Primoris Services Corp (PRIM) 2018 Q1 法說會逐字稿

Greetings, and welcome to Primoris Services Corporation First Quarter 2018 Financial Results. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to turn the conference over to your host, Kate Tholking, Director of Investor Relations. Thank you. You may begin.

Thank you, Rob. Good morning, 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.

In addition to the press release and Q, which were available this morning, we've also posted slides on our website that highlight some key points we plan to discuss on this call. You can access them by going to our corporate website, www.prim.com, then selecting Investors.

Once you're on the Investors site, you'll find the slides in the Events & Presentations section next to the webcast link for today's call.

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 inherently involve risks and uncertainties, including without limitation those discussed in this morning's press release and those detailed in the Risk Factors section and other portions in our annual report on Form 10-K for the period ending December 31, 2017, our quarterly report on the Form 10-Q 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 the applicable securities laws.

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

Thanks, Kate. Good morning, everyone. Thank you for joining us today to discuss our first quarter results. We are pleased with our first quarter, as strong results from our power projects and our California utility MSA work overcame the headwinds we faced from the northern cold and wet weather, the expected decline in our large-diameter pipeline work as we await for ACP to start ramping up and costs related to our Willbros acquisition.

We continued building and executing on healthy backlog, while at the same time, securing and identifying new prospects. I always like to remind everyone not to just watch our backlog alone, since it's lumpy in nature. But I'm extremely pleased that our backlog remained a strong $2.6 billion, essentially flat from year-end, while still continuing significant revenue burn. This is largely due to our growing MSA backlog, which now stands at 32% of our total backlog and is expected to grow even more when we close the Willbros transaction.

Our bidding opportunities remain robust across each of our diverse end markets. Our balance sheet remains strong to fund the working capital needs of the ACP project and continuing to invest in internal growth. I believe the new segmentation we introduced last year continues to help tell our story to the investment community and make clear the diversification of our various business units. That diversity continues to serve us well and we expect that the addition of Willbros and its T&D work will bolster our diversity. With that in mind, I'd like to talk about each of our operating segments.

I'll start with the Civil segment. Weather was definitely a challenge for this segment this quarter, as in February alone, they lost almost 75% of their available work days to rainouts or rain recovery. In spite of the weather, we now have 3 consecutive quarters of positive results from this segment, and we have every intention on continuing that trend.

In the Heavy Civil business, 2 of the challenging Belton area jobs are still on track to finish in the early fall of this year and the third and final heritage Texas I-35 corridor job will finish in the first half of 2019. Mark Buchanan has been instrumental in our ongoing conversation with TxDOT to resolve the change orders surrounding those jobs. And while that is a long slow process, we are confident that it's moving in the right direction.

At the same time, the Heavy Civil group continues to execute well on new work, both with Department of Transportations and the airport and port facilities projects. While Primoris I&M is substantially complete with the large petrochemical job in Louisiana that kept them busy for the past several years, the group has continued to find success on smaller projects, like the recent award at a phosphate mine. That was a job in which the first contractor was kicked off the job and the client came to us asking for help, which is a credit to the reputation of Jonas Beatty's team.

Primoris I&M has several large projects in their sights, but these jobs take longer to come to fruition, as the overall industrial market in the Gulf Coast continues to see some project delays.

These delays also impact our industrial work in the Power, Industrial & Engineering segment. We're encouraged, however, that we are seeing more clients ask for hard bids as opposed to budgetary requests. Primoris Industrial contractors is working on several proposals and we see opportunity across the petrochem market, including LNG facilities, refineries and pump stations.

Our power work was extremely strong in this quarter, as our Primoris Power team completed a successful installation of 2 natural gas-fired units in Virginia, which are now going through the commissioning and testing mode. Our California power team, led by Tim Healy, continues their strong execution on the Carlsbad power plant project, and while the California natural gas power market continues to face challenging political headwinds, we feel confident that Tim will pick up additional power work later this year. The California team is also starting to benefit from SB-54, which is driving more refinery work to union contractors.

On the solar power front, our Primoris Renewable Energy team recently started the largest solar installation in the state of Texas. The project covers over 3 square miles and involves over 108,000 steel piles. If you're ever in West Texas, it's a sight to see.

This segment also houses our Engineering business units. Our Primoris Design & Construction continues to progress with FEED projects, with much of their work focusing on refinery projects, such as reformers, alkylation units and hydrogen plants. While the timing is uncertain, we feel confident they will see this work lead to full EPC projects in the second half of the year, an impressive achievement for a business unit that has only just celebrated its 1-year anniversary. Our OnQuest engineers are facing a similarly good year, as Canadian projects are seeing a breath of fresh air, thanks to the recovering oil prices.

The Utilities & Distribution segment had a better-than-expected first quarter, thanks to very strong results by Scott Summers' California team. While natural gas utility MSA work continues to be the backbone of this group, they've started to increase their presence in the electric market.

We saw the benefit of this in the first quarter, as they continued work on a major transmission project started in the second quarter of last year. Cold and wet weather, however, had an impact on our utility work in Colorado and the Midwest, but while it was frustrating for the guys to still see freezing temperatures in April, it seems as if spring has now finally arrived in the Midwest, and we have no doubt that Doug Reeves' team will be able to have another successful year.

Our most recent addition to this segment, Primoris Distribution Services in Florida, which we acquired last year, exceeded our expectation for this quarter with their work in Florida and we look forward to seeing them continue to grow.

And finally, we get to the Pipeline & Underground segment, which seems to be getting a lot of attention these days. This was the first quarter our Primoris Field Services and Coastal Field Services operated as 1 business unit, and in the process of combining the units, we were able to streamline the operations. We think the business unit is now operating with the proper amount of overhead and the team is working well together.

We're excited, also, at the prospect of having Willbros' facility team join this group after the acquisition is complete.

Primoris Pipeline had a good quarter, and while the bidding was slow early in the quarter, it has picked up substantially in the second quarter. We anticipate a significant increase in awards starting in the June/July time frame. This group recently hired new business development personnel and they've already made inroads with new clients.

The higher oil prices continue to bring improved prospects to this unit.

As for our Rockford team, Josh Ramsey had a solid quarter, as they were able to benefit from the successful completion of some of the restoration work on last year's Florida projects. They've been working hard to make sure their crews are ready to hit the ground running when the ACP project gets full notice to proceed. It's been a slow and arduous permitting process for our client, but they've told us to anticipate moving into our yards and staging work beginning in June or July. While that's not the April/May start that we had originally hoped for, it is not unexpected given the current political environment. We feel more than confident that the terms of our contract will reimburse us for this risk. We might not see the benefit we had hoped for in the second quarter, but when this job starts going and blowing, that benefit will become evident.

All of our segments continue applying the 4Cs of our strategic business model. This helps drive the focus, discipline and execution we continue to experience at Primoris, as we've continued being profitable every quarter for 10 years since going public.

I'd also like to take a moment to say thanks to all our employees and clients for a good, safe work environment and our achievements therein. This quarter, Primoris' total recordable incident rate was the lowest ever 12-month rolling average in our history. We continue to receive numerous safety awards. And most notably, in Q1, we received the Arthur T. Everham Excellence Award for Safety from the Distribution Contractors Association, the Associated Builders and Contractors Safety Excellent Pinnacle Award for our industrial group, Dow Chemical Safety Excellence and Best In Class Award for our industrial group and Liberty Mutual Safety Excellence Award.

In closing on my comments, I don't want to talk too much about the Willbros acquisition until the deal closes, but I share -- I will share with you our expected timeline.

Last Wednesday, Willbros filed their final proxy and their shareholder meeting will take place on May 31. If the acquisition is approved by their shareholders, we anticipate the deal closing in early June.

We are excited about the process of work in the transmission and distribution markets and the continued growth in MSA revenue this provides.

In preparation of the closing, we have a team of 20 Primoris leaders assigned to specific functional and organizational areas of focus. We have met with Willbros operating management, their direct reports and field employees at several locations. We're conducting a thorough review of their physical office locations. We're evaluating their existing equipment and making plans to slowly transition them to an owned-equipment platform.

Our project controls is reviewing their projects and processes and mapping out a plan to convert them to Primoris' systems. Our finance and accounting team is preparing for the transition to shared services on day 1. It's been a massive undertaking for our team and I want to thank them all for the hard work they've put in over the past few months, all while continuing to do their day jobs with their usual focus and dedication.

All that being said, the deal hasn't closed yet, so I'd like to reiterate my statement that I'm very pleased with the performance of Primoris during the first quarter and continue to expect 2018 to be a great year for us. The Willbros acquisition will just be icing on the top.

And now it's time for Pete Moerbeek to give you some numbers. Pete?

Thanks, David, and good morning.

We filed our Form 10-Q last night and a fairly detailed press release this morning. So I'll just hit the highlights of the first quarter.

Revenue for the 2018 first quarter was $504.1 million compared to $561.5 million in the 2017 first quarter. The $57 million decline was primarily due to the substantial completion of 2 large Florida pipeline projects, which reduced first quarter revenue by $153 million; and the Lake Charles petrochemical plant, which reduced first quarter revenues by $42 million compared to the first quarter of 2017.

At the segment level, revenue in the Power, Industrial & Engineering segment was up by $35 million, thanks largely to increased revenue at our California and East Coast power projects and an MEG plant in Texas.

With the completion of the 2 Florida pipeline projects, revenue in the Pipeline & Underground segment was down $126 million in the 2018 first quarter compared to the 2017 first quarter. As David mentioned, the ACP project is not likely to ramp up until the end of the second quarter, so we expect to see the same negative year-over-year comparison for this segment in this quarter. But this is just a timing issue and we strongly believe that Rockford and the Pipeline segment will have a great year in 2018 and in 2019.

The Utilities & Distribution segment revenue grew by $50 million in the 2018 first quarter compared to the 2017 quarter from primarily the higher level of MSA work in California and a strong contribution from the Florida Utilities & Distribution businesses acquired in 2017.

Revenue in the Civil segment was down $17 million in the 2018 first quarter compared to the 2017 first quarter, mainly due to the completion of the large petrochemical projects for Primoris I&M and lower DOT volumes.

Our largest customer in the 2018 first quarter was a Northern California utility, which accounted for roughly 9.3% of our total revenue. Revenue from this customer increased by $16.4 million from last year's first quarter to a total of $47 million.

Our second largest customer was TxDOT, which accounted for approximately 9.2% of our total revenue. However, our TxDOT revenue decreased by $11.7 million compared to the 2017 first quarter.

Primoris gross profit in the 2018 first quarter was $44.6 million compared to $55.1 million in the 2017 first quarter. The majority of the $10.5 million decline was in the Pipeline & Underground segment, where gross profit was down $20 million, mainly as a result of the lower revenue at Rockford.

Gross profit in the Power segment increased by $8.5 million in the 2018 first quarter compared to the 2017 first quarter, primarily due to the increased revenue and improved profitability as our power projects moved beyond the startup phase.

Gross profit at the Utilities & Distribution segment was up $800,000 in the first quarter compared to the 2017 first quarter, as the poor weather and delays with a customer in the Midwest offset most of the gains from increased activity in California.

Gross profit in the Civil segment was essentially flat in the 2018 first quarter compared to the 2017 first quarter, as the improvement in Heavy Civil margins was effectively matched by lower gross margin for the I&M group, now that their large Lake Charles petrochem project is substantially complete.

Our selling, general and administrative expenses for the quarter were $38.7 million, which was a decrease of $1.2 million compared to the 2017 first quarter. The 2018 amount includes $2.6 million of incremental expense related to the companies that we acquired after the first quarter of 2017 as well as $1.6 million of expenses related to the pending Willbros merger. Lawyers and investment bankers are not inexpensive.

Excluding these expenses, our SG&A expense as a percentage of revenue would have been basically flat when compared to the 2017 first quarter, even with lower revenue. We are continuing to work toward reducing that percentage.

The provision for income taxes for the first quarter 2018 was $200,000 for an effective tax rate of income attributable to Primoris of 23.5% compared to $4.5 million with an effective tax rate on income attributable to Primoris of 37% in the first quarter of 2017.

We spent just over $19 million on CapEx in the first quarter. We expect to spend another $50 million to $55 million during the remainder of 2018. Included in this amount was $7.8 million in our California owned solar project, which should be online in the near future. That project will generate the investment tax credit we are expecting this year.

First quarter spending puts us at our previously stated $70 million to $75 million range for the full year, which does not include any potential CapEx spending for Willbros after the translation closes.

Net income attributable to Primoris in the 2018 first quarter was $688,000 compared to $7.7 million in the 2017 first quarter.

Our first quarter is historically very challenging for us and especially so without the benefit of the closed out projects, the impact of poor weather and the increased acquisition costs. However, we did remain in the black.

Our first cash -- first quarter cash flow returned to more normal levels, as we operated at the lowest level for the year, but it was a positive $3.7 million. We ended the quarter with $134 million of cash on the balance sheet, $360 million of intangible net worth and a debt-to-equity ratio of 44.3%.

With our current cash on hand, we expect to meet the working capital needs associated with our large projects, such as ACP, and our CapEx spending plans.

However, our initial expectation is that we will use our credit line to provide the cash needed to close the Willbros acquisition, followed quickly by the establishment of a longer-term facility.

Our fixed backlog at March 31, 2018, was $1.8 billion. Our MSA backlog was $850 million, for a total backlog of $2.6 billion.

Before we move to your questions, I want to comment about our guidance. We first reluctantly gave guidance 3 years ago, and since that time, we've used a rolling 4-quarters format. While the rolling 4-quarters format makes sense to us, given the uncertainty around timing of new awards and start dates and the difficulties of predicting quarterly results, we realize that the rolling 4-quarter format is not very helpful to analysts and shareholders. And since the sole reason for giving any guidance at all is to provide transparency to our shareholders, we are changing to calendar year guidance.

On our last earnings call, we gave rolling 4-quarter guidance of $1.50 to $1.70 per fully diluted share. We'll keep our guidance at the same level now for the calendar year 2018. This guidance assumes the start of the ACP project early in the third quarter and assumes no collections from our Abengoa litigation or large-scale TxDOT settlements, and obviously, does not include any impact of the potential Willbros acquisition.

In summary, a challenging but profitable quarter. We'll have to run hard to meet our guidance numbers, but we believe those goals are attainable.

Now we can move on to your questions. Rob?

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

So just starting with the collaboration MSA agreement. It looks like it benefited revenue but at a pretty low margin. Could you give us a little more color on that and maybe the outlook for that project, in particular, over the next couple of quarters?

We -- you're absolutely right, Lee. We generated more revenue. We're negotiating right now with the customer because they are debating whether or not they want to go forward with this. As you know, that large customer has a tendency to go in multiple directions. So we're working with them right now to see what exactly they want the project to look like going forward. They also may put it on hiatus for a while, and we've kind of got that figured into our numbers.

Okay. And then switching gears to Carlsbad. It looks like, assuming that was the only thing in the non-consolidated income, that it was an outsized percentage of overall profitability this quarter, was the burn rate just faster this quarter? Or is it far enough towards completion that you're confident releasing a majority of the contingencies there?

I think the answer is -- not even sure if it was the only one, and there still may have been some Wilmington in there. But the answer, yes, we are far enough along in that project to have released some contingency. I'm not sure if I want to say we've released the majority of the contingency. I think there are still some milestones that we need to attain. But yes, that project is really doing well and farther along than we had anticipated at this time.

Yes, and Lee, I'll add a little bit on. Exactly what Pete said about Carlsbad and that. The Power segment, for us, this quarter also, if you remember, we have our power project that we're doing in Virginia. Now, it's not in a joint venture, as you alluded to in your question, but that project has done extremely well for us. We successfully completed the final acceptance test and doing a lot of sim certifications and commercially began to run those units up there. So we're beginning to see that project come down. So obviously, some of the contingencies we had therein will start flowing down also. It flowed down this last quarter and will flow down the next quarter.

And in terms of the non-controlling interest income, when is that going to -- expected to roll off based on the new kind of estimate for completion on Carlsbad?

Yes, I think we're still looking the third or fourth quarter that will be fully completed.

Our next question comes from Bobby Burleson with Canaccord Genuity.

This is Jon DeCourcey on for Bobby. Just a couple of questions for you. First off, what does the few-month delay on ACP do to the total timeline of the project? Is there a chance that, that can be kind of accelerated from the cadence that you had anticipated or should that go a few months beyond where you'd originally thought?

Jon, these -- this is -- these projects like that always face some challenges and things like that in this political environment. And our customer, we're very sympathetic to them and everything they're doing. As you probably know, we have been doing some tree falling, even started some tree falling late last year. We've done things of getting yards ready and equipment ready and all of those things. So a lot of the pre-work to hit the ground running fast is already being done. Our customer has told us the best date that they're looking at currently right now, I think, is in that June time frame, when we're really going to start being -- June to July, early -- late June to early July time frame to really start moving. Where it really sits was just some local permitting. As you know, it had FERC approval but there was some other permitting and right-of-way discussions and things of that nature. And those took a little longer than what they would've liked to have seen, meaning the customer. I still feel very confident the project is going to go. We see no indications that it wouldn't. But again, the timing -- and if you'll even remember on the Florida projects, these things always have a tendency of slipping 1 quarter, 2 quarters further than what you'd like.

I think, Jon, that if you look at it, we're looking at lower revenue in 2018 and more in 2019. But we still expect the project to finish in 2019.

Okay, great. And is that local permit -- the final local permit, is that in? Or is that still kind of fluid and up in the air?

It's still fluid.

Okay. And then 1 final question on -- from me. Switching gears, just wanted to touch on the civil bidding environment. Are things becoming any less competitive on the side of TxDOT?

I wouldn't say -- no, I wouldn't say they've become any less competitive. Some of the bidding requirement changes they made has made it a little bit more even relative to the -- when you go after a certain size project, you're not out there versus a mom and pop, but that just means you've still got a lot of competitors out there, they're just a select number of competitors. I would say that we saw a little bit of margin improvement late last year. Do I think there's going to be some more? I think there will be some margin improvement on those as TxDOT begins to really push that work out. If you remember, the Prop 7 work -- or Prop 7 funding for the work, and they have got a lot of it to do. A lot of it is the engineering side at first, and then you slowly get into the actual build side of the project. So we're still in the infancy, I think, of that Prop 7 money flowing through. As it begins to flow through more, I'm thinking we probably will get a little bit less pressure on the pricing.

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

David, the delays in the Midwest in the Utilities & Distribution segment, does that typically snap back pretty quickly for you in kind of the second quarter? Should we see come catch-up there?

Yes, it snaps back very quickly for us. Obviously, the work crews that couldn't get the work done, the utilities still want that work done. It's just a matter of can we staff it up fast enough and with enough people and stuff to burn it as fast as they'd like to have. So it snaps back very quickly. Pete and I did a pretty good look at that with our teams, and I actually think they will recover this year everything that didn't get burned off with the bad weather. That still remains to be seen, but I'm hopeful that, that will -- is what will happen.

Remember that it still snowed in April in Minneapolis.

Right, right. Maybe on the power side in California. Caught some of your opening remarks just in regard to maybe to some opportunities that come later in the year. I guess I just want to gauge your confidence around that. Obviously, it's a dynamic environment in California with respect to fossil projects. What are the opportunities there? And what's your confidence that maybe you'll be able to pick up a job or 2 later in the year?

Well, we never announce a project until we've actually got it signed, even though we've had strong indications that we were selected on one out there. And it's going through a challenge, as you would appreciate. I think what will happen is it will be de-scoped to a certain degree and it will be a little bit smaller job than when it started out. And I think that's what will happen. I think it will take 90 to 120 days for that to work itself through, which is why I said I'm still very hopeful and optimistic that we'll see that come in toward the end of the year. And that's strictly on the power side. I've mentioned several times on our calls and put in slides and things, this SB-54, one of the things that we're benefiting from that, Tim Healy's group's always been tied in very strong out there in the industrial market. But before, some of that could not be done union, it was open shop. And SB-54, even in the industrial side of it now is pushing more of the union labor. And so we're actually seeing Tim have a revival of a lot of bidding opportunities that, hereto before, were kind of closed off to him from a bidding perspective. So it's not only power that I see Tim really getting toward the end of the -- toward the back half of this year, it's more industrial work out there, also, in some of the facilities such as refining facilities and some of the other type of energy-related complexes.

And that was actually my next -- I mean, are those opportunities, can they be as large as the power business has been for you out in California?

On a combined basis, yes. Some of them actually can be even the same size. Most of those projects tend to be a little bit smaller in nature than the bigger power projects. But because of the numbers of them, you could put 2 of those together and it would match one of these power projects. And indeed, we're seeing more than 2 of them out there. So some could be that size. Most of them will be a little smaller than these power projects.

Our next question comes from Tahira Afzal with KeyBanc.

So I guess first question is on U&D. If I look back roughly a year, when you guys had your Analyst Day, you talked about that being one of the segments, as you build scale, we should see margin expansion. So I would love to get your thoughts around if that's still the case. And it seems like with climate change or what have you, this weather every year now, should we be taking that into account as we build a trajectory of that segment's margins going forward?

The first one, I think first quarter is not a good one necessarily to judge because we have a lot of inefficiencies. I think we are expecting to see an improving margin, certainly over the rest of the year, in U&D. The opportunities are there and it's a matter of getting the crews and working through that. I'm going to let David answer the second question.

Yes, Tahira, the -- on the -- when our Q3C group was primarily just focused up in that Northern Minneapolis-Saint Paul area and things, the weather affected them every year, okay? Then they began to expand down into Denver, and we've expanded down more toward the Midwest and things. And then of course, you know, when we added the Primoris Distribution Services in Florida, one of their -- you're always going to see that weather effect up in that northern climate. It just so happened this particular quarter, it hit us both in -- throughout the Midwest, Denver area, Minneapolis and, of course, our PDS group in Florida, that was a smaller entity and it's growing, but it obviously hasn't overcome enough to be able to pick up where they're slow in the weather. We are continuing to look, and I think you'll see some of this as we finalize this acquisition, we're continuing to see areas that maybe we can expand those Utilities & Distribution services into the Southeast and then it will have less of an effect as we go forward -- that weather would have less of an effect when the winter weather hits because we'll be working in the Southeast and Florida areas.

Got it, okay. I see, okay. And then, I guess a second question, David, I get that there are some usual delays, right, in some of these projects being awarded on the larger side, as in petrochem and LNG. But do you feel we're on the cusp of a cycle here in the U.S., is there a little more conviction around that? And while backlog is lumpy, I mean, could we be exiting this year with a pretty healthy backlog there for you?

Yes, let me answer it -- there's 2, you had 2 kind of questions in there. One is the conviction or the projects down there. They are -- the projects are getting -- every time we look at them, and we're involved in a lot of them, as a subcontractor working under some of the major EPCs. And so each time we're asked to relook at a set of numbers or our execution approach and optimize, there's a lot better feeling around that project. There's a lot better dynamics around the project. We're certainly seeing some of the offtake agreements get done a little bit more. I wouldn't say they're there just yet, but yes, I do think we're at that cusp of it beginning to start breaking. We're seeing some of the majors, like ExxonMobil, besides what they're building down in the Southern Gulf Coast, they're looking at expansion projects in our backyard in Louisiana, also. And in the eastern side of Texas in Beaumont. And so yes, I'm beginning to see that -- the conviction there coming. And as far as the backlog, each one of those projects -- or several of those projects, let me put it that way, both on the LNG side and on the pet chem side, each one of those would be similar in size -- our scopes could be similar in size to what we had on the large petrochemical complex in Louisiana. So yes, we could see some good upward mobility in our backlog toward the latter half of this year, provided those projects break. And that's why I said in my opening comments, I'm beginning to feel optimistic about it, but there's still a few delays in there, and I just can't put my finger exactly on when they're going to pop, but it's looking better and better with each quarter.

Got it. Okay, David. And I guess last question, you know, you've probably seen a lot of your peers suffer because of natural gas power plant exposure. You come from a company that has faced several of those. What makes Primoris so much more successful in this venture? And is this an area you want to continue to be in because you have a good niche?

Well, Tahira, if you remember, gosh, several quarters ago, when we even talked about going into some of these open shop power projects, I think my comment on the phone was we were going to be very selective because I thought there was going to be a bloodletting out there. And indeed, that's what's happened. It's not that I've got a magic ball or anything, it's -- and I think sometimes people don't focus as far as giving Primoris enough credit for these 4Cs that we really look at. I mean, we really look at which clients we want to go after, and we really look at that contract. I can tell you, we have been preselected on projects in the past, since I've been here as CEO, that when we got down to talking the contract, we refused to take the kind of contract language those customers wanted, and so, therefore, we lost the project. I'm not sorry about losing that project. I only want a project if it's a good project. So I think what distinguishes us is that we really do apply those 4Cs. We want to know what the cost is. And I've seen contracts left that -- that to be honest with you, there was no way we could have ever got to that cost level. And by the way, neither could the person that won it. That's why they suffered. So applying those 4Cs, we apply them pretty diligently and I think that's the difference.

(Operator Instructions) Our next question is from Matt Duncan with Stephens Inc.

This is Will on the call for Matt. Yes, just wanted to start with ACP. Can you provide some more clarity at this point on scope changes to the job from earlier this year? And how those might impact you guys from both the margin and on the revenue side versus what you were previously expecting?

The only thing that I'd really provide on that, because I don't want to get too deep into it, Will. Some of the reroutings there was -- where everybody -- where each of the consortium members were kind of each taking 4 spreads. There was a talk at one time about, did we have a fifth spread? Well, really, that wasn't. It was just a reroute that added a little bit of scope. But at this time, we're kind of waiting until we get final notice to proceed. But it's not going to be a significant amount added to us. It will be some that's added, but I don't think it'll be a significant amount. So we're holding off making any comments therein until we get the final papers.

Okay. And then just bigger picture in the large-diameter pipeline market, are you having conversations with customers that might suggest the market should remain tight through next year and perhaps hearing conversations into 2020 at this point?

We are. We've got good customers that we've worked for in the Florida region that are obviously looking for contractors for some of their work. That's just 1 customer as an example, but there's several others. So yes, we are still seeing that market stay fairly tight. I anticipate it will continue to stay fairly tight. There is always the opportunity for some of that to flip out of the union side and into an open shop environment. There's open shop pipeline contractors, us being one of them, also, that could obviously take on some spreads. But I think it's going to remain tight for the next couple of years.

Okay. Then on the labor side, are you having any trouble with staffing levels or seeing any noticeable labor inflation at this point?

We've not seen noticeable. We obviously are seeing -- we feel the labor tightening. Would I tell you that we've had a problem getting any labor yet? I would tell you, we haven't. Do I see some upward pressure on maybe some of the labor rates, especially on the open shop side? I do. But at this point in time, we've not -- we still have adequate labor out there to do the work we've got.

Ladies and gentlemen, we've reached the end of the question-and-answer session. At this time, I'd like to turn the call back to David King for closing comments.

Thanks, Rob. As always, we appreciate your interest in Primoris Services Corporation. For the shareholders and investors, I want you to know, Pete and Kate and I will all be out on the road in conferences, visiting with investors and shareholders throughout the country. I hope to get to see some of you. So thanks for your time today, and have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. We thank you for your participation.