Good day, and thank you for standing by. Welcome to the Primoris Services Corporation Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brook Wootton, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to Primoris' Fourth Quarter and Full Year 2021 Earnings Conference Call. Joining me today are Tom McCormick, President and Chief Executive Officer; and Ken Dodgen, our Chief Financial Officer. Before we begin, I would like to make everyone aware certain language contained in our safe harbor statement. The company cautions that certain statements made during this call are forward-looking and are subject to various risks and uncertainties. Actual results may differ materially from our projections and expectations. These risks and uncertainties are discussed in our reports filed with the SEC. Our forward-looking statements represent our outlook only as of today. We disclaim any obligation to update these statements, except as may be required by law. In addition, during this conference call, we will make reference to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures are available on the Investor Relations section of our website. I would now like to turn the call over to Tom McCormick.

Thank you, Brook. Good morning, and thank you for joining us today to discuss our 2021 fourth quarter and full year results and our financial outlook for 2022. We wrapped up the year with a strong fourth quarter reflecting the momentum that we built throughout 2021. We established our footing in the communications market and expanded our presence in the renewables market. And while doing all of that, we maintained a solid performance in our traditional utility, energy, pipeline and heavy civil markets. Our full year revenue was $3.5 billion, essentially flat compared to last year. This was driven by our Utility segment revenue, which was up 21%, and our Energy/Renewables segment revenue, which was up 15% over the same period last year. By design, these increases more than made up for our reduced presence in the pipeline market, which now accounts for only 12% of our overall business revenue. Our full year net income was $115.6 million. This is up 10% compared to last year while our adjusted net income came in at $143.3 million. This is up 22% for the year. We ended 2021 with EPS of $2.17 and our non-GAAP EPS was $2.70. This is all in line with our guidance. That increase is significant when you consider the fact that we added 4.5 million additional shares from our secondary offering in the first quarter. When you look at our full year EPS from 2018 to 2021, the CAGR increased over 13%. Now let's look at the three segments in detail. Our Utilities segment had a strong fourth quarter performance. Revenue came in at $442.9 million. That is a 22% increase compared to the same period last year. We can now say that many of the third quarter issues, such as delays in engineering and permitting, are…

Good morning, everyone. Let me begin with our key operating metrics for the fourth quarter and the full year and then I'll discuss our balance sheet, cash flows and backlog. I'll wrap up with our guidance. Our fourth quarter revenue was $884.4 million. This slight decrease of $12.9 million compared to the prior year was driven by an expected $129.3 million decrease in Pipeline work. This decrease was almost completely offset by an $80.5 million increase in the Utility segment and a $35.9 million increase in the Energy/Renewables segment. Our solid performance in the Utility and Energy/Renewables markets demonstrates that our investment in these areas over the past several years continues to provide solid returns. Gross profit for the fourth quarter was $96 million, a minimal decrease of $1.7 million, and gross margins were consistent between the periods at 10.9%. Now let's look at each of the three segments for the fourth quarter. Energy/Renewables revenue was up by $35.9 million compared to the prior year on the continued strength of our renewables business, partially offset by lower industrial work. Gross profit was $38.5 million, an increase of $14.1 million or 58.2% compared to the prior year. This is primarily due to higher revenues and margins. Gross margins increased to 10.4% during the quarter compared to 7.3% in the prior year. This was mainly due to higher costs associated with the LNG project in the Northeast in the prior year. Utility segment revenue was up $80.5 million in the quarter, driven by Future contributing $68.1 million, along with increased activity with our gas and electric customers. Gross profit was $52 million, an increase of 9.4% compared to the prior year. Gross margins were 11.7%, down 1.4% from the prior year since we had less Q4 storm work. Despite the lower overall…

Looking forward, our revenue mix has continued to shift from almost exclusively conventional energy and civil infrastructure to a large and growing proportion of renewable energy, electric grid transformation and communications. As I mentioned earlier, Pipeline continues to become a smaller part of our overall business and now represents only about 12% of our total revenue. And the secular market trends continue to support that shift. Wood Mackenzie reports that solar continues to make up the largest share of new generation capacity in the U.S. It accounted for more than 50% of all new electricity-generating capacity additions in the first 3 quarters of 2021. Utility-scale solar should continue to grow at double digits under the current policy environment. And we are already beginning to feel the future potential of this. Fiber broadband has an equally strong outlook. The Fiber Broadband Association predicts that we will see the largest fiber CapEx cycle in history as the number of potential fiber customers more than double over the next 5 years. We talked last quarter about the federal infrastructure bill, beginning to see the specifics as to how the infrastructure bill money will be spent. But much of it starts with studies rather than shovel-ready projects. It will take some time for that to turn into engineering and construction contracts. We definitely see potential in heavy civil projects as well as in communications, utilities work and pipeline construction. For example, in January, the U.S. Army Corps of Engineers announced that it will spend $1.5 billion. This money will be spent for the construction of flood and storm damage reduction projects in the four states where major disasters were declared in 2021 from Hurricane Ida. They have identified five projects in these states for 2022. These are clearly within our geographic footprint and in locations where we have strong civil project track records along the Gulf Coast. It is also estimated that Texas will receive about $35.4 billion over 5 years for roads, bridges, pipeline and supports, broadband access and other projects. A tremendous amount of this work is in our wheelhouse. One piece of that work that was announced a couple of weeks ago by the Department of Transportation and Energy is that Texas is eligible to receive up to $407.8 million for projects directly related to EV charging infrastructure. But both for the long term and in the immediate future, we are ideally positioned to meet the needs of America's evolving infrastructure. That includes the energy transition to a zero carbon future, highly dependent on the electric grid, the greater reliance on broadband and 5G technology and the updating of our aging civil and pipeline infrastructure. We have opportunities in every business segment to participate in these secular market trends. And we intend to turn those opportunities into profitable revenue and shareholder value. And with that, I'll now open it up for questions.

[Operator Instructions]. Your first question comes from the line of Steven Fisher with UBS.

I wanted to just start off with the Pipeline business. I mean, the run rate of revenue seemed a fair bit lower than what you might have been thinking about previously for at least kind of going forward for into 2022. So I'm wondering if you can talk about what your customer discussions are like there. And should we now assume the $70 million to $80 million of run rate is the new revenue run rate until it picks up some time? I think you said 2023 would be the potentially earliest it could pick up. So maybe just talk about the pace of what's going on there, please.

Steve, good question. Early in this year or in 2022, we expect that to be the runway. We actually expect it to pick up in the second half of the year going into 2023. So our numbers in Pipeline will be down probably the first couple of quarters. We are seeing bid activity pick up, more so in the integrity-type work and the smaller project-type work. So we'll see some of that going forward. But we expect that towards the tail end of the year, it's a ramp-up going into 2023.

Okay. So that's helpful. And then if we shift over to the renewable side of things, I was curious why the burn rate of the renewables segment backlog isn't higher. I would have thought these solar projects have a little bit faster burn than some other projects or maybe it's the -- there was a big civil project that you mentioned. Maybe that's what's making it have a longer duration. But curious if you could just talk about kind of the -- what's happening on the burn right there.

Well, it's a combination of both the things that you just mentioned. One is that solar projects typically take 18 to 24 months to burn through their revenue. They are starting slower. And the burn rate, as you complete detailed design and go through the procurement process, is at a lower rate. And then it ramps up as you move in the field and start our installations and our construction activities. And then you're right, the balance of that is the heavy civil project. It's a 5-year project, so it has -- it's going to burn and then get a fixed rate going through the next 5 years.

Okay. That's helpful. Just lastly, on just the cadence of the year, you mentioned that it sounds like first couple of quarters on the Pipeline segment are going to be a little bit lower. Any other color you can give us on the cadence of the rest of the business and how we should sort of model out the year?

Yes. Our first quarter historically is slow. And it will remain that way -- it's that way in the Utilities as well. You'll see it start to pick up in the second quarter. And third quarter, which will be good quarters for us, as will the fourth quarter, it tails off towards the end of the year. Usually, it starts slowing down after Thanksgiving, depending on the weather.

Our next question comes from the line of Lee Jagoda with CJS Securities.

It's Pete Lukas for Lee this morning. You touched on it. But can you speak in a little more detail on Pipeline margins in the quarter? And also is the project in Louisiana in the release, has that been completed?

Yes. So thanks, Pete. On Pipeline margins, no, we had a little bit of headwinds on Pipeline margins in Q4 related to a couple of small Field Services projects. They had some bad weather during Q4, which unfortunately drove up costs and forced us to write that job down a little bit. So that was a bit of an anomaly. We expect 2022 to be more normalized margins in Pipeline, 9% to 11%. And then Tom, do you want to talk about that project?

Well, to add, just to the 9% to 11%, we think that obviously that number, that range used to be 9% to 13%, and we've dropped it a little bit because we know there's pressure on margins, and there will continue to be in Pipeline for the balance throughout 2022. And as work picks up and we see more activity closer to the end of the year, we'll see that number go up. The Field Services work, their work is historically, they're much smaller projects, so the risk isn't there. But when they do go bad, it's because they're smaller projects, it's just harder to recover. So when they got impacted by the weather, it just impacted the outcome of the project.

Very helpful. Next one for me. Can you speak to your supply chain, particularly as it relates to renewable projects and backlog that are in process or planned to start in '22? Have any of the increased cost to produce materials impacted your view of overall project margins?

No. Actually, they have not. We've kind of baked those into our estimates. Our clients understood those expectations from us. And we break them into our estimates and our schedules.

Perfect. Last one for me. How should we think about interest expense in '22? And what assumptions have you made related to interest rates and the impact on your debt for the year?

Yes. Good question. We are forecasting $5 million to $6 million of interest expense each quarter. And we've baked in, on average across the year, a 1% increase knowing that it will be less in the front half and more in the back half.

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

So I just wanted to talk through the initial 2022 guidance from a bridge perspective versus 2021. We had kind of anticipated that the tough comps in Pipeline around the closeout activity in 2021 would sort of be fully backfilled by better performance in Utilities and continued growth in renewables, et cetera. So just wanted to understand the down year-over-year adjusted EPS and the big moving pieces in that bridge.

Yes. Sean, good question. I think the quick and dirty is we had the headwinds on -- in Future and in our broader utility business during this quarter. We're definitely going to pick up some of that and recover some of that next year. There's no question about it. Energy/Renewables is going to be strong as well with some nice growth. But the decline in Pipeline is, as we continue to deemphasize that, is just a little bit more than you can completely overcome on an adjusted basis. For GAAP basis, it would net to flat to slightly up as we've talked about.

Yes. Okay, got it. And then of course, huge awards in solar in the fourth quarter. That's great to see. And you guys had walked through some of the schedules on some of the larger contracts in the prepared remarks. I just wondered how strong of a line of sight you have on start-up timing in some of those solar projects, just in light of the major supply chain disruption dominating the headlines there.

So that's a good question as well. It takes a while to develop a solar project. So we spend a lot of time on the front end estimating the job, evaluating the site, looking at the layout of the facility and also, because of the supply chain issues and the fact that the modules are within our clients' scope of supply, we've been able to encourage our clients to buy earlier. A lot of them now are going to American-manufactured modules, which helps give them surety of supply. And we are also -- we have actually made an investment early to go prebuy steel, prebuy cable, electrical commodities and fittings to make sure that we have those materials when we need them. So I'm very comfortable with the schedules that we have in our solar projects. And the ones that will be impacted by delays in modules delivery, we -- those are the last things that go in anyway. So it's not a big deal for us to lead -- finish a project, build it out, come back later with the crews and set the modules. We'll get paid for the demobilization, the mobilization. And instances where we see that, we have those plans. But right now, we've done a lot of fronting our clients to make sure we get surety of delivery.

Okay. Super helpful. And one last quick one for me. Can you tell us what solar revenue will be in 2022 and what that is year-over-year?

Yes. We generally don't give revenue guidance. But I will tell you, same thing that we've been saying for the past couple of quarters, is we expect 2022 solar revenue to be up 20% to 30%, maybe more.

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

I also had a question on solar in 2022. How should we think about that whole energy segment, given that solar growth?

Well, solar is certainly the driver. But we are seeing other activity, bid activity in our other business units within that segment as well. But solar is definitely the leading growth engine in that segment though. And there's a lot of opportunities in there. We're looking at -- right now, what we have under contract, about $1.6 billion. But we're looking at a funnel of about $3.78 billion just on projects that we've targeted that will take us all the way through 2024.

What's your best guess on -- I guess, what are you seeing on solar supply chain?

Well, the same thing everybody else is seeing. But again, we've gotten out ahead of it with respect to the commodities that we're responsible for. And a lot of the clients that we're working for -- most of the clients that we're working for, we've been working on numerous projects. And so they pre-bought modules. They've made commitments for the other materials within their scope of supply early in the process. So we feel pretty comfortable about the delivery of those materials on that equipment.

Okay. And then just lastly, can you -- I think you mentioned acquisitions in your script. Can you just kind of comment on what you're thinking about there?

Right now, we're really looking at singles and doubles. We hope to, here in the next quarter, at least make an announcement about some smaller acquisitions. That's what we're looking at now. We're always looking at some of the larger ones. But those take longer to develop for us.

Our next question comes from the line of Jerry Revich with Goldman Sachs.

Can we talk about the solar business a bit more? In the past, you've highlighted that hiring crews was a key constraint in terms of how quickly you ramp up that business. Can you give us an update on how many crews you folks have now and the line of sight you have over the course of '22?

I think the last update we gave was we were on -- we probably had 6 crews and we were working on 7. I would say we're probably working on 7 and 8. But something I'd add to that is we are now at -- and this was in our earnings narrative earlier, that we are building a distributed generation group now to chase smaller projects, anywhere from 5-megawatt DC to 100-megawatt DC. Those take smaller crews. And so we're building that business up, too. So that will help grow that business as well.

Super. And then just to shift gears in the Utilities segment, obviously, 2021 was a year of integrating Future. Can you talk about the margin outlook on a year-over-year basis to get to your targeted range that implies margin expansion for the segment over 2021 levels? And I'm wondering, when do we get to that point where margins are up year-over-year? And I appreciate the seasonality element. So maybe you can comment on that.

Yes. Setting aside the seasonality, we definitely expect margins to be up slightly in 2022, maybe as much as 0.5 percentage point across the board, just based on the strength of our overall business as well as the contribution from Future increasing, not only in total but as slightly as a percent of the group as well.

I think it's worth mentioning, too, that we don't have any major storm work in any of these numbers as well. That's typically higher-margin works. We don't bake that into our plans at all. So if we have storm work, recovery work, that will help drive the margins up.

Okay. Super. And lastly, CapEx revenue looks like it's going to be in the 3.5% range over the course of this year. Is that the normalized run rate for us to think about for the business going forward? Or any significant items that are driving CapEx this year?

Yes. So CapEx on -- in total will be about the same as it was last year. A little bit higher percentage this year is focused on facilities as we continue to upgrade some of our facilities in order to concentrate and draw in multiple facilities into one of the geographic areas. So for example, in Southern California, we might take multiple facilities and consolidate them into one new one. And that's also to support growth as well. So the rest, of course, is going to be equipment, just like normal. And in '21, we kind of pre-bought some equipment, as we previously mentioned. With respect to '22, I don't see a whole lot of prebuying in '22 right now, but we're going to watch it closely as the year goes on. And it wouldn't surprise me if we need to take advantage of that at some point, too.

[Operator Instructions]. Our next question comes from the line of Zane Karimi with D.A. Davidson.

So first off, can you talk a little bit more about the moving parts and expectations through the year for the communications business?

Can you restate your question, please? I'm not sure I understood it.

Yes. Can you talk a little bit more about the moving parts and expectations that you guys have around communications through 2022?

Yes. I think I understand what you're asking for. So as of the end of last year, we signed about -- we signed $100 million worth of contracts associated with ARB offsite work. Basically, where we execute our work is in the backbone of all the 5G. So we spend -- most of our work is associated with the installation of fiber optic cable across the country into rural communities to support the launch of 5G and provide broadband to clients. It's about 400,000 miles of fiberoptic cable that's projected to be installed or needing to be installed in 2022 to support the launch of 5G as we're seeing it now and provide broadband services to our clients. We're pursuing a great deal of that work. As I just said, we were awarded $100 million of that type of work in 2021. As of now, as of the end of February, just starting in December, we had already pursued or bid another $150 million of that work just in the last 3 months, so the end of last year,and the first 2 months of that this year. So we're seeing a lot of bid activity associated with that type of work. None of that has been awarded yet that we've recently bid. But that's really where we see our future in that business.

And maybe any activity you're seeing around biofuels?

A lot of it is still in the study phase, at least the projects that we're associated with. We're still in the FEED phase of those projects.

We do have a follow-up question from the line of Adam Thalhimer with Thompson Davis.

I was hoping to get a little more color on the pipeline bidding. I think you said back half of this year, it could pick up. Or was it picking up now?

Adam, the bid activity is taking place now. The projects will start up -- we're looking to start up sometime in the second half of the year and into 2023.

And these are -- so the first half of '22 is more maintenance-type projects, the integrity work. But the bidding that you're seeing is larger projects?

Bidding we're seeing is a combination. We're seeing much more activity. We've seen a 25% increase in the type of work that our Field Services group does, the smaller projects, 7 miles of pipeline replacement, dig up and replace, those types of projects. And that will take place -- those projects will be executed all throughout 2022 and into 2023. There's some smaller pipeline projects that our Pipeline groups have bid earlier this year. And we're seeing their bid activity step up a little bit as well. But those projects will not start until the second half of 2022, more likely into 2023.

Are you seeing anything that would be in the category of like large, wide-diameter multistate? Or is it all kind of intrastate still?

If there's anything like that comes up, it will probably be through carbon capture. And that would be later this year.

Okay. Just seems kind of funny to be bearish on pipelines with oil over $100.

Yes, I'm with you.

[Operator Instructions]. And at this time, there are no further questions. I would like to turn the conference back over to Tom McCormick, Chief Executive Officer.

Thank you. We take our commitment to building America's infrastructure seriously. And we are proud that the work we do contributes to the strength of our communities and our country. I want to thank all of our employees and crew members for their hard work and their focus on quality and safety in everything they do. And I want to thank each of you for joining us today. I appreciate your interest in Primoris. Thank you, and goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye.