This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Thank you for standing by. At this time, I would like to welcome everyone to the Primoris Services Corporation third quarter 2022 earnings conference call-in webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one Thank you. Blake Holcomb, Vice President, Investor Relations. You may begin your conference.
spk07: Good morning, and welcome to the Primoris Third Quarter 2022 Earnings Conference Call. Joining me today with prepared comments are Tom McCormick, President and Chief Executive Officer, and Kim Dodgen, Executive Vice President and 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. We disclaim any obligation to update these statements except as required by law. In addition, during this conference call, we will make reference to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures are available on the investor section of our website in our third quarter 2022 earnings press release, which was issued yesterday afternoon. I would like to now turn the call over to Tom McCormick.
spk08: Thank you, Blake. Good morning and thank you for joining us today to discuss our third quarter results and our business outlook for the remainder of 2022 and going into 2023. The third quarter results for Primora showed solid execution in the overall strength of our market position as we set new records for both revenue and backlog. The strong quarter was a fundamental driver of progress in our 2022 year-to-date results. Revenue year-to-date is up over 18% from 2021, and organic revenue growth is up approximately 12%. This is impressive growth given the significant headwinds that we are facing this year in our pipeline services segment. Despite some continued headwinds from both the pipeline segment and inflation across the board, gross profit was up almost 22% from the third quarter of last year and up 68% from the second quarter of 2022, as we benefited from higher revenues and rate increases that we negotiated with a number of our key clients to ease some of the inflationary pressures. Similarly, our backlog has roughly doubled from the third quarter of last year to $5.5 billion. of which nearly 80% is organic growth from our utilities and energy renewables segments. We have also achieved the highest level of backlog in our pipeline services segment since the second quarter of 2020. We recently announced another $400 million of awarded projects in our energy renewables segment across our solar, power, and heavy civil businesses that are not reflected in these totals. We will begin working on a number of these projects during the fourth quarter and expect that our backlog will continue to gain momentum as we close out the year to position us for a strong 2023. With that, I'll provide some commentary on each of our segments. Beginning with utilities, we delivered margin recovery in the third quarter despite the labor and fuel inflationary impacts that continue to have some impact this quarter. Revenues also increased both sequentially and year-over-year, as we continue to grow our communications business across our utilities footprint. We also saw strength in our gas and electric businesses in our west region and realized additional contribution from the PLH acquisition that closed on August 1st. Most of you are familiar with PLH from our past several updates, but let me reiterate a few of the reasons we are excited about them becoming part of the Pomoros family of companies. First, it aligns with our strategic focus on higher growth, higher margin markets, including power delivery, communications, and gas utilities. It adds new customers with MSA contracts while bolstering our footprint in new and existing areas that are some of the fastest growing in North America. And perhaps most importantly, it adds 1,300 skilled craftspersons to our combined workforce to better serve our clients. We witnessed the benefits of this increased labor force during the response to the aftermath of Hurricane Ian. Primoris was able to send approximately 700 employees to help restore power delivery to our neighbors in the regions affected by the storm. For perspective, this was more than double the number of crew workers we deployed to assist with Hurricanes Nicholas and Ida in 2021. While the number of storms through the third quarter this year were lower than normal, Ian hit areas of the southeast particularly hard, and we were glad to be able to assist in getting power delivery back up and operating in those communities. Integrating PLH and maximizing its potential in our organization will take some time, and there will likely be some bumps in the road along the way, but we are confident in our ability to maximize our return on this investment in the years ahead. In our communications business, we've moved past some early growing pains and pandemic-related delays to generate a great third quarter, as both revenues and margins grew at least 50% from the third quarter last year. The acquisition of BCOM has been a nice addition to our growing communications division, that has significant tailwinds in the coming years from the increases in anticipated broadband spending. We are also capitalizing on our ability to bring these services to customers in areas that we already have a relationship with on the electric utility side, which has helped grow revenues and margins over 27% year to date from the same period in 2021. While we expect to see continued top line growth in utilities heading into Q4, some inflationary pressures and supply chain constraints persist. We remain proactive in positioning ourselves to best manage our labor costs and are working with those customers that have upcoming MSA renewal discussions to address these higher inflationary costs. We are having transparent discussions with some customers in certain regions that have been less profitable or reluctant to work with us on rates. In some of these cases, we are opting to forego further work with these clients and instead we'll shift our personnel and equipment resources towards strengthening relationships with customers that view us as a valuable service provider. Looking next at our energy and renewable segment, organic revenue was up over 50% and gross margins more than doubled during the third quarter compared to Q3 2021. Through the third quarter of 2022, organic growth is up 34% and gross margins up almost 50% compared to the same period of 2021. This substantial growth came primarily from our industrial and utility-scale solar businesses. On the industrial side, we've seen a rebound in revenue and margins coming from a nice backlog of projects on the West and Gulf Coasts. We also moved past some projects that have been a consistent overhang on profitability in previous quarters and promoted some new leaders over certain businesses that are now yielding results on improved execution. The prospects for a healthy funnel to add to our backlog are very favorable, as is the potential for internal synergies between businesses as it relates to large utility scale solar, renewable fuels, and green hydrogen. Looking further at solar, we continue to excel as one of the top solar project design and construction companies in North America, being highly capable in both utility scale and distributed generation projects. Revenue and gross margins have approximately doubled from the third quarter of last year, and are up over 70% year-to-date compared to the first nine months of 2021. Our success in solar is one of the most underappreciated parts of the Primora story, and we continue to exceed even our own expectations. We have worked hard to develop the right teams and be selective in working with the right client that allows for efficient, highly productive repeat business. We expect to have over $1.3 billion in backlog as we close this year. which is a 30% increase from the end of 2021 and will keep us working through 2023 and beyond. The low availability of modules has caused delays in getting some of our clients' projects completed and online. However, we've been able to keep our teams utilized by completing the projects to the point of module installation, moving on to the next project, and then returning with a smaller contingent of craft persons to complete the project once the modules arrive. We continue to train and develop new project teams to learn and adopt our standard practices, which have added a great deal of value to our customers' fixed-price projects and have minimized our risk in constructing them. Many of our clients are of the opinion that the supply of modules should come back by mid-2023, and others are making investments in building facilities to produce their own modules and rely less on foreign and third-party suppliers. In addition to building more project teams to meet the growing demand in solar, We have also been staying ahead of potential cost inflation or supply chain challenges by either stocking or obtaining firm commitments from key suppliers for critical items that we provide in solar construction. This will help ensure that when our customers are ready to move forward, we will be ready to move forward with them. We have also started manufacturing certain components in-house that will lower our costs and serve as a revenue stream in the form of sales of excess supply. The passage of the Inflation Reduction Act, or IRA, in August only magnified the opportunity in solar. Our customers are still evaluating this legislation, but there is a lot of enthusiasm that we will see tailwinds in the market for the next 10 to 12 years. As our customers navigate through the bill to maximize their benefit, we are also analyzing how we may benefit from the incentives outlined in the bill. For example, we are well positioned to take advantage of incentives for contractors with apprenticeship programs that allow our employees to develop their craft and skills, a competency that new entrants may not possess. We are also optimistic that the IRA will open additional avenues for our energy renewable segment to grow beyond solar. This includes opportunities in green hydrogen and wind that could also benefit greatly from the incentives in the bill. Wrapping up the segments with pipeline services, Despite revenue uplift related to PLH, it was another quarter of challenges for our profitability. The segment has fallen below our performance expectations for 2022, but we are moving past some problem projects and are working toward a renovated segment focused on profitability and cash flow. We recently introduced new leadership to oversee this segment and are already beginning to see results of staying focused on project execution and discipline. We are also seeing bid activity begin to improve, particularly in the Gulf Coast region on projects that will connect producers to nearby processing and LNG export markets. This includes the large award we announced in September, which kicked off last month. The integration of PLH Pipeline, while only 10% of our pipeline services business, has added complementary clients, regions, and service offerings to the site, particularly in field services, where we think that we have a lot of opportunity to grow our integrity, maintenance, small capital project work with improved profitability. During this time of federal permitting challenges, repair, rework, and maintenance of existing infrastructure will be necessary to keep the flow of energy moving. We also see opportunities to participate in markets outside of traditional oil and gas to midstream projects that will move carbon dioxide, hydrogen, and other liquids. These projects will require investment in new infrastructure, and in some cases, span hundreds of miles. We believe we are well positioned to capitalize on these projects given our expertise and mix of union and non-union craft labor. Overall, while pipeline services remains a smaller piece of our business, we are confident that focusing on project selection and performance going forward, we will see solid contribution to our bottom line from this segment in future quarters. Across all of our segments, Primoris is investing in the people and equipment necessary to meet the growing infrastructure needs of North America. We have made strategic acquisitions that have expanded our service offerings, customer base, and geographic footprint, while continuing to grow organically with longstanding customers and in new markets. I'll now turn it over to Ken to talk about our financial performance for the quarter. Ken? Thanks, Tom, and good morning, everyone. I'll begin with our key operating metrics for the quarter, followed by our balance sheet, cash flows, and backlog, and I'll end with our guidance. As Tom mentioned, Our third quarter revenue was a record for Comoros, reaching approximately 1.3 billion, a new record for the second consecutive quarter, and an increase of 371 million, or 41%, compared to the prior year, and an increase of 261 million, or 26%, from the second quarter of 2022. This was driven by continued strength in our growth markets, including solar, communications, and power delivery, partially offset by weakness in pipeline services. Our utility segment increased 158 million, or 34.8%, primarily driven by increased revenues with existing customers and power delivery, contributions from new PLH customers, and expansion of our communications business. Energy and renewables revenue grew by 249 million, or 71.1%, primarily due to solar revenue that increased almost 100%, and healthy growth in our industrials business. Pipeline services revenue decreased by $37 million from last year due to continued challenges in the midstream sector that has led to fewer projects moving forward and are being more selective in the customers we work with and the projects we bid. Gross profit for the third quarter was almost $155 million, an increase of $27 million from the prior year, driven primarily by strong contributions from solar, improved industrials profitability, and the addition of PLH and BCOM, partially offset by the decline in pipeline. Gross profit as a percentage of revenue was 12.1% for the quarter compared to 14% in the prior year. This is primarily due to challenges in the pipeline segment and slightly lower utility margins, partially offset by better energy renewables margins. Now let's look at each of the three segments. In our utility segment, Gross profit was $78 million, or $14.3 million increase from the prior year due to higher revenues in power delivery and communications, and $10 million from the BCOM and PLH acquisitions. Gross margins declined to 12.7% compared to 14% in the prior year due to the inflationary impacts of higher fuel and labor costs during 2022. We saw significant improvement from the second quarter due to the rate adjustments we negotiated. We are continuing to work with our remaining customers to negotiate rate adjustments that should go into effect over the next few quarters, but their impact will be much less than what we have seen in Q3. Looking at Q4, we expect to see our normal seasonal decline in gross margins to the 9% to 11% range, depending on weather. Energy and renewables gross profit was $80.1 million for the quarter, a $44.2 million increase from the prior year, primarily due to higher renewables and industrial revenue and margins. Gross margins also increased over 300 basis points to 13.3%, primarily due to some project closeout in our solar business and significant improvement in the execution of projects in our industrials business. Looking at Q4, we expect gross margins to trend toward the normal 10% to 12% range. Pipeline segment gross profit decreased by $31.1 million from the prior year, due to decline in revenues, which continued to drive underabsorption of segment fixed costs. As a result, gross margins were negative 4.6% compared to 25.8% in the prior year, which benefited from the closeout of multiple pipeline projects. Looking to Q4, we expect to see gross margins in the low to mid single digits as we begin executing new work and make progress toward reducing our segment fixed overhead costs. SG&A expenses in the third quarter were $75.7 million, an increase of $14 million over the prior year due to additional support costs we assumed through our acquisitions. However, as a percentage of revenue, SG&A decreased to 5.9% compared to 6.8% in the prior year, primarily due to our revenue growth. We expect our SG&A will continue to remain in the low 6% range for the full year. Transaction and integration costs were $12.7 million for the quarter, primarily related to the acquisition of PLH. Net interest expense in the third quarter was $13.1 million compared to $4.7 million in the prior year. The increase was primarily due to higher average debt balances from the completion of the PLH acquisition, as well as higher average interest rates. Our effective tax rate was 18.6% for the quarter, and year-to-date it is 19.6%. The reduction in our effective tax rate is driven by the use of capital losses to offset capital gains on real estate and a change in the mix of states in which we work. We expect our effective tax rate for the full year to be 19.6% as well, but this may vary depending on the mix of states in which we work. Net cash used in operating activities for the first nine months of the year was 102 million, an increase of only 10.9 million in Q3. This use of cash was driven by the investment in working capital to support our revenue growth, the investment we continue to make in buying materials for our solar projects, which is roughly 80 million year to date, partially offset by a reduction in DSOs from improved collections and improved terms with vendors and suppliers. In the third quarter, we invested 9.9 million in CapEx, and we expect to spend 20 to 30 million in Q4, of which 15 to 25 million will be for equipment. We ended the quarter with $111.9 million of cash. Borrowing capacity under our amended revolving credit facility was $126.6 million and total available liquidity was $238.5 million. And net debt increased to $1.1 billion at the end of third quarter following the close of the PLH acquisition. Looking at backlog, total backlog at the end of the quarter was a record $5.5 billion, an increase of $900 million from the second quarter and nearly double year over year. Fixed backlog was 3.4 billion, an increase of 605 million during the quarter driven by new solar and pipeline awards and roughly 200 million of added backlog from PLH. MSA backlog increased 296 million during the quarter to 2.1 billion, primarily driven by the acquisition of PLH. Turning to our full year earnings guidance, we are adjusting our estimate of GAAP EPS down slightly 231 to 251 per share, directly related to incremental depreciation, amortization, and transaction and integration costs due to the PLH acquisition. However, we are maintaining our adjusted EPS guidance of 239 to 259 per share. We saw the timing of certain work pulled into Q3 from Q4, and this provided a boost to Q3 results and supported our reasoning for leaving our adjusted EPS guidance unchanged. In Q4, we expect to see continued growth in our energy renewables segment, a turning point in our pipeline segment, and our typical seasonal decline in utilities partially offset by a full quarter contribution from PLH. With the continued strength of our solar business, our expanding communications business, and the addition of PLH, we feel very good about our utilities and energy renewables business underscored by our record backlog. With that, I'll turn it back over to Tom for some closing comments. Before we open the call for questions, I want to reiterate three key points from today's call. First, we are seeing tremendous success growing our business both inorganically through acquisitions and organically through footprint expansion and positioning ourselves well in markets that are poised for secular growth. Second, we are focused on not just growing revenue but growing profitably. We are placing emphasis on continuing to reduce project costs, while delivering quality services to the right customers in the right markets. And third, we are operating in an economic backdrop with uncertainty around supply chain, rising interest rates, and inflation. However, we are working to mitigate these impacts on our business by stocking materials when prudent, manufacturing our own components, working with vendors and customers on pricing, and using free cash flow to manage our debt levels to allow for future growth and value creation for our shareholders. We'll now turn it over for questions.
spk03: To ask a question, please press star 1. Please limit yourself to one question and one follow-up. Your first question is from Leah Jagoda of CJS. Please go ahead. Your line is open.
spk02: Yes, good morning. It's Pete Lucas for Lee. Can you talk a little bit about the dynamics you saw around Hurricane Ian cleanup in Florida and how much of a benefit to revenue and margin that could be in Q4? And is this factored into your Q4 margin range for utility?
spk11: Yes, it wasn't.
spk08: Again, we mobilized approximately 700 employees to Florida to help reestablish power of leverage in all of their clients. But you'll see that reflected in our Q4 numbers. But it was just to be a small part of those numbers. And, yes, it's in our forecast.
spk02: Helpful. Thanks. And how should we think about sequential revenue growth, particularly in the energy segment, given a lot of this work should be less seasonal than some of your other work has been historically?
spk08: Yeah, we're expecting Q4 energy rules revenue to be up slightly, maybe about 5% to 10% in Q4 and Q3.
spk10: Oh, perfect. Very helpful. I'll jump back in the queue. Thanks.
spk03: Your next question is from Adam Thalmheimer of Thompson Davis. Please go ahead. Your line is open.
spk10: Hey, good morning, guys. Congrats on a good quarter. Can you talk a little bit about the bidding environment for solar and your outlook there for 2023?
spk11: Yeah, Adam, I can.
spk08: It's actually, we're looking at now, it's hard to just box this into 2023, but We have a portfolio of projects that we're either under contract for or in LNTP for or are pursuing in different stages of either sole source, shortlisted, or bidding of $8 billion. So those projects will start execution anywhere from some of them are already in the field, some of them are in engineering, some of them will start in 2023, and some of them will finish as far out as 2027.
spk11: Got it.
spk00: And then a similar question on the pipeline side. And you talked about this in your prepared remarks in terms of the awards were better in Q3, the bidding's better. I guess the question is kind of what's driving that in your mind, how sustainable that is. And then I always get the question from clients, like can this stuff actually get built in today's regulatory environment?
spk08: Well, you're not going to see any cross country pipelines. Uh, get built in today's regulatory environment. You're seeing that in political climate right now with all the voting going on midterms. But a lot of this is not as intrastate. So it's just getting it from West Texas to the processing facilities or the LNG facilities. Some of it's water. We have clients that we're in the middle of design for a client on carbon capture projects, and we have clients looking at hydrogen projects. So there are projects out there. You're not going to see a keystone unless something changes with the regulatory process.
spk10: I'll turn it over. Thanks, guys.
spk03: Your next question is from Jerry Revich of Goldman Sachs. Please go ahead. Your line is open.
spk09: Yes, hi. Good morning, everyone. Really excellent performance this quarter. I'm wondering, can you just expand on your comments on the pull forward that you mentioned into the third quarter? What drives the view that it's pull forward versus an uptick in demand? Have you seen a drop-off in October or November? Can you just expand on that point?
spk08: Yeah, Jerry, we had a little bit of project revenue that got pulled forward, and they got completed faster than we expected. And this impacted a little bit of our utility segment and also a little bit of energy and renewables segment, mostly industrial projects, actually. So sequentially, I would expect Q4 revenue to be down slightly from Q3 in utilities. But despite that pull forward, I would slightly sequentially.
spk09: Great work. It's been a while since we heard of something completed ahead of plan. That's great. Can we just expand on the discussion around renewables? You folks had an excellent ramp-up continuing over the course of this year. I think if I heard your comments right, you're expecting much slower sequential growth in the fourth quarter. Can you just expand on that? Because I think you You were up about 25% sequentially in the third quarter. It feels like you had good momentum. Can you just expand on what's driving the slowdown in that ramp from the strong, really 3Q and also 2Q levels that we saw?
spk11: Yeah.
spk08: I mean, Jerry, if you look back over the course of this year, the quarterly sequential growth has been a little lumpy, and it all really just depends on timing of new projects starting relative to older projects finishing or existing projects finishing, as well as the availability of crews. As we talked before about, you know, the new crews that are training, that are coming online to expand our capacity and capability to execute on projects. Crews came online in Q3, which drove some of that expansion. I don't think we have any that are coming online in Q4. The next two crews are going to be available for some time in Well, some of it's just how projects accelerate from going from the engineering phase to the field also, and you'll see revenue burn at a higher rate when you do that. So it just really depends on what stage each of the projects are and when they're awarded, when they go from LNTP to award to the field. So that drives a lot of it, too, and that can make it lumpy.
spk11: I appreciate the discussion. Thanks.
spk03: Your next question is from Sean Eastman of KeyBank Capital Markets. Please go ahead. Your line is open.
spk01: Hi, guys. Nice update here. I guess really the one thing I would poke at is the cash flow. I suppose some working capital build isn't particularly surprising given the elevated revenue print, but we definitely want to start seeing some cash flow. So could you talk about what we're going to see in the fourth quarter and how much debt you think you can pay down in 2023. That would be really helpful.
spk11: Yeah, Sean.
spk08: Q4 operating cash flow. Q4 is when some of the seasonality of our business normally starts to turn. But at the same time, we've got our renewables business continuing to grow sequentially as we go into Q4. So Q4 is going to be a mixed bag. It's going to be very interesting to watch. I think we're going to have a slightly positive Q4, excuse me, I think we have a slightly positive Q4. And then actually Q1 will probably be more where we're going to see the flip and turn in our cash flow from operations. And then what was your question on 23? How fast you can pay down debt. Oh, how fast we can pay down debt. Yeah, we're actually working on 23 plans and forecasts right now. So I don't have a good answer for you yet. I probably will later.
spk01: at next quarter, at year end, in February when we talk. Okay, fair enough. Hopefully we're calling you Ken Cash next year. Exactly. All right. And then on the pipeline segment under absorption element, I mean, Are we going to be kind of hanging out here in the low to mid single digit margin for the next few quarters? I'm just wondering how much revenue needs to kind of layer back into the system to get back into that, you know, higher single digit to low double digit sort of normative range we've seen historically. How should we think about that?
spk08: Yeah. So, you know, we're expecting a sequential take up in Q4 in revenue, which will drive some of that absorption. We were hoping to cut some of that segment fixed cost in Q3. We just couldn't offload it as fast as we wanted to, so we're going to be doing a little bit in Q4. To be honest with you, we should be able to get back up to normalized margins if we can just get revenue from the quarter up to about $100 million. It's amazing how much the segment fixed cost can turn just with that incremental $20 to $30 million. Yeah, they're not carrying that much overhead in that segment. That's right.
spk01: Okay, that's helpful. And then one last one, just around the solar supply chain challenges. I mean, obviously the bookings there are super strong, the pipeline there is super strong, but I'm just wondering how good of a line of sight you guys have on a lot of that newer work breaking ground and It seems like this re-sequencing element is kind of keeping production flowing now, but could we end up with a bit of an air pocket in the first part of next year as we work through these kind of lingering supply chain issues? One of your competitors was talking about a bit of a recalibration and planning around the IRA. Just kind of curious how you're thinking through that.
spk08: Yeah, I think everybody's still evaluating the IRA, so So we, you know, it's almost like a chess game for us even just moving crews. We've been working with our clients that have surety of supply and moving, you know, moving crews from projects that we may have been delayed because their supply has moved out to projects where clients have some more surety and been able to move those project teams over. And so it has helped us to keep a pretty high utilization of our project teams. And, you know, it's still... The philosophy has been build a project out as much as you can, and then you can move away from that project, mobilize on a new project, set a smaller contingent of crews back to install the modules when they're there. That's working for some of our clients. For other clients, they haven't wanted to do that because then they've got a facility that's not operating. So they've kind of pushed their schedules out, which has actually helped us a little bit because then we've been able to move those teams to other projects. But it is a chess game for sure. It takes a lot of collaboration between us and our clients.
spk01: Okay, great. Great. I appreciate the help. I'll turn it over.
spk03: Your next question is from Brent Thelman of DA Davidson. Please go ahead. Your line is open.
spk06: Hey, thanks. Good morning, guys. Hey, just back on the energy segment, you know, all the things you're doing in solar in the sort of dwarf, the other stuff going on in there. But Can you just talk about what you're seeing on the LNG and maybe industrials opportunities within that business?
spk08: Yeah, Brett, it's interesting in both the union and non-union markets, we're seeing a lot more activity just in opportunities for smaller cap projects. I haven't seen anything with real big LNG trains. Of course, we don't chase those or big hydrocrackers or anything, nothing in refining at all, but But we are seeing a lot of movement with respect to some of the other light industrial markets, both out west and along the Gulf Coast. Because that group, especially our non-union group, has been performing so well, we're actually seeing repeat business. And we're seeing some, actually, opportunities in gas power generation, Ken just reminded me of. So it's a mixed bag. They're not real big projects, but there's a fairly large number of them. Because of the performance of our teams, we've been able to be successful in winning that work.
spk06: Okay. Okay, I appreciate that. And then the numbers coming out of the communications business, I know it's relatively smaller, but pretty eye-catching. Tom, I wondered if you can kind of parse out what's been sort of this focus on market share gains versus strength and wireline and what all you're seeing there.
spk11: Sorry, Brent, I want to make sure.
spk08: Was that on communications? I couldn't hear you very well.
spk06: Yeah, sorry, communications.
spk08: Yeah. It's actually been a combination. So the market's clearly growing. We've been growing with our customers. And I don't know if we've taken much market share, but maybe in certain markets we might have taken a little bit of share. It's hard to measure that. We have grown that communications business. It was basically Texas-based. They're operating in Louisiana, Alabama, Mississippi, Georgia, Florida, Arizona. We've moved into some new markets out in the Denver and Utah, mid-Atlantic regions also. So albeit small, but there are opportunities for us out there, and we're winning our share of the work.
spk11: Okay. Thanks, guys.
spk03: Your next question is from Julio Romero of Sedati. Please go ahead. Your line is open.
spk12: Hey, good morning. I was hoping to dig in more on the effect of the availability of solar modules. You mentioned what you're doing to kind of flex labor up to the point of module inflation. How does that affect utilization? I would assume that would be a negative, or maybe I'm wrong. If it is a negative utilization, are you guys able to kind of pass on any rate increases to mitigate that?
spk08: Well, we don't build on rates. These are lump sum jobs. So the clients pay for the demobilization of the crews and the remobilization of the smaller contingent of crews to come back and reinstall the modules. So, yeah, you're right. It affects utilization on the crews and the project teams. When you can move them and you're getting compensated for it, the clients have been very open and receptive to doing that.
spk12: Okay. Because it just sounds like there's a lot of variability of, like, timing of when kind of panel supply will alleviate in maybe second half of 23. And just curious how you guys and your customers are kind of working around that. Are you kind of taking a shared approach to it, I guess?
spk08: Well, what we've seen is we've seen clients that we've been executing projects for on a consistent basis over the past couple of years. kind of see a pause because they don't have the surety of supply and other clients that we've done some projects for, but have wanted us to do more, but they have surety of delivery. We've actually picked up more of their work. So we're doing a lot of work for some clients. Now it will do into 2023 that we may have done one or two projects for in the past when we were successful and they wanted us to build our crews up for them, but we just weren't able to. And now those crews are available.
spk11: Okay.
spk12: And could you talk a little bit more about the Inflation Reduction Act and the impact on the solar business? You talked about some of the incentives that Primoris can benefit from. I assume your customers get incentives, too. How does that benefit? I assume there's probably still moving parts, but how does that benefit the value chain and maybe mitigating the cost of capital when folks are thinking about paying for some of these projects?
spk08: Well, I mean, I've heard our clients liken it to putting the solar business on steroids. They're still evaluating what's in the act and how they might benefit from them, as are we, so it's a little early to be able to tell you.
spk11: Okay. I appreciate you taking my questions.
spk03: Again, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question is from Avi Jaroslawich of UBS. Please go ahead. Your line is open.
spk05: Hey, thanks for taking our questions. So looking at the backlog, it looks like you have close to $2 billion of non-solar backlog in the renewable segment. So do you expect to burn more of that over the next six to nine months from the solar backlog, or should the burn be relatively similar to the backlog mix? that currently stands. And also, can you remind us some of the margin dynamics of the non-solar parts of the business? Are they significantly different than the solar part?
spk11: Yeah, good question.
spk08: So on backlog, what is it solar is industrial projects, and Tom was talking a little bit earlier about some of the industrial projects that we're seeing and working on right now. Most of those projects will burn in less than a year. And then the balance of it is our heavy civil business. And most of those projects are longer term projects that will burn over anywhere from probably a year to a year and a half on the short end. Our longest project right now probably has about four years left to burn. And so it's pretty broad range depending on the type of business. And then margins, our industrial margins are actually very consistent with our solar margins right now, especially with the strong performance this year. By default, heavy civil margins are less. Our heavy civil margins generally run in the 7% to 8% range versus the rest of the segment, which runs kind of 10% to 12%, 10% to 13%.
spk05: Got it. Okay, that's helpful. And then in terms of margins in an utilities business, so it sounded in your comments like still not quite covering all the increased costs in that business with pricing. So I was just wondering if you could discuss some of the dynamics there. You know, has there been more pushback on the pricing than expected, or maybe costs continue to accelerate in the quarter?
spk08: Well, you saw the benefit of the negotiations that took place earlier in the year, certainly in the first and second quarter, on what they did. They affected head-on numbers in the third quarter. We're still negotiating with some clients. We have some clients that have MSAs that are renewing at the end of the year or towards the end of the year that wanted to wait and negotiate those rates then. We'll see. It's going to be less of an impact on, I guess, positive or negative, really, on the balance of the year. There are also clients that don't want to talk or aren't willing to negotiate. We'll move away from them. We have moved away from some of those. Again, there's going to be some positives, upsides to those negotiations at the end of the year, but it won't be as significant as what you saw between the second and the third quarters.
spk05: Okay, got it. Appreciate the call. Thanks for the time.
spk03: There are no further questions at this time. I will now turn the call over to Tom McCormick for closing remarks.
spk08: Thank you, Operator. In closing, we are optimistic about the future for Morris. We have great businesses with strong leaderships. leaders who prioritize serving their customers through quality execution and reducing contract risk. We are working to increase our exposure to markets with multi-year investment tailwinds, both organically and inorganically, while generating consistent cash flow in our mature markets to fund this investment and create long-term shareholder value. I want to thank all of our employees for continuing to work safely and for all their hard work and dedication in meeting our customers' needs. Thank you again for joining us this morning and for your interest and remorse. Have a good day.
spk03: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Disclaimer