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spk00: Good day and thank you for standing by. Welcome to the Primorius Services Corporation second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. And if you require any further assistance, you may press star zero. I would now like to hand the conference over to your speaker for today, Ms. Brooke Wooden, Vice President of Investor Relations. Ma'am, the floor is yours.
spk01: Good morning and welcome to Primoris Earnings Conference Call. Joining me today are Tom McCormick, President and Chief Executive Officer, and Ken Dodgins, our 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 a report filed with the SEC. Our forward-looking statements represent our outlook only as of today. We disclaim any obligation to update these statements except as may be required by law. I would now like to turn the call over to our CEO, Tom McCormick.
spk02: Thanks, Brooke. Good morning, and thank you for joining us today to discuss our second quarter results and our financial outlook for the remainder of 2021. Our year-to-date revenue is up more than $48 million compared to where we were last year. We reached a record $1.7 billion of revenue for the first six months of the year despite historical wet weather conditions in Q2 that pushed some of our anticipated revenue for this quarter further out in the year. And you'll recall the impact that the winter storm that hit Texas in the first quarter had on some of our businesses as well. Our strategic focus on master service agreements is also showing results, with 52% of our current backlog being MSA-based work. That's $1.5 billion and a record level for us. For the second quarter, we generated $881.6 million of revenue. Our outstanding revenue performance in the utility and energy renewables markets demonstrates that our investment in these areas over the past several years is paying off. This strong growth mostly offset the lower revenue in our pipeline segment, which was expected, giving us overall a 2.9% decrease as compared to the same quarter last year. Now let's look at the three segments in detail. Our utility segment had a strong second quarter performance with revenue coming in at $425.4 million, up 25% compared to the same period last year. This increase was primarily due to increased activity with a significant utility customer in California and the addition of future infrastructure, which represented approximately $72.7 million of revenue for the quarter. We continue to make progress on the integration of FIH. The integration activities are more than 70% complete, having completed 350 of the approximately 500 activities. We will continue to create synergies between FIH and our other business units that will help grow our overall business. Also during the quarter, we secured our second contract connected with the Rural Digital Opportunity Fund, also known as RDOF. This fund was created and funded by the U.S. government, which intends to spend in excess of $20 billion over the next 10 years for the construction of rural broadband networks. This five-year master service agreement is valued at over $40 million. We will be installing 3,300 miles of aerial and underground fiber optic cable across the state of Texas, bringing fiber bandwidth to traditionally underserved areas. The design and engineering work is underway, and we expect to start construction in the third quarter of this year. Our operations in the southern portion of the United States experienced significant rain during the second quarter, causing us to miss work hours and revenue. The inclement weather created inefficiencies in both labor and equipment. It also caused slowdowns in work being released to us by our customers. The ERCOT moratorium in Texas, which restricts work on existing transmission systems from May 15th through September 15th, also pushed some of our utility work out to later in the year. We haven't lost the work. It's just been delayed. We expect this work to move to the third and fourth quarters of this year. During the quarter, our Utility 7 continued to secure multi-year contracts. The most significant of these was a meter exchange program, which is intended to replace natural gas meters of a certain vintage as criteria. This seven-year program is located in the Midwest with a large utility customer. In total, we signed and renewed several multi-year agreements for a mixture of natural gas, electrical transmission and distribution, telecommunications, service restoration, and other ancillary utility-related work. Turning to our energy renewable segment, revenue increased 20% to $335 million for the quarter. The increase was primarily due to our renewable energy activity, which grew by $69.8 million. We continue to make progress on the LNG projects in the Northeast, and we expect this project to be completed later this year. The project is currently focused on completion of electrical and instrumentation installations before moving to the final stage of pre-commissioning activities for its mechanical systems. On a positive note, we are engaged in late-stage discussions regarding the thermal power projects in the Southwest, and we continue to make solid progress on other projects within this segment as well. The renewable market continues to grow and expand. This is currently a $225 billion market opportunity and should have tailwinds into the next decade. According to World Energy Investment's 2021 report issued in June, the annual global energy investment is set to rise in 2021 to $1.9 trillion, rebounding nearly 10% from 2020 and bring the total volume investment back towards pre-crisis levels. Solar power remains a large and growing part of our renewables portfolio. We have over $350 million in backlog heading into the third quarter for work associated with 2021 and 2022 solar projects. In addition, we have approximately $900 million in prospective projects, of which many are currently working under a limited notice to proceed in anticipation of a full contract award. The final contracts for these projects should be finalized over the next 6 to 12 months. We signed three of these LNTPs during the second quarter for initial engineering work and long-lane procurement on utility-scale solar facilities. The first LNTP contract is for a 101-megawatt DC project located in the Midwest. The second LNTP contract is for a 185-megawatt DC project that is located in the Southwest. Initial construction on both projects is slated to begin in Q3-Q4 this year and will extend into the second and third quarters of the next year. The third LNDP award is for a 232 megawatt DC project located in the southwest that we estimate will begin in Q1 2022. Our level of expertise and quality execution are creating repeat opportunities from our clients. We are currently working with a client on two projects and have recently been awarded a third project from the same client. This client has indicated they would like to partner with Promorish for multiple project teams on several projects over the course of the next three years. Renewable natural gas and gas to liquids projects that were deferred during the pandemic are now moving into front-end engineering. Right at the end of the quarter, we were awarded a contract for the design and supply of a gas to liquids plant in the U.S. This facility will take dairy farm waste and produce high-quality diesel fuel. The process creates dual environmental benefits by increasing the sustainability of the dairy farm and producing high-quality transportation fuels with zero sulfur emissions. This project started in late June with a 12-month schedule, which includes engineering, procurement, and module fabrication. Also, our green diesel project in the Gulf Coast region is moving forward ahead of schedule. Moving on to our pipeline services segment. After the exceptional year this business had in 2020, 2021 is playing out more in line with our 2019 performance. Revenue came in at $121.2 million for the quarter, a decrease year over year. I would continue to describe our pipeline business as an extremely competitive market. Several large projects have been delayed due to the pandemic impacts on the market and permit timing. The permitting agencies have a large backlog and some permits have expired, which trigger things such as new biological opinions or other requirements which have slowed the process. That being said, we have seen an increase in bid activity from our established customers in the last couple of months. In order to deal with this downturn in the market, Primoris has right-sized our equipment resources and overhead costs without compromising our ability to take advantage of these projects when the market returns. We have also made strategic moves. First, to expand geographically and grow our field services and maintenance work. And second, to increase our integrity of offerings to also include engineering and other Primoris business units, as well as expanding our customer base. Our expertise extends across all types of pipelines, whether it be transporting natural gas, crude oil, refined products, NGLs, carbon dioxide, or water. Both of these moves will increase our ability to help our customers complete the work that they need to get done in order to meet their current objectives and or requirements. Across our businesses, we maintain a superior safety record. Our total recordable incident rate is 0.46 for the first six months of the year, which is ahead of our corporate target of 0.60. As of the end of June, 17 of our 19 business units had zero lost time injuries and six of the 19 business units had zero reportable injuries year to date. We believe we have a great story to tell. Our business model is built for long-term success, is intentionally designed to limit risk and drive growth and profitability. We have worked hard to diversify and de-risk our portfolio by creating reoccurring revenue streams with different end markets, We're concentrating on an ongoing transition into higher growth, higher-end markets, including telecom, renewables, electrical transmission and distribution, and regulated gas distribution. We are further decreasing risk associated with big cost overruns by moving away from pursuing larger lump sum projects unless we have a specific expertise in that line of business, such as designing and building solar facilities, power generation facilities, or pipelines. We are focusing on lifecycle solutions for our clients from engineering through maintenance. This includes a heavy emphasis on projects with either MSA, recurring revenue type work, or projects which have some type of reimbursable component. As a result, we build long-term relationships with our clients and a large percentage of our work is predictable, non-discretionary spend. We execute projects with quality and consistency, which contributes to making us the company of choice for our employees, our customers, and our partners. Our business model, combined with the opportunities visible in the evolving infrastructure legislation, continues to give me confidence in our future. In summary, we have a strong first half of the year under our belt and good backlog as we enter our traditionally more active second half of the year. And in the bigger picture, as I pointed out to our Primoris employees the other day, the work we are doing is contributing to the strength of our communities and our country as we build America's infrastructure. We are supporting the transition to sustainable energy, accelerating essential access to broadband services, and adding electrical distribution and transmission in markets across the U.S. That sense of a larger purpose is one of the things that inspires me every day. With that, I'll turn it over to Ken. Thank you, Tom, and good morning, everyone. Let me begin with our key operating metrics for the second quarter, and then I'll discuss our balance sheet, cash flows, and backlog. I'll wrap up with our 2021 guidance before moving on to your questions. Our second quarter revenue was $881.6 million, a decrease of only $26.6 million compared to the prior year. This says a lot about the strength of our business model, given that our pipeline segment was down over $168 million from the prior year, and significant rain in the second quarter impacted our utility segment. Despite the rain, our utility segment revenue increased by $85.3 million, with future accounting for $72.7 million of the growth. and our energy and renewable segment revenue increased by $56.5 million during the quarter, primarily due to an increase in renewables revenue. Despite the overall decline in revenue, gross profit for the second quarter of 2021 was $113 million, an increase of $12.1 million, or 12%, compared to the prior year. The increase in gross profit was primarily due to the energy and renewables and pipeline segments, partially offset by lower gross profit from the utility segment. Gross margins increased to 12.8% for the second quarter compared to 11.1% for the prior year. Our energy and renewable segments gross profit was $33.2 million, an increase of $15.1 million compared to the prior year, primarily due to higher revenues and margins. Gross margins increased to 9.9% during the quarter compared to 6.5% in the prior year. This was mainly due to higher costs associated with the LNG plant project in the Northeast in 2020. Despite lower revenue this year, our pipeline segment generated gross profit of $30.9 million, an increase of $3.9 million compared to the prior year. This was primarily due to some favorable project closeouts during the quarter. The utility segment had gross profit of $48.8 million for the quarter, with $10.7 million contributed by future. Despite higher revenue and futures contribution, gross profit declined by $7 million for the quarter due to the weather impacts and some customer delays in materials. As a result, gross margins decreased to 11.5% during the quarter compared to 16.4% in the prior year, but gross margins were up sequentially from 6.5% in Q1 this year. SG&A expense for the second quarter was $57.7 million, up from $51.4 million in the prior year. The increase was due to $7.6 million of incremental SG&A from the future acquisition, offset slightly by a $1.3 million reduction in SG&A from our legacy operations. As we continue to integrate future, we expect our SG&A as a percent of revenue will continue to be in the low to mid 6% range for the full year 2021. Once we get fully through the integration, next year's SG&A should be back down to around 6%. Interest expense in the second quarter was $4.8 million compared to $3.7 million in the prior year. The increase in interest expense was primarily due to higher average debt balances related to the future acquisition, partially offset by a $1 million favorable impact from the change in the fair value of our interest rate swap. Our effect tax rate during the second quarter was approximately 27.3%, and we expect our full-year effective tax rate to be approximately 27.5%, as we are seeing more of our work coming from states with lower state income tax rates. Operating cash flows in the second quarter were essentially flat, and year-to-date operating cash flows were a $5.6 million source of cash, which is typical for the first half of each year as we see our seasonal increase in revenue and the working capital to support it. In the second quarter, we invested $43.7 million in CapEx, of which $38.7 million was used for construction equipment. We expect our remaining 2021 capital spending to be in the $20 million to $40 million range, with almost all of that spent on construction equipment. We ended the quarter with 178 million of cash. Borrowing capacity under our revolver was 151.1 million, providing a total available liquidity of 329.1 million at quarter end. Total debt was 654.8 million, and net debt was 476.8 million. Over the next 12 months, we expect to use our cash and operating cash flows to support our continued organic growth of our company, reduce debt, and to pursue acquisitions that complement our growth strategy. Total backlog at the end of the quarter was $2.9 billion, down approximately $219 million from the end of Q1 as we burned through some fixed backlog and saw the timing of certain new awards temporarily delayed into the back half of the year. Our MSA backlog was $1.5 billion at the end of the quarter, which is a record 52% of total backlog. And concluding with our 2021 earning guidance, for the full year 2021, we continue to expect earnings per fully diluted share to be in the $2.30 to $2.50 range. With that, we can turn it over to your questions.
spk00: Thank you, sir. As a reminder, to ask a question, you will need to press star 1 on your telephone keypad. Again, that is star one to ask a question. Our first question comes from the line of Jerry Ravitch from Goldman Sachs. Your line is open.
spk04: Hi, this is Adam on for Jerry today. Tom, I was wondering, how are you guys? I was wondering in utilities, you mentioned customer-driven delays in your prepared remarks. Can you expand on that point? How has project cadence evolved into July and August and just a bit more context behind those drivers?
spk02: So there's a couple things that drive that, Adam. One is really that it was just a slow start to the year, and we kind of talked about a little bit of that in Q1, with clients a little bit slower coming out, releasing work, and a lot of it's because they were two-fold, really trying to get work out of engineering. And also the supply chain probably in our utilities has been hit more than anywhere else. And we haven't really talked about supply chain issues this year, but really when it comes to telecom and electrical T&D, the components and those types of things, our clients have seen some delays, and so they've been a little bit slow to release that work. certainly in the first quarter and into the second quarter. And we're starting to see that pick up a little bit in going into the third quarter, although there's still impacts. And then, of course, we had – we talked about the delays, you know, in February from the winter storm that we had here in Texas. And, again, in the months of April and May, we had – in Texas, we had roughly 42 inches of rain, which is really – odd and different for this type of year. So between the first quarter of this year and the second quarter of this year, any businesses that we had that are largely Texas-based businesses and future infrastructure is one of those businesses. And we do quite a bit of gas distribution and quite a bit of electrical transmission and distribution. in the Texas area were impacted by – they lost as many as 10 to 20 days during those two quarters. So that's effectively not quite – just under a month that was lost out of – one month out of six.
spk04: Yeah, thank you. That's really helpful. And then specifically on the margin side in utilities, can you also just expand on the challenges that you saw in the quarter on gross margins and how you expect that to evolve in the balance of the year?
spk02: Well, some of it was related to just some businesses that were part of the acquisition of Future Infrastructure that we knew weren't part of their core businesses. And with the price of the oil being down, it affected some of those businesses specifically, and we're dealing with those businesses. Some of it's also with client delays. We have crews and management teams that we have to keep, even if the client delays the projects. For instance, we had a client here in Texas that would not allow us to work on their transmission systems during the months. And ERCOT has limitations as to what you can work on during the months from May 15th to about September 15th. And we had projects that were identified that we were going to work on during the summer when we that those projects were paused and i'll say pause because the work still has to be done until after that that's work stoppage until after september 15th we had to find places to put those crews and and in doing that and keeping them busy we're not going to lay linemen off and we're not going to lay quality journeyman off so we had to find places well we used them in places probably less efficiently as we as we would have had they been able to work on those projects And that, you know, those costs are, those affect our bottom line as well. And again, when you get into utilities, a lot of it's just a mix of work. So we'll work in different parts of, you know, urban environments where our margins can be a little bit higher. And sometimes when you get in the inner city, it gets a little bit more difficult, complicated to do the work, but we're getting paid the same unit rates. In effect, your margins are down a little bit. So it's kind of a little bit of all of those things.
spk04: Okay. Thank you very much.
spk00: Our next question comes from the line of Steven Fisher from UBS. You may ask your question.
spk04: Great. Thanks. Good morning, guys. Just to follow up on that question about the utility segment, is there any way to quantify how much of that revenue wasn't booked due to the material delays? You mentioned one month effectively out of six. Is that basically the way to decide how much has to or is likely to recurve? or come back in in the second half of the year?
spk02: You know, we do not have that information. It's something that we're looking at, but we have not put a value on it. Again, some of it will be – it's work that will be done. It's going to be pushed out this year. How much of that will be actually made up later this year or will be pushed into next year, we don't know. Yeah, it could be in the range of $10 to $20 million, probably a reasonable range.
spk04: Okay, that's very helpful. And then you guys have been working to reduce the risk in your backlog, certainly a good thing. Just wondering about the risks that are going in now or poised to go in. You mentioned gas to liquids related to dairy. Is this a first-of-a-kind project? And what about sort of the larger solar projects? How is the – it seems like the average size there is going up a bit. How does that change the risk profile of what you're doing there?
spk02: Well, I'll talk – let me talk solar first. I don't think the average size of the solar projects are going up. As a matter of fact, we just – some of the projects we were recently awarded are in the $40 million to $50 million to $70 million range, and then we'll have several that are bigger. So they're still about the same size. Some of the things that we do on the solar projects and working with clients that we have long-term relationships with is we've been able to go out or the client has gone out early during either the prior to the LNTP phase or during the LNTP phase and bought materials, purchased the materials. Certainly those items that may be long-lead, that kind of ensures delivery and kind of takes the risk of of either price creep or late delivery off the table so and then we have language in our contracts that kind of give us some of those protections craft labor performance we we track certain metrics on a daily basis because so we can see how our craft labor is performing on those solar projects and they have certain metrics that they have to meet and you know again Just as a reminder, construction of a solar facility is much more like assembly or manufacturing than it is like constructing an industrial facility. So you're installing the same widget a million times, so it's pretty easy to measure performance there and make corrections if we need to. The one-of-a-kind projects, we don't have process guarantees on those projects. They're really, you know, these are projects that have gone through feeds. They're either in the feed stage or they've gone through a full feed. The process has been proven. The client or the technology provider provides the process guarantees. We're essentially building based off of that feed study and fabricating and constructing based off of that feed study.
spk04: Okay, very helpful. Thanks a lot, guys.
spk00: Our next question comes from the line of Lee Jagoda from CJS Securities. Your line is open.
spk03: Hey, good morning, guys. Hey, Lee. So just starting with the future acquisition, is the entire shortfall in the quarter and, frankly, in the first half weather-related, and how should we think about You know, the idea that we've had, you know, call it $135 million of revenue in the first half, but we were coming off a $340 million run rate coming out of 2020. Should we expect to get back to that level in 2021, or what should be the run rate kind of exiting the year?
spk02: So, Lee, the answer is no, it's not all weather related. But, you know, again, given that future infrastructure, the majority of their business is here in Texas, and, you know, we talked about that even prior to the acquisition or, you know, after the closing of the acquisition that, you know, we're going to grow their business outside of Texas. But being that most of it's based here in Texas, you know, they were impacted by both the winter storm and the rain that we had in April and May. But the other things were, again, as I know, their clients suffered a little bit of COVID hangover. So they're a little bit slow releasing work, just waiting to see what's going to happen. And we'll try to get things out of engineering. And then we had supply chain issues. Clients buy most of the components and parts. certainly on the telecom side, and so they've had some issues. And to alleviate some of that, we've actually offered to start buying some of those because we don't have to necessarily go through all the processes and procedures they have to, and we can buy quicker than they can. That's alleviated some of the problems, but nonetheless, it's delayed them issuing some work in the first half of the year just because they couldn't get everything in to be able to release us to do the work. And I would expect – I don't think they're going to claw back that revenue this year. They're not – I think last year they were, what, $350 million in revenue, $340 million. And they'll be down a little bit this year, roughly $20 million to $40 million down from that. And I expect that will be – But in the future, I think that we're going to see them go back to those traditional levels. Again, we're expanding their business outside of certainly the DFW area and outside of Texas. And I think we'll see more of that growth next year. Okay.
spk03: So then that would imply a back half number above the $340 million run rate. Is that a fair way to think about it?
spk02: Well, let me qualify that because we are – looking at doing some things with a couple of their non-core businesses that we knew were non-core with them, you know, as a part of them when we bought them. And those are smaller businesses, so some of that revenue will drop off if we either sell those businesses or shut them down.
spk03: Sure. And then just on the margin side of that, it looks like your gross margins in future were, you know, about 15% in Q2 2020. And again, I guess the bogey we were working off of was sort of a 21% to 23% gross margin in 2020. If I look to the back half of this year, are we back towards that 21% to 23% or are we closer to the 15%?
spk02: I think we're working upwards from the 15%, but you're going to be below the 21% to 22%.
spk03: Is that structural or just temporary? And if we think about it further out, do we return back to that 21 to 23 over time?
spk02: I think long term we can get them out. I've always said it's going to be in the 19 to 20, maybe 80% range. I never expected to get back up for them to be operating in 21, 22 long term. But I think the 19 to 20, 18 to 20% range would probably be a better range for them.
spk03: Okay, one more just for Ken, and I'll hop back in queue. The project closeout in pipeline, can you quantify that just so we can get a normalized margin for Q2?
spk02: Yeah, I mean, I don't have the exact numbers on those project closeouts, Lee, but, you know, as we've talked about before, it's not uncommon for, you know, this segment to normally run kind of in the 12% range, plus or minus. So I think you can use that to kind of back into what the project closeouts are.
spk03: Okay, fair enough. Thanks very much.
spk02: Thanks, Lee.
spk00: Our next question comes from the line of Matt Sharpie from Morgan Stanley. Your line is open.
spk04: Tom, Ken, good morning. Thanks for taking my question. I just wanted to circle back to the renewables business here for a minute, specifically solar. Maybe you can just shed a little bit of light on how much that contributed in terms of revenue to the quarter and what it looks like year over year and then In terms of the $350 million backlog that you're working off here, what does the ramp look like as we exit the first half?
spk02: We don't give that level of detail down to the business unit level when we start looking at those numbers. But I will tell you with respect to backlog we have in the renewables segment, Right now, we have about $17 million of backlog that's included in those numbers that is associated with projects that are currently under LNTP. So they're under a limited notice to proceed, and those contract values range, LNTP values range from $1.8 million to, I think, $7 million. Once those jobs, and right now we're batting 1,000 with respect to converting a project from LNTP and taking it to the execution phase. So we have not ever had an LNTP contract pulled, and we did not execute the full construction of that project when it comes to solar facilities. It's just how the business works. There's about $350 million of construction that's coming behind those LNTP contracts just associated with those four contracts. So I think I said earlier, there's a number of roughly $900 million projects that are in different phases that we haven't yet been awarded that we expect to be awarded in the next six to 12 months. And that $350 million would be in that $900 million.
spk04: Got it. That's helpful. I also just want to circle back to the pipeline business, specifically the gross margins. I think I could probably count on one hand the amount of times you've hit 26% or north of that since going public on one hand. I think you reiterated the guidance range here. That looks to imply a pretty notable step down into the back half of the year, I think 4% or so, if it's the midpoint of your range. What's driving the lumpiness aside from the project closeout? The project closeout is obviously explained this quarter, but the notable step down into the back half, what's really driving that?
spk02: That's really just it. It's just closing out of projects. There really is nothing else.
spk04: Got it. Okay. Thank you. I'll get back in the queue.
spk02: Thanks, Matt. Good talking to you.
spk00: Our next question comes from the line of Sean Eastman from KeyBank Capital. Your line is open.
spk05: Hi, guys. For a second there, I thought you might have forgotten about your legacy analysts. Glad to get in here. So how should we interpret the intact guidance for the full year? Is it, you know, we've had the weather delays in the second quarter and they're being recouped by pipeline closeouts or... Have we had the weather delays here, and we're going to see a catch-up and make up for those weather delays in the second half? Just trying to understand the bridge there.
spk02: It's a little bit different in every segment. We started looking at the guidance. you know, beginning of the year, I would have probably guessed our guidance would have been still the same, 230 to 250, but probably thinking mid to upper half of that guidance. And right now, I don't think we're going to claw all of that back in the second half. I think that it's probably going to be more towards the lower to the mid range of the guidance, you know, by the end of the year.
spk05: Okay. Okay, so we're going to be toward the upper half of the guidance for the full year or the lower half? I'm a little bit confused by the response.
spk02: Lower to mid.
spk05: Lower to mid. Lower to mid, gotcha. Okay, and the decreased activity with a utility customer in the Midwest, what exactly is going on there?
spk02: Well, that's work. We're going to do gas distribution and we're replacing old piping systems. When you get finished with that build out of that replacement work, then you move away from replacement more towards maintenance so you go into an area you build up your crew size all your crews you do both replacement and maintenance and new construction when the replacement work is done of the old piping systems those crews go away and you find other homes for them and that's really what that is we've moved into an area been there a long time you do a combination of replacement work new installations and maintenance work, and now the replacement work, which is, you know, I don't know what percentage of that work is. It's higher at the beginning, and you work your way out of business. That's kind of what you do. So that's just kind of where we were with that client in that part of the country.
spk05: Okay, got it. All right, that's helpful. And just lastly, you know, the bookings were kind of late in the energy segment in the second quarter. I think there might have been some awards subsequent to quarter end. Maybe if you could just clarify the messaging there and maybe beyond that, is this just kind of lumpiness or is there risk that some of the project prospects for that segment are kind of going to get stuck around the supply chain uncertainty? Yeah.
spk02: You know, I actually think that what we were going to see is we expect to see some awards here in the not-so-distant future. I think I mentioned one during my earnings narrative that, you know, we've been told we're shortlisted on, and we really expect to hear any day now that that contract is signed. You heard me talk about the four different solar projects that are in LNTP phase that will be awarded in the coming weeks or months, and that represents approximately $350 million worth We expected that work to be actually be awarded and go from convert from LNTP to contract. in the second quarter. So it's just pushed a little bit, but we're working on the projects. We're seeing more bid activity. We're extremely busy bidding work. So we're seeing more and more activity even in our non-union industrial markets. So I'm pretty comfortable with where we're headed, and I think we'll win our first year of the work. And some of this I'm very confident because I already know where we are. We just haven't signed the contracts yet. So, no, I don't think there's anything. We're comfortable with where we are and where we're headed. Probably the best way to say it.
spk05: Okay, terrific. Thanks very much for the time.
spk02: Hey, good talking to you. Thanks, Jerome.
spk00: Our next question comes from the line of Adam Tallheimer from Thompson Davis. You may now ask your question.
spk04: Hey, good morning, guys. The materials delays that you guys referenced, is that, as we sit here in August, is that something that's getting better or getting worse?
spk02: It depends on what it is, right? We're able to manage what we have as far as our supply chain goes are things that we're responsible for buying. We have a tendency to get ahead of them, and we've made some investments and made some decisions to move forward on projects even before war to buy certain materials because we know if for some reason that project was curtailed or canceled or anything else, we could use it somewhere else. With our clients, I think it's getting better. I think it's changed their planning. Maybe the life of the project is a little bit longer now. Going from engineering and procurement to the field or the release of a work order, it goes a little bit longer period of time. But I think everybody's kind of adjusting to it and planning for it.
spk04: Okay. The California utility that you referenced that was good in Q2, was that good with gas or with electric power? And then what's the outlook for that customer in the back half?
spk02: Primarily, I think mostly gas. But we're seeing some pickup in electric out there as well.
spk04: And what's the outlook for them in the back half?
spk02: Outlook in the back half, I think it's just kind of continued at the rate they've been going so far this year. So, you know, In general, all of our customers on the West Coast have been active this year and kind of building momentum. It's been a consistent message across most of our geographic areas with respect to utilities of, you know, a little bit of slowness first half of the year. Tom mentioned it. We like to refer to it as the COVID hangover. and trying to figure out how to engineer and get projects out when they've been working remotely. And so they've gotten better at it, and we've seen a catch-up on that. And I think it's worth noting, and I'm not sure what the timing is going to be, that historically we have gotten involved in the cleanup after wildfires, and I expect that we will do the same, replacing systems and transmission systems, distribution systems, following the cleanup and during the cleanup following the wildfires out there but also as they you know as one specific client out there starts spending money on grid hardening and going underground i think will play a role in that too now when that will happen i don't know got it okay and it's just uh lastly ken what's the outlook for free cash flow in the back half Free cash flow for the back half is going to be very similar to what we've seen like back in 19, you know, probably, you know, as much as 100 to 150 million back half is our best forecast right now.
spk04: Sounds good. Thank you.
spk02: Thanks, Adam.
spk00: Our next question comes from the line of Julio Romero from Sedori. Your line is open.
spk04: Good afternoon, Tom and Ken. Thanks for taking the questions. Hey, Julio. Hey, Julio. So not to beat on a dead horse on the utility segment, but how do you expect margins to trend in utilities in the back half of the year? Should we expect sequential improvement in Q3? And just thinking about what Q4 margins look like, given the headwinds you mentioned, as well as the typical seasonality in that segment?
spk02: Yeah, I absolutely think you'll see the normal seasonality in Q3 and Q4 like we normally see. You know, we're normally ramping up in a bunch of areas in Q2, and so the weather impact um the weather impact during q2 definitely put a little bit of damper on those margins but we're definitely looking for higher margins in q3 and the q4 you know q4 will be down from q3 sequentially like it normally is but where those margins fall out is always a little bit of a guess given the fact that we don't know when you know winter will really kick in and shut us down in some of our northern areas Yeah, and we had in the past, I think, and I agree, I think they're going along the traditional lines with the qualifications that he placed on it. But the other thing is we've seen probably fewer project-type work and more MSA-type work this year and probably expect the same going into the latter half of the year, where sometimes we get the benefit of an uptick in performance benefit. on the little project work that we do in some of our utility businesses, and we're not seeing a lot of that work. Again, the MSA work is there, and those margins are pretty consistent.
spk04: Got it. So just to clarify, you expect sequentially utility margins up in Q3, down in Q4 because of normal seasonality. Do you think we see year-over-year margin growth in Q4?
spk02: Again, too early to tell for Q4. Okay, fair enough.
spk04: I guess maybe just switching over to the renewable side, is there any way to quantify that gross profit drag from the LNG project in a quarter, either from the dollar perspective or margin perspective?
spk02: For the segment? And I'm sorry, I'm looking at something here real quick. I can't. Yeah, no, I don't know that off the top of my head, Julio. Sorry. Okay.
spk04: I guess what I really am interested in is, right, the renewable energy margins. I mean, I don't know if you can speak to either the margins you booked during the quarter in renewable energy or maybe what's the margins look like in the backlog? Okay.
spk02: Yeah, I mean, the margins on renewable is very consistent with that segment. Our goal for that segment is kind of the low double-digit range, and that's exactly what we're doing with respect to renewables as well. They're probably the higher end of any business unit, though, in that segment.
spk04: Got it. And could you give us a progress update on the work you're doing with clients to kind of explore the opportunity with Blue Hydrogen?
spk02: Yeah, we're doing some studies for clients. The benefit, I guess, that we have is that we have over the engineering group that we own, PD&C, they have probably 25 or 30 years of design and construction experience on what we refer to as gray hydrogen plants. So the only thing you add to make it blue hydrogen is you've got the carbon capture. So we have a lot of experience in the design of those plants. We know what the emissions are. We know how to do that. We're doing several feed studies right now and actually talking to some clients about doing some other feeds for them on blue hydrogen projects. But it's still early days. The nice thing is we have the ability to do the pipe collection systems, and we do everything but put it in the ground as far as carbon capture and everything else. So it's a strength that we have or a skill that we have.
spk04: Great. Thanks for taking the questions, and best of luck in the back half. Thanks.
spk02: Thanks, Julio.
spk00: As a reminder, if you have questions, please press star 1. Our next question comes from the line of Brent Tillman from DA Davidson. Your line is open.
spk04: Thanks. On the pipeline business, are there any other large pipelines that could potentially contribute big closeout benefits in the second half of the year? And is any of that in the guidance?
spk02: uh it is in the guidance uh and we still have one or maybe two other jobs that may contribute some project closeouts in either q3 or q4 we're just not sure of the timing yet okay and on um future you know this these initiatives to move the business into new geographies when does that start to become
spk04: sort of relevant to the P&L in terms of how you guys are rolling this out in the territories outside of Texas?
spk02: Well, I mean, next year, there's always a little bit of cost of entry and a little time to build up from a lag as you move into new markets. So it'll be in 2022. And I wouldn't say the first quarter of 2022, but a little bit later in the year. Okay. Okay.
spk04: And on the transmission work in Texas beyond, you know, the effects of weather here, can you talk about what's happening there, I guess, just from a near-term perspective? Sounds like there's some pause in activity and then, you know, what you're sort of hearing in terms of the opportunities there.
spk02: Well, I will tell you from a transmission standpoint, you know, there's a lot of opportunities. Because of all the solar and wind farms and all that activity, everybody moving to Texas, and I'm just telling you this is based on what we're being told by our clients, their angle spins are going up, and that's with respect to both electrical distribution and transmission. And the connections between solar facilities and wind facilities and transmission, you know, power generation facilities and getting it out to, you know, all these areas where growth is occurring. So there's a lot of opportunity. We've got some very key clients. There's spends going up, and they want us and, of course, their other Tier 1 contractors to grow with them. So I'm excited about it. Okay. Thank you.
spk04: Thanks, Brent.
spk00: There are no further questions at this time. I will now turn the call over back to Mr. Tom McCormick, our CEO. Sir, you may go with your closing remarks.
spk02: Thank you, Carl. In closing, I just want to highlight that Q2 2021 was the second best quarter in the company's history. And our performance over the course of The first half of 2021 is the best first half of a year in the company's history as a public company. It's the best in the company's entire history. So we're very excited about where we are and where we're going. And I'll just conclude by reiterating that our business model and the opportunities we see ahead are a source of pride and confidence for me and our leadership team. And thank you all for joining us today. Have a good day.
spk00: This concludes today's conference call. Thank you again for participating. You may now disconnect.
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