Primoris Services Corporation

Thank you for standing by. My name is Cheryl and I will be your conference operator today. At this time, I would like to welcome everyone to the Primoris Services Corporation first quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. if you would like to withdraw your question. Again, press star one. Thank you. Brooke Wooten, Vice President, you may begin your conference.

Good morning and welcome to Primoris' first quarter 2022 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 Statements. The 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 our 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. In addition, during this conference call, we'll 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 look to turn the call over to Tom McCormick.

Thank you, Brooke. Good morning and thank you for joining us today to discuss our 2022 first quarter results and our financial outlook for the rest of the year. For the first quarter, we generated $784.4 million of revenue. Compared to last year's record first quarter, this period was much more in line with our historic first quarter results. This is typically our slowest quarter of the year and the most likely to be impacted by inclement weather and extended winter conditions. That was our experience this year as positive performance in our growth markets, utilities and energy renewables, was largely offset by a loss that we recognized on a pipeline project in the mid-Atlantic and lower overall revenue in our pipeline segments. Approximately 92% of our first quarter revenue was driven by our utilities and energy renewables businesses as we lean more heavily into markets with more secular growth. We continue to build our backlog primarily in these two segments, increasing total backlog for the third consecutive quarter. Reflecting the underlying strength of our business, our total backlog is 30% above the same period last year. Now let's look at our operations, segment by segment. Our utility revenue came in at $358.7 million. That is a 7% increase compared to the same period last year. Remember, this segment encompasses our specialty services in the gas distribution, power delivery, and communications industries. The increase reflects higher levels of activity with our gas utility and communications customers in our east and west regions. Most of our issues, such as material shortages, delays in engineering and permitting, are now mostly behind us as we and our clients continue to adapt to the ever-changing market conditions. We brought in over $375 million in new business during the quarter. In the western U.S., most of the new business is with large existing customers. While on the East Coast, we continue to expand our communications footprint with new customers and new geographic markets. One new client is building fiber networks across the country. We signed contracts for two projects with them, one in Virginia and another in Oklahoma. We are focusing on building a long-term relationship with this client that we believe will bring additional projects, which is always our goal. Another growing relationship is in our power delivery space with a multi-state client. We just added crews to take on our third electric distribution project for them. After the end of the quarter, we signed a multi-year, multi-million dollar contract expanding our power delivery services into a market in the Northeast. This demonstrates the effectiveness of our focused expansion efforts. This customer has expressed an interest in discussing additional services that we are prepared to provide. Overall, we are seeing sustainable growth in our power delivery and communications businesses. Our energy renewable segment revenue came in at $359 million. Three new solar projects are just kicking off. One at the end of the first quarter and two more this quarter. So we will start to show meaningful revenue from all these projects in the near future. The utility scale solar market remains robust and we value the strong relationships with our customers in this area. As we have previously discussed, diversifying into small scale or distributed generation solar brings additional scale and opportunity to our renewables business. To best serve this market opportunity, we have successfully transitioned some of our pipeline field management to develop a new DG solar team. This transition is going well, and we now have a significant funnel of DG solar project opportunities. We will start executing this work in the third quarter. Other projects of our renewable business are also moving forward. Hydrogen is proving to be an exciting area right now. As I've stated before, hydrogen is the third leg of the renewable energy stool. Hydrogen can solve many of the difficult challenges of energy storage as it can be produced and used at its point of utilization. Recently, we extended our involvement in developing sustainable green hydrogen for residential and commercial use in North America. We are participating in a hydrogen pilot home project as part of a proof of concept demonstration with a large utility in Southern California. This hydrogen project features a microgrid that supplies electricity to a 2,000 square foot home. The grid is composed of solar panels, a battery storage system, an electrolyzer to convert solar energy to hydrogen, and a fuel cell. This hydrogen project was named a world-changing idea by Fast Company Magazine. As this market develops, we expect to work further with this utility, as well as with other utilities and developers, on both hydrogen and other renewable-related projects. Looking at future opportunities, our energy renewables segment has signed more than $325 million in new projects for this segment during the first quarter alone. These include an earthworks project located in the south, as well as the mechanical scope for a hydrogen producing steam methane reformer plant in Texas. This facility would be the largest such plant our customer will operate in the Gulf Coast region. We began work on both projects in the first quarter of 2022 with completion expected in the first quarter of 2023. We were also awarded a $48 million contract from the Texas Department of Transportation to expand an existing roadway and bridge to four lanes. This project will run from Q2 2022 to the end of 2024. We have also been contracted to construct a new pump station and modify the existing infrastructure at a regional wastewater treatment facility located in Florida. This major project is also scheduled to start this quarter and will run into early 2025. Our safety and execution performance in solar projects continues to drive business. This performance has led to the continuation of repeat business across multiple customers. After the end of the quarter, we were awarded two new solar projects totaling more than $250 million. One is for the engineering, procurement, and construction of a utility-scale solar facility located in the Southwest. Mobilization and construction will begin in the second quarter of this year with completion of the project expected in the first quarter of 2023. Beckham Project is located in the south. Construction is scheduled to begin in the fourth quarter of this year, with completion expected in the third quarter of 2023. This project is another example of our segments working together to provide a complete solution for our clients. Our energy renewable segment will build a solar facility, while a power delivery group of our utility segment completes the high voltage work associated with this project. We expect to see continued and increased collaboration between our energy renewables and utility segments on this front. Before I move on to the pipeline services segment, I want to talk about how we are addressing a supply chain issue around the cost of materials and delivery certainty in our energy renewables segment. There has been a lot of industry speculation around the Department of Commerce's investigation on solar panel modules imported from certain countries and the potential impact of project costs and schedules If anti-dumping, countervailing duty tariffs are imposed, we don't see this as having a significant revenue impact on our projects for the following reasons. As of the first quarter of 2022, our project backlog to utility-scale solar is more than a billion dollars. We have intentionally diversified our portfolio of projects to those clients and projects that have more module certainty around them. Morris does not purchase solar modules for our projects, nor do we have risks associated with not receiving those modules for our projects. If a customer experiences a module delay, we serve our customers best by planning and executing in a manner that brings in flexibility to progress the project such that our primary work is not impacted. The module is the last component installed, which gives us the ability to build out the project and adapt to our customers' needs. We can always return to the project at a later date and install the modules, and when this does occur, our clients have compensated us for the extra costs. We also work with our customers on a design-build basis, so we have a high degree of transparency into the materials they purchase. We currently know that more than 50% of our 2022 projects are using solar modules that are not subject to the ADCBD tariffs. Our discipline in planning and best practices in our solar business is paying off and reduce risk for both our business continuity and our bottom line. Now on to pipeline services. Our pipeline services segment revenue came in at $67 million. That is a 49% decrease compared to the same period last year. This segment, which includes conventional oil and gas pipelines, as well as water and wastewater pipelines, is now increasingly focused on master service agreements for pipeline services. The year-to-year comparison is somewhat skewed by the fact that in the first quarter of last year, we achieved substantial completion on three pipeline projects, accounting for more than $71 million in revenue. As we previously stated, we're pursuing fewer pipeline projects and focusing on field service pipeline integrity type work. So some of that income decline is in line with our strategy. Q1 2022 pipeline encompassed just over 8% of our total revenue, which is down to where it has traditionally been. Once again, a lot of that is by design. It is a much smaller part of our business and will continue to be for some time. We did complete one small wastewater project during the quarter with high levels of customer satisfaction, zero recordable incidents, and good profit margin. On the flip side, One pipeline project in the mid-Atlantic region got bogged down, literally, with extreme weather conditions, delayed progress down the right of way. We've added the necessary labor to mediate the delays associated with the ground conditions and complete the project. However, the project is currently forecast to lose money, which has adversely affected the segment's results for the quarter. We continue to evaluate what costs are recoverable and are currently in discussions with the client on these matters. While the project impacts our pipeline revenue and bottom line, fortunately, there's a small item in the big picture of our overall business. We brought in approximately $43 million in new awards during the quarter with a pickup and bidding activity that bodes well for the last half of the year, as well as 2023. On average, 18% of our pipeline services revenue comes from ongoing MSAs compared to new bid projects. And with that, let me hand off to Ken for a more detailed review of the numbers. Good morning, everyone.