Markets

Insider Trading

Hedge Funds

Retirement

Opinion

Primoris Services Corporation (NASDAQ:PRIM) Q1 2023 Earnings Call Transcript

Primoris Services Corporation (NASDAQ:PRIM) Q1 2023 Earnings Call Transcript May 10, 2023

Primoris Services Corporation beats earnings expectations. Reported EPS is $0.02, expectations were $-0.12.

Operator: Good morning. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primoris Services Corporation’s First Quarter 2023 Earnings Conference Call. [Operator Instructions]. Blake Holcomb, Vice President, Investor Relations. You may begin your conference.

Blake Holcomb: Good morning, and welcome to Primoris First Quarter 2023 Earnings Conference Call. Joining me today with prepared comments are Tom McCormick, President and Chief Executive Officer and Ken Dodgen, Chief Financial Officer. Before we begin, I’d like to make everyone aware of certain language contained in our safe harbor statement. The company cautions that certain statements made during this call are forward-looking and are subject to various risks and uncertainties. Actual results may differ materially from our projections and expectations. These risks and uncertainties are discussed in our reports filed with the SEC. Our forward-looking statements represent our outlook as of today, May 10, 2023, we may disclaim any obligation to update these statements, except as required by law.

In addition, during this conference call, we will make reference to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures are available on the Investors section of our website in our first quarter 2023 earnings release, which was issued yesterday. I would like to now turn the call over to Tom McCormick.

Thomas McCormick: Thank you, Blake. Good morning, and thank you for joining us today to discuss our first quarter 2023 financial results, an update on our operational performance and market outlook. Primoris kicked off 2023 with a solid first quarter. Our teams around the country executed their jobs safely and efficiently to help us exceed our goals for safety, revenue and gross profit as well as establish another record high for backlog. We accomplished these milestones in the face of economic uncertainty caused by failing financial institutions and the increasing likelihood of a recession on the horizon. I am proud of our employees response to these challenges and I want to thank them for their contributions to our success.

Their efforts in the first quarter have set a solid foundation for us to continue executing at a high level for the remainder of the year and achieve our annual objectives. Now let’s look at our operational performance more closely by segment. Beginning with the Utility segment, we were able to outperform our expectations for the quarter in all of our key metrics. Revenue, gross profit and backlog. The first quarter is generally our lowest revenue and margin quarter compared to the remainder of the year. This is often due to delays from winter weather conditions and the allocation of MSA work from customers that often begins to ramp up in the back half of the quarter. Stronger-than-anticipated work in Southern California and milder weather conditions in other geographies allowed us to execute on more backlog than anticipated.

We saw solid growth in our legacy power delivery and communications business that complemented the contributions from our PLH and B Comm acquisitions, where we continue to make significant progress in our integration process. The combined businesses are operating smoothly, and we are making progress in negotiating increases to MSA rates that are not in line with the current market. In fact, we submitted several high-profile power delivery MSA renewals during the quarter that we — will help cement our future backlog in updated market rates. These and other successful customer engagements resulted in our booking more than $650 million in new business in this segment during the quarter. We also made some modifications to our organizational structure in this segment during the quarter that we believe will allow us to better serve the needs of our customers and operate more efficiently.

First, we brought in additional talent that will strengthen our leadership teams particularly in power delivery. Second, we made changes to align our leadership to focus on our commercial efforts by product and service lines rather than by region in order to better target the breadth of our customers’ needs across multiple geographies. Finally, we are focusing increased attention on bidding and winning more project work in our power delivery business. Primoris has made substantial progress over the years in establishing strong long-term relationships with customers and increasing our mix of revenue that comes from MSAs across all of our businesses. This will remain a focus for us going forward as we believe it drives stability and predictability of our revenue in this segment.

However, we believe that our current volume of major projects, including transmission and substation work which represent less than 10% of current backlog can be further optimized. We have both the necessary expertise and market opportunity to improve our balance of project and MSA work, specifically in our power delivery operations. A greater balance between project and MSA work will deepen our client relationships by broadening our service offerings in a growing market and should enable us to expand segment margins. Turning to the Energy segment. We saw a similar seasonal outperformance driven by strong top line and margin growth from our renewables, industrial, and pipeline services businesses compared to the first quarter of 2022. In renewables, we had another quarter of solid execution from our solar business, which is experiencing a very robust project pipeline.

We continue to strive to operate in a manner that will allow us to achieve market outperformance in an industry that continues to experience some bumps in the road from both a macro and political perspective. While overall, a driver of anticipated growth in the coming years, the delay on the inflation reduction at guidance is still causing some hesitation by our customers in the near term until full guidance is issued. However, given our solid backlog of projects, we do not expect this delayed guidance to have a material impact on our ability to meet our performance objectives this year. We anticipate the IRA guidance will be issued to the market in the coming quarters and we’ll reaffirm the expected opportunities and increased backlog from the pipeline of projects we have in the quarters ahead.

Additionally, while there has been improvement in recent months, the market is still experiencing some module tariff delays in early to mid-2023. However, I remain disciplined in the partners we choose to work with and who have worked hard to secure module supply. We do not currently see significant risk to our projects. Furthermore, we expect that the supply chain for modules will continue to improve through the course of the year. Finally, due to the rapid growth of the market, there has been price movement on other materials used in the construction of projects. We have been able to mitigate these inflationary impacts by prebuying equipment and materials when necessary, locking up manufacturing allocations, self-performing the work for our clients and lowering our pricing risk due to market changes prior to executing a contract.

Renewables opportunities outside of solar also continue to present themselves in the markets we serve as our economy looks to transition to more diverse and less carbon-intensive energy sources. During the quarter, we booked the first of what we believe will be many opportunities for carbon capture utilization and storage pipeline projects or CCUS. These pipelines will fit well with our engineering and construction capabilities and can play a key part in a lower carbon future. In addition to CCUS opportunities. We also are pursuing a sales funnel of more than 50 hydrogen biomass and renewable natural gas projects that could lead to hundreds of millions of dollars more in revenue over the next several years. Our traditional energy portfolio of services is also off to a strong start in 2023.

We are beginning to see green shoots supported by infrastructure investment legislation and a growing LNG export market in the Gulf Coast that is driving increased bidding activity. While it remains only 10% of our overall revenue, we believe we’ve seen the trough in our pipeline services. In fact, we are seeing a steady growth in bid volumes for small and medium regional projects and have returned the business to positive margins following a difficult environment in 2022. The market remains competitive and permitting challenges persist, but we are optimistic to further improvement in revenue and margins on the horizon. With that, I’ll turn it over to Ken for more on our financial results.

Kenneth Dodgen: Good morning, everyone. Our revenue of $1.26 billion was a first quarter record for Primoris and up over $472 million from the prior year, driven by growth in both of our segments. The Energy segment was up $302 million or 71% from the prior year. Our renewables business contributed over $100 million of that growth, along with our pipeline and industrial businesses. Utility segment also saw strong growth of $170 million, up 47% from the prior year, driven by expected growth in our power delivery and communications businesses. Gross profit for the first quarter was approximately $100 million, an increase of $43 million from the prior year, primarily due to higher revenue, improved revenue mix and higher gross margins.

Gross margins were 7.9% for the quarter, which was an improvement over 7.2% in the prior year. Looking further at our segment results, in Utility segment, gross profit was $33.6 million, up over 50% compared to the prior year due to higher revenue and slightly better gross margins at 6.3%, this was driven by top line growth in our power delivery and communications businesses, along with some milder weather during the quarter that allowed our gas operations to see improved productivity. As is typical in this segment, we expect to see gross margins improve for the remainder of the year to achieve our 9% to 11% range following the seasonal lows in Q1. In the Energy segment, gross profit, which now includes pipeline, was $66.2 million for the quarter, a $32 million increase from the prior year due to both higher revenue and improved margins.

Gross margins came in at 9.1%, which is an improvement from 8% in the first quarter of last year. The higher gross margins were a result of improved mix from renewables work, which accounted for 1/3 of our revenue during the quarter and improved margins in our industrial and pipeline businesses. Similar to our Utility segment, we expect to see revenue and gross profit gradually increase in the coming quarters as we continue to grow our renewables business and make progress on our sizable backlog in the entire segment. Take a look at our SG&A expenses in the first quarter was $78 million, an increase of almost $23 million over the prior year but in line with our expectations. The increase in SG&A is primarily due to the additional PLH SG&A and incremental costs to support our strong organic growth.

However, as a percent of revenue, SG&A declined to 6.2% from 7.1% in the prior year due to stronger revenue growth, demonstrating improved operating leverage in the quarter. We expect SG&A for the full year to continue to trend in the low 6% range. Net interest expense in the first quarter was $18.5 million compared to $2.9 million in the prior year. The increase was due to higher average debt balances and higher average interest rates. We continue to anticipate our full year interest expense to range between $73 million and $77 million. Our effective tax rate was 28% for the quarter, and we expect this rate to be consistent for the full year depending on the states in which we work, and on nondeductible components of per diem expenses. Earnings for the quarter were improved across the board from the prior year.

EPS increased by $0.05 per share and adjusted EPS increased by $0.17 per share. More importantly, net income increased to $1.3 million, an increase of $3 million from the prior year and adjusted EBITDA increased to $52.8 million, an increase of over $30 million or 133.5% from the prior year. Turning next to cash flow. Q1 saw cash used in operations of $115.3 million. The primary driver was higher accounts receivables, unbilled revenue and retention as a result of significant revenue growth. In addition, Utilities customers generally have longer payment terms and require greater documentation to support our invoices, which also contributes to higher accounts receivable and higher contract assets. We are taking steps to improve both our billing and collections in order to maximize our ability to convert revenue to cash.

We are also working to reduce retention requirements, improved payment terms or include more upfront cash payments for mobilization and demobilization in many of our new contracts. We are confident that as we make progress on these initiatives over the next couple of years, we will see a more balanced working capital position as well as improved cash flow. We ended the quarter with $94.8 million of cash and net debt of approximately $1 billion. Borrowing capacity under our revolver was $177.7 million provided the total available liquidity of $272.5 million at quarter end. Total backlog at the end of the quarter was a little under $5.6 billion compared to $4 billion in the prior year, an increase of 38%, resulting in another record backlog. Fixed backlog increased to $3.5 billion, up over $1.1 billion or 47% primarily due to strength in our Energy segment.

MSA backlog was up 25% or $408 million to a little over $2 billion, driven by organic growth in our communications and power delivery businesses along with acquisitions. We expect 100% of our Utilities backlog and 60% of our Energy backlog to convert into revenue over the next 4 quarters. And finally, turning to our full year earnings guidance. We are reiterating our full year EPS guidance of $2.10 to $2.30 per share, adjusted EPS guidance of $2.50 to $2.70 per share and adjusted EBITDA guidance of $350 million to 370 million for the full year 2023. While Q1 exceeded our expectations, a portion of it was driven by projects and revenue that we expected later in the year. But with this strong start to 2023, we are optimistic that we can move toward the higher end of our guidance ranges if our end markets to continue this positive trend.

With that, I’ll turn it back over to Tom.

Thomas McCormick: Thanks, Ken. Before we open up the call to your questions, I’d like to restate a couple of key points and areas of emphasis for Primoris in 2023. First, across all our companies, we are committed to safety, quality and productivity and in that order. We believe that executing well in these areas will allow us to be the employer of choice to attract top talent to grow our share of work with our existing customers, open the door to new customers and improve profitability to grow the company to the benefit of our shareholders. Next, we are beginning to see the early signs of the benefits of recent federal legislation to increase infrastructure investment in communications, highways and bridges, renewable energy and electric grid improvements.

Although still awaiting clarity and administration of financial resources in many cases, the overall trend appears to be heading in a positive direction in many of our markets. Third, we have updated our commercial strategy in the Utility segment, and we believe will allow us to offer better service to our customers and be more productive in managing our skilled labor. This includes a more product line centric sales and operating structure and increasing our mix of project work, specifically in power delivery, which now represents more than half of the segment. Finally, we are optimistic that 2023 will be a year of great opportunity for Primoris. A year with the potential to set new records in revenue and backlog as a company, but also to lay the foundation for improving our profitability and consistently generating free cash flow.

Converting our revenue to cash and paying down debt remains a top capital allocation priority for us. We believe that reducing our leverage through a combination of growth and debt reduction will offer us flexibility to make further investments in Primoris to the benefit of our employees, customers and shareholders. We will now open up the call for your questions.

Q&A Session

Follow Primoris Services Corp (NASDAQ:PRIM)

Operator: [Operator Instructions]. Your first question comes from the line of Steven Fisher with UBS.

Operator: Your next question comes from the line of Lee Jagoda with CJS Securities.

Operator: Your next question comes from the line of Sean Eastman with KeyBanc.

Operator: Your next question comes from the line of Julio Romero with Sidoti & Company.

Operator: Your next question comes from the line of Adam Thalhimer with Thompson, Davis.

Operator: [Operator Instructions]. Your next question comes from the line of Brent Thielman with D.A. Davidson.

Operator: There are no further questions at this time. I turn the call back over to Tom for closing remarks.

Thomas McCormick: Thank you, operator. We appreciate your questions and your investment for Primoris. I’ll just close by recapping what I see as the 3 key takeaways from this quarter. Our strong first quarter results have set us on a solid path toward achieving our 2023 goals. We see opportunities to advance our strategic growth markets in renewables, communications and power deliveries, driven by secular market tailwinds and through offering services to our customers that leverage expertise across our segments. And finally, we will remain disciplined in how we bid work, diligent in the execution of projects and mindful of the allocation of resources to improve profitability and generate consistent cash flow. Thank you, and we look forward to updating you next quarter.

Operator: This concludes today’s conference call. Thank you for attending. You may now disconnect.

Follow Primoris Services Corp (NASDAQ:PRIM)

AI Fire Sale: Insider Monkey’s #1 AI Stock Pick Is On A Steep Discount

Artificial intelligence is the greatest investment opportunity of our lifetime. The time to invest in groundbreaking AI is now, and this stock is a steal!

The whispers are turning into roars.

Artificial intelligence isn’t science fiction anymore.

It’s the revolution reshaping every industry on the planet.

From driverless cars to medical breakthroughs, AI is on the cusp of a global explosion, and savvy investors stand to reap the rewards.

Here’s why this is the prime moment to jump on the AI bandwagon:

Exponential Growth on the Horizon: Forget linear growth – AI is poised for a hockey stick trajectory.

Imagine every sector, from healthcare to finance, infused with superhuman intelligence.

We’re talking disease prediction, hyper-personalized marketing, and automated logistics that streamline everything.

This isn’t a maybe – it’s an inevitability.

Early investors will be the ones positioned to ride the wave of this technological tsunami.

Ground Floor Opportunity: Remember the early days of the internet?

Those who saw the potential of tech giants back then are sitting pretty today.

AI is at a similar inflection point.

We’re not talking about established players – we’re talking about nimble startups with groundbreaking ideas and the potential to become the next Google or Amazon.

This is your chance to get in before the rockets take off!

Disruption is the New Name of the Game: Let’s face it, complacency breeds stagnation.

AI is the ultimate disruptor, and it’s shaking the foundations of traditional industries.

The companies that embrace AI will thrive, while the dinosaurs clinging to outdated methods will be left in the dust.

As an investor, you want to be on the side of the winners, and AI is the winning ticket.

The Talent Pool is Overflowing: The world’s brightest minds are flocking to AI.

From computer scientists to mathematicians, the next generation of innovators is pouring its energy into this field.

This influx of talent guarantees a constant stream of groundbreaking ideas and rapid advancements.

By investing in AI, you’re essentially backing the future.

The future is powered by artificial intelligence, and the time to invest is NOW.

Don’t be a spectator in this technological revolution.

Dive into the AI gold rush and watch your portfolio soar alongside the brightest minds of our generation.

This isn’t just about making money – it’s about being part of the future.

So, buckle up and get ready for the ride of your investment life!

Act Now and Unlock a Potential 10,000% Return: This AI Stock is a Diamond in the Rough (But Our Help is Key!)

The AI revolution is upon us, and savvy investors stand to make a fortune.

But with so many choices, how do you find the hidden gem – the company poised for explosive growth?

That’s where our expertise comes in.

We’ve got the answer, but there’s a twist…

Imagine an AI company so groundbreaking, so far ahead of the curve, that even if its stock price quadrupled today, it would still be considered ridiculously cheap.

That’s the potential you’re looking at. This isn’t just about a decent return – we’re talking about a 10,000% gain over the next decade!

Our research team has identified a hidden gem – an AI company with cutting-edge technology, massive potential, and a current stock price that screams opportunity.

This company boasts the most advanced technology in the AI sector, putting them leagues ahead of competitors.

It’s like having a race car on a go-kart track.

They have a strong possibility of cornering entire markets, becoming the undisputed leader in their field.

Here’s the catch (it’s a good one): To uncover this sleeping giant, you’ll need our exclusive intel.

We want to make sure none of our valued readers miss out on this groundbreaking opportunity!

That’s why we’re slashing the price of our Premium Readership Newsletter by a whopping 70%.

For a ridiculously low price of just $29, you can unlock a year’s worth of in-depth investment research and exclusive insights – that’s less than a single restaurant meal!

Here’s why this is a deal you can’t afford to pass up:

• Access to our Detailed Report on this Game-Changing AI Stock: Our in-depth report dives deep into our #1 AI stock’s groundbreaking technology and massive growth potential.

• 11 New Issues of Our Premium Readership Newsletter: You will also receive 11 new issues and at least one new stock pick per month from our monthly newsletter’s portfolio over the next 12 months. These stocks are handpicked by our research director, Dr. Inan Dogan.

• One free upcoming issue of our 70+ page Quarterly Newsletter: A value of $149

• Bonus Reports: Premium access to members-only fund manager video interviews

• Ad-Free Browsing: Enjoy a year of investment research free from distracting banner and pop-up ads, allowing you to focus on uncovering the next big opportunity.

• 30-Day Money-Back Guarantee:  If you’re not absolutely satisfied with our service, we’ll provide a full refund within 30 days, no questions asked.

 

Space is Limited! Only 1000 spots are available for this exclusive offer. Don’t let this chance slip away – subscribe to our Premium Readership Newsletter today and unlock the potential for a life-changing investment.

Here’s what to do next:

1. Head over to our website and subscribe to our Premium Readership Newsletter for just $29.

2. Enjoy a year of ad-free browsing, exclusive access to our in-depth report on the revolutionary AI company, and the upcoming issues of our Premium Readership Newsletter over the next 12 months.

3. Sit back, relax, and know that you’re backed by our ironclad 30-day money-back guarantee.

Don’t miss out on this incredible opportunity! Subscribe now and take control of your AI investment future!


No worries about auto-renewals! Our 30-Day Money-Back Guarantee applies whether you’re joining us for the first time or renewing your subscription a year later!

China’s terrifying internet “Master Key”… and the one microcap that could stop them

In August 2024, news outlets around the world revealed one of the most shocking data breaches in recent history.

Approximately 2.9 billion records, including names, email addresses, phone numbers, mailing addresses, financial data and, distressingly, Social Security numbers, were stolen when Coral Springs, Florida, firm National Public Data (NPD) suffered a massive cyberattack. The company confirmed that the breach, which happened in December 2023, resulted in the potential leaks of data in the summer of 2024.

Nearly every day in the news, we hear about yet another damaging data breach or ransomware attack that puts valuable data — including yours — into the hands of hackers. And the number of attacks is soaring — up 30% year over year according to the latest numbers.

As bad as this is, it’s a day at the beach compared to what’s coming.

That’s because hostile nations across the globe — including Iran, North Korea, Russia and Communist China are going all-out to develop a breakthrough technology that will unlock what I call the “Master Key” to the Internet.

If they succeed in harnessing this groundbreaking “Master Key” technology, the consequences could be catastrophic.

Click to continue reading…