Primoris Services Q3 2026 Earnings Call Transcript
Primoris Services (NYSE:PRIM) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Primoris Services reported a solid Q3 2026, with improvements in margins, earnings, and cash flow, despite challenges in renewables impacting year-to-date results.
The company achieved record backlog for the second consecutive quarter, fueled by strong performance in utility and power delivery segments, while the communications market faced challenges.
Renewables revenue for 2026 is now expected at $1.7 billion, down from a previous $2.0 billion estimate, due to regulatory volatility and project delays, with a positive outlook for 2027.
The energy segment showed revenue growth in pipeline and industrial sectors, with a notable $250 million project award expected to begin in late 2027 or early 2028.
Pancrest’s acquisition has exceeded expectations, with backlog now at $600 million and revenue expected to surpass $300 million in its first eight months under Primoris Services.
Financial guidance for 2026 includes an adjusted EPS of $2.10 to $2.25 and adjusted EBITDA of $290 to $310 million, with expectations for improvement in 2027.
The company anticipates significant growth opportunities in natural gas generation, with potential revenue reaching $1 billion in 2027.
Primoris Services remains optimistic about future growth, driven by strong demand across utility and energy infrastructure markets and strategic actions to enhance execution capabilities.
Full Transcript
OPERATOR
We will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Blake Holcomb, Senior Vice President of Investor Relations. Please go ahead.
Blake Holcomb (Senior Vice President of Investor Relations)
Good morning and welcome to Primoris Services’ third quarter 2026 earnings conference call. Joining me today with prepared comments are Koti Vadlamudi, Chief Executive Officer, and Ken 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, November 4, 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 is available on the Investors 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 (Chief Executive Officer)
Thank you, Blake. Good morning and thank you for joining us today to discuss our third quarter 2026 financial and operational results. Primoris Services 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, five of the six 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 or 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 $2.0 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 and 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’ll 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 and 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. Pancrest 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 Pancrest team continues to capitalize on significant opportunities across industrial power and data center throughout its core Midwest geography. Based on its strong performance year to date, we now expect Pancrest to exceed $300 million of revenue during its first eight months as part of Primoris Services, 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 Pancrest’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 and 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 and the broader economy.
That momentum we are seeing, combined with our record backlog and robust opportunity funnel, gives us confidence in our ability to drive profitable growth. I’ll now turn it over to Ken for more on our financial results.
Ken Dodgen (Chief Financial Officer)
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 Pancrest. 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 and 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 operations 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 Pancrest 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 and due to the addition of Pancrest. SG&A as a percent of revenue increased to 5.6% from 4.5% in the prior year due to lower revenue and increased intangibles amortization expense from Pancrest. We 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 Pancrest acquisition, partially offset by lower interest rates. Based on current debt levels and rates, we expect interest expense to be between 43 and 47 million for the full year of 2026. Our effective tax rate was elevated for the first nine months of 2026 reflecting lower pre-tax 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 twelve-month net debt to EBITDA ratio increased slightly to 1.8 times EBITDA at the end of Q3 due to Pancrest debt and lower EBITDA in 2026. We 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 dollar 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 Services. 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’ll 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 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 utilities 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 with 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.
Koti Vadlamudi (Chief Executive Officer)
Thanks, Ken. Before opening the call for questions, I’d 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 EBOS 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 service. 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 prioritizes 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 three 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 Services 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 one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one 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 Stephen Fisher with UBS.
Your line is open. Please go ahead.
Stephen Fisher (Analyst at UBS)
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 billion dollars on gas but not sure what the base there was. And then on renewables, I think we’d been talking about growing modestly off a 2 billion dollar base, but now that base is around 1.7.
So just kind of curious how you’d frame the revenue growth opportunity for energy for next year.
Koti Vadlamudi (Chief Executive Officer)
Yeah, thanks for the question, Steve. And you know what I’d say is the growth opportunity is strong for us. Going backwards on your question on renewables, as I said in prepared remarks, we’re 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. You asked the question about the base of business in energy and gas power generation. We’re probably finishing this year in that submarket around 650 million and probably looking very confidently in over a billion in top line for next year. So I think that gives confidence in that growth rate in the energy segment. Though you didn’t ask it, I’ll just say it here where consensus has us consolidated for the whole enterprise for next year 2027. Given the positive trajectory in our backlog, we feel confident in meeting or exceeding those expectations.
Stephen Fisher (Analyst at UBS)
Terrific. That’s very helpful. Then maybe just on the topic of data centers, I’m just curious, what do you expect? Do you have any comments about the impact of the election? 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 (Chief Executive Officer)
Yeah, obviously it’s a dynamic environment. Right now we’re 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’ll 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.
Stephen Fisher (Analyst at UBS)
Thank you very much.
OPERATOR
Your next question comes from the line of Sanjita Jeem with KeyBanc Capital Markets. Your line is open. Please go ahead.
Sanjita Jeem (Analyst at KeyBanc Capital Markets)
Good morning. Thank you. Can I first start with the narrow 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?
Ken Dodgen (Chief Financial Officer)
Yeah, thanks, Sanjita. The quick answer is it’s just those delayed starts in the renewables projects that Koti referenced in his prepared remarks. Looks like we’ve got a few projects that are going to trip over and kind of start Q1 of next year. And so as a result a little bit lower revenue there, but again the recovery is on track.
Sanjita Jeem (Analyst at KeyBanc Capital Markets)
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?
Ken Dodgen (Chief Financial Officer)
Yeah, the drivers. I’ll go in reverse order. The drivers are a variety of things, but predominantly it’s just all the regulatory disruptions that happened this year. And because of that it’s driven some higher costs for some of our customers. They’ve had to go out and maybe renegotiate the PPA. There was one or two cases where the delay was related to permitting or interconnects. So it’s all customer driven. And so despite having, you know, very strong customers, large, well-capitalized customers in this space, they’ve experienced a few disruptions.
But for the most part all we’re doing is just delaying the starts from 26 into 27.
Sanjita Jeem (Analyst at KeyBanc Capital Markets)
And then on the deferral of the 450 million, how should we factor that in next year?
Ken Dodgen (Chief Financial Officer)
With one exception of a project that we just chose to walk away from because of the risk posture on it, with the exception of that one project, everything is just moving from a 26 start into a 27 start.
Sanjita Jeem (Analyst at KeyBanc Capital Markets)
Understood, thank you.
OPERATOR
Your next question comes from the line of Lee Jagada with CJS Securities. Your line is open. Please go ahead.
Lee Jagada (Analyst at CJS Securities)
Hey, good morning, guys. So just I guess starting with Pancrest. So the backlog of Pancrest 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?
Koti Vadlamudi (Chief Executive Officer)
Yeah, thanks, Lee. I’ll take that one. So, yeah, we’re really pleased with the trend in backlog. They’re moving from 260 when we acquired them to just under 600 million today. That movement is their exposure to industrial manufacturing, which includes data centers and a very, very core hyperscale client that has an outlook for work that exceeds available capacity in terms of labor. So governor on them for growth will be availability of labor but very, very strong backlog and very strong pipeline for them to continue to grow in the coming years.
Lee Jagada (Analyst at CJS Securities)
Okay, 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 (Chief Executive Officer)
Yeah, I think for next year we’ll be restorative in terms of the margin range that we’d seen in previous years, like 20, 25. Given the headwinds on some cost overruns in 26, I think portfolio mix will be very beneficial, particularly with, you know, the gas power generation portfolio will become a bigger driver of the overall portfolio in further years. But next year probably normal restorative margins and then opportunity to benefit from portfolio mix going forward.
Lee Jagada (Analyst at CJS Securities)
Sounds good. Thanks.
OPERATOR
Your next question comes from Philip Shen with Roth Capital Partners. Your line is open. Please go ahead.
Philip Shen (Analyst at Roth Capital Partners)
Hey guys, thanks for taking my questions. First one is on renewables and your bookings. Can you talk about how close ratios may have changed or not at all following the challenged six projects? In other words, trying to assess, you know, 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 (Chief Executive Officer)
Yeah, thanks for the question, Phil. No change with respect to that, you know, book to burn. Historically in this segment has been pretty, pretty close. Ken described some projects that have moved to the right. The customer relationships are very solid. In most cases they’re dealing with either a PPA or grid interconnect issue that’s causing them to delay the start, but no cancellations and high aptitude to convert. We were very back half weighted.
We’re still back half weighted. Very strong opportunity funnel in Q4 and Q1. You know, just to put a little color on that, expecting Q4 bookings to maybe come in in 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, strong relationships with the customer. And in some cases they’ve already signed letters of intent, but we have been pragmatic in not pushing that into backlog.
Philip Shen (Analyst at Roth Capital Partners)
Great. Okay, very good color. Thanks, Koti. Then sticking with renewables. For my second question, can you talk about the margins that you’re seeing on the new work that you’re winning versus the challenged projects of this past year? And then separately but related, we’ve 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, you know, I think it’s tied to like NMA agreements versus the tri-trade or similar agreements.
I forget the second part of that word. But there’s a labor agreement that 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 (Chief Executive Officer)
Yeah, yeah, Phil, thanks for the question. Yeah, we would have minimal exposure there. I confess I don’t know the details of that potential agreement or where it’s evolving, but our footprint doesn’t need to take us there and so we’ll watch out and school up on that in particular, but we would have no impact 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 complete the remaining project. I’ll further say if we exclude the six—sorry, if we just exclude the six, we’re already at those margins.
Philip Shen (Analyst at Roth Capital Partners)
Okay, very good to know. Thanks again. I’ll pass it on.
OPERATOR
Your next question comes from Dimple Gazai with Piper Sandler. Your line is open. Please go ahead.
Dimple Gazai (Analyst at Piper Sandler)
Very good morning. Thank you for taking the question here, and 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 to date? 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 warned 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 27?
Koti Vadlamudi (Chief Executive Officer)
Yeah, I’ll work backwards and I may ask you to repeat some of that, Dimple. But yeah, very, very confident in the growth trajectory to the last part of the question. With respect to composition, gas power generation current submarket for U.S. backlog sits at around 1 and opportunity to continue to grow. You know what I’ve described there. The demand environment is so high. We are very careful on the work we take on from a risk-reward posture but strong, strong opportunity to grow there. And then the data center exposure specifically is through Paincrest. They are not only data center; they do other industrial manufacturing as well, but they’ve benefited from that capex and the growing relationship they have with a hyperscale client.
And that total, not just data center, sits at about 593 to 600 million in backlog.
Dimple Gazai (Analyst at Piper Sandler)
Very good. And then just the durability on that 13% gross margin for utilities—is that something we can continue to expect?
Koti Vadlamudi (Chief Executive Officer)
You know, the one thing I’m very, very happy with is the team’s performance in power delivery specifically. They’ve 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’s something we’ll sustain over the year. We enjoy good gas operations and I think while that submarket may be more modest in growth, they’ve delivered good margins historically. Over the year and next year I think we’ll see probably modest growth in that market, hugging the margin quality they’ve delivered historically.
So we feel good about that, and we don’t plan for storm work, but when our customers have that need, we’re critically able to support them when that arises. So we’re optimistic.
Dimple Gazai (Analyst at Piper Sandler)
Thank you.
OPERATOR
Your next question comes from Julian Demoulin Smith with Jefferies. Your line is open. Please go ahead.
Brian Rousseau (Analyst at Jefferies)
Yeah, hi, good morning, it’s Brian. Hi, good morning. It’s Brian Rousseau. I’m for Julian.
Koti Vadlamudi (Chief Executive Officer)
Hey, Brian,
Brian Rousseau (Analyst at Jefferies)
If just to follow up, did 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’ve been kind of guiding towards.
Ken Dodgen (Chief Financial Officer)
Yeah, Brian, 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.
Brian Rousseau (Analyst at Jefferies)
Okay, great. And sticking with the power delivery, we’ve seen a lot of your core Texas customers increase it, again, their five-year capital forecast. Does Primoris Services have the necessary capacity to support that type of growth, or would that be a target of opportunistic M&A going forward?
Koti Vadlamudi (Chief Executive Officer)
You’re talking about power delivery. Sorry, Brian. Yeah, that’s correct. Is it a power delivery question? Yeah. It’d be an opportunity for growth. You know, I think 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’re 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.
It is meaningful growth for us and we will look at opportunities both organically and inorganically to drive that growth.
Brian Rousseau (Analyst at Jefferies)
Okay, great. And then just on the pipeline awards, can you add a little bit more color there? 250 million — that’s a nice size, you know, for Primoris Services given the size of that segment. Anything you could offer there, in addition to just the timing that you mentioned?
Koti Vadlamudi (Chief Executive Officer)
Historically, we’ve said before the last few years it’s been sort of a slower market for us, but we’ve seen the opportunities. The $250 million one that we referenced is one that starts to burn at the end of next year and into 28. Importantly, I did mention in my prepared remarks another opportunity — it’s not inked yet — but 150 million. That one will contract, we expect, and will burn in 27. So we see more of that growth probably meaningfully in 2028, but starting to turn around in 27.
Brian Rousseau (Analyst at Jefferies)
All right, thank you.
OPERATOR
Your next question comes from Chris Sung with Wolfe Research. Your line is open. Please go ahead.
Chris Sung (Analyst at Wolfe Research)
Hey, thanks. Good morning, guys. Just on renewables — with the revenue outlook now falling from like 3 billion to 1.7 this year — you cited higher carrying costs from lower volumes. Is there a need to resize the workforce and equipment base for this lower level of activity, or are you maintaining this capacity in anticipation of a recovery? Maybe just asking more broadly, what level of renewables revenues is needed to operate efficiently?
Koti Vadlamudi (Chief Executive Officer)
Yeah, Chris. I think I heard you. And the short answer is it’s a little bit of both. With the revenue coming down so much, we’ve definitely maintained critical capacity where we’ve needed to. But there are other parts of the business that are more back-office focused and indirect focused where we have right-sized the business.
Chris Sung (Analyst at Wolfe Research)
Okay, thanks. And maybe just as a follow-up, I noticed the energy fixed-price revenues dropped a bit from like 951 to 576 year over year, and the time and materials and cost increased 481 to 376. Does this reflect a deliberate shift towards lower-risk contracting, or just simply project mix?
Ken Dodgen (Chief Financial Officer)
Well, yeah, it’s a little bit of both. It is project mix and some of it is lower risk. One of the main things that’s reflected there is the fact that we have lower renewables revenue, which is fixed price, and what’s growing in its place, as we talked about, is the nat gas generation, which starts out as open-book or reimbursable until we convert it into a fixed price later on in the project.
Chris Sung (Analyst at Wolfe Research)
All right, thank you.
OPERATOR
Your next question comes from Jerry Revish with Wells Fargo. Your line is open. Please go ahead.
Jerry Revish (Analyst at Wells Fargo)
Yes, hi, good morning everyone, and nice job on the projects this quarter. I want to ask, when we’re talking about the outlook for $1 billion plus for the gas power business into 27, can you 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 moving pieces than usual. Can you comment on status of permits on those projects or whatever they’re supporting?
Koti Vadlamudi (Chief Executive Officer)
Yeah, thanks for the question, Jerry. I don’t have this in specific as a percentage, but one of the things we do when we’re evaluating the opportunity set, given how fertile ground it is for numbers of opportunities, is evaluate where they are in the 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 perspective. So the ones that we’re 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 the opportunity funnel, those are sort of filters we use in terms of our go/no-go. So they’re not impacted by any of the moratoriums in place now. 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 Revish (Analyst at Wells Fargo)
Okay, super. And then can I ask about the 2025-vintage projects that were booked in renewables? Nice to see progress on the back half ’24 projects being closed out — how are the projects booked in ’25 performing?
Koti Vadlamudi (Chief Executive Officer)
Yeah, everything is going — everything’s either performing at as-sold margins or a little bit better. We gave color on the six: five of the six have hit mechanical completion; the last one 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 Somaya with Cantor Fitzgerald. Your line is open. Please go ahead.
Manish Somaya (Analyst at Cantor Fitzgerald)
Thank you. Good morning, gentlemen. Ken, my first question is on cash conversion. You know, we’re still trailing the target that we’ve laid out for the full year for operating cash flow, free cash flow. So maybe if you can help get us to that bridge as we are in 4Q. And then maybe, Koti, if you can help 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 help us close the loop on how we should think about pipeline, Pane, Crest and utilities.
And then just lastly on capital allocation, obviously it’s great to see the 250 million of share buybacks, and if you can help us prioritize in terms of share buybacks, organic, inorganic growth, and deleveraging. Thank you.
Ken Dodgen (Chief Financial Officer)
Yeah, Manish, I’ll start off and then Koti can jump in. On cash conversion, we are now expecting operating cash flow of about 100 million for the year and essentially break-even free cash flow, and that’s been a direct result of the lower EBITDA. But going into next year, we fully expect to bounce back to normalized levels as we enter 2027. I’ll also touch on 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 that 150 million. We have another 250 million that the board just approved. Going forward, I expect we will continue to be opportunistic on the 250 million. But coming out of the renewables projects, I think we’re going to continue to be prioritizing supporting the organic growth and, where we can find them, good acquisitions.
And then Koti, I don’t know if you want to touch on the 2027 consensus.
Koti Vadlamudi (Chief Executive Officer)
Yeah, I’ll jump in. In terms of revenue growth, and I said it in an answer to a previous question, we feel, given the backlog strength and where we’re positioned at the end of 2026 and going into 2027, very confident to exceed revenue expectations on top line for next year. And then you highlighted a couple of things that I already said — gas going from 600–650 to over a billion, very confident again based on backlog and opportunity set. Pancrest performing better than expectations for this time this year; strengthened backlog gives us confidence they’re going to 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’s 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. We’ll 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 Somaya (Analyst at Cantor Fitzgerald)
And Koti, if I can just squeeze one more in on the margin — I think on the energy segment you said 10 to 12% for next year; that’s highly achievable. How should we think about the high end of that margin, and how do we see that progression over the course of ’27? Is it back-half weighted, or is it something that we’ll probably see beginning pretty early in the new year?
Koti Vadlamudi (Chief Executive Officer)
It’s probably more back-half weighted. Some of that is portfolio mix. Some of that is maturity of projects and execution. With good execution and productivity, we have opportunity to see expanded margin quality. But I’d look at it that way.
Manish Somaya (Analyst at Cantor Fitzgerald)
Okay, great. Thank you so much.
OPERATOR
Your next question comes from Gene Velez with Oppenheimer. Your line is open. Please go ahead.
Gene Velez (Analyst at Oppenheimer)
Good morning. Thank you for your time. I apologize if you already mentioned some details, but with the 2027 1 billion expectation in the natural gas business, can you talk about what are your bookings and revenue burn cadence expectations through 2027?
Koti Vadlamudi (Chief Executive Officer)
It’s a good question. I mean, revenue cadence is going to be relatively flat to my knowledge right now. I don’t know specifically about bookings cadence by quarter for next year, though.
Gene Velez (Analyst at Oppenheimer)
No problem. And just thinking about the renewables, can you talk a little bit about some of the conversations you’re having with your customers regarding 2027–2028 opportunities? And regarding the elections, was that already baked into these conversations, or do you expect to have a new set of conversations with your existing and potential new customers?
Koti Vadlamudi (Chief Executive Officer)
Yeah, what I’d say is those customer conversations — the investment decisions they’re making — I think were based on current policies that are in place. And when we shape our portfolio, we look at overall risk/reward, aptitude to go, value proposition. We’re a premier provider in this space, so we don’t try to win on price. So all those things factor into how we pursue work. Obviously, given the changes in the legislature, we’ll keep tight with our customers on how policy could shape their investment decisions.
But overall outlook for us is strong. I’ve quoted numbers before about the total funnel — that funnel is still as large as it’s ever been. So we’re very focused on making sure we pursue the right work given the labor constraints that are out there.
Gene Velez (Analyst at Oppenheimer)
And one 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 walkthroughs or things of that nature that we should expect from you guys?
Ken Dodgen (Chief Financial Officer)
Yeah, construction will be complete in this quarter and we’ll be ramping down from the thousand-plus peak to 60 to 100 staff. So from a construction progress standpoint, it will be done. There will still be some people that have to remain to keep the site and as well do testing and commissioning, but that will string into next year. But from a construction progress percentage complete and hitting mechanical completion, we’re going to be finishing that off in the coming weeks.
OPERATOR
As a reminder, please limit yourself to one question and one follow up. Your next question comes from Adam Thalheimer with Thompson Davis. Your line is open. Please go ahead.
Adam Thalheimer (Analyst at Thompson Davis)
Hey, good morning, guys. Great quarter.
Ken Dodgen (Chief Financial Officer)
Thanks, Adam,
Adam Thalheimer (Analyst at Thompson Davis)
Can you give some color on… You gave some great color on renewables bookings potential for Q4. Can you give gas pipeline and communications?
Ken Dodgen (Chief Financial Officer)
Yeah, Adam, sorry, I hit the wrong button. Here on gas, gas will be strong in Q4, probably as much as a billion in bookings on gas pipeline. The main thing we’re targeting for Q4 is about 150 to 200 million in bookings related to a pipeline project that Koti talked about earlier, and then… Sorry, what was the other one you asked about?
Adam Thalheimer (Analyst at Thompson Davis)
Communications.
Ken Dodgen (Chief Financial Officer)
Oh, communications. You know, communications is almost all MSA workforce. It’s 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 Thalheimer (Analyst at Thompson Davis)
And this might be asking too much, because at least you said you’re comfortable with the 27 consensus, but I don’t know if you’ve looked at the quarters and how things might shake out. I just wanted to know how conservative we should be for Q1 of next year.
Ken Dodgen (Chief Financial Officer)
You know, I haven’t looked at the quarters in general. You know, Q1 is one of our lowest quarters of the year just because of seasonality, in particular in the utilities business. But we also sometimes see a little bit of seasonality in the energy side of the business as well. So I know that doesn’t completely answer your question, but it is natural to have Q1 be kind of a seasonally low quarter.
Adam Thalheimer (Analyst at Thompson Davis)
Okay, thanks, Ken.
OPERATOR
Your next question comes from George Sheffey with Mizuho. Your line is open. Please go ahead.
George Sheffey (Analyst at Mizuho)
Hey guys, good morning. Thank you for taking my question. I’m 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 to burn to revenue.
Ken Dodgen (Chief Financial Officer)
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 one project that won’t start till Q4, but almost all of it should start to burn relatively quickly. And then on the gas generation side—was that the other one you asked about, George?
George Sheffey (Analyst at Mizuho)
Yes, it was.
Ken Dodgen (Chief Financial Officer)
Yeah. As a general rule, those start burning very quickly as well. So whenever we book that into backlog, if it doesn’t start within the quarter, it generally starts in the following quarter.
George Sheffey (Analyst at Mizuho)
Okay, perfect. Thank you so much.
OPERATOR
Your next question comes from Adam Bubs with Goldman Sachs. Your line is open. Please go ahead.
Adam Bubs (Analyst at Goldman Sachs)
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 has 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?
Ken Dodgen (Chief Financial Officer)
Look, the margins are all in the 10% to 12% range. I’m 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 continue to grow, that should be margin accretive.
Adam Bubs (Analyst at Goldman Sachs)
Got it. Understood. And then utilities backlog—I think it’s 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?
Ken Dodgen (Chief Financial Officer)
Yeah, I mean we’re excited about the growth that we’re seeing in our utilities business. I think we’re still comfortably expecting kind of single-digit growth going into next year with the opportunity potentially to do a little bit better than that. I don’t know that we are looking to see much immediate acceleration beyond that. I think we want to see how 2027 plays out from a booking standpoint, in particular with certain of our customers who have larger projects that we’re targeting in and around transmission and substation.
Adam Bubs (Analyst at Goldman Sachs)
Thanks so much.
OPERATOR
Your next question comes from Steven Fisher with UBS. Your line is open. Please go ahead.
Stephen Fisher (Analyst at UBS)
Thanks for taking the follow-up. Just a follow-up on the communications business. Can you just give maybe a little bit more color on what you’re seeing in the BEAD program? How is that progressing? Are there sort of higher-confidence areas, lower-confidence areas? And then any more color on sort of fiber-to-the-home activity beyond BEAD? I know it sounds like it’s a little bit weaker, but what are you seeing in the dynamics from the customers there?
Thank you.
Ken Dodgen (Chief Financial Officer)
Yeah, thanks, Steve. I think I would characterize it just the way you said it. You know, the fiber to the home is probably a diminishing market for us overall. We are tracking some of the BEAD programs. They aren’t in our backlog, but they are with customers we know, so expect to get some of that into backlog. But overall for us it’s a 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 I’d say for us it’s not a meaningful growth factor for us.
Stephen Fisher (Analyst at UBS)
Okay, thank you.
OPERATOR
This concludes the Q and A session. I will now turn the call back to Koti Vadlamudi for closing remarks.
Koti Vadlamudi (Chief Executive Officer)
Yeah, I just want to close by thanking the employees at Primoris Services for doing the important, critical, purposeful work on behalf of our clients. I also want to 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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