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Primoris Services Corporation Reports Third Quarter 2020 Results

Primoris Services Corporation
·23 min read

DALLAS, Nov. 05, 2020 (GLOBE NEWSWIRE) -- Primoris Services Corporation (NASDAQ GS: PRIM) (“Primoris” or “Company”) today reported financial results for the third quarter of 2020.

For the third quarter of 2020, Primoris reported the following highlights:

  • Record revenue of $942.7 million, an increase of 9% over prior year

  • Record net income attributable to Primoris of $43.9 million, an increase of 23% over prior year

  • Record fully diluted earnings per share of $0.90, an increase of 29% over prior year

  • Cash flows from operations of $130.8 million, compared to $56.4 million in 2019

  • Backlog of $3.0 billion

The Company also announced that on November 5, 2020 its Board of Directors declared a $0.06 per share cash dividend to stockholders of record on December 31, 2020, payable on or about January 15, 2021.

“This has been a record quarter for us by several measures,” Tom McCormick, President and Chief Executive Officer of Primoris, said. “Our record revenue of $942.7 million was up over 9% compared to the same period last year and our earnings per share was the highest that it has ever been at 90 cents a share. This continues our trajectory from last quarter and achieving these results, despite the pandemic, challenged energy markets, and widespread economic uncertainty, says a great deal about our strategy, our management team, and our thousands of employees.

“Reflecting on the underlying strength of our markets, our three largest business segments all achieved revenue increases compared to the same period last year,” he continued. “The renewable energy market in particular is beginning to live up to its long-promised potential as technology costs have become competitive and customer demand has risen, and our utility markets also reflect opportunities driven by the clean energy transition, as well as an increase in client needs.”

Summarizing the segment results, McCormick noted: “Renewables drove our Power segment revenue up 5.9%, with increased solar energy projects contributing to both revenue and margin growth. Our Pipeline segment was extremely strong, with a 60.5% revenue increase compared to the same period in 2019, primarily due to pipeline projects in Texas that began in the first quarter of this year, while our Utilities segment revenue rose 6.2%, benefitting from increased activity in California and favorable margins on the work they execute in the Southeast. Our Transmission segment recorded lower revenue, but significantly higher margins – 12% – as we carried out our planned focus on more profitable work, cost management and strong safety performance. Our Civil segment’s gross margins, as expected, declined slightly from last year as 2019 had a greater benefit from the resolution of claims associated with the Belton area projects, however; our project execution remains strong and the segment continues to perform within our target margin range.

“As of the end of the quarter, our backlog remains solid at $3.0 billion excluding the ACP project,” McCormick added. “Our crews and project teams were classified as essential during the pandemic and we are working safely and continuing to keep our people healthy.”

Discussing the Company’s outlook, McCormick said, “We have a strong cash position and low leverage, giving us a balance sheet ready to support organic growth and acquisitions. The diversification of our business continues to play to our advantage by reducing risk and evening out fluctuations in our various end markets, while supporting the growth of our renewables, utility and pipeline field services businesses. We have increased our outlook for the year, and we now expect net income attributable to Primoris to be between $1.80 and $2.00 per fully diluted share for the fiscal year ending December 31, 2020. We intend to continue to execute on our strategy focusing on the long term, and we thank our employees for their focus on safety, especially during this unique time.”

THIRD QUARTER 2020 RESULTS OVERVIEW

Revenue was $942.7 million for the three months ended September 30, 2020, an increase of $77.6 million, or 9.0%, compared to the same period in 2019. The increase was primarily due to growth in our Pipeline segment. Gross profit was $123.7 million for the three months ended September 30, 2020, an increase of $15.3 million, or 14.1%, 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 13.1% for the three months ended September 30, 2020, compared to 12.5% for the same period in 2019 as described in the segment results below.

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

For the three months ended September 30,

2020

2019

% of

% of

Total

Total

Segment

Revenue

Revenue

Revenue

Revenue

Power

$

212,557

22.6

%

$

200,657

23.2

%

Pipeline

214,380

22.7

%

133,590

15.4

%

Utilities

298,984

31.7

%

281,561

32.6

%

Transmission

114,221

12.1

%

128,784

14.9

%

Civil

102,558

10.9

%

120,472

13.9

%

Total

$

942,700

100.0

%

$

865,064

100.0

%




For the nine months ended September 30,

2020

2019

% of

% of

Total

Total

Segment

Revenue

Revenue

Revenue

Revenue

Power

$

566,226

21.8

%

$

518,210

22.4

%

Pipeline

695,462

26.8

%

405,647

17.5

%

Utilities

676,329

26.1

%

650,079

28.1

%

Transmission

326,953

12.6

%

382,581

16.5

%

Civil

329,189

12.7

%

360,034

15.5

%

Total

$

2,594,159

100.0

%

$

2,316,551

100.0

%

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

For the three months ended September 30,

2020

2019

% of

% of

Segment

Segment

Segment

Gross Profit

Revenue

Gross Profit

Revenue

Power

$

15,705

7.4

%

$

15,525

7.7

%

Pipeline

28,045

13.1

%

19,657

14.7

%

Utilities

54,417

18.2

%

48,892

17.4

%

Transmission

13,718

12.0

%

4,836

3.8

%

Civil

11,796

11.5

%

19,511

16.2

%

Total

$

123,681

13.1

%

$

108,421

12.5

%


For the nine months ended September 30,

2020

2019

% of

% of

Segment

Segment

Segment

Gross Profit

Revenue

Gross Profit

Revenue

Power

$

41,090

7.3

%

$

58,890

11.4

%

Pipeline

71,567

10.3

%

46,204

11.4

%

Utilities

101,411

15.0

%

87,999

13.5

%

Transmission

28,875

8.8

%

21,664

5.7

%

Civil

29,515

9.0

%

26,655

7.4

%

Total

$

272,458

10.5

%

$

241,412

10.4

%

Power, Industrial, & Engineering Segment (“Power”): Revenue increased by $11.9 million, or 5.9%, for the three months ended September 30, 2020, compared to the same period in 2019. The increase is primarily due to an increase in solar energy projects and progress on an industrial project for a utility customer in California, partially offset by the substantial completion of a carbon monoxide and hydrogen plant project that began in 2019 and lower revenue at our Canadian industrial operations. Gross profit for the three months ended September 30, 2020, increased by $0.2 million, or 1.2%, compared to the same period in 2019 primarily due to higher revenue. Gross profit as a percentage of revenue decreased slightly to 7.4% during the three months ended September 30, 2020, compared to 7.7% in the same period in 2019 primarily due to higher costs associated with a liquefied natural gas plant project in the Northeast in 2020, partially offset by strong performance and favorable margins realized on our solar projects in 2020, as well as the ability of our Canadian operation continuing to be profitable in 2020, and higher costs associated with two industrial projects in 2019.

Pipeline & Underground Segment (“Pipeline”): Revenue increased by $80.8 million, or 60.5%, for the three months ended September 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 reduced activity on a pipeline project in the Mid-Atlantic. Gross profit for the three months ended September 30, 2020 increased by $8.4 million, or 42.7%, compared to the same period in 2019 primarily due to higher revenue partially offset by lower margins. Gross profit as a percentage of revenue decreased to 13.1% during the three months ended September 30, 2020, compared to 14.7% in the same period in 2019 primarily due to the favorable impact from the closeout of multiple pipeline projects in 2019 and higher costs on a Texas pipeline project in 2020, partially offset by strong performance and favorable margins realized on other pipeline and field services projects in 2020.

Utilities & Distribution Segment (“Utilities”): Revenue increased by $17.4 million, or 6.2%, for the three months ended September 30, 2020, compared to the same period in 2019 primarily due to increased activity with a significant utility customer in California. Gross profit for the three months ended September 30, 2020 increased by $5.5 million, or 11.3%, compared to the same period in 2019 primarily due to higher revenue and margins. Gross profit as a percentage of revenue increased to 18.2% during the three months ended September 30, 2020, compared to 17.4% in the same period in 2019 primarily due to favorable margins on projects in the Southeast from increased productivity in 2020.

Transmission & Distribution Segment (“Transmission”): Revenue decreased by $14.6 million, or 11.3%, for the three months ended September 30, 2020, compared to the same period in 2019 primarily due to decreased activity with utility customers in the Midwest and the Southeast and being more selective in the type of work we perform. Gross profit for the three months ended September 30, 2020, increased by $8.9 million, or 183.7% compared to the same period in 2019, primarily due to higher margins, partially offset by lower revenue. Gross profit as a percentage of revenue increased to 12.0% during the three months ended September 30, 2020, compared to 3.8% in the same period in 2019 primarily due to being more selective in the type of work we perform resulting in higher margin work in 2020, an increase in higher margin storm work in 2020 and upfront costs to expand our operations in 2019.

Civil Segment (“Civil”): Revenue decreased by $17.9 million, or 14.9%, for the three months ended September 30, 2020, compared to the same period in 2019. The decrease is primarily due to lower Texas Department of Transportation and Louisiana Department of Transportation and Development (“DOTD”) volumes and decreases in Florida mine work. Gross profit for the three months ended September 30, 2020 decreased by $7.7 million, compared to the same period in 2019 due primarily to lower revenue and margins. Gross profit as a percentage of revenue decreased to 11.5% during the three months ended September 30, 2020, compared to 16.2% in the same period in 2019 due primarily to the favorable impact from the resolution of claims associated with three of the Belton area projects in 2019, partially offset by increased profit on Louisiana DOTD projects and resolution of claims associated with the two remaining Belton area projects in 2020.

RESPONSE TO THE COVID-19 PANDEMIC

We continue to take steps to protect our employees’ health and safety during the COVID-19 pandemic. We have in-place a written corporate COVID-19 Plan as well as a Business Continuity Plan, based on guidelines from the U.S. Centers for Disease Control and Prevention, the Occupational Safety and Health Administration and their Canadian counterparts. Specific COVID plans have also been developed and are in-place for each project, or job site, including customized plans with additional client-required protocols, where needed. These plans include social distancing, meeting via Zoom or similar software, rather than in person; reducing all non-essential business travel; allowing high risk and employees with special circumstances to work from home, etc.

Primoris’ executive-level COVID team meets routinely to address the current state of COVID-19 and the regulatory landscape, monitor for risks related to the pandemic and determine needed additions, or adjustments to the various Plans across the company. Similar teams function within each of our business units to address local, state and site-level programs.

Recognizing the broader impact that the COVID-19 pandemic is having on local communities, Primoris has donated funds to support frontline emergency response and medical workers and made numerous local donations of personal protective equipment to hospitals and medical facilities.

OTHER INCOME STATEMENT INFORMATION

Selling, general and administrative (“SG&A”) expenses were $57.1 million during the three months ended September 30, 2020, an increase of $7.3 million, or 14.6%, compared to 2019 primarily due to a $4.3 million increase in compensation related expenses, including incentive compensation, and a $2.1 million increase in information technology implementation expenses. SG&A expense as a percentage of revenue increased slightly to 6.1% compared to 5.8% for the corresponding period in 2019.

Interest expense for the three months ended September 30, 2020, decreased compared to the same period in 2019 primarily due to lower average debt balances and weighted average interest rates in 2020. In addition, we had a $1.1 million unrealized gain on the change in the fair value of our interest rate swap during the three months ended September 30, 2020, compared to a $0.6 million loss in 2019.

The effective tax rate on income attributable to Primoris (excluding noncontrolling interests) was 29.0% for the three months ended September 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 operations, Primoris estimates that for the fiscal year ending December 31, 2020, net income attributable to Primoris will be between $1.80 and $2.00 per fully diluted share.

BACKLOG

Expected Next Four

Quarters Total

Backlog at September 30, 2020 (in millions)

Backlog Revenue

Segment

Fixed Backlog

MSA Backlog

Total Backlog

Recognition

Power

$

769

$

93

$

862

93

%

Pipeline

315

52

367

64

%

Utilities

33

659

692

100

%

Transmission

17

407

424

100

%

Civil

626

3

629

58

%

Total

$

1,760

$

1,214

$

2,974

85

%

At September 30, 2020, Fixed Backlog was $1.8 billion, which was consistent with year-end. The December 31, 2019 Fixed Backlog included approximately $0.5 billion of backlog associated with a major pipeline project. Primoris received the formal termination notice for the project from the customer in October 2020 and subsequently removed the project from our September 30, 2020 Fixed Backlog.

At September 30, 2020, MSA Backlog was $1.2 billion, compared to $1.4 billion at December 31, 2019. During the third quarter of 2020, approximately $385 million of revenue was recognized from MSA projects, a 4.9% increase over the third quarter 2019 MSA revenue. MSA Backlog represents estimated MSA revenue for the next four quarters.

Total Backlog at September 30, 2020 was $3.0 billion, compared to $3.2 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.

SHARE REPURCHASE PROGRAM

In February 2020, our Board of Directors authorized a $25.0 million share repurchase program. During the third quarter of 2020, we purchased 174,698 shares of common stock for approximately $3.1 million, at an average price of $17.80 per share. The program will expire on December 31, 2020.

OTHER BUSINESS UPDATES

We announced new or renewed contracts totaling approximately $340 million in value during the quarter, and over $110 million immediately after the quarter close in early October. The awards included:

  • Two new solar awards with a combined value over $60 million for the engineering, procurement, and construction of utility-solar facilities in the South;

  • The renewal of a Master Service Agreement with a major energy customer for pipeline maintenance in the Canadian oil sands with an anticipated value of over $110 million over five years;

  • A new pipeline award valued over $100 million for the installation of over 80,000 feet of various diameter pipe in Texas;

  • Three new pipeline awards with a combined value over $75 million for the installation of over thirty miles of various diameter pipe in Texas;

  • Two new heavy civil awards from the Texas Department of Transportation with a combined value over $76 million for the expansion of an existing four-lane limited access highway to a six-lane limited highway, and an expansion of an existing two-lane county roadway to a four-lane county roadway; and

  • A new heavy civil award from the Texas Department of Transportation valued at $30 million for the reconstruction and extension of an existing roadway.

CONFERENCE CALL

Tom McCormick, President and Chief Executive Officer, and Ken Dodgen, Executive Vice President and Chief Financial Officer, will host a conference call Friday, November 6, 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 13711963, 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 INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Revenue

$

942,700

$

865,064

$

2,594,159

$

2,316,551

Cost of revenue

819,019

756,643

2,321,701

2,075,139

Gross profit

123,681

108,421

272,458

241,412

Selling, general and administrative expenses

57,097

49,827

152,907

141,477

Operating income

66,584

58,594

119,551

99,935

Other income (expense):

Foreign exchange loss, net

(77

)

(136

)

(141

)

(724

)

Other income (expense), net

98

(2,928

)

816

(3,121

)

Interest income

13

42

358

610

Interest expense

(4,728

)

(5,186

)

(17,530

)

(17,494

)

Income before provision for income taxes

61,890

50,386

103,054

79,206

Provision for income taxes

(17,947

)

(14,560

)

(29,883

)

(22,620

)

Net income

43,943

35,826

73,171

56,586

Less net income attributable to noncontrolling interests

(2

)

(178

)

(8

)

(1,204

)

Net income attributable to Primoris

$

43,941

$

35,648

$

73,163

$

55,382

Dividends per common share

$

0.06

$

0.06

$

0.18

$

0.18

Earnings per share:

Basic

$

0.91

$

0.70

$

1.51

$

1.09

Diluted

$

0.90

$

0.70

$

1.50

$

1.08

Weighted average common shares outstanding:

Basic

48,253

50,976

48,370

50,887

Diluted

48,574

51,215

48,712

51,210

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)

September 30,

December 31,

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

228,546

$

120,286

Accounts receivable, net

494,453

404,911

Contract assets

361,099

344,806

Prepaid expenses and other current assets

32,977

42,704

Total current assets

1,117,075

912,707

Property and equipment, net

366,721

375,888

Operating lease assets

221,615

242,385

Deferred tax assets

1,134

1,100

Intangible assets, net

62,994

69,829

Goodwill

215,103

215,103

Other long-term assets

14,860

13,453

Total assets

$

1,999,502

$

1,830,465

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

251,979

$

235,972

Contract liabilities

256,021

192,397

Accrued liabilities

223,637

183,501

Dividends payable

2,887

2,919

Current portion of long-term debt

47,708

55,659

Total current liabilities

782,232

670,448

Long-term debt, net of current portion

281,360

295,642

Noncurrent operating lease liabilities, net of current portion

151,777

171,225

Deferred tax liabilities

17,820

17,819

Other long-term liabilities

82,791

45,801

Total liabilities

1,315,980

1,200,935

Commitments and contingencies

Stockholders’ equity

Common stock

5

5

Additional paid-in capital

88,363

97,130

Retained earnings

595,769

531,291

Accumulated other comprehensive (loss) income

(651

)

76

Noncontrolling interest

36

1,028

Total stockholders’ equity

683,522

629,530

Total liabilities and stockholders’ equity

$

1,999,502

$

1,830,465


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

Nine Months Ended

September 30,

2020

2019

Cash flows from operating activities:

Net income

$

73,171

$

56,586

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

Depreciation and amortization

58,728

64,553

Stock-based compensation expense

1,730

1,218

Gain on sale of property and equipment

(6,198

)

(7,017

)

Unrealized loss on interest rate swap

3,856

4,854

Other non-cash items

4,125

240

Changes in assets and liabilities:

Accounts receivable

(91,741

)

(177,942

)

Contract assets

(16,783

)

32,274

Other current assets

9,707

1,219

Other long-term assets

1,073

167

Accounts payable

16,533

(29,757

)

Contract liabilities

63,682

(3,915

)

Operating lease assets and liabilities, net

3,250

(1,489

)

Accrued liabilities

36,394

17,662

Other long-term liabilities

33,952

1,231

Net cash provided by (used in) operating activities

191,479

(40,116

)

Cash flows from investing activities:

Purchase of property and equipment

(54,404

)

(78,255

)

Proceeds from sale of property and equipment

17,710

24,393

Net cash used in investing activities

(36,694

)

(53,862

)

Cash flows from financing activities:

Borrowings under revolving line of credit

212,880

Payments on revolving line of credit

(212,880

)

Proceeds from issuance of long-term debt

33,873

55,008

Repayment of long-term debt

(56,321

)

(55,824

)

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

(548

)

(1,519

)

Cash distribution to noncontrolling interest holders

(1,000

)

(3,505

)

Repurchase of common stock

(10,959

)

Dividends paid

(8,707

)

(9,152

)

Other

(2,888

)

(328

)

Net cash used in financing activities

(45,972

)

(13,516

)

Effect of exchange rate changes on cash and cash equivalents

(553

)

268

Net change in cash and cash equivalents

108,260

(107,226

)

Cash and cash equivalents at beginning of the period

120,286

151,063

Cash and cash equivalents at end of the period

$

228,546

$

43,837