Kate A. Tholking - Primoris Services Corp. David L. King - Primoris Services Corp. Peter J. Moerbeek - Primoris Services Corp..

Lee Jagoda - CJS Securities, Inc. Matt Duncan - Stephens, Inc. Adam Robert Thalhimer - Thompson Davis & Co., Inc. Tahira Afzal - KeyBanc Capital Markets, Inc. Brent Edward Thielman - D.A. Davidson & Co. Robert Joseph Burleson - Canaccord Genuity, Inc..

Greetings, and welcome to the Primoris Services Corporation 2017 Fourth Quarter and Full Year Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kate Tholking, Director of Investor Relations. Thank you, Ms. Tholking. You may begin..

Thank you, Doug. Hello everyone, and thank you for joining us today. Our speakers for the day will be David King, President and Chief Executive Officer; and Pete Moerbeek, our Executive Vice President and Chief Financial Officer.

In addition to issuing our press release last night and giving you all a little more time to review our results before the call, we have also posted slides on our website to highlight key points we plan to discuss on this call. You can access them by going to our corporate website, www.prim.com, then selecting Investors.

Once on the Investors site, you will find the slides in the Events & Presentations section, next to the webcast link for today's call. Before we begin, I'd like to remind everyone that statements made during today's call may contain certain forward-looking statements, including with regard to the company's future performance.

Words such as estimates, 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 yesterday's press release, and those detailed in the Risk Factors section and other portions of our Annual Report on Form 10-K for the period ended December 31, 2017, which was filed yesterday afternoon, and other filings with the Securities and Exchange Commission.

Primoris does not undertake any obligation to publicly update or revise any 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..

Thanks, Kate. Thank you for joining us today. As Kate mentioned, we've developed and have available a slide presentation on our website for your review. But I've always felt it better to discuss our earnings and hear your questions rather than have you flip through a slide package. So, with that said, let me begin my remarks.

Primoris continued delivering solid results and finished our year 2017 on a strong note with momentum carrying us into 2018, as we continue implementation of our strategic plan. We ended our year delivering a record annual EPS of $1.40 per fully diluted share.

We also achieved a record level of revenue in 2017 of approximately $2.4 billion, while also reaching a new record cash flow from operations.

I'm extremely proud of our business unit leadership and all of my fellow employees as we have underscored our great year with solid performance, continuing to reach new levels of tangible net worth, cash flow, financial strength, and new business sales. All four of our operating segments contributed to our strong results.

We saw a fantastic execution on pipeline jobs, power projects, increased MSA revenue, and multiple business units working together on large petrochemical and other industrial projects. Our results for the year demonstrate the whole is much greater than the sum of its parts.

Our 2017 revenue of $2.4 billion far exceeds our previous revenue record of $2.1 billion back in 2014. I know the past few years of relatively flat revenue have been frustrating for our shareholders, and we appreciate your sticking with us as we strategically moved our revenue growth to higher margin performing business segments.

Both our revenue and our backlog now have shifted to these higher margin performing businesses and I like the quality of our backlog. Trust me, it was frustrating for us as well. However, we did not want to chase revenue just for revenue sake.

Revenue without profit is no good for anyone and I'm sure you are as pleased as we are to see our earnings improve along with the revenue. While some of the net income gain in the fourth quarter was from a one-time tax benefit that Pete will discuss in further detail, we still saw improvement in our profitability for the year.

We're back on the path toward growth and in 2018 and we plan to build upon these results. While you might expect to see backlog decline in the face of such strong revenue growth, Primoris maintain an extremely robust backlog ending the year with $2.6 billion of total backlog.

While I'm on the subject of backlog, I want to point out that Primoris' backlog, while sometimes fluctuating on a quarterly basis, has shown approximately 10% compounded annual growth rate in the last two years even factoring in the record revenue levels achieved. We've seen this level of growth in both our MSA as well as our non-MSA work.

Our growing MSA work even further underpins the strength of our backlog as this work is recurring in nature and very relationship-driven. At year-end, our balance sheet was as strong as it's ever been with over $170 million in cash and debt to equity ratio of under 47%.

Operating cash flow more than tripled in 2017, allowing us to invest over $60 million in acquisitions.

As we look at M&A opportunities in 2018, it's clear we have the ability to fund significant acquisitions as we are looking closely at opportunities that would be a strategic fit for us while continuing to invest in our existing business lines to grow organically as we have over the past few years, all in line with our strategic plan.

As noted in our press release, our 2017 Q4 was also a good quarter for us, with earnings ahead of our previous guidance with and without the effect of Tax Cuts and Job Act (sic) [Tax Cuts and Jobs Act] (05:58).

We also continued [ph] earning (06:02) revenues at a high level even without having the benefit of the two large pipeline projects like we did in Q4 2016, with only a modest drop in our fourth quarter revenue and ending backlog.

Our sales teams have managed to continue booking MSA and project backlog to the end of the quarter – to end the quarter at $2.6 billion as previously mentioned. Now for my remarks by our operating segments. As we look at our segments results for the fourth quarter, I like to start with the Power, Industrial and Engineering segment.

Two large power projects helped the segment grow revenues in the fourth quarter. ARB Industrial led by Tim Healy is executing well on the large Carlsbad power project, which should continue through the third quarter of this year and they are also seeing increased opportunities in turnaround work.

We see growth opportunities in the turnaround market when California State Bill 54 fully takes effect essentially requiring all refineries and oil and gas customers to use union labor for their maintenance turnaround and capital work.

ARB Industrial is also working closely with our California-based OnQuest engineers to pursue capital project opportunities in the oil and gas market.

While there are several large natural gas power projects on the horizon that we feel we are well positioned to win, the timing of those full release awards remain uncertain as we saw the red tape the Carlsbad project faced before they could begin construction. Where we do see growth in the power market is in the renewables.

ARB Industrial is pursuing battery storage opportunities and our Primoris Renewables team out of Denver is working with a limited notice to proceed on a utility scale solar project in Texas. We'll give you additional details on that project when we receive full notice to proceed.

But suffice it to say that this can be a major milestone for our Primoris Renewable team. The Gulf Coast industrial market continued to be sluggish in the fourth quarter as uncertainty about the timing of large scale awards challenge the Primoris Industrial Constructors team's ability to add to their backlog.

We're starting to see activity pick up in the Texas market but the competition remains very aggressive. Our focus continues to be on finding ways to replace the revenue from the large Louisiana petrochemical project, which was a great project for us as we finished the last of our work on that project during this year, 2018.

The OnQuest engineering unit struggled with some heater project delays in the fourth quarter but as we recently announced, things are now moving forward and we look for Randy Kessler's team to deliver improved results in 2018.

Our engineers at Primoris Design & Construction look to build on a successful first year and grow FEED awards into full EPC awards in 2018. Refinery compliance with the EPA Tier 3 requirements are providing opportunities for PD&C in their target size range.

Kevin Maloney and his team are also pursuing work for hydrogen plants and other syngas facilities. We believe our engineering and EPC capabilities will drive growth for the segment in 2018 by not only adding work for our OnQuest and PDC Group but also our Fabrication and Construction Service groups inside of Primoris.

Our Utilities and Distribution segment saw their seasonal slowdown begin in the fourth quarter but still experienced significant growth over 2016's fourth quarter.

This was driven by ARB Underground as Scott Summers team saw a significant growth with the Southern California utility customer as they work on a project to place a major portion of the electric transmission grid below ground in the San Diego area.

As we look ahead for Scott's team, we expect to see some short-term clean-up work from the devastating fires in Northern California but not enough to offset the typical slow start to the year. In the Midwest, Q3C got hit with winter weather earlier in the quarter than they did in 2016, which had an impact on their profitability.

As you can imagine, productivity goes down in Little Canada when the temperature is in the teens. Just a few weeks ago, it was still below zero in some regions but when the spring comes, we expect to see the group have another strong year.

They are also continuing to expand in new geographies by, most notably, looking to jump over to the East Coast with potential work in that area. In December, we promoted Doug Reeves to President of Q3C and Jay Osborn stepped up to lead our nationwide Utilities and Distribution segment. Doug has spent 19 years working closely with Jay.

We want to congratulate him on this new role. While the recently acquired Primoris Distribution Services in Florida is not yet on the same scale as ARB Underground or Q3C, they had a solid fourth quarter and were a positive contributor to the segment's results.

We look forward to working with David Runyan's group to grow our open shop utility capabilities. Our MSA backlog reached a record level at the end of the fourth quarter, largely on the strength of Utilities and Distribution segment.

And while it's not a guarantee of work, our MSA backlog gives us confidence that this segment will continue to perform well in the coming years. As expected, revenue was down in our Pipeline and Underground segment this quarter as Rockford was substantially complete with the two large Florida projects.

The Atlantic Coast Pipeline project continues to move forward with the permitting process. And while we were able to begin some tree falling in the first quarter, we believe the bulk of the work will not begin until sometime in second quarter or possibly later.

However, we did announce over $20 million of work for Rockford that will complete before ACP begins. In January of this year, we promoted Josh Ramsey to President of Rockford, a much deserved promotion after 13 years with the company.

And I'm pleased to say that Frank Welch has stepped up to help lead our nationwide Pipeline efforts and will continue to work with Rockford in an advisory role.

While Rockford's revenue was understandably down in the quarter, we had strong contributions from both our Primoris Pipeline team as well as our Primoris Coastal Field Services team that we acquired in late second quarter of 2017. Beginning this year, we will be combining the Coastal and Primoris Field Services under Jeff Bridges.

Today, we have combined several offices and are now addressing duplicative cost. This Field Services Group is executing successfully on their largest maintenance contract to date with a major pipeline company and there are three years remaining on that contract.

As I mentioned, Patrick McRae's Primoris Pipeline team had a great quarter as favorable weather conditions and improved crew productivity helped them exceed our expectations on their main project in the quarter. They now have four full spreads of capacity and the Texas, Oklahoma region looks to provide ample opportunity for them in 2018.

Our Vadnais Trenchless operations is roughly 20% complete on their large Dual Force Main project in the Los Angeles area, which helped Paul Vadnais' group deliver strong results. The project should continue through 2019 and the overall California microtunneling market looks to be more robust over the next several years than what we have ever seen.

Vadnais Trenchless is also gaining traction in the Texas market as they continue to pursue expansion opportunities with other Primoris business units. Taken as a whole, the Pipeline and Underground segment looks to have another great year in 2018.

Last quarter, we predicted continued margin improvement for our Civil segment, and the segment came through with its most profitable quarter of the year. Mark Buchanan's Primoris Heavy Civil team continues to win select transportation awards in Texas and Louisiana. And we are starting to see the flow of Prop 7 money in Texas.

In addition to DOT work, we continue pursuing work in airports and ports, which is contributing to our improved profitability for this segment. Primoris I&E (14:01) has seen a slight revenue decline as they wrapped up successful execution on their large petrochemical project in Louisiana.

They're bidding on numerous projects, many of them tied to the Gulf Coast industrial facilities and LNG export facilities. The timing of these awards continue to be uncertain as many of the projects keep getting pushed out to the right.

To keep busy, Jonas Beatty's team has been busy bidding with other Primoris business units on projects ranging from methanol facilities to solar installations.

Concluding my remarks, I'd like to reemphasize the success of our company depends on the thousands of workers out in the fields and in the office who bring their drive and dedication to work each and every day.

Our company and our employees' dedication to safety, quality, superior execution and reliability continue to gain us not only industry safety and quality awards but also Project of the Year awards from our customers and industry publications.

Doing what we say we will do and keeping our word to our clients and investors is a critical facet of our business. Before I pass it over to Pete, I just wanted to say thank you to all of our employees for their hard work and contribution to our continued growth and success in 2017. Pete, I'll turn it over to you..

Thank you, David, and good morning, everyone. As Kate mentioned earlier, our Form 10-K was filed last evening. So, I will focus primarily and briefly on the fourth quarter of 2017, a short version of the tax law change impact, 2018 guidance and then on to your questions. Our 2017 fourth quarter revenue was $579 million.

In last year's fourth quarter, we benefited from approximately $153 million of revenues on our Pipeline and Underground segment's construction efforts on the two Florida pipeline jobs, which ended earlier this year. And without those two jobs, we obviously had a very difficult comparison.

Revenue gains at each of our three operating segments and other work in our Pipeline segment offset much of that difficult comparison, as revenues for the quarter decreased by only $23 million.

Our largest customers in the quarter were two large utility customers, who together accounted for nearly 18% of our fourth quarter revenues, followed by the Texas Department of Transportation, which accounted for 8% of our fourth quarter revenues.

Our gross profit for the 2017 fourth quarter was $68 million, essentially flat with the 2016 fourth quarter gross profit as we successfully replaced the 2016 fourth quarter gross profit of the two Florida jobs. As a percentage of revenues, gross profit was 11.8% in the 2017 fourth quarter, which compares to 11.4% a year ago.

The most notable improvement in gross profit as a percentage of revenues came in the Pipeline and Underground segment, the result of approved change orders and contingency releases for two pipeline projects and the benefit of over $2 million in equipment rentals.

In addition, I want to thank our Heavy Civil team for making true my hopeful prediction in the August earnings call that they would be at breakeven gross profit for the last half of 2017. They were, due to a tremendous effort from everyone involved. I was not quite as successful in my selling, general and administrative expense forecast.

In total, SG&A expenses in the 2017 fourth quarter were $44 million compared to $40 million in the 2016 fourth quarter. Excluding the $5 million of SG&A expenses associated with our 2017 acquisitions and engineering startup company, we did have $1 million reduction in 2017.

The $5 million of acquisition and startup SG&As for Coastal Field Services, Florida Gas Contractors which is now doing business as Primoris Distribution Services, and Primoris Design & Construction and includes $1 million increase in amortization of intangible assets for the acquired business units.

As we further integrate the operations of the acquired units and as PDC revenues begin to increase this year, we should head toward our long-term goal of reducing SG&A expenses to 6.5% of revenues but we do still have a ways to go. We remain committed to prudently reducing SG&A expenses.

In 2017 fourth quarter, other income included a $500,000 reversal of a contingent earn-out consideration. And at December 31, 2017, we had $700,000 of contingent earn-out liability on the balance sheet. As I know you've heard from every other company reporting earnings, tax rates changed at the end of December. While we have only minimal non-U.S.

operations, the tax law change affects us from future changes in interest deductibility to depreciation. Of the many changes, two have an immediate impact. The first impact is that GAAP requires that we re-measure our deferred tax assets and liabilities.

In 2016 and 2017, we planned for this process, which resulted in a re-measurement gain of $9.4 million or $0.18 per diluted share for both the 2017 fourth quarter and full year. While some people discount this gain as an accounting artifice, I want to stress that it does represent $9.4 million of cash taxes that we will not have to pay in the future.

The second impact of the tax law change – break change is a change to our future tax rates. While the headline rate for federal taxes is 21%, we expect that our effective tax rate after considering the impact of state tax rate and anticipated levels of pre-tax income will be closer to 28%.

In 2018, we expect to recognize over $5 million benefit and a one-time impact from investment tax credits from our investment in our solar renewable projects. Thus, we are expecting an effective tax rate for the year of 23.5%.

Net income attributable to Primoris in 2017 fourth quarter was $22.5 million or $0.44 per fully diluted share compared to $14.5 million or $0.28 per fully diluted share in the 2016 fourth quarter. Excluding the re-measurement tax benefit, our fourth quarter earnings were $0.25 per fully diluted share.

I know that the math doesn't sound right but it works if you extend the calculations to three decimals. 2017 was the best year for operating cash flow in the company's history. At $189 million, it was more than three times our 2016 operating cash flow. As a result, we ended the year with cash balances of $170 million.

There are a lot of people in the company who worked very, very diligently to help us achieve that sort of result. Our cash, the availability on our credit line and our strong balance sheet provide us with plenty of dry powder for potential acquisitions.

During 2017, we spent approximately $66 million on acquisitions, of which $12.4 million was for property, plant and equipment. And we spent approximately $80 million net on capital expenditures.

These expenditures included $43 million on construction equipment, $24 million on operating facilities such as the site for consolidated Houston operating complex, $10 million invested in our California solar projects, and the remainder on office and IT projects.

In 2018, we anticipate our net capital expenditures to be between $70 million and $75 million. We ended the year with total debt of $259 million, tangible net worth of $358 million and a debt-to-equity ratio of 46%. Our debt consisted of $82 million in senior secured notes, $166 million of notes secured by equipment and mortgage debt of $11 million.

Our weighted average cost of debt was 3%. At year-end, our fixed backlog was $1.8 billion. Our MSA backlog was a record $775 million, and total backlog was $2.6 billion. During 2018, we expect that over $1.9 billion of that backlog amount will be turned into revenue. Finally, let me talk about guidance.

We have reluctantly issued EPS guidance for the last few years but we are pleased that we exceeded the top end of the guidance range that we offered one year ago for 2017 even without the benefit of tax re-measurement. For calendar year 2018, we expect net income attributable to Primoris to be between $1.50 and $1.70 per fully diluted share.

Our guidance is based on the following assumptions. First, we expect that we will have three Rockford spreads working on the Atlantic Coast Pipeline project in 2018 with at least one spread starting early in the second quarter.

At this time, we believe that is a reasonable assumption, but as you are aware, ACP does not yet have all of the required permits. Second, we are anticipating a tax rate of 23.5% on income attributable to Primoris. And finally, we are assuming no collection from our Abengoa receivable in 2018.

Hopefully, that last assumption is wrong and we will receive the amount that we erode (24:21), perhaps, even in advance of the trial currently scheduled to start in the second quarter of 2018.

With the major ACP work not kicking off until after the first quarter, with the winding down of the big Southeast Louisiana project, with the traditional slow start of our utility work, and with working in winter weather, the financial results of the first quarter will be very challenging.

Now, as we get ready for your questions, let me leave you with a positive thought. In August this year, Primoris will celebrate its 10th anniversary as a publicly-traded enterprise. Based on our guidance, this 10th year will be record setting for both revenues and earnings.

Operator?.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Lee Jagoda with CJS Securities. Please proceed with your question..

Hi. Good morning..

Good morning, Lee..

Good morning, Lee..

So, just starting with ACP, can you guys provide any more clarity around the discussion of the upward revision of the cost of the pipeline by one of the owners on their conference call last week and how that translates to Primoris?.

Yeah. Lee, this is David. I'll start out on that one. When the project was first put together and bid, there were certain scopes that fell not within the consortium members' responsibilities but laid on the clients' side.

I think now there's discussions – and I think there's discussions going back and forth where some of that scope will now come under the consortium side.

And obviously, when we start looking at it on a fixed basis, we, obviously, put some contingencies, and so the costs that we're coming up was a little bit different than, I think, what the client was thinking, so they're seeing some upward pressure on that price as they push some of that scope over into our consortium's side of the equation.

All of that's being worked out. It's just a matter of timing on that. And then, I can't really speak for how they did their estimates on their side. I can only speak for how we do our estimates on our side..

So, then putting – I guess, putting it in simpler terms, does that mean you get more revenue and more gross margin dollars but less of a percentage or how does that translate when we're looking at the potential impact to you guys through the next 18 months?.

Well, it's not yet decided totally for the whole consortium but I think the way it's probably going to work out is, yeah, you'll probably see the revenue go up on our side because some of that work actually yields better for the consortium members to do it than the client. So, yeah, I think you'll see some of that go up.

Obviously, we're very sympathetic to the cost of the overall project. And so – but there are ways that we're trying to be creative with them if they want to take some risk. We would be willing to lower our margins a certain portion if they took that risk on. If we take the risk, obviously, the margin has to stay higher.

So, yeah, a short answer to your question, Lee, I think you will see the revenue and the size for some of the consortium members go up, still yet to be seen whether there's any margin changes..

Okay. And then just switching gears a little bit to the MSA backlog, obviously, up 20-some-odd-percent sequentially is very strong.

Can you talk about some of the drivers that led to the increase in MSA backlog sequentially and then how should we expect this backlog to trend as we go through the year? Meaning, is there additional MSAs that you're chasing that can make the percentage of MSA work as a percent of the total continue to grow as it has..

Sure. As you know, most of our MSA work is in our Utilities and Distribution segment although we have started getting MSA work in some of the other groups also.

But the biggest increase was really in three ways, and I'll start out, if you remember – oh gosh, I guess, it's been about a year ago, a year-and-a-half ago, we said that our ARB Underground Group was looking to get into additional types of work, scope work that they do.

In other words, you've heard me talk about this electrical distribution, transmission line going underground, and things like that. So, we've branched out to provide some of those customers that have been our loyal customers over the years, additional types of work that we could do for them.

So that helped with some of the MSA growth in the ARB Underground. With our Q3C Group, we've continued to expand that group.

As you know, they were Minnesota, Denver, Iowa, across the Midwest and so, obviously, as we continue to expand that Q3C Group, we get more and more MSA growth in those areas also, which, by the way, I know some people look at some of the margins that came down but you have to remember when we expand into a new area, we've got the cost associated with that with the crews, the equipment.

And so then the following quarter it'll usually start catching up relative to margin performance. And then of course we bought the Florida Gas Group, which we've renamed Primoris Distribution Services in Florida and the bulk of their work is done on MSA work and so we're looking to see that continue to grow.

So, when you throw those three together, you actually see a pretty good bump in some of that MSA plus and I know it's in our filings, we picked up some MSA albeit a smaller amount in some of the other groups..

Great. Thanks very much. I'll hop back in..

Yes, sir..

Our next question comes from the line of Matt Duncan with Stephens. Please proceed with your question..

Hey, good morning, guys. Nice quarter..

Thanks, Matt..

So, first question I've got, just a couple of things on margins in the quarter. On the Power business, it sounds like you had a project, where margins were a little bit lower based on something you had in the press release on a compressor substation project.

Where are you in terms of completion timing of that project and what's the margin outlook for that particular segment going forward?.

Well, on that particular project, we've got about $1 million of revenue left. We're about 94% done. And we've, obviously, fully reserved our anticipated about $200,000 of loss provision. So, that's going to have a very minor impact going forward into 2018. And if you look at the overall Power market, we see lots of opportunities.

There's, obviously, the challenges of doing work in California, and so we've got that. And we see some opportunity there, we'll certainly be at Carlsbad for the next three quarters..

Yeah. Matt, I'll add a little bit on the opportunity side that Pete's mentioning. I alluded to them in my comments, we've got a couple of pretty nice, sizable power projects out in Tim Healy's group that I feel pretty good about us winning. We're not yet ready to say whether we've won them yet or not but I'm feeling pretty good about them.

One of them, I think, will move relatively quickly because I don't think the red tape associated with that one will be too much. The other one may be like the Carlsbad job that had some red tape associated with it that just has to be worked through so a little longer.

You also heard us talk about the battery storage and some of our solar type facilities that we're doing in Texas, that those are all pretty sizable projects for us, that I think you'll see some announcements coming from us in the short-term.

So that from an opportunity standpoint on the pure Power side, we're still feeling pretty good about our chances. I will add one more thing on the write-down that we talked about that Pete mentioned on the – it's in the Power, Industrial segment. It was actually on two compressor stations. They were identical compressor stations.

Same customer handled by two different project managers inside the customer. One of them, they acknowledged their deficiencies via the change order process. The other one, they just don't want to acknowledge at the PM level, so we, obviously, did the conservative thing that we always do and didn't recognize anything on it.

And of course, I took the write-down but fully going after those change orders. But that's – as you know, if you've been following us and you have, that's how we do things..

Yeah.

What is the size of that impact? If you are to get that change order to go through, how much would that be?.

The size of the impact, he's asking..

Oh, you're probably talking a couple of million dollars..

Okay. All right. That helps. And then moving over to Civil business, obviously, nice to see the margin profile there continue to improve. Remind us where you are on the I-35 work.

How much work do you have left there? Once that clears, based on the changes you guys have been making to the type of work that you've been going after in that segment, how should we think about the margin profile going forward? And then, specifically, in the first quarter, you guys are down in Dallas, I'm up in Little Rock, but it's obviously been very wet for both of us so far in the first quarter.

Is that having much of an impact on the ability to perform in that segment here in the quarter?.

Okay. Let me answer that kind of in reverse on the weather side first. We had – it's really not affecting us much because the bulk of those projects are either finished or moving to the latter phases. So, yeah, it affects you a little bit but not like if you were coming out of the ground on it, Matt. So, it has a less of effect on us.

We had about five – we had several projects but the ones that we took the write-downs on were basically five projects. Three of those are essentially finished. One is nearing completion and the other one will go all the way pretty much to the end of this year. We've continued our discussions with TxDOT.

Maybe this isn't the question you asked but I'll go ahead and give you the flavors since you'd turnaround, I think, and ask it anyway. We are getting some LDs released and road user fees released as we put our claims in. And I'm hopeful that we'll get through most of that this year..

Okay. That helps. And the last thing I had is just in terms of the top-line outlook for 2018.

You care to comment at all in terms of what type of top line growth you think the total business is capable of this year, kind of marrying that up to the earnings guide you've given us?.

Oh, I don't know if we give that. Pete, I'll let you....

We traditionally do not give revenue guidance. I think you got from my comments that we certainly are expecting an increase over where we were this year, and expect to see us grow to record numbers, but – so, I'm going to say it's more than $2.3 billion, but I think I'm going to stop there..

Yeah. I mean, I guess the reason I ask, guys, is, it looks like you've got pretty positive things happening in most of your segments this year, and I would think that you got the chance to have a pretty healthy growth here. So, just trying to make sure I'm thinking about that right..

Yeah. I will comment, Matt. The teams have worked and the leadership teams have worked very hard and looking how we organically grow the company, because we did kind of – we made some smaller acquisitions, but we certainly didn't make any major ones. So, just about all this growth that you're seeing is coming from organic growth in the company.

So, yeah, I just want to – Pete's been a little hedgy (36:33) on it, too. Yeah. We definitely see some positive things coming therein, but I will also make a cautious comment.

A lot of it depends on if ACP moves forth when we say, if the revenue burn there doesn't come, and you know our portions of the job, so you could see a couple of hundred million dollars in revenue if it got delayed further or something..

Got it. Thanks, guys..

Yes, sir. Thank you..

Our next question comes from the line of Adam Thalhimer with Thompson Davis. Please proceed with your question..

Hey, good morning, guys. Nice quarter..

Thank you, Adam. Appreciate it..

Hey, Pete, can you give a little more color – and you talked about this directionally, but just your expectations for Q1?.

Not a terrific quarter. I think I – we're, obviously, not going to do as well as we did last year when we had the two Florida projects. I think we're going to be (37:34) very, very challenged. As I've said, there's a litany of things that happen in first quarter.

At this point, we obviously would like to keep our track record of being profitable every quarter since we've been public. But we're going to have to work hard first quarter to get some sort of meaningful numbers. And then whatever we get in the first quarter, whatever little number that is, it's going to get swamped by the next three quarters..

Okay, that's helpful.

And then on the Civil side, do you feel like this 5% margin level is sustainable?.

Yes, I do. As I told you, we've really done a – I called it selective in my comments, so, very selective bidding on which projects we went after.

There's plenty of projects to bid out there, but we've been very selective on which ones we went after to try to make sure that the strategic advantage we had in that area from a cost perspective might allow us to get a little bit more margin on the project and things like that.

A lot of it add on – and on Civil work, I always am a little cautious because – and I know that Matt asked this question earlier about weather, I'm a little cautious when you start these jobs off, if you have bad weather and you're coming out of the ground, that really kills you from those jobs from a margin perspective and getting started.

So, I'm a little cautious. But provided we don't run into some anomalies that we're not expecting, then I'm thinking we can continue to see some improvement in that group. I will tell you it's like a battleship.

We – when you have a Civil group like that as large as that group is and the kind of projects they do, it was a battleship going in one direction and we had to get that battleship turned. And I think Mark Buchanan has done a superb job in getting that battleship headed in the right direction.

It's not pointed exactly in the right direction I want just yet, but it's certainly headed that direction..

Okay. Great. And then I know we're all hyper focused in ACP and for a good reason.

But I'm just curious what you're seeing in the large pipe bidding market as it relates to kind of 2019 and kind of after ACP?.

We're still seeing some. The fact that we can't promise on resources, obviously, when you go in to talk with them kind of gets you pushed back down a little bit and (40:10) don't come talk to me until you've got the resources available to put on it. And but we're still seeing the activity out there.

I know a lot of people in the Pipeline business have said it's going to drop off, it's going to drop off but I'm certainly not seeing it yet..

Okay. And then, Pete, you talked about SG&A.

Are you trying to reduce the SG&A dollars or you just want to see SG&A grow more slowly than revenue?.

If Brian Pratt were here, he'd say dollars. I'm going to say I think we – our goal is to get to the 6.5% of revenue. We know revenue will improve.

There are some places we can reduce dollars, but I would expect you'll see a slight increase in 2018, and I think that's just kind of the nature of the business and especially with all the accounting regulations and tax regulations that sit out there. But our goal is to get down to that 6.5% of revenue.

And as long as revenue goes up, that makes a little bit easier..

Adam, I'll add to that. I only look at dollars also. I can't spend percentages and I can spend dollars and I know what dollars are. And so, when we look at a unit operating, the leadership, associated cost with it, I tend to put a dollar value with it.

I don't sit and think that they should get necessarily more dollars if the revenue goes up unless it's associated with the cost of the job. In other words, more people cost and things of that nature. But I certainly don't look at it on a percentage basis..

Okay.

And then, just lastly on the tax rate, Pete, you said we should be using 23.5% for this year but then next year, I guess, you go to the 28% rate?.

Correct. The investment tax credit is a one-time impact on 2018 only..

Okay. Thanks .Thanks so much..

Thanks, Adam..

Our next question comes from the line of Tahira Afzal with KeyBanc Capital Markets. Please proceed with your question..

Good morning, folks. And first of all, I guess I might be the only one who remembers 10 years ago, your stock started roughly around $5. So, congratulations to your team on all the hard work..

Thanks, Tahira..

Thanks, Tahira..

I wasn't here myself. Now, Pete was here for the most of it. So, we'll definitely pass that on to Brian and others..

Fair enough. So, I guess my first question, David, in your prepared commentary, you talked about really the comeback, all the activity levels for the Pipeline and Underground segment. Of course, ACP is going to pick up, but there are other moving parts, too.

Do you feel within your segment mix, as a consequence, that sector could also end up with revenues up this year?.

I'm sorry, Tahira, that the Pipelines could end up with – I didn't hear the last part of your question. I apologize..

Not a problem.

So, Pipeline and Underground, could the revenues for Pipeline and Underground also be up this year?.

Yes. I will – yes. Yes, they could, to answer your question, Tahira. There's a – and I'm going to be optimistic here that we've got some other announcements we're going to be making on the open shop pipeline side.

And I want to point out that even with – even in the fourth quarter, which we got very little revenue burn out of our Rockford Group, our open shop pipeline was the group that was really carrying it. And over the years, over the last couple of years, I kept mentioning on the calls that we were building our spread capabilities.

And we've got four spread capabilities in that Primoris Pipeline Group. And we're seeing a lot of activity for the type of work that they do, which is obviously the 20, 24-inch and under in Texas-Oklahoma area. So....

Got it. Okay. And, David, if you look at – let's rewind back a couple of years. Obviously, you have ACP and your resources are tied there somewhat.

But by the middle of the year and given the pipeline cycle is fairly tight, could you be booking some in-line orders for next year?.

Yeah.

Are you talking about on under the Rockford Group or under the Primoris Pipeline?.

Just generally for the (44:44)..

Yeah. Let me answer it this way. You're going to start seeing some announcements from us on our Primoris Pipeline Group that we are booking some major spreads and things. On the Rockford Group, you probably won't see it through most of this year.

You probably would begin seeing something at the start of the following year, maybe later this year, but it certainly won't come over the next couple of quarters unless we were to get some news that ACP got pushed out a long way or something like that.

Pete winked at me, so I need to go back on one, not go back but on your Pipeline question and Underground, the revenue also that we're booking in there if – I always keep forgetting about our Vadnais Group being in that Underground and Pipeline area.

And if you remember, we've got a major job in Los Angeles that we're doing and some other work that we're doing with them. And so, we will see some good revenue burn out of Vadnais..

Got it. Okay. Perfect.

And then, I guess, with all these tax refunds coming in, would love to get your sense, David, what are you hearing from customers? Are they looking to spend more CapEx or are you having any buzz so far on that? And also is – given where we are versus last year, any thoughts around what M&A is appealing for you now versus last year?.

Okay. First, I'll start with your tax question. I think most of the companies that we're talking to, obviously, they're looking at their tax situation, seeing it frees them up more earnings, which obviously frees them up some more money to look at how they invest it.

I don't think they're looking at any particular project and saying, okay, great, the economics on this project look better because of the taxes.

So, I'm not seeing all of a sudden the projects that have been stalled a little bit, whether it be some of the methanol facility or LNG facilities or even some of the methane gas FEED type facilities, I'm not seeing them all of a sudden, say, great the tax thing has changed, so man we're moving forward.

Those are driven more by – on the LNG side, have they got the offtake agreements done, on the methanol and some of these other sides, how does that overall economics of that particular project look..

Right..

Now, are we seeing the companies and the customers tell us, yeah, we've got some more bidding opportunities for you, absolutely. But again, I don't know that they're looking particularly at one particular project and the tax law helping them with regard to the economics on that one. M&A, for us, we're very strategic in what we want to buy.

We obviously – and Brian has always laughed at me at the board level when I talk about I want to add a fifth dimension to the company. I guess, I should say a fifth segment to the company because he always pulls out that old picture of the 5th Dimension group from the 1960s and 1970s and shows it to me. But we're not going to overpay for something..

Right..

I'm just (47:57) not going to do that. I don't think that's the right thing. So we're out there, we're looking. As Pete said, we got a lot of dry powder right now. We certainly have got the wherewithal. But my first go was to try to say, we got a lot of organic growth we can do and we've done it.

I mean, we, the team has accomplished that and I'm very proud of that. Now, it's to see if we can find that right one at the right multiple. And I'm worried a little bit that the multiples on some of them are out there overpriced but you never know. We might find the right one..

Got it. Thank you, David..

Yes, sir – I mean, yes, ma'am..

Our next question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question..

Hey. Thanks. Good morning..

Good morning, Brent..

Good morning..

On the Utility Distribution (sic) [Utilities and Distribution] (48:52) business, really strong year here but notwithstanding what sounds like could be a tougher start, you've talked before about some work that I think should start to hit sort of construction stages and probably a tailwind for margins.

Does that start to pick up here in early 2018 or as we kind of move through the course of the year?.

Yeah. I think at this point, when you're dealing with a large Northern California utility, it will take a little while for them to get it all in their system. So, I think it'll probably start sometime in the second quarter and go on from there. That same utility is, obviously, challenged with the fires that they had last year.

So, I think they're somewhat focused there. But we're anticipating seeing that start sometime in the second quarter..

Okay. And then the Power, Industrial, Engineering business, just trying to understand the moving pieces there. The backlog has been kind of moving lower as we've gone through the year.

You look at the landscape whether it's Gulf Coast or renewables or gas-fired power, are there are a couple of areas that really stick out to you that kind of be the catalyst to reverse that backlog trend?.

Yes. The reason the backlog was coming down, and I mentioned in our comments, was our Gulf Coast teams that have come down after big petrochemical projects and things, we've got the opportunities out there, it's just those opportunities keep getting pushed a little bit further to the right.

And, of course, we're continuing to burn the revenue on the jobs that we've got. I think the catalyst out there that we're going to see is, as some of these organizations get their – and some of them have already started happening.

I'm seeing and reading some of the articles on some of the LNG projects beginning to get some of their offtake agreements, maybe not all of them, but a little bit more push behind their project from an economic standpoint.

As these Gulf Coast ethane crackers, obviously, the large one with ExxonMobil gets up and going, there's going to be work that will be spun off there. So, I see the catalyst there. It's just a matter of when they actually start and really start pushing that work out. So, we're tracking them. I feel good about them. It's just the timing is my issue..

Okay. Okay. And then maybe one for Pete, the Civil work that you still have to work through this year, I think they won't have a profit attached to it.

Is that in a $50 million range of revenues? $75 million? Any guess there?.

It's really going to go through the first quarter of 2019. And there's about $5 million of loss provision left. So, you're probably talking in terms of $100 million to $120 million of revenue over those five quarters..

Okay. Great. Thank you..

Thank you..

Our next question comes from the line of Bobby Burleson with Canaccord. Please proceed with your question..

Yeah. Good morning, and congratulations on the strong results..

Thanks, Bobby..

A lot of good questions asked. I guess, if I could probably sneak a couple in there. Curious with the guidance for 2018, how conservative in terms of the timing of a full ramp-up of ACP you guys are being.

Is there a particular quarter now that you're expecting that? And is really that really the main catalyst for potential upside to what the guidance is if it happens sooner?.

The answer is, yes, it could happen sooner. If you look at where we are right now, we're saying we anticipate we'll have three spreads. We anticipate somewhere 40% to 60% of our backlog this year.

Depending on when we start, that's going to be a lot closer to 60%, which would help us get us certainly toward the top end or over the top end of the guidance. Unfortunately, if it gets delayed and we get closer to the 40%, that's going to be more challenging and more toward the bottom end.

So, it's really – that's one of the main drivers right now is just when does it start. So, yeah, that's going to have probably the biggest impact from just a strict P&L EPS basis for the year..

Okay. And then you talked about in the past behavior of other industries in the Civil space coming in and bidding irrationally. And it sounds like margins are getting better in terms of the bid pipeline, what the bid margins look like in Heavy Civil.

Curious just for an update anecdotally on what competitors are doing and whether or not a lot of folks have left that space and gone back to residential construction..

Yeah. Yeah, Bobby, I'll comment about two types of customers in that business – two types of competitors in that business. You, obviously, have some of the smaller entities.

And as they've gotten stung and quite hard, some of those have actually went out of business, okay? You still have a lot of them that's out there, so you still have plenty of healthy competition out there.

The larger contractors like us and others, trust me, we weren't the only one that had some issues on our – on some of the Civil work in Texas with TxDOT and things like that, and some of them have done the same thing that we've done, which is look at it and say, you know what, I'm going to start bidding a little higher, and if I don't get the job, I don't get it, and I'm going to start being much more selective.

So, in general, what I'm seeing is that the pressure of the margins coming up on the bids is improving, okay? It's far from going to be a double-digit type performing, but we are seeing some upward margin improvement because people are not bidding as stupidly as they were before.

But there's still a lot of competitors out there that all it takes is to get a bond and they can go for it. So, I'm still anticipating a lot of contractors out there, the smaller ones especially that's going to struggle on some jobs. And they'll still be bidding to stay alive.

I don't know if that's helped you with my comment, but we're seeing a little bit of upward mobility on some of the margins..

That's helpful. And then just last one, MSA as a percentage of total revenue, I know you're getting some MSA work now outside of your facilities.

But just in general, if you roll that all up, where could you see maybe a ceiling to what percentage of revenue could come from MSA work over the next few years as that continues to grow?.

Yeah. I'll start out and if Pete knows the actual percentage, he can certainly give you the percentage. I don't really look at it as a percentage. Sometimes it's good to look at it and say, okay, yeah, and I know at one time there was like 30% of our revenue or something was coming off of MSA-type work.

I tend to look at it with the guys and say, look, MSA work is relationship-driven. It's recurring revenue. It's good work for us. I want that needle going upward into the right. If you've got a good customer, go out and try to see something else that we can bid for him like Scott Summers' group did out at ARB Underground.

If it's going in another region with one of our customers like Q3C did, then that's what I'm pushing for. So, I'm looking for the actual dollars again, not the percentage. I don't really have a goal in mind to say 30%, 40%, 50%, 60% or anything like that. So, Pete, I don't know if you know what the percentage is or not..

Well, I don't think – if I give you the percentage of MSA work, their total revenues, I think I've just given revenue guidance, so I may pass on that. I think what you will find is that as we start to expand that business and we get into the new areas, that's what's going to be driving the increase in dollars.

Then obviously, the percentage is just the function of how well the rest of the business is doing. But we've always looked at it as being in excess of a quarter of our business and a good solid recurring business..

Great. Thanks a lot..

Thanks, Bobby..

There are no further questions in the queue. I'd like to hand the call back over to management for closing comments..

Well, thank you, everyone, for participating on today's conference call. We appreciate your questions and the ongoing interest in Primoris, and we'll try to continue to perform. Thank you very much. Bye-bye..

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day..