Primoris Services Corporation Announces 2014 Second Quarter Financial Results

Board of Directors Increases Quarterly Cash Dividend by 14%

Q2 2014 Financial Highlights

• Revenue of $515 million in the second quarter of 2014 compared to $470 million in the first quarter of 2014
• Net income attributable to Primoris of $16.0 million, or $0.31 per diluted share, in the second quarter of 2014 compared to $0.21 in the first quarter of 2014
• At June 30, 2014:
  • $162 million in cash, cash equivalents and short-term investments
  • Total backlog of $1.83 billion

DALLAS--(BUSINESS WIRE)-- Primoris Services Corporation (NASDAQ GS: PRIM) ("Primoris" or "Company") today announced financial results for its second quarter ended June 30, 2014.

The Company also announced that on August 5, 2014, the Board of Directors authorized a 14.3% increase in the quarterly cash dividend to $0.04 per share from $0.035 per share. The cash dividend will be paid to stockholders of record on September 30, 2014 and is payable on or about October 15, 2014.

Brian Pratt, Chairman, President and Chief Executive Officer of Primoris commented, "We had a solid second quarter, with strong revenue growth in several of our end markets, especially our operations on the Gulf Coast. Our revenue growth was accompanied by increased gross margin, operating income and net income compared to last quarter, and I am expecting our traditionally strong second half of the year.

Mr. Pratt continued, "Environmental constraints, such as a longer permitting process, continue to affect the energy business and have delayed a significant number of our projects. The tailwinds driving our business remain strong, and the abundance of shale gas and its impact is driving the need for new energy and petrochemical infrastructure. Our business units continue to be preferred providers of the services our customers need to facilitate their growth. The opportunities are there, and we will make the most of them."

2014 SECOND QUARTER RESULTS OVERVIEW

Revenue for the 2014 second quarter increased by 15.8% to $515.3 million, compared to the same period last year. Revenue increased by $102.7 million in the East Construction Services segment and $1.4 million in the Engineering segment and decreased by $33.8 million in the West Construction Services segment.

From an end-market perspective for the three months ended June 30, 2014, compared to the second quarter 2013, our industrial business increased by $63.0 million, our heavy civil work increased by $16.5 million, and our engineering business increased by $1.4 million. Our other end-market (primarily our parking structures business) decreased by $6.2 million.

Gross profit increased by $1.7 million, or 2.8%, compared to the same period last year. A reduction in gross profit as a percentage of revenues from the second quarter of 2013 to the second quarter of 2014 reduced the benefit of the increased revenue. The primary reason for the reduction in the gross profit as a percentage of revenues was the increase in revenue in the East, which are traditionally lower-margin revenues than in the West.

SEGMENT RESULTS

• East Construction Services - The East Construction Services segment includes the James Construction Group ("JCG") and Primoris Energy Services ("PES") construction business, located primarily in the southeastern United States and in the Gulf Coast region of the United States. The operations of Cardinal Contractors, Inc. and BW Primoris are included in this segment.
• West Construction Services - The West Construction Services segment includes the construction services performed by ARB, Inc., ARB Structures, Inc., Rockford, Q3 Contracting, Inc., and Vadnais, acquired in June 2014. Most of the entities perform work primarily in California; however, Rockford operates throughout the Unites States and Q3C operates in the upper Midwest United States. The segment also includes the operations of the Blythe Power Constructors joint venture.
• Engineering - The Engineering segment includes the results of OnQuest, Inc. and OnQuest Canada, ULC.

Segment Revenues (in thousands, except %)
			For the three months ended June 30,
			2014 Unaudited						2013 Unaudited
Segment			Revenue			% of Segment Revenue			Revenue			% of Segment Revenue
East Construction Services			278,066			54.0%			175,398			39.4%
West Construction Services			$ 224,391			43.5%			$ 258,194			58.0%
Engineering			12,834			2.5%			11,421			2.6%
Total			$ 515,291			100.0%			$ 445,013			100.0%

			For the six months ended June 30,
			2014 Unaudited						2013 Unaudited
Segment			Revenue			% of Segment Revenue			Revenue			% of Segment Revenue
East Construction Services			501,138			50.9%			365,609			42.8%
West Construction Services			$ 458,417			46.5%			$ 465,880			54.4%
Engineering			25,810			2.6%			23,519			2.8%
Total			$ 985,365			100.0%			$ 855,008			100.0%

Segment Gross Margin (in thousands, except %)
			For the three months ended June 30,
			2014 Unaudited						2013 Unaudited
Segment			Gross Profit			% of Segment Revenue			Gross Profit			% of Segment Revenue
East Construction Services			21,309			7.7%			15,215			8.7%
West Construction Services			$ 37,809			16.9%			$ 41,926			16.2%
Engineering			2,076			16.2%			2,396			21.0%
Total			$ 61,194			10.6%			$ 59,537			13.4%

			For the six months ended June 30,
			2014 Unaudited						2013 Unaudited
Segment			Gross Profit			% of Segment Revenue			Gross Profit			% of Segment Revenue
East Construction Services			37,325			7.5%			30,210			8.3%
West Construction Services			$ 69,483			15.2%			$ 70,675			15.2%
Engineering			4,143			16.1%			4,748			20.2%
Total			$ 110,951			11.3%			$ 105,633			12.4%

East Construction Services: Revenue increased by $102.7 million in the 2014 second quarter compared to the same period last year. Revenue at the PES Sprint Pipeline division increased by $30.4 million from pipeline projects in south Texas, and at the PES James Industrial Contractors division revenue increased by $50.0 million from petrochemical projects in Louisiana and Texas. Revenue for the PES Saxon Construction division increased by $3.1 million as a result of a petrochemical project in Texas. JCG's Heavy Civil division revenue increased by $17.2 million as increases of $23.0 million from TXDOT projects and $7.5 million from Mississippi projects were offset by a decrease of $13.3 million from LADOT projects. Revenue at the JCG Infrastructure & Maintenance division increased by $2.0 million. Gross profit increased by $6.1 million in the 2014 second quarter compared to the same period last year. The gross profit increase was primarily at the PES James Industrial Contractors division, which increased $5.0 million due to increased volume.

West Construction Services: Revenue decreased by $33.8 million in the 2014 second quarter compared to the same period last year. Decreases in revenue of $22.4 million at the ARB Underground division, primarily from gas utility projects, and of $34.4 million at Rockford were partially offset by increases at Q3C of $21.5 million. Gross profit decreased by $4.1 million in the 2014 second quarter compared to the same period last year. The decreases in gross profit at the ARB Underground division of $4.0 million and of $8.5 million at the ARB Industrial division were partially offset by a gross profit increase of $7.3 million at Q3C and at Rockford of $1.2 million. Profit at Rockford increased, despite a decrease in revenue, due to project close-outs.

Engineering: Revenue increased by $1.4 million in the 2014 second quarter compared to the same quarter last year. The increase is mainly due to the increase in revenue from two new LNG plant projects. Gross profit declined by $0.3 million. The decline results from the lower margins on the LNG plant projects associated with their beginning stages.

Selling, general and administrative expenses ("SG&A") were $33.2 million, or 6.5% of revenue for the second quarter of 2014, compared to $31.6 million, or 7.1% of revenue for the second quarter of 2013, an increase of $1.7 million. The increase in SG&A was primarily as a result of increased compensation and compensation-related expenses of $1.3 million and increased expenses of $0.4 million for legal, consulting and other SG&A expenses.

Operating income for the 2014 second quarter was $28.0 million, or 5.4% of total revenue, compared to $28.0 million, or 6.3% of total revenue, for the same period last year.

Net other income and expenses in the 2014 second quarter was an expense of $1.4 million, a $0.7 million decrease from net other expense of $2.1 million in the 2013 second quarter.

The provision for income taxes for the 2014 second quarter was $10.6 million, or an effective tax rate on net income attributable to Primoris of 39.9%, compared to $10.0 million, or an effective tax rate on net income attributable to Primoris of 39.1%, in the prior year quarter.

Net income attributable to Primoris for the 2014 second quarter was $16.0 million, or $0.31 per diluted share, compared to net income attributable to Primoris of $15.6 million, or $0.30 per diluted share, in the same period in 2013.

Fully diluted weighted average shares outstanding for the 2014 second quarter increased by 0.3% to 51.8 million from 51.6 million in last year's second quarter.

OTHER FINANCIAL INFORMATION

Primoris' balance sheet at June 30, 2014 included cash, cash equivalents, and short-term investments of $162.5 million, working capital of $226.3 million, total debt and capital leases secured by equipment of $219.9 million, and stockholders' equity of $423.7 million. The balance sheet included a $5.4 million liability representing the estimated fair value for unpaid earnout amounts from acquisitions.

BACKLOG
				Backlog at June 30, 2014 (in millions)
Segment				Fixed Backlog					MSA Backlog				Total Backlog
East Construction Services				$	1,079			$	91			$		1,170
West Construction Services					194				389				583
Engineering					81				-				81
Total				$	1,354				480				1,834

At June 30, 2014, Fixed Backlog was $1.35 billion, compared to $1.48 billion at December 31, 2013. In the first six months of 2014, approximately $199.2 million of revenue was recognized by non-Fixed Backlog projects.

At June 30, 2014, MSA Backlog was $480.1 million, compared to $460.3 million at December 31, 2013. As previously discussed, MSA Backlog includes estimated MSA revenue for the next four quarters.

Total Backlog at June 30, 2014 was $1.83 billion, compared to $1.94 billion at December 31, 2013. We expect that during the next four quarters, we will recognize as revenue approximately 50% of the East Construction Services segment Total Backlog, approximately 93% of the West Construction Services segment Total Backlog, and approximately 40% of the Engineering segment Total Backlog.

Backlog, including estimated MSA revenues, should not be considered a comprehensive indicator of future revenue, as a portion of Primoris' revenue is still derived from projects that are not part of backlog, including time-and-equipment, time-and-materials, and cost-reimbursable-plus-fee contracts. Projects that are considered a part of Total Backlog may be still be cancelled by our customers.

CONFERENCE CALL

Brian Pratt, Chairman, President and Chief Executive Officer, and Peter J. Moerbeek, Executive Vice President and Chief Financial Officer will host a conference call today, Thursday, August 7 at 11:30 am Eastern Time / 10:30 am Central Time to discuss the results.

Interested parties may participate in the call by dialing:

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

If you are unable to participate in the live call, a replay may be accessed by dialing (877) 660-6853, passcode 13587472, 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's website at www.prim.com. Once at the Investor Relations section, please click on "Events & Presentations".

ABOUT PRIMORIS

Founded in 1946, 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, 2013, 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.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts) (Unaudited)
				Three Months Ended June 30,												Six Months Ended June 30,
					2014						2013						2014						2013
Revenue				$	515,291					$	445,013					$	985,365					$	855,008
Cost of revenue					454,097						385,476						874,414						749,375
Gross profit					61,194						59,537						110,951						105,633
Selling, general and administrative expenses					33,213						31,560						62,925						60,179
Operating income					27,981						27,977						48,026						45,454
Other income (expense):
Income (loss) from non-consolidated entities					-						(213	)					14						56
Foreign exchange gain (loss)					149						(29	)					175						(88	)
Other expense					(327	)					(377	)					(441	)					(433	)
Interest income					14						23						66						63
Interest expense					(1,196	)					(1,498	)					(2,864	)					(2,922	)
Income before provision for income taxes					26,621						25,883						44,976						42,130
Provision for income taxes					(10,618	)					(9,990	)					(17,708	)					(16,197	)
Net income					16,003						15,893						27,268						25,933
Net income attributable to noncontrolling interests					-						(329	)					(432	)					(599	)
Net income attributable to Primoris					16,003						15,564						26,836						25,334
Earnings per share:
Basic:				$	0.31					$	0.30					$	0.52					$	0.49
Diluted:				$	0.31					$	0.30					$	0.52					$	0.49
Weighted average common shares outstanding:
Basic					51,655						51,562						51,631						51,510
Diluted					51,804						51,626						51,759						51,547

CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts) (Unaudited)
				June 30, 2014						December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents					$	160,177					$	196,077
Short-term investments						2,280						18,686
Customer retention deposits and restricted cash						56						5,304
Accounts receivable, net						311,321						304,955
Costs and estimated earnings in excess of billings						88,111						57,146
Inventory and uninstalled contract materials						61,230						51,829
Deferred tax assets						13,133						13,133
Prepaid expenses and other current assets						12,003						12,654
Total current assets						648,311						659,784
Property and equipment, net						245,342						226,512
Intangible assets, net						42,345						45,303
Goodwill						118,626						118,626
Other long-term assets						382						468
Total assets					$	1,055,006					$	1,050,693
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable					$	130,575					$	127,302
Billings in excess of costs and estimated earnings						158,097						173,365
Accrued expenses and other current liabilities						93,258						91,079
Dividends payable						1,808						1,805
Current portion of capital leases						2,230						3,288
Current portion of long-term debt						30,683						28,475
Current portion of contingent earnout liabilities						5,403						5,000
Total current liabilities						422,054						430,314
Long-term capital leases, net of current portion						1,386						2,295
Long-term debt, net of current portion						185,570						191,051
Deferred tax liabilities						10,092						10,092
Long-term contingent earnout liabilities, net of current portion						-						4,233
Other long-term liabilities						12,192						14,260
Total liabilities						631,294						652,245
Stockholders' equity
Common stock						5						5
Additional paid-in capital						162,322						159,196
Retained earnings						261,437						238,216
Noncontrolling interests						(52)						1,031
Total stockholders' equity						423,712						398,448
Total liabilities and stockholders' equity					$	1,055,006					$	1,050,693

Primoris Services Corporation
Peter J. Moerbeek, 214-740-5602
Executive Vice President, Chief Financial Officer
pmoerbeek@prim.com
or
Kate Tholking, 214-740-5615
Director of Investor Relations
ktholking@prim.com

Source: Primoris Services Corporation

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