Primoris Services Corporation Reports Third Quarter 2020 Results

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)

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

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

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.

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

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)

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