Primoris Services Corp (PRIM) 2011 Q1 法說會逐字稿

Greetings, and welcome to the Primoris Services Corporation first quarter 2011 financial results conference call. 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, Mr. Devin Sullivan, Senior Vice President of the Equity Group. Thank you, Mr. Sullivan. You may begin.

Thank you, Manny. Good morning, everyone, and thank you for joining us today. Our speakers will be Brian Pratt, Chairman, President and Chief Executive Officer of Primoris Services Corporation, and Peter Moerbeek, 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 regards to the Company's future performance. Words 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 limitations those described in today's conference call and those detailed in the risk factors section and other portions of Primoris's filings with the Securities and Exchange Commission, including the Company's Form10-Q, which will be filed today, May 10, 2011, 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, as except may be required under applicable securities laws.

Having said that, I would now like to turn the call over to Brian Pratt. Brian, please go ahead.

Thanks, Devin, and good morning, everyone.

We're pleased to be starting off the current year in the same fashion we concluded 2010. Our team of construction and engineering professionals delivered good operating results, a backlog that surpasses $1 billion, and helped us to build a financial position that is not only one of the strongest in our history, but also one of the strongest in our industry. It will continue to provide us a level of flexibility and security that we feel vital in maintaining our competitive position.

Our strong financial position allowed our Board of Directors to declare a cash dividend for the twelfth consecutive quarter at a level with prior distributions. While we obviously continue to benefit from our acquisition activity over the last 18 months, all three of our operating segments generated higher revenues and operating profits compared to the first quarter of 2010.

Let me start in the West. After several quarters of revenues -- after several challenging quarters, revenues ARB and ARB Structures rose by $26 million and $4 million respectively for the first quarter of 2011.

As we announced earlier this year, ARB was awarded a contract from one of the nation's largest power generation companies to help modernize the El Segundo generating station located in Southern California. The ARB will replace two older generating units at this facility with a state-of-the-art 550 megawatt natural gas-fired combined-cycle plant. Work on this project is scheduled to commence this month and take about two years. This job, along with several others in progress, provide us a strong backlog of power work, which historically has been a mainstay for our Primoris West industrial group.

It is this group that will also be the beneficiary of renewals work. And I tell you that we have finally begun to see real thermal solar projects with actual permits and real developers with real financing. This is not to say all of our bidding activity in this area will contribute to construction of real projects, but we are very excited about the recent round of proposal in which we have participated. One huge impediment that remains is the ability of the governmental agencies to deal with the environmental groups and issues related to the siting and construction of these plants, but we are for the first time optimistic that there might be a little sunlight in the end of the tunnel.

For our West underground group and markets we continue to see good project availability from our traditional clients. As mentioned in previous calls, these projects represent new facilities, scheduled replacement and regulatory driven configuring, testing and replacement work. We continue to win our share of these jobs, either through competitive bids, MSA or other alliance commercial structures.

Rockford obviously has a material impact on West Construction Services segment, contributing nearly $128 million in the first quarter to revenues, with most of this work generated by the Ruby pipeline project. We continue to believe that the Ruby project will deliver at least another $100 million during the remainder of 2011. After the project winds down in the summer of this year, the impact on revenues will be less dramatic.

Rockford is working diligently to find replacement revenues for the Ruby project, and we are seeing reasonable availability of projects to pursue. We were working on opportunities in the northwestern market local to the Rockford team, as well as the national market, where the competitive landscape is made up of large, more nomadic contractors. These markets are competitive, but after competing with Frank Welch's Rockford guys for 35 years, I can tell you I'm glad they're on our side now.

One final note on Rockford. In January, we completed the combination of Rockford and ARB's Northern California businesses. With a well-deserved retirement of Donnie Brown, our long-term ARB manager, the Rockford area manager, Mark Borges, who previously worked for ARB, is now running the combined operation. I'll miss Donnie, but I have every confidence Mike -- Mark will do a great job.

The structures group continues to work on the Long Beach Airport parking garage. Its prospects flow remain slow, but some small improvements are evident in the market.

Turning to Primoris East. We're pleased with our backlog and our current general bidding environment. For example, we announced in December James was awarded contracts by the Louisiana Department of Transportation, valued at $101 million, involving reconstruction on Interstate 12 in Slidell and work on new sections of Interstate 9 north of Shreveport. In late January, we announced more highway projects valued at $89 million for work in Louisiana and Texas. The Texas and Louisiana markets remain competitive, but we are confident we will continue to win our share of the work that's available, and we believe there are opportunities to grow profitability in both states. Highway funding remains a concern, as it does for all who operates within this space.

At James' two other divisions -- industrial, and infrastructure and maintenance -- we have begun to work on two projects with a total value of $15 million of industrial gas production plants in Louisiana and Texas. These projects, along with numerous other smaller projects, allowed the divisions to contribute higher revenues than for the same quarter last year, in spite of a generally more competitive market than several years ago. They continue to perform well.

We are seeing good flow of prospects. These groups are demonstrating disciplined project acquisition and execution efforts. I believe this, along with cross-selling that we have begun implementing, will allow us to see the kind of profitable growth and successful projects execution we desire.

The water and waste water market remains a laggard for us, but we are optimistic the market will turn, and we will be there to meet it when it finally does. Our Engineering segment produced good results, revenues and profits up slightly thanks 50% revenue increase at Roger Newnham's Born Canada group.

Our large project in Asia is not without challenges, but our group is performing well. We are seeing good prospect availability and feel confident our team under the new leadership Dr. Roberto Ruiz will extend his track record of significant contribution.

In sum, while perhaps 100% -- In sum, while perhaps not firing on 100% of all cylinders, we are firing well on most. Integration of our acquisitions continues to proceed well, for which I need to commend both our finance and operations people. We remain well capitalized at the end of the quarter.

We had more than $154 million in cash and equivalents after we deployed some of our strong cash flow to pay down a portion of our acquisition related debt and associated reliabilities. We are pleased with the amount and quality of our backlog and the prospects of supplementing it. It sits at $1.05734811576 billion at quarter end. Of course, we do plan to work some of it off during the remainder of the year. I will let Pete give the normal caveat we give about not backlogging projected cost reimbursable revenues.

This financial strength, our backlog and prospect flow, along with our success to date and operational integration of our previous acquisitions will allow us to seek further growth by both organic and acquisitive means.

In all, I'm pleased with the Company's current position and excited about both our near- and long-term prospects. I want to thank our management team and everyone at Primoris for their continued hard work that has resulted in these financial and operational results. Finally, I would like to thank you for your attention this morning, especially those who dialed. Unlike [Rich Meisenberg], who tells me just read the transcripts.

Now I would like to turn the call over to Pete Moerbeek, our Chief Financial Officer. Pete?

Thank you, Brian, and thank you for each of you for taking time to join us. I will review the 2011 results and supplement this information with additional detail during the question-and-answer session. We will file our first quarter Form 10-Q early this afternoon.

Before I talk about our income statement for the first quarter, I want to mention that throughout our history Primoris has grown by being acquisitive and successfully integrating newly acquired companies. As most of you know, we acquired the James Construction Group in December of 2009, and their results have now been included in our operations for the last five quarters. That should be long enough to consider James as part of our more legacy business and their growth as organic growth. While I am de-emphasizing their newness, James is the substantial majority of our East Construction Services segment revenues and profit.

For the first quarter of 2011, revenues more than doubled to $360 million from $175 million in last year's first quarter. Of the $185 million increase, the currently still-new Rockford acquisition that we made in November 2010 contributed approximately $128 million. Our non-Rockford West Coast construction businesses grew by $32 million, or 54%. Our East Construction Services segment grew by $24 million, or 23%. And our Product Engineering segment grew by $0.6 million, or 5.5%

In January we merged the ARB and Rockford Northern California operations, which means that $128 million revenue contribution from Rockford does not include any increases that we may have received from Rockford's former Northern California operation.

Our overall gross profit for the first quarter of 2011 rose by 66%, or $16 million, to almost $41 million from $25 million in the first quarter of 2010. Rockford contributed $11 million of the increase. The rest of the West Construction segment gross profit increased by $1.5 million, the East Construction segment increased by $3.4 million, and we had a small increase in the Engineering segment.

As a percentages of revenues, gross profit declined to 11.3% from 14% in last year's first quarter. Part of the decrease in the percentage was a result of recording a gross profit of 8.7% of revenues for Rockford's cost-reimbursable fixed-fee Ruby contract. We also recorded lower margins in our California industrial group, as we are in the early stages of several large projects.

For the 2011 quarter, selling, general and administrative, or SG&A , expenses increased by $6.4 million, or 47.6% from last year's first quarter. The increase included approximately $1.7 million associated with the Rockford operations, and the result of recognizing no gain on the sale of equipment in the first quarter of 2011 compared to a $1.1 million gain in 2010. The remainder of the increase, or approximately $3.6 million, consisted primarily of an increase in compensation related expenses of approximately $1.1 million, a $1.5 million reduction of SG&A expense absorption by construction and engineering projects, and smaller increases in legal expenses and travel expenses.

As a percentage of revenues, SG&A expenses declined from 5.5% from 7.7% in the 2010 first quarter. Excluding the impact of Rockford, SG&A expenses as a percentage of revenues would are remained approximately the same in 2011 as they were in 2010.

Included in our financial results for the quarter are the accounting expenses associated with our acquisitions. In the first quarter of 2011, our cost of revenues included $1.6 million in amortization of acquired backlog, compared to $524,000 in the first quarter of 2010. Our SG&A expenses for the first quarter included amortization of intangible assets totaling $1.2 million,compared to $856,000 in the first quarter of 2010. Over the next three quarters we anticipate recording additional backlog amortization of $3 million as cost of revenues and an additional SG&A charge for intangible amortization of $3.5 million. If Rockford meets its 2011 earn-out targets, we expect an additional fourth quarter SG&A charge of $460,000.

Operating income for the 2011 first quarter was $20.8 million, or 5.8% of revenues, compared to $11 million or 6.3% of total revenues for the same period last year.

Net other expense in the 2011 first quarter of $648,000 compared to net other expense of $376,000 in the first quarter of 2010. The change was primarily due to a decrease in the amount that we earned from the St. Bernard Levee Partners venture in Louisiana. During the first quarter of 2011, interest expense was approximately $600,000 for our subordinated debt and approximately $700,000 for our notes secured by equipment. Also included in other expenses in both last year and this year is an expense of $300,000 related to the fair market value adjustments for the potential earn-out amounts associated with our acquisitions. We anticipate recording additional earn-out charges of $865,000 for these fair market value adjustments during the remainder of 2011.

The provision for income taxes often first quarter of 2011 was $7.9 million, for an effective tax rate of 39%, compared to $4 million for an effective tax rate of 37.1% in the prior year's quarter. We expect that our effective tax rate will remain at about the current first quarter level for the remainder of this year.

It's taken me a while to get here, but the bottom line is that the net income for the first quarter of 2011 was $12.3 million, or $0.24 per diluted share, compared to net income of $6.7 million or $0.15 per diluted share in the same period of 2010. That's an increase of $5.6 million or 87%.

Fully diluted weighed average shares outstanding for the first quarter of 2011 increased by 12% to 51.1 million from 45.5 million in last year's first quarter. The increase is due to the 1.6 million shares issued as part of the Rockford acquisition, the impact of the shares issued to convert the warrants in 2010, and the shares issued when both Rockford and James obtained their 2010 earn-out targets.

As Brian noted, we continue to strengthen our balance sheet. As March 31, 2011, we had $154 million in cash and cash equivalents, including short-term investments of $23 million. Working capital at quarter end was $48 million, total notes and capital leases secured by equipment was $56 million, and stockholders equity was $235 million. For the quarter, we increased our tangible net worth by $15 million to approximately $103 million.

Last quarter I discussed the impact of Rockford on our balance sheet, so I would like to give an update on a couple of items at the end of the current quarter. Our total accounts receivable at March 31, 2011, were $147 million, including Rockford receivables of $19 million. At year end, our receivables were $208 million, including $56 million of Rockford receivables. Thus, of the $61 million decrease in the first quarter, $37 million of the decrease came from Rockford.

Similarly our billings in excess of cost and estimated earnings declined from $205 million at the end of 2010 to $168 million or $37 million during the quarter. The Rockford billings in excess of cost and estimated earnings declined from $78 million to $56 million, a decrease of $22 million. And let me remind you that the terms of the Ruby contract allow us to bill in advance around the 20th of each month, and we are paid by the 10th of the following month. Since today is the 10th, we can say that we have also been paid for this month.

The subordinated acquisition debt fell from $33 million to $43 million at the end of 2010. In March, we paid $6.4 millions to eliminate that portion of the Rockford subordinated debt that had a convertible feature.

Finally, the $10.1 million liability related to the estimated fair value for earn-out payments reflects the issue of 14.8 million shares -- $14.8 millions in shares in March in the addition of the $300,000 for the fair market expense in the first quarter.

As usual, let me conclude with a discussion of the backlog. At the end of March, backlog was $1.06 billion, an increase of $161.5 million, or 18%, from total backlog of $895.8 million at December 31, 2010. For the quarter, we added $359.2 million to the backlog in the form of new or expended projects, and we converted $197.7 million from backlog to revenue. Since our total revenue for the quarter was $359.6 million, $161.9 million, or 45% of our revenues, did not flow through backlog.

I remind you that it is our policies not to book a job into backlog unless we know the contractual revenue amounts. That means that we do not include cost reimbursable jobs, such as the Ruby project, or anticipated MAS revenues in our backlog amounts. As a result, the amount of our backlog is not as comprehensive an indicator as it may be for other companies. And as always, I remind you that customers have the ability to cancel contracts, sometimes even after we have started a job. Given that, we do expect that approximately $546 million, or 52%, of our March 31, 2010 -- 2011 backlog amount will be recognized as revenue in the remainder of the current year.

Now let me turn the call over to the operator so that we can get to our questions. Thank you all very much. Operator?

Thank you. (Operator Instructions). Our first question is from the line of Lee Jagoda with CJS Securities. Please go ahead.

Hi, good morning, and congratulations on the quarter.

Thanks, Lee.

If I look at your SG&A that was attributed to Rockford in the quarter, was $1.7 million, what if any portion of that would disappear if Ruby is not replaced?

A good portion of that, Lee, is related to the amortization. That part won't go away. So Rockford, as most pipeline companies, tends to have low SG&A. A lot often costs are charged directly into the project, so there -- I'm not sure how much of the SG&A would go away, but we would keep the intangible, I think. Because we could certainly look at reducing some expenses if Ruby were not there, but I don't think you would see a dramatic change.

I think you would, Lee, coming from the operations side. I hate to disagree with Pete, but we always adjust our overhead, depending on how our work load is. So wehave some guys that are pretty core and some of them maybe not, but we'realways looking at overhead every quarter.

Great. And then as I look at the fee schedule for the Ruby project, are the fees -- or is the gross profit that you're realizing, is it being realized evenly over the life of the project. or should we expect a true-up or some retention at the backend as this thing ends in the summer?

We're conservative on how we represent all of our profits on our work, Lee, based on weather and final payments and true-ups and stuff. So I can't tell you how heavy it would be weighted toward the back end, but in general we're conservative in how we reflect our profits as we go.

Right. So just asking the question a slightly different, the 8.7% margin you realized on the $127 million of revenue, you would expect it to be that kind of margin going forward as we look towards the end of the contract?

When we do our work in process, we reestimate our profits every month, and then a lot more carefully every quarter. And that's our current estimate of what we think we're going to make open the project based the assumptions I just gave you.

Sure. One more bookkeeping question, and I'll hop back in queue. You paid down a fair amount of debt this quarter. Should we expect or build in additional is debt paid down in Q2 or the balance of the rest of the year as we think about interest expense?

It's something we're discussing. We've discussed it with our Board. I think we'll make that decision in the next few week.

Okay, great. Thanks very much, guys.

Thank you. Our next question is from the line of Matt Tucker with KeyBanc Capital Markets. Please go ahead.

Good morning, gentlemen, and congrats on a nice quarter.

Thanks, Matt.

With respect to the West Coast margins and why they were lower in the quarter, you indicated that it was largely because of you are in the early stage on some large projects ramping up. Should we expect to see that margin expand in the second quarter as you get further into the execution on those projects, or would we see it maybe more in the third quarter as Ruby starts to roll off?

I think what you're going to see is that for the West Coast projects, it's going to be a longer process than that. Most of these are anywhere from 12-18 month projects, and it's not until we get closer to the end that we get a chance to really look and see where we are on the contingencies. So I don't think you're going to see it turn around dramatically in the second and third quarter.

You naturally see a little bit of suppression in margin in the first couple of quarters because of weather. We're not making excuses like some of our competitors have in the disastrous weather impact on their numbers, but in general, when you have an overhead on a project, and you can't build the work because it's raining or because windy or stormy, your cost goes on without really putting a lot of work in place -- as much work in place as you could in better weather. So, in general, the first quarter -- the margins are suppressed a little bit based on weather, not just start-up of new projects.

Thanks, that's helpful. You commented on seeing opportunities for Rockford , post the completion of Ruby. Would it be correct to assume that you haven't yet booked anything to date that would kind of fill that void post-Ruby? And can you give us a sense of the type of opportunities that you're seeing? Are they more in the similar type of large long-distance transmission pipeline opportunities, or are they more kind of shorter distance type opportunities?

Ruby is the last really mega-project that's under construction right now. There's a couple of others, but -- and I think some of our competition likes to point to all of this work out there. Some of those are competing project, so you don't want to add them up and say, gee, there's this many billion of dollars worth of work.

But the kinds of things -- no, if we booked anything, Matt, we would have announced it, unless it was in the last couple of days, but we announce anything over $10 million. Any project the size we'd look at to replace a portion of the Ruby's revenues, you would have heard an announcement on it. But we're chasing everything from stuff in the shale plays to work in Wyoming. We're looking at gas work in South Texas. There's work out there. The bulk of them are $20 million to $80 million kind of projects, so you have to stack up a few them up to measure up to Ruby, of course -- or a significant portion of Ruby.

Got it, thanks. And then just on the solar opportunities, since you brought it up. Could you give us a sense -- first, are the bids you mentioned still outstanding, and if so, assuming you are successful on one or more of them, give us a potential size and timing of awards?

Well, there's two types of consumers out there for our project. One is the guys that want a lump-sum deal for a $2 billion solar project or a $1.5 billion solar project. And then the guy who like to piece it out and kind of construction manage it. So we're looking at a little bit of both. Right now what we have submitted -- we haven't heard back; they've just recently submitted in the last couple of weeks -- are the start-up pieces of the ones for the clients that want construction manage and do it in smaller pieces. And the smallest piece, I think, is in the $6 million to $7 million range, and the biggest piece is in the $100 million range so far. And those are components that are a larger process that will total that $1.5 billion at the end of the day.

Thanks, guys. I'll jump back into the queue.

Thank you. The next question is with Adam Thalhimer with BB&T Capital Markets. Please go ahead.

Good morning, guys. Nice quarter.

Hey, Adam. Thanks.

I also wanted to ask about the Ruby margin, I guess in a slightly different way. Weather was really difficult, particularly in your portion of that pipeline in Q1. Does that impact the margin?

Well, the job is reimbursable, all costs. We did take a hiatus in construction for about a month, month and a half. We're just now restarting. We started welding in a major portion of it in the last week or so. So that's obviously going to push the revenues out, but it really doesn't impact margin too much. Obviously, it's tough on the client, because he's paying for a lot of costs that are ongoing when you can't get much work accomplished, which we don't like because we like our clients to make money on their projects. But it shouldn't really have a major impact on us.

On the dollars it will change the percentage.

Right. On the -- you mentioned that you're optimistic about solar jobs for the first time in a while. I wonder what's -- I mean, there's a lot going on in California, new transmission lines with Patch V and SunRise. They just signed this new 33% standard -- renewal standard by 2020. I guess the economy is improving a little bit. I mean, is there anything else driving your optimism?

Well, we've seen some real players enter into the business, guys that we know that will build projects. Prior to, it's -- there's been a few guys that have been active, but a lot of the projects that were being promoted, you really had to sort through a lot of noise to find the real projects, and it's a little harder when you've got 200 of them out there. Now that it's narrowed down --But we're seeing some players that own asset there, that are going to build projects, that don't have to run out and struggle to find financing.

And we're starting to see actual permits being issued. Now, recently there have been permits issued and then retracted because they found a new bug or a new bunny, which is some of the frustration, because you go through just exhausting environmental studies and processes to clear these sites, and then somebody finds a couple of turtles or something. It's very frustrating for these owners.

But I think we're starting to see real permits, we're starting to see real power purchase agreements, and we're seeing real players that we know will build projects or have the ability to build projects.

That's helpful. And then lastly for me. What's the outlook for maybe building power jobs outside of California? I mean, I'm thinking the national gas generation plant.

There's going to be a lot of them built. Some of those skills are transferable, some of them aren't. Our basic craftsmen in California aren't going to travel to Iowa to build a gas-fired plant. But the James guys have good skill sets. There's going to be a lot of power built in those area. I think a lot of it depends on how much coal is going to have to be replaced. I think nuke, you can knock that one if the head. Of course Japan is counting on building more, but I don't think we're going to build a hell of a lot more here.

We're looking at it. Some of the clients obviously have encouraged us to look at it, because we're a preferred vendor for these guys. But we're kind of full right now, to be honest with you, in California, so we'll be freeing up some -- a team or two in the next three or four quarters, and we'll probably start looking hard then. And if we haven't seen the kind of growth and what we want to do in California with the renewable part of it, than we'llprobably look at more work out side of California.

Okay. Congrats again on the quarter. Thanks.

Thank.

Our next question is from the line of Rob Young with William Smith and Company. Please go ahead.

Good morning.

Hey, Rob.

Question on the modernization project that announced last quarter. Just was looking for an update on that, as well as if there been other similar types of projects that have been announced or have gone to bed, and what the time frame on those potential awards might be?

Are you talking about the 550 megawatt one?

Yes.

A lot of what you see in California, based on the fact that it's pretty hard to permit a new site, is what we call a repower, going into an existing site and putting in new engines. I think there's going to be more of that. There's still some pretty efficient engines out there. It would help if the price of gas was higher -- natural gas because that obviously impacts the efficiency of the turbine -- or the economics of an inefficient turbine. But we think we'll see more of those. I think as the renewables come online, the 33% standard, that's great for when the sun is shining and the wind is are blowing and the waters are behind the dams, but it doesn't do much for when it's not occurring. So there's going to have to be peakers, there's going have to be repowers, and there's going to have to be some new gas-fired merchant plants. You're not going to get it all with renewables.

So there isn't -- we aren't currently -- I don't think we have any proposals in currently for a repower at this point. I think we have one or two for peaker plants that are gas fired, but there will be more to come. Or would be more to come.

Okay. And to jump off one of the questions that was previously asked regarding the Rockford Ruby project. Is there -- how much of a delay if any between June and another potential award do you expect with that company?

That's kind of how long is a piece of string, Rob. It's -- we could get awarded one tomorrow, and it could be months. I mean, who knows. We're pounding the pavement. The guys have been pretty absorbed with Ruby, trying to get it executed well. As Pete pointed out, most of these pipeline guys run a pretty skinny operation, really flat, and -- so the guys, when they're building their project, are a little bit distracted from going out and getting work. But it's in full bloom now. We're working hard, and I'm really pleased with what we're finding. There's some good prospects out there that fit us.

Perfect, perfect.

And Rob, the project is going to go into third quarter.

Oh, it is. Okay. And do you have the new orders that you accumulated in Q1 handy?

Yes, I think I mentioned that on my script, which means I've got to find it.

Do you have a specific question, or do you want us to list them again?

No, no, I was just asking -- just --

$359.2 million.

Perfect. Thanks very much.

(Operator Instructions). Our next question is from the line of John Rogers with D.A. Davidson. Please go ahead.

Hi, good morning.

Hi, John.

I want to follow up on a couple of things. First of all, Brian, any thoughts on additional acquisitions?

Think about it every day. Any I want to share? There's a --it's a target-rich environment.

Okay.

Some of the bigger guys are -- the prices are climbing. There seems to be some private equity money out there and financing is cheap, and so my opinion, we're not seeing a lot of-- well, we're not seeing a lot of deals, but we're seeing some deals done at stupid prices. But we're not having problems finding good things to look at that fit well. We're going to be very strategic now. We obviously have an opportunistic bone in us. I mean, if we have somebody out there that wants to offer us a hell of a deal, we'll look at it, but we're being pretty strategic in what we're looking at.

Okay. And then interms of the small diameter pipeline -- pipe business, what are you seeing in California for some of the utility work there? Is that market changing at all?

Let me go back to your question. I don't think I got quite to where I want to go on your (inaudible -- multiple speakers) --

Okay, good. If you give us a list, that would be great.

No, I don't think so.

We can we hit star two and retract that?

Let's go on to the small diameter then.

Not perceivably. The groups in California have kind of lists of people that work for them that have worked for them for 40 years, the utilities particularly, and so they're pretty select in who they bid to. PG&E has a project labor agreement, which means they don't use anybody that's open shop or non-union. Semper does not. But, in general, we're kind of seeing the same faces on these projects. It's funny competitive. I mean, Semper has got -- I don't know -- 11, 12 guys. And I'm talking about the smaller gas distribution work.

There's going to be more bigger work, particularly PG&E. They're way behind on -- I won't say behind, they had to change gears on their integrity work base on their accident here last year. So they're going to ramp up and spend, do a lot of testing and a lot of reconfiguring and a lot of replacement, but I don't see any drastic changes. We've been working in the Bay area, changing out copper services for three years now, and they keep finding them. So I think we have almost as many to replace as we did when we started three years ago.

But I haven't seen any real dynamic changes. There's been no technological change, and commercially the prices are tightening a little bit, because there just isn't a lot of other work around for some of these guys. I don't know that I got to the root of your question or not.

No, that helps. It just seems like there was potentially some pent up demand there, and seeing if it was --

Well, they're not really in the small --what you have is you have some of these utilities -- well, most of the utilities have some of their own crews, so when the work retracts in a bad environment, they layoff crews. Well, they don't layoff their crews, they law off the contractors' crews. When they layoff ten crews, guess what, all ten come from contractors, and they keep their crews available. So any real retraction is really retraction is really hard felt by the contractors. But -- and what you had was the lack of new subdivisions, so that work stopped, they laid crews off and laid off mostly contractors' crews. But you have this integrity work and this regulatory driven work, and I think it's -- I think we have hopefully seen a bottom -- I think we saw bottom a couple of years ago actually.

Okay. And then just one more, if I could. In terms of the industrial work, especially for James, any changes in the market down there?

Yes, it's been a lot more competitive. One of the reasons though we bought James is we saw some growth -- some ability to grow there, and some of the larger industrial guys in the country, of course, are down there. Most of them are private, but there's some public guys down there's, and -- but we think there's a lot of room to grow down there. It was a lot more competitive a couple of years ago. Some of the idiots are gone, and people were loading up on work to try to keep people busy. Well they're all off hunting gators or something now. But the work -- I think the bottom has been found there also, although it remains competitive.

But I see some real opportunity for us to grow. Traditionally James has done kind of the bottom end of the plants. They do the heavy civil, the dirt and the structures, and they do some piping and some steel. Where our Company in general has done kind of the top end. We didn't do the dirt, but did the concrete, we did the piping, equipment setting and everything else. So we see some natural ability to grow them into the top end of the plants. And we're -- one of the things we'd look at is in an acquisition in that area that kind of fit our scheme there to broaden Conrad's skill set down there.

Okay, thank you.

you bet.

We have no further questions in queue at this time. I would like to turn to managing for closing comment.

Well, thank you guys very much for your continued interest in the -- our Company, and I want to appreciate you for dialing in.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.