Primoris Services Corp Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Primoris had a strong first quarter with higher revenue, margins, and cash flow. Employees' commitment to safety and strategic initiatives are yielding positive results.
• Underlying fundamentals of end markets remain strong, especially in North American power, industrial, and energy infrastructure. Outlook for infrastructure investment is favorable.
• Utilities: Solid operational performance with gas, communication, and power delivery businesses growing. Power delivery saw earlier work releases and grid resiliency interest. Gas operations had increased West Coast activity and Midwest ramp-up. Communications saw fiber-to-the-home builds and system maintenance growth.
• Energy: Significant top-line and operating income growth in renewables, but solar market uncertainty monitored. Renewables growth offset lower industrial and pipeline revenue. Monitored impact of Inflation Reduction Act, tariffs on customers.
• Financials: Revenue $1.6 billion, up 16.7%. Gross profit $171 million, up 28%. SG&A expenses up but as % of revenue down to 6%. Cash from operations $66.2 million, a first quarter record. Backlog $11.4 billion, down from end 2024 but Utilities backlog up $88 million from year-end.

Segment Performance

• Utilities Segment: Generated over $75 million or 15.5% revenue growth from prior year. Gross profit was $51.6 million, up $22.1 million. Gross margins increased to 9.2% from 6% in the prior year. Driven by higher revenue in gas operations, communication work on fiber loops, and improved power delivery profitability. Power delivery saw earlier work releases and grid resiliency interest.
• Energy Segment: Revenue increased $161 million or 17% from prior year, driven by strong renewables growth. Gross profit was just over $119 million, up $15.2 million. Gross margins 10.7%, down slightly from prior year 11% due to fewer project closeouts and ramping up of new renewables projects. Renewables growth offset lower industrial and pipeline revenue.

Guidance

• Maintaining full year EPS guidance of $3.70 to $3.90 per share, adjusted EPS guidance $4.20 to $4.40 per share, and adjusted EBITDA guidance $440 million to $460 million. Encouraged by Q1 results, more confident the higher end of ranges are achievable. Will continue to evaluate market conditions throughout the year.

Risks

• Prolonged economic and regulatory uncertainty could lead customers to rethink project economics and timing in 2026 and beyond.
• Tariff and trade policy uncertainties, though no material impact expected in 2025, but could affect future quarters.
• Solar market uncertainty due to changing regulations, tax, and tariffs.

Q: Talking about your customers, you had mentioned that they're concerned about prolonged economic uncertainty, but I think you said you did expect bookings to kind of accelerate in the second half. Can you maybe give us a little more color about the conversations you're having with customers as it relates to the pause that we're seeing in some of the new project signings? And what are the main things that have to happen in your minds for that to unfreeze a bit?

A: Yes. Pete, look, I don't think anything is frozen by any means. So, let's just clarify that. We had already anticipated a little bit of a slowdown in Q1 and maybe a little bit in Q2 simply because of everything to be pulled forward. In terms of the conversations we're having with our customers, we're just continuing to regularly talk to them like we always do about what their queue of projects looks like, what they're engineering right now and in particular, right now, whether or not they're feeling any impact from the tariffs and all the discussion and the uncertainty that's going on right now. Clearly, everybody is talking about it. We haven't seen any customers make any major pauses at all right now. Again, the backlog built and the new contract signings is just kind of normal -- just the normal cadence of uncertainty from quarter-to-quarter that we usually see.

Q: Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. I was wondering if you could just talk about the '24 to '26 financial targets from the Analyst Day. I see that the slide you had in the fourth quarter presentation was not included this quarter. I just wanted to get your confidence level in those targets given the macro environment and then also the very strong first quarter results. Are you on track or ahead? Or what are the pros and cons there?

A: Yes. Brian, good question. No, we are absolutely on track. We had a great year last year, of course. We're starting to see the margin improvement in the Utilities side of the business that we were expecting to see. I actually was expecting that later this year and into next year. And so that's actually accelerated and more -- and ahead of where I had originally expected. And then obviously, building on last year's strength in free cash flow, we are feeling very good about that as well. So, in general, I would say we are either on track or ahead of schedule in all of the metrics that we laid out.

Q: Maybe what we can do is kind of dissect a little bit more in the utilities segment. Maybe you guys could talk to the conversations that you're having with your communication customers and the power delivery customers as they kind of deal with not only like the change in dynamics with tariffs but just demand.

A: Well, let me start with the smaller one first. On the communications side, you've seen that we've continued to gain around and increase our revenue there each quarter. We're still being asked by customers to increase growth in certain areas for them. So, you'll continue to see that. Relative to the power side of the business, the major capital programs that you've seen recently announced by the Utilities helped to drive growth for us, as I briefly mentioned earlier, not only in our T&D businesses, but also these new grids will need to be repowered and then supply of those power needs will drive growth for us in the power generation businesses. Our clients, specifically two of them, have been talking with us. They've been proposing this for several quarters. And Primoris has acted pretty proactively and looking at our training centers, developing additional resources, required equipment and things to serve those needs. So, we really see that as a pretty bright future for the next several years of build-out.

Q: This is Adam Bubes on for Jerry today. The Utilities growth has been pretty robust in the last couple of quarters, up double digits. I think in the Investor Day you folks outlined a 2% to 4% Utilities revenue growth outlook. So, can you just update us, I mean, how you're thinking about puts and takes around the growth outlook in utilities in the balance of the year? And from here, on one end, there's rising power demand. On the other. You folks are continuing to emphasize quality of contracts. So just the puts and takes around growth from here.

A: Yes. Look, on the Utilities side, we were focused, as you pointed out, on more margin improvement rather than revenue growth. We are absolutely executing on the margin improvement that we talked about. The nice thing about it is without really focusing on revenue growth, that's happening anyway because of the growth in demand. So -- and so far, that's mostly been distribution with some transmission and substation. And what's nice, Adam, is that right now, we're seeing more opportunities -- and David alluded a little bit of this, we're seeing more opportunities for transmission substation projects than we'd originally anticipated for 2026. And a lot of that is just because after we did our Analyst Day a little over a year ago, the load growth and demand growth projections picked up as well as the increased need for generation. So, a few things that are working to our advantage there that should help us to exceed our goals.

Q: First one, just on the 2025 guide, appreciate that you guys don't procure panels or battery cells. But can you just talk about the risk of imports getting tariffed? And how much of the projects planned for this year already have panels or cells already into the U.S. and what that could be -- what that could mean for a risk to this year?

A: Sure. I'll start out. The -- relative to our solar and as I think we mentioned, we're really not seeing tariffs impact our business really at all. In the battery energy storage side, sure, there's some battery that could be impacted. Kind of interesting, I will tell you, all of our materials are currently on site for our projects. And the ones in the battery area that are not, in a recent conversation we've had with our customer, it's not a matter of whether they're going to purchase them or not. They're trying to look and purchase them at the right time. So, they've actually asked us in our execution plans to look at build arounds so that those batteries can be put in at a later date. And I think that's what you'll see a lot of the customers do.

Q: This is [Justin] on for Julio. Can you talk about your level of comfort of bidding for new projects, accepting new work and just executing in the broader operating environment given trade policy and tariff uncertainty?

A: Yes. The number of opportunities that we're continuing to see hasn't really changed in that environment. Might we see some, in 2026 and beyond, maybe it pushed out a little bit? Possibly. But right now, what we're seeing is, as I mentioned earlier, really no pushing out of those projects at all. Now relative to execution side of those projects, I think you've seen Primoris be very diligent that we make sure we don't take on work that we cannot perform. And so as you know, we've built various teams in our solar groups to support work. We're building various teams in our industrial side to handle the data center growth and things of that nature. So, I don't really see an issue relative to the execution. And as I mentioned, we're very diligent on the types of contracts we take on to -- relative to risk. So no, not seeing any concerns there.

Q: You noted that within power delivery, you saw some customers release work faster than you expected this year. Just wondering, why you think that is -- are they trying to get ahead of some inflationary pressures they're expecting in the back half? Or should we think of this more as just an acceleration?

A: I think what you're seeing is, as you probably noticed on any power generation equipment, you've got to get in in the delivery cycle on those turbines. And so what you're seeing is people that's saying, look, I've already been in the delivery cycle. So they're saying, let's move forward with this project. So, I wouldn't call it an acceleration of the project. That would more permit that they're just taking advantage of the supply chain that they've been able to get into and start moving quicker with their project. And also, some of the timing for their projects especially around the data centers have got key dates for them toward the end of the project, and so it's beneficial to move forth now.

Q: First of all, you partially answered the question relative to the battery situation. And ultimately, what is the solution that the customers are looking at? Is it buying higher-priced or higher-tariff batteries? Is it simply waiting for batteries? Or are you seeing some utilities basically saying that they will augment with natural gas power generation? How are those dynamics working there, please?

A: On some of the projects, the ESS section of it is not the major portion of the project. So, a lot of them are just waiting to make sure that -- the timing of when they want to actually purchase those. The decision to build has already been made. It's just a matter of what their overall economics look with the increased cost of the battery side of that project. I'm just trying to remember the last half of your question. I'm sorry, could you repeat the last half of your question?

Q: Right, David, just if they were incorporating in natural gas power plants instead to supplement -- instead of doing the batteries.

A: No, not really. They're still staying with their original concepts. If their concept has some natural gas generation along with battery, then they do that. But they're really not changing their overall scheme because of the battery supply.