Greetings. Welcome to the Primoris Reports 2020 First Quarter Results Conference Call. [Operator Instructions]. At this time, I'll turn the conference over to Kate Tholking, Vice President of Investor Relations. Ms. Tholking, you may now begin.

Thank you, Rob. Hello. Good morning, everyone, and thank you for joining us today. Our speakers for today will be Tom McCormick, Primoris' President and Chief Executive Officer; and Ken Dodgen, our Executive Vice and Chief Financial Officer. In addition to this morning's press release, we've also posted slides on our website that highlights some key points we plan to discuss on the 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 and 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, project, 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, 2019, 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 may be required under applicable securities laws. I'd now like to turn the call over to our CEO, Tom McCormick.

Thank you, Kate. Good morning, and thank you for joining us today to discuss our first quarter results. It was a challenging quarter not only for Primoris but for our employees, our customers and our communities. The coronavirus pandemic and the shocks to the energy market, combined with our usual first quarter slow start, along with inclement weather, resulted in a perfect storm that had a direct impact on our bottom line. Although we were not able to work as efficiently as we would have liked, it's important to note that we are a critical infrastructure contractor, and we are still working. We have crews in the field across the country, and I want to thank all of our employees for how quickly they adapted to this new environment, following new safety guidelines to protect themselves and others and minimizing any potential spread of COVID-19. We implemented changes in our offices and at our job sites, such as reducing employee density to allow for social distancing, monitoring our employees' health in all office locations to ensure that those who are high risk or perhaps not feeling well are working remotely at home so as not to potentially expose themselves or others as well as performing health checks on our employees before they enter our job sites. The health and safety of our employees, our clients and the communities in which we live and work is our primary concern, and I'm pleased that we've been able to keep our employees healthy while still giving them the opportunity to earn a paycheck, maintaining their health insurance, et cetera. Within the Primoris family of companies, we've had a very low incident rate of COVID-19. I'm especially proud of our crews for incorporating these new policies while maintaining their focus on safety at job…

Thank you, Tom, and good morning, everyone. I'll review our first quarter results compared to the first quarter of 2019, our balance sheet and cash flows and backlog, before we move on to your questions. Our first quarter 2020 revenue was $743.2 million, an increase of $81.7 million or 12.3% compared to the prior year. Almost $57 million of the increase was in the Pipeline segment as we ramped up on new midstream projects that were announced in Q1. About $51 million was in the Power segment due to increased work on solar projects and Gulf Coast Industrial projects. This growth was partially offset by declines in the Transmission segment due to the timing of new work being released by our customers and the Civil segment due to the timing of some larger projects. Revenue in the Utility segment was essentially flat for the quarter. Our largest customer in the quarter was a midstream oil and gas company, which drove some of the Pipeline segment increase, followed by an electric utility customer and a gas utility customer. Collectively, these top 3 customers accounted for 22.6% of our revenue for the quarter, and our top 10 customers accounted for roughly 50% of our revenue, which is in line with the prior year. Gross profit in the first quarter was $47.8 million compared to $52.5 million in the prior year. Gross margin was 6.4% in the first quarter compared to 7.9% in the prior year. Part of the decline in gross margin was the impact of COVID-19, which was felt across all of our segments. Tom already mentioned the steps we've taken to ensure our employees are able to continue working safely in light of the pandemic, however, because the incremental costs were spread across all our jobs and our corporate functions…

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

So starting with your comments around some of the MSA work in utility in Q1, specifically California, Michigan and Pennsylvania basically halting operations, are those up and running now? And with additional states having issues at various times, what does the current mix of work look like?

No. Most of those states have started issuing work back. And it's - we're starting to see that ramp back up as we would typically see at the beginning of the second quarter, Lee. There's still some limitations in some of those states. In California, one of our primary clients there is not only dealing with COVID-19 but also dealing with coming out of bankruptcy. So it's been a little bit slow there, but there is work being released. And it's different scopes of work, too, right? It's not just in gas distribution. So it's other utility work. So it has helped us.

And then thinking a little longer term, utilities are shifting - or I guess, are shifting production to kind of comply with the needs of their customers in terms of people working more at home during the day versus in a commercial setting. Can you speak to whether you're starting to see opportunities from the utilities on different kinds of work that might help them satisfy, like, the new normal of demand, if this is a new normal?

I think it's probably too early for us to speak to - I mean, what we've seen and what we've heard our clients say is that they're going to have to make adjustments if that becomes the new norm, right? So I think just - at this stage, being a couple of months out from when this started, 3 months out from when this started, I guess, it's a little bit early. I think everybody now is talking about what that new normal is going to be. But we - I don't think any set conversations on a path forward and what that will look like will be known until probably later in the second quarter or later in the year.

Sure. And then one more for me, quick one, and I'll hop back in queue. Just the latest solar award you announced had sort of an interesting way. It went into backlog and an interesting structure. Can you just kind of give us the, I guess, the reasons why around that? And whether we should expect this as sort of, again, the new normal?

That's actually been the old norm for solar projects. Almost every one of our project awards in solar - in the solar market has started with an LNTP. And so they start you off with starting design and buying components, and they're buying their - what is in their scope of supply. And then later, when they achieve financial approval, then they move forward - then they pull the trigger on the project, they move forward with contract award. We've seen that on every project that we've had - solar project we've had. And I think that's just the norm for these clients.

Your next question comes from the line of Brent Thielman with D.A. Davidson.

You guys, you bought back some stock here in the quarter. You've got some more room under the program, and then the balance sheet is in really good shape. But some other companies out there have sort of curtailed or suspended buybacks. I just wanted to get a view kind of how much of a priority that is going forward.

Yes. In the immediate near term, I don't see it being a priority. I think we'll have to kind of get toward Q3 or maybe Q4 before we'll probably reignite conversations with the Board about doing more. As much as we would like to take advantage of where our stock price is right now, given the uncertainty as to how much longer COVID-19 is going to last and whether or not there's going to be any material impact to us, I think we're going to be conservative and just hold off.

Yes. Okay. And then on the Power and Industrial segment, kind of a lot of different pieces within that. And I'm just trying to think about how you piece out the risks related to kind of a drop in oil prices versus maybe gloomier economic times. How do we think about the risk from lower commodity prices versus just kind of, again, a tougher economy ahead?

Well, I think the biggest risk for us, for sure, is in Canada, it's in Western Canada. And we reacted quickly when we saw that work going away. The clients now are releasing work, but it's - again, it's limited scopes, it's reduced scopes. They're doing projects but at lower values. So we - I think we're at the right size up in Canada to be able to manage that work and still make respectable margins. And in California, we've seen some reduction in workforce in some work that we were doing for clients on some maintenance work in small capital projects. But we actually see some benefits or opportunities on some biofuels projects, and one we expect to have - hear something positive on that here in the coming weeks. So it's been that work that we've been able to replace it. And when you start going to our nonunion part in the Texas in the Southeastern U.S., they have work and probably sufficient work for this year. The concern there is with the slowdown of bidding work and clients pulling back or the contraction of capital spending, what's it going to make the end of this year or more so next year look like? And I think that's where the concern is in that market. It's nice that we're so varied in what we do that we have other groups that will pick up the load and they have work continuing through this pandemic, but some of these markets will be hurt. Some of these business units will be hurt.

Yes. Okay. I guess, my last question, as you look across the portfolio, I mean, I would tend to think Utilities and Transmission, I mean, should be pretty resilient through less clear economic times. I understand some of the near-term kind of COVID disruptions. But as you think about those segments, I mean, would you generally agree with that? Are you hearing something from your customers in those segments that might lead you to think otherwise?

No. I think you're right. We expect those to continue to do well, yes.

The next question is from the line of Adam Thalhimer with Thompson, Davis.

Can I just ask you a follow-up on that Texas commentary? What specifically has you worried kind of late this year, next year? Which end markets?

Primarily refining. Petchem, I don't think is a problem. Most of those projects are going through. There's still work there to bid. It's just - it's primarily just in the refining industry. We've seen our Engineering groups have slowed down a little bit on some feeds they were doing in the refining business. I think people, they're primarily just pushing some projects out to wait and see what happens with oil prices and how long it takes for oil - the price of oil to reach a respectable or reasonable level.

Got it. Okay. And then on the - switching to electric, I was a little surprised that you have already kind of rightsized the operations there. I was thinking that customer spend might be a little more resilient, particularly short term, but I guess that hasn't been the case?

Well, we've had some areas with just the shift of work a little bit. We just took advantage of the opportunity to rightsize some areas that were probably overstaffed and we needed to make some reductions anyway, and that gave us the ability to do it. We have the ability to grow if our customers start releasing more work in these markets. It's just we needed to do some trimming anyway and it gave us the ability and the timing was right to do that.

Okay. But your biggest electric customer, their CapEx is up, I think.

Yes. They are. They are. And we're doing a lot of work...

But you're just saying you haven't seen that yet.

We're doing a lot of work for them, and we haven't done any reductions or anything, any of the crews that were doing work for them at all.

Okay. Got it. And then, I guess, same question on the gas side. I was thinking gas utility work would hold up better this year than some other markets.

And it is so far. It just depends on - what we're hearing from those clients is not that they're making cuts to their capital spending programs, but that they might if the country doesn't open back up or their respective states don't open up because their biggest consumers of gas are restaurants, bars, hotel services, hotels that have restaurants and bars and that type of industry. So if those demands stay down, they may not have the need. You're not seeing a lot of - you're seeing drops in new housing and some of those - so those customers, those new customers that they would have, there won't be that need there. So there'll be reductions there. As far as replacement or maintenance of existing systems or old systems, that work is going to continue.

Okay. And then the pipeline outlook for 2020, your backlog was way up. You had a strong first quarter, particularly on the revenue side. What are your thoughts for the rest of the year in light of the oil price decline?

Well, again, I think 2020 is pretty secure. Of course, we got to wait on the big project we're waiting on that I mentioned earlier with respect to the Supreme Court and the ruling on there. But we're - both of our union and nonunion pipeline groups are busy through the - towards the end of this year. So it's more so, my concern would be, are we going to have work going into next year? Now if the large project that I referred to earlier goes forward, then Rockford will be busy for the next 1.5 years.

Our question comes from the line of Sean Eastman with KeyBanc Capital Markets.

First one for me is just on the guidance. Totally understandable to withdraw here. I'm just curious what you guys are waiting to see. Is it more a timing of new awards? Or is it more the productivity elements as we move through 2Q? Just kind of curious what is kind of the big swing in terms of what you guys are looking out for to have more visibility for 2020.

Yes. I don't know - Sean, I don't know if there's any one big swing. I think it's a little bit of everything right now, right? When you got this much going on and potentially this much volatility, it just got to be a point where we looked at all the different models and potential outcomes for the year and the range instead of narrowing for guidance was widening. And so when that occurs, we just decided to pull back on guidance temporarily in order to let another quarter play out. And we're hopeful that by the time we get to announcing Q2 here in late July and early August, we'll be in a position to give you guys guidance again because some of this will settle down, and we'll just have greater clarity.

Yes. Like, I think the big question still is now that these states are opening up, and Texas is one of them, is how is that going to go? So if there's not a big resurgence of the virus and businesses in each states continuing - able to continue to open up and businesses are able to restart and we see that happening, I think we'll be much more comfortable with giving guidance. If there is a resurgence and there is - and they continue to stay shut down or they revert back to being shut down, that's the bigger concern.

Okay. Got it. And then just some more color on kind of bidding activity, how the backlog - how we should expect the backlog to trend to the extent you're able to comment. It's - pipeline bookings started the year really strong. It sounds like that could take a little pause here. And then there's some big opportunities in solar and petchem. Just some color on the line of sight there. Are these projects definitely moving ahead? Any sort of help on that would be great.

Yes. I can help you a little bit with that. I think with respect to Heavy Civil or for our Civil segment alone, the states of Texas DOT and Louisiana Department of Transportation are still spending money. As I've noted in my comments earlier, Texas is spending $7 billion to $9 billion a year over the next decade. So there's still quite a bit of work, and we're busy there, actually still being very selective about what we bid. So the Civil segment is in pretty good shape. Matter of fact, our I&M group, which is part of the Civil segment, is waiting on an award right now that if that project moves forward, it'll keep them busy for quite a while, certainly for the balance of this year. They'll continue to bid work because they have other capacity, but it would - that'd be a large project for them. The industrial markets, it's - we got to find some work for Engineering group to do, and they're already looking at, again, biofuels. And the refinery market is a good market for us, and there's a lot of opportunities. So that's helping replace some of the slowdowns you see in refineries because although refineries are slowing down and they have curtailed production, they are moving forward with their spending on green projects. So whether it's green diesel or biofuels or biomass fuels, those projects are moving forward. We talked about renewables. There's a lot of opportunity in solar. So there's continuing - we're continuing to bid a lot of work and being selective about what work we bid there. And then pipeline, I talked about earlier. I think they're in pretty good shape, at least for this year. And we're waiting on that big job to - waiting on the Supreme Court to rule on the big job. Does that help answer your question?

Okay. Yes, that helps. In particular, this petrochemical job you guys mentioned in the prepared remarks, we haven't seen a whole lot of that stuff move forward of late. I'm just wondering kind of at what stage that project is, and whether that's kind of a for sure. Just if not - or a when-not-if-type situation for you guys on that particular opportunity?

And those projects take a number of years to develop, right? So some of these things have been around forever. But this particular job is right at FID, and I think - all indications are that it's positive. They're just really - I think they're really just waiting on COVID-19 to see what happens with it as the state reopens because they don't think it'd be appropriate to try to open and start a project in the midst of this pandemic.

We have time for one additional question today, so I'll turn the line over to José Romero with Sidoti.

Just wanted to follow up on an earlier question. I guess, we should expect Utilities and Transmission to be relatively resilient, but could you potentially maybe rank order the remaining segments in terms of how resilient they should be in the near to medium term?

Well, behind those two, for the rest of the year, Pipeline and Civil should both be very resilient. The Industrial segment is the one that kind of has some ups and downs right now.

And that's primarily because in the industrial segment, you have the renewables group, which is going to do - is doing really well and will continue to do well. You also have some of these biofuel projects that are going to help offset some of the other work that's been delayed or curtailed and the reduced work in Canada. So I think it's going to be okay. But that's probably - that would probably be in the bottom of the five segments.

Okay. Got it. And does the current environment lend itself to you being maybe better, worse or staying in terms of competitively positioned in your markets, say, a year from now, potentially due to maybe some competitors not making it to the other side, or kind of any other changes there?

I think that's a good question. I mean it's going to be interesting to see how - what companies come out of this healthy and strong. And we're - and I'm sure there are a number of companies you're going to see probably either go away or be acquired or merged coming out of the smaller companies, for sure. So I think it's - I think we're going to be in good shape, but I think we have some competitors that are well positioned also. It's going to be interesting to see how everybody else does.

Got it. And then I think in your prepared remarks, you mentioned still looking for opportunities maybe in the long-term in terms of M&A. Does this potentially maybe open up opportunities for you to participate in some markets that you're currently not in, or be better - have more participation in ones that you see as favorable in the long term?

Yes. The answer to that is yes, and we are looking hard for the right opportunity. So there's - right now, there's a number of them. Everything is kind of, from an M&A standpoint, on pause right now to see which way everything is going to go. But we are very active and out there looking.

At this time, I will turn the call back to Tom McCormick for his closing remarks.

Thank you, Rob. Before we go, I'd like to thank you all again for your support of Primoris. We hope you and your families are safe and healthy, and we look forward to seeing you in person once this is behind us. Thank you.

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