Primoris Services Corporation — Q1 2024 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2024, compared with Q1 2023. Primoris provides infrastructure construction, maintenance, replacement, fabrication and engineering services, primarily in the U.S. and Canada, through its Utilities and Energy segments.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1,412.7 million | $1,256.9 million | +12.4% |
| Gross profit / margin | $133.4 million / 9.4% | $99.7 million / 7.9% | Profit +33.7% |
| Operating income | $44.2 million | $19.0 million | +132.5% |
| Net income | $18.9 million | $1.3 million | +$17.6 million |
| Diluted EPS | $0.35 | $0.02 | +$0.33 |
| Net cash used in operating activities | $28.5 million | $115.3 million | Use decreased $86.9 million |
| Cash and cash equivalents at period end | $177.6 million | $217.8 million at Dec. 31, 2023 | Down $40.2 million |
| Total debt, net of issuance costs | $951.7 million | $958.3 million at Dec. 31, 2023 | Down $6.5 million |
Interest expense, net was $18.0 million, versus $18.5 million. The effective tax rate was 29.0%, compared with 28.0%. SG&A was $88.6 million, up 13.6%; as a percentage of revenue, it remained approximately consistent with the prior period. Net debt, using reported total debt net of issuance costs less cash and cash equivalents, was approximately $774.1 million at March 31, 2024.
Segments and operating trends
- Energy: Revenue rose 33.4% to $989.0 million; gross profit rose 57.0% to $103.9 million. Segment gross margin improved to 10.5% from 8.9%, reflecting growth in higher-margin renewable work and strong industrial performance. Pipeline activity declined.
- Utilities: Revenue fell 9.0% to $490.8 million and gross profit fell 12.2% to $29.5 million. Segment gross margin was 6.0%, versus 6.2%, due primarily to completion of a major substation project and lower communications activity.
Liquidity, debt and cash flow
Operating cash outflow improved year over year but remained negative, primarily reflecting working-capital movements. Accounts receivable used $129.3 million of cash and contract assets used $26.5 million, partly offset by a $73.7 million increase in contract liabilities and higher payables and accrued liabilities. Investing activities provided $4.2 million, including $14.6 million of asset-sale proceeds against $10.4 million of capital expenditures. Financing activities used $15.1 million, including $7.0 million of debt payments and $3.2 million of dividends.
The company had no borrowings on its $325 million revolving credit facility and reported $273.4 million of available capacity after $51.6 million of outstanding commercial letters of credit. The weighted average rate on outstanding debt was 6.6%. A $300 million interest-rate swap hedged a portion of variable-rate debt; management estimated a 1 percentage-point rate move would change annual interest expense by approximately $5.7 million. The company was in compliance with credit agreement covenants at quarter end.
Primoris reported $1,999.5 million of current assets and $1,448.4 million of current liabilities. Its $100 million accounts-receivable securitization facility had $15 million of remaining capacity; $85 million of receivables had been sold and derecognized at quarter end. Facility fees were $1.3 million in Q1. Management expects cash, borrowing capacity and future operating cash flows to cover operating needs and obligations for the next 12 months and foreseeable future.
Backlog, outlook and management commentary
- Remaining performance obligations were $5.1 billion; Primoris expects to recognize 56.2% as revenue in the next 12 months and substantially all of the balance in the following 12 to 18 months.
- Total defined Fixed and estimated MSA backlog was $10.6 billion at March 31, 2024, down from $10.9 billion at December 31, 2023. Backlog is not a guarantee of revenue: MSA customers are not obligated to purchase services, contracts may be terminated, and some work is excluded when scope is not adequately defined.
- Capital expenditures for the remaining nine months of 2024 are expected to be $70 million to $90 million, including $15 million to $35 million for equipment. No broader earnings or revenue guidance is stated in the provided filing text.
- Management cited persistent inflation in labor, fuel and other costs; contract escalation caps and timing lags may prevent full recovery. Q1 is typically seasonally weaker, particularly for Utilities, and weather, customer budgets and project timing can affect quarterly results.
Risks, contingencies and unusual items
- Project profitability depends on estimates of costs to complete; productivity, labor and material costs, scheduling, weather, permits and customer delays can reduce margins or defer revenue. Fixed-price work generally carries greater risk.
- Approximately $188.8 million of unapproved contract modifications were included in transaction prices; approximately $170.0 million had been recognized as revenue through March 31. Settlement and collection remain subject to negotiation.
- Top ten customers represented 46.4% of Q1 revenue, although no individual customer exceeded 10%. The filing notes customer concentration and potential exposure to customer delays or defaults.
- Outstanding bid and completion bonds totaled approximately $6.5 billion, supporting projects with $2.5 billion of remaining performance obligations. Management did not anticipate material claims under surety arrangements or letters of credit. Legal matters are ongoing; management believes their reasonably possible outcomes will not have a material adverse effect, but outcomes remain uncertain.
- Q1 included a $9.1 million gain on sale of property and equipment in the cash-flow reconciliation; cash proceeds from asset sales were $14.6 million. The filing does not clearly state the gain’s income-statement classification in the provided text.
Most important facts for investors to verify
- Whether Q1’s Energy growth and margin improvement persist, and whether Utilities activity recovers after the major project completion.
- Conversion of backlog and remaining performance obligations into revenue, particularly the estimated MSA component and negotiated contract modifications.
- Receivables collection, unbilled contract assets and operating cash flow, given the substantial working-capital cash use and reliance on the receivables facility.
- Ability to recover inflation-related labor, fuel and materials costs, especially on fixed-price contracts and agreements with escalation caps.
- Debt service, interest-rate exposure and planned $70 million to $90 million of remaining-2024 capital expenditures.