Primoris Services Corporation

Greetings and welcome to Primoris Services Corporation reports 2020 third quarter results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentations. If anyone should require operator assistance during a conference, please press star zero on your telephone keypads. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kate Falcon, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Doug. Good morning, everyone, and thank you for joining us today. Our speakers for today will be Tom McCormick, Primoris President and Chief Executive Officer, and Ken Dodgen, Executive Vice President and Chief Financial Officer. In addition to yesterday afternoon'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 will find the slides in the Events and Presentations section next to the webcast link for today's call. I'd like to remind everyone that statements made during today's call may contain 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 yesterday'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 31, 2019, and other filings with the Securities and Exchange Commission. Permorris 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. Before I turn the call over to our CEO, Tom McCormick, I'd like to introduce Permorris' new Vice President of Investor Relations, Brooke Wooten. Brooke has a long history as an Investor Relations Officer in the utility and energy markets. She'll be taking over the role for me as I transition into a new opportunity in Pomoros' finance department. I've really enjoyed getting to know all our analysts and investors over the years, and I'll miss seeing you at our investor events, but I'm confident Brooke will do a great job going forward, and it will be a smooth transition. So now I'd like to turn the call over to our CEO, Tom McCormick.

Thank you, Jay. Good morning, everyone, and thank you for joining us today to discuss our third quarter results. This was a record quarter for Primoris and is all the more impressive given the challenges the country is facing from the pandemic, reduced energy prices, and widespread economic uncertainty. The third quarter was a continuation of things we saw in the second quarter. Sustained strong performance and margins in our heavy steel and electric utility work, demonstrating that we have definitely turned the corner in those businesses. Continued strength in our gas utility markets. Growth in our pipeline business driven by non-union field services work. and a renewables market that is driving strong performance through multiple solar and biofuel projects. We achieved these results while continuing our focus on safety, working over 20 million work hours and keeping our total recordable incident rate below our company-wide target level. I am incredibly grateful to all our employees across the country for their commitment to maintaining a safe work environment and executing their work successfully despite all the distractions that they have had to deal with this year. Even with record revenue burn in the quarter, we were able to maintain a healthy backlog, ending the quarter at $3 billion in total backlog, which excludes the HCP project now that we've received the formal notice of termination from our client. Our backlog reinforces the strength of our business across our end markets, particularly in our gas and electric utilities markets, as well as the renewables market. Thanks to strong project execution, project controls, and continued SG&A discipline, Our cash flow remains robust and our balance sheet is stronger than ever. We're using some of that cash for internal upgrades to our IT and HR systems and tools. Investments we expect will pay dividends in the long run. As part of our growth strategy, we're also actively looking at potential acquisitions. In October, we were pleased to see Primoris be included in our top 600 specialty contractors list, entering the list at number six. Moving from the more general EPC contractors list to the specialty contractors list, more closely reflects our business model and lower risk profile and confirms what we've always known, that Primoris is one of the top specialty contractors in the country. Let's take a look at the third quarter segment results, starting with the civil segment. This segment benefited from the final resolution of the last two Belton area claims, but even without the settlement, we had strong results from solid execution on our current heavy civil projects. We see opportunities for heavy civil growth in asphalt paving and heavy structures, Particularly in West Texas, the management team remains focused on project execution and is paying dividends. On the I&M side, our management team is executing extremely well in what is a challenging market, and they more than offset their revenue decline with higher margins from strong execution and project controls. The solar market is creating some positive momentum, but we expect overall demand in the industrial market will continue to face headwinds until a global pandemic subsides and the economy picks up. Within the power, industrial, and engineering segment, we are facing similar headwinds. As I mentioned on the last call, we expect the Gulf industrial market to remain tight for the rest of the year, particularly in the refining and chemical markets. The impact of the pandemic has led to a glut of fuel and a sharp reduction in refinery demand. The segment has also been challenged as we work to complete some difficult projects, the largest of which should wrap up in the second quarter of next year, after which I would expect to see margin improvement. Execution on more recent awards under the new management team continues to build on the momentum we saw last quarter, with positive feedback from our clients and profitable margins. We also continue to pursue smaller capital projects and maintenance awards along the Gulf Coast and in California, which will provide a more stable base level of revenue for the segment. Although work is slower in our Canadian markets, we continue to operate at profitable levels. Where we see the most opportunity for the segment is in the renewables markets. We are executing well on the $200 million-plus biofuels project in California that we announced earlier this year, retrofitting an existing refinery to accept vegetable oils. We are also seeing renewable diesel and biomass opportunities for both our engineering teams and non-union construction business in the Gulf Coast. And the solar market continues to be one of our biggest growth opportunities for this segment, with our team's exceptional performance exceeding our expectations on all of their projects to date. In the third quarter, we completed the largest solar facility in Texas, four square miles containing 1.2 million double-faced panels. The facility has a generation capacity of 498 megawatts DC, which will prevent the emission of over 800,000 tons of CO2 per year. Primoris is receiving recognition as an industry-leading EPC contractor for solar projects, and we expect this market to continue to provide opportunity for growth across multiple business units in the coming years. The pipeline and underground segment had another strong quarter, once again led by the great performance of our non-union pipeline projects and field services work. The big storms largely missed these projects, allowing us to continue our outstanding project execution. As expected, the larger diameter market faces some headwinds from energy prices and environmental challenges, but we are following through on our strategy of replacing lost revenue with multiple smaller projects and repurposing this business to increase their menu of services. include field services type work, which is very similar to the strategy we followed during the last energy downturn. Our craftsmen are experienced with this type of work and we have already had some success picking up work from new and existing clients. While we have taken the ACP project out of backlog, we do have maintenance crews still on site and discussions are ongoing as to any potential work to close out the project. The segment still needs to win work to make their 2021 plan but that's typical for this type of work as the norm for this market is for projects to be awarded and then move quickly to the field. The utilities and distribution segment saw revenue continue to grow as the third quarter is traditionally our busiest quarter. The mix of work in the California market had a slight negative impact on overall margins as did costs associated with the tooling and outfitting of new gas distribution crews. Starting in late September, we have had crews working full-time to help with wildfires in California. which has disrupted some of the normal release of work in the region. Our Midwest work benefited from good weather and the closeout of a larger lump sum project. And in the Southeast, we continue to benefit from higher margin work, better contract terms, and reduced equipment levels. That region is going to see double digit margins this year, which is a dramatic improvement over last year, and one we believe to be sustainable. We picked up several new gas utility customers across the country during the third quarter as we expanded our national presence. We are also finding opportunities for additional work by partnering with our renewables teams as we can provide services to their projects that were previously subcontracted. This is another example of the benefit of Pomorris' diverse capabilities and our ability to have multiple touchpoints on a project. Our transmission and distribution segment had another strong quarter, building on the momentum from Q2. We are very pleased to now be delivering margins consistently within our target range. We had some startup costs on a large transmission project in the quarter, but that was mostly offset by the margin benefit of storm work. While we appreciate the incremental margins that storm work can provide, we are more appreciative of the positive support and feedback we received from the impacted communities, as our crews worked long and challenging conditions to restore power to regions that have been devastated by these storms. With this quarter's strong results, we are now confident that we have right-sized the business and fully executed on our integration plan. As we move forward, we have brought the management of the utilities and distribution segment and the transmission and distribution segment under one senior executive and have established integrated electric and gas business processes to improve the overall performance. These are MSA-based businesses, and our focus moving forward is to maximize synergies and scale, continue to improve productivity, and increase our market share. We enter the fourth quarter in a position of strength. Thank you for joining us today. With that, I'll turn it over to Ken for a deeper dive into the numbers.