Welcome, everyone, to the CJS 26th Annual New Ideas for the New Year Conference. My name is Lee Jagoda, the analyst covering Primoris at CJS. From the company today, we're pleased to have with us Jeremy Kinch, Chief Operating Officer, Ken Dodgen, Chief Financial Officer, and Blake Holcomb from Investor Relations. Primoris is a diversified engineering construction company focused in two segments, utilities, providing services to gas and electric utilities as well as communication services, and energy focused in the areas of renewables, natural gas power, and pipeline. We'll start with a brief overview from management and then go right into the fireside chat. For clients who would like to ask a question, if you could type those into the question box on the dashboard, I'll try to incorporate those into the dialogue as we go. With that, Jeremy, Ken, and Blake, take it away.
Yeah, great. Thanks, Lee. uh blake holcomb here and i'll kind of pile on there to what lee was talking about just a brief overview the company so you know critical infrastructure construction services and solutions for our clients you know on the utility side with the power delivery uh gas utility and communications business primarily structured around master service agreements is the primary contract structure there so it's about 2.7 billion of gross trailing 12-month revenue with a target kind of margin range in the 10-12%. Been running at the higher end of that the last 12 months. About 45% of that segment would be the power delivery, about 40% the gas utility, and 15% comms. Obviously, a lot of tailwinds in some of those markets that we'll get into in the discussion with Lee. And then on the energy side of the house, it's about $4.9 billion of gross revenue, trillion 12 months. Primarily about 60% of that revenue being our renewables business, which is solar, EPC, battery storage, small EVOS solutions business, and then some O&M sort of make about 60% of that revenue. About 20 plus percent of that revenue would be our traditional industrial, which includes our natural gas power generation, which is something we'll get into an exciting opportunity set there. And then the remaining kind of 20% there being our highways, roads, and bridges business, which is about 12%. So that's a heavy civil business. And then the pipeline business being about 7% or so of the trailing 12-month revenues. But again, strong management team, diversified services, long-term customer relationships, driving, and some pretty exciting markets that we'll want to dive into. But with that, Lee, I'll go ahead and let you kind of open up to the Q&A so you can talk to Jeremy and Ken about their thoughts. Sounds great. Thanks very
much. So I guess, Jeremy, just going to the demand environment first, obviously, many of your end markets remain extremely strong and robust. Would love to discuss how Primoris fits and your your competitive position in each of the markets? And then, like, answering the question of when you win, why you win, and, you know, in the event that you lose, what are the typical reasons why you lose?
Sure. So, you know, a lot of answers to that question, Leo. I'll try to keep it kind of focused. Starting with the utilities side there, MSA business, as Blake mentioned, and really built up on on long-term relationships the MSA contracts typically last three to five years but the client relationships in general you know be spanning decades in some cases and you know the key there is is safe performance service level quality of work and being able to meet the demand with the resources as required to complete it you know that those the competition because of the long life cycles of the projects or the contracts rather a little different than in our bid environment where again you know you're looking at more like renewals and there's a bit of a barrier to entry there and so really for us it's about maintaining that service level maintaining a high degree of communication with the client and you know ensuring that our commercial terms are such that we can we can protect the margins on that work and look for opportunities to do discrete projects where we can get a little higher margins. The other side of the business on energy is primarily driven by projects so those would be you know discrete projects that are either negotiated or bid in a competitive environment and the degree of competition varies pretty widely across a business so at the the most competitive end of the scale we'd have our heavy civil and pipeline businesses and you know typically especially in pipeline a buyers market the last few years have you civil public tender so you can see upwards of eight or nine bidders showing up on certain projects depending on on the size and in that case you know generally you've got to win on price and so we've got to be very careful about you know target selection there making sure that we're we're bidding work that we understand the environment, the geographic location, our ability to get craft. We've got well-developed estimating processes that have held up over the test of time. But in that case, literally, it's generally bottom dollar takes the contract. The other end of the scale, and we saw this in our solar business as we were building that up from effectively, from virtually scratch in 2017 with a small acquisition to close to around $3 billion last year. And we're seeing also in our growing gas power gen business, because of the level of demand, of course, it makes it easier to, I guess, allocate risk more fairly between us and our client. Generally, not the same level of bid activity. You may be having opportunities to sole source. or if there are bidders it's you know maybe two bidders at an early stage and at some point the clients picking the winner and you're working together collaboratively through the engineering and procurement phase and so you know we've the tail on solar for us I think has been told many times so I'll just focus on the gas gas power gen which is has grown you know we have a long history in that business particularly out of our union industrial operation in California but as the demand has picked up we've started growing our non-union side of that as well and so we kept that competency and focusing really more on simple cycle power projects even at a time where there really wasn't much of a market for it and it positioned us really well to grow into the opportunity that's ahead of us but you know again being really selective we're not taking responsibility for delivery of major equipment but we're through our relationships with turbine suppliers and we're actually able to they've been helping and match us up with good fits for clients with with projects with equipment orders in the queue and that early stage discussions with the clients working through them or working with them rather as they're getting the project stood up and thinking about their contracting strategy it's allowed us to be a better partner uh to them and while uh you know reducing risk to us so really excited about that business uh growing over the next few years it's probably our highest uh highest growth
potential on a on a percentage basis great um so i guess we'll start just going through the segments on the energy side you you just mentioned that you think the natural gas piece will be the highest growth on a percentage basis the next year or two um could could you kind of rank order the other pieces knowing that there's very different sizes amongst them and if there are any kind of
detractors in that group yeah yeah for sure um yeah i think you know for for 26 and certainly for 2027 i think we're going to see pipeline uh become a contributor a more serious contributor again um you know that was historically as you know a big part of our business uh as the company's grown and that market post-COVID significantly shrank. It's become less of a contributor on a revenue side, but we've retained the capability there with that team to do the large cross-country projects where we've been so successful in the past. So as we're seeing, you know, the opportunity funnels come back to, you know, we're tracking something like $4.5 billion for the projects right now. You know, that gives us the opportunity to jump in as a competitive landscape gets a little bit more favorable to us and deliver projects with a business unit that's historically delivered higher margins than our overall company average. So really excited to see them have the opportunity to kind of punch above their weight again. You know, I think looking at the short term and, you know, we've talked a lot about in 2025, We weren't expecting the degree of growth that we had in our solar business, and yet it grew it significantly. And really the contributor there, biggest contributor was we had a bunch of work pulled forward to the tune of about half a billion dollars. work that had been planned, you know, sequential projects that were requested by the client to perform consecutive or sorry, consecutive projects that were then run concurrently at the request of the client. And so that artificially or incrementally boosted our 25 revenue while taking away from 26. So, you know, we're not expecting solar PV to be a growth driver like it has been in the in the prior seven years in 2026 we're expecting to be flattish to maybe down a bit before returning to growth in 2027 but certainly the opportunity funnel there is still strong if we look at the rest of our business you know within the utility side kind of different different situations there power delivery longer term we see as a growth driver particularly with focus on on the transmission and substation now we we're heavily weighted in distribution right now to the tune of about 80 plus percent and you know our one of our near-term goals is to get get our mix of transmission and substation work up closer to 30 to 40 percent which generally it'll allow us to to attract higher margins into that business and so that's one of our key priority areas for growth uh the rest of the rest of the business just to kind of spread across i guess we're you know probably looking at low single digit growth and that would include our our gas distribution business uh which is a which is a very high margin business about a billion dollars a year uh that uh again under msa so you know somewhat uh you know dictated by client spend we actually saw good growth from them in 2025 beyond our expectation but you know that we're we're tracking that as kind of low single digits um and you know heavy civil uh like you mentioned same thing we're we're not looking to grow that business we probably could but we we're happy with the way we've been able to improve margins there and the size it is um what the cash flow it generates and they're they're in a good spot right now so again kind of low single digit growth out
of that market great and then um maybe touch on some of the bid margins you're seeing in both your current order book and your pipeline and maybe compare and contrast that to what you saw a year ago um would be a good start and then i've got a follow-up on margins sure uh again looking
at the i assume you're talking really about the project work so that would be like the gas gen and solar epc and that um you know i think you know solar uh now that we've gotten through the the regulatory turn of last year and things have kind of settled out you know we're not it's it's kind of i'll call it characterize it roughly similar to what we were seeing a year ago on the the industrial the gas power gen side what we're seeing more so than maybe you know bid margins going up we're seeing a lot more equitable contract terms the form of contract which allows us to work on a reimbursable basis while the engineering's in the early stage and procurement's happening. And as we, with the client, develop the scope at around 60% engineering, when delivery times are known, then we're able to provide a fixed price for the remainder. And, you know, with the equitable contract terms and our better understanding of the scope at that point, we've got an opportunity to improve on our as-bid margin through execution because a lot of the unknowns are worked out at that point. And so I don't think we've had enough runway at enough volume to declare that, you know, that business is going to run higher than our kind of target 10% to 12% gross margin. But, you know, the potential is certainly there. So as we get more iterations and more projects, especially under the non-union side, then I think we'll be in a better position to declare, you know, whether there's a structural increase in margins. But really, it's manifesting at this point as less risk.
And then on the non-project side, I guess on the utilities business, what are the things that you've done as a company the last 18 months to kind of structurally improve the way that business operates to drive sustainably higher margins going forward?
Sure. And I'll focus on the distribution because, again, the work mix on the transmission and substation side would ultimately bring the overall, the average margin in that business up as we do more volume. But, you know, if you go back to the investor day a couple of years ago, and we were talking about performance improvement in that business, it was really, it's kind of several focus areas, you know, utilization of resources and, you know, managing equipment at kind of a more global level to make sure that, you know, we're getting better utilization across the fleet. and so that's kind of managed more broadly across the segment. Negotiating with our clients on contract terms where we had some MSAs that were getting at the end of their life and frankly the escalation clauses had not kept pace with cost inflation. So we were able to get that work through on the last renegotiation a year or so ago and that had a meaningful impact on our margins. And then the other, it comes into, call it more efficient and accurate billing. So on these MSA contracts, we have crews that are dispatched and they may be given a work order that, you know, literally that morning for work that they'll do that day and, you know, repeat each day through the week. You know, we're relying on those crews to perform and to capture, you know, the hours spent the units that they can charge for and quickly and efficiently get that in so that we can bill it and you know we've seen a good improvement in that space with that whole process the the work to bill to get our get our cost in excess down in that business which just improves the cash flow in general so that that's there's been a lot of focus on that in the last few years and improve the the profitability as well as we're making sure we're
capturing all the units we can bill for. And then I think you alluded to it before, just in terms of, you know, as you increase the percentage of project work margin can move around in the utility side. How do you as a company view increasing project work and then, I guess, by definition, increasing risk and balance that with the returns you're getting?
Sure. And there's kind of two aspects to it because we can provide, we do project scopes within the context of an MSA as well so I'll focus on that first and there you know versus MSA work where we're getting dispatched maybe daily or weekly if you have a discrete project we're able to plan the resources that go on to that we're able to plan the sequence of work and it really use our resources more efficiently so even if the pay units are the same or similar to what we'd be getting on distribution work or sort of non-project work we can work a lot more efficiently than if we're getting the work doled out in day or half day work packages so that that just allows us to be more efficient so that translates into higher margin without us but I don't see that there's really any risk increase on that now on the bid side you know that's you know big part of our business elsewhere and we we have to have the work processes in place to estimate correctly and then to go out and execute the work correctly but it's you know we're growing that business organically and you know as resources come available we're much like we've done in solar and gas power gen we're hiring in project teams in in advance of the work so that they can get used to our work processes and I think that that's a good way to mitigate risk and we've certainly proven it elsewhere in the business but it's that that project work is going of come from a mix of, you know, internal to the MSA plus discrete big project or bid projects.
Got it. So maybe I'll take it back to a higher level, give you a chance to breathe and ask Ken a couple of questions. Oh, thanks. My pleasure. So I guess, Ken, over the past couple of years, I guess, needless to say, we've seen a significant increase in the trading multiple of Primoris, of all of your peers or many of your peers, well, well above what's been kind of historically normal. So maybe a broad question of how do you view the current business cycle in terms of how much further it has to go across your various end markets? And then based on that view, how do you internally think about allocating capital going forward?
Yeah, look, I think we're fortunate. We kind of stepped back and really took a strong look at our company and the different end markets that we're in a few years ago and really evaluated each one based on their strength and realized we were in some end markets that had some strengths and we were not in some end markets that we knew would have strength. And we pivoted and made some adjustments and really set ourselves up for a number of end markets, including renewables, including gas generation, the utilities part of the business, broadly speaking, in order to position ourselves for not traditional cyclical markets, which is what we've been in historically, but instead markets that have long-term tailwinds. And so I think that repositioning is part of what has really helped us in our multiple. And the good news is, from a valuation standpoint, is I don't think, in many cases, I don't think we're in the eighth or ninth inning of those market cycles. I think we're in early innings and still have a lot of opportunity for growth over the course of the next five to seven years, in particular in gas generation, in particular in power delivery which is our electric utility business. I think we're starting a new cycle on pipeline and I think despite a little bit of a lull in 26 in our renewables business coming off the noise of 25, I think that's got four or five more years of really strong growth as well. And then back to your the other part of your question with respect to capital allocation, our priorities around capital allocation have always been first and foremost to support the organic growth of our business. Nothing has a better ROI than organic growth, especially in those strong, especially in those markets with the strong tailwinds and the great opportunity that I just talked about. Secondly, it's paying down debt. Thirdly, it's M&A and fourth, it's return of capital. And, you know, we've been, we haven't done any M&A in about three years now. We've been very disciplined. We only do M&A when it meets certain strategic, certain strategic profiles, as well as financial metrics from revenue growth and a margin perspective and so we we get often asked the question why haven't you done another another acquisition in the past three plus years and the short answer is not because we haven't been looking but because we have been disciplined and we haven't found good companies to acquire i would say in recent months we've noticed the quality of opportunities increasing significantly and i'm i'm cautiously optimistic that we might be able to do a nice acquisition sometime in 26, but again, only if it meets that criteria.
And in terms of, I guess, finding good companies is a great first step, but what are you seeing in terms of multiples? I assume these are private companies that you're looking at, like multiples that I guess either the sellers are commanding or the market is creating. Yeah, I think it really
depends, again, on the end market. What I will tell you is, in general, multiples have been in the kind of 8 to 10 times range for almost everything we've looked at. The one exception might be one of the areas that we're looking at is potentially adding electrical C&I, and that would enable us to self-perform some of the scopes that we normally sub out on gas generation and industrial work that we do. But secondly, it would also enable us to get a larger footprint and a larger opportunity in and around data centers than what we currently have. We're seeing those multiples being a little bit higher, but they haven't been out of reach by any means. They've still solidly been in kind of the maybe, you know, nine to 11 times range, which on a relative basis to where we're trading at is still a good opportunity, especially with
the potential growth that we could see in that area. Great. I guess, you know, one more bigger picture question for Primoris. In terms of, you know, the next, we'll call it the next 18 months, how do you view sort of the biggest company-specific milestones or catalysts that, you know, we as investors should look for that if they happened, your stock would have a good
chance of outperforming? Look, I think there's a couple of different things. As we continue to prosecute and really build out the opportunity in around natural gas generation, I think you will see that being a major growth driver for us, whereas over the course of the past few years, it hasn't been. It's been a relatively stagnant business for us. I think the second thing that you'll see is margin appreciation in two predominant areas. One is, I think Jeremy We touched on this a little bit early in power delivery as we continue to do a mix shift there and have a better balance of project work, specifically transmission and substation work relative to distribution. And then on the energy side of the business, I think it's the continued growth of that natural gas generation and the resurgence of pipeline, which generally are fixed price projects that have had the opportunity to have better than average margins and could accrete to higher overall margins for not only the company, but also that segment.
That's really helpful. One other question that we're asking many of our companies today is really around artificial intelligence. And I know, obviously, tangentially, your company benefits from the growth of AI. But I guess looking at how Primorus is using artificial intelligence in their data, in your day-to-day, are there things that you're doing that could lead to efficiencies, margin opportunities in your use of AI? Yeah, I'll
jump in on this one, Lee. Yeah, so we characterize 2025 and carrying on a little bit into 26 is really about foundation building. So we've done what a lot of people have done, got the internal sanctioned chat bot deployed internally. We have done the same with some of our third-party systems that we run. We've spent time developing our cybersecurity strategy and are getting to a point where we're going to be able to deploy bots fairly widely following strategies that some call it more security-minded organizations and other industries have adopted so we're working toward that and we're getting to the the endpoint of finalizing our data management strategy which is really the the underpinning that would allow us to use AI and automation more broadly so it's it's been a lot of kind of below the surface investment that'll allow us to be flexible and take advantage of applications that we don't know exist today now on top of that we've got we're starting with with back-office processes because those are things that we generally fully have control over and you know first of all as you know we've got somewhat diverse business units where they may be doing things slightly differently we're we're working toward getting standardization on common processes like timekeeping to payroll procure to pay things like that that That will, over the next, call it 12 to 18 months, allow us to introduce more automation, maybe less AI, but certainly automate these back office processes, which was really about scale. So you tie it to margin improvement, you know, really should enable us to decouple SG&A growth from revenue growth and, you know, service a much larger business with the same size back office going forward. So that's the concentration. I think, you know, looking out longer term, it's easy to imagine some applications into the field. I think we want to make sure that we have a good fundamental understanding of the more simple business processes and kind of the low-hanging fruit before we start looking at applying it more broadly out in the field. But the opportunity is certainly there.
Great. And then just, Ken, one more that I didn't ask you when we were talking about capital allocation, and you mentioned sort of the internal investments first and foremost. I know at least a couple of years ago, you sort of changed your strategy from much more heavy into purchasing equipment to more of a leasing strategy. And at least in terms of how things have looked, it certainly has paid dividends. Given that we're now in a situation where you're as capital rich as I think you've ever been. Is there any change to that strategy or how should we think about your CapEx investments and where that money goes organically going forward?
Yeah, look, the good news is we have the flexibility to either purchase equipment or to utilize longer term five to seven year leases in order to effectively finance the purchase or the use of equipment over a longer period of time. Both are incredibly economically viable, and what we have the ability to do is actually flex between the two, depending on which is more cost-effective from an interest and financing perspective. As you mentioned, we flexed toward leasing pretty heavily there for a couple of years. That helped us significantly from a variety of different standpoints. Now we're bringing that back a little bit more toward purchasing. I think last year we purchased this 25% and leased 75%. This year we're going to more of a 60-40 split, and we'll continue to monitor that on a yearly basis depending on where rates are and just which is more economically advantageous to us in our business model.
Great. Well, that's all I have, and with a couple of minutes left, I think I'll flip it back to you guys for some closing remarks, and thanks for your time today. Thanks, Lee.
Blake, do you have any closing comments?
Yeah, no, I just want to thank Lee again for hosting us. And I think just to reiterate kind of the key themes here is that, you know, for Morris, we feel like we're in a really good position to continue to, with good execution, you know, participate in some strong tailwinds across our markets and be advantageous around augmenting portfolio when those opportunities present themselves. But, you know, I think that about sums it up. Thanks again. Thanks, Lee. Thanks, Lee.