026

 

48,588

See Accompanying Notes to Condensed Consolidated Financial Statements

4

Table of Contents 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

(Unaudited)

Three Months Ended

March 31, 

2021

    

2020

 

Net income (loss)

$

5,848

$

(3,734)

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments

461

(1,737)

Comprehensive income (loss)

6,309

(5,471)

Net loss (income) attributable to noncontrolling interests

2

(3)

Comprehensive income (loss) attributable to Primoris

$

6,311

$

(5,474)

See Accompanying Notes to Condensed Consolidated Financial Statements

5

Table of Contents 

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

Income

    

Interest

    

Equity

 

Balance, December 31, 2020

 

48,110,442

$

5

$

89,098

$

624,694

$

958

$

37

$

714,792

Net income (loss)

 

 

 

 

5,850

 

(2)

 

5,848

Foreign currency translation adjustments, net of tax

461

461

Issuance of shares, net of issuance costs

 

4,500,000

1

149,440

 

149,441

Issuance of shares to employees and directors

1,073,782

28,492

28,492

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

39,764

(599)

(599)

Stock-based compensation

6,152

6,152

Dividend equivalent Units accrued - Restricted Stock Units

1

(1)

Dividends declared ($0.06 per share)

 

(3,223)

 

(3,223)

Balance, March 31, 2021

 

53,723,988

$

6

$

272,584

$

627,320

$

1,419

$

35

$

901,364

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, 2019

 

48,665,138

$

5

$

97,130

$

531,291

$

76

$

1,028

$

629,530

Net income (loss)

 

 

 

 

(3,737)

 

 

3

 

(3,734)

Foreign currency translation adjustments, net of tax

(1,737)

(1,737)

Issuance of shares to employees and directors

 

51,268

 

 

1,174

 

 

 

 

1,174

Stock-based compensation

499

499

Dividend equivalent Units accrued - Restricted Stock Units

4

(4)

Repurchase of stock

(461,831)

(7,393)

(7,393)

Dividends declared ($0.06 per share)

 

 

 

 

(2,895)

 

 

 

(2,895)

Balance, March 31, 2020

 

48,254,575

$

5

$

91,414

$

524,655

$

(1,661)

$

1,031

$

615,444

6

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Three Months Ended

 

March 31, 

    

2021

    

2020

 

Cash flows from operating activities:

Net income (loss)

$

5,848

$

(3,734)

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

Depreciation and amortization

 

24,852

 

21,537

Stock-based compensation expense

 

6,152

 

499

Gain on sale of property and equipment

 

(2,743)

 

(2,311)

Unrealized (gain) loss on interest rate swap

(1,283)

4,970

Other non-cash items

151

81

Changes in assets and liabilities:

Accounts receivable

 

10,321

 

(13,911)

Contract assets

 

(7,546)

 

(15,682)

Other current assets

 

(14,675)

 

(4,849)

Other long-term assets

(153)

204

Accounts payable

 

186

 

23,934

Contract liabilities

 

(13,625)

 

(15,389)

Operating lease assets and liabilities, net

 

(1,343)

 

119

Accrued liabilities

 

2,406

 

(179)

Other long-term liabilities

 

(1,034)

 

(756)

Net cash provided by (used in) operating activities

 

7,514

 

(5,467)

Cash flows from investing activities:

Purchase of property and equipment

 

(19,078)

 

(9,311)

Proceeds from sale of property and equipment

 

2,091

 

6,902

Cash paid for acquisitions, net of cash acquired

 

(613,224)

 

Net cash used in investing activities

 

(630,211)

 

(2,409)

Cash flows from financing activities:

Borrowings under revolving line of credit

100,000

Payments on revolving line of credit

 

(100,000)

 

Proceeds from issuance of long-term debt

 

400,000

 

6,800

Repayment of long-term debt

 

(59,353)

 

(14,976)

Proceeds from issuance of common stock

178,863

578

Debt issuance costs

(4,876)

Repurchase of common stock

(7,393)

Dividends paid

 

(2,887)

 

(2,919)

Other

(3,283)

 

(1,285)

Net cash provided by (used in) financing activities

 

508,464

 

(19,195)

Effect of exchange rate changes on cash and cash equivalents

259

259

Net change in cash and cash equivalents

 

(113,974)

 

(26,812)

Cash and cash equivalents at beginning of the period

 

326,744

 

120,286

Cash and cash equivalents at end of the period

$

212,770

$

93,474

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

Three Months Ended March 31, 

 

    

2021

    

2020

 

Cash paid for interest

$

5,875

$

4,061

Cash paid for income taxes, net of refunds received

(1,728)

(369)

Leased assets obtained in exchange for new operating leases

4,671

34,711

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

Three Months Ended March 31, 

 

    

2021

    

2020

 

Dividends declared and not yet paid

$

3,223

$

2,895

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 one of the leading providers of specialty contracting services operating mainly in the United States and Canada. We provide a wide range of specialty construction services, fabrication, maintenance, replacement, and engineering services to a diversified base of customers through our three segments.

We have customer relationships with major utility, telecommunications, 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 substantial 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 2020, we segregated our business into five reportable segments: the Power, Industrial and Engineering segment, the Pipeline and Underground segment, the Utilities and Distribution segment, the Transmission and Distribution segment, and the Civil segment. In the first quarter 2021, we changed our reportable segments in connection with a 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 segments.

The current reportable segments include the Utilities segment, the Energy/Renewables segment and the Pipeline Services (“Pipeline”) segment. See Note 16 – “Reportable Segments” for a brief description of the reportable segments and their operations.

The classification of revenue and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses, were made.

Note 2—Basis of Presentation

Interim condensed consolidated financial statements The interim condensed consolidated financial statements for the three months ended March 31, 2021 and 2020 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 23, 2021, which contains our audited consolidated financial statements for the year ended December 31, 2020, have been omitted.

This Form 10-Q should be read in conjunction with our most recent Annual Report on Form 10-K. The interim financial information is unaudited.  In the opinion of management, the interim information includes all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the interim financial information. 

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 companies that comprise the top ten vary from year to year.

For the three months ended March 31, 2021 and 2020, approximately 45.4% and 50.1%, respectively, of total revenue was generated from our top ten customers. For the three months ended March 31, 2021 no one customer accounted

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for more than ten percent of our revenue and for the three months ended March 31, 2020 one pipeline customer represented approximately 11.3% of total revenue.

Note 3—Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis. We adopted the new standard on January 1, 2021, on a prospective basis and it did not have a material impact on our consolidated financial position, results of operations or cash flows.

Note 4—Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures”, defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. ASC Topic 820 addresses fair value GAAP for financial assets and financial liabilities that are re-measured and reported at fair value at each reporting period and for non-financial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis.

In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs use data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are “unobservable data points” for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.

The following table presents, for each of the fair value hierarchy levels identified under ASC Topic 820, our financial assets and liabilities that are required to be measured at fair value at March 31, 2021 and December 31, 2020 (in thousands):

Fair Value Measurements at Reporting Date

 

    

    

Significant

    

 

Quoted Prices

Other

Significant

 

in Active Markets

Observable

Unobservable

 

for Identical Assets

Inputs

Inputs

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

Assets as of March 31, 2021:

Cash and cash equivalents

$

212,770

 

$

 

$

Liabilities as of March 31, 2021:

Interest rate swap

$

$

7,922

$

Assets as of December 31, 2020:

Cash and cash equivalents

$

326,744

 

$

 

$

Liabilities as of December 31, 2020:

Interest rate swap

$

$

9,205

$

Other financial instruments not listed in the table consist of accounts receivable, accounts payable and certain accrued liabilities. These financial instruments generally approximate fair value based on their short-term nature. The carrying value of our long-term debt approximates fair value based on comparison with current prevailing market rates for loans of similar risks and maturities.

The interest rate 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.

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Note 5—Acquisitions

Acquisition of Future Infrastructure Holdings, LLC.

On January 15, 2021, we acquired Future Infrastructure Holdings, LLC (“FIH”) for approximately $611.2 million, net of cash acquired. FIH is a provider of non-discretionary maintenance, repair, upgrade, and installation services to the telecommunication, 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. The total purchase price was funded through a combination of existing cash balances, borrowings under our term loan facility, and borrowings under our revolving credit facility. As discussed in Note 13 – “Stockholders’ Equity”, we used the net proceeds from our secondary offering to repay a portion of the borrowings incurred in connection with the acquisition of FIH.

The table below represents the purchase consideration and the preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. The final determination of fair value for certain assets and liabilities is subject to further change and will be completed as soon as the information necessary to complete the analysis is obtained. These amounts, which may differ materially from these preliminary estimates, will continue to be refined and will be finalized as soon as possible, but no later than one year from the acquisition date. The primary areas of the preliminary estimates that are not yet finalized relate to property, plant and equipment, identifiable intangible assets, contract assets and liabilities, and the fair value of certain contractual obligations.

Purchase consideration (in thousands)

Total purchase consideration

$

621,749

Less cash acquired

(10,525)

Net cash paid

611,224

Preliminary identifiable assets acquired and liabilities assumed (in thousands)

Cash and cash equivalents

$

10,525

Accounts receivable

55,869

Contract assets

32,676

Prepaid expenses and other current assets

1,265

Property, plant and equipment

55,735

Operating lease assets

13,105

Intangible assets:

 

Customer relationships

118,000

Tradename

4,400

Other long-term assets

 

6,976

Accounts payable and accrued liabilities

(27,768)

Contract liabilities

(2,671)

Long-term debt

(959)

Noncurrent operating lease liabilities, net of current

(10,975)

Other long-term liabilities

(8,171)

Total identifiable net assets

248,007

Goodwill

373,742

Total purchase consideration

$

621,749

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 telecommunications 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 fifteen-year period.

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The intangible assets acquired with the FIH acquisition consisted of Customer relationships of $118.0 million and Tradenames of $4.4 million. The Customer relationships and Tradenames will be amortized over a weighted average useful life of 19 years and one year, respectively.

For the period from January 15, 2021, the acquisition date, to March 31, 2021, FIH contributed revenue of $60.7 million and gross profit of $9.8 million.

Acquisition related costs were $13.5 million for the three months ended March 31, 2021, and are included in “Transaction and related costs” on the Condensed Consolidated Statements of Operations. Such costs primarily consisted of professional fees paid to advisors and expense associated with the purchase of Primoris common stock by certain employees of FIH at a 15 percent discount.

Supplemental Unaudited Pro Forma Information for the three months ended March 31, 2021

The following pro forma information for the three months ended March 31, 2021 presents our results of operations as if the acquisition of FIH had occurred at the beginning of 2020. On October 30, 2020, FIH acquired Pridemore Case Holdings, Inc. (“Pride”), which expanded FIH’s operations. Therefore, we have included Pride’s results of operations for the three months ended March 31, 2020 in the pro forma information. The supplemental pro forma information has been adjusted to include:

the pro forma impact of amortization of intangible assets and depreciation of property, plant and equipment;

the pro forma impact of nonrecurring transaction and related costs directly attributable to the acquisition; and

the pro forma tax effect of both income before income taxes, and the pro forma adjustments, calculated using a tax rate of 29.0% for each of the three months ended March 31, 2021 and 2020.

The pro forma results are presented for illustrative purposes only and are not necessarily indicative of, or intended to represent, the results that would have been achieved had the FIH acquisition been completed on January 1, 2020. For example, the pro forma results do not reflect any operating efficiencies and associated cost savings that we might have achieved with respect to the acquisition (in thousands, except per share amounts):

Three Months Ended March 31, 

Three Months Ended March 31, 

 

2021

    

2020

(unaudited)

(unaudited)

 

Revenue

$

822,775

$

819,000

Income before provision for income taxes

15,057

(19,012)

Net income attributable to Primoris

10,693

(13,500)

Weighted average common shares outstanding:

Basic

 

49,665

 

49,626

Diluted

 

50,194

 

49,626

Earnings per share:

Basic

$

0.22

$

(0.27)

Diluted

0.21

(0.27)

Asset Acquisition

On January 14, 2021, we acquired certain engineering assets for $2.0 million in cash. The identifiable assets acquired consisted primarily of customer relationship intangible assets which will be amortized over a five-year useful life. This asset acquisition is not material to our condensed consolidated financial statements.

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Note 6—Revenue

We generate revenue under a range of contracting types, including fixed-price, unit-price, time and material, and cost reimbursable plus fee contracts, each of which has a different risk profile. A substantial portion of our revenue is derived from contracts where scope is adequately defined, and therefore we can reasonably estimate total contract value. For these contracts, revenue is recognized over time as work is completed because of the continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). For certain contracts, where scope is not adequately defined and we can’t reasonably estimate total contract value, revenue is recognized primarily on an input basis, based on contract costs incurred as defined within the respective contracts. 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 March 31, 2021, we had $1.7 billion of remaining performance obligations. We expect to recognize approximately 83% of our remaining performance obligations as revenue during the next four quarters and substantially all of the remaining balance by the end of 2022.

Accounting for long-term contracts involves the use of various techniques to estimate total transaction price and costs. For long-term contracts, transaction price, estimated cost at completion and total costs incurred to date are used to calculate revenue earned. Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract. Total estimated costs, and thus contract revenue and income, can be impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and approvals, labor availability, governmental regulation, politics and any prevailing impacts from the pandemic caused by the coronavirus may affect the progress of a project’s completion, and thus the timing of revenue recognition. To the extent that original cost estimates are modified, estimated costs to complete increase, delivery schedules are delayed, or progress under a contract is otherwise impeded, cash flow, revenue recognition and profitability from a particular contract may be adversely affected.

The nature of our contracts gives rise to several types of variable consideration, including contract modifications (change orders and claims), liquidated damages, volume discounts, performance bonuses, incentive fees, and other terms that can either increase or decrease the transaction price. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent we believe we have an enforceable right, and it is probable that a significant reversal of cumulative revenue recognized will not occur. Our estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us at this time.

Contract modifications result from changes in contract specifications or requirements. We consider unapproved change orders to be contract modifications for which customers have not agreed to both scope and price. We consider claims to be contract modifications for which we seek, or will seek, to collect from customers, or others, for customer-caused changes in contract specifications or design, or other customer-related causes of unanticipated additional contract costs on which there is no agreement with customers. Claims can also be caused by non-customer-caused changes, such as rain or other weather delays. Costs associated with contract modifications are included in the estimated costs to complete the contracts and are treated as project costs when incurred. In most instances, contract modifications are for goods or

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services that are not distinct, and, therefore, are accounted for as part of the existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. In some cases, settlement of contract modifications may not occur until after completion of work under the contract.

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the cumulative impact of the profit adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. In the three months ended March 31, 2021, revenue recognized from performance obligations satisfied in previous periods was $13.6 million. 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 Condensed Consolidated Balance Sheets. For contract revenue recognized over time, the accrued loss provision is adjusted so that the gross profit for the contract remains zero in future periods.

At March 31, 2021, we had approximately $85.6 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 $70.9 million of the contract modifications had been recognized as revenue on a cumulative catch-up basis through March 31, 2021.

In all forms of contracts, we estimate the collectability of contract amounts at the same time that we estimate project costs. If we anticipate that there may be issues associated with the collectability of the full amount calculated as the transaction price, we may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection. For example, when a cost reimbursable project exceeds the client’s expected budget amount, the client frequently requests an adjustment to the final amount. Similarly, some utility clients reserve the right to audit costs for significant periods after performance of the work.

The timing of when we bill our customers is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the work, or when services are provided. Sometimes, billing occurs subsequent to revenue recognition, resulting in unbilled revenue, which is a contract asset. Also, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in deferred revenue, which is a contract liability.

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

unbilled revenue, which arise when revenue has been recorded but the amount will not be billed until a later date;

retainage amounts for the portion of the contract price earned by us for work performed, but held for payment by the customer as a form of security until we reach certain construction milestones; and

contract materials for certain job specific materials not yet installed, which are valued using the specific identification method relating the cost incurred to a specific project.

Contract assets consist of the following (in thousands):

March 31, 

December 31, 

    

2021

    

2020

Unbilled revenue

$

228,372

$

192,176

Retention receivable

118,053

115,877

Contract materials (not yet installed)

 

19,918

 

17,796

$

366,343

$

325,849

Contract assets increased by $40.5 million compared to December 31, 2020 due primarily to higher unbilled revenue related to the FIH acquisition.

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The caption “Contract liabilities” in the Condensed Consolidated Balance Sheets represents deferred revenue, which arises when billings are in excess of contract revenue recognized to date, and the accrued loss provision.

Contract liabilities consist of the following (in thousands):

March 31, 

December 31, 

    

2021

    

2020

Deferred revenue

$

245,355

$

252,781

Accrued loss provision

 

11,123

 

14,446

$

256,478

$

267,227

Contract liabilities decreased by $10.7 million compared to December 31, 2020 primarily due to lower deferred revenue.

Revenue recognized for the three months ended March 31, 2021, that was included in the contract liability balance at December 31, 2020, was approximately $177.9 million.

The following tables present our revenue disaggregated into various categories.

MSA and Non-MSA revenue was as follows (in thousands):

For the three months ended March 31, 2021

Segment

MSA

Non-MSA

Total

Utilities

$

277,967

57,045

335,012

Energy/Renewables

42,586

310,278

352,864

Pipeline

 

17,710

112,743

130,453

Total

$

338,263

 

$

480,066

 

$

818,329

For the three months ended March 31, 2020

Segment

MSA

    

Non-MSA

    

Total

Utilities

$

185,785

 

 

64,169

 

 

249,954

Energy/Renewables

37,891

263,875

301,766

Pipeline

 

46,732

144,791

191,523

Total

$

270,408

 

$

472,835

 

$

743,243

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

For the three months ended March 31, 2021

Segment

Fixed-price

Unit-price

Cost reimbursable (1)

Total

Utilities

$

27,516

$

229,743

$

77,753

$

335,012

Energy/Renewables

188,234

78,743

85,887

352,864

Pipeline

 

113,157

665

16,631

130,453

Total

$

328,907

 

$

309,151

 

$

180,271

 

$

818,329

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

For the three months ended March 31, 2020

Segment

Fixed-price

    

Unit-price

    

Cost reimbursable (1)

    

Total

Utilities

$

37,725

 

$

169,428

 

$

42,801

 

$

249,954

Energy/Renewables

164,709

75,628

61,429

301,766

Pipeline

 

15,345

 

 

81,830

 

 

94,348

 

 

191,523

Total

$

217,779

 

$

326,886

 

$

198,578

 

$

743,243

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

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Each of these contract types has a different risk profile. Typically, we assume more risk with fixed-price contracts. Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular fixed-price contract. However, these types of contracts offer additional profits when we complete the work for less cost than originally estimated. Unit-price and cost reimbursable contracts generally subject us to lower risk. Accordingly, the associated fees are usually lower than fees earned on fixed-price contracts. Under these contracts, our profit may vary if actual costs vary significantly from the negotiated rates.

Note 7—Goodwill and Intangible Assets

The change in goodwill by segment for the three months ended March 31, 2021 was as follows (in thousands):

Utilities

Energy/Renewables

Pipeline

Total

Balance at December 31, 2020

$

96,344

$

66,344

$

52,415

$

215,103

Goodwill acquired during the period

 

373,742

373,742

Balance at March 31, 2021

$

470,086

$

66,344

$

52,415

$

588,845

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

March 31, 2021

December 31, 2020

Gross Carrying
Amount

    

Accumulated
Amortization

    

Intangible assets, net

    

Gross Carrying
Amount

    

Accumulated
Amortization

    

Intangible assets, net

Tradename

$

20,440

(15,874)

4,566

$

16,040

$

(14,793)

$

1,247

Customer relationships

 

210,977

(34,454)

176,523

 

91,000

 

(31,400)

 

59,600

Non-compete agreements

 

1,900

(1,763)

137

 

1,900

 

(1,735)

 

165

Total

$

233,317

$

(52,091)

$

181,226

$

108,940

$

(47,928)

$

61,012

Amortization expense of intangible assets was $