Welcome, everyone, to the CJS 26th Annual New Ideas for the New Year Conference. My name is Lee Jagoda, the analyst covering Primoris at CJS. From the company today, we're pleased to have with us Jeremy Kinch, Chief Operating Officer, Ken Dodgen, Chief Financial Officer, and Blake Holcomb from Investor Relations. Primoris is a diversified engineering construction company focused in two segments: utilities, providing services to gas and electric utilities, as well as communication services, and energy, focused in the areas of renewables, natural gas power, and pipeline. We'll start with a brief overview from management and then go right into the fireside chat. For clients who would like to ask a question, if you could type those into the question box on the dashboard, I'll try to incorporate those into the dialogue as we go. With that, Jeremy, Ken, and Blake, take it away.
Yeah, great. Thanks, Lee. Blake Holcomb here, and I'll kind of pile on there to what Lee was talking about, just a brief overview of the company. So critical infrastructure, construction services, and solutions for our clients. On the utility side, with the power delivery, gas utility, and communications business, primarily structured around master service agreements as the primary contract structure there. So it's about $2.7 billion of gross trailing 12-month revenue, with a target kind of margin range in the 10% to 12%. Been running at the higher end of that the last 12 months. About 45% of that segment would be the power delivery, about 40% the gas utility, and 15% comms. Obviously, a lot of tailwinds in some of those markets that we'll get into in the discussion with Lee.
And then on the energy side of the house, it's about $4.9 billion of gross revenue, trailing 12 months. Primarily, about 60% of that revenue being our renewables business, which is solar, EPC, battery storage, small eBOS solutions business, and then some O&M, sort of make up about 60% of that revenue. About 20-plus% of that revenue would be our traditional industrial, which includes our natural gas power generation, which is something we'll get into an exciting opportunity set there. And then the remaining kind of 20% there being our highways, roads, and bridges business, which is about 12%. So that's a heavy civil business. And then the pipeline business being about 7% or so of the trailing 12-month revenues. But again, strong management team, diversified services, long-term customer relationships driving, and some pretty exciting markets that we'll want to dive into.
But with that, Lee, I'll go ahead and let you kind of open it up to the Q and A so you can talk to Jeremy and Ken about their thoughts.
Sounds great. Thanks very much. So I guess, Jeremy, just going to the demand environment first, obviously, many of your end markets remain extremely strong and robust. Would love to discuss how Primoris fits and your competitive position in each of the markets. And then answering the question of when you win, why you win, and in the event that you lose, what are the typical reasons why you lose?
Sure. So a lot of answers to that question, Lee. I'll try to keep it kind of focused. Starting with the utilities side there, MSA business, as Blake mentioned, and really built up on long-term relationships. The MSA contracts typically last three to five years, but the client relationships in general span decades in some cases. And the key there is safe performance, service level, quality of work, and being able to meet the demand with resources as required to complete it. The competition, because of the long life cycles of the project or the contracts, rather, is a little different than in our bid environment, where, again, you're looking at more like renewals, and there's a bit of a barrier to entry there.
And so really, for us, it's about maintaining that service level, maintaining a high degree of communication with the client, and ensuring that our commercial terms are such that we can protect the margins on that work and look for opportunities to do discrete projects where we can get a little higher margins. The other side of the business on energy is primarily driven by projects. So those would be discrete projects that are either negotiated or bid in a competitive environment. And the degree of competition varies pretty widely across the business. So at the most competitive end of the scale, we'd have our heavy civil and pipeline businesses. And typically, and especially in pipeline, a buyer's market the last few years, heavy civil, public tender. So you can see upwards of eight or nine bidders showing up on certain projects depending on the size.
And in that case, generally, you've got to win on price. And so we've got to be very careful about target selection there, making sure that we're bidding work that we understand the environment, the geographic location, our ability to get craft. We've got well-developed estimating processes that have held up over the test of time. But in that case, literally, it's generally bottom dollar takes the contract. On the other end of the scale, and we saw this in our solar business as we were building that up from virtually scratch in 2017 with a small acquisition to close to around $3 billion last year. And we're seeing also in our growing gas power gen business. Because of the level of demand, of course, it makes it easier to, I guess, allocate risk more fairly between us and our client. Generally, not the same level of bid activity.
You may be having opportunities to sole source. Or if there are bidders, it's maybe two bidders at an early stage, and at some point, the client's picking the winner, and you're working together collaboratively through the engineering and procurement phase. And so the tail on solar for us, I think, has been told many times. So I'll just focus on the gas power gen, which has grown. We have a long history in that business, particularly out of our union industrial operation in California. But as the demand has picked up, we've started growing our non-union side of that as well. And so we kept that competency and focusing really more on simple cycle power projects, even at a time where there really wasn't much of a market for it. And it positioned us really well to grow into the opportunity that's ahead of us.
But again, being really selective, we're not taking responsibility for delivery of major equipment, but through our relationships with turbine suppliers, we're actually able to, they've been helping match us up with good fits for clients with projects with equipment orders in the queue. And that early stage discussions with the clients, working through them or working with them, rather, as they're getting the projects stood up and thinking about their contracting strategy, it's allowed us to be a better partner to them and while reducing risk to us. So really excited about that business growing over the next few years. It's probably our highest growth potential on a percentage basis.
Great. So I guess we'll start just going through the segments. On the energy side, you just mentioned that you think the natural gas piece will be the highest growth on a percentage basis the next year or two. Could you kind of rank order the other pieces, knowing that there's very different sizes amongst them? And if there are any kind of detractors in that group?
Yeah, yeah, for sure. Yeah, I think for 2026 and certainly for 2027, I think we're going to see pipeline become a contributor, a more serious contributor again. That was historically, as you know, Lee, a big part of our business. As the company's grown in that market post-COVID, significantly shrank. It's become less of a contributor on a revenue side. But we've retained the capability there with that team to do the large cross-country projects where we've been so successful in the past. So as we're seeing the opportunity funnels come back to. We're tracking something like $4.5 billion worth of projects right now. That gives us the opportunity to jump in as a competitive landscape gets a little bit more favorable to us and deliver projects with a business unit that's historically delivered higher margins than our overall company average.
So really excited to see them have the opportunity to kind of punch above their weight again. I think looking at the short term, and we've talked a lot about in 2025, we weren't expecting the degree of growth that we had in our solar business, and yet it grew significantly. And really, the contributor there, biggest contributor was we had a bunch of work pulled forward to the tune of about $500 million of work that had been planned, sequential projects that were requested by the client to perform consecutive, or sorry, consecutive projects that were then run concurrently at the request of the client. And so that, call it artificially or incrementally boosted our 2025 revenue while taking away from 2026. So we're not expecting solar PV to be a growth driver like it has been in the prior seven years in 2026.
We're expecting to be flattish to maybe down a bit before returning to growth in 2027. But certainly, the opportunity funnel there is still strong. If we look at the rest of our business within the utility side, kind of different situations there. Power delivery, longer term, we see as a growth driver, particularly with a focus on the transmission and substation. Now, we're heavily weighted in distribution right now to the tune of about 80-plus%. And one of our near-term goals is to get our mix of transmission and substation work closer to 30% to 40%, which generally it'll allow us to attract higher margins into that business. And so that's one of our key priority areas for growth.
The rest of the business, just to kind of spread across, I guess we're probably looking at low single-digit growth, and that would include our gas distribution business, which is a very high-margin business, about $1 billion a year, that's again under MSA, so somewhat dictated by client spend. We actually saw good growth from them in 2025 beyond our expectation, but we're tracking that as kind of low single digits, and heavy civil, Blake had mentioned, same thing. We're not looking to grow that business. We probably could, but we're happy with the way we've been able to improve margins there and the size it is with the cash flow it generates, and they're in a good spot right now, so again, kind of low single-digit growth out of that market.
Great. And then maybe touch on some of the bid margins you're seeing in both your current order book and your pipeline, and maybe compare and contrast that to what you saw a year ago would be a good start. And then I've got to follow up on margins.
Sure. Again, looking at the, I assume you're talking really about the project work, so that would be like the gas gen and solar EPC and that. I think solar, now that we've gotten through the regulatory churn of last year and things have kind of settled out, we're not, it's kind of, I'll call it, characterize it roughly similar to what we were seeing a year ago. On the industrial, the gas power gen side, what we're seeing more so than maybe bid margins going up, we're seeing a lot more equitable contract terms, the form of contract, which allows us to work on a reimbursable basis while the engineering's in the early stage and procurement's happening. And as we, with the client, develop the scope at around 60% engineering when delivery times are known, then we're able to provide a fixed price for the remainder.
And with the equitable contract terms and our better understanding of the scope at that point, we've got an opportunity to improve on our as-built margin through execution because a lot of the unknowns are worked out at that point. And so I don't think we've had enough runway at enough volume to declare that that business is going to run higher than our kind of target 10% to 12% gross margin, but the potential is certainly there. So as we get more iterations and more projects, especially under the non-union side, then I think we'll be in a better position to declare whether there's a structural increase in margins. But really, it's manifesting at this point as less risk.
On the non-project side, I guess on the utilities business, what are the things that you've done as a company the last 18 months to kind of structurally improve the way that business operates to drive sustainably higher margins going forward?
Sure. And I'll focus on the distribution because, again, the work mix on the transmission and substation side would ultimately bring the overall, the average margin in that business up as we do more volume. But if we go back to the Investor Day a couple of years ago when we were talking about performance improvement in that business, it was really. It's kind of several focus areas, utilization of resources and managing equipment at kind of a more global level to make sure that we're getting better utilization across the fleet. And so that's kind of managed more broadly across the segment. Negotiating with our clients on contract terms where we had some MSAs that were getting at the end of their life. And frankly, the escalation clauses had not kept pace with cost inflation.
So we were able to get that worked through on the last renegotiation a year or so ago. And that had a meaningful impact on our margins. And then the other, it comes into, call it, more efficient and accurate billing. So on these MSA contracts, we have crews that are dispatched, and they may be given a work order that literally that morning for work that they'll do that day and repeat each day through the week. We're relying on those crews to perform and to capture the hours spent, the units that they can charge for, and quickly and efficiently get that in so that we can bill it. And we've seen a good improvement in that space with that whole process, the work to build to get our costs in excess down in that business, which just improves the cash flow in general.
So there's been a lot of focus on that in the last few years and improved the profitability as well as we're making sure we're capturing all the units we can bill for.
Then I think you alluded to it before just in terms of as you increase the percentage of project work, margin can move around in the utility side. How do you as a company view increasing project work and then, I guess by definition, increasing risk and balance that with the returns you're getting?
Sure. And there's kind of two aspects to it because we can provide, we do project scopes within the context of an MSA as well. So I'll focus on that first. And there versus MSA work where we're getting dispatched maybe daily or weekly, if you have a discrete project, we're able to plan the resources that go onto that. We're able to plan the sequence of work and really use our resources more efficiently. So even if the pay units are, say, the same or similar to what we'd be getting on distribution work or, sorry, on non-project work, we can work a lot more efficiently than if we're getting the work doled out in day or half-day work packages. So that just allows us to be more efficient, so that translates into higher margin. I don't see that there's really any risk increase on that.
Now, on the bid side, that's a big part of our business elsewhere. And we have to have the work processes in place to estimate correctly and then to go out and execute the work correctly. But we're growing that business organically. And as resources come available, much like we've done in solar and gas power gen, we're hiring in project teams in advance of the work so that they can get used to our work processes. And I think that that's a good way to mitigate risk. And we've certainly proven it elsewhere in the business. But that project work is going to come from a mix of internal to the MSA plus discrete big project or bid projects.
Got it. So maybe I'll take it back to a higher level, give you a chance to breathe, and ask Ken a couple of questions.
Oh, thanks.
My pleasure. So I guess, Ken, over the past couple of years, I guess needless to say, we've seen a significant increase in the trading multiple of Primoris of all of your peers or many of your peers, well above what's been kind of historically normal. So maybe a broad question of how do you view the current business cycle in terms of how much further it has to go across your various end markets? And then based on that view, how do you internally think about allocating capital going forward?
Yeah. Look, I think we're fortunate. We did kind of step back and really took a strong look at our company and the different end markets that were in a few years ago and really evaluated each one of them based on their strength and realized we were in some end markets that had some strengths that we were not in some end markets that we knew would have strength, and we pivoted and made some adjustments and really set ourselves up for a number of end markets, including renewables, including gas generation, the utilities part of the business, broadly speaking, in order to position ourselves for not traditional cyclical markets, which is what we've been in historically, but instead markets that have long-term tailwinds, and so I think that repositioning is part of what has really helped us and our multiple.
And the good news is from a valuation standpoint is I don't think in many cases, I don't think we're in the eighth or ninth inning of those market cycles. I think we're in early innings and still have a lot of opportunity for growth over the course of the next five to seven years, in particular in gas generation, in particular in power delivery, which is our electric utility business. I think we're starting a new cycle on pipeline. And I think despite a little bit of a lull in 2026 in our renewables business coming off the noise of 2025, I think that's got four or five more years of really strong growth as well.
Then back to the other part of your question with respect to capital allocation, our priorities around capital allocation have always been first and foremost to support the organic growth of our business. Nothing has a better ROI than organic growth, especially in those strong markets with the strong tailwinds and the great opportunity that I just talked about. Secondly, it's paying down debt. Thirdly, it's M&A. And fourth, it's return of capital. And we haven't done any M&A in about three years now. We've been very disciplined. We only do M&A when it meets certain strategic profiles as well as financial metrics from a revenue growth and a margin perspective.
And so we get often asked the question, "Why haven't you done another acquisition in the past three-plus years?" And the short answer is not because we haven't been looking, but because we have been disciplined and we haven't found good companies to acquire. I would say in recent months, we've noticed the quality of opportunities increasing significantly. And I'm cautiously optimistic that we might be able to do a nice acquisition sometime in 2026, but again, only if it meets that criteria.
And in terms of, I guess, finding good companies is a great first step, but what are you seeing in terms of multiples on the—I guess I assume these are private companies that you're looking at, multiples that I guess either the sellers are commanding or the market is creating?
Yeah. I think it really depends, again, on the end market. What I will tell you is, in general, multiples have been in the kind of eight to 10 times range for almost everything we've looked at. The one exception might be one of the areas that we're looking at is potentially adding electrical C&I, and that would enable us to self-perform some of the scopes that we normally sub out on gas generation and industrial work that we do. But secondly, it would also enable us to get a larger footprint and a larger opportunity in and around data centers than what we currently have. We're seeing those multiples being a little bit higher, but they haven't been out of reach by any means.
They've still solidly been in kind of the maybe 9 to 11 times range, which on a relative basis to where we're trading at is still a good opportunity, especially with the potential growth that we could see in that area.
Great. I guess one more bigger picture question for Primoris. In terms of the next, we'll call it the next 18 months, how do you view sort of the biggest company-specific milestones or catalysts that we as investors should look for that if they happened, your stock would have a good chance of outperforming?
Look, I think there's a couple of different things. As we continue to prosecute and really build out the opportunity in and around natural gas generation, I think you will see that being a major growth driver for us, whereas over the course of the past few years, it hasn't been. It's been a relatively stagnant business for us. I think the second thing that you'll see is margin appreciation in two predominant areas. One is, and I think Jeremy touched on this a little bit earlier, in power delivery as we continue to do a mix shift there and have a better balance of project work, specifically transmission and substation work relative to distribution.
Then on the energy side of the business, I think it's the continued growth of that natural gas generation and the resurgence of pipeline, which generally are fixed-price projects that have the opportunity to have better-than-average margins and could accrete to higher overall margins for not only the company, but also that segment.
No, that's really helpful. One other question that we're asking many of our companies today is really around artificial intelligence, and I know, obviously, tangentially, your company benefits from the growth of AI, but I guess looking at how Primoris is using artificial intelligence in your day-to-day, are there things that you're doing that could lead to efficiencies, margin opportunities in your use of AI?
Yeah. I'll jump in on this one. Yeah. So we characterize 2025 and carrying on a little bit into 2026 is really about foundation building. So we've done what a lot of people have done, got the internal sanctioned chatbot deployed internally. We have done the same with some of our third-party systems that we run. We've spent time developing our cybersecurity strategy and are getting to a point where we're going to be able to deploy bots fairly widely, following strategies that some, call it, more security-minded organizations in other industries have adopted. So we're working toward that. And we're getting to the endpoint of finalizing our data management strategy, which is really the underpinning that would allow us to use AI and automation more broadly.
So it's been a lot of kind of below-the-surface investment that will allow us to be flexible and take advantage of applications that we don't know exist today. Now, on top of that, we're starting with back-office processes because those are things that we generally fully have control over. And first of all, as we've got somewhat diverse business units where they may be doing things slightly differently, we're working toward getting standardization on common processes like timekeeping to payroll, procure to pay, things like that. That will, over the next, call it, 12-18 months, allow us to introduce more automation, maybe less AI, but certainly automate these back-office processes, which was really about scale. So when you tie it to margin improvement, really should enable us to decouple SG&A growth from revenue growth and service a much larger business with the same size back-office going forward.
So that's the concentration. I think looking out longer term, it's easy to imagine some applications into the field. I think we want to make sure that we have a good fundamental understanding of the more simple business processes and kind of the low-hanging fruit before we start looking at applying it more broadly out in the field. But the opportunity is certainly there.
Great. And then just, Ken, one more that I didn't ask you when we were talking about capital allocation. And you mentioned sort of the internal investments first and foremost. I know at least a couple of years ago, you sort of changed your strategy from much more heavy into purchasing equipment to more of a leasing strategy. And at least in terms of how things have looked, it certainly has paid dividends. Given that we're now in a situation where you're as capital-rich as I think you've ever been, is there any change to that strategy? Or how should we think about your CapEx investments and where that money goes organically going forward?
Yeah. Look, the good news is we have the flexibility to either purchase equipment or to utilize longer-term five to seven-year leases in order to effectively finance the purchase or the use of equipment over a longer period of time. Both are incredibly economically viable. And what we have the ability to do is actually flex between the two, depending on which is more cost-effective from an interest and financing perspective. As you mentioned, we flexed toward leasing pretty heavily there for a couple of years. That helped us significantly from a variety of different standpoints. Now we're bringing that back a little bit more toward purchasing. I think last year we purchased 25% and leased 75%. This year, we're going to more of a 60/40 split.
We'll continue to monitor that on a yearly basis depending on where rates are and just which is more economically advantageous to us in our business model.
Great. Well, that's all I have. And with a couple of minutes left, I think I'll flip it back to you guys for some closing remarks. And thanks for your time today.
All right.
Thanks, Lee.
Thanks, Lee.
Blake, do you have any closing comments?
Yeah. No, I just want to thank Lee again for hosting us. And I think just to reiterate kind of the key themes here is that Primoris, we feel like we're in a really good position to continue to, with good execution, participate in some strong tailwinds across our markets and be advantageous around augmenting the portfolio when those opportunities present themselves. But I think that about sums it up.
Thanks again.
Thanks, Lee.
Thanks.