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Primoris Services Corporation Announces 2019 Third Quarter Financial Results

November 4, 2019 6:00 AM

Financial Highlights

DALLAS, Nov. 04, 2019 (GLOBE NEWSWIRE) -- Primoris Services Corporation (NASDAQ GS: PRIM) (“Primoris” or “Company”) today announced financial results for its third quarter ended September 30, 2019.

The Company also announced that on October 31, 2019 its Board of Directors authorized a $50 million share repurchase plan and declared a $0.06 per share cash dividend to stockholders of record on December 31, 2019, payable on or about January 15, 2020.

David King, Executive Chairman and Chief Executive Officer of Primoris, commented, “I am pleased to say that Primoris had another great quarter, with strong project execution and continued cost control leading to a record net income. The lack of major storm repair work and project delays created a slight headwind compared to last year, but it was more than offset by benefits from the partial resolution of outstanding claims. Over the past year we have seen our backlog grow 19%, growing both our Fixed and MSA backlog, thanks to the combined efforts of our dedicated sales and operations teams. As expected, we saw a significant positive swing in our operating cash flow in the third quarter, allowing us to continue reducing our debt levels while maintaining a robust capital expenditure program, actively evaluating additional acquisition opportunities, and initiating a share repurchase program.”

Mr. King continued, “Primoris’ diverse end markets remain strong. The forces driving demand for our utility work are creating long-term opportunities to improve our country’s electric and natural gas infrastructure. The bidding activity in our renewables, petrochemical, and LNG end markets indicate strength in those markets as we head into 2020, and the pipeline market continues to provide multiple avenues for growth, notwithstanding individual project delays. We expect our momentum to continue in the fourth quarter and well into 2020, delivering positive results for our customers and shareholders.”

2019 THIRD QUARTER RESULTS OVERVIEW

Revenue was $865.1 million for the three months ended September 30, 2019, a decrease of $43.8 million, or 4.8%, compared to the same period in 2018. The decrease was primarily due to lower revenue in our Pipeline segment, partially offset by growth in our Power and Utilities segments. Gross profit was $108.4 million for the three months ended September 30, 2019, an increase of $1.9 million, or 1.8%, compared to the same period in 2018. The increase was primarily due to increases in our Civil and Utilities segments, partially offset by lower gross profit in our Power, Transmission, and Pipeline segments. Gross profit as a percentage of revenue increased to 12.5% in the three months ended September 30, 2019 from 11.7% in the same period in 2018 due primarily to a favorable impact from partial claims resolution in our Civil segment associated with the Belton area projects, partially offset by higher costs associated with two industrial projects in our Power segment.

Segment Revenue(in thousands, except %)(unaudited)

For the three months ended September 30,
2019 2018
% of % of
Total Total
Segment Revenue Revenue Revenue Revenue
Power $200,657 23.2% $181,822 20.0%
Pipeline 133,590 15.4% 213,073 23.4%
Utilities 281,561 32.6% 269,652 29.7%
Transmission 128,784 14.9% 121,526 13.4%
Civil 120,472 13.9% 122,829 13.5%
Total $865,064 100.0% $908,902 100.0%

For the nine months ended September 30,
2019 2018
% of % of
Total Total
Segment Revenue Revenue Revenue Revenue
Power $518,210 22.4% $515,378 25.0%
Pipeline 405,647 17.5% 361,261 17.5%
Utilities 650,079 28.1% 665,214 32.3%
Transmission 382,581 16.5% 163,980 7.9%
Civil 360,034 15.5% 355,975 17.3%
Total $2,316,551 100.0% $2,061,808 100.0%

Segment Gross Profit(in thousands, except %)(unaudited)

For the three months ended September 30,
2019 2018
% of % of
Segment Segment
Segment Gross Profit Revenue Gross Profit Revenue
Power $15,525 7.7% $32,077 17.6%
Pipeline 19,657 14.7% 24,999 11.7%
Utilities 48,892 17.4% 35,348 13.1%
Transmission 4,836 3.8% 13,958 11.5%
Civil 19,511 16.2% 123 0.1%
Total $108,421 12.5% $106,505 11.7%

For the nine months ended September 30,
2019 2018
% of % of
Segment Segment
Segment Gross Profit Revenue Gross Profit Revenue
Power $58,890 11.4% $76,674 14.9%
Pipeline 46,204 11.4% 43,568 12.1%
Utilities 87,999 13.5% 78,963 11.9%
Transmission 21,664 5.7% 19,679 12.0%
Civil 26,655 7.4% 3,600 1.0%
Total $241,412 10.4% $222,484 10.8%

Power, Industrial, & Engineering Segment (“Power”): Revenue increased by $18.8 million, or 10.4%, for the three months ended September 30, 2019, compared to the same period in 2018. The increase is primarily due to a West Texas solar facility project that began in 2019 and a carbon monoxide and hydrogen plant project that began in 2019. The overall increase was partially offset by the substantial completion of refinery projects in Southern California and our Carlsbad joint venture project in 2018. Gross profit for the three months ended September 30, 2019, decreased by $16.6 million, or 51.6% compared to the same period in 2018. The decrease is primarily due to a partial settlement in the third quarter of 2018 of a disputed receivable and higher costs associated with two industrial projects in the third quarter of 2019. Gross profit as a percentage of revenue decreased to 7.7% during the three months ended September 30, 2019, compared to 17.6% in the same period in 2018, primarily due to the reasons above and a strong performance and favorable margins realized by our Carlsbad joint venture project in 2018.

Pipeline & Underground Segment (“Pipeline”): Revenue decreased by $79.5 million, or 37.3%, for the three months ended September 30, 2019, compared to the same period in 2018. The decrease is primarily due to the substantial completion of a major pipeline project in West Texas in the second quarter of 2019 and reduced activity on a major pipeline project in the Mid-Atlantic. These amounts were partially offset by a pipeline project in the Pacific Northwest that began in 2019. Gross profit for the three months ended September 30, 2019 decreased by $5.3 million, or 21.4%, compared to the same period in 2018 due to lower revenue, partially offset by higher margins. Gross profit as a percentage of revenue increased to 14.7% during the three months ended September 30, 2019, compared to 11.7% in the same period in 2018, primarily due to the favorable impact from the closeout of multiple pipeline projects in 2019. Utilities & Distribution Segment (“Utilities”): Revenue increased by $11.9 million, or 4.4%, for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to increased activity with two major utility customers in the Midwest and a utility customer in Texas, partially offset by decreased activity with a major utility customer in California. Gross profit for the three months ended September 30, 2019, increased by $13.5 million, or 38.3%, compared to the same period in 2018, primarily due to higher revenue and margins. Gross profit as a percent of revenue increased to 17.4% during the three months ended September 30, 2019, compared to 13.1%, in the same period in 2018, primarily due to an increase in higher margin projects in 2019.

Transmission & Distribution Segment (“Transmission”): The Transmission segment was created in connection with the acquisition of Willbros in the second quarter of 2018. Revenue increased by $7.3 million, or 6.0%, for the three months ended September 30, 2019, compared to the same period in 2018 primarily due to increased activity with a major utility customer in the Midwest and Southeast, partially offset by the substantial completion of a major project in the Southeast in 2018. Gross profit for the three months ended September 30, 2019, decreased by $9.1 million, or 65.4%, due primarily to lower margins, partially offset by higher revenue. Gross profit as a percentage of revenue decreased to 3.8% during the three months ended September 30, 2019, compared to 11.5% in the same period in 2018, primarily due to a reduction in higher margin storm work, upfront costs to expand our operations, and relocation costs to move crews in 2019, along with strong performance on a major project in the Southeast in 2018. Civil Segment (“Civil”): Revenue decreased by $2.4 million, or 1.9%, for the three months ended September 30, 2019, compared to the same period in 2018. The decrease is primarily due to the substantial completion of an ethylene plant project in the second quarter of 2019 and lower Texas Department of Transportation volumes. These amounts are partially offset by a methanol plant project and a project with a major refining customer that both began in 2019 and higher Louisiana Department of Transportation volumes. Gross profit increased by $19.4 million for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to a favorable impact from the resolution of claims associated with three of the Belton area projects in 2019 and increased profit on Louisiana DOT projects. Gross profit as a percentage of revenue increased to 16.2% during the three months ended September 30, 2019, compared to 0.1% in the same period in 2018, due primarily to the reasons noted above.

OTHER INCOME STATEMENT INFORMATION

Selling, general and administrative (“SG&A”) expenses were $49.8 million during the three months ended September 30, 2019, a decrease of $1.8 million, or 3.4%, compared to 2018 primarily due to a $2.0 million decrease in compensation related expenses. SG&A expense as a percentage of revenue was consistent with the same period in 2018.

Interest expense for the three months ended September 30, 2019, decreased compared to the same period in 2018, due primarily to $2.3 million of additional interest during the three months ended September 30, 2018, related to the early extinguishment of senior notes, partially offset by a $0.6 million unrealized loss on the change in the fair value of our interest rate swap agreement during the three months ended September 30, 2019.

The effective tax rate on income attributable to Primoris (excluding noncontrolling interests) was 29.0% for the nine months ended September 30, 2019. The rate differs from the U.S. federal statutory rate of 21.0% primarily due to state income taxes and nondeductible components of per diem expenses.

OUTLOOK

The Company reaffirms its estimate that for the fiscal year ending December 31, 2019, net income attributable to Primoris is expected to be between $1.60 and $1.80 per fully diluted share.

BACKLOG

Expected Next Four
Quarters Total
Backlog at September 30, 2019 (in millions) Backlog Revenue
SegmentFixed Backlog MSA Backlog Total Backlog Recognition
Power$400 $112 $512 89%
Pipeline 712 142 854 67%
Utilities 57 708 765 100%
Transmission 24 446 470 100%
Civil 604 6 610 67%
Total$1,797 $1,414 $3,211 83%

At September 30, 2019, Fixed Backlog was $1.80 billion, compared to $1.48 billion at December 31, 2018.

At September 30, 2019, MSA Backlog was $1.41 billion, compared to $1.28 billion at December 31, 2018. During the third quarter of 2019, approximately $367 million of revenue was recognized from MSA projects. MSA Backlog represents estimated MSA revenue for the next four quarters.

Total Backlog at September 30, 2019 was $3.21 billion, compared to $2.76 billion at December 31, 2018.

Backlog, including estimated MSA revenue, should not be considered a comprehensive indicator of future revenue. Revenue from certain projects, such as cost reimbursable and time-and-materials projects, do not flow through backlog. At any time, any project may be cancelled at the convenience of our customers.

SHARE REPURCHASE PLAN

The Company’s Board of Directors has authorized a share repurchase program under which Primoris may, from time to time and depending on market conditions, share price and other factors, acquire shares of its common stock on the open market or in privately negotiated transactions up to an aggregate purchase price of $50 million. The share repurchase program expires December 31, 2020.

CONFERENCE CALL

David King, Chairman and Chief Executive Officer; Tom McCormick, President; and Ken Dodgen, Executive Vice President and Chief Financial Officer, will host a conference call, Monday, November 4, 2019 at 10:00 am Eastern Time / 9:00 am Central Time to discuss the results.

Interested parties may participate in the call by dialing:

Presentation slides to accompany the conference call are available for download in the Investor Relations section of Primoris’ website at www.prim.com. Once at the Investor Relations section, please click on “Events & Presentations”.

If you are unable to participate in the live call, a replay may be accessed by dialing (877) 660-6853, conference ID 13695817, and will be available for approximately two weeks. The conference call will also be broadcast live over the Internet and can be accessed and replayed through the Investor Relations section of Primoris' website at www.prim.com.

ABOUT PRIMORIS

Founded in 1960, Primoris, through various subsidiaries, has grown to become one of the larger publicly traded specialty contractors and infrastructure companies in the United States. Serving diverse end markets, Primoris provides a wide range of construction, specialty services, fabrication, maintenance, replacement, and engineering services to major public utilities, petrochemical companies, refiners, energy companies, municipalities, state departments of transportation, and other customers. The Company's national footprint extends from Florida, along the Gulf Coast, through California, into the Pacific Northwest and Canada. For additional information, please visit www.prim.com.

FORWARD LOOKING STATEMENTS

This press release contains certain forward-looking statements, including with regard to the Company’s future performance. Words such as "estimated," "believes," "expects," "projects," “may,” and "future" or similar expressions are intended to identify forward-looking statements. Forward-looking statements inherently involve known and unknown risks, uncertainties, and other factors, including without limitation, those described in this press release and those detailed in the "Risk Factors" section and other portions of our Annual Report on Form 10-K for the period ended December 31, 2018, and other filings with the Securities and Exchange Commission. Given these uncertainties, you should not place undue reliance on forward-looking statements. Primoris does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Company Contact Ken Dodgen Executive Vice President, Chief Financial Officer(214) 740-5608 [email protected] Kate TholkingVice President, Investor Relations(214) 740-5615 [email protected]

CONDENSED CONSOLIDATED STATEMENTS OF INCOME(In Thousands, Except Per Share Amounts)(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Revenue $865,064 $908,902 $2,316,551 $2,061,808
Cost of revenue 756,643 802,397 2,075,139 1,839,324
Gross profit 108,421 106,505 241,412 222,484
Selling, general and administrative expenses 49,827 51,604 141,477 132,049
Merger and related costs — 3,827 — 13,190
Operating income 58,594 51,074 99,935 77,245
Other income (expense):
Foreign exchange (loss) gain (136) (69) (724) 1,444
Other income (expense), net (2,928) 32 (3,121) (751)
Interest income 42 932 610 1,544
Interest expense (5,186) (6,448) (17,494) (11,637)
Income before provision for income taxes 50,386 45,521 79,206 67,845
Provision for income taxes (14,560) (10,716) (22,620) (14,633)
Net income 35,826 34,805 56,586 53,212
Less net income attributable to noncontrolling interests (178) (2,114) (1,204) (8,118)
Net income attributable to Primoris $35,648 $32,691 $55,382 $45,094
Dividends per common share $0.06 $0.06 $0.18 $0.18
Earnings per share:
Basic $0.70 $0.64 $1.09 $0.88
Diluted $0.70 $0.63 $1.08 $0.87
Weighted average common shares outstanding:
Basic 50,976 51,403 50,887 51,471
Diluted 51,215 51,735 51,210 51,760

CONDENSED CONSOLIDATED BALANCE SHEETS(In Thousands)(Unaudited)

September 30, December 31,
2019 2018
ASSETS
Current assets:
Cash and cash equivalents $43,837 $151,063
Accounts receivable, net 551,543 372,695
Contract assets 331,910 364,245
Prepaid expenses and other current assets 34,222 36,444
Total current assets 961,512 924,447
Property and equipment, net 379,739 375,884
Operating lease assets 228,100 —
Deferred tax assets 888 1,457
Intangible assets, net 72,581 81,198
Goodwill 215,103 206,159
Other long-term assets 11,046 5,002
Total assets $1,868,969 $1,594,147
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $219,792 $249,217
Contract liabilities 189,664 189,539
Accrued liabilities 219,472 117,527
Dividends payable 3,059 3,043
Current portion of long-term debt 60,104 62,488
Total current liabilities 692,091 621,814
Long-term debt, net of current portion 307,397 305,669
Noncurrent operating lease liabilities, net of current portion 162,418 —
Deferred tax liabilities 3,611 8,166
Other long-term liabilities 49,289 51,515
Total liabilities 1,214,806 987,164
Commitments and contingencies
Stockholders’ equity
Common stock 5 5
Additional paid-in capital 146,765 144,048
Retained earnings 507,269 461,075
Accumulated other comprehensive loss (338) (908)
Noncontrolling interest 462 2,763
Total stockholders’ equity 654,163 606,983
Total liabilities and stockholders’ equity $1,868,969 $1,594,147

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands)(Unaudited)

Nine Months Ended
September 30,
2019 2018
Cash flows from operating activities:
Net income $56,586 $53,212
Adjustments to reconcile net income to net cash used in operating activities (net of effect of acquisitions):
Depreciation 55,936 47,708
Amortization of intangible assets 8,617 8,287
Stock-based compensation expense 1,218 748
Gain on sale of property and equipment (7,017) (3,212)
Other non-cash items 240 180
Changes in assets and liabilities:
Accounts receivable (177,942) (78,819)
Contract assets 32,274 (85,817)
Other current assets 1,219 11,061
Other long-term assets 167 (957)
Accounts payable (29,757) 24,099
Contract liabilities (3,915) (11,061)
Operating lease assets and liabilities, net (1,489) —
Accrued liabilities 17,662 16,400
Other long-term liabilities 6,085 5,298
Net cash used in operating activities (40,116) (12,873)
Cash flows from investing activities:
Purchase of property and equipment (78,255) (80,766)
Issuance of a note receivable — (15,000)
Proceeds from a note receivable — 15,000
Proceeds from sale of property and equipment 24,393 9,655
Cash paid for acquisitions, net of cash and restricted cash acquired — (111,030)
Net cash used in investing activities (53,862) (182,141)
Cash flows from financing activities:
Borrowings under revolving line of credit 212,880 170,000
Payments on revolving line of credit (212,880) (170,000)
Proceeds from issuance of long-term debt 55,008 239,467
Repayment of long-term debt (55,824) (127,291)
Proceeds from issuance of common stock purchased under a long-term incentive plan 1,804 1,498
Payment of taxes on conversion of Restricted Stock Units (1,519) —
Payment of contingent earnout liability — (1,200)
Cash distribution to noncontrolling interest holders (3,505) (8,750)
Repurchase of common stock — (8,479)
Dividends paid (9,152) (9,271)
Other (328) (1,113)
Net cash (used in) provided by financing activities (13,516) 84,861
Effect of exchange rate changes on cash and cash equivalents 268 (193)
Net change in cash and cash equivalents (107,226) (110,346)
Cash and cash equivalents at beginning of the period 151,063 170,385
Cash and cash equivalents at end of the period $43,837 $60,039

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Source: Primoris Services Corporation

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