Q2 2021 Primoris Services Corp Earnings Call
Good day, and thank you for standing by and welcome to the free Morris Service Services Corp, second quarter 2021 earnings conference call.
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I would now like to hand, the conference over to your speaker for today and this Brook Wootton Vice President of Investor Relations Ma'am the floor is yours.
Good morning, and welcome to Pry Morris Earnings Conference call. Joining me today are Tom Mccormick, President and Chief Executive Officer, and Ken Dodgen, Our Chief Financial Officer, before and again I would like to make everyone aware of certain language contained in our safe Harbor statement.
The company cautions and certain statements made during this call are forward looking and are subject to various risks and uncertainty and.
Actual results may differ materially from current projections and expectations.
These risks and uncertainties are discussed in our reports filed with the SEC are forward looking statements represent our outlook only as of today and we disclaim any obligation to update these statements except as may be required by law I.
I would now like to turn the call and went to our CEO and Tom Mccormick.
Thanks Brooks 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 day revenue was up more than $48 million compared to where we were last year. We reached a record $1.7 billion of revenue for the first 6 months of the year. Despite historical what weather conditions and Q2 that pushed some of our anticipated revenue for this quarter further out and the year and.
And Youll recall, the impact that the winter storm that hit, Texas, and 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 and 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 and our pipeline segment, which was expected and giving us overall, a 2.9%.
Decrease as compared to the same quarter last year now, let's look at the 3 segments in detail.
Our utilities segment had a strong second quarter performance with revenue coming in at $425.4 million up 25 per cent compared to the same period last year.
This increase was primarily due to increased activity with a significant and utility customer and 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 Phi H.
The integration activities are more than 70% complete.
Having completed 350 of the approximately 500 activities.
We will continue to create synergies between F I H 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 our dog.
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 5 year Master service agreement is valued at over $40 million.
We will be installing 3300 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 and the third quarter of this year.
Our operations and 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 and both labor and equipment.
It also caused slowdowns and work being released to us by our customers.
And the ERCOT moratorium and taxes, which restricts work on existing transmission systems for May 15 through September 15th also pushed some of our utility work out to later in the year. We haven't lost the work has just been delayed we expect this work to move to the third and fourth quarters of this year.
During the quarter, our utilities 7 continued to secure multiyear contracts and the most significant on these was a meter exchange program, which is intended to replace natural gas meters of a certain vintage as criteria. This.
And the 7 year program is located in the Midwest with a large utility customer in total we signed or renewed several multiyear 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 a renewable energy activity, which grew by $69.8 million.
We continue to make progress on the LNG project and the northeast and we expect this project to be completed later this year.
And 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 and late stage discussions regarding a thermal power project and 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 should have tailwind into the next decade.
According to World Energy investments 2021 report issued in June the annual Global Energy investment is set to rise in 2020.1219 trillion.
Rebounding nearly 10% from 2020 and bring the total volume of investment back towards pre crisis levels.
Solar power remains a large and growing part of our renewables portfolio, we have over $350 million and backlog heading into the third quarter, but work associated with 2021 and 2022 solar projects.
In addition, we have approximately $900 million and prospective projects of which many are currently working under a limited notice to proceed and anticipation of a full contract award.
The final contracts for these projects should be finalized over the next 6 to 12 months.
We signed 3 of the Zelle and TPS during the second quarter for initial engineering work and long lead procurement on utility scale solar facilities.
The first LTP contract is for 101 megawatt <unk> project located in the Midwest.
The second L. On TP contract is for 185 megawatt DC project 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 next year.
The third LNG P Award is for 232 megawatt DC project located in the southwest and we estimate will begin in Q1.2022.
Our level of expertise and quality execution are creating repeat opportunities from our clients we.
We are currently working with a client on 2 projects and have recently been awarded a third project from the same client. This client has indicated they would like to partner with promoters for multiple project teams on several projects over the course of the next 3 years.
Renewable natural gas and gas and 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 and 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 months schedule, which includes engineering procurement and module fabrication on.
Also our Green diesel project and the Gulf Coast region as moving forward ahead of schedule.
Moving on to our pipeline services segment.
After the exceptional year. This business had in 2020.2021is playing out more in line with our 2019 performance Rev.
Revenue came in at $121.2 million per quarter, a decrease year over year.
I would continue to describe our pipeline businesses and 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 and we have seen an increase and bid activity from our established customers and the last couple of months in order to deal with this downturn and the market for more SaaS rightsize, our equipment resources and overhead costs without compromising our ability to take advantage of these projects. When the market returns. We've also made strategic moves first expand geographically and grow our field services and maintenance.
Its work and second to increase our integrity of offerings to also include engineering and other <unk> business units as well 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 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 their requirements.
Across our businesses, we maintained a superior safety record our total recordable incident rate is 0.46 for the first 6 months of the year, which is ahead of our corporate target of 0.60.
At the end of June 17 of our 19 business units and zero lost time injuries and 6 of the 19 business units and zero recordable injuries year to date.
We believe we have a great story until 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 derisk, our portfolio by creating reoccurring revenue streams with different end markets.
We're concentrating on and ongoing transition into higher growth higher end markets, including telecom renewables electrical transmission and distribution and regulated gas distribution.
We are further decreasing risks associated the big cost overruns by moving away from pursuing larger lump sum projects unless we have specific expertise and that line of business, such as designing and building solar facilities power generation facilities for pipelines.
We are focusing on lifecycle solutions for our clients from engineering through maintenance and that's.
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.
And we execute projects with quality and consistency, which contributes to making us the company of choice for our employees our customers and our partners are.
Our business model combined with the opportunities are visible in the evolving infrastructure legislation continues to give me confidence and 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 and the bigger picture as I pointed out to our promise 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 our central access to broadband services, and adding electrical distribution and transmission and markets across the U S that sense of a larger purposes and 1 of the things and 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 and 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.
Here. This says a lot about the strength of our business model given our pipeline segment was down over $168 million from the prior year and significant rain and the second quarter impacted our utility segment.
Despite the rain or 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 and increase of $12 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 segment's gross profit was $33.2 million and 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% and the prior year. This.
This was mainly due to higher costs associated with the LNG plant project and the northeast in 2020.
Despite lower revenue this year, our pipeline segment generated gross profit of $30.9 million and 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 and 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 <unk>.
6.5% and Q1 this year.
SG&A expense for second quarter was $57.7 million up from $51.4 million and the prior year. The increase was due to $7.6 million of incremental SG&A from the future acquisition offset slightly by $1.3 million reduction in SG&A from our legacy operations as we continue to integrate.
Future, we expect our SG&A as a percentage 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 and next year's SG&A should be back down to around 6% interest expense and the second quarter was $4.8 million compared to $3.7 million and the prior year B increase and 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.
<unk> and 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 percentage as we are seeing more of our work coming from states with lower state income tax rates.
Operating cash flows and the second quarter were essentially flat and year to date operating cash flows were $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.
And the second quarter, we invested $43.7 million and Capex of which $38.7 million was used for construction equipment. We expect our remaining 2021 capital spending to be and 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 burn through some fixed backlog and solve 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 was a record 52% of <unk>.
Total backlog.
And concluding with our 2021 and earning guidance for the full year 2021, we continue to expect earnings per fully diluted share to be and the $2.30 to $2.50 range.
With that we can turn it over to your questions.
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 1 to ask a question.
Our first question comes from the line of Jerry Revich from Goldman Sachs. Your line is open.
Hi, This is Adam on for Jerry today.
Tom and I was wondering.
How are you guys I was wondering and utilities, you mentioned customer driven delays in your prepared remarks can you expand on that point on how this project cadence evolved into July and August and and just a bit more context behind those drivers.
So theres a couple of things that drive that Adam 1 is really it was just a slow start to the year and we kind of talked about a little bit of that and in Q1, where clients are little bit slower coming out.
And we're leasing work and a lot of it is because they were.
Book Twofold really trying to get work out of engineering and also the supply chain probably in our utilities has been 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 are clients of seed some delays and so they've been a little bit slow to release that.
Work on.
Certainly and the first quarter and into the second quarter, and we're starting to see that pick up a little bit and going into the third quarter. Although there is theres still impacts and then of course, we had we talked about the weather delays and February from the winter storm that we had here in Texas and again, you wouldn't know and the months of April and May.
In Texas, we had roughly 42 inches of rain, which is really.
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 and future infrastructures and 1 of those businesses and we do on quite do quite a bit on our gas distribution and quite a bit of electrical transmission and distribution and the.
Texas area.
We're impacted by that they lost as many as 10 to 20 days during those 2 quarters. So that's effectively not just under a month that was all status and 1 month out of 6.
Okay. Thank you that's really helpful. And then specifically on the margin side and utilities can you also just expand on the challenges that you saw on the quarter on gross margins and how you expect that to evolve and the balance of the year.
Well some of it was related to just some businesses.
Social and they were part of the acquisition and future infrastructure that we knew were part of their core businesses and with the price of oil being down and it affected some of those businesses, specifically and we're dealing with those businesses, but we are some of them. It's also with client delays and we have crews and management teams and we have to keep even if the client delays the projects for instance, we had a call.
And here in Texas.
And not allow us to work on their transmission systems during the month.
And ERCOT has limitations as to what you can work on during the months from May 15 to about.
September 15th.
And we had projects that were identified that we were on a work on during the summer when and when.
And that those projects were paused and I will say pause because of the work still has to be done until after that that work stoppage until after September 15th we had to find places to put those crews and.
And in doing that and keeping them busy and we're not gonna lite lime and off and we're not gonna light quality journey and all so we had to find places where we use them and places probably less sufficiently as we as we would've had they've been able to work on those projects and that those costs or are those affect our bottom line as well and again and when you get into the utilities a lot of it.
Just the mix of work, so well work and different parts of urban environments, where our margins can be a little bit higher and sometimes when you get and the inner city and it gets a little bit more difficult and complicated to do the work, but we're getting paid the same unit rights and affect your margins are down a little bit. So it's kind of a little bit of all of those things.
Okay. Thank you very much.
Our next question comes from the line of Steven Fisher from UBS, you May ask your question.
Great. Thanks, Good morning, guys.
A follow on even on high up on that question about the utilities segment is there any way to to quantify how much of that revenue wasn't booked due to them material delays you mentioned, 1 month effectively out of state because that basically the way to to size. How much has to kind of is likely to recur or come.
Back in and in the second half of the year.
We do not have that information.
And.
It's something that we're looking at but we have not put a value on it.
And again some of them some of them will be it's work that will be done and 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.
Okay, yeah, it could be enough and you can it can be and the range of $10 million to $20 million, probably a reasonable range.
Okay. That's very helpful. And then you guys have been working to reduce the risk and your backlog is certainly a good thing just wondering about the risks that are going in and now we're poised to go and you.
And 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.
Was the and it seems like the average size of their is going up a bit how does that change the risk profile of what you're doing there.
Well I'll talk to me talk solar first I don't I don't think the average size of the solar projects are going up and matter of fact, we just some of the projects. We were recently awarded or in the 40 to $50 million to $70 million range and then we will have several that are a bit bigger so there's 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 as we've been able to go out or the client has gone out early.
And during needed prior to the L and TP phase or dirt and yell on TP phase and bought materials purchased and materials sorry, those items that may be long lead that kind of insurers delivery and kind of takes the risk of either price creep or light delivery off the table. So and then we have language and our contracts that kind of.
Give us some of those protects craft labor performance, we track certain metrics on a daily basis, because so we can see how our kraft flavors performing on those solar projects and they have certain metrics. So they have to meet and you know again just.
As a reminder.
Fabrication construction of a solar facility is much more like.
Assembly or manufacturing than it is like construction and industrial facility. So you're installing the same widget.
And time, so it's pretty easy to measure performance, there and my corrections, if we need to.
The 1 of the current projects, we don't have process guarantees on those projects they're really.
These are projects that have gone through feeds we're there either in the feed stage, where 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.
Okay very helpful. Thanks, a lot guys.
Our next question comes from the line of Lee Jagoda from C. G. C. J S Securities. Your line is open.
Hey, good morning, guys.
Hey, Lee.
So just starting with the future acquisition.
It is the entire shortfall in the quarter and frankly, and the first half weather related and how should we think about.
So the idea that we've had you know call it $135 million of revenue and the first half, but we were coming off of 340 million run rate.
Coming out of 2020.
Should we expect to get back to that level and 21 or what's the what should be the run rate kind of exiting the year.
So the answer is no its not all weather related but you know again.
Given the future infrastructure the majority of their business is here in Texas, and we've talked about that and even prior to the acquisition, whereas after the closing of the acquisition that we're going to grow their business outside of Texas, but being that most of it is based here in Texas and they were impacted by both the winter storm and and the rain that we had in April and May.
But the other things we're again as I noted their clients were a little bit.
Suffered a little bit of Covid hangover, there a little bit slow release and work just wait and see what's going to happen and we'll try and get things out of engineering and then we had supply and they had supply chain issues.
Most of the components and parts.
On the certainly on the telecom side and so they've had 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 of them.
Our 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 delight them issuing some work and the first half of the year, just because they couldn't get everything and to be able to release us to do the work.
And I would expect I don't think they're going to call back that revenue. This year theyre not I think last year, they were what $350 million and revenue of $3.40, and this talking about and there'll be down a little bit this year.
But roughly $20 million to $40 million down from that.
I expect that'll be and but 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 the DFW area and outside of Texas, and I think we'll see more of that growth next year.
Okay. So that so then that would imply.
Back half number above the $340 million run rate is that is that a fair way to think about it.
Well, let me let me let me qualify that because we will we are.
Looking at doing some things with some a couple of other non core businesses that we knew were non core with them.
As a part of them when we bought them and those are smaller businesses. Some of that revenue will drop off if lease either sell those businesses are up or shut them down.
Sure and then.
Just on the margin side of that it looks like your gross margins and future were.
About 15% in Q2 and again, we're you know I guess the bogey, we were working off of with 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.
I think we're working upwards from the 15, but youre going to below be below the 'twenty, 1 and 'twenty 2.
And is that is that structural or just temporary and and if we think about it further out do we do we return back to that 'twenty, 1 to 'twenty 3 overtime.
And I think I think long term, we can get them on.
And we said, it's going to be and the 19% to 28% range and I never expected to get back up for them to be operating in 'twenty..1 'twenty 2 long term, but I think the day.
19% to 2018% to 20% range or probably a better range for them.
Okay, 1 more just for Ken and I will hop back in queue.
And the project closeout and pipeline can you quantify that just so we can get on a normalized margin for Q2.
Yes, I mean, I don't have the exact numbers on those project Closeouts Lee, but as we've talked about before it's not uncommon for this this segment to normally run kind of and the 12, 12% range plus or minus so you can use that to kind of back into what the project closeouts or.
Okay fair enough thanks very much.
Thankfully.
Our next question comes from the line of them, Matt Sharpe from Morgan Stanley. Your line is open.
Tom can good morning, and thanks for taking my question.
Hey, Matt Schlumberger simple and Matt just wanted to circle back to the renewables business here for a minute specifically solar.
And maybe you can just shed a little bit of light on 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 on or off here and what does the ramp look like as we as we exit the first half.
And we don't have that kind of debt level of detail down to the business unit level and we start looking at those numbers, but but I will tell you with respect to backlog, we have and the renewable segment. We have right now we have about $17 million of backlog. That's included in those numbers that is associated.
And with projects that are currently under LNG P.
So they are under a limited notice to proceed and net those those those contract value is range of LNG P values range from $1.8 million to $7 million.
Once those jobs and we're right now we're batting a thousand with respected transfer conformance and converting it project from al and GP and taking it to the execution phase. So we have not ever had and LTP contract pulled and we did not execute the full construction on that project. When it comes to solar facilities is just how the business works.
Theres about $350 million of construction, that's come in behind those L and TP contracts just associated with those 4 contracts.
So and do that I think I said earlier, there is where's the number roughly.
Roughly $900 million.
<unk> that are in different phases that we have and you had been awarded that we expect to be awarded and the next 6 to 12 months that and.
And that $3.50 would be and that 900.
Got it.
Paul.
And I also just wanted to circle back to the the pipeline business specifically the gross margin.
I think I can probably count on 1 hand, the amount of time, you hit 26% or north of that since going public on 1 hand, and and you've reiterated the guidance range here that looks to imply a pretty notable step down into the back half of the year I think for per center soon and hit the midpoint.
Kind of your range, what what's driving the Lumpiness aside from the project Closeouts and project Closeouts, obviously explain this quarter, but.
And then the notable step down into the back half with what's really driving that.
That's really just sit and its just closing out of projects there.
And there really is nothing else.
Got it okay. Thank you I'll get back on the Q.
Thanks, Matt and good talking to you.
Our next question comes from the line of share Sean Eastman from Keybanc capital. Your line is open.
Hi, guys.
And we're going to free.
Second there I thought you might have forgotten about your legacy analysts and glad to.
2.
Good to get in here.
So how should we interpret the.
Intact guidance for the for the full year is it.
Had the weather delays and the second quarter, and they're being recouped by pipeline and Closeouts or have.
Have we had the weather delays here and we're going to see a catch up and make up for those weather delays and the second half just just.
Trying to understand the bridge there.
There's a little bit different in every segment.
And we start looking at the guidance I think.
Beginning of year, I would've, Saudi probably guess, what our guidance would have been it's still the same $2.30 to $2.50, but probably taking mid to upper half of that guidance and right now and I don't think we're going to claw that back and the second half I think probably going to be more towards the lower to mid range of the guidance.
By the end of the year.
Okay.
Okay.
Okay. So we're going to be we're going to be a toward perhaps on the guidance for the full year and the lower app and little bit confused by the response lower to mid and lower to mid <unk>.
Florida mid Gotcha.
Okay and the.
And the decreased activity with a utility customer in the Midwest.
What exactly is going on there.
Well, that's that's work we go on and do gas distribution, and we're replacing old pipe and piping systems.
And finished with that build out of that replacement work then you move away from replacement more towards maintenance. So you go on and are you build up your crew size. All your crews you do both of them are quite a bit and maintenance and new construction. When the replacement work is done on the old parking systems those crews go away and.
And you find other homes for them and that's really what that is.
Moving to an area have been there a long time that you do a combination of replacement work new installations and maintenance work and now the replacement work, which as 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 and that's that's just kind of where we were with that client and that part of the country.
Okay got it alright, that's helpful and just lastly, the bookings were kind of light and the energy segment and the second quarter.
I think there might have been some awards subsequent to quarter and 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.
And going to get stuck around the supply chain and uncertainty.
I actually think debt, what we were going to see as we expect to see some awards here and there not so distant future I think Ive mentioned wonder and turn the my earnings narrative.
And we've been told we were shortlisted on and we really expect to hear any day now.
That contract is signed and you heard me talk about the 4 different solar projects that are and LNG P. Phase that will be awarded in the coming weeks or months and thats that represents approximately $350 million worth of work, we expected that work to be actually be awarded and go from <unk>.
Convert from rail and TP to contract in the second quarter. So its 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 and we're seeing more and more activity even in our non union industrial market, So I'm pretty comfortable with where we're headed and I.
I think we'll win our fair share of the work and some of this up and I'm very confident because I already know where we are we just havent signed the contracts yet so no I don't.
Don't think there's anything we're comfortable with where we are and where we're headed.
Probably the best way to day.
Okay terrific. Thanks, very much for the time.
And keep talking to you thanks, Sean.
Our next question comes from the line of Adam Tal Hymer from Thompson Davis you.
You May now ask your question.
Hey, good morning, guys.
And the items.
<unk> delays that you guys referenced is that as we sit here and August is that something that's getting better or getting worse.
Depends on what it is right.
We were able to manage where we have and as far as our supply chain goes or things that we're responsible for buying we get it we have a tendency to get ahead of them and we've made some investments and has made some decisions to move forward on projects, even before award by certain materials, because we know if for some reason that project was curtailed or canceled or anything else, we could use it somewhere else.
And with our clients I think its getting better I think he gets changed their planning it 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 warm quarter.
And it goes a little bit longer period of time, and I think everybody's kind of adjusting to it and.
Planning for it.
Okay, you're the California utility that you referenced that was good in Q2 was that goodwin with gas or with electric.
And then what's the outlook for that customer and the back half.
Primarily guy and mostly gas.
But we're seeing some pickup and electric out there as well.
And what's the outlook for them and the back half.
I'll look at the back half I think is just kind of continued at the rate they've been go on so far this year. So.
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, we expect to utilities.
A little bit of slowness first half of the year, Tom mentioned, David we'd like to refer to as the Covid hangover.
And trying to figure out how to engineer and get projects out when they.
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 I'm not sure what the timing is going to be that historically, we have gotten involved and the cleanup. After these after wildfires and I expect that we will do the same replacing the systems and transmission systems and distribution systems following the cleanup and <unk>.
And the cleanup following the wildfires out there, but also as they.
As 1 call it specific client out there and start spending money on grid hardening and going underground I think will play a role on that to know when that will happen.
And I don't know.
Got it Okay and then just lastly can what's the outlook for free cash flow and 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, probably as much as $100 million to $150 million back half is our best forecast right now.
Sounds good thank you.
Thanks, Adam.
Our next question comes from the line of Julio Romero from Sidoti and <unk>.
Line is open.
Good afternoon, Tom and Ken Thanks for taking the questions.
Hey, Julio.
So not to beat on a dead horse on the utility segment, but how.
How do you expect margins to trend and utility and the back half of the year.
Should we expect sequential improvement and Q3 and.
Just thinking about what Q4 margins look like given the headwinds you mentioned as well as the typical seasonality in that segment.
Yeah, Yeah, I, absolutely think youll see the normal seasonality in Q3 and Q4 like we normally see.
We're normally ramping up and and a bunch of areas in Q2, and so the weather impact.
The weather impact during Q2 definitely put a little bit of a damper on those margins, but we're definitely looking for higher margins in Q3 and Q4.
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.
Winter will really kick in and shut us down and some of our northern areas and we had in the past I think diamond with can I agree I think that youre more 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 and performance benefit on that.
On the little project work that we do on our 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.
Got it so just to clarify do you expect sequentially utilities margins up in Q3.
Down in Q4 because of normal seasonality.
Do you think we see year over year margin growth and Q4.
Again too early to tell for Q4.
Okay, Okay fair enough I guess, maybe just.
Switching over to.
And the renewable side.
Is there any way to quantify that gross profit drags on the LNG project and a quarter.
Either from a dollar perspective or margin perspective.
For the segment.
I'm, sorry, I'm looking at something here real quick.
And yet.
Yes, no I don't know that off the top my head Julio sorry.
Okay.
I guess.
But I really I'm interested in is right.
The renewable energy margins I mean, I don't know if you can speak to and.
And the margins you've book during the quarter and renewable energy or maybe whats.
Whats the margins look like and the backlog.
Yes, I mean, the margins on renewable is very consistent with with that segment and our goal for that segment is kind of the low double digit range and thats exactly what were doing with respect to renewables as well.
Theyre, probably the higher and of any business unit, though and that segment.
Got it and could you give us a progress update on the work you're doing with clients to kind of explore the.
Opportunity blue hydrogen.
We're doing some studies for.
For clients.
The benefit the August and we have as we have over.
The engineering group that we own PD and see they have probably 25 or 30 years.
Design and construction experience on on what we refer to as gray hydrogen plants. So the only component only thing and you add to it.
And to make it blue hydrogen is you've got the carbon capture so we have a lot of experience and the design and those plants. We know what the emissions are we know how to do that we're in.
And doing a several feed studies right now and actually talk on as some clients about doing some of the other feeds.
For them on Blue hydrogen projects, but it's just it's still early days.
The nice thing is we have the ability to do the collection systems.
And we do everything but put it in the ground as far as carbon capture and everything else. So its kind of.
So the strength that we have our skill that we have.
Great. Thanks for taking the questions and best of luck on the back half.
Thanks Julio.
As a reminder, if you have questions. Please press star 1.
Our next question comes from the line of Brent Thielman from D. A Davidson your line is open.
Thanks on the.
And pipeline business are there any other large pipeline that could potentially contribute.
Big closeout benefits and the second half of the year and is any of that and the guidance.
It is and the guidance and we still have 1 or maybe 2 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 <unk>.
Future.
These initiatives to move the business into new geographies when does that start to become.
And sort of relevant to the P&L and terms and how you guys are rolling this out and debt territories outside of Texas.
Well.
Next year.
Theres always a little bit of cost of entry and all time to build up from a lag as you move into new markets. So it will be and it'll be in 2020.2.
And I wouldn't say I wouldn't say first quarter 'twenty to 2020, 2 but a little bit lighter and the year.
Okay and on the transmission work and Texas beyond the effects of weather here can you talk about what's happening there and I guess just from a near term perspective, it sounds like there's some pause in activity and then and what Youre starting here in terms of the opportunities there.
Well I would tell you from a transmission standpoint, there's a lot of opportunities because because of all the solar and wind farms and all that activity could everybody moving to taxes and I'm just telling you. This is based on what we're being told by our clients their spend and annual spends are going up and thats with respect to both electrical distribution and <unk>.
Transmission and the connections between solar facilities, and wind facilities and transmission and.
Power generation facilities and getting it out to all of these areas where growth is occurring. So there is there's a lot of opportunity. We've got some very key clients and their spend is going up and they want us and of course, there are other tier 1 contractors to grow with them. So I'm excited about it.
Okay. Thank you.
Thanks Brent.
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 and Carl frameworks.
Thank you Carl and closing I, just want to highlight that Q2.2021 was the second best quarter and the company's history and.
And our performance over the course of.
The first half of 2021 is the is the best first half of the year and the company's history as a public company, especially on the company's entire history. So we're very excited about where we are and where we're going on 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.
This concludes today's conference call. Thank you again for participating you may now disconnect.
Goodbye.
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