Primoris(US:PRIM)2021-05-05 22:15Part I. Financial Information Financial Statements The company reported a net income of $5.8 million in Q1 2021, a significant turnaround driven by revenue growth and the acquisition of Future Infrastructure Holdings (FIH) Condensed Consolidated Statements of Operations Highlights (Q1 2021 vs Q1 2020) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Revenue | $818,329 | $743,243 | | Gross Profit | $80,181 | $47,810 | | Operating Income | $12,853 | $3,422 | | Net Income (Loss) Attributable to Primoris | $5,850 | $(3,737) | | Diluted EPS | $0.12 | $(0.08) | Condensed Consolidated Balance Sheet Highlights (As of March 31, 2021) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $212,770 | $326,744 | | Goodwill | $588,845 | $215,103 | | Intangible assets, net | $181,226 | $61,012 | | Total Assets | $2,515,434 | $1,969,580 | | Long-term debt, net | $592,087 | $268,835 | | Total Liabilities | $1,614,070 | $1,254,788 | | Total Stockholders' Equity | $901,364 | $714,792 | Condensed Consolidated Statements of Cash Flows Highlights (Q1 2021 vs Q1 2020) | Cash Flow Category | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $7,514 | $(5,467) | | Net cash used in investing activities | $(630,211) | $(2,409) | | Net cash provided by (used in) financing activities | $508,464 | $(19,195) | | Net change in cash and cash equivalents | $(113,974) | $(26,812) | Note 1: Nature of Business & Segment Reorganization Primoris realigned its structure into three new market-focused segments: Utilities, Energy/Renewables, and Pipeline Services - In Q1 2021, the company reorganized its reportable segments from five to three: Utilities, Energy/Renewables, and Pipeline Services2223 Note 5: Acquisitions The company acquired Future Infrastructure Holdings, LLC (FIH) for approximately $611.2 million, integrating it into the Utilities segment - Acquired Future Infrastructure Holdings, LLC (FIH) on January 15, 2021, for approximately $611.2 million, net of cash acquired36 - The acquisition resulted in the recognition of $373.7 million in goodwill and $122.4 million in identifiable intangible assets (customer relationships and tradename)3840 - For the period from January 15 to March 31, 2021, FIH contributed $60.7 million in revenue and $9.8 million in gross profit40 - Acquisition-related costs of $13.5 million were recorded in the quarter41 Note 6: Revenue Remaining performance obligations stood at $1.7 billion, with Master Service Agreement (MSA) revenue growing to 41.3% of the total - As of March 31, 2021, the company had $1.7 billion of remaining performance obligations, with approximately 83% expected to be recognized as revenue over the next four quarters47 Revenue by MSA and Non-MSA (in thousands) | Segment | MSA Revenue Q1 2021 | Non-MSA Revenue Q1 2021 | MSA Revenue Q1 2020 | Non-MSA Revenue Q1 2020 | | :--- | :--- | :--- | :--- | :--- | | Utilities | $277,967 | $57,045 | $185,785 | $64,169 | | Energy/Renewables | $42,586 | $310,278 | $37,891 | $263,875 | | Pipeline | $17,710 | $112,743 | $46,732 | $144,791 | | Total | $338,263 | $480,066 | $270,408 | $472,835 | Note 9: Credit Agreements The company amended its credit agreement to finance the FIH acquisition, increasing its term loan by $400.0 million - On January 15, 2021, the company amended its credit agreement, increasing its term loan by $400.0 million to a total of $592.5 million to finance the FIH acquisition74 - As of March 31, 2021, available borrowing capacity under the $200.0 million revolving credit facility was $148.9 million76 Note 13: Stockholders' Equity A public offering of 4.5 million shares generated net proceeds of approximately $149.4 million to repay acquisition-related debt - In March 2021, the company completed a secondary offering of 4,500,000 shares, raising net proceeds of approximately $149.4 million103 - The net proceeds from the offering were used to repay a portion of the debt incurred under the Amended Credit Agreement for the FIH acquisition103 Note 16: Reportable Segments The Energy/Renewables segment became the largest revenue contributor, and consolidated gross margin improved to 9.8% Revenue by Segment (in thousands) | Segment | Q1 2021 Revenue | % of Total | Q1 2020 Revenue | % of Total | | :--- | :--- | :--- | :--- | :--- | | Utilities | $335,012 | 40.9% | $249,954 | 33.6% | | Energy/Renewables | $352,864 | 43.2% | $301,766 | 40.6% | | Pipeline | $130,453 | 15.9% | $191,523 | 25.8% | | Total | $818,329 | 100.0% | $743,243 | 100.0% | Gross Profit by Segment (in thousands) | Segment | Q1 2021 Gross Profit | % of Segment Revenue | Q1 2020 Gross Profit | % of Segment Revenue | | :--- | :--- | :--- | :--- | :--- | | Utilities | $21,716 | 6.5% | $6,314 | 2.5% | | Energy/Renewables | $42,672 | 12.1% | $25,004 | 8.3% | | Pipeline | $15,793 | 12.1% | $16,492 | 8.6% | | Total | $80,181 | 9.8% | $47,810 | 6.4% | Management's Discussion and Analysis (MD&A) Consolidated revenue grew 10.1% due to the FIH acquisition and strong segment performance, increasing total backlog to $3.1 billion Results of Operations Consolidated revenue rose 10.1% to $818.3 million, and gross profit surged 67.7% with margins improving to 9.8% - Revenue increased by $75.1 million (10.1%) YoY, primarily due to growth in Energy/Renewables and Utilities segments, including $60.7 million from the FIH acquisition158 - Gross profit increased by $32.4 million (67.7%) YoY, with gross margin expanding to 9.8% from 6.4%, reflecting the FIH acquisition and improved margins in legacy operations159 - Transaction and related costs of $13.9 million were incurred in Q1 2021 related to the FIH acquisition161 Segment Results The Utilities and Energy/Renewables segments drove growth, offsetting a decline in the Pipeline segment, with all segments showing improved gross margins - Utilities: Revenue increased 34.0% YoY, driven by the FIH acquisition ($60.7 million), and gross margin improved to 6.5% from 2.5%169170 - Energy/Renewables: Revenue increased 16.9% YoY, driven by increased renewable energy activity, and gross margin improved to 12.1% from 8.3% due to favorable claims resolution171172 - Pipeline: Revenue decreased 31.9% YoY due to the completion of large projects in 2020, though gross margin improved to 12.1% from 8.6% due to strong performance on a Texas project173174 Backlog Total backlog increased to $3.09 billion, bolstered by a $248.8 million contribution from the FIH acquisition Total Backlog by Segment (in millions) | Reportable Segment | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Utilities | $1,388.3 | $1,045.2 | | Energy/Renewables | $1,386.4 | $1,353.7 | | Pipeline | $313.7 | $377.7 | | Total | $3,088.4 | $2,776.6 | - The FIH acquisition added approximately $248.8 million of MSA backlog to the Utilities segment181 - The company defines backlog as a combination of Fixed Backlog (uncompleted portions of existing contracts) and MSA Backlog (estimated revenue from MSA work for the next four quarters)176 Liquidity and Capital Resources The company maintained strong liquidity with $212.8 million in cash after financing the FIH acquisition through debt and a subsequent equity offering - At March 31, 2021, cash and cash equivalents were $212.8 million, and available borrowing capacity was $148.9 million188184 - The FIH acquisition was financed via a $400 million term loan increase, and a portion of this debt was repaid with ~$149.4 million from a secondary stock offering185186 - Capital expenditures for the remaining nine months of 2021 are expected to be between $60 million and $80 million189 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation on its variable-rate debt, partially mitigated by an interest rate swap - The primary market risk is interest rate risk from variable-rate debt208 - As of March 31, 2021, $142.3 million of variable rate debt was economically hedged with an interest rate swap208 - A 1.0% increase or decrease in interest rates would change annual interest expense by approximately $4.0 million208 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal controls - Management, including the CEO and CFO, concluded that as of March 31, 2021, the company's disclosure controls and procedures were effective211 - No material changes were made to internal control over financial reporting during the quarter ended March 31, 2021213 Part II. Other Information Legal Proceedings The company faces various legal proceedings in the ordinary course of business but does not expect them to have a material adverse effect - Management believes that the reasonably possible outcome of current claims and legal proceedings will not have a material adverse effect on the company's consolidated results of operations, financial condition, or cash flow112 Risk Factors No material changes have been made to the risk factors disclosed in the company's most recent Annual Report on Form 10-K - The company states that there have been no material changes to the risk factors discussed in its most recently filed Annual Report on Form 10-K215 Exhibits This section lists exhibits filed with the report, including key agreements and certifications