Kate A. Tholking - Director-Investor Relations David L. King - President, Chief Executive Officer & Director Peter J. Moerbeek - CFO, Director, EVP.

Lee Jagoda - CJS Securities, Inc. Daniel Mannes - Avondale Partners LLC Jason A. Wangler - Wunderlich Securities, Inc. Matt Tucker - KeyBanc Capital Markets, Inc..

Greetings and welcome to the Primoris Services Corporation Reports 2016 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode and there will be a question-and-answer session that will follow the formal presentation. As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Kate Tholking, Director of Investor Relations for Primoris Services Corporation. Thank you, Ms. Tholking. You may begin..

Thank you, Chris. Good morning, everyone, thank you for joining us today. Our speakers today are going to be David King, the President and Chief Executive Officer of Primoris Services Corporation; and Pete Moerbeek, our Executive Vice President and Chief Financial Officer.

Before we begin, I would like to remind everyone that statements made during today's call may contain certain forward-looking statements, including with regards to the company's future performance. Words such as estimated, believes, expects, projects, may, and future, or similar expressions are intended to identify forward-looking statements.

Forward-looking statements inherently involve risks and uncertainties, including without limitation those discussed in this morning's press release, those detailed in the Risk Factors section and other portions in our Annual Report on Form 10-K for the period ended December 31, 2015, our Quarterly Report on Form 10-Q which we plan on filing in the next day or two and other filings with the Securities and Exchange Commission.

Primoris does not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. I'd now like to turn the call over to our CEO, David King..

one, lowering our SG&A expense; and increasing our Master Service Agreement work. These are both topics we discussed at some length last quarter and I'm pleased with the progress we're making. Our first quarter SG&A expense is the lowest quarterly SG&A we've had in two years.

All of our employees joined us in our effort to cut overhead expenses and we continue to look for ways to bring down our cost without sacrificing the safety, quality or performance in any of our work.

We announced over $800 million in new business awards this quarter, including our $500 million Master Service Agreement that not only joins or covers work for our ARB Underground Group, but also our ARB Industrial Group, which further demonstrates our ability to combine the capabilities of both Primoris business units for the maximum benefit to our clients and our shareholders.

Master Service Agreements or MSAs, continue to be a growing portion of our overall business. While MSAs do not guarantee work, they generally provide a good base of revenue that's more predictable and reoccurring than project-focused awards.

Primoris' MSA work is with financially sound companies and we're predicting that our MSA revenue will continue to grow. Last year, Primoris's safety results were the best in our history. I'm pleased to report that we're continuing that trend into 2016 with our first quarter results.

Year-to-date, our lost time incident rate is zero and our total recordable incident rate is 0.71, clearly placing Primoris in the top quartile of industry leaders in safety performance. Now, I'll walk you through some of our operating segments, highlighting the larger units. In the East operating segment, we had generally solid results.

James Heavy Civil increased their crews on the Texas jobs of over 275 workers bringing our JCG group up to approximately 2,200 employees. This is allowing them to increase billings on the jobs and help expedite the completion of some of the major projects along the I-35 corridor here in Texas.

During the quarter, the group announced $62 million in new awards including the $44 million in airport awards that we announced shortly after our last call. We continue to expect substantial growth in the Texas heavy civil market, especially once Prop 7 money starts to flow, which should be sometime late next year.

Our Louisiana, Mississippi and Arkansas markets are expected to remain steady, but soft for the next few years. Cardinal Contractors have struggled to finish two of their Dallas, Texas water projects, partly due to subcontractor performance and manpower production. Both of these projects should be completed late second quarter or early third quarter.

Cardinal is starting to pursue larger $20 million-plus projects, which tend to be more profitable because of the mom-and-pop sized companies don't have the capabilities to bid on them. We've also strengthened this group from an operations management perspective and begun adding additional capabilities therein.

Overall, I'm pleased with the prospects for this group. Results in the East were largely driven by the James I&M division. The large petrochemical project in Lake Charles continues to be one of their key contributors.

While this has been a very successful job for both of our business units working on it, for our I&M group, we're discussing here, their portion of the project will begin ramping up late this summer. And as we noted over the last couple of quarters, our next challenge is to find work to replace it.

The I&M group is currently chasing over $150 million in opportunities and I'm confident that we'll win our fair share. Overall results in the West operating segment were lower than we would have liked mainly due to challenges at ARB Structures and ARB Industrial.

Structures had an execution issue with one of their projects which had an impact on their margins for the quarter; the issue has been rectified. Their bookings were strong and they have nearly reached their new bookings goal for the entire year.

Many of the new awards are with repeat private sector customers where we genuinely expect higher margins and less risk. ARB Industrial's challenges in the quarter were mainly due to late shipments by an electrical supplier and engineering issues on one of our power projects.

We've taken steps to correct the issues and as you know that we are very conservative in nature when it comes to our project accounting and so we chose to take write-downs on the project, although we expect to recover some cost from our supplier and engineering contractor.

ARB Industrial is tracking several billions of dollars of work spanning traditional power, renewables, refineries and this includes additional MSA opportunities similar to the one they signed in the fourth quarter of last year. They are still in early stages of work on a large 500 megawatt peaking plant in California that we announced last year.

They are working under a limited notice to proceed until the project clears its final challenges, which as you know, being in California, could be this month or could be later. And while we fully anticipate that this project will move forward until we get our shovels in the ground, we will remain conservative in our outlook.

ARB Underground had a slow start to the year, as is usual for them but their MSA work continues to grow. The new MSA they announced jointly with ARB Industrial, should start kicking in soon, adding to their already substantial MSA base. In addition to MSA announcement, they added over $110 million of other new work this past quarter.

Q3C was able to get to work a little earlier than normal, thanks to a slightly more mild winter and as we know an earlier start day helps them cover their overhead and can really turn the quarter around for them. Last year, we reported they lost 40 days to weather in the first quarter. This year they lost only 12 days.

The group continues to perform well with a solid base of MSA work. Some of the utility clients are scaling back budget, so we might not see the explosive growth this year that we come to expect from Q3C, but we anticipate they will still grow at a good pace.

Rockford had a quiet first quarter as expected but both of their large Florida jobs remain on schedule for June and July starts. They are already mobilizing on the jobs, delivering machs and equipment to the construction site.

While we see nothing at this time that tells us these projects are going to be delayed, we've taken a conservative approach and waiting until our crews start digging.

Once these two jobs are in progress, Rockford will be getting near capacity for the reminder of the year, so we're concentrating on the quality of the project, the customer and the contract for all remaining capacity since some of our additional capacities already slated for projects that we're currently negotiating, but not yet finalized.

In the Energy segment, we had mixed results. OnQuest is seeing new opportunities in the mini LNG market, waste heat recovery units and LNG for peak shaving.

While there are multiple opportunities for the group, the timing of release of many of these projects will depend on the clients' willingness to commit to capital spending in uncertain economic times. In OnQuest heater market, a larger heater award was delayed due to the client being in the middle of a challenging acquisition deal.

However, outside this delay, the heater market remains strong and margins are holding up. The majority of individual awards in the heater market are under $10 million. So we typically don't announce them, but our target market is several hundred million.

After a challenging 2015, Primoris Pipeline turned the corner this quarter announcing over $38 million in new awards which has set them up for a good second quarter. While the open shop pipeline market continued to be extremely competitive, we are seeing ample opportunities for bidding on several large spreads in Texas and the Midwest.

Our Primoris facilities and maintenance team is having success also with their T&M work. They're currently working on several smaller capital facilities and compressor projects. They are actively working on over $250 million in project proposals. So, there is ample opportunity in this market if the jobs can be won at the right price.

James Industrial had a great quarter. Their large petrochemical project in Lake Charles continues to perform well as we are ramping our work force up each week, and we anticipate revenue from this project will continue through the first half of 2017.

James Industrial has also identified over $2 billion worth of industrial work opportunities; the majority along the Texas, Louisiana Gulf Coast, but there remains uncertainty on which project particularly of the larger scale will go or not.

We are seeing some of the larger EPC companies try to reenter the self-perform construction market, but with only limited success. Competition is putting pressure on margin expansion keeping them flat relative to current prices, but still they are higher than they were several years ago.

Overall, Primoris has a very robust prospect opportunity liaised and we're actively pursuing several billion dollars of new work across the entire company, much of it with existing clients across all of our end markets.

We continue to look for opportunities where our subsidiaries can work together on projects and our current prospect liaised includes numerous opportunity that combine the talents of the various groups. We're continuing to diligently pursue acquisition opportunities.

Multiples in the marketplace are beginning to become more rational in our opinion and in line with our expectations. And we're guardedly optimistic that we will complete a deal this year.

That being said, when I look at our current new awards prospects, I see plenty of opportunity for organic growth that will allow us to hit our targets and grow revenues nicely, without the need for an acquisition.

Before I turn it over to Pete Moerbeek, I'd like to take a moment to welcome Tom McCormick to the Primoris team, as our new Chief Operating Officer.

I've known Tom for many years and worked closely with him on a wide range of projects, and I can think of no one better suited to oversee the broad range of projects in end markets that Primoris is involved in helping build. With that, I'll turn it over to Pete, to review the financial highlights.

Pete?.

the reduction in revenue at Rockford; a change in the mix of work done by ARB Underground as its largest Northern California utility customer; and an increase in expected costs at ARB Industrial smaller power plant project in Southern California.

We view the first quarter as a bit of an anomaly and expect to see a return to the more traditional gross margin percentages in the West segment for the rest of the year. Gross margins improved in the East from 7.4% to 7.8% and in the Energy segment from 9.0% to 12.0%, both benefiting from the large petrochemical project in Southern Louisiana.

For the first quarter, our SG&A expenses were down to $33 million, or a $1 million year-over-year decrease and a sequential decrease of $8.6 million. We will continue to look for ways to reduce expenses throughout the year. Unfortunately, one SG&A expense item that we are not totally in control of is litigation expenses.

We remain in litigation as we work to collect the two large 2014 receivable balances totaling approximately $51 million. The customer associated with the largest of the two receivables, $32.9 million, has given us a very unneeded (15:57) opportunity to learn about Chapter 15 of the Bankruptcy Code.

We have started litigation against the sureties who provided us with bonds. On the other receivable collection issue, we made progress on a very small portion. At this time, we remain scheduled for a fall 2016 court date.

Intangible amortization expense was $1.6 million during the quarter, resulting in an intangibles balance at quarter end of $34.8 million. We expect to amortize an additional $4.9 million over the remaining three quarters of 2016. Our effective tax rate on income attributable to Primoris for the quarter was 40.5%.

We anticipate that for the whole year the rate will end up being somewhat under 40%. Net income attributable to Primoris was $2.7 million, or $0.05 per fully diluted share in the first quarter, compared to $1.7 million, or $0.03 per share in the first quarter of 2015. Our backlog at quarter end was at near record level.

We ended the quarter with fixed backlog of $1.6 billion, MSA backlog of $631 million, and total backlog of $2.2 billion.

By segment, the West total backlog increased by $207 million to $1.28 billion compared to 2015 year-end numbers; the East total backlog declined by $32 million to $724 million; and the Energy total backlog declined by $67 million to $187 million.

During the quarter we received several significant multi-year MSA awards, but it is our practice to include only estimated revenues for the next four quarters in our MSA backlog. At quarter-end, our tangible net worth was $324 million, a 12% increase over tangible net worth a year ago.

Net capital expenditures in the quarter were $8.9 million, compared to $13.8 million in the first quarter of 2015, and we remain on track for full-year CapEx of $55 million to $60 million. Adding $15.3 million of depreciation expense for the quarter to the amortization expense, our net CapEx is below our D&A so far for the year.

We've been quiet on the acquisition front for the past few quarters and has been nice not to have to do acquisition or earn-out accounting. But as anyone who knows our company and especially anyone who knows Brian Pratt, our Chairman, the lull will end. This lull has not been from a lack of effort as we are actively working on expanding our portfolio.

From a cash perspective, at the end of the quarter, our cash balance was $99 million. We had negative cash flow from operations of $36 million during the quarter as we invested working capital in receivables and unbilled revenue.

This investment is primarily the result of the large petrochemical project, which accounted for all of the increase in accounts receivable for the quarter based on the timing of billings. The customer remains in compliance with the terms of the contract. We expect to see cash flow turn throughout the year.

In addition to our cash balance, we also have available over a $100 million on our credit facilities. Let me conclude with a comment about our guidance. We expect earnings of $1.15 to $1.30 per share for the next four quarters. We started giving guidance reluctantly a year ago.

The guidance has not changed for the past year, and it's obviously not quite accurate form a historical point of view. The abysmal weather in Q2 last year, the continuing delays with the large California power project and the possibility of delays on some other large projects have kept us cautious with our guidance. Stay tuned for next quarter's call.

With that, I'll turn it back over to the operator for your questions..

Thank you very much, sir. Ladies and gentlemen, we will now be conducting a question-and-answer session. We ask that you please limit yourself to one question and one brief follow-up question per caller so that others may have a chance to participate. Our first question is from of Lee Jagoda from CJS Securities. Please go ahead..

Hi, good morning..

Good morning, Lee..

Good morning, Lee..

So just to start on the SG&A, do you have the litigation expenses incurred in Q1?.

We don't break those out separately, but they are somewhat less. Total professional fees are less between our accounting fees expected for the year and the litigation. So that's part of the decrease. But part of the decrease is also due to we literally reduced the SG&A expenses..

....one, and my next question was, if I look at the sequential declines we've had Q3 and Q4 compared to Q1, what are the major items or buckets that the declines are made up of?.

Obviously, a company our size, part of it is people costs. We're trying to manage that a lot more carefully. I think you'll start to see us hopefully get to the point as we complete some of our installation of our IT systems that those costs will stay fairly constant going through. So it's been a mixed bag. Obviously part of it is litigation too..

Yes, Lee, I'll add a comment on for your question on the litigation side, obviously the BridgeTex lawsuit and the ATM (22:03) lawsuit, we've spent quite a bit of legal costs getting prepared for those going through depositions and things, and of course, with both of those, all of our upfront legal cost has been spent.

At least, on BridgeTex there's been a court ordered – which we expected that – a court-ordered mediation request that will be coming up in June. I don't think it will be resolved at mediation. I think, they're getting the reality of the situation. But, I think, it will probably end up going to the jury trail, which is still set September.

So we won't be having quite as much cost in the second quarter we don't think on some of those legal side. And same way with ATM (22:47). As we said, now from the bankruptcy issue, now we're going after the sureties that provided the bonds.

And so although we'll still see legal cost, I don't think we'll see quite as much legal cost from that perspective. On some of the other things that Pete was talking to, I'll add a little bit of flavor for you.

Some of the tools that Pete mentioned that we're beginning to combine, we're seeing some savings there and across the business units, and then obviously in some of the combined services things that we're doing, we're seeing some. We still got a ways to go on SG&A. Pete and I are not satisfied yet.

We think we've got some more that we can cut out and will cut out, but that will give you a little bit of flavor on the situation..

Sure. And then shifting gears to the West margins in the quarter.

Assuming that the power project write-down was the one of the bigger factors, can you give us some more details about what caused the write-down specifically and where you are in terms of your current position on that job today?.

one, one of the suppliers on our power distribution center, big motor control center, if I can put it in those terms, Lee, they were late, substantially late in delivering that equipment. That caused us to have to do some work around cost, and then obviously once it did get shipped, it caused us to have to accelerate for installation purposes.

That's why there will be some back charges going back, as I mentioned in my opening notes, on that particular supplier. The second part of it, our engineering contractor that we're working with on that project busted some of their quantities as far as piping was concerned and some of their engineering cost relative to startup cost with the facility.

Again, same situation there. We will be going back with them on some of the added costs. But those were the two major issues, but that project is basically nearing completion. We're at the 90 percentile range on the completion. We've taken all the write-down that's going to be necessary.

And I am optimistic, we'll get a little bit of it back, but as you know with our accounting, we write it down. We take our beating one time..

Got it. Okay, I'll hop back in the queue. Thank you very much, guys..

Thank you very much. Our next question is from Dan Mannes from Avondale. Please go ahead..

Thanks. Good morning, everyone..

Good morning, Dan..

Good morning..

I want to follow up actually about the West segment margins again. Sorry to beat the dead horse. Can you maybe break out the margin delta in terms of the severity of the impact, whether it's from underutilization at Rockford, the hit from the power job, the mix at ARB Underground.

Can you just help us out because again it's a pretty different margin structure than I think we've even seen in the segment..

I think it's a combination. You're probably not going to be that far wrong, if you take the total dollar change and split it into three ways. So order of magnitude, you're going to be pretty close.

The challenge that we had at ARB Underground was that we did not do a lot of work on the integrity program for either of the two California utilities, and that tends to be higher margin work than the work we traditionally have.

So we're also seeing in the West some decline in work for a lot of the traditional gas company work that we do for non-utility works. It's a combination. It's really a combination of all, the underutilization, the fact the mix changed, the fact we had the write-down on the one job and the fact that Rockford is down for the quarter.

So, as I said, you're not going to be very far wrong if you take the delta and divide it by three..

Any weather impact in California? I know that was the one place in the country that actually unfortunately had a lot of water?.

Yes, but that did not have a significant impact for us. First quarter, working for the utilities tends to be low to begin with, and they didn't surprise us this year by asking for more. It's a pretty significant delta from Q4 to Q1..

Okay. And my second question, as it relates to guidance, I want to touch on the point that you made. Obviously, you've kind of kept the same guidance number for a while. I know you entered into it reluctantly.

But just given what's kind of gone on the last three quarters to four quarters, we want to make sure what the grounding is of that guidance number? And how much of maybe you're reticent to move it up is really just rooted in the timeline of when these projects start, whether it's Carlsbad or the big pipeline work?.

The answer is yes to all of those. I think that our challenge is the big impact we had – we gave guidance and then ended up with a horrible second quarter last year. So I think it's a combination of all of it, Dan. We're trying to be very careful.

Certainly as we model what this year is going to look like and what the next four quarters look like, we think at this point that it looks like it could be really a good year, but we're also not there yet.

So that was my comment that if we see things happening the way that we are expecting over the next three months, then we might be able to change it. I don't want to do that yet until we get a little bit further along..

Yes, Dan, I tried to give a little bit in that opening comment. As Pete said, with that power project up in California, we've been working on those limited notices to proceed and they keep increasing it a little bit, and then we're slow-walking it along.

So until I really see us out there with dozers and equipment and things like that, I get nervous to go ahead and say the forecast should include that or not include it, because it's continuing to slide a little bit.

I've never been worried, as you know, about our two major pipeline projects, but at the same point in time – and again for the particular reason that we've mentioned, the economics on them are good, the customers are good, all the above, but there were so many other pipeline projects that were getting canceled and delayed in midstream, and I said look, guys, until we're really out there putting things in the ground, let's be a little careful.

So, anyway, I think that's why you see us a little bit reluctant to ease (29:29) that accordingly..

Fair enough. Thanks for the color..

Thank you very much. Our next question is from Jason Wangler from Wunderlich. Please go ahead..

Hey, good morning, guys..

Hi, Jason..

Was curious living down here in Huston and being under water for the last few weeks, if you guys have seen much impact just as we look at the second quarter and kind of the time the seasonality starts to get on our side, if you're seeing any impact from everything that's gone on in Texas and even I think Louisiana in the last few weeks?.

Yes, we really haven't, Jason. Obviously, we saw the effect of the water where we would have a job shut down for a day or so. But that rain was not anywhere near like what we were seeing in first quarter and second quarter of last year. And if you remember, last year we had a large pipeline project that was underway.

The pipeline projects that we have currently underway were really not down in that Houston area that got impacted so badly. So we really didn't see much there. We saw a little bit on the Highway Department work in Texas. But if you live in Texas, you've got to expect that some.

And so we're beginning to get more accustomed to the one-day, two-day storms type things. So, really, I guess, in general to answer your question, we didn't see much of an effect on it..

That's good to hear. And then Pete talked about the M&A front still being pretty aggressive. I didn't see – I think there was maybe a small one during the quarter.

Just curious if there's any color around that?.

The small one was....

Mueller..

...was Mueller.

What we were doing there, as you remember, I guess it was about a year ago we purchased a company called Aevenia up in Minnesota area basically to do power and transmission work up in the Bakken and things of that nature, and of course we knew the Bakken was dropping off, but it gave us a good opportunity to make a what we thought was a really pretty unique purchase.

And part of what they do is they would subcontract out of lot of their foundation work around some of their T&D work. And so this little company did that type of work for them. And we just saw an opportunity to do a little quick purchase and add to the scope and capabilities to keep it more in-house as opposed to having to subcontract it.

We typically like to self-perform all of our work. And so that was just adding another complement to it..

That's great. Thanks for the color. I'll turn it back..

Okay. Thank you..

Thank you. Our next question is from Matt Tucker from KeyBanc. Please go ahead..

Hey, guys. Good morning. David, you provided some great color at the start of the call. It came out to me a little bit fast. So apologies if I ask something you've already addressed. So hoping you could talk a little bit more about the outlook at Rockford for larger projects.

How we should think about utilization as the year progresses based on what's already in the backlog and then what bidding opportunities are seen for the rest of the year?.

Sure, Matt. Not a problem. As you know, we've got the announcement on the two larger projects, the Florida connector project and then obviously the Sabal Trail project. We've been obviously pursuing along with some other contractors the ACP project. So that's one that we're obviously still looking at. That was not awarded.

We hoped like a lot of other contractors that we will be awarded that project later this year. But there's a lot of other opportunities that we're still looking at, but as I mentioned on the call at the start, we want to make sure it's with the right customer, with the right contract. Williams has been a extremely good customer for us.

We're still looking at some work for Williams. A lot of people know which the projects are, but we're also looking at some work with Danbury and BellSouth (33:51). Those are two projects that we continue to look at. We're also looking at our Pacific connector project, which would go in well beyond the 2017 timeframe.

So, as we begin to utilize our Rockford group, we're taking those little holes when we know we'll be coming down in certain areas and saying, where can we plug those.

And then as I've mentioned, we're going into a very robust pipeline business right now and 2016, 2017 and into 2018 and so we're looking now at what we can do in the 2018 and beyond timeframe. So for us that's an extremely good position to be in.

I don't know if that's added enough color, but I don't want to go too far on the color because obviously I don't want my competitors to know what I'm going after..

No, no, that was a great, Dave. Thank you. And as a follow-up to that, and again, apologies if I missed it.

But any color you can provide on the timing of construction start on those projects down in Florida that you have in your backlog?.

Both of them right now we're looking at starting this year, starting in the June, July timeframe. We've already started moving machs and equipment and things of that nature over there.

So we're already seeing cost in our system to get prepared so that when the clock starts ticking, we've got materials, man and machs there to blow and go, so to speak, because that's how we make our money by moving rather quickly on it. So those we don't see any issue with at all.

I think most people out in the marketplace still think ACP is going to be a later this year award and start sometime in 2017 and go over into 2018, and I see nothing that makes us feel any differently about that.

The others are smaller projects that kind of are sprinkled through, some later this year might begin, some in 2017 and some into the 2018 timeframe..

Thanks, again. And then shifting gears, a couple of your competitors or peers on the pipeline side have commented this week that they may start pursuing some telecom-type work.

Given your underground capabilities, I'm curious if that's an area of interest for you, if you've given that much thought?.

Yes, we've given it some thought. There is some areas that we're looking at in our pipeline network where, again, we subcontract out certain functions, whether it be some tunneling or boring and things like that. And so we're obviously looking at maybe how we can self-perform some of that work through maybe those little smaller acquisition therein.

But really as far as your specific question, we're looking at more of what the work we've got and how much more of it we can self-perform and how we could add additional spreads from a capabilities perspective..

Thanks a lot for the color. That's all for me..

Thank you very much. Gentlemen, it appears that we have no further questions. I would like to hand the call back to Mr. David King..

Oh, sorry, thank you very much. Well, first of all, I want to say thank you for joining us on our call today. We continue to see what I think are higher-quality projects and opportunities for our services with our customers. We really appreciate your interest in our company and again thanks again. Have a good day..

Thank you very much, sir. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines..