Primoris Services Corporation : An infrastructure, a project, a company?

Its business is segregated into three reportable segments:

• Utilities segment operates nationwide, focusing on the installation and maintenance of natural gas and electric utility distribution and transmission systems, as well as communications systems.
• Energy/Renewables segment operates in the US and Canada, offering engineering, procurement, and construction services. This includes retrofits, highway and bridge construction, demolition, site work, soil stabilization, mass excavation, flood control, upgrades, repairs, outages, and pipeline construction and maintenance. Clients include those in renewable energy, energy storage, renewable fuels, petroleum and petrochemical industries, and state departments of transportation.

Electrification megatrends in the US predict substantial growth in generation capacity, with an expected increase of over 300 GW (37%) by 2030 and 500 GW (53%) by 2035. This growth is driven by retiring aging plants and rising demand from data centers, supply chain reshoring, and residential use. Connecting this new capacity to the grid will require extensive high-voltage transmission lines and grid hardening in areas prone to extreme weather, presenting opportunities to enhance the electrical infrastructure.

Gas operations in the US offer opportunities for the power delivery segment. Aging infrastructure requires extensive integrity and replacement work, increasing demand for skilled labor. Primoris boasts enduring relationships with a wide range of clients, including utility, refining, petrochemical, power, renewable energy, communications, midstream, and engineering companies, as well as state departments of transportation. The services provided span various contracting options, including multi-year Master Service Agreements (MSAs) and specific project contracts. The focus is on steady execution with solid margins, targeting 0-2% revenue growth from 2023 to 2026, highlighting potential for consistent growth in the power delivery segment.

The broadband expansion in the US offers opportunities for the power delivery segment. Federal stimulus programs are making broadband installation in underserved areas more viable, while hyper-scalers are building data centers in major cities. This expansion drives customer relationships to new regions, creating network establishment and market share growth opportunities. The geographic footprint supports growth with low investment, aiming to maintain margins and improve cash conversion. Communications revenue is projected to grow at a 1% to 3% CAGR from 2023 to 2026, indicating potential for sustained expansion and enhanced service integration.

The solar sector presents significant opportunities for the power delivery segment. Primoris has completed or is constructing over 50 projects totaling about 10.9 GW, with an average size of over 280 MWdc. Opportunities are growing in the Southwest, Midwest, and Northeast, with a diverse customer base where no single client accounts for more than 25% of 2023 revenue. Projects span thirteen states, notably Texas, California, and Louisiana.

Since 2019, Primoris renewables revenue has grown nearly tenfold, outpacing the utility-scale market’s growth. The customer base expanded from one to over fourteen by the end of 2023. With an $8.0 billion project sales funnel and a $2.4 billion backlog, the solar sector supports future growth in the power delivery segment.

The energy sector offers significant opportunities for the power delivery segment, driven by the energy transition and industrial reshoring. Industrial construction is seeing robust growth, heavy civil operations in Texas and Louisiana maintain a strong backlog, and pipeline market conditions are improving. The US aims to reduce emissions while meeting rising energy demands, with renewables and natural gas facility upgrades playing key roles. Emerging markets in carbon capture and hydrogen further drive growth, with natural gas projected to remain 34% to 37% of U.S. energy generation through 2050. An estimated $27 billion in market opportunities over the next 24 months highlights the sector’s potential.

Primoris has strategically enhanced its market presence through key acquisitions. The August 1, 2022 acquisition of PLH Group for approximately $429.0 million strengthened its foothold in power delivery, communications, and gas utilities. The June 8, 2022 acquisition of B Comm LLC for around $36.0 million added expertise in maintenance, repair, upgrade, and installation services for the communications market, supporting the strategy to grow the MSA revenue base.

The January 15, 2021 acquisition of Future Infrastructure Holdings, LLC for approximately $604.7 million extended capabilities in maintenance, repair, upgrade, and installation services across communications, regulated gas utility, and infrastructure markets. These acquisitions deepen Primoris’s market presence, broaden geographic reach, and diversify service offerings, focusing on sectors with strong growth potential like renewable energy, gas and electric utilities, and communications.

In 2023, Primoris Services Corporation experienced substantial growth, with total revenue surpassing $5.7 billion (+29% from 2022). This impressive growth was predominantly driven by the Energy segment, which saw a 39 percent rise, fueled by a strong utility-scale solar market and a rebound in the pipeline business from previous lows.

The Utilities segment also performed robustly, (+17%), bolstered by the organic expansion of power delivery and communications businesses, along with contributions from strategic acquisitions made in 2022.

Despite these gains, net income saw a slight decline to $126 million, with earnings per share (EPS) reducing to $2.33 per fully diluted share. The decrease in net income was primarily attributed to increased interest expenses and a higher tax rate compared to the prior year. These factors were influenced by higher average debt balances from the acquisition of PLH, rising interest rates, and the expiration of a temporary law allowing full deductibility of per diem expenses that had benefited the company in 2021 and 2022.

A notable highlight for 2023 was the significant improvement in operating cash flow, which reached nearly $200 million, representing a $115 million increase from the previous year. This improvement underscores the effectiveness of Primoris’s working capital initiatives, which continue to be a top priority for the company.

Primoris’s renewables business, centered on utility-scale solar engineering, procurement, and construction, showed strong revenue growth and margin expansion. The year ended with a backlog of over $2.4 billion, achieving a 1.8x book-to-bill ratio from an initial $1.3 billion.

Its first quarter 2024 financial results reflect significant growth, with revenue reaching $1,412.7 million, up 12.4% from the same period in 2023, driven by strong performance in utility-scale solar and industrial construction within the Energy segment. Net income rose to $18.9 million, or $0.35 per diluted share, and adjusted net income increased to $25.8 million, or $0.47 per diluted share. The total backlog stood at $10.6 billion, with $5.8 billion in Master Service Agreements, while adjusted EBITDA grew by 39.6% to $73.8 million

The company operates in a competitive landscape, facing both regional and national contractors on large construction projects. Competitors range from larger firms with substantial resources to smaller local contractors. In the utilities market, key competitors include Quanta Services, Dycom Industries, MYR Group, and MasTec. The industrial market sees competition from PCL, Kiewit, Granite Construction, Performance Contractors, and Boh Brothers. In the renewables sector, Blattner Energy and Mortenson are primary competitors, while Sterling Construction Company and Zachry Construction Company are notable competitors in highway services.

Primoris‘s business experiences seasonal and annual fluctuations. Quarterly variations often result from weather conditions like rain, ice, snow, and storms, impacting operations. Demand for gas utility repair and maintenance drops in winter, while electric utility services decline in summer. Annual fluctuations are influenced by customer timing, project duration, weather, and economic conditions. A significant portion of revenue and profit comes from construction projects, which are beyond direct control. The engineering and construction industry also faces cyclical financial fluctuations due to economic recessions, customer business cycles, material shortages, subcontractor price increases, interest rate changes, and other uncontrollable economic factors.

Primoris Services Corporation has strategically positioned itself for continued growth across multiple sectors, driven by its diverse service offerings and strong client relationships. The company’s recent acquisitions and focus on high-growth areas like renewable energy, gas, and electric utilities have expanded its market presence and capabilities. Despite some challenges, Primoris’s robust revenue growth and substantial backlog underscore its potential for sustained success in the evolving energy landscape.