Greetings and welcome to the Primoris Services Corporation Third Quarter 2019 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Ms. Kate Tholking, Vice President of Investor Relations for Primoris. Thank you. You may begin.

Thank you, Melissa. Hello everyone and thank you for joining us today. Our speakers for the day will be David King, our Executive Chairman and Chief Executive Officer; Tom McCormick, President; and Ken Dodgen, Executive Vice President and Chief Financial Officer. In addition to this morning's press release, we have 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 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 and other filings with the Securities and Exchange Commission. 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 maybe required under applicable securities laws. I'd now like to turn the call over to our CEO, David King.

Thanks Kate. Good morning, everyone. Thank you for joining us today to review our 2019 third quarter results. Have you seen in our press releases effective today, I am transitioning out as the Chief Executive Officer and Primoris Board has unanimously elected Tom McCormick to the position of President and CEO. Tom's appointment is a clear reflection of our company's succession planning and current state, ready to take on the future and fired up after another strong quarter. There's enormous opportunity for Primoris that lies ahead and I'm fully confident that Primoris will continue to thrive under Tom's leadership. I am remaining as the Chairman of the Board and also assuming the non-employee role of the senior strategic advisor. Serving as the President and Chief Executive Officer for Primoris Services Corporation has been one of my most rewarding experiences and the past four years have been a professional and personal joy for me. Primoris is truly a great company and we have such great people. Primoris will always be a valued part of my life and I will continue to give it my full support. I'm looking forward to remaining on the Board as the Chairman and working with the Primoris team on our long-term strategy, allowing me to focus on exploring and pursuing new strategic and acquisitive opportunities for Primoris, while continuing to help to shape Primoris future. With that said, I'll turn the call over to Tom for his opening remarks. Tom?

Thank you, David. And thank you for all that you've done for Primoris. Over the past 12-plus years, you've been my mentor and most importantly a friend. Thank you for believing in me and thank you for playing a role in giving me this opportunity. I wish you the best of luck in your semi-retirement and look forward to continuing to work with you in your new role as Chairman of the Board and Senior Strategic Advisor. I also want to thank the Board of Directors for trusting me to leave this great company into the future is a company of 12,000 plus dedicated and hardworking employees and I look forward to continuing to work with all of them in my new role. Now on to our results for Q3, 2019. It was another great quarter for Primoris with record net income, growing backlog and strong cash flows from operations. We continue to successfully implement our strategic plan with a discipline approach to growth and our focus on improving operational efficiencies. We are reaffirming our full year 2019 EPS guidance and we expect 2019 to be a record year for Primoris. Year-to-date Primoris' revenue was 112% compared to last year. While we did face some revenue headwinds in the third quarter from weather and project delays, these are timing issues and not indicators of change in our win rates, more softness in our end markets. A large part of our revenue growth has come from MSA revenue which is up 30% year-to-date for new record high. Of course you can’t continue to grow revenue without winning new business and we’re very proud of our growing backlog. Total backlog is up 19% over last year thanks to gains and both fixed and MSA backlog. MSA backlog is now 44% of our…

Thanks Tom and good morning everyone. I'm going to review our third quarter operating results our balance sheet and cash flows and then our 2019 guidance before we move on to your questions. Before I review the third quarter results I want to discuss two very positive events that Tom referred to that occurred in near the end of the third quarter. In September we came to an agreement with TechStar to resolve our claims on three of the five Belton area jobs. This settlement helped improve the civil segment’s third quarter gross profit and enabled us to finally convert some of our unbilled revenue on these jobs into accounts receivable at the end of Q3. That was collected in early October. Also in September we reached an agreement to sell our pre-bankruptcy receivables from utility customer to a large financial institution. The transaction which was funded in early October resulted in a $2.9 million charge to other expense during Q3. We continue to work for this customer and they continue to pay us within terms for all post-petition work. Combined these two transactions resulted in over a $100 million in accounts receivable at the end of Q3, they were collected in early October. Now let's discuss our operating results for the quarter. Our third quarter revenue was $865 million, compared to $909 million in the third quarter of 2018, a decrease of over $44 million. This decrease is primarily due to the timing of jobs in our pipeline segment as we had substantial completion of a West Texas pipeline job in the second quarter of this year. And we also had reduced volumes on a major mid-Atlantic pipeline project compared to last year. We have discussed our strategy to pursue stable long term MSA agreements and we continued to…

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

So Ken just starting with your segment margins and in particular the power and the transmission piece, can you breakout sort of the portion of the drag in those two segments that's more transitory - and how much you might expect to linger into Q4. And maybe just a quick reminder of what normalized margins in those segments should look like going forward?

Yes so normalized margins in the Power segment we normally expect kind of low-double-digits. Last year this time we were much higher than that because as Tom mentioned we had Carlsbad going on and we also had the ATM settlement which is pretty significant. So the drag in this quarter was primarily in our open shop industrial group. And we think this is just a one quarter issue that shouldn't continue much into our fourth quarter this year.

It's primarily - Lee this is Tom McCormick. It’s primarily due to the performance on a couple of projects that are now behind us. We made some changes in our management team and changes on that project, they are just more one-off the jobs that we have going on in that group right now are actually doing very well.

Got it. And how about on the transmission side?

Yes on the transmission side long-term we expect them to be similar in terms of low double-digits. Last year, they were higher than we would have expected at this point time because of a particular job that had higher margins as well as quite a bit of storm work last year. This year they're a little bit lower than where we would expect them to be as we continue the transition and growth of that business. But only because we didn't have any storm work we shutdown a small division that we just didn't think was operating properly. And we've been investing in that business in terms of expansion cost and that's a continuation of what we've been doing over the course of the past couple of quarters as well. So, this business unit, this segment will kind of continue in the single-digits for another quarter or two as we continue this evolution of the business that we bought from Willbros.

And then just flipping over to civil, looks like there is about $13 million of unapproved change orders that your I guess hoping to get back. What's your expectation on the collection and the timing there? And then ex the Belton issues it looks like the civil segments back on a pretty good track with gross margin somewhere in the mid single-digits now that, that's all fixed. Give any updated thoughts on that business from a divestiture perspective?

Yes, so with respect to with respect to the claims that you mentioned at beginning. Those claims are related to the final two jobs which we have not settled yet and are going through the Triple-C litigation process with TxDOT. So, we don't have any idea when the ultimate resolution will be. I think Tom touched on it.

In - that aspect, I think as I noted earlier, the expectation is been anytime between now they could reach out to us and sell these claims anytime between now. If they go through the CCC - process it will be probably late second quarter of 2020.

And we're opening - that will be the outside of the longest time we would have to wait in order to settle those, now with Tom.

With respect to heavy civil again we have the caliber we're going to do with them. They actually as I noted in my presentation that - they are making higher margins. They are starting to turn around as we do with all of our business units. We evaluate what their future is how they fit into our long-term plans almost annually. We're certainly not going to do anything with heavy civil until we get these two claims resolved. But they are doing much better that aircraft carrier started - it has turned and it's doing better. So we'll look at it. It's just something we're in the process of doing now.

Our next question comes from the line of Sean Eastman with KeyBanc Capital Markets. Please proceed with your question.

Tom many congratulations on the CEO appointment and David congratulations on the semi-retirement.

Thank you, Sean.

Thanks Sean.

First question from me is just on the - starting on the cash flow. So nice reversal in the third quarter, sounds like over a $100 million locked in for the fourth quarter with the civil settlements in the PG&E receivables. And can we sort of just layer on top of that $100 million, what’s normally really strong 4Q seasonally for free cash flow, is that sort of the way to think about how the fourth quarter plays out overall?

Yes, I don't know, if you would layer on the full normal of Q4 effect just because some of what we did is part of that effect, but yeah you can definitely it will little probably layer on a good significant chunk of it and we are expecting Q4 to be very strong for us.

And then - so three of five civil settlements are all done. I'm just wondering, from a kind of dollar outstanding claim perspective, how far we are today versus how much is left?

With these discussions going on and hopes of entering into some more discussions with TxDOT facilities I'd really rather not go into that level of detail.

Okay, that's fair.

Sorry about that, but.

No, no that’s.

I don't want to set a target for them.

Yes, that makes total sense. And then, okay - on the PI&E segment, it looks like the revenue then bookings were better than we expected in the third quarter. But yeah, I'm just wondering what's flowing through there when those kind of big solar jobs wrap up. And whether you could just talk to visibility and backlog in that segment up to 2020, do we need something sizable to hit in backlog, in the coming quarters to keep growth going there in 2020. Any kind of commentary around those moving parts would be great?

So if I look at the union side of that, the union side is actually - they are able to make their revenue targets just with - large grouping of smaller projects that they've been winning. There hasn't been a large power project out there and they've done extremely well doing it and they're making profit on these jobs. Same thing with the - non-union the open shop side of it, most of it has been smaller projects $30 million, $40 million, $50 million. But they have a lot number of projects that they are expecting awards on like fourth quarter or early 2020. Pre, as far as the solar group has a number of opportunities out there. I think those opportunities go on. If we look three years out, they're all large projects. Right now, we're in the middle of construction on the larger solar plant ever built in Texas. And the opportunities we have all are in that in that price range or even greater. So I think there's a lot of opportunity out there for us. We’re trying to be very selective of - who we partner with, who our clients are and what projects we go after to ensure that we're successful. But there is opportunity out there for the next several years.

And just to close it out on this topic would you say, as we look at solar versus petrochemical versus power and LNG. Are those ones still on the table there or is solar kind of emerging as the real growth driver as we look out into next year?

No there is still a lot of petrochem opportunities out there. Our bid slight is - our estimating group is extremely busy. Same with the LNG, there is another wave of LNG, larger LNG projects and what’s unique about our company as we pursue the smaller LNG projects on a full EPC basis. So as I noted earlier - they measure gallons per day versus - gallons per hour versus tons per day. So they're much smaller plants. We can actually do a complete design build on those. And then we play a unique role in the larger LNG projects where we can do - we can do paving, we can do underground, we can do the site work as we have in the past. We can do the roads and we can actually build our process unit, OSBL work for them. We're not going to take on the large scope of $500 million but anything smaller than that, we will certainly look at.

Our next question comes from the line of Adam Thalhimer with Thompson Davis. Please proceed with your question.

David I'm sorry to see you go and Tom congratulations.

Thank you.

Oh! Adam - Adam I've enjoyed it and Tom will do an extremely good job. He's a very gifted individual.

But I’d appreciate the work we've done with you.

Yes, no I appreciate it.

He’s not going anywhere. He will still be around.

Yes, he is not on the call. Hey I want to start with the buyback just - is the thought to fully execute that or did you just want the optionality given where the stock is?

So our thinking is that we will fully execute it. We just don't know what the timing will look like. And we're going be opportunistic based on where the stock price is - from time-to-time over the course of the next roughly 14 months.

And then, I wanted to ask you about the large California electrical contract which segment is that going to flow through the transmission work out in California. And then when does that start?

Are you referring to the electrical contract I spoke in my statement earlier that was actually a contract that’s here in center part of the U.S. in Texas in Southeast U.S. area. We are doing some work, okay. I know where you’re talking about that project is actually in the works that work is ongoing it is ramping up. And it will fall - right now it falls under our pipeline and underground, just because it's part of the work that ARB is doing for that client.

So it will stay in the pipeline?

Yes, for now, it will.

And then lastly, I just – can you give us some additional color on the underground bidding? And I'm just curious whether you guys are seeing any kind of shifts in the market, maybe Texas slowing down, other sales picking up, or is Texas just super strong still for pipeline bidding?

Yes, there's – what you see the change that we see is, we see clients partnering up to share risk on those jobs, but we don't see the jobs and number of jobs going away. They're being much more quiet about publicizing those projects and they ask us to be quiet about publicizing those projects just because of the issues, potential problems that creates for them in getting permits. But I think like for the next couple of years, sitting down with clients that I've spoken to, they don't anticipate falling down.

So that's within Texas and outside?

Within Texas and outside, yes.

[Operator Instructions] Our next question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.

Ken, the sale of receivables, does that account for all of the pre-petition receivables you had or is there any more left there?

No, that pretty much accounts for it all.

And then I get started to beat on this, but I guess back to the two industrial projects, I think you can appreciate this just given what's gone on around the sector. Maybe, can you help with the size and maybe scale these projects maybe relative to the business overall and I guess any more detail that you can offer on kind of where those jobs are at?

Yes, these are all small projects less than $18 million in size. And losses on them, the write-downs on them are relatively small, as you can imagine. If you look at across all our spectrum of projects, our average project size is $4 million. We'll do projects up to, power project, couple of $100 million; obviously, a pipeline job much larger than that. But for the most part, our average project size is very small. And these projects kind of fit into that mold.

And then pipeline margins, strong as I think since 2017. Maybe just help me flush out kind of moving pieces there, what was abnormal and what wasn't?

Yes, most of that was normal. As you know, we're on standby with Atlantic Coast Pipeline. So we were able to redeploy some crews and some equipment to other jobs, so we had the benefit of some quick burn projects during the quarter that started in Q2, that had some good strong margins for the quarter. So, I think as you know, our normal margins for pipeline is kind of 10% to 12%. And so the smaller quick burn jobs and our ability to deploy quickly, it had good weather conditions enabled us to get a little bit better margins than we normally would.

And then jut lastly on Civil. I think you guys said backing out to Belton jobs, kind of backing that target margin area you want to be at; is there anything to kind of think about within that segment going forward in terms of new jobs ramping up versus others and maybe there's some drag on those margins as we think next few quarters?

Not really. I think we set some standards couple of years ago when we started having issues in that group with respect to the type of work we're going to pursue and how we're going to estimate the work and what we included in those estimates and how we're going to track progress on them. And it seems to be working. So we're going to continue that, and just make sure that we can continue to turn the ship, so to speak.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. McCormick for any final comments.

All right. Thank you all for joining us today. Before we end, I want to thank our employees, both in the field and in the back offices, who work tirelessly every day to deliver great results for the Company and our shareholders. Have a good day.

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