Q2 2024 Primoris Services Corp Earnings Call
Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primoris Services Corporation second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.
Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primoris Services Corporation Second Quarter 2024 Earnings Conference Call.
Regina: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Blake Holcomb, Vice President, Investor Relations. Please go ahead. Good morning.
Regina: All lines have been placed on mute to prevent any background noise.
Regina: After the speaker's remarks, there will be a question and answer session.
Regina: If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Blake Holcomb, Vice President, Investor Relations. Please go ahead.
Blake Holcomb: Good morning and welcome to the Primoris Second Quarter 2024 Earnings Conference Call. Joining me today with prepared comments are Tom McCormick, President and Chief Executive Officer, and Ken Dodgen, Chief Financial Officer. Before we begin, I would like to make everyone aware of certain language contained in our Safe Harbor Statement.
Blake Holcomb: Good morning and welcome to the Primoris Second Quarter 2024 Earnings Conference Call.
Speaker Change: Join me today with prepared comments are Tom McCormick, President and Chief Executive Officer, and Ken Dodgen, Chief Financial Officer.
Blake Holcomb: The company cautions that certain statements made during this call are forward-looking and are subject to various risks and uncertainties. Actual results may differ materially from our projections and expectations. These risks and uncertainties are discussed in our reports filed with the SEC. Our forward-looking statements represent our outlook as of today, August 6, 2024. We disclaim any obligation to update these statements, except as may be required by law.
Speaker Change: Before we begin, I would like to make everyone aware of the certain language contained in our Safe Harbor Statement. The company cautions that certain statements made during this call are forward-looking and are subject to various risks and uncertainties.
Speaker Change: Actual results may differ materially from our projections and expectations.
Speaker Change: These risks and uncertainties are discussed in our reports filed with the SEC.
Speaker Change: Our forward-looking statements represent our outlook as of today, August 6, 2024. We disclaim any obligation to update these statements, except as may be required by law. In addition, during this conference call, we may make reference to certain non-GAAP financial measures.
Blake Holcomb: In addition, during this conference call, we may make reference to certain non-GAAP financial measures. A reconciliation of these non-GAAP measures is available on the investor section of our website and in our second quarter 2024 earnings press release, which was issued yesterday. I would now like to turn the call over to Tom McCormick.
Speaker Change: A reconciliation of these non-GAAP measures are available on the investor section of our website in our second quarter 2024 earnings press release, which was issued yesterday. I would now like to turn the call over to Tom McCormick.
Tom McCormick: Thank you, Blake. Good morning, and thank you for joining us today to discuss our second quarter 2024 financial and operational results. In the second quarter, Primoris delivered double-digit growth in both revenue and profitability from the previous year. Our employees have taken ownership of driving our strategy to grow profitably with an emphasis on safety and cash flow generation. In recent quarters, we have been highlighting key drivers of increased investment in infrastructure solutions, including industrial reshoring.
Tom McCormick: Thank you, Blake.
Tom McCormick: Good morning and thank you for joining us today to discuss our second quarter 2024 financial and operational results. In the second quarter, Primoris delivered double-digit growth in both revenue and profitability from the previous year.
Tom McCormick: Our employees have taken ownership of driving our strategy to grow profitably with an emphasis on safety and cash flow generation.
Tom McCormick: In recent quarters, we have been highlighting key drivers of the increased investment in infrastructure solutions.
Tom McCormick: Increasing electricity demand and the transition to lower carbon energy sources. We are seeing these things play out in many of the markets we serve across North America. But perhaps there is no better example of this than in the state of Texas.
Tom McCormick: including industrial reshoring, growing electricity demand, and the transition to lower carbon energy sources.
Tom McCormick: We are seeing these things play out in many of the markets we serve across North America.
Tom McCormick: The Electric Reliability Council of Texas, or ERCOT, recently increased its estimates for future power demand. The revised forecast predicts a more than 75% increase in demand from a peak load of 85 gigawatts in 2023 to 150 gigawatts by 2030. The increase is being driven by a rapidly growing population, the oil and gas industry transitioning their operations to run on electricity rather than gas or diesel, as well as large users of power such as data centers powering artificial intelligence and cryptocurrency mining.
Tom McCormick: But perhaps there is no better example of this than in the state of Texas.
Tom McCormick: The Electric Reliability Council of Texas, or ERCOT, recently increased its estimates for future power demand.
Tom McCormick: The revised forecast predicts a more than 75% increase in demand from a peak load of 85 gigawatts in 2023 to 150 gigawatts by 2030.
Tom McCormick: The increase is being driven by a rapidly growing population, the oil and gas industry transitioning their operations to run on electricity rather than gas or diesel, as well as large users of power such as data centers powering artificial intelligence and cryptocurrency mining.
Tom McCormick: We have already seen the impact of data center development in other parts of the country. Primoris has a suite of critical services that it can provide for these projects, from high voltage work and site preparation to fiber installation and power generation.
Tom McCormick: We have already seen the impact of data center development in other parts of the country.
Pomorris: And Primoris has a suite of critical services that we can provide for these projects.
Pomorris: From high voltage work and site preparation to fiber installation and power generation, we are well positioned to continue providing valuable services to the development of data centers.
Tom McCormick: We are well positioned to continue providing valuable services in the development of data centers. So far this year, we have been awarded, or in the process of constructing, close to $400 million of work related to data centers, and we have identified more than $300 million of projects slated to be awarded in the next 12 months that we believe align well with our expertise. The projected growth will require significant investments in solar and natural gas generation resources, as well as substations and transmission lines necessary to deliver the power to the ultimate end user.
Pomorris: So far this year, we have been awarded, or in the process of constructing, close to $400 million of work related to data centers.
Pomorris: and have identified more than $300 million of projects slated to be awarded in the next 12 months that we believe align well with our expertise.
Pomorris: The projected growth will require significant investments in solar and natural gas generation resources, as well as substations and transmission lines necessary to deliver the power to the ultimate end-users.
Tom McCormick: The State of Texas is encouraging investment in dispatchable resources through its Texas Energy Fund, which could provide up to $10 billion in loans and grants to finance and incentivize construction, maintenance, and modernization of facilities. Primoris has longstanding customer relationships in Texas and a track record of execution that we believe will make us well positioned to capitalize on solar and natural gas power generation, as well as the associated power delivery needs. It is still in the early stages as to how the Texas Energy Fund will be administered.
Tom McCormick: We are currently evaluating roughly $500 million in natural gas simple cycle peaker facilities that are currently in the planning phase, and we anticipate that there will be more opportunities in the years ahead in Texas and other parts of the country that are expected to experience the same increase in electricity demand. Now let's look at our performance for the quarter by segment. In the utility segment, revenues were lower compared to last year, driven primarily by lower activity and gas operations. While activity has been as expected or even better in the Midwest and Texas markets, we have seen a slower rollout of gas programs with customers on the West Coast.
Pomorris: It is still in the early stages for how the Texas Energy Fund will be administered. We are currently evaluating roughly $500 million of natural gas simple cycle peaker facilities that are currently in the planning phases.
Speaker Change: While activity has been as expected, or even better in the Midwest and Texas markets, we have seen a slower rollout of gas programs with customers on the West Coast.
Tom McCormick: Some customers have had to modify their programs and lower costs as they work with regulators on rate case approval. Particularly in the California market, although the delays led to a decline in revenue, we were able to quickly adjust our cost structure to hold margins relatively flat in the. On the other hand, communications activity was higher from the previous year, with more fiber-to-the-home activity in the Southwest. Profitability also improved as we did not have the adverse impacts of higher costs associated with the challenge project last year. The near-term outlook for communications continues to trend positively as opportunities to support the data center network build-outs of our hyperscaler customers increase.
Speaker Change: Some customers have had to modify their programs and lower costs as they work with regulators on rate case approvals, particularly in the California market. Although the delays led to a decline in revenue, we were able to quickly adjust our cost structure to hold margins relatively flat in the business.
Tom McCormick: Power delivery revenue was fairly consistent compared to the previous year, but we did see profitability increase, driven by improved productivity and a small amount of storm response work that helped it offset the large substation project we constructed last year. I want to thank our linemen who traveled from different parts of the country to assist our Texas neighbors who were impacted by Hurricane Beryl and other weather-related events. These men and women worked long hours in challenging conditions to restore power to communities in their time of need.
Tom McCormick: We value their contributions and their approach to performing their duties safely and efficiently. Moving over to the energy segment, the ongoing success of our renewables and industrial construction businesses drove strong revenue and margin growth versus the prior year. In renewables, the market for our solar EPC solution remains strong, and we performed well during the quarter despite some weather-related delays. We also booked roughly $600 million of new projects in the quarter, and added another $500 million earlier in the third quarter. These awards include approximately 800 megawatts of battery storage and span across multiple customers and states from California to New York.
Speaker Change: We also booked roughly $600 million of new projects in the quarter.
Tom McCormick: We are now on track to exceed our new business goals for the year and expect that total backlog and renewables will approach $3 billion by the end of the year, making us essentially booked for 2025 and establishing a solid foundation for growth in 2026 and beyond. In addition to growing our solar EPC backlog, we've recently achieved a milestone of $55 million in bookings for our premier PV electric balance of system, or eBoss, solution.
Tom McCormick: Premier PV is a small but growing business within renewables that is focused on utility-scale products through its offering of combiner boxes, disconnects, wire harnesses, and other products, making it a complete eBoss solutions provider. Initially started as a value-add option for our customers in a way to avoid long lead times or supply chain disruption. We are now selling to third parties that value our quality, reliability, and easy-to-install eBall solutions.
Speaker Change: Premier PV is a small but growing business within renewables that is focused on utility scale products through its offering of combiner boxes, disconnects, wire harnesses, and other products making it a complete eBoss solutions provider.
Speaker Change: Initially started as a value-add option for our customers in a way to avoid long lead times or supply chain disruptions.
Speaker Change: We are now selling to third parties that value our quality, reliability, and easy-to-install eBall solutions.
Tom McCormick: While Premier PV is still a relatively small part of the renewables business, we have made capital investments to grow our production capacity and build on the more than 10 gigawatts of eBoss products deployed since its inception. We believe that Premier PV aligns well with our strategy to expand the services we can offer our clients and has the potential to be a more meaningful contributor to our renewables profitability in the years ahead.
Speaker Change: While Premier PV is still a relatively small part of the renewables business.
Speaker Change: We have made capital investments to grow our production capacity and build on the more than 10 gigawatts of EVOS products deployed since its inception.
Speaker Change: and has the potential to be a more meaningful contributor to our renewables profitability in the years ahead.
Tom McCormick: In wrapping up renewables, I want to congratulate our team for being selected as the number two ranked solar EPC contractor nationally in Solar Power World Magazine's 2024 rankings. We were also recognized as a top utility scale solar EPC service provider in several of the states in which we operate.
Speaker Change: And Solar Power World Magazine's 2024 rankings that were also recognized as a top utility scale solar EPC service provider in several of the states in which we operate.
Tom McCormick: This acknowledgment is well deserved and evidence of the hard work and dedication of our people. Through Industrial Services, we drove double-digit growth and improved margins on solid execution, particularly on projects in the western U.S. and increased activity in the Gulf Coast region. During the quarter, we also made strides winding down or divesting certain encore businesses in the segment that will enable us to focus our time and attention on driving margin expansion and cash flow.
Speaker Change: In industrial services, we drove double-digit growth and improved margins on solid execution, particularly on projects in the western U.S. and increased activity in the Gulf Coast region.
Speaker Change: During the quarter, we also made strides winding down or divesting certain encore businesses in the segment that will enable us to focus our time and attention on driving margin expansion and cash flow.
Tom McCormick: To summarize, it was a good second quarter for the first half of the year, and we are looking forward to continuing to take advantage of the tailwinds in our markets and delivering safe and consistent execution to our clients. Now I'll turn it over to Ken for more on our financial performance. Thanks, Tom, and good morning, everyone.
Ken Dodgen: Our Q2 revenue was just under $1.6 billion, an increase of $150.3 million, or 10.6% from the prior year, driven primarily by strong growth in our energy segment. The energy segment was up 194.8 million, or 25% from the prior year, driven primarily by solar and industrial construction. The utility segment was down 28.4 million, or 4.4% from the prior year, primarily due to a decrease in gas operations activity and a major substation project that was completed in the prior year. However, these impacts were partially offset by increased transmission and substation work for our renewables customers and increased activity in communication.
Speaker Change: Thanks, Tom, and good morning, everyone. Our Q2 revenue was just under $1.6 billion, an increase of $150.3 million, or 10.6% from the prior year, driven primarily by strong growth in our energy segment.
Speaker Change: The energy segment was up 194.8 million, or 25% from the prior year, driven primarily by solar and industrial construction.
Speaker Change: The utility segment was down 28.4 million or 4.4% from the prior year, primarily due to a decrease in gas operations activity and a major substation project that was completed in the prior year.
Speaker Change: These impacts were partially offset by increased transmission and substation work for our renewables customers and increased activity in communications.
Ken Dodgen: Gross profit for the second quarter was $186.7 million, an increase of $29.4 million, or 18.7% compared to the prior year. This was primarily due to an increase in energy segment revenue and improved margins in both segments. As a result, gross margins were 11.9% for the quarter compared to 11.1% in the prior year. Now, turning to our segment results. The utility segment gross profit was $64.1 million, down $2.4 million or 3.7% compared to the prior year due to the decrease in revenue.
Speaker Change: This is primarily due to the increase in energy segment revenue and improved margins in both segments. As a result, gross margins were 11.9% for the quarter compared to 11.1% in the prior year.
Speaker Change: Turning to our segment results.
Speaker Change: Utility segment gross profit was $64.1 million, down $2.4 million or 3.7% compared to the prior year due to the decrease in revenue.
Ken Dodgen: Despite lower revenue, gross margins improved slightly to 10.3% compared to 10.2% in the prior year due to improved operational productivity and cost management. We continue to prioritize improving margins in this segment through a combination of favorable project work, MSA rate increases, and higher productivity in our power delivery business. We expect to see some improvement for the full year 2024 compared to the prior year and further margin expansion in the years ahead as we progress toward our goal to have this segment perform in the 10 to 12% rank. However, for 2024, we still anticipate margins will be at the lower end of the 9 to 11% rank.
Speaker Change: Despite lower revenue, gross margins improved slightly to 10.3% compared to 10.2% in the prior year due to improved operational productivity and cost management.
Speaker Change: We continue to prioritize improving margins in this segment through a combination of favorable project work, MSA rate increases, and higher productivity in our power delivery business.
Speaker Change: We expect to see some improvement for the full year 2024 compared to the prior year and further margin expansion in the years ahead as we progress toward our goal to have this segment perform in the 10 to 12 percent range.
Speaker Change: However, for 2024, we still anticipate margins will be at the lower end of the 9 to 11 percent range.
Ken Dodgen: In the energy segment, gross profit was $122.6 million for the quarter, a $31.9 million or 35.1% increase from the prior year due to both higher revenue and improved margins. Gross margins were 12.6 percent, up from 11.7 percent in the prior year. The improved margins were driven by strong execution on natural gas power plant projects in the western U.S. and an increase in renewables revenue. Looking at SG&A, expenses in the second quarter were $100.1 million, an increase of $14.5 million compared to the prior year.
Speaker Change: In the energy segment, gross profit was $122.6 million for the quarter, a $31.9 million or 35.1% increase from the prior year due to both higher revenue and improved margins.
Speaker Change: Gross margins were 12.6%, up from 11.7% in the prior year. The improved margins were driven by strong execution on natural gas power plant projects in the western U.S. and an increase in renewables revenue.
Speaker Change: Looking at SG&A, expenses in the second quarter were $100.1 million, an increase of $14.5 million compared to the prior year.
Ken Dodgen: The increase in SG&A is primarily due to increased personnel costs and technology investments to support our growth. As a percentage of revenue, SG&A was up slightly from the prior year to 6.4% of revenue due to the timing of certain expenses. But we expect SG&A to be down slightly in the third and fourth quarters as we trend toward the low 6% range for the full year. Net interest expense in the quarter was $17.1 million, up slightly from the prior year due to a $3.2 million unrealized gain on an interest rate swap in the prior year, mostly offset by lower average debt balances this year.
Speaker Change: The increase in SG&A is primarily due to increased personnel costs and technology investments to support our growth. As a percentage of revenue, SG&A was up slightly from the prior year to 6.4% of revenue due to the timing of certain expenses.
Speaker Change: But we expect SG&A will be down slightly in the third and fourth quarters as we trend toward the low 6% range for the full year.
Speaker Change: Net interest expense in the quarter was $17.1 million, up slightly from the prior year due to a $3.2 million unrealized gain on interest rate swap in the prior year, mostly offset by lower average debt balances this year.
Ken Dodgen: Given that we've been able to fund our operations for the first half of the year without the need to draw on our revolver, we now anticipate that our full-year interest expense will be between $71 and $74 million. This is down from our previous estimate of $77 to $82 million. Our effective tax rate was 29% for the quarter.
Speaker Change: Given that we've been able to fund our operations for the first half of the year without the need to draw on our revolver, we now anticipate that our full-year interest expense will be between $71 and $74 million. This is down from our previous estimate of $77 to $82 million.
Ken Dodgen: We believe this rate will be consistent for the full year. Second quarter earnings showed solid improvement from the prior year. EPS increased by $0.19 per share, and adjusted EPS was higher by $0.24 per share.
Speaker Change: Our effective tax rate was 29% for the quarter. We believe this rate will be consistent for the full year.
Speaker Change: Second quarter earnings showed solid improvement from the prior year. EPS increased by 19 cents per share and adjusted EPS was higher by 24 cents per share.
Ken Dodgen: Additionally, net income increased almost $11 million to just under $50 million, and adjusted EBITDA increased to $117 million, up approximately $15 million, or 14% compared to the prior year. Taking a look at cash flow in Q2, we saw cash flow from operations of $16 million, which drove a small $12.4 million cash use year to date. This is a strong improvement over the almost $81 million of cash used through the first two quarters of the prior year. The primary drivers were an increase in deferred revenue related to upfront customer payments and higher operating income.
Speaker Change: Additionally, net income increased almost $11 million to just under $50 million, and adjusted EBITDA increased to $117 million, up approximately $15 million, or 14 percent compared to the prior year.
Speaker Change: Taking a look at cash flow in Q2, we saw cash flow from operations of $16 million, which drove a small $12.4 million cash use year-to-date.
Speaker Change: This is strong improvement over the almost $81 million of cash used through the first two quarters in the prior year. The primary drivers were an increase in deferred revenue related to upfront customer payments and higher operating income.
Ken Dodgen: Cash Flow is a key focus for our leadership team, and we believe we are on track to see improvements in our working capital through the initiatives we are implementing. Moving over to the balance sheet, we maintain strong liquidity of $480 million, which includes $207 million of cash and $273 million in available borrowing capacity on our revolver. Our trailing 12 month net debt to EBITDA ratio, as defined by our debt covenants, dropped to 1.8 times EBITDA at the end of Q2. This represents our lowest leverage ratio since the second quarter of 2022, just prior to the PLH acquisition.
Speaker Change: Cash flow is a key focus for our leadership team and we believe we are on track to see improvements in our working capital through the initiatives we are implementing.
Speaker Change: Moving over to the balance sheet, we maintain strong liquidity of $480 million, which includes $207 million of cash and $273 million in available borrowing capacity on our revolver.
Speaker Change: Our trailing 12-month net debt-to-EBITDA ratio, as defined by our debt covenants, dropped to 1.8 times EBITDA at the end of Q2.
Speaker Change: This represents our lowest leverage ratio since the second quarter of 2022, just prior to the PLH acquisition.
Ken Dodgen: While our ratio can differ somewhat quarter to quarter based on working capital needs, we are trending towards our target ratio of 1.5 times EBITDA. Our capital allocation priority continues to be paying down debt with free cash flow in the current interest rate environment. Total backlog at the end of Q2 was just under $10.5 billion, down around $440 million from the end of 2023. Fixed backlog was lower by $332 million from year end, primarily due to the timing of solar and other energy segment bookings.
Speaker Change: While our ratio can differ somewhat quarter to quarter based on working capital needs.
Speaker Change: We are trending towards our target ratio of 1.5 times EBITDA. Our capital allocation priority continues to be paying down debt with free cash flow in the current interest rate environment. Total backlog at the end of Q2 is just under $10.5 billion, down around $440 million from the end of 2023.
Speaker Change: Fixed backlog was lowered by $332 million from year-end, primarily due to the timing of solar and other energy segment bookings.
Ken Dodgen: As Tom mentioned, we closed another $500 million right after the end of the quarter, which tops us back up to where we started the year. However, MSA backlog was lower by about $109 million from year end, driven by lower MSA work in Canada and lower pipeline MSA work, partially offset by almost $80 million in additional MSA backlog in utilities.
Speaker Change: As Tom mentioned, we closed another $500 million right after the end of the quarter, which tops us back up to where we started the year.
Speaker Change: MSA backlog was lowered by about $109 million from year-end driven by lower MSA work in Canada and lower pipeline MSA work, partially offset by almost $80 million in additional MSA backlog in utilities.
Ken Dodgen: We continue to see a lot of opportunity to win work across our end markets, and we are optimistic that we will build backlog in the second half of the year. Barring any unforeseen project delays or pushouts, we believe we can position ourselves to end 2024 with a higher backlog than we started the year. Before turning it back over to Tom, I'll close the financial overview with our updated guidance. We are raising our full-year EPS guidance to 270 to 290 per share, adjusted EPS guidance to $325 to $345 per share, and adjusted EBITDA guidance to $400 to $420 million for the full year 2024.
Speaker Change: We continue to see a lot of opportunity to win work across our end markets, and we are optimistic that we will build backlog in the second half of the year. Barring any unforeseen project delays or pushouts, we believe we can position ourselves to end 2024 with a higher backlog than we started the year.
Speaker Change: Before turning it back over to Tom, I'll close the financial overview with our updated guidance. We are raising our full-year EPS guidance to $270 to $290 per share.
Speaker Change: adjusted EPS guidance to 325 to 345 per share.
Ken Dodgen: We are encouraged by our first half results and our outlook for the rest of the year, particularly in solar and industrial construction, along with lower interest expense. With continued safe and successful execution, we believe we are on the path to another record year of revenue and earnings in 2024. With that, I'll turn it back over to Tom. Thank you, Ken.
Tom McCormick: and adjusted EBITDA guidance to $400 to $420 million for the full year 2024. We are encouraged by our first half results and our outlook for the rest of the year, particularly in solar and industrial construction, along with lower interest expense.
Tom McCormick: With continued safe and successful execution, we believe we are on the path to another record year of revenue and earnings in 2024.
Tom McCormick: With that, I'll turn it back over to Tom.
Tom McCormick: Prior to opening the line up for questions, I'd like to recap some of the key points of the quarter. First, demand for the services we provide remains high across our markets and is becoming increasingly important in the state of Texas. We have the relationships and experience to build solar and gas power generation, critical components of data centers, and the power delivery services required to connect them. Second, our renewables business continues to thrive and show signs of accelerating in the years ahead as we build backlog and grow our product management.
Tom McCormick: Thank you, Ken.
Tom McCormick: Prior to opening the lineup for questions, I'd like to recap some of the key points of the quarter.
Tom McCormick: First, demand for the services we provide remains high across our markets and is becoming increasingly important in the state of Texas.
Speaker Change: We have the relationships and experience to build solar and gas power generation.
Speaker Change: critical components of data centers and the power delivery services required to connect them. Second, our renewables business continues to thrive and show signs of accelerating in the years ahead as we build backlog and grow our project management teams.
Tom McCormick: The addition of ancillary services like battery storage, O&M, and eBoss solutions through Premier PV simplifies the construction process for us and our customers and expands our already strong relationships with. Lastly, we are making progress in improving our utilities margins through improved mix, new MSA contracts, and increased productivity, even as the timing of customer spending can fluctuate on a quarterly basis. Ultimately, we are confident that there will be a lot of work that will be needed from our utility segment in the years ahead to meet the needs of the North American economy.
Speaker Change: The addition of ancillary services like battery storage, O&M, and eBoss solutions through Premier PV simplifies the construction process for us and our customers and expands our already strong relationships with them.
Speaker Change: Lastly, we are making progress in improving our utilities margins through improved mix, new MSA contracts, and increased productivity, even as the timing of customer spending can fluctuate on a quarterly basis.
Speaker Change: Ultimately, we are confident that there is a lot of work that will be needed from our utility segment in the years ahead to meet the needs of the North American economy.
Tom McCormick: We have a lot of opportunity ahead of us to drive profitability and cash flow higher. Success in these areas, along with continued capital discipline, will take us further down the path of achieving our goal to be the best allocators of capital in our industry. In our view, this will allow Primoris to reach its potential to the benefit of our employees, our customers, and our shareholders. We will now open up the call to your questions.
Speaker Change: We have a lot of opportunity ahead of us to drive profitability and cash flow higher.
Speaker Change: Success in these areas along with the continued capital discipline will take us further down the path of achieving our goal to be the best allocators of capital in our industry.
Speaker Change: In our view, this will allow Primoris to reach its potential to the benefit of our employees, our customers, and our shareholders.
Regina: At this time, I'd like to remind everyone in order to ask a question, simply press star followed by the number one on your telephone keypad. We do ask that you please limit your questions to one follow-up. Our first question comes from the line of Jerry Revit, Goldman Sachs. Please go ahead.
Speaker Change: We will now open up the call for your questions.
Speaker Change: At this time I'd like to remind everyone in order to ask a question simply press star followed by the number one on your telephone keypad. We do ask that you please questions to one follow-up. Our first question comes from line of Jerry Revit, Goldman Sachs. Please go ahead.
Adam Bubes: Hi, good morning; this is Adam Bubes on behalf of Jerry Revich. Thanks for taking our question. You know, in electric utilities, I was just wondering if you could speak to what customers are telling you about their investment plans over the next two to three years to prepare for the increased low growth and what level of growth is in business today.
Speaker Change: Hi, good morning. This is Adam Bubis on for Jerry Ravitch.
Adam Bubis: Thanks for taking our question. In electric utilities, just wondering if you can speak to what customers are telling you about their investment plans over the next two to three years to prepare for the increased low growth and what level of growth is at business today?
Unknown Executive: You know, I'll let Tom talk about kind of what the customers are saying. In terms of revenue growth, you know, for us, it's, you know, fairly low revenue growth right now. We're targeting single-digit growth this year, Adam, as we've talked about in the past, because we are more focused on margin improvement, and this is obviously the first of the three-year plan for us, focused on margin improvement. And then, Tom, you've probably been talking to customers more than I have.
Tom McCormick: What we're hearing from clients is a little bit different, depending on what part of the country we're in. I think some of them are waiting to see what happens in the election. Others are not, and others are planning for growth. Here in Texas, for instance, our customers are expecting significant growth, and they're seeing their budgets increase year-on-year, so they're asking us to support that and grow with them. In other parts of the country, we're seeing the same.
Tom McCormick: We're having very similar conversations, whereas out west, it's a little bit different. Some customers are waiting to get it in the right case, or waiting to see what happens with the election. So it's kind of a mixed bag.
Speaker Change: Other parts of the country, we're seeing the same, we're having very similar conversations, whereas out west it's a little bit different. Some customers are waiting to get it in the right case, or waiting to see what happens with the election. So it's kind of a mixed bag.
Unknown Executive: Shifting to Utilities, what type of margin improvement are you now thinking about in 2025 vs. 2024, and what inning are we currently in the renegotiating of MSA utility contracts flowing through?
Unknown Executive: Yeah, I don't have specific margin targets for you for 25 right now, but with respect to what inning we're in, you know, we're, well, there's two phases of it, right? Adam, we talked about this in the past. There's the ongoing stuff. We constantly have contracts that are being renewed every single year. So there's the ongoing piece of it, and then there's the other component of it where we're specifically talking about better payment terms and other things like that.
Unknown Executive: That we are probably in the second or third inning and will happen over the course of the next, over 24, 25, and 26 as well. But the ones we've targeted, we're probably in the eighth. Presenter: Those negotiations will finish soon, but the game starts over, right? Every time and when it expires, so every year we have MSAs that expire or come up from a remote place. And the last one, from
Unknown Executive: And the last one for me, you know, is any of the year-to-date revenue growth in utilities attributable to, you know, intentional margin accretive shedding in that business, or is it really, you know, the lapping of the project that you reference in gas operations mainly? It's a little bit of both. Got it. Thanks so much.
Speaker Change: And the last one for me, you know, is any of the year-to-date revenue growth in utilities attributable to, you know, intentional margin accretive shedding in that business, or is it really, you know, the lapping of the project that you reference in gas operations mainly?
Lee Jagoda: Our next question comes from the line of Lee Jagoda with CJS Securities. Please go ahead.
Speaker Change: Thanks Adam.
Pete Lukas: Hi, good morning. It's Pete Lukas speaking for Lee.
Pete Lukas: I appreciate it. You guys covered a lot in the prepared remarks. I have just two quick questions for you.
Pete Lucas: Hi, good morning. It's Pete Lukas for Lee. I appreciate it. You guys covered a lot in the prepared remarks. Just two quick questions for you.
Unknown Executive: You spoke on your analyst day about winding down activities for a portion of the business. What, if any, progress has been made on that front? And how are you thinking about expected proceeds and potential benefits to gross margins as a result of any action?
Speaker Change: You'd spoken on your analyst day about wind down of activities for a portion of the business. What if any progress has been made on that front and how are you thinking about expected proceeds and potential benefits to gross margins as a result of any actions?
Unknown Executive: We're actually in the process of winding some businesses down even now and divesting ourselves of others. The divestitures will take a little while, but we did just recently sell a smaller business, and the net proceeds from that were minimal, but they were positive. We sold some assets of another business that we're winding down, and some of that was fairly positive for us as well.
Speaker Change: We've actually are in the process of winding some businesses down even now and rather in divesting ourselves of others. The divestitures will take a little while but we did just recently
Speaker Change: We sold some assets of another business that were winding down and some of that was fairly positive for us as well.
Unknown Executive: And the rest will probably come either later this year or certainly go into 2025. So some of these are just going to take some time. Some of them, we actually have buyers that are interested in the businesses, and those discussions will just take time to evolve.
Speaker Change: and the rest will probably come either later this year or certainly go into 2025. So some of these are just going to take some time. Some of them we have actually buyers that are interested in the businesses, and those discussions will just take time to evolve.
Unknown Executive: Thanks. And last for me, can you just talk about weather dynamics in the quarter and how this may have impacted the segments, and any insight into how that's progressing in the current quarter?
Speaker Change: Thanks. And last for me, can you just talk about weather dynamics in the quarter and how this may have impacted the segments and any read into how that's progressing in the current quarter?
Unknown Executive: We had some rain in the second quarter, obviously, that impacted some of our solar and heavy civil businesses, probably a little bit of our industrial businesses here on the Gulf Coast. Some of them will get some recovery from their clients just because of their name, Storms, and the language in the contract will help us a little bit to cover some of the costs, not necessarily with any upsides of those, obviously. Others will not.
Speaker Change: We had some rain in the second quarter, obviously, that impacted some of our solar and heavy civil businesses. Probably a little bit of our industrial businesses here on the Gulf Coast.
Speaker Change: Some of them will get some recovery from their clients just because of their named storms and the language in the contract will help us a little bit to cover some of the costs, not necessarily have any upsides of those obviously.
Unknown Executive: The impacts were not as significant as we thought. We were able to get back to work pretty quickly on all of those sites, so it's been pretty good. We had a little bit of storm work that gave us a little bit of revenue in the quarter, in the second quarter, and some early third quarter this year. Again, not really material.
Speaker Change: Others will not. The impacts were not as significant as we thought. We were able to get back to work pretty quickly on all of those sites, so it's been pretty good. We had a little bit of storm work that gave us a little bit of revenue in the quarter, in the second quarter, and some early.
Speaker Change: Third quarter of this year, again, not real material.
Pete Lukas: Great, thanks. I'll jump back in the queue.
Julio Romero: Our next question comes from the line by Julio Romero with Sidoti. Please go ahead.
Speaker Change: Great. Thanks. I'll jump back in the queue.
Speaker Change: Our next question comes from the line of Julio Romero with Sudoti. Please go ahead.
Alex Hantman: Good morning. This is Alex Hantman on behalf of Julio. Thanks for taking questions. First question on data centers: are you seeing any trends around expansion in the size of projects or, you know, relative growth, you know, in your portfolio?
Speaker Change: Good morning. This is Alex Hantman on for Julio. Thanks for taking questions.
Alex Handman: First question on data centers, are you seeing any trends around expansion in the size of projects or you know relative growth you know in your portfolio?
Tom McCormick: We're seeing more opportunities associated with work that supports or is a component of or part of building data centers. With respect to power generation, we're doing a number of studies now on projects, peak shavers, and the like here in Texas and this part of the country to support, I'm sure, future demand that comes from the construction of data centers. We're also doing some work right now for clients in fiber installations, and we're also doing some work for clients in power generation associated with data centers, both solar and gas.
Alex Hantman: Great. Yeah, I appreciate the color there.
Speaker Change: It's both solar and gas.
Unknown Executive: And then your question around the EPS guidance. Can you talk a little bit about some of the scenarios that might bring us to the low end versus the high end of the guidance?
Unknown Executive: Yeah, I mean, it's the normal opportunities, right? If we have any, you know, serious weather in the back half of the year that could impact us from a cost perspective, or if winter sets in earlier in Q4 than we're expecting, that could take us to the lower end of the range. On the opposite side of the spectrum, toward the top end of the range, good project closeouts, some storm work from named hurricanes during Q3 and early Q4, those are the usual suspects that drive us toward the upper end of the range.
Speaker Change: Yeah, I mean, it's the normal opportunities, right? If we have any serious weather in the back half of the year.
Speaker Change: that could impact us from a cost perspective or if winter sets in earlier in Q4 than we're expecting that could be, take us to the lower end of the range.
Alex Hantman: Great. Thank you for the color. That's it from us.
Avi Jaroslawicz: Our next question comes from the line of Avi Jaroslawicz with UBS. Please go ahead.
Speaker Change: Great. Thank you for the color. That's it from us.
Speaker Change: Our next question comes from the line of Avi Jaroslawicz with UBS. Please go ahead.
Unknown Executive: Good morning, guys. I'm on for Steve Fisher.
Ava Yarosalik: So, yeah, just back in margins for a second. Another quarter of robust profit in the energy segment. I just want to understand how that compared to your expectations going into the quarter. And maybe if you can give us a little bit more color as to what drove that. And then as we think about the second half.
Speaker Change: You know, how much conservatism would you say you're baking into guidance and what are the biggest swing, you know, uncertainties in your mind there?
Speaker Change: Yeah, look, not a whole lot of uncertainties as we look toward the back half of the year because basically we're burning off backlog for the most part.
Unknown Executive: So, yeah, just back to margins for a second. Another quarter of robust profit in the energy segment. Just want to understand how that compared to your expectations going into the quarter. And maybe you can give us a little bit more color as to what drove that. And then, as we think about the second half, how much conservatism would you say you're baking into guidance, and what are the biggest uncertainties in your mind there?
Unknown Executive: Yeah, look, not a whole lot of uncertainties as we look toward the back half of the year because basically, we're burning off backlog for the most part. The margins were slightly above where we thought they were going to be, just because of the timing of a couple of modest project closeouts during the quarter and, frankly, the fact that we burned a little bit more revenue during the quarter than we originally anticipated.
Speaker Change: The margins were slightly above where we thought they were going to be, just because of the timing of a couple of modest project closeouts during the quarter.
Speaker Change: And frankly, the fact that we burned a little bit more revenue during the quarter than we originally anticipated. And look, the back half of the year, again, I think is just going to be another solid year, another solid, you know, finish to the year for us.
Unknown Executive: And look, the back half of the year, again, I think it's going to be another solid year, another solid, you know, finish for us. We feel good about where we are, and, you know, we still have a couple of our businesses, we still have a little bit of business to win, but it's a relatively small percentage of the total pie.
Speaker Change: We feel good about where we are and, you know, we still have, in a couple of our businesses, we still have a little bit of business to win, but it's a relatively small percentage of the total pie.
Unknown Executive: And then in terms of the backlog, so I think we would have maybe expected a little bit stronger bookings for the energy segment, especially when you called out the 700 million awards there in Q2 with the July press release. So I know there's another 500 million that was booked in early July that will hit Q3, but can you discuss just some of the moving parts within the backlog there? Like what were the ins and outs in terms of bridging the backlog from Q1 to Q2?
Speaker Change: And then in terms of the backlog, so I think we would have maybe expected a little bit stronger bookings for the energy segment, especially when you call that the 700 million.
Speaker Change: of awards there in Q2 with the July press release. So I know there's another 500 million that was booked in early July that will hit Q3, but can you discuss just some of the moving parts within backlog there? Like what were the ins and outs in terms of bridging backlog from Q1 to Q2?
Unknown Executive: I'm not sure there's any magic between them; a lot of it's just timing. And same thing with Q2, Q3, right?
Unknown Executive: We could have very easily booked that another $500 million that crept into Q3, into late Q2. That's just the timing when the contracts were executed. And we don't put it in the backlog until the contracts are executed. We've got a lot of opportunities towards the end of this year. We've got projects that we're negotiating on. We've got projects that we've been told we're the low bidder on. And we're preparing to sign the contracts.
Speaker Change: I'm not sure there's any magic between, a lot of it's just timing, and same thing with Q2, Q3, right? We could have very easily have...
Speaker Change: Booked that another 500 million dollars that crept into Q3 into late Q2 That's just the timing when the contracts were executed and we don't put it in backlog until the contracts are executed We got a lot of opportunities towards the end of this year. We got projects that we're negotiating We got projects that we've been told we're the low bidder on and we're we're preparing to sign the contracts. It'll take course
Unknown Executive: Projects will take place over the course of the third quarter and fourth quarter of the year that will put us in a good position for going into 2025. But sometimes when you get towards the end of a quarter, some of that just slips, so we have really no control over it. The fact that we'll have it on, our expectations, we'll have it in the backlog going into 2025, and that's all I really care about.
Speaker Change: take place over the course of the third quarter and fourth quarter of the year that'll put us in a good position for going into 2025.
Speaker Change: But sometimes when you get towards the end of a quarter, some of that just pushes, so we have really no control over it. The fact that we'll have it on, our expectation is we'll have it in backlog going into 2025, and that's all I really care about.
Unknown Executive: Got it. All right. Thank you for the time.
Kevin Gainey: Once again, for any questions, please press star one, and our next question will come from the line of Kevin Gainey with Thompson Davis. Please go ahead.
Speaker Change: Got it. All right. Thank you. Good time.
Speaker Change: Once again for any questions please press star 1 and our next question will come from the line of Kevin Gainey with Thompson Davis. Please go ahead.
Unknown Executive: Hey guys, it's Kevin. I'm on Adam's behalf. Maybe if we could, if you guys could touch on the energy margins in the quarter. They were pretty strong, and do you think that can continue in the back half? Because the shakeout might end up towards the higher end of the guide.
Kevin Ganey: Hey guys, it's Kevin, I'm for Adam. Maybe if we could, if you guys could touch on the energy margins in the quarter, they were pretty strong. And do you think that can continue in the back half? Because the shakeout might end up towards the higher end of the guide.
Unknown Executive: That's certainly a possibility. I mean, right now, most of the businesses in our energy segment are performing well. Some of it's the timing of projects. If you've got a project and we're just starting your margins, you're probably not going to see margins go up a great deal on projects that are in their early phases. But we also have projects that are closing out, and if our guys continue to perform, which they have done so far this year, there is potential for an upside.
Speaker Change: That's certainly a possibility. I mean, right now, most of the businesses in our energy segment are performing well. Some of it's the timing of projects. If you've got a project where you're just starting your margins, you're probably not going to see
Speaker Change: Margins go up a great deal on projects that are in their early phases, but we also have projects that are closing out if our guys continue to perform, which they have so far this year, that there is potential for an upside.
Unknown Executive: Perfect. And then
Unknown Executive: Maybe we could talk about communications demand. I know you guys mentioned Southwest. Is this like, was that one particular customer driving that? And maybe how you're looking for the back half of the year and communications?
Speaker Change: Perfect. And then.
Speaker Change: Maybe we could talk about communications demand. I know you guys mentioned Southwest. Is this like, was that one particular customer driving that? And maybe how you're looking for the back half of the year in communications.
Unknown Executive: Still expect to see good improvement in performance from the fire communications group in the back half of the year. They've performed extremely well since finishing out that problem project they had last year, and they've been very consistent. They're not growing at a rapid rate, but they are growing, and they're performing well. And they have a number of different clients in various different parts of the country.
Speaker Change: Now we... We...
Speaker Change: Still expect to see...
Speaker Change: Good improvement.
Speaker Change: and Performance Fire Communications Group in the back half of the year.
Unknown Executive: And we're in, Ken, in Colorado, Texas, is it New Mexico or Nevada? And Arizona. And Arizona.
Unknown Executive: That is definitely a Southwest blanket. And then, just quickly, there was a gain on sale, rather sizable on the cash flow. Was that that particular divestment? and the industrial stuff that you guys were mentioning?
Speaker Change: That is definitely a Southwest blanket. And then just quickly, there was a gain on sale, rather sizable, on the cash flow. Was that that particular divestment and the industrial stuff that you guys were mentioning? It was a couple of divestments. When we sold...
Unknown Executive: Yeah, it was a couple divestments. When we sold one of our businesses and the other one is winding down a business, and look, we, you know, we sell equipment to that's underutilized. So some of it was there. It's kind of spread across all three of those.
Speaker Change: One of our businesses and the other one is we're winding a business down, and look, we sell equipment, too, that's underutilized, so some of it was there. It's kind of spread across all three of those.
Unknown Executive: Sounds good; I appreciate all the coverage.
Brent Thielman: Our next question will come from the line of Brent Thielman with D. A. Davidson. Please go ahead.
Speaker Change: Sounds good, I appreciate all the color.
Speaker Change: Our next question will come from the line of Brent Thielman with D.A. Davidson. Please go ahead.
Brent Thielman: Hey, good morning. Thanks, guys.
Brent Tillman: Hey, good morning. Thanks, guys. I just had a couple questions here. Tom...
Unknown Executive: I just had a couple questions here. I think you guys made mention in the release in the past about some sort of opportunities developing in the gas-fired power market. I'd be curious about what that competitive environment looks like. How do you manage your exposure to those sorts of risks? And what would be a typical size project for Primoris? It seems like that could be an interesting opportunity for you.
Brent Tillman: I think you guys made mention in the release and in the past around some
Brent Tillman: opportunities developing in the gas-fired power market. Be curious sort of what that competitive environment looks like. How do you manage your exposure to those sorts of risks?
Speaker Change: And, you know, what would be a typical-sized project for Primoris? It seems like that could be an interesting opportunity for you.
Unknown Executive: Well, we're doing some of this work now in our union group out in California, out west, and they have expertise in that, so they manage their risk extremely well, and they perform really well. Yeah, there are a number of competitors, other contractors they compete with, but we've won our share of the work. One of the most recent jobs, we were just basically awarded, and negotiated, so there was no competition. Non-union, we have an expertise, but primarily more inclined to go with, you know, SimpleCycle or Peak Shavers, which are much smaller, you know, $300 million and down, perhaps.
Speaker Change: Well
Speaker Change: We're doing some of this work now in our union group out in California and out west and they have an expertise in that so they manage their risk extremely well and they perform really well. Yeah, there are a number of competitors, other contractors they compete with, but we've won our share of the work. One of the most recent jobs we were just basically awarded and negotiated.
Speaker Change: so what there was no competition. Non-union we have an expertise but primarily more
Speaker Change: Incline to go with, you know, Simple Cycle or Peak Shavers, which are much smaller, you know, $300 million and down, perhaps.
Unknown Executive: And again, we know that works extremely well. We rely on the expertise we have in the company. Actually, probably not as much competition here in Texas and in some of the local areas in this region as we've seen in some other parts.
Speaker Change: And again, we know that work extremely well, we rely on the expertise we have in the company. Actually, probably not as much competition here in Texas and some of the local areas in this region as we've seen in some other parts of the country.
Unknown Executive: Okay, appreciate that. And I guess, Tom, any sense of how customers in solar are viewing the upcoming election? Is there any sort of real wait and see approach to moving new projects? I wouldn't, doesn't look like it, but curious about that.
Speaker Change: Okay, I appreciate that. And I guess, Tom, any sense how customers in solar are viewing the upcoming election? Is there any sort of real wait-and-see approach to moving new projects? It doesn't look like it, but I'm curious your thoughts there.
Unknown Executive: You know, the customers that we work with specifically, we have not, you know, they're not really worried about what the next administration is going to do. They see investment in, they may possibly see a slowdown in the apparent demand for solar energy, but honestly, there needs to be a more conservative approach to how fast you can build these facilities anyway. And they'll probably see that being more in line with what's real, realistic, more so than being aggressive.
Tom McCormick: You know, the customers that we work with specifically, we have not, you know, they're not really worried about what the next administration is going to do. They see investment in it. They may, you know, possibly see a...
Tom McCormick: A slowdown in the apparent demand for solar energy, but honestly, there needs to be a more conservative approach to how fast you can build these facilities anyway. And they'll probably see that being more in line with what's real.
Unknown Executive: So I think all of our customers, we negotiate about 90% of the work that we do, and all of our customers are very well-funded developers, so we haven't really seen anything. But yeah, and just add to that, you still see it growing. It just may not grow quite as quickly as it's been growing the past couple of years. Yeah, which is kind of what I, what I said with respect to being a little more conservative but more in line with what, what reality.
Tom McCormick: realistic more so than being aggressive. So I think all of our customers you know we negotiated about 90% of the work that we execute and all of our customers are very well-funded developers so we haven't really seen anything.
Speaker Change: But yeah, and just to add to that, we still see it growing. It just may not grow quite as quickly as it's been growing the past couple of years. Yeah, which is what I said with respect to being a little more conservative, but more in line with what reality is.
Speaker Change: Last one on the utility segment. How much of the headwind is some of the softness and spending from gas utilities?
Speaker Change: I guess to the gross margin expansion story, in other words, can you still expand margins in the face of some of that sort of spending pressure near term?
Unknown Executive: Yeah, I think we can. I honestly think we can. Some of it's just performance.
Speaker Change: Some of them have pulled back, and the clients aren't saying that they're not spending as much. They're really spending probably more to get the same amount of work done. So it's not that their spending is dropping, it's just that they're experiencing the same interest rates, you know, or similar impacts in the interest rates that we have, right?
Brent Thielman: Yep. Okay. I appreciate it. Thanks, guys.
Thomas McCormick: And that will conclude our question and answer session. I will now turn the call back over to Thomas McCormick for his closing remarks.
Speaker Change: Yep. Okay. I appreciate it. Thanks, guys.
Thomas McCormick: And thank you for your questions and interest and for being so sorry. We're pleased with our results for the first half of 2024 and expect the second half of the year to put us on a positive trajectory for 2025. Thank you, and we look forward to updating you next quarter.
Operator: That will conclude today's call. Thank you all for joining. You may now disconnect.
Speaker Change: Thank you, and thank you for your questions and interest and remorse.
Speaker Change: We're pleased with our results for the first half of 2024 and expect the second half of the year to put us on a positive trajectory for 2025.
Speaker Change: Thank you and we look forward to updating you next quarter.
Speaker Change: That will conclude today's call. Thank you all for joining. You may now disconnect.