Primoris Services Corp (PRIM) 2010 Q1 法說會逐字稿

Good day everyone and welcome to the Primoris Services Corporation first quarter conference call. At this time I would like to inform you that this conference is being recorded and all participants are currently a listen-only mode. I will now turn the conference over to Mr. Devin Sullivan. Please go ahead, Mr. Sullivan.

Thank you, Thea, and good morning, everyone. Thank you for joining us today. Our speakers on today's call will be Brian Pratt, Chairman, President, and Chief Executive Officer, and Peter Moerbeek, Executive Vice President and Chief Financial Officer.

Before we get started, I would like to remind everyone that statements made during today's call may contain forward-looking statements including with regard to the Company's future performance. Words such as estimated, believes, expects, projects and future or similar expressions are intended to identify forward-looking statements. Forward-looking statements inherently involve risks and uncertainties, including, without limitation, those described during this call and those detailed in the Risk Factors section and other sections of the Primoris's filings at the Securities and Exchange Commission, including the Company's Form 10-K for the year ended December 31, 2009, and the Form 10-Q to be filed on May 10th, 2010. Primoris Services Corp does not undertake any obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

I would now like to turn the call over to Brian Pratt, Chairman, President, and CEO of Primoris Services Corporation. Please go ahead. Brian.

Thanks, Devin and good morning to everyone.

This is the first quarter that we can report the results of both the Primoris legacy operations and those of our recent acquisition of James Construction Group, and Cravens Services. The impact of the James acquisition was particularly impressive, and complemented our internal focus on pursuit of higher-margin projects, generating and protecting repeat business, and long-term client relationships and managing our human and capital resources appropriately, especially in challenging markets.

A top priority during the quarter was to integrate as seamlessly as possible our new businesses, and I'm happy to say we're making good progress, almost as good as we could hope. The merge-management team, and the new professionals that we have brought on are efficiently managing our assets, and executing along a number of paths that we believe will lead to the right kind of growth.

Revenues for the quarter increased 42% to $175 million, although we had a little bit of help on the margin side due to the impact of a project that Pete will discuss shortly, James operation helped to improve our operating margins. At March 31, 2010, our cash position was $112 million, or approximately $2.47 per diluted share, and our backlog increased to $824 million from $795 million at the start of the quarter. Approximately two-thirds of that backlog was attributable to James and Cravens. We expect that little more than $490 million of this backlog will be recognized as revenue in 2010, with added revenue generated from unit price, fixed price, master services agreements, and negotiated cost-plus work that does not ever get entered as backlog. As a point of reference, Primoris generated $467 million of total revenues for fiscal year 2009 with backlog at the beginning of 2009 standing at $351 million.

As expected, several of our end markets continued to experience the effects of the sluggish economy, reflecting reduced capital spending, lower energy demand, and as we all know especially over the last few days capital markets volatility. I would like to commend and thing all of the Primoris team, both new and legacy, for their continued ex-everyone lair efforts in sustaining our Company through what has proven to be difficult times. As mentioned in our press release earlier today, with the growth and expansion of our services in geographic reach, and to reflect our current management responsibilities, we have reorganized our financial reporting to fall into three segments -- West Construction Services, East Construction Services, and Engineering.

Now we would like to take a moment to highlight what is happening at the various businesses that comprise these segments. Oil and gas. As has been in the case in recent years, our work in this sector remains weighted towards transportation and distribution projects. These projects over the last several years have become less dependant on commodity price and more so a function of changing location of domestic production and ever-expanding need for importation. This sector remains reasonably stable for us, while the related refining business remains weak as our clients continue to see reduced margins.

Utilities. Our utility customers continue to exhibit a reasonable spend, with much of their capital focused on regulatory-driven improvements of their systems along with needed upgrade of aging infrastructure. We expect to continue to perform significant work under this line with our MSA agreements along with hard bid projects.

Industrial. This group has struggled due to the cessation of our projects with Praxair at the Chevron Richmond refinery mid-construction last year. Along with the cancellation of an additional large refinery project at the mobilization stage at about the same time as well as suffering from a hangover effects from a larger ward of corresponding starts -- item sorry. Let me start again. Suffering a hangover effect from a lack of award of corresponding starts of large capital projects due to the difficult financial markets we have experienced in the last several years. Recently we have seen much improved flow of prospective projects across our various industrial markets, and are very optimistic that this market sector may soon return to more reasonable levels. We see this occurring possibly in the latter half of 2010 or very early 2011.

Renewables. We are currently showing limited activity in this arena, but are actively pursuing opportunities and possibilities through Primoris Renewables. We are working diligently with several major engineering firm on some very large capital renewable-related projects. The ever-popular flow of proposed solar projects, to anticipate Tahira's question, remains unabated. This sector suffers from a fundamental misalignment from the price utilities are willing to pay for power, from utilities scale solar facilities and the fundamental economics of these plants. And the lack -- or -- or mismatching of the financial tools available to facilitate lending to these projects, along with the morass of permitting issues demanded for projects of this nature in California. Finally our biofuel project, in conjunction with the gas company in Hawaii, continues to move ahead.

Military. Under the direction of Steve Lewis, who we hired earlier this year, our focus on government, or specifically military-related contracting, has begun to take shape. We are very optimistic for our prospects in then handed effort, but as with most things Federal the effort will take time to bear fruits. Highway.

Highway. The heavy highway business, the majority of which came us to via the James acquisition, remains one of the more stable albeit competitive markets for the construction industry. We look for these trends to continue to the near and midterm future. There appears to be good opportunities in the geographies in which we compete, and more importantly, opportunities that lend themselves to the types of work and skill sets we are accustomed.

Water and wastewater. This part of our business remains very challenged. Excluding the potential positive impact from federal stimulus funds, we expect this market will take significant time to return to more robust levels of activity. As we have said before, there has been recent uptick in bidding opportunities, but this is has attracted a raft of non-traditional competition. The environment is not one unfamiliar to us, and we are structure a business accordingly until our newly found competitors punch themselves out. Eighteen months ago or so we began bidding projects, in Alabama, Georgia, and the Carolinas, and have already received several small awards in these markets. There will be long-term benefits for us in these new areas, and we are committed to them.

Engineering. Our engineering business, which focused on fired heaters among other things has suffered from a weak domestic refining industry, however, we continue to enjoy many of the same reasons in which we prospered in the past including Australia, and both the Near and Far East. We are confident our two engineering groups will continue to contribute this year.

In summary, we expect that many of our end markets will begin to show improvement in the second half of this year, and evolve into a more robust operating environment into 2011. I have said this before, but it's worth repeating We have been doing this a long time, over 60 years as a Company, and over 35 years for me personally. Times like these are test your mettle, and not only purge the less prepared from our markets, but also present opportunities that are the basis for our continued long-term growth. I'm hoping we have seen the worst of the downturn, and we have seen evidence suggesting so. I am, however, confident of one thing, and that is our Company is prepared to deal with the upsets and opportunities that will present themselves in both the near and longer term. Now I would like to turn the discussion over to Pete, who will take you through the numbers in more detail. Peter?

Thank you, Brian. And thanks to each of you to taking time to join us on this call. I would like to highlight some of the results of the first quarter and be happy to go into further detail during the Q&A segment.

Our first quarter 2010 revenues of $175 million increased 41.6% from the same quarter last year. This was primarily due to the addition of the James Construction Group in late 2009 along with a smaller contribution from Craven, which we also acquired at the end of 2009. In total, these acquired businesses contributed $96 million in revenues for the first quarter. Excluding the impact of the new businesses, revenue our legacy business declined by $44.6 million from last year's first quarter, due to decreased revenues across all business lines, especially in pipeline and industrial projects, reflecting the slowdown in project awards in 2008.

Our overall gross profit for the first quarter of 2010 was $24.5 million, compared to gross profit of $14.5 million in last year's first quarter. The increase was due mostly to an $8.7 million gross profit contribution from our recent acquisitions, with the remaining increase attributable to the successful closeout of some industrial projects compared to the same quarter last year. Overall gross margins increased by 2.3% to 14% of revenues from 11.7% of revenues in the prior-year first quarter.

As Brian mentioned earlier, with the acquisition of James, and with the realignment of our management structure, we changed our recordable segments on January 1, 2010. Our segments are now East Construction Services, West Construction Services, and Engineering. I would like to take a moment to discuss the results on a segmented basis.

Revenues at our East Construction Services segment, were $104.2 million, an $89.5 million increase from revenues of $14.7 million for the legacy company in the prior quarter. This is mostly due to the $96 million contribution of James and Cravens, which is partially offset by decreased revenue of $6.5 million, primarily in water and wastewater projects. Gross profit for our East Construction Services segment was $9.6 million, which included an $8.6 million gross margin contribution from James. Included in this gross profit amount is intangible amortization related to the James acquisition of $0.5 million.

For the first quarter of 2010, our West Construction Services segment revenues were $59.9 million, a 33.5% decrease from the $90 million we recorded in the first quarter of 2009, reflecting the significant slowdown in new contract awards that we experienced during the middle part of 2009. Work in all of our legacy Company end markets was affected. Our underground business revenues declined by 35%, our industrial revenues declined by 18%, and revenues at our structured businesses declined by 64%. The impact extended to our third-party equipment rentals, as we recognized virtually no third-party equipment rental revenues during the first quarter of 2010. As Brian mentioned and as evidenced by our announcement of new work, we expect revenues to recover through the remainder of the year.

In discussing gross profit for this segment, I need to start with an update on the Chevron Richmond refinery project. In April of this year, the California Court of Appeals ruled that there were deficiencies in the environmental impact report related to the project, and at the same time, our contractor Praxair provided us with a notice of termination for the project. In accordance with the terms of our construction project, the project converted from a fixed-price contract, to a reimbursed cost plus margin contract. As a result of the termination, we have adjusted our cost estimates for the contract. And in accordance with the terms of the contract, we are currently undergoing an audit of some of the costs specifically related to that project.

Now back to West Construction Services gross profit. Gross profit at the segment was $12.2 million, 10.1% increase from the prior-year quarter. The increased gross profit as a percentage of revenues was the result of the impact that smaller, higher-margin jobs have on our overall margin percentages in a declining revenue environment, and the impact of the -- the positive impact from converting the Richmond refinery project from a fixed-price contract to a reimbursable cost-plus margin contract. Without the positive impact of this project, our West Construction Services segment gross profit percentage of revenue would have been much closer to historical levels.

In our engineering segment, revenue decreased by $7.9 million or 42.1% for the first quarter of 2010, compared to the same period in 2009. The decrease was both in our Canadian subsidiary Born Heaters and a decrease in our OnQuest business in California. It reflected completion of several projects, including one large international project. The engineering segment gross profit increased by $900,000 or 54.5%. As a percentage of revenues, gross profit increased from 9.1% for the March 31, 2009, quarter, compared to 24% for the current -- for the first quarter we just completed. Customer acceptance of the international project added approximately 4% to the first quarter's gross profit percentage, and the gross profit percent for the current quarter also reflected some impact of the completion of the OnQuest projects, as well as the impact of $700,000 lower overhead expense allocation. As engineering activity increases during the remainder of 2010, we also expect engineering margins to trend toward historical levels.

Switching back to a corporate-wide view, overall, selling, general, and administrative expenses were $13.8 million for the first quarter of 2010, an increase of $6.3 million or 119% from SG&A expenses of $7.4 million in last year's first quarter. Of this increased amount, $3.9 million was added by the acquisition of James and Cravens, and $1.1 million was the result of amortizing intangible assets and liabilities created by the acquisitions. While Engineering SG&A expenses decreased compared to the same quarter last year, the reduction in activity in the segment resulted in a difference in net expense allocated to cost of revenues of $700,000. Finally, audit and consulting fees increased by $400,000, and other SG&A expenses netted an increase of $200,000.

SG&A as a percentage of revenue increased to 7.8% for the first quarter 2010 from 6% from the same period in 2009. The increased percentage for the first quarter was due to the increased cost discussed above, as well as to the relatively fixed nature of administrative and management expenses, which tend not to decrease proportionally when revenue decreases.

For the first quarter of 2010, interest expense increased by $800,000, compared to the same period last year, primarily the result of interest expense of $700,000 related to the subordinated debt we acquired at the time of the acquisition. Finally, in the first quarter of 2010, we recognized income of $1.2 million from the St. Bernard Levy Partners joint venture, a James construction project near New Orleans, Louisiana.

Our operating income for the 2010 first quarter increased by $10.7 million or 6% -- 6.1% of total revenues, from $7.1 million or 5.7% of total revenues for the same period last year. Our effective tax rate for the first quarter of 2010 was 37.1%, compared to a rate of 39% for the prior year first quarter. The change in tax rates is based on our estimated full year results, coupled with assumptions as to our mix of revenues and profits in the various tax jurisdictions out there the United States and Canada.

Net income for the first quarter was $6.7 million or $0.15 per diluted share as compared to net income of $5.6 million or $0.17 per diluted share in last year's first quarter. Our fully diluted weighted average shares outstanding increased by 40.2% to 45.5 million shares from 32.5 million shares in last year's first quarter. This was due to the impact of the 8.2 million shares issued for the James acquisition, 2.5 million shares issued as a final earn out portion of the Rhapsody and Primoris merger in July 2008, and the impact of the warrants, primarily the conversion of 600,000 warrants during the quarter and the dilutive impact of the remaining outstanding warrants.

At March 31, 2010, there were 3,996,800 warrants outstanding, and since then we have received $709,650, which represent the conversion of 149,930 warrants to common stock. All of the warrants will expire in 21 weeks from today on October 2nd this year. Also at a special meeting of stockholders on April 12 this year, our shareholders approved the issuance of the new shares and the conversion of the preferred shares issued as part of the James acquisition, so the 8.2 million shares will be part of basic share calculations going forward.

Briefly looking at our balance sheet, at the end of first quarter, cash and cash equivalents plus short-term investments totaled $112.3 million, a decrease of $7.8 million from $120.1 million at December 31st, 2009. The change in cash during the quarter represented normal working capital fluctuations. At May 7th, our net cash balance was $108.8 million.

Finally a discussion about backlog. Total backlog at March 31, 2010 was $824.4 million, a net increase of $29 million from December 31, 2009. We expected approximately $492.9 million or 59.7% of this total backlog will be recognized as revenue during the remainder of this year. Of special note is the impact of the termination of the Praxair project on our backlog. The December 31, 2009, backlog number included approximately $40 million for the project. During the quarter, we recognized approximately $9.5 million in revenues for the job, and we had less than $1 million remaining in backlog at the end of the quarter. We have adjusted our backlog number down by $30 million to reflect the 3 termination. That's the $29 million net increase we talked about understates the real increase by approximately $30 million.

Consistent with the practices that we have used in the past, we do not include in backlog certain unit price, fixed price, or master service agreements, if we do not know the specific dollar amounts for those agreements at the time that we signed them. Revenues generated by Primoris in the first quarter of 2010 did not go through backlog were $15.3 million. I will also state my usual caveat, backlog is not a guarantee that we will get the business. The portions that do not go through backlog are easily cancelable by customers, but even backlog amounts -- as demonstrated by the Richmond refinery project -- may not be fully realized.

Finally, we expect to file our Form 10-Q with the SEC later today.

And with that, let me turn the call over to the operator, so they can respond to questions. Operator?

(Operator instructions). The first question will come from Lee Jagoda with CJS Securities. Please go ahead with your question.

Good morning.

Good morning, Lee.

Will you be putting out an 8-K breaking out the pro forma historical segments so the investors can get a better view of the historical revenue and margin trends?

I'm not sure. Let me think about that, Lee. Probably yes if that will make life a lot easier. You know, really, the impact of the businesses that we have that are now included in the East Segment, the legacy business is not terribly significant compared to the entire amount of revenues and profitability, but we could 3 probably do that.

Well, it leads into my next question. In the sense that you said that ex the Richmond adjustment, West margins will be consistent with historical levels. We only have one data point, which is last year's Q1 to get the historical levels. Can you give more color on what you mean by that?

I think historical levels are, if you look for the entire year of 2009, I think you have more than one data point, you know, we tend to run in the West segment, we are going to run in the fairly -- you know, 11% to 13% to 14% gross margin.

Okay. That sounds good. And then the next question -- is the largest delta versus our model was your lower SG&A expense in Q1. How should we think about that for the balance of the year? And how much amortization related to the acquisitions are left in the last three quarters of this year?

The amortization related to acquisitions will be consistent with what I said. There's $0.5 million that's in SG&A that reflects the contract -- the amortization of backlog. There is $1.1 million each quarter that represents amortization of intangibles, as well as some amortization of the earn out shares. That will be consistent for the rest of the year with the addition that if the James Company meets its target, which we are very hopeful that it will, there will be an extra $0.5 million P&L hit in the fourth quarter representing the difference between the 95% assumption that we used in our numbers, and 100%. Other than that, those are the numbers related to amortization, and I'm not so sure that my boss would agree that we fully managed SG&A expenses to where they should be, but we think that SG&A will kind of stick along the way that we have it outlined today.

Okay. One more question and I will jump back in queue. Brian, I guess the driver of your growth in the back half of 2010 and 2011 will probably be the addition of one or two large projects that are out on the horizon. Can you give us a sense of the sort of two or three largest projects that you currently looking at or bidding on and the scope and time frame of those projects?

There's a -- I'm trying to count in my head, five, I believe. Maybe four, large, for us, power projects, traditional power projects. IPPs. They are currently bidding. Some of them are EPC, some of them are, you know, engineered -- preengineered. Those -- if we bid them today -- if they are EPC, they wouldn't really begin to work off hard until first of second quarter of 2011. If they are preengineered they would begin probably fourth quarter of 2010. There is -- I mentioned some large renewable-related projects, mega projects for us, 3 million to 4 million man hours. Those projects are probably two years out. 2012 at the earliest, 2013. I think they have a high probability of coming to market. They are really regulatory driven. We're not seeing a lot of refinery activity, so those would be the major industrial projects.

They recently passed a -- a law here in California where you can't use estuarial waters or ocean waters for cooling on power plants, and that's going to drive some work that will -- and those time limits are 2015, I believe, late 2014, early 2015 when these power plants can no longer use these waters, which means they are going to have to install large air-cooled condenser-type units. So there's those. James is bidding a couple of large -- we're in the queue to bid a couple of large Corps jobs in New Orleans that are still part of the Katrina disaster mitigation. Those can be $200 million, $300 million, $400 million. We will bid those as joint ventures. We think we have a fairly decent shot at those. Those would start probably towards fourth quarter of this year.

And then we have several large pipeline jobs that are in the queue that we're bidding. Those are quick turn. If we bid them today, they will probably go next quarter or two. Those can range anywhere from $20 million to $80 million. Some of them over $100 million, so it's quite a mixed bag. The -- everybody -- the estimators are all loaded up and working all of the hours they can. So we're seeing a good flow of projects, and actually projects that we think are going to get off the ground and get billed.

Great. Thank you very much.

Thanks, Lee.

The next he l come from Richard Paget with Morgan Joseph.

Good morning, guys.

Good morning, Richard.

Pete, could you give us a break down of what backlog looks like amongst segments?

Absolutely. Having said that -- you want -- let me get back to you -- give me a couple of minutes, and I will dig it out. It's primarily -- it's split significantly, about two-thirds of it -- I'll get you the exact numbers, but about two-third of it is in East, because it's the long-term work that James was doing. And Engineering doesn't have a whole lot, but I have got -- been bringing with me a sheet of paper, and let me get -- before then of this discussion, let me get you that.

Okay. And then is it -- now that the business mix is a bit different, especially with the addition of James, should we look at the kind of backlog conversion rate a little bit differently? I mean, I know you gave what your expectations of current backlog that's going to hit. But in terms of historical benchmarks on what the business that's going to kind of roll in during the year that we won't see hit backlog, has that ratio changed at all?

I think you'll see that the James side, the East side, will have longer -- for the larger projects, that it will be -- they will take longer than our traditional projects in our West segment. So that -- you know, whereas a power plant we might do in a year or 18 months, you going to see projects at James that are going to take -- you know, two, three years.

On a typical -- for example, we were awarded a job, we haven't gotten a contract, so they haven't announced it yet, about $106 million in Texas, a heavy highway job. If that was a power job in California, we would burn that off over 18 months. This is a heavy structures job with some paving. We'll burn that off over four years. So -- at the same time, though, James, that's about half of their market is heavy highway, and about the other half is infrastructure, which as Tommy was saying, does a great job, and Tommy, you know, a lot of his work is reimbursable. Or it is bid this month and billed next month and that will never see backlog like a lot of our MSA work on the West Coast.

And the other portion -- again, I explained this earlier, but I don't remember you to remember, Richard, but James work is split half between heavy civil, which is Danny Hester's -- well he runs the whole business now -- that used to be his group. And that's heavy highway work. That burns pretty slow. The other half is split kind of down the middle, which is -- Conrad runs the industrial side, and he'll do much -- similar to our industrial business. They are quicker turns, smaller projects. So you have to kind of even segment that a little bit, but we have enough segments, don't encourage us to add another three or four, please.

The answer is East Construction, which is James largely. Backlog at March 31 was $536 million. West Construction $223 million, and Engineering $65 million.

Okay. Thank you, and then with all of the headlines about what is going on in Louisiana, I wonder if you could comment on how that may or may not impact your business? Are there any bidding opportunities? Is it taking up capacity of possibly some of your customers so things might get pushed back as they focus on what to do there? I wondered if you could comment on that.

It's unfortunate, BP is a great company. You know, they purchased Arco here on the West Coast years ago, which was a great, great business, and it's kind of tragic because of all the businesses that we work for, they are at least as safety conscious as anybody that we work for. We have an alliance with them on their regulatory-driven pipeline upgrades. That's obviously not going to change, and if anything they might expedite it. We are going to see opportunities, you know, I think Jindal proposed a $400 million barrier reef thing. I doubt that it will get off the ground. But it's going to be a mixed bag, because it's -- we do a lot of work.

We're out across the estuary right now building the LA1 job. We're about half complete, a little less than half complete. And it's amazing the amount of activity that is generated by the offshore business down in that part of the world. If you haven't been there, it is just absolutely incredible how many jobs are generated by this. I think it's going to be a mixed bad. I think you'll see a lot more environmental work. A lot more cautious construction, but a lot of it is going to be stemmed because there is going to be a drive to do less of this kind of work. So I think long-term we are going to be importing more foreign crude, and that's going to be more work for us. That's unfortunate, but that's what is going to happen. In the immediate future I don't see a tremendous opportunity for us to participate in the stuff that's going on down there.

Okay. And then finally wondered if you could just -- I know you are just getting through digesting the James acquisition, but you still have a pretty healthy balance sheet, how -- any change in the way you guys are looking at possibly adding on some bolt-on or the other types of acquisitions at this point?

Look every day. We have been looking hard at a couple, but who knows, Richard, it's -- we're in the business to grow and build stuff, and so we're constantly looking. And once you do one the size of James you don't have to go find them, they'll find you. And I think as we went through this process the last few years, we told all of you that we felt like we didn't have to hire consultants and look hard to find these guys, because we're pretty integrated into the industry, at least I am after 35 years. And we're going to continue to be able to find and structure really good deals. And so we're still focused on that, and hopefully -- and a lot of it depends on how well we continue to integrate James. It has gone exceptionally well. These guys are really first class guys. And our guys are stepped up and toed the line too. And as I said in my presentation, it has been a struggle, and the guys are just really stepping up to it. It's very rewarding for me personally.

All right thanks. That's it for me.

Thanks, Richard.

The next question will be from Al Kaschalk with Wedbush Securities.

Morning, guys.

Morning, Al.

Maybe if we could ask the M&A question slightly different. Given the cash you have on the balance sheet today, what do you expect to end 2010 with?

We're laughing because we have that discussion periodically --

Maybe the way to say it is -- we don't doubt that you are going to be able to make some prudent acquisitions, and the market will be coming to you with some deals, but we -- perhaps the size and the number of transactions you may be looking at as we look out $100-some-odd million balance sheet here.

So let me see, I'm barely struggling to make Sarbanes-Oxley work with what I've got and you want me to do more.

Didn't you say at the last call we were looking to -- he's a bit bipolar. I think he's off his medication this morning, Al.

Okay.

Look, we struggle every day, because we have this $112 million, or $108 million, whatever it is today, invested at $0.2, $0.3% in SEDARs because we're very conservative in where we put our cash. We struggle every day because we have equipment debt unrelated to James of 30-some million dollars, and we're paying 4, 5, 6% on that. But in these kinds of times having a muscular balance sheet is pretty important to us. So most of the acquisitions we're looking at, anything we entertain is going to protect that balance sheet, just as we did with James.

I have to complement Pete again for structuring and John Schauerman, for such a great financial infrastructure of the James acquisition, so we're going to protect that cash. If we do anything of significant size, obviously it is going to impact it. We're currently talking to the banks about expanding our lines. We have a tremendous amount of equipment we could finance if we chose to. It would be hard to finance it 4-something percent right now for five years and then invest the money at $0.2%. But anything we look at would have to be pretty accretive obviously.

Okay. Thank you. Two things on the quarter I wanted to see if we could delve a little bit deeper. First, are you able to share with us how much in closeout fees was at the operating profit line?

Ask that question again, Al.

Of the $10.7 million of operating profit, how much of that -- how much of that was closeout fees or one-time period benefit versus sustainable?

You mean related to Praxair for example?

It could be that or any of these contracts that maybe you competed? The follow-up would be could you share -- although I think the answer is no -- but it that's fine -- could you share where you are at on the organic growth rate of the business? Because it sounds like you're still -- we're still slowing down, but haven't seen that inflection point, which you're, I think calling for more of a second half 2011 type of time frame.

No, I would suggest -- yeah, I think I kind of -- I think it was Tahira that asked the question about backlog. If you look at the legacy backlog -- that's in the filing this afternoon, right?

Yes.

If you look at the legacy backlog you'll see that has increased substantially. I wouldn't say it has doubled, but certainly we feel we have hit the bottom in it. So really what we're seeing is -- so like I pointed out to you, we're seeing a good flow of projects to propose on, it's just they don't begin to really kick in until later this year until into 2011. So we think we have seen the inflection point. I think if you look at the backlog, it should jump out at you. It's not dramatic, but certainly a significant improvement. Which we think bottomed out third, fourth, and I think that's proved up last year.

In terms of -- we're still in negotiations with Praxair on the termination, and there's an audit ongoing and everything else. So I don't think it would behoove us at all to get into the nitty gritty of those cancellations. In terms of closing out projects, you know, I think Arnie Ursaner asked this question a quarter or two ago, he said geez, you had this one aberration. We're typically very conservative. It is reflected in this Praxair closeout. With all of the problems we have had with the project, you know, we don't know what to book, so we were very conservative. And the closeout simply reflected recapture of overheads.

So every quarter we have this, and every quarter we close jobs and every quarter we realize probably additional profits. Every once in a while there is one that goes the other way, because you do a pipeline job, and it rains the last 40 days and 40 nights. And you're lucky to get out of there with your life sometimes. But in general we're conservative on the way we count, and you'll see that reflected in project closeouts every quarter. So, you know, we have got four or five other big projectings that we'll close out this year, and we're hoping they will close out, obviously with the same direction.

Al, we said on the last call that we would anticipate that over the year, we would trend back towards more normal margins. What is helping us margin percentage wise right now is some of these smaller jobs tend to have higher margins. They tend to be much shorter jobs, and that is somewhat skewing the numbers, but I would anticipate over the rest of this year and certainly going into 2011 that our margins will be closer to what they have been historically?

I think that the thing that all of us are struggling with, and maybe some of the shoulders too is trying to get a better appreciation with those historical margins were even before James folded in and therefore going forward. So just trying to get handle on whether 6%, 7% operating margin is something we should expect going into your traditionally two strongest quarters, or if it's higher than that, so just something maybe to consider.

Yes, I think, Al, part of that is a function of how quickly we get some of these longer construction projects on line, and even though we have an award as Brian said in certain types of contracts, it may take us six months to a year to really start to see any of the benefits. And as those projects start, they tend to have a lower margin. We tend to be more conservative and look at all of the things that can go wrong at the beginning of a project. So that's what makes it somewhat challenging for us. Because I'm not sure I can tell you when some of these will start.

And you have a lot of fundamental things that change during the evolution of a project. The first one if it's for a new client, you don't know how he is going to treat you as a contractor. Some of them are very difficult. Typically when we start with a new client we'll take the profit down to a very moderate level on a job when we begin it, because we don't know how he is going to deal with us on perspective changes and things like that.

I would expect that your 6 to 7% is something that we can certainly trend towards, if we do our jobs well overall. The heavy highway business is not one of -- you know, with those kinds of huge margins, although the James guys do exceptionally well at squeezing the dollars out of the projects. We were pretty impacted by rain this year, I know you probably heard that from everybody you had conference call calls with. But it is actually the truth. Even in California, I don't know if it was an El Niño or not, we had rain every four or five days, and it's pretty hard to do underground work, which was our mainstay the first quarter of this year. When it is raining it just doesn't dry out quick enough to go back to work right away. But I think as we evolve here in the next quarter or two, we're going to try to be as transparent as we can in allowing you to get a feel for what those margins are going to be and what the contributions of each will be. That was the nature of the new segmentation.

Great. Thanks a lot, guys.

Thanks, Al.

The next question will be from Matt Tucker with KeyBanc Capital Markets.

Just -- just wanted to -- I guess continue on the margins topic here for a little bit. If you -- I mean, we -- we understand that your margins are going to shift based on some of your businesses coming back that have been relatively weak, but I guess if you look just within -- I guess the end markets, can you communicate kind of how pricing is trending on work that you are currently bidding?

A mixed bag, Matt. The -- the -- let me work backwards through my presentation, if that's okay.

Sure.

I hate repetition, so I'll go backwards, maybe it will seem like it has changed. The engineering margins are okay. It's kind of a mixed bag. When you get into some of the areas we're in, we have got such a good technology in the fire heaters that we do, we can in a lot of respects, get a better price because they last longer, the clients like our products better. We have got a good product line there. Warren makes a heater for everybody, OnQuest designs a specific heater for client's needs. So I think their margins are going to hold fairly well. We had a -- you know, the previous manager there, we kind of ran off the deep end on work. We have rebuilt that backlog now, so some of that will be -- again, conservative margins at the start, but we think the margins will crescendo as the work progresses.

Water and wastewater sucks. I don't know how else to describe it. It is just awful. Everybody that was building shopping centers two or three years ago now thinks that they can build a -- you know, sewer plants. That's going to be something that we'll just have to wade through, pun intended, to see how it goes. But we have been through these cycles before, and we'll weather them well, although the margins right now are pretty skinny. We had jobs that were -- you know, it's tough.

The highway business we pick -- we're going to be announcing this job in our -- near our Belton office which is north of Austin. Texas is historically an area we have been involved in, but this is kind of a lot of volume for that one area. Typically Belton has delivered us $35 million, $40 million a year with the James group in revenues, and this is a $106 million job, and we're real excited about it because there's more work to follow. That's a good area. We have some market advantages there and we plan on using them. But the highway business, the margins are okay. It's -- you know, it's -- it's -- everybody in the world can bid them. All you have to do is write a bond, and you can bid the work, but we're tending towards the larger projects which does eliminate some of the small competition. So that's okay.

The military work from what we have seen as good margins in it. But you have people trying to get into it as we are, and that's difficult. It takes a legacy, resume. It takes a work history, so finding the right kind of partners along with our skill sets is a lot of Steve's challenges, and I think he's doing pretty good.

Renewables, hell, who knows. There are some real issues there. A lot of it relates to the actual mechanism of lending, which I won't be bore you with. The industrial side where you are working day-to-day and you are adding a little $2 million or $3 million capital project, that's pretty competitive. The power side, which is a great skill set that we have, is a little bit of a limited market. Those margins are still fairly good, although we are seeing new players trying to enter into the market. We're not sure what resources they're going to bring that are going to allow them to be competitive. But we'll just have to see They are good companies but I'm not sure they have the presence on the west coast to be competitive. Those margins are okay. Pretty much in line with traditional.

The utilities. Those are MSA agreements. Those have been priced, basically. A couple of them have come back and asked for another bite of the apple to try to reduce costs because they read somewhere that construction costs are down. For us, they're not. Material prices may be but construction in general. We think that pricing will hold. We're seeing actually little -- in some of the markets fewer competitors.

Oil and gas is -- you know -- these things are so long-term of projects, a lot of the ones we're looking at involved in, that we have had these relationships for a long time. And we think those relationships along with contracts that were kind of negotiated years ago will continue forward, and the margins will be -- typically will stay in line with historics. Mixed bag. Water and wastewater on the deep end is just awful. And the rest of them are kind of holding their own, or -- you know, I don't think you are seeing much margin improvement, although we are able to cut some costs.

Great. Thanks for the detail there, and then -- I would agree with your statement that a lot of your peers have mentioned weather impacting the first quarter more than usual. Are you able to quantify at all how much impact that had on your margins?

It was really more of a revenue issue than a margin issue. Although it obviously does impact margins. If you are paving a job up in Louisiana, poor Mr. Poole, and it rains every third or fourth day, it can really damage your margins. And you get liquidated damages and all kinds of stuff. But in general, it really reflected more in the revenues. And quite honestly if you are going to take an ass whipping on a job, why do you want to start it if the weather isn't going to be at your back. So we delayed some projects, as did our clients, waiting for better weather. Some of it, of course, is just the annual cycle of the utilities, you know, they kind of plan their work first quarter, engineer it second, and build it third and fourth.

(Inaudible) California on our underground -- even in California the weather was awful.

Any kind of ballpark estimate in terms of the amount of revenue that might have been pushed out as a result?

Well, our overall underground business was down about 35% in California, and we fully anticipate that, you know, we should get back to where we should be this year, over the next couple of quarters.

Okay. Thanks.

(Inaudible) major -- I mean, in California nobody else did any work. So that's the -- the major impact was there.

Okay. Great. The projects in Texas where James, I believe, is the low bidder on the $100 million-plus project. Are your -- are your expectations that you will get a contract signed on that? And I guess what would be the timing on that? And what are the potential risks for not getting that signed and sealed?

There is also a risk, but we believe that we will get a contract signed in the next week or two.

Yes, I was down there last week. That's not exactly right. We should get an award if we haven't got it already. They send you notice of an award and sometimes the contract can take six or eight weeks after that. I don't think we've seen any protests or anything like that. It's a project that is funded, so we're confident that we'll get it. But like Pete said, even after you get them now, they can be cancelled.

Sure, would you say it's probable though, right now that you would expect the -- the contract to be signed in the second quarter?

It's probable that we expect the contract to be signed in second quarter. I'll give you that, Matt.

Okay. So thanks. And then just -- you know, outside of that, how have the bookings been trending so far this quarter and second quarter?

Good. The -- again, we -- you know, we -- we feel like the backlog will be up again next quarter. Some of this stuff, you know, we bid a power job the other day, and about $150 million, and we have been recommended, and the boards approved us, but they still -- and this is on kind of a brownfield or repower kind of on an existing site here in California. But, you know, the work doesn't start until 2011, so we wouldn't actually sign a contract until September or October, even though the clients approved us, and -- you know, there's still some hoops to jump through regulatory, but we're fairly confident of that. That's why we don't announce awards. Somebody says maybe we ought to announce awards, and then we say, well, what if we don't get the job? What if there's a protest? What if the award doesn't turn up -- so then we end up with three or four announcements. So it's easier for us just to announce when we have the contract signed, but it -- the flow is good with the exception of water and wastewater, it's still very, very difficult.

Great --

Lots of opportunity. Our clients have kind of crawled out of the dark, and realized they lost a year, year and a half and they need to catch up.

Great. One more question if I could. On the JV, the James add that contributed to the quarter, what is the duration of that? And what are your expectations for the contribution over the remainder of 2010?

I think it's going to stay pretty much the same level it was first quarter for the rest of this year.

Okay. And then beyond that?

Oh, I'm going to have to see --

There's a couple of years duration --

Yeah, I think it goes -- sometime in '11, but I can't remember precisely which quarter.

Great. Thanks a lot, guys.

Thanks, Matt.

The next question will be with Rob Young with WM Smith.

Hey, guys good morning.

Hey, Rob.

Hey, Rob.

Question on the water and wastewater, can you talk about the opportunity with some of the shells that are coming out with the water treatment plants and some of that stuff out in the Northeast?

You know, Rob, the challenge that the industry -- that the water industry -- wastewater industry has always had is that there are lots of people who come out with great, wonderful concepts, but it's very difficult to get the municipalities to accept these concepts and build some of the projects that -- for which we have great technology.

Okay.

And the water industry, fully 85% of the services are done by municipalities, so you are putting yourself in a position of having to go to a municipality that in spite of the fact that the rest of the world is falling down, they should be investing in new capital projects, and that's a pretty difficult challenge. It's an industry that even though the potential opportunities are there, I think you are going to see it pretty tough to get the dramatic sort of improvement, that, you know, we would all like to see in the industry. You are probably not going to see a lot of that until you see some growth again in home building.

Okay. Okay. Even though most of your water and wastewater is down in Florida, if the optimistic scenario does come through, is that something you can go up the country on and have an opportunity with, or is that kind of a new business venture that you would be looking at?

The challenge that you have is that there are lots of people in various parts of the country that can do water, waste wart construction. It's not as technically complicated as power plants or refineries.

Sure.

Unless you have a tremendous in, a tremendous competitive advantage or a cost advantage, it becomes pretty difficult to take somebody, you know, that works in Florida and have them go to New England for example.

Okay. Okay.

Possible, but difficult.

That business -- forgive me if there are any water and wastewater guys listening -- but it is a bit stodgy. And they don't -- none of them typically make a whole lot of kudos by introducing new technologies or saving money, because their tariffs and reimbursement for water is based on their spend for capital. So walk in and say we looked at a great technology that takes the carbon out at the front end of the plant, instead of the back end, and then they burn the fuel, and it makes a lot of sense. But you sell those to utility, and they say, okay, what is it in for me? Because right now I get paid to process this wastewater, and if I save a few dollars, then I got to go in for a rate case and reduce my rates, and how does that profit me for the additional capital spend? So it's a tough business to sell to. But Pete is right, it's very, very regional.

Okay. Brian, you talked a little bit about the stimulus with various renewables, that's a ways out, and then some of the more near term with highway. Can you quantify how much stimulus you guys have booked so far?

I think they spent more on the signs than they did the actual stimulus to the projects.

Right.

I mean they made some pretty signs. We have several projects. I would guess neighbor a couple hundred million dollars that have stimulus attached to them or at least advertised.

Right.

Particularly the highway jobs in Louisiana. I'm not seeing -- the biggest impact that I'm seeing to renewables this ITC, where you can actually apply for the cash from the IRS, I forget what they call that. Pete, do you know? Instead of waiting to get your tax credit, you can actually apply and the IRS will send you the money for the full amount of the credit, your 30%. That seems to be getting some projects kind of moving forward, but they have to start construction on them by the end of the year --

Right.

-- so that's helpful. But in the renewable side of it it's -- you know, particularly the solar, it's just a tough sell, because most of these public agencies want a payment-performance bond to rely on for degradation of these solar units. And they want that to match the contracts. So they want an example of one community I know very well here in California, they wanted a 27-year warranty on the solar facility. Well the bonds are -- you know, the longest one I have seen a five years, and they are going to look to the bond because the contractor may disappear and the bonding guys aren't going to write those bonds. So there's really a mismatch in what the financing community -- and this is them. I mean, they can't point the finger at themselves, because the financing committee, the guy is writing the surety instruments.

Okay.

So until this gets fixed, the renewables is just not going to move forward on a large scale. Plus the rates are too skinny.

Right. And just generally as you see an activity on a historical standpoint on the front end side of it, but what is the typical lag to get down to the -- to the actual construction side?

On which?

Just a brood statement, just generalized. Improved activities on signs, how long does it take to get down to construction?

Oh, man, how long is a piece of string? The -- it's a mixed bag. It's a pipeline job you might be started 30 days after you put your last price in, and you arm wrestle with them over terms. Same thing with the small industrial job of $4 million or $5 million industrial job, you bid it and you are probably mobilizing 30 days after they accept your price. Heavy highway, you are probably 30 days -- or excuse me -- three or four months by the time you get started and a lot of agencies struggle with the work they have to do to get you going. Sewer and water you have to go through a submittal process. That takes six months it's a real mixed bag. I couldn't give you a rule of thumb across the board.

Okay. And then lastly, did you break out the new orders that you had in the quarter?

Well, we basically added about $55 million to backlog, and we booked 175 of revenues and there's about 15 that didn't flow through quarter.

Okay.

Through backlog, I'm sorry. So if my math is good, it's 160 plus 30 plus 24?

Okay. Sounds good. All right. Thank you very much.

Okay. Thanks, Rob.

(Operator instructions). The next question will be from Adam Thalheimer with BB&T Capital Markets.

Good morning, guys.

Good morning, Adam.

Hey, Adam.

I had to hop off for a few minutes, so forgive me if some of this is a repeat. But congratulations on the large power plant job you announced last month. What -- how is the startup going on that job?

It's a design build, and we -- we're beginning that process, so it's moving along, but we won't -- we anticipate seeing maybe 25%, 30% of that workup by year end. So -- you know, they ramp up kind of slow. A lot of it is in engineering design and procurement.

Got it. And then now --

The IID job, that's one we're finishing for them. We're trying to finish one, we have got an equipment issue we're trying to rectify. We're confident, we think we have the fix in place. But that's a long -- that's a good-standing relationship we have had. So we really like the client and the project.

Which job was that, sorry?

The IID. Imperial Irrigation District.

Yes, the new one we announced, we should start to see some benefits towards the end of the year.

Now that Praxair is done, what does your utilization look like on the industrial side, and how do you expect these contracts to impact that as you go through the rest of the year?

That part you probably missed. We're seeing a lot of power flow, power projects. We're seeing some refinery rebound, mostly regulatory, and we're seeing some process work. So we're going to be slow to ramp up, this big power stuff, some of it doesn't even start until 2011. So, you know, it's going to slowly build. I think we're starting to see that process now. I think by fourth quarter we'll be running pretty hard, so --

And then, Pete, did you mention -- I mean, the share count 45.5 million. I was looking for a little higher. What is a good run rate for the rest of the year?

We have still got a little less than 4 million warrants to convert, and depending on when they convert, and what the stock price is, we know they have to be converted by October 2nd. That's what is really driving the share count. So I -- you know, I -- I'm assuming they will be fully converted by year end, or, say, by the end of the next -- by the end of third quarter.

Okay. Maintenance spending by utilities, is their capital budget starting to open up at all, or -- is maintenance-type work still being deferred?

By utilities?

Right. Gas, and electric utilities, maintenance-type work.

Oh, no, it really -- I think if anything it has probably been expedited a little bit, most of these utilities have a through-year rate case and they have to spend that money or give it back or they have to lower their rates. So the -- most of them that were making fairly large spends on subdivisions and into the housing market are now look at deferred maintenance, the challenges -- and we do a lot of that with MSA -- a lot, a lot of what we are doing is replacement of really, really aged infrastructure. Remember, PG&E was almost out of the capital market for five years caused on their bankruptcy. That work has actually increased. The problem that you find is they want to do a lot of that work with their own crews, which I think they have determined that we are more efficient than their crews are. But that doesn't help them when their crews are going home and ours are working. Now the refineries have deferred a lot of maintenance, because that crack spread is really miserable. It's improving, but it's really bad.

That was my question. Utilization rates on the refining side have crept up a little bit in the last four or five weeks. When does that start to have an impact?

Beats me. I mentioned in my presentation a job that was canceled right during the mobilization. And that was an $80 million or $90 million project for one of the refineries here on the West Coast. That was a regulatory-driven project. They were replacing an engine that was put in in the 1970s. Most of these refineries make their power you know. And how they were able to defer that, because they were under an attainment order by the AQMD to change that engine out, I'm not sure. More power to them if they can do that and still operate.

But I think it's a ways away, and then the large capital projects here in California, a lot of them have just been -- you know, it's one of the reasons we looked East, a lot of these projects have just been stymied by the fact that a permit isn't a permit. Poor Chevron, they spent $500 million, $600 million with Praxair, maybe closer to $800 million, and they had their permit jerked from out -- out from underneath them. That's got to be pretty chilling if you're trying to get a permit to build something in this state. I don't mean to be negative.

To say the least, yeah.

Yes. Yes. I think you may have missed it, but we're mandated to stop taking estuarial waters to cool our power plants here. Or ocean water. All of these plants by 2015 have to convert to some other form of chilling water, and we figure that's that is going to add anywhere from $0.01 to $0.02 a kilowatt to the cost of power, which is going to be passed on to the consumer. I wonder how they are going to do that and not issue a permit for two or three years, because you have got to fight your way through the morass, but apparently they are going to try. We expect that to be a pretty good impetus for us. But that's not my first choice to earn money based on the backs of somebody having to comply with a regulatory rule.

Yeah, but nobody has come to you yet for that type of work?

We have been actually pricing some various alternatives. The utilities kind of know what their choices are. Really their choices, quite frankly are very few. They are got to recycle their water, and some of these power plants just don't have the room, so we're not sure what they are going to do. Because they'll have to big air conditioning -- they call them ACCs, they basically cool water to reuse it again, and use the air to do so.

Well, congratulations on a solid quarter.

Thanks.

And talk to you next quarter.

Thanks, Adam.

The next question is a follow-up from Lee Jagoda with CJS Securities.

Quick follow-ups. The first one is you gave the segment backlogs. But can you break out -- the $492 million that you expect to realize as revenue in 2010 -- can you break that up by segment?

That is a good question.

Not without three hours' worth of --

I tell you what, Lee, let me look at that. I think it's going to go fairly similar to what we did in first quarter, which when you look at our Q you'll be able to see -- yes, I would anticipate if you look at what we did in first quarter, it will look similarly.

Great. And just one bookkeeping question. Do you have D&A for Q1?

I'm sorry?

The depreciation and amortization actual for Q1?

D&A.

Oh, hang on one second. Every once in a while you ask me a question I can answer. Depreciation, 1. -- oops, I'm sorry depreciation $4.2 million, amortization $1.4 million.

Great. Thank you very much.

There are no further questions at this time. I will turn the conference back over to management for any closing remarks.

I would like to thank everybody for participating on the call, particularly our investors for their support, and your interest in the Company. So that being said, I wish you a great day. Thanks, guys.

Ladies and gentlemen, this concludes our conference call for today. Thank you for participating and have a nice day. All parties may now disconnect.