Primoris Services Corporation

Good morning. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the Primoris Services Corporation's first quarter 2023 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 the star one. We ask today that you limit yourself to one question and one follow-up. Thank you. Blake Holcomb, Vice President, Investor Relations, you may begin your conference.

Good morning, and welcome to the Bermuda's first quarter 2023 earnings conference call. Joining me today with prepared comments are Tom McCormick, President and Chief Executive Officer, and Ken Dodgen, Chief Financial Officer. Before we begin, I'd like to make everyone aware of certain language contained in our safe harbor statement. 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 as of today, May 10, 2023. We may disclaim any obligation to update these statements, except as 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 section of our website in our first quarter 2023 earnings release, which was issued yesterday. I would like to now turn the call over to Tom McCormick.

Thank you, Blake. Good morning and thank you for joining us today to discuss our first quarter 2023 financial results and update on our operational performance and market outlook. When Morris kicked off 2023 with a solid first quarter, Our teams around the country executed their jobs safely and efficiently to help us exceed our goals for safety, revenue, and gross profit, as well as establish another record high for backlog. We accomplished these milestones in the face of economic uncertainty caused by failing financial institutions and the increasing likelihood of a recession on the horizon. I am proud of our employees' response to these challenges, and I want to thank them for their contributions to our success. Their efforts in the first quarter have set a solid foundation for us to continue executing at a high level for the remainder of the year and achieve our annual objectives. Now let's look at our operational performance more closely by segment. Beginning with the utilities segment, we were able to outperform our expectations for the quarter in all of our key metrics, revenue, gross profit, and backlog. The first quarter is generally our lowest revenue and margin quarter compared to the remainder of the year. This is often due to delays from winter weather conditions and the allocation of MSA work from customers that often begins to ramp up in the back half of the quarter. Stronger than anticipated work in Southern California and milder weather conditions in other geographies allowed us to execute on more backlog than anticipated. We saw solid growth in our legacy power delivery and communication business that complemented the contributions from our PLH and BCOM acquisitions, where we continue to make significant progress in our integration process. The combined businesses are operating smoothly, and we are making progress in negotiating increases to MSA rates that are not in line with the current market. In fact, we submitted several high-profile power delivery MSA renewals during the quarter will help cement our future backlog at updated market rates. These and other successful customer engagements resulted in our booking more than $650 million in new business in the segment during the quarter. We also made some modifications to our organizational structure in the segment during the quarter that we believe will allow us to better serve the needs of our customers and operate more efficiently. First, we brought in additional talent that will strengthen our leadership teams, particularly in power delivery. Second, we made changes to align our leadership to focus on our commercial efforts by product and service lines rather than by region in order to better target the breadth of our customers' needs across multiple geographies. Finally, we are focusing increased attention on bidding and winning more project work in our power delivery business. Amoris has made substantial progress over the years in establishing strong, long-term relationships with customers and increasing our mix of revenue that comes from MSAs across all of our businesses. This will remain a focus for us going forward as we believe it drives stability and predictability of our revenue in this segment. However, we believe that our current volume of major projects, including transmission and substation work, which represent less than 10% of current backlog, can be further optimized. We have both the necessary expertise and market opportunity to improve our balance of project and MSA work, specifically in our power delivery operations. A greater balance between project and MSA work will deepen our client relationships by broadening our service offerings in a growing market and should enable us to expand segment margins. Turning to the energy segment, we saw similar seasonal outperformance driven by strong top line and margin growth from our renewables, Industrial and Pipeline Services businesses compared to the first quarter of 2022. In renewables, we had another quarter of solid execution from our solar business, which is experiencing a very robust project pipeline. We continue to strive to operate in a manner that will allow us to achieve market outperformance in an industry that continues to experience some bumps in the road from both a macro and political perspective. While overall a driver of anticipated growth in the coming years, The delay on the Inflation Reduction Act guidance is still causing some hesitation by our customers in the near term until full guidance is issued. However, given our solid backlog of projects, we do not expect this delayed guidance to have a material impact on our ability to meet our performance objectives this year. We anticipate the IRA guidance will be issued to the market in the coming quarters and will reaffirm the expected opportunities and increase backlog from the pipeline of projects we have in the quarters ahead. Additionally, while there has been improvement in recent months, the market is still experiencing some module tariff delays in early to mid-2023. However, by remaining disciplined in the partners we choose to work with and who have worked hard to secure module supply, we do not currently see significant risk to our projects. Furthermore, we expect that the supply chain for modules will continue to improve through the course of the year. Finally, due to the rapid growth of the market, there has been price movement on other materials used in the construction of projects. We have been able to mitigate these inflationary impacts by pre-buying equipment and materials when necessary, locking up manufacturing allocations, self-performing the work for our clients, and lowering our pricing risk due to market changes prior to executing a contract. Renewables opportunities outside of solar also continue to present themselves in the markets we serve as our economy looks to transition to more diverse and less carbon intensive energy sources. During the quarter, we booked the first of what we believe will be many opportunities for carbon capture utilization and storage pipeline projects, or CCUS. These pipelines will fit well with our engineering and construction capabilities and can play a key part in a lower carbon future. In addition to CCUS opportunities, We also are pursuing a sales funnel of more than 50 hydrogen biomass and renewable natural gas projects that could lead to hundreds of millions of dollars more in revenue over the next several years. Our traditional energy portfolio of services is also off to a strong start in 2023. We are beginning to see green shoots supported by infrastructure investment legislation and a growing LNG export market in the Gulf Coast that is driving increased bidding activity. While it remains only 10% of our overall revenue, we believe we've seen the trough in our pipeline services. In fact, we are seeing a steady growth in bid volumes for small and medium regional projects and have returned the business to positive margins following a difficult environment in 2022. The market remains competitive and permitting challenges persist, but we are optimistic that further improvement in revenue and margins is on the horizon. With that, I'll turn it over to Ken for more on our financial results.