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DATE
Nov. 4, 2026
CALL PARTICIPANTS
- Senior Vice President of Investor Relations - Blake Holcomb
- President and Chief Executive Officer - Koti Vadlamudi
- Chief Financial Officer - Kenneth Dodgen
TAKEAWAYS
- Revenue -- $2.0 billion, decreasing 10.4% year over year primarily due to lower renewables activity in the Energy segment.
- Adjusted EBITDA -- $134.4 million, representing a 20.3% decrease compared to the prior year.
- Adjusted EPS -- $1.20, down from $1.88 in the third quarter of 2025.
- Total Backlog -- $14.1 billion, reaching a record high for the second consecutive quarter and increasing $200 million sequentially.
- MSA Backlog -- $8.5 billion, growing by more than $300 million from the second quarter driven by power delivery and gas operations.
- Utilities Revenue -- $770.9 million, rising 4.5% year over year on higher volume in gas operations and power delivery.
- Utilities Gross Margin -- 13.0%, improving from 11.7% in the prior year due to productivity gains and a favorable mix in power delivery.
- Energy Revenue -- $1.22 billion, a 17.6% decline year over year caused by lower renewables activity and project award delays.
- Energy Gross Margin -- 8.5%, down from 10.1% versus last year due to the lagging effect of cost overruns on solar projects.
- Renewables Revenue Guidance -- $1.7 billion, revised downward from the previous $2 billion target for the full year 2026.
- Deferred Renewables Revenue -- $450.0 million, shifted beyond 2026 due to regulatory volatility and customer-driven project delays.
- Natural Gas Generation Revenue -- $650.0 million, projected to grow more than 30% compared to 2025.
- 2027 Gas Generation Target -- $1.0 billion, supported by a verbal award pipeline exceeding $7.0 billion.
- PayneCrest Revenue -- $300.0 million, expected for its first eight months of operations, surpassing the high end of initial acquisition estimates.
- PayneCrest Backlog -- $600.0 million, more than doubling from the $260.0 million reported at the time of acquisition in May.
- Pipeline Project Award -- $250.0 million, scheduled to begin construction in late 2027 or early 2028.
- Pipeline Sales Funnel -- $8.0 billion, reaching a record level due to robust customer demand for energy infrastructure.
- Full Year EPS Guidance -- $1.20 to $1.35, updated to reflect lower revenue contributions from delayed solar project starts.
- Full Year Adjusted EPS Guidance -- $2.10 to $2.25, factoring in a higher effective tax rate of approximately 33%.
- Share Repurchase Authorization -- $250.0 million, newly approved by the board after the company exhausted its prior $150.0 million program.
- Operating Cash Flow -- $140.2 million, improving sequentially despite being down from $183.0 million in the third quarter of 2025.
- Net Interest Expense -- $14.3 million, increasing from $7.0 million versus last year due to higher debt balances from the PayneCrest acquisition.
- Full Year EBITDA Guidance -- $290.0 million to $310.0 million, revised to account for seasonal slowdowns and delayed project starts.
- Renewables Booking Outlook -- $800.0 million, estimated for the fourth quarter, with higher volume anticipated in the first quarter of 2027.
- Total Liquidity -- $944.0 million, comprised of $203.5 million in cash and $741.0 million in available revolver capacity.
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RISKS
- Vadlamudi stated, "the renewables market experienced a volatile regulatory environment throughout the year. Which contributed to lower than expected revenue from new project awards and starts," explaining the downward revision in segment guidance.
- Dodgen noted that the company currently expects "communications revenue to again be softer in the fourth quarter," citing delays in BEAD related funding and customer consolidation.
- Vadlamudi warned that the company chose to "walk away from" one specific project because the risk profile did not meet its targeted margin and project management criteria.
SUMMARY
Primoris Services Corporation (NYSE:PRIM) reported results reflecting a focus on resolving operational challenges in its renewables segment while capitalizing on record backlog levels across the utility and energy markets. Management reported that the completion of five of six challenged solar projects has reduced the impact of previous cost overruns on the company's financial performance. The company stated that increasing demand for gas power generation and power delivery services supported overall backlog growth despite regulatory volatility in the renewables sector. Management indicated a commitment to disciplined project selection and risk management as they integrate recent acquisitions and target a return to historical margin profiles in 2027.
- Vadlamudi noted that the final project of the six experiencing cost overruns is expected to reach mechanical completion in the coming weeks.
- The company expects its natural gas generation revenue to potentially reach $1 billion in 2027, representing significant growth from the $650 million expected in 2026.
- Vadlamudi stated, "The long term fundamentals supporting utility scale solar development remain firmly in place and we are laying the foundation for a return to profitable growth in 2027."
- PayneCrest is seeing strong demand from hyperscale data center clients, though growth remains limited by the availability of skilled labor in the Midwest.
- Management reported that $450 million in renewables revenue was deferred into 2027 due to delays in permits, interconnects, and PPA renegotiations.
- Dodgen indicated that while the first quarter is typically the seasonally lowest period, the company expects a strong recovery in 2027 supported by a record $14.1 billion backlog.
INDUSTRY GLOSSARY
- BEAD: Broadband Equity, Access, and Deployment, a federal program providing funding for high-speed internet infrastructure.
- EPC: Engineering, Procurement, and Construction, a common form of contracting arrangement in the construction industry.
- MSA: Master Service Agreement, a contract that outlines the terms for future work or recurring services between two parties.
- PPA: Power Purchase Agreement, a long-term contract between an electricity generator and a customer to purchase power at a fixed price.
Full Conference Call Transcript
Operator: Hello everyone. Thank you for joining us and welcome to the Primoris Third Quarter 26 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. Please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Blake Holcomb, Senior Vice President of Investor Relations. Please go ahead.
Blake Holcomb: Good morning. And welcome to Primoris' Third Quarter 26 Earnings Conference Call. Joining me today with prepared comments are Koti Vadlamudi, President and Chief Executive Officer and Kenneth Dodgen, Chief Financial Officer. Before we begin, I would like to make everyone aware of certain language contained in our safe harbor statement. The company cautions that certain statements made during this call are forward looking, and are subject to various risks and uncertainties. Actual results may differ materially from our projections and expectations. These risks and uncertainties are discussed in our reports filed with the SEC. Our forward looking statements represent our outlook only as of today, 11/04/2026.
We disclaim any obligation to update these statements except as may be required by law. In addition, during this conference call, we will make reference to certain non GAAP financial measures. A reconciliation of these non GAAP financial measures are available on the Investor section of our website and in our third quarter 2026 earnings press release which was issued yesterday. I would now like to turn the call over to Koti Vadlamudi.
Koti Vadlamudi: Thank you, Blake. Good morning, and thank you for joining us today to discuss our third quarter 2026 financial and operational results. Primoris delivered a solid third quarter, generating sequential improvements in margins, earnings and cash flow, while ending the quarter with record backlog for the second consecutive quarter. Although our results year to date have been impacted by a small number of challenged renewable projects, the underlying fundamentals of the business remain strong and we are seeing meaningful improvement in our operating trajectory. As we disclosed in September, 5 of the 6 projects that experienced significant cost overruns have now been completed. And the final project is expected to be completed in the coming weeks.
As these legacy challenges are resolved, we expect the strength of our backlog combined with awarded and prospective opportunities to support improved operational and financial performance going forward. In addition to the execution challenges, the renewables market experienced a volatile regulatory environment throughout the year. Which contributed to lower than expected revenue from new project awards and starts. As a result, certain projects were delayed while others were not awarded or intentionally not pursued because they did not meet our risk profile. Project management availability, schedule, and targeted margin thresholds. Collectively, these factors reduced our anticipated renewables revenue and gross profit contribution for 2026.
The impact of these dynamics resulted in a steeper than expected decline in revenue from the prior year and approximately $450 million of revenue being deferred beyond 2026. As a result, we now expect full year 2026 renewables revenue to be approximately $1.7 billion revised from our previous expectation of $2 billion at midyear. Despite the challenges we faced in renewables during 2026, I remain very optimistic about the future of the business. The long term fundamentals supporting utility scale solar development remain firmly in place and we are laying the foundation for a return to profitable growth in 2027.
We have taken decisive actions to strengthen the organization including adding experienced leadership that will enhance our culture, improve execution, and further strengthen our customer relationships. We have also invested in our project execution and support capabilities, to ensure we continue delivering high quality projects while maintaining disciplined risk management and margin expectations. As these initiatives progress, we capitalize on the strong booking opportunities ahead, we believe we are well positioned to return to our target margin profile in 2027. Similar to other areas of our business, where market demand remains exceptionally strong, we will continue to attract, train, and develop the talent needed to support growth.
Given the opportunities we see in front of us, and the bookings we expect to secure over the coming quarters, we anticipate our available execution teams will be fully utilized during 2027. This gives us confidence in our ability to drive profitable growth next year. While maintaining the disciplined execution and customer focus that are critical to our success. I will now provide some commentary on the segment performance during the quarter. The utility segment delivered revenue and backlog growth during the quarter. Driven by resilient demand in our gas operations business and accelerating activity in power delivery. Which more than offset continued softness in the communications market.
In communications, market conditions remain challenging due primarily to delays in bead related funding and customer consolidation. Which have tempered spending across certain end markets. While opportunities in data center splicing and long haul fiber continue to generate attractive margins, they have not yet fully offset the decline in fiber to the home activity this year. Although we are encouraged by signs that market conditions could improve in 2027, we currently expect communications revenue to again be softer in the fourth quarter. The gas operations business continues to benefit from increasing utility capital expenditures and growing demand for design build programs across the Midwest and Southern United States.
Supporting a strong pipeline of opportunities for the remainder of 2026 and into 2027. In addition, we are seeing improved operational performance in the West Coast region. Despite lower volumes of fixed price work, compared to the prior year, the business is delivering solid margins while continuing to drive revenue growth. In power delivery, we continue to see rapid growth across several key markets, where we have established strong customer relationships, particularly in Texas and the Southeast. Activity on our MSA work continues to ramp, and we are seeing an expanding set of EPC and design build opportunities for both substation and transmission projects.
I also want to recognize our power delivery teams for the outstanding work they have done to strengthen project execution work order management. Those operational improvements combined with a favorable mix of work, drove a doubling of gross profit compared to the prior year. Despite minimal storm restoration activity during the quarter. Given the strength of customer demand, expanding opportunity set and continued focus on execution, we believe the power delivery business is well positioned for continued growth and strong financial performance moving forward. In the Energy segment, aside from the previously discussed challenges in renewables, we delivered revenue growth across our end markets and achieved significant margin improvement in both our pipeline and industrial businesses.
Our pipeline business delivered strong revenue growth, and improved profitability compared to the third quarter of last year. During the quarter, we were awarded a $250 million project that is expected to begin construction in late 2027 or early 2028. We also anticipate securing an additional $150 million pipeline job in the fourth quarter that is expected to begin mobilization in the coming weeks. Further supporting our growth outlook for 2027. Just as importantly, our sales funnel reached a record level of more than $8 billion at quarter end. Reflecting robust customer demand and increasing confidence that market activity over the coming years could approach historical peak levels. PayneCrest also delivered an outstanding quarter.
Exceeding our revenue expectations and continued to build backlog. Which now stands at nearly $600 million compared to approximately $260 million at the time of the acquisition in May. The PayneCrest team continues to capitalize on significant opportunities across power and data center markets throughout its core Midwest geography. Based on its strong performance year to date, we now expect PayneCrest to exceed $300 million of revenue during its first 8 months as part of Primoris. Surpassing the high end of the range we anticipated when the acquisition was closed. Given its growing backlog, expanding opportunity pipeline, and strong end market fundamentals, we are extremely excited about PayneCrest's growth potential. In 2027 and beyond. Turning to industrial.
The ramp up of several natural gas generation projects drove strong revenue growth and margin improvement during the quarter. We now expect natural gas generation revenue to exceed $650 million in 2026, an increase of more than 30% compared to 2025. Looking ahead, the market opportunity remains compelling. We currently have approximately $900 million of verbal awards that could book in the fourth quarter and we are tracking an opportunity pipeline in excess of $7 billion. Based on the strength of customer demand, and our competitive positioning, we believe natural gas generation revenue has the potential to reach $1 billion in 2027. As encouraged as we are about the growth opportunity, we remain committed to disciplined execution.
We are selective in the customers we serve, the geographies in which we operate, and the contract structures we accept. Our focus is not simply on growth, but on profitable growth. That delivers attractive returns while maintaining an appropriate balance of risk and reward. By continuing to invest in our people, project controls, execution capabilities, we believe we are well positioned to capitalize on this opportunity while continuing to deliver strong outcomes for both our customers and shareholders. In summary, I am encouraged by our third quarter performance and the strength of our diversified portfolio.
While the challenges we have faced in renewables this year have been a meaningful headwind, their impact continues to diminish as we move toward completing the remaining project and executing on the actions we have taken to strengthen the business. We continue to see elevated demand across our end markets for the critical utility and energy infrastructure needed to support growing communities, expanding power requirements, the broader economy. The momentum we are seeing, combined with our record backlog, and robust opportunity funnel, gives us confidence in our ability to drive profitable growth. I will now turn it over to Kenneth for more on our financial results.
Kenneth Dodgen: Thanks, Koti, and good morning, everyone. Our Q3 revenue was just under $2 billion, a decrease of $226 million or 10.4% from the prior year driven by lower revenue in the energy segment. The energy segment was down $262 million or 17.6% from the prior year, due to decreased renewables activity. This was partially offset by increased natural gas generation and pipeline activity and the acquisition of PayneCrest. The utility segment was up $33 million or 4.5% from the prior year driven by higher activity in gas operations and power delivery partially offset by slightly lower communications revenue. Gross profit for the third quarter was $204.7 million a decrease of $31 million compared to the prior year.
This was driven by lower revenue and margins in the Energy segment, partially offset by higher revenue and margins in the Utility segment. As a result, gross margin was 10.5% for the quarter, compared to 10.8% in the prior quarter. Looking further at our segment results, utility segment gross profit was $100.2 million up $14.2 million compared to the prior year. This was driven by higher revenue in gas operations and higher revenue in margins in the power delivery business. The growth was partially offset by a decrease in revenue and margins in communications as the fiber to the home market continues to see softness.
We continue to see strong performance in gas and power delivery that is supporting revenue growth and backlog growth. Gas operations are benefiting from accelerated CapEx spending in the Midwest, and Southern U. S, while also delivering solid margins. Power delivery activity continues to be particularly strong in Texas and the Southeast. Additionally, a favorable mix of work and improved productivity led to a significant improvement in power delivery margins compared to the prior year. In the energy segment, gross profit was $104.5 million down $45.2 million from the prior year due to lower revenue and margins in Renewables. Gross margins were 8.5%, down from 10.1% in the prior year.
The decrease in margin was driven by lower renewables revenue and the lingering impacts of cost overruns on certain solar projects. This was partially offset by the PayneCrest acquisition and improved revenue and margins in industrial and pipeline. We expect energy segment margins to show improvement again in the fourth quarter as we complete the final challenged solar project. We anticipate modestly lower fourth quarter Energy segment revenue sequentially as the start of several renewable projects have shifted into early 2027.
Despite the lower revenue outlook in 2026, we still expect gross margins in the Energy segment to be in the 6% to 8% range for the full year 2026, and return to our normal 10% to 12% range in 2027. SG&A expenses in the third quarter were $109 million an increase of $11.3 million compared to the prior year, due to the addition of PayneCrest SG&A. As a percent of revenue, SG&A increased to 5.6% from 4.5% in the prior year, due to lower revenue and increased intangibles amortization expense from PayneCrest. Expect SG&A will be a little over 6% of revenue for the full year 2026.
Net interest expense in the quarter was $14.3 million up $7.3 million from the prior year due to higher average debt balances from the PayneCrest acquisition. Partially offset by lower interest rates. Based on current debt levels and rates, we expect interest expense to be between $43 million and $47 million for the full year of 2026. Our effective tax rate was elevated for the first 9 months of 2026, reflecting lower pretax profit. For the full year, we expect our effective tax rate to be approximately 33%. Moving to cash flow. Cash provided by operations was $140.2 million in the third quarter, which improved sequentially but was down from around $183 million in the prior year.
The decrease in cash from operations was largely driven by lower net income. Transitioning over to the balance sheet, we maintained strong liquidity of $944 million which includes a little over $203 million of cash, and approximately $741 million in available capacity on our revolver. Our trailing 12 month net debt to EBITDA ratio increased slightly to 1.8x EBITDA at the end of Q3 due to Paynecrest debt and lower EBITDA in 2026. Expect our leverage ratio to remain steady for the next couple of quarters before trending lower in 2027.
Our strong balance sheet and liquidity continue to give us flexibility to allocate capital towards organic growth, pursue strategic acquisitions or opportunistically purchase shares under the new $250 million share repurchase program. Total backlog at the end of Q3 was just under $14.1 billion an increase of approximately $200 million sequentially from Q2 and another record for Primoris. Total fixed backlog was down slightly from Q2 primarily due to the timing of energy segment bookings. We continue to anticipate a strong fourth quarter of bookings in the Energy segment, driven by renewables, natural gas generation, and pipeline awards. Total MSA backlog increased over $300 million from Q2 driven primarily by increased activity in power delivery and gas operations.
We continue to see compelling opportunities across our businesses and expect meaningful backlog growth in the fourth quarter. Which positions us for significant growth in revenue and earnings along with margin expansion in 2027. Before turning it back over to Koti, I will close with guidance. We are updating our guidance for 2026 to be EPS of $1.20 to $1.35 per fully diluted share adjusted EPS of $2.10 to $2.25 per fully diluted share, and adjusted EBITDA of $290 million to $310 million for the full year 2026.
Our updated guidance ranges anticipate lower revenue contribution in the fourth quarter from the previously referenced delay in certain solar project starts, and expected seasonal slowdown in the utility segment and a higher effective tax rate. However, we could deliver in the upper end of these ranges in the utility segment with favorable weather conditions, and in the energy segment the ramp up of natural gas power generation work. While we are still finalizing our 2027 financial plan, the underlying fundamentals of the business remain very strong, with continued healthy demand across our end markets.
As the headwind from the challenged renewables projects continues to fade, we are increasingly confident that our expanding backlog and improving mix of higher margin work will drive a strong recovery in 2027 and support record revenue and earnings. I will now turn it back over to Koti.
Koti Vadlamudi: Thanks, Kenneth. Before opening the call for questions, I would like to reiterate a few key points from the quarter. First, we are moving beyond the revenue and margin headwinds we experienced in Renewables this year. And have significantly greater visibility into restoring our path to profitable growth. We have an experienced leadership team and a talented organization committed to strengthening our position as a premier provider of utility scale solar battery storage, and EV solutions. While our financial performance in renewables has fallen short of expectations this year, we have continued to deliver high quality projects that meet our customers' demands for safety, quality, and performance.
As we look ahead, we remain encouraged by our booking opportunities in renewables for the balance of 2026 and into 2027. Beyond renewables, the opportunities across our portfolio have never been stronger. We continue to see robust demand for utility and energy infrastructure investment across the markets we serve. Supported by increasing power demand, grid modernization, and long term energy security needs. With our skilled workforce, equipment fleet, technical expertise, and long standing customer relationships we believe we are exceptionally well positioned to capitalize on these opportunities. While the timing and location of specific infrastructure investments will continue to evolve, the need for reliable energy, power delivery, communications and utility infrastructure remains clear.
Our diversified portfolio disciplined approach to project selection, and strong execution capabilities provide us with confidence in our ability to support our customers' objectives and the communities we serve. Although my first year with Primoris has included challenges, that were not anticipated, my conviction in the company and its future has only strengthened. I am proud to be part of an organization with a culture that prioritized the safe execution of the critical work we perform for our customers. That culture remains a key differentiator. Helping us attract and retain top talent. Build lasting customer relationships, and deliver consistently strong operational performance.
I firmly believe we are positioned in the right markets serving exceptional customers, and supported by talented people who bring an entrepreneurial mindset and commitment to excellence every day. As we finalize our strategic plan for the next 3 years, I am energized by the opportunities ahead and confident in our ability to strengthen our position as a provider of choice for the infrastructure solutions that will be increasingly important to our communities and economy. Our priorities remain clear. Investing in the safety, development, and well-being of our employees, delivering exceptional service and execution for our customers, and allocating capital in a disciplined manner to create long term value for our shareholders.
While 2026 has presented challenges, it has also offered lessons learned and reinforced the strength of our organization, the resilience of our diversified portfolio, and the significant opportunities ahead. I remain highly optimistic about the future of Primoris and confident in our ability to drive profitable growth and create value in the years ahead. With that, we will open up the line for your questions.
Operator: We will now begin the question-and-answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from Steven Fisher with UBS. Your line is open. Please go ahead.
Steven Fisher: Thanks. Good morning, and nice to see the improvements and turning the corner, hopefully, here. Koti, it sounds like you think 2027 is going to be back to normalized energy margins. Just curious about the revenue growth What do you think the potential is for double digit growth in energy next year? The consensus is looking like around 8% right now. I know you gave the $1 billion on gas but not sure what the base there was. And then on renewables, I think we have been talking about growing off a $2 billion base, but now that base is around $1.7 billion. So just kinda curious how you would frame the revenue growth opportunity for energy for next year.
Koti Vadlamudi: Yeah. Thanks for the question, Steven. And, what I would say is the growth opportunity is strong for us. Going backwards on your question on renewables, as I said in prepared remarks, we are probably this year going to finish around $1.7 billion. We are looking at modest growth of that given the strength of our current backlog and opportunities in Q4 and Q1 for bookings. Overall, very the. You asked the question about the base the base of business in energy and gas power generation. We are probably finishing this year in that submarket around $650 million, and probably looking very confidently in over $1 billion in top line for next year.
So I think that gives confidence in that in that growth rate in the energy segment. Though you did not ask it, I will just say it here. We are consensus has. Has us consolidating for the whole enterprise for next year 2027. Given the trajectory, the positive trajectory in our backlog we feel confident in meeting or exceeding those expectations.
Steven Fisher: Terrific. that is very helpful. And then maybe just on the topic of data centers, I am just curious what you expect. Do you have any comments about the impact of the elections Could this be a 2027 impact or more for 2028? What kind of things are you preparing for in 2027 in terms of data centers? And then just maybe any mix of the geographic work, how important Texas is to you? Thank you.
Koti Vadlamudi: Yeah. Obviously, it is a dynamic environment right now. We are staying close with our customers. With respect to 2027, backlog and opportunities, much of this work is contracted and in the field and execution and permitted, so we feel pretty good. About that overall. But, obviously, we will stay. We will remain very close to our customers and their investment decisions. And how potential changes in regulatory policy could inform CapEx going forward. But we remain confident given our intentional bias to end markets with strong durable secular tailwinds.
Kenneth Dodgen: Thank you very much.
Operator: Your next question comes from the line of Sangita Jain with KeyBanc Capital Markets. Your line is open. Please go ahead.
Sanjeeta Jeem: Good morning. Thank you. Can I first start with the narrowed guidance for 2026? You kept the midpoint 3Q was above consensus. So can you help us understand how we should think about the bookends as in what drives the low end of the guide and what drives the high end? Heading into the end of the year?
Kenneth Dodgen: Thanks, Sangita. The quick answer is it is just that those delayed starts in the renewables projects that Koti referenced in his prepared remarks, Looks like we have got a few projects that are going to trip over and start q 1 of next year. And so as a result, a little bit lower revenue there. But, again, the recovery is on track.
Sanjeeta Jeem: And then on the $450 million deferral from this year, does that all come in next year? And can you help us understand what may be the drivers behind those delayed starts?
Kenneth Dodgen: Yeah. The drivers. I will go in reverse order. The drivers are a variety of things, but predominantly, it is just all the regulatory disruptions that happened this year. And because of that, it is driven some higher costs for some of our customers. Had to go out and maybe, renegotiate the PPA. There was 1 case, 1 or 2 cases where the delay was related to permitting or interconnects. So it is all customer driven. And so despite having very strong customers, large, well capitalized customers in this space, They have experienced a few disruptions. But for the most part, all we are doing is just delaying the starts from 2026 into 2027.
And then on the deferral of the $450 million, how should we factor that into next year? With 1 exception of a project that we just chose to walk away from because of the risk posture on it. Most of those projects. Oh, no. Jerry. With the exception of that 1 project, everything is just moving from a 2026 start into a 2027 start. Understood. Thank you.
Operator: Your next question comes from the line of Lee Jagoda with CJS Securities. Your line is open. Please go ahead.
Lee Jagoda: Hey, good morning.
Koti Vadlamudi: So just, I guess, starting with PayneCrest. So the backlog at PayneCrest is up really nicely since you bought it. Can you kind of give us the drivers of that increase? And maybe what the opportunity pipeline looks like for them? And really, at this point, how much capacity do they have to add additional work? Yeah. Thanks, Lee. I will take that 1. So, we are really pleased with the trend in backlog there moving from $260 million when we acquired them to just under $600 million today. That movement is their exposure to industrial which includes data centers, and a very core hyperscale client that has an outlook for work that exceeds available capacity in terms of labor.
So the governor on them for growth will be availability of labor but very strong backlog and very strong pipeline for them to continue to grow. In the coming years. Okay.
Lee Jagoda: And then just looking at the energy business, as we look out to next year, the mix of business looks like it might be shifting a little bit I guess, with the exception of some of these energy delays, but certainly more power, more pipeline, and I guess now energy may grow off of a lower base next year. If I look at the projected mix, how does that change your view, if at all, in terms of, like, the normalized margin range within energy? Or does the mix potentially skew things to the lower or higher end of the prior historical margin ranges?
Koti Vadlamudi: Yes. I think for next year, we will be restorative in terms of the margin range that we would seen in previous years like 2025 given the headwinds on some cost overruns in 2026? I think portfolio mix will be very beneficial, particularly the gas power generation portfolio become a bigger driver of the overall portfolio in further years. But next year, probably normal restorative margins and then opportunity for. To benefit from portfolio mix. Going forward.
Lee Jagoda: Sounds good. Thanks.
Operator: Your next question comes from Philip Shen with Roth Capital Partners. Your line is open. Please go ahead.
Philip Shen: Hey, guys. Thanks for taking my questions. First 1 is on renewables and your bookings. And can you talk about how close ratios may have changed or not at all? Following the challenged 6 projects. In other words, trying to assess how has the business outlook changed from a booking standpoint or are you able to still close at the same ratios as you had previously when you guys were growing so much? Thanks.
Koti Vadlamudi: Yeah. Thanks for the question, Philip. No change with respect to that. Book to burn historically in this segment has been pretty close. Kenneth described some projects that have moved to the right The customer relationships are very solid. In most cases, they are dealing with either a PPA or a grid interconnect issue that is causing them to delay the start. But no cancellations and high aptitude to convert We were very back half weighted. We are still back half weighted very strong opportunity funnel in Q4 and Q1. Just to put a little color on that. Expecting Q4 bookings to maybe come in and renewables around $800 million potentially a bit higher.
Q1, even larger, maybe double that amount. And potentially even a little bit higher than that. But strong relationships with the customer, and in some cases, they have already signed letters of intent but we have been pragmatic in not pushing that into backlog.
Philip Shen: Great. Okay. Very good color. Thanks, Koti. And then sticking with renewables for my second question. Can you talk about the margins? That you are seeing on the new work that you are winning? Versus the challenge projects of this past year? And then separately, but related, we have picked up on this potential for a new kind of Midwest labor agreement that could raise EPC costs? Because it might require EPCs to work with electricians to lay solar panels.
And so just was wondering, I think it is tied to, like, NMA agreements versus the Tri-Trades or--I forget the second part I forget the second part of that word, but there is there is a labor agreement that may be. May require the high voltage electricians to get involved, and that could impact the states of Illinois, Missouri, Ohio, and Indiana. So just was wondering if you can give a little bit of color on that exposure. Tri-Trade is the name I was looking for. Thanks.
Koti Vadlamudi: Yeah. Yeah. Philip, thanks for the question. Yeah. We would have minimal exposure there. I confess, I do not know the details of that potential agreement or where it is evolving, but yeah, our footprint does not need to take us there. And so we will watch out and school up on that in particular, but we would have no impact in our in our current portfolio or funnel And then I apologize. Can you repeat the first? Margins. Yeah, Margins. Margins will again, be restorative to previous as sold and as executed margins historically. And, again, the diminishing impact of the cost overrun projects will be helpful for us as we as we complete the remaining project.
And I will further say, if we exclude the 6 sorry. If we just exclude the 6, we are already at those margins. Okay. Good to know. Okay. Good to know. Thanks again. I will pass it on.
Operator: Your next question comes from Sangita Jain with Piper Sandler. Your line is open. Please go ahead.
Dimple: A very good morning. Thank you for taking the question here. And a apologies in advance for this loaded question. But can you talk a little bit about just the gas and data center pipeline and how much has been awarded today? And then secondly, how durable the 13% gross margin is for utilities? That was a standout. And how we should be thinking about that going forward? And then I know it was going to be a loaded question. Taking all of this together, plus a recovery in your renewables, do you feel good about achieving double digit growth in 2027?
Koti Vadlamudi: Yeah. I will work backwards, and I may ask you to repeat so that it is you, Sangita. But yes, very, very confident in the growth trajectory to the last--your last part of the question. With respect to composition, gas power generation, current submarket for us, backlog sits at around 1 with an opportunity to continue to grow You know, what I have described there, the demand environment is so high We are you know, very careful on the work we take on from a risk-reward posture. But strong opportunity to grow there. And then the data center exposure specifically is through PayneCrest. They are not only data center.
They do other industrial manufacturing as well, but they have benefited from that CapEx and the growing relationship they have with a hyperscale client. And that total, not just data centers, sits at about $605 million in backlog.
Dimple: Very good. And then just the durability on that 13% gross margin for utilities, is that something we can continue to expect?
Koti Vadlamudi: Yeah. On the. 1 thing I am very happy with the team's performance in power delivery specifically. They have worked over the past year to on the MSA work, drive further productivity and gain meaningful points in gross margin quality. So I think that is something we will sustain over the year. We enjoy good gas operations, and I think while that submarket may be more modest in growth, they have delivered good margins historically over the year and next year, I think we will see some meaning probably modest growth in that market. Hugging the margin quality they have delivered historically. So we feel good about that.
And we do not plan for storm work, but that is when our customers have that need. We are you know, critically able to support them, when that arises. So we are optimistic. Thank you.
Operator: Your next question comes from Julien Dumoulin-Smith with Jefferies. Your line is open. Please go ahead.
Brian Musil: Yeah. Good morning. Hi, good morning. it is Brian Russo on for Julien.
Koti Vadlamudi: Hey, Brian.
Brian Musil: If just to follow-up, you mention power delivery margins could be sustainable at 13% or the overall utility segment? Can be sustainable at that level, which would be above, you know, the 10% to 12% you have been kind of guiding towards.
Kenneth Dodgen: Yeah. Brian, the. Those margins are typical for our Q3, but for the full year, because of seasonality, we still expect to be in the 10% to 12% range. Okay.
Brian Musil: Great. And sticking with the power delivery, we have seen a lot of your core Texas customers increase yet again. Their 5 year capital forecast. Does Primoris have the necessary capacity to support that type of growth, or would that be, you know, a target of opportunistic M&A going forward?
Koti Vadlamudi: You are talking about power delivery, Brian?. Correct. Is it power delivery? Is that your question? Yeah, it would be an opportunity for growth. I think the. It is a labor constrained market. We do have some really good MSA relationships with existing customers. That give us visibility to the CapEx you are talking about. We also have opportunities to memorialize some contracts that are in discussion for new prospective customers. That also see their availability in the supply chain with current peers kind of tapping out for crews So it is meaningful growth for us, and we will look at opportunities both organically and inorganically to drive that growth. Okay. Great.
Brian Musil: And then just on the pipeline awards, can you just add a little bit more color there? $250 million that is a nice size. You know, for Primoris, given the size of that segment. Anything you could offer there in addition to just the timing that you mentioned?
Koti Vadlamudi: Yeah. You know, historically, we have said before the last few years, it is been sort of a slower market for us, but we have seen the opportunities $250 million 1 that we referenced is 1 that starts the burn at the end of next year and into 2028. Importantly, I did mention in my prepared remarks another opportunity. it is not inked yet, but a $150 million that 1 will contract, we expect, and will burn in 2027. So we see more of that growth probably meaningfully in 2028. But starting to turn around in 2027.
Brian Musil: Alright. Thank you.
Operator: Your next question comes from Chris Sun with Wolfe Research. Line is open. Please go ahead.
Chris: Hey. Thanks. Good morning, guys. Just on renewables with the revenue outlook now falling from, $3 billion to $1.7 billion this year, you know, you cited higher carrying costs, lower volumes at Is there a need to resize the workforce? And equipment base for this lower level activity or are you maintaining this capacity in anticipation of a recovery? Like, maybe just asking more broadly, like, what level of renewables revenues is needed to operate efficiently?
Kenneth Dodgen: Yeah, Chris, you were--I think I think I heard you. And the short answer is it is a little bit of both. With the with the revenue coming down so much, we definitely maintained critical capacity where we have needed to. But there are other parts of the business that are more back office focused and indirect focused where we have rightsized the business. Okay.
Chris: Thanks. And maybe just as a follow-up, I noticed the energy fixed price revenue dropped a bit from $951 million to $576 million year over year and just. And, like, the time and materials and cost plus increased from $481 million to $376 million. Just. Does this reflect the deliberate shift towards lower risk contracting or just simply just project mix?
Kenneth Dodgen: Well, yeah, it is a little bit of both. It is project mix and some of it is lower risk. It. 1 of the main things is. that is reflected there is the fact that we have we have lower renewables revenue, which is fixed price, And what is growing in its place, as we have talked about, is the natural gas generation which starts out as open book or reimbursable until we, convert it into a fixed price later on in the project. Alright. Thank you.
Operator: Your next question comes from Jerry Revich with Wells Fargo. Your line is open. Please go ahead.
Jerry Revich: Yes. Hi. Good morning, everyone, and nice job. On the projects this quarter. I want to ask when we are talking about the outlook for $1 billion-plus for the Gas Power business, into 2027. Could you just talk about what proportion of those jobs already have permits You know, obviously, the downside of reporting right after elections is maybe there are more pieces than usual. Can you just comment on the status of permits on those projects or whatever they are supporting?
Koti Vadlamudi: Yeah. Thanks for the question, Jerry. And I do not have this in specific as a percentage, but 1 of the things we do when we are evaluating the opportunity set given how fertile ground it is for numbers of opportunities. We do evaluate where they are in the key. Client queue as far as procuring long lead equipment such as the turbines. We also look at their aptitude for the project to go from a permitting per. Perspective. So, the ones that we are going after have strong aptitude. Or have the permits in place.
So we feel very good about what we put into backlog and also for opportunity funnel Those are sort of filters we use in terms of our go no go.
Jerry Revich: So they are not impacted by any of the moratoriums in place now?
Koti Vadlamudi: Nothing we have currently has been delayed or canceled due to any moratorium. All the projects are in the field and moving forward with their current schedules.
Jerry Revich: Okay. Super. And then, I will just ask the 25 vintage projects that were booked in renewables, can you just talk about the status of those projects to see progress on the back half 24 projects being closed out. How are the projects booked in 2025 performing?
Koti Vadlamudi: Yeah. Everything is going, everything's either performing at sold margins or a little bit better., we gave color on the 5 of the 6 have hit mechanical completion, the last 1 will hit this quarter. So, you know, good overall for the portfolio, and lots of discipline in, work we estimate going forward and making sure everything comports with our overall risk reward balance. Thank you.
Operator: Your next question comes from Manish Somaiya with Cantor Fitzgerald. Your line is open. Please go ahead.
Manish Somaiya: Thank you. Good morning, gentlemen. Kenneth, my first question is on cash conversion. We are still trailing the target that we have laid out for the full year. For operating cash flow, free cash flow. So maybe if you can help us get us to that bridge as we are in Q4. And then maybe, Cody, if you can help us reconcile your comfort level with the consensus growth for 2027. I think you said that renewables obviously will grow from a base of 1.7 Gas generation will exceed 1 billion. But then if you can just help us close the loop on how we should think about pipeline pain crest and utilities.
And then just, lastly, on capital allocation, obviously, it is great to see the $250 million of share buybacks And if you can just help us prioritize in terms of share buybacks, organic and inorganic growth, and deleveraging? Thank you.
Kenneth Dodgen: Yeah, Manish. I will start off and then Cody can jump in. But on cash conversion, on cash conversion, you know, we are now expecting operating cash flow of about $100 million for the year. And essentially breakeven free cash flow. And that is you know, been a direct result of the lower EBITDA. But going into next year, we fully expect to bounce back normalized levels, as we enter 2027. I will also took on capital allocation. Capital allocation, really no change there. We took advantage of the stock price, and the share repurchase that our board authorized in both Q2 and Q3.
We exhausted all of that $150 million We have another $250 million that the board just approved. Going forward, I we will continue to be opportunistic on the $250 million. But coming out of, the renewables projects, I think we are gonna be. You know, continue to be prioritizing supporting the organic growth, and where we can find them good acquisitions. And then, Cody, I do not know if you wanna touch on the 2020 consensus.
Koti Vadlamudi: Yeah. I will jump in on. In terms of revenue growth, and I said it in a in an answer to previous question. You know, we feel given the backlog strength and where we are positioned in. At the end of 2026, and going into 2027, we feel very confident to exceed revenue expectations on top line for next year. And then you highlighted a couple of things that I already said, but gas going from $650 million to over 1 billion very confident. Again, based on backlog and opportunity set. PayneCrest performing better than expectations for this time this year. Strengthened backlog, gives us confidence they are gonna grow. They could contribute over $500 million for next year.
Pipeline will probably be a little bit modestly up next year. And as I said before, it is more of a 2028 play for us for growth. And then renewables, given the funnel and what we expect to book in Q4, and in Q1, we see aptitude with. You know, we will probably sit at the end of this year at over $2 billion in backlog and set us up for modest growth, from 26 to 27. And then utilities as well, particularly around power delivery, we see growth there. And gas operations, while we would have expected to be maybe more tempering in growth CapEx for customers and where they need our skill sets.
Are showing promise, so we see modest growth next year for that business as well.
Manish Somaiya: And Cody, if I can just squeeze 1 more in on the margin. I think on the energy segment, you said 10% to 12% for next year. that is highly achievable. How should we think about sort of the high end of that margin? And how do we see that progression over the course of 2027? Is it sort of back half weighted or is it something that we will probably see beginning pretty early in the new year?
Koti Vadlamudi: it is probably more back half, back half weighted Some of that is portfolio mix. Some of that is maturity of projects and execution. That we will see some you know, with good execution and productivity, opportunity to see expanded margin quality. But I would look at it that way. Okay. Great. Thank you so much.
Operator: Your next question comes from Sean Milligan with Oppenheimer. Your line is open. Please go ahead.
Jean: Good morning, and thank you for your time. I apologize if you already mentioned some details, but with the 2027 $1 billion expectation in natural gas business Can you talk about what are your bookings and revenue burn cadence expectations through 2027?
Koti Vadlamudi: it is a good question. I mean, revenue cadence is gonna be relatively flat, to my knowledge right now. I do not know specifically about bookings cadence. By quarter for next year, though.
Jean: No problem. And just thinking about the renewables can you just talk about a little bit about what some of the conversations are you having with your customers regarding 2027, 2028 opportunities and, you know, regarding the elections Was that some of that already baked in these conversations or do you expect to have a new set of conversations with your existing potential new customers?
Koti Vadlamudi: Yeah. You know what I would say is the. Those customer conversations, the investment decisions they are making, I think we are based on current policies that in place and so we have. And when we shape our portfolio, we look at it overall risk reward, aptitude to go, value proposition. We are, you know, a premier provider in this space. We do not try to win on price. So all those things sort of factor into how we pursue work. Obviously, given the changes in the admin. In the legislature, We will we will keep tight with our customers on how policy could shape their investment decisions.
But know, overall outlook for us is strong The I have quoted numbers before about the total funnel. That funnel is still as large as it is ever been. So, you know, we are very focused on making sure we pursue the right work given the labor constraints that are out there.
Jean: And on 1 more for me. On the final project, to be completed within the coming weeks, Do you expect it to be actually done in that timeline, or are there additional, like, walk throughs or things of that nature that we should expect from you guys.
Koti Vadlamudi: Construction will be complete in this quarter. And we will be ramping down from the thousand plus peak to 60 to a 100 staff So from a construction progress will be done. There will be still some people that have remained to keep the site. And as well do testing and commissioning that will string into next year. But from a construction progress percentage complete and hitting mechanical completion, we are gonna be finishing that off in the coming weeks.
Jean: You. I appreciate the time.
Operator: As a reminder, please limit yourself to 1 question and 1 follow-up. Your next question from Adam Thalhimer with Thompson Davis. Your line is open. Please go ahead.
Adam Thalhimer: Hey, good morning, guys. Great quarter.
Koti Vadlamudi: Thanks, Adam.
Adam Thalhimer: Can you give some color on you gave some great color on renewables bookings potential for Q4 for gas pipeline and communications?
Kenneth Dodgen: Yeah, Adam. I hit the wrong button here. Gas will be strong in Q4. Probably as much as $1 billion in bookings on gas. Pipeline, the main thing we are targeting for Q4 is about a $150 million to $200 million in bookings related to a project that Cody talked about earlier and then. What was the other 1 you asked about? Communications. Oh, communications. You know, communications is almost all MSA work for us. it is very little project work. So, it should be relatively flat going into the quarter as we continue to pivot that business and try to target more project work around data centers. And middle mile stuff.
Adam Thalhimer: Okay. And this might be asking too much because at least you said you are comfortable with the 27 consensus. But I do not know if you have looked at the at the quarters and how things might shake out. I just wanted to know how conservative we should be for Q1 of next year.
Kenneth Dodgen: You know, I have not looked at the quarters. In general, you know, Q1 is 1 of our lowest quarters of the year just because of seasonality, in particular, in the utilities business. We also sometimes see a little bit of seasonality in the energy side of the business as well. So I know that it completely answered your question, but it is natural to have Q1 be kind of a seasonally low quarter. Okay. Thanks, Kenneth.
Operator: Next question comes from George Sheffey with Mizuho. Your line is open. Please go ahead.
George Sheffey: Hey, guys. Good morning. Thank you for taking my question. Just curious if you could give us some color on when we should expect the renewable projects that go into backlog next quarter and the gas projects that go into backlog next quarter. When we should expect to see those burn to revenue.
Koti Vadlamudi: So all the renewables projects that we book in Q4 and Q1 revenue will begin burning in Q2 and Q3. I think there may be 1 project that will not start till Q4, but almost all of it should be, you know, booking. Should start. Excuse me. Should start to burn relatively quickly.
George Sheffey: And then on the gas generation was that the other 1 you asked about, George? Yes. It was.
Koti Vadlamudi: Yeah. As a general rule, those start burning very quickly as well. Whenever we book that into backlog, if it does not start within the quarter, it generally starts in the quarter.
George Sheffey: Okay. Perfect. Thank you so much.
Operator: Your next question comes from Adam Bubes with Goldman Sachs. Your line is open. Please go ahead.
Adam Bubes: Hi. Good morning. Historically, I think in utilities, gas is your highest margin business. And then power delivery is relatively lower margin. Than the other business lines. Just wondering how much is that gap closed, given the strong margin performance in power? And then as, you know, that business becomes a larger part of the mix, should we expect mix dilution at the segment margin level? Or can improving margins in the Power Delivery segment offset that?
Kenneth Dodgen: Look. The margins are all in the 10% to 12% range. I am trying to think through this real quick. Gas margins, and power delivery margins, like in Q3 were both at the upper end of the range and a little bit above the range. So going forward, as power delivery and gas continues to grow, that should be margin accretive.
Adam Bubes: Okay. Got it. Understood. And then utilities backlog, I think it is up strong double digits. Year over year and on a next 12 month basis as well. Does the current backlog here, you think, support an acceleration in growth off of these levels? Can you just talk about maybe the growth in utilities embedded in your expectation to execute well against consensus numbers next year?
Kenneth Dodgen: Yes. I mean, we are excited about the growth that we are seeing in our utilities business. I think we are still comfortably expecting kind of high single digits growth going into next year with the opportunity potentially to do a little bit better than that. I do not know that we are looking to see an immediate acceleration beyond that. I think we wanna see how 2027 plays out from a booking standpoint, in particular, with certain of our customers who have larger projects that we are targeting in or around transmission and substation. Great. Thanks so much.
Operator: Your next question comes from Steven Fisher with UBS. Your line is open. Please go ahead.
Steven Fisher: Thanks for taking my follow-up. Just a follow-up on the communications business. Can you just give maybe a little bit more color on what you are seeing in the BEAD program? How is that progressing? Are there sort of higher confidence areas, lower confidence areas? And then anything. Any more color on sort of fiber to the home activity beyond bead? I know it sounds like it is a little bit weaker, but what are you seeing in the dynamics from the customers there? Thank you.
Koti Vadlamudi: Yeah. Yeah. Thanks, Steven. I think. I would characterize it just the way you said it. Our fiber to the home is probably a diminishing market for us overall. We are tracking some of the BEAD programs They are not in our backlog, but they are with customers, we know So expect to get some of that into backlog, but overall for us, it is a smaller percentage of the overall TAM. it is an overall smaller percentage of the total enterprise. We do have some initiatives in organic growth to look at some of the data center plays with, like, skill sets among the splicing technicians.
But, you know, I would say for us, it is not a meaningful growth vector for us. Okay. Thank you.
Operator: This concludes the Q&A session. I will now turn the call back to Koti Vadlamudi for closing remarks.
Koti Vadlamudi: Yeah. I just want to close by thanking the employees at Primoris for doing the important critical purposeful work on behalf of our clients. I will also wanna thank you all for engaging with us today. We do believe our best days are in front of us. And we look forward to updating you as we go forward. Thank you.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
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