Primoris Services Corporation

Primoris Services Corporation (NYSE: PRIM) builds, maintains and repairs infrastructure through its Utilities and Energy segments. Utilities serves gas, power-delivery and communications customers. Energy includes renewables, power generation, pipelines, industrial facilities and electrical construction.

Much of the business relies on project execution and the timing of new work. Contract assets represent revenue recognized before billing; contract liabilities reflect billings ahead of recognized revenue. These balances can move cash differently from reported profit.

A recovery from the second quarter

Quarterly net income and adjusted EBITDA recovered sharply from Q2's $24.2 million net loss and $11.4 million adjusted EBITDA. Year-over-year results were still weaker. Utilities operating income rose to $70.1 million from $55.1 million, while Energy fell to $51.0 million from $108.6 million.

Adjusted EPS removes selected costs such as stock compensation, intangible amortization and transaction expenses, with related tax effects. Adjusted EBITDA also removes interest, taxes, depreciation and amortization. It does not add back all costs on troubled renewables projects.

How the annual promises changed

May's outlook, already including PayneCrest, called for adjusted EBITDA of $480 million–$500 million and adjusted EPS of $4.80–$5.00. June's renewables warning cut those ranges to $275 million–$325 million and $2.05–$2.60. August maintained them.

November narrowed adjusted EBITDA to $290 million–$310 million, leaving its $300 million midpoint unchanged. Adjusted EPS narrowed to $2.10–$2.25, reducing the midpoint about 6.5% from August.

The full forecast tables show higher depreciation and amortization, including $13.5 million more expense after removing the intangible amortization added back in adjusted earnings. Tax assumptions offset part of that increase. Forecast interest is unchanged. Adjusted net income's midpoint falls to $118.3 million from $127.0 million despite a lower expected share count.

August's schedule put three of six challenged renewables projects at substantial completion in Q3 and the last in Q4. November says the final project is moving closer to completion. New project starts and lower volumes still weigh on Energy's equipment and personnel costs.

Backlog and the acquired business

September backlog was $14.068 billion, versus $13.856 billion in June. Estimated master-service-agreement work rose to $8.499 billion, while fixed backlog declined to $5.569 billion from $5.704 billion. Customers are not obliged to order the full estimated MSA amount.

PayneCrest was acquired on May 1 for net consideration of approximately $404.7 million. It adds electrical construction for industrial facilities and data centers. Funding combined additional term borrowing and cash.

Cash and capital allocation

Nine-month operating cash was $8.9 million, versus $327.5 million. Most of that shortfall was already visible in August. The latest quarter generated $140.2 million before $42.1 million of capital spending and $100 million of program share purchases. Asset disposals also supplied cash.

Receivable sales under a financing program also contribute to operating cash. At June 30, $213.5 million of receivables had been sold and removed from the balance sheet. Those sales differ from loans secured by receivables, which count as debt.

September unrestricted cash was $203.5 million. Debt carrying amounts totaled $784.3 million, down from June's $797.0 million but above year-end's $469.9 million. May's acquisition funding changed debt since year-end.

The old $150 million repurchase authority was exhausted by September. October's new $250 million program has no expiration date, with future spending discretionary. The next results can test project completion, cash generation and the costs that separate EBITDA from per-share earnings. Read the report on Primoris's new buyback capacity and earnings forecast.