Primoris Services Corp (PRIM) 2010 Q3 法說會逐字稿

Good day, everyone, and welcome to the Primoris Services 2010 Third Quarter Conference Call.

At this time I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode.

I will now turn the conference over to Devin Sullivan of The Equity Group. Please go ahead, sir.

Thank you, Regina. Good morning, everyone, and thank you for joining us today.

Our speakers on today's call will be Brian Pratt, Chairman, President, and Chief Executive Officer of Primoris Services Corporation, and Peter Moerbeek, the Executive Vice President and Chief Financial Officer.

Before we get started, I'd like to remind everyone that statements made during today's call may contain certain forward-looking statements, including with regard to the Company's future performance. Words such as estimated, believes, expects, projects, may, and future or similar expressions are intended to identify forward-looking statements.

Forward-looking statements inherently involve risks and uncertainties, including without limitation those described during this call and those detailed in the risk factors section and other portions of Primoris's annual report on Form 10-K for the year ended December 31, 2009 and other filings with the Securities and Exchange Commission, including the Company's Form 10-Q, which was filed today, November 9, 2010.

Primoris does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.

I'd now like to turn the call over to Brian Pratt. Brian, please go ahead.

Thanks, Devin, and good morning, everyone.

We have had a busy quarter on balance, and I'm very pleased with our results. Our third quarter financial results were strong, with each of our three operating segments reporting higher quarter-over-quarter revenues and profitable operations. In connection with our earnings, we also announced that we will be paying a cash dividend for our 10th consecutive quarter.

Along with these strong financial results, we managed to achieve solid backlog increases in our largest business lines. It should be noted that in spite of experience in a more competitive environment, we are very pleased with the new work prospects not only in the quality of our backlog we have added but the technical nature of the work we are seeing available in the marketplace.

Before the market opened this morning, we announced the acquisition of Rockford Corporation. Rockford specializes in the construction of oil and gas mainline, pipeline, and facilities. This acquisition presents a great opportunity for Primoris in both the near and long term.

Finally, we announced we are moving Primoris headquarters to Dallas effective January 2011. I'll touch on this subject shortly, as well.

The impacts of last year's acquisition focused in the East. The largest component, being James Construction Group, continued to have the significant positive effect on our results. We believe this trend will continue into 2011.

Our West Coast Construction Services segment rebounded nicely due to a higher level of revenues in both our legacy disciplines, the underground and industrial markets.

Our backlog in this segment got a boost from the power project announcements we made this past summer, and currently, there continues to be more than adequate opportunity flow for future backlog build. The underground business continues to be strong, albeit not as robust as two years ago.

Our parking structure, water, and wastewater markets in the West continued to struggle a bit as available capital remained scarce in these markets and competition keen. That being said, we continue to enjoy a reasonable level of work in these areas, allowing us to preserve our capacity for when the market returns.

The engineering segment also performed while contributing solid growth in revenues and margin. There continues to be a significant flow of opportunities, especially in Asia, and we are enjoying an [up-base] satisfactory capture of our share of these opportunities.

Overall revenue for the third quarter increased year over year by 116% to $230 million, explained by recovering markets in the West and our expanding markets in the East. Competition remained stiff, especially for smaller, less technically challenging projects.

As expected, we are seeing smaller companies reach up in some cases, larger companies migrate towards some of our traditional markets, creating a few new challenges.

However, few companies in our business possess the financial capacities of Primoris or the hard assets and skill sets needed to self-perform most of the work. This gives us a distinct advantage in winning larger projects and successfully performing them on time and budget.

Our advantages were utilized to win the four major contracts we announced during the third quarter with a total value of approximately $218 million. Work has commenced on each of these projects, which are heavy highway and hurricane protection service by East and traditional power plant construction undertaken by West.

We remain well capitalized at the end of the quarter with more than $107 million in cash and equivalents and a modest debt profile.

At September 30, our backlog was $967 million, up nearly $95 million from Q2 of '10 and $221 million of Q3 of '09.

As we noticed on previous calls, unlike other companies in our space, backlog is not perhaps as most a vital metric when assessing health of our business. That is because so much of our work we perform is generated from smaller or unit price, fixed price MSAs or other contracts that never see our backlog.

Beyond the backlog growth we have enjoyed, we are in our largest market segments seeing good opportunity flow and capture. There appears to be moderately paced improving environment in both prices and terms. This understanding of how we backlog is relevant to discussion of acquisition of Rockford Corporation.

First, I'd like to welcome Frank and his team at Rockford to Primoris. Frank, along with the current management team, will continue to oversee Rockford, which will be a wholly owned subsidiary of Primoris.

This acquisition is important to us for a variety of reasons, not the least of which Rockford's operation oil and gas mainline pipeline construction complements Primoris's focus on this work geographically while dramatically increasing our mass.

Mass is critical in successfully winning and executing name-line projects due to their scale and quick ramp-up. This includes mass in both equipment and people, and the Rockford acquisitions adds [goodly] amount of both.

Geographically, Rockford with their base in the Northwest, provides a stronger presence in an area of the country that presents good long-term prospects not only for the services that Rockford current provides but also for additional services that Primoris could bolt on with only small incremental costs.

Rockford's portfolio of work over 40 years of their existence is impressive and recently includes 144 miles of 36-inch mainline construction for TransWestern in Arizona, 54 miles of 42-inch pipeline for Gulf Crossing Pipeline Company in Texas and Louisiana; and, of course, the ongoing Ruby Project, which Rockford's portion consists of 126 miles of 42-inch pipe in Oregon and Nevada.

Rockford has been consistently and performing profitably, but as is the case in their business because of the large quick-hitting nature of the projects, along with seasonality and cyclicality, their performance can be very lumpy. This will be the case for their first year, too, after close as the very large impact of the Rockford project will heavily influence our numbers beyond what could be considered normal for an acquisition of this size.

Ruby, as a cost-reimbursable contract, based on our policy of not backlogging those cost contract structures -- cost plus contract structures, will not immediately add significant backlog to Primoris totals.

We have worked hard to bring this transaction to close and are very excited about the value we think we can generate for our customers and our shareholders with Rockford a part of our group.

Finally, before turning things over to Pete, the Primoris board with strong buy-in for management has decided to relocate our corporate headquarters to Dallas, Texas from Lake Forest effective January 2011. Myself, Pete, John Schauerman, and a handful of other senior executives and staff will be making the move. ARB and ARB structures and their associated personnel will remain in Lake Forest.

The move to Dallas reflects our growth as a company over the last two years from a business that generates the majority of its work in California to a national provider of infrastructure and specialized construction services.

By centralizing our headquarters, we can more effectively bridge the scope of our operations, which range from Cardinal in Florida, James and Cravens along the Gulf Coast, ARB and ARB Structures, Rockford, [OnPlus], and Born up through California, the Pacific Northwest, and into Canada.

Now I'd like to turn the conversation over to Pete Moerbeek, our Chief Financial Officer. Pete?

Thank you, Brian, and thanks to each of you for taking time to join us on this call.

I will review some of the financial highlights of the third quarter of 2010 and then talk briefly about the Rockford [transaction](inaudible - technical difficulty) .

To help you, we had filed our Form 10-Q for the third quarter this morning, and that may answer some questions, but of course, I will be happy to go into any further detail during the Q&A segment.

Beginning with our income statement, our third quarter 2010 revenues of $230.4 million rose by 116.1% compared to last year's third quarter and were driven primarily by the acquisitions of James and Cravens in the fourth quarter of 2009. These acquired businesses contributed $120.2 million in revenues for the third quarter. Excluding the acquired businesses, our base operations added $3.6 million to our revenues for the quarter.

Our overall gross profit for the third quarter of 2010 rose by $7.7 million to $27.9 million due primarily to a $12.3 million contribution from the acquired businesses.

As a percentage of revenues, gross margin declined to 12.1% from 18.9% in last year's third quarter, reflecting somewhat lower asset utilization on the West Construction segment and the historically lower margin percentage of JCG's heavy civil projects.

On a segment basis for the third quarter of 2010, our West Construction Services segment generated revenues of $86.6 million, up 7% from $80.9 million in the third quarter of 2009. This increase was primarily due to California underground water and sewer project work, such as the previously announced LAX Bradley Terminal contract. This increased work was partially offset by a decline in our California horizontal directional drilling and California parking structure businesses.

East Construction Services, which includes the operations of the 2009 acquisitions, saw revenues rise by $113 million to $126.9 million. This contribution offset a $7.2 million decline in our smaller Florida-based water and wastewater business and our Houston-based industrial piping business.

Gross profit rose to $12.9 million, or 10.2% of revenues, from $1.4 million, or 10% of revenues, in the last year's third quarter due primarily to the impact of James Construction Group.

Our Engineering segment also improved, posting revenues of $16.9 million, up 42.5%, or $5 million from last year's third quarter, primarily attributable to the benefit of a new US-based refinery project and an international LNG project, both of which began in the first half of 2010.

Gross profit rose by just under $1 million to $2.3 million, or 13.6% of revenues, from $1.3 million, or 11.2% of revenue last year.

Selling, general, and administrative expenses increased by $7.3 million, or 100.7%, for the 2010 third quarter compared to the prior-year period. Approximately $5.7 million of the increase was attributable to the fourth quarter 2009 acquisitions, with the balance of the increase attributable primarily to $1.6 million of decreased gain on the sale of equipment compared to the first quarter of 2009.

We traditionally have equipment sales in each quarter, but with the changes in the economic environment, our sales revenues decreased -- our equipment sales revenues decreased from $3.8 million in third quarter last year to $400,000 this year, and the gain on sale decreased from $1.7 million last year to $100,000 this year.

I'm pleased that for the quarter SG&A as a percentage of revenues decreased from 6.8% last year to 6.3% this year.

Operating income for the 2010 third quarter was $13.3 million, or 5.8% of total revenues, compared to $12.9 million, or 12.1% of total revenues, for the same period last year.

Other income and expense during the third quarter were impacted by the following --

First, income from nonconsolidated investments of $1.4 million for the third quarter 2010 was virtually the same from the same period in 2009. The difference is the current year earnings were primarily from the St. Bernard Levy Partners' joint venture, while the prior-year earnings were primarily from the Otay Mesa Power Partners' joint venture.

Interest expense of $1.3 million for the third quarter 2010 increased by $900,000, primarily as a result of higher interest attributable to the subordinated debt associated with the December 2009 acquisition of James Construction Group.

Finally, an expense of $300,000 during the third quarter reflected the change in fair value of the contingent acquisition earn-out liabilities.

Income from continuing operations before provision of income taxes for the third quarter of 2010 was $13.2 million, or 5.8% of revenues, as compared to $13.8 million, or 13% of revenues.

The provision for income taxes for the third quarter of 2010 was $5.6 million for an effective tax rate of 42.7%, compared to $5.1 million with an effective tax rate of 37% in the prior-year quarter.

The effective tax rate for the current year third quarter included a one-time tax charge of $800,000, which consisted of truing up the tax returns filed for the year ended December 31, 2009, [all calculating] a look-back interest payable on completed lump sum projects. We anticipate that on an ongoing basis, our tax rate will revert closer to the 37% that we have had.

Net income for the third quarter of 2010 was $7.6 million, or $0.17 per diluted share, compared to net income of $7.9 million, or $0.23 per diluted share, in the same period in 2009.

Fully diluted shares outstanding for the third quarter of 2010 increased by 33.7% to 45.5 million from 34.1 million last year's third quarter, reflecting 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, and a conversion to common stock of warrants exercised during the quarter.

Let me use the warrants as a segue to our balance sheet.

We maintained a solid financial position at September 30 with cash and short-term investments totaling $107.6 million, working capital of $51 million, total debt and capital leases secured by equipment of $54.7 million, subordinated acquisition debt of $43.1 million, and stockholder equity of $179.7 million.

Additionally, the balance sheet included the $10.2 million liability, representing the estimated fair value for earn-out payments relating to the 2009 acquisitions.

In accordance with the terms of the JCG acquisition, we used 75% of the warrant proceeds to reduce the subordinated note. That rather large payment in early October reduced the note balance to approximately $29 million from the $53.5 million with which we started last December.

We also changed our capitalization this quarter, reflecting the exercise of the warrants, which expired on October 2, and the completion of a 10B51 trading program.

As a rule, 10B51 trading program allowed us to purchase 245,846 warrants during the period September 7 through September 28.

From July 1, 2010 through October 2, a total of 3,515,280 warrants were exercised, resulting in cash proceeds (inaudible) 17.6 million.

A total of 33,744 warrants expired unexercised on October 2, 2010.

As a result of the above transactions, the total number of shares of our common stock outstanding as of October 2, 2010 was 47,753,891 shares.

On September 30, we also had outstanding 450,000 unit purchase options. Each unit entitles the holder to purchase one unit, which basically now consists of just one share, at a price of $8.80 per unit.

Let me now turn to backlog.

At September 30, 2010, total backlog was $967.5 million, an increase of $172.1 million, or 21.6%, from backlog of $795.4 million at December 31, 2009.

During the quarter, we had an increase of $94.7 million in backlog from 872.8 to 967.5.

During the quarter, we booked new contracts of $279.1 million, and we reflected in revenues $184.4 million.

We expect that approximately $187.3 million, or 19.4% of the total backlog, will be recognized as revenue during the remainder of 2010. Of that, $107.2 million is expected for the East Construction segment, $67.6 million for the West Construction segment, and $12.5 million for the Engineering segment.

Let me give my usual warning regarding backlog, mainly, that backlog is not a guarantee that we will get the business nor is it a comprehensive indicator of future revenue.

Depending on the time of year, a portion of our revenues can be derived from projects that are not part of backlog calculations, such as master service agreements and [callouts].

Finally, let me turn to purchase accounting, first for the acquisitions we made last year and then talk a little bit about Rockford.

As part of purchase accounting for the 2009 acquisitions, we recorded approximately $32.7 million for intangible assets, including such items as customer lists, trade name, and acquired backlog. We amortized these intangible assets, and in the third quarter this year, we charged amortization of $0.5 million to cost of revenues and an additional $900,000 to SG&A expense. Those two items worked out to a tax-affected impact of almost $0.02 per share -- per diluted share for the quarter.

A second impact of the acquisition accounting is a recording for an expense for the potential earn-out of shares. The JCG sellers have the ability to earn 10 million shares (sic - please see note below) valued at the average December closing prices if they attain their financial targets, and they are certainly well on the way to doing so. That's $10 million, nor 10 million shares.

Purchasing accounting requires that we recognize an expense when there's a change in the probability and present value for these earn-out shares. At the end of third quarter, we had expensed approximately $1 million so far this year, and for the James earn-out, the balance sheet shows a liability of approximately $9.2 million so that we basically have another $800,000 to go if they attain their goal during the fourth quarter.

Similarly, after Rockford closes, we will need to go through the process of calculating intangible assets based on the fair value of the -- at the time of closing, and similarly to the JCG transaction, we expect a significant amount of the fair value for Rockford will include intangible assets, especially the intangible value for the Ruby Pipeline Project.

That asset will be amortized over the life of the underlying contract, and in the case of the Ruby contract, that tends to be a fairly short lifetime since we're talking about completing that contract by the middle of 2011.

As we mentioned in our press release, we anticipate filing a Form 8-K with a purchase agreement this week and will then work to develop a pro forma and historical financial information as soon as we can, which we will include in a subsequent 8-K.

Unfortunately, these pro formas require both estimates for intangible amortization, as well as any other impact that we might have, and therefore, it's not a trivial exercise and will take some work to get us there.

Finally, let me talk briefly about the Rockford transaction and closing the transaction.

At present, we have a signed purchase agreement, we have signed employment agreements, and many of the documents are ready to go. We have basically received or we have passed the Hart-Scott-Rodino review, and we have approvals from our banks and bonding companies so that we are in a position that we could move fairly quickly to close and at this point are intending to do so perhaps as early as this week.

With that, let me turn the call over to the operator and see if we can get to your questions. Thank you very much.

(Operator instructions)

Our first question comes from the line of Richard Paget with Morgan Joseph. Please state your question.

Good morning, guys.

Hey, Richard.

So I wonder if you could just help us understand how we should look at the Rockford business on a go-forward basis. I know you said you basically expect about $200 million in revenues over the next three quarters, and is that all Ruby?

And then going forward, how should we track it? I mean is this going to be potentially a pretty volatile business in that a big Ruby-type contract will come in on short notice and start pretty quickly but with the potential of maybe having some breaks in between quarters? Or is there typically a pretty relatively steady flow of pipeline work that kind of comes in and out?

You won't let me answer that by just saying yes, will you? The revenues for the Ruby contract are what we showed is our estimate just for the Ruby piece, the $200 million. Those revenues we expect will follow for the first three quarters that we own it, so starting this current quarter and then the next two.

The second part of your question yes, but there are pieces to the business. Rockford has a couple offices, one in Washington and one in Northern California, that do maintenance and infrastructure pipeline work very similar to what we do in Northern California, and that business tends to be somewhat more steady. Their primary main line work is project focused, it's project bid, and I think I'll use your word, there will be volatility.

Clearly, we believe the opportunities exist, but there may be periods that you're going to see fluctuations in our revenues, and we had long discussion about that and recognize that it's a challenge as a public company, but we still think that the metrics were so prohibitively for doing the transaction that we will warn everybody in advance there will be volatility, but we think at the end our shareholders will benefit significantly.

And then maybe you could just give us a little bit more info on the deal. Was this a negotiated deal? And I think you said there were some private equity owners. If you could give us what their impetus for selling was.

The fund that owns approximately two-thirds is getting to the end of the traunch within which they made the Rockford acquisition, so they were motivated to find a way to return value to their shareholders or their investors.

And we've looked at this. Actually probably five, six, seven, eight years ago, we had looked at Rockford. Brian had been out and talked to them. They went the path of the private equity people at that point, so we certainly knew about them, were aware of them, and yes, it was a negotiated deal, and I know this is a horrible thing to say, but no investment bankers were involved.

Okay. And then on another conference call this morning, one of your competitors was talking about expectations that the renewable market was really going to picking up in 2011. Have you guys started to see that, as well?

So this is preemptive to Tahira's question? Is that right, Rick?

I figured I got in first so I might as well give it a shot.

Yes, there's been a lot of publicity in with the recent -- well, some people call it a change in regimes with Schwarzenegger and Brown. I don't think it changed much in terms of philosophy.

We think there's a lot of impetus per renewables. There continues to be. Some of the large projects are getting off the boards. It's not our intention to take on an EPC contract. We actually turned one down (inaudible) on the large projects for $1.6 billion.

We had no desire to be tipped over by one project, so we see pieces and parts of that available to us. We see bigger trough projects coming. The thermal projects we see bigger conjugated PV coming. We're working hard to participate in those. We're working hard as we speak to price some of those.

You've got a real consortium, a real menagerie of players between the Spanish and the US companies and even some of the Europeans. The French and the Germans are active. But it's going to be a hot market, we think. We're going to be there for it. We're working hard, and it's hard to keep the guys focused on solar projects that are two or three years out when there's traditional power projects that are right in front of us. So it's a struggle, but we're very actively pursuing those projects.

Okay, so it seems like maybe some of the financing bottleneck has, I don't want to say lifted, but at least it's gotten a little bit more unclogged?

Yeah, I don't want to get too deep into this philosophically, but they still don't make economic sense without huge subsidy, and this is not something -- the trough technology, particularly with thermal storage, is not going to -- it's not going to get a great deal more competitive as you build them. It's not one of those things like PV where you've had huge adjustments in the efficiencies of the panels compared to the price. It just takes big subsidies and a high rate of pay for the power -- for the consumers, and if the state's willing to subsidize those things, they'll get built. If they're not, then they're going to lay there a while.

All right, thanks. I'll get back in queue.

It's not so much financing. I think it's subsidy that is required.

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

Hey, good morning.

Hey, Lee.

Morning, Lee.

How many other projects are currently underway at Rockford, and how much feature revenue do they represent?

In addition to that, can you kind of comment on the margin profile of both the Ruby project and the other business underway at Rockford?

You have to really segment Rockford into three different groups when you look at their work. They've got kind of an ongoing maintenance thing. With all the pipeline guys -- you've seen the recent problems that some of the pipeline owners have had with failures. There's an ongoing maintenance component of it. It's a small component. It's probably 20, 30, 40 million bucks, kind of day in and day out. Come fix this or give us a price to move this line or repair this line.

Then you have the kind of the annual projects that come up where you have kind of program maintenance, where an owner will come in and replace 10% of a pipeline every year. Those aren't real difficult lead-time projects for permits and things. Those are kind of quick hit. You'll bid those early spring, and you'll be doing those in the summer.

And then you have the mega projects like Ruby and some of the Rockies Express and things like that, and those projects are white elephants, and they come along infrequently, and they take forever to get launched. I would hesitate to say that El Paso thinks Ruby was a quick hit. I mean they've been working their butts off for five years to get this thing going with the environmental and everything else.

So when we fashioned the Rockford deal, we looked at those core revenues that we thought we could depend on. That's why you see the earn-out structure the way the earn-out's structured. We didn't feel we were going to ask them to find another Ruby in '12 and even in '11, but we did figure that we would ask them to find their share of this kind of - the first two traunches of business.

So we think with the combined assets of both companies and the combined estimating staffs and positions and equipment that we'll be able to greatly enhance what Rockford can capture and build, but the type of work they have right now is predicated on the smaller utility work here in California, Oregon, Washington, Nevada, places like that and then this day to day kind of bid it in the spring, build it in the summer kind of thing. So we really can't give you a lot of input into what we think their ultimate profile will look like until we get into the spring and the bid season starts, and we'll go from there.

Rockford -- somebody said, "Well, jeez, what have they got in the pipeline to replace this?" I said, well, if they're working too hard on finding new jobs, they're not working hard enough on managing this thing because this is a huge project. I think we've projected $200 million, but the overall project is in the 2.5 hundred million area. and this is a big project for a company of their size with their management. Their management is up to the task, no, they have no doubt about that. But I'd rather have them managing this than hunting the next white elephant.

Sure. And then would you say on the Ruby project their margins are sort of below, above, or kind of in line with what your West business is currently doing?

I'd say we'd be pleased with their margins overall. They're not inordinately high. I don't think the customer would stand in nor is it applicable on a kind of shared risk kind of project. But they're not particularly low either.

I mean when you've got 1,000 to 1,500 guys on a job, you've got a lot of commensurate risk that goes along with that, and that's a long-term risk because you've got incurred but not reported to comp losses. You've got all kinds of long-term issues you have to deal with that have to be reserved on a project like this, and any time you get 1,000 guys in one spot, it's not a -- you don't have a lot of happy campers sometimes and you have issues that go with it.

So I think the mark-up is commensurate with the times and the risk on the project.

And one more question, and I'll just hop back in queue.

There was an article in a trade journal about -- in mid-2009 where the Rockford CEO had sort of set a hope of achieving $350 million of revenue within the next two years on an annual basis. And for next year, you're saying something like 135 in revenue is what your kind of expectation is. Can you just help us understand the difference between the 135 and the 350 he had sort of hoped for?

Well, the first difference, Lee, is I never promise anything I'm not fairly sure I can deliver, so I would never promise you $350 million because I think it's a reach.

The business -- the pipeline business is not done. There's some large projects out there. It's had a lot of legs. It's been a great business for four or five years. It's not done.

The pricing and the way this thing was structured and some of the exiting shareholders felt like it was maybe past its peak, and we tried to recognize that in the deal that we struck.

Frank's a wonderful guy. I think he runs one of the best -- he's one of the best operators that there is in the business, along with Patrick Rockford. He's done a great job on the business part he's building.

But when you're looking at white elephants, if you get one, you do 200, 300 million. If you don't get one, you do your 80. So it's just -- and if you get one, I mean this Ruby job, I think they intended to start a couple years ago, and it was held up with environmental lawsuits and things like that and permitting, and so even when you get one, you're not sure when it times up.

Thanks very much.

We're certainly not telling you it's going to be $350 million next year.

No, and God bless Frank. I can't be responsible for everything he said. Yes, once he's a partner of ours, I will be responsible, but this is pre-partnership.

Very good. Thanks a lot, guys.

Your next question comes from the line of Matt Tucker with KeyBanc Capital Markets. Please state your question.

Good morning, gentlemen. Got some questions on behalf of Tahira.

All right (inaudible).

First question regarding Rockford. Is there something special about the Pacific Northwest in terms of pipeline opportunities up there? Maybe you could talk a little bit about what you see. Or is this more -- do you view this more as addressing the West Coast more broadly?

And then do you see Rockford or the combined Rockford/ARB combination as being able to address projects more directly tied to the shale plays, which I guess are primarily a little bit further east?

Well, back to my previous answer about the three segments, a lot of that -- the first segment, which is the day-to-day dig-outs, repairs, replacements, relocations is in the Northwest, and having a presence there, having people that are based there is a big advantage. That's a part of the business that Patrick more or less runs.

Then you have the other part, which is kind of small project-based that are big change-outs and pipeline relocations or replacements of longer distance, and that's pretty geographic. You have to have -- since the projects are smaller, mobilization is a big expense to get to those projects. Having a presence there and having the people and resources there that aren't living 1,000 miles from home, it's pretty important to capture that market.

So those are the two things that we have kind of predicated a portion of the price on, and that's, quite honestly, what some of the earn-out is based on or the bulk of the earn-out philosophically is based on.

Now, if you look at the three projects I mentioned, two of which aren't in the Northwest, so Frank's part of the job -- or part of the company is one, the more nomadic, more traditional what we call boomer business, where you go where the work is, and they can go to the shale plays.

I mean Frank grew up in Texas. He worked with Price before it was Price Gregory, before it was Quanta. Did work in Alaska. He's worked pretty much all over, and he's got a philosophy and a business acumen that allows him to do that, which is a different set of skills and a different philosophy, totally different than what somebody doing the smaller work based on the West Coast would have.

So we're kind of counting on both. We think the combined assets again can muster up as good a spread with as much equipment as anybody in the business. We have a sizable amount of pipeline equipment in capacity ourselves. During this boom, we kind of chose to stay home and take care of our regular clients. We think they deserve that because they were awfully busy, too, with the retrofit and the new requirements here in California on improving the integrity of the systems.

Now that we're a little bigger financially and we see this opportunity -- I've known Frank for a long time. He and Scott Summers, who runs our underground group, are very good friends. They've known each other for a very long time, and we have a great deal of confidence in both his and Patrick's skill sets.

Great, thanks. And then could you share with us how many spreads of capacity Ruby has and what the combined capacity of the company will be?

And then as kind of a follow-up to that, does Rockford -- I'm sorry, how much spreads does Rockford have?

And then does it have capacity right now outside of the Ruby pipeline to tackle another kind of water transmission project like that, or would it pretty much have to wait until it's done with Ruby in order to move on with whatever the next project might be?

Well, I'm not exactly sure how many spreads are on Ruby because there's been a stutter step within -- clearing the environmental sites, the archaeological sites. I think if you asked Frank or anybody, he's say two spreads. And I think Frank has the ability to stand two spreads. I think ARB has the ability to stand two large-diameter spreads.

So during the past couple years, again, we've been really taking care of our -- there's an old saying, "Never trade an old friend for a new one," and we've been taking care of our traditional clients out here, and we haven't stood those spreads, so we've rented the equipment to guys like Frank, but that equipment is available. The people are available. I think we could easily stand another spread right now and maybe another one after thinking about it a little bit. I'm not sure that the industry could stand two more spreads. It's kind of a little bit overcapacitied right now in some areas.

But, again, this work is regional. When it costs you 4 or $5 million to move on to a job, where your equipment sits is pretty significant in how competitive you are on work, so we will be more active on the East and in the Southeast in the Shale plays and some of the other projects that are coming.

Thanks. One more quick one and I'll jump back --

Now, that -- excuse me, Matt -- those are big at spreads. Those are 36 and up, or call it 30 inch and up. Small inch, there's a [gob] of them we could stand. So and then there's a lot of that work coming to gathering systems and things like that, the 12-inch -- 10-inch, 12-inch, 16-inch, 20-inch-type projects.

Thanks, Brian. That's helpful.

One more quick one. It was nice to see the rebound on the West Coast in both your awards and revenues in the quarter. Do you view that as kind of sustainable going forward? Is that reflective of kind of a recovery in your core West Coast market, or is that kind of, as mentioned, some of the lumpiness in your business?

I think -- you know, I've never had a great 10-year vision, or it's pretty opaque after you get out a couple of years. What we're seeing is we're seeing -- we're currently bidding jobs in the power side out to 16. We stopped building power plants too soon when the government did some crazy things out here and really ran the IPP guys out of the business.

So I think power -- traditional power is going to be good for three or four more years. I mean we're currently bidding that much -- that kind of timeframe work.

The pipeline work, I think with the problems that some of the utilities face out here with the recent bad press and the recent problems with the gas lines, I think that's going to ramp up. And then you have the renewable stuff coming behind that.

So I really think unless there's another some kind of economic shock, which I wouldn't totally rule out, obviously, that I think we're starting to see some real firming in the market. But who knows what's going to happen with a sick budget? Who knows what's going to happen with the politics out here? It's really unpredictable.

Thanks. I'll jump back in the queue. Congrats on a good quarter, guys.

Thanks.

(Operator instructions)

Your next question comes from the line of Adam Thalhimer with BB&T. Please state your question.

Good morning, guys. Good afternoon, I guess, for me. Good morning for you. Good quarter, and congratulations on the acquisition.

Thank you.

I guess, Pete, you said the acquisition hasn't closed yet, but you feel comfortable enough we should put this into our models at this point?

We anticipate closing it this week.

Okay.

So, yes.

Which portion of Ruby does Rockford have right now? Is it kind of the mountainous portion? Is it the flat portion?

Uh-huh. Ironically, yes.

Yes, they have the portion that runs through Oregon and a portion of Nevada, and so it's about -- I pretty much toured the job a couple weeks ago before their first [stood in snow], and it's about every type of terrain you could imagine.

Is that a good thing or a bad thing?

Uh-huh. I don't mean to be flippant. It's a little good and a little bad. Yes, a lot of it is the art of the client. They've got a real challenge ahead of them releasing the arch sites and managing the environmentalists and our archaeologists ahead of our construction to make sure we can do this thing methodically and kind of continuously. That's really the challenge.

Many of these guys are -- I was up there. They've got the right stuff. They've got great guys. They've got a fabulous team on the job. There are guys that have worked for us on and off through the years, and [Micky and Dicky Langston] are two of the best guys you could have on the project. Frank is very much in tune with it.

A lot of it is just the challenge around working around the skips that you're going to have on a project of this nature with the late start, and then you've got weather coming in. So it's a tough job. I'm not going to kid you.

Yes. But it is cost-plus, right? So you're sharing some of that risk.

Yes, there's some shared risk. I don't want to get to deep into it because I'm not obviously authorized to do that. I'm sure it's discrete to Mohave and -- I'm sorry, El Paso and Rockford, but in essence, it's a reimbursable job, yes.

In terms of accretion, you sounded pretty bullish in the press release about accretion potential, and just doing some back-of-the-envelope-type analysis, and obviously a huge question mark is the amortization that he touched on, Pete, but I'm coming up with something like $0.06 in Q4, $0.15 in '11, $0.10 in '12, and again, that's kind of based on your earn-out targets. I mean is that within the realm of possibility?

I will comment on the earn-out targets. I think that I want to wait until we have the fair valuation to determine how big the impact really is, the intangible amortization, because that has a significant impact. When I looked at ranges for our board, it was pretty wide just depending on that value. So I'm not sure that I want to --

Well, we don't give guidance, so we certainly (inaudible) partial guidance, but --

I'm not sure I'm going to excite you or -- we believe that this is a very solid acquisition. We bought this company because we knew the management. We liked their geography. We liked the price. We liked the long-term benefits to the company. And among a lot of other things, we liked where they are so we can tack on new skills and new services in kind of their bases. And we like the fact that they had this project that kind of reduced our purchase price. But we based the purchase on the long-term benefit, not on just a one-project deal.

Yes, it seems like you're paying, what, 2.5 trailing EBITDA, 3.3 times '11, but then when you step out to '12 and Ruby goes away, you're at about six times. It feels like an appropriate multiple, and I guess that 2012 target -- or the 2012 earn-out target is more indicative of what they do in a normal environment, $14 million of EBITDA, $80 million of revenue type of situation.

This is like James but not. We like the price. We like the guys. We got a fabulous set of guys with James. I think actually with James we proved to you guys that we could manage an acquisition, and it's gone real well.

But we've seen a lot of synergies with this that we didn't have with James. James is a gazillion miles away, kind of in a different kind of business. This one is synergistic. We have some of the same clients, a lot of the same kind of work, and a tremendous synergy in the equipment fleets and where they're located and what can be brought to bear.

So we look at this thing. We can just simply look at an add-on here and we could speculate as to what that add-on is, but until we get a year or two into this and really focus on savings and ways we can build each other's businesses' relationships, assets, we think there's some real value that is going to be real hard to calculate upfront.

Okay. That's really good color, more important than the actual numbers themselves, so appreciate that.

And then speaking of James, I think maybe you can just touch on the outlook for projects there. I know you picked off a large award on the highway side in Texas, your future home, and I think there were some more projects on that I-35 corridor. Can you talk about those or any projects in Louisiana you see on the horizon?

Not sure really how to comment in vague terms, but we're optimistic about what we see available to us.

The heavy highway side has been stronger than we'd hoped, and [Danny Hestert]'s had a great job of circling it and winning it.

The industrial side has been a little weaker. In the I&M side, the maintenance side, which we do a lot of phosphate mine maintenance and things like that, it's been a little weaker because the client's sitting -- general economy, some of it, but there's been some real changes in the import market, which I can't get into, but I remain very optimistic, and we are just scratching the surface on the market that's available to them on the industrial side, and that's one of the things that we saw that might have some real opportunity for us long term to grow, both geographically and in their current markets there.

So I just couldn't be happier with the way the guys at James have melded into the team. They've been great, great guys to work with, and I just -- I couldn't be more pleased, and I think the opportunities will continue to grow.

Now. the heavy highway work, when the state puts out their budget, they put it out in front of God and everybody and everybody knows it, and so there's no secrets to it, and that leads to greater competition. There's a lot of players out there, some of them pretty hungry. But we're able to win our share, and along with some of the assets we have on that I-35 corridor, we think we're going to be very, very competitive on the work that comes up there.

I think importantly, though, as I'm hearing kind of rumbles from our competitors, that, jeez, the prices are tough, and we're not dancing in the streets with the prices we're getting, but we're certainly not embarrassed by them either. We think we're getting fair prices, and we're very comfortable that we can achieve our budgets and our own schedules.

Okay. Last question for me. I'm just curious on [West Pack] whether there's any chatter there about potential opportunities, so whether kind of just situation where we should just wait for a year for things to develop on that front?

They're working hard. That's about all I can tell you right now. They've got some good prospects. They're very, very astute guys. They've been in the business and their daddies were in the business, so they will find prospects.

These projects develop kind of slowly because you're dealing with majors, and they get pulled and pushed in different directions based on returns, but they're nimble, they're smart guys, and they will develop decent projects, so I'm very optimistic. But I couldn't really share any more color on it than that.

Okay. Thanks for the time, guys.

Thanks, Al (sic).

Your next question comes from the line of Matt Tucker with KeyBanc Capital Markets. Please state your question.

Hey, guys. Just a couple of follow-up questions.

When you look at the California gas-fired power plant opportunities, there's a handful there, at least pretty advanced in the regulatory process. Could you talk a little bit about the opportunities that you currently see and maybe timing on any prospects that you're looking at?

And then with the projects you recently won and given these are kind of longer-term projects, what's kind of your capacity in terms of how many of these projects you could be executing concurrently?

Well, there's really three types of projects.

There's the small repowers and just labor-only jobs and may range anywhere from 10 to 60, 70 million.

There's the kind of -- the Calpine kind of projects that are engineered and you just bid a portion of the materials, the [bulks] and the labor, and they're 100 plus or minus.

And then you have the design/builds, and we run at those with the various number of partners, some of them private, some of them public. We don't do the engineering, and we'd like to kind of lay off some of the procurement, buying the engines or the [herzigs]. We'd like to lay some of that procurement off to our engineering partners.

It's across the board. We're bidding all three very hard right now. We have a couple that were heavy into negotiations that we can't announce yet because we don't announce them till the contract's signed. I mean they're past kind of the award and into the final parts of the negotiations.

One of them was not ready to award or contract with because they hadn't received their permit from the PUC, which they just got, so we're optimistic on that.

But we're one or two jobs away from running out of teams, and it takes almost the same size team to run a little one as it does a big one, so we're trying to focus on the larger ones. There's some out that are out for clients that are less favorable than other clients -- I'm being very polite when I put it that way -- and there's some out that are for great clients, and so we're going to take a harder shot at the relationship to great clients that know how to run good jobs and look at value more than they just do bottom-dollar price.

So I think we could be very easily in the next two or three months full for the next three years, and we'd have to look outside for teams, and on a $200 million project, I'm not wild about going to a bunch of strangers to run it. So I'm not sure how much more we'll take on.

And then you have the solar work coming in between and right after that. So it's kind of a nice market for us right now, and we're getting reasonable prices. We're not getting prices like we were three or four years ago, little tougher terms, but they're good, fair prices, and the clients we're giving prices to are excellent clients. They're guys that are stand-up guys. They do what they say they're going to do, and they're honorable.

Thanks. And then I believe you guys have a MSA contract for pipeline work with Pacific Gas and Electric. Could you talk about any impact or expected impact on your business, your kind of pipeline maintenance or retrofit business that you see stemming from the San Bruno accident?

Well, that's a tough question, Matt, because I hate to discuss profits on a client's malady. It was really a tragedy. I think they're going to be pushed hard to replace and repair a lot of their system. Those two pipelines were built in the mid-1900s, and they're just -- they just need to be replaced and rebuilt. The question is who's going to do it and under what contract terms and how fast because it takes forever to get a permit in California even to replace a pipeline.

So I'm not sure how big the impact will be or when it will come. We do a lot of other work for PG&E. We did a lot of electrical gas services and stuff like that, and then maybe just the revenues slide over from those areas into the pipeline area.

I think that it's so new and so painful for our clients right now that they're still trying to get their hands around what they need to do. I know they're working very, very hard at trying to (inaudible - technical difficulty) these problems that led to these issues, and I just can't -- I can't begin to speculate as what the long-term impact or even the short-term impact will be, nor would I. It's got to be a tough place for these guys to be, but I would think that there would be more pipe work done in the next couple of years. I don't think they're going to have a lot of choice if there can be efficiently a permit process developed with the PUC and the environmentals and everybody else in this.

Makes sense. Thanks. That's all I've got. Thanks.

You bet.

Your next question comes from Adam Thalhimer with BB&T. Please state your question.

Thanks. You know, Brian, I was just thinking back to a year ago, Q3 '09, when you literally had zero awards.

Hey, thanks for (inaudible - multiple speakers).

That (inaudible - multiple speakers) have been the bottom of the cycle. Maybe you could adlib a little bit on where you feel we are in a cycle and how you feel about the economy here.

Thanks for recalling that little bit of pain for me. I'm very appreciative.

Yeah, it was a pretty tough quarter. It feels a lot better. I don't know what else I can tell you. Anecdotally, it feels a ton better. It just -- there was plenty of stuff bidding, plenty of stuff going on. I think -- and there remains just a tremendous amount of uncertainty as to what's going to be available in terms of financing and permitting and everything else, and I think that's actually continuing to impact awards of work and clients that want to build stuff.

And so -- but some of this stuff, they have no choices. I mean if we don't get these power plants built on the West Coast, we're going to start having brown-outs again very soon. And solar is helpful, but you know what? It's not -- I guess it's not considered a brown-out when it happens at night, but still, the power goes off.

So I think some of the work we're getting, they just have to award, but it's certainly -- we've bid a couple parking structures, a couple water-processing deals that the clients want to build, but they're relying on state money or federal money to build, and there's just so much uncertainty that it's going to be available or the states have plundered the local governments, and so there's no money for those projects from on the local level.

So there's a tremendous amount of uncertainty remaining, and until some of these idiots in politics figure out what they need to do to clear the boards of uncertainty, we're going to struggle in some of our business segments, more so in California than some of the other states. These guys are fundamentally basket cases.

Okay, thanks a lot.

You bet.

There are no further questions. I will now turn the conference back to management.

Well, I truly thank all of you for your support and continued interest in our company, and I hope we answered your questions. We are available if anybody has a call and wants (inaudible) the questions, but at this point, I'd like to wish you all goodbye.

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