Primoris Services Corporation (PRIM), a key player in the North American infrastructure market, recently announced a strong Q1 2024 performance, exceeding analyst expectations. The earnings call was brimming with optimism, highlighting impressive growth driven by the thriving renewables, power delivery, and communications sectors. However, CFO Ken Dodgen dropped a subtle yet potentially game-changing statement: Primoris might be "firing" certain customers in 2024.

This seemingly casual remark, barely explored during the Q&A session, raises a crucial question: How dramatic is the transformation Primoris is undergoing? The transcript reveals a company with a laser-like focus on profitability and cash flow, even if it means potentially sacrificing revenue growth. This shift in priorities marks a fundamental change in Primoris' strategy, prioritizing margin expansion and disciplined capital allocation over pursuing top-line growth at all costs.

While Dodgen downplayed the revenue impact of "firing" these customers, suggesting it would be "relatively small on a percentage basis," the implications are profound. This willingness to walk away from established business relationships underscores a bold commitment to portfolio optimization and focusing on high-margin, strategically aligned projects.

Decoupling Revenue and Profitability: The Utilities Segment

The potential customer exodus is particularly significant within the Utilities segment. While the segment maintained comparable margins year-over-year, revenue declined due to reduced project work and a slower start in the communications sector. Despite this dip, Primoris presented a cautious revenue outlook for the segment, emphasizing margin improvement over top-line growth.

""This year is really not about revenue growth for our Utility segment, it’s really about margin improvement," Dodgen stated explicitly. This deliberate decoupling of revenue and profitability signals a willingness to forego short-term revenue gains for long-term margin expansion, even if it means severing ties with existing clients."

Why Walk Away From Existing Business?

At first glance, the strategy seems counterintuitive. Why would a company with a record backlog and robust growth trajectory risk upsetting existing customer relationships? The answer lies in Primoris' ambitious financial objectives. The company aims for a 9% to 12% annual gross profit growth rate through 2026, a significant leap from current levels. Achieving this aggressive target necessitates a fundamental shift in project mix and customer base, moving away from low-margin projects and clients that don't align with their long-term strategic goals.

The Hypothesis: Prioritizing High-Margin Opportunities

Primoris is betting that by selectively "firing" less profitable customers, they can free up resources to pursue higher-margin opportunities in their target growth markets of renewables and power delivery. The numbers back this hypothesis. The company has already secured nearly $90 million in substation and high-voltage work for their renewables business from their power delivery major projects team. This internal cross-selling demonstrates the potential of leveraging their diverse expertise to offer more comprehensive and profitable solutions to clients.

Furthermore, Primoris plans to expand their solar project teams from 15 to 17 by year-end, reflecting a continued commitment to capitalizing on the robust demand in the renewable energy market. Streamlining their customer base in the Utilities segment allows Primoris to reallocate resources to fuel their growth engines, driving substantial margin expansion and achieving ambitious financial targets.

The Numbers Tell the Story: Backlog and Revenue Breakdown

While the specific customers Primoris might be parting ways with remain unknown, the decision reflects a calculated risk. By strategically shedding low-margin business relationships, the company is signaling a new era of disciplined growth, prioritizing profitability and cash flow over top-line expansion.

Let's take a look at the backlog and revenue breakdown across Primoris' segments:

Projected Gross Profit Growth: 2023-2026

To visualize Primoris' ambitious gross profit growth target, let's look at a chart representing their projected growth:

A Turning Point for Primoris and the Infrastructure Industry

This bold move, barely hinted at during the Q1 earnings call, could mark a turning point in Primoris' history, potentially unlocking significant shareholder value in the years to come.

The potential ramifications of this strategic shift extend beyond Primoris itself. It highlights a growing trend within the infrastructure industry, where companies are increasingly prioritizing profitability and strategic alignment over sheer scale. As the infrastructure market continues to evolve, driven by the energy transition, grid modernization, and reshoring initiatives, companies like Primoris are demonstrating a willingness to make tough choices to position themselves for long-term success. The coming quarters will be crucial in revealing the full impact of this customer cull and whether Primoris' bold gamble pays off.

"Fun Fact: Primoris' name is derived from the Latin word "primoris," meaning "first" or "foremost." This etymology reflects the company's commitment to leading the infrastructure industry with innovative solutions and a dedication to excellence."