Q2 2020 Primoris Services Corp Earnings Call

August 4, 2020

[music].

Greetings and welcome to provide versus 2022nd quarter results.

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A brief question and answer session will follow the fall presentation.

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Please note this conference is being recorded.

At this time I'll turn the conference over to Kate Tholking, Vice President Investor Relations. Please go ahead.

Thank you Ron good morning, everyone and thank you for joining us today, our speakers for today will be Tom Mccormick remorse, President and Chief Executive Officer, and Ken Dogen, Our executive Vice President and Chief Financial Officer.

Addition to this mornings press release, we have also posted slides on our website that highlight key points. We plan to discussed on this call you can access them by going to our corporate website www dot from Dot Com then selecting investors once on the Investor site, you'll find the slides in the events and presentations section next to the webcast link for today's.

Call before we begin I'd like to remind everyone that statements made during today's call may contain certain forward looking statements, including with regard to the company's future performance words, such as estimates believes expects projects may and future or similar expressions are intended to identify forward looking statement.

Yeah.

Forward looking statements inherently involve risks and uncertainties, including without limitation those discussed in this mornings press release and those detailed in the risk factor section and other portions in our annual report on form 10-K for the period ending December 30, Onest 2019, and other filings with the Securities Exchange Commission from.

This does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise, except as may be required under applicable securities laws I'd now like to turn the call over to our CEO Tom Mccormick.

Thanks Jay.

Good morning, everyone and thank you for joining us today to discuss our second quarter results.

This was an outstanding quarter for Primoris and due to the commitment and hard work of our employees, we were able to successfully execute on projects, while simultaneously implementing new protocols to keep our employees customers and community site.

While there are some impacts from koby 19, such as several clients being slow to release work and learning how to comply with the various state county, and or municipality health orders is difficult to put a precise dollar figure on these costs were forecast how long they will continue.

Despite the impacts imposed by the pandemic Primoris experienced this best second quarter in our history, both topline and bottom line.

The fact that we delivered these results while working over 13.2 million work hours year to date and maintaining an excellent safety record is a testament to the commitment of all of our employees to keep themselves. They are co workers in their communities site.

We focused on project execution, and improving cash flow in our employees subcontractors and suppliers continue to operate safely and efficiently during the quarter.

Our SG Nay continues to decline as a percent of revenue in our operating cash flow in the quarter was one of the best in the company's history.

With our robust balance sheet, we're in a position of strength as we evaluate new opportunities for growth other through internal investment or by acquisition.

As you saw from our numerous press releases, we hit a near record bookings in the quarter and even with a record revenue burn our backlog remains strong.

It should be noted that our backlog does still include the CP project.

We were disappointed that our client has announced their plan to cancel the project. However, we have not yet received a formal notice of termination nor any direction as to what work should be completed prior to our demobilization from the project. Once that is received and we were able to revaluate the revenue associated with the remaining work, including demobilization reinstatement et cetera.

We expect to adjust our backlog accordingly.

Now looking at the second quarter results, let's start with our civil segment.

We have made great progress in the turnaround of our heavy civil operations and are now seeing consistent positive results from this segment, which are the result of our dedicated employees and a qualified and professional management team that took ownership of the issues within the business unit and implemented the control the performance initiatives necessary to turn it around.

The heavy civil market looks stable for the remainder of the year and into next at this time, we were not seeing any large impacts of state budgets from lower gas tax revenue or the pandemic.

Our industrial team in this segment is performing well in their current book of business, though we are seeing some softness in their markets is new projects are pushed into either late this year or into 2021.

The headwinds to global demand created by the pandemic and low energy prices could lead to some revenue softness in the second half of this year, but we are being disciplined in our bidding approach and still expect to segment to finish the year at the high end of our target margin range.

Moving onto the power industrial engineering seven segment.

Given the broad range of end markets. This segment covers our results are varied significantly based on the end market to the positive our performance in the renewables market was outstanding both with record bookings and record execution on existing projects.

During the second quarter, we announced over $260 million, a new solar awards.

Constructing a large scale solar facilities as a different processes process than our other industrial work. It's much more like manufacturing as you are repeating a process potentially hundreds of thousands of times as you install all the components and equipment associated with the solar facility.

We have a very experienced management team that has been designing a construction solar facilities for most of their careers. This team is very adept at using their experience and taking the lessons learned from previous solar projects and applying them to new projects.

The impact on project margins has been significant.

While the solar market is seeing some slight impact from coven 19, the tailwinds such as state renewable energy mandates in the push for clean energy continued to drive growth and we're continuing to execute our strategy to find great partners that have large portfolios of projects that need to be constructed over the next several years.

Capital spending a turnaround budgets in the California refinery market have decreased but we are seeing growing opportunities in the biofuel market, which has similar drivers to the solar market.

We announced a $200 million, California Biofuel award in the quarter and are focused on small cap and critical maintenance projects that help our clients and sure business continuity and keep our people working.

We're also continuing to pursue recurring work and recently negotiated a three year contract extension on one of our existing MSR days for oilfield maintenance work.

The volatility in the energy markets continued to impact our operations in Western Canada as key oil sands customers basically froze capital spending and deferred maintenance, but we are seeing projects delayed rather than outright cancelled, indicating a somewhat favorable industry outlook for 2021.

Our team is focused on cost reduction measures, while maintaining our market share and we were able to offset some of the second quarter revenue declined with strong margins.

Our non union industrial team was challenges quarter as costs associated with the project in the northeast impacted the business from problems on the project were largely due to quantity and forecast changes associated with subcontractor pricing rather than execution issues. We are working to mitigate some of the cost increases through improved project execution and control as well as reserve.

Solving some outstanding issues with our clients, we've made management changes at multiple levels within the group and are seeing positive results. They have some legacy projects remain to complete we expect improved margins out of this business unit in the future.

The Gulf industrial market is going to be tied as we head into 2021, but we're not chasing the mega projects and are confident that we can win our fair share of the small cap and midsize projects.

The pipeline underground segment had an outstanding quarter, contrary to the negative sentiment over overheard on the street, we booked over $200 million New awards in the quarter setting the segment up for a solid second half of 2020.

Our large diameter pipeline division did more revenue in the second quarter 2020 than they did not ultimately 19.

We expect to see some slowdown the second half a year for them as they complete their current projects. The based on the strength of the first half we still expect outperform our full year expectations.

Activity picked up in the second quarter for smaller diameter intrastate pipeline work and we saw significant improvement both revenue and margins.

And though our field services team has been impacted flow from lower energy prices with some projects being pushed into next year. They all set the revenue declined with good execution on projects leading to an overall increase in gross profit.

As we look ahead to 2021 for the segment, we expect most if not all of HCP to to replace excuse me most if not all of HCP with multiple smaller projects.

The utilities and distribution segment experienced our typical seasonal ramp up in the second quarter across the Midwest favorable weather and project mix allowed us to realize better margins rebounding from a challenge in Q1.

In California, we were able to outperform our expectations. Despite a major reduction in work from one customer the southern California market remains strong and we have received multiple awards on a major pipeline replacement project with a large utility.

Our operations in the southeast improved in the quarter, not just driven by weather and project mix, but an execution is well over the past several quarters. We've taken a hard look at our contracts in that region, and renegotiated or exited less favorable contracts while at the same time adjusting our equipment levels needed for the work as well as upgrading our management teams were externally.

Pleased with the hard work of our team and the results they delivered.

In a similar vein the transmission and distribution segment is also seeing significant improvement thanks to a cost reduction initiatives and execution improvements.

We made some changes that various management levels place people enrolls, which they are better suited and brought in more talent at the management levels. We expect full year result results will be solidly within our targeted margin range.

As you can see it was a great quarter for Primoris and we are optimistic for the remainder of the year as I said last quarter. The withdrawal of guidance was not because of underlying concerns with the long term strength of our end markets and opportunities, but due to the near term uncertainty related to the pandemic and the price of oil we've learned a lot. Since then and we know how to operate successfully and safely under these new condition.

Runs so it is with confidence that we reinstate guidance for the year in the range of $1.60 to $1.80.

With that I'll turn it over to can for deeper dive into the numbers.

Thanks, Tom and good morning, everyone I'll review, our second quarter operating results compared to the second quarter 2019, and then move on to our cash flows balance sheet and backlog.

Our second quarter 2020 revenue was 908.2 million, an increase of 118.3 million or 15% better compared to the second quarter 2019.

The increase was driven by the pipeline segment, which increased 152.3 million as they burned revenue on multiple projects that started in the first quarter. This year.

This was partially offset by $14.7 million reduction in power segment revenue due to the oil impacts on our Canadian operations and a $25.4 million reduction in transmission segment revenue from lower Lettings in the quarter.

Our largest customers in the quarter, where midstream pipeline company, which drove some of the revenue increase in the pipeline segment, followed by gas utility customer and an electric utility customer together, our top three customers accounted for roughly 29% of revenue in the quarter.

Gross profit in the second quarter was 101 million compared to 80.5 million in the prior year due to increased revenue and margins as a percent of revenue gross profit in the second quarter was 11.1% compared to 10.2% in the prior year.

The increase comes from improved margin performance in four of our five segments pipeline utilities transmission and civil.

Our typical seasonal ramp up helped by good weather conditions project mix and strong New awards all contributed to the increase in margins.

We are pleased with the margin increase in the transmission segment, where we're now seeing the positive impact from the improvements we implemented over the past several quarters.

Civil margins exceeded expectations due to improved productivity on an LNG project and our gas utility margins exceeded expectations due to better execution and some project close outs during the quarter.

Power segment margins declined in the second quarter, mainly due to the project to northeast the Tom previously mentioned.

We expect the margins for the second is segment to improve in the second half of the year aided by stronger performance on solar and biofuel projects.

As you know expense in the quarter was 51.4 million up slightly from 48.7 million last year, but as a percent of revenue estimate was 5.7% and improvement over last year at 6.2% of revenue.

We believe we can continue to operate in the high 5% to low 6% range and potentially be below 6% for the full year 2020.

Interest expense in the second quarter was 3.7 million compared to 6.7 million in the second quarter 2019.

We had minimal impact this quarter from our interest rate swap compared to a $2.7 million unrealized loss last year.

The effective tax rate on income attributable Primoris remain unchanged at 29% in the second quarter and is our expectation we will remain at this effective tax rate for the full year and.

And second quarter net income attributable for Morris was a record setting $33 million or 68 cents per fully diluted share. This is the best second quarter result in the company's history, and it's not far off the record 70 cents that we sit in the third quarter of 2019.

Our strong earnings translated into great cash flow for the second quarter with cash flow from operations generating 66.1 million, a 90.5 million dollar improved swing compared to last years 24.4 million use of cash.

Managing our working capital continues to be a focus for us and we saw the results in this quarter, despite normal seasonal increases in accounts receivable and contract assets.

Turning to capital expenditures year to date, we spent 21.7 million most of which was on construction equipment.

This is significantly less than the sooner than the 56.9 million. We spent last year in keeping with our previously announced plans to lower capex spending this year to the $40 million to $50 million range.

We sold 12.1 million of older or underutilized equipment year to date, resulting in net capex of 9.6 million compared to $35.7 million last year.

Early in the second quarter, we paused our share repurchase program as we worked to understand how cobot 19 might impact our cash flow by June we feel comfortable reinstating the program and we purchased 57731 shares for approximately $950000 at an average price of $16.46 per share year to date, we spend a totaled eight point.

3 million on share repurchases and approximately 16.7 million remains under the current repurchase authorization.

Strong earnings and operating cash flows resulted in $155.7 million of cash on the balance sheet at the end of the quarter and an additional 142.8 million of borrowing capacity on our revolver.

Total debt of 352.8 million was basically flat compared to year end 2019, but down 59.2 million compared to Q2 of 2019.

And our net debt was only 197.1 million at the ended the quarter.

Our weighted average interest rate is down to 3.7% compared to 4.2% at the end of Q2 2019.

As Tom mentioned fix backlog grew 19% in the second quarter to 2.3 billion. Thanks, primarily to strong new bookings in our power segment. The fix backlog for the pipeline segment does to include roughly half a billion tied to the HCP project. When we have more clarity on the remaining scope of work, we expect to adjust our backlog accordingly.

MSC backlog saw minimal decline in the second quarter coming in at 1.2 billion. The majority of the decrease came from the utility segment as we lowered expectations for spending by major California customer.

Total backlog grew to 3.5 billion and it's important to note that even excluding the HCP project. Our total backlog would have been above 3 billion.

With that in mind, our full year earnings guidance is dollar 60 to $1.80 per share our guidance assumes very little work on HCP for the rest of the year some recovery of margins in the power segment and typical margins in the remaining four segments.

With that we can turn it over to your questions Rob.

Thank you will have a conducting question and answer session.

Asking question today. Please press star one from your telephone keypad and a confirmation tone indicate your lines in the question Q.

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One moment, please only poll for questions.

Okay.

Thank you. Our first question is coming from the line of Adam Thalhimer with Thompson Davis.

Hey, good morning, guys Congrats great results.

A lot of segments.

Thanks, Adam.

Just curious in the utilities and distribution space, what's the customer.

And then what would you say their mood is like in kind of customer spending levels.

Cautious.

I think there.

All they all have been talking about the fact that theyre.

Client demand or demand for their products, where their services are down they don't know when it's going to answer there's some uncertainty a little bit going forward in discussions about slowing down their capital under spending a little bit if they cannot CNN, but that that talk is that retrofits and going on for a while and we haven't seen a lot of it I think thats.

What started the year slowed certainly impacted our first quarter and little bit slowed and starting to second quarter Toobin's ramped up since then and the several those same clients are wanting to catch up now under spend in the third quarter weather permitting so it's a little bit mix, but its call I think most for the most portage cautious.

Okay. So it kind of embedded within your guidance maybe that segments.

For the full year kind of ends up kind of flattish.

Hi.

At revenue that could be writing thats about right.

Okay, and then in pipeline underground.

I mean, a lot of the backlog JCP you talked about replacing what do you seen in the bidding environment right now.

There are still a lot of opportunity and gas pipelines.

Certainly intrastate smaller diameter.

There is there's a number of packages that we have opportunities to bid on there's a number that we are bidding.

Liquids, a little bit slower.

They are starting to see some of those coming back, but maybe it will be in 2021, but it's still not at the at the volume. So I think it's going to be a little more competitive led to be selective and sharpen our pencils little bit.

Okay, and then just lastly in that and mission space really good margins Q2.

And that segments bounced around a little bit, but you think you can kind of build on Q2 going forward. I think we can think theres a lot of opportunity in that work, we're actually explain it trying to expand our client base and that in the transmission and substation portion of that business, which I think we're having some success in lot of its just in discipline and how they manage their.

Equipment. It moves it was in the you heard me say early getting the right people in the right places the right positions and we've got a management team in place now that is really driving performance.

Thank you heard US said last year, when we signed a large contract with a major client there were some opportunity and that in our rights to perform better. If we wanted if we were to perform better there's opportunity for us to make the little bit higher margins and we're seeing that now so I think a lot of its and just being disciplined.

Good they get rid of equipment, there were not utilizing and utilizing the equipment, we have and making sure that's making its way onto the invoices to the clients and then.

Our execution performance has improved.

Okay.

Great Okay ill turn it over thanks a lot.

Thank you thanks Adam.

Next question comes from the line of Lee Jagoda with CJS Securities.

Hey, good morning.

Okay.

So just going at that last question around transmission margins, a little differently. I think you made the comment you expect the full year results to be solidly within your target margin range for transmission.

Given the issues you've had what what is the target margin range that you think you'll get too.

I think those we've always said, it's kind of 8% to 12% and so we had a good quarter. This quarter at 12% I think the balance of years, probably going to be in that 10% to 12% range.

Okay.

And.

I guess looking ahead.

All of US I would assume on most of this is from just the renegotiation and then the all the negatives or some of the negative is dropping off is that fair way to think about it yes, I think thats right Weve and we still have some contracts renegotiate we've walked away from some unprofitable contracts.

And as Tom mentioned streamlining the equipment getting out of those legacy old leases from when we bought them that just took longer than we thought.

Legacy facility leases as well this has been a number of things that just took a little bit longer than we thought.

The good news is performing as we expected it to getting out of some markets that we were going to make money at 3.0. So that would just wasn't possible for us to make money at the rights. We had in the contracts we've stepped out of those markets, which has helped.

Okay, and then looking at the power segment I think you made the comment that you see some recovery in the power margins.

I mean, given where we came from and where we were in Q2 some recovery doesn't.

Yes, it doesnt muscling through a whole lot of confidence is there a way to kind of give us some more confidence around margins and.

Let me go into.

The the breadth of the LNG project, that's causing you some issues and where it is more profitability perspective, there's so many different components of that power and industrial segment that if I looked at the union industrial part of it their margins are going to be pretty normal there their execution on projects is going well. They said they had a couple issues on.

Some projects for they've got some claims in front of the clients and they've had some impacts that they've already absorbed those and moved on into those those aren't lost projects. These projects are performing well now it's just they they took a bite.

Earlier in the year late last year, if you talk about renewables theyre, they're performing extremely well and their margins are.

Right, where we expected it will be if not higher you look at the engineering is going to suffer a little bit just because one of our engineering groups is the PD and see part of that is.

Primarily.

Dependent upon price of oil into they work primarily in refining their revenues are down their margins are still reasonable as a percentage of the revenues for the revenues are going to be down it's not a big part of our business that business that segment anyway. It was a non union part industrial component of our business that.

He is responsible for the Eversource job I think most of that's behind US Lee on Eversource, Although you always still have some risk as that project will complete until 2021.

But as far as getting the right people in place to build out the project, we have that as far as the management team, we actually hits have seen some turnaround on some projects that this management team took over that were legacy projects to decline is now giving that group more work because their performance is good and is being recognized so I think.

They can finish out these legacy projects finish out the the LNG project in the northeast.

And for the balance of a we're seeing good margins on the balance of their work. So I think that thank the upside is down the road.

Got it one more for me on on the power side, the 800 million of fixed backlog within the power segment can you breakout how much of that is solar in renewables versus the other work and given that most of that is going to burn within the next four quarters. How much capacity do you have to add more work in the short term in that segment for renewables and solar.

Hi.

That's a good question I don't have the breakout in front of me right now leave but I would I would expect.

Renewables is at least right now 250 to maybe as much as 300 of it and the rest is spread across the rest of and Thats predominantly because we announced 260 million of New awards during Q2.

Now that as far as capacity goes.

We're continuing to recruit and hire people in train people in that renewables group different teams were actually.

Selling the services of our project teams to clients that we have partnerships with its in those teams a number of those teams are committed to future work with these clients. It does mean contracts are signed me they're committed to future work with these clients, which means they're working on the to the scope in the estimate development and the execution development of those projects.

Well, they're working on a current project and I'll move to those projects when they're done.

So theres a lot of opportunity in that renewables work for for growth.

You're not including or you're not including the biofuels piece in that renewables on very slowly being is that incremental.

Thats incremental thats incremental.

Got it so between Biofuels in solar it's more like.

No.

By 50 watts of the 800.

Five to 550 best guess, yes.

Okay.

Thats all I have thank you actually.

Our next question is from the line of Brent generation with da Davidson.

Hey.

Good morning, Congrats Britt Hey, Brett.

Well I appreciate the last time, we bring up arena.

Hi.

How come on its a gift that keeps on giving.

Maybe maybe.

Whatever.

In the backlog.

I understand reader rabbit, maybe talk about the potential scenarios that could play out here and just wondering if there's a breakup or cancellation fee, you're you're able to discuss publicly.

No we well I can you can't discuss that because we got we need to meet with the client we need to understand the terms of the cancellation.

But I would ask expect obviously theres demobilization costs, there will be part of that there's there's a lot of reinstatement that we'll have to take place along the right away in the in the light on yards in the in the equipment yards that that will need to be returned back to their original conditions. Now we don't know whether the clients can have the consortium members do that.

Or higher third parties to do that that's really what we're waiting on I think there in the process of developing a plan. We have some meeting scheduled with them they've moved those meetings a couple times, we expect a probably move them at least one more time. So they can finalize their plans before they can meet with the consortium members.

In our partners and talk about okay, where they want us to do with respect to moving off site.

And completing the project to whatever extent they needed.

Okay Thats why we let okay that quite frankly is why we left in backlog is I know how much I havent backlog I have no idea, what I'm going to spend going forward, while our revenue will be going forward until I hear from that yet.

Understood understood.

And then Tomich Tonight on pipeline.

It sounds like pretty good visibility into the second half overall, yes, I guess I'm just kind of wondering how you guys in preparing for the next couple of years I mean in your and your sort of model. Under you are you preparing for a hard landing or is that that being too pessimistic based on what you all see today.

Well I I'd say, it's being a little bit too pessimistic I don't think we're going to see.

We're happy to replace HCP with another large project, but I think I think most of the revenue over the course of the next two years can be replaced with smaller projects. We just we got to get competitive we we've got to chase a REIT projects with a REIT clients, but I think thats possible replace that revenue was smaller projects, maybe it's $50 million less in revenue a year.

Okay.

Maybe not but we showed this year even between both groups as they can go on competitively bid work in when work is just now it's just the timing of those projects when they bid and how fast they move so we'll see.

Okay.

Yes, I mean really strong cash flow.

Quarter, just wondering if their particular business units driving that are or any pull forward.

No. It was really across all the businesses this quarter strong margins held.

Then just working capital management, we've got all orders oars in the water rowing in the same direction. So it was a good quarter.

Yes.

Okay, well, thanks, guys. Congrats again thanks.

Thank you the next questions from the line of Leo Ramiro with Sidoti <unk> Company.

Hey, good morning popular well we are a Julio now are you.

Im good. Thanks, So I wanted to touch again on that power segment.

Any clarity as to when demand comes back for Western Canada and is that margin recovery you expect in the second half kind of dependent none of recovery in Western Canada.

It is not dependent on a recovery in western Canada.

And I wish I knew I can tell you when oil prices in the demands and started going back up but I actually don't it's something we're going to take a hard look at as we develop our plans for 2021.

What I will say is that our western Canadian operation.

Management team in extremely good job of Rightsizing that business unit it with for lower Mark for the lower revenue and they've been able to maintain their margins at a reasonable percentage based on that so I don't know how long they are going have to hold that.

They have the ability to do that so we'll just have to see.

Understood and I appreciate you reinstating guidance I mean, it sounds like your visibility has improved I get partly because of your mix shift over the years to smaller projects, but also because you probably learned in real time, how resilient. Your businesses are right. I mean is that fair takeaway here and do you feel a little more confident in the resiliency.

You have your of the portfolio.

The I feel much more confident than in the resilience of the portfolios is good to be diverse but it's also to be in the type of businesses that we're in we're very fortunate into all of our business were being the central So we were able to continue working and then it was just making the adjustments. So that we could work safely meter class requirements meet the municipality or the government requirement requirements and healthy.

Orders in our employees really responded well.

With change which was fantastic.

Yes, just to add to that I think one of the big things that we were waiting to see the last time, we spoke to you guys right. After Q1 was just how our clients were going to respond to that and how resilient and how they were going to be able to just and I think once they figured out that they could adjust and keep lettings going even though there was a slow us slight pause and methods.

Slowed down a little bit once they got through that and figured it out that it was easy for us to respond. So it was it was kind of joint effort and we still have clients at all or staff are still working at home, they're just figured out how to issue work orders and release work and review invoices and do that all remotely so that they themselves have done a fantastic job of adjusting to these changes.

Okay I'll hop back into queue. Thank you. Thank you. Thanks.

Thank you as a reminder to ask a question today evening Press Star one.

The next questions from the line of shown Eastman with Keybanc.

Hi, Tim Network this call John.

Thanks for taking my question I just wanted to go back to the pipeline segment.

Just in light of the HCP cancellation, and you guys trending towards them pretty healthy growth in that segment in 2020.

Just trying to think about this pivot to you know smaller projects.

What that means for sort of the sustainability of this revenue run rate were added in 2020, and what sort of the prospect is less large mainline pipeline activity.

Going into 2021 means for margins.

So with respect to the revenue.

It's going to be up I would expect and Mike. So we're just now making preparations to start our planning for 2021.

For our business plan, but I would expect you probably see us either flat to a slight decrease in revenue I don't expect to see that that segment really grow if it does it's going to be through the field services component of it which will also come with the the increase in oil demand and the price of oil.

Maybe some opportunity for that business unit to grow because it has run over the.

Past few years from a pipeline standpoint, if I would be actually satisfied if it were to stay flat.

From a margin standpoint, I don't really expect much change from the range that we have in our numbers.

Just a lot of that is dependent upon the type of contracts how much risk to client tags and of course, if there's if there is more.

Competition for projects, you'll see a little bit of pressure on the on the percentage of profit across the board.

But I think that range is still pretty reasonable, yes, I think just to add to what Tom said I think it's important remember that these small to medium projects are not new for US. This is part of our ongoing business model that we've been doing for for years and years. So just because we don't have Atlantic coast pipeline doesn't mean, we're truly changing our business model, we're just could be doing more.

Work in that in that segment around the small midsize five and probably more maintenance work as well.

It's just like it before I CP, even though we were pursuing projects like with the two we executed in Florida was we're not chasing these mega projects, we chase all sizes and and the Union portion of our pipeline grew pass through the beacon competitive in that business. So.

We'll just see there are pursuing work now they've they've been.

Told there shortlisted on a number of projects.

One or two projects, even now whether those projects go four to one to climb decides to make a decision to move forward we'll see.

Got it that's helpful and then on the Chinese segment.

But after a few times, but could you could you just tell us what the gross margin that segment would have been if not for the execution challenges on the LNG project in the northeast then.

Should we be assuming clean execution margins well within your targeted range of 2021.

Just based on the.

Execution left on that project I mean.

Yes, just trying to get comfortable around that given we've got a couple of quarters here now with different issues popping up in that segment.

Yes, I think without the impact of that one job, we would be right in our target range of kind of 10% to 12% for those guys.

Going forward, that's where we expect as well.

As Tom said, we think we've got all those issues behind us.

We've taken the hit this quarter, but we still have to finish the job and won't be done until sometime in the first half of 2021. So once we get passed that than we had a better clarity im not sure how much revenue in the job goes into 2021, there'll be a slide dilutive effect, but not enough to get us out of that range right.

Okay also very helpful. And then just us and that's a backlog dynamic dipped sequentially a little bit you mentioned, one particular customer where you had to trim. Some some assumptions there.

Does that and I say backlog start to trend back up in the second half and Im trying to think about.

What the this sort of dip down means for growth in the.

And I say driven segments in the out year.

Well, we had a couple of clients that push we were actually supposed to renegotiate terms on couple emphasized in the first quarter early second quarter, those got pushed to third quarter because of the pandemic and.

And everything that was going on at the time. So we expect that those will come back. So I do expect that the person emphasize as a percentage or total revenue total backlog will come up the also.

The other thing to had an impact on that as we head.

Two $260 million a renewable awards couple hundred million Dollarss, which was launched some than a couple hundred million dollarss in.

And the biofuel and then another.

But a couple hundred million dollars and pipeline awards, which warm so you get a large.

Volume or large amount of.

Fixed price work that was awarded in the quarter that kind of drove that diluted that percentage down also so the answer. Your question launched short answer is yes, I expect them to come up.

Okay great.

Really appreciate it I'll turn it over.

Thanks, Sean.

Thank you. Our next question is a follow up from Adam Thalhimer with Thompson Davis.

Thanks.

And what are your early thoughts on total company.

21 like down flat up.

I've been model in.

Most contractors down next year, but I tell you where your backlog is at the into Q2 I just another that makes any sense.

Yeah, I think we're going to be flat in some some of our segments, but I'll tell you add them up our other segments Act spectrum to be up I mean, if you look it even if you look at power as a lot of that's going to be flat, but if you look at the renewables part of that there's significant opportunities for us and we're growing that business. So I expect that will be up I expect our utilities will be up.

And I expect are both TNT and you Andy.

[music].

Okay, that's what I kind of thought [laughter] appreciate it all right.

Thanks, Adam Thanks, Adam.

Thank you.

This time Weve reached the end of a question answer session I'll hand, the call back to Tom Mccourt me for closing remarks.

I will thank you everyone for joining us. We appreciate you taking the time to be with US on this call and for your support for Primoris I Hope that all of you and your families are helping us site.

Goodbye.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

[music].

Greetings and welcome to provide versus 2022nd quarter results.

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At this time will turn the conference over to keep talking Vice President Investor Relations. Please go ahead.

Thank you Rob.

Good morning, everyone and thank you for joining us today, our speakers for today will be Tom Mccormick course, President and Chief Executive Officer, I can't imagine, our executive Vice President and Chief Financial Officer.

Listen to this mornings press release, we've also posted slides on our website that highlight key points. We plan to discuss on this call you can access them by going to our corporate website www dot from Dot Com then selecting investors what's on the Investor site, you'll find the slides in the events and presentations section next to the webcast link for todays.

Call.

Before we begin I'd like to remind everyone that statements made during today's call may contain certain forward looking statements, including with regard to the company's future performance words, such as estimates believes expects projects right and future or similar expressions are tended to identify forward looking statements.

And looking statements inherently involve risks and uncertainties, including without limitation as discussed in this mornings press release and.

And then as detailed in the risk factor section and other portions in our annual report on form 10-K for the period ending December 31st 2019, and other filings with the Securities Exchange Commission.

Good work does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise, except as may be required under applicable securities laws I'd now like to turn the call over to our CEO Tom Mccormick.

Thanks, Craig.

Good morning, everyone and thank you for joining us today to discuss our second quarter results.

It was an outstanding quarter for Primoris and due to the commitment and hard work of our employees, we were able to successfully execute on projects, while simultaneously implementing new protocols to keep our employees customers and community safe.

While there are some impacts from koby 19, such as several clients being slow to release work and learning how to comply with the various state county, and or municipality help orders is difficult to put a precise dollar figure on these costs for forecast how long they will continue.

Despite the impacts imposed by the pandemic Primoris experience is best second quarter in our history, both topline and bottom line.

The fact that we delivered these results while working over 13.2 million work hours year to date and maintaining an excellent safety record is a testament to the commitment of all of our employees keep themselves. They are co workers and their community site.

We focused on project execution, and improving cash flow in our employees subcontractors and suppliers continue to operate safely and efficiently during the quarter.

Our SJ continues to decline as a percent of revenue in our operating cash flow in the quarter was one of the best in the company's history.

With our robust balance sheet, we're in a position of strength as we evaluate new opportunities for growth either through internal investment or by acquisition.

As you saw from our numerous press releases, we hit a near record bookings in the quarter and even with a record revenue burn our backlog remained strong.

It should be noted that our backlog does still include the HCP project.

We were disappointed that our client has announced their plan to cancel the project. However, we have not yet received a formal notice of termination nor any direction as to what work should be completed prior to our demobilization from the project. Once that has received and we were able to revaluate the revenue associated with the remaining work, including demobilization reinstatement et cetera.

We expect to adjust our backlog accordingly.

Now looking at the second quarter results, let's start with our civil segment.

We've made great progress and the turnaround of our heavy civil operations and are now seeing consistent positive results from this segment, which are the result of our dedicated employees and a qualified and professional management team that took ownership of the issues within the business unit and implemented the controller performance initiatives necessary to turn it around.

The heavy civil market looks stable for the remainder of the year and into next at this time, we are not seeing any large impacts the state budgets from lower gas tax revenue or the pandemic.

Our industrial team in the segment is performing well in their current book of business, though we are seeing some softness in their markets new projects are pushed into either late this year or into 2021.

Moving on to the power industrial engineering seven segment.

Given the broad range of end markets. The segment covers our results are varied significantly based on the end market to the positive our performance in the renewables market was outstanding both with record bookings and record execution on existing projects.

During the second quarter, we announced over $260 million, a new solar awards.

Constructing the large scale solar facilities as a different process process than our other industrial work. It's much more like manufacturing as you are repeating a process potentially hundreds of thousands of times as you install all the components and equipment associated with the solar facility.

We have a very experienced management team that has been designing and construction solar facilities for most of their careers. This team is very adept at using their experience and taking the lessons learned from previous solar projects and applying them to new projects.

The impact on project margins has been significant.

Well the solar market is seeing some slight impact from coven 19, the tailwinds such as state renewable energy mandates and the push for clean energy continued to drive growth and we are continuing to execute our strategy to find great partners that have large portfolios of projects that need to be constructed over the next several years.

Capital spending a turnaround budgets and the California refinery market have decreased but we are seeing growing opportunities in the biofuel market, which has similar drivers to the solar market.

We announced a 200 million dollar, California Biofuel award in the quarter and are focused on small cap and critical maintenance projects that help our platts and sure business continuity and keep our people working.

We're also continuing to pursue recurring work and recently negotiated the three year contract extension on one of our existing Msas for oilfield maintenance work.

Our team is focused on cost reduction measures, while maintaining our market share and we were able to offset some of the second quarter revenue declined with strong margins.

Our non union industrial team was challenges quarter as costs associated with a project in the northeast impacted the business.

From problems on the project were largely due to quantity and forecast changes associated with subcontractor pricing rather than execution issues. We are working to mitigate some of the cost increases through improved project execution and control as well as resolving some outstanding issues with our clients. We've made management changes at multiple levels within the group and are seeing positive results.

They have some legacy projects remain to complete we expect improved margins out of this business unit in the future.

The Gulf industrial market is going to be tied as we head into 2021, but we're not chasing the mega projects and are confident we can win our fair share of the small cap and midsize projects.

Our large diameter pipeline division did more revenue in the second quarter 2020 than they did not ultimately 19.

We expect to see some slowdown the second half the year for them as they complete their current projects. The based on the strength of the first half we still expect outperform our full year expectations.

Activity picked up in the second quarter for smaller diameter intrastate pipeline work and we saw significant improvement both revenue and margins.

And though our field services team has been impacted flow from lower energy prices some projects being pushed into next year. They all set the revenue declined with good execution on projects, leading to an overall increase in gross profit.

As we look ahead to 2021 for the segment, we expect most if not all of HCP to replace excuse me most if not all VCP with multiple smaller projects.

Our operations in the southeast improved in the quarter, not just driven by weather and project mix, but an execution as well over the past several quarters. We've taken a hard look at our contracts in that region, and renegotiated or exited less favorable contracts while at the same time adjusting our equipment levels needed for the work as well as upgrading our management teams.

Generally pleased with the hard work of our team and the results like delivered.

In a similar vein the transmission and distribution segment is also seeing significant improvement thanks to a cost reduction initiatives and execution improvements.

We made some changes at various management levels place people enrolls, which they are better suited and brought in more talent at the management levels. We expect full year results results will be solidly within our targeted margin range.

So it is with confidence that we reinstate guidance for the year in the range of $1.60 to $1.80.

With that I'll turn it over to Ken for deeper dive into the numbers.

Thanks, Tom and good morning, everyone I'll review, our second quarter operating results compared to the second quarter 2019, and then move on to our cash flows balance sheet and backlog.

Our second quarter 2020 revenue was 908.2 million, an increase of 118.3 million or 15% better compared to the second quarter 2019.

The increase was driven by the pipeline segment, which increased 152.3 million as they burned revenue on multiple projects that started in the first quarter. This year.

The increase comes from improved margin performance in four of our five segments pipeline utilities transmission and civil.

Typical seasonal ramp up helped by good weather conditions project mix and strong New awards all contributed to the increase in margins.

We are pleased with the margin increase in the transmission segment, where we're now seeing the positive impact from improvements we implemented over the past several quarters.

Power segment margins declined in the second quarter, mainly due to the project in northeast the Tom previously mentioned.

We expect the margins for the second segment to improve in the second half of the year aided by stronger performance on solar and biofuel projects.

SGN expense in the quarter was 51.4 million up slightly from 48.7 million last year, but as a percent of revenue estimate was 5.7% an improvement over last year at 6.2% of revenue.

We believe we can continue to operate in the high 5% to low 6% range and potentially be below 6% for the full year 2020.

Interest expense in the second quarter was 3.7 million compared to 6.7 million in the second quarter 2019.

We had minimal impact this quarter from our interest rate swap compared to a $2.7 million unrealized loss last year.

The effective tax rate on income attributable Primoris remained unchanged at 29% in the second quarter and is our expectation we will remain at this effective tax rate for the full year.

Second quarter net income attributable for Morris was a record setting $33 million or 68 cents per fully diluted share. This is the best second quarter result in the company's history, and it's not far off the record 70 cents that we set in the third quarter of 2019.

Managing our working capital continues to be a focus for us and we saw the results in this quarter, despite normal seasonal increases in accounts receivable and contract assets.

Turning to capital expenditures year to date, we spent 21.7 million most of which was on construction equipment.

This is significantly less than the six then the 56.9 million. We spent last year in keeping with our previously announced plans to lower Capex spending this year to the $40 million to $50 million range.

We sold 12.1 million of older or underutilized equipment year to date, resulting in net capex of 9.6 million compared to $35.7 million last year.

Early in the second quarter, we paused our share repurchase program as we worked to understand how cobot 19, my impact our cash flow by June we feel comfortable reinstating the program and we purchased 57731 shares for approximately $950000 at an average price of $16.46 per share year to date, we spend it totaled eight point.

3 million on share repurchases at approximately 16.7 million remains under the current repurchase authorization.

Strong earnings and operating cash flows resulted in $155.7 million of cash on the balance sheet at the end of the quarter and an additional 142.8 million of borrowing capacity on our revolver.

Total debt of 352.8 million was basically flat compared to year end 2019, but down 59.2 million compared to Q2 2019.

And our net debt was only 197.1 million at the ended the quarter.

Our weighted average interest rate is down to 3.7% compared to 4.2% at the end of Q2 2019.

As Tom mentioned fix backlog grew 19% in the second quarter to 2.3 billion. Thanks, primarily to stronger bookings in our power segment. The fix backlog for the pipeline segment does to include roughly half a billion tied to the HCP project. When we have more clarity on the remaining scope of work, we expect to adjust our backlog accordingly.

MSC backlog saw minimal decline in the second quarter coming in at 1.2 billion. The majority of the decrease came from utility segment as we lowered expectations for spending by major California customer.

Total backlog grew to 3.5 billion and it's important to note that even excluding the HCP project. Our total backlog would have been above $3 billion.

With that we can turn it over to your questions Rob.

Thank you will that be conducting question and answer session.

Ask a question today. Please press star one from your telephone keypad and a confirmation total indicate your lines and the question Q.

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Okay.

Thank you. Our first question is coming from the line of Adam Thalhimer with Thompson Davis.

Hey, good morning, guys Congrats great results.

So a lot of segments.

Thanks, Adam.

Curious any utilities and distribution space, what's the customer.

And then what would you say their mood is like in kind of customer spending levels.

Cautious.

I think there.

They all have been talking about the fact of there.

Client demand or demand for their products or services are down they don't know when it's going to answer there is some uncertainty a little bit going forward in discussions about slowing down their capital under spending a little bit.

If they cannot CNN, but that that talk is that retrofits and going on for a while and we haven't seen a lot of it I think thats what started the year slow certainly impacted our first quarter and little bit slowed as sort of second quarter, two but it's ramped up since then and the several of those same clients are wanting to catch up now under spend in the third quarter.

Weather permitting so it's a little bit mix, but its call I think most for the most parts cautious.

Okay. So it kind of embedded within your guidance maybe that segments.

For the full year kind of ends up kind of flattish.

Hi.

At revenue that could be right I think thats about right.

Okay, and then pipeline underground.

I mean, a lot of the backlog JCP you talked about replacing what do you stand on the bidding environment right now.

They are still a lot of opportunity and gas pipelines.

Certainly intrastate smaller diameter.

There's a there's a number of packages that we have opportunities to bid on there's a number that we are bidding.

Liquids, a little bit slower.

They are starting to see some of those coming back, but maybe it will be in 2021, but it's still not at the the volume. So I think it's going to be a little more competitive lots to be selective and sharpen our pencils little bit.

Okay, and then just lastly in that and mission space really good margins Q2.

And that segments bounced around a little bit, but do you think you can kind of build on Q2 going forward I think we can now that I think theres a lot of opportunity in that we're we're actually explain trying to expand our client base and that in the transmission and substation portion of that business, which I think we're having some success in a lot of its just in discipline and allied manager.

Our equipment. It moves it was in the you heard me say early getting the right people in the right places the right positions and we've got a management team in place now that is really driving performance.

Yes. Thank you order said last year, when we signed a large contract with a major client there were some opportunity and that in our rates to perform better. If we wanted if we were to perform better there's opportunity for us to make the little bit higher margins and we're seeing that now so I think a lot of its and just being disciplined.

Organic getting rid of equipment, there were not utilizing and utilizing the equipment, we have and making sure that is making its way onto the invoices to the clients and then.

Our execution performance has improved.

Okay.

Great Okay ill turn it over thanks a lot.

Thank you thanks Adam.

Next question comes from the line of Lee Jagoda with CJS Securities.

Hey, good morning.

Hey, Larry.

Given the issues you've had what is the target margin ranges that you think you'll get too.

I think those we've always said, it's kind of 8% to 12% and so we had a good quarter. This quarter at 12% I think the balance of years, probably going to be in that 10% to 12% range.

Okay.

And.

I guess looking ahead.

All of US I would assume or most of this is from just the renegotiation and then the all the negatives or some of the negative is dropping off is that fair way to think about it yes, I think thats right Weve.

We still have some contracts renegotiate we've walked away from some unprofitable contracts.

And as Tom mentioned streamlining the equipment getting out of those legacy old leases from when we bought them to just took longer than we thought.

Legacy facility leases as well this has been a number of things that just took a little bit longer than we thought.

The good news is performing as we expected it to getting out of some markets that we were going to make money is a great point, yes. So that would just wasn't possible for us to make money at the rights. We had in the contracts that we stepped out of those mortgage which has helped.

Okay, and then looking at the power segment I think you made the comment that you see some recovery in the power margins.

I mean, given where we came from and where we were in Q2 some recovery doesn't.

Yes, it doesn't necessarily install a whole lot of conferences or away to kind of give us some more confidence around margins and.

Let me go into.

The the breadth of the LNG project, what's causing you some issues and where it is more profitability reflective.

Theres, so many different components of that power and industrial segment that if I looked at the union industrial part of it their margins are going to be pretty normal the their execution on projects is going well they've had a couple issues on some projects for they've got some claims in front of the clients and they've had some impacts that they've already absorbed those and moved onto the those art.

Projects. These projects are performing well now it's just they they took a bite.

Earlier in the year late last year, if you talk about renewables theyre, they're performing extremely well their margins are.

Right, where we expected it will be if not higher you look at the engineering is going to suffer a little bit just because one of our engineering groups is the PD and see part of that is.

Primarily.

Dependent upon price of oil and they were primarily in refining their revenues are down their margins are still reasonable as a percentage of the revenues for the revenues are going to be down it's not a big part of our business that business that segment anyway. It was a non union.

Pardon industrial component of our business that did that is responsible for the eversource job.

Most of that's behind US Lee on Eversource, Although you always still have some risk as that project more complete until 2021.

But as far as getting the right people in place to build out the project, we have that as far as a management team, we actually hits have seen some turnaround on some projects that this management team took over that were legacy projects to decline is now giving that group more work because their performance is good and is being recognized so I think.

They can finish out these legacy projects finish out the.

The LNG project in the northeast.

And for the balance of a we're seeing good margins on the balance of their work.

Thank the upside is down the road.

Got it one more for me on on the power side, the 800 million of backlog within the power segment can you break out how much of that is solar in renewables versus the other work and given that most of that is going to burn within the next four quarters. How much capacity do you have to add more work in the short term in that segment for renewables and solar.

Okay.

That's a good question I don't have the breakout in front of me right now leave but I would I would expect.

Renewables at least right now 250 to maybe as much as 300 of it and the rest is spread across the rest demand thats, probably around moving because we announced 260 million of New awards during Q2.

Now as far as capacity goes.

We're continuing to recruit and hire people in train people in that renewables group different teams were actually.

Selling the services of our project teams to clients that we have partnerships with and in those teams a number of those teams are committed to future work with these clients. It does mean contracts are signed means they're committed to future work with these clients, which means they're working on the to the scope and the estimate development in the execution development of those projects.

Well the working on a current project and I'll move to those projects when they're done.

So theres a lot of opportunity in that renewables work for.

Growth.

You are not including you're not including the Biofuels piece in that renewables number so I would be is that incremental.

That's incremental thats incremental.

Got it so between Biofuels and solar it's more like.

No.

By 50 watts of the 800.

Five to 550 best guess, yes.

Okay.

But thats all I have thank you actually.

Our next question is from the line of Brent generous with da Davidson.

Hey.

Good morning, Congrats Britt Hey, Brett.

Well I appreciate the last time, we bring up Atlanta, but.

Okay.

I will come on it keeps on giving.

Maybe maybe just where are.

In the backlog.

Maybe just talk about that potential scenarios that could play out here and just wondering if there is a breakup or cancellation fee or you're able to discuss publicly.

Well I can you can't discuss that because we got we need to meet with the client we need to understand the terms of the cancellation.

But I would ask expect obviously theres demobilization costs, there will be part of that there's there's a lot of reinstatement that we'll have to take place along the right away in the in the light on yards in the equipment yards that that will need to be returned back to their original conditions now we don't know whether the clients going to have the consortium members do that.

With respect to moving off site.

And completing the project to whatever extent they needed.

Okay Thats why we last okay Thats quite frankly is why we left in backlog as I know how much I havent backlog I have no idea, what I'm going to spend going forward, while our revenue will be going forward until I hear from that yet.

Understood understood.

And then Tomich Tonight on pipeline.

It sounds like pretty good visibility into the second half overall, yes, I guess I'm just kind of wondering how you guys.

Preparing.

The next couple of years I mean in your and your sort of model, where you are preparing for a hard landing or is that that being too pessimistic based on what you all see today.

Well I'd I'd say, it's being a little bit too pessimistic I don't think we're going to see.

We're not to replace HCP with another large project, but I think I think most of the revenue over the course of the next two years can be replaced with smaller projects. We just we got to get competitively, we got to chase a REIT projects with a REIT clients and I think thats possible replace that revenue with smaller projects, maybe it's $50 million less revenue a year.

Maybe not but we showed this year even between both groups as they can go out competitively bid work and when work is just now it's just the timing of those projects when they bid and how fast they move so we'll see.

Okay, and Ken I mean really strong cash flow this quarter.

Wondering if theres particular business units driving that are or any pull forward.

No. It was really across all the businesses this quarter strong margins health.

And then just working capital management, we've got all orders oars in the water rowing in the same direction. So it was a good quarter.

Yes.

Okay, well, thanks, guys. Congrats again thanks.

Thank you. The next question is from the line of Leo Ramiro with Sidoti <unk> Company.

Hey, good morning, Cobiella, well, we are Julio how are you.

Im good. Thanks, So I wanted to touch again on the power segment.

Any clarity as to when demand comes back for for Western Canada and is that margin recovery you expect in the second half kind of dependent none of recovery.

Western Canada.

It is not dependent on a recovery in western Canada.

And I wish I knew I can tell you when oil prices in the demands and start going back up but I actually don't it's something we're going to take a hard look at as we develop our plans for 2021.

What I will say is that our western Canadian operation.

Management team in extremely good job of Rightsizing that business unit it for lower Mark for the lower revenue and they've been able to maintain their margins at a reasonable percentage based on that so I don't know how long they are going have to hold that.

They have the ability to do that so we'll just have to see.

Understood and I appreciate you reinstating guidance I mean, it sounds like your visibility is improved I guess, partly because of your mix shift over the years to smaller projects, but also because.

Probably learned in real time, how resilient your businesses are right. I mean is that a fair takeaway here and do you feel a little more confident in the resiliency of your of the portfolio.

The I feel much more confident than in the resilience of the portfolios. It's good to be diverse but it's also to be in the type of businesses that we're in we're very fortunate that all of our business were being the central So we were able to continue working then it was just making the adjustments. So that we could work safely meter class requirements meet the municipality or the government requirement requirements and health.

Orders in our employees really responded well.

With change which was fantastic.

Just to add to that I think what are the big things that we were waiting to see the last time, we spoke to you guys right. After Q1 was just how our clients were going to respond to that and now resilient and how they were going to be able to just and I think once they figured out that they could adjust and keep lettings going even though there was a slow us slight pause and Matt that slow.

Down a little bit once they got through that and figured it out that it was easy for us to respond. So it was it was kind of joint effort. We still have clients at all or staff are still working at home they've just figured out how to issue work orders and release work and review invoices and do that all remotely so that they themselves have done a fantastic job of adjusting to these changes.

Okay I'll hop back into queue. Thank you. Thank you. Thanks.

Thank you and your lender to ask a question today Press Star one.

The next questions from the line of shown Eastman with Keybanc.

Hi, Dan network this quarter Sean.

Thanks for taking my question I just wanted to go back to the pipeline segment.

Just in light of the.

Cancellation, and you guys trending towards them.

Any healthy growth in that segment in 2020.

Just trying to think about this pivot to you know smaller projects.

What that means for sort of the sustainability of this revenue run rate were added in 2020.

And what sort of the prospect of less large mainline pipeline activity.

Going into 2021 means for margins.

So with respect to the revenue.

It's going to be up I would expect and Mike. So we're just now making preparations to start our planning for 2021.

Maybe some opportunity for that business unit to grow because it has grown over the.

Past few years from a pipeline standpoint, if I would be actually satisfied if it were to stay flat.

From a margin standpoint, I don't really expect much change from the range that we have in our numbers.

Just a lot of that is dependent upon the type of contracts how much risk to client eggs and of course, if there's if there is more.

Competition for projects, you'll see a little bit of pressure on the on the percentage of profit across the board.

But I think that range is still pretty reasonable, yes, I think just to add to what Tom said, it's important remember that these small to medium projects are not new for US. This is part of our ongoing business model that we've been doing for for years and years. So just because we don't have Atlantic coast pipeline doesn't mean, we're truly changing our business model, we're just could be doing more with.

In that in that segment around the small midsize pipe and probably more maintenance work as well.

It's just like it before ICICI, even though we were pursuing projects like within the two we executed in Florida was we're not chasing these mega projects, we chase all sizes and and the Union portion of our pipeline grew pass through the beacon competitive in that business. So.

We'll just see there are pursuing work now they've they've been.

Told their short listed on a number of projects.

One or two projects, even now whether those projects go forward or one of the collide decides to make a decision to move forward we'll see.

Got it that's helpful and then on the Chinese segment.

But after a few times, but could you could you just tell us what the gross margin that segment would have been if not for the execution challenges on the LNG project in the northeast then.

Should we be assuming clean execution margins well within your targeted range in 2021.

Just based on the.

Execution left on that project I mean.

Yes, just trying to get comfortable around that given we've got a couple of quarters here now with different issues popping up in that segment.

Yes, I think without the impact of that one job, we would be right in our target range of kind of 10% to 12% for those guys.

Going forward, that's where we expect as well.

As Tom said, we think we've got all those issues behind us.

We've taken the hit in this quarter, but we still have to finish the job and won't be done till sometime in the first half of 2021. So once we get passed that than we had a better clarity im not sure how much revenue in the job goes into 2021 there'd be a slide dilutive effect, but not enough to get us out of that range right.

Okay also very helpful. And then just us and Thats a backlog dynamic dipped sequentially a little bit you mentioned, one particular customer where you had to trim. Some some assumptions there.

Does that say backlog start to trend back up in the second half and Im trying to think about.

What that this sort of dipped down means for.

Growth in the.

And I say driven segments in the out year.

And everything that was going on at the time. So we expect that those will come back. So I do expect that the person emphasize as a percentage of our total revenue.

Backlog will come up the also.

The other thing to had an impact on that as we head.

But to $260 million of renewable awards couple hundred million Dollarss, which was lump sum that a couple hundred million dollars in.

And biofuel and then another.

But a couple hundred million dollars and pipeline of words were to lump sum. So you get a large.

Volume or large amount of.

Fixed price work that was awarded in the quarter that kind of drove that diluted that percentage down also so the answer. Your question launched short answer is yes, I expect them to come up.

Okay great.

I really appreciate it I'll turn it over.

Thanks, Sean.

Thank you. Our next question is a follow up from Adam Thalhimer with Thompson Davis.

Thanks.

And what are your early thoughts on total company.

21 like down flat.

Mike I had been model in.

Most contractors down next year, but I'd tell you where your backlog is at the into Q2 I just another that makes any sense.

I think we're going to be flat in some some of our segments, but I'll tell you Adams our other segments at spectrum to be up I mean, if you look at even if you look at power of a lot of that's going to be flat, but if you look at the renewables part of that there's significant opportunities for us and we're growing that business. So I expect that will be.

Spect, our utilities will be up.

And I expect our both PND and you Andy.

Okay.

Okay, that's what I kind of.

Appreciate it all right.

Thanks, Adam.

Thank you.

At this time Weve reached the end of a question answer session and I'll hand, the call back to Tom Mccormick for closing remarks.

I will thank you everyone for joining us. We appreciate you taking the time to be with US on this call and for your support for Primoris I Hope that all of you and your families are helping us site.

Goodbye.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

Q2 2020 Primoris Services Corp Earnings Call

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