Primoris Services Corporation
Nov 8, 2016

Primoris Services Corporation Announces 2016 Third Quarter Financial Results

Board of Directors Declares $0.055 Per Share Cash Dividend and Authorizes $5 Million Share Repurchase Plan

DALLAS, TX -- (Marketwired) -- 11/08/16 --

Financial Highlights

Primoris Services Corporation (NASDAQ: PRIM) ("Primoris" or "Company") today announced financial results for its third quarter ended September 30, 2016.

The Company also announced that on November 2, 2016 its Board of Directors declared a $0.055 per share cash dividend to stockholders of record on December 31, 2016, payable on or about January 16, 2017.

David King, President and Chief Executive Officer of Primoris, commented, "Our third quarter results were solid, with favorable results in many key areas, as we remained profitable despite significant charges for our Texas Heavy Civil unit which we plan to divest. Our Master Service Agreements continue to add backlog and provide a solid base of profitable work for us, and the midstream natural gas pipeline market is entering one of the strongest growth cycles we've seen, with the industry nearing capacity. Permitting continues to be slower than we would like, but our patience paid off and new project awards brought our backlog to an all-time record high."

Mr. King continued, "Our healthy backlog, improving SG&A, and robust balance sheet allow us to concentrate on our execution. We are continuing to focus on business development, strategic growth in higher margin segments, and to position our organization for continued growth, both organically and through acquisitions. Our new awards, cash balance, backlog, and project margins have all reached new high points and we continue to be encouraged with our prospect list for new business as we enter into 2017."

2016 THIRD QUARTER RESULTS OVERVIEW

Revenues in the third quarter 2016 decreased by $48.1 million to $507.8 million from $555.9 million for the same period in 2015. Gross profit for the third quarter 2016 decreased by $21.5 million to $50.1 million from $71.6 million for the same period in 2015. Gross profit as a percentage of revenue decreased to 9.9% for the third quarter 2016, compared to 12.9% for the same period in 2015.

Included in the third quarter 2016 results are two significant, discrete events: the planned divestiture of the Texas Heavy Civil unit and the settlement of a dispute receivables collection related to a pipeline project. The Texas Heavy Civil unit, which we are planning to divest, recorded a charge of $37.3 million related to reduction in expected profitability of current construction projects for the division and a pretax, non-cash goodwill impairment charge of $2.7 million. The Company accounted for the receivables collection dispute settlement as a change in accounting estimate, which resulted in recognizing revenues of approximately $27.5 million and gross profit of approximately $26.7 million.

SEGMENT RESULTS

Segment Revenues
(in thousands, except %)

       
    For the three months ended September 30,  
    2016
Unaudited
    2015
Unaudited
 
        % of         % of  
        Total         Total  
Segment   Revenue   Revenue     Revenue   Revenue  
                 
West   $ 264,463   52.1 %   $ 258,414   46.5 %
East     122,854   24.2 %     183,635   33.0 %
Energy     120,511   23.7 %     113,896   20.5 %
  Total   $ 507,828   100.0 %   $ 555,945   100.0 %
         
         
    For the nine months ended September 30,  
    2016
Unaudited
    2015
Unaudited
 
        % of         % of  
        Total         Total  
Segment   Revenue   Revenue     Revenue   Revenue  
                 
West   $ 652,850   46.8 %   $ 684,798   47.8 %
East     398,304   28.6 %     462,222   32.3 %
Energy     343,931   24.6 %     285,250   19.9 %
  Total   $ 1,395,085   100.0 %   $ 1,432,270   100.0 %
                           
                           
                           

Segment Gross Profit
(in thousands, except %)

       
    For the three months ended September 30,  
    2016
Unaudited
    2015
Unaudited
 
          % of         % of  
    Gross     Segment     Gross   Segment  
Segment   Profit     Revenue     Profit   Revenue  
                   
West   $ 42,191     16.0 %   $ 39,810   15.4 %
East     (27,253 )   (22.2 %)     15,400   8.4 %
Energy     35,191     29.2 %     16,437   14.4 %
  Total   $ 50,129     9.9 %   $ 71,647   12.9 %
                           
         
       
    For the nine months ended September 30,  
    2016
Unaudited
    2015
Unaudited
 
          % of         % of  
    Gross     Segment     Gross   Segment  
Segment   Profit     Revenue     Profit   Revenue  
                   
West   $ 87,390     13.4 %   $ 91,718   13.4 %
East     (15,357 )   (3.9 %)     33,623   7.3 %
Energy     60,658     17.6 %     30,807   10.8 %
  Total   $ 132,691     9.5 %   $ 156,148   10.9 %
                           

West Segment: Revenues for the West segment increased by $6.0 million in the third quarter 2016, compared to the same period in 2015. The increase was primarily the result of increased MSA work at ARB Underground for two of the division's major utility customers. The increase was partially offset by decreased revenues at ARB Industrial, Q3C, and ARB Structures. Gross profit for the West segment increased by $2.4 million in the third quarter 2016, compared to the same period in 2015. The increase in gross profit was primarily the result of increased revenues at ARB Underground. The increased gross profit was partially offset by lower profits at ARB Industrial, primarily from a reduction in revenues as well as the lower margin joint venture work being performed in 2016.

East Segment: Revenues in the East segment decreased by $60.8 million in the third quarter 2016, compared to the same period in 2015. The decrease was largely due to a decrease in revenue from a large petrochemical project in Louisiana for JCG's Infrastructure & Maintenance division, as well as decreased revenue for Texas, Mississippi, and Louisiana Departments of Transportation. The gross profit for the East segment decreased by $42.7 million in the third quarter 2016, compared to the same period in 2015. Included in this decrease is the $37.3 million charge for the Belton area projects for a business that we are planning to divest. JCG's Infrastructure and Maintenance division also experienced a decrease in gross profit, primarily because of lower revenues and reduced equipment rates at the large petrochemical project in Louisiana and the effects of major storms on continuing work for a chemical customer.

Energy Segment: Revenue for the Energy segment increased by $6.6 million in the third quarter of 2016, compared to the same period in 2015. Excluding the effect of the collection of one of the disputed receivables discussed above, revenue for the third quarter of 2016 was $93.0 million, for a decline of $20.9 million, or 18.3%. The Industrial division's revenues increased as their work at the large petrochemical plant in Louisiana offset reductions from projects completed in 2015. The increase at the Industrial division was offset by declines at the Pipeline division primarily from reduced work for oil and gas midstream customers, a reduction at OnQuest from completion of a micro LNG project and reduction at Saxon primarily as a result of the substantial completion of a project in Pennsylvania during 2015. Gross profit for the Energy segment increased by $18.8 million in the third quarter, compared to the same period in 2015. Excluding the impact of the collection, gross profit decreased by $7.9 million, or 48.3%. Gross profit at the PES Industrial division was reduced as a result of productivity issues on a project in Texas partially offset by the increased margins from the petrochemical project in Louisiana.

Selling, general and administrative expenses ("SG&A") were $36.0 million, or 7.1% of revenues for the third quarter 2016, compared to $38.6 million, or 6.9% of revenues for the third quarter 2015.

The decision to potentially divest the Texas Heavy Civil unit triggered a goodwill analysis, which resulted in a pretax, non-cash goodwill impairment charge of $2.7 million in the third quarter 2016.

Operating income for the third quarter 2016 was $11.4 million, or 2.2% of total revenues, compared to $33.1 million, or 6.0% of total revenues, for the same period last year.

Net non-operating items in the third quarter 2016 resulted in expense of $2.6 million, compared to $2.3 million in net expense in the third quarter 2015.

The provision for income taxes for the third quarter 2016 was $4.1 million, for an effective tax rate on income attributable to Primoris of 47.5%, compared to $11.8 million, for an effective tax rate on income attributable to Primoris of 38.2%, in the third quarter 2015.

Net income attributable to Primoris for the third quarter 2016 was $4.5 million, or $0.09 per diluted share, compared to net income attributable to Primoris of $19.0 million, or $0.37 per diluted share, in the same period in 2015.

Fully diluted weighted average shares outstanding for the third quarter 2016 increased slightly to 52.03 million from 51.8 million in the third quarter 2015.

OTHER FINANCIAL INFORMATION

Primoris' balance sheet at September 30, 2016 included cash and cash equivalents of $148.7 million, working capital of $272.8 million, total debt and capital leases of $267.8 million and stockholders' equity of $491.2 million. Primoris' tangible net worth at September 30, 2016 was $335.4 million.

Based on the information available, the Company estimates that for the four quarters ending September 30, 2017, earnings attributable to Primoris will be between $0.95 and $1.15 per fully diluted share.

BACKLOG

         
    Backlog at September 30, 2016
(in millions)
   
Segment   Fixed Backlog   MSA Backlog   Total Backlog   Expected Next Four Quarters Total Backlog Revenue Recognition
                       
West   $ 1,264   $ 521   $ 1,785   57%
East     648     4     652   63%
Energy     221     37     258   93%
  Total   $ 2,133   $ 562   $ 2,695   62%

At September 30, 2016, Fixed Backlog was $2.13 billion, compared to $1.52 billion at December 31, 2015.

At the end of the third quarter 2016, backlog for the JCG Texas heavy civil division totaling $395 million was included in the total Fixed Backlog.

At September 30, 2016, MSA Backlog was $562 million, compared to $571 million at December 31, 2015. MSA Backlog represents estimated MSA revenues for the next four quarters.

Total Backlog at September 30, 2016 was $2.70 billion, compared to $2.09 billion at December 31, 2015.

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.

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 $5 million. The share repurchase program expires December 31, 2016.

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 today, Tuesday, November 8, 2016 at 9:30 am Eastern Time / 8:30 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 13641808, 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, 2015, 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     Nine Months Ended  
September 30,     September 30,  
    2016     2015     2016     2015  
                                 
Revenues   $ 507,828     $ 555,945     $ 1,395,085     $ 1,432,270  
Cost of revenues     457,699       484,298       1,262,394       1,276,122  
Gross profit     50,129       71,647       132,691       156,148  
  Selling, general and administrative expenses     35,994       38,545       101,150       110,852  
Impairment of Goodwill     2,716       -       2,716       -  
  Operating income     11,419       33,102       28,825       45,296  
                                 
Other income (expense):                                
  Foreign exchange gain (loss)     (92 )     (721 )     288       (425 )
  Other income (expense)     (278 )     361       (278 )     272  
  Interest income     31       4       122       22  
  Interest expense     (2,246 )     (1,903 )     (6,754 )     (5,563 )
Income before provision for income taxes     8,834       30,843       22,203       39,602  
                                 
Provision for income taxes     (4,078 )     (11,764 )     (9,244 )     (15,159 )
Net income     4,756       19,079       12,959       24,443  
                                 
Net income attributable to noncontrolling interests     (252 )     (72 )     (706 )     (126 )
Net income attributable to Primoris   $ 4,504     $ 19,007     $ 12,253     $ 24,317  
                                 
Earnings per share:                                
Basic:   $ 0.09     $ 0.37     $ 0.24     $ 0.47  
Diluted:   $ 0.09     $ 0.37     $ 0.24     $ 0.47  
                                 
                                 
Weighted average common shares outstanding:                                
Basic     51,780       51,672       51,759       51,637  
Diluted     52,304       51,824       51,978       51,789  
                                 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
(Unaudited)
         
    September 30,   December 31,
    2016   2015
ASSETS            
             
Current assets:            
  Cash and cash equivalents   $ 148,667   $ 161,122
  Customer retention deposits and restricted cash     3,049     2,598
  Accounts receivable, net     293,495     320,588
  Costs and estimated earnings in excess of billings     156,391     116,455
  Inventory and uninstalled contract materials     55,294     67,796
  Prepaid expenses and other current assets     16,965     18,265
    Total current assets     673,861     686,824
  Property and equipment, net     286,886     283,545
  Deferred tax asset - long-term     1,075     1,075
  Intangible assets, net     31,423     36,438
  Goodwill     123,445     124,161
  Other long-term assets     2,174     211
    Total assets   $ 1,118,864   $ 1,132,254
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
Current liabilities:            
  Accounts payable   $ 134,486   $ 124,450
  Billings in excess of costs and estimated earnings     98,291     139,875
  Accrued expenses and other current liabilities     111,473     93,596
  Dividends payable     2,848     2,842
  Current portion of capital leases     353     974
  Current portion of long-term debt     53,632     54,436
    Total current liabilities     401,083     416,173
  Long-term capital leases, net of current portion     17     22
  Long-term debt, net of current portion     213,790     219,853
  Other long-term liabilities     12,790     12,741
    Total liabilities     627,680     648,789
Stockholders' equity            
Common stock     5     5
  Additional paid-in capital     166,662     163,344
  Retained earnings     323,594     319,899
  Non-controlling interest     923     217
    Total stockholders' equity     491,184     483,465
    Total liabilities and stockholders' equity   $ 1,118,864   $ 1,132,254
                 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
       
    Nine Months Ended  
    September 30,  
    2016     2015  
Cash flows from operating activities:                
  Net income   $ 12,959     $ 24,443  
  Adjustments to reconcile net income to net cash provided by (used in) operating activities:                
    Depreciation     46,430       43,452  
    Amortization of intangible assets     5,015       5,082  
    Impairment of goodwill     2,716       -  
    Gain on sale of property and equipment     (3,361 )     (901 )
    Stock-based compensation expense     1,169       787  
    Changes in assets and liabilities:                
      Customer retention deposits and restricted cash     (451 )     (1,583 )
      Accounts receivable     27,093       (45,968 )
      Costs and estimated earnings in excess of billings     (39,936 )     (47,561 )
      Other current assets     13,865       (5,453 )
      Accounts payable     10,036       4,669  
      Billings in excess of costs and estimated earnings     (41,584 )     (14,657 )
      Contingent earnout liabilities     -       (5,271 )
      Accrued expenses and other current liabilities     18,580       31,712  
      Other long-term assets     (1,963 )     (2,385 )
      Other long-term liabilities     49       (3,067 )
    Net cash provided by (used in) operating activities   $ 50,617     $ (16,701 )
                 
Cash flows from investing activities:                
  Purchase of property and equipment     (52,137 )     (52,440 )
  Proceeds from sale of property and equipment     7,763       6,139  
  Sale of short-term investments     -       30,992  
  Cash paid for acquisitions     (4,108 )     (22,302 )
    Net cash used in investing activities   $ (48,482 )   $ (37,611 )
                 
Cash flows from financing activities:                
  Proceeds from issuance of long-term debt     30,000       42,328  
  Repayment of capital leases     (626 )     (1,086 )
  Repayment of long-term debt     (36,867 )     (31,597 )
  Proceeds from issuance of common stock purchased by management under long-term incentive plan     1,439       1,621  
  Dividends paid     (8,536 )     (6,966 )
  Cash distribution to non-controlling interest holder     -       (29 )
    Net cash provided (used in) by financing activities   $ (14,590 )   $ 4,271  
                 
Net change in cash and cash equivalents     (12,455 )     (50,041 )
Cash and cash equivalents at beginning of the period     161,122       139,465  
Cash and cash equivalents at end of the period   $ 148,667     $ 89,424  
                 

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

Source: Primoris Services Corporation

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