Primoris Services Corporation

Greetings. Welcome to the Primaris Reports 2020 First Quarter Results Conference Call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that today's conference is being recorded. At this time, I'll turn the conference over to Kate Tulking, Vice President of Investor Relations. Ms. Tulking, you may now begin.

Thank you, Rob. Hello, good morning, everyone, and thank you for joining us today. Our speakers for today will be Tom McCormick, Morris's President and Chief Executive Officer, and Ken Dodgen, our Executive Vice President and Chief Financial Officer. In addition to this morning's press release, we've also posted slides on our website that highlight some key points we plan to discuss on the call. You can access them by going to our corporate website, www.prim.com, then selecting Investors. Once on the investor site, you'll find the slides in the events and presentations section next to the webcast link for today's call. Before we begin, I'd like to remind everyone that statements made during today's call may contain certain forward-looking statements, including with regard to the company's future performance. Words such as estimates, believes, expects, projects, may, and future, or similar expressions, are intended to identify forward-looking statements. forward-looking statements inherently involve risks and uncertainties, including without limitation those discussed in this morning's press release and those detailed in the risk factors section and other portions in our annual report on Form 10-K for the period ending December 31st, 2019 and other filings with the Securities and Exchange Commission. Morris 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. I'd now like to turn the call over to our CEO, Tom McCormick.

Thank you, Kate. Good morning and thank you for joining us today to discuss our first quarter results. It was a challenging quarter not only for Pomorris but for our employees, our customers, and our communities. The coronavirus pandemic and the shocks to the energy market combined with our usual first quarter slow start along with inclement weather resulted in a perfect storm that had a direct impact on our bottom line. Although we were not able to work as efficiently as we would have liked, it's important to note that we are a critical infrastructure contractor and we are still working. We have crews in the field across the country and I want to thank all of our employees for how quickly they adapted to this new environment, following new safety guidelines to protect themselves and others and minimizing any potential spread of COVID-19. We implemented changes in our offices and at our job sites such as reducing employee density to allow for social distancing, monitoring our employees' health in all office locations to ensure that those who are high risk or perhaps not feeling well are working remotely at home so as not to potentially expose themselves or others, as well as performing health checks on our employees before they enter our job sites. The health and safety of our employees, our clients, and the communities in which we live and work is our primary concern, and I'm pleased that we've been able to keep our employees healthy while still giving them the opportunity to earn a paycheck, maintain their health insurance, etc. Within the Primoris family of companies, we've had a very low incident rate of COVID-19. I'm especially proud of our crews for incorporating these new policies while maintaining their focus on safety at job sites. Our total recordable incident rate is at a record low and we had zero lost time incidents in the first quarter. We achieved that while working over 6.1 million work hours. During the quarter, we also looked at ways to conserve cash and maintain a strong balance sheet. Even before COVID-19 hit, we have been focused on controlling our SG&A and that has not changed. The effective ban on travel clearly had a direct impact on our travel related expenses. and we have been impressed with how effective some of our virtual meetings have been. There will always be a need for in-person, face-to-face interaction, but this experience has taught us that we can do more remotely than we originally thought. That being said, I believe that some of these travel-related cost savings will continue beyond the current environment as we have seen this pandemic as a way to learn and adapt. Another source of cash conservation was our spending on equipment, real estate and facilities. Although we will continue to support our projects and planned expansion efforts with the equipment and facilities they need, we will also continue to minimize our investment in these types of expenditures until we have a clear vision of the situation moving forward. We are a strong, healthy company, and it is our goal to come out of this crisis in even better shape, better condition than when we entered into it. We ended the quarter with a very strong backlog of $3.2 billion, aided by new projects in the first quarter across all segments. We are seeing some slowdown in new project awards in some segments as some of our customers try to navigate the combination of COVID-19 and the volatile oil market. We believe this is mainly a timing issue, although we acknowledge that a prolonged period of depressed oil prices could have a greater impact on our project-driven, non-MSA businesses within one or more of our segments. I'd like to remind our investors that a significant amount of our revenue and profits come from MSA work, which has been a strategic focus for us. I'll go through each segment and give a little more color on the quarter and our thoughts for the remainder of the year, starting with the civil segment. Over the course of Q1, we have continued to see improvement in our civil margins. We no longer have the headwinds of the Belton area projects and our civil segment is performing well. Our major heavy civil clients continue to plan significant bid lettings for the remainder of 2020, with Texas alone predicted to spend over $70 billion over the next decade. We believe we will win our fair share of these projects while maintaining our selective bidding approach. The I&M team executed on both maintenance and capital projects during the quarter. Much of I&M's work has historically been in industrial facilities, and these customers are seeing some impact on global demand from COVID-19, as well as the current oil crisis, so we have experienced some delays in new awards. I&M's continuing partnership with our renewables and industrial teams provides them with an additional stream of opportunities. We are awaiting an award on a large petrochemical project currently scheduled for late Q2, early Q3. However, the timing of this project moving forward will most likely be dependent on the status of COVID-19. The power industrial and engineering segment had a challenging quarter. Low oil prices and COVID-19 caused many of our customers in Western Canada, as well as those in the refining industry, to postpone or reduce their capital spending, reduce scopes on ongoing work, and defer maintenance. We have instituted cost reduction measures in response to what is expected to be several months of reduced demand. Our engineering business is experiencing similar impacts as refineries defer capital spending and reduce or curtail production. Our West Coast industrial business saw most non-essential projects with expected delays of only a few months. However, the biofuel refinery market remains a bright spot and we are tracking several large projects in this market. Another market that has remained very strong throughout the first quarter is the renewable power market. While our large West Texas solar project experienced a slight delay with the delivery of some components, we were able to mitigate that with excellent project execution. The project is in its final stages and should achieve successful completion in late Q2 or early Q3. We already received limited notices to proceed on several new solar projects, which should convert to fully PC contracts in the coming months. While we have seen a slight delay in the timing of some solar awards due to customer financing issues, we are not seeing project cancellations. We are sticking with our successful strategy of working with customers with a large funnel of projects and developing partner relationships with them. Our Gulf Coast industrial team saw improvement in the first quarter as a challenging project for the past few quarters is basically 100% complete and we are in discussions with the customer on claims recovery. Thus far, we have not experienced any significant project delays due to COVID-19 on our current work other than the productivity and efficiency impacts related to health checks prior to entering the respective job sites, observing social distancing on the job site, and like our other businesses, we are seeing some delays in new awards as our customers try to navigate the current environment. The electric transmission and distribution segment continues to improve. We have continued to reduce costs and are seeing improvement in our revenue, productivity, and profitability. Earlier in the quarter, we saw customers begin to return to more normalized spending levels, but the impact of COVID-19 has slowed spending slightly. The long-term effects of this are yet to be known. We are taking steps to align our staffing levels and equipment fleet with our customers' spending levels, which should lead to continued margin improvement for the segment. Our gas utilities and distribution segment performed to expectations in the first quarter. This segment always experiences a seasonal slowdown in the first quarter of the year, and inclement weather in areas that we try to work year round can exacerbate that. That was true in the Denver area during the first quarter. Like our other segments, shelter in place and other safety measures have slowed down the release of work and created inefficiencies. While some of our maintenance utility work cannot be postponed, several customers in California, Michigan and Pennsylvania did stop operations to the fullest extent possible. Our utility customers are being hit particularly hard right now as bars and restaurants that are major natural gas consumers are temporarily closed. Some of our utility customers have told us that they might face reductions to their capital spending plans depending on the length of the shutdown, which is why our MSA revenue outlook is relatively flat until we see things progress with reopening businesses in states throughout the country. I'll wrap up with our pipeline and underground segment. This segment had over $360 million of project rewards in the quarter, a great start to the year. No capital projects currently underway have been canceled due to either COVID-19 or the volatility in oil prices, and our crews are continuing to work, albeit at a slightly reduced capacity, as they follow all necessary safety precautions. While our current work continues, many of our customers have announced decreases in their 2020 capital expenditure plans due to depressed oil prices. The bidding on new capital projects has slowed down, but our strong backlog should carry the segment through the rest of this year. With regards to our largest pipeline project, we are still expecting a decision from the Supreme Court in late June or early July and are anticipating a possible late third quarter restart. Our field services work has been slightly more impacted from the oil crisis than our other pipeline work, as our business model is more tied to maintenance and small cap spending, which is faster to respond to oil prices than spending on long-term capital projects. At the corporate level, an unrealized loss on an interest rate SWAT tipped the balance from what would have been a break-even quarter, and given the challenging operating conditions across our segments, I am proud of what we accomplished. We continue our focus on how we can grow Primoris both internally and through acquisitions. The type of market disruptions we are seeing provides opportunities for disciplined, nimble companies like Primoris. Our conservative balance sheet and ample liquidity will allow us to move quickly when we find the right acquisition. While I normally would be wary of the message that withdrawing guidance might send to the market, we are living in unusual times. Our decision to withdraw guidance is not because of underlying concerns with the long-term strength of our end markets and opportunities, but due to the uncertainty around the timing of work in light of COVID-19. Primoris remains a healthy and viable company, and we will come out of this crisis a healthy and viable company. Our focus is first and always on the safety of our employees, our clients, and the communities in which we live and operate. With that, I'll turn it over to Ken for a deeper dive into the numbers.