Primoris Services Corp (PRIM) 2010 Q4 法說會逐字稿

Greetings and welcome to the Primoris Services Corporation announces 2010 fourth quarter year-end financial results. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Melissa Dixon at the Equity Group, Investor Relations for Primoris. Thank you Ms. Dixon, you may begin.

Thank you, Rob. Good morning, everyone, and thank you for joining us today. Our speakers for today 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 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 in today's conference call and those detailed in the Risk Factors section and other portion of Primoris' filings with the Securities and Exchange Commission, including the Company's Form 10-K for the year ended December 31, 2010 and other filings. 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, Melissa, and good morning everyone. We are pleased with the results for the fourth quarter and full year. Our 2010 improvements in revenue, profits, operating cash flow and financial condition help validate the strategy we are articulated since becoming public in 2008. The strategy has been to focus on the pursuit and execution of high-margin work and our diverse end-markets, maintain and enhance our loyal customer base, expand our project-based through both organic and acquisitive means, continue to invest in our large and varied construction equipment fleet, all the while preserving and enhancing our financial strength, especially cash. In connection with the earnings, we also announced that we will be paying a cash dividend for the eleventh consecutive quarter. All three operating segments contributed well to our Q4 results, with each of them reporting higher quarter-over-quarter revenues and making significant contributions to profits.

Let me quickly walk through them. Our East Construction Services segment benefited from the results of James Construction Group, which we acquired in late 2009. The impact of James was somewhat offset by continuing decline in revenues and water and wastewater projects. Regarding the end-markets we serve in this segment, our highway construction group has continued to perform it's current backlog very well, while replacing it at a more than satisfactory rate. Obviously, we have the same long-term concerns that any contractors that operate in this space have, with future highway funding questions. But we are very confident we are the right Company and the right geography with the right competitive advantages to succeed in spite of market fluctuations. That having been said, we've seen no sign of any large-scale contraction to date.

The industrial and infrastructure and maintenance side of the East segment, which suffered a bit of a downturn over the last two years, has performed well. We are now seeing signs of the market is headed to higher levels of activity, evidenced by both the quality and quantity of prospective projects. Water and wastewater has been a tough market, with customers offering lower capital outlays and plenty of competitors to share them. It would appear, however, that we are beginning to experience improved bidding prospects in this segment, and improving results due to somewhat better market conditions and our consolidation, integration and cross-marketing efforts. Our seasoned management in this segment has been operating in a very tough market in a very commendable fashion, in these tough markets that create opportunities in the future.

At our West construction services segment, fourth quarter results reflected the impact of Rockford acquisition, which for accounting purposes, closed November 1, 2010. Rockford contributed approximately $85 million in revenues to the fourth quarter, including $75 million of the revenues from the Ruby Pipeline Project. Based on current estimates, we believe that the Ruby project will deliver at least $200 million in revenues during the first half of 2011. I want to remind everyone that the Ruby Pipeline Project will have a disproportionately large impact on our revenues for the next couple of quarters, but the work on the project winds down mid-2011. After that, we expect Rockford's impact on our results to be somewhat less dramatic.

We did not acquire Rockford for the Ruby project. We believe that there are long-term infrastructure requirements for major pipeline projects. With Rockford, along with a very strong historical pre-Rockford presence, we have a team that has successfully bid and performed these projects for decades. In California, Rockford enhances our ability to serve a market in which we are already deeply integrated. Rockford's strong Northwest United States presence offers a good long-term prospect for both its base business and an avenue to introduce a broader scope of services to this market. This is a strategy we have used effectively many times.

In terms of our historical ARB business, we saw significant growth in our industrial division in Q4 as we rebounded from a dismal year of contract awards in 2009 with the start of our power projects for NCPA and IID. And our underground construction group at ARB continued its strong performance. As it relates to our West Coast end-markets -- our West construction end-markets, for underground services, we expect that opportunities for natural gas pipelines will continue to be plentiful. Driven by the development of gas shale formations in North America and natural gas's characteristics as cleanest burning lowest-cost fossil fuel. These new gas sources along with significant increase in the number of natural gas power generated scheduled to be built over the next several decades should lead to even more gas line construction. Oil and products pipeline opportunities will be available as well.

As I have mentioned before there continues to be a change in where gas, crude, and products are transported. Also there will be regulatory impetus for improvement of all types of pipelines due to more stringent safety standards applied to our aging delivery systems. Our West Coast industrial segment continues to perform well. After the loss of two sizable projects in process during 2009 and 2010 uncertain times for our clients considering large capital projects, our market opportunities have returned to a great extent. We are seeing excellent prospect flow and good capture rates with high-quality clients. We are very pleased with our current performance in this area with real opportunities to improve even this performance in the future.

Gas power will be the largest portion of our near to midterm revenues with solar lagging still, but still holding significant promise in the future. Large capital refinery work is still very sparse as spreads remain difficult for the clients in this market. But there are decent projects even in this tougher market as clients find new ways to carve additional profits in processing and distribution. The structures market remains shallow and very competitive. We continue to find adequate work in this market to maintain our capacity, but at nominal margins. Again these tough markets will always turn for us and this one will too.

Our engineering segment rebounded nicely in Q4 of '09 with revenues rising by almost 33%, due to the work of both Onquest and Born Canada.There continues to be significant flow of opportunities in Southeast Asia and the America -- and America's with some prospects in the Middle East. While Asia is a more traditional market for Onquest, Born has been very active there, and of course, both serve the Americas. We expect to see a good stream of projects from these markets. In summary, despite mixed market conditions in a competitive environment, we announced major contracts totaling $616 million in 2010, $101 million of which we won in fourth quarter. Year-to-date in 2011 we have announced contracts with an estimated value in excess of $220 million -- $225 million.

Earlier this month we announced that ARB was awarded one of -- a contract for one of the nation's largest power generation companies to help modernize the El Segundo generating station located in Southern California. ARB will replace two older generating units at this facility with a state-of-the-art 550 megawatt natural gas fired combined cycle plant. In late January we also announced the James industrial division was awarded two separate contracts for projects related to the construction of an industrial gas production facility in Louisiana and Texas.

Our strong financial position which is reflected by among other things, a bonding capacity in excess of $1.2 billion and our ability to self-perform much of our project work are distinct advantages that Primoris Companies have in a competitive market environment. At the end of 2010, our construction fleet was valued well in excess of $100 million, creating a substantial barrier of entry and a sizable competitive advantage. We remain well capitalized at the end of the quarter with more than $140 million in cash, cash equivalents, and investments and relatively modest debt profile. We start 2011 with the backlog of nearly $900 million of which virtually none of Rockford's 2011 revenues are a part.

As I do on every call, I remind participants that a sizable portion of our annual revenues never are recorded in backlog. MSA work or any other form of cost reimbursable contract is never booked to backlog. All in all 2010 was certainly one of our most eventful and successful years. We continued successful integration of our James acquisition, acquired Rockford Corporation, maintained a good level growth profitability, protected and enhanced our financial condition while positioning ourselves for solid growth over the next several years.

As for 2011 we are very encouraged by what we have seen so far. However, my enthusiasm is always tempered by recognition that we are operating in somewhat unchartered waters as to our nation and the world. Evidenced by unpredictable events, such as those occurred three years ago here and less than a week ago in Japan. While we are mindful of these challenges, Primoris has faired best in times of uncertainty and I am very optimistic as to both our immediate and long-term future. Now I would like to turn the conversation over to Pete Moerbeek, our Chief Financial Officer.

Thank you, Brian, and thanks to each of you for taking the time to join us on this call. After reviewing some of the financial highlights of the 2010 fourth quarter, I can fill in any additional details during the question-and-answer session. We are planning on filing our Form10-k later today. Let me start with our income statement. Our fourth quarter 2010 revenues of $333 million rose by 184% from the fourth quarter of 2009, due primarily to the acquisitions of Baton-Rouge-based James Construction Group in December 2009 and Hillsboro, Oregon-based Rockford in November 2010. James contributed approximately $103 million of the growth, Rockford $85 million and our pre-acquisition business grew by $28 million.

Our overall gross profit for the fourth quarter of 2010 rose by $23.7 million to $43.8 million, due primarily to a $22.3 million contribution from the acquired businesses and as a percentage of revenues, our gross margin was 13.1% compared to last year's unusually high 17.2%. This year, our gross margin reflects the impact of the historically lower gross margin percentages of James' Heavy Civil projects and, in addition, the start of two larger power plant projects by our ARB industrial division, has returned our work mix and margins to more traditional levels in our California-based construction businesses. We also received positive revenue and margin contributions from our engineering segment, which after completing several larger projects throughout 2010, has focused on some of it's more traditional customers and projects.

For the quarter, selling, general and administrative expenses decreased to 6.3% of revenues from 10.2% of revenues in the fourth quarter of 2009. For the year, the decrease as a percentage was from 7.5% of revenues to 6.9% of revenues. In dollar terms SG&A for the fourth quarter of 2010 increased by $9.2 million over the previous year. Approximately $8.1 million of the increase was attributable to the James and Rockford acquisitions and $700,000 was associated with the attainment by James of their 2010 earnout target. In addition in the quarter we recognize $1.7 million goodwill impairment charge offset by $1 million contingent liability credit relating to the Cravens' earnout

This is probably a good time to discuss purchase accounting. In 2010, we recognized $2.9 million of non-cash backlog amortization expense as part of our cost of revenues with $1.3 million of that in the fourth quarter. We anticipate that in 2011, we will record approximately $4.6 million in backlog amortization. As part of SG&A expense in 2010, we also recognized approximately $3.6 million of intangible amortization, with $1 million of that occurring in the fourth quarter. With the addition of Rockford, we expect that SG&A intangible amortization amount in 2011 will be approximately $4.7 million.

In October 2009, we acquired Cravens, a Houston-based construction company. At the end of 2010, we made the decision to consolidate Cravens' operations with those of James. The impairment charge that we recorded for this consolidation was offset by a reduction in contingent earn-out liability, which sort of makes sense, since the goodwill and intangible assets created at the time of the Cravens acquisition were primarily related to the potential earn-out amounts. In addition to the intangible asset amortization, we also used purchase accounting for our potential earn-out calculation. The really good news is that both James and Rockford obtained their 2010 earn-outs. The bad news is that I now have to explain the accounting for this.

First step is to assign a probability to the attainment of the earnout amount. With that -- when that probability changes, or when the earnout targets are met, we record an SG&A expense for the difference between the probable earnout amount and that actual earnout amount. In the fourth quarter, we recorded $700,000 for this difference for the James earnout consideration. The second step is to determine the present value of each probable earnout amount to establish a balance sheet liability. As time passes, we adjust the present value amount. In 2010, we recorded expenses of $1.4 million for this present value charge for the James and Rockford earnout. Of that amount, we expensed $465,000 in the fourth quarter. This charge is shown as a separate line item in Other Income and Expenses. If Rockford remains on track for it's 2011 and 2012 earnouts, we will record an SG&A expense of $460,000, and an Other expense of $1.2 million associated with the present value calculations in 2011.

Let me now transition back to our fourth quarter results by looking at the Other Income and Expense category. Net other expenses in the 2010 fourth quarter of $2.1 million compared to net other income of $3.2 million in the fourth quarter of 2009. This was due primarily to lower consolidated -- to lower non-consolidated investment income of $0.5 million compared to income of $3.4 million in the fourth quarter of 2009, primarily resulting from the end of the Otay Mesa joint venture in early 2010. Our net interest expense increased from $434,000 in the fourth quarter of 2009 to $2.2 million in the fourth quarter of 2010.

This increase was due to interest payments in the fourth quarter of 2010 of $700,000 associated with the sub-debt that we -- that came about because of the acquisitions, and approximately $1 million for interest on the look-back calculation that we did for tax purposes, as discussed in last quarter's call. It should not be a surprise when I say that our interest income decreased, even though we had substantially higher cash balances. For the year we paid approximately $2.5 million in interest on our acquisition sub-debt, and approximately $2.6 million in interest associated with our notes secured by equipment.

The provision for income taxes for the fourth quarter of 2010 was $8.3 million for effective tax rate of 40.3%, compared to $4.3 million for an effective tax rate of 38.6% in the prior-year quarter. Our expectation is that for 2011, our effective tax rate will be in the 39.5% range. Net income for the fourth quarter of 2010 was $12.2 million, or $0.24 per diluted share, compared to net income of $3.7 million, or $0.10 per diluted share, in the same period in 2009. Results for the fourth quarter of 2009 included a loss from discontinued operations of $3 million, or $0.08 per diluted share, associated with the sale of our Ecuadorian subsidiary, which we completed in early 2010.

Fully diluted shares outstanding for the fourth quarter of 2010 increased by 33.6% to $50.9 million from $38.1 million in last year's fourth quarter. This was due to the impact of a full quarter of the 8.2 million shares we issued in December 2009 for the James acquisition, the conversion of 4.3 million warrants, in 2010, the common shares with expiration of the warrants program, the 1.6 million shares issued for the Rockford acquisition and the attainment of the James and Rockford earnout shares totaling 1.590 million shares, which we will be issuing later this month, and which for diluted share calculations were included in the entire fourth quarter. As Brian noted earlier, we maintained a solid financial position at December 31, with cash and cash equivalents of $115.4 million, short-term investments of $26 million, working capital of $45.8 million, total debt and capital leases secured by equipment of $59.7 million, subordinated acquisition debt of $43.2 million, and stockholders equity of $208.2 million.

The Rockford acquisition has led to some interesting changes in the balance sheet. For example, our accounts receivable were $208 million at December 31, 2010. This amount included a $56 million receivable for the Ruby project. That receivable was paid on January 10. In fact, by the end of February we had collected over 98% of our year-end receivable balances. Our balance sheet also shows a large increase in billings and excess of costs and estimated earnings. Of the $205 million amount at December 2010, approximately $75 million related to the Rockford Ruby project. The receivable portion of that was paid in early January, so, we have the cash. But, unfortunately, the large billings in excess of cost and earnings doesn't help our current ratio and working capital ratio, but this is a high-cost problem.

The terms of the Ruby contract allow us to bill in advance around the twentieth of each month and we are paid by the tenth of the following month. As I mentioned, we had subordinated acquisition debt of $43.2 million at December 31, 2010. During 2010, we used a portion of the cash we received from the warrant conversion to reduce the James acquisition note from $53 million to $27.4 million. And lastly, we paid in full that portion of the Rockford subordinated debt that had a potential convertible feature.Finally, our balance sheet at December 31 included a $24.6 million liability relating to the estimated fair value for earnout payments. When we make the earnout payments later this month, that amount will be reduced by $14.8 million.

Leaving the balance sheet, let me briefly discuss our backlog. At December 31, 2010, total backlog was $895.8 million. Not included in that amount is approximately $225 million of new projects that we have announced in early 2011. We do not include in our backlog contracts for which we do not have a firm price. This means for example that our estimated revenue for Ruby is not included in our backlog numbers, nor is an estimate for MSA or Alliance work. In 2010, approximately $259 million of our revenues, or 27.5%, did not flow through backlog. In the fourth quarter, approximately $127 million of revenue did not flow through backlog. Thus for us, backlog is not as comprehensive an indicator is it may be for others.

At last, a final topic. Although the Rockford purchase agreement provided that we could assume the assets and liabilities as of October 1, 2010, our financial results include Rockford for the last two months of the quarter. In effect, the operating results for Rockford for October have been treated as a reduction of the purchase price paid. With that, let me turn the call over to the operator, so that we can get to your questions. Thank you all very much.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question is from the line of Lee Jagoda with CJS Securities. Please proceed with your question.

Hi, good morning, congratulations on your first quarter.

Hi, Lee.

Thanks, Lee.

You previously announced guidance for Rockford of $135 million of revenue in 2011. You've now revised that upward to $200 million. What's caused the material delta in such a short amount of time?

A couple of things, Lee. Rockford is a cost-reimbursable project with a fixed fee. As we are looking out, what we are finding is that we anticipate the project is going to take a lot more work. We have had some challenges during the winter, we had some challenges obtaining all of right-aways. So, while this does not necessarily change our margin -- I'm sorry, doesn't change our total cost -- the total amount we are paid for fee, we do anticipate that there will be an increase in revenues.

Got it, perfect. Then switching gears a little bit, can you give us the EBITDA for James and the EBITDA in Q4 for Rockford?

I am going to have to do some work on that, because normally we don't -- we won't talk about EBITDA on the call. But I think if you look at the 10K, it is going to be pretty obvious.

Okay, but I think you said earlier they both did achieve their earn-out numbers, that is a good starting point?

Yes.

And then could you give us the actual D&A in the quarter and just break out the amortization from the various acquisitions within that number?

You are going to have to give me a minute. I am going to let someone else come, and then I will get back on the line and answer that. I've got it for the whole year, I do not have it for the quarter.

Okay, one more question, and I will just hop back in queue. If I look out Rockford ex the Ruby contract, it looks it was about $6 million of revenue in the quarter. I guess the question is, was it a single project, and then what, if anything, is in the pipeline, or what, if anything, have they won since quarter end?

It wasn't a single project, no, it was several small projects. As we explained when we announced the acquisition, Lee, Rockford's really made up in several pieces. One of them is this large project group, which Frank and Josh run; the other is another group that does work in California and another's another group that does work in Oregon and Washington. I am not sure what the question is, but we are confident we are going to be able to replace the large Ruby project with another project of th size, whether it's going to be this size or not, I would be very doubtful because there aren't that many dinosaurs out there floating around -- or elephants, to be shot. We have incorporated the Rockford California Group, which was about 10 miles from our office in the Bay Area into that office, and that revenue and cost will be reported in as part of that operation, and then the group in Washington is still independent. So I forget what we call that at this moment.Alaska Pacific. I am not sure what the rest of the question was, Lee.

It was really looking at the Rockford pipeline.

Yes. What else do they have?

Yes.

They've picked up significant work on a small project basis, both in California and the Northwest, in first quarter. We don't have that broken out and I don't think they've been large enough to announce.

Okay, thanks very much.

And looking at their bid, what they are currently bidding, I'm pleased with what is available to pursue after Ruby. Ruby is going to run pretty much through the construction season this year. I think it will be done second quarter handily. Whether allowing and rights-of-way allowing, but there are good opportunities out there to replace part of that revenue with something else.

Great.

Thank you. Our next question is from the line of Al Kaschalk of Wedbush. Please state your question.

Good morning, guys.

Hey, Al.I want try to drill on the backlog a little bit. I know, given the lack of guidance, it is probably one of the better metrics to think through. But if I heard you right, with new contracts, $2.25 million, Ruby doing $200 million, your MSA of traditional, I think which is $120-something million in 2010. It seems like we are a little short of $900 million of revenue for 2011, before any M&A and new work. So does that map triangulate well, and secondly, how do you feel about the pipeline of work?

Well I don't think your map is -- triangulates well. We don't give guidance, but I wouldn't expect anywhere south of $1 billion of revenue for 2011 based on what we currently have. If you take the MSA work from the previous year, which I don't see much decline in that coming this year. A lot of the integrity work that we have been doing in California actually has to increase . You take the current run rate at James, which we've more-than-handily replaced our burn-off with new backlog, and then you add to that the Rockford revenues and the yet-to-be-bid work, I see us well in excess of the number you are talking about.

Okay. That is good to hear. Second thing is, I was wondering if you could give us, Brian, a little bit of -- a look into the revenue and some of the contracts from the perspective of closure versus startup mode, and more on -- majority of your contracts, are they more than on an execution-completion mold? Obviously the -- what I am trying to detect is the ability for margins, which look like they've sustained, maybe has some ability to show some -- a little bit more improvement.

There's all kinds of late-stage issues that crop up on projects of the nature that we do. Whether being, not the least of which, you have the nature of the client. Some clients are harder to get that last payment out of than other clients. So we traditionally do better in the late stages of the project in terms of attainment of margins. Plus, when we look at the work in process every month and then again harder every quarter, we use new information to analyze how we should interpret how the job is going to perform, and you have much better information and much more history late-stage of the project then you do early-stage of the project.

But really I don't think I can even begin to typify as to the nature of the projects in startup or close-out. Obviously, the Ruby job is going to be -- it's cost-reimbursable, so it's going to go on and we don't see those kind of risks there as much as in other places. We've got some sizable projects that will be winding up this year, but we've got a lot of other sizable projects in the startup. The job we announced at El Segundo was $150-million-plus, $160--million-plus, and that will just be getting into the meat of the job in Q4. Because there is a whole lot of -- it starts up pretty slow on these large power jobs. So I can't say that's going to have a big swing in the way we recognize margins on the job in terms of jobs in startup and jobs in close-down.

All right. And then my final question is on the preserving and enhancing the cash position, and you had a very active 18 months of the M&A, how do you think about the pipeline of business there, or opportunities?

You started the question with cash and then you ended it with M&A. So is it an M&A question or a cash question?

Well I presume you are not going to issue equity to do many growth initiatives, you are going to use your balance sheet, meaning the cash and/or some debt. So the cash is starting to build because of the integration success and your progress on these projects. So I assume you don't want to sit with a big pile of cash on your balance sheet and not drive the returns that you can get from the book of business that you can gather. So it is driven as a M&A question knowing that you have a currency there, and pretty liquid, to use.

Well there's -- we look at acquisitions, or inquisitive growth, on a bunch of different levels. One of them is the financial statement, which obviously we need to issue some securities as part of that. We like to see a higher price before we do a lot of that. But in order to lock management, to align their goals with ours and their interests with ours, we would like to see management end up with stock. With James we were able to weight the stock heavier than the cash and to management, and the James management guys, they really liked the prospect of having a large share of the Company. With Rockford, we did the same thing . The managers got a larger portion of stock than they did cash, and the private equity guys got mostly cash and sub-debt. But you have the balance sheet issues that we look at you have the management issues that we look at.

Now we are willing pleased with the way James has integrated. I think the guys are great, we've gotten along well. We are putting systems in place. I think most of the accounting systems are pretty much, Pete, they are pretty much in place, right? Pete's shaking his head. But there is still an integration issue there. With Rockford, it is easier because we've known these guys, I've known Frank for, I don't know, decades. We know the business. Some of their guys in California actually worked for us years prior. So the question will be will be inquisitive again this year or in the next foreseeable future, and the answer is, we will be a little opportunistic, but we want to make sure we've integrated well what we've bit off so far. We want to make sure we can chew it and swallow it.

I think we are well down that road. I think the -- completing Ruby will be a big benchmark in that goal. I don't see James being as huge a problem at this point, I think we've done fairly well in integrating than that. We are seeing some real, real benefits of cross-selling and conspiring together on projects between some of the legacy group and the new groups. I'm really pleased with that, Mike Killgore has done a great job of facilitating that. So financially, we are able to, management-wise we are going to sit back for a quarter or two. Now obviously there are lots of opportunities out of there, it's a target-rich garment. We are obviously still looking around, and we are going to grow the business, but we are going to do it in a very precise way.

Okay, I will hop back in queue.

Thanks, Al.

Thank you. Our next question is from the line of Matt Tucker of Keybanc Capital Markets Please proceed with your question.

Morning, Brian and Pete, and congrats on a nice quarter and great year.

Hey, Matt.

Thanks, Matt.

Over the past few days with the situation in Japan with nuclear, it seems there's been a renewed focus on natural gas-fired generation. Can you give us a sense, and Brian you touched on this in your commentary, but can you give us a sense of your overall exposure to natural gas as a percentage of your overall business mix, and in particular how much is related -- directly related to gas-fired generation and the delivery infrastructure for that gas?

It sounds like good material for a thesis. Obviously we are highly levered against natural gas, I mean we build pipelines. I remember I got asked one time by an analyst, geez what happens if the price of gas goes down? And then he turned around and asked me well, what happens if it goes up, in terms of our business?We are kind of middlemen. We work for the producers and we also worked for the consumers. So we are laying natural gas pipelines from the fields that produce the natural gas. We are compressing it, we are laying flow lines, we're laying process facilities, we are working on the transmission lines that take it to market and we build the lines that distribute it to the consumer and we build the feeder lines that feed it into the gas plants and we built the gas plants -- the gas power plants. So -- and we build a lot of things in between, like the work we're doing in Gorgon in Australia, is a -- related to a LNG facility, and then we built an LNG facility here.

So we like natural gas, but only God could tell you how much of this nuclear issue is going to be an impetus to natural gas. It is the best fuel in the United States, it's one of the most abundant. It is cleaner than coal, although there is some great coal technologies out there that give you clean emissions. But if the administration continues to be focused on C02 and they deem that to be a pollutants, who knows what the long-term effect on the natural gas market is going to be. Prior to Japan, prior to the issues there, the federal agencies had predicted a very, very aggressive build-out of new natural gas-powered power plants prior to all of that. You've got a natural gas that's spread to oil that's just extremely attractive, and I think you're going to see more of it used in transportation. But we like the market, we like our exposure to it and we are believers in it that whether the nuclear industry has a -- has legs after this issue in Japan, I think it is still unfolding.

All right, thank you. You indicated in your prepared commentary that gas power is likely to represent the largest portion of the near-term revenues. If you think about the power side in combination with the pipeline side, are you able to quantify, even ballpark, what that represents in terms of your overall revenue mix?

Yes, I was a tiny bit concerned that when I threw that statistic out that people would interpret that as our natural -- that was the largest portion Primoris' revenues, and it's strictly the largest portion of the industrial group in California's revenues. I can't tell you what it is. I mean I could, Matt, but it would take some homework. We lay pipe and that pipe doesn't really care, although the systems are designed differently, obviously. The pipe really doesn't care whether you put oil, gas or water or hydrogen in it. We see good prospects for more gas from different places in the country. We see good prospects for distribution work and transmission work because you've got some very aged systems that need real retrofit. Some of these systems that were installed -- that you have had recent issues with were installed in the 1940s and 1950s. So they are just ancient by any measurement.

We see good prospects for where oil is coming from and how it needs to be brought into this country because there still has been no effective way to use natural gas in transportation, other than large-scale busing and maybe trains and things like that, and we need more oil, because it is really the only true fungible fuel. And we see good prospects for good projects that we are actively pursuing, and participating with WestPac to bring crude into this country from different resources, international resources. We think there is a great opportunity there.

And the way that the products are distributed out of the refineries, we are currently looking at a lot of projects there that distribute their products differently because the refineries, it's a pretty mature infrastructure, but the ownership has moved around and where the products are needed is changing pretty effectively over the last -- or pretty significantly over the next 10 years. So natural gas is a big piece of it, but we've always been able to find something to build pipes to put stuff in. So I'm real optimistic about the underground business in general.

Thanks, Brian, that's really helpful. And then, looking at your margins. You guys have been indicating for a while now that you do expect some negative mix shift as you see a recovery in some of your lower-margin businesses. And, Pete, you touched on this in your commentary. But with the recent large power plant awards you've won and plus the addition of Rockford, have those developments changed, or thinking at all on maybe the extent of the margin mix shift you could see?

Not really, because the changes, Matt, that we talking about when we say more traditional are as much mix change as anything else. When our MSA work tend to dominate, or some of the call-out work, it has higher margins than a power plant does. Obviously the power plant is much longer-term, and as we start the power plant, it is not that we have bid them with low margins, necessarily, it is that as we start them we take a lesser margin than, hopefully as the contingencies are resolved going on. So the change in margins is not necessarily the result of changes in bidding, as much as it is just a mix work between the call-out MSA work.

The Ruby project, if you look at it as a relatively fixed project from the standpoint of total dollar earnings, from a margin standpoint, as we increase revenues, it is going to look worse as just a pure calculation. But obviously we're in this for dollars, not margin dollars. We see that there is still potential upside on that. But if you look at it just strictly as margins, I don't think you're going to see that we are bidding something that is significantly below what we were bidding before, it is just the shift of work. And as I said earlier, James has the same issue, that as you start to blend James in with us, their work tends to be a lot lower.

Well, I think I've got a better answer than what he gave you. But the mix -- I think the mix is going to be inducive to achieving a little better margins. Not only from the mix of the work that is there, because we do better on some of the power work and things like that because it's obviously a more technically challenging work via competitors, higher risk so you should make higher margins. But also the work in the lower margin categories, we see a real change there. I think some of it is the market is improving. Some of it was the shakeout of guys that entered our markets because their market dried up so they migrated into our markets, and some of it is because we have been very effective in integrating the companies. We've integrated Cravens into James, we're seeing some good changes there. Will's a great manager, but bringing those resources of James in there and their bidding capacity and their expertise has been quite helpful. We are going to do a similar process with some of the other businesses.

The only business I have not seen a real sharp turn in to be -- I won't say a sharp turn, but a substantial turn, to be honest with you, is the structures group in California, and that will come. Historically it hasn't been a big contributor anyway, but it is a market I think we need to stay in.

Thanks, that's really helpful. Just the last one from me. When you look at the $225 million in awards that you've won year-to-date in 2011, I assume the El Segundo power plant represents a big portion of that, but can you give us a sense of what else is in there in terms of types of projects, and are any other large ones in there?

There were two projects that were industrial gas processing plants in Texas and Louisiana that James picked up. Which is good, because when we bought James in the year prior to our acquisition, their revenues were split about 50% heavy highway, 50% what they call INM, which is infrastructure and maintenance, and the combination of INM and industrial. And we really viewed it as a good mechanism to grow the industrial side as well as the traditional heavy highway. A lot of people view James as a heavy highway company, they really are not, is about half of the components, the rest of it is the other couple of markets. And now with Cravens and probably Cardinal Mechanical in the mix, ultimately, I think you'll see it shift even more towards industrial and other markets instead of just being 50% highway. We did pick up a highway job in there, too, I can't remember the size of it. But we are a little bitter on another one today, a smaller job. So the work is turning.

Please remember though, I had someone say, well, geez, we're not sure like you that much because you are heavy highway. Heavy highway was about 50% of James. We did not do any highway work in the legacy group, so 50% of 40% is actually a pretty small number. I think the strength of who we are is the diversity of the markets we are in, and ability to migrate those skills and those assets between markets.

Thanks, guys.

Thank you. Our next question is from the line of John Rogers of DA Davidson. Please go ahead with your question.

Hi. Good morning.

Hey, John.

A couple of things. First of all, in terms of your SG&A levels, do those -- will those drop down going forward? I mean was there integration costs included in there?

There really aren't much integration costs, but I think if you start to strip out some of the amortization of the cost, it's not so bad.By the way ,the answer is that it's $5.3 million for depreciation in Q4, and $2.3 million of amortization in Q4. If you strip those out, I think you're starting to see that, yes, we have added some people, we have an accounting presence and a pretty strong presence in Louisiana and some in the Portland area. But we've added a few people, but I don't think it's anywhere like we will be carrying three huge groups.

Okay.

I think we will see some consolidation of operations, which should lower some of our overhead costs. Every business that we are in has a different overhead that is appropriate to it. Some of these businesses, you only have SG&A of 2%, 2.5%, some of them are going to have 10% or 11%, depending on the various size of the projects, the industry you're in, how much client relationship you have to maintain. Everyone of them is different. So we constantly look and we dissect our companies into the appropriate markets they are in and the industries they are in and we try to make sure we are right-sized.

Okay. I just had assumed that you would get some integration benefits from these businesses, it sounds like there will be a degree of that that we will see through the course of 2011.

Yes, although remember that you are still going to have some pretty high amortization of intangibles.

Yes.

And the last thing we want to do is lose any clients because we failed to service them. So even on the operational side away from the financial side, we are going to be cautious. We'll get there, we always have. One thing I've always enjoyed about the construction business is the annual cycle gives you pretty impetus to look at your overhead, measure it, and then adjust it. We do it every day now instead of every year.

Okay. Then just back to Ruby specifically for a second. I understand the incremental revenue is out profits, but because Ruby is somewhat unusual in the way it's flowing through and that you acquired the business with Ruby in there, at the net income or pre-tax level, is there a significant benefit to you from Ruby or does it pretty well get amortized out in terms of earnings?

No, there actually is a benefit. The -- partially because we don't tend to put cost-reimbursable projects in backlog, the amortization that we have on backlog is obviously not for the whole margin about, so there is a benefit to us going forward for some of the operations and some of the expenses that we have that can be charged to that project. And so there is still some upside to this. So, no, it is not just amortized to zero. I think you will see over time that we'll have done quite well on the Ruby project.

Okay. Billing-wise, it's really into the second quarter that you ramp up there, I assume.

No. We are actually doing quite a bit of work now. There has been -- obviously El Paso wants to finish the pipeline as soon as possible, so we have worked, we have flown crews to job sites and even through some of the less-than-desirable weather, we've keep our crews busy.

Okay. And then, Brian, historically, how much work have you done for PGE on their pipelines?

PG&E?

Yes.

It has fluctuated drastically over 50 years. When this San Bruno issue -- the accident occurred, we went back and checked to see if we had worked on the pipeline. Of course, it was installed in the 1940s and 1950s, there are two pipelines that go through there. They do a lot -- historically, they have done a lot of work themselves, and then when the capital becomes -- projects become too large or they don't have people available or they become particularly risky and they don't want to do them themselves, they will bring in an idiot like us to do the work. And then they had their own general construction group for years. So it has been kind of a mixed bag.

We were fortunate enough to be one of their alliance contractors. They started out with 60 or 70 contractors and short-listed down to three or four in each area. We were selected alliance contractors in a couple of areas, the bigger areas. So we have been very active with then over the last five or six years. We think we will be more active with them in the future. A lot of the utilities have had to downsize their operations, which PG&E was one of the most sizable one, obviously. So we have been very active with them for quite a while. But there has been some years, John, where we haven't done any work, because they did it all themselves. Of course, they were in bankruptcy for a couple of years, too, which they did not do any work during that period of time.

Okay, but it just seems the news flow seemed to indicates that they have to go back and spend a fair amount of money now.

Yes. They've got -- all the pipeline owners in California are under some very stringent regulatory requirements to ensure the integrity of their pipeline systems. We have been seeing a gas issue every couple of weeks with an exploding pipeline. Usually you are used to seeing them because a contractor digs into the pipeline and creates a problem and then it explodes or ignitesThese have been non -- no one has helped these along other than the age of the system. Although there is some doubt about whether the PG&E one was a pure accident or whether it was aided and abetted by contractor actions, not ours.

But we see a lot of pipeline work coming, and there is a five- or six-year program to ensure this integrity, and most of the pipeline guys are halfway into it. But the first half, a lot of it was preparing for the second half. So we see over the next couple of years pretty good growth in the actual performing the work in the field. And that is what we like to do, of course.

Okay. Then, Brian, in terms of the James business, could you give us a little more color on what you're seeing there, not on the civil side, but on the industrial side, has that market environment changed? And can you take your skill set in power plants to James, or into that gold southern US region?

It's more easily said than done. First off, I think our crews in California with the recent add to backlog, I think we are pretty much busy on the power side. We might have the capacity for one or two more significant jobs, but we are really focused on performance now. And then we still see solar coming. We are pursuing some very good-sized solar prospects. Most of them are predicated on some kind of DOE funding or some kind of stimulus money, which comes and goes on these projects. We -- the James guys currently run pretty much independent on the industrial side. Their labor is mostly open shop, the labor in California is mostly union, which is fairly a good impediment to doing too much together. We see a real opportunity there. They are in the heart of the industrial business in the United States, which is that Gulf Coast region, and we see some good growth opportunities. We see some good acquisitive opportunities down there that we are currently looking at. But I think they have the skills there, they just need to have some focus and a little bit of help in trying to find where -- how to best serve that market. They've been in that market, like I say, for 30, 40 years down there, so they don't need huge amounts of help, but they need a little impetus, and I think as we roll these other companies like Cravens and Cardinal in, and you bring those skill sets in, the first goal will be to integrate those guys and do a good job of managing them into a new structure. But the second goal would be growing that part of the business. And I think there is great opportunity down there, whether we will be building power down there, I can't say. Even if I could, I wouldn't. I think there' great opportunity, and if there is an opportunity, we are going to try to fill it, of course. But I'm really excited about the industrial side of James, Conrad runs a great shop, he's got some great opportunity and some great potential.

Okay, and lastly, if I could, the Engineering business, you had really good margins there in the quarter. Is that one specific project, or what is going on there and is it sustainable?

No. It's -- they run a lot of -- we do big projects, the Gorgon one in Australia is fairly good size, but we do a lot of smaller ones, too. The guys out of Canada sell their heaters. The guys out of Monrovia, the OnQuest guys, they design whatever heater you want. So you end up with quite a mixed bag of clients and equipment. And heaters are used anywhere from LNG to the primary use of course, is in refineries, and they have a bunch of them in every good-sized refinery. And they burn up, and we make more efficient ones as the technologies progress, they last longer and burn a little bit more fuel in heating the crude up. So I think it is a continuous ongoing market. There is reasonable competition in it, but it is a mixed bag, as big and small contracts.

Okay. It's just everybody else is talking about pretty tough refinery market. I know that Gorgon works different, but --.

Well, most of the -- I have to say , we had a pretty good-sized project -- we have an alliance with Marathon here in the United States, we had a pretty good sized project a couple of years ago, and we had a tough time with it. Our fabricator in Mexico screwed the pooch on the job, and we paid a price for it. But the vast majority of the revenues we're seeing currently are coming out of the South Pacific and Southeast Asia, and that market has actually been pretty prolific.

I think you are seeing spreads are pretty tough here in the States, because when the refineries are paying $100 for crude, it is a pretty tough place to go to try to make a profit on gasoline, even though Obama and the public would have you think the refiners are all rapers and pillagers. But I think the US market, it is a big cyclical, and the fact that they haven't done any replacement of heaters or upgrade of heaters will bring new cycle of replacements and upgrades and that will be a natural opportunity for us.

Okay.

Plus, there is other places in the Americas to look, and I am not going to help our competitors by telling them where.

Okay. Thanks, guys, nice quarter.

Thank you.Our next question is from Rob Young of Williams Smith. Please state your questions.

Hey, guys, good morning.

Hi, Rob.

Brian, I was hoping you could remind us on the total market for this modernization project out of California. Are there other plants that you have an opportunity to modernize the size of the total market, competitive landscape, those types of questions?

Of the power side?

Yes.

There is still a good opportunity there. I mean, there some projects in the pipeline, probably for another five or six years, I'd guess, that there is a reasonable deal flow. I don't know beyond that. Some of these upgrades are driven by the fact that the older technologies just simply aren't cost-effective, they just take too much gas to make electrons. And as these turbines continue to squeeze, squeeze, squeeze more efficiencies, that I think you'll see more and more upgrades because some of the stuff they put in 10 years ago isn't as efficient as the current equipment.

Then you've got the issue that we're mandated to -- there is no more once-through cooling fluid or water used in this plants, and we're coming off all of our ocean water, and that is going to lead to a lot of ancillary work, maybe not new turbines but new zero-discharge water plants. We think that is going to be a pretty substantial margin. Then we've got 20% of our power generated by nuclear, and who knows what's going to replace that. Solar will eventually get there, it's just very expensive, very expensive. And wind is -- they've currently got a big expansion on the wind market -- or wind facility here in California. But the funny thing is in most locales in California, when the sun goes down, the wind stops So if you are betting on windmills and solar, boy, you are screwed.

And what is the competitive market look like in this power plant monetization as it relates to air versus water cooling?

Yes, there is only a few guys around that offer the technologies to do that, the zero-discharge and then the basic big fans that cool the water so you can reuse it. Then how you connect with that and how you bid into that technology, because each one of them is a bit different and a bit different animal to work with, but, it remains good for us. We don't see a dozen competitors, when we bid a job, you might, but there are only three or four serious ones. I think we have a fairly significant competitive advantage due to our scale and our reputation. And being the fact that we bid it under ARB, when a client shortlists us, alphabetically we rise to the top of the list.

Relative to margins, I mean just from a target, is this type of work, it relatively good margins compared to the rest of your business lines?

Those clients focus probably as much on value as anything else. And value for them is, once they've spent hundreds of millions of dollars buying equipment and five years in getting the permit, they want to know what it's going to get delivered and they want to know it's going to get delivered right with good quality, and when they flip the switch it's going to fire up and give them electrons. That's the type of client we like. We want clients that measure our performance based on vale, and that has a price to it, and I think most of the guys are willing to pay that based on what we deliver to them in terms of quality and schedule and everything else.

Then I was hoping you could just briefly talk on the EPA announcement from this morning regarding the hazardous air pollutants, and how that possibly would affect you as it pertains to moving over to a cleaner coal or switching from a coal to gas generation.

Well, Rob, I'd like to but I've been busy -- you couldn't tell by our presentation, but I've been busy preparing for this. I have not had a chance to download from the EPA website yet. Forgive me.

Oh, no problem at all.

Ask me tomorrow.

Will do. Thank you.

Our next question is from John Rolfe with Argent Capital. Please go ahead with your question.

Hi, guys, a couple of questions for you. I think you mentioned in your early comments what James had contributed for the quarter. Could you tell me what it contributed for the full year?

While Pete is shuffling around there, I could tell you that it was significantly in excess of their required earn-out, but maybe Pete will find that. Are you going to find it, Pete? Okay. He is scurrying out of my office right now, for a guy his size, that is a feat. You could go to question number two.

Okay, while he is looking for that, I think you said and I just wanted to confirm, that the earn-out shares for both James and Rockford were in there for the entire fourth quarter in terms of the fully diluted share count, is that correct?

Well, now that Pete is out of my office, that is a question he needs to answer. So have you got one the poor, dumb CEO can answer?

Well, let's see. It's mostly details, but let me try one other. In terms of the balance sheet, you have the -- let me take a look at it here. I think it was $20 -- it was about $25 million of contingent earn-out liabilities at year-end. I wanted to confirm are those all cash remaining earn-outs or are there stock components remaining as well, or were the stock components all taken care of as of the year-end?

That is one I can answer easily, or more easily. The total earn-out still includes $14.8 million of stock that we will issue within the next week. After that is out of there, there are two earn-outs left for Rockford. The first earn-out has two pieces to it based on the performance in 2011, and that is half stock and half cash. The last earn-out for 2012 is all cash.

Okay.

And, order of magnitude, James had revenues in the $425 million to $440 million range.

Okay, great. So $425 million to $440 million. Just going back to the earn-out, so of the $25 million, you said $14.8 million of that is stock within the next week, and then is the entirety of what remains, which would be about another $10 million for Rockford, those two pieces you mentioned?

It's for Rockford, but remember that that includes both the probability factor and includes the present value of that probability factor. The actual amount that they will get is somewhat higher than that.

Okay, got it. What would -- do you have handy what the operating cash flow number was for the quarter?

I know what it was for the year.

If you've got it for the year, I can obviously just back it out.

It was $82 million, roughly. Okay, great. That's it. And you asked a question about the contingent -- (inaudible - multiple speakers).

Yes.

We paid $7 million on the note. On the Rockford note, and that removed any convertible possibility.

Okay, great. Thank you.

Thank you.

Thank you. Our final question today is from the line of Adam Thalhimer with BB&T Capital Markets. Please state your question.

Great, thanks guys. Are you waiting to hear back on the power plant jobs now?

My head is going no, and I am saying yes. What do you mean waiting to hear back on anything, Adam? Do you know something I don't know?

Well, really the question is just an update. Because I think you had said sometime last year you were bidding on five plants, and you were hoping to get two of the five, so I am looking for an update on that.

Well, we announced two, and there's -- we have more in the pipeline. I can't say we got ann estimate -- or a bid going in the next week or two, but there's more -- and you're talking about gas-fired plants, right?

Yes. In California.

Yes. We've got a couple that we are working on with fairly good lead time out there and there's I think one comes up -- that is due in a couple two or three months that we working hard on. We have several bids that we have not heard responses on yet.

Okay. Rockford did 11% margin in the quarter, gross margin. With Ruby I thought it would might have been better than that. What is the outlook for that in the first half of 2011?

Adam, Rockford has a fixed contribution, fixed-dollar contribution.

So we call cost plus a fixed fee, so the fee is somewhat irrelative to the -- unrelative to the dollars spent. That is why we are cautious about what we actually earn on the project.

If we end up doing $200 million revenues, we're going to have a different margin on it than we do at $150 million revenues or at $250 million. That is why margin-wise, it is a little bit more difficult. Dollar-wise, margin percentage is much more difficult.

Let's remember, too, Adam, it's -- when we bid a job or we mark-up a job or we negotiate a contract, we do that based on risk. This is cost-reimbursable. So we view the risk, the technical risk of the job, to be pretty phenomenal. So anywhere from a 9% to 12% return on a job like that is a fairly reasonable return.

So do you feel like you are being conservative with the profit recognition in Q4 ,or I am reading that is something you didn't say?

We are conservative in every quarter on profit recognition. We like to pleasant surprises, we don't like unpleasant surprises.

But historically-speaking, the later you get in the project, the better chance there is of a positive surprise?

Yes, but again, cost-reimbursable is a bit different, because if we have a thunderstorm and it rains for 30 days and 30 nights, on a reimbursable job, we still get reimbursed. So were not as conservative on a cost-plus job we are on one that is a hard-dollar-risk.

Can you give non-cash amortization for 2011 and 2012?

You guys are being tough on him today, I am liking this. This is fun.

Alternatively, Brian, you could just give EPS guidance.

That one I won't tell anybody tomorrow.

Goodness, I gave you -- if you added up the numbers that I gave you are going to find, 2012 should not have any amortization or backlog in it. So the -- and the number that I gave you, which was right around $4 million for SG&A, will be the same and then I believe that I said there was another amount in -- for 2011, the $4.6 million of backlog amortization, and then going -- and that stops after 2011, and then $4 million going forward for the next few years. And we said $4.7 million a year for the next few years.

So the delta that will fall off in 2012 in $4.6 million?

Yes.

Income from non-consolidated, $0.5 million in the quarter. Is that -- what does that going forward?

I think that is probably the standing order magnitude right now that is the job we are doing in New Orleans, a joint venture we have there, and it's probably a reasonable order of magnitude.

Any plans to pay down debt over the next two years?

We look at it constantly. It's hard to borrow money and equipment at 4-soemething or 3-something and then pay -- and then get 0.35% at the bank. We like having the cash, we think it's important, we don't like paying the spread. So we are going to look at it constantly, but I can't tell you it's a plan yet. They're still -- I don't know about you guys, but I'm still stuttering a little bit from the collapse a couple, three years ago. And having cash -- I don't like that debt but I like having cash a lot, and we're probably going to be conservative in how we run our balance sheet. But we look at it every quarter.

I wasn't questioning your capital allocation, I was just trying to peg the interest expense on it. And then finally, can you give a backlog number for today? If you don't want to do that, I just want to make sure that the $225 million that you've gotten in projects year-to-date, the apples-to-apples comparison for Q4 is $101 million?

No.

You just added it, it would be, but we worked some off, obviously, between --

The other reason I say no is there are other projects that we didn't announce, Adam.

Well, in Q4.

In Q4.

But when I look at order intake it is $101 million versus $225 million?

I'm sorry?

When I look at the gross order intake. It was $101 million and the fourth quarter and then $225 year-to-date?

No, what we said was that we had projects we announced, in Q4 we had one for -- that totaled $101 million, from James projects, and that we have announced so far $225 million in Q1 of this year. There are other projects that we don't announce and there are other work that we get that gets in there, plus all of our MSA work.

We're not on the same page. So the $101 million is just for James?

Sorry ?

The $101 million is just for James?

Yes, if you go back, what Brian said was that we announced $101 million worth of contracts, and that was just if you look at our press releases.

Okay.

And that was for the whole Company, but traditionally, fourth quarter for awards is very, very slow for us. We are strong in the first -- actually the second two quarters are the strongest, two and three calendar quarters are the strongest for job awards, traditionally.

All right. So the $101 million and the $225 million, you're just adding up press releases, but you are saying total order intake would be different.

Yes.

Okay, good, thank you very much.

And remember, that was quarter-to-date, the $225 million.

No. I know, there's two weeks left in the quarter. Get back to work.

I have to go read this EPA thing first.

Thank you there are no further questions at this time. I would like to turn the floor back to Management for closing comments.

I want to thank all of you very much for your interest in the Company. Hopefully we'll have more crisp answers when you ask things about our financial statement next time. But we do appreciate your interest and your support. Thank you very much.

This concludes the teleconference. You make disconnect your lines at this time. We thank you for your participation.