Primoris Services Corp (PRIM) 2017 Q3 法說會逐字稿

Greetings, and welcome to Primoris announces its 2017 third quarter financial results. (Operator Instructions)

I would now like to turn the conference over to your host, Kate Tholking. Thank you. You may begin.

Thank you, Sherry. Good morning. Hello, everyone, and thank you for joining us today. Our speakers for the day will be David King, President and Chief Executive Officer; and Pete Moerbeek, our Executive Vice President and Chief Financial Officer.

Before we begin, I'd like to remind everyone that statements made during today's call may contain certain forward-looking statements, including with regards to the company's future performance. Words such as estimates, believes, expects, projects, may and future or similar expressions are intended to identify forward-looking statements. Forward-looking statements are -- inherently involve risks and uncertainties, including, without limitation those discussed in yesterday's press release, those detailed in the Risk Factors section and other portions in our annual report on Form 10-K for the period ending December 31, 2016; our quarterly report on Form 10-Q, which was filed yesterday; and other filings with the Securities and Exchange Commission. Primoris does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

I'd now like to turn the call over to our CEO, David King.

Thanks, Kate. Thank you for joining us today. Primoris delivered a strong third quarter and our trailing 12-month revenue is now at $2.4 billion, the highest in the company's history.

The comparison to 2016's third quarter gets a bit muddy by some large onetime items last year, including the impact of settling a receivable collection action and the impact of a significant write down on the Belton I-35 highway jobs. But comparing apples-to-apples and excluding the onetime items, we saw positive revenue growth in all of our segments.

[Weather challenged us to be at] as everyone is aware of the hurricanes that pounded Texas, Florida and the entire Gulf Coast. We had some employees homes that were completely destroyed, but we're fortunate that everyone came through safely.

Many Primoris employees as well as the company overall contributed to multiple cleanups, and I'm very proud of the way in which so many pitched in when others needed help. I'm also proud of the response made by all the construction companies along the Gulf Coast, we all made efforts that demonstrate the best of American values.

At Primoris, some of our jobs were shut down for about 2 weeks during the worst of the storms, and we experienced some lost productivity when we returned to the job sites. We're having conversations with our customers about getting additional days added to the schedule for those jobs that were most impacted, and our customers have been very understanding of our position.

The strong revenue burn in the third quarter caused a slight decline in our backlog, but not as much as anticipated. I credit our business development team for keeping our backlog strong this quarter, helping Primoris sign a steady stream of smaller awards in each segment. While it's always exciting to get a really big contract, which certainly gets investors' attentions, it's these smaller awards that provide a stable base of work for Primoris.

I'm pleased we ended the quarter with a healthy backlog of $2.62 billion. We continue to implement our strategic initiatives to grow our recurring revenue-based businesses and to migrate into new geographic markets.

This is our sixth consecutive quarter of positive operating cash flow, and the Primoris balance sheet is stronger than ever. We increased our credit facility from $125 million to $200 million, and took advantage of the current low interest rate environment to enter into $30 million of new equipment secured notes during the quarter.

With the increased borrowing capacity and over $143 million in cash on the balance sheet at quarter end, and a debt-to-equity ratio of just 47.5%, Primoris can continue to invest internally, while pursuing strategic outside opportunities.

Both of the acquisitions we made in the second quarter were positive contributors to this quarter's results, and we continue to have the balance sheet and appetite for larger acquisitions.

We were pleased to see our SG&A as a percentage of revenue come down in the quarter, as all of our business units have been looking at overhead cost and seeing where we can continue to streamline our operations. Over the past few quarters, we've made it clear that reducing SG&A was one of our goals and we will continue to look for ways to cut costs, while still growing both the top and bottom line. But reducing SG&A expense does not mean neglecting our risk policies, our procedures and the opportunity tracking programs we've implemented over the past several quarters. These are beginning to make positive impacts on our ability to continue organic growth.

As we expected on last quarter's call, all of our segments are operating in the black. While the Civil margins aren't quite where we like them, the segment was profitable this quarter. With that in mind, I'll discuss that segment's results and start with the Civil segment.

Overall revenue for the segment was up both year-over-year and sequentially, despite both Primoris heavy civil and Primoris I&M being hit by the Hurricane Harvey. The large Louisiana petrochemical project is also -- is almost complete for Jonas Beatty's I&M business unit as is the methanol project he started earlier this year. The team is booking smaller work to keep them busy, but some larger projects are experiencing delays, such as an anticipated dam project in Florida that has been pushed into 2018.

On the heavy civil side, we have 3 remaining Texas I-35 highway jobs, 2 of which should finish in second quarter of 2018, and the final one should be completed in the first quarter of 2019. Mark Buchanan and his team are executing well on more recently awarded work, including the port and airport projects in Texas and the DOT work in Louisiana.

As the Texas I-35 jobs roll off and these newer awards ramp up, we expect to see continued margin improvement for that segment. We're continuing to see ample bidding opportunities for work in the civil marketplace.

Our Power, Industrial & Engineering segment was also impacted by the hurricanes, but they were able to grow revenue thanks to work outside the Gulf Coast. The ARB Industrial business unit in California led by Tim Healy completed work on a design build cogen joint venture, and their large simple cycle power plant joint venture is progressing on schedule. That project was selected by the customer for corporate safety recognition as the project of the year, and I want to congratulate the Project Manager, [Jack Ritchie], and the Construction Manager, Mike Seckington, and the entire crew at the Carlsbad site for their dedication to creating a safe workplace.

As the trend in California power continues to skew towards only renewable energy projects, ARB Industrial is pursuing battery storage awards similar to the large project we completed last year. They are also working closely with Randy Kessler's OnQuest engineering business unit to go after midsized, turnkey capital projects in the oil and gas sector, as the opportunities in that market are picking up. OnQuest continues to work on their East Coast Micro LNG project, and that customer has responded positively to our execution teams and our approach therein.

Our third quarter plan for Primoris Design & Construction, our new engineering business unit based in Tyler, Texas, had been for Kevin Maloney and his team to concentrate on business start-up activities, but they were eager to get to work and work has started on 2 FEED projects for a major refiner. At this time, both of those projects are looking favorable to becoming full EPC awards in 2018.

These projects would also utilize the services of our Primoris Fabrication, and Primoris Industrial business units for materials supply and construction. As refiners work to comply with the EPA mandates and adjust facilities to meet the demands of the changing crude feedstock, we believe Primoris Design & Construction will continue to win work.

The Primoris Power business unit, our open shop power group, continues to execute well on their East Coast power relocation project. We hope to leverage a successful completion of this project into additional power awards. The recent announcement of our $22 million investment in solar project highlights the opportunities for Rob Marchetti and the Primoris Renewable Energy business that we acquired. In addition to the construction work that we will be doing on these solar projects, ownership of the project provides for investment tax credits when they start producing power, a steady recurring revenue base, both considerable incentives for our venture into this market.

Primoris Industrial constructors led by Conrad Bourg are winding down on the large Louisiana petrochemical award and finding work to replace that project is challenged, as the Gulf Coast industrial market remains somewhat sluggish. The challenge continues to be the uncertainty regarding which projects will move forward and the timing of the potential awards. We're seeing signs that the Gulf Coast market may pick up in 2018, so we're focusing on strengthening our capabilities therein.

In general, we're seeing the probability of these projects [materializing as higher] than they were last quarter, but the timing of the awards remain somewhat uncertain.

Moving on to the Utilities & Distribution segment, Scott Summers' ARB Underground saw significant growth revenue in the quarter, but the majority of this came from their cross-cutting MSA with a major Northern California utility customer. They're still mainly in the engineering phase, which generates minimal gross profit for us, but we expect the construction phase of the MSA to start in 2018. The business unit is also looking at the potential cleanup work from the Northern California fires, which were definitely unfortunate.

In the Midwest, Jay Osborn and Q3C continue to grow their MSA revenue with current customers, while also pursuing opportunities to expand into the adjacent Midwest states as well as an opportunity to gain a small foothold on the East Coast. Our overall MSA revenue in the third quarter was $198 million, and $179 million of that was from the Utilities & Distribution segment.

While ARB Underground and Q3C account for most of the MSA revenue, our second quarter acquisition of Primoris Distribution Services in Florida is already contributing to the segment's results, despite losing roughly 10 days of production in September due to Hurricane Irma.

The final operating segment to discuss is the Pipeline & Underground Segment. Excluding the 2016 onetime item, the Pipeline & Underground revenue grew this quarter compared to last year. Vadnais Trenchless is now underway on its large dual force main installation work in California, and work on that project should accelerate in the coming months. Paul Vadnais' team has also completed its fourth project for ARB Underground, and they are bidding jobs for both Rockford and Primoris Pipeline, which is in line with their goal to expand their footprint outside of California.

Our second quarter acquisition of Coastal Field Services is going well, although the business unit was hit hard by Hurricane Harvey, as Coastal had over 100 employees without power for numerous days in the Beaumont, Texas area.

As Jeff Bridges from Coastal has begun getting familiar with our organization, we're looking at combining the Coastal and Primoris Field Service business units early next year. The hurricane is behind us, and we see work picking up for this unit.

As expected, revenue dropped off at Rockford in the third quarter with the 2 large Florida jobs substantially complete. Our current Rockford projects are smaller in nature as we await the Atlantic Coast pipeline work, which is expected to kick off in second quarter of 2018.

While recent FERC approvals for ACP and other large projects are encouraging, they are not the only factor in a project start date. For ACP, the owner still needs to obtain some state and corps of engineering permits, and we're still working through the timing of our 4 spreads.

If the current schedule of the 3 spreads in 2018 and 1 spread in 2019 becomes a reality, Frank Welch and Josh Ramsey will have their hands full in 2018. Rockford will continue to bid new work as we see a large demand for their services, but we'll not overpromise Rockford's available capacity. This is a good problem to have.

Our open shop pipeline business unit, Primoris Pipeline, which is led by Patrick McRae, had a very strong quarter as they continue to execute ahead of plan on their Midland to Sealy project. The customer was so pleased with their work led by VPs Terry Cooley and Chance Phillips on the project, that they gave us some of the work that a competitor was behind on.

An interesting good growth opportunity for us could be the construction of large diameter pipelines for frac water. We've also recently added additional superintendents with large diameter water pipeline experience to expand our capabilities therein.

As I look at the strong results from all of our segments, I'm struck by how our business units are working together on jobs and going after leads together. It wasn't that long ago that our internal teams thought of Primoris only as a holding company, but we've taken great strides toward operating as one Primoris, and our Chief Operating Officer, Tom McCormick and all of our segment leaders deserve a lot of praise for where we are today.

Pete will give you the specific assumptions that formed the basis for our guidance, but I want to remind you that there is many moving parts that determine the timing of our financial performance, many of which, such as permitting and start dates, we do not control. We delivered another solid quarter, ended with solid cash position, good backlog and an expectation that our end markets are strong as we head in to year-end and into 2018.

Let me conclude with 2 additional positive items. First, the board voted to increase the dividend, and you should see -- view this as a sign that we are confident in Primoris' ability to maintain the positive momentum, as we delivered in the first 3 quarters of this year.

Second, I am proud of our overall safety performance with special recognition to our Q3C group having worked over 10 million man hours since their last lost time incident.

And now, I'll turn it over to Pete for his report.

Thank you, David, and good morning, everyone. Our third quarter numbers are now public with both the earnings release and Form 10-Q filed last evening. The following are some of the highlights.

Revenue for the 2017 third quarter was $608 million, a 20% improvement over the 2016 third quarter. Our largest customers during the third quarter were 2 utility customers who accounted for a combined 20% of our overall revenue.

Our third largest customer was TxDOT. At just over $1.8 billion for year-to-date revenue, it's safe to say that we'll break out of the $1.9 billion to $2.1 billion revenue level that we've been at for the past 3 years.

As David mentioned, last year's third quarter include both the positive effect of the collection of a disputed receivable that provided $27.5 million of revenues and $26.7 million of gross profit to the Pipeline segment, and the negative effect of a write-down of $37.3 million and an impairment charge of $2.7 million in our Civil segment.

On an ongoing basis, that is without the inclusion of the receivable collection, the revenue increase for this year's third quarter improves to 27% compared to last year's third quarter.

Similarly, on an ongoing basis, gross profit in the 2017 third quarter improved by almost $10 million to $70 million, a 16% increase over the 2016 third quarter.

The largest contributor to the improved profitability in the 2017 third quarter was the Power segment where gross profit was up $7.9 million compared to last year's third quarter. The main contributors were our joint venture power plants in California, OnQuest's LNG project and the Industrial business unit's large South Louisiana project.

For the Pipeline segment, both the Rockford and Primoris Pipeline business units contributed to an increase of $6.4 million gross profit compared to Q3 2016, excluding the impact of the 2016 receivable collection. As expected, the third quarter gross profit for this segment decreased sequentially by $27 million from Q2 of 2017, demonstrating the large profitability swings that can be associated with large projects, a natural part of the Pipeline business. We're all waiting for the start of the ACP project.

Utility gross profit increased just over $2 million compared to Q3 2016, but gross profit as a percentage of revenue declined. As David mentioned, this is mainly due to the impact of $13 million of revenue in the quarter from the cross-cutting MSA with our large Northern California utility. As we have discussed on earlier earnings calls, the first part of the program has consisted of engineering work performed by a subcontractor. This work has provided revenue, but almost no margin for us for the first 3 quarters of the year. And we expect to start the more normal gross profit construction portion of the MSA in 2018.

Finally, excluding the write-down, gross profit in the Civil segment decreased by $6.8 million compared to the 2016 third quarter. Even with that reduction, gross profit for the segment for the quarter was positive. We have recognized losses on heavy civil business unit projects over the past few quarters. And at September 30, 2017, we had a loss provision of $12 million for the heavy civil business unit. As we close out these jobs over the next 5 quarters, we expect that revenues of $106 million will be recorded at no gross profit. But as we start to receive positive contributions from newer jobs, port and airport work, we expect the heavy civil business unit margins to improve throughout 2018.

Selling, general and administrative expenses in the 2017 third quarter were $43 million or 7% of total revenues compared to 7.1% of revenues in the same period of 2016. Excluding the $15 million revenues and $3.8 million SG&A expenses from the newly acquired and startup businesses, the SG&A expenses for the quarter were 6.5% of revenues. That is headed toward the 6% target that I mentioned last quarter.

For the quarter, total SG&A expenses decreased from the previous quarter by $3.4 million. Not often I have been able to say that on an earnings call.

We remain in litigation for the collection of the Abengoa receivable, and we have continued to incur legal fees. At present, the trial date has been set for the first quarter of 2018.

In the third quarter, we reported a gain of $6 million or approximately $0.07 EPS from the impact of mark-to-market accounting on a short-term investment made during the quarter. While we may make other such investments from time-to-time, we would not anticipate this is something that would occur on a regular basis.

Our tax department has been actively working to reduce our income tax rate at a faster pace than has Congress. This quarter we were able to recognize the benefits of their work as we now expect an effective annual tax rate for 2017 of 36.5%. The rate reduction is partially the result of an anticipated research and development credits that we are developing from our engineering work and various employment tax credits. To adjust to that expected 36.5% rate for all of 2017, we were able to use an effective tax rate on income attributable to Primoris of 32.6% in the third quarter.

Net income attributable to Primoris in the 2017 third quarter was $20.6 million, a 357% increase over last year's third quarter. Fully diluted quarterly earnings per share were $0.40 compared to $0.09 in last year's third quarter.

We had another strong quarter of cash flow with roughly $45 million in cash flow from operations. We spent an additional $13 million on capital expenditures during the third quarter, and we anticipate spending approximately $5 million to $10 million more during the fourth quarter.

At September 30, 2017, our balance sheet showed cash and equivalents of $143 million, tangible net worth of $337 million, and total debt of $255 million. At the end of the quarter, we increased our revolving credit facility from $125 million to $200 million. Combining our cash balance, shelf facility and available cash, our available liquidity at quarter end was around $400 million. We believe that this allows us to support the working capital needs of our business, even with a large project such as ACP, and have cash readily available for acquisitions.

At September 30, 2017, our fixed backlog was $1.98 billion, and our MSA backlog was $641 million, for a total backlog of $2.6 billion, a $134 million sequential decline from the second quarter. Given the uncertainty regarding timing of new awards, as discussed by David, we would not be surprised to see another slight decline during the fourth quarter of this year.

That uncertainty regarding timing of new project is one factor in our decision to maintain our current guidance, that is we expect net income attributable to Primoris to be between $1.05 and $1.25 per fully diluted share for the four quarters ending September 30, 2018. This guidance assumes that the Atlantic Coast pipeline project begins in early Q2, which means there are 2 quarters of ACP in our estimate, and that we burn off the ACP backlog in a somewhat linear fashion.

In reality, we know that won't happen, but until we get more clarity from our customer, that's the best estimate that we have. We also assume no benefit from the litigation and an effective tax rate of 37%.

And now that you have had a whole evening to prepare, let us answer your questions. Operator?

(Operator Instructions) Our first question is from Lee Jagoda with CJS Securities.

So starting with the -- your guidance and some of the gross margin assumptions in your guidance. Can you speak to -- especially, as you forecast larger projects, and I know you mentioned the revenue from ACP, you're kind of assuming will be a linear ramp. Can you talk to how you typically would accrue for some of the margins and the profits in those projects? And why they may or may not be conservative at the beginning of the project?

Lee, the traditional things -- the traditional way we have looked at this is that we will establish contingencies at the start of the job. And as we progress the job, we will then address those contingencies, which hopefully to the degree they don't happen, would -- could produce additional profitability. I think traditionally, if you look at a job like ACP, you're going to start it at a lower gross margin percentage than hopefully you will see at the end. And you certainly saw that sort of response from us on the 2 Florida jobs. So I think for the larger projects and it's pretty much the same, whether it's a pipeline project or a large power plant, we will tend to start with somewhat lower margins. And hopefully, the margin profile will improve as we get closer to the end of the job.

So then just to be clear, the revenue ramp might be linear in your assumptions, but the gross margin ramp is not?

Remember that for the forecast that we're looking at, the guidance we're looking at, we have only 2 quarters and we anticipate that ACP will be much longer than that. So yes, we're looking at relatively constant gross margins for those first 2 quarters. And would anticipate that they would get better toward the end of the project.

Okay. Great. And one more I'll hop back in. If I take a step back and look at the overall bidding environment and the project letting environment, I know, you spoke to some uncertainty in some larger infrastructure projects. Can you talk to just the overall bidding environment? Whether you're seeing more competition, less competition? And how you guys would view pricing over the next 2, 3 years on some of these larger awards?

Yes. And, Lee, I kind of have to break that down by segment. Obviously, the civil segment, there's ample opportunities out there. I think, I mentioned that in my comments. And we're still seeing the same competitive nature there that we really have always seen. There are some -- now when we get to the airport type work and the port facility, we don't. We see a much smaller list of competitors. But Civil wise, really not much change in that bidding environment out there that we're seeing. When you look at the pipeline in underground side, we are seeing some upward mobility in the margins on some of those from a bidding perspective. We're still seeing ample bidders out there. We are seeing some bidders that don't have enough work, so they're obviously willing to take it maybe at a smaller margin than we would. But still seeing good opportunities out there. In the smaller diameter side, we're seeing more opportunities now than we did last year at this point in time. And it's not just in the smaller diameter oil pipeline type related, but some of it is in fractionation water facility pipelines and things like that. Our Utilities & Distribution, we see the similar component of the bidders that we've always seen. And we still see the same pressures, depending on whether it's a very, very mature market. The pressures out in California to stay competitive and reduce rates versus maybe as not of a material market in the Midwest or in the Southeast area that we've just opened up.

On the Industrial and Power side, there it's -- I think I mentioned, what we're seeing there, the bidding opportunities are there and they are pretty much across the board. We're still seeing the petrochemical opportunities, but we're now beginning to see some refinery-related opportunities and some more back on the LNG export type opportunities. What we're seeing there are specific projects that the probability of those going forth are going up from where they were last year. It's just the timing right now is still a little uncertain on some of those projects as to whether -- some of us thought they would have possibly even booked in the fourth quarter. Now they may be a first quarter or second quarter type of booking. But, again, pretty much across we're seeing refining petchem work on the Power side, refinery optimization projects coming in, not only in the Gulf Coast, but in the West Coast. Still some methanol-related projects. So let me see, did I cover all the segments? I believe I covered all the segments for you there. If I didn't, I'll answer any question you got, Lee.

Our next question is from Brent Thielman with D.A. Davidson.

The Power segment margin is really strong this quarter. I was kind of thinking our Energy was sort of a high single-digit margin type project. Is the difference there acceleration in engineering work or something else?

Well, there was really -- on the Power side, we really had 3 contributors in there. You're listing only 1 of the 3. We've got our project open shop Power project, it was also contributing, and then Tim's group finished off on his joint venture cogen unit out in California. And I can tell you, because I've had meetings with the customer on that project, not only did the project finish on time and -- had safety and quality and everything else, the startup that was very smooth. So there, we realized some good synergy and opportunities to bring down a little bit more margin than maybe what the project originally contemplated.

Okay. Okay. And then on Civil, I mean, I guess, absent the Harvey and Irma impacts, the margins would have been even better. I mean, would that put you closer to kind of 4% to 7% range had that not happened?

Well, I'll let Pete comment. I'll make a high global comment. I don't think they would have reached the 4% to 7% because you have to remember we've still got some of that revenue that's burning off with 0 margin to it, okay, of some of those Belton I-35 corridor projects. But I will tell you without the hurricane effects and roughly couple of weeks that we were down, I think we lost an opportunity of about $10 million more revenue with profitability associated therein just off some of those storm effects. But Pete, maybe you want to add to that?

I don't think we are quite at 4% to 7% yet, I think we're probably headed toward that. In the 2018 time frame, I think over the next few quarters, it will get better. But I don't think even with the -- without the impact of the hurricane, we would have been quite that high.

Okay. And then maybe one more, David. I guess, on the gas power side, it seems like some of the commentary and guidance out there from others is a bit mix lately. Just curious in terms of what types of jobs you're seeing out there? Whether it's California or somewhere else? And kind of what gets you excited about that market?

Well, I've said early on even when we started in some of these gas power stuff, that I wanted to make sure that -- I was worried there might be some bloodletting, I think, was my exact comments. There is some contract, taking some projects they wish they hadn't have taken. And so my comment to all of our team was we were going to be very careful and very disciplined on what we went after and what we took and things. And I want to compliment Gary Martin and Tim Healy, who runs those 2 groups, open shop and the union side, for doing exactly that, being very careful on what they went after. I will tell you that we're seeing more of the opportunities in the West Coast than I'm currently seeing in the Southeast market. If that helps answer your question.

That does. That does.

Our next question is from Bobby Burleson with Canaccord.

(technical difficulty)

Can you hear me?

Yes, we can hear you, Bobby.

So I just wanted to ask a couple of questions. Your open shop small diameter opportunities as the Permian is picking up, can we get kind of an update on kind of the outlook there?

Yes. We've seen -- we began I think -- I'll have to go back and look at my notes, but I want to say we commented going back at least 2 or 3 quarters ago that we were beginning to see more opportunities pop up to bid. Unless you see the opportunity, you can't win anything. And I can tell you, we're seeing more opportunities, again, this last quarter and this current quarter that we're in than we did at the previous 2 quarters. The competition, as I mentioned, is still pretty stiff out there. There are still a lot of people competing for that work. But I actually do see that as -- I'm less concerned about our open shop pipeline area having opportunities to bid on them than I was, say, 6 months ago.

What's your usual kind of win rate? I know it's very competitive, but what percentage of what you bid on you guys typically see appropriate margins and you accept the work?

Yes. And it -- and that is a very -- we track those and I can tell -- I'll give you your answer here in a moment, but I want to put a qualifier on it before I give you the answer. If you look at 10 opportunities, we may not chase all 10 of those opportunities. And so we're very selective about which ones we try to go after because we tend to look at the bidders and decide whether or not somebody is going to try to lowball that project or something. So realize that when I give you this number, if we weren't selective, it might be a little bit lower than this, okay. But typically, when we're in there, we're in that somewhere 30% to 35% range on the ones that we bid and win on the open shop.

Okay. And then in terms of labor shortages, that's been an issue. Clearly, the heavy civil market is getting better. Texas is getting better. Do we expect labor shortages to get worse? Do you guys have any particular hedge there? Just help us understand what the labor dynamic is on that work going forward?

Okay. First of all, on the pipeline side, let me talk union pipeline, then I'll take open shop, and then I'll come back and talk the Civil segments and Industrial segments. We've always had a good follower of workers on our unionized side of the pipeline. So we really don't see any shortages there. I think when some of these EQT gets running and ACP and some of these others, we may see some labor shortages and some of the -- what I call the really nonsophisticated trade section of that. But in general, we're not anticipating a shortage there in for us. Same thing holds true on the open shop pipeline side. I think there is -- even though all these hurricanes and things went through and yes, you have a lot of cleanup crews and you have a lot of carpenter needs and things like that, that's not the welders, the fitters, the pipelayers and things like that. And same thing with our Industrial sector. Do -- we've always -- a lot of the contractors, us included, have always been concerned that when some of these major projects do kick off in the Gulf Coast, if they were all to kick off at similar times, then indeed we would have a shortage. But that hereto at this particular time has not occurred. They have been staged. Even ExxonMobil, when they announced their project, there's not too many other major projects going on. So as long as some of them are being staged, we're not seeing a shortage out there and we watch it very carefully. We've got a good cadre of superintendents with us. And we've got a good list of people that's worked with us for many years. So not anticipating anything there. On the pure Civil side, other than maybe some shortages on what I would call the labors when the hurricane hit, that was pretty much it. And that's a short-lived duration. And Utilities & Distribution, this is always pretty good. We have a good cadre of people there. So no issues from the labor perspective there.

Okay. And then just one last quick one. In terms of pricing power for pipeline, you guys have pricing power that you guys are exerting now? Or as you get to full capacity, how do you look at pricing on future jobs?

Well, recently, we've been asked to look at some of the other projects Rockford has, that some of the spreads that were not awarded and some of the other major projects, and we price them accordingly. Some of them are really bad spreads. And so it's not -- it's pretty understandable why the other contractors didn't take them. But so yes, we're using some of that -- I'll use the word, cherry-pick some spreads that maybe still out there. We're not yet on our open shop, really exerting much of the pricing power there. I think I told you there is still ample bidders out there for that work. So we're staying pretty -- keeping that pretty close to the chest right now. I'm sure you track pipeline trackers like we do and things like that, but when we look at last year -- at the end of last year, just on the number of projects and the mileage therein and I look at the last report that came out from pipeline tracker, I think it went from like 4,000 miles to 4,500 miles. So there's still definitely a lot of pipeline projects going out there.

Our next question is from Adam Thalhimer with Thompson, Davis & Company.

This is Kevin on for Adam. As far as your Civil segment margins, I know we had some improvement, but what is kind of like the long-term goal for that? And what kind of pace would you expect?

The long-term goal, we've said, has always been high single digit, realistically probably in the 7% to 9%. That somewhat depends on how much the Civil work is doing is being done by the infrastructure and maintenance business unit, which tends to work for private companies and tends to have somewhat better margins than just the pure heavy civil rip-and-read work. So our intent has always been to keep the margins above 5% and push them toward the higher numbers. I think that when you look at the pace, we've been averaging, probably, a little over 200 a year -- $200 million a year in revenues for heavy civil and then I&M just depending on where they are on projects. And I would certainly see that the heavy civil will continue. I&M may be challenged, as David said in his discussion, that we're looking at some jobs for them. But I think if you look at it from the -- over the next year or so, we're going to see somewhat better margins. And we're not planning on a large increase in revenue.

Let me add. Kevin, I'll add one more piece because I think I heard you also ask timing, let -- I think, I said it and I think Pete reiterated, of the 3 jobs, three I-35 corridor jobs that are burning off, 2 of them which have no profitability and just burn revenue, will burn off in the first -- I think, the first quarter or second quarter of next year, Pete. Yes, and so we'll be down -- so let's just say by midyear, we'll be down to where we're basically only have one of those I-35 corridor jobs left to execute. So timing wise, that may add a little bit of color for you.

I appreciate the color on that. Also as far as may be a sense on what M&A opportunities. I know the performance on the recent deals have been really well for you guys.

Yes. We definitely are still looking at acquisitions, both small and large. We made no bones about it. We're still very interested in the U&D sector. And most of those, by the sheer nature I think, Kevin, are going to be relatively small because the U&D is a very fragmented market across the nation and things like that. We continue to still look at some solar projects. We think there are some opportunities there. In fact, I think we'll have some more good news, not on an investment, but actually building some larger solar facilities with our Primoris Renewables group.

Brian, our past Chairman -- our Chairman of the Board, but past CEO, laughs at me when I made this comment, but I'll make it anyway. We're doing a lot of strategic looking at what I call add a fifth dimension to the company. He always brings up The Age of Aquarius or something like that in some song, but I want a fifth segment that's -- and there is some out there that we're looking at, that infrastructure-based relays and things of that nature. So leave it that way.

Sounds good. And as far as my final one I got on, with the rise in commodity prices over the past few months, do you think any areas of your business can benefit if it continues?

That's a good question. I would tend to say, most of the pricing of the commodities and things, we estimate build into the projects as we go along or they are reimbursable in nature. So I don't know that the rising of it would benefit us a great deal. Obviously, the more revenue you push, the more amount -- profits you make of the revenue. So you might get a little uptick from there. But I don't see that is a big thing for us, Kevin.

(Operator Instructions) Our next question is from Tahira Afzal with KeyBanc Capital Markets.

So, I guess, as I look at that tricky 12-month rolling guidance you guys provide, and I back out the fourth quarter that you're going to see, could you kind of give us some directional sense of, I mean, can you still grow earnings into next year organically? And to the extent you can, what are the moving parts we should look for?

I'm not sure if I fully understood your question. But the answer is we have some projects that will go over into next year. Obviously, Carlsbad will. And we're starting to get down to the end of the large Louisiana project. But we expect that there will be some revenue and profitability for that. One of the great things about our business model is that we have that solid utility base that underscores -- underlines the work we do. So significant amount of our revenues are from that. And then, obviously, the swinger in the one that is going to have the big impact next year is when ACP starts. If ACP starts, and as I said in my comments, we're somewhat linear right now just in getting to the forecast, the guidance that we have is tricky as it may be, but the real intent is that we should do better than that once we find when ACP starts. And as David said, if we really do what -- what he suggested, which is we do 5 spreads next year, that totally changes the numbers as you get toward the end of the year. It's just at this point, almost every week, we get a call from our Rockford guys and something new has changed, the process has changed or the start time has changed. So when we put together the guidance, we recognize that there were way too many things that could make it better and a few that could make it worse. And we didn't want to come to you today, give you a set of numbers and then come back and back off of those when we have the next call at the end of February or early March. So we said this -- and we discussed this with our board and we all said the smartest thing to do or the best thing to do is just kind of leave it where it is. But we fully expect that if ACP goes as well as we believe it will and if it starts around the time it will, that you will see us changing our guidance pretty dramatically for 2018, going into 2019.

Yes, Tahira, let me add -- let me add a little bit to Pete's things because -- one of the things I didn't want to -- we don't want to overpromise and underdeliver. I think that was one of Pete's and Mike's comments when we had our Board discussion. And putting aside the standard things that we get on the U&D side and Civil side, let me tell you some of the moving parts that Pete and I were looking at. Obviously, Tim Healy's group is out on the ground and going like game busters. So we're going to see a lot of revenue burn out of the Power side over these next 12 months. Some of these EPC-related projects, the engineering is basically done. And so they're waiting for the final investment decision. And when those move, they will burn pretty quick. It's not like you're having to wait for the engineering to be done.

Got it.

All of these renewables that we're doing on the solar side, these are fast-burn projects. I mean, putting up the solar panels and things, these are not year-long projects. These are 6-month long, 9-month long projects. So some of those here, they're going to move very quickly. And then when you throw in what Pete was saying on the pipeline side, when you look at the union side of the pipeline, Rockford specifically, it could go from 2 spreads to 5 spreads. And the open shop is gaining momentum. But again, there it's still a competitive environment. So when I throw all those together, I can paint a picture -- I can paint a picture on the high side and I can paint a picture on the low side. So I'd rather -- I'd rather plead don't overpromise and under deliver.

Probably, the right thing, David. And that actually is pretty helpful. I guess, the next question for me, David, is really around prospects. And you talked about some of the large ones out there, but I know the ones that could help you would be pretty big ones, like, maybe Yosemite, Golden Pass. And if I look at the customer commentary, it seems to be incrementally positive there. While we haven't seen anything FID, do you feel a little more comfortable some of those could be hitting your backlog over, let's say, the next 6 to 9 months?

I do, Tahira. And you mentioned the projects that we're obviously tracking very close. And then I'll mention a few others for you here in a moment. But, yes, that's why my commentary earlier about the probability of those is going up, it's the timing. And to be honest with you, I thought at least one of them we would have probably put into backlog by now, if not in the fourth quarter. But I'm nervous it maybe first quarter or second quarter. So -- but just in addition to those that you've mentioned, there's a lot of -- there is still some other ethane crackers and there is still some other pipeline work and there is still some other levy packages on some port facility work. And there I'm not talking about ours. I'm really talking about [Jonas'] I&M Group and infrastructure-related projects. So yes, I think the way you summarized it earlier is correct.

Got it. Okay. And last question for me. As you consider other verticals, David, is -- would water infrastructure be one of them?

Did you say water? Tahira, right now, let me -- I need to make sure we understand what I'm talking about. If you're talking about water purification or water cleanup or water treatment and things, probably, no. That market has just not shown to be a very profitable business line, I think, for anyone. If you're talking about...

Pipelines and...

Yes, if you're talking about pipelines for fresh water or if you're talking about water retention/ponding and things of that nature, the answer is yes.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to management for closing remarks.

Well, before we sign off, our thoughts are with the people of Sutherland Springs, Texas after the tragedy this past weekend. Our prayers are with the families and our nation that -- when these things happen. That's really all I want to say relative to that. It's just prayers are with the families. I want to thank everyone for participating in today's call. We appreciate the questions and the ongoing interest in Primoris. And just say thanks, again, for your time, and have a good day.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.