Primoris Services Corporation

Greetings and welcome to Primoris' 2020 second quarter results. At this time, all participants are in listen-only mode. The brief question and answer sessions will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Kate Tolkien, Vice President of Investor Relations. Please go ahead, Kate.

Thank you, Rob. Good morning, everyone, and thank you for joining us today. Our speakers for the day will be Tom McCormick, Camorra'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 key points we plan to discuss on this call. You can access them by going to our corporate website, www.prim.com, then selecting Investors. Once on the Investors 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. Comoros 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.

Thanks, Kate. Good morning, everyone, and thank you for joining us today to discuss our second quarter results. This was an outstanding quarter for Morris, and due to the commitment and hard work of our employees, we were able to successfully execute on projects while simultaneously implementing new protocols to keep our employees, customers, and communities safe. While there are some impacts from COVID-19, such as several clients being slow to release work and learning how to comply with the various state, county, and or municipality health orders, It is difficult to put a precise dollar figure on these costs or forecast how long they will continue. Despite the impacts imposed by the pandemic, Primoris experienced its best second quarter in our history, both top line and bottom line. The fact that we delivered these results while working over 13.2 million work hours year-to-date and maintaining an excellent safety record is a testament to the commitment of all of our employees to keep themselves, their coworkers, and their communities safe. We focus on project execution and improving cash flow, and our employees, subcontractors, and suppliers continue to operate safely and efficiently during the quarter. Our SG&A continues to decline as a percent of revenue, and our operating cash flow in the quarter was one of the best in the company's history. With our robust balance sheet, we are in a position of strength as we evaluate new opportunities for growth, either through internal investment or by acquisition. As you saw from our numerous press releases, we had a near record bookings in the quarter, and even with a record revenue burn, our backlog remains strong. It should be noted that our backlog does still include the ACP project. We were disappointed that our client has announced their plan to cancel the project. However, we have not yet received a formal notice of termination, nor any direction as to what work should be completed prior to our demobilization from the project. Once that is received and we are able to evaluate the revenue associated with the remaining work, including demobilization, reinstatement, etc. We expect to adjust our backlog accordingly. Now, looking at the second quarter results, let's start with our civil segment. We have made great progress in the turnaround of our heavy civil operations and are now seeing consistent, positive results from the segment, which are the result of our dedicated employees and a qualified and professional management team that took ownership of the issues within the business units and implemented the control and performance initiatives necessary to turn it around. The heavy civil market looks stable for the remainder of the year and into next. At this time, we are not seeing any large impacts to state budgets from lower gas tax revenue or the pandemic. Our industrial team in this segment is performing well in their current book of business, though we are seeing some softness in their markets as new projects are pushed into either late this year or into 2021. The headwinds to global demand created by the pandemic and low energy prices could lead to some revenue softness in the second half of this year, but we are being disciplined in our bidding approach and still expect the segment to finish a year at the high end of our target margin range. Moving on to the power, industrial, and engineering segment. Given the broad range of end markets this segment covers, our results are very significantly based on the end market. To the positive, our performance in the renewables market was outstanding. both with record bookings and record execution on existing projects. During the second quarter, we announced over $250 million in new solar awards. Constructing large scale solar facilities is a different process than our other industrial work. It's much more like manufacturing as you are repeating a process potentially hundreds of thousands of times as you install all the components and equipment associated with a solar facility. We have a very experienced management team that has been designing and constructing solar facilities for most of their careers. This team is very adept at using their experience and taking the lessons learned from previous solar projects and applying them to new projects. The impact on project margins has been significant. While the solar market has seen some slight impact from COVID-19, the tailwind such as state renewable energy mandates and the push for clean energy continue to drive growth and we are continuing to execute our strategy to find great partners that have large portfolios of projects that need to be constructed over the next several years. Capital spending and turnaround budgets in the California refinery market have decreased, but we are seeing growing opportunities in the biofuel market, which has similar drivers to the solar market. We announced a $200 million California biofuel award in the quarter and are focused on small cap and critical maintenance projects that help our clients ensure business continuity and keep our people working. We are also continuing to pursue recurring work and recently negotiated a three-year contract extension on one of our existing MSAs for oilfield maintenance work. The volatility in the energy markets continue to impact our operations in Western Canada as Key Oil Sands customers basically froze capital spending and deferred maintenance, but we are seeing projects delayed rather than outright canceled, indicating a somewhat favorable industry outlook for 2021. Our team was focused on cost reduction measures while maintaining our market share and we were able to offset some of the second quarter revenue decline with strong margins. Our non-union industrial team was challenged this quarter as costs associated with the project in the northeast impacted the business. Problems on the project were largely due to quantity and forecast changes associated with subcontractor pricing rather than execution issues. We are working to mitigate some of the cost increases through improved project execution and control, as well as resolving some outstanding issues with our clients. We've made management changes at multiple levels within the group and are seeing positive results. They ask the legacy projects remaining to complete, but we expect improved margins out of this business unit in the future. The Gulf industrial market is going to be tight as we head into 2021, but we're not chasing the mega projects and are confident that we can win our fair share of the small cap and midsize projects. The pipeline and underground segment had an outstanding quarter contrary to the negative sentiment overheard on the street. We booked over $200 million in new awards in the quarter, setting the segment up for a solid second half of 2020. Our large diameter pipeline division did more revenue in the second quarter of 2020 than they did in all of 2019. We expect to see some slowdown in the second half of the year for them as they complete their current projects, but based on the strength of the first half, we still expect to outperform our full year expectations. Activity picked up in the second quarter for smaller diameter interstate pipeline work, and we saw significant improvement in both revenue and margins. And though our field services team has been impacted from lower energy prices, with some projects being pushed into next year, they offset the revenue decline with good execution on projects, leading to an overall increase in gross profit. As we look ahead to 2021 for the segment, we expect most, if not all of ACP to replace, excuse me, most, if not all of ACP with multiple smaller projects. The utilities and distribution segment experienced our typical seasonal ramp up in the second quarter. Across the Midwest, favorable weather and project mix allowed us to realize better margins, rebounding from a challenging Q1. In California, we were able to outperform our expectations despite a major reduction in work from one customer. The Southern California market remained strong, and we have received multiple awards on a major pipeline replacement project with a large utility. Our operations in the southeast improved in the quarter, not just driven by weather and project mix, but in execution as well. Over the past several quarters, we have taken a hard look at our contracts in that region and renegotiated or exited less favorable contracts, while at the same time adjusting our equipment levels needed for the work, as well as upgrading our management teams. We're extremely pleased with the hard work of our team and the results they delivered. In a similar vein, The transmission and distribution segment is also seeing significant improvement thanks to cost reduction initiatives and execution improvements. We made some changes at various management levels, placed people in roles for which they are better suited, and brought in more talent at the management levels. We expect four-year results will be solidly within our targeted margin range. As you can see, it was a great quarter for Pomorris, and we are optimistic for the remainder of the year. If I said last quarter, the withdrawal of guidance is not because of underlying concerns with the long-term strength of our end markets and opportunities, but due to the near-term uncertainty related to the pandemic and the price of oil. We have learned a lot since then, and we know how to operate successfully and safely under these new conditions. So it is with confidence that we reinstate guidance for the year in the range of $1.60 to $1.80. With that, I'll turn it over to Ken for a deeper dive into the numbers.