Primoris Services Corp (PRIM) 2011 Q2 法說會逐字稿

Greetings and welcome to the Primoris Services Corporation reports second quarter 2011 financial results. At this time, all participants are in a 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. Thank you, sir. You may begin.

Thank you, Jacquie. Good morning, everyone, and thank you for joining us today. Our speakers on today's call will be Brian Pratt, Chairman, President and Chief Executive Officer of Primoris Services Corporation, and Peter Moerbeek, the Executive Vice President and Chief Financial Officer.

Before we get started, I'd like to remind everyone that statements made during today's call may contain certain forward-looking statements, including with regards 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 portions of Primoris's filings with the Securities and Exchange Commission, including the Company's Form 10-Q, which is anticipated to be filed on August 5, 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, except as 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 to everyone. We had another strong quarter, driven by improved profits and revenues. We attained record quarterly net income and the best earnings per share since we became public in July of 2008. We finished the quarter with a backlog of slightly more than $1 billion, which was approximately the same as the period reported prior quarter.

During the quarter, we announced significant new contract awards which helped us maintain our backlog, and we're apparent low bidder on additional projects which we did not record as backlog before quarter end that should help our backlog and revenue in quarters to come.

Explaining our core performance this quarter, let me start with the West segment. Revenues at ARB rose $37 million from the second quarter of 2010. In May, the ARB Industrial Group began work on the El Segundo Generating Station located in southern California. This two-year modernization project, with an estimated value of between $137 million and $162 million, will improve the availability, supply, and reliability of electric power for the residents of southern California. At this time, the Industrial Group is actively constructing three power plants, and we continue to see opportunities for similar work.

During this quarter, we saw a decrease in gross margin for this segment. This was due to complications on one of the power plant projects that experienced late owner-provided engineering. This, of course, caused late owner-provided deliverables and obviously delayed the construction process.

As is the case in most owners, they want to hold the same completion date, so the project winds up with additional cost. At this point we aren't certain how much of these costs can be recovered from the owner, so we recognized what we think are the ultimate costs of the project without increasing the compensation appropriate to the changes. This conservative accounting philosophy is standard operating procedure for us. It is a testament to the diversity and strength of our Company that we can incur these types of impacts and still achieve strong financial performance.

In June we announced the ARB Underground Group had been awarded contracts with a combined total of $30 million by the three California major utilities. Each of these projects started in the second quarter and should be completed by year end. As we have mentioned in earlier calls, the hydrocarbon pipeline owners in California are facing an increasingly difficult regulatory environment. During the quarter, we saw increased work for most of our pipeline customers, with both reimbursable and hard bid commercial terms. This work remains the largest component of our California underground work. We expect that the work will continue to be robust in California, that this work will be robust.

The Structures Group continues to struggle finding replacement projects for the garage they're completing at the Long Beach Airport. However, we have won several smaller projects that will help us preserve our capabilities in this market.

As it relates to the renewable projects, there's not a lot of news. We continue to work with potential clients and continue to respond to various opportunities. While we are yet to receive our first significant contract, we have good opportunity flow with owners who still are suffering the same difficulties getting into commercial fruition.

Rockford had a material impact on the West Construction segment, contributing more than $91 million to second quarter revenues, with the majority of the work generated by the Ruby Pipeline project. As many of you know, the project's owner, El Paso Corporation, received permission from FERC to place Ruby into service at the end of July. While gas is flowing, we anticipate our environmental remediation efforts will keep crews busy for the next few quarters, although at a much lower activity level.

With a wind-down on the Ruby project, Frank Welch and his team at Rockford were focused on finding new revenues, and early July, we announced Rockford was awarded new contracts with an expected total value of approximately $50 million for construction of pipelines in Pennsylvania, Wyoming, and Oregon. Each of these projects should be completed by the end of 2011.

Of note, the projects we won in Pennsylvania and Wyoming offer us the presence and access to important new geographies. We are currently kicking these jobs off, one predicated on the production in the Marcellus shale play and the other in the Bakken. Future opportunities in these markets are well understood and with our significant presence, they'll provide good, long-term benefit to our group.

In the East Construction segment, the quarter included continuing projects, work activity, new project awards, and growing backlog. While everyone in the industry has concerns over long-term highway funding, we were recently able to announce a number of new highway projects.

In June, James Construction Group was awarded a contract valued at approximately $43 million for construction of a new bypass highway and construction of eight new bridges for the City of Copperas Cove, Texas. Work has begun, and the project will be completed over the next two years.

Another successful win out of the Belton office was the award in July of a $123 million contract for the Texas Department of Transportation to reconstruct and widen a portion of I-35 near Waco. This project is expected to start in January of 2012 and be completed by July of 2015.

I really want to congratulate Danny Hester and his guys at James for this win. Our bid was lower than the second-bid bidder by a mere $28,000. We refer to this type of win in the vernacular in the industry as "one hell of a bid." The project was not recorded in the backlog until third quarter, as for us, until a contract is signed, it is not announced or recognized as backlog. Our earlier contract of $107 million is scheduled for completion by 2014.

The James Houston office secured new contracts with a combined value of approximately $27 million for work that has started and will be finished over the next 12 to 18 months.

Water and wastewater work remains sluggish and very competitive in the East. I would like to say I see further improvement, but I can't. As I have said before, we have a very strong group of managers focused on this market, and when it returns, we'll be there to meet it.

The James I&M Group and Industrial Group are exhibiting a mixed bag in terms of success. While the MSA work remains substantial, the capital work is tight. We're winning our share and continue to slug it out in what has been, for the last several years, a significantly competitive environment. These competitive markets obviously impact revenues and profits negatively, but present substantial opportunities for a consolidator like us. We are working diligently in this market, as well as other market components in the hydrocarbon production and process areas, for both organic and acquisitive growth.

Revenues at our Engineering segment were down by about $2.1 million to $10.8 million, although this business delivered good margin of more than 22%. We're working on the front-end portion of several large contracts and hope to see an increase in activity over the next year or so.

We remained well capitalized at the end of the quarter, with more than $150 million in cash, cash equivalents, and short-term investments. For the first six months of the year, we had operating cash flow of approximately $52 million, which we used to retire some debt and associated liabilities. Our balance sheet provides a level of financial strength and flexibility that allows us to pursue projects that can deliver acceptable returns while continuing to consider a variety of acquisition and organic growth opportunities.

I'm pleased with our results, and I want to take this opportunity to acknowledge and thank the great people of the Primoris family for their efforts and contributions. I've worked in this industry for my entire career, and I can say unequivocally, we are the very best at what we do.

Thank you for your attention. I'd like to turn the call over to Pete, our Chief Financial Officer.

Thank you, Brian, and thanks to each of you for taking time to join us on the call. I intend to highlight some of our 2011 second quarter results, provide additional perspective on some of the numbers, and be ready for the question-and-answer session. As Devin said earlier in this call, we anticipate filing our second quarter Form 10-Q tomorrow.

For the second quarter of 2011, revenues increased to $352 million from $203 million in last year's second quarter. Of the $149 million increase, the Rockford acquisition that we made in November 2010 contributed approximately $91 million. Our non-Rockford West Coast construction business grew by $36 million, or 51%, our East Construction Services segment grew by $24 million, or 20%, and revenues declined by $2 million, or 16%, in our Product Engineering segment.

As I mentioned on the last quarter's call, we merged the ARB and Rockford northern California operations at the start of this year, so that means the $91 million revenue contribution from Rockford does not include any increases that we received from Rockford's former northern California operations.

From November of last year through the end of June this year, we have recognized revenues from the Ruby Pipeline project totaling approximately $295 million. As Brian said earlier, we have environmental remediation work ahead of us, but our revenues will obviously decrease from current levels. The good news is that there is a life after Ruby, as demonstrated by our July 7 press release announcing new contracts.

Our overall gross profit for the second quarter of 2011 rose by 56%, or $15 million, to $41 million from $27 million for the second quarter of 2010. Rockford contributed $14 million of that increase. The rest of the West Construction segment gross profit decreased by $2.9 million, the East Construction segment increased by $3.7 million, and the Engineering segment declined by $400,000.

As a percentage of revenues, gross profit declined to 11.8% from 13.1% in last year's second quarter. The decline in gross profit as a percentage of revenues and the decrease in the West segment margin reflect the impact of increasing the contingency amounts for one of our power plant construction projects, as was earlier discussed by Brian. Compared to the first quarter of 2011, gross profit increased by $776,000, or 50 basis points, for this segment.

In the second quarter of 2011, our gross profit calculation included $1.6 million in amortization of acquired backlog compared to $604,000 in the second quarter of 2010.

For the second quarter of 2011, selling, general, and administrative, or SG&A expenses, increased by $4.7 million, or 29.4% from last year's second quarter. Of the increase, approximately $1.6 million was due to the acquisition of Rockford at the end of last year. On a sequential basis, SG&A expenses increased by about $600,000 from the first quarter of 2011. With our increased revenues, SG&A expenses as a percentage of revenues declined for the quarter to 5.8% from 7.8% in the 2010 second quarter. Excluding the impact of Rockford, SG&A expenses as a percentage of revenues would have been 7.3%, a 50-basis-point reduction from the prior year quarter.

Our SG&A expenses for the second quarter included amortization of intangible assets totaling $1.2 million compared to $891,000 in the second quarter of 2010. Over the next two quarters, we anticipate recording additional backlog amortization of $1.5 million as part of cost of revenues and an additional SG&A charge for intangible amortization of $2.3 million. If Rockford meets its 2011 earn-out targets, we expect a one-time fourth quarter SG&A charge of $460,000.

Operating income for the 2011 second quarter was $20.9 million, or 5.9% of total revenues compared to $10.8 million, or 5.3% of total revenues, for the same period last year. Operating income increased from 5.8% in the first quarter of this year to 5.9% for the second quarter.

During the second quarter of 2011, interest expense was approximately $660,000 for our subordinated debt and approximately $693,000 for our notes secured by equipment. We also recorded in the second quarter of both years an expense of $306,000 related to fair market value adjustments for the potential earn-out amounts associated with our acquisitions. We anticipate recording additional earn-out charges of $559,000 for these fair market value adjustments during the remainder of 2011.

Other income in the current year's second quarter also benefited from a $2.6 million increase in income earned from the St. Bernard Levee Partners joint venture in Louisiana. We expect that the work done by the venture will be completed by the end of this year.

The provision for income taxes for the second quarter of 2011 was $9.2 million for an effective tax rate of 39.0% compared to $4.2 million, or an effective tax rate of 37.1%, for the prior year. We expect that our effective tax rate will remain at about the 39% level for the remainder of this year.

Net income for the second quarter of 2011 was $14.5 million, or $0.28 per diluted share compared to net income of $7.1 million, or $0.16 per diluted share, in the same period in 2010. That's an increase of $7.4 million, or 104%. The net income and per-share amounts represent the best that we have done since becoming a public company.

Fully diluted weighted average shares outstanding for the second quarter of 2011 increased by 12.7% to 51.2 million shares from 45.4 million shares in last year's second 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 fully convert the warrants in October 2010, and the shares issued when both Rockford and James attained their 2010 earn-out targets.

As Brian noted, we have a very strong balance sheet. At June 30, 2011, we had $158 million in cash and cash equivalents, including short-term investments of $23 million. Working capital at quarter end was $56 million, total notes and capital leases secured by equipment was $52 million, and stockholders' equity was $246 million. For the year, we have increased our tangible net worth by $29 million to approximately $120 million.

Last quarter I discussed the impact of Rockford on our balance sheet, so let me briefly provide an update. Since year end, our accounts receivable balance has decreased by $53 million. Rockford accounted for $45 million of that total. Our billings in excess of cost and estimated earnings declined by $33 million since year end, with Rockford representing $28 million of that total. Our support made to acquisition debt fell to $30 million from $43 million at the end of 2010. Included in that reduction is a March payment of $6.4 million, which eliminated that portion of the Rockford subordinated note that had a convertible feature.

As usual, let me conclude with a discussion of our backlog. At the end of June, backlog was $1.03 billion, an increase of $132.3 million, or 14.8%, from total backlog of $895.8 million at December 31, 2010. For the second quarter, we added $210 million to backlog in the form of new or expanded projects, and we converted $239 million of backlog to revenue. Our total revenue for the second quarter was $352 million, of which $113 million, or 32% of total revenue, did not flow through backlog. Our June 30 backlog did not include $11 million of the Rockford projects that we announced on July 7, nor the $123.6 million Tex DOT highway job announced on July 22.

I remind you that it is our policy to not book a job in the backlog unless we know the contractual revenue amount. This means that we do not include cost-reimbursable jobs such as the Ruby project or anticipated MSA revenues in our backlog amount. 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 our customers have the ability to cancel contracts, sometimes even after we have started the job. Given that, we expect that approximately $471 million, or 46% of our June 30, 2011, amount, will be recognized as revenue in the remainder of calendar 2011.

Before I turn the call over to the operator, there's one more item. Unlike previous press releases, this morning's release did not include a reference to dividends. It's not an oversight, but because we moved the schedule up somewhat this quarter, our quarterly Board of Directors meeting is not scheduled until later today. I expect that we'll issue a press release discussing dividends early next week.

With that, let me turn the call over to the operator so that we can get to your questions. And thank you very much for your attention.

(Operator Instructions.) Lee Jagoda, CJS Securities.

Congratulations on a good quarter.

Hey, Lee, thanks.

So this was the second straight quarter of 20%-plus growth in the East Division, and you're doing this while working under a continuing resolution of the old highway bill. Can you talk about your dependence in that division on the highway bill and touch on how you can show such positive results in the current environment?

Brian wants to say it's great management.

Yes. Thanks for noticing, though, Lee. Just because there's less money doesn't mean there's less money in the areas that we're working in. We happen to be in great areas. You know, New Orleans and Baton Rouge have suffered, obviously, some discrete things that happened in that area. Texas happens to be a pretty decent market, and we're actually located in Texas. The I-35 corridor has been the thrust of a lot of the budget money being spent.

So I'm sure there's major areas of contraction across the country, but our areas that we're focused in really haven't seen a huge contraction in their cash flow. So I think we're fortunate to be in the right areas, and I think we're fortunate to have the assets in the right areas.

Our guys have been doing this for 60 to 70 years, and this is an exceptional group of guys. When we looked at James a year and a half to two years ago, the first thing we did is we didn't look at -- obviously, we looked at the numbers and the balance sheet. But the first thing we really, really focused on was the management. And there was such a great common culture between the way they run at their business and the way we run at it, and their expertise and their skill sets, they fit really well.

So I think it's a degree of fortunate nature that we're in the right place and with the absolute right tool. So I can't tell you how proud I am of the contribution those guys have made.

Great, thanks. And just switching gears a little bit, if I look at the margin you attained in Ruby this quarter, it looks like about 15.8%. Does that include any contract true-ups now that we're at the end of the design, or the build phase of that contract?

There's a slight portion of that. We have a cost plus a fixed fee on the job, and there's adjustments yet to do. There are still some negotiations left with the owner. As those progress, then we adjust the contract, our estimated cost to complete, upward and downward. So there's a portion of true-up in there, yes.

Great. And one more question and I'll hop back in the queue. If I look at your St. Bernard joint venture in the quarter, it showed a nice uptick. And I know you said it was going to run off by the end of the year. How should we think about the next two quarters' contribution from that?

They'll be less, Lee. I think we're getting down toward the end of the job, and I would expect to see some pretty small numbers in third quarter and maybe a little bit of a final uptick in fourth quarter. But I'm not sure that in total they will approach what we did in the second quarter.

Okay, great. Thanks very much.

I'd like to lever off of Lee's last question a little bit to do another explanation. I see reference, and I hear reference from questions to the Rockford acquisition. And I still think it's largely misunderstood by the community. We didn't buy -- what's Rockford going to achieve this year in revenues, Pete? Three?

Roughly, yes.

We didn't buy a $300 million company. We bought a $120 million company with a $300 million or $400 million job. We recognized that. We didn't pay for a $300 million company. We paid for a $100 million company.

In the acquisition price of $82 million to $84 million, based on how you account it, we think we got $40 million of stuff. We got cash, we got equipment, we have $40 million of stuff, plus we got the Ruby contract. Now, based on what we think we're going to attain on this, we're getting almost the entire purchase price back between what we paid for the company and what we're going to make on Ruby.

So, in essence, we paid almost nothing for the goodwill of a going concern of a company that we think is going to do $100 million to $150 million a year. And if you look at their revenue and their bookings for the second half of this year, that's on track. So don't model in, guys, that we're going to -- we didn't buy a $300 million company. We bought a $100 million company with a $300 million job.

Matt Tucker, KeyBanc Capital Markets.

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

Thanks, Matt.

Just wanted to drill in on the West Coast margins a little more. Rockford margins were pretty nice, as Lee pointed out. And the underlying margins actually were weaker sequentially, and you mentioned it had to do with the power plant job. Outside of the costs you have already taken on those delays, do you see any potential for additional delays that could create more costs going forward, or do you think you're back on track there?

Every month we do a re-estimate of these jobs. We sit down and we estimate what it's going to cost to complete these things. And it's very detailed. These cost buckets, there can be 400 or 500 per project like this.

On the quarter, we do an even more exhaustive take on it to make sure that when we talk to you guys and we give you guys numbers, that they're as accurate and precise as we can give you. We will continue to do this for the next three or four quarters. We have one rule around here -- if you're going to take an ass-whipping, take it now. Don't take it in pieces. And so we try and look at these things under the worst-case scenario when we first start having these kinds of issues.

Now, we still have a lot of negotiation to do with the client. There's still a lot of hair on this thing in terms of figuring out what the impacts are going to be. Once the engineering was done, they've got to order long lead-time items. We think they can recover some of that. We're negotiating. We're in the process of exploring with the client some recovery of the schedule. I'm not sure all of it can be achieved; in fact, I'm kind of certain most of it, all of it can't be achieved. But we look at this every quarter. But I think we did a good job of assessing what we thought was a pretty ugly worst case, and that's what we represented.

Great. Thanks for that color. And then looking at Rockford, the $50 million in work that you recently booked -- is that basically your expectation in terms of revenues from Rockford in the second half? And then Part B to that question, a lot of your peers on the large-diameter pipeline side of things have talked about shifting their focus recently more towards shale plays and midstream-type opportunities. Given that you have your foot in the door there in the Marcellus, could you talk about a little bit how you see opportunities for Rockford going forward between more shale-type work versus large-diameter work?

There is large-diameter work in the shale plays. They're just not as long and prevalent as these jobs that have been feeding the industry for the last four or five years.

We were kind of the bastard calf in the industry for a number of years because we chased the small work and we weren't the big dogs that ran around chasing the mega-projects. And we chose, five or six years ago, this company, ARB, our subsidiary, this company's done work all over the world. We've laid pipe in India, in Uzbekistan, in the Philippines. We're more than capable of chasing these big, large mega-projects, and we do.

But we make our bread and butter on these smaller projects, and that's traditionally been our market. And the Rockford deal gave us more leverage to do these bigger jobs. But at the same time, that's been a component of their market.

We've got great competitors. I'd never say anything bad about Price Gregory or Danny and Steve and up in Wisconsin. But they are big project chasers. They're not these small-diameter, oilfield-y type deals. That's what we do, and that's what we do best.

The reason we didn't go out and do the $400 million or $500 million projects over the last couple of years until we bought Rockford was we thought we were better off to stay home with our current set of owners and really cater to them. While all our competitors ran off and chased the rainbows, we stayed home and worked for the guys that had been our bread and butter for 50 or 60 years. And that's paying dividends. That's why we're doing all this retrofit and our competition's talking about maybe doing it. Okay, we stayed home. So we're more than comfortable.

We know how to compete, as does Rockford. You know, Frank Welch has done the little stuff and done the big stuff. And Patrick Rockford, up in Washington, he's done a lot of little stuff and the big stuff. And so we're very comfortable. This is not a skill set we have to learn. Some of our competitors will either have to buy it or learn it.

And then just in terms of the revenues for Rockford for the second half. Outside of the $50 million, does Rockford also have some other work in their backlog for the second half, and/or do you see the opportunity to pick up additional work that could contribute to the second half?

We're bidding stuff every day. The later you get in the season, the tougher it is to get it complete, although there's a lot of people trying to get stuff done by the end of the year.

Now remember, Rockford has two components. It has this big project chaser guy, and they have the little project chaser guy that stays home. And the little project chaser guy, we're just coming into that season. Patrick up in Washington, Oregon, and northern California, we're just now coming into that season. So that work's going to heat up. So that's going to add a lot of volume, I think, to the second half.

Most of those guys, they bid work in the spring through the early summer, and they then run like hell trying to get it done by the end of the year. So I would expect we're going to do more volume than what's predicated there on your $50 million number, (inaudible) more volume.

Great, thanks, Brian, and congrats again.

Richard Paget, WJB Capital.

Brian, you mentioned not a lot of contracts being let on the renewable side, but you continue to see activity. Is there any thoughts that, given some expectations that some of the tax incentives might evaporate at the end of the year, there might be a push to get some of these projects rolling so they can break ground and be able to take advantage of those?

I was just talking to one of my guys yesterday. I said if I had a dime for every client that called me and said, "Well, your number's great. We love your number. You're the low bidder, but we're twice budget," I'd have enough money to not buy a cup of coffee at Starbucks, but I could get their light latte with a shot of vanilla.

These guys have come in with unexpectedly low budgets. I'm not sure where they got them. The Spaniards have been very active in the business. I don't know. Maybe doing this stuff in Spain is a lot cheaper. But California is more expensive. The bugs and bunny people out here are just unbelievably painful. The processes they go through, and it's a disjunctive process. You think you finally get something 100% done and somebody pops up and says, "No, you forgot something," or, "We've decided to add something to it."

Tax incentives are a big thing, but at the same time, you've got this renewable standard, and the renewable standard is what's going to push it forward. And there's been a lot of, we're buying a lot of power from other states to satisfy that renewable standard, but there's a real push locally, since the economy in California is so bad, to try and push the utilities into buying the same power from internal sources, which means that should stimulate the growth here a little bit inside of California.

It's just, it's a morass of difficulties. We've got projects that are already started, and the owners -- that we're bidding the pieces of -- and the owners are saying, "Geez, we didn't think it was going to cost this much. We've got to go back to the drawing board." So I think there's a rush to try and get going on it based on the tax, but there's also a lot of problems with financing. We have an owner we just announced a project on, which was a large power project, and we've gone back and revised the contract three times because their lender kept wanting additional language in the contract, change language in the contract.

So between bugs and bunnies and financing and uncertainties and bad budget costs, boy, the business is just all over the map.

Okay, so it doesn't seem like there's something that's going to break a logjam. It's just going to continue to be this slow trudge, and eventually we'll see it. Is that fair?

I hope so. Our guys are just busy up to their eyebrows in trying to bid solar work, and there's some other renewable work we're active in, too. But like I say, I'm disappointed we don't have anything to announce, but we've got enough irons in the fire. I'm hoping something will work out here soon.

All right, thanks. And then Pete, just a couple of housekeeping, and I'm sorry if I missed this. Do you have the breakdown of backlog between East and West? And is there any way to, I think you gave some numbers, but what you have currently, kind of a low bid pending in aggregate for awards?

Okay, let me see if I can do the breakdown of the $1.028 billion. $379 million is West, $617 million is East, and $32 million is Engineering. And we have, we obviously -- and that's what I tried to say. The $123.6 million job, the Tex DOT job that we were announced as low bidder, or the bid was opened in early, I think, June, we finally were able to announce it in July. And I think there's another one that they have that we apparently are low bidder on for about, order of magnitude, $70 million that they're in the process of getting us a contract. So it, obviously, would be good to get. And we have some others that we're working on and believe that we're close on.

Okay, thanks. I'll get back in queue.

Adam Thalhimer, BB&T Capital Markets,

Brian, maybe you can help us think through -- okay, so if Rockford does $300 million revenue in '11, going forward it's $100 million to $150 million, so as we think about '12, you're looking at $150 million to $200 million less, just from that Rockford difference. Help us think through the other -- what are the other puts and takes, the other moving pieces that will affect revenue in '12 that you know of today?

I think, as we look at it today, we're in a soft spot on the power side. We haven't ramped up on this job at El Segundo yet. We're just now starting that. They've suffered some delays, most of it -- you know, that's a repower job, so a lot of those delays are related to trying to get the demolition done and getting the site cleared so we can start.

Plus it's a new kind of engine concept -- well, it's not a concept. It's a more efficient engine from Siemens with a quick-start deal which allows you to work at the base. It's a merchant plant, but you can run it like a peaker. In other words, you can start it up and shut it down frequently, where merchant plants aren't built to do that. Both Siemens and GE have this technology, so I think there's a little bit of delay based on the technology that we're installing.

I think we've already gotten a little bit of work just because of our presence up in the Marcellus. When we moved up there, we had existing clients that said, "Geez, welcome to town. Glad you're here. Can you take care of this for us?" So I think there's some real possibility that Rockford could achieve better than that.

The mega-projects are going to be delayed. There's big ones coming in Canada. The tar sands, obviously, and there's more down here. There's projects that have been in the works for years, like Pier 400, that they just can't seem to get going, although they're still spending money, and we give them updated budgets every quarter or two. That's a Plains All American job to bring in more foreign crude into the harbor down here. So we think that could be incrementally accretive.

We think that there's some projects that we might be doing down the road with Westpac that our investment in that company that could come to fruition as quickly as second quarter of next year. Those are larger projects. We plan on doing some construction on those.

And we think that we're going to be able to focus a lot on this smaller-diameter work in the shale plays. Wherever there's shale inside North America, we will be there, and that's the kind of work -- my first job at this Company was building oilfield facilities, and so I know how to do this, and I know the clients, and I know what they look for, and I know how to work cheap, and that's what it takes.

So a big solar job would obviously be a paradigm changer. A big parking structure could be big revenue, but not a lot of volume. And we're actively looking at acquisitions in all the areas we've talked about, although we're being very surgical on what we're looking at right now. We think our growth into next year, and we know we have to do a couple hundred million or $150 million a year to satisfy you guys.

And that's my whole goal in life is to make you guys happy, Adam. But we think that's attainable, both through a mix of what we know and the assets we have to organic and very, very precisely matched acquisitive actions. And we certainly have the balance sheet to do bigger ones. But prices are moving around, financing's moving around. We think we're better served by focusing on a group of smaller ones that can really target the clients and the opportunities we want to target.

The only thing you didn't mention was PG&E was ramping up their pipeline investment.

Yes. They received a very large annual assessment that they can charge their clients for. They got PUC permission to do that. They're currently charging -- they went down a path that's different than most of the other utilities in the way they had to document and validate the integrity of their systems. And they're having to change that path.

So how fast they ramp up and how they choose to do it is really the question. We're currently, and we've got a couple hundred guys out for them right now doing testing. We're still changing out these old copper services that were installed at the turn of the century -- the last century. So we're seeing some of that now. But they're a utility, and they're not the most fleet of feet. They're not like a private investor, so it just takes a while for them to get a direction figured out.

They've put a lot of good people on it. They've reassigned some people because of the heat they're taking from the fires that they've had. I think they've got the right guys on the job. They seem to be very, very bright, and they're working hard. But they're feeling their way along on this thing. So how fast they bring that to bear, I can't say.

And then on the electric side in California, the electric utilities, has their appetite to invest in infrastructure changed at all in the past, I don't know, six months?

You mean on the T&D side or on the generating side?

Generating.

I don't think any of them are really wild about running out and being big generators again. I think they'd like to buy more. And they've got to do renewable standards. Some of them are looking at renewable projects. They're certainly encouraging them, because they've got deadlines and they've got quotas to meet. And some of them are making active investments. They're all kind of self-dealing and they all have their own investment groups, and so I think they're going through their unregulated side to make a lot of these investments.

So yes, I think they're going to make solar investments. One of them has bought thousands of acres of land to put dumb PV on. When I say "dumb," it's just fixed PE like a thin film. So I think they're going to be more aggressive on investing. But like one of your other earnings calls from our competitors, the price of the panels and the thin film is still dropping, which makes it tough for the better technologies to take hold, because if you can make an 11% or 12% return on a dumb technology, why would you want to squeeze 12% out of a little bit more edgy one?

So I think you'll see more investment by the utilities. Sorry for the long answer.

And you don't have interest in a PV plant, building a PV plant?

Oh, yes, yes, yes. We've got proposals in on a gob of them. Again, a lot of them, these larger ones, they struggle because there's two different -- well, there's a gazillion different contracts available from the utilities. But if they're under 20 megawatts, it's one contract. If they're over, it's different. And there are different pay structures, and the under-20s get more. So the bigger ones struggle a little bit because of financing. We're actively pursuing a couple of them. We're chasing them hard. We want to work for the right kind of owners, too.

But it's not like a big thermal plant where there's a whole lot of really great work in it. Basically, you're buying some panels, you're driving some steel in the ground or setting some steel and setting some panels and then twisting some wires. It's just not as exciting to us as something with pipe and mirrors and power blocks and cool stuff that we like to really show off our expertise on.

And the cool stuff just, people just aren't looking at that as aggressively?

It's coming. The cool stuff has a longer power cycle. You get power later into the day. If you use salt storage, you can run it all night long. It's got different attributes, but like I say, with these cheap panels, people are buying the cheap panels and collecting their coupons instead of doing the edgier stuff.

And these big thermal plants, they're $1.5 billion. That's if they're budgeted correctly. So they're just big-ticket items. So they're going to be slow coming out of the ground.

There is one for BrightSource that Kiewit got, a private company. And they're piecing out parts of it and we're bidding some of the parts of it. But they're getting sticker shock with the prices that are coming back, from what I hear.

The last question. Do you think that the T-lines getting built, do you think that opens the floodgates, like Devers, Tehachapi, Sunrise? Is that all --

As you know, we're not big wind guys, although I put my first windmill in 35 years ago at Tehachapi. That line for Tehachapi is pretty much committed. There's a tiny bit of solar that GE is moving from wind to solar. But that whole line was committed to pretty much wind when they committed to build it. So one of our subsidiaries is doing the warehousing and some of the maintenance on the right-of-ways and things like that on it, but that's mostly overhead work, which we don't do right now.

No, I didn't mean that you'd work on the T-lines. I just didn't know if that was the impetus. Once it's being built, that's the impetus to do more solar.

Most of the solar we're seeing is either out in Riverside area, down south of that in southern California, and a little bit west of Tehachapi over in the Antelope Valley. And none of that would be -- well, a little portion of that would be predicated on this new system by Edison. But again, most of that capacity was, my understanding is -- because we have a big piece of property we helped some developers look at up in that area -- most of my understanding was most of that line was committed to wind.

Okay. Okay, thanks for your time.

John Rogers, D.A. Davidson.

The first thing, maybe for Pete. The million dollars in SG&A costs for the East Coast Construction segment that you mentioned was allocated differently -- is that a one-time event, or is that just a reclassification that --

It's just a continuing reclassification. We decided to make them all. So it's basically just the way that the allocation works. They're now consistent with what the rest of the Company is.

That was all your salary, right, Pete?

Don't I wish.

Okay, all right.

No, it was strictly an internal -- their allocation to cost of sales was slightly different than the rest of the Company's. Now it's consistent.

Okay, all right, I've got it. And then the second thing is, Brian, you've talked about the market prospects, and I realize, with Rockford, how you think we ought to think about it. But as you look out into 2012, and given the market environment that we're in right now, is there an opportunity to improve margins, especially on the -- well, I guess on the East, because that's more stable. And on the West side, do we get back to what we saw a couple of years ago, or is it just the mix is so different and the market's so much more competitive?

A lot of our margins --

You talked about trying to grow revenue next year, but --

We're going to two things. We've got a pretty good amount of cash built up on the balance sheet, and we can use that to buy revenues and earnings. We can use that to, an accretive action to concentrate. Or we can use it to improve on our margins. And right now, we're spending close to $1 million a month in renting equipment at James, just at the James one alone. If we were to purchase that equipment, particularly as cheap as financing is, we think we could improve our margins significantly.

So with this current amount of backlog, which Danny's done a great job of building, we've got work out three or four years, and when you can get work that far out in our business, you start looking at whether you should own the stuff instead of renting it, although you don't want to end up owning something that's so unique you can't reuse it again readily.

Then there's other ways to use that cash to improve margins. Now, as a lot of our business, since we own so much equipment, a lot of our margin is based on equipment utilization. And we've had our small-diameter piping stuff pretty parked for the last couple of years because we've been doing integrity work and stuff, which just doesn't use a lot of side booms and trenching machines and excavators. That's the nature of the work.

It will, at some point, when PG&E and Semper have to start replacing large segments of pipe, which I think PG&E will. I'm not sure Semper will. So utilizing that equipment better into '12 as we focus on these shale plays more with the new tools we have with James and Rockford, and we converted Craven's over. They're good little pipeline company. They came out of the water business, but a lot of those skills can be used for oil and gas pipeline. And Will's a great guy. He's going to be a real attribute down the road.

So we think we can utilize our assets better to improve margins. So we're going to focus on the revenue side, but you know what? I've been doing this a long time, and I only care, really long term, about one number, and it's right at the bottom right-hand side of the page, and that's what we're really focused on.

Okay, and that's what I was ultimately trying to get to. So you are still comfortable that you will be able to grow that in the market environment? And that's what --

You know what? I had the privilege of owning and managing this Company, and 1983 was my first year to manage it. And we did $12 million a year. I never would have dreamed we're a $1.2 billion or whatever we're at now, Pete, $1 billion something, over $1 billion. My guys are just chomping at the bit to get to $2 billion, but we're going to do it the right way.

And a lot of guys say, "Well, you know, you had a bad power job in the West, but if you hadn't had Rockford, you wouldn't have made your $0.28." Well, I've been lucky 28 out of the last 30 years, I guess, because we continue to do the right things. And I've got the same groups of guys. Scott Summers has been here almost as long as I have. He started here five years after I -- or two years after I started running the Company.

And so we know how to do it right. We haven't changed our philosophy. We're very Japanese in the way we manage. We do the same thing right, every day. And that's the way they've continued to do it. And the James guys are the same way. That's why we love them.

Okay, I appreciate the color. Thank you.

Rich Wesolowski, Sidoti and Company.

Will the three pipeline projects that you announced early in July soak up the bulk of the Ruby crews? Or can that labor force process a good deal more work than that you've already won?

That business is very nomadic, and you have a lot of guys that will work on one job for you today, and you won't see them again for 10 years. As working union on Ruby and on all of Rockford's work, you're required to take half your people from the union hall and you bring half your people with you unless they can't provide, of course. So you're never going to see the 1,500 guys that were on Ruby go to 1,500 other spots somewhere else.

The management, we still have a lot of capacity left to manage more projects at Rockford. So it's a mixed bag. I think the current workload we have, it's going to run around 600 guys. So that's about less than half of the manpower we had at peak on Ruby.

Okay. Pete, did I hear you correctly, that $39 million of the July 7 pipeline projects were in the June backlog?

Correct.

Okay. From memory, Rockford's northern California underground operation that's now blended with ARB's results was about $30 million in revenue annually. Is that about right?

It may not have been quite that much. As a matter of fact, last year I don't think it was quite that much.

It was kind of lumpy. There are some years they did $60 million to $70 million.

And I think they were down a little bit by last year.

Can you discuss a little bit what you've seen out of Rockford's Pacific Northwest business? It seems to have fallen into the background in the first half.

As is traditionally, that's wet up there, and so you don't, other than emergency work and stuff that slobbers in from the previous year, you don't have a lot of work first half. We've had a fairly busy bidding environment. One of the projects that is mentioned here is a project in Oregon, is that group. They are currently busy bidding other work. There's some cost-plus they're doing, which they do a lot of.

They're going through a non-California, Californicated integrity process up there themselves, those pipeline owners. And so we think we'll see some good contribution from them second half of the year. Patrick's doing a good job of getting out and beating the bush and finding business prospects, and we're very optimistic that's going to be a nice business unit for us.

Okay. I realize the second half is the seasonally stronger period for your underground MSA work, but the non-Ruby portion of your cost-plus and MSA revenue fell a decent amount in the first half versus a year ago. Is that anything more than quarter-to-quarter volatility?

It's seasonal.

We can only do the work as fast as they turn it out. And as a utility, they jump around to what their clients need. So if there's a need to spend money in a different area to satisfy either an environmental need or storm damage or something else, then the ebb and the flow of the cash, we're victim to that.

Okay. And then lastly --

They've had to change gears drastically. They weren't building any pipelines or replacing much two or three years ago. Now they've got to replace hundreds of millions of dollars of stuff, and so they've got to get the engineering out. And typically they do most of that in-house. So gas guys typically aren't electric guys. And so they're having to really change their focus.

So the overwhelming majority of all that spend is still in front of you?

Yes.

And then lastly, the accounting change that was on one of the recent questions, is that just taking $1 million out of East's cost of sales and putting it into SG&A?

Yes.

Okay. And for how many quarters in the past has that taken place?

Well, we did $1 million on a quarterly basis, is roughly what it was. This quarter, ever since we've owned James, they've had that slightly different allocation. We realized that, and as we're starting to integrate the groups together, realized we needed to make the accounting consistent.

Oh, so this is the first quarter of the change?

Yes.

Great. Thank you.

Rob Young, William Smith and Company.

Hey, guys, great quarter.

Hey, Rob, thanks. Outstanding.

Thanks. Hey, I just was curious on the competitive environment, especially for the Marcellus and the renewable work that you might be working on in the future in California. If you could maybe just comment on how tight-knit those communities are from a competitive standpoint and how you see your position going forward.

Well, there are two really huge -- well, every shale play is significantly a different dynamic. South of the Mason-Dixon line, it's pretty tough to go down there and do that kind of work with union crews. The flip side, when you go up into New York, Pennsylvania, although there are some open shop guys up there. Wyoming's a mixed bag when you get over in the Bakken. There's a long way between anything, and as you get into the more populated areas, you end up with more competition, of course.

So it's really all over the map, Rob. We think -- I grew up in a very, very competitive environment. When we'd go out and bid work in Kern County -- which people don't realize, it used to be the largest oil-producing county in the United States was here in the lower 48, here in California -- I'd bid against 18 to 20 guys. And then in some cases, on utility work, it was 30-something guys. And over time, we were the last guys standing in some of those markets.

So it doesn't scare me. It certainly does impact margins. But we've got an extremely powerful group of craftsmen and superintendents and tools, human tools, to apply to these markets. They've done it before, and they're going to be very competitive in these markets.

And then you have to understand that most of these shale plays, the majors are already in there. So we don't have to go in there and introduce ourselves to the clients. We already know them. We just have to say, "Hey, we're in town. Have you got anything?" And we're going to get a fairly decent shot at doing some of their work.

Okay. And then what about from a renewable standpoint in California? They would hit their renewable portfolio standard?

It's a mixed bag there, too. When you get to the smaller solar, most of that work goes to market and doesn't go through the CPUC. It goes through the California Energy Commission. And there are smaller projects, and they don't end up getting project labor agreements, which means that the open shop guys can bid on the work. And here in California, we work across the board for the union. And on the larger PV projects, some of them slip through without PLAs being attached to them. And so you end up with a different competitive matrix.

On the bigger stuff, particularly the thermal stuff, most of those have project labor agreements attached to them, which a project labor agreement is where the owner agrees to build the thing, signs an agreement with the unions that they'll build it union. So that's been one of the reasons we've been leaning into the bigger projects, not to mention the fact there are fewer of them, so they're pretty easy to figure out who we have to talk to and who we get on the list for.

The PV projects, there's a lot more competition because of the simpler -- I won't call it simple, I'll say the less complex skill sets; I don't want to insult anybody -- to do a PV job than on a thermal job where you have piping and heavy civil work and concrete and power blocks and electrical and steel and all the things we really like to do. So we like to go towards the thermal plants, we like to go towards the bigger PV, and then the small PV is something we chase if we know the owner.

Okay. Is the primary differentiator between you and the other bidders, is the primary sticking point based on price, or is it prior work experience, or both?

It's kind of both. When these guys go out and they're taking on a $1 billion job for a big thermal, $1.5 billion, or a big collector job or a panel job, when you look at -- they go out and they spend 80% of their money upfront. They spend a huge amount of time trying to get the thing permitted, getting a power purchase agreement, getting it through the environmental hurdles, buying the equipment.

And then the contractor at the end is kind of a necessary nuisance. And so they want a guy that's going to get it done for them. This is one thing that's endemic to the power business that we really like, because this is where you get paid for really being good, not for just being cheap. And so that's a nice place to be. They want to know, and we can assure them, and most of the clients know, that we'll deliver their project to them on time unless they screw the engineering up.

Okay. And then just briefly, relative to the owner timelines that you're working with, have they stayed relatively consistent with, as they were bid? Or as a result of the economy, are they getting extended, shortened? Can you talk about that at all?

You mean from bid to construct, or what are you talking about?

Yes. Pretty much just the timeline of the whole project. Is that getting condensed or extended as a result of what we're seeing just in the macro environment?

From the environmental standpoint, all I can tell you -- first off, the DOT work is stuff that, a lot of stuff that James does, the public works seems to be going off about the way it's always gone off, kind of on schedule. The larger developer projects seem to struggle tying up the financing bow and everything else.

The other stuff, these guys in DC are just regulating us to death. And we cannot, these regulators are just pounding these projects. They're pounding the life out of the economy by just putting ever, ever more difficult processes in place through these owners. It's not a matter you've got to mitigate the stupid desert tortoise, but you've got to do it in a way that you do it right based on the criteria today. They change the criteria tomorrow. Then you've got to start over again. And, of course, that adds cost, that adds schedule.

Then you've got to go back to the lender. Then you fall out of the environmental window for the owl that flies over every couple of months, and so you've got to accommodate his new environmental window. And so this environmental regulation is absolutely strangling the industry.

Now, once you get this slug of work in there, eventually it's going to come out the end, hopefully. But it's got to be extremely exasperating for our clients. It's just, I've got a lot of sympathy for them.

Okay. Hey, well, thank you very much, and again, good quarter.

Thank you. (Operator Instructions.) Al Kaschalk, Wedbush Securities.

For a softball question, Pete, can you give us or suggest a weighted average shares count for 2011?

I think it will be right at the actual number of shares outstanding, which is (inaudible).

Is that materially different -- sorry?

Yes, it will be right at the 51 million, because we've had very little activity in the shares, very minor, and so it will be right at actual number of shares outstanding.

Excellent, okay. And then just all of my other questions have been touched on. But the one, Brian, maybe you could just clarify, given the environment and maybe a little bit more forward thinking, have you had any change or thoughts about what is strategically more important in terms of executing the plan in terms of top line dollar level or bottom line growth rate? In other words, are you interested in getting to a greater scale which can provide perhaps a little bit more competitive environment, or just being on the margin, picking up that high quality of work which indirectly would perhaps imply a pretty good EPS growth rate for the sector?

Yes. I hope I'm not too vague in this answer, but there's the Fluors of the world, and there's the ARBs and Jameses of the world. And Fluor is kind of all things to all people, and they're a big general contractor. The ARBs and the James, we're not out there trading dollars. We're not out there just managing other people that know how to do the work. And I don't mean that as a slam. Everybody needs the Fluors, because they're a great company.

But we are an accumulation of very, very specialized guys. We do stuff that there's maybe only eight or nine guys in the world that do, and do it well. And we've changed our mantra over the years. It used to be all kinds of things, but at one time was be the very best at everything you could do. And the bigger guys, they manage jobs, and they manage specialists like us.

So we still have that bent. We want to be the very best at what we do. If you want to be the very best at what you do, you can't do everything. And so we are focused on finding niches that are unique, that are small -- not that the niches are small, but the competition field is small -- and we're focused on being the very best in that niche.

Now, that can lead to lumpiness, because some of those markets aren't hot all the time. But what we've done, I think, is we've been able to stack those markets up where the cycles offset to a degree and dampen to a degree.

So we're focused on being very specialized. And working the Marcellus shale, believe it or not, is pretty specialized work. You're not up there just hiring a bunch of subcontractors to build a house. You've got to know how to drill under creeks and deal with environmental issues and deal with regulators. You talk about an over-regulated area second to California. Of course, we learned all that here. I'm here in California today. So we should be able to translate that to Pennsylvania and New York, so that's part of our edge.

But I've got to tell you, we're focused on cash flow, we're focused on earnings per share. If I could make $1 billion on $1 billion of volume, I'd be really happy. I don't need to be the biggest guy in the business. And we're very much focused on squeezing more EPS out of the revenues.

And we've got to grow to do that, but scale's not going to do a lot more for us. We can get into some new markets, help dampen the curve, learn some more skill sets, advance our list of clients, but we're not going to squeeze out a lot more dollars by getting bigger. In fact, it presents a new set of problems when you get too big.

Did I put you to sleep, Al?

Thank you. There are no further questions. At this time, I'd like to hand the floor back over to management for any closing comments.

I hope we didn't bore you guys to death. I do want to thank you for your continued interest and for dialing in on the conference call today. Goodbye.

This concludes today's teleconference. You may now disconnect your lines. Thank you all for your participation.