Good day and thank you for standing by. Welcome to the Primoris Services Corporation Third Quarter Earnings Conference Call. I would like to hand the conference over to your speaker today, Ms. Brook Wootton, Vice President, Investor Relations. Please go ahead..

Good morning and welcome to Primoris’ third quarter earnings conference call. Joining me today are Tom McCormick, President and Chief Executive Officer and Ken Dodgen, our Chief Financial Officer. Before we begin, I would like to make everyone aware of certain language contained in our Safe Harbor statement.

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 maybe 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 Relations section of our website. I would now like to turn the call over to Tom McCormick..

first of all, validation and/or documentation relating to which employees are vaccinated; and second, testing of unvaccinated employees to meet the requirements determined by OSHA; third, evaluating the impact this will have on our multiple labor agreements; and finally, evaluating the legal implications to our contracts and MSAs with our clients.

Before I hand off to Ken for a review of the numbers, I want to take a moment to look forward.

As you can see, we are well positioned to meet the needs of the changing energy infrastructure across North America as it transitions to a zero-carbon future with more energy coming from renewable sources, grid modernization and greater reliance on broadband and 5G technology.

Electrification is a huge piece of this to support the electric vehicle fleet as well as other technology additions to the power load.

In line with this transformation, our revenue mix is shifting from almost exclusively conventional energy and civil infrastructure to a large and growing proportion of solar energy, electric grid transformation and communications infrastructure.

We have spoken previously about the potential impact of the Infrastructure Bill, Congress has been working on. None of that potential has been baked into our current projections. Now that it has passed in the house, whatever opportunities come to our business units from this bill will be pure upside for us.

We have to see what actual projects materialize, but I can only see positive news in this legislation for Primoris. We are in unprecedented times, not just because of the energy transition, but because so much of everything we do has been, is or will be impacted by the global COVID-19 pandemic.

Nearly 21 months ago, after the virus first triggered workplace and social shutdowns, none of us accurately predicted how the pandemic would be affecting workplaces, processes and supply chains.

We do know that the short-term disruption in some ways are accelerating the urgency of some of the long-term trends, such as grid modernization and the expansion of broadband, even as the implementation has been slowed by the pandemic. As we emerge from this pandemic, we at Primoris believe that the underlying demand for our services has not abated.

We are here for the long game and intend to be a leader in contributing to the strength of our communities in our country as we build America’s infrastructure in new and more sustainable ways. And with that, I’ll now turn it over to Ken..

Thank you, Tom, and good morning, everyone. Let me begin with our key operating metrics for the third quarter, and then I’ll discuss our balance sheet, cash flows and backlog. I’ll wrap up with our guidance before moving on to your questions. Our third quarter revenue was $913.2 million, a decrease of only $29.5 million compared to the prior year.

The decrease was primarily driven by a $106.8 million decrease in pipeline work as expected, offset by a $41.4 million increase from the Utilities segment and a $35.9 million increase from the Energy and Renewables segment. Despite the decline in revenue, gross profit for the third quarter was $127.4 million, an increase of $3.8 million.

The increase in gross profit was primarily due to the acquisition of Future and good project closeouts for the Pipeline segment. Gross margins increased to 14% for the third quarter compared to 13.1% for the prior year. Now let’s look at each segment.

Energy and Renewables revenue was up by $35.9 million compared to the prior year on the continued strength of our renewables work, which increased by over $50 million compared to the prior year. Gross profit was $35.9 million, an increase of $8.4 million or 30.7% compared to the prior year. This is primarily due to higher revenues and margins.

Gross margins increased to 10.2% during the quarter compared to 8.7% in the prior year. This was mainly due to higher costs associated with the LNG plant project in Northeast in 2020. Despite the lower revenue in our Pipeline segment, we generated gross profit of $27.8 million, which was slightly below the $28 million we made in the prior year.

Gross margins came in at 25.8% for the quarter. This was primarily due to some favorable project closeouts during the quarter. While it’s nice to finish strong on these projects, I expect fourth quarter Pipeline margins to be back to our normal range of 9% to 13%.

The Utilities segment revenue was up $41.4 million in the quarter, with Future contributing $65.1 million, offset by slightly lower revenue from our legacy operations. Many parts of our Utilities segments, including Future, faced headwinds from both project and material delays related to COVID-19.

And our electric operations in Texas were impacted by the ERCOT moratorium for most of the quarter. These temporary issues resulted in lower revenue, idle equipment and lower crew utilization. Despite these headwinds, we generated 14% gross margins during the quarter compared to 16.5% in the prior year.

I’ll also remind you that last year’s gross margins had the benefit of near-record storm work that contributed an extra 1% of gross margin. Taking all this together, gross profit was $63.7 million for the quarter, down $4.4 million from the prior year. Future contributed $11.4 million of gross profit with gross margins of almost 18% this quarter.

SG&A expense in the third quarter was $61.7 million, up from $57 million in the prior year. The increase was due to $6.5 million of incremental SG&A from the Future acquisition, which is less than what we originally expected for the quarter.

As we continue to integrate Future, we expect our SG&A as a percent of revenue will continue to be in the mid-6% range for the full year 2021. And once we complete the integration, next year’s SG&A should be back down in the low 6% range. Interest expense in the third quarter was $4.7 million. This is in line with the prior year.

The consistency in interest expense was due to higher debt balances in the current year, driven by the Future acquisition, offset by lower average interest rates this year. Our effective tax rate during the third quarter was approximately 27.5% compared to 29% for the prior year.

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. Net income was $44.1 million for the quarter, slightly better than the $44 million in the prior year.

Diluted EPS was $0.81 compared to $0.90 in the prior year as a result of the dilution from our first quarter equity offering. As Tom mentioned earlier on the call, we have implemented three new non-GAAP metrics to be more comparable to our peer group and to make our results more comparable from quarter-to-quarter and year-to-year.

We have added adjusted net income, adjusted EPS and adjusted EBITDA. Let’s start by discussing our adjusted EPS.

These adjustments include non-cash stock-based compensation, transaction, integration and related costs, amortization of intangible assets, amortization of debt issuance costs, unrealized gain or loss on interest rate swap and the cumulative income tax impacts of these adjustments.

After making these adjustments, our adjusted EPS was $0.89 per share for the third quarter compared to $0.93 per share in the prior year. And year-to-date, our adjusted EPS is $2.04 per share compared to $1.69 in the prior year. Adjusted EBITDA for Q3 was $94.7 million, an increase of 8% compared to $87.9 million for the same period in 2020.

And year-to-date, adjusted EBITDA was $230.8 million, a 25% increase compared to $184.7 million in the prior year. The EBITDA adjustments include non-cash stock-based compensation and transaction and integration and related costs. Now let’s move to operating cash flows.

In the third quarter, operating cash flows were $9.3 million, and year-to-date, they were $14.9 million. The decrease in operating cash flows in 2021 was mainly due to lower deferred revenue this year as a result of the decline in pipeline work and the $43 million deferral of FICA tax payments under the CARES Act in 2020.

In the third quarter, we invested $39.4 million in CapEx, of which $35.9 million was used for construction equipment. And year-to-date, we’ve invested $102.1 million in CapEx with $91.7 million invested in construction equipment. We have increased our spending on equipment this year in preparation for the growth we’re expecting next year and beyond.

We expect our remaining 2021 capital spending to be in the $10 million to $20 million range, with almost all of that spent on construction equipment. We ended the quarter with $199 million of cash. Borrowing capacity under our revolver was $155.5 million, providing total available liquidity of $354.5 million at quarter end.

Total debt was $678.6 million and net debt was $479.6 million. Over the next 12 months, we expect to use our cash and operating cash flows to support the 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 $2.7 billion, down approximately $131 million from the end of Q2 as we burn through some fixed pipeline backlog and saw the timing of certain new awards temporarily delayed into the fourth quarter.

Our MSA backlog remained flat at $1.5 billion at the end of the quarter, which is a record 53% of total backlog.

And concluding with our 2021 earnings guidance, as a result of the temporary headwinds we’ve experienced the past couple of quarters we are adjusting our guidance range and expect earnings per fully diluted share to be in the $2.10 to $2.20 range.

And we are adding adjusted EPS guidance, a non-GAAP measure, which we expect to be between $2.61 and $2.71 per share. With that, we can turn it over to your questions..

First question comes from the line of Sean Eastman from KeyBanc Capital Markets. Your line is open..

Hi, Tom. Thanks for taking my questions. Could you just maybe refresh us on what’s happening under the hood in the Utilities business? The legacy revenues are down year-over-year.

Maybe just understanding what’s happening in T&D versus LDC and FIH revenues, if you like, have come in below expectations through this year? So just a little more color on what the softness is on FIH specifically as well would be helpful?.

Yes. Sure, Sean. This is Tom McCormick. The FIH is – we’ve talked about it for the most – largest part of the year. The revenues are down. They are going to be down roughly $70 million. I’ll let Ken correct me if I misspeak for the year.

And it’s just putting a really slow start to their years, but I’ll tell you their performance especially towards the – as we approach the end of the year and exactly where we expected on the margins are in the high double digits. Next year, there is really a good outlook for next year. I think next year is going to be an exceptional year for them.

And when we start looking at their revenues and they are coming back to where we thought they would be or should have been. So FIH, I think, is really going to be off to a good start at the beginning of next year. They are going to – I think they are going to finish the year pretty strong.

Gas – again, one thing you have to think about is we talked about COVID hangover with respect to gas and T&D. They got off to a little bit slow start. And in T&D, there is been a couple of things that have hurt them.

The weather events that we talked about in the first quarter and second quarter have slowed both of those businesses down with respect to any work in Texas. But the balance of it has been really just delayed by either clients issuing work orders, and they probably haven’t been issuing work orders because they don’t have the materials.

They haven’t finished the engineering or the COVID impacts.

And a lot of that is very typical with what we’ve seen in the past when the economy slows down, typically, construction suffers in the next year because clients will pause which a lot of their clients did at the beginning of this year to wait and see what’s going to happen with COVID, and what’s going to happen with the economy, and then they launch off into their year.

I expect our gas group, gas distribution group to have a good year next year. I think they are going to finish the year strong. A lot of that depends on the weather because of some of their work up in the central part of the U.S. and in the North is impacted by the weather. They are still working right now typically on an average year.

They’ll work through the end of November, but they’ll start slowing down in December. In good years, they get to work all the way through the end of the year, and we will just see how that works. Transmission and distribution, there is been a little bit of pressure with respect to wage battle for overhead crews. We’ve just seen some increases there.

So we’ve done a lot of competition for the labor. But when you get down into substations and the distribution work they do, they are actually performing very well.

And I think there was a slowdown in some of the projects, especially during the ERCOT work stoppage that happened this summer, and of course, they lost – they also lost 2 weeks in the first quarter, 2 weeks in the second quarter. But when you talk about the ERCOT moratorium this summer, they lost project work.

So that’s been – that’s really what’s impacted them this year. And on top of that, you consider the fact that last year, we had a record year with respect to storm restoration work, and this year has been very minimal at best. We don’t bake a lot of that into our plans, but we do have some of it in our plans, and it’s actually below plan this year.

We’re not going to put much of it in our plan next year, and they will just be an upside. But we’re expecting a lot of project work next year with some of our major clients in transmission and distribution. They are doubling. They are basically increasing their spend 50% and we expect our budgets to go up with there.

So I think ‘22 is going to be a great year for them..

Okay. Helpful rundown there. And then moving over to the Pipe segment, it sounds like there is some green shoots on the traditional side and of course, on the energy transition side.

But as we think about the next 12 months, do you think revenues sort of settle here at this run rate in the third quarter or is there more downside on the top line? And at this level of revenue, what kind of margin profile should we be thinking about? I mean the 9% to 13% target range is really wide, right, so, just kind of curious in that spectrum how we should think about the business at this kind of run-rate?.

Sure. So I’ll hit on their workload and what we think the revenues are going to be, and I’ll let Ken hit on the margins. But I would expect their margins to be very similar to where they were this year. They are going to be somewhere in the $450 million to $500 million range – excuse me, revenue.

But when you start and it’s going to be probably that – I would expect it’s going to be that way through the first half of next year. I think what happens with carbon capture is going to determine what happens at the back end of the year. We are seeing a lot – some work activity. We are bidding some projects.

We are working with clients on some estimates for carbon capture projects. We – you heard me mention in the earnings call of the one project that is roughly $350 million to $400 million just on facilities work alone.

If I’m not mistaken, I think that pipeline work is close to 2,000 miles of pipeline and gathering and collection and transmission of that carbon dioxide somewhere. So if that project goes or other projects like it go, the back half of the year could be very good. But we’re looking at $450 million to $500 million.

That’s where I would set an expectation..

Yes. And the margins, even though the 13% is a little bit wide, that’s just indicative of where we are in those jobs, right? And so if we’re early on in the job, we might be in the lower end of the range, and the timing of certain jobs. But if we’re toward the end, and we’re closing it out, we could be toward the upper end of the range.

I think the sweet spot is going to be right in the middle. It’s going to be kind of 10% to 12%..

Okay. Very helpful. And it sounds like the CapEx guidance came down a lot. Does that impact your ability to grow in any of these segments next year? And – I mean, more broadly, how should we think about CapEx on a go-forward with Pipeline now representing a lower portion of the mix.

Does that take down the capital intensity in the business?.

Yes. Well, so I’ll answer your second question first. No, because there is still a pretty significant CapEx requirement for utility crews and even for some solar work as well. But with respect to CapEx, actually while the guidance came down for Q4, for full year, we’re actually going to be above what we originally said.

And that’s because we had a pretty big spend for Q3. And as I mentioned in my comments, part of that reason for that big spend in Q3, and Tom touched on this as well, is getting ahead of the equipment needs for the growth we’re expecting next year.

We are going to, I think we even said, spend somewhere between $10 million and $20 million in the fourth quarter, maybe even a little bit more than that to make sure that we get out front of these orders.

Because there are vehicle and equipment suppliers that are saying, if you don’t get orders in now for 2023 or late 2022, you’re not going to get your equipment. So we’re actually investing ahead to make sure that we get what we need for growth. Yes..

Okay. I heard that wrong. Helpful clarification there. Alright. Thanks a lot, guys. I will turn it over there..

Thanks, Sean..

Thanks, Sean..

Next question comes from the line of Lee Jagoda from CJS Securities. Your line is open..

Yes. Good morning. It’s Pete Lukas for Lee.

You touched on a lot of this, but can you just mention again? Looking at the guidance, can you clarify which segments you’re seeing the biggest headwinds from the delays and whether you expect for Q4 to be mostly a revenue headwind or margin weakness as a result, looking specifically at Q4?.

Looking at Q4, I think a lot of the headwinds we’ve had in the Utilities space are going to start to trail off a little bit. Pipeline is going to continue to be fairly steady state in Q4 and Energy and Renewables is going to be fairly steady state in Q4 as well, maybe down just slightly due to normal seasonality in Q4.

So – and most of it is revenue headwinds that we’re talking about right now..

That’s helpful, thanks.

And just one more for me, can you quantify the positive true-up you had in Q3 for the Pipeline segment revenue and margin? And should we expect any additional true-ups in Q4 that are included in that range?.

Yes. I mean, the margins for Pipeline came in at 25.8% for the quarter, gross margins did. Our normal range is 9% to 13%. So I think you can back and anything above 13% will get you to your number. And then in Q4, no, Q4 is probably going to be a fairly steady state with respect to Pipeline margins..

Very helpful. Thank you..

Thanks, Pete..

Your next question comes from the line of Adam Thalhimer from Thompson Davis. Your line is open..

Hey, good morning, guys..

Good morning, Adam.

Can you comment on the Gulf Coast industrial award? That sounded interesting. Just curious what your scope is on that..

Trying to think of what Gulf Coast....

You said there was something in the Energy segment that was going to take the year-end....

In the Energy, there was – there is a power generation facility that’s out on the West Coast. It’s $100 million that we were awarded. It’s basically a simple cycle power plant that we’re designing and building. And there is another one that we’re bidding or negotiating and it’s behind that one. I know we refer to....

There was something in the Energy segment that was going to take the backlog to $1.7 billion....

Okay. That’s was for civil. That’s for heavy civil award for project in – along the Gulf Coast and it’s....

That was heavy civil. Sorry, I thought I heard that as an industrial..

Heavy civil falls in our Energy and Renewables segment. Remember, we resegmented at the beginning of the year..

Okay.

But then, I guess, what are you seeing in general Gulf Coast industrial then?.

A lot of opportunities. A lot of them are related to renewables, either renewable gas, biofuels. We’re seeing some pickup in just the industrial markets with the refiners coming out now with some plans and projects for 2022 and going into 2023. We’ve mentioned a FEED study that we’re doing on a renewable natural gas project.

It’s – you’re not seeing mega projects, which is good because we don’t do mega projects. We are subcontractors on those, but there seems to be a number of projects that are in that $150 million down range. And so – and we’re seeing the market lighten a little bit. We had a lot of pressure on companies bidding those last year.

We’re in a pretty good position on a number with some of our traditional clients..

Got it.

And then can you comment on the solar side, what you’re seeing with panels?.

It really depends on the type of panels the clients are utilizing. And we are involved in those projects pretty early. As we have talked about in the past, it takes six months to nine months really to develop a project from the initial bid or initial discussion of project budgets to entering into a full EPC contract award.

So, the clients that are bidding projects are buying panels from suppliers that have longer leads, we are either getting them to buy those panels earlier or we are extending their schedules to show them what the impacts are. Most of the clients we are guiding them and they are buying the panels early to ensure that they have supply.

We have had some projects that have seen some delays, but really, it’s only just small impacts – impacted the job a month, I mean with a certain section of the facilities, panels coming in later than expected..

Okay. That’s helpful. I will turn it over. Thank you..

Alright. Thank you..

Next question comes from the line of Jerry Revich from Goldman Sachs. Your line is open..

Yes. Hi. Good morning everyone. Can we just talk about the solar, there has been a nice sequential acceleration in revenue 2Q to 3Q.

Can you just talk about what you are seeing in terms of was that projects ramping up or hitting the sweet spot from a revenue burn standpoint? And can you update us on where you stand on your ability to increase the crew count heading into year-end? Thanks..

Yes. I mean we are still working to add crews. We have been successful in adding the number of them that we need to support the work that we have under contract or on our schedules right now for the balance of this year and for into 2022.

We will continue to build crews and pursue work, but we are not going to take on any more work in – than we can manage and staff, but we are having some success there. Obviously, it gets a little bit tighter as you continue to build. But the opportunities are huge.

I mean we have got – I can’t speak to the revenue that we burn on these projects, but under contract right now, we have just under $800 million under contract. We have another $1.1 billion that’s under LNTP right now so that will enter into project execution sometime either later this year or in 2022 that will be executed in ‘22 and ‘23.

And then we have another $800 million of projects that we are sole sourced on right now. It doesn’t mean they are going to move forward. They got to get financial approval. But most of them – a number of them will move forward. So, the market is huge. It’s a $225 billion-plus market.

If we are going to continue to push our clients and the government continued to push to replace power generation with fossil fuels, with renewables, they are probably going to have to quadruple how many facilities we build from 15 gigawatts a year to 60 gigawatts a year, which is – will put pressure on us and everybody else to grow.

So, this business, you are going to see significant growth next year from this business from where it’s going to finish this year, and we are going to continue to grow it..

And is it possible to just put a finer point on that? Can we grow the crew count by 30%? Can you just – maybe just quantify how quickly you are able to staffing constraints?.

Yes. I would say in a year, we can probably grow the crew count anywhere from 25% to 30% a year, which is about two, maybe a little bit more crews, full crews a year. The business – last year – I think it will grow close to 50% this year from last year, next year, to probably half of that.

You just – you are just not going to grow at the same rate every year because it gets more and more difficult to do that. Plus, we just don’t want to get out of our skis too much. So, we are going to grow at a controlled rate. The opportunities are there..

And then in – sorry, please go ahead. No, please go ahead..

Okay. So, you did hear me mention that our pipeline group now is actually providing some management personnel to pre. They are working with pre to help develop their people so that they can, in the interim, when there is not pipeline work, they can build their management teams with pipeline management teams and build their capacity.

So, there is an opportunity there, too. We are doing some cross trading to see where our other businesses can provide services to our renewables group also because, look, we have built substations we do underground electrical, we do transmission lines.

So, wherever we can actually do work and complement what they are doing for their clients and add revenue to our backlog is we are looking at..

And on the pipeline group, you folks have delivered a steady job of not occurring closeout benefits over the past three quarters. Can you just talk about what the schedule project closeouts in terms of the expected to close in 4Q and 1Q? And what’s the magnitude of those closeouts.

How does that compare versus the magnitude of projects that you folks finished up over the first three quarters, just to help us get a sense whether we might get another upside surprise here..

Do you mind repeating the question? We – it cut out quite a bit..

Sure, Brook.

Can you hear me better now?.

Yes..

Okay. Perfect. I was saying in pipeline, you have had three quarters now of really outstanding project closeout benefits.

So, I am wondering if you can talk about for the fourth quarter and the first quarter, what’s the expect to close out and finish up and how does that compare to the number of projects and the size of projects that you finished up over the first three quarters, just to help us get a sense for whether we could see another upside surprise potentially if things go well?.

Yes. So Jerry, I think quick answer is most of the project closeouts that you have seen over the course of the past two quarters to three quarters are really wrapping up some of those big projects that we worked on, that we had started last year, which – part of what drove last year to be such a big year, and then the remnants coming into this year.

In terms of Q4 and Q1, and I touched on this a little bit earlier. With respect to Q4, I don’t expect any big project closeouts. And really with respect to Q1, I don’t either. We don’t have any big – larger projects we are working on.

A lot of what we are working on these days is more maintenance upgrades, integrity work, more field services type work as opposed to big pipeline projects like we have been executing on over the course of the past year, 1.5 years.

So, I am expecting – that’s part of the reason why we are expecting kind of a more normalized run rate on revenue as well as margins over the course of the next few quarters..

Okay. We will see if you can do better than that. Thank you..

Yes. Thanks..

Next question comes from the line of Steven Fisher from UBS. Your line is open..

Thanks. Good morning. In the Utilities segment, you guys mentioned you are starting to see some work ramping back up and will be released in the first quarter of 2022.

Can you just give a little more color there? How much work do you think was deferred from the quarter? And what’s allowing that work to get back up and rolling again?.

Well, again, I think – Steven, I think some of it is just that the clients have started picking up their pace with respect to releasing work that was slowed for any number of reasons last year that we have discussed, whether it would be the COVID hangover, supply chain or some delays by them and just pausing just to see what the economy was going to do and what COVID was going to do.

And I think they are back to normal course of business. We have a number of clients that are looking at their ‘22 budgets or trying to finish out this year on projects, first of all, finish and complete their spend.

But next year, looking at their budgets and knowing what their spend is going to be, trying to ramp up and get prepared to kick off the year on a normal pace, which is to be quite different than where they were last year.

We also had new work for new clients and new areas in the Future and you heard us we referenced those two contracts and there are other projects, two contracts that we have in – not only in Future communications, but in transmission and distribution as well.

Those projects will be ramping up towards the end of this year and into next year as well, so..

Okay. That’s helpful. And then on the energy front, I think you mentioned there are some delays in solar, but it doesn’t sound like you are too concerned about push-outs or delays or rethinks of projects.

What gives you the confidence that that’s the case given all the inflation that we are seeing? Is there a way to maybe bucket the prospects you have in solar, the ones that you know are going to move forward on time, the ones that will possibly move forward on schedule and the ones that you think are most likely to be delayed?.

I don’t think I could bucket them for you. I can tell you that our management team is well aware of what the delays are. They are in constant communication with their clients and their – the suppliers.

So, they have kind of baked those delivery schedules into their schedules, and they have actually extended some project schedules to incorporate delays associated with the supply chain. So, you have seen – we have seen some of these project durations go out longer.

And you have seen the – we have seen the cost of materials and equipment go up, and we have incorporated that into our estimates. It’s probably where that will affect us as our estimates or our margins on renewables projects to be probably closer to traditional, which is roughly, what 11% to 14% maybe.

And you probably won’t see those big gains, at least not with respect to buy down on materials and equipment..

Okay. Thank you very much..

Thanks Steve..

Thank you..

Your next question comes from the line of Julio Romero from Sidoti & Company. Your line is open..

Hi, yes, good morning Tom and Ken..

Hi, good morning..

Hi. So, just following up on Steven’s question about the utility work kind of being released soon, I think you mentioned there was COVID hangover, supply chain delays, etcetera. My question is on the utilities side.

Is that work being released that you expect to kind of flow through first half of ‘22? Is that related to legacy utilities or more telecom?.

I think it’s actually it’s all of them. Yes, lot of its legacy. A lot of its legacy and it is reflecting the fact that we have been using this year to expand, add new contracts and expand into new geographic areas. And so we expect some of that to start bearing fruit into Q4 and especially into next year. A little bit of both..

Okay. And it was nice to see Future’s gross margins tick up sequentially even with revenue being pulled down a bit.

Should we expect to see any leverage on the gross margin line next year as that sales number ramps up a bit or does that kind of 18 percentage gross margin stays steady state and you expect more leverage on the SG&A side?.

Yes. Going into the next year, I think it’s going to be more leverage on the SG&A side. 18% is really what we have been targeting all year long. We knew they could get back to that and turned up they did this quarter. Depending on the mix of work, I can see the margins possibly getting a little above 18% sometime next year..

But again, that’s – but it’s really dependent on the mix of work. It really is. And depending on the blend of work they have, if they are in a really dense urban environment, it puts a little pressure on their margins when they get out more rural, their margins grow a little bit.

Again, it’s just – it’s kind of a mix when you start talking about unit rate work.

But the 18% is right where we expected them to be and now we just need to get the revenue up, and I will tell you the 2022 is looking really good not only for them but for transmission and distribution and gas can probably be a little bit flat, maybe you have some growth in it, probably low-single digits, but their margins are good as well..

Got it.

So, really just any benefit to gross margin would be related to mix and not necessarily a ramp-up of revenues?.

Correct. Yes. I think they are going to see more project work next year, too, which would typically gain a little bit on your margins there when you successfully execute projects..

Understood. And just if I could sneak one more in here. I think you talked in your prepared remarks about the OSHA mandates and your four-element plan.

Can you just kind of sum up what kind of impact vaccination mandates could have on your business if OSHA does require full vaccination?.

It’s hard to speak to if you don’t necessarily know what the requirements are.

We are doing – we are following all of the protocols now as far as testing and quarantine and everything else associated with social distancing and it’s – the one thing that OSHA hasn’t defined yet is if you are outside, if you typically work outside, are all those mandates going to apply.

So, if they apply externally then they could have – the implications could be fairly large, although we have been able to adapt for the most part over the course of the past 2 years and haven’t really – there have been impacts, they are very modern.

So, I would like to really see what they are going to do with respect to people that work out with crews that work outside the majority of the time versus office staff. If its office staff, we can work around it, we will make it work.

If its crews then we can start getting into, well, what does that look like and how does it impact our labor agreements, how does it impact our contracts, that can be a little bit different deal..

Got it. Thanks very much for taking the questions..

You’re welcome. Thank you..

Next question comes from the line of Matt Sharpe from Morgan Stanley. Your line is open..

Tom, Ken, Brook, good morning. I just wanted to hit on margins here for a second, specifically sort of the SG&A cost component beyond this year. I think your outlook suggests SG&A will tick down a little bit into 2022 as FIH integration rolls off. Just looking at the current year, if I back out FIH seems to point to about high-5% range similar to 2020.

Is there any reason going into next year that you can’t sort of beat that level or any other building blocks other than FIH that we need to think about here?.

No, nothing really, Matt. It’s really just about continuing to finish the integration of Future, getting their G&A percentage in line with the rest of the company and then just leveraging our revenue growth that we are expecting next year kind of returning normal without some of the headwinds we saw this year..

Got it. Helpful. And then maybe just circling back to the CapEx, it looks like you guys raised it about $25 million at the midpoint. I know you noted that there was some acceleration of orders here. Maybe just how much of the increase was that acceleration.

And then given that acceleration, should we expect that ‘22 comes down potentially sub 3%, or what can you tell us about the trend going forward now that the acceleration is baked into your guide?.

Yes, that $25 million that you are talking about is really exactly it. That’s the addition that we added to kind of get ahead and ready for next year. And then with respect to next year, we haven’t finished our CapEx plans for next year.

So, lacking any better information, I would say next year is probably going to kind of ballpark where we originally forecasted this year until I have more information..

In addition to that, we are always going to spend money for growth. So, we will have a plan, but there is opportunities for growth, we are going to spend the money. So, I agree with Ken, I think it’s going to be more in line with what we have forecasted for this year..

Got it. Thanks gentlemen. It’s very helpful. I will get back in the queue..

Thanks Matt..

Thanks Matt..

There are no further questions at this time. I would like to turn the conference back to Tom McCormick, Chief Executive Officer..

Thank you, Sarah. I want to thank you for joining us today and close by going back to what I said at the beginning of this call. Our results are a clear evidence of the strength of our overall business and the strategic value of the acquisitions we have made in recent years.

We are well positioned today in the key markets to support our customers and moving towards a zero-carbon future. I want to extend my gratitude to our Primoris employees whose skills and hard work form the backbone of our success. Thank you..

This concludes today’s conference call. Thank you for participating. You may now disconnect..