Q1 2022 Primoris Services Corp Earnings Call
Thank you for standing by my name is Cheryl and I will be your conference operator today at this time I would like to welcome everyone to the Prime Morris Services Corporation first quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speech.
<unk> 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 Crestar one thank you Brook.
Brook Wootton Vice President you May begin your conference.
Good morning, and welcome to Prime with this first quarter 2022 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 statements. The company cautions that certain statements made during this call a forward looking and are subject to various risks and uncertainties.
Actual results may differ materially from our projections and our expectations. These risks and uncertainties are discussed in our reports filed with the SEC.
These statements represent our outlet only as of today.
Claim any obligation to update these statements except as may be required by law. In addition, during this conference call, we'll 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.
Thank you Bruce.
Good morning, and thank you for joining us today to discuss our 2022 first quarter results and our financial outlook for the rest of the year.
For the first quarter, we generated $784 $4 million of revenue.
Compared to last year's record first quarter. This period was much more in line with our historic first quarter results.
This is typically our slowest quarter of the year and the most likely to be impacted by inclement weather and extended winter conditions.
That was our experience this year as positive performance in our growth markets utilities and energy renewables.
It was largely offset by a loss that we recognized on a pipeline project in the mid Atlantic and lower overall revenue and our pipeline segments approximately 92% of our first quarter revenue was driven by our utilities and energy renewables businesses as we lean more heavily into markets with more secular growth.
We continue to build our backlog primarily in these two segments.
Kris and total backlog for the third consecutive quarter.
Reflecting the underlying strength of our business. Our total backlog is 30% above the same period last year.
Now, let's look at our operations second by second.
Our utility segment revenue came in at $358 $7 million.
As a 7% increase compared to the same period last year.
Remember this segment encompasses our specialty services in the gas distribution power delivery and communications industries.
The increase reflects higher levels of activity with our gas utility communications customers in our east and west regions.
Most of our issues such as material shortages.
He is an engineering and permitting are now mostly behind us as we and our clients continue to adapt to the ever changing market conditions.
We brought in over $375 million of new business during the quarter.
In the Western U S. Most of the new businesses with large existing customers well on the east coast, we continue to expand our communications footprint with new customers and new geographic markets.
One new client is building fiber networks across the country.
We signed contracts for <unk> projects with them, one in Virginia and another in Oklahoma.
We are focusing on building a long term relationship with this client that we believe will bring additional projects, which is always our goal.
Another growing relationship is in our power delivery space with a multi state clients.
We just added crews would take on our third electric distribution project for them.
After the end of the quarter, we signed a multiyear multimillion dollar contract expanding our power delivery services into a market in the northeast.
This demonstrates the effectiveness of our focused expansion efforts.
This customer has expressed an interest in discussing additional services that we are prepared to provide.
Overall, we are seeing sustainable growth in our power delivery and communications businesses.
Our energy renewable segment revenue came in at $359 million.
Three new solar projects are just kicking off.
One at the end of the first quarter and two more this quarter. So we will start to show meaningful revenue from all of these projects in near future.
Utility scale solar market remains robust and we value the strong relationships with our customers in this area.
As we have previously discussed diversifying the small scale or distributed generation solar.
Brings additional scale and opportunity to our renewables business.
The best serve this market opportunity, we have successfully transitioned some of our pipeline field management to develop a new DG solar team.
This transition is going well and we now have a significant funnel of DG solar projects opportunities.
We will start executing this work in the third quarter.
Other projects of our renewables business, we're also moving forward.
Virginia has proven to be an exciting area right now.
As I've stated before hydrogen as a third leg of the renewable energy store.
Hydrogen consult made a difficult challenges of energy storage as it can be produced and used that as point of utilization.
Recently, we extended our involvement developing sustainable green hydrogen for residential and commercial use in North America.
We're participating in a hydrogen pilot home project as part of a proof of concept demonstration with a large utility in southern California.
This hydrogen project features a micro grid the supply of electricity to a 2000 square foot home.
The greatest composed of solar panels battery storage system.
In electoral wiser to convert solar energy to hydrogen and fuel cell.
This hydrogen project was named a world changing.
Fast Company magazine.
As this market develops we expect to work further with the futility as well as with other utilities and developers, while both hydrogen and other renewable related projects.
Looking at future opportunities our energy renewable segment has signed more than $325 million in new projects for this segment during the first quarter alone.
These included in earthworks project located in the South.
As well as the mechanical scope for our hydrogen producing steam methane reformer plant in Texas.
This facility will be the largest such plan our customer will operate in the Gulf Coast region.
We began work on both projects in the first quarter of 2022 with completion expected in the first quarter of 2023.
We were also awarded a $48 million contract from the Texas Department of transportation to expand an existing roadway and bridge the four lines.
This project will one from Q2 2022 to the end of 2024.
We have also been contracted to construct a new pump station and modify the existing infrastructure that original wastewater treatment facility located in Florida.
This major project is also scheduled to start this quarter and will run into early 2025.
Our safety and execution performance in solar projects continues to drive business.
This performance has led to the continuation of repeat business across multiple customers.
After the end of the quarter.
We were awarded two new solar projects totaling more than $250 million.
One is for the engineering procurement and construction of the utility scale solar facility located in the southwest.
Mobilization and construction will begin in the second quarter of this year with completion of the project expected in the first quarter of 2023.
Second project is located in the south.
Construction is scheduled to begin in the fourth quarter of this year with completion expected in the third quarter of 2023.
This project is another example of our segments working together to provide a complete solution for our clients.
Our energy renewable segment will build a solar facility.
While the power delivery group of our utility segment completes the high voltage work associated with this project.
We expect to see continued and increased collaboration between our energy renewables and utilities segments on those fronts.
Before I move on to the pipeline services segment I want to talk about how we are addressing our supply chain issue around the cost of materials and delivery certainty in our energy renewable segments.
A lot of industry speculation around the department of Commerce's investigation on solar panel modules imported from certain countries and the potential impact of project cost and schedules of anti dumping and countervailing duty tariffs are imposed.
We don't see this as having a significant revenue impact on our projects for the following reasons.
As of the first quarter of 2022, our project backlog for utility scale solar is more than $1 billion.
We have intentionally diversified our portfolio of projects to those clients and projects that have more module certainty around them.
Morris does not purchased solar modules for our projects nor do we have risks associated with not receiving those modules for our projects.
If a customer experiences the module delay we serve our customers best buy planning and executing in a manner that brings them flexibility to progress the projects such as our primary work is not impacted.
The module is the last component is installed which gives us the ability to build out the project and adapt to our customers' needs.
We can always return to the project a later date and install the modules and when this does occur our clients are compensated us for the extra costs.
We also work with our customers on a design build basis. So we have a high degree of transparency into the materials by purchase.
We currently know that more than 50% of our 2022 projects are using solar modules that are not subject to the CBD tariffs.
Our discipline in planning and best practices in our solar business is paying off and reduce risk for both our business continuity and our bottom line.
Now on the pipeline services.
Our pipeline services segment revenue came in at $67 million.
That is a 49% decrease compared to the same period last year.
This segment, which includes conventional oil and gas pipelines as well as water and wastewater pipelines is now increasingly focused on master service agreements for pipeline services.
The year to year comparison is somewhat skewed by the fact that in first quarter of last year, we achieved substantial completion on three pipeline projects accounting for more than $71 million in revenue.
As we've previously stated we are pursuing fewer pipeline projects and focusing on field service pipeline integrity type work. So some of that income decline is in line with our strategy.
Q1, 2022 pipeline compass, just over 8% of our total revenue, which is down to where it has traditionally been.
Once again, a lot of that is by design.
It is a much smaller part of our business and will continue to be for some time.
We did complete one small wastewater project during the quarter with high levels of customer satisfaction zero recordable incidents and good profit margin.
On the flip side, one pipeline project in the mid Atlantic region got bogged down literally with extreme weather conditions delayed progress down the right of way.
We've added the necessary labor to mediate the delays associated with the ground conditions and complete the projects.
However, the project is currently forecasted to lose money, which has adversely affected the segments results for the quarter.
We continue to evaluate where costs are recoverable and are currently in discussions will decline on these matters.
While the project impacts our pipeline revenue and bottom line for.
Fortunately there is a small item in the big picture of our overall business.
We brought in approximately $43 million in new awards during the quarter.
With a pickup in bidding activity that bodes well for the last half of the year as well as 2023.
On average 18% of our pipeline services revenue comes from a ongoing msas compared to new bid projects.
And with that let me hand off to Ken for a more detailed review of the numbers.
Good morning, everyone. Let me begin with our key operating metrics for the first quarter, and then I'll discuss our balance sheet cash flows and backlog.
As Tom mentioned, our first quarter revenue was $784 4 million a decrease of $33 9 million compared to the prior year, mainly due to the $63 $8 million reduction in pipeline work, which was in line with our expectations.
This decline was partially offset by continued strength in our utility segment, which grew by $23 7 million and our energy renewable segment, which grew by $6 2 million.
Gross profit for the first quarter was $56 5 million a decrease of $23 7 million, primarily due to poor performance in our pipeline segment.
Positively impacting the period all three segments benefited from the change in useful lives of certain equipment, which reduced our depreciation expense by $5 8 million in Q1.
We expect a full year benefit of this change to be approximately $21 million.
Gross margins were seven 2% for the quarter, which is typically our lowest quarter as a result of the seasonality in our utility segments.
Now, let's look at each of the three segments.
Despite the seasonality in our utilities segment gross profit was $22 4 million a slight increase over the prior year due to higher revenue, partially offset by lower gross margins gross margins declined slightly to six 2% compared to six 5% in the prior year underlying factors included the.
<unk> start of some projects in the second quarter as well as increased fuel and labor costs, partially offset by better equipment utilization as we continued right sizing our fleet and selling underutilized equipment.
For the rest of the year, we continue to see strong demand from our customers and expect to see our normal seasonal increases into Q2 and Q3.
Energy and renewables gross profit was $39 9 million for the quarter, a $2 $7 million decrease from the prior year, primarily due to lower margins, partially offset by higher solar revenues.
Gross margins came in at 11, 1% down modestly from last year, but well within our normal range in 2021, we benefited from the favorable resolution of a claim on an industrial project.
Looking forward, we expect gross profit to gradually increase each quarter as we continue to grow our solar business and execute on the significant work in our backlog.
Pipeline segment gross profit decreased by $21 6 million from the prior year.
Given the sharp decline in volume due to general market conditions and higher costs associated with the pipeline project in the mid Atlantic.
We reported negative gross margins of eight 7% this quarter <unk>.
The mid Atlantic project experienced very unfavorable weather conditions in the period the reduced activity levels also led to higher carrying costs for equipment and personnel.
This project will continue to impact margins in Q2, as we complete the project.
Now shifting to SG&A.
Expenses in the first quarter were $55 5 million, an increase of $2 million over the prior year as we continue to invest in our technology and human resources initiatives.
As a percentage of revenue SG&A increased to seven 1%, primarily due to lower revenue and is normally higher in the first quarter of the year.
We expect our SG&A for the full year to be back down in our normal low to mid 6% range.
Net interest expense in the first quarter was $2 9 million compared to $4 6 million in the prior year.
The decrease of $1 7 million was primarily due to the $2 $9 million benefit from our interest rate swap this quarter compared to a $1 $3 million benefit last year.
Our effective tax rate was 27% for the quarter and we expect the same rate for the balance of the year, but this may vary depending on the mix of states in which we work.
Net loss was $1 7 million for the quarter and diluted EPS was a loss of <unk> adjust.
Adjusted EPS was <unk> <unk> per share for the quarter and adjusted EBITDA for the quarter was $22 6 million.
Operating cash flows in the first quarter was $6 6 million relatively consistent with the prior year, but it is important to note that during the quarter, we invested another $35 million in prepaid materials for our solar projects in order to ensure timely delivery and certainty of price.
In the first quarter, we invested $33 2 million in Capex of which $13 4 million was for equipment.
We still expect capital spending for the remainder of the year to be $90 million to $110 million, which includes $55 million to $75 million for equipment.
We ended the quarter with $173 $5 million of cash.
Growing capacity under our revolver was $160 6 million, providing total available liquidity of $334 1 million at quarter end.
Total debt was $665 3 million and net debt was $491 8 million.
Total backlog at the end of the quarter was a little over $4 billion compared to $3 1 billion in the prior year. This was another record backlog for us fixed.
Fixed backlog was almost $2 5 billion, an increase of over 800 million or 52%, primarily due to solar projects MSA.
MSA backlog was up 9% or $127 9 million to a little over $1 6 billion.
Turning to our full year earnings guidance, we are increasing our full year guidance by <unk> 10 per share to reflect the benefit of our revised depreciation expense and the challenges in the pipeline segment the.
The updated earnings guidance is $2 20 to $2 40 per share and our adjusted EPS guidance. Our non-GAAP measure is $2 49 to $2 69 per share.
We feel very good about the balance of the year and are starting to see the typical ramp up of utilities work in the second quarter and very strong prospects for additional renewables awards to build on our record backlog.
And with that I'll turn it back over to Tom.
Looking forward it is clear to see that we are more and more focused on the utilities and energy renewables markets and less focused on pipeline construction.
As I noted upfront our pipeline services segment represented just a little over 8% of our total revenue this quarter.
It only represents 10% of our total year business plan with the other 90% being fairly evenly split between the utilities and energy renewable segments.
We continue to gain momentum in our growth markets as evidenced by the total dollars of new business. We brought in during the quarter for those two segments.
More than $750 million.
For the full year, we expect the following our.
Our energy renewable segment to grow approximately 20% compared to last year.
Our utility segment to increase in the range of 8% to 10%.
And our pipeline segment to finish the year below last year as I previously noted and per our 2022 plan.
Our year end mix will be even more heavily weighted towards utilities and energy renewables and away from pipeline for 2022.
And if you add up the new business that we brought in after the end of the quarter.
You'll see the three contracts signed in April account for more than $325 million of additional backlog and just the last month.
So the momentum is there the businesses there.
As I've said previously, but it does bear repeating.
Business that we are pursuing and capturing a strategically aligned with secular market themes, including next generation broadband infrastructure power delivery and the push for renewable energy all of which are linked to the overall goal of reaching a net zero future.
We continue to closely watch the infrastructure and investment jobs Act and are seeing it states and industry players explore how to tap into that funding, which we think will translate into shovel ready projects for rural broadband and urban <unk> deployments, adding opportunities for our utilities teams.
We also see the energy transition driving business as higher energy prices are loosening the purse strings of traditional energy companies wanted to retool to lower carbon opportunities that.
That includes hydrogen as I mentioned earlier as well as carbon capture.
We are seeing the emergence of new players such as developers who are rapidly advancing the utility scale solar power generation our strength in this market is allowing us to choose the partners, we want to work with and continue to build solid long term relationships with them.
Both traditional energy companies and new players create a bright outlook for our energy renewables business.
So what I would say is we have everything we need to capitalize on our momentum and the secular trends, we are seeing and deliver results going forward.
Thank you once again for joining us today.
Okay.
To ask a question. Please press star one please limit yourself to one question and one follow up.
The first question is from Amit <unk>.
<unk> of CJS Securities. Please go ahead your line is open.
Yes, hi, good morning, it's Pete Lucas for Lee.
And looking at your guidance for the renewable segment of 20% growth for the full year that implies 25% to 30% growth over the next three quarters can you help us in terms of how you see this ramping from Q1 through the balance of the year.
Okay.
Yes, Pete we have been laying out all the projects that we've been winning over the course of the past two to three quarters and literally it's just going to be.
<unk> steady growth quarter over quarter, as we complete smaller projects and roll into bigger larger projects. So.
I expect Q2 to be up sequentially from Q1, Q3 will probably be fairly flat compared to Q2, and then Q4 will probably be up significantly as we really start ramping up on some of those larger jobs that we announced in Q4 of last year.
Great.
Next I wanted to confirm in terms of the pipeline gross margin guidance of 9% to 11% for the full year does that include the minus 9% margin in Q1 and should we expect any outsized margins in any of the next several quarters driven by project true ups or should the balance be in that 12% to 15% range to get to the full year numbers.
Okay.
Yes, so so the 9% to 11% is our long term target for the year given what's happened in Q1 and the completion of the Appalachian project that we talked about the gave US problems. We're expecting this year's gross margins to be in the $6, 6% to 8% range for the full year.
Helpful. Thanks.
And last one for me can.
Can you give us some more detail around the change in the depreciation schedule on equipment. The impact it had in Q1 results and also the impact you expect it to have on the full year.
In terms of which segment margins would be affected most by the change.
Yes.
So as we stated $5 $8 million impact in Q1 full year impact is probably going to be about $21 million.
It was just.
Ordinary course.
Analysis of our equipment in conjunction with an outside third party that led us to do that you rarely ever do these and when you do it's only when you have compelling evidence is the right thing to do.
And then with respect to the benefit probably about.
By my estimation $50 to 60% of the benefit will accrue to the utility segment and the remaining will be split fairly evenly between the energy renewable segment and the pipeline segment.
Your next question is from Steven Fisher of UBS. Please go ahead. Your line is open.
Great. Thanks, So just to follow up on that depreciation benefit seems like about maybe a 25% to 30.
Benefit can you just talk about what the offsetting headwinds are then.
Is that just the the pipeline segment being a bit weaker than expected or were there kind of other things relative to original expectations.
Steve It's just the pipeline segment and what's going on there in particular with the first quarter and the lingering drag that will probably experienced in the second quarter.
Okay.
Helpful.
And just to follow up on that.
Within your pipeline outlook are you assuming that you have any growth year.
Year over year in any quarter before the year is over.
For the year.
Yes, yes for the pipeline segment, we are definitely expecting the.
Segment to be down year over year.
I don't have any.
Quarterly numbers in front of me right now but.
We don't give quarterly guidance any way on that but.
It will definitely be down probably 10% to 20% I wouldn't expect it to be flat quarter on quarter for the balance of the year should pick up as we see some we're seeing more bid opportunity, but it's not going to be dramatic.
Okay, Yeah, and I guess, a higher level. There was are you seeing anything come together, we are hearing a bit more about the midstream activity both on kind of traditional and non traditional just I'm wondering if that was.
Maybe flowing through any of your timing expectations, but it sounds like maybe kind of still more of a 2023 opportunity.
Exactly I think all of that will be the late 2022 more than likely all of it will be 2023 and going forward.
Okay.
And then I guess the.
Last question would be in the revenue guidance numbers are helpful.
Give us can you give us a sense of how those have changed maybe since your initial thoughts on the year.
Really really Steve there's been no change with respect to energy and renewables and utilities and pipeline as I. Just mentioned is down slightly from where we originally thought it was going to be at the beginning of the year.
The only thing is that we will see as we got a little bit of a slow start in gas distribution in the Midwest because winter is continuing to be a little bit law I would expect that spend to pick up a little bit in Q2, and Q3 and to be down in Q4 again as it traditionally has so maybe theres. Some makeup there, but not again not dramatic.
Got it thanks a lot.
Your next question is from Sean Eastman of key.
Please go ahead your line is open.
Hi, James Thanks for taking my questions.
I wanted to come back to the carbon capture opportunity relative to how you guys are framing.
The kind of growth focus and the pipeline segment more focus on the field services I mean, how should we think about that in the context of some of these big carbon capture projects that seem to be.
Coming pretty near term does do those fit into the growth.
Growth strategy criteria for Prime Morris.
They do but they are again, its 2023 and beyond.
We don't see anything with carbon capture other than engineering and maybe some procurement is going to take place in 2022, and even with one that we're working on right now and we expect to go to the field for that if it if it moves forward to be in 2023 and that's that.
Really what we're seeing in the market.
And it sounded like you guys are a little more.
Affirmative on hydrogen.
The opportunity set is there anything in particular backing up your comments specifically on hydrogen I have some things firmed up even in just the past couple of months since we heard from you guys last.
It's really just we you saw the award that we had for just the construction of the facility in the Gulf Coast.
The study that we're doing.
Hmm.
Would we call that.
On the Green hydrogen project that we're doing that.
Yes that would be the ability study. We also have a number of other studies that are going on so we're seeing a lot of activity in the very front end startup scoping and estimating on those types of projects that we've seen before and typically that tells you that within the next 12 months youre going to see some of that come to fruition.
Okay got it and then.
A lot of people are starting to get excited about.
The role of the <unk>.
<unk> can play in.
Reorienting.
Energy supply chain.
Post this conflicts in Europe , and I, just wonder have you guys started to see a.
Pick up and that sort of Gulf coast.
Australia activity.
Over the past couple of months and maybe if you could just frame what types of opportunities you. Thank you.
You guys could get involved with there.
Yes.
So we're seeing our bid activity pick up.
So we are seeing a lot of activity there with respect to energy independence.
Again, a lot of it is still long term, it's more out in late 2022 and 2023.
But we are seeing our bid activity pick up quite a bit that's what gives us confidence in our some of the confidence we have in our energy and renewable sector segment.
Okay got it thanks, I'll turn it over there.
Your next question is from Julio Romero of Sidoti. Please go ahead. Your line is open.
Hey, good morning, Thanks, taking my questions.
So.
You guys mentioned you expect pipeline.
Gross margins to come in below your targeted ranges for the year, how about on utilities and NRG renew.
Is the guidance given on the press release.
Your guidance for 2022 or is that rather than your longer term targets.
In that case, both are in both of those cases, yes. That's correct. It's both current year guidance as well as long term guidance everything is looking very nice for both segments, they're performing well utilities as Tom mentioned is seeing its normal Q1, Q2 ramp up and we expect that to continue into Q3 like normal and as.
I mentioned previously energy and renewables will be growing.
Fairly steadily sequentially through the next three quarters.
Okay got it that's very helpful. And then for my follow up on the solar business.
Talking about in your prepared remarks about building and contingencies for for <unk>.
Customers and potential module delays.
But I think you did mentioned there is some timing risk as to win.
As to the solar business. So can you talk about maybe how you are managing.
Your labor efficiencies given that timing risk and does the contingencies you have with your customers compensate you for any labor inefficiencies.
Well, what we did see really early August I guess in the last six months of the last six months to 12 months, probably the our clients and we've been very selective about picking our clients based on a number of different factors. One just the client that we want to work for long term owners of their contract terms what is this surety.
Delivery of the modules where are they buying them from we saw a pause in that sort of delayed some of our awards, but I can tell you that we have a lot of confidence in our clients have a lot of confidence in the surety of the delivery of the modules for the projects that we have.
At least for the balance of this year and going into next year beyond that it's just really hard to see it's going to be dependent on the outcome of this investigation, but for right now we have complete confidence in our projects are moving forward, removing and feel thats why we're starting to see a ramp up youll see the revenue ramp up quite a bit in the fourth quarter on these solar projects.
Okay. Thanks very much.
Your next question is from Jerry Revich of Goldman Sachs. Please go ahead. Your line is open.
Hi, This is Adam on for Gary today.
I was wondering if theres any way to quantify the negative impact from the higher costs on the pipeline project in the mid Atlantic this quarter and to what extent does that headwind continue in Q2.
Yes.
The impact is basically the difference between the margins, we experienced and our kind of normal 9% margins.
And then with respect to Q2, we should still see as we finish up that project in Q2, we should still see margin drag that jobs in a loss position, though the remaining revenue.
$10 million to $15 million and most will be burning at zero gross margin.
And solar can you update us on the current level of prospective projects and how are you thinking about how.
Big this business can get until you start to be labor constraint.
Well first with respect to labor, we don't take on any more projects than we have.
Project teams for so we're building.
New teams, even now as we speak as I said in my head.
Earlier in the call, but we have now started going into the distributed generation.
And we were building teams for that as well it takes smaller smaller teams to execute those projects. So we're being very careful about scheduling and working with our clients and laying out schedule is based on.
What the what the needs are for every respective project and what teams that they they occupy their time, so but if you look at prospective projects.
We have over $500 million in projects that are currently in LNG.
We have another $525 million of projects of which that were sole source. We have not been awarded them. Yet we have not been awarded an LNG P. But we've been estimating and doing studies in estimates on those jobs and we are.
We are sole sourced.
Another $200 million of projects that were short listed.
And there is another 600 close to $600 million of projects that we're bidding so it remained.
We are booked for 2022, we're probably booked for half if not more 2023, and we have the teams to execute those projects all the way through the end of 2023, and we're going to grow that business and continue to grow that business, 20% to 30% through the course of this year and into next so we'll just see what we can do you get your right. It gets the more teams you build the harder it gets to build teams but.
We're doing it at a very disciplined pace.
Great. Thanks, so much.
Your next question is from Adam Thalheimer of Thompson Davis. Please go ahead. Your line is open.
Hey, good morning, guys.
I guess at a high level I was just trying to think through.
Inflation and supply chain issues and kind of how you use I mean, how does that impact the business in Q1, and how do you see those issues trending throughout this year.
Yes, I mean inflation, we're seeing it in two main areas. One is fuel just like everybody else and.
The other area is in labor, we're not seeing it across the board when we see it in certain markets in particular non union markets.
More than anything and it had been.
But so far it's been fairly regionalized, yes, I think we're going to continue to see those pressures at least for the next two.
Two to three quarters, depending on how the overall inflation picture works out and we're monitoring it very closely.
What about supply chain.
If youll recall, Adam we had supply chain issues last year, those are mostly abated themselves as of today, but as I think a better way to say that as we've learned that our clients have learned how to deal with them.
You have longer lead times, you have to order earlier schedules go out a little bit longer, but they're more you plan for it now more so than anything else.
Yeah.
And I think we've seen particularly on the heavy civil side, where some.
Customers are balking at the.
The high prices that are coming back from contractors is that an issue an issue at all yet.
For heavy and heavy civil for US no debt at Txdot in Louisiana.
They award lowest bidder I havent seen them push anything back.
And Thats one of the businesses that we probably see higher impacts from the fuel pricing because we use a lot of equipment.
No I haven't seen or heard of any pushback.
Alright, and then just kind of a model question what do you expect for interest expense for the rest of the year.
Interest expense, we're still expecting to bear with me as well.
What we're forecasting.
$5 million to $6 million per quarter for the balance of the year.
Perfect. Thanks, guys.
Thanks, Jeff Thanks, Adam.
Your next question is from Brent Thielman of D. A Davidson. Please go ahead your line is open.
Great. Thanks.
What's the expectation for the telecom business this year.
Okay.
Telecom business this year.
Yeah.
Sorry, Brent I'm going to ask you a clarifying question are you asking about future or are you asking you about the telecom portion of future.
The telecom portion.
Telecom portion of the future will probably be up.
10% to 12% this year.
Okay and on solar is 20% to 30% growth still the expectation for this year, that's embedded in that 20% energy growth outlook.
Yes, yes, yes it is.
And then on pipeline I mean with activity starting to come around again when can we start to see the backlog ramped back up just based on the conversations youre, having a sort of bottoming out here.
I think we are I think youre going to see the backlog.
So ramping up as we get into Q.
The last half of the year and into 2023 and that kind of backlog will be for projects that are going to be executed in 2023.
Okay. Thank you.
Okay.
Again to ask a question. Please press star one on your telephone keypad.
There are no further questions at this time I will now turn the call over to Tom Mccormick for closing remarks.
Thank you.
We appreciate your questions and your investment in Morris.
I'll just close by recapping, what I see as the three key takeaways from this quarter.
We continue our transition to increased focus on utilities and energy renewables and less on pipeline.
Our backlog represents the strength of our business going forward and that backlog continues to grow.
The strategy, we are following puts us at the heart of important trends not just in our markets, but in the broader direction of our society and that inspires us to keep getting better everyday.
Thank you and have a good day.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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