Primoris Services Corporation

Thank you for standing by. My name is Enrique, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primoris Service Corporation second quarter 2023 conference call. All participants 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would like to turn the call over to Blake Holcomb, VP of Investor Relations. Please, go ahead.

Good morning, and welcome to the Vermoores Second 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 would 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 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 only, August 8, 2023. 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 Investors section of our website and in our second quarter 2023 earnings press release, which we issued yesterday. I would now like to turn the call over to Tom McCormick. Tom?

Thank you, Blake. Good morning and thank you for joining us today to discuss our second quarter 2023 financial results and operational performance update. Remorse continues to build positive momentum in 2023, delivering another well-executed quarter with improved top-line revenue and margins. In fact, our revenue and gross profit in Q2 were the highest recorded in the company's history, and we believe we have the potential to continue to set new records as we grow market share in certain businesses and benefit from increased customer spending. I want to thank our employees out in the field and in our offices that make this success possible. They are working hard in often harsh weather conditions to repair lines after a storm, build sun-powered generation to provide electricity to homes, and construct facilities that allow us to fill our cars at the pump. Most importantly, they perform their duties safely, efficiently, and to the satisfaction of our customers. Our safety performance this year has been particularly strong, and we have the ability to meet or exceed our best safety year on record. We also ended the quarter with record backlog of just under $6.6 billion, including booking a record $2.5 billion during the quarter. To put that in perspective, five years ago, our total backlog was only $2.8 billion. This represents an increase of 133% or $3.8 billion over that period. This growth can be attributed to our hardworking business development and operations personnel and our strategic decision to increase our focus on renewables, communications, and power delivery opportunities, while also being selective in winning lower risk, strong margin industrial, heavy civil, and pipeline work. Now let's turn to our operational performance more closely by segment. Starting with the utilities segment, we saw year-over-year improvement in revenue, gross profit, and gross margin during the quarter. The acquisitions of PLH and BCOM helped drive revenues higher in power delivery and communications. We also saw strong growth of more than 10% in gas operations with improved margins. Gas operations has been better than expected in 2023 as we have been able to pick up market share in certain regions. We have also been able to increase margins by selectively exiting unfavorable contracts and reducing costs in some underperforming markets over the past 12 months. Power delivery also saw revenue and gross margin improvement from the last year. You'll recall the significant inflationary challenges that we faced in the second quarter of 2022. We experienced rapid escalation of wages in our non-union operating areas that we were not able to make up for during the period. We also saw steep increases in fuel prices due to uncertainty of supply following the start of the conflict in Ukraine. Today, we're in a much better position with our contracts due to our ability to negotiate adjustments to many of our MSAs. While non-union labor rates remain elevated compared to 2021 levels, we have been able to claw back much of the margin pressure through increased revenue and improved contracts. We are continuing to make progress updating the PLH contracts particularly in the southern region. We expect this effort to be completed by year-end and to be accretive to margins. Last quarter, we discussed our intention to increase our mix of major projects in power delivery. Our goal is not to grow projects at the expense of MSAs, but to complement them. MSAs often serve as the gateway to project work with customers, and we are in a good position to continue growing our share of work with our MSA customers by adding projects. We have also acquired some exceptional talent to assist us in winning and managing more of these projects. To put the scope of this market opportunity in perspective, we are currently evaluating or bidding over $2 billion of major projects, most of them with existing MSA customers. We are also projecting that over the next 12 to 18 months, we will perform approximately $60 million of high-voltage interconnect work from our renewables business in support of their customers' projects. These and other scopes of project work are a growing industry need and currently an underserved market by Comoros. We are optimistic that we will win our fair share of major project work while maintaining our disciplined approach in managing project execution risk and margin profile. Wrapping up the segment with communications, we are pleased with our ability to grow revenue while being disciplined on margins. We remain selective in the regions in which we work and in the customers we work for in order to maximize the efficiency of our teams and maintain margins. To this end, we are seeing significant expansion in the Central Texas market and gain share with the new customer in the Arizona market. We are also being pulled into the Colorado market by a key customer relationship, which will allow us entry into another high growth area of the country. We remain on track to achieve our growth targets in communications in 2023, even as our second half is expected to slow down since some of this work was pulled forward in the first half of the year. Moving over to the energy segment, we saw multiple business lines increase revenue and improve their margins from the prior year, including our renewables, industrial, and pipeline services businesses. Pipeline has seen somewhat of a turnaround from the prior year when we experienced negative gross margin due to low project volumes and cost overruns on a project. In Q2 2023, Pipeline has been able to execute well from a stronger backlog position and pick up some additional work at favorable margins. In fact, margins in the second quarter improved closer to the mid-cycle level in the low double digits. Challenges remain in this business and the market remains competitive, but we are seeing more opportunities to bid projects that require specific experience, equipment, and skills that we possess. There are also several additional carbon capture scopes that we are targeting to build on the success of our first announced project earlier this year. Another big story for the Corridor in Energy was the over $1.8 billion in bookings, representing a 2.3 times book to build for the segment. Included in these bookings were $650 million in industrial and heavy civil awards that span across several states and provide a diverse range of sizes and scopes. These wins represent not only the benefits coming from federal stimulus, but also a favorable change in customer behavior. Customer demand for quality specialty contractors is rising, and as a result, we are seeing improved productivity for services that are in high demand. We believe that if this trend continues and we finalize some projects that have been a drag on margins, we will continue to see margin expansion in the next couple of years in these businesses. Renewables continues to see solid demand, announcing several large contract awards in the quarter as well, with a combined value of approximately $770 million. These solar energy facilities will add another 1.4 gigawatts of renewable energy to the grid. Two of these projects will not begin construction until late 2024, which signifies the strength of our relationships and the confidence our customers have in our people to contract early and make supply chain commitments. We believe we are uniquely positioned to be the contractor of choice for these and other customers going forward. On top of a great quarter of bookings, we also saw revenue and margin growth within renewables compared to the second quarter of 2022. We believe we are on track to achieve our 30% to 40% revenue growth target, as well as continuing to achieve solid margins in 2023 by maintaining our high-performance standards. We are very pleased overall with our execution and performance in renewables. The market for renewables remains strong, and we aren't anticipating a slowdown within the next few years. Solar module delays are appearing to be less of a concern for delivery in 2024. To support this, we are seeing billions of dollars of investments in domestic solar module manufacturing to help the industry capture the benefits of the Inflation Reduction Act. This supply chain investment reflects a long-term bullish view on this market that we share with these manufacturers. We are also seeing our customers comply with IRA labor requirements sooner than we expected, following further clarity on the IRA incentives that were made known in May of this year. This means that our apprenticeship and prevailing wage programs are now in place, and we have plans to execute on our first project using this program beginning in Q3. Also, in anticipation of the industry's continued strong growth trajectory, we are working towards expanding the number of our utility-scale solar project teams by the end of the year. We have built a very solid reputation in the industry, which enables us to attract and promote top talent. We believe our approach to solar EPC is best in class, and we plan to keep recruiting and retaining top talent to ensure we perform our work safely and to maximize our efficiency and profitability. I'll now turn it over to Ken for more on our financial results.