Greetings. Welcome to the Primoris Services Corporation Reports 2018 Fourth Quarter and Full Year Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host Kate Tholking, Vice President, Investor Relations. Ms. Tholking, you may begin.

Thank you, Omar. Good morning, everyone. Thank you for joining us today. Our speakers for the day will be David King, our President and Chief Executive Officer; and Ken Dodgen, Executive Vice President and Chief Financial Officer. In addition to this morning's press release, we've also posted slides on our website that highlight key points we plan to discuss on this call. You can access them by going to our corporate website www.prim.com, then selecting Investors. Once on the Investors site you'll find the slides in the Events & Presentations section next to the webcast for today -- link for today's call. Before we begin I'd like to remind everyone that statements made during today's call may contain certain forward-looking statements, including with regard to the company's future performance, words such as estimates, believes, expects, projects, may and future, or similar expressions are intended to identify forward-looking statements. Forward-looking statements inherently involve risks and uncertainties including without limitation those discussed in this morning's press release and those detailed in the Risk Factors section and other portions in our annual report on Form 10-K for the period ending December 31, 2018, which was filed this morning and other filings with the SEC. 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. I'd now like to turn the call over to our CEO, David King.

Thanks, Kate. Good morning, everyone and thank you for joining us today to discuss our fourth quarter full year results and our future outlook. Primoris continues outstanding performance during the fourth quarter and has laid the groundwork for future growth, evolution and expansion of the company. Our customer confidence and request for our services continues at a high demand and we are well positioned to generate long-term value for our shareholders. Our most recent report from our contact management system shows our addressable opportunities continuing to grow quarter-over-quarter. We are pleased to finish the year with solid results across our operating segments. We achieved our goal of nearly $3 billion in revenue by 2019 with contributions from both our legacy business units and our acquired companies. Of particular note is the 70% growth in our MSA revenue and MSA backlog of $1.3 billion, or nearly half of our total backlog. This is a result of a clear goal we set for ourselves back in 2017, as we believe a strong MSA backlog provides a solid counter balance to the sometimes cyclical nature of the E&C business. Primoris ended the year with a strong balance sheet, having already paid down nearly a-quarter of the debt associated with the Willbros acquisition. I'm also pleased to report, we are well along our path as a successional integration of that acquisition and it is within the guidelines we set for ourselves and reported to our shareholders when we made the acquisition. We were also notified this week that Primoris has been named as one of the finalists by D CEO's 2019 Mergers & Acquisition Awards as recognition for acquisition excellence. Our outstanding fourth quarter cash balance allowed us to end the year with a strong cash balance and a reduction in our debt-to-equity ratio…

Thank you David and good morning everyone. I'll focus on our fourth quarter results, our balance sheet and cash flows and our 2019 guidance before we move on to your questions. Our 2018 fourth quarter revenue was $878 million compared to $579 million in the fourth quarter of 2017, an increase of 51%. Four of our five segments contributed to the increase including our newly formed Transmission & Distribution segment which added $123 million of revenues for the quarter. And our pipeline segment which benefited from work on the Atlantic Coast Pipeline and two pipeline jobs in West Texas. Our largest customers in the fourth quarter was three large utility customers that collectively accounted for 21% of the revenue and a pipeline operated that accounted for 11.8% of our fourth quarter revenue. Our gross profit for the fourth quarter was $103 million, compared to $68 million in the prior year, an improvement of $35 million or 51%, which was directly attributable to our revenue growth in the quarter. Fourth quarter gross margins were 11.8%, which is consistent with our gross margins in the fourth quarter of 2017. We were able to maintain these gross margins as a result of strong performance from both our power and utility segments. We've previously discussed our attempts to resolve our outstanding receivables from a project that we completed in 2014. We have been successful collecting the money owed to us from several sureties through the first three quarters of this year. And during the fourth quarter we reached a settlement with the last surety. As a result of this settlement, we recognized approximately $12 million in revenue and $11 million of gross profit during the quarter. It is nice to finally have this settled and behind us. While SG&A expenses increased from $44 million…

[Operator Instructions] Our first question comes from Lee Jagoda, CJS Securities. Please proceed with your question.

So just starting with the Utilities segment I think you called out weather and mix in terms of the issues that caused margins to be a little bit lower. Is there a way to parse out the weather versus the mix? And then on the mix side just go through some of the issues you had? And how sustainable that might be into 2019?

Yes, I don't think we can parse it out Lee. Like you're asking with real numbers on things like that. Let me mention the weather was obviously, the arctic weather that hit Q3C and then we had the weather and things in California that caused a lot of issues both at the ARB Underground and obviously the cold weather up in Minnesota area. Some of the mix as there's two things on the mix that I'll mention. One is as we go into a new geographic area, we obviously expand into that area. There will be more cost associated with that job as we expand and set up those offices and set up those crews and things and of course that goes against the cost of the job. So part of that is the mix of going into an area that's new to us as we expand versus already into an established area. And then some of it as we get into some of those new areas we'll take on jobs sometimes to break into those areas that maybe is a little bit different of the mix than what we typically work on until we get well established.

And then just looking at the transmission business, can you talk about some of the actions that you're taking to ultimately get those margins closer to the Utilities segment margins? And are some of the actions that you're taking actually impacting the short-term margin results there?

Yes, yes all around. We mentioned this when we first looked at that and I'll come back and give you some more specifics r some additional specifics although we talked in generalities before on them. One was obviously getting their facilities consolidated, closing down some of their facilities looking at some of their shared services and consolidating them in some locations. They were very fragmented before relative to how that business unit was being operated. So part of it is just the normal savings as we go along in consolidation and those you don't see immediately. I think when we actually did the acquisition, we mentioned that those would be coming over a period of time. Another thing was that we mentioned on the equipment going from a pure leased basis of equipment to ownership of some of that equipment. And then also as we're looking at some of the ownership and buying some of the equipment investing the CapEx, it's the type of equipment that we're buying. They were using a little bit through the rental agencies from what we considered some antiquated equipment is relative from the productivity standpoint. Bucket trucks and extension trucks and a lot of things like that, so as we upgraded the fleet that helps us get the productivity up. Still have the same work force, still have the -- maybe the same workforce cost per hour, but we are able to with new equipment and equipment given a little bit more productive. And then another component of it is as we renew some of the MSA agreements and I mentioned that earlier as they come up for renewal, some of those they -- and it was unfortunate that Willbros did it, but it happened. Some of them they took some Ts and Cs that probably they shouldn't have and the clients took a little bit of an advantage of them and that happens when you're in that situation. And so we've been very open with our client base. And I think I mentioned it in my comments, our clients have been very receptive to us being in this market certainly understand. So as we renew some of those contracts, we'll get a little bit better T&C. So we'll work a little bit on the top side of the profitability equation and then a little bit on the underside from the pure cost side.

Our next question comes from Tahira Afzal, KeyBanc. Please proceed with your question.

So I guess the question that you may not be able to answer, but ACP what are you embedding in your guidance approximately? And I know there are a lot of uncertainties David to the extent you mentioned and how the project rolls out. But as it stands right now statically, does it fill you up fairly notably into next year?

Are you talking about once it restarts, Tahira?

Yes, exactly, David.

It will -- it won't fill us up. As we told you, we had always kept one spread capability back, OK. So it won't fill us up once it starts with Rockford all the way. And since it's only Rockford on that not our open shop pipeline. Obviously, that open shop pipeline still there's the capacity in things. Maybe on your -- the first part of your question Tahira. They told us in their own announcements and things late first -- the late third quarter, when you begin to look at if it happens in late third quarter, the reason we haven't put a lot in is because you're really not going to be able to do much up in the hills in the Virginias. Yes, maybe you can get started in North Carolina area and so we've looked at that. But either way, it's not going to be burning like it would have been, if it had been released in mid year or earlier in the second quarter. I don't know if that answered your question? But that's kind of where we're at. We had taken the Rockford group and began looking at other business opportunities in anticipation of this. That's why also in my prepared comments I mentioned that I think you'll be pleased to see although we are not -- I don't announce anything until we got it signed sealed and the deal is done. But I think you will see something coming out that will give Josh and them some work to tie them over and then I think we can also add some work on in the event that ACP doesn't materialize this year at all.

So I mean, I guess David, if there is no ACP this year let me ask it another way, would you still be able to hit the lower end of your guidance?

Yes, we've looked at the numbers on that Tahira. And of course obviously a 20% -- a $0.20 spread, but we've looked at it in the event that ACP doesn't deliver at all and yes we -- that's why we've given that guidance range in that $1.60 to $1.80. There is plenty of opportunity -- there is a lot of opportunities out there, but we promised our customer and they've told us they think it will start late third quarter, so I've got to keep my resources back for that. If it doesn't then we've got plenty of opportunities to address those resources to other projects.

And David just one more and then I'll hop back in the queue. You talked about your -- the increasing petchem LNG opportunities and clearly we've seen several mega projects have been FID-ed and it seems there are many more to come. You were a little more ambivalent on the time line. That said, I know you guys had negotiations with a lot of these companies and developers. I would like to get a little more color on what you're thinking in terms of timing? And if there are uncertainties, what might be driving that?

Okay. And I know your question specifically regarding to LNG and let me answer it in the two ways. I actually think that the time line for our resources being used some of the LNGs don't come in either obviously the first quarter or second quarter. It's probably more in toward the back end of this year, because our first groups that would start would be Jonas Beatty's I&M group. But we're very close also and the reason I mentioned the petchem work is because the other several petchem jobs going on that has the same kind of basis at the start. There is dirt work to be moved and heavy haul roads to be done. And so Jonas group I think will be staying fairly busy until these LNG jobs actually develop toward the latter part of the year. So I really don't see a lot of work on those until the latter part of the year.

Our next question comes from Brent Thielmann, D.A. Davidson. Please proceed with your question.

David I guess on the Power Industrial & Engineering segment you get a nice silver award dropped in the backlog this quarter. I guess as you are finishing up or finished up working and looking on to other opportunities, do you expect that backlog to rebuild as we work through 2019? Are the opportunities robust enough?

I do expect it to be old. I think it will be a little bit slow backlog building in the first quarter. And then I think you will begin to see in the second quarter. Now, obviously, that power project will build it in the first quarter that we got, but there are some of these other projects that we are talking about in the refining and petchem area are just now beginning to be developed and thing. So, I think you won't see those hit the backlog for our industrial group. You will see them hit the I&M and Civil group, but you won't see them hit the Industrial group until possibly late second quarter and then into third quarter. So, I actually see that beginning to build. And I think I mentioned in my prepared remarks that we kind of see Kevin Smith's team being more backend loaded in the year as opposed to in the first part of the year.

Okay. And the solar job that you guys announced obviously substantial award. Is that pretty unique or are there other opportunities out there like that?

There's other opportunities. When we committed and we really started with Tim Healy's group and Primoris Renewables group and we can do them either open shop or union depending on which region of the country they're in, but we saw a tremendous opportunity for those. And then obviously the first fairly sizable one we were able to get our hands around was the one last year out in West Texas, but we see multiple of these. And you can read the same thing, Texas, there are a lot of companies committed to putting more in this Southwest region. And when you look at our West Texas region or even a New Mexico, Arizona wherever you want to go from there for a solar type facility, one of the things you need is obviously the sun and you need cheap land and that kind of comes to bear fruit when you start looking at West Texas. So, yes, we got several of those that we're continuing to look at. So, I don't think you're going to see it as an anomaly. I think you're going to begin to see it as a trend for us.

And then just one on the pipeline business. I know you had a really tough comp last year with respect to the margin, but I was a little surprised to see 10% I guess it's kind of below what we become accustomed to see in the last couple of years. Could you just tell me what the moving parts on the margin for this quarter?

Yes, it was really enough and Ken can add here if he wants to, but it was really to me two things. One, if you remember some of the margin we were getting was obviously of the reimbursable nature of the ACP job. And so it's obviously we don't have the risk side of that so margin there is a little bit smaller which kind of drove our overall typical margins down a little bit. And the other one although we get the higher margins on the fixed price ,work you mentioned it we had an exceedingly wet time out in West Texas with our Primoris Pipeline group. And so there was probably six to eight weeks there. Those guys were pumping out water and really just redoing work that they've done before. So, obviously, they had a little more cost associated with that than typical. Ken?

Yes, David just to add what you said the range we normally expect for that group is 10% to 12%. So, a 10% in Q4 we're a little on the low end of the range for the reasons David talked about. But when you look at the year to your point earlier and compare it to prior years, prior years were much higher than what we would normally expect because of really good weather conditions we have on a couple of jobs down in Florida or for Rockford. So, 10% to 12% is the range we expect for that group. And if you are comparing to prior years, you're going to see prior years being unusually large.

[Operator Instructions] Our next question comes from Adam Thalhimer, Thompson Davis. Please proceed with your question.

Hey, Ken what are you assuming for interest expense this year?

Interest expense is probably going to be very close to what we've experienced in 2018. It's going to be in the low 4s. Our weighted average interest rate as I said was a little under 4.1%. We're seeing interest rates coming back down a little bit and softening right now for new financing on the equipment side. So, I expect it overall it continue to be in the low 4s.

Low 4 million per quarter?

I'm sorry you were thinking dollars I was thinking rate. Per quarter we are looking at probably around and I'm sorry I'm checking something real quick here, probably around $6 million to $7 million per quarter. And that's all in across our term loan and our equipment. If we -- as we continue to watch this year and how our free cash flow opens up for us if we are able to pay down incremental amounts on our term loan we may see that the interest expense come down in the back half of the year.

Okay perfect. Let's see you talked about moving some revenue out of transmission into U&D.

Correct.

How much would that be? And what's the timing on that?

We're going to do it starting in the first quarter so the next quarter results plus-- the first quarter results you see from us will have it in there and it's about $40 million. Yes per year of that revenue. That was a I think we mentioned this when we did our due diligence and was really going after that acquisition. They had it stuck in the electrical T&D group. They categorized by default and so by us pulling it out and putting it in the U&D where it more properly belongs we think we can focus it and actually grow that business on the gas side and let the electrical guys grow the business on the T&D side but figure about for the start out about $40 million on annualized basis is really all we're moving over.

Okay, perfect. And then last one from me. I'm just curious the two pipeline jobs you talked about in West Texas they were under construction in Q4. When do those two jobs finish? And what's your outlook for Texas pipeline in general?

They should finish up this quarter. They may have a little bit that lingers into the second quarter for those two pipeline projects. Now, obviously, as I mentioned also they've got a pretty heavy bid list so getting another one started pretty quickly after that is not too much of a concern for me. What was the other part of that question Adam? I'm sorry.

Yes. No just if you could expand on the bid list and timing for replacement right?

Yes, most of it is related to really the West Texas Permian Basin. There is still a lot of the bigger pipelines but there's also a lot of lateral lines, smaller lines, both liquids lines as well as some smaller gas lines. And then a lot of people kind of tend to forget that when you have these major projects, whether it's an LNG expansion project or whether it's petchems or anything else, there is a lot of pipelines that go to and from those facilities. And so we -- our Primoris Pipeline group as well as our Primoris Field Services group work on both of those kinds. So it's not only just the stuff coming out of the Permian bringing the actual production, but it's things around the production facilities also.

Our next question comes from Tahira Afzal, KeyBanc. Please proceed with your question.

David, I thought I'd bug you a little more.

Sure.

I guess, I know the -- if you go back to the Civil construction, I know you kind of hung in there with that. It seems that there might be some chance of an infrastructure bill going through. Any implications for yourself? Or would you like to continue to be fairly selective there and really drive up margins versus early growth?

Yes, Tahira, we've looked at that. Obviously, when had those Belton area jobs, we looked at that unit, and I mean, we -- as I think, we mentioned to you that meetings and things, we picked that unit up, we turned it upside down, right side out, change management, put better control systems in place relative to what we were bidding and better contract claims, change order processes and everything. That's a great business out there. There's plenty of opportunities. You don't have to worry about the payments and things. And so now that Mark Buchanan has been running the group for us, it doesn't really reflect yet, because we're still burning off some of those jobs, those legacy jobs that are out there, that don't have any margin with them at all. And so it gets diluted on the jobs that he is actually doing, that he is making pretty good margin performance on. We also as I mentioned in my prepared remarks, we pushed the Civil group to say, we make extremely good margins of our design build projects as opposed to just what we call a rip-and-read, and then obviously, the airports and port facilities. So on the design build, we said, look, guys, let's get back up there and look at that design build because there are some great opportunities out there. It's kind of public knowledge, although, it's not public knowledge from our perspective, but we've got a design build project. We haven't finished signing the contract only. It has been announced by the Louisiana Department of Transportation. That's a really nice one and that's in an area where we obviously had a lot of experience and strength and things like that. We also have two other projects in that area that we're currently working on and look at getting some additional work in Louisiana. So both Louisiana and Texas has got plenty of opportunities. Now that infrastructure bill, it will help, because most of those infrastructure bills have a federal funding portion of that with it, and so any of that continues to help drive that Civil market. So for us, I think, we've turned the corner. I think we said, we were going to be flat and then indeed that's where we kind of a were. I think you'll begin to see the next few quarters hopefully that we'll be turning that ahead in the other direction.

And then I guess last question, it seems like you are largely integrated as you mentioned on Willbros. And I guess not focused on really growth initiatives there. Can you talk a bit on the T&D side a little more if possible, because you follow the budgets from all the utilities and they show pretty promising trends going forward?

Yes. Tahira, that's a really good question. Let me break it down into two components and I'll hit the distribution, and then I'll come back to the transmission. One reason, we went in that, it's just the growth in there and the number of customers that literally have come to us and tied us up in additional MSAs, and can you get crews over here. And of course, probably our one single biggest problem that we had relative to trying to grow it as fast as we'd like to match the market growth was obviously getting the alignment, which is why we started investing in the training facilities and talking to the customers on what we could do to co-share with them and things of that nature. But there is a tremendous opportunity. And so what we've done is we've actually been expanding that group organically. And that's where you'll see us expanded organically and as far as the distribution side is concerned. And will our strategic plan will pour a lot of time and effort. Can't remember Ken, can probably tell us the exact number in a moment, but a large portion of our CapEx spending is devoted back to that T&D group. And if you remember, when we were growing Q3C, we poured a lot of money in the Utilities & Distribution to try to get it in there. So we'll be pouring a lot into there.

I think our budget calls for anywhere from $10 million to $15 million of CapEx specifically for T&D group to support their growth initiatives as well as to continue that shift from leased equipment to own equipment.

And then on the transmission side, we began looking at that business and seeing what we can do to expand in some of those areas and it's interesting because it's not only in our T&D group, but we also have a component out in California under our ARB not underground, but under our ARB umbrella that's doing quite a bit of electrical work in California for all the utilities out there not only just PG&E, but all of them.

We have reached the end of the question-and-answer session. And I would like to turn the call over to David King for closing remarks.

Well, thanks to everybody for participating today on our fourth quarter call. We appreciate your interest and we'll be talking with you again at the various conferences. Thank you very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.