Primoris Services Corp Q2 FY2022 Earnings Call

Hello. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primoris Services Corporation Second Quarter 2022 Earnings Conference Call and Webcast. Thank you. I would now like to turn the call over to Mr. Jeremy Apple. Please go ahead, sir.

Good morning, and welcome to Primoris' Second Quarter 2022 Earnings Conference Call. Joining me today are Tom McCormick, President and Chief Executive Officer; and Ken Dodgen, 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 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 may be 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 is available in the Investor Relations section of our website. I would now like to turn the call over to Tom McCormick. Tom?

Thank you, Jeremy. Good morning, and thank you all for joining us today to discuss our 2022 second quarter results along with our updated financial outlook for the year. I am pleased to report that we generated $1.02 billion in the quarter. This was the highest revenue quarter in Primoris' history. We expect this to be the first of many billion-dollar-plus revenue quarters as we continue to progress our strategic objectives. Our performance this quarter was led by continued strength in our growth markets, Utilities and Energy/Renewables, which entirely offset revenue declines in our Pipeline segment. Over 94% of our revenue during the quarter was driven by the Utilities and Energy/Renewables segments. We increased backlog for the fourth consecutive quarter, an increase of nearly 60% above the prior year period, highlighting our accelerated expansion into higher-margin growth markets. In addition, our acquisition of PLH Group, which we announced at the end of the quarter, marked a key milestone in our strategy, helping us enhance both the size and scale of our operations in both power delivery and gas utilities while advancing our shift towards recurring MSA revenues. We faced some challenges during the quarter, stemming from increased fuel and labor prices in our Utilities segment as well as continued low revenue and margins in our Pipeline Services segment, which pressured the margin for the quarter. However, our teams have done a tremendous job of working closely with our customers to negotiate increases to our MSA rates in order to mitigate the impact of inflation moving forward. Now let's look at our operations by segment, beginning with Utilities. Our Utilities segment revenue came in at $476.1 million, a 12% increase over the prior year period. We are continuing to drive stable growth within both our power delivery and communication businesses as we see higher levels of activity from customers, bringing in $510 million in new business during the quarter. Backlog in the segment grew by $155 million versus the prior year, creating substantial new revenue opportunities as new management teams from recent acquisitions are integrated and work is synchronized. Margins in this segment were impacted by the inflationary factors I mentioned earlier. Increased labor costs as well as rising fuel prices have weighed on our results since our Utilities segment has the largest fleet of vehicles and equipment. As previously noted, to offset these challenges, we have been successful in negotiating rate increases with over 40% of our clients, including the majority of our larger clients, and expect to see the benefit of the new rates in the back half of 2022 and moving forward into 2023. As we have continued to expand into new markets and grow our client base, we have realized some increased start-up costs but plan on delivering margin expansion from these new business opportunities in the coming quarters. It's also worth noting that gas distribution had a late start to the revenue burn in Q2 due to prolonged winter weather conditions in the central states, therefore, pushing some planned revenue into the second half of the year. However, we are confident that this revenue will be realized by the end of 2022. Communication has performed well during the quarter with solid organic growth as we have continued to drive expansion with new customers across new geographic markets. Communication continues to be a significant portion of our backlog growth made up by a mix of several small contracts as well as several larger awards with major customers. We've made significant strides in the power delivery side during Q2 which will effectively double with the addition of PLH. PLH is a great strategic fit for Primoris. This acquisition will help us take advantage of long-term tailwinds as the U.S. rapidly transitions to greater dependence on electric power generated by both traditional and renewable sources. PLH's foothold in renewable power to grid market also strengthens cross-selling opportunities with our renewables business, giving us more runway to grow our grid connection revenue. Since the transaction closed at the beginning of the month, integration is underway, and we are working closely with the PLH teams to maintain business as usual, while we work together to integrate them into Primoris in order to achieve our synergy goals. Utilities signed a multimillion-dollar contract for a large fiber network ring during the quarter. This complex project spans multiple states on the East Coast and requires several methods of installation, which we are able to self-perform creating substantial value for our clients. The versatility of our offerings is key to Primoris' success, providing substantial differentiation that will continue to help us win new business over our competitors. Overall, we continue to see solid, sustainable growth in our Utilities segment, driven by the strength in our power delivery and communications businesses. Our Energy/Renewables revenue came in at $486.3 million, up 45% over the prior year, well exceeding our expectations, with over $887 million of new projects signed during the second quarter. The utility-scale solar market continues to grow and our focus on diversifying into small-scale or distributed generation solar has provided an additional revenue stream and diversification to our renewables business. Safe and solid execution on these projects supports our expansion by allowing us to build repeat business across multiple customers over the long term. We have line of sight to another approximately $150 million in DG prospects in addition to what are currently underway and we expect to execute on this work during the second half of this year. These new wins are also helping drive our Utilities segment as our power delivery teams collaborate with renewables to gain new awards on projects, including battery storage, substations and interconnects, among others. These synergies are critical in enabling us to maintain our competitive advantage in this market. The depth of knowledge and strength of the teams allows us to quickly adapt to meet the needs of our clients. Hydrogen continues to be another exciting area of our business. As the third leg of our renewable energy stool, hydrogen can be produced at the point of utilization and is an excellent competitive advantage energy storage. We are making progress in the development of green hydrogen alongside a large utility in Southern California. We expect to work further with this utility and several others as this market continues to develop. Overall, renewables has been a major growth engine for us, which we are driving forward through a combination of operational expertise and execution. We have record backlog in the business and it continues to grow. Our Q2 revenue increased over 90% from the prior year. At the same time, our operational strength has enabled us to drive margin expansion as we focus on commercial discipline and keeping G&A costs low while diligently managing projects to minimize costs and maximize margins. We've been awarded close to $0.5 billion in new solar projects this year and are very confident in the long-term outlook for our solar business. The pending Inflation Reduction Act should serve as another tailwind, nearly $370 billion in energy security funding over the next 10 years. I'm also pleased to say that Primoris was just named as a top 15 solar contractor by Solar Power World for kilowatts installed with over 710,000 kilowatts installed in the U.S. last year. This accolade, which we worked hard to achieve while maintaining solid profitability, is a major testament to our leadership in this space. We expect to only accelerate our momentum going forward as we further build out our renewables footprint. As of the second quarter of 2022, our project backlog for utility-scale solar projects totals $1.3 billion. We have minimized risks associated with potential antidumping, countervailing duty tariffs by intentionally diversifying our portfolio of projects to those clients and projects that have more module certainty. As I've noted before, we do not purchase solar modules for our projects and therefore do not have risks associated with late delivery of modules for our projects. If a customer experiences a module delay, we work to best serve them by planning and executing in a manner that brings flexibility such that we can continue to progress the project without impacting our primary work. The module is one of the last components installed, giving us the ability to build out the project and adapt to our customers' needs. We can then return to the project at a later date to install the late modules. When this occurs, our clients have compensated us for the extra costs associated with this work. We also work with our customers on a design-build basis and therefore have a high degree of transparency into the materials they purchase and incorporate into their delivery to our project schedules. The energy side of the segment is stabilizing and some of the challenges we faced in prior quarters are now behind us which were primarily due to market softness and uncertainty. The landscape is improving and due to rising energy prices, legacy energy customers are in strong financial health and are beginning to focus on making further investment in infrastructure. During the second quarter, we were awarded a $172 million contract in the Texas Department of Transportation. These types of heavy single projects are consistently contributing to our overall Energy/Renewables segment backlog, which we expect to increase to approximately $2.7 billion by the end of the year. I'll now move on to Pipeline Services. Segment revenue came in at $60.5 million, which is a 50% decrease compared to the prior year. Pipeline Services made up less than 6% of our total revenue in the second quarter and had declined due to decreasing project volumes, in part driven by our approach to pursue fewer pipeline projects and focus on field service and pipeline integrity work. As we continue to grow our other segments, Pipeline will become a smaller part of our overall portfolio going forward. We are seeing some of the lowest volumes in Pipeline Services in the last decade but expect it to pick up in select markets over the course of the latter half of 2022 and into next year. Similar to Utilities, we have also built client relationships in new geographic locations and are targeting new business in some emerging markets, including hydrogen and carbon capture. To manage profitability, we continue to take steps to rightsize G&A costs in the segment to be more in line with the revenue spend. We brought in $43 million in new awards during the quarter and are continuing to see growing bid activity which should drive revenue in 2023. I'll now turn the call over to Ken to give us a detailed review of our numbers.

Thanks, Tom, and good morning, everyone. I'll begin with our key operating metrics for the second quarter, followed by our balance sheet, cash flows, and backlog. As Tom mentioned, our second quarter revenue was a little over $1 billion, a new record for us and an increase of $141.3 million compared to the prior year. This was driven by continued strength in our growth markets, partially offset by weakness in Pipeline Services. Our Utilities segment increased $50.7 million, primarily driven by increased revenues with existing customers in power delivery and in communications. Energy/Renewables revenue grew by $151.3 million, primarily due to growth in our renewables business as well as growth in our industrial businesses. Pipeline revenue decreased by $60.7 million due to continued weakness across the entire industry. Gross profit for the second quarter was $92.1 million, a decrease of $20.9 million, primarily driven by lower volumes in our Pipeline segment and higher costs in our Utilities segment, partially offset by higher margins in our Energy/Renewables segment. Gross margins were 9% for the quarter compared to 12.8% in the prior year. Now let's look at each of the three segments. In our Utilities segment, gross profit was $40.4 million, an $8.5 million decrease from the prior year due to lower gross margins, partially offset by higher revenues. Gross margins declined to 8.5% compared to 11.5% in the prior year due to the impact of higher fuel and labor costs during the quarter. With the rate adjustments that we recently negotiated with many of our customers going into effect in July, we expect gross margins for the balance of the year to be back in our normal range of 11% to 13%. For the rest of the year, we continue to see strong demand from our customers and expect to see our normal seasonal growth into Q3. Energy/Renewables gross profit was $53.1 million for the quarter, a $19.9 million increase from the prior year, primarily due to higher renewables and industrial revenue and margins. Gross margins came in at 10.9%, a 1% increase over the prior year, primarily due to continued strong performance from our solar business and improved performance in our industrial business. Looking forward, we expect gross profit to sequentially increase with revenue in Q3 and Q4 and gross margins holding steady in the low 10% range as we continue to grow our solar revenue and execute on the significant work in our backlog. Pipeline segment gross profit decreased by $32.3 million from the prior year due to the sharp decline in revenue, which resulted in underabsorption of segment fixed costs. As a result, gross margins were negative 2.3% compared to 25% last year, which was due to the substantial completion of four pipeline projects. For the balance of the year, we expect gross margins to be in the mid-single digits on modest sequential revenue growth. During the quarter, we completed the sale and leaseback transaction of one of our properties in California, recognizing a gain of $40.1 million. This is part of our continued effort to optimize our hard assets, both fleet and facilities, in order to improve operations and reduce costs. We entered into a three-year leaseback agreement that will give us time to transition our remaining operations to other more strategic, lower-cost locations in the area. SG&A expenses in the second quarter were $59.7 million, an increase of $2 million over the prior year as we continue to invest in technology and human resources initiatives to support our company's growth. As a percentage of revenue, SG&A decreased to 5.8% compared to 6.6% in the prior year, primarily due to the increased revenue. We expect our SG&A to be in the low to mid-6% range for the full year. Transaction costs were $5.2 million for the quarter, primarily related to our acquisition of PLH. Net interest expense in the second quarter was $4.7 million compared to $4.8 million in the prior year, essentially flat. But the slight decrease was primarily due to higher average debt balances as well as higher average interest rates offset by a $1.7 million favorable impact from the change in fair value of our interest rate swap. Our effective tax rate was 20.7% for the quarter, and year-to-date, it is 20.5%. The reduction in our effective tax rate is due to our ability to use a tax capital loss to offset the capital gain on the property sale. We expect our effective tax rate for the full year to be 20.5% as well, but this may vary depending on the mix of states in which we work. Net cash used by operating activities for the six months was $91.1 million. This use of cash was driven by the investment in working capital to support the record revenue, the investment we continue to make in buying materials for our solar projects, and the gain on the property sale which is a reduction to operating cash flows but additive to investing cash flows. In the second quarter, we invested $65.8 million in CapEx, of which $36.6 million was for equipment. We expect capital expenditures for the remainder of the year to be $60 million to $70 million, which includes $30 million to $40 million for equipment. We ended the quarter with $91.3 million of cash. Borrowing capacity under our revolver was $105.7 million, total available liquidity was $197 million and net debt was $613.4 million. Total backlog at the end of the quarter was a record $4.6 billion, an increase of $547 million for the quarter. Fixed backlog was $2.8 billion, an increase of $388 million during the quarter driven by new solar and heavy civil awards. And MSA backlog was almost $1.8 billion, an increase of $159 million during the quarter, driven primarily by an expected increase in work from existing customers. Turning to our full year earnings guidance. We're increasing our full year GAAP EPS guidance to $2.40 to $2.60 per share. This reflects the benefit from the property sale and the improved performance in the Energy/Renewables segment, partially offset by the lower performance in our Pipeline segment. We are lowering our adjusted EPS guidance to $2.39 to $2.59 per share, primarily due to weakness in Pipeline, partially offset by improved performance in the Energy/Renewables segment and by the contribution from PLH. The addition of PLH for the last five months of the year should contribute adjusted EPS of approximately $0.09 per share. With the continued strength of our solar business, the rate changes we've negotiated with our Utilities customers and the addition of PLH, we feel very good about the balance of the year and see strong prospects for both our Utilities and our Energy/Renewables underscored by our record backlog. And with that, I'll turn it back to Tom.

Thanks, Ken. Looking ahead, we are increasingly focused on the Utilities and Energy/Renewables markets and less so on pipeline construction, which made up less than 6% of our revenues this quarter and will continue to be a smaller part of our overall business going forward. We have strong momentum in our growth markets, highlighted by nearly $1.4 billion of new business we brought in between our Utilities and Energy/Renewables segments. With the updated outlook that Ken just provided, we expect the following for the full year: our Energy/Renewables segment to grow approximately 40% to 45% compared to last year, our Utilities segment to increase in the range of 15% to 20%, and our Pipeline segment to finish the year below last year between $280 million to $300 million. We have a solid growth trajectory, supported by the ongoing strength of our business. The work we are both pursuing and capturing is aligned with secular market themes, including next-generation broadband infrastructure, power delivery and renewable energy. These all tie together to support the overarching goal of achieving a net-zero future. We are keeping a close eye on government legislation, including the Infrastructure and Jobs Act, which should drive shovel-ready projects for rural broadband and urban 5G deployments, significantly creating growth opportunities with our Utilities businesses as well as several of our other businesses. The transition to renewable energy sources has served as a major tailwind, and we are well positioned to capture these growth opportunities as we continue to execute on our strategy. With the PLH acquisition, we have added a new range of capabilities to our portfolio which we will continue to develop and leverage to spur further expansion into the power delivery and gas utilities markets. With all these factors in mind, we see a bright future ahead for Primoris and look forward to continuing to drive long-term growth for our business. Thank you again for joining us today. I'll now hand the call over to the operator for Q&A.

Your first question comes from the line of Jerry Revich with Goldman Sachs.

I was impressed with your ability to ramp up in the renewables segment. Can you just talk about if you folks were able to bring additional crews online or what drove the sharp sequential acceleration in revenue burn in the quarter?

We've been consistently expanding and building teams. As I mentioned earlier, we're now involved in distributed generation, which has allowed us to reallocate some of our Pipeline resources and employees to support this new renewable operation. This transition has contributed to our growth, and we currently have over $100 million worth of work in that area. Additionally, we anticipate taking on another $150 million worth of projects before the year ends. Our focus remains on building strong teams, which enables us to increase our capacity. We're seeing a significant pipeline of opportunities, with various renewable projects at different stages, including bidding and contract negotiations, which has allowed us to leverage our strengths in that sector and continue winning new work.

And for the solar business, specifically, are you at seven crews? Or are you higher than that?

Yes, I wouldn't know. We're currently building our seventh and eighth crews. I think we're almost done with the seventh crew, and we're in the process of building the eighth crew. Most of these employees are already on board; they are just in training and development.

Super. Okay. Great. And then can we talk about the Utilities segment? As we're pushing pricing now under a normal seasonality, your third quarter margins look pretty similar to second quarter margins. I'm wondering with the price increases that you spoke about in your prepared remarks, how much should we be looking for margins to expand sequentially 3Q versus 2Q?

They should return to their traditional positions, although this will result in some dilution. Reviewing the full year solely on the results from the first and second quarters shows this. However, they are set to revert to traditional percentages moving forward. We achieved success in negotiating this, although we were unable to make it retroactive. Looking ahead, the outlook is very positive.

And just to put a finer point on that. I think normally, in the back half of the year, you folks run about 13% in Utilities gross margins. It sounds like we should be thinking about going back to that level of profitability?

Yes, Jerry, in my remarks, I think I said 11% to 13% in the back half of the year. And of course, it will be shaped like it normally is.

Your next question comes from the line of Lee Jagoda with CJS Securities.

It's Pete Lukas for Lee. I think you mentioned it in your prepared remarks, but can you quantify the expected accretion from PLH in 2022 that is implied in the range? Also, excluding PLH, do you expect the cadence of total revenue for Q2 to be up, down, or about the same sequentially?

So the PLH contribution is going to be $0.09 at adjusted EPS for the last 5 months of the year that they're part of us. And then, Pete, what was your second question? I want to make sure I'm clear. Could you ask that again?

So excluding PLH, would you expect the cadence of total revenue to be up, down or about the same sequentially for Q2?

Up.

Fantastic. And then to the extent that fuel costs have impacted margins in the Utilities segment, can you quantify that impact? And how are discussions going with clients to potentially recoup some of these costs?

The impact is the 3% difference in margins in the Utilities segment compared to last year. That’s the main area where we’ve noticed it. We’ve observed some effects in the other two segments, but most of our fleet operates in the Utilities segment, which is where we’ve felt the impact the most. As Tom noted, we’ve engaged in significant negotiations with some of our largest customers there, and we’ve received a positive response from them. The rate changes were implemented on July 1, and we anticipate benefiting from those adjustments for the remainder of the year.

One thing I'd add is that our Utilities segment probably drives three times the miles of our other two segments combined in any given quarter. So they have the largest part of our fleet and equipment. They drive the most miles, they burn the most fuel.

Your next question comes from the line of Steven Fisher with UBS.

I just wanted to ask about the Pipeline segment and what do you think is going to be different about maybe the revenue mix in the second half of the year. I know you said kind of modest revenue growth over the second quarter level. But you would have a pretty big ramp-up in margins on just a modest revenue growth. So what's going to be different about maybe the mix there that enables you to get to that mid-single-digit margin there?

Yes. Good question, Steve. Two things. First of all, just in Q2, we still had that one job up in West Virginia that took the loss last quarter. It was burning at zero margin this quarter. It's done now, which is great. I'm glad to have that one behind us. So the revenue that we'll have in the back half of the year, even though up only modestly, as I mentioned, should be burning at more normalized margins or closer to normalized margins. We're still going to have a little bit of the underabsorption issue, but we have begun, as of a couple of months ago, to cut costs in order to minimize that impact. And between the two efforts, that should get us kind of into that low single digits like we talked about.

Okay. That's helpful. And I don't think you could clarify, but did I hear you say that you have addressed costs in the Utilities segment with 40% of your customers? And if that's right, I guess how should we think about the other 60% and how that sets up for 2023?

Forty percent of our customers represents the majority of our largest clients, which is where most of our revenue will come from. For the remaining customers, we are either in negotiations or they have indicated they cannot make any adjustments at this time. Typically, adjustments depend on an annual trigger, so they will have to wait for those. We will see adjustments either when their contracts come up for renewal or based on the terms of our Master Services Agreement. In some cases, we might achieve success in negotiations, while in others, we may not.

Okay. And then just lastly, if you could just clarify the cadence of EPS, adjusted EPS for the second half of the year, because I think you have to average about $1 a quarter to hit that midpoint. So I guess I'm assuming it's more weighted towards the fourth quarter. But just is there any other color you can provide there?

Yes. That's a good question, Steve. It's actually going to be fairly evenly weighted between Q3 and Q4. We think both quarters are going to be right in that dollar range.

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

A clarification question to start. Towards the end of your prepared remarks, Tom, I think you said the segment sales guidance of Energy/Renewables to grow 40% to 45% and Utilities 15% to 20%, and I think that's a reverse of what's on the slide deck. So I don't know if I misheard you or if you could clarify the segment sales revenue growth target for '22.

It is. And I'm just turning to the slide, to the slide you're referring to, it is incorrect in the slide deck, it needs to be corrected. The Energy/Renewables will grow 40% to 45%. Utilities will grow 15% to 20%. Sorry about that.

We'll get that corrected and repost.

Got it. No worries. That clears up a lot of my questions here, I guess. The increase in fuel prices and labor costs on the Utilities side, do those rate benefits hit? I know you talked about 40% of your clients, you've done that successfully. Do the rate benefits hit immediately as of July 1? Or do you have to get through some existing projects, backlog before you see that benefit on the P&L?

The rate became effective on July 1.

Okay. So you see that July 2 on your P&L? Or does that take later, I guess?

Yes. We see the benefit starting July 1.

Are you observing any effects from the ULFPA on your solar customers? Are their project schedules being delayed? How does this impact the fluctuations in your billings for the second half of the year?

We've had some projects that have seen some delays in delivery of modules, but not all the modules in their entirety. So again, you were able to just a job you say all the modules were going to be delivered late. We could still execute 90% of the work and then come back later and install the modules. So it doesn't really have a big impact. There are some projects where we're going to have to send crews back. But for the most part, the majority of the work is already complete.

Your next question comes from the line of Sean Eastman with KeyBanc Capital Markets.

I just wanted to come back to the Utilities segment margins. In the investor materials, you guys highlight both fuel and wage inflation in terms of contributing to a drag on margins. I think in the Q&A here, Ken, you suggested that the year-on-year decline was pretty much all fuel. So I just wanted to clarify that because that's obviously quite important as we think about the go-forward expectations.

Yes, that's a good question. To clarify, both fuel and labor inflation are impacting us. Fuel inflation has been widespread across all our markets nationally, and it likely accounts for about one-third of the overall impact. The remaining two-thirds is related to labor, which is more localized to specific markets. We haven't experienced labor inflation uniformly; it's only present in a few key areas. This ties into the 40% of customers we've negotiated with, which focuses on both labor and fuel, especially in those markets where we have noticed labor inflation.

And we've gotten adjustments to both.

Okay. That makes total sense. And do you guys feel that you have enough of a cushion or a handle around this dynamic within what you embedded in the guidance for the PLH business?

Yes, we feel very confident. We have dedicated a substantial amount of time since the announcement and closing, and even in the last week and a half, collaborating closely with them to better understand their contracts, their business operations, their customer relationships, and what they anticipate for the second half of the year. Therefore, we are very optimistic about the figures we've included.

Okay. I understand. Regarding labor inflation, the fuel cost increase was anticipated due to the significant spike. However, I believed you would have a solid understanding of wage inflation and the costs associated with deploying labor resources in specific regions at the start of the year. Can you explain what has taken you by surprise in the first half in this area, especially concerning the conditions on the ground in regions experiencing higher wage inflation?

I think the biggest factor is when you start and get into power delivery, and you're talking about lineman journeyman, that is where we've seen the biggest increase in wages. Look, it's a very limited resource. It takes a number of years to develop that skill set internally and for them to develop it, even going to the specific schools where they're trained. So we've seen, and I think everybody was probably surprised, although we've seen it go up and how dramatically it's gone up over the past couple of quarters. So it's just a very high-demand labor market with very limited resources. So you're going to have to pay the higher wages to be able to get those resources and get them to stay.

Okay. Got it. And then just one last quick one for me. Just on the same topic. As we look at this huge backlog growth in the Energy/Renewables segment, do you guys feel good about the labor resources you already have in terms of being able to execute on that incremental backlog? Is there any risk where you see this heavy wage inflation bleed into that part of the business as well as you kind of continue to accelerate?

We do labor surveys in every market that we estimate a project in our renewable business. So we kind of know what the wage rates are in those areas and then we put contingencies on those for inflation. Those jobs had a very specific start and end dates, so they have a very short life cycle. So if we missed it a little bit, it's not going to hurt us a lot. It's also easier to train those skill sets than it is a lineman journeyman or someone using fiber.

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

I guess this is more of a PLH question, but do you expect your Utilities fixed backlog to increase when you add them? I'm just thinking about how much they're bidding on individual transmission projects and things like that.

The vast majority of their work is under MSAs just like ours. So it will be almost all, in the Utilities segment, almost all MSA backlog increase.

Okay. And then I guess a quick question on the sale leaseback in terms of why now, what the ongoing savings could be, and is there more you can do on that front?

There's a bit more to explain regarding the timing. It was purely opportunistic; the chance arose in the Southern California market. To be honest, we were not actively looking to sell this property. We received many unsolicited inquiries, and the volume made us consider it. We were unaware that we had such a valuable piece of real estate. It turned out to be a significant benefit and a strategic choice for us. I don't have specific numbers on the future cost savings at this moment. Those details will be clarified in the upcoming quarters as we finalize the new locations we've already identified, but I don't have those figures available right now.

We have assets everywhere that we assess and consider. Do we need them? If not, can we relocate them? Is it the right market for relocation? We apply the same approach consistently. Therefore, we are continuously reviewing and evaluating the needs, aiming for long-term solutions. We ask if there is a necessity or if we can consolidate, and there is an advantage in doing so.

Okay. And lastly, I guess I'm just kind of reading between the lines, but it seems like Future is performing pretty well for you guys this year.

They are. They are. They're doing exactly what we thought they would do when we bought them.

Your next question comes from the line of Brent Thielman with D.A. Davidson.

Great. Ken, is there a way to break out the backlog in energy between sort of renewable, solar, civil and then everything else?

Yes. I don't know that I have those numbers in front of me though.

I thought it was in the presentation.

Yes. I'm sorry, Brent, I don't have it in front of me right now. But I think we were still kind of just north of $1 billion in backlog just for the renewables piece of that segment as of the end of the quarter.

And is it your expectation that solar could grow more than 30% this year?

Yes. Absolutely.

Yes.

Regarding the pipeline side, it seems like you are implementing some changes and reducing costs, while also placing more emphasis on integrity. Are you restructuring this business, or do you still maintain all your previous capabilities? I'm interested in your thoughts on that.

We still have the capability to construct pipelines and interstate pipelines. We may not have the capacity to do as many spreads as we once used to just because there's no need to carry that much fixed cost. We still have the same management team. We still have the same key field personnel. We're just utilizing some of those in other areas right now to keep those costs down and mitigate those costs. Others, we let go and we'll continue to evaluate whether we need to do that or not. We are seeing some bid activity, which is pretty promising, although it will be for work that happens in 2023.

Yes. Okay. And then, Thomas, you just made your comments around your ability to leverage the renewables awards within the Utilities segment. How far does that reach? Does that require a big investment in kind of new resources, equipment, and utility? Just was curious if you could elaborate on what you're seeing there?

We already have the skill sets. We already have the equipment and the tools. PLH helps augment that. I mean it's just really substations. It's connections to the grid. It's everything associated with that. There was a service that we couldn't offer to our clients previously now, but the addition of PLH just expands our capabilities.

And is that allowing you to win more work relative to some of the competition out there, Tom? I guess that's what I was curious about.

It's difficult to determine, but I believe we're increasingly attracting clients who appreciate our comprehensive approach. We can design their facilities and handle the entire process right through to connecting to the grid, and they value having a single contractor accountable for all aspects of the project.

At this time, there are no further questions. I would like to turn the call back over to Mr. Tom McCormick for closing remarks.

Thank you, operator. We appreciate your questions today and thank you for your investment in Primoris. I'll close this call by reiterating the key takeaways from the second quarter. We continue to accelerate our focus on Utilities and Energy/Renewables, highlighted by the acquisition of PLH, while focusing less on Pipeline. Our growing backlog represents the strength of our business and the size of the opportunities that lay ahead of us. Our growth strategy is centered around capturing long-term secular trends which will both expand Primoris while helping advance our society as a whole. I want to thank all of our employees for working safely and efficiently every day. We cannot do the things that we do without their commitment and hard work. Thank you again, everyone, and have a great day.

This concludes today's conference. You may now disconnect.