Primoris Services Corporation
Nov 6, 2017

Primoris Services Corporation Announces 2017 Third Quarter Financial Results

Board of Directors Increased Quarterly Cash Dividend to $0.06 Per Share

Financial Highlights

DALLAS, Nov. 06, 2017 (GLOBE NEWSWIRE) -- Primoris Services Corporation (NASDAQ:PRIM) ("Primoris" or "Company") today announced financial results for its third quarter ended September 30, 2017.

The Company also announced that on November 2, 2017, its Board of Directors authorized a 9% increase in the quarterly cash dividend to $0.06 per share from $0.055 per share.  The cash dividend will be paid to stockholders of record on December 29, 2017, payable on or about January 15, 2018

David King, President and Chief Executive Officer of Primoris, commented, "Primoris' third quarter results are a reflection of our performance serving our diverse end markets.  We  experienced year over year revenue gains at the majority of our business units, with notable gains from our power projects, Gulf Coast based pipeline work and Utilities & Distribution segment. Our utility businesses grew revenue not just with current customers but also with new customers in new geographies. As we expected last quarter, the Civil segment's gross margins returned to profitability, and as we work off legacy jobs, we believe margins should continue to improve for the segment.  Our acquisition strategy is paying off, as we saw positive contributions from all of our recent acquisitions.

"While hurricanes across the Gulf Coast had some impact on our third quarter results, we are extremely proud of the earnings we achieved.  Our crews are not only working profitably; they are working safely, and that is every bit as important.  Our backlog declined slightly to end the quarter at $2.62 billion, but our sales team continues doing an outstanding job of developing new projects.  Every segment reported new business awards contributing to the backlog results." 

Mr. King concluded,  "As we look at the year ahead, we have provided our guidance for the next four quarters based on our expectations of the timing of major projects and project awards, but we remain mindful that start and award dates remain uncertain.  Nevertheless, we see improving opportunities for growth in all of our end markets, especially for pipeline work and EPC projects and for utility work on top of our stable base business."

2017 THIRD QUARTER RESULTS OVERVIEW

Revenues in the third quarter 2017 were $608.3 million, an increase of $100.5 million compared to the same period in 2016.  Gross profit for the third quarter 2017 was $70.4 million, an increase of $20.3 million compared to the same period in 2016.  Gross profit as a percentage of revenue increased to 11.6% for the third quarter 2017, compared to 9.9% for the same period in 2016.

Selling, general, and administrative expenses in the 2017 third quarter were $42.6 million compared to $36.0 million in the same period of 2016.  The primary reason for the increase in SG&A is from the businesses acquired subsequent to the third quarter of 2016.  SG&A as a percentage of total revenue was 7.0% in the 2017 third quarter compared to 7.1% in the same period of 2016. 

Included in other income in the 2017 third quarter is $6.0 million of unrealized gain from a short-term investment in marketable securities.  We do not anticipate that such a gain would recur with any frequency.

SEGMENT RESULTS

Through the end of the year 2016, Primoris segregated its business into three reportable segments: the Energy segment, the East Construction Services segment, and the West Construction Services segment.  In the first quarter 2017, Primoris changed its reportable segments to match the changes in the Company's realigned internal organization and management structure.  A Form 8-K was filed on April 7, 2017 containing historical revenue, margin, and backlog information for the new segments.

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

 

 For the three months ended September 30,
  2017    2016 
   % of    % of
   Total   Total
SegmentRevenue Revenue Revenue Revenue
      
Power$154,178 25.3% $101,811 20.0%
Pipeline 84,357 13.9%  106,042 20.9%
Utilities 246,524 40.5%  186,985 36.8%
Civil 123,252  20.3%  112,990 22.3%
  Total$608,311 100.0% $507,828 100.0%


 For the nine months ended September 30,
  2017    2016 
   % of   % of
   Total   Total
SegmentRevenue Revenue Revenue Revenue
      
Power$443,191 24.6% $367,025 26.3%
Pipeline  402,425 22.4%  217,182 15.6%
Utilities 576,446 32.0%  447,858 32.1%
Civil 378,916 21.0%  363,020 26.0%
  Total$1,800,978 100.0% $1,395,085 100.0%


Segment Gross Profit

(in thousands, except %)
(Unaudited)

  For the three months ended September 30,
  2017    2016 
   % of   % of
 Gross Segment Gross Segment
SegmentProfit Revenue Profit Revenue
      
Power$  18,842 12.2% $  10,893  10.7%
Pipeline 12,084 14.3%  32,402  30.6%
Utilities 36,081  14.6%  33,925  18.1%
Civil 3,414 2.8%  (27,091)  (24.0%)
   Total$70,421 11.6% $50,129   9.9%
        


 For the nine months ended September 30,
   2017    2016 
   % of   % of
 Gross Segment Gross Segment
SegmentProfit Revenue Profit Revenue
      
Power$  52,498 11.8% $  36,570  10.0%
Pipeline  79,575 19.8%  43,870  20.2%
Utilities 76,701 13.3%  68,651  15.3%
Civil 1,183    0.3%  (16,400)   (4.5%)
  Total$209,957    11.7% $132,691     9.5%
        

Power, Industrial, & Engineering Segment:  Revenue in the Power segment increased by $52.4 million in the third quarter of 2017, compared to the same period in 2016.  The increase was primarily due to increased revenues from a joint venture power plant project in Southern California and a power plant construction project in the mid-Atlantic region that began late in the third quarter of 2016.  Acquisitions completed subsequent to the third quarter of 2016 contributed $6.8 million to the increase.  Segment gross profit increased by $7.9 million in the third quarter of 2017, compared to the same period in 2016.  The increase is primarily due to the increased revenues from the power plant projects and acquisitions, slightly offset by decreased revenue from a petrochemical plant that achieved substantial completion in the second quarter of 2017.  Gross profit as a percentage of revenues increased to 12.2% in the third quarter of 2017, compared to 10.7% in the same period in 2016. 

Pipeline & Underground Segment:  Revenue in the Pipeline segment decreased by $21.7 million in the third quarter of 2017, compared to the same period in 2016.  The third quarter of 2016 results included revenues of $27.5 million and gross profit of $26.7 million from the collection of disputed receivables; the following discussion excludes the collection revenue and gross profit.  Revenue in the Pipeline segment increased by $5.8 million in the third quarter of 2017, compared to the same period in 2016.  The increased revenues were primarily attributable to increased work at our Texas-based pipeline group and the Coastal acquisition that was completed in the second quarter of 2017.  Segment gross profit in the Pipeline segment increased by $6.4 million, primarily as the result of the increased revenues.  Gross profit as a percentage of revenues increased to 14.3% in the third quarter of 2017, compared to 7.3% in the same period in 2016.
   
Utilities & Distribution Segment:  Revenue in the Utilities segment increased by $59.5 million in the third quarter of 2017, compared to the same period in 2016.  Approximately half of the increase came from increased revenue with California utilities, with increased revenues with Midwest utility customers and the second quarter 2017 acquisition of Florida Gas Contractors (now operating as Primoris Distribution Services) accounting for the remainder.  Segment gross profit increased by $2.2 million in the third quarter of 2017, compared to the same period in 2016, primarily as the result of the increased revenues.  Gross profit as a percentage of revenues decreased to 14.6% in the third quarter of 2017, compared to 18.1% in the same period in 2016.

Civil Segment
:  Revenue in the Civil segment increased by $10.3 million in the third quarter 2017, compared to the same period in 2016.  The increased revenue primarily came from Texas DOT projects and a methanol plant project that began in 2017.  Segment gross profit increased by $30.5 million in the third quarter of 2017, compared to the same period in 2016.  The third quarter of 2016 included a $37.3 million write-down related to Belton, TX area I-35 highway projects.  Excluding the 2016 write-down, segment gross profit decreased by $6.8 million in the third quarter of 2017, compared to the same period in 2016.  The decrease resulted from the impact of both the hurricanes in Texas and the Gulf Coast and increased expected cost for highway jobs in Louisiana and Arkansas.  Gross profit as a percentage of revenues decreased to 2.8% in the third quarter of 2017, compared to 9.0% in the same period in 2016, excluding the impact of the I-35 projects.

OUTLOOK

Based on an expected second quarter 2018 start date for a major pipeline project in backlog, anticipated levels of customer maintenance, MSA spending, and new project awards, and given the continued uncertainty caused by the energy markets, the Company estimates that for the four quarters ending September 30, 2018, net income attributable to Primoris will be between $1.05 and $1.25 per fully diluted share.

BACKLOG

  Backlog at September 30, 2017 (in millions) 
Segment Fixed Backlog MSA Backlog Total BacklogExpected Next Four
Quarters Total
Backlog Revenue
Recognition
         
Power $418$41$45978%
Pipeline   808 43 85155%
Utilities  66 557 623100%
Civil  683 - 68361%
Total $1,975$641$2,61671%


At September 30, 2017, Fixed Backlog was $2.0 billion, compared to $2.1 billion at December 31, 2016.

At September 30, 2017, MSA Backlog was $641 million, compared to $672 million at December 31, 2016.  MSA Backlog represents estimated MSA revenues for the next four quarters.

Total Backlog at September 30, 2017 was $2.6 billion, compared to $2.8 billion at December 31, 2016

Backlog, including estimated MSA revenues, should not be considered a comprehensive indicator of future revenues.  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.

CONFERENCE CALL

David King, President and Chief Executive Officer, and Peter J. Moerbeek, Executive Vice President and Chief Financial Officer will host a conference call tomorrow, Tuesday, November 7, 2017 at 10:00 am Eastern Time / 9:00 am Central Time to discuss the results. 

Interested parties may participate in the call by dialing:

If you are unable to participate in the live call, a replay may be accessed by dialing (877) 660-6853, conference ID 13672829, 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, 2016, 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
Director of 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
  2017  2016  2017  2016 
Revenue $608,311  $507,828  $1,800,978  $1,395,085 
Cost of revenue  537,890   457,699   1,591,021   1,262,394 
Gross profit  70,421    50,129   209,957   132,691 
Selling, general and administrative expenses  42,559   35,994   128,390    101,150 
Impairment of goodwill     2,716      2,716 
Operating income  27,862   11,419   81,567   28,825 
Other income (expense):            
Investment income  6,066      6,066    
Foreign exchange gain (loss)  167    (92)  299   288 
Other expense   (39)   (278)   (52)   (278)
Interest income  228   31   411   122 
Interest expense   (2,198)   (2,246)   (6,605)   (6,754)
Income before provision for income taxes  32,086   8,834   81,686   22,203 
Provision for income taxes   (9,952)    (4,078)   (28,644)    (9,244)
Net income $22,134  $4,756  $53,042  $12,959 
             
Less net income attributable to noncontrolling interests   (1,537 )   (252) $ (3,209) $ (706)
             
Net income attributable to Primoris $20,597  $4,504  $49,833  $  12,253 
             
Dividends per common share $0.055  $0.055  $0.17  $0.17 
             
Earnings per share:            
Basic $0.40  $0.09  $0.97  $0.24 
Diluted $0.40   $0.09  $0.96  $0.24 
Weighted average common shares outstanding:             
Basic  51,441   51,780    51,491   51,759 
Diluted  51,707   52,034   51,751   51,978 
                 


 
CONDENSED CONSOLIDATED BALANCE SHEETS
 (In Thousands)
(Unaudited)
      
  September 30  December 31
  2017 2016
ASSETS      
Current assets:       
Cash and cash equivalents $  143,235 $  135,823
Short-term investments  19,304  -
Customer retention deposits  926    481
Accounts receivable, net    356,851    388,000
Costs and estimated earnings in excess of billings    177,662    138,618
Inventory and uninstalled contract materials    39,617    49,201
Prepaid expenses and other current assets    14,529    19,258
Total current assets    752,124    731,381
Property and equipment, net    305,046    277,346
Intangible assets, net    48,655    32,841
Goodwill    151,118    127,226
Other long-term assets  4,749    2,004
Total assets $  1,261,692 $  1,170,798
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
Accounts payable $  153,677 $  168,110
Billings in excess of costs and estimated earnings    159,120    112,606
Accrued expenses and other current liabilities    125,626    108,006
Dividends payable  2,829    2,839
Current portion of capital leases  214    188
Current portion of long-term debt    62,697    58,189
Current portion of contingent earnout liabilities  1,252    —
Total current liabilities    505,415    449,938
       
Long-term capital leases, net of current portion    245    15
Long-term debt, net of current portion    191,948    203,381
Deferred tax liabilities  9,830     9,830
Other long-term liabilities    13,007    9,064
Total liabilities    720,445    672,228
Commitments and contingencies      
Stockholders' equity       
       
Common stock    5    5
Additional paid-in capital    160,277    162,128
Retained earnings    376,537    335,218
Non-controlling interest  4,428    1,219
Total stockholders' equity    541,247    498,570
Total liabilities and stockholders' equity $  1,261,692 $  1,170,798
 

 

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In Thousands)
(Unaudited)
   
  Nine Months Ended
  September 30
  2017  2016 
Cash flows from operating activities:      
Net income $53,042  $12,959 
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation   43,064   46,430 
Amortization of intangible assets  6,184    5,015 
Goodwill and intangible asset impairment  477   2,716 
Stock-based compensation expense  911   1,169 
Unrealized gain on short-term investments   (5,980)   
Gain on sale of property and equipment   (3,880)   (3,361)
Changes in assets and liabilities:      
Customer retention deposits    (445)   (451)
Accounts receivable  41,870   27,093 
Costs and estimated earnings in excess of billings   (38,464)   (39,936)
Other current assets  17,210   13,865 
Other long-term assets   (2,745)   (1,963)
Accounts payable   (17,813)  10,036 
Billings in excess of costs and estimated earnings  46,067    (41,584)
Accrued expenses and other current liabilities  17,858   18,580 
Other long-term liabilities  4,076   49 
Net cash provided by operating activities  161,432   50,617 
Cash flows from investing activities:      
Purchase of property and equipment   (57,346)   (52,137)
Proceeds from sale of property and equipment  7,027   7,763 
Purchase of short-term investments   (13,588)   
Sale of short-term investments  350    
Cash paid for acquisitions   (66,205)   (4,108)
Net cash used in investing activities   (129,762)   (48,482)
Cash flows from financing activities:      
Proceeds from issuance of long-term debt  30,000    30,000 
Repayment of capital leases   (191)   (626)
Repayment of long-term debt    (41,088)   (36,867)
Payment of debt issuance costs for amended and restated credit agreement   (631)  - 
Proceeds from issuance of common stock purchased under a long-term incentive plan  1,148   1,439 
Repurchase of common stock   (4,999)   
Dividends paid   (8,497)   (8,536)
Net cash used in financing activities   (24,258)   (14,590)
Net change in cash and cash equivalents   7,412    (12,455)
Cash and cash equivalents at beginning of the period  135,823   161,122 
Cash and cash equivalents at end of the period $143,235  $148,667 
 

Source: Primoris Services Corporation

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