Hello, and thank you for standing by. My name is Regina, and I will be your conference Operator today. At this time, I would like to welcome everyone to the Primoris Services Corporation Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I would like to gain I would now like to turn the conference over to Blake Holcomb, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to the Primoris Second Quarter 2024 Earnings Conference Call. Joining me today with prepared comments are Tom McCormick, President and Chief Executive Officer; and Ken Dodgen, Chief Financial Officer. Before we begin, I would like to make everyone aware of 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 as of today, August 6, 2024. We disclaim any obligation to update these statements, except as may be required by law. In addition, during this conference call, we may make reference to certain non-GAAP financial measures. A reconciliation of these non-GAAP measures are available on the Investors section of our website and our second quarter 2024 earnings press release, which was issued yesterday. I would now like to turn the call over to Tom McCormick.

Thank you, Blake. Good morning, and thank you for joining us today to discuss our second quarter 2024 financial and operational results. In the second quarter, Primoris delivered double-digit growth in both revenue and profitability from the previous year. Our employees have taken ownership of driving our strategy to grow profitably with an emphasis on safety and cash flow generation. In recent quarters, we've been highlighting key drivers of the increased investment in infrastructure solutions including industrial reshoring, growing electricity demand and the transition to lower carbon energy sources. We are seeing these things play out in many of the markets we serve across North America, but perhaps there's no better example of this than in the state of Texas. The Electric Reliability Council of Texas, or ERCOT, recently increased its estimates for future power demand. The revised forecast predicts a more than 75% increase in demand from a peak load of 85 gigawatts in 2023 to 150 gigawatts by 2030. The increase is being driven by a rapidly growing population. The oil and gas industry transitioning their operations to run on electricity rather than gas or diesel as well as large users of power, such as data centers powering artificial intelligence and cryptocurrency mining. We have already seen the impact of data center development in other parts of the country. And Primoris has a suite of critical services that we can provide for these projects. From high-voltage work and site preparation to liter installation and power generation, we are well positioned to continue providing valuable services to the development of data centers. So far this year, we have been awarded or in the process of constructing close to $400 million of work related to data centers and have identified more than $300 million of projects slated to be awarded…

Thanks, Tom, and good morning, everyone. Our Q2 revenue was just under $1.6 billion, an increase of $150.3 million or 10.6% from the prior year, driven primarily by strong growth in our Energy segment. Energy segment was up $194.8 million or 25% from the prior year, driven primarily by solar and industrial construction. The Utility segment was down $28.4 million or 4.4% from the prior year, primarily due to a decrease in gas operations activity and a major substation project that was completed in the prior year. These impacts were partially offset by increased transmission and substation work for our renewables customers and increased activity in communications. Gross profit for the second quarter was $186.7 million, an increase of $29.4 million or 18.7% compared to the prior year. This is primarily due to the increase in Energy segment revenue and improved margins in both segments. As a result, gross margins were 11.9% for the quarter compared to 11.1% in the prior year. Turning to our segment results. Utility segment gross profit was $64.1 million, down $2.4 million or 3.7% compared to the prior year due to the decrease in revenue. Despite lower revenue, gross margins improved slightly to 10.3% compared to 10.2% in the prior year due to improved operational productivity and cost management. We continue to prioritize improving margins in this segment through a combination of favorable project work, MSA rate increases and higher productivity in our power delivery business. We expect to see some improvement for the full year 2024 compared to the prior year and further margin expansion in the years ahead as we progress toward our goal to have this segment perform in the 10% to 12% range. However, for 2024, we still anticipate margins will be at the lower end of the 9% to 11%…

Thank you, Ken. Prior to opening the line up for questions, I'd like to recap some of the key points of the quarter. First, demand for the services we provide remains high across our markets and is becoming increasingly important in the state of Texas. We have the relationships and experience to build solar and gas power generation, critical components of data centers and the power delivery services required to connect them. Second, our renewables business continues to thrive and show signs of accelerating in the years ahead as we build backlog and grow our project management teams. The addition of ancillary services like battery storage, O&M and eBOS solutions through Premier PV simplifies the construction process for us and our customers and expands our already strong relationships with them. Lastly, we are making progress in improving our utilities margins through improved mix, new MSA contracts and increased productivity even as the timing of customer spending can fluctuate on a quarterly basis. Ultimately, we are confident that there is a lot of work that will be needed from our utility segment in the years ahead to meet the needs of the North American economy. We have a lot of opportunity ahead of us to drive profitability and cash flow higher. Success in these areas along with the continued capital discipline will take us further down the path of achieving our goal to be the best allocators of capital in our industry. In our view, this will allow Primoris to reach its potential to the benefit of our employees, our customers and our shareholders. We will now open up the call for your questions.

[Operator Instructions] Our first question comes from the line of Jerry Revich with Goldman Sachs.

This is Adam Bubes on for Jerry Revich. In electric utilities, just wondering if you can speak to what customers are telling you about their investment plans over the next 2 to 3 years to prepare for the increased load growth? And what level of growth is at business today.

I'll let Tom talk about kind of what the customers are saying. In terms of -- in terms of revenue growth, for us, it's fairly low revenue growth right now. We're targeting single-digit growth this year, Adam, as we've talked about in the past, because we are more focused on margin improvement, and this is obviously the first of the 3-year plan for us, focused on margin improvement. And then, Tom, you've probably been talking about customers [indiscernible].

What we're hearing from clients is a little bit different, depending on what part of the country we're in. I think some of them are waiting to see what happens in the election. The others are not and others are planning for the growth here in Texas, for instance, our customers are expecting significant growth, and they're seeing their budgets increase year-on-year. So they're asking us to support that and grow with them. Other parts of the country, we're seeing the same. We're having very similar conversations whereas [indiscernible] is a little bit different. Some customers are waiting to get it in the rate case, and we're waiting to see what happens with the election. So it's kind of a mixed bag.

And then shifting to utilities. What utility margins, what type of margin improvement are you now thinking about in 2025 versus 2024? And what inning are we currently in the renegotiating of MSA utility contracts flowing through?

Yes. I don't have specific margin targets for you for '25 right now. But with respect to what inning we're in, we're -- well, there's 2 phases of it, right? Adam, we talked about this in the past. There's the ongoing stuff. We constantly have contracts that are being renewed every single year. So there's the ongoing piece of it. And then there's the other component, where we're specifically talking about better payment terms and other things like that. That we are probably in the second or third inning and will happen over the course of the next -- over '24, '25 and '26 as well.

But the ones we've targeted, we're probably in the eighth or ninth inning of some of those finished those negotiations are finished soon, but the game starts over right every time one expires. Every year, we have MSAs that expire or coming up for renewal.

And last one for me. Is any of the year-to-date revenue growth in utilities attributable to intentional margin-accretive shedding in that business? Or is it really the lapping of the project that you referenced in gas operations, mainly?

It's a little bit of both.

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

It's Pete Lukas for Lee. I appreciate it, you guys covered a lot in the prepared remarks. Just 2 quick questions for you. You had spoken on your Analyst Day about wind-down of activities for a portion of the business. What, if any progress has been made on that front? And how are you thinking about expected proceeds and potential benefits to gross margins as a result of any actions?

We've actually are in the process of winding some businesses down even now and rather in divesting ourselves and others. The divestitures will take a little while, but we did just recently sell a smaller business, and the net proceeds from that were minimal, but they were positive. We sold some assets of another business that were winding down and some of that was fairly positive for us as well and the rest will probably come even later this year or some go into 2025. So some of these are just going to take some time. Some of them we have actually buyers that are interested in the businesses, and those discussions will take -- those just take time to evolve.

And last for me. Can you just talk about weather dynamics in the quarter and how this may have impacted the segments? And any read into how that's progressing in the current quarter?

We had some rain in the second quarter, obviously, that impacted some of our solar and heavy civil business. It's probably a little bit of our industrial businesses here on the Gulf Coast. Some of them will get some recovery from their clients just because of their name storms and the language in the contract will help us a little bit to cover some of the costs, not necessarily have any upsides of those, obviously. Others will not. The impacts were not as significant as we thought. We were able to get back to work pretty quickly on all of those sites. So it's been pretty good. We had a little bit of storm work that gave us a little bit of revenue in the quarter and the second quarter and some early third quarter this year, again, not real material.

Our next question comes from the line of Julio Romero with Sidoti.

This is Alex Hantman on for Julio. First question on data centers. Are you seeing any trends around expansion in the size of projects or relative growth in your portfolio?

We're seeing more opportunities associated with work that supports or is a component of a part of building data centers with respect to power generation. We're doing a number of studies now on projects, peak shavers and the like here in Texas in this part of the country to support. I'm sure future demand that comes from the construction of data centers. We're also doing some work right now for clients in fiber installs, and we have the ability -- and we're also doing some more clients in power generation associated with data centers. It's both solar and gas.

And then your question around the EPS guidance. Can you talk a little bit about some of the scenarios that might bring us to the low end versus the high end of the guidance?

Yes. I mean it's the normal opportunities, right? If we have any serious weather in the back half of the year, that could impact us from a cost perspective or if winter sets in earlier in Q4 than we're expecting, that could be -- take us to the lower end of the range. On the opposite side of the spectrum towards the top end of the range, good project closeouts, some storm work from named hurricanes during Q3 and early Q4. Those are the usual suspects that drive us toward the upper end of the range.

Our next question comes from the line of Avi Jaroslawicz with UBS.

On for Steve Fisher. So yes, just back in margins for a second, another quarter of robust profit in the Energy segment. I just want to understand how that compared to your expectations going into the quarter and -- maybe if you can give us a little bit more color as to what drove that? And then as we think about the second half, how much conservative and would you say you're baking into guidance? And what are the biggest swing -- uncertainties in your mind there?

Yes. Look, not a whole lot of uncertainties as we look toward the back half of the year because basically, we're burning off backlog for the most part. The margins were slightly above where we thought they were going to be just because of the timing of a couple of modest project closeouts during the quarter and -- and frankly, the fact that we burned a little bit more revenue during the quarter than we originally anticipated. And look, the back half of the year, again, I think it's just going to be another solid year -- another solid finish to the year for us. We feel good about where we are. And we still have in a couple of our businesses. We still have a little bit of business to win, but it's a relatively small percentage of the total pie.

And then in terms of the backlog, so I think we would have maybe expected a little bit stronger bookings for the Energy segment, especially when you called out the $700 million of awards there in Q2 with the July press release. So I know there's another $500 million that was booked in early July that we'll hit Q3. But can you discuss just some of the moving parts within backlog there? Like what were the ins and outs in terms of bridging backlog from Q1 to Q2?

I'm not sure if there's any magic, but -- a lot of it is just timing. The same thing with Q2 to Q3, right? We could have very easily have booked that another $500 million that crept into Q3 into late Q2. It's just the timing when the contracts were executed. And we don't put it in backlog until the contracts are executed. We've a lot of opportunities towards the end of this year. We've got projects that we're negotiating. We've got projects that we've been told we're the low bidder on them. We're preparing to sign the contract. It will take place over the course of the third quarter and fourth quarter of the year that will put us in a good position for going into 2025. But sometimes when you get towards the end of the quarter, some of that just pushes so we have really no control over it. The fact that we'll have it -- our expectation is we'll have it in backlog going into 2025, and that's all I really care about.

And our next question will come from the line of Kevin Gainey with Thompson, Davis.

It's Kevin on for Adam. Maybe if we could -- if you guys could touch on the energy margins in the quarter, they were pretty strong. And do you think that can continue in the back half? Because to shake out that might end up towards the higher end of the guide.

That's certainly a possibility. I mean, right now, most of the businesses in our Energy segment are performing well. Some of it is the timing of projects. If you got a project that we're just starting your margins, you're probably not going to see margins go up a great deal on projects that are in the early phases, but we also have projects that are closing out, [indiscernible] guys continue to perform, which they have so far this year that there is potential for an upside.

And then maybe we could talk about communications demand. I know you guys mentioned Southwest. Is this like -- was that one particular customer driving that? And maybe how you're looking for the back half of the year in Communications?

No, we still expect to see good improvement in performance by our communications group in the back half of the year. They performed extremely well since finishing out that problem project they had last year, and they've been very consistent. They're not growing at a rapid rate, but they are growing and they're performing well. And it's with a number of different clients in various different parts of the country and -- [indiscernible] Colorado, Texas, New Mexico, Nevada.

And Arizona.

And Arizona.

There is definitely a Southwest [indiscernible]. And then just quickly, there was a gain on sale rather sizable on the cash flow. Was that a particular divestment in the industrial stuff that you guys were mentioning?

Yes. It was a couple of divestments. When we sold one of our businesses and the other one, we're winding a business down. And look, we sell equipment through this underutilized [indiscernible] it was there. It's kind of spread across all 3 of those.

Our next question will come from the line of Brent Thielman with D.A. Davidson.

I just had a couple of questions here. Tom, I think you guys made mention in the release in the past around some opportunities developing in the gas-fired power market, be curious sort of what that competitive environment looks like, how do you manage your exposure to those sorts of risks and what will be a typical sized project for Primoris. It seems like that could be an interesting opportunity for you?

We're doing some of this work now in our union group out in California and out West. And they have an expertise in that. So they manage their risk extremely well, and they're performing really well. Yes, there are a number of competitors, other contractors they compete with, but we've won our share of the work. And one of the most recent jobs we were just basically awarded negotiated. So there was no competition. Nonunion, we have an expertise, but primarily more inclined to go with simple cycle or peak shavers, which are much smaller, maybe $300 million and down perhaps. And again, we know that work extremely well. We will rely on the expertise we have in the company. Actually probably not as much competition here in Texas in some of the [indiscernible] areas in this region is as we've seen in some other parts of the country.

And I guess, Tom, any sense how customers in solar are viewing the upcoming election? Is there any sort of real wait-and-see approach to moving new projects that wouldn't -- it doesn't look like it, but curious your thoughts there.

The customers that we work with specifically, we have not. They're not really worried about what the next administration is going to do. They see investment in. They may possibly see slowdown in the apparent demand for solar energy. But honestly, there is need for it to be a more conservative approach to how fast you can build these facilities anyway and they'll probably see that being more in line with what's realistic more so than being aggressive. So I think all of our customers, we negotiated about 90% of the work that we execute and all of our customers are very well-funded developers. So we haven't really seen anything.

But yes, just to add to that, we still see it growing. It just may not grow quite as quickly as it's been growing in the past couple of years.

Yes, which is kind of -- which is what I said with respect to being a little more conservative, but more in line with what reality is.

Yes. Just last one on the Utility segment. How much of the headwind is some of the softness in spending from gas utilities I guess, to the gross margin expansion story. In other words, can you still expand margins in the face of some of that sort of spending pressure near term?

Yes, I think we can. I honestly think we can. Some of it is just performance related. So if we perform better, we continue to perform better and optimize our productivity and our efficiencies on job sites, we can. Some of it's in negotiations and clients are inclined, they need our services, they want our services and U.S. partners have been really receptive to negotiate adjustments to our rights and our MSAs. Some of them have pulled back and the clients are saying that they are not spending as much. They're really spending probably more to get the same amount of work done. So it's not that their spending is dropping. It's just -- but they experienced the same interest rates or similar impact in the interest rates that we have, right? So maybe their spend is going up $8 billion in a year, but they're probably planning on getting the same amount of work done. So there's no -- we have not seen any pressure from clients to reduce our costs and reduce their costs in anyway. So [indiscernible] margin pressure.

That will conclude our question-and-answer session. I will now turn the call back over to Tom McCormick for closing remarks.

Thank you. And thank you for your questions and interest in Primoris. We're pleased with our results through the first half of 2024 and expect the second half of the year to put us on a positive trajectory for 2025. Thank you and we look forward to updating you next quarter.

That will conclude today's call. Thank you all for joining. You may now disconnect.