Atlas Technical Consultants - Q2 2022

Transcript

Operator (participant)

Hello, and welcome to the Atlas Technical Consultants Q2 2022 conference call.

Currently, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator's assistance during the conference, you may press star then zero on your telephone keypad. As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Jonathan Parnell, Chief Strategy Officer of Atlas. Thank you. You may begin, Mr. Parnell.

Jonathan Parnell (Chief Strategy Officer)

Good morning, and thank you for joining us.

We hope that you've seen our earnings release issued after the market closed yesterday. Please note that we have also posted an updated investor presentation which can be found in the investor section of our website at ir.oneatlas.com. Before we begin, I'd like to remind you that today's call may include forward-looking statements. Any statements describing our beliefs, goals, plans, strategies, expectations, projections, forecasts, and assumptions are forward-looking statements.

Please note that the company's actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control. Please see our recent filings with the Securities and Exchange Commission, which identify the principal risks, uncertainties that could affect our business prospects and future results. We assume no obligation to update publicly any forward-looking statements.

In addition, we'll be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margins, adjusted net income, and adjusted EPS. Please see our earnings release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure. I will now turn the call over to our CEO, Joe Boyer.

L. Joe Boyer (CEO)

Thank you, Jonathan, and I appreciate everybody joining us today. On today's call, I'll provide an overview of our Q2 results, what we're seeing in our core markets, and updates on our strategic priorities. Then David will continue with the discussion of our Q2 financial results and our outlook for the remainder of the year, and then we'll open up the call for questions.

The Q2 was another strong period for Atlas with record revenue, adjusted EBITDA, and backlog. These results clearly highlight the successes we are seeing in our strategy to build a national leader in high-value, mission-critical technical services to both infrastructure and environmental markets here in the U.S.

In the quarter, we generated 19% revenue growth, including an acceleration of our organic revenue growth to 8%, over 17% adjusted EBITDA margin, and sequential backlog growth, all to record levels, and cash flow improved in line with typical seasonal patterns. Our 8% organic revenue growth in the quarter is one of the best quarterly organic growth rates we've recorded as a public company. The strong organic growth in the quarter was driven in part by the robust backlog growth we've experienced over the past several quarters.

Fundamentals in our key end markets and geographies remained favorable throughout the quarter. We saw particular strength with our transportation, state and local government, and power clients, all of which we expect to remain key growth drivers for Atlas moving forward.

We also continue to see benefits from increased cross-selling of services across the Atlas platform, including recently acquired services. As we've scaled the business and added strength to our technical service offering, we're gaining greater share with our clients and winning more marquee projects. To provide you with a better idea of how this strategy is benefiting Atlas, let me take a minute please to describe a few projects we believe really highlight this success.

In California, where we've had a long-standing relationship with Caltrans, we were able to leverage our success with them on construction, engineering, and inspection services into a statewide materials engineering and testing services contract, increasing the number of services under the Atlas umbrella that we are providing to this customer. In Idaho, we were recently awarded a $5 million construction engineering and inspection project in our program construction and quality management service line.

This is our first transportation-related PCQM award in the state, where we have previously mainly provided testing, inspection, and certification services. Again, an example where we are cross-selling a key customer with additional services. Switching to the private side of our business. In the Southeast, where we have historically provided utilities with smaller environmental-related services on a one-off task order basis, we have leveraged our experience, scale, and breadth of capabilities into a $25 million long-term master engineering and environmental services contract, one of the nation's largest utilities. We are also expanding our services with large national government agencies.

For example, we've been providing the Department of Energy with geotechnical services at one of its largest energy laboratories and are now expanding our scope with a $20 million program that includes testing, inspection, and certification services, which we hope to leverage to other sites across the country.

While these are only some examples where we're seeing success with our cross-selling strategy, we believe they are great examples of the benefits of our strategy and highlight how it is contributing to growth across the Atlas platform. In addition to strong revenue growth, we had record gross margin of 60.4% in the quarter when excluding pass-through subcontractor costs.

This margin performance is a testament to our high-quality services Atlas offers and demonstrates our ability to pass inflationary pressures through to our clients. Backlog at the end of the quarter reached another record level at $855 million, up modestly from last quarter and up 14% from last year. As we talked about with cross-selling, we're winning work across all of our end markets and across all of our service lines.

Importantly, we continue to see demand being driven by long-term secular themes as our customers strive to improve their environmental sustainability and to improve the overall efficiency of their existing infrastructure. Beyond our $855 million backlog, we have approximately $155 million of awards pending contract execution, which is significantly higher than the $110 million we had for last quarter, and marking the first time the combination of these figures is greater than $1 billion.

As we've discussed, the backlogs and awards figures can be lumpy from quarter to quarter due to the seasonality of our business and the impact of large project wins, which we expect to continue to be a key growth driver for Atlas going forward.

Now as we look into the second half of the year, we continue to see solid demand for our services, especially in our core transportation and environmental-related end markets, driven by the underlying secular themes such as the aging of the nation's infrastructure and increased focus on environmental sustainability.

While we are cognizant of the factors impacting the broader macroeconomic environment and the risk it could pose to demand for certain services in our markets, we believe we are well-positioned to navigate any volatility that may be on the horizon. First, I'd note that our services we provide to end markets that are most sensitive to higher interest rates and general macroeconomic conditions, such as new build commercial construction and real estate transactions, are a relatively small piece of our business.

Secondly, and probably most importantly, nearly two-thirds of our business is tied to existing assets and services that are driven by nondiscretionary spending because they are tied to regulatory compliance, ongoing testing, and maintenance, making demand for our services relatively resilient through most economic cycles.

Driving organic growth remains one of our top priorities. We believe we are in a good position to do so, given the nature of the services we provide, the diversity of our end market exposure, our robust backlog and award pipeline, as well as our thorough cross-selling initiatives. Beyond driving organic growth, we have a proven strategy that broadens and enhances our technical service offerings and geographic footprint through strategic acquisitions.

Our M&A playbook is based on identifying targets with quality management teams that can enhance or expand our service offerings and/or regional presence, integrating them into the Atlas structure, retaining their key employees, and then scaling the business across our platform, including the cross-selling of services.

In the Q1 when we acquired TranSmart, we talked about being able to leverage their expertise in intelligent transportation systems and electrical engineering across our national customer base. We are already seeing opportunities here and are currently working to position Atlas for electric vehicle charging infrastructure opportunities in Georgia on projects that will be funded through the National Electric Vehicle Infrastructure Formula Program. TranSmart's unique blend of transportation and electrical engineering capabilities places us in a strong position to pursue these types of opportunities in the $5 billion NEVI program.

We are also building on relationships that come to Atlas through our acquisitions. Last year, we acquired O'Neill Service Group, a premier construction quality assurance and environmental services firm based in the Pacific Northwest. We're leveraging their strong relationships that were brought to us through the acquisition to establish a strategic alliance with a large national infrastructure construction company.

The alliance will allow Atlas to seamlessly provide them with environmental, quality assurance, and inspection services, positioning our company for additional work on major infrastructure projects with them across the U.S. As we continue to grow, we remain committed to strengthen our capital structure and are constantly evaluating all options that could drive shareholder value. We reduced our total debt in the quarter. Leverage was down modestly from last quarter.

Based on our earnings forecast and robust cash generation outlook for the second half of 2022, we expect a further improvement in the leverage ratio in the coming quarters. We are confident that our M&A strategy will continue to drive outsized growth and improve our leverage ratio. We have a robust M&A pipeline with proprietary candidates.

However, we maintain a disciplined capital allocation strategy, and we'll continue to ensure that any partnership we pursue will be highly accretive to our shareholders, de-leveraging, and will position Atlas for continued success during all stages of the economic cycle. Lastly, I'd like to reiterate our commitment to ESG. In June, we issued our inaugural ESG report titled Leading with Heart. The report highlights the progress we've made internally as a company on related topics, as well as how we help our customers meet their ESG objectives.

We have also set goals that will shape how we operate as a responsible and sustainable company, and how we serve our customers and cultivate an outstanding workplace. With that, I'll turn the call over to David to provide details on our financial performance and outlook, and I'll come back with a few closing remarks. David?

David Quinn (CFO)

Thank you, Joe. Gross revenue of $156.5 million in the Q2 of 2022 was up 19% compared to the prior year quarter, driven by 8% organic growth, with strong performance in all of our service areas, as well as contributions from acquisitions. Gross margin was 47.3%, down modestly compared to last year due to a greater percentage of subcontractor costs in the quarter. Excluding subcontractor costs, gross margin expanded 90 basis points to 60.4%, our strongest quarterly result on record.

This was driven by utilization of our workforce, strong execution, and our disciplined pricing strategy. Adjusted EBITDA was $21.2 million in the quarter, up 16.7% from last year, and represented 17.3% of revenue, excluding subcontractor costs.

This was an improvement of 20 basis points compared to last year. The year-over-year increase was mainly due to our stronger gross margin and leveraging of fixed overhead costs.

This, however, was tempered by higher personnel costs as we are investing in our workforce and retaining key talent in support of current and ongoing growth, driven by the factors Joe discussed, such as a record backlog, pending new awards, and traction on larger projects. For the Q2, we produced adjusted net income of $4.5 million and adjusted EPS of $0.12 versus adjusted net income of $4.1 million and adjusted EPS of $0.11 in the prior year quarter.

The year-over-year increase was mainly driven by the improved operating results we mentioned. Moving on to our cash flow and the balance sheet.

During the Q2, we generated $9.8 million of cash from operations, and this was compared to $7.8 million in the same quarter last year. Our cash flow in the quarter represented strong performance for the business as we enter our strongest revenue-generating quarter of the year, where working capital demands increase.

As we've discussed previously, improving working capital management is a key priority for us, and we're focused on driving this throughout all levels of our organization. Based on our outlook, we continue to see stronger cash flow in the second half of 2022, with quarterly improvements in the third and Q4, and expect full year cash flow in 2022 to exceed that of 2021. Net debt at the end of the quarter was $500 million, down from $508 million at the end of last quarter.

Our bank covenant leverage ratio, which includes cost efficiencies and pro forma EBITDA from acquisitions, decreased to 5.6 times from 5.7 times last quarter and down significantly from 6.7 times when we recapitalized the company in early 2021. Pursuing an aggressive path to deleveraging our balance sheet and improving our overall capital structure remains a top priority for Atlas, and we're continually looking for avenues to do so.

Consistent with this, on June 1, we entered into an interest rate hedge agreement with JPMorgan Chase, which caps the variable portion of our interest rate at 3%. This agreement eliminates the uncertainty of extreme downside risk in a rising interest rate environment.

Also last week, as a result of our continued deleveraging of the business since our recapitalization in early 2021, we effectuated a $20 million expansion of our revolving credit facility via the pre-established accordion feature with JPMorgan Chase, increasing the aggregate capacity to $60 million. This expanded capacity better supports the financial flexibility suited for a rapid growth enterprise of our size and trajectory.

Again, we appreciate the continued strong support of our lenders, Blackstone and JPMorgan Chase, as we continue to execute on our robust growth strategy. Moving on to our outlook for the remainder of the year, we are reaffirming our revenue and adjusted EBITDA outlook for 2022.

We expect 2022 revenue to be in the range of $580 million-$620 million, an increase of 11.5% at the midpoint as compared to our 2021 results. This outlook reflects the strength of our backlog and visibility on the timing of work and continued solid demand for our technical services, as Joe Boyer discussed in his remarks. We anticipate adjusted EBITDA to be in the range of $84 million-$90 million.

At the midpoint, this represents growth of 19% and 100 basis points of margin expansion as compared to our 2021 results. We are keenly focused on driving our cash flow throughout the year, and as I mentioned, expect enhanced cash flow results moving forward, especially as we get into the latter part of the year.

We are extremely excited about this growth expectation for our business moving forward. With that, I will now turn the call back to Joe for closing remarks.

L. Joe Boyer (CEO)

Thank you, David. As I mentioned earlier in the call, when we formed Atlas nearly five years ago, our goal was to build a leading national provider of mission-critical technical services to both infrastructure and environmental markets. We've made great progress in growing this business, both organically and through M&A over the last several years, and are excited about the growth prospects going forward.

We've had a great start to the year with accelerating organic growth and reaching record quarterly levels of revenue, adjusted EBITDA and backlog. We are investing in our people and processes, cultivating a strong workplace and culture, and building a great portfolio of technical services that are in high demand and that are needed to keep our nation running in a safe, efficient, and environmentally sustainable manner. Thank you again for joining us. Operator, we can now open up the lines for Q&A, please.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press stars and two. Please limit yourself to one question and one follow-up. At this time, we will pause one moment here to assemble our roster. Our first question will come from Chris Moore with CJS Securities. You may now go ahead.

Chris Moore (Senior Research Analyst)

Hi. Good morning, it's Pete Lucas for Chris. First question from me relates to labor. First at Atlas in terms of employee levels and turnover. Looks like you guys have a significant number of job openings. How do you view labor availability at this point, and is that a gating factor in terms of your growth? As a side question, what are you hearing from your customers? Is it impacting their growth in terms of labor availability?

L. Joe Boyer (CEO)

Pete, thanks very much for that question. This is Joe Boyer. pete I've often said this. We're always in a tight labor market here. It just has been since we started this business. We have internally relied on recruiters to help us fill our positions and stay ahead of our demands for labor. We've done an absolutely great job of that ever since back in the period of COVID and going through today. We see a nice, steady progression of our backlog and future going into Q3 and Q4. Our labor demands, our utilization is high, but we still have three or four points of labor production in our current labor force.

We're steadily adding labor to that direct labor and new hires to that as we go along. We feel good about our outlook for our labor and filling those positions. Let me say, in regards to our clients and their issues with labor, I can't say that I've had any input from our clients in regards to restrictions on their business due to labor. I know we are seeing increased demand for program management services to help them with their projects on our public sector markets.

Chris Moore (Senior Research Analyst)

Very helpful. Thanks. A follow-up from me, just on revenue. Anything you can talk about in terms of cadence you look for from Q3 to Q4, and in terms of your guidance that you stated, the $580-$620. A wide range, and we're into Q3 here. Just wondering, are there any wild cards in Q4 in terms of whether you make the high end of that range or not, and what specifically are you focused on there?

David Quinn (CFO)

Great, thanks. This is David Quinn. You should expect to see sort of the traditional profile for our business, meaning the Q3 is typically our strongest quarter. You're going to see a minimum, let's say, 5% bump in volume coming off of Q2, and then you'll probably see q4 trail back down maybe more closely in line with our Q2 as the momentum of the business continues to build. Relative to the outlook for the year, first, we feel very confident about the guidance, the strength of our backlog, the contracts not executed at $155 million that Joe mentioned. We have great visibility through the end of the year. That said the $580-$620 range what could influence that?

really not a lot. We've got a couple of larger projects that are going to come online, but at this point we've got pretty good line of sight on it, and we feel good about revenue.

Chris Moore (Senior Research Analyst)

Very helpful. Thanks. I'll jump back in the queue.

Operator (participant)

Our next question will come from Rob Brown with Lake Street Capital Markets. You may now go ahead.

Rob Brown (Senior Research Analyst, Founding Partner, and Chief Strategy Officer)

Hi, Joe. Hi, David. Congrats on a nice quarter.

David Quinn (CFO)

Thank you, Rob.

Jonathan Parnell (Chief Strategy Officer)

Thanks.

David Quinn (CFO)

Appreciate that.

Rob Brown (Senior Research Analyst, Founding Partner, and Chief Strategy Officer)

First question is really on the M&A pipeline. I think you talked about evaluating some things. Just wanted to get a sense of how active is it at this point, and how do you see that over the next few months? How's the environment at this point? Has there been any changes in valuation?

Jonathan Parnell (Chief Strategy Officer)

Yeah. Hey, Rob. I'll take that in two parts. In terms of valuation, this is Jonathan Parnell, by the way, we really haven't seen much change in recent months. There's still a lot of interest in the space due to the resilient nature of public works spending, and obviously, that's been bolstered recently here by the infrastructure bill. We haven't seen a change in terms of multiples, but we're still seeing plenty of opportunities right in our valuation wheelhouse where we've been successful all along. In terms of our pipeline and activity going forward, we have a very full pipeline with proprietary deals that we're continuing to evaluate.

I would say, however, more now more than ever, we're focused on being disciplined in our capital allocation strategy, and we'll only move forward with deals that have a client base that we know is going to be resilient through all stages of the economic cycle. It's going to be highly accretive to our existing shareholders and de-leveraging. We saw some volatility in our stock price in Q2, and I think it's safe to say in situations like that, we're not going to be jumping out ahead to issue a lot of shares to fund M&A. I hope that's helpful, Rob.

Rob Brown (Senior Research Analyst, Founding Partner, and Chief Strategy Officer)

That's great. Thank you. Second question on gross margins, a nice uptick in the quarter. What's sort of your thoughts on increasing those going forward? How is pricing and kind of labor costs flowing through at this point? Do you see that stepping up in the back half?

David Quinn (CFO)

Yeah. We're really pleased, obviously, where the quarter came in. We broke through the 60% level to 60.2%, which is an all-time record for the firm for gross margins on labor. I think what we're seeing in the quarter is that we're really demonstrating the pricing power of what's a 90% cost reimbursable organization. We've been aggressively instituting increases across the client portfolio, and we're really now seeing the benefit of that catch up to our results.

In addition, we're seeing excellent utilization across our workforce, as Joe mentioned. We increased our workforce by several hundred this quarter, and utilization is higher than it's ever been. We're really starting to see that efficiency prove out as well. Relative to driving our gross margins up on labor, they're pretty high.

Over 60% is a leap for sure. You'll still continue to see some flux in the mix of self-performance versus subcontractors, and we had a little bit more subcontractor contribution this quarter. We're always going to be trying to move the needle on that as well. I think we're kind of in a range where you may see it move a point half on gross, but we're in pretty good range right now.

Rob Brown (Senior Research Analyst, Founding Partner, and Chief Strategy Officer)

Okay, thank you. I'll turn it over.

Operator (participant)

Our next question will come from Brent Thielman with D.A. Davidson. You may now go ahead.

Brent Thielman (Managing Director, Senior Research Analyst)

Hey, thanks. Good morning, guys.

David Quinn (CFO)

Hey, good morning, Brent.

Jonathan Parnell (Chief Strategy Officer)

Hey, Brent.

Rob Brown (Senior Research Analyst, Founding Partner, and Chief Strategy Officer)

Brent.

Brent Thielman (Managing Director, Senior Research Analyst)

Hey, nice quarter. I guess as a question, it looks like your pending awards were up nicely from the Q1, but your bookings and backlog look to be lower. Are you seeing slower conversion of pending awards to award? Maybe you just got some larger pursuits that take longer to get approved, or maybe there's just another explanation around that.

David Quinn (CFO)

Brent, thanks very much. Really, I can't say that we are seeing a slowdown in the awards. I think that those awards pending signatures and to move to backlog does vary quarter to quarter. As you saw the growth, we grew at about $40 million or so in the quarter. It's not indicative of anything other than just straight timing of some projects, some large project awards. We haven't seen any slowdown in moving those from pending to backlog, anything noticeable.

Brent Thielman (Managing Director, Senior Research Analyst)

Yep. Okay. Understood. David, I guess, I mean, you typically generate really good cash flow here in the second half, which probably puts the dent in the leverage. Of this $50-odd million in adjusted EBITDA that you anticipate doing over the next couple quarters, are you expecting sort of typical conversion, call it 50-odd% to operating cash flows? Or anything in this environment we're in right now that changes those dynamics at all?

David Quinn (CFO)

Yeah, Brent, I would say we're probably looking at something a little closer to 35%-40%.

Obviously, we're going to press to do better than that, but we're probably in a 35%-40% range. We are seeing some impacts of the inflationary environment, obviously. Some impacts with interest rates rising and that kind of thing, which is tempering it a bit in the back half of the year. We will true to form, we'll deliver a very strong cash flow, second half of the year.

Brent Thielman (Managing Director, Senior Research Analyst)

Okay, great. Thanks, guys.

Operator (participant)

Our next question will come from Don Crist with Johnson Rice. You may now go ahead.

Don Crist (Senior Research Analyst)

Morning, gentlemen. How are you all today?

Hey, Don. Good morning.

L. Joe Boyer (CEO)

Good, Don. How you doing?

Don Crist (Senior Research Analyst)

Doing well. I just wanted to, I guess, ask a little bit more on Brent's question and more for my knowledge of the industry. As far as inflation is concerned among your customers, does that influence kind of buckets of money that could go towards your projects? I'm more kind of curious as to gasoline prices. They've come back recently, but a lot of municipalities were kinda in a tight situation there. I didn't know if the ongoing contracts that you have with them could be influenced and kinda slow down new awards if they had to kinda shift money around to pay for municipality gas prices for cops or anything like that.

Just any color you could give around there would be helpful.

L. Joe Boyer (CEO)

Okay. Let me sort of take the first part. I think, Don, what we're seeing is I don't want to remind you that a lot of our work is around maintenance of existing projects, and infrastructure, so stuff that's sort of non-discretionary, right? Has to be done.

we are seeing some impacts of the inflation and construction costs with our clients, and really that's around budgeting on projects. They might have put a project out on a scale, and construction costs have come back higher than budgeted, so they've had to come back in and retool that project, put it out in another, in a scope, in a smaller fashion to match.

We see quite a bit of that in the public markets, municipalities for sure, and the projects continue to come out just a little bit smaller to make sure they match their budgets and stuff. That's really the only impacts we've seen in regards to what you're referring to. It doesn't impact our work. We're still out in the field, still progressing our work along. I'm trying to. Can you help me on the second part of your question? You were talking about. I sort of missed the second half of the question.

Don Crist (Senior Research Analyst)

Well, it's just that we've seen some reports that buckets of money have been moved around in municipalities because of higher gas prices, et cetera. I'm more referring to the press releases that police departments, et cetera, have been blowing through their budgets because gas prices were $2-$3 more than they budgeted, et cetera. I didn't know if that kinda impacted any awarding of contracts going forward whether it regards to roads or maintenance of anything else.

L. Joe Boyer (CEO)

Yes. Okay.

As I can't say that I can add a whole lot to that other than what I've described there. I think, Don, I mean the coffers of the public clients we're seeing are really full, and the projects are continuing to come out.

I don't know that I have insight into them moving around their pockets of money behind the scenes. Our steady projects have been rolling out. We're continuing to do a lot of our work under the MMIP programs, the management pieces of maintaining their existing infrastructure. We aren't seeing any current delays, particularly in our public and municipalities market on any other infrastructure projects.

Seems pretty steadily moving along so.

Don Crist (Senior Research Analyst)

That's good, and I appreciate all the color there. Just one more quick one if I could slip it in. Are you still seeing a lot of demand kinda going into early 2023 from infrastructure projects from the infrastructure bill specifically? 'Cause I don't believe those have really started rolling out yet.

L. Joe Boyer (CEO)

That's correct. I think as I've said, we continue to see that more as a 2023 type impact on our business, Don. I mean, I think we are seeing municipalities and DOTs are planning projects, but the funding hasn't quite come through on that. We're still seeing it as a 2023 impact to our business.

Don Crist (Senior Research Analyst)

I appreciate all the color, and I'll jump back in queue. Thanks.

L. Joe Boyer (CEO)

Thanks.

Operator (participant)

Again, if you have a question, please press star then one. Our next question will come from Noelle Dilts with Stifel. You may now go ahead.

Noelle Dilts (Managing Director)

Hi. Good morning. I was looking at your percentage of self-performed revenues. It was a little bit lower. I think you talked about some reasons why. Curious how to think about that moving forward, given your project mix and that you're ramping on some of these larger projects. Should we expect? I guess, how should we think about self-perform versus outsourced work moving forward? Thanks.

David Quinn (CFO)

Yeah, Noelle. Great question. I'll start here, and Joe may add to it. Yeah, as we are bringing on larger projects and programs to the platform often we do see that the contracts have some minority or disadvantaged business requirements that come along with them. And that does drive a bit of an uptick on our subcontract component.

On a positive note, we have seen some ramping of our field geotechnical drilling and analytical chemistry activities this quarter in support of our government solutions work, environmental solutions work.

lastly, there has also been some inflationary impacts on our subcontracts, where they're looking to recover their costs the same way we are.

The fact that we're maybe 78% this quarter versus 81%, where we've been running, we're not too worried about it. We're going to kinda move, I think, in that 79%-81% range from quarter to quarter. Joe?

L. Joe Boyer (CEO)

Yeah, I wouldn't add anything other than that. I don't think anything real appreciable. I think our margins are on subcontract work maybe have changed a little bit in regards to some of the field mix, right, more geotechnical work. I just think, Noelle, between 78% and 81%, we're going to sort of be in that range depending on what projects are in the field and what the mixes might be.

Noelle Dilts (Managing Director)

Okay, got it. Just on with the Inflation Reduction Act, moving forward, have you looked into if or how are you thinking about any potential impacts for some of the environmental work that you do? Do you think this could sort of lead to an uptick in work given that private corporations may be facing tougher regulations or standards? Any thoughts on that?

L. Joe Boyer (CEO)

Yes, Noelle, that's a great question. I will tell you that that one's fairly new on our radar screen, and we are trying to still analyze that. But as we see it it's just like the infrastructure bill, it's more of an infrastructure bill for the environment, right? There are tremendous amounts of buckets in there that we perform really well in the markets. I mean there's EV charging stations in there as well, new build EV facilities.

Block grants for air pollution. There's air monitoring in there, whole climate resiliency. All those elements of that Inflation Reduction Act, we feel, just like the infrastructure bill, play nice into our services.

Still in the early stages of analyzing that, but we see it as upside potential going forward.

Noelle Dilts (Managing Director)

Great. Thank you.