Good afternoon, everyone. Thank you for taking the time for joining us today. Some of you probably already know I'm Ati Modak. I cover energy services here at Goldman Sachs. I'm joined with Adam Bubes. He covers machinery and infrastructure on the industrial side. And of course, we've got David Watson, President and CEO of Argan, and Jeremy , President and COO of Primoris. Thank you so much for taking the time to join us today.
Pleasure.
I guess the first question I want to start with is, strategically, on a high level, obviously this year, you've got continuation of a lot of the trends from the last few years here. But I would love to hear how you are thinking about the strategy for this year and the next few years in the context of what's going on in the space, and how you want investors to view the relative positioning that you provide in terms of the exposure across the industry. Let me share with you something.
Let me take that. Okay, sure. Yeah, I think the overriding story for us, I mean, our business lines touch really a lot of critical infrastructure, and particularly critical energy infrastructure. So that's really the message underpinned by this continuing growth in energy demand, and so that, in a nutshell, we've got a lot of active businesses in that area, but power gen in the solar and gas space, transmission distribution, substation work, highways and bridges, and oil and gas pipelines as well. We see, I guess, part of the reason we're up here today: the gas-powered gen has come to the forefront in the last couple of years. That's an area that we've been historically active in, maintaining their capability. That's going to be a growth driver for us in the coming years, certainly.
Yeah, really, strategically beyond that, we want to be the best allocators of capital in our space, and so looking to support our organic growth and also eliminate where it makes sense.
David?
A lot like what Jeremy just said, Argan is maybe a little more specific in that we are really focused on power gen. And that's what we've been doing since 2006 with one of our key subsidiaries, building gas-fired power plants, specifically combined cycle power plants, as well as peaking plants. And also, we have a renewable element to our business as well. We don't have the T&D that our friends here have. But we also have an industrial segment where we, again, I guess taking a step back, the mission statement for Argan is to safely build the energy and industrial base of tomorrow, essential to economic prosperity here in the United States. And I think we're really well positioned to do that, especially on the power gen side.
So looking forward to, in short, we're a bit of a pure play in that we build the big guys. We look forward to building for the next 20 years.
David, Jeremy, we tend to spend a lot of time with still one-on-one kind of conversation. So maybe I thought it might be helpful if you could spend a few minutes talking about the evolution of each of your stories. And then in the near term, help place on the map, right? You've got a lot of solar. You've got mostly CCGT. In this power theme, how should we think about where you land exactly and what that looks like going forward?
Sure. Did you want me to talk a bit about the history on it?
Yeah.
Yeah. And so again, Primoris came out of a company called ARB in California, which has a long history in construction, gas-powered generation, pipelines, and other things. And really kind of grew and diversified over the last 30 years, really through acquisition. Going back about two and a half to three years ago, we set out on a new strategic plan to kind of reconcile our portfolio and really get concentrating on areas that we saw as high growth, higher margins, and businesses that were good cash generators or foundational, we would keep. And anything that was underperforming, we would divest or shut down. And so that really began in earnest probably two years ago. And 2026 represents kind of the final year of that plan. We're largely done with the divestitures. And we've in turn allocated capital into growing our solar business.
We've been improving the performance in our power delivery business. Now we're pretty heavily weighted to distribution versus transmission and substation at that point. But that's an area that we're targeting for further growth. And then the gas-powered gen really, the reemergence there, it kind of fit with a skill set that we'd maintained. And we're able to put resources to it and saw the trend coming and had teams ready when the opportunities came forward. So we're one of the larger players in the solar space in the country right now, I would say, on the gas-powered gen. Really a little more niche. We're very focused right now on simple cycle. And ultimately, that may change as the opportunities develop over time. But really, we're comfortable in that space right now. And it's working out well for us.
Got it. David?
My story is a little more boring than your story, Jeremy. We like to buy businesses and hold on to them for forever, pretty much. Our transformative transaction occurred in 2006 when we acquired Gemma Power Systems, who has been building power plants, biomass plants, biofuel plants, solar, wind, though the renewable sector is significantly smaller than the Primoris team all this time, and there's been a few moments where there's been pockets of very little work for us, but at this point, we've been in this business for 20+ years.
Gemma Power has not had a lost job in 20+ years in a space that is not without risk and has been very difficult to build these projects with the right terms and conditions, with the right pricing, with the right partners, with the right ecosystem of subcontractors, vendors, the OEMs, the various configurations of these types of power plants out there. And sometimes when you're building projects in the Northeast, it's a little bit different than building a project in Texas. So we have a fair amount of variability in our ability to build these power plants throughout the United States. We do have a subsidiary that we acquired in 2015 based out of Limerick, Ireland, where we are also building power plants in the Irish and UK market. We've learned a couple of lessons over there that we've been able to apply here in the United States.
The bulk of our business, the bulk of our story, the bulk of Argan's story is building these combined cycle power plants, peaking plants here in the United States. The industrial segment is a growing piece. It's about 20% of our business. We have utilized some of our industrial group to help with the power, right, given that there is such a meaningful vacuum here for the supply imbalance of the supply-demand imbalance of EPCs and power plants that need to be built. We're looking to optimize our structure to be able to do as much as we can. It's not easy. If I had a magic wand, I've been telling folks, I would add 10 project teams. They just don't exist, nor do they have the process, procedures, relationships, the culture that we've built.
And I know you guys have built a great culture as well. So we haven't done a lot of M&A. Most of our focus has been organic growth. We constantly look at M&A. We haven't had to do any divestitures as of recent. And frankly, we've rotated our industrial group and our telecommunications group. We're getting involved a lot more in the data center part of the industrial complex. And historically, with industrial, it's been pulp and paper. It's been petrochemical. It's been pharmaceutical. But just basically working on large industrial projects throughout the Southeast, which is where we're primarily based for that portion of our business.
Then, Jeremy, you talked about an evolution of the business, gas generation now being a key focus for the next leg of growth in solar, having been a focus of capital allocation. We'd love to dive into those two businesses further. Solar, I think you've grown from zero in 2017 to a $3 billion business today. How are you thinking about the trajectory from here? On the gas generation side, I think that's around $400 million. Tell us a little bit more about your scope of work on gas generation and the trajectory on that side.
Yeah, starting with the solar, I heard a great term in one of our meetings earlier today, which was the solar coaster of 2025. So I thought that was apt. I hadn't heard it before. But certainly, there was a lot of uncertainty throughout last year. And us, as well as our clients, trying to figure out where things were going to land. And I think we're largely past that, that our clients understand what's available in terms of timing, tax credits, and tariffs, etc. And we're able to actually now plan out the rest of their near-term portfolio. As we've been growing, of course, it gets harder to grow at the same rate. And we've been forecasting kind of a moderation in the growth of that business and have been wrong the last two years.
We had some unusual circumstances last year that contributed to a bunch of 2026 work being pulled forward into 2025. And that was about $500 million. So our growth, our near-term 2026 growth prospect in the solar PV EPC side is we're looking at it kind of flattish to maybe even down a bit, relatively speaking, as that kind of reconciles, but then returning to growth in 2027. So we still see that as a growth business for us, but certainly not at the same rate. Kind of the other end of the scale in the gas-powered business, starting from a small base. But we've been able to, and I understand what you're saying about trying to find qualified project teams.
We took the chance or wisely made the investment as we saw the opportunities develop back a couple of years ago and started hiring people in advance of having work and reallocating people with power experience that had been deployed, building the classic air separation. Our industrial business in the Gulf Coast did a lot of work for the industrial gas companies. My other favorite term, a lot of the skills at the trades level are fungible, translate into power projects. And so we've been able to supplement existing project teams that have some power experience with some new folks and move the trades over. And it's turned into a real good growth story for us that I think going back to three years ago when we started our plan, that wasn't factoring in at anywhere near the same rate.
It was an important kind of smallish part of our business, but it's turned into a real growth story for us.
And then I think in gas generation, to date, you've been focused mostly on simple cycle.
That's correct.
Why is that the right strategy for you today? How does that strategy and your scope of work evolve from here?
Yeah. And so part of it is circumstance. And those have been the opportunities that have come up. And as we've been growing, a lot of the growth has been coming out of our non-union business, which doesn't have the track record that ARB does. So smaller, less risky projects, that's good for us. And it also gives us a chance to build up a resume with some of the clients. But Primoris in general, unlike your businesses, David, we don't do kind of billion-dollar projects typically. Like that kind of $80 million-$400 million is kind of our sweet spot. And we're finding the opportunities with the simple cycle projects that are falling into that category. And so it helps us manage risk. And the burn time on those jobs is kind of in the area we know how to manage.
And downside is you need more teams to do the same amount of revenue or to grow. But again, I think on the whole, we've been able to manage that well. And we've been able to attract people. And frankly, we'll grow in line with our ability to execute with surety. We don't want lost projects. And you can erase a lot of good work with a bad job. So making sure that we're growing with assurance around our execution, that remains a priority.
David, you're on the other side of this. You do mostly combined cycle power plants, have the capacity to do simple cycle as well. Can you talk about the opportunity set, why CCGT makes a lot of sense for you where you are and what the industry looks like as you think about your business?
Absolutely. Just one thing I wanted to follow on with Jeremy is I'm just happy to hear we're looking at every nook and cranny utilizing our industrial group to do some power work, utilizing some of our renewable teams that have some gas experience and basically rotating them back into gas. It is all hands on deck, I think, by all the EPCs out there of being able to build these power plants that this country desperately needs. So I think we're all on the same page there, even if it might come at the detriment of some of our other businesses, right? It's highs and bests for the organization and creating the most value for our shareholders. For us, again, creating the most value for our shareholders, combined cycles, that's just what we've got that experience, right? We've seen every configuration. It is a risk.
It's clearly a riskier project. Simple cycle. This is hard. But you're putting a turbine, you're attaching a turbine to the ground, and you're blowing and going versus the multiple other steps of capturing the waste heat, boiling the water in steam, steam turbine cycle, condensing the water. All that can create a lot of challenges, though it's a much more efficient product in the long run. Speed to market, though, and this is why Jeremy's seen a lot of peaking plants, and then obviously there's a desperate need for power by data centers, by hyperscalers, and just in general for this country, so we do embrace the big jobs. We completed the Guernsey Power Station in Ohio, which was 1.85 GW, so we don't think there is any limitation on the size that we can do.
It does allow me to utilize a project manager over a larger revenue contract to be able to scale value for my shareholders. But there clearly is a meaningful risk component to it. And we've done a really good job of managing that over the years. We've seen a lot of things go wrong over the years. And we've just continuously, as I know the Primoris team does, continuously incorporate those lessons learned and incorporate them in your processes and procedures. And we have a blueprint that has worked for us. And I think there's also a little bit more of a, dare I say, a little bit more of a moat around the combined cycles because a lot of folks don't. There is, again, a meaningful risk element to it.
Unless you really have the comfort and the muscle that you've been flexing over all these years of working on those types of projects, it's something that we've had some really good peers lose a little bit of money on in the past years.
But do you want to talk about the opportunity set as well, where you are seeing in terms of, I don't know if you want to put a gigawatt number out there on a per-year basis, but where you are today versus where you could be in a few years' time?
Right. We're excited. We're working on 6 GW of power right now. 5.5 GW of that relates to gas or biofuel, which is basically gas. And five jobs in the United States averaging over a gigawatt each, even though one of them is actually a peaking plant. It's a really large one, 860 MW. So record backlog for us, $3 billion. We've never been near that. And then frankly, so we have an expectation of our revenue cadence. Again, these are relatively long-term jobs, right? Three and a half to four years. Peaking plants are a little bit shorter in duration. And so we feel like we have really good certainty for our investors that we're going to translate that $3 billion into profitable revenue. And so the question is, okay, David, how are you going to increase your capacity? And how are you going to, what's your pipeline look like?
And given the supply- demand im balance for EPCs, it is a bit of triage, inbound request. And we're always focused on finding the right job with the right price, the right location with the right customer, and with the right contract, and with the right terms and conditions, which are critical in this business. It's not for the faint of heart. There's always going to be conflict. And we are blessed to have a lot of repeat customers because they know how we work. They know we get the job done. They know we usually get the job done early, on time, if not early. And so where we want to be three, four, five years from now, I honestly think in terms in 10 years. We're obviously in a demand, increasing demand environment for electricity consumption.
But we're also going to be going into the 2030s in a little bit of a replacement cycle, given the fact that almost 50% of the gas fleet was built in 2000-2004. We believe at Argan that we're looking at a 10-15-year run here. We're acting as such. Again, a holistic focus on increasing our capacity. That's going to take time. I mean, we're at 10-12 years. We're making sure that we make the right capital investments. To Jeremy's point earlier, yeah, we're at the highest amount of employees that we've ever had at Gemma. We've been investing for similar to the last two years on that. We continue to focus on being able to improve our capacity and focus on that space that we're in.
Before I turn it back to Adam, David, you have two businesses that people don't usually talk about as much on the industrial side and on the telecom side. I find the telecom side opportunity to be very interesting, especially given the recent changes that you've been working on and the strategy change that you want to highlight something there.
Yeah. No, I appreciate that question, Ati. No one really talks about my telecom because it's less than 2% of our business. And obviously, the driver of value has been the Gemma asset that we have. But I'm really excited about telecom. We've got a new leadership team in place. Again, it comes down to people, comes down to the management teams and having the right leaders in place at each of your business segments. And we believe we've found that. It's taken 15 years to find that, but we believe we're there. And their ability to not just lay fiber rings, but the amount of work they can do inside of data centers. I mean, we've had our telecom business team work on jobs where industrial segments have been working on. They've worked on power gen jobs. You've got the BEAD funding opportunities out there.
And they also have done a fair amount of work since they're located in the DMV or in the Washington, D.C. area on a number of government installations and on top secret clearance and whatnot. And that's been very beneficial. And then the whole hardening of the grid, burying power lines. We do a lot of that. So a lot of opportunity there for the telecom business, not just in their specific footprint, but also together with our other businesses. And on industrial, that's been a really exciting story for us. They're based out of the Southeast. Most of the work is done in the Southeast. They've largely come out of working with pulp and paper and doing civil, doing mechanical, electrical, salt-of-the-earth type. We have a fabrication facility, pipe fabrication, vessel fabrication.
We're doing a lot of that, not just for power plants, but also for data centers. So there's a lot of opportunity for growth in that business segment as well for us.
All right. Jeremy, we talked about your solar and gas generation business on the energy side, but let's talk more directly about your power delivery business on the utility side. In utilities, you consolidate gas, power, and telecom. So it's a little hard to discern the size of that business. What's the size of power today? And then can you talk about what the growth trajectory has looked like over the last year and how you think that business trends going forward?
Sure. So that business is about 45% of our utility segment, so roughly $1.2 billion a year top line, heavily weighted on distribution work at this point, probably 80% of their revenue is coming from distribution. So the trend, the Primoris story there in terms of growth opportunities, we're seeing transmission substation grow at a faster pace than distribution, although there's growth on the distribution side as well. So that's an opportunity for us to grow both organically and inorganically if the right opportunity presents itself. But this is another case where labor theoretically becomes a constraining factor in that. And that you've got linemen, it's kind of the opposite of the fungible workforce. They're highly specialized. It takes a number of years for somebody to develop from an apprentice to a full journeyman. So you can't just create them and train them up very quickly.
Now we're investing pretty heavily in training, especially in Texas, building a new facility. But I think part of this as well for us is looking at markets that maybe aren't as active and importing from outside of our client systems to do this work. And then again, if we get an opportunity to be acquisitive with the right company that's got the labor force in the transmission substation space, then that's probably our number one priority on the acquisition side at this point.
And then, can you just talk about competitively how you see your positioning in power? And then, if we could circle back to the gas generation side, be interested to hear you're working, I think, on the Stargate project on the gas generation side. What's allowed you to win awards so far in that space? I imagine there are larger players you're competing against.
Sure. Yeah. Coming back to the power delivery side again, I think to some extent, there's a bit of a rising tide lifts all boats in this and that our key clients, particularly the ones that we're heavily engaged with through MSAs, are telling us that they've got very aggressive growth plans, and so it's incumbent on us to get the resources in place to meet that. Getting in on the gas side, I think one area that, again, we were well positioned with the history coming out of ARB, long-standing relationships with the turbine suppliers, and a good source of inbound opportunity for us has in fact been from the turbine manufacturers who understand, obviously, where they're selling their equipment and where there's clients that they believe are a good match with our capability and fit. They've made introductions, and that has turned into real jobs and real opportunities.
Higher demand environment certainly helps. It's a little bit of an issue even in the simpler projects, a little bit of a barrier to entry there right now. We've been very fortunate we've maintained that skill set. Having the long-standing multi-decade relationships from our work on the West Coast with both utility clients and turbine suppliers has been key for us in acquiring new work.
I also wanted to touch briefly on the smaller business, but midstream. It's historically been volatile, but it sounds like there's some opportunities coming up here as investments are shifting downstream for gas infrastructure. Can you just talk about where you play in midstream and how that could turn out for 2026?
Yeah, absolutely. So historically, Primoris and going back again to the ARB days, it came out of Bakersfield as a kind of a pipeline company. So that's part of our heritage. And going back five years ago, it was 25%-ish of our revenue coming from kind of the cross-country pipeline type work. And of course, the bottom really fell out of that market during COVID and has stayed pretty depressed up until the last 12-18 months, and we're starting to see that come back. So we've seen that go from a $900 million a year business down to roughly $300 million. We're seeing opportunities to get to $500 million-600 million by the end of this year if we're able to land some of the larger jobs that are out there. And we're certainly seeing a healthier opportunity funnel than we've seen in the past.
I'll just distinguish as well what I'm talking about there again is the midstream, the high-pressure steel pipelines, larger diameter. We also have a gas distribution business, which is in our utility segment, low-pressure, more urban environment, but we report that separately.
And then, Jeremy, maybe I'd ask you to expand on one other topic you touched on briefly and also would love to hear your perspective, David, but there's been the persistent theme around labor availability in construction. So to what extent are you seeing that play a role in your capacity to do work today? Where are the constraints most acute, and what strategies do you both have to alleviate that?
Yeah, and again, it comes back to linemen would be the most critical for us, both because of the demand and just because of the persistent lack of capacity in that labor force for a number of years, so again, coming back, the part we can do is try to make more, which is investing in training and continuing to be really committed to that, and again, looking to see if we can recruit from out of our service area, from areas that maybe aren't as active to try to pull new resources in. If I look at the other parts of our business, I'm really less concerned. That midstream side, that business can flex up and down very, very quickly, and it's been historically lumpy, so the workforce is used to being called to work, and they finish a job and go home.
On our industrial gas power, I'd mentioned our ability to transfer people from other parts of our industrial business has really helped supplement and allowed us to meet the growth there. But we're continuing to hire, and we're hiring teams in advance of opportunities. So probably fishing in a bit of a different pond than you, David, not looking for the billion-dollar project manager, but project teams that can execute a $150 million job. And we're bringing those people on in some cases up to a year before they have a project to go to. And just looking at that as an investment, and that's time for us to teach them our systems and processes and culture gives them soak time if they're able to look at these opportunities in advance of the work being awarded. And it generally helps with the execution there.
But on the trade side and in the industrial space, we've been able to stay ahead of that very well with the current growth.
Sorry. Go on.
We're hiring.
A lot of the same stuff, right? Literally creating training career paths, not just for your leadership or your higher-level folks, but all the way down to your welders, how to develop that path because a lot of our best project managers are organically grown, just as Jeremy said. Hiring from outside the organization, obviously, we have to utilize that, but a lot of, and also sharing resources among our various businesses. There is a fair amount of synergy there. They're not as specialized as, say, linemen. Getting yourself engaged with local welding schools, donating welding equipment, working with apprenticeships, having the internships, all the above. It's all hands on deck. We have a lot of folks, since we've never left the space, follow us from job to job. We have labor brokers, and then I know Jeremy does too.
It's one of our human capital is our biggest constraint to growth. The biggest bottleneck to more projects is site project leadership teams.
Going off of these comments, as we think about margins in particular, I mean, I know a lot of people would just love to go out there and put a 25%-30% EBITDA margin in their models. How should we think about the levers? Is this creating a situation where pricing power is so strong that you can go out and bid and get projects at very reasonable margins? What are the levers that you guys are pulling, and how should we think about it?
Do you want me to start with that?
You can take the bait.
All right. I think the first step and where we're seeing, and call it still maybe in emerging early days in the gas power market, is just a more equitable allocation of risk in our contracts. So that doesn't necessarily translate to higher bid margins, but it enables us to price effectively not overprice risk that we can't quantify that keeps the price down for the client. But it also means that we're not going to get saddled with potentially margin-sapping issues that are beyond our control. Delivery time on equipment would be a good example or subsurface conditions. So I think really we're seeing that in real time right now with the new contracts that we're signing, and that's been the case in the power space for the last couple of years.
But it has not at this point translated into us jacking up our margins because we're able to, but we get the opportunity to improve after as-built to improve on our as-built margins based on the fact that we're not getting exposed to the same amount of risk.
David?
All things being equal, if every single contract term was exactly the same three years ago versus today, yeah, of course, pricing's up. But exactly to Jeremy's point, we are in the business of pricing risk. And in the event that we are able to price, we needed to be a successful project for our customers as well. And so in the event that there is some pricing considerations, well, yeah, we are willing to take this risk, this risk, and this risk, put it on your shoulders, not mine. I've de-risked my job, and I've reduced a lot of the terms like scheduled liquidated damages or whatever to make it successful for both of us, to make it work. So yes, is there pricing to be had?
The answer is yes, but does it always translate to price, or does it translate in part to terms and conditions and scope and risk allocation? So again, it's a good market to be in right now, but we also want to be in this market 15 years from now.
Right. To that tune, 15 years from now, how do you think about the CapEx requirements today, capital allocation strategy, M&A opportunities? The market's pretty fragmented across various of these end markets. What's the best way to think about all of that and return of capital? Maybe we start with you, David.
Yeah. So clearly, Argan hasn't been nearly as acquisitive as Primoris has from an M&A standpoint. We've been a little bit more of an organic growth story. We've kind of stuck with it. Maybe you can say we've stuck our head in the sand because we're plodding along, right? And then obviously, we're focused on growing. Investment in people, right? Human capital. You don't see that as M&A, but to me, that's M&A. I mean, we grew a renewable business out of nothing, right? Commitment to the dividend. We've grown the dividend three times in the last three years. Commitment to our buyback. I mean, we realize we have a meaningful, and to us, it's a competitive advantage. Our balance sheet makes us a very bankable EPC when it comes to folks trying to get financing for their projects.
They know that Gemma, our Argan, is going to be there for the next four years. Frankly, we're going to be there for the next 15 years. And so that's been very beneficial for us. And M&A is part of our model, but it's not necessarily like I don't have a burning hole in my pocket to go do an M&A. There's not a mandate to have to go do M&A, but it's absolutely something that we can consider.
Very similarly, and contrary to the history, we kind of prioritize it the same. So first priority for us for capital allocation is organic growth. And that's in people. That's in equipment. And it's a lot less risky way when the market allows it to grow the business. Second has been servicing our debt, which we really have in the last several years. If you've been following it with increased focus there, our leverage is extremely low right now. That ties us into the third priority, which would be looking at an acquisition. And we're well positioned to do that right now, but we're going to be pretty specific about the areas. It's got to be high growth, accretive margin in areas like power delivery, electrical, C&I, for example.
Finally, we have a modest dividend and an authorization at this point for share buyback should the opportunity arrive and make sense. For us, again, it really is coming down to prioritizing organic growth as the number one.
Great. Gentlemen, thank you so much for the conversation. Really appreciate it. Rest have a good conference for the rest of the day.
Okay. Thank you.
Thank you.
Appreciate it.
Thank you, David.
Appreciate it.
Thank you so much.
Thank you.
David, can we join?
Absolutely.
Thanks so much.
Thanks, Adam.
Thank you, David.