8-K: Primoris Services Corp. Announces Record Revenue and Backlog for 2023, Provides 2024 Outlook

Primoris Services Corporation reported record full-year revenue of $5.7 billion and a record backlog of $10.9 billion for 2023, while also providing its initial outlook for 2024.

Summary

• Primoris Services Corporation announced its financial results for the fourth quarter and full year ended December 31, 2023.
• Full-year revenue reached a record $5.7 billion, a 29.3% increase compared to 2022, driven by growth in the Energy and Utilities segments and contributions from acquisitions.
• Net income for the full year was $126.1 million, or $2.33 per diluted share, a 5.2% decrease from 2022 due to higher income tax and interest expenses.
• Adjusted net income for the full year was $154.7 million, or $2.85 per diluted share, a 13.9% increase from 2022.
• Adjusted EBITDA for the full year was $379.5 million, a 33.9% increase from 2022.
• The company's total backlog reached a record $10.9 billion, a 19.8% increase from the end of 2022.
• Net cash provided by operating activities for the full year was $198.6 million, a $115.2 million increase from 2022.
• Fourth-quarter revenue was $1.5 billion, a 14.0% increase compared to the same period in 2022, driven by renewables growth in the Energy segment.
• Net income for the fourth quarter was $37.7 million, or $0.69 per diluted share, a 9.3% decrease from 2022.
• Adjusted net income for the fourth quarter was $46.4 million, or $0.85 per diluted share, a 7.6% decrease from 2022.
• Adjusted EBITDA for the fourth quarter was $104.2 million, an 8.9% increase from 2022.
• The company declared a cash dividend of $0.06 per share, payable on or about April 15, 2024, to shareholders of record as of March 28, 2024.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to record revenue, backlog, and strong adjusted EBITDA growth. While there are some concerns about decreased net income and margin pressures in the Utilities segment, the overall tone is optimistic, supported by management's positive outlook and focus on future growth.

Positives

• The company experienced significant revenue growth, driven by strong performance in the Energy and Utilities segments.
• The record backlog of $10.9 billion provides a strong foundation for future revenue.
• The company demonstrated strong cash flow generation, allowing for debt reduction.
• The company achieved its best safety performance in its history.
• The Energy segment saw significant growth in revenue and gross profit.
• The company is optimistic about continued success across its end markets in 2024.
• The company is focused on improving margins in the Utilities segment.
• The company is well-positioned to grow revenue in utility-scale solar construction.
• The company declared a cash dividend of $0.06 per share.

Negatives

• Net income for the full year decreased by 5.2% due to higher income tax and interest expenses.
• Net income for the fourth quarter decreased by 9.3% due to higher income tax and interest expenses.
• Gross profit as a percentage of revenue decreased in the fourth quarter to 10.3% from 11.5% in 2022.
• The Utilities segment experienced a decrease in gross profit and margin due to decreased activity and productivity issues on some legacy projects.
• Interest expense increased significantly due to higher average debt balances and interest rates.

Risks

• The company faces risks related to customer timing, project duration, weather, and general economic conditions.
• Changes in the mix of customers, projects, contracts, and business could impact results.
• The company is exposed to price volatility and expectations of future prices of oil, natural gas, and natural gas liquids.
• Cost or schedule overruns on fixed-price contracts could negatively impact profitability.
• The company faces risks related to the availability of qualified labor.
• Increases in interest rates and slowing economic growth or recession could impact the company.
• The company is exposed to risks related to cyber-security breaches.
• The company faces risks related to conflicts in the Gaza Strip and between Russia and Ukraine, severe weather conditions, public health crises and pandemics, political crises or other catastrophic events.
• Client delays or defaults in making payments could impact the company.
• The company faces risks related to acquisitions, dispositions, and investments.
• The company is exposed to risks related to new or changing political conditions and legal requirements.
• The loss of one or a few clients that account for a significant portion of the company's revenues could impact the company.
• The company faces risks arising from the inability to successfully integrate acquired businesses.

Future Outlook

The company expects 2024 EPS to be between $2.50 and $2.70 per fully diluted share, adjusted EPS to be in the range of $3.05 to $3.25, and adjusted EBITDA to range from $395 to $415 million. The company is targeting SG&A expense as a percentage of revenue in the low six percent range for full year 2024. The company estimates capital expenditures for 2024 in the range of $80 to $100 million. The company expects its effective tax rate for 2024 to be similar to 2023 at approximately 29 percent.

Management Comments

• Tom McCormick, President and Chief Executive Officer, stated that 2023 was another record year for Primoris, demonstrating the successful execution of their strategy and the strength of their end markets.
• Mr. McCormick highlighted the strong close to the year in solar project awards and contributions from acquisitions.
• Mr. McCormick also noted the strong year in terms of generating cash from operations and the company's best safety performance in its history.
• Mr. McCormick expressed optimism about the company's continued success in 2024 and their focus on improving margins in the Utilities segment.
• Mr. McCormick stated that the company is well-positioned to grow revenue and remain a leader in utility-scale solar construction.
• Mr. McCormick expressed confidence that the company's commitment to margin improvement, cash flow generation, and capital allocation will benefit Primoris, its employees, and its shareholders in 2024 and beyond.

Industry Context

The announcement reflects a strong year for Primoris, particularly in the renewable energy sector, aligning with the broader industry trend of increased investment in renewable energy infrastructure. The company's growth in the Energy segment, especially in solar projects, positions it well to capitalize on the increasing demand for clean energy solutions. The focus on improving margins in the Utilities segment also indicates a strategic response to competitive pressures and market dynamics.

Comparison to Industry Standards

• Primoris's 29.3% revenue growth for the year is significantly higher than the average growth rate for the construction and infrastructure services industry, which typically sees single-digit growth.
• The company's backlog of $10.9 billion is substantial compared to competitors like MasTec (MTZ) and Quanta Services (PWR), indicating strong future revenue potential.
• While the company's net income decreased, its adjusted EBITDA growth of 33.9% is a positive sign, suggesting improved operational efficiency and cost management compared to some peers.
• The company's focus on utility-scale solar construction aligns with the industry's shift towards renewable energy, positioning it favorably against companies with less exposure to this sector.
• The company's safety performance is a key differentiator, as safety is a critical factor in the construction industry, and a strong safety record can lead to lower costs and improved project outcomes.
• The company's cash flow generation is also a positive sign, as it allows for debt reduction and investment in future growth, which is important for long-term sustainability and competitiveness.

Stakeholder Impact

• Shareholders will benefit from the declared cash dividend and the company's strong financial performance.
• Employees will benefit from the company's commitment to safety and its focus on growth.
• Customers will benefit from the company's strong track record of successful project execution.
• Suppliers and creditors will benefit from the company's strong financial position and cash flow generation.

Next Steps

• The company will focus on improving margins in the Utilities segment.
• The company will continue to grow revenue in utility-scale solar construction.
• The company will allocate capital to businesses that offer higher returns.
• Management will host a conference call and webcast on February 27, 2024, to discuss the company's results and business outlook.

Key Dates

Keywords

Primoris, revenue, backlog, EBITDA, net income, solar, utilities, energy, construction, infrastructure, dividends, acquisitions