Primoris Services Corporation

Thank you for standing by. Welcome to the Primary Services Corporation Third Quarter Earnings Conference 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 your 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 like to hand the conference over to our speaker today, Ms. Brooke Whitten, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to Prime Morris' third quarter earnings conference call. Joining me today are Tom McCormick, President and Chief Executive Officer, and Ken Dodgen, our Chief Financial Officer. Before we begin, I would like to make everyone aware of certain language contained in our safe harbor statement. 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 a report 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. In addition, during this conference call, we will make reference to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures are available on the investor relations section of our website. I would now like to turn the call over to Tom McCormick.

Thank you, Brooke. Good morning and thank you for joining us today to discuss our third quarter results and our financial outlook for the remainder of 2021. Our results show the strength of our overall business model and the strategic value of the acquisitions we've made in recent years. These acquisitions position us in key markets as our economy moves toward a zero-carbon future. This is especially evident in our growing backlog. All along, we've said that we have tremendous opportunities and prospective projects. But while we announced some contracts in the third quarter, the fourth quarter is shaping up to be even stronger. The $130 million solar project we announced last week is a good sign of things to come in this market. Reflecting our confidence in our future prospects, on November 3rd, our board of directors authorized a share repurchase program for the repurchase of up to $25 million of outstanding common stock. Under the share repurchase program, we can, depending on market conditions, share price, and other factors, acquire shares of our common stock on the open market or in privately negotiated transactions. Our board will re-examine the program again at the end of December 2022 when it expires. You will also note that in our earnings release that we added some non-GAAP calculations. We hope this will make it easier for investors to compare our results with those of our peers on an apples-to-apples basis. Year-to-date, our revenue was $2.6 billion. This was driven by our utility segment revenue, which was up 21%, and our energy renewables segment revenue, which was up 16% over the same period last year. Year-to-date net income was $86.2 million, up 18% compared to last year. Our nine-month EPS is $1.63, which is a 9% increase as compared to the same period in 2020. That increase is especially significant when you consider that we have the 4.5 million additional shares from our secondary offering in the first quarter. When you look at our full-year EPS from 2017 to 2020, the CAGR increased over 15%. In addition, our strategic focus on master service agreements is continuing to show results, with 53% of our current backlog made up of MSA-based work. This is another record level for us. For the third quarter, we generated $913.2 million of revenue. Our solid performance in the utility and energy renewables markets demonstrates that our investment in these areas over the past several years continues to provide solid returns. Our pipeline segment revenue decreased by close to 50% as compared to the prior year. However, in 2020, we substantially completed a $127 million pipeline project during the same period. Now let's look at the three segments in detail. Our utility segment had a strong third quarter performance. Revenue came in at $454.7 million. That is a 10% increase compared to the same period last year. This increase was primarily due to the addition of future infrastructure, which represented approximately $65.1 million of revenue for the quarter. We continue to make progress on the integration of future infrastructure. The integration activities are more than 85% complete, having completed 450 of the approximately 520 activities. Even as revenue rose, some of our operations continued to experience delays associated with customer design, material shortages, and slower permitting processes. This is all part of the COVID hangover impact, which is a market-wide challenge that we've previously discussed. However, we are now starting to see work that was held back earlier in the year ranking up, and we expect it to be released in the first quarter of 2022. Major operations activities during the quarter included sending approximately 300 crew members to assist with the power restoration efforts in the states along the Gulf Coast that were heavily impacted by Hurricanes Ida and Nicholas. Our utilities group continues to enter new geographic markets. As an example, during the quarter we signed an MSA for emergency storm services with a northeast electric utility provider. This provider serves approximately 1.4 million customers in 29 different counties. We are targeting this market for additional work and should start to gain momentum over the next six months. Future infrastructure expanded its customer base and presence with the execution of new contracts to install aerial and underground fiber optic cable across the state of Texas. Two specific contracts to note include a $50 million two-year MSA with a two-year optional renewal and an additional $16 million two-year MSA. both of these master services agreements will provide communication services to historically underserved communities. This work began during the third quarter of 2021. It is clear that the acquisition of future infrastructure is already bringing us opportunities as demand for data and bandwidth continue to grow. And we expect billions of dollars, actually we expect tens of billions of dollars of further investment in 5G and fiber networks to be required in order to keep up with the demand. We will continue to create synergies between future infrastructure and our other business units that will help create growth for our overall business. Now turning to our energy and renewables segment. Revenue increased to $351 million for the quarter. That is an 11% increase over the same period of the prior year. The biggest contributor was renewable energy activity, which grew by $67.9 million. Operationally, we continue to make progress on the LNG project in the Northeast, and we expect this project to be completed in the first quarter of 2022. The project is currently in the final stages of pre-commissioning activities of its mechanical systems. Turning to contract activity, I mentioned last quarter that we were in late stage discussions regarding a thermal power project in Southwest. In late August, we secured this $100 million, 200 megawatt project. We've already begun the engineering and procurement and have recently mobilized to the field. The project should be completed in the second quarter of the next year. In addition, we have over $800 million in prospective projects. Many of these projects are currently working under limited notice to proceed in anticipation of full contract award. Final contracts for these projects should be executed over the next quarter. Two of the LNTPs we mentioned last quarter for initial engineering work and long-lead procurement on utility-scale solar facilities were finalized in the third quarter. One was for a 101 megawatt project located in the Midwest. The second was for a 185 megawatt project that is located in the Southwest. Initial construction on both projects will begin work in Q4 this year and will extend into the second and third quarters of 2022. In addition, we recently announced another solar project award with an estimated value of $130 million. The award is for the engineering, procurement, and construction of a utility-scale solar facility in the Southwest. Early construction is scheduled to begin in the first quarter of 2022. The completion of the project is expected in the fourth quarter of 2022. Our level of expertise and quality execution on solar projects are creating repeat opportunities from our clients. We are currently working with a client on multiple solar projects, and they have recently awarded us a fourth project. This client has indicated they would like to partner with Primorch for multiple project teams on several projects over the course of the next three years. One of Chemours' strongest and least appreciated assets are our customer relationships. We have contracts with companies that we have been working with on a relatively continuous basis for 20 years and longer through multiple contract hikes and contract renewals. And now we are building that same level of customer relationships in the solar market. And beyond solar, other renewable natural gas and gas to liquids projects that were deferred during the pandemic are now moving into front-end engineering. As an example, we are set to perform the front-end engineering on the Yosemite Clean Energy's renewable biofuels project. The facility will use gasification technology to convert farm and forest wood waste to syngas and ultimately into carbon-negative green hydrogen and renewable natural gas. This project takes advantage of our extensive experience in syngas, hydrogen, and renewable natural gas production. In October, we announced seven Energy Renewables Heavy Civil Project Awards with a combined value of over $115 million. These projects are located across the Southwest. The award start dates begin as early as the fourth quarter of 2021 and end in the range from the back half of 2023 through mid-year 2024. The $225 billion renewables market continues to expand, and we are positioned to grow with it. A recent U.S. Department of Energy study notes that by 2035, solar energy has the potential to power 40% of the nation's electricity. This study also indicated that in order to accomplish this, annual solar capacity additions or installs will likely need to quadruple over the next decade. That means going from 15 gigawatts per year in 2020 to close to 60 gigawatts per year in 2030. The DOE report also highlights the need for new tools that increase grid flexibility. This includes storage and advanced burners, as well as transmission expansion that will help move solar energy to all parts of the country. All this grid modernization fits perfectly within our capabilities and will drive our growth for years to come. We will have over a billion dollars in backlog as we close the year for work associated with 2022 and 2023 solar projects. Even as we build our backlog of renewable energy projects, our more traditional heavy civil business continues to perform well. We've been notified of an award and are in the process of a contract execution on a Gulf Coast project that is scheduled to commence in Q1 of 2022 and extend into 2027. The energy renewable segment backlog will increase to approximately $1.7 billion by the end of the year with the addition of this project. Moving on to our pipeline services segment, After an exceptional 2020, this year continues to play out more in line with its 2019 performance. Revenue came in at $107.6 million for the quarter. While this is a decrease year over year, it is slightly ahead of our expectations for the quarter. One contributor was the higher productivity we achieved from the outset of a major pipeline project, in which we completed all the mechanical work during the quarter. In August, Hurricane Ida impacted most of our projects along the Gulf Coast, including this one. We are currently completing our punch list items and expect project completion and acceptance by the customer this quarter. Another pipeline project in Nevada was completed on schedule and significantly under budget. This benefited this segment's Q3 results. Most of our other pipeline projects are on track. We have two large projects operating ahead of planning and on budget. We anticipate a West Coast project will resume in early Q4 or early to mid Q1. This project recently experienced delays associated with approvals and permits. As we expected, the increase in commodity pricing, as well as some renewed understanding of the need for reliable, affordable, dispatchable energy across the world, has increased the project development activities of our customers. The push towards carbon neutrality has led to additional opportunities for construction of renewable natural gas pipelines. We are seeing major carbon capture projects being released for bid, including one of which is terribly budgeted for $350 to $400 million just for the facility's work alone. This is a reminder that our expertise extends across all types of pipelines, whether it be transporting natural gas, crude oil, refined products, NGLs, carbon dioxide, or water. Pomorris Pipeline is working with Pomorris Renewable Energy to utilize some of their pipeline resources and expertise in order to help Cree expand the project capacity. This will help us leverage the project execution and management expertise that exists across all the Pomorris business units. Now, moving back to the big picture, across the board we are focused on working with our customers to address and alleviate supply chain issues. That means we are ordering materials ahead of our normal schedule. We're increasing our capex to order equipment now for delivery in 2023. We are also focused on being disciplined about the projects we undertake so that we stay true to our strategy and manage our risk profile. And as always, we are focused on the health and safety of our workers. Across our businesses, we maintain a superior safety record. For the first nine months of the year, our total recordable incident rate was 0.53, which is ahead of our corporate target of 0.60. As of the end of September, 16 of our 19 business units had zero lost time injuries, and five of the 19 business units had zero recordable injuries year-to-date. COVID-19 remains a health and safety priority. We continue to follow CDC guidelines as well as protocols established by our clients for their sites. We also continue to encourage our employees to get vaccinated. In regards to the vaccine and testing mandate for companies with more than 100 employees, we are watching this go through the various legal hurdles and are in the process of creating a plan to comply with whatever is ultimately required by OSHA. We are designing a plan that addresses four elements. First of all, validation and or documentation relating to which employees are vaccinated. and second, testing of unvaccinated employees to meet the requirements determined by OSHA. Third, evaluating the impact this will have on our multiple labor agreements. And finally, evaluating the legal implications to our contracts and MSAs with our clients. Before I hand off to Ken for a review of the numbers, I want to take a moment to look forward. As you can see, we are well positioned to meet the needs of the changing energy infrastructure across North America. as it transitions to a zero-carbon future with more energy coming from renewable sources, grid modernization, and greater reliance on broadband and 5G technology. Electrification is a huge piece of this to support the electric vehicle fleet as well as other technology additions to the power load. In line with this transformation, our revenue mix is shifting from almost exclusively conventional energy and civil infrastructure to a large and growing proportion of solar energy, electric grid transformation, and communications infrastructure. We have spoken previously about the potential impact of the infrastructure bill Congress has been working on. None of that potential has been baked into our current projections. Now that it has passed in the House, whatever opportunities come to our business units from this bill will be pure upside for us. We have to see what actual projects materialize, but I can only see positive news in this legislation for Promorse. We are in unprecedented times, not just because of the energy transition, but because so much of everything we do has been, is, or will be impacted by the global COVID-19 pandemic. Nearly 21 months ago, after the virus first triggered workplace and social shutdowns, none of us accurately predicted how the pandemic would be affecting workplaces, processes, and supply chains. Yet we do know that the short-term disruptions in some ways are accelerating the urgency of some of the long-term trends, such as grid modernization and the expansion of broadband, even as the implementation has been slowed by the pandemic. As we emerge from this pandemic, We at Comoros believe that the underlying demand for our services is not abated. We are here for the long game and intend to be a leader in contributing to the strength of our communities and our country as we build America's infrastructure in new and more sustainable ways. And with that, I'll now turn it over to Ken.