# Primoris Services Corp: Form 10-Q for the period ended Sep 30, 2022

- Company: [Primoris Services Corp](/companies/prim.md) (CIK 1361538)
- Form: 10-Q
- Filed: 2022-11-08
- Accepted by EDGAR: Nov 7, 2022, 23:02 ET
- Period: 2022-09-30
- Accession: 0001558370-22-016677
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1361538/000155837022016677/prim-20220930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1361538/000155837022016677/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $1.28bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $3.09bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $1.13bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $2.79bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $154.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $303.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2022-07-01 to 2022-09-30 | $75.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-01-01 to 2022-09-30 | $190.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $66.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | $134.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $9.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $22.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | $43.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | $91.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.80 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $1.70 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.81 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $1.72 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 53,748,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 53,778,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$102.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $75.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2022-01-01 to 2022-09-30 | $9.6m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2022-01-01 to 2022-09-30 | $6.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-09-30 | $111.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $1.66bn | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $3.45bn | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $1.09bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $2.39bn | us-gaap:Liabilities |
| Long-term debt | at 2022-09-30 | $1.12bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-09-30 | $80.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-09-30 | $1.07bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 60,293 characters.

### Forward Looking Statements

*This Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 (“Third Quarter 2022 Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, growth opportunities, the effects of regulation and the economy, generally. Forward-looking statements include all statements that are not historical facts and usually can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.*

*Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of regulation and the economy, generally. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results may differ materially as a result of a number of factors, including, among other things, customer timing, project duration, weather, and general economic conditions; changes in our mix of customers, projects, contracts and business; regional or national and/or general economic conditions and demand for our services; price, volatility, and expectations of future prices of oil, natural gas, and natural gas liquids; variations and changes in the margins of projects performed during any particular quarter; increases in the costs to perform services caused by changing conditions; the termination, or expiration of existing agreements or contracts; the budgetary spending patterns of customers; inflation and other increases in construction costs that we may be unable to pass through to our customers; cost or schedule overruns on fixed-price contracts; availability of qualified labor for specific projects; changes in bonding requirements and bonding availability for existing and new agreements; the need and availability of letters of credit; costs we incur to support growth, whether organic or through acquisitions; the timing and volume of work under contract; losses experienced in our operations; the results of the review of prior period accounting on certain projects and the impact of adjustments to accounting estimates; developments in governmental investigations and/or inquiries; intense competition in the industries in which we operate; failure to obtain favorable results in existing or future litigation or regulatory proceedings, dispute resolution proceedings or claims, including claims for additional costs; failure of our partners, suppliers or subcontractors to perform their obligations; cyber-security breaches; failure to maintain safe worksites; risks or uncertainties associated with events outside of our control, including severe weather conditions, public health crises and pandemics (such as COVID-19); war or other armed conflict (including Russia’s invasion of Ukraine); political crises or other catastrophic events; client delays or defaults in making payments; the cost and availability of credit and restrictions imposed by credit facilities; failure to implement strategic and operational initiatives; risks or uncertainties associated with acquisitions, dispositions and investments; possible information technology interruptions or inability to protect intellectual property; our failure, or the failure of our agents or partners, to comply with laws; our ability to secure appropriate insurance; new or changing legal requirements, including those relating to environmental, health and safety matters; the loss of one or a few clients that account for a significant portion of our revenues; asset impairments; and risks arising from the inability to successfully integrate acquired businesses. We discuss many of these risks in detail in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 and our other filings with the Securities and Exchange Commission (“SEC”). You should read this Third Quarter 2022 Report, our Annual Report on Form 10-K for the year ended December 31, 2021 and our other filings with the SEC completely and with the understanding that our actual future results may be materially different from what we expect.*

*Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Third Quarter 2022 Report. We assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available.*

*The following discussion and analysis should be read in conjunction with the unaudited financial statements and the accompanying notes included in Part 1, Item 1 of this Third Quarter 2022 Report and our Annual Report on Form 10-K for the year ended December 31, 2021.*

### Introduction

We are 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.

The current reportable segments include the Utilities segment, the Energy/Renewables segment and the Pipeline Services (“Pipeline”) segment. 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 communication systems.

The Energy/Renewables 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, and maintenance services for entities in the renewable energy, including utility and distributed generation scale solar facilities, and energy storage, renewable fuels, and petroleum and petrochemical industries, as well as state departments of transportation.

The Pipeline segment operates throughout the United States and specializes in a range of services, including pipeline construction and maintenance, pipeline integrity services, installation of compressor and pump stations, and metering facilities for entities in the petroleum and petrochemical industries, as well as gas, water, and sewer utilities.

We have longstanding customer relationships with major utility, refining, petrochemical, power, midstream, and engineering companies, and state departments of transportation. We have completed major underground and industrial projects for a number of large natural gas transmission and petrochemical companies in the United States, major electrical and gas projects for a number of large utility companies in the United States, as well as significant projects for our engineering customers. We enter into a large number of contracts each year, and the projects can vary in length from daily work orders to as long as 36 months, and occasionally longer, for completion on larger projects. Although we have not been dependent upon any one customer in any year, a small number of customers tend to constitute a substantial portion of our total revenue in any given year.

We generate revenue under a range of contracting types, including fixed-price, unit-price, time and material, and cost reimbursable plus fee contracts. 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 either on an input basis, based on contract costs incurred as defined within the respective contracts, or an output basis, based on units completed.

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

#### Acquisition of PLH

On August 1, 2022, we acquired PLH Group, Inc. (“PLH”) in an all-cash transaction valued at approximately $438.3 million, net of cash acquired. PLH is a utility-focused specialty construction company with concentration in key fast-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 utility markets including power delivery, communications, and gas utilities. The total purchase price was funded through a combination of borrowings under our New Term Loan facility and borrowings under our Revolving Credit Facility. We incorporated the majority of the PLH operations into our Utilities segment with the remaining operations going to our Energy/Renewables and Pipeline segments.

#### Acquisition of B Comm Holdco, LLC

On June 8, 2022, we acquired B Comm Holdco, LLC (“B Comm”) for a cash price of approximately $36.0 million, net of cash acquired. B Comm was incorporated into our Utilities segment and is a provider of maintenance, repair, upgrade and installation services to the communications markets. The transaction directly aligns with the strategy to grow our Master Services Agreement (“MSA”) revenue base and expand our communication services within the utility markets. The total purchase price was funded with borrowings under our Revolving Credit Facility.

#### Acquisition of Alberta Screw Piles, Ltd.

On March 1, 2022, we acquired Alberta Screw Piles, Ltd. (“ASP”) for a cash price of approximately $4.1 million. In addition, the sellers could receive a contingent earnout payment of up to $3.2 million based on achievement of certain operating targets over the one and two year periods ending March 1, 2023 and March 1, 2024, respectively. We incorporated the operations of ASP into our Energy/Renewables segment.

#### Acquisition of Future Infrastructure Holdings, LLC.

On January 15, 2021, we acquired Future Infrastructure Holdings, LLC (“FIH”) for approximately $604.7 million, net of cash acquired. FIH was incorporated into our Utilities segment and is a provider of non-discretionary maintenance, repair, upgrade, and installation services to the communication, 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.

### Material trends and uncertainties

We generate our revenue from construction and engineering projects, as well as from providing a variety of specialty construction services. We depend in part on spending by companies in the communications, gas and electric utility industries, the energy, chemical, and oil and gas industries, as well as state departments of transportation and municipal water and wastewater customers. Over the past several years, each segment has benefited from demand for more efficient and more environmentally friendly energy and power facilities, more reliable gas and electric utility infrastructure, local highway and bridge needs, and from the activity level in the oil and gas industry. However, periodically, each of these industries and government agencies is adversely affected by macroeconomic conditions. Economic and other factors outside of our control may affect the amount and size of contracts we are awarded in any particular period.

We have been actively monitoring the impact of the dynamic macroeconomic environment, including the impacts of the COVID-19 pandemic and the impact of inflation, on all aspects of our business, and we have experienced increased fuel and labor costs from the inflationary environment. We anticipate that the significantly elevated levels of cost inflation could persist throughout the remainder of 2022 and into 2023. In an effort to mitigate the impacts of inflation on our operations, we attempt to recover anticipated increases in the cost of labor, equipment, fuel and materials through price escalation provisions that allow us to adjust billing rates for certain major contracts annually; by considering the estimated effect of such increases when bidding or pricing new work; or by entering into back-to-back contracts with suppliers and subcontractors. However, the annual adjustment provided by certain contracts is typically subject to a cap and there can be an extended period of time between the impact of inflation on our costs and when billing rates are adjusted. In some cases, our actual cost increases have exceeded the contractual caps, and therefore negatively impacted our operations. We have been able to renegotiate some of our major contracts to address the increased costs on future work and will continue to address this with our customers going forward.

There still remains uncertainty around the COVID-19 pandemic. Since March 2020, the COVID-19 outbreak has adversely impacted global activity and contributed to significant volatility in financial markets. While our services have generally been unaffected by various government measures enacted to slow the spread of COVID-19, the initial impacts to all segments were various levels of project interruptions and restrictions that delayed project timelines from those originally planned. In some cases, we experienced temporary work stoppages. This led to general inefficiencies from having to start and stop work, re-sequencing work, requiring on-site health screenings before entering a job site, and following proper social distancing practices. We were also restricted from completing work or prevented from starting work on certain projects. While we continue to be impacted by some of these factors in 2022, the primary impacts to our business through the third quarter of 2022 are inefficiencies in our workforce from absenteeism because of illness or quarantining. However, despite these impacts, our business model has been resilient, and we have adapted accordingly.

During 2021 COVID-19 vaccination coverage broadened considerably across the United States since the vaccines were first approved and became available in late 2020, but progress in vaccination rates has slowed. The duration of effectiveness of the vaccines, as well as their effectiveness against current and future variants is uncertain. As such, due to the fluidity of the COVID-19 pandemic, uncertainties as to its scope and duration and macroeconomic implications, and ongoing changes in the way that governments, businesses and individuals react and respond to the pandemic, the ultimate impact on the Company remains uncertain. We anticipate that the COVID-19 pandemic could have a continued adverse impact on economic and market conditions and we could see an extended period of global economic slowdown due to COVID-19 and other macroeconomic factors.

To date, the inefficiencies experienced have had an unquantifiable impact on our business. We will continue to actively monitor the evolving situation and may take further actions to alter our business operations that we determine are in the best interests of our employees, customers, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business or on our financial results for the foreseeable future.

We also monitor our customers and their industries to assess the effect that changes in economic, market, and regulatory conditions may have on them. We have experienced reduced spending, project delays, and project cancellations by some of our customers over the last year, which we attribute to negative economic and market conditions, and we anticipate that these negative conditions and the impact of COVID-19 may continue to affect demand for our services in the near-term.

Fluctuations in the market prices of oil, gas and other fuel sources have affected demand for our services. While we have seen a recovery in the price of oil and natural gas, the volatility in the prices of oil, gas, and liquid natural gas that has occurred in the past few years could create uncertainty with respect to demand for our oil and gas pipeline services, specifically in our pipeline services operations, both in the near term and for future projects. While the construction of gathering lines within the oil shale formations may remain at lower levels for an extended period, we believe that over time, the need for pipeline infrastructure for mid-stream and gas utility companies will result in a continuing need for our services.

The continuing changes in the regulatory environment have affected the demand for our services, either by increasing our work, delaying projects, or cancelling projects. For example, environmental laws and regulations have provided challenges to pipeline projects, resulting in delays or cancellations that impact the timing of revenue recognition. However, environmental laws and new pipeline regulations could increase the demand for our pipeline maintenance and integrity services. In addition, the regulatory environment in California has resulted in delays for the construction of gas-fired power plants, while regulators continue to search for significant renewable resources. However, the increased demand for renewable resources is also creating demand for our construction and specialty services, such as the need for battery storage and the construction of utility scale and distributed generation solar facilities.

We are exposed to certain market risks related to changes in interest rates. To monitor and manage these market risks, we have established risk management policies and procedures. Our Revolving Credit Facility and New Term Loan bear interest at a variable rate which exposes us to interest rate risk. From time to time, we may use certain derivative instruments to hedge our exposure to variable interest rates. As of September 30, 2022, $124.8 million of our variable rate debt outstanding was economically hedged. Based on our variable rate debt outstanding as of September 30, 2022, a 1.0% increase or decrease in interest rates would change annual interest expense by approximately $9.6 million.

### Seasonality, cyclicality and variability

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 construction and specialty services. These seasonal impacts can affect revenue and profitability in all of our businesses since utilities defer routine replacement and repair during their period of peak demand. 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 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.

Our project values range in size from several hundred dollars to several hundred million dollars. The bulk of our work is composed of project sizes that average less than $3.0 million. We also perform 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 our financial condition, or operating results for any other quarter, or for an entire year.

### Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and that affect the amounts of revenue and expenses reported for each period. These estimates and assumptions must be made because certain information that is used in the preparation of our financial statements cannot be calculated with a high degree of precision from data available, is dependent on future events, or is not capable of being readily calculated based on generally accepted methodologies. Often, these estimates are particularly difficult to determine, and we must exercise significant judgment. Actual results could differ significantly from our estimates, and our estimates could change if they were made under different assumptions or conditions. Our critical accounting policies and estimates are described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to our critical accounting policies and estimates since December 31, 2021.

### Results of Operations

### Consolidated Results

The following discussion compares the results of the three and nine months ended September 30, 2022 to the three and nine months ended September 30, 2021.

### Revenue

Revenue was $1,284.1 million for the three months ended September 30, 2022, an increase of $370.9 million, or 40.6%, compared to the same period in 2021. The increase was primarily due to revenue growth in our Energy/Renewables and Utilities segments, and the acquisitions of PLH and B Comm ($173.6 million combined), partially offset by a decline in our Pipeline segment.

Revenue was $3,091.4 million for the nine months ended September 30, 2022, an increase of $478.3 million, or 18.3%, compared to the same period in 2021. The increase was primarily due to revenue growth in our Energy/Renewables and Utilities segments, and the acquisitions of PLH and B Comm ($178.4 million combined), partially offset by a decline in our Pipeline segment.

### Gross Profit

Gross profit was $154.9 million for the three months ended September 30, 2022, an increase of $27.5 million, or 21.6%, compared to the same period in 2021. The increase was primarily due to an increase in revenue and the acquisitions of PLH and B Comm ($16.8 million combined), partially offset by a decrease in margins. Gross profit as a percentage of revenue decreased to 12.1% for the three months ended September 30, 2022, compared to 14.0% for the same period in 2021 primarily as a result of negative gross margins in our Pipeline segment in 2022, the favorable impact from the closeout of multiple pipeline projects in our Pipeline segment in 2021, and increased labor, material, and fuel costs in our Utilities segment as more fully described in the segment results below.

Gross profit was $303.5 million for the nine months ended September 30, 2022, a decrease of $17.1 million, or 5.3%, compared to the same period in 2021. The decline was due to a decrease in margins, partially offset by the acquisitions of PLH and B Comm ($17.8 million combined) and an increase in revenue. Gross profit as a percentage of revenue decreased to 9.8% for the nine months ended September 30, 2022, compared to 12.3% for the same period in 2021 primarily as a result of negative gross margins in our Pipeline segment in 2022, the favorable impact from the closeout of multiple pipeline projects in our Pipeline segment in 2021, and increased labor, material, and fuel costs in our Utilities segment, as more fully described in the segment results below.

Partially offsetting the overall decline was the favorable impact of the change in useful lives of certain equipment, which reduced our depreciation expense for the three and nine months ended September 30, 2022 by $4.2 million and $15.3 million, respectively, compared to the same periods in 2021. See Note 2— “*Basis of Presentation”*, included in the unaudited notes to our condensed consolidated financial statements included under Part I of this Form 10-Q.

### Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses were $75.7 million during the three months ended September 30, 2022, an increase of $14.0 million, or 22.7% compared to 2021 primarily due to the acquisitions of PLH and B Comm ($13.4 million). SG&A expenses as a percentage of revenue decreased to 5.9% compared to 6.8% for the corresponding period in 2021, primarily due to increased revenue.

SG&A expenses were $190.9 million during the nine months ended September 30, 2022, an increase of $18.0 million, or 10.4%, compared to 2021 primarily due to the acquisitions of PLH and B Comm ($13.6 million). SG&A expense as a percentage of revenue decreased to 6.2% compared to 6.6% for the corresponding period in 2021, primarily due to increased revenue.

### Transaction and related costs

Transaction and related costs were $12.7 million for the three months ended September 30, 2022, consisting primarily of professional fees paid to advisors for the acquisition of PLH. Transaction and related costs were $0.4 million for the three months ended September 30, 2021, consisting primarily of professional fees paid to advisors associated with the FIH integration.

Transaction and related costs were $18.2 million for the nine months ended September 30, 2022, consisting primarily of professional fees paid to advisors for the acquisitions of B Comm and PLH. Transaction and related costs were $14.8 million for the nine months ended September 30, 2021, consisting primarily of professional fees paid to advisors and expense associated with the purchase of Primoris common stock by certain employees of FIH at a 15% discount.

### Gain on 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 $49.9 million. Under the transaction, the land, buildings and improvements were sold and leased back for an initial term of three years. The property qualified for sale and leaseback treatment and is classified as an operating lease. Therefore, we recorded a gain on the transaction of $40.1 million. The gain is included in Gain on sale and leaseback transaction on our Condensed Consolidated Statements of Income for the nine months ended September 30, 2022.

### Other income and expense

Non-operating income and expense items for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2022 | ​ | ​ ​ 2021 | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 | ​ | ​ ​ 2021 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Foreign exchange loss, net | ​ | $(683) | ​ | $— | ​ | $(239) | ​ | $(443) |
| Other income, net | ​ | 128 | ​ | 181 | ​ | 274 | ​ | 555 |
| Interest expense, net | ​ | (13,075) | ​ | (4,698) | ​ | (20,656) | ​ | (14,154) |
| Total other expense | ​ | $(13,630) | ​ | $(4,517) | ​ | $(20,621) | ​ | $(14,042) |

Foreign exchange loss, net reflects currency exchange fluctuations associated with our Canadian engineering operation, which operates principally in United States dollars.

Interest expense, net for the three months ended September 30, 2022, increased $8.4 million compared to the same period in 2021 primarily due to higher average debt balances from the borrowings incurred related to the PLH acquisition as well as a higher average interest rate.

Interest expense, net for the nine months ended September 30, 2022, increased $6.5 million compared to the same period in 2021 primarily due to higher average debt balances from the borrowings incurred related to the PLH acquisition as well as a higher average interest rate, partially offset by a favorable impact from the change in the fair value of our interest rate swap. During the nine months ended September 30, 2022, we had a $5.6 million unrealized gain on the change in the fair value of our interest rate swap agreement, compared to a $3.2 million unrealized gain in 2021.

### Provision for income taxes

We are subject to tax liabilities imposed by multiple jurisdictions. We determine our best estimate of the annual effective tax rate at each interim period using expected annual pre-tax earnings, statutory tax rates and available tax planning opportunities. Certain significant or unusual items are separately recognized in the quarter in which they occur, which can cause variability in the effective tax rate from quarter to quarter. We recognize interest and penalties related to uncertain tax positions, if any, as income tax expense.

The effective tax rate for the nine-month period ended September 30, 2022, of 19.6% differs from the U.S. federal statutory rate of 21.0% primarily due to state income taxes net of the effects of a release in valuation allowances during the second and third quarters.

We recorded income tax expense for the nine months ended September 30, 2022, of $22.3 million compared to tax expense of $32.7 million for the nine months ended September 30, 2021. The $10.4 million decrease in income tax expense is primarily driven by the release of valuation allowances during the second and third quarters and a reduction in the effective tax rate from fully deductible per diems.

As of each reporting date, management considers new evidence, both positive and negative, that could affect our view of the future realization of all deferred tax assets. As of December 31, 2021, we had not recognized the $9.8 million tax benefit of our 2018 U.S. capital losses, because we determined that it was more likely than not that the capital losses would expire before they were able to be used to offset future U.S. capital gains. Due to capital gains on the sale of California properties as of September 2022, we have released a portion of the valuation allowance and recognized a 5.5% decrease in our forecasted 2022 annual effective tax rate.

### Segment results

### Utilities Segment

Revenue and gross profit for the Utilities segment for the three and nine months ended September 30, 2022 and 2021 were as follows:

| ​ ​ ​ ​ ​ ​ Utilities Segment | ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2022 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ | ​ ​ ​ ​ ​ | ​ ​ 2021 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue | ​ | $613,008 | ​ | ​ | ​ | $454,654 | ​ | ​ |
| Gross profit | ​ | ​ 78,046 |  | 12.7% | ​ | ​ 63,715 |  | 14.0% |

| ​ ​ ​ ​ ​ ​ Utilities Segment | ​ ​ ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ | ​ ​ ​ ​ ​ | ​ ​ 2021 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue | ​ | $1,447,857 | ​ | ​ | ​ | $1,215,087 | ​ | ​ |
| Gross profit | ​ | ​ 140,755 |  | 9.7% | ​ | ​ 134,280 |  | 11.1% |

Revenue increased by $158.4 million, or 34.8%, for the three months ended September 30, 2022, compared to the same period in 2021, primarily due to increased activity with power delivery customers and the acquisitions of PLH and B Comm ($111.3 million combined) in 2022.

Revenue increased by $232.8 million, or 19.2%, for the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to increased activity across the power delivery and communications markets and the acquisitions of PLH and B Comm ($116.1 million combined) in 2022.

Gross profit for the three months ended September 30, 2022 increased by $14.3 million, or 22.5%, compared to the same period in 2021, primarily due to the incremental impact of the PLH and B Comm acquisitions ($10.0 million combined). Gross profit as a percentage of revenue decreased to 12.7% during the three months ended September 30, 2022, compared to 14.0% in the same period in 2021, primarily due to increased fuel and labor costs from the inflationary environment we are experiencing in 2022. A substantial majority of the work done in our Utilities segment is performed over longer term MSA contracts. These MSA contracts generally have escalation provisions that allow us to adjust billing rates annually, but typically the annual adjustment is subject to a cap and there can be an extended period of time between the impact of inflation on our costs and when billing rates are adjusted. Due to the inflationary environment we have experienced in 2022, our actual cost increases have exceeded the contractual caps, and therefore have negatively impacted gross margins. During the second and third quarter of 2022, we were able to renegotiate some of our major contracts to address the increased fuel and labor costs on future work and will continue to address this with our utility customers going forward.

Gross profit for the nine months ended September 30, 2022, increased by $6.5 million, or 4.8% compared to the same period in 2021. The increase is primarily attributable to the incremental impact of the PLH and B Comm acquisitions ($17.8 million combined) partially offset by lower margins. Gross profit as a percentage of revenue decreased to 9.7% during the nine months ended September 30, 2022, compared to 11.1% in the same period in 2021, primarily due to increased fuel and labor costs from the inflationary environment we are experiencing in 2022, as discussed above.

### Energy/Renewables Segment

Revenue and gross profit for the Energy/Renewables segment for the three and nine months ended September 30, 2022 and 2021 were as follows:

| ​ ​ ​ ​ ​ ​ Energy/Renewables Segment | ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2022 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ | ​ ​ ​ ​ ​ | ​ ​ 2021 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue | ​ | $600,444 | ​ | ​ | ​ | $351,026 | ​ | ​ |
| Gross profit | ​ | ​ 80,135 |  | 13.3% | ​ | ​ 35,926 |  | 10.2% |

| ​ ​ ​ ​ ​ ​ Energy/Renewables Segment | ​ ​ ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ | ​ ​ ​ ​ ​ | ​ ​ 2021 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue | ​ | $1,445,843 | ​ | ​ | ​ | $1,038,900 | ​ | ​ |
| Gross profit | ​ | ​ 173,209 |  | 12.0% | ​ | ​ 111,825 |  | 10.8% |

Revenue increased by $249.4 million, or 71.1%, for the three months ended September 30, 2022, compared to the same period in 2021, primarily due to increased renewable energy activity and electric power activity and the PLH acquisition ($50.5 million).

Revenue increased by $406.9 million, or 39.2%, for the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to increased renewable energy activity and electric power activity and the PLH acquisition ($50.5 million).

Gross profit for the three months ended September 30, 2022, increased by $44.2 million, or 123.1%, compared to the same period in 2021, primarily due to the incremental impact of PLH ($6.6 million) and higher revenue and margins. Gross profit as a percentage of revenue increased to 13.3% during the three months ended September 30, 2022, compared to 10.2% in the same period in 2021, primarily due to increased revenue on higher margin renewable energy projects in 2022 and higher costs associated with a liquified natural gas (“LNG”) plant project in the northeast in 2021.

Gross profit for the nine months ended September 30, 2022, increased by $61.4 million, or 54.9% compared to the same period in 2021, primarily due to higher revenue and margins. Gross profit as a percentage of revenue increased to 12.0% during the nine months ended September 30, 2022, compared to 10.8% in the same period in 2021, primarily due to higher costs associated with an LNG plant project in the northeast in 2021 and increased revenue on higher margin renewable energy projects in 2022, partially offset by a favorable claims resolution on an industrial plant project in 2021.

### Pipeline Segment

Revenue and gross profit for the Pipeline segment for the three and nine months ended September 30, 2022 and 2021 were as follows:

| ​ ​ ​ ​ ​ ​ Pipeline Segment | ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2022 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ | ​ ​ ​ ​ ​ | ​ ​ 2021 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue | ​ | $70,676 | ​ | ​ | ​ | $107,565 | ​ | ​ |
| Gross profit | ​ | ​ (3,274) | ​ | (4.6%) | ​ | ​ 27,795 |  | 25.8% |

| ​ ​ ​ ​ ​ ​ Pipeline Segment | ​ ​ ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ | ​ ​ ​ ​ ​ | ​ ​ 2021 ​ ​ ​ ​ (Thousands) ​ ​ | ​ ​ ​ ​ | ​ % of Segment Revenue ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue | ​ | $197,761 | ​ | ​ | ​ | $359,197 | ​ | ​ |
| Gross profit | ​ | ​ (10,463) | ​ | (5.3%) | ​ | ​ 74,538 | ​ | 20.8% |

Revenue decreased by $36.9 million, or 34.3%, for the three months ended September 30, 2022, compared to the same period in 2021. The decrease is primarily due to the substantial completion of pipeline projects in 2021 and a decline in midstream pipeline market demand, partially offset by the acquisition of PLH ($11.8 million).

Revenue decreased by $161.4 million, or 44.9%, for the nine months ended September 30, 2022, compared to the same period in 2021. The decrease is primarily due to the substantial completion of pipeline projects in 2021 and a decline in midstream pipeline market demand, partially offset by the acquisition of PLH ($11.8 million).

Gross profit for the three months ended September 30, 2022 decreased by $31.1 million compared to the same period in 2021, primarily due to lower revenue and margins. Gross profit as a percentage of revenue decreased to (4.6%) during the three months ended September 30, 2022, compared to 25.8% in the same period in 2021, primarily due to lower than anticipated volumes in 2022, which lead to higher relative carrying costs for equipment and personnel. In addition, we had a favorable impact from the closeout of multiple pipeline projects in 2021.

Gross profit for the nine months ended September 30, 2022 decreased by $85.0 million compared to the same period in 2021, primarily due to lower revenue and margins. Gross profit as a percentage of revenue decreased to (5.3%) during the nine months ended September 30, 2022, compared to 20.8% in the same period in 2021, primarily due to higher costs on a pipeline project in the Mid-Atlantic from unfavorable weather conditions experienced in 2022 and lower than anticipated volumes in 2022, which led to higher relative carrying costs for equipment and personnel. In addition, we had a favorable impact from the closeout of multiple pipeline projects in 2021.

### Geographic area financial information

The majority of our revenue is derived from customers in the United States with approximately 6.2% generated from sources outside of the United States during the nine months ended September 30, 2022, principally in Canada.

### Backlog

For companies in the construction industry, backlog can be an indicator of future revenue streams. Different companies define and calculate backlog in different manners. We define backlog as a combination of: (1) anticipated revenue from the uncompleted portions of existing contracts where scope is adequately defined, and therefore we can reasonably estimate total contract value (“Fixed Backlog”), and (2) the estimated revenue on MSA work for the next four quarters (“MSA Backlog”). We do not include certain contracts in the calculation of backlog where scope, and therefore contract value, is not adequately defined.

The two components of backlog, Fixed Backlog and MSA Backlog, are detailed below.

### Fixed Backlog

Fixed Backlog by reportable segment as of December 31, 2021 and September 30, 2022 and the changes in Fixed Backlog for the nine months ended September 30, 2022 are as follows (in millions):

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Beginning Fixed Backlog at December 31, | ​ ​ ​ | ​ ​ ​ ​ Net Contract Additions to | ​ ​ ​ | ​ ​ ​ ​ Revenue Recognized from | ​ ​ ​ | ​ ​ Ending Fixed Backlog at September 30, | ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Revenue Recognized from Non-Fixed | ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Total Revenue for Nine Months ended September 30, |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| **Reportable Segment** | **​** | **2021** | **​** | **Fixed Backlog** | **​** | **Fixed Backlog** | **​** | **2022 (1)** | **00** | **00** | **Backlog Projects** | **00** | **00** | **2022** |
| Utilities | ​ | $37.0 | ​ | $253.2 | ​ | $214.8 | ​ | $75.4 | ​ | ​ | $1,233.1 | ​ | ​ | $1,447.9 |
| Energy/Renewables | ​ | ​ 2,328.3 | ​ | ​ 1,904.0 | ​ | ​ 1,273.2 | ​ | ​ 2,959.1 | ​ | ​ | ​ 172.6 | ​ | ​ | ​ 1,445.8 |
| Pipeline | ​ | ​ 113.9 | ​ | ​ 390.7 | ​ | ​ 126.1 | ​ | ​ 378.5 | ​ | ​ | ​ 71.7 | ​ | ​ | ​ 197.8 |
| Total | ​ | $2,479.2 | ​ | $2,547.9 | ​ | $1,614.1 | ​ | $3,413.0 | ​ | ​ | $1,477.4 | ​ | ​ | $3,091.5 |

(1) Includes approximately $35.0 million, $61.9 million and $188.1 million of Fixed Backlog as a result of the PLH acquisition included in the Utilities, Energy/Renewables and Pipeline segments, respectively.

Revenue recognized from non-Fixed Backlog projects shown above is generated by MSA projects and projects completed under time and material and cost reimbursable plus fee contracts where scope, and therefore contract value, is not adequately defined, or are generated from the sale of construction materials, such as rock or asphalt to outside third parties.

At September 30, 2022, our total Fixed Backlog was $3.41 billion representing an increase of $933.8 million, or 37.7% compared to $2.48 billion at December 31, 2021.

### MSA Backlog

The following table outlines historical MSA revenue for the past seven quarters (in millions):

| ​ ​ ​ | ​ ​ | ​ ​ Quarterly MSA Revenue 2021 | ​ | ​ ​ 2022 |
| --- | --- | --- | --- | --- |
| First Quarter | ​ | $338.3 | ​ | $349.3 |
| Second Quarter | ​ | ​ 413.2 |  | ​ 496.2 |
| Third Quarter | ​ | ​ 466.6 |  | ​ 605.9 |
| Fourth Quarter | ​ | ​ 385.7 | ​ | ​ ​ |

MSA Backlog includes anticipated MSA revenue for the next twelve months. We estimate MSA revenue based on historical trends, anticipated seasonal impacts, inflation adjustments, and estimates of customer demand based on information from our customers.

The following table shows our estimated MSA Backlog at September 30, 2022 by reportable segment (in millions):

| ​ ​ ​ Reportable Segment: | ​ ​ ​ | ​ ​ MSA Backlog at September 30, 2022 |
| --- | --- | ---: |
| Utilities | ​ | $1,813.4 |
| Energy/Renewables | ​ | ​ 166.2 |
| Pipeline | ​ | 79.7 |
| Total (1) | ​ | $2,059.3 |

(1) Includes approximately $328.3 million and $19.1 million of MSA Backlog as a result of the PLH acquisition included in the Utilities and Pipeline segments, respectively.

### Total Backlog

The following table shows total backlog (Fixed Backlog plus MSA Backlog), by reportable segment as of the quarter-end dates shown below (in millions):

| ​ ​ ​ Reportable Segment: | ​ ​ ​ | ​ ​ ​ ​ ​ September 30, 2021 | ​ ​ | ​ ​ ​ ​ ​ December 31, 2021 | ​ ​ | ​ ​ ​ ​ March 31, 2022 | ​ ​ | ​ ​ ​ ​ June 30, 2022 | ​ ​ | ​ ​ ​ ​ September 30, 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Utilities | ​ | $1,349.8 | ​ | $1,383.6 | ​ | $1,461.7 | ​ | $1,558.4 | ​ | $1,888.8 |
| Energy/Renewables | ​ | 1,221.8 | ​ | 2,455.3 | ​ | 2,433.2 | ​ | 2,878.6 | ​ | 3,125.3 |
| Pipeline | ​ | 167.6 | ​ | 163.9 | ​ | 130.1 | ​ | 134.6 | ​ | 458.2 |
| Total | ​ | $2,739.2 | ​ | $4,002.8 | ​ | $4,025.0 | ​ | $4,571.6 | ​ | $5,472.3 |

We expect that during the next four quarters, we will recognize as revenue approximately 76% of the total backlog at September 30, 2022, composed of backlog of approximately: 100% of the Utilities segment; 60% of the Energy/Renewables segment; and 83% of the Pipeline segment.

Backlog should not be considered a comprehensive indicator of future revenue, as a percentage of our revenue is derived from projects that are not part of a backlog calculation. The backlog estimates include amounts from estimated MSA contracts, but our customers are not contractually obligated to purchase an amount of services from us under the MSAs. Any of our contracts may be terminated by our customers on relatively short notice. In the event of a project cancellation, we may be reimbursed for certain costs, but typically we have no contractual right to the total revenue reflected in backlog. Projects may remain in backlog for extended periods of time as a result of customer delays, regulatory requirements or project specific issues. Future revenue from certain projects completed under time and material and cost reimbursable plus fee contracts may not be included in our estimated backlog amount.

### Liquidity and Capital Resources

Liquidity represents our ability to pay our liabilities when they become due, fund business operations, and meet our contractual obligations and execute our business plan. Our primary sources of liquidity are our cash balances at the beginning of each period and our cash flows from operating activities. If needed, we have availability under our lines of credit to augment liquidity needs, and we have a current shelf registration statement filed with the SEC that allows for the issuance of an indeterminate amount of debt and equity securities. Our short-term and long-term cash requirements consist primarily of working capital, investments to support revenue growth and maintain our equipment and facilities, general corporate needs, and to service our debt obligations.

On August 1, 2022, we entered into the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”) to increase the Term Loan by $439.5 million to an aggregate principal amount of $945.0 million (as amended, the “New Term Loan”). In addition to the New Term Loan, the Amended Credit Agreement also increased the existing $200.0 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, up to $325.0 million. At September 30, 2022, there was $150.0 million of outstanding borrowings under the Revolving Credit Facility, commercial letters of credit outstanding were $48.4 million, and available borrowing capacity was $126.6 million. The proceeds from the New Term Loan and borrowings under our Revolving Credit Facility were used to finance the acquisition of PLH.

In order to maintain sufficient liquidity, we evaluate our working capital requirements on a regular basis. We may elect to raise additional capital by issuing common stock, convertible notes, term debt or increasing our credit facilities as necessary to fund our operations or to fund the acquisition of new businesses.

Our cash and cash equivalents totaled $111.9 million at September 30, 2022, compared to $200.5 million at December 31, 2021. We anticipate that our cash and investments on hand, existing borrowing capacity under our credit facilities, access to and capacity under a shelf registration statement, and our future cash flows from operations will provide sufficient funds to enable us to meet our operating needs, our planned capital expenditures, and settle our commitments and contingencies for the next twelve months and the foreseeable future.

The construction industry is capital intensive, and we expect to continue to make capital expenditures to meet anticipated needs for our services. During the nine months ended September 30, 2022, we spent approximately $75.7 million for capital expenditures, which included $39.1 million for construction equipment. Capital expenditures for the remaining three months of 2022, inclusive of the PLH acquisition, are expected to total between $20.0 million and $30.0 million, which includes $15.0 million to $25.0 million for equipment.

### Cash Flows

Cash flows during the nine months ended September 30, 2022 and 2021 are summarized as follows (in thousands):

| ​ ​ ​ ​ Change in cash: | ​ ​ ​ ​ | ​ ​ Nine months ended September 30, 2022 ​ ​ | ​ ​ | ​ ​ 2021 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Net cash (used in) provided by operating activities | ​ | $(102,035) | ​ | $15,620 |
| Net cash used in investing activities | ​ | (485,010) | ​ | (665,619) |
| Net cash provided by financing activities | ​ | 515,352 | ​ | 522,705 |
| Effect of exchange rate changes | ​ | ​ (924) | ​ | ​ 300 |
| Net change in cash, cash equivalents and restricted cash | ​ | $(72,617) | ​ | $(126,994) |

### Operating Activities

The source of our cash flows from operating activities for the nine months ended September 30, 2022 and 2021 were as follows (in thousands):

| ​ ​ ​ ​ Operating Activities: | ​ ​ ​ ​ | ​ ​ Nine months ended September 30, 2022 ​ ​ | ​ ​ | ​ ​ 2021 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Change ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Net income | ​ | $91,520 | ​ | $86,199 | ​ | $5,321 |
| Depreciation and amortization | ​ | 69,348 | ​ | 78,865 | ​ | (9,517) |
| Gain on sale and leaseback transaction | ​ | ​ (40,084) | ​ | ​ — | ​ | ​ (40,084) |
| Changes in assets and liabilities | ​ | (206,841) | ​ | (143,155) | ​ | (63,686) |
| Other | ​ | (15,978) | ​ | (6,289) | ​ | (9,689) |
| Net cash (used in) provided by operating activities | ​ | $(102,035) | ​ | $15,620 | ​ | $(117,655) |

Net cash used by operating activities for the nine months ended September 30, 2022 was $102.0 million compared to $15.6 million provided by operating activities for the nine months ended September 30, 2021. The change year-over-year was primarily due to the unfavorable impact from the changes in assets and liabilities and a decrease in the cash components of net income.

The significant components of the $206.8 million change in assets and liabilities for the nine months ended September 30, 2022 are summarized as follows:

- Contract assets increased by $148.0 million, primarily due to significant revenue growth in 2022;
- Accounts receivable increased by $122.9 million, primarily due to increased revenue;
- Other current assets increased by $98.5 million primarily due to a $82.1 million increase in prepaid material purchases related to our solar projects; and
- Accounts payable and accrued liabilities increased $173.7 million primarily due to revenue growth and the timing of payments to our vendors.

The significant components of the $143.2 million change in assets and liabilities for the nine months ended September 30, 2021 are summarized as follows:

- Accounts receivable increased by $69.7 million, primarily due to the timing of collecting from our customers;
- Contract liabilities decreased by $67.8 million, primarily due to lower deferred revenue;
- Contract assets increased by $54.3 million primarily due to the timing of billing our customers; and
- Accounts payable increased by $57.7 million, primarily due to the timing of payments to our vendors and suppliers.

### Investing activities

For the nine months ended September 30, 2022, we used $485.0 million in cash for investing activities compared to $665.6 million for the nine months ended September 30, 2021.

During the nine months ended September 30, 2022, we used $478.4 million for acquisitions, compared to $607.0 million during the same period in the prior year.

During the nine months ended September 30, 2022, we purchased property and equipment for $75.7 million compared to $102.1 million during the same period in the prior year. We believe the ownership or long-term leasing of equipment is generally preferable to renting equipment on a project-by-project basis, as this strategy helps to ensure the equipment is available for our projects when needed. In addition, this approach has historically resulted in lower overall equipment costs.

We periodically sell assets, typically to update our fleet. We received proceeds from the sale of assets of $19.2 million during the nine months ended September 30, 2022, compared to $43.5 million during the same period in the prior year. Additionally, we received net proceeds of $49.9 million from a sale and leaseback transaction of land and buildings during the nine months ended September 30, 2022.

### Financing activities

Financing activities provided cash of $515.4 million for the nine months ended September 30, 2022, which was primarily due to the following:

- Proceeds from the entry into an amended and upsized term loan of $462.9 million, net of debt issuance costs paid;
- Net borrowings on our credit facilities of $150.1 million;
- Payment of long-term debt of $77.8 million; and
- Dividend payments to our stockholders of $9.6 million.

Financing activities provided cash of $522.7 million for the nine months ended September 30, 2021, which was primarily due to the following:

- Proceeds from the entry into an amended and upsized term loan of $395.1 million, net of debt issuance costs paid;
- Proceeds from the issuance of common stock of $178.7 million;
- Proceeds from the issuance of debt secured by our equipment of $61.7 million;
- Payment of long-term debt of $96.5 million; and
- Dividend payments to our stockholders of $9.3 million.

### Credit Agreements

For a description of our credit agreements, see Note 8 — “*Debt”* in Item 1, Financial Statements of this Third Quarter 2022 Report.

### Common stock

For a discussion of items affecting our common stock, please see Note 12 — “*Stockholders’ Equity”* in Item 1, Financial Statements of this Third Quarter 2022 Report.

### Off-balance sheet transactions

We enter into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected on our balance sheet. We have no off-balance sheet financing arrangement with VIEs. The following represents transactions, obligations or relationships that could be considered material off-balance sheet arrangements.

- At September 30, 2022, we had letters of credit outstanding of $48.9 million under the terms of our credit agreements. These letters of credit are used by our insurance carriers to ensure reimbursement for amounts that they are disbursing on our behalf, such as beneficiaries under our self-funded insurance program. In addition, from time to time, certain customers require us to post a letter of credit to ensure payments to our subcontractors or guarantee performance under our contracts. Letters of credit reduce our borrowing availability under our Amended Credit Agreement and Canadian Credit Facility. If these letters of credit were drawn on by the beneficiary, we would be required to reimburse the issuer of the letter of credit, and we may be required to record a charge to earnings for the reimbursement. As of the date of this Third Quarter 2022 Report, we do not believe that it is likely that any material claims will be made under a letter of credit;
- In the ordinary course of our business, we may be required by our customers to post surety bid or completion bonds in connection with services that we provide. At September 30, 2022, we had bid and completion bonds issued and outstanding totaling approximately $4.2 billion. The remaining performance obligation on those bonded projects totaled approximately $1.7 billion at September 30, 2022. As of the date of this Third Quarter 2022 Report, we do not anticipate that we would have to fund material claims under our surety arrangements;
- Certain of our subsidiaries are parties to collective bargaining agreements with unions. In most instances, these agreements require that we contribute to multi-employer pension and health and welfare plans. For many plans, the contributions are determined annually and required future contributions cannot be determined since contribution rates depend on the total number of union employees and actuarial calculations based on the demographics of all participants. The Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Multi-Employer Pension Amendments Act of 1980, subjects employers to potential liabilities in the event of an employer’s complete or partial withdrawal of an underfunded multi-employer pension plan. The Pension Protection Act of 2006 added new funding rules for multi-employer plans that are classified as “endangered”, “seriously endangered”, or “critical”. We do not currently anticipate withdrawal from any multi-employer pension plans. Withdrawal liabilities or requirements for increased future contributions could negatively impact our results of operations and liquidity;
- We enter into employment agreements with certain employees which provide for compensation and benefits under certain circumstances and which may contain a change of control clause. We may be obligated to make payments under the terms of these agreements; and
- From time to time, we make other guarantees, such as guaranteeing the obligations of our subsidiaries.

### Effects of Inflation and Changing Prices

Our operations are affected by increases in prices, whether caused by inflation or other economic factors. We attempt to recover anticipated increases in the cost of labor, equipment, fuel and materials through price escalation provisions that allow us to adjust billing rates for certain major contracts annually; by considering the estimated effect of such increases when bidding or pricing new work; or by entering into back-to-back contracts with suppliers and subcontractors. However, the annual adjustment provided by certain contracts is typically subject to a cap and there can be an extended period of time between the impact of inflation on our costs and when billing rates are adjusted. In some cases, our actual cost increases have exceeded the contractual caps, and therefore negatively impacted our operations. We have been able to renegotiate some of our major contracts to address the increased costs on future work and will continue to address this with our customers going forward.

## Market risk

As filed, 1,185 characters.

In the ordinary course of business, we are exposed to risks related to market conditions. These risks primarily include fluctuations in foreign currency exchange rates, interest rates and commodity prices. We may seek to manage these risks through the use of financial derivative instruments. These instruments may include foreign currency exchange contracts and interest rate swaps.

*Interest rate risk.* Our Revolving Credit Facility and New Term Loan bear interest at a variable rate which exposes us to interest rate risk. From time to time, we may use certain derivative instruments to hedge our exposure to variable interest rates. As of September 30, 2022, $124.8 million of our variable rate debt outstanding was economically hedged. Based on our variable rate debt outstanding as of September 30, 2022, a 1.0% increase or decrease in interest rates would change annual interest expense by approximately $9.6 million.

We do not execute transactions or use financial derivative instruments for trading or speculative purposes. We generally enter into transactions with counterparties that are financial institutions as a means to limit significant exposure with any one party.

## Controls and procedures

As filed, 1,857 characters.

### Disclosure Controls and Procedures

As of September 30, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our “disclosure controls and procedures”, as such term is defined under Exchange Act Rules 13a-15(e) and 15d-15(e).

Based on this evaluation, our CEO and CFO concluded that, at September 30, 2022, the disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their stated objectives.

### Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting practices or processes that occurred during the quarter ended September 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Nov 8, 2022.
Source: SEC EDGAR, the filing index for accession 0001558370-22-016677. Last ingested by Listed: Oct 24, 2026, 15:11 ET. No prices; not investment advice.