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spk01: Good day and thank you for standing by. Welcome to the Prime Morris Services Corporation first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Brooke Wooten, Vice President of Investor Relations. Please go ahead.
spk00: Good morning, and welcome to Primor's earnings conference call. Joining me today are Tom McCormick, President and Chief Executive Officer, and Ken Dodgins, our Chief Financial Officer. Before I begin, I would like to make everyone aware of certain language contained in our safe harbor statements. 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 only as of today. We disclaim any obligation to update these statements except as may be required by law. I would now like to turn this call over to our CEO, Tom Wormick.
spk06: Thank you, Brooke. Good morning, and thank you for joining us today to discuss our first quarter results in our 2021 outlook. I would like to take this opportunity to welcome our new shareholders to the Morris family of companies and thank all of our shareholders for their continued support and confidence in our company's strategy and execution. We had a strong first quarter reporting $818.3 million of revenue, which was a 10% increase over the prior year. This was despite incurring $13.9 million in transaction costs, most of which was associated with the acquisition of future infrastructure, as well as effectively a one-week shutdown of our operations across Texas and the Southeast due to the historic storm event that hit in mid-February. As a reminder, our first quarter has historically been a slow quarter for the company due to the seasonality of our clients' work. That historic freeze was a bad news, good news event for us. When we lost approximately a week of revenue, the event generated some storm repair work for us as well. More significantly for the long term, as Texas addresses the infrastructure gaps that led to the power failures, we believe there are opportunities for us with respect to power generation as well as transmission and possibly even in distribution. Our utilities and energy renewables segments led the growth in the quarter, producing strong revenues, while the pipeline services segment performed as expected. Now let's look at the three segments in detail. As we previously announced in January, we reorganized our operating and reporting structure to function more efficiently, as well as to facilitate collaboration and cross-selling among our segments. Beginning with the first quarter of 2021, we were reporting under three segments. utilities, energy renewables, and pipeline services. We have updated our 2020 segment information to align with the segment changes. Our utility segment had strong first quarter performance with revenue coming in at $335 million, up 34% compared to the same period last year. This increase was primarily due to increased activity with our utility customers in North Carolina and Louisiana, and the addition of future infrastructure, which represented approximately $60 million of revenue for a portion of the quarter. With the integration progressing well, future infrastructure is already paying dividends to our operations as we reap the benefits of similar values, safety culture, quality standards, and operational synergies. This acquisition has become our gateway into the telecom industry, where demand for bandwidth continues to drive the majority of the work activities. We recently secured a $60 million telecom project to install fiber in the Gulf Coast region in connection with the Rural Digital Opportunity Fund. This fund was created and funded by the U.S. government, which intends to spend in excess of $20 billion over the next 10 years for the construction of rural broadband networks. We anticipate strong growth opportunities and increased demand for our in-market utility services as we work towards expanding future infrastructure across our nationwide footprint. During the quarter, our utility segment secured multi-year contracts with an estimated total contract value of over $525 million. The primary driver in this achievement was MSA activity, including a five-year term project in the Gulf Coast region valued at over $160 million with a large electrical utility customer. Additionally, we entered a new market in the western U.S. by securing an MSA with a new utility customer. In total, we signed or renewed 15 multi-year agreements for a mixture of natural gas, electric transmission and distribution, telecommunications, surface restoration, and other ancillary utility-related work. In addition to the MSA contracts, we closed another 24 fixed-price contracts, totaling close to $56 million. Turning to our energy and renewable segment, revenue increased 17% to $352.9 million for the quarter. The increase was mainly attributable to our renewable energy activity, which represented $80 million in the total. This was partially offset by lower revenue from substantial completion of an industrial project in Texas in the first half of 2020. We experienced higher costs associated with an LNG project in the Northeast in 2020 that impacted our margins. We expect that project to be complete in late Q3 or early Q4 this year. We continue to make solid progress on other projects within this segment. There's a great deal of discussion regarding renewable energy right now. It's currently a $225 billion market opportunity and has both regulatory and societal support that should have tailwinds beyond the next decade. We began increasing our activity in this area several years ago, even before the current administration. We have over $428 million in backlog heading into the second quarter for work associated with 2021 and 2022 solar projects. In addition, approximately $850 million in prospective projects have been unofficially awarded to us that should be finalized within the next three quarters. During the quarter, we began working on a new utility-scale solar facility project. This 640-megawatt DC project is the third solar venture in which we have been chosen by this customer. and is valued at approximately $220 million. Additionally, all other solar projects that we have underway are progressing to plan. Also, on the renewables front, along with our solar, I want to highlight our expertise in hydrogen, which has been in the news recently. We have over 25 combined years of history and expertise working with standard gray hydrogen via steam methane reforming, and one of our engineering teams is currently working with clients to explore the viability of blue hydrogen, which includes carbon capture. We also have capabilities in dairy and landfill renewable natural gas that can be applied to hydrogen production as well. We are already working on other green energy projects. One of our green diesel projects in the Gulf Coast region is moving forward ahead of schedule. The civil business is now also part of our energy renewable segment, and during the quarter, we secured a $35 million heavy civil contract with TxDOT for the reconstruction of both frontage roads and main lanes of Interstate 20 in Midland, Texas. This project is scheduled to start in the second quarter. As we mentioned on our last call, our pipeline services segment had an exceptional year in 2020. Our expectations for 2021 will be more in line with their 2019 performance. Revenues came in at $130.5 million for the quarter, a decrease year over year, but closely in line with our expectations. Comparing pipeline revenues to the same period in 2019 of $134.8 million, it's easy to see they are tracking close to their 2019 performance, which is in line with what we were expecting for 2021. We have seen relatively consistent bid activity from our established customers in recent weeks, even though the pipeline construction market remains extremely competitive. We are repositioning this segment to take advantage of our integrity, maintenance, and field services capabilities in order to help our customers complete the work that they need to get done to meet current requirements. Moving beyond the segments to look at our business as a whole, our crews are performing well on projects across the board, focusing on both execution and safety, and our business development team is actively working to market our diverse capabilities across all segments. Our success is not just about being in the right market at the right time. It's about having a business model that works and applying that model across all of our segments. What makes Promores different from our competitors comes down to three elements. The first is investing in our people. We have our own training facilities and have spent a great deal of time and money developing and training our personnel. This includes cross-training our craftspeople so that we can utilize them across different industries and markets. The result of cross-training is a more consistent workload for our employees and a more consistent workforce for us. Knowing that we are investing in our employees' development builds on their engagement and loyalty to the Pomoros family of companies. The second is continuing to build strong relationships with our current clients. We strive to be a trusted partner to all our clients, and it starts by being safe, reliable, and responsive. The third element is being the right solution for existing and new customers. When we expand geographically and otherwise, it is accomplished with resources and capabilities to fill a specific client need. We don't go into an area and display some of them because our prices are cheaper. We earn new business by performing at a customer's level of expectation and supporting their growth. The success of our business model today gives me more confidence looking forward into the rest of 2021 and beyond, and I hope that it does the same for you. In terms of future prospects, as I've mentioned before, we see opportunities from the current presidential administration's focus on infrastructure, including replacement of aging pipelines, roads, and bridges, as well as the expansion of infrastructure for renewable energy and Internet broadband. The Republicans' $568 billion counterproposal is more limited in scope and focuses on spending on traditional infrastructure, but regardless of which gets passed, we can benefit. Both proposals create more opportunities for us in every segment. Our energy renewable segment would be especially affected by the opportunities related to roads and bridges, as well as the opportunities that continue to present themselves with respect to renewable energy. Our utility segment is well positioned to participate in the broadband infrastructure investment component. There are even opportunities with our pipeline segment under the allotment for the Pipeline and Hazardous Material Safety Administration. We will keep a close eye on the progress of these legislative initiatives with great interest. We accomplished a great deal during the quarter, starting with the successful reorganization of our segments, followed by the completion of the acquisition of future infrastructure, and ending with the completion of the company's first secondary public offering. We now have a structure primed for success, as well as much more financial flexibility to not only support our organic growth, but to also provide us the optionality in the acquisition market. With that, I'll now turn it over to Ken. Thank you, Tom, and good morning, everyone. Let me begin with our key financial metrics for the first quarter, and then I'll move into the details of our balance sheet, cash flows, and backlog. Then I'll wrap up with our updated 2021 guidance before moving on to your questions. Our first quarter revenue was $818.3 million, an increase of $75.1 million, or 10% compared to the prior year. This increase is even more notable when you consider that we lost a week or more of work in February across our operations in Texas and Louisiana as a result of winter storm Uri. The revenue increase was largely due to higher utility segment revenue, including the addition of future infrastructure, which contributed a little over $60 million in revenue for the portion of the quarter we owned them. We also had higher revenue in our energy and renewable segment, which was primarily driven by increased solar work during the quarter. These amounts were partially offset by lower revenue in our pipeline services segment. Gross profit for the first quarter was $80.2 million, an increase of $32.4 million, or 68%, compared to the prior year. The increase in gross profit was primarily due to increased revenue and margins in the energy and renewables and utilities segments, as well as the acquisition of future. Gross margins increased to 9.8% for the first quarter compared to 6.4% for the same period in the prior year. Our utility segment continues to form well with gross profit increasing by $15.4 million to $21.7 million for the quarter, of which $9.8 million of the increase was from the future acquisition. Gross margins increased to 6.5% during the quarter compared to 2.5% in the prior year. This was due to the favorable margins realized by future, as well as improved margins from our legacy operations that had higher carrying costs for equipment and personnel in the prior year. Our energy and renewable segment gross profit was $42.7 million, an increase of $17.7 million, or 71% compared to the prior year, primarily due to higher revenues and margins. Gross margins increased to 12.1% during the quarter compared to 8.3% in the prior year. This was mainly due to higher costs associated with an engineering project and a tank farm project in 2020, as well as favorable claims resolution on an industrial plant project in the current quarter. Our pipeline services segment generated gross profit of $15.8 million, a $700,000 decrease from the prior year as lower revenues were largely offset by higher margins during the quarter. Gross margins increased to 12.1% during the first quarter compared to 8.6% in the prior year, primarily due to strong performance and favorable margins realized on the Texas pipeline project in 2021 and startup costs on certain Texas pipeline projects in 2020. SG&A expense in the first quarter was $53.4 million, up from $44.4 million in the prior year. The increase was primarily due to $7.9 million of incremental SG&A from the future acquisition. As we continue to integrate future infrastructure, we expect our SG&A as a percent of revenue will trend down during the year and will be in the high 5% to low 6% range for the full year 2021. And one-time transaction costs were $13.9 million during the quarter. Interest expense in the first quarter was $4.7 million compared to $9.1 million in the prior year. The decrease in interest expense was primarily due to the change in the fair value of our interest rate swap. During the first quarter, we recognized a $1.3 million gain on our swap compared to a $5 million loss on the swap in the first quarter of 2020. This decrease was partially offset by additional interest expense due to higher debt for the future acquisition. The effective tax rate on income attributable prores was approximately 29% for the first quarter. We expect our full-year effective tax rate to be approximately 29% as well, but the rate may vary slightly depending on the mix of states in which we work. First quarter net income attributable to Primoris was $5.9 million or $0.12 per fully diluted share compared to a loss of $3.7 million or $0.08 per fully diluted share in the prior year. Operating cash flows in the first quarter was $7.5 million, compared to net cash used of $5.5 million during Q1 of the prior year. The year-over-year change was primarily due to an increase in net income, along with favorable changes in working capital. In the first quarter, we invested $19.1 million in capital expenditures, of which $17.1 million was used for construction equipment. We expect our remaining 2021 capital spending to be in the $60 million to $80 million range, with almost all of that spent on construction equipment. In January, we funded the future acquisition with approximately $120 million of cash, $100 million drawn on our revolving credit facility, and a $400 million increase in our term loan. In March, we completed a secondary offering of 4.5 million shares of common stock, which provided net proceeds of approximately $149.4 million. We used the net proceeds to pay off the $100 million drawn on our revolver and to pay down $50 million of principal on our new term loan. We ended the quarter with $212.8 million of cash. Borrowing capacity under our revolver was $148.9 million, providing a total available liquidity of $361.7 million at quarter end. Total debt was $653.6 million and net debt was $440.8 million. Over the next 12 months, we expect to use our cash and operating cash flows to support the continued organic growth of our company, reduce debt, and to pursue acquisitions that complement our growth strategy. Fixed backlog at the end of the quarter was $1.6 billion, and our MSA backlog was up to $1.5 billion for a total backlog of $3.1 billion at the end of the quarter. Backlog increased by $311.8 million during the quarter, with approximately $260 million of that increase coming from future. And concluding with our 2021 earning guidance, for the full year 2021, we expect that earnings per fully diluted share will be in the $2.30 to $2.50 range. The slight reduction is due to the EPS dilution from our follow-on offering, partially offset by our better-than-expected Q1 earnings. With that, we can turn it over to your questions. Operator?
spk01: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Lee Jagoda with CJS Securities. Your line is open. Hi, good morning.
spk05: Hey, Lee.
spk03: So just starting with the energy segment gross profit, can you break out the revenue and gross profit that you got from the resolution on the industrial project, just so we can understand what normalized margins look like this quarter?
spk05: Yeah. Hey, Lee, the P&L impact was really only about $3 million for that, and I don't think there was really any revenue impact at all.
spk03: Okay, so margins still would have been well above expectations there in the quarter. But I think if I look at your margin ranges for that segment, they come down from where we were in Q1. Is there anything else in there causing the positive bump in Q1, or how should we think about the balance of the year there?
spk06: I think it's just continued strong execution on a lot of those renewable projects that we've been talking about, solar work especially. Even with the industrial group, the projects that they have, other than the one trouble project that we've noted in our call, in our announcement, the other projects are actually performing very well.
spk03: Got it. That's very helpful. And then just turning to the future acquisition, obviously Q1 had a bunch of weather impact in it, How should we think about the catch-up there in terms of has it already had a chance to kind of catch up towards the run rate that you gave when you closed the acquisition, or should it be more of a gradual ramp as we get to the end of the year? And then just a follow-up to that is has the expectations of, you know, kind of consistent revenue with what we were thinking on a trailing basis changed at all since you bought the business?
spk06: Yeah, I'll let Tom talk about the catch-up. The revenue, no, has not changed at all relative to what we previously talked about. As far as the revenue, I think second quarter and third quarter, you're going to see it ramp up. The first quarter was a slow start. It didn't help that you're still in a pandemic coming out of the new year, and then we have the weather. But we're starting to see a lot more activity right now.
spk03: That's great. One more from me, and I'll hop back in queue. Just the MSA backlog from future was about $250 million. Is there any way to see sort of what that MSA backlog looked like this time last year to kind of get a trend line there?
spk05: To be honest with you, I don't have that information for this time last year because we didn't own them. Okay.
spk03: Fair enough. Thanks very much.
spk05: Thanks, Lee.
spk01: Thanks, Lee. Our next question comes from the line of Sean Eastman with KeyBank. Your line is open.
spk04: Hi, team. Hi, Sean. Hey, Sean. Good morning, guys. Good morning. I was hoping we could just – you could maybe just bridge us from the new guidance range to the – from the old guidance range. I mean, you know, we've got the obvious dilution from the equity deal. But what else moved? I mean, you guys talked about maybe the quarter coming in better than internal expectations, you know, maybe interest expenses coming down. If you could just give us that bridge, that would be helpful.
spk06: Yeah, I think you covered it all. You know, from a dilution standpoint, 4.5 million shares issued, right, that's, you know, kind of 9% to 10% dilution, if you will, from where we originally were. So if you take the midpoint of our range, recognizing that it is a range, but if you take the midpoint of our previous range from a couple of months ago at 250, you know, roughly 9% to 10% dilution is call it 23 to 25 cents, and then offset by, you know, call it, you know, 10 to 15 cents better than expected in Q1.
spk05: Okay.
spk04: Okay, gotcha. And the LNG project in the Northeast, I think you guys said the timeline is, you know, N3Q, early 4Q completion. I think last quarter we were talking, you know, N2Q completion, if I recall correctly. So just wondering if that timeline shifted out and whether that increases the risk that we might see another cost-to-complete estimate revision coming there.
spk06: Just sitting here, I tell you, we think we've captured the risks. We've always had money in the forecast to commission and start up that facility. When we were looking and discussing before, we were looking at mechanical completion. We're talking about done-done dates, walk-off dates. Projects like this, though, you never know. You'll always see some. They seem to be the gifts that keep on giving. I can sit here and tell you today I think we've captured all of them. But engineering is done. Most of the mechanical and structural work is done. We're in the electrical and the instrumentation part of the project. We've started the test systems. So all things look good, but I wouldn't sit here and tell you we're not going to see something. I think it would be minor, but I think there's still probably some costs that we may see.
spk04: Okay, fair enough. And then pipeline revenue down 32% year over year in the first quarter. Is that a good way to think about it for the full year?
spk06: And then I know, I'm sorry, finish your question.
spk04: Well, I was just gonna say, I know you guys don't guide on revenue. But, you know, just from a high level, do you think the business grows organically x future for the full year?
spk06: I think, first, let me talk about pipeline. The pipeline's back to closer to what they did in 2019, and we expect them to perform to those levels, both revenue and profit. They may be down a little bit from that, but that's kind of where they're trending right now. Okay. And that's really, 2020 was an exceptional year for them. If you remember, they got several projects that they kicked off at the beginning of the year and they ran all the way through the end of the year with burning revenue and making higher than expected margins. I would expect them to go back to that traditional. The company as a whole, I think we'll see some growth. I think we're really riding on the back of renewables. I think we're going to start picking up some more work in our industrials. And we're starting to see more activity, although it's as expected. It's just not at levels it's been in past years. But I think that we'll still grow. I think you'll see a little bit of both.
spk04: Okay, terrific. I'll hand it over there. Thanks, guys.
spk01: As a reminder, it is star one on your telephone keypad to ask a question. Your next question comes from Adam Falheimer with Thompson Davis. Your line is open.
spk02: Hey, good morning, guys. Great quarter. I don't know why the stock is down, but maybe we can fix that. I don't either. I was hoping you could tell me, Adam. I don't know. Maybe machines are just picking up on it because it makes it look like a guidance decrease, but I don't think that's really the case.
spk05: I agree with you.
spk02: I want to start on the – actually, I want to start on that RDOF project. $60 million seems pretty big. Curious how many projects are out there like that. And then when do you think you actually start to see revenue from that?
spk06: We'll see revenue in the coming quarter. I think you will even see revenue this quarter in that. And there's a number of projects we're looking at right now, another $350 million opportunity associated with RDOF. As I said in my call, they're spending $20 billion over the next 10 years on that work, and there's probably even going to be more coming out of this new bill to expand broadband. So I think there's a lot of opportunities for us and companies like us. We just won this one. We're chasing another one that looks very promising, and there's more out there. Okay.
spk02: And pricing on these things is pretty good?
spk06: Yeah, I mean, it's a competitive market, but the pricing is in line with what we would expect.
spk02: Got it. One of the concerns out there, and that really came up this week for solar, was semiconductor availability. Curious if you have any thoughts on availability of panels, or even for wind projects, if you're seeing any availability issues.
spk05: I haven't heard of anything for wind.
spk06: With solar, we haven't had any impacts yet. Most of our clients on the projects that we're executing in 2021 and even 2022 have gotten out ahead of it. I think that's one reason that we've seen a number of limited notice to procedure or progression on projects to the point that a client is buying the equipment so i don't i'm not aware of any impacts right now to any of our ongoing projects i would expect that people are looking at that on projects going forward and making sure they get out ahead of it and buy it timely so that may actually help us get more awards and accelerate a little bit okay uh any sign that pipe bottoms in 2021 You know what I'm hoping? That there's no signs. We're seeing a little bit of activity. I think, you know, and again, it's smaller. You're not going to see any, you know, large cross-country pipelines. And even if you do it, they may come up. You may not see them in the press until they're announced. You know, the indications are that we think we'll see more activity as this year progresses. Some of it will be for work that hopefully will have revenue burned this year, and some of it will, more of it will be for next year. But You know, I'm with you. I think the bottom is going to be this year. But, you know, it really just depends on what the administration does. And, you know, you hear about all these jobs, these pipeline projects being canceled. There's a lot of pressure now and a lot of publicity about the jobs that are being lost because of them. So we'll see.
spk02: Okay. And leverage down, you know, with the equity rate leveraged down to 1.5 times. Just lastly, curious what your thoughts are on M&A going forward.
spk05: Yeah, I mean, part of the reason we did that was so that we could, you know, de-lever and be ready for the next opportunity.
spk06: So we continue to look at opportunities. The pipeline is full with a lot of stuff, small, medium, and large. I don't expect us to, you know, jump into another large one probably the size of future just yet. I'd probably like to kind of see what happens and also continue to de-lever, but, you know, we're definitely looking and with a continued focus on utilities, telecom, and potentially solar and renewables like we've been talking about every single quarter. I think one thing the future acquisition did for us is it demonstrated that we will pay higher multiples, you know, and we'll pay more for our company if it's worth it, and we think for future was a good buy-in, it was well worth it. We've seen a lot more activity, a lot more opportunities come our way. We just got to find the right one. Okay. Thanks, guys. I'll talk to you later. Thanks, Adam.
spk01: There are no further questions at this time. I will now turn the call back to Tom McCormick for closing remarks.
spk06: Thank you, Mary Emma. I'll just conclude by saying that we're off to a strong start in 2021 and are looking forward to seizing the opportunities that the rest of the year brings. Thank you all for joining us today.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect.
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