Primoris Services Corporation

Hello, my name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Primoris Services Corporation second quarter 2022 earnings conference call-in webcast. 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 then the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Mr. Jeremy Apple. Please go ahead, sir.

Good morning, and welcome to Primoris' second quarter 2022 earnings conference call. Joining me today are Tom McCormick, President and Chief Executive Officer, and Ken Dodgen, 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 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 will make reference to certain non-GAAP financial measures. The 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. Tom?

Thank you, Jeremy. Good morning and thank you all for joining us today to discuss our 2022 second quarter results. along with our updated financial outlook for the year. I am pleased to report that we generated $1.02 billion in the quarter. This was the highest revenue quarter in Pomorris history. We expect this to be the first of many billion-dollar-plus revenue quarters as we continue to progress our strategic objectives. Our performance this quarter was led by continued strength in our growth markets, utilities, and energy renewables, which entirely offset revenue declines in our pipeline segment. Over 94% of our revenue during the quarter was driven by the utilities and energy renewables segments. We increased backlog for the fourth consecutive quarter, an increase of nearly 60% above the prior year period, highlighting our accelerated expansion into higher margin growth markets. In addition, our acquisition of PLA Group, which we announced at the end of the quarter, marked a key milestone in our strategy. helping us enhance both the size and scale of our operations in both power delivery and gas utilities while advancing our shift towards recurring MSA revenues. We faced some challenges during the quarter stemming from increased fuel and labor prices in our utilities segment as well as continued low revenue and margins in our pipeline services segment which pressured margins for the quarter. However, our teams have done a tremendous job of working closely with our customers to negotiate increases to our MSA rates in order to mitigate the impact of inflation moving forward. Now let's look at our operations by segment, beginning with utilities. Our utility segment revenue came in at $476.1 million, a 12% increase over the prior year period. We are continuing to drive sustainable growth within both our power delivery and communication businesses as we see higher levels of activity from customers, bringing in $510 million in new business during the quarter. Backlog in the segment grew by $155 million versus the prior year, creating substantial new revenue opportunities as new management teams increased, recent acquisitions are integrated, and work is synchronized. Margins in the segment were impacted by the inflationary factors I mentioned earlier. Increased labor costs as well as rising fuel prices have weighed on our results since our utility segment has the largest fleet of vehicles and equipment. As previously noted, to offset these challenges, We have been successful in negotiating rate increases with over 40% of our clients, including the majority of our larger clients, and expect to see the benefit of the new rates in the back half of 2022 and moving forward into 2023. As we have continued to expand into new markets and grow our client base, we have realized some increased startup costs, but plan on delivering margin expansion from these new business opportunities in the coming quarters. It's also worth noting that GAC's distribution had a late start to their revenue burn in Q2 due to prolonged winter weather conditions in the central states, therefore pushing some planned revenue into the second half of the year. However, we are confident that this revenue will be realized by the end of 2022. Communications performed well during the quarter, with solid organic growth as we have continued to drive expansion with new customers across new geographic markets. Communications contributed to a significant portion of our backlog growth, made up by a mix of several small contracts as well as several larger awards with major customers. We made significant strides on the power delivery side during Q2, which will effectively double with the addition of PLH. PLH is a great strategic fit for Comoros. This acquisition will help us take advantage of long-term tailwinds as the U.S. rapidly transitions to greater dependence on electric power generated by both traditional and renewable sources. PLH's foothold in the renewable power to grid market also strengthens cross-selling opportunities with our renewables business, giving us more runway to grow our grid connection revenue. Since the transaction closed at the beginning of the month, integration is underway and we are working closely with the PLH teams to maintain business as usual while we work together to integrate them into Comoros in order to achieve our synergy goals. Utility signed a multi-million dollar contract for a large fiber network ring during the quarter. This complex project spans multiple states on the East Coast and requires several methods of installation which we are able to self-perform, creating substantial value for our clients. The versatility of our offerings is key to Comoros' success. providing substantial differentiation that will continue to help us win new business over our competitors. Overall, we continue to see solid, sustainable growth in our utility segment, driven by the strength in our power delivery and communications businesses. Our energy renewables revenue came in at $486.3 million, up 45% over the prior year, well exceeding our expectations with over $887 million in new project signs during the second quarter. The utility-scale solar market continues to grow and our focus on diversifying into small-scale or distributed generation solar has provided an additional revenue stream and diversification to our renewables business. Safe and solid execution on these projects supports our expansion by allowing us to build repeat business across multiple customers over the long term. We have line of sight to another approximately $150 million in DG prospects in addition to work currently underway and we expect to execute on this work during the second half of this year. These new wins are also helping drive our utility segment as our power delivery teams collaborate with renewables to gain new awards on projects including battery storage, substations, and interconnects among others. These synergies are critical in enabling us to maintain our competitive advantage in this market. The depth of knowledge and strength of our teams allows us to quickly adapt to meet the needs of our clients. Hydrogen continues to be another exciting area of our business. As the third leg of our renewable energy stool, hydrogen can be produced at the point of utilization and is an excellent solution to solve the challenges of energy storage. We are making progress in development of green hydrogen alongside a large utility in Southern California. They expect to work further with this utility and several others as this market continues to develop. Overall, Renewables has been a major growth engine for us, which we are driving forward through a combination of operational expertise and execution. We have record backlog in the business and it continues to grow. Our Q2 revenues increased over 90% from the prior year. At the same time, our operational strength has enabled us to drive margin expansion as we focus on commercial discipline and keeping G&A costs low while diligently managing projects to minimize costs and maximize margins. We've been awarded close to half a billion dollars in new solar projects this year and are very confident in the long-term outlook for our solar business. The Pending Inflation Reduction Act should serve as another tailwind and nearly $370 billion in energy security funding over the next 10 years. I'm also pleased to say that Morris was just named as a top 15 solar contractor by Solar Power World for kilowatts installed with over 710,000 kilowatts installed in the U.S. last year. This accolade, which we worked to achieve on maintaining solid profitability, is a major testament to our leadership in this space. We expect to only accelerate our momentum going forward as we further build out our renewables footprint. As of the second quarter of 2022, our project backlog for utility-scale solar projects totals $1.3 billion. We have minimized risk associated with potential anti-dumping, countervailing duty tariffs by intentionally diversifying our portfolio of projects to those clients and projects that have more module certainty around them. As I've noted before, we do not purchase solar modules for our projects and therefore do not have risks associated with late delivery of modules for our projects. If a customer experiences a module delay, we work to best serve them by planning and executing in a manner that brings flexibility so that we can continue to progress the project and not impact our primary work. The module is one of the last components installed, giving us the ability to build out the project and adapt to our customers' needs. We can then return to the project at a later date to install the late modules. When this occurs, our clients have compensated us for the extra cost associated with this work. We also work with our customers on a design-build basis and therefore have a high degree of transparency into the materials they purchase and incorporate their delivery to our project schedules. The energy side of the segment is stabilizing, and some of the challenges we've faced in prior quarters are now behind us. which were primarily due to market softness and uncertainty. Landscape is improving and due to rising energy prices, legacy energy customers are in strong financial health and are beginning to focus on making further investment in infrastructure. During the second quarter, we were awarded a $172 million contract from the Texas Department of Transportation. These types of heavy civil projects are consistently contributing to our overall energy renewable segment backlog We expect an increase of approximately $2.7 billion by the end of the year. I'll now move on to pipeline services. Segment revenue came in at $60.5 million, which is a 50% decrease compared to the prior year. Pipeline services made up less than 6% of our total revenue in the second quarter and has declined due to decreasing project volumes in part driven by our approach to pursue fewer pipeline projects and focus on field service and pipeline integrity work. As we continue to grow our other segments, pipeline will become a smaller part of our overall portfolio going forward. We were seeing some of the lowest volumes in pipeline services in the last decade, but expected to pick up in select markets over the course of the latter half of 2022 and into next year. Similar to utilities, we have also built client relationships in new geographic locations and are targeting new businesses in emerging markets, including hydrogen and carbon capture. To manage profitability, we continue to take steps to right-size G&A costs in the segment to be more in line with the revenue spent. We brought in $43 million in new awards during the quarter and are continuing to see growing bid activity, which should drive revenue in 2023. I'll now turn the call over to Ken to give us a detailed review of our numbers.