Primoris Services Corp (PRIM) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Primoris Services Corporation reports 2011 fourth quarter and year-end financial results call. 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, Devin Sullivan of the Equity Group. Thank you, Mr. Sullivan. You may begin.

Thank you, Rob, and good morning, everyone. Thank you for joining us today. Our speakers on today's call will be Brian Pratt, Chairman, President, and Chief Executive Officer of Primoris Services Corporation, and Pete 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 such as estimated, believes, expects, projects, may, and future or similar expressions are intended to identify forward-looking statements. Forward-looking statements inherently involve risks and uncertainties including without limitation those discussed during this call and those detailed in the risk factors section and other portions of Primoris' annual report on Form 10-K for the period ended December 31, 2011, and other filings with the Securities and Exchange Commission. Primoris does not undertake any obligation to publicly update or revise any forward looking statements whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.

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

Thanks, Devin, and good morning, everyone. By now, I hope you've all had a chance to review our results for the quarter ended, year-end 2011. We are very pleased with most aspects of our Company's performance, not just for the quarter, but for all of 2011. We continue to benefit from the hard work of our talented professionals and our ability to operate as a group of specialized construction and infrastructure companies serving diverse end markets. As I speak to you today, we're working on highway and bridge construction projects in Texas and Louisiana, new pipeline construction and integrity work in California, directional drilling at the Port of Los Angeles, terminal modifications at Travis Air Force Base in California, pipeline construction in Wyoming and Pennsylvania, large power and energy facilities in California, water and wastewaters plants in Florida, and concrete parking structures in southern California. As most of you on this call know, our breadth and depth of skill sets is very large, and these capabilities provide us with distinct competitive advantages in today's challenging market environment.

Before discussing the fourth quarter, I want to briefly go over our record performance for all of 2011. It was a year of firsts for Primoris. For the first time, annual revenues exceeded $1 billion. Our almost $1.5 billion beat that by 50%. For the first time, our net income exceeded $50 million. We reported record net profits of $58.6 million despite impact for non-routine charges in the fourth quarter of '11. Our backlog set at $1.16 billion was the largest in our history, and our cash position rose to a year-end record of $143 million.

Now, let's talk about the fourth quarter. The not-so-good news is the changed charges that we incurred in the quarter. We took a $4.4 million pretax hit on our Westpac investment. The write-down was based on Westpac's management's negative assessment as to the viability of commercialization of several projects. We agreed with this assessment on these projects, and we reflected the devaluation on our books. When we made our investment in 2010, we bet on a team along with a large basket of projects. While we don't like having to take a write-down, we continue to believe that Dave Smith and his team at Westpac offer Primoris an important, synergistic and strategic long-term opportunity to participate in a variety of energy-related infrastructure opportunities across North America.

As for our operations, I'll begin with the West construction segment where revenues increased by $48 million quarter to quarter. With the substantial completion of Rockford's Ruby Pipeline in July, higher West revenues were driven by increased activity in both our industrial and underground markets with the exception of large capital pipeline projects -- in other words, Rockford -- and parking structures. We certainly expected that post-Ruby, large-cap pipeline revenues would decrease, and they have. But, we remain very pleased with our Rockford acquisition. The integration is progressing as well as we'd hoped as we have made specific progress in the following categories. The California Group led by Mark Borges, was integrated into our northern California operations and has melded well and performed better than expected. Alaska Continental Pipeline, in spite of slower market conditions in their locale, also performed well, making a meaningful contribution in '11 and will present us with even more significant opportunities in '12. Frank Welch's large capital projects group has progressed well. After the end of our large, attention-captivating, reimbursable job for El Paso, we diversified our competitive geography and began digging ourselves into the shorter duration, shorter length, and smaller diameter markets in the shale concentrations. If asked today to evaluate the Rockford acquisition, I would call it a very good, opportunistic acquisition that will continue to contribute to shareholder value for a long time.

Our California-based underground and industrial businesses contributed $192 million in revenues in Q4 of '11 and a gross profit of $27 million. In January of this year, we announced that our Underground group under the leadership of Scott Summers won approximately $81 million of new work. This, and recent MSA, or master service agreement authorizations, continue to provide us meaningful natural gas distribution and pipeline integrity work in California. Our Underground group remains dominant in this integrity and replacement market. Our experienced work force, large, diverse equipment fleet, and safety record provide us with important advantages to securing additional integrity work which is becoming increasingly important matter for energy dependability and public safety. Pipeline maintenance spending in California by the utilities, a large portion of which is driven by regulation, is expected to rise significantly in 2012. I want to emphasize that we do not recognize anticipated MSA work in the backlog because the potential revenue generated from these types of projects is not possible to accurately quantify until the specific job is awarded or completed. Recently, Tim Healy's ARB Industrial Group was awarded a $17 million contract to construct a 50-megawatt peaker in Oxnard, California. The peaker business remains one of our best markets as these clients recognize our ability to build their facilities with the quality, schedule, and cost performance that they expect from a top-tier contractor.

While the parking structure market continues to suffer from much lower project flows, Mark Thurman's, Structures Group was awarded a $4.2 million contract by one of the largest real estate companies in southern California to construct a new, multilevel parking structure in Costa Mesa. The project should be completed in December of '12. The Structures business remains very competitive. However, attrition is continuing to winnow the field of competitors, and some of our clients are beginning to look at financial strength as a prime qualifier along with price and quality. We continue to see small signs that the market is turning, but it feels like it will be a slow recovery for this particular sector.

On the renewables sides, our Primoris Renewables subsidiary along with our Industrial group signed contracts valued at $40 million to participate in the construction two of waste energy facilities in Puerto Rico under a recently signed cooperative agreement with Synergy Renewables. Each of the two facilities will utilize proprietary processes to gasify approximately 180,000 tons of municipal solid waste annually in order to generate 10 megawatts of clean, renewable energy per location. The construction phase of these projects is scheduled to begin in 2012 with commercial operation late in '13.

Bid activity and win rates remain strong in the West. At quarter-end, backlog at the West rose 47% to $327 million versus $222 million at December 31 of 2010. We are pleased where the business stands in the West segment. The Legacy Group of ARB has good backlog and proposal prospects, and the new guys at Rockford are heading into the bidding season well positioned to capture work in a still-healthy pipeline market.

Engineering revenues were down by 26% quarter to quarter, reflecting a somewhat slower market for fired heaters. Gross profit for the quarter declined to just over $2 million. Backlog for this group was -- as of December 31, '11, declined to $25 million from $43 million at year-end, previous. We are combating the slower market conditions by augmenting our business staff in order to expand our geography and service offerings. We continue to see a reasonable level of good opportunities available to us in this market. We are comfortable we will see an improvement in Onquest and Warren's contribution over the mid-term.

In the East construction segment, backlog at December 31, '11, was $813 million, up nearly $183 million from year-end 2010. James Construction Group continues to benefit from opportunities in the Texas highway market. Near the end of 2011, James was awarded three contracts involving highway construction with a combined total value of approximately $128 million. The largest of these projects added $120 million to the Company's growing backlog for TxDOT work along the I-35 corridor in central Texas. Work on this project located in McClennan County should commence during the first quarter of '12 and is slated for completion by the end of '14. Two other Texas contracts were awarded to the JGC Houston region for infrastructure work in the Houston area. Work on these projects has already begun and is slated for completion during 2012.

James, Louisiana-based Heavy Civil Group, run by Rodney James, was awarded three new projects by the Louisiana Department of Transportation and Development for a total of $13 million. These projects, consisting primarily of bridge construction and concrete paving, should begin in the fourth quarter of '12 and extend to the second quarter of '13. We also announced James Industrial and I&M Groups received awards of three contracts totaling $20 million. These projects include the development of major material handling facility along the Mississippi River, south of New Orleans, as well as industrial process plant work in both Louisiana and south Texas. All three of these projects have begun and should be completed by third quarter of '12.

Finally in our Water -- Wastewater Group, Bill McDevitt's Cardinal constructors ended a little bit of a dry spell by winning four contracts at the end of 2011, totaling $19 million. The largest of the contracts is a design build award involving wastewater system improvements for Palm Beach, Florida. The contract is valued at $10 million and will be completed over a period of approximately 18 months. The other three wins were also wastewater projects in south Florida and provide the Group with work for 2012.

Opportunity use remains strong. We are seeing projects well suited for our skill sets. We remain very pleased with Danny Hester's group's overall performance. Obviously, we'd like to see the federal government take more of a long-term view toward the country's infrastructure needs. To date, the lack of a highway bill or even a cohesive policy has not proven to be as problematic for our group as perhaps for others. We're cautiously optimistic this will remain the case, but we could benefit if the guys in Washington would go to work and do what we hired them for by passing budgets and spending bills.

Turning to our financial condition, we generated cash flow from operations of $40 million during 2011. Our balance sheet at year-end included $143 million in cash and equivalents, or approximately $2.80 per diluted share. Primoris continues to grow with a low debt-to-equity ratio. Our experience has taught us in times like these not only should we remain extremely cognizant of our fiscal condition, but our clients also focus on the financial health and stability of their service providers. Our solid financial foundation allows us the freedom to aggressively execute projects that produce acceptable returns while continuing to pursue both traditional and nontraditional growth opportunities. It also allows us to consider a variety of acquisition investment opportunities which we have done and will continue to do.

In closing, I'm very proud to say we had an exceptional quarter and an historic year. While Pete and I are the guys to get to be here on the phone with you enjoying the discussion of our best-ever year, I can't begin to relay to you how hard and smart our stakeholder employees worked this year to deliver these results. Having worked in the industry my entire career, I can unequivocally state that there are no better people than the ones we get to rub shoulders with every day than the guys -- men and women at Primoris Companies. Their performance makes all of us look good. They get a well-deserved special thanks.

Before I turn the call over to Pete, I want to emphasize one last important point. We do not intend to rest on the past performance. Our goal is to continue to increase the value of Primoris for all of its stakeholders. Now, I'll 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 this call this morning to discuss a very successful 2011 for Primoris. My goal is to highlight and explain some of the numbers that were included in the press release, and that will be included in our Form 10-K which we expect to file next Monday. I'll start from the top of the income statement with revenues in the fourth quarter increasing 12% to $373.1 million from $333.2 million in last year's fourth quarter, and most satisfying, overall gross profit increasing by an even greater 16.5% to $50.1 million from $43.8 million in the fourth quarter of 2010. The strong contributors to both the revenue and margin growth were the two California-based Groups, our Underground Group and our Industrial Group. Revenues at the Underground Group increased by $6.3 million and at the Industrial Group by $17.8 million compared to the same quarter last year. And, gross margin increased by $9.6 million.

The primary driver of the Underground Group growth was the pipeline integrity work that we performed for a large utility while the Industrial Group was in active construction mode on three large power plant projects. Both groups had a strong quarter as well on a sequential basis. Revenue grew at $33 million by the Underground Group and $12.5 million at the Industrial Group compared to the previous quarter. And, gross profit increased by $6.9 million.

As discussed in the press release, revenues for our East segment declined by $3.5 million, and gross margin declined by $1.2 million, reflecting primarily a decrease at our East construction segment Industrial Group, which has seen a decline in its petrochemical and refinery work along the Gulf Coast. Our Engineering segment also showed a decline in revenues to $4.8 million and reduction in gross profit of $2.3 million primarily from the lower level of activity at our Canadian subsidiary. Finally, reflecting the first full quarter without a major contribution from the Ruby Pipeline Project, a combined Rockford and Alaska Continental Pipeline showed a revenue decline of $37.1 million compared to the fourth quarter of 2010, but a gross profit increase of almost $1 million. The overall revenue improvement of $39.8 million and gross margin improvement of $7.2 million in the fourth quarter compared to last year's fourth quarter helped to validate our belief that all parts of our Company have the ability to make contributions at different parts of the construction and macro economic cycles. On a sequential quarterly basis, that is, comparing Q4, 2011, to Q3, 2011, total revenues and gross margin remained fairly constant even without the contributions from that very large pipeline project, Ruby.

Selling, general, and administrative, or SG&A expenses for the fourth quarter of 2011 rose by 22%, or $4.6 million, from last year's fourth quarter. As mentioned in the press release, we included a hopefully non-routine charge of $5 million in the quarter related to the withdrawal of Rockford from the Teamsters' Central States' pension fund. Under federal laws concerning multiple employer pension plans, withdrawal from an underfunded plan may trigger a liability for a portion of the vested, unfunded benefit amount. This pension plan is significantly underfunded. Rockford, along with most of the other members of the Pipeline Contractors Association, made a decision last November to withdraw from the plan, and we recorded an estimate of the net liability.

On a more routine basis, our SG&A does include the amortization of intangible assets. For the quarter, amortization was $1.5 million compared to $1 million in the fourth quarter of 2010. For the year, our total amortization of intangible assets was $9.7 million compared to $6.6 million in 2010. Of the $9.7 million this year, $5.1 million was charged to SG&A, and $4 million to cost of revenues. For 2012, we expect intangible amortization of $5.7 million, virtually all of it as an SG&A expense. Since they go together, let me note that our total depreciation expense for the year was $24.1 million compared to $17.9 million last year. And, virtually all of the depreciation is charged to cost of revenues. On a sequential basis without the pension charge, our quarterly SG&A level has remained consistent throughout 2011 at approximately $21 million per quarter, and as a percent of revenues, has been declining.

Operating income for the 2011 fourth quarter was $25.3 million, or 6.8% of total revenues, compared to $22.7 million, or 6.8% of total revenues, for the same period last year. For the year, our operating income was the same 6.8% of total revenues compared to 6.1% of total revenues for 2010.

In considering other income and expenses, two areas need comment. Over the past months, we have refinanced some of our higher interest rate notes secured by equipment. That's part of the reason that our interest expense declined by $1.1 million in the fourth quarter compared to the fourth quarter of 2010. The other part is that we reduced our level of acquisition-related debt by $20.7 million in 2011. As Brian mentioned earlier, during the quarter, we also recorded a non-routine charge related to our investment in Westpac Energy. The total charge was $4.4 million, which consisted of a $2.7 million charge for our part of the write-down for some of Westpac's projects as required by the equity method of accounting, and an additional $1.7 million charge for an 'other than temporary impairment' to the carrying value of our basis difference. The $4.4 million is a non-cash charge. And as Brian said, we continue to believe that Westpac has the ability to provide a number of long-term benefits.

The provision for income taxes for the fourth quarter of 2011 was $8.3 million, for an effective rate of 40.1% compared to $8.3 million for an effective tax rate of 40.3% for the prior-year quarter. For the year, our effective tax rate was 39.46% compared to 39.62% for 2010. We expect that for 2012, the rate will remain in this range.

Fully diluted weighted average shares outstanding for the fourth quarter of 2011 were $51.1 million, up slightly from $49.4 million in last year's fourth quarter. The $1.7 million share increase was due primarily to the impact of $1.7 million shares that we issued or will issue to the Rockford sellers for the attainment of the earn-out provision of the acquisition agreement.

Net income for the fourth quarter of 2011 was $12.5 million, or $0.24 per diluted share, compared to net income of $12.3 million, or $0.24 per diluted share for the same period in 2010. As we've discussed, the fourth quarter of 2011 was impacted by two non-routine charges of $9.4 million, or approximately $0.11 per diluted share of earnings. For the year, our fully diluted earnings per share was $1.14 compared to $0.72 for last year, and we also increased our dividend during this past year.

As a transition to the balance sheet, our expenditures for fixed assets were a net of $25.6 million in 2011, and we incurred capital lease obligations for another $5.3 million. We anticipate that our 2012 level of capital expenditures will be similar to the 2011 amount.

At the end of 2011, we had $143.3 million in cash and cash equivalents. Working capital was $114.9 million, and our debt-to-equity ratio had declined to $37.4% from 49.4% at the end of 2010. Stockholder equity was $274.9 million, up $66.7 million from the year-end 2010, and one of our key metrics, tangible net worth, increased from approximately $92 million at the end of 2010 to approximately $152 million at the end of '11. Net cash provided by operating activities for 2011 was $40.1 million. The biggest change in balance sheet categories is a reduction in billings in excess of costs and estimated earnings of $67.5 million in 2011. Most of that change was due to Rockford's VIE of $78.7 million at the end of 2010, primarily for the Ruby Pipeline Project.

At the end of 2011, our balance sheet included $12.7 million for earn-out liabilities associated with the Rockford acquisition. Rockford met the requirements for the 2011 earn-out piece, so we show a liability of $3.45 million payable this month in cash, and a liability of $3.45 million payable in 232,637 shares this month. The remaining $5.8 million represents the estimated fair value of the 2012 earn-out. If Rockford meets the earn-out requirements, we expect to incur a $345,000 charge to SG&A and a $737,000 charge to other income in 2012. The 2012 earn-out would be paid a year from now in cash.

As usual, let me conclude with a discussion of our backlog. At the end of December, 2011, backlog was $1.165 billion, up from $1.093 billion at September 30, 2011, and up from $895.8 million at December 31, 2010. During the year, we have added $1.232 billion to backlog in the form of new or expanded projects, and we converted $683 million of backlog to revenue. Since our total revenue for the year was $1.46 billion, $498 million, or 34% of our revenue, did not flow through backlog. Note that for 2011, all of the backlog increase is really organic growth. I remind you that it is our policy to not book a job in the backlog unless we know the contractual revenue amount. That means we do not include cost-reimbursable projects 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 others. As always, I'll remind you that customers have the ability to cancel a contract sometimes even after we have started the job. Given that, we do expect that approximately $596 million, or 51%, of our December 31, 2011, backlog amount will be recognized as revenue in 2012. I'd now like to turn the call over to the operator so that, at long last, you can ask Brian questions. Thank you very much.

(Operator Instructions) Our first question is from the line of Tahira Afzal with KeyBanc Capital Markets. Please proceed with your question.

Good afternoon, gentlemen, and first of all, congratulations on a very strong quarter.

Hi, Tahira, how are you?

Fine. Doing well. Obviously, it seems like the PG&E work has started to really benefit you. As you look out to 2012 to start with, how do you see that playing out in terms of your relative performance? And then, number two, would love to talk a bit more about the power generation side. You've talked a bit more about peaker plants. But, as we look at the whole picture, where do you see your opportunities for this year and next year?

You always ask yes and no questions, Tahira. That's what I like about your questions. PG&E has a lot more capital to spend. They're just starting into their integrity program meaningfully. They've committed to test -- to hydrostatically test twice as much pipe next year as they did this year. Their integrity program with replacement of copper services is going to continue. That was some of the MSA work that we were awarded in last quarter of '11. They have a lot more to spend. How it gets spent, with whom it gets spent -- I couldn't speculate. I think we have the strongest position in terms of our ability and our position and with our facilities and our people, we have the largest labor pool up there of any of the contractors in the area. So, I'd look for us to continue to grow.

How much is like -- asking like how long is a piece of string. I'm not sure how much will fall our way. They continue to have changes in management. There's a lot of work to do to get the new managers to recognize who you are and our past service. So, it's got its challenges. Part of the challenge we faced last year was we could get their stuff tested and built faster than they could get the payments processed. So, that stressed our balance sheet a little bit. That's why -- another reason our cost in excess was up at year-end. But, I look to continue to get our share as long as we're prudent, and we do a good job for them, and we don't cause them any major public relation headaches. And so, we're working very hard to do all of those things.

On the power side, there's substantially more base load plants that need to be built. A lot of those are going to be renewables. We'd like to announce a couple. We've announced one. There's more parts to that. But, we're constrained on our contract with our owner on what we can announce and what we could say. So, we are starting to get sizable amounts of solar work, thermal work. We do see that as a continuing ability -- a continuing impetus to our Company particularly in that those are -- those kinds of projects fit our skill sets real well. From the dirt to the concrete to the piping to everything, the power blocks. We just really do well at that kind of work.

There are a lot of peaker opportunities out there still because the solar plants don't operate when the peak power is needed in California. For every megawatt of solar, there's going to have to be some peaker built. We continue -- we've got a couple of proposals out on larger peakers, 50- to 100-megawatt. Some of them are your traditional turbines, and some are back to the older reciprocal engines. But, we have a great reputation in that market. We've got good relations with all the clients, and so we think we're going to see more peaker work.

Then, we're going to see more of this nontraditional stuff like this municipal solid waste to energy. We think that's a good market. It does require a degree of subsidy. Probably mostly by the consumer because they're all going to have to pay a fee. What they call a tipping fee to make these plants work. But, we do see more of those coming, and that's pretty much both nationally and internationally. So, we continue to be real excited about what's out ahead of us power-wise.

Okay. And now, I'll just ask one more question and then hop back in the queue. Brian, you very aptly pointed out that Congressional representatives have been a tad bit slack in getting bills through. But, what we seem to be hearing from a lot of your peers this season and seeing it in the numbers, is that the states seem to be getting fed up and really doing a lot of dedicated fees and alternate financing. Perhaps much more than over the last few years. I would love to know what your experience has been so far as you've gone out to bid for projects?

Well, Texas seems to have a little different angle on how they finance and budget their projects, and we're in the right spot. There's still quite a bit of work on that I-35 corridor that we've got real some market advantages in that area. So, we're optimistic. Right now, with our current heavy highway backlog, we've got great backlog in Texas. If we didn't book another job for a year or two, it wouldn't be a big issue for us. But, being the greedy little souls that we are, we're going to get all that we can get.

Louisiana is -- their budget is off substantially. But, we knew this. That's one reason we got as active as we have been the last couple years in Texas. We think it's been committed to turn that around. Jindal pretty much ran unopposed. One of his main thrusts in his budget is to use more of the offshore money which Louisiana gets a larger portion of offshore money two years out. He's going to commit a good deal of that to heavy highway. As much work as has been done in Louisiana, of course, a lot of that was Katrina-based. But, as much work as has been done, there's still a tremendous amount of work left to do. That's James' home state. We feel comfortable that we're going to get our share there.

The other issue you fight though is just not what's the work that's available to you, it's what your competitive paradigm is. If the work continues to struggle nationally, then we are going to see more and more people trying to encroach in our traditional markets. So, that's the flip side of the coin. But, we're pretty comfortable with where we sit on heavy highway. Danny's done a great job, and Rodney James over in Louisiana, and Pat [Plenicky] in Texas. They're to be commended. They're really first-class guys.

Thank you very much. I'll jump back in the queue, Brian.

Our next question is from the line of Lee Jagoda with CJS Securities. Please proceed with your question.

Good morning. Can you speak a little bit about the total cash you've invested in Westpac to date, Brian, and the potential benefits that you could receive over the next few years for that cash you invested?

I'm going to defer to Pete on the -- what do we have -- ?

Our original investment was $18.1 million.

Have there been any additional cash investments since then?

No. Not by us.

Okay. Brian, could you talk about what you're getting for that $18 million over the next, say, three years.

Well, originally, there was a basket of projects that they were pursuing. One of them was a large pipeline project and tankage and turmoil project in Los Angeles. That was the one that we basically impaired. Another one was a port facility down in Port Arthur. It was basically for the same client. There are other -- there are other clients that that might fit for. But, since the one client pulled out of the project, we felt, as did the auditors, that it was appropriate that we impair the project. I'm not sure I'm using the right term. We discounted the value of the project. Pete's shaking his head, so I must have struck a note.

A couple of the other projects, Lee, are a big terminal project in the San Francisco Bay area. As I've talked about on these previous calls, where we get our crude and where -- how it gets introduced into the refining system is changing. And, the quality of crude is changing. California's running out of heavy crude, which a lot of the refiners like Valero and stuff built the refineries around processing heavy crude. We have actually more light because the stuff coming out of the Bakken and places like that is a lighter crude. The transportation system has to change drastically.

One of the other projects that we're pursuing -- we have a partner in that project. They're writing -- when I say we -- I mean Westpac. They have an additional partner that is writing 75% of the checks for that project. It's kind of early to discuss it so I don't want to get too much into the detail. But, obviously if somebody's going to build a large terminal project, and this is not a greenfield, this is more of a brownfield development on the existing facility in San Francisco, in the back Bay. The construction dollars out of that, not to mention the investment dollars, would certainly be good for Primoris to enjoy. There's another series of projects involved, but it's too early to discuss them.

Okay, that's very helpful. Thanks. And then Pete, just switching gears a little bit. In looking at the pension expense for Rockford, do you have the 2011 pension expense incurred by this plan? And then, talk a little bit about the potential savings in 2012 and '13 by exiting the plan and by taking this charge?

There probably won't be a lot of savings by exiting the plan. What we really are addressing is the unfunded vested benefits within the plan. We're currently making the same pension payments to the union guys that were in the plan. We're just putting it on their check, I believe. So, that's not -- you're not going to see that significant change. This charge has to do with whenever you withdraw from a pension plan, a multiple employer pension plan, as part of the withdrawal you incur your pro rata portion of the unfunded vested benefits. That's kind of the number that we have out here. I'm sorry, we should not have any other issues related to that. Again, there's some -- as part of the negotiations with the whole PLCA and the union, there were some questions, and some of the other companies in the industries have discussed the concern that the union -- or the pension fund is saying that we didn't withdraw until 20-whatever. But, those are non-issues to us at this point.

One more question. I'll hop back in queue. You recently added about $80 million of MSA work to your backlog which is pretty unusual given the indefinite quantity nature of the business. Two parts to the question. The first part is, is it only one customer? The second part is, can you give us a sense for any additional MSA opportunities that you're seeing beyond the $80 million in 2012?

The piece that was added was added because as soon as we know specifically -- we have an assignment, we have a work order that tells us what to do. We add it to backlog. That's what we did. So, when you have a firm contract, it gets added. There's quite a bit more MSA, and yes, it was all with one, large, California-based utility.

Sure. Thank you very much.

We do announce MSA work at times. That doesn't necessarily mean we add it to backlog.

Right. So, the $80 million that you announced, that wasn't backlog, though?

Yes, I believe so.

Okay. Thank you.

No, that wasn't all MSA work.

No, it wasn't all MSA.

That $80 million was not all MSA work. Some of that was our dollar work for other clients.

Got it. Okay.

Our next question is from Rich Wesolowski, Sidoti & Company. Please state your question.

Last one on this contract. Did Ruby have any material revenue or profit in the fourth quarter?

No, it didn't have any -- I think it had a little bit, and we're still in the process of negotiating with El Paso. So, we still have some reserves. I don't believe there was anything dramatically significant in fourth quarter.

Okay. In the first nine months of the year, your combined underground and industrial profit in the West was about flat, but it rose $10 million in the fourth quarter. Can you explain that disparity?

Easily. Large utility, northern California. (laughter) Seriously, we had a tremendous increase in -- well, two things. Obviously, we saw the benefit from having our industrial guys -- California industrial guys -- working on three power projects simultaneously. With the [Darin], they're starting to build. So, we're at the stage where we're generating revenues and profitability. And then, the hydrostatic testing that we did was a big number.

Okay. So, the combination of those two.

Yes.

And, you have another kind of an oblique advantage in the fact that when we get that busy, we drive a lot of our numbers on accrual. And, when we get that busy, our utilization goes up on our equipment and some of the other drivers. And so, that critical mass brings dollars to the bottom line from different resources than just job -- direct job profits.

Okay. Would you discuss whether the two gas-fired plants scheduled to be completed in 2012 will finish on, or about on time?

Yes.

Okay. Should we be wary of a lull in -- a little bit of a difference in the seasonality from what we'd normally expect in the West if they complete their projects in April and May and are not quickly reassigned to new bids in the gas plant area?

Well, I wouldn't be too wary of it. Some of those guys are going to go off to burn trash in Puerto Rico. Plus, we've got peaker projects that we're rapidly coming to fruition. We'd like to keep our teams together. Most of these guys have been with us a long time. But, that's just kind of the nature of the business. When you do these large 22-, 24-month projects, you get some lumpiness. You can't always -- you don't want to have a three-month lull, but I'll guarantee you, you don't want to have a five-month overlap. Because if you don't have the people to start one -- you screw one up at the start, it's pretty much screwed up at the end. So, I'd much rather have a little bit of lull than having to try and fix one in the middle of it.

Right. Okay. And then last one, shifting back to the underground. Sorry for that. Is the growth in that business over the next two or three years more a function of the pace of work let by the utilities and PG&E, specifically? Or, your own labor capacity?

Ooh.

Are you running into problems with getting more people -- ?

I think everybody is. Every contractors' association thing I attend, they all complain about labor constraint. We have the best labor pool of anybody on the West Coast. I say that unequivocally because we do. And, our union agreements allow us -- that's a little bit of an impediment to entry to our markets because under -- I don't want to bore with details. But, under our labor agreements, we have the right to call back people that have worked with us within a short period of time which is a year to two years. For somebody to come in, when they don't have that ability to call back the same people, they've got to go to the union and take the first on the out of work list. The way that guy gets to be the first -- he's unemployed the longest which is an indication of the quality of guy. Not that they're bad. But, there's just -- that's a huge impediment, a huge barrier of entry to some of our competitors.

Everybody is impacted by this. The low wages that have come up over the years in construction -- if the market continues to increase the way it has, it's going to be a real challenge to the whole contracting community to develop high-skilled workers. There's plenty of low-skilled guys. But the high-skilled guys are -- they're short. They're short in supply. We do pretty well in supplementing, particularly in the fact that the same welder that's out welding a power plant can weld in a refinery. Some of them can weld on pipeline, and some of them can weld in a shop. So, with the diversity of skill sets we have, we're able to cross-train and cross-use people across the disciplines where some of our competitors are pretty uni-dimensional.

I think whether it translates to revenues and profits for us, it's a little bit of both. But, we didn't turn down any work this year because we had a labor shortage. What you do have to do -- and I'm sorry for boring you with details -- what you do have to do though is you have to be very careful about where you pick your revenues because the last thing you want to do is be in a tight labor market and have the one job that's out in the middle of the desert that's 100 miles from anywhere where there's no hotels to stay. You have that job at a pretty low labor rate with a pretty low margin, and you've got to hire people when everybody else has got the best people working for them, and the guys are working 10 miles from their house. It really takes some market savvy to put all the pieces together to be efficient.

Appreciate it.

There's plenty of work out there, and I think we'll handle the labor shortage better than anybody else.

Thanks a lot. Best of luck.

Thanks, Rich.

Our next question is from the line of Adam Thalhimer with BB&T Capital Markets.

Thanks a lot. Good afternoon.

Adam.

What's the opportunity for EPS growth in 2012?

Hmm. Since we don't give guidance, Pete's over there chuckling. He's waiting to see if I'll put my foot in my mouth first. I like our prospects for 2012. As we get a little bigger, it gets harder and harder to project for us internally. We would never project for you, Adam. Because of the diversity and the different markets and the geographies. But, I think if you look at our backlog growth, that was pretty much organic. Ruby wasn't a factor in 2010. Ruby isn't a factor in '11. We didn't buy anybody in the last 12 months -- last 14, 15 months. I'm pretty proud of that backlog growth. And, it's good backlog.

I know some of our competitors are lamenting about the quality of the backlog, but Danny and the guys down in Louisiana did a great job of picking the jobs. The guys in the West are doing a fantastic job of picking their jobs. And the right clients, the right mixture of work, the right utilization of equipment, I'm pretty pleased. I know I didn't answer your question, but I'm not going to, Adam. You know that.

Here's another way to kind of get -- what's that?

You're going to come at me from a different direction, are you?

Different direction.

Okay, all right.

So let's talk about segment margins in Q4, and maybe you can comment on whether you feel like -- how you feel like those might trend from Q4 levels in 2012? So, at 9% gross margin in the East, 16% in the West. 15% in engineering. Do you feel like those -- are those levels the right levels of sustainability? Or, do you think they could fluctuate from there?

Well, I'd certainly like to see double or triple, but that's probably not practical. Your heavy highway work traditionally is a lower margin work. It's slow moving. it takes longer to burn it off. If you don't have a particular edge in the market, then it's tougher for you because you're just out there trying to compete as a commodity. We try not to do that. That's why we're focused in the areas we're focused where we have our labor advantage. Or, we have a resource advantage with a rock asset, or a -- something. The James guys are exceptionally good at that. The lower margins we have, as the jobs finish up, they have a tendency for the margins to drift up because there's less risk and more of the unknowns are sorted out. So, that has an impact on margins.

Rockford, they took some loss leaders in these jobs in the Bakken and in the Marcellus -- more of the Williston, not really the Bakken, but up in the Bakken area because we wanted to be there. I think we're going to see the benefit of that. We spent the money. It's $1 million-plus to move one of these pipeline spreads across the country. We spent that money out of those jobs to get where we want to be so we could dig into these markets like I said earlier in my comments. So, I think Rockford has got a chance to improve their margins well. In the West, I think the margins we got on the industrial and pipeline work -- those are awfully good margins. I think there's ways to tick those up, and I think we'll do that. But, I couldn't -- I couldn't sit down and quantify it for you.

When do the three large power plant jobs finish?

You've got two that go out in the middle of the year, and one goes out middle of next year.

Okay. Pete, lastly, I know this is kind of a boring question, but could you just walk us through the $9.4 million in charges? How do we back that out?

It's tempting to say take a piece of paper and make an entry. The $5 million on the pension plan is included in SG&A for the quarter, and the $4.4 million is all included in the other expense line.

Okay. Great. Thanks a lot.

(Operator Instructions) The next question is from John Rogers of D.A. Davidson.

Good morning. I apologize if I missed this, but what was backlog by segment? West, East, and Engineering?

At year-end -- hang on, let me grab a piece of paper.

I've got it here in my comments.

Backlog -- $813 million in East, $327 million in West, and $25 million in Engineering.

Okay. Great. Thank you. I guess as it relates especially to the East business, Brian, the industrial slowing or temporary slowing that you noted in your comments. When does that turn? Is it the refinery business, petrochemical business? What are you looking at that gives you confidence that starts to turn up?

The East industrial?

Yes, yes. Not the West.

Yes. I think it's turning. We've got a couple that we're really down to the short hairs on getting contracts written that we haven't announced yet. We are going to supplement that group. We have under contract a couple of small acquisitions that tuck in. They're not to the announcement stage because we don't have definitive agreements. I -- Conrad -- we came off a huge project at Marathon for the Garyville refinery. They had six contractors, and they split the work among six of us. And, we did all the dirt work and all the concrete work, some of the piping. We sold the heaters in to it. I think it's like Ruby. You come off those monsters that really, really take a lot of your attention, and there's no other monsters to hunt in the meantime. So, you've got to dig yourself back into some of the other markets that maybe you might have ignored. I won't say ignored, but you weren't as focused on as you were prior. Then, the general economy down there is -- you don't have a very friendly EPA, and you don't have a very friendly permitting process for some of these larger projects. But, I think you've got a huge impetus now there for growth on the industrial sector in the Southeast. Not so much in the West, but all the way across the Southeast and up into the Northeast. And, that's just cheap natural gas.

That number isn't going change. We're going to export some of it, but those big LNG plants are four, five years out, and they're not going to make a huge dent. You're going to see a huge turn, you're starting to see it in the Eagleford now, away from dry gas to wet gas because if people want to take the wets out of the gas and sell that because it's an oil equivalent for $100-something a barrel. But the difference is that cheap gas, in order to process to get the liquids out, you end up with dry gas. When you're done, that dry gas is still going to be sold real cheap, and the benefit of cheap gas is you're going to see that replace coal. That replaced fuel oil in some spots like Florida. But as much as that, the chemical guys, that's their fundamental feedstock is gas. If they got cheap feedstock, they're going to build plants. They're going to get a lot more aggressive. I think the industrial work is beginning to turn as we speak. It would sure be nice if we didn't have those in Washington that want to preclude us -- excuse me for -- they want to preclude us.

(laughter) I want to see the transcript. No.

Yes. I'm sure I can make it inaudible. But, they want to preclude us from building stuff we need. If they'll back off and let us build some of this stuff and let us produce some of these resources, we'd have a drastically different landscape in terms of our country and our unemployment. But, I think it's starting to turn in spite of them.

Okay. And then, in terms of the gas pipeline work, you've got work now -- I think just about all the major shale areas. Major end markets. Is that the sort of balance that we should expect going forward? Or, is there one area or region that you're particularly targeting or advantaged in?

Well, I made the commitment to the Board to be in every shale play. And, there's a gob of them, short of the Denver -- the Colorado, the overthrust area. We're working very hard, and some of them are more mature than others. Some of them are harder to penetrate. You go to the Bakken, there's not a hotel room within 300 miles of a well being drilled. That's a tough market to penetrate. Of course, we're up there on the larger capital expense. But, I came out of those oil fields -- as I've said before, Kern County was the largest oil-producing county in the lower 48. That's where I grew up. I'm very comfortable in those markets. We're not only going to chase the big capital jobs, we're going to chase the small ones. We're focused especially right now in the Eagleford because the one -- the closest small acquisition we have under contract, or close to under contract, is pretty much -- well, it's actually Texas and a little bit into Mississippi and Louisiana. That will take care of the Barnett, the Eagleford, the Haynesville, some of those areas. The next step --.

Sorry, that's pipeline work?

No, that's across the board. You've got two major thrusts that are going to occur in these areas. One of them is transportation, the other is processing. Now, the problem with this wet gas, which is just a huge -- don't miss -- this is a treasure. The problem with wet gas, though, is where we're producing the wet gas, there isn't the quantity and quality of gas processing we need. So, some of the producers are just putting the wet gas into the pipeline and selling it for gas when it could -- they could triple their revenues or even quadruple their revenues if they could strip the liquids out because they're so valuable. So, our thrust is to be everything above hole. I don't need to be in the down hole business. I've done it. It's not my favorite thing, but from that Christmas tree out, we want a piece of it. That means flow lines to transmission lines to lease area control tanks to gas processing to you name it. We're going to be on every side of it because this is where I came from, and I'm optimistic as to where we're going to go.

Okay.

I'm so optimistic, we ought to have all buys across the board from our analysts.

(laughter) All right. Thank you very much.

Okay, John.

Our next question is from the line of Steve Tabb of Tocqueville Asset Management.

Hi, Steve.

Hi. I know that you can't control PG&E in any way. But, they announced that they have what is $1.4 billion worth of work to be done. It's a tremendous amount. They had this very severe explosion a couple of years ago. There's a lot of pressure on them. And as you point out, you can't snap your fingers and have all the available equipment and personnel available overnight. So, don't they have some discussions with their major suppliers about what they're planning, and where they're planning it?

Yes, they do, Steve. They try and give us as much insight as they can so we can be prepared when they need it. PG&E is in northern California. They get a lot of weather impact. They've got a limited construction schedule. And not only that, not only are they weather-impacted, but they have to make sure their gas facilities are available to sell gas during the winter because in southern California, there's not as much heat -- gas for heat as it is in northern California. They've got to make sure they've got their facilities ready to go by the late fall in order to serve the heating needs of their rate payers. They've give us as much insight.

But, I've got to tell you, this is a company that was spending 10% of that two years ago, and they're struggling with their own internal management issues on how to get this effectively spent. They're a utility. If they spend it, they can get it in a rate case, but they do have an obligation with their rate payers to do it prudently and safely. They struggle as much as their service providers do. I don't think I answered your question, but I'm just telling you, it's a pretty undaunting task.

Now, the good news in that is, if you're a PG&E guy and you're struggling with your own internal systems and your own problems -- because they've got to get this stuff designed and permitted and ready to go. If you're struggling with all this, the last thing you want to do is expose yourself to somebody as -- a service provider that doesn't have a standing with you that is an unknown quantity. Well, we are. We've taken care of these guys for 60 years. And, they trust us to the extent they trust anybody. And, I think that's a huge benefit for us.

You seemed to indicate that there's some seasonality in the work that you're going to be doing. Could you give us a little more particulars as to when they would have to begin to notify you in order to get the work done -- the seasons they want?

Well, we pretty well know what the seasons are. We're currently working -- I think we've got maybe a couple, 300 guys out there right now. Don't write that down because I'm not sure. That's a good guess on my part. Because of the copper services we're changing out, some of the day-to-day work, they can't take their main feeder system.

The San Bruno explosion that you alluded to, that's on their main feeder system. They take gas. They come in from two different directions. They come in from the south, and then they come in from the north, from Canada, for their gas meters. They can't take those out of service until the heating season is off. It's still a little brisk out there. I would imagine they can start taking some of those lines out of service to start their hydrostatic testing within the next couple of months. But then, they have to get -- they put the water in the lines. They've got to get a permit to discharge the water out of the lines because it's got a little bit of hydrocarbon in it so they have to run it through a filter and then discharge it which means you have to get a permit. You have to get a permit in all the cities to open up the lines and expose the areas where they want to put their test heads on to test it.

There's a tremendous amount of logistics that go into doing a simple little test. They struggle with that because they just hadn't built the organization over the years to do this on an overnight basis. We think the surge of work they'll hit is traditionally -- we start to see a real surge in May/June, and it kind of slops over until the first part of the year at times. But with the size of what they have to do, I think probably what you're going to see the next couple of years, it will contract significantly in October and November. But by May/June, usually we're running pretty hard, as are they.

All right. And another area you discussed a little, your acquisitions -- certainly in the natural gas and liquids area. But overall, did you find the availability of companies that you're seeking -- is there greater availability? Or, is it scarce? Are the prices they're asking within range of what you're looking at, or not? How active does it look for this year?

I'm optimistic that we're going to tee up to maybe four decent-sized ones. We're not looking at anything that's doubling our size. Not that we wouldn't. We just don't like the field of players out there. One of the advantages -- of the four we're looking at fairly hard, we're in negotiations with 2.5. Those -- all four of these guys that we have sincere interest in are guys that we knew. They're guys that we approached. We didn't rely on an investment banking firm to bring us these guys. It's one of the advantages I think we have in our acquisition tactic is that we approach people we know. People where we're comfortable with their markets. We're comfortable with the management, and their ownership is structured in a way that really lends itself to be acquired by somebody like us. In other words, management's got some ownership, but you have a couple absentee guys or something like that. So, we're kind of their solution for their long-term estate planning.

So, I'm very -- and, we're not looking at prices that are out of the box. Everything we look at is going to be accretive, obviously. We probably wouldn't do it unless it had real advantages. There is one small one we're looking at that's got some real, huge geographic advantages. We are always looking for guys that we can augment or supplement their efforts to make more money. But, in general, the series of candidates we have, they're reasonably priced. The EBITDAs, or multiples-to-EBITDAs are close to what we're normally paying. And, the management is strong. So, I'm not disappointed at all. We're really more focused on very, very surgical acquisitions in either markets we truly want to be in or in geographies we want to be in. And, we're not running out of choices here.

All right.

That doesn't mean we wouldn't look at somebody opportunistically, but we don't typically try and do that.

One final question regarding to what you just said. With the acquisition of these four companies, if they go through what you planned, require any additional financing on the part of the Company? And if so, what are your plans?

Well, in general, we have a formula where when we acquire them we give them some stock. Just enough to keep management invested. Keep their attention. We do some cash. We've been successful in asking the sellers to carry back some sub-debt which is meaningless from your point of view, but our bonding company and our banks love it because they're subordinated to their loans. And so, I think we're in line to do all that for the four we're talking about -- we're well, sitting well north of $150 million in cash in the bank today, and these are all $50 million to $100 million companies which just fit our model really well as to where we want to be in the next couple of years. So, we wouldn't be looking at straining our balance sheet at all. We're not looking at raising any money or even really going to the banks for any more debt.

Thank you, and good luck.

Thanks, Steve.

Our final question is from the line of Rich Wesolowski from Sidoti & Company.

Hey, Rich. How are you?

Excellent. Just coming back around for another one.

All right.

How much of the underground work is coming from PG&E? Is it all of it?

I don't sit around and slice and dice this stuff.

The way we're speaking about it, it seems as though underground is synonymous with PG&E. I was under the impression there were other accounts there.

Absolutely not. We did $20 million, $30 million for Edison last year. We did -- I don't know -- $60 million, $70 million for SoCal Gas in their integrity program and others. We've got worked for Kern River right now for Mr. Buffet. We've got tons of other work. It's just that I think everybody's focused on that because they know it's going to explode in terms of volume. I think we're at the cusp of the explosion, but there's still a lot more to come. A lot of what Alaska Continental does is for people up in the Northwest. That's mostly underground. And, of course, what Frank Welch does is all underground. We're hoping he does in the $50 million to $100 million category this year. Frank, are you listening?

Last one in the James business. Given the weakness of the DOT bidding, especially in Louisiana, where it looks like from their website, it's basically shut off. Do you sense your East business will need a highway bill in order to grow once you establish the I-35 run rate as a baseline?

It would sure be nice, but I think one of the -- I forget who the analyst that asked the question was -- or commented that the states are kind of deciding to do this on their own. People are going to -- these states have to have more infrastructure. And, it's going to get built somehow. It would be nice to have a heavy highway bill. And, I hate to predict what the next four years are going to bring because the last four have been pretty heartwrenching. But, we're pretty fixed. We're in pretty good shape for the next couple, three, four years, without a big highway bill.

Louisiana is going to spend money. There's more work on hurricane repairs. There's more work down there that fits us well. There's extensions to what we have just finished or are currently just finishing. We're really well fixed in the I-35. There's more I-35 work coming. If you look at that backlog, it takes us three or four years out. Now, obviously we need to replace that.

But more importantly, we need to find another area where we can develop the advantages that we have in that I-35 area with the borrow pits and spoil pits and the rock pits and things like that. And, that's really our challenge. And, these guys are working it hard. It would be great to have a highway bill, but I'm not going to predicate anything in my life based on what Congress is going do except maybe estate planning.

Again, appreciate your time.

Okay. Thanks, Rich.

Thank you.

There are no further questions at this time. I will now turn the floor back to management for closing comments.

I want to thank all of you very much for your continued interest in Primoris and for participating on this call. I hope we answered your questions and entertained you this morning. Thanks. Good-bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.