Thirty seconds early.
Great.
Up next, we have Ken Dodgen.
Dodgen.
Dodgen.
Dodgen.
Dodgen. Blake Holcomb with Primoris. We're missing Tom McCormick. There was some big news out last week. He is moving on. We'll just kick things off with what happened.
Yeah, thanks, Phil. And thank you for inviting us here. It's good to be here. You know, we wanted to just start by saying, the board, after careful consideration, concluded that Tom McCormick would be separated from the company. They're very appreciative of all the things that Tom has done during his tenure there. We want to be clear that this does not indicate a shift in the strategy of the company. The strategy of the company was approved and supported by the board. We're going to continue to work towards the goals that we set out in our 2024 Investor Day that takes us through 2026. We posted a presentation earlier this morning that reiterates our guidance for 2025. So no change in our plan or strategy.
I want to also be clear that the departure of Tom is not related to any of our financial statements or business or financial performance, and that we do not expect any further leadership changes in the organization other than David King, our chairman, stepping back into the role as CEO, which he served as CEO prior to Tom's taking over, and then Jeremy Kinch being promoted to Chief Operating Officer. It is an interim position for David, and the board is conducting a search for both internal and external candidates for his replacement. With that, unless I left anything out, Ken, we will get started on the business.
Covered everything.
Okay. Thank you, Blake and Ken. Can I ask a few questions or?
Ask away.
Okay. About this topic?
Probably not.
Okay.
No. We really can't speak much more at this time. There'll be an 8-K that'll be filed.
Mm-hmm.
Tomorrow, with respect to it. Maybe we can comment a little bit more after.
Okay. Okay. Thank you for that. Let's shift to move on to another topic then. As it relates to renewables, you know, that has been a key driver for you guys, a big success story. You guys are listed number one EPC for renewables by, I think, Solar Power World. And just wanted to talk through, you know, how, how, what are your expectations for 2025 for that segment? Do you see more growth? You know, there's a lot of uncertainty in the market with the IRA. Walk us through, remind us, what kind of growth you see for 2025.
Yeah, absolutely. For us, renewables is solar. We do utility-scale solar across the United States. We've been doing it for a number of years now. We've been growing significantly every single year. Just to level set, our plan for 2024 was to grow that business by about $300 million-$400 million. We exceeded our targets and grew by $650 million, and finished the year with almost $2 billion of revenue just in renewables. For 2025, because we pulled about $250 million of revenue forward from 2025 into 2024, we're only expecting to grow about $200 million. Going into 2026, expect to resume our normal growth cadence of $300 million-$400 million top line a year. It's a great business for us. We do not do wind. We are predominantly an EPC constructor. We do, we don't just build the project.
We also do the engineering and procurement for the project. I think the other important part about our business model relative to others in this space is the fact that most of our customers are not large utilities. Instead, they're large developers. They're very well capitalized. They're not just doing one-off projects. They have a whole portfolio of projects. We work very early on with them, not just to put together the estimate of what it would cost to build that project, but to help them engineer the project, choose the panels, the inverters, the trackers, all the major components of it. We are kind of involved with them from beginning to end.
Great. One thing we've written a fair amount about is, some of the quality issues that First Solar has been experiencing. First Solar is a dominant supplier to the U.S. market. I was wondering if you can comment on whether or not that's impacting your construction schedules, because they said on their last earnings call, "Hey, we might slow down some of the shipments to customers because, one, they're waiting for maybe an independent, third party to verify some of the fixes to their manufacturing line." There is some uncertainty with the macro. They are spending as much as $300 million on warehousing expense of those modules that they plan to manufacture. To what degree might that impact your renewables business for 2025?
Yeah, we've been watching that very closely. So far, we have not had any impact. Even though a significant portion of the panels that we installed in 2024 and that we plan to install in 2025 are domestically sourced, and many of them do come from First Solar, we've been fortunate that we haven't been impacted by that. We're working with our customers and watching it very closely. I don't know if there's anything you want to add.
Yeah, I think there's just a couple of projects that are using the Series 7, which is the one that has been reported to have the majority. We do have a customer that has quite a few projects. Not that we're constructing all of them, but their comment to us was that they feel good about the solution that they've come up with at First Solar and don't anticipate it to be a long-term challenge for them.
Yeah. And I've gotten that feedback as well. You know, people are okay with the solution and moving on. There's some, you know, there's a variety of experiences as well. Some may just have some one-off projects and then may, you know, choose to reconsider, you know, on a go-forward basis. It's an interesting dynamic. Let's shift over to some of the more macro themes. You know, out of D.C., we get a lot of different color on a daily basis. What is your expectation for the budget reconciliation bill, or bills? Do you expect one bill or two bills? What is the timing you think that could come to pass? Thanks.
You know, I mean, we get advice from some D.C. folks that we are engaged with, but we do not follow the day-to-day concerns of what is going on with budget reconciliation from our perspective. You know, our most important thing is to continue to be engaged with our clients and what their view on the market is. We thus far in all the, and we continue to get updated and talk to them regularly. You know, it is business as usual for us at this point in time and do not anticipate any changes to how they are progressing moving forward. There are various opinions as to what may or may not be included in the IRA, what may be pulled back, what, how long it may be extended.
At this point in time, we've seen no customers take any decisive action about their thoughts around what could or could not change within reconciliation as it relates to some of the production tax credits or investment tax credits.
Okay. Thanks, Blake. Given your place in the value chain, we have seen some safe harboring activity, especially last year. Are you guys involved in some of that safe harboring? 'Cause construction start is a key part of that. And, you know, usually that's defined as 5% of some kind of module acquisition, purchase, of the FMV. And just curious, you know, are you guys involved in that? My guess is probably less so. What about the transformers? You can do some kind of specialized equipment, built for the project as well. Can you just quickly comment if you're involved in safe harboring?
We haven't seen any of our customers really pulling us in for any safe harboring activities yet. We continue to talk with them regularly, kind of as Blake talked about a second ago, to see if they anticipate doing any of that. So far, they haven't indicated, I think partly because they are preparing for the possibility of doing that, but also because they're still kind of in a wait-and-see mode because there's still so much to be decided. They are trying to figure out which way the winds are blowing. No, no safe harboring as of yet. I don't know if you want to comment on the other one or not.
Around.
You were asking about.
Yeah, the transformer equipment.
Yeah, transformers. That's right. So there's.
Yeah. So, yeah. The transformer market, I think, at least from what we have been hearing, really the supply chain has not gotten any worse. It really sort of peaked in terms of lead times probably in 2023 or.
Late '23.
Late 2023. And so we've actually seen some modest improvement. It's still, there's still, you know, challenges to getting transformers. Again, you know, our customers are usually the ones that are procuring those items. But we do offer the high voltage. That's one of the nice things about Primoris with our renewables customers is that we can be really a full service. We can do the preparation for the facility. We can do the full construction, the procurement, and we can do the high voltage associated with that through our sister company and power delivery on the utility side of our business. I think that is something that helps us sort of stand apart against some of the other EPCs.
In terms of the transformer or high voltage equipment market, I don't think we've seen any get any worse in terms of procuring those materials.
Yeah. Just to add, final comment on that is just the simple fact that, you know, I think it was very disruptive early on going back into 2023. I think by the time we got to this point last year in 2024, everybody had adjusted to the new norm and knew that lead times were going to be longer, knew that it was going to be more challenging. You know, started engineering and ordering well in advance of when they previously would have. Now the entire supply chain is just readjusted to the new longer lead times.
Got it. Okay. Thanks, Ken. You know, we heard at this conference that breakers might be five to seven years out now as opposed to three to four. It sounds like transformers have improved, but breakers may not have. Do you guys see something similar?
We haven't seen any significant change in breakers. We do see the lead time stretching out a little bit, but nothing significant yet. It is one of the things that, similar to transformers, we're talking to our customers about. I think they're starting to adjust as well and seeing if that's going to be a temporary issue or more of a permanent issue where they just simply need to readjust the lead times on the supply chain to work around that.
Great. Thanks, Ken. Let's shift gears to the AI theme. And gas is a big topic to try to get that online as quickly as possible to fill the gap. Renewables certainly will be there as well. But for base load, people are talking about gas. You guys have the ability to build combined cycle turbines. And we learned also that turbines might be out five to seven years. Is that something you're seeing? You know, up until recently, I was, my base case was, you know, three to four years in terms of lead time. And now, boom, we've jumped up to five to seven. Is that true? And then we can explore the turbine business more as well.
Yeah. Yeah. Lead times have absolutely stretched out. I'm still hearing as much as five years. I haven't heard seven years yet. It wouldn't surprise me if that's coming just because demand has just exploded so much over the course of the past basically 12 months. We, this is where we really like our business model in and around AI is, every, just about everything around data centers, we can, we can build. We can do transmission line substations. We can build power generation, whether it's simple cycle or combined cycle. In our, through our communications business, we can do the fiber, the loops, and the long-haul fiber up to the data centers. Now, we don't go inside the data centers. Lastly, we have a business that does site prep and soil stabilization. Basically, we can prepare the site.
Somebody else can lay the foundation, tilt up the walls, do all the inside work, and we can do all of the outside work around data centers. With respect to generation specifically, we have seen a significant growth over the course of the past 12 months, even greater than what we would have originally expected around natural gas generation. We are continuing to monitor that. We are fully booked up right now. I think the interesting point about that is because of the lead time on the turbines, everybody's expectation as to how quickly this will be built is way too aggressive. I think the reality is this is going to be built over the course of probably 10 plus years in order to match it.
Right. So Blake, did you want to say something?
I'll just add to that. And to your point, there are different size turbines. So if you mentioned combined cycle, that could be 800 Megawatt turbines. Those are the ones that we understand have the longer lead times. Our focus really at this point in time is doing more simple cycle or peaker facilities that would, as opposed to combined cycle. We do have that capability, particularly in our West Coast operations. We're not looking at any of those opportunities in our Gulf Coast operations. In some of, a lot of the work that we've been doing, you know, some of them are upgrades of facilities or green, or brownfield development and expansion of facilities. They already had turbines on order.
To your point, the future work is going to continue on for some years as they continue to bring in the turbines to get these projects built.
Peaker plants are much shorter timeframe.
Peaker plants are very simple to build. They're basically a natural gas line into a turbine and a vent stack, and that's it. The important thing about simple cycle plants is that they can ramp up very quickly and produce power very quickly and then ramp back down very quickly. Combined cycles are more base load plants. There's actually two turbines involved and what's called a HRSG, which is a heat recovery steam generator. They take about twice as long to build. They're about two to three times the cost, but their operating cost is much less. That's the reason they're considered base load.
Some of the small turbines are three to four years, or even if you go down to 70 Megawatts, maybe one to two years. There are different sizes and different lead times depending on the size of turbine that you're looking to procure.
Three years. Yeah.
Yeah. That's exactly right.
That's right. I think what people are doing right now is they're trying to figure out what turbines they can get, and then they're readjusting or re-engineering the plant around what is simply available. The example would be, if a 400 Megawatt turbine is five years out, but two 200 Megawatt turbines are three years out, guess what? Let's start re-engineering and start order the two and get them and get them in faster.
I was hosting a peer of yours right before this fireside, and they were talking about that they're qualified with five hyperscalers. Can you talk about your relationships with the hyperscalers? Let's go from there. Thanks.
You want to comment on that?
Yeah. I think most of the work that we have been doing has been subcontracted work. We are not a general contractor, as of yet, when it comes to data center development and building. I think that there, we have the opportunity to offer a lot of things at those data centers. A lot of the work that we have been doing, to Ken's point, has not been a unified offering. It has been a little bit more, we are doing fiber in Arizona and Nevada and Tulsa and Texas that is related to data long-haul, communication fiber runs. It has been doing duct bank work and electrical work up in Northern Virginia.
Just to jump in, sorry.
Oh, yeah, sure.
Just to, what, what's your, you have the capability of building.
Sure.
Ken said everything on the outside.
Yeah.
As a result, capability to be the GC and then not even subcontract out much of the work. What's the timeline you think? Is that a goal of yours to be able to sell and develop the, the, sell to the hyperscalers and cultivate that relationship so you can be, at the.
Yeah. What I would tell you, Phil, is we are looking into that right now. When you become the GC, you step up to a whole new level of liability, even though you're subbing out main components. 'Cause ultimately, even though you may be subbing out the tilt, the foundation and the tilt wall and all the interior wiring, you're still responsible for that. I think we're still evaluating whether or not we want to take on that type of liability or just focus on what we do really well and just focus on those external components. Right now we're choosing to just focus on what we do really well.
Got it. Okay. Great. Any questions out there from the audience? No? Okay. There's no. All right. Let's shift over to your gas and turbine business. What's the outlook there, you know, with the Trump administration and what they plan on doing? Do you expect to see some upside for 2025 and 2026?
Yeah. I mean, look, the gas generation business is incredibly strong right now. Like I said earlier, we're fully booked. We are looking to gradually add capabilities there, but we want to be cautious about that. I think what we expect to see is really a more gradual ramp up in that simply because of the constraining factor around the turbines. Until that gets resolved, this is not going to grow and these natural gas power plants are not going to be built near as quickly as what all the forecasts say they will be. As a result, there's no reason to expand aggressively and risk having some signing up of some work where we underperform and have lower margins or cost over.
Great. Thanks, Ken. Let's bring the question flow to a higher level. If you were to walk through, you know, the keys to your competitive advantage, like what would they be? One, what is your competitive advantage? How do you cultivate and maintain that?
Yeah. Look, I think, and you should jump in as well. One of our competitive advantages is the simple fact that we have so many businesses that complement each other so that we're not just a single solution for our customer. We are a multiple solution provider. We can, let's go back to renewables for just a second. We don't just build it for them. We help them engineer it and we help them design it. We provide the battery storage. We build the EBOS systems, the balance of system, ourselves, and we can do the maintenance for them. When you leverage the other side of our business, we can build the transmission line and the substation in so that from the eye of the customer, there's one person responsible for that that gets everything done.
That is an example where we would be kind of the GC specifically on solar, for example. I think the same is true in many other areas. Some of the other areas of differentiator for us is frankly our safety and the employees we're able to attract with that. I would put our safety record up against anybody in this industry and believe we probably have one of the best, if not the best safety records in the industry. We value our employees and we want to make sure they go home every night safely to their family. Is there anything else you would add?
I think the fact that we self-perform a great deal of our work is pretty important as well. You know, not relying on subcontractors for fixed price projects that can, where you do not always determine the schedule. We try to self-perform. I mean, in some cases in renewables, it is 90% plus that we self-perform. And even across most of our businesses, I would say it is more than, at least more than half. Yeah.
Yeah. I think it's surprising how many small, medium, and large competitors of ours, where they have problems is where they're subbing out major scopes or where they're just acting as a GC as opposed to self-performing and really, truly being responsible for the work yourself.
Great. Yeah. I think that's a critical point of differentiation for sure. Shifting over to nukes and nuclear, you know, we've talked in the past and it seems like that is an opportunity for you guys. Talk us through your strategy and your approach to realize that.
Yeah. It is an opportunity for us that we're watching very closely. Unfortunately, the nuclear industry is really kind of bifurcated right now into either big nukes, such as getting Three Mile Island back up and running, which we don't do anything in and around that, other than if there was a substation or transmission line that needed to be upgraded going in or out of that. The other barbell side of nukes now is all the new technology that's being developed around SMRs, small modular reactors. Very interesting, very interesting stuff out there right now. We are monitoring it very closely. We are trying to see who's going to be the winner there. It may not be one, it may be multiple different, different sources.
Fundamentally, if small modular reactors become a viable solution, they are going to significantly shift the balance of load versus generation on any grid in the United States, which is going to require new or upgraded substations and new or upgraded transmission lines. We think that is where we obviously have the benefit and have the opportunity there. Depending on how the SMR industry develops, there may even be opportunity to set and do more in and around it. We are going to wait and see which technology is the winner there.
That might be a long road ahead.
It may be. It could still be five to ten years away.
Can you indulge us a little bit on that? I mean, it's, it's very frustrating. The Navy has been using small modular reactors forever.
I've said the same thing myself.
Yeah.
Yes.
NuScale is out there. They got permitted for something and backed away because the cost of gas was cheap or something like that.
Yeah.
I think.
Oh, there's people in the audience.
Okay. Sorry. I'm expressing frustration about nuclear. You have companies that are all teed up for this. You know, they've been teed up for a long time. It seems as though permitting and the energy department could just say, okay, we're done. Get out there, you know, build a factory, make a thousand of these things. What do you see?
Yeah. I mean, I think.
Do you have an answer to that?
I have an opinion, I guess I would say, not necessarily an answer.
I have the same question. That's reasonable.
You know, we see a similar resistance to even pipeline construction, which is something that we're heavily involved in, or, I wouldn't say heavily. It's a smaller part of our business, but we are involved in that. That faces similar challenge. There's judicial challenges, there's state and local challenges. It's not just always a federal permitting issue, as it relates to both pipeline permitting. I assume, I don't know enough about the nuclear permitting, but I think there's just oftentimes there can be objections from certain groups that are uncertain about having those facilities located near their community.
There's definitely a bit of the not in my backyard syndrome with both pipeline and I believe nuclear. The Three Mile Islands of the world, the Fukushimas of the world, the Chernobyls of the world, I think is a stigma that people are going to have to be educated past. I honestly don't think most people realize that the Navy, to your point, has had nuclear reactors on subs and carriers for multiple decades now.
There's the NIMBY thing, but separately, there's this question of, okay, you've got this, this SMR.
Mm-hmm.
That you can run through a factory. Let's approve of this, this design and just roll them out. That's it. You know, approve one thing and go.
Yeah. I wish I had an answer for you.
Call it congressman. Yeah.
Yeah. All right. We're kind of getting toward the end here. Let's wrap it up with just capital allocation.
Yeah.
You guys have really strong free cash flow.
Yep.
You've managed your debt well. Talk about the M&A opportunities. You know, this category seems to have a lot of M&A opportunities. What's the prioritization? Do you have some targets you're looking at actively or do you more cultivate kind of things over time and let things come to you? Just capital allocation overall, and then talk through M&A as well.
Yeah. Look, capital allocation first and foremost is always to support the organic growth of our business. That is exactly what we have been doing in particular over the course of the past two and a half to three years since our last acquisition. Behind that, of course, is a kind of a two-prong approach of debt pay down and/or acquisitions. In the absence of good acquisitions, we pay down debt, which just makes the balance sheet that much stronger and gets us ready for the next acquisition, as I think you and I have talked about before. With respect to acquisitions, look, the last acquisition was two and a half years ago. We have continued to look at acquisitions consistently ever since.
As a matter of fact, we looked at 80 different opportunities last year alone in 2024, and passed on every single one of them because we have strategy, we are very disciplined in our acquisition strategy and we have specific return thresholds, strategy, and growth thresholds that they have to achieve. If we can't find those, we're not going to do an acquisition just for the sake of doing an acquisition. We'll continue to pay down debt and keep waiting for the right one.
On that checklist, how does culture weigh into things?
Look, culture is the underlying foundation that you've got to check that box before you even look at the metrics and the return threat, the growth, margin and return thresholds for us. We think we have a great culture within our company. I'm sure almost all companies feel that, but we in particular feel that way. We nurture that, we develop it, we do a lot of promoting from within and we invest in our employees. I think that's something that we.