Q1 2021 Primoris Services Corp Earnings Call
Yeah.
Good day, and thank you for standing by and welcome to the Prime Morris Services Corporation first quarter 2021 earnings earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session to.
To ask a question during the session you will need to press star one on your telephone please.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your Speaker Today Brook Wootton Vice President of Investor Relations. Please go ahead, good morning, and welcome to pray Morris Earnings Conference call. Joining me today for Tom Mccormick, President and Chief Executive Officer, and Ken Dodgen, Our Chief Financial Officer before we begin.
I would like to make everyone aware of certain language contained in our safe Harbor statements and.
<unk> cautions that certain statements made during this call on our fourth 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 are forward looking statements represent our outlook only as of today, we disclaim any obligation to update these statements except as may be required by law I would now like to turn the call over to our CEO Tom Mccormick.
Thank you Brooks and good morning, and thank you for joining us today to discuss our first quarter results and our 2021 out of work.
I would like to take this opportunity to welcome our new shareholders for more family of companies and <unk>.
Thanks for all of our shareholders for the continued support and confidence and our company's strategy and execution.
We had a strong first quarter of reporting $818 $3 million of of revenue, which was a 10% increase over the prior year.
This was despite incurring $13 9 million and transaction costs, most of which was associated with the acquisition of future infrastructure.
As well as effectively a one week of shutdown of our operations across Texas and the southeast due to the historic storm event that hit in mid February and.
As a reminder of our first quarter has historically been a slow quarter for the company due to the seasonality of our clients work.
The historic phrase was the bad news good news event for US, where we lost approximately a week of revenue the event generated some storm repair work for us as well.
More significantly for the long term as Texas addresses the infrastructure gaps and led to the power failures.
We believe there are opportunities for us with respect to power generation as well as transmission and possibly even and distribution.
Our utilities and energy renewable segments led the growth and the quarter producing strong revenues, while the pipeline services segment performed as expected.
Now, let's look at the three segments in detail.
As we previously announced in January we reorganized our operating and reporting structure to function more efficiently as well as the facilitate collaboration and cross selling among our segments.
Beginning with the first quarter of 2021, we're reporting on the three segments utilities energy renewables and pipeline services.
We have updated our 2020 segment information for align with the segment changes.
Our utilities segment had strong first quarter performance with revenue coming in at $335 million up 34% compared to the same period last year.
This increase was primarily due to increased activity with our utility customers and North Carolina, and Louisiana, and the addition of future infrastructure, which represented approximately $60 million of revenue for a portion of the quarter.
With the integration progressing well future infrastructure is already paying dividends for our operations as we reap the benefits of similar values safety culture of quality standards and operational synergies. This acquisition has become our gateway into the telecom industry, where demand for bandwidth continues to drive the majority of the work activities.
We recently secured of $60 million telecom projects installed fiber and the Gulf Coast region and connection with the rural digital opportunity fund.
This fund was created and funded by the U S government.
We intend to spend in excess of $20 billion over the next 10 years for the construction of rural broadband networks, and we anticipate strong growth opportunities increased demand for our end market utility services as we work towards expanding future infrastructure across our nationwide footprint.
During the quarter of utility segment of secured multi year contracts with an estimated total contract value of over $525 million.
The primary driver and this achievement was the MSA activity, including the five year term project and the Gulf Coast region and valued at over $160 million for the large electrical utility customer.
Additionally, we entered a new market and the western U S by securing and MSA with the new utility customer and <unk>.
Total, we signed or renewed 15 multiyear agreements for a mixture of natural gas and electric.
The electric transmission and distribution and telecommunications surface restoration and other ancillary utility related work. In addition to the MSA contracts. We closed another 20 for fixed price contracts totaling close to $56 million.
Turning to our energy and renewable segment.
Revenue increased 17% of $352 9 million for the quarter.
The increase was mainly attributable to a renewable energy activity, which represented $80 million of the total this.
And this was partially offset by lower revenue from the substantial completion of and industrial projects in Texas and the first half of 2020.
We experienced higher costs associated with an LNG project and the northeast and 2020 of that impacted our margins.
We expect that project to be complete in late Q3, or the Q4 this year.
We continue to make solid progress on other projects within the segment.
There's a great deal of discussion regarding renewable energy right now, it's currently of $225 billion market opportunity and has both regulatory and the silo support that should have tailwind is beyond the next decade.
We began increasing our activity in this area of several years ago, even before the current administration.
Over $428 million and backlog heading into the second quarter for work associated with 2021 and 2022 solar projects.
In addition, approximately $850 million of prospective projects have been on officially awarded to us that should be finalized within the next three quarters.
During the quarter, we began working on a new utility scale solar facility project. The 640 megawatt DC project of the third solar venture and which we have been chosen by this customer and is valued at approximately $220 million.
Additionally, all of the for solar projects that we have underway of progressing to plan.
Also on the renewables front, along with our solar I want to highlight our expertise and hydrogen which has been in the news recently, we have over 25 combined years of history and expertise working with the standard great Hajj and via steam methane reforming and one of our engineering team is currently working with clients to explore the viability of blue hydrogen which includes car.
And capture.
We also have capabilities and dairy and landfill renewable natural gas that can be applied for hydrogen production as well.
We are already working on another green energy projects one of our Green these of projects in the Gulf Coast region as moving forward ahead of schedule.
The civil business is now also part of our energy renewable segment and during the quarter, we secured of $35 million heavy civil contract with Txdot.
For the reconstruction of both front end roads and main lines of Interstate 20, and Midland Texas.
This project is scheduled to start and the second quarter.
As we mentioned on our last call of our pipeline services segment, and an exceptional year and 2020 our.
And our expectations for 2021 will be more in line with our 2019 performance.
The revenues came in at $135 million for the quarter.
The decrease year over year, but closely in line with our expectations.
Comparing pipeline revenues for the same period, and 2019 of $134 $8 million, it's easy to see they are tracking closer to their 2019 performance, which is in line with what we're expecting for 2021.
We have seen relatively consistent bid activity from our established customers and recent weeks, even though the pipeline construction market remains extremely competitive.
We are repositioning the segment to take advantage of our integrity and maintenance and field services capabilities in order to help our customers complete the work that they need to get done to meet current requirements.
Moving beyond the segment is to look at our businesses of whole our crews are performing well on projects across the board focusing on both execution and safety and our business development team is actively working to market our diverse capabilities across all segments.
Our success is not just about being in the right market at the right time.
Having a business model that works and applying that model across all of our segments.
What makes for Morris differ from our competitors comes down to three elements.
The first is investing and our people.
We of our own training facilities and have spent a great deal of time and money developing and training of our personnel.
This includes cross training our craft people, so that we can utilize them across different industries and markets.
The result of cross training is a more consistent workload for our employees and our more consistent work force for us.
Knowing that we are investing and our employees development built on their engagement and loyalty to the <unk> family of companies.
The second is continuing to build strong relationships with our current clients.
We strive to be a trusted partner to all our clients and it starts by being safe reliable and responsible.
The third element is being the right solutions for existing and new customers.
We expand geographically and otherwise is accomplished with resources and capabilities to fill specific client need.
We don't go into an area and display some of them because of our prices are cheaper we earned new business by performing of the customers' level of expectation and supporting the growth.
The success of our business model to day gives me more confidence looking forward into the rest of the 2021 and beyond and hope the does the same for you.
In terms of future prospects as I've mentioned before we see opportunities from the current and the presidential administrations focus on infrastructure.
Including replacement of aging pipelines roads, and bridges as well as the expansion of infrastructure for renewable energy and Internet broadband.
The Republicans 568 billion dollar Counterproposals more limited in scope and focus the spending on traditional infrastructure.
But regardless of which gets passed we can benefit.
Both proposals create more opportunities for us and every segment or.
Our energy renewable segment will be especially affected by the opportunities related to roads and bridges as well as the opportunities that continue to present themselves with respect to renewable energy.
Our utility segment is well positioned to participate in the broadband infrastructure investment component.
They are even opportunities with our pipeline segment under the allotment for the pipeline and hazardous materials safety administration.
We'll keep a close eye on the progress of these legislative initiatives great interest.
We accomplished a great deal during the quarter, starting with the successful reorganization of our segments followed by the completion of the acquisition of future infrastructure and ending with the completion of the company's first secondary public offering.
We now have a structure prime for success as well as much more financial flexibility to not only support our organic growth, but to also provide us the optionality and the acquisition market with that I'll now turn it over to Ken.
Okay.
Thank you Tom and good morning, everyone. Let me begin with our key financial metrics for the first quarter and then I'll move into the details of our balance sheet cash flows and backlog and then I'll wrap up with our updated 2021 guidance before moving on to your questions.
Our first quarter revenue was $818 3 million and increase of $75 1 million or 10% compared to the prior year.
This increase is even more notable when you consider that we lost a week or more of the work in February and across our operations and Texas and Louisiana as a result of winter storm Yuri.
The revenue increase was largely due to higher utility segment revenue, including the addition of future infrastructure, which contributed a little over $60 million of revenue for the portion of the quarter, we owned them.
We also had higher revenue on our energy and renewable segment, which was primarily driven by increased solar work during the quarter.
These amounts were partially offset by lower revenue and our pipeline services segment.
Gross profit for the first quarter was $80 2 million and increase of $32 4 million or 68% compared to the prior year.
The increase in gross profit was primarily due to increased revenue and margins in the energy and renewables and utilities segments as well as the acquisition of future.
Gross margins increased to nine 8% for the first quarter compared to six 4% for the same period and the prior year.
Our utility segment continues to perform well with gross profit increasing by $15 4 million to $21 7 million for the quarter of which $9 8 million of the increase was from the future acquisition.
Gross margins increased to six 5% during the quarter compared to two 5% of and the prior year. This was due to the favorable margins realized on future as well as improve the margins from our legacy operations that had higher carrying costs for equipment and personnel and the prior year.
Our energy and renewable segment gross profit was $42 7 million and increase of $17 7 million or 71% and compared to the prior year, primarily due to higher revenues and margins gross margins.
<unk> increased to 12, 1% during the quarter compared to eight 3% and the prior year.
This was mainly due the higher costs associated with and engineering project and the tank Farm project in 2020, as well as favorable claims resolution on and industrial plant project and the current quarter.
Our pipeline services segment generated gross profit of $15 8 million of $700000 decrease from the prior year as lower revenues were largely offset by higher margins during the quarter.
Gross margin increased to 12, 1% during the first quarter compared to eight 6% and the prior year, primarily due to strong performance and favorable margins realized on the Texas pipeline project and 2021.
And startup cost on certain Texas pipeline projects in 2020.
SG&A expense and the first quarter was $53 4 million up from $44 4 million and the prior year. The increase was primarily due to $7 9 million of incremental SG&A for the future acquisition as we continue to integrate future infrastructure, we expect our SG&A as a percentage of revenue will trend down during the year and will be and the high.
The 5% to low 6% range for the full year 2021.
And one time transaction costs were $13 $9 million during the quarter.
Interest expense and the first quarter was $4 7 million compared to $9 1 million and the prior year.
The decrease in interest expense was primarily due to the change and the fair value of our interest rate swap during the first quarter, we recognized a $1 $3 million gain on our swap compared to a $5 million loss on the swap and the first quarter of 2020.
This decrease was partially offset by additional interest expense due to higher debt for the future acquisition.
The effective tax rate on income attributable for US was approximately 29% for the first quarter, we expect our full year effective tax rate to be approximately 29% as well, but the rate and they vary slightly depending on the mix of states and which we work.
First quarter net income attributable to for Morris was $5 9 million or <unk> <unk> per fully diluted share compared to a loss of $3 7 million or <unk> <unk> per fully diluted share and the prior year.
Operating cash flows and the first quarter was $7 5 million compared to net cash used of $5 5 million during Q1 of the prior year the year over year change was primarily due to an increase and net income along with favorable changes in working capital.
And the first quarter, we invested $19 1 million and capital expenditures of which $17 1 million was used for construction equipment.
We expect our remaining 2021 capital spending to be in the $60 million to $80 million range with almost all of that spent on construction equipment.
And January we funded the future acquisition with approximately $20 million of cash of $100 million drawn our revolving credit facility and a $400 million increase and our term loan.
In March we completed a secondary offering of $4 5 million shares of common stock, which provided net proceeds of approximately $149 $4 million. We used the net proceeds to pay off the $100 million drawn on our revolver and to pay down $50 million of principal on our new term loan.
We ended the quarter with $212 8 million of cash borrowing capacity under our revolver was $148 9 million, providing a total available liquidity of $361 7 million at quarter end.
Total debt was $653 6 million and net debt was $448 million.
Over the next 12 months, we expect to use our cash and operating cash flows to support the continued organic growth of our company and reduce debt and to pursue acquisitions that complement our growth strategy.
The fixed backlog at the end of the quarter was $1 6 billion and our MSA backlog was up to $1 5 billion for a total backlog of $3 1 billion at the end of the quarter backlog.
Backlog increased by $311 8 million during the quarter with approximately $260 million of that increase coming from future.
And concluding with our 2021, earning guidance for the full year 2021, we expect that earnings per fully diluted share will be and the $2 36 to $2 50 range the.
The slight reduction is due to the EPS dilution from our follow on offering partially offset by our better than expected Q1 earnings.
With that we can turn it over to your questions on.
Later.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
John Your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from the line of Lee Jagoda with CJS Securities. Your line is open.
Hi, good morning.
Hey, Lee.
So just starting with the energy segment gross profit can you breakout the revenue and gross profit that you got from the resolution on the industrial project. Just so we can understand what normalized margins looks like this quarter.
Yes.
Haley the.
The.
The P&L impact was really only about $3 million for that and I don't think there was really any revenue impact at all.
Okay. So on margins still would have been well above expectations there.
In the gas order, but I think if I look at your margin ranges for that segment. They come down from where we were in Q1 is there anything.
Ellison and theyre, causing the positive bump in Q1 or how should we think about the balance of the year there.
I think it's just continued strong execution on <unk>.
Out of those renewable projects that we've been talking about the solar work, especially Steven with the industrial group there of the projects that they have.
The other than the one troubled projects that we've noted and our.
The call and our announcement of that.
Other projects are actually performing very well.
Got it that's very helpful and then.
Turning to the future acquisition, obviously Q1 had a bunch of weather impact and it how should we think about the catch up there in terms of has it already had a chance to kind of catch up towards the run rate that you gave when you closed the acquisition of or should it be more of a gradual ramp as we get to the end of the year and then just the follow up to that is has the.
Expectations of kind of consistent revenue with what we were thinking on a trailing basis changed at all since we since we bought the business.
Yes, I'll, let Tom talk about the catch up the revenue no has not changed at all.
The relative to what we previously talked about and as far as the revenue I think the second quarter and third quarter Youre going to see the ramp up the first quarter was a slow start didn't help that youre still on the pandemic.
Coming out of the new year, and then we have the weather, but we're starting to see a lot more activity right now.
That's great one more for me and I'll hop back in queue just the.
On the MSA backlog from future was about $250 million is there any way to see sort of what that MSA backlog look like at this time last year.
The kind of get a trend line there.
The honestly I don't have that information for this time last year, because we didn't know on them. So.
Okay fair enough thanks very much.
Thanks, and thanks Lee.
Your next question comes from the line of Sean Eastman with Keybanc. Your line is open.
Hi, Dan and John Hey, Sean.
Good morning.
Was hoping we could just maybe the grid just from the new guidance range. So the.
And from the old guidance range I mean, we've got the obvious dilution from the equity deal.
But what else moved and then.
You guys talked about maybe the quarter coming on better the internal expectations, maybe the interest expense is coming down if you could just give us that bridge that'd be helpful.
Yes, I think I think you've covered it all for me.
On the dilution standpoint for 5 million shares issued right, that's kind of 9% to 10% dilution. If you will for where we originally were.
So if you take the midpoint of our range recognizing that it is a range, but if you take the midpoint of our previous range for a couple of months ago of $2 50.
Roughly 9% to 10% dilution is call it 23% to 25.
And then offset by call it.
10% to 15 and better than expected in Q1.
Okay.
Gotcha and.
And the LNG project and the northeast I think you guys said at the time line is.
And the <unk> early for acute completion, I think last quarter, we were talking and.
And <unk> completion, if I recall correctly. So just wondering if the timeline shifted out and whether that increases the risk that we might see and other cost to complete estimate revision coming there.
And sitting here I'll tell you we think we've captured the risk, we've always had money and and the forecast and commissioning and startup of that facility.
We were looking and discussing the board we're looking at mechanical completion, we're talking about.
And on days walk off the base.
Projects like this though you never know there is always going to you'll always see some they seem to be the gifts that keep on giving back and sit here and tell you today I think we've captured all of them.
The engineering is done most of the mechanical and structural work is done.
We're in the electrical and instrumentation part of the project we have started the test systems.
So all things look good but I wouldn't sit here and tell you we're not going to see something I think it would be minor, but I think it's still there's still probably some costs and we might see.
Okay Fair enough and then.
Pipeline revenue down 32% year over year and the first quarter is that a good way to think about it for the full year.
And then I think I've got it.
Go ahead, and I'm sorry finish your question.
Just kind of say I know you guys don't guide on revenue, but.
Just from a high level do you think the business growth organically ex future for the full year.
I think first let me talk about pipeline and the pipelines back to closer to what they did in 2019, and we expect them to perform to those levels, both for revenue and profit, but maybe down a little bit from that but that's kind of where they are trending right now.
Okay, and that's really the 2020 was an exceptional year for them. If you remember they've got several projects and they kicked off at the beginning of the year and they ran all the way through the end of the year burn and revenue and making higher than expected margins I would expect them to go back to that traditional.
The company as a whole lot of thank God I think we'll see some growth I think the really riding on the back of the renewables I think we're going to start picking up some more work and our industrials.
And we're starting to see more activity although.
And this is <unk>.
Expected is just not at levels and it's been in the impact.
Past years, but I think that we will still growth I think youll see a little bit of both.
Okay terrific I'll hand, it over there thanks guys.
As a reminder, and its star one on your telephone keypad to ask a question.
Your next question comes from Adam Thalheimer with Thompson Davis Your line is open.
Hey, good morning, guys, great quarter, I don't know why the stock's down, but maybe we can fix that.
And I was hoping you could help me Adam.
Yes.
Yeah.
So I don't maybe machines are just picking up on it because it makes it look like the guidance decrease but.
I think that's really the case.
I agree with you.
And I want to start on the ex I wanted to turn on <unk> project $60 million seems pretty big curious how many projects are out there like that and then.
When do you think you'll actually start to see revenue from that.
We will see revenue in the coming quarter, I think he will and fee revenue this quarter and that and there is the number of projects. We're looking at right now of another $350 million of opportunity associated with our golf.
And as I said in my call of and where they are spending $20 billion over the next 10 years.
On that work and there is probably even going to be more coming out of these new build this new bill.
To expand broadband so I think theres, a lot of opportunities for us and companies like us.
We've just won this one we're chasing the another one of those.
Promises and there's more out there.
Okay and pricing on these things and it's pretty good.
Yes, I think it's a competitive market for the pricing is in line with what we would expect.
Got it and.
And one of the concerns out there and that really came up this week for solar was semiconductor availability of curious if you have any thoughts on.
And availability of panels or even.
Even for when the projects that you're seeing and availability issues.
I haven't heard of anything for wind with solar we've seen we haven't had any impacts.
Yet.
Most of our clients on the projects and we are executing in 2021 and and even in 'twenty two of the gotten out ahead of it I think that's one reason that we've seen of the number of.
Limited notice to procedure or progression on projects to the points of decline is buying the equipment. So I don't I'm not aware of any impacts right now and any of our ongoing projects I would expect the people are looking at that on projects going forward and making sure. They get out ahead of it and.
By timely so that may actually help us get more awards and.
The accelerated a little bit.
Sure.
Okay.
Any sign that pipe bottoms and 2021.
And im hoping.
And that there is no there is no side, we're seeing the low bid activity I think and.
And again, it's smaller and youre not going to.
C a large cross country pipelines and and even if you do and they.
And they may come up and you might not see them and the press and solar they're announced.
Okay.
The indications are that we think we'll see more activity of this year progresses and some of the re for work that hopefully well of revenue burn this year and some of them will more of it will be for for next year, but.
And with you I'm on I think the bottom is going to be this year, but it really just depends on.
And what the administration does and.
You hear about all of these jobs these pipeline projects being canceled and Theres a lot of pressure now and a lot of publicity about the jobs are being lost because of them.
So we'll.
And I will say.
And leverage down with the equity raise leverage down and one five times just lastly curious.
And what your thoughts are on M&A going forward.
Yes, I mean, the part of the reason we did that was so that we could delever and be ready for the next next opportunity. So we continue to look at opportunities of the pipeline is full with a lot of stuff small medium and large I don't expect us to jump into another large one probably the size of the future just yet.
I would probably like to kind of see what happens and also continued to delever, but we're definitely looking and with continued focus on utilities telecom and <unk>.
Centrally solar and renewables like we've been talking about every single quarter and I think one thing the future acquisition did for us.
Demonstrated that we will pay higher multiples.
And we will pay more for a company, but it's worth it and we think for future was a good borrowings is well worth it.
We've seen a lot more activity and a lot more opportunities come our way, we just got to find the right one.
Okay. Thanks, guys I'll talk to you later.
Thanks, Adam.
There are no further questions at this time I will now turn the call back to Tom Mccormick for closing remarks.
Oh, gosh I kind of kept thank you Mariano.
I'll just conclude by saying that we're off to a strong start in 2021 and are looking forward to seizing the opportunities of the rest of the year brings thank you all for joining us today.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
And.
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Okay.
And.
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