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Primoris Services Corporation Announces 2020 Second Quarter Financial Results

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Primoris Services Corporation
·20 min read
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  • Board of Directors Declares $0.06 Per Share Cash Dividend

Financial Highlights

  • 2020 Q2 revenue of $908.2 million, compared to $789.9 million in 2019 Q2

  • 2020 Q2 net income attributable to Primoris of $33.0 million, or $0.68 per fully diluted share, compared to $17.8 million, or $0.35 per fully diluted share, in 2019 Q2

  • 2020 Q2 SG&A 5.7% of revenue, compared to 6.2% of revenue in 2019 Q2

  • 2020 Q2 cash flows from operations of $66.1 million, compared to cash used in operations of $24.4 million in 2019 Q2

  • Total Backlog of $3.5 billion at June 30, 2020
    ° Includes $0.5B related to a major pipeline project in the Mid-Atlantic

DALLAS, Aug. 04, 2020 (GLOBE NEWSWIRE) -- Primoris Services Corporation (NASDAQ GS: PRIM) (“Primoris” or “Company”) today announced financial results for its second quarter ended June 30, 2020.

The Company also announced that on July 31, 2020 its Board of Directors declared a $0.06 per share cash dividend to stockholders of record on September 30, 2020, payable on or about October 15, 2020.

Tom McCormick, President and Chief Executive Officer of Primoris, commented, “We are proud of Primoris’ resilient second quarter results. In spite of the uncertainty created by a global pandemic, an oil crisis, and social unrest, Primoris’ revenue was the second highest in the Company’s history. Four of our five segments improved their margins compared to the 2019 second quarter, with particularly strong results in our gas and electric utility markets. The continued improvement in the Civil segment margins are the direct result of the improvement initiatives Primoris has been implementing over the past couple of years. We signed over $1.2 billion in new business in the second quarter, much of it in the solar and renewable markets, and ended the quarter with $3.5 billion in backlog. That value includes roughly $0.5 billion related to a major pipeline project. Although our customer has publicly announced that the project has been cancelled, they have not yet provided formal notice, or given guidance to the consortium members as to their scope related to the cancellation (i.e. demobilization, reinstatement, etc.).”

Mr. McCormick continued, “We have learned how to successfully execute our projects while taking the necessary steps to keep our employees, customers, and communities safe during the pandemic. Our solid backlog positions us for a strong second half of the year, with the gas and electric utility markets and the solar market expected to continue to drive revenue and margins for the remainder of the year. We continue to have exceptional cash flows, supporting our stable balance sheet and continued dividend, and believe that there are exciting opportunities for growth when the markets are able to see beyond the current volatility.”

2020 SECOND QUARTER RESULTS OVERVIEW

Revenue was $908.2 million for the three months ended June 30, 2020, an increase of $118.3 million, or 15.0%, compared to the same period in 2019. The increase was primarily due to growth in our Pipeline segment, partially offset by lower revenue in our Power and Transmission segments. Gross profit was $101.0 million for the three months ended June 30, 2020, an increase of $20.4 million, or 25.4%, compared to the same period in 2019. The increase was primarily due to an increase in revenue and margins. Gross profit as a percentage of revenue increased to 11.1% for the three months ended June 30, 2020, compared to 10.2% for the same period in 2019 as described in the forthcoming segment results.

Segment Revenue
(in thousands, except %)
(unaudited)

For the three months ended June 30,

2020

2019

% of

% of

Total

Total

Segment

Revenue

Revenue

Revenue

Revenue

Power

$

157,476

17.3

%

$

172,170

21.8

%

Pipeline

289,559

31.9

%

137,243

17.4

%

Utilities

230,175

25.4

%

222,312

28.1

%

Transmission

109,948

12.1

%

135,354

17.1

%

Civil

121,058

13.3

%

122,850

15.6

%

Total

$

908,216

100.0

%

$

789,929

100.0

%



For the six months ended June 30,

2020

2019

% of

% of

Total

Total

Segment

Revenue

Revenue

Revenue

Revenue

Power

$

353,669

21.4

%

$

317,553

21.9

%

Pipeline

481,082

29.1

%

272,057

18.7

%

Utilities

377,345

22.9

%

368,518

25.4

%

Transmission

212,732

12.9

%

253,797

17.5

%

Civil

226,631

13.7

%

239,562

16.5

%

Total

$

1,651,459

100.0

%

$

1,451,487

100.0

%


Segment Gross Profit
(in thousands, except %)
(unaudited)

For the three months ended June 30,

2020

2019

% of

% of

Segment

Segment

Segment

Gross Profit

Revenue

Gross Profit

Revenue

Power

$

6,703

4.3

%

$

23,167

13.5

%

Pipeline

27,030

9.3

%

11,531

8.4

%

Utilities

42,392

18.4

%

30,866

13.9

%

Transmission

13,445

12.2

%

10,200

7.5

%

Civil

11,397

9.4

%

4,767

3.9

%

Total

$

100,967

11.1

%

$

80,531

10.2

%


For the six months ended June 30,

2020

2019

% of

% of

Segment

Segment

Segment

Gross Profit

Revenue

Gross Profit

Revenue

Power

$

25,385

7.2

%

$

43,365

13.7

%

Pipeline

43,522

9.0

%

26,547

9.8

%

Utilities

46,994

12.5

%

39,107

10.6

%

Transmission

15,157

7.1

%

16,828

6.6

%

Civil

17,719

7.8

%

7,144

3.0

%

Total

$

148,777

9.0

%

$

132,991

9.2

%

Power, Industrial, & Engineering Segment (“Power”): Revenue decreased by $14.7 million, or 8.5%, for the three months ended June 30, 2020, compared to the same period in 2019. The decrease is primarily due to lower revenue at our Canadian operations and the substantial completion of a Louisiana industrial plant project in 2019, partially offset by an industrial project for a major utility customer in California that began in the third quarter of 2019. Gross profit for the three months ended June 30, 2020, decreased by $16.5 million, or 71.1%, compared to the same period in 2019 due to lower revenue and margins. Gross profit as a percentage of revenue decreased to 4.3% during the three months ended June 30, 2020, compared to 13.5% in the same period in 2019 primarily due to higher costs associated with a liquified natural gas (“LNG”) plant project in the northeast in 2020, partially offset by strong performance and favorable margins realized on Texas solar projects.

Pipeline & Underground Segment (“Pipeline”): Revenue increased by $152.3 million, or 111.0%, for the three months ended June 30, 2020, compared to the same period in 2019. The increase is primarily due to pipeline projects in Texas that began in the first quarter of 2020, partially offset by the substantial completion of a major pipeline project in West Texas in the second quarter of 2019 and reduced activity on a pipeline project in the Mid-Atlantic. Gross profit for the three months ended June 30, 2020, increased by $15.5 million, or 134.4%, compared to the same period in 2019 due to higher revenue and margins. Gross profit as a percentage of revenue increased to 9.3% during the three months ended June 30, 2020, compared to 8.4% in the same period in 2019 primarily due to unfavorable weather conditions on a West Texas pipeline project and the impact of a client delay on a project in Southern California in 2019.

Utilities & Distribution Segment (“Utilities”): Revenue increased by $7.9 million, or 3.5%, for the three months ended June 30, 2020, compared to the same period in 2019 primarily due to increased activity with customers in the Midwest, Southeast, California and Texas, partially offset by decreased activity with a utility customer in California. Gross profit for the three ended June 30, 2020, increased by $11.5 million, or 37.3%, compared to the same period in 2019 primarily due to higher revenue and margins. Gross profit as a percentage of revenue increased to 18.4% during the three months ended June 30, 2020, compared to 13.9% in the same period in 2019 primarily due to favorable margins on projects in the Southeast from increased productivity in 2020 and unfavorable weather conditions experienced in the Midwest in 2019.

Transmission & Distribution Segment (“Transmission”): Revenue decreased by $25.4 million, or 18.8%, for the three months ended June 30, 2020, compared to the same period in 2019 primarily due to decreased activity with a utility customer in Texas. Gross profit for the three months ended June 30, 2020, increased by $3.2 million, or 31.8%, compared to the same period in 2019, due primarily to higher margins, partially offset by lower revenue. Gross profit as a percentage of revenue increased to 12.2% during the three months ended June 30, 2020, compared to 7.5% in the same period in 2019 primarily due to upfront costs to expand our operations and unfavorable weather conditions experienced in certain regions in 2019.

Civil Segment (“Civil”): Revenue decreased by $1.8 million, or 1.5%, for the three months ended June 30, 2020, compared to the same period in 2019. The decrease is primarily due to the substantial completion of a project with a major refining customer, a port project, and an ethylene plant project in 2019, as well as lower Texas Department of Transportation volumes. These amounts were mostly offset by an LNG plant project in Texas that began in 2020. Gross profit for the three months ended June 30, 2020, increased by $6.6 million compared to the same period in 2019 due primarily to higher margins. Gross profit as a percentage of revenue increased to 9.4% during the three months ended June 30, 2020, compared to 3.9% in the same period in 2019 due primarily to strong performance on the LNG plant project in Texas that began in 2020 and increased profit on Louisiana Department of Transportation and Development projects.

OTHER INCOME STATEMENT INFORMATION

Selling, general and administrative (“SG&A”) expenses were $51.4 million during the three months ended June 30, 2020, an increase of $2.7 million, or 5.5%, compared to 2019 primarily due to a $3.5 million increase in compensation related expenses, including incentive compensation, partially offset by a $0.7 million decrease in travel expense. SG&A expense as a percentage of revenue decreased to 5.7% compared to 6.2% for the corresponding period in 2019 due to increased revenue.

Interest expense for the three months ended June 30, 2020, decreased compared to the same period in 2019 due primarily to a $0.1 million unrealized gain on the change in the fair value of our interest rate swap agreement during the three months ended June 30, 2020, compared to a $2.7 million loss in 2019.

The effective tax rate on income attributable to Primoris (excluding noncontrolling interests) was 29.0% for the three months ended June 30, 2020. The rate differs from the U.S. federal statutory rate of 21.0% primarily due to state income taxes and nondeductible components of per diem expenses.

OUTLOOK

Balancing the ongoing uncertainty surrounding the COVID-19 pandemic with the expected continued strength in operations across the Company’s Utilities, Transmission, and Civil segments for the remainder of the year, Primoris estimates that for the fiscal year ending December 31, 2020, net income attributable to Primoris will be between $1.60 and $1.80 per fully diluted share.

BACKLOG

Expected Next Four

Quarters Total

Backlog at June 30, 2020 (in millions)

Backlog Revenue

Segment

Fixed Backlog

MSA Backlog

Total Backlog

Recognition

Power

$

820

$

88

$

908

89

%

Pipeline

844

74

918

45

%

Utilities

33

642

675

100

%

Transmission

22

413

435

100

%

Civil

586

4

590

65

%

Total

$

2,305

$

1,221

$

3,526

77

%

At June 30, 2020, Fixed Backlog was $2.31 billion, compared to $1.76 billion at December 31, 2019. Fixed Backlog for the Pipeline segment as of June 30, 2020 includes $0.51 billion of backlog associated with a major pipeline project in the Mid-Atlantic. In July 2020, the customer announced the planned cancellation of the project. However, we have not received formal termination of the contract from the customer at this time.

At June 30, 2020, MSA Backlog was $1.22 billion, compared to $1.42 billion at December 31, 2019. During the second quarter of 2020, approximately $335 million of revenue was recognized from MSA projects, a 3.7% decrease over the second quarter 2019 MSA revenue. MSA Backlog represents estimated MSA revenue for the next four quarters.

Total Backlog at June 30, 2020 was $3.53 billion, compared to $3.18 billion at December 31, 2019.

Backlog, including estimated MSA revenue, should not be considered a comprehensive indicator of future revenue. Revenue from certain projects where scope, and therefore contract value, is not adequately defined, is not included in Fixed backlog. At any time, any project may be cancelled at the convenience of our customers.

CONFERENCE CALL

Tom McCormick, President and Chief Executive Officer, and Ken Dodgen, Executive Vice President and Chief Financial Officer, will host a conference call Tuesday, August 4, 2020 at 10:00 am Eastern Time / 9:00 am Central Time to discuss the results.

Interested parties may participate in the call by dialing:

  • (877) 407-8293 (Domestic)

  • (201) 689-8349 (International)

Presentation slides to accompany the conference call are available for download in the Investor Relations section of Primoris’ website at www.prim.com. Once at the Investor Relations section, please click on “Events & Presentations”.

If you are unable to participate in the live call, a replay may be accessed by dialing (877) 660-6853, conference ID 13707087, and will be available for approximately two weeks. The conference call will also be broadcast live over the Internet and can be accessed and replayed through the Investor Relations section of Primoris' website at www.prim.com.

ABOUT PRIMORIS

Founded in 1960, Primoris, through various subsidiaries, has grown to become one of the leading providers of specialty contracting services operating mainly in the United States and Canada. Primoris provides a wide range of specialty construction services, fabrication, maintenance, replacement, and engineering services to a diversified base of customers. The Company’s national footprint extends from Florida, along the Gulf Coast, through California, into the Pacific Northwest and into Canada. For additional information, please visit www.prim.com.

FORWARD LOOKING STATEMENTS

This press release contains certain forward-looking statements that reflect, when made, the Company’s expectations or beliefs concerning future events that involve risks and uncertainties, including with regard to the Company’s future performance. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “intends”, “may”, “plans”, “potential”, “predicts”, “projects”, “should”, “will”, “would” or similar expressions. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of regulation and the economy, generally. Forward-looking statements inherently involve known and unknown risks, uncertainties, and other factors, which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results may differ materially as a result of a number of factors, including, among other things, customer timing, project duration, weather, and general economic conditions; changes in our mix of customers, projects, contracts and business; regional or national and/or general economic conditions and demand for our services; price, volatility, and expectations of future prices of oil, natural gas, and natural gas liquids; variations and changes in the margins of projects performed during any particular quarter; increases in the costs to perform services caused by changing conditions; the termination, or expiration of existing agreements or contracts; the budgetary spending patterns of customers; increases in construction costs that we may be unable to pass through to our customers; cost or schedule overruns on fixed-price contracts; availability of qualified labor for specific projects; changes in bonding requirements and bonding availability for existing and new agreements; the need and availability of letters of credit; costs we incur to support growth, whether organic or through acquisitions; the timing and volume of work under contract; losses experienced in our operations; the results of the review of prior period accounting on certain projects; developments in governmental investigations and/or inquiries; intense competition in the industries in which we operate; failure to obtain favorable results in existing or future litigation or regulatory proceedings, dispute resolution proceedings or claims, including claims for additional costs; failure of our partners, suppliers or subcontractors to perform their obligations; cyber-security breaches; failure to maintain safe worksites; risks or uncertainties associated with events outside of our control, including severe weather conditions, public health crises and pandemics (such as COVID-19), political crises or other catastrophic events; client delays or defaults in making payments; the availability of credit and restrictions imposed by credit facilities; failure to implement strategic and operational initiatives; risks or uncertainties associated with acquisitions, dispositions and investments; possible information technology interruptions or inability to protect intellectual property; the Company’s failure, or the failure of our agents or partners, to comply with laws; the Company's ability to secure appropriate insurance; new or changing legal requirements, including those relating to environmental, health and safety matters; the loss of one or a few clients that account for a significant portion of the Company's revenues; asset impairments; and risks arising from the inability to successfully integrate acquired businesses. In addition to information included in this press release, additional information about these and other risks can be found in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, and our other filings with the Securities and Exchange Commission (“SEC”). Such filings are available on the SEC’s website at www.sec.gov. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements. Primoris does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Company Contact

Ken Dodgen

Kate Tholking

Executive Vice President, Chief Financial Officer

Vice President, Investor Relations

(214) 740-5608

(214) 740-5615

kdodgen@prim.com

ktholking@prim.com



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)

Three Months Ended

Six Months Ended

June 30

June 30

2020

2019

2020

2019

Revenue

$

908,216

$

789,929

$

1,651,459

$

1,451,487

Cost of revenue

807,249

709,398

1,502,682

1,318,496

Gross profit

100,967

80,531

148,777

132,991

Selling, general and administrative expenses

51,422

48,719

95,810

91,650

Operating income

49,545

31,812

52,967

41,341

Other income (expense):

Foreign exchange gain (loss), net

(200

)

(403

)

(64

)

(588

)

Other income (expense), net

706

177

718

(193

)

Interest income

64

219

345

568

Interest expense

(3,690

)

(6,716

)

(12,802

)

(12,308

)

Income before provision for income taxes

46,425

25,089

41,164

28,820

Provision for income taxes

(13,463

)

(7,265

)

(11,936

)

(8,060

)

Net income

32,962

17,824

29,228

20,760

Less net income attributable to noncontrolling interests

(3

)

(37

)

(6

)

(1,026

)

Net income attributable to Primoris

$

32,959

$

17,787

$

29,222

$

19,734

Dividends per common share

$

0.06

$

0.06

$

0.12

$

0.12

Earnings per share:

Basic

$

0.68

$

0.35

$

0.60

$

0.39

Diluted

$

0.68

$

0.35

$

0.60

$

0.39

Weighted average common shares outstanding:

Basic

48,270

50,912

48,429

50,841

Diluted

48,668

51,228

48,782

51,208



CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)
(Unaudited)

June 30

December 31,

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

155,670

$

120,286

Accounts receivable, net

468,949

404,911

Contract assets

376,733

344,806

Prepaid expenses and other current assets

45,943

42,704

Total current assets

1,047,295

912,707

Property and equipment, net

368,086

375,888

Operating lease assets

240,072

242,385

Deferred tax assets

1,116

1,100

Intangible assets, net

65,146

69,829

Goodwill

215,103

215,103

Other long-term assets

16,736

13,453

Total assets

$

1,953,554

$

1,830,465

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

256,980

$

235,972

Contract liabilities

223,077

192,397

Accrued liabilities

222,472

183,501

Dividends payable

2,893

2,919

Current portion of long-term debt

51,913

55,659

Total current liabilities

757,335

670,448

Long-term debt, net of current portion

300,899

295,642

Noncurrent operating lease liabilities, net of current portion

163,947

171,225

Deferred tax liabilities

17,820

17,819

Other long-term liabilities

68,649

45,801

Total liabilities

1,308,650

1,200,935

Commitments and contingencies

Stockholders’ equity

Common stock

5

5

Additional paid-in capital

91,257

97,130

Retained earnings

554,717

531,291

Accumulated other comprehensive (loss) income

(1,109

)

76

Noncontrolling interest

34

1,028

Total stockholders’ equity

644,904

629,530

Total liabilities and stockholders’ equity

$

1,953,554

$

1,830,465



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)


Six Months Ended

June 30,

2020

2019

Cash flows from operating activities:

Net income

$

29,228

$

20,760

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

39,231

43,392

Stock-based compensation expense

1,202

858

Gain on sale of property and equipment

(7,332

)

(4,713

)

Unrealized loss on interest rate swap

4,907

4,194

Other non-cash items

2,823

160

Changes in assets and liabilities:

Accounts receivable

(65,860

)

(97,964

)

Contract assets

(32,765

)

(51,048

)

Other current assets

(3,268

)

5,309

Other long-term assets

223

(137

)

Accounts payable

21,897

(31,405

)

Contract liabilities

30,784

4,205

Operating lease assets and liabilities, net

(551

)

(918

)

Accrued liabilities

22,125

13,481

Other long-term liabilities

18,007

(2,698

)

Net cash provided by (used in) operating activities

60,651

(96,524

)

Cash flows from investing activities:

Purchase of property and equipment

(21,703

)

(56,907

)

Proceeds from sale of property and equipment

12,086

21,196

Net cash used in investing activities

(9,617

)

(35,711

)

Cash flows from financing activities:

Borrowings under revolving line of credit

140,000

Payments on revolving line of credit

(85,000

)

Proceeds from issuance of long-term debt

33,873

23,105

Repayment of long-term debt

(32,469

)

(34,320

)

Proceeds from issuance of common stock purchased under a long-term incentive plan

578

1,804

Payment of taxes on conversion of Restricted Stock Units

(77

)

(1,519

)

Cash distribution to noncontrolling interest holders

(1,000

)

(3,505

)

Repurchase of common stock

(8,343

)

Dividends paid

(5,814

)

(6,094

)

Other

(2,014

)

(39

)

Net cash (used in) provided by financing activities

(15,266

)

34,432

Effect of exchange rate changes on cash and cash equivalents

(384

)

854

Net change in cash and cash equivalents

35,384

(96,949

)

Cash and cash equivalents at beginning of the period

120,286

151,063

Cash and cash equivalents at end of the period

$

155,670

$

54,114