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Primoris Services Corporation Announces 2018 Third Quarter Financial Results

Board of Directors Declares $0.06 Per Share Cash Dividend

/EIN News/ -- Financial Highlights

  • 2018 Q3 revenues of $908.9 million, record level and a 49% increase over 2017 Q3 revenues
  • 2018 Q3 operating income of $51.1 million, a 83% increase over 2017 Q3 operating income
  • 2018 Q3 net income attributable to Primoris of $32.7 million, or $0.63 per fully diluted share, a record level and a 59% increase over 2017 Q3 net income attributable to Primoris
  • 2018 Q3 SG&A expenses at 5.7% of revenue an improvement of 1.3% over 2017 Q3 at 7.0% of revenue
  • Total backlog of $2.7 billion at September 30, 2018, compared to $2.6 billion at December 31, 2017

DALLAS, Nov. 06, 2018 (GLOBE NEWSWIRE) -- Primoris Services Corporation (NASDAQ GS: PRIM) (“Primoris” or “Company”) today announced financial results for its third quarter ended September 30, 2018.

The Company also announced that on November 2, 2018 its Board of Directors declared a $0.06 per share cash dividend to stockholders of record on December 31, 2018, payable on or about January 15, 2019. 

David King, President and Chief Executive Officer of Primoris, commented, “Primoris had an excellent quarter, achieving record quarterly revenues and record earnings per share while maintaining a strong backlog.  Our third quarter results highlight the strength of the Primoris model of serving diverse end markets.  We achieved our record revenue and profitability despite permitting challenges and seemingly unending rain.  We have continued our focus on execution excellence, client development, and cost reduction programs that reduced our SG&A expenses to 6.4% of year-to-date revenue.  Our power, industrial and pipeline projects continue to be meaningful contributors to our success and both gas and electric utility-based MSA work provide a stable recurring, and growing, revenue base.  Our new business opportunities are spread across multiple business units, and they are not limited to just a few mega projects but multiple projects for many different customers.” 

Mr. King continued, “Our end markets remain fundamentally strong.  We continue building upon our strategy of being a leader in building America’s infrastructure driven by strong performance across our operating segments.   Our backlog remains near record levels.  We are already reducing the debt incurred from our most recent acquisition, and our balance sheet is prepared to support healthy growth in 2019.  We have made significant progress in integrating Willbros’ operations, and we are now benefitting from profitable geographic diversification.  We continue to see significant opportunities for our services in the next few quarters as we continue expanding our footprint.”

2018 THIRD QUARTER RESULTS OVERVIEW

Revenue was $908.9 million for the three months ended September 30, 2018, an increase of $300.6 million, or 49.4%, compared to the same period in 2017. The increase was primarily due to incremental revenue from acquisitions, progress on major pipeline projects on the Atlantic Coast and in West Texas, and a refinery project in Southern California. The overall increase was partially offset by the substantial completion of a petrochemical plant project in 2017. Gross profit was $106.5 million for the three months ended September 30, 2018, an increase of $36.1 million, or 51.2%, compared to the same period in 2017.  The increase was primarily due to revenue growth. Incremental gross profit in the three months ended September 30, 2018 from acquisitions totaled $19.5 million. Gross profit as a percentage of revenue increased slightly to 11.7% in the three months ended September 30, 2018 from 11.6% in the same period in 2017.

SEGMENT RESULTS

  • Power, Industrial, and Engineering (“Power”) - The Power segment operates throughout the United States and Canada and specializes in a range of services that include full EPC project delivery, turnkey construction, retrofits, upgrades, repairs, outages, and maintenance for entities in the petroleum, petrochemical, water, and other industries.
  • Pipeline and Underground (“Pipeline”) – The Pipeline segment operates throughout the United States and specializes in a range of services, including pipeline construction, pipeline maintenance, pipeline facility work, compressor stations, pump stations, metering facilities, and other pipeline related services for entities in the petroleum and petrochemical industries. 
  • Utilities and Distribution (“Utilities”) – The Utilities segment operates primarily in California, the Midwest, and the Southeast regions of the United States and specializes in a range of services, including utility line installation and maintenance, gas and electric distribution, streetlight construction, substation work, and fiber optic cable installation.
  • Transmission and Distribution (“Transmission”) – The Transmission segment operates primarily in the Southeastern and Gulf Coast regions of the United States and specializes in a range of services in electric and gas transmission and distribution, including comprehensive engineering, procurement, maintenance and construction, repair, and restoration of utility infrastructure.
  • Civil – The Civil segment operates primarily in the Southeastern and Gulf Coast regions of the United States and specializes in highway and bridge construction, airport runway and taxiway construction, demolition, heavy earthwork, soil stabilization, mass excavation, and drainage projects.

Segment Revenues
(in thousands, except %)
(Unaudited)

    For the three months ended September 30,
    2018     2017  
          % of         % of
          Total         Total
Segment   Revenue   Revenue   Revenue   Revenue
Power   $   181,822   20.0 %   $   154,178   25.3 %
Pipeline       213,073   23.4 %       84,357   13.9 %
Utilities       269,652   29.7 %       246,524   40.5 %
Transmission       121,526   13.4 %       —   0.0 %
Civil       122,829   13.5 %       123,252   20.3 %
Total   $   908,902   100.0 %   $   608,311   100.0 %


    For the nine months ended September 30, 
    2018     2017  
          % of         % of
          Total         Total
Segment   Revenue   Revenue   Revenue   Revenue
Power   $   515,378   25.0 %   $   443,191   24.6 %
Pipeline       361,261   17.5 %       402,425   22.4 %
Utilities       665,214   32.3 %       576,446   32.0 %
Transmission       163,980   7.9 %       —   0.0 %
Civil       355,975   17.3 %       378,916   21.0 %
Total   $   2,061,808   100.0 %   $   1,800,978   100.0 %

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

    For the three months ended September 30, 
    2018     2017  
          % of         % of
          Segment         Segment
Segment   Gross Profit   Revenue   Gross Profit   Revenue
Power   $   32,077   17.6 %   $   18,842   12.2 %
Pipeline       24,999   11.7 %       12,084   14.3 %
Utilities       35,348   13.1 %       36,081   14.6 %
Transmission       13,958   11.5 %       —   0.0 %
Civil       123   0.1 %       3,414   2.8 %
Total   $   106,505   11.7 %   $   70,421   11.6 %


    For the nine months ended September 30, 
    2018     2017  
          % of         % of
          Segment         Segment
Segment   Gross Profit   Revenue   Gross Profit   Revenue
Power   $   76,674   14.9 %   $   52,498   11.8 %
Pipeline       43,568   12.1 %       79,575   19.8 %
Utilities       78,963   11.9 %       76,701   13.3 %
Transmission       19,679   12.0 %       —   0.0 %
Civil       3,600   1.0 %       1,183   0.3 %
Total   $   222,484   10.8 %   $   209,957   11.7 %

Power, Industrial, & Engineering Segment:  Revenue increased by $27.6 million, or 17.9%, for the three months ended September 30, 2018, compared to the same period in 2017. The growth is primarily due to a refinery project in Southern California and the acquisition of Willbros, partially offset by the substantial completion of a large petrochemical plant in Louisiana in 2017. Gross profit for the three months ended September 30, 2018, increased by $13.2 million, or 70.2% compared to the same period in 2017.  The increase is primarily due to revenue growth and higher margins. In addition, gross profit increased by $6.2 million from a partial settlement in the third quarter of 2018 of a disputed receivable related to a project completed in 2014.  Gross profit as a percentage of revenue increased to 17.6% during the three ended September 30, 2018, compared to 12.2% in the same period in 2017 primarily due to a strong performance and favorable margins realized by our Carlsbad joint venture project and the partial settlement of the disputed receivable.

Pipeline & Underground Segment:  Revenue increased by $128.7 million for the three months ended September 30, 2018, compared to the same period in 2017. The increase is primarily due to major pipeline projects on the Atlantic Coast and West Texas that began in 2018 and incremental revenue from the Willbros acquisition, partially offset by the completion of a pipeline job in West Texas in 2017.  Gross profit for the three months ended September 30, 2018 increased by $12.9 million compared to the same period in 2017 primarily due to revenue growth, partially offset by lower margins. Gross profit as a percent of revenue decreased to 11.7% during the three months ended September 30, 2018, compared to 14.3% in the same period in 2017 primarily due to favorable performance on the West Texas job in 2017.

Utilities & Distribution Segment:  Revenue increased by $23.1 million, or 9.4%, for the three months ended September 30, 2018, compared to the same period in 2017 primarily due to higher revenue with a major utility customer in the Midwest. Gross profit for the three months ended September 30, 2018 decreased by $0.7 million, or 2.0%, compared to the same period in 2017. The decrease is primarily due to the mix of work associated with new Master Service Agreement (“MSA”) projects in the Midwest. Gross profit as a percent of revenue decreased to 13.1% during the three months ended September 30, 2018, compared to 14.6% in the same period in 2017 primarily due to the mix of work.

Transmission & Distribution Segment: The Transmission segment was created in connection with the acquisition of Willbros. Revenue and gross profit represent results from June 1, 2018, the acquisition date, to September 30, 2018.

Civil Segment:  Revenue for the three months ended September 30, 2018 was comparable to the same period in 2017. Significant activity included the substantial completion of a methanol plant project and a large petrochemical plant project in 2017 as well as lower Arkansas DOT volumes. The overall decrease was offset by higher Louisiana DOT volumes, an ethylene plant project that began in 2018, and increased Florida mine work. Gross profit decreased by $3.3 million for the three months ended September 30, 2018, compared to the same period in 2017 primarily due to favorable performance on the methanol plant and petrochemical plant projects in 2017. Gross profit as a percent of revenue decreased to 0.1% during the three months ended September 30, 2018, compared to 2.8%, in the same period in 2017 due primarily to the favorable performance on the methanol plant and petrochemical plant projects in 2017.

OTHER INCOME STATEMENT INFORMATION

Selling, general and administrative (“SG&A”) expenses were $51.6 million during the three months ended September 30, 2018, an increase of $9.3 million, or 21.9%, compared to the third quarter of 2017 primarily due to $9.7 million of incremental expense from the businesses we acquired during the period. SG&A expense as a percentage of revenue decreased to 5.7% compared to 7.0% for the corresponding period in 2017 due to increased revenue.

Merger and related expenses were $3.8 million for the three months ended September 30, 2018, compared to $0.2 million in the same period in 2017. The increase is primarily from the expenses associated with the acquisition of Willbros. These expenses included severance and retention bonus costs for certain employees of Willbros, professional fees paid to advisors, and exiting or impairing certain duplicate facilities.

The effective tax rate on income attributable to Primoris (excluding noncontrolling interests) was 24.5% for the nine months ended September 30, 2018.  The rate differs from the U.S. federal statutory rate of 21% primarily due to state income taxes, investment tax credits, and nondeductible components of per diem expenses.

OUTLOOK

Based on expectations of normal weather, anticipated MSA spending, the contributions of the Willbros’ businesses and anticipated progress on claims resolution, the Company estimates that for the fiscal year ending December 31, 2018, net income attributable to Primoris is expected to be between $1.50 and $1.70 per fully diluted share. 

BACKLOG

                    Expected Next Four
                    Quarters Total
  Backlog at September 30, 2018 (in millions)   Backlog Revenue
Segment Fixed Backlog   MSA Backlog   Total Backlog   Recognition
Power $   267   $   92   $   359     91 %
Pipeline     833       36       869     78 %
Utilities      47       651       698     100 %
Transmission     24       317       341     100 %
Civil     440       —       440     76 %
Total $   1,611   $   1,096   $   2,707     88 %

At September 30, 2018, Fixed Backlog was $1.6 billion, compared to $1.8 billion at December 31, 2017.

At September 30, 2018, MSA Backlog was $1.1 billion, compared to $775 million at December 31, 2017.  MSA Backlog represents estimated MSA revenues for the next four quarters.

At September 30, 2018, Total Backlog was $2.7 billion, compared to $2.6 billion at December 31, 2017. 

Backlog, including estimated MSA revenues, should not be considered a comprehensive indicator of future revenues.  There is a certain percentage of total revenues from projects such as cost reimbursable and time-and-materials projects that do not flow through backlog.  Any project may still be cancelled at the convenience of our customers.

CONFERENCE CALL

David King, President and Chief Executive Officer, Peter J. Moerbeek, Executive Vice President and Chief Financial Officer, and Ken Dodgen, Executive Vice President and Corporate Controller, will host a conference call today, Tuesday, November 6, 2018 at 10:00 am Eastern Time / 9:00 am Central Time to discuss the results. 

Interested parties may participate in the call by dialing:

  • (877) 407-8293 (Domestic)
  • (201) 689-8349 (International)

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 13684431, 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. Once at the Investor Relations section, please click on "Events & Presentations”.

ABOUT PRIMORIS

Founded in 1960, Primoris, through various subsidiaries, has grown to become one of the largest construction service enterprises in the United States. Serving diverse end markets, Primoris provides a wide range of construction, fabrication, maintenance, replacement, water and wastewater, and engineering services to major public utilities, petrochemical companies, energy companies, municipalities, 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, 2017, 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 
Peter J. Moerbeek 
Executive Vice President, Chief Financial Officer
(214) 740-5602 
pmoerbeek@prim.com
Kate Tholking
Vice President, Investor Relations
(214) 740-5615 
ktholking@prim.com
   


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

               
    Three Months Ended    Nine Months Ended 
    September 30,   September 30,
    2018     2017     2018     2017  
Revenue   $   908,902     $   608,311     $   2,061,808     $   1,800,978  
Cost of revenue       802,397         537,890         1,839,324         1,591,021  
Gross profit        106,505         70,421         222,484         209,957  
Selling, general and administrative expenses        51,604         42,321         132,049         126,835  
Merger and related costs       3,827         238         13,190         1,555  
Operating income        51,074         27,862         77,245         81,567  
Other income (expense):                        
Investment income       —         6,066         —         6,066  
Foreign exchange (loss) gain       (69 )       167         1,444         299  
Other income (expense), net       32         (39 )       (751 )       (52 )
Interest income        932         228         1,544         411  
Interest expense        (6,448 )       (2,198 )       (11,637 )       (6,605 )
Income before provision for income taxes        45,521         32,086         67,845         81,686  
Provision for income taxes        (10,716 )       (9,952 )       (14,633 )       (28,644 )
Net income    $   34,805     $   22,134     $   53,212     $   53,042  
                         
Less net income attributable to noncontrolling interests        (2,114 )       (1,537 )   $   (8,118 )   $   (3,209 )
                         
Net income attributable to Primoris    $   32,691     $   20,597     $   45,094     $   49,833  
                         
Dividends per common share    $   0.060     $   0.055     $   0.180     $   0.170  
                         
Earnings per share:                        
Basic    $   0.64     $   0.40     $   0.88     $   0.97  
Diluted    $   0.63     $   0.40     $   0.87     $   0.96  
Weighted average common shares outstanding:                        
Basic        51,403         51,441         51,471         51,491  
Diluted        51,735         51,707         51,760         51,751  
                         


CONDENSED CONSOLIDATED BALANCE SHEETS
 (In Thousands)
(Unaudited)

             
    September 30,     December 31, 
    2018   2017
ASSETS            
Current assets:            
Cash and cash equivalents   $   60,039   $   170,385
Accounts receivable, net       473,045       291,589
Contract assets       382,492       265,902
Prepaid expenses and other current assets        22,383       15,338
Total current assets        937,959       743,214
Property and equipment, net        369,123       311,777
Deferred tax assets       13,441       —
Intangible assets, net        85,813       44,800
Goodwill        208,130       153,374
Other long-term assets        6,680       2,575
Total assets    $   1,621,146   $   1,255,740
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current liabilities:            
Accounts payable   $   241,288   $   140,943
Contract liabilities       219,232       169,377
Accrued liabilities       130,382       76,027
Dividends payable        3,072       3,087
Current portion of long-term debt        63,947       65,464
Total current liabilities        657,921       454,898
Long-term debt, net of current portion        306,093       193,351
Deferred tax liabilities       —       13,571
Other long-term liabilities        64,652       31,737
Total liabilities        1,028,666       693,557
Commitments and contingencies            
Stockholders’ equity            
Common stock       5       5
Additional paid-in capital        155,051       160,502
Retained earnings        431,764       395,961
Accumulated other comprehensive income       577       —
Non-controlling interest        5,083       5,715
Total stockholders’ equity        592,480       562,183
Total liabilities and stockholders’ equity    $   1,621,146   $   1,255,740
             


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

     
    Nine Months Ended
    September 30,
    2018     2017  
Cash flows from operating activities:            
Net income   $   53,212     $   53,042  
Adjustments to reconcile net income to net cash (used in) provided by operating activities (net of effect of acquisitions):            
Depreciation        47,708         43,064  
Amortization of intangible assets       8,287         6,184  
Intangible asset impairment       —         477  
Stock-based compensation expense       748         911  
Gain on short-term investments       —         (5,980 )
Gain on sale of property and equipment       (3,212 )       (3,880 )
Other non-cash items       180         131  
Changes in assets and liabilities:            
Accounts receivable       (78,819 )       54,865  
Contract assets       (85,817 )       (42,011 )
Other current assets       11,061         7,186  
Other long-term assets       (957 )       (2,745 )
Accounts payable       24,099         (17,813 )
Contract liabilities       (11,061 )       46,210  
Accrued liabilities       16,400         17,848  
Other long-term liabilities       5,298         3,943  
Net cash (used in) provided by operating activities       (12,873 )       161,432  
Cash flows from investing activities:            
Purchase of property and equipment       (80,766 )       (57,346 )
Issuance of a note receivable       (15,000 )       —  
Proceeds from a note receivable       15,000         —  
Proceeds from sale of property and equipment       9,655         7,027  
Purchase of short-term investments       —         (13,588 )
Sale of short-term investments       —         350  
Cash paid for acquisitions, net of cash and restricted cash acquired       (111,030 )       (66,205 )
Net cash used in investing activities       (182,141 )       (129,762 )
Cash flows from financing activities:            
Borrowings under revolving line of credit       170,000         —  
Payments on revolving line of credit       (170,000 )       —  
Proceeds from issuance of long-term debt        239,467         30,000  
Repayment of long-term debt and capital leases       (127,363 )       (41,279 )
Payment of debt issuance cost       (1,041 )       (631 )
Proceeds from issuance of common stock purchased under a long-term incentive plan       1,498         1,148  
Payment of contingent earnout liability       (1,200 )       —  
Cash distribution to non-controlling interest holders       (8,750 )       —  
Repurchase of common stock       (8,479 )       (4,999 )
Dividends paid        (9,271 )       (8,497 )
Net cash provided by (used in) financing activities       84,861         (24,258 )
Effect of exchange rate changes on cash and cash equivalents       (193 )       —  
Net change in cash and cash equivalents       (110,346 )       7,412  
Cash and cash equivalents at beginning of the period       170,385         135,823  
Cash and cash equivalents at end of the period   $   60,039     $   143,235  
             

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