Primoris Services Corp (PRIM) 2012 Q1 法說會逐字稿

Greetings and welcome to the Primoris first quarter 2012 financial results conference 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, Mr. Devin Sullivan of The Equity Group. Thank you, Mr. Sullivan, you may begin.

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

Before we get started, I would 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 described in the Press Release issued this morning. And those detailed in the Risk Factors sections and other portions of Primoris' quarterly report on Form 10-Q for the period ended March 31, 2012, also filed this morning. 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 would now like to turn the call over to Brian Pratt. Brian, please go ahead.

Thanks, Devin. And good morning to everyone. By now I hope you have all had a chance to review the results for first quarter of 2012. Primoris delivered a solid quarter but for the first time we did not meet or exceed our analyst expectations. As I review the past quarter and talk about future quarters I want to remind all of you that we do not give revenue or earnings guidance.

Let's start with the Rockford Ruby expectations. We financially closed out the Ruby job this quarter based on final negotiations with our client. In doing so, we swept the bulk of our remaining reserves into income when final resolution was executed. As I have repeated over the past year-and-a-half, Ruby is a bit of an aberration. And the last year's earnings were higher than what could be used in estimation of the next. At the end of Ruby we look back and we can lay claim to an acquisition that has performed better than we expected. The potential $83 million purchase price for Rockford was based on getting $34 million of mostly cash equivalent assets. And the Ruby project, along with other Rockford work over the last 18 months, yielded $48 million in after-tax profits.

In sum, we traded $83 million for $82 million plus a great business. I'm not sure how you describe that in multiples of EBITDA but I do know it's pretty good. I would like to thank Frank and the guys at Rockford for making it happen. However, the Rockford Ruby project has created somewhat distorted expectations of earnings projections for this year in spite of my quarterly warnings against such extrapolations. Also, in adding Rockford's markets to our legacy businesses, we have added seasonality to our work load. This is the same seasonality that presented itself in the Q1 results for three other public companies with large capital pipeline operations. They all reported losses in this segment. Our business, based in this industry, posted a small profit prior to the recognition of contingency reserves on the Rockford close, on the Ruby close.

I continue to view Rockford acquisition as a great success for PRIM. How could I not? But the heavier weighting towards more seasonal large cap pipeline business will bring more Q to Q volatility on our numbers in the future, at least until other parts of our business grow to mute its higher concentration. The good news for this seasonal market is that work prospects are good for the remainder of the year. And the better news is that '13 and '14 are shaping up to be possible banner years. We are currently tracking almost 4,000 miles of pipeline construction possibilities for these two years. Some of these projects won't get built. Some will be delayed. But even a reasonable fraction of these jobs coming to market will make for very significant opportunities for our mainline guys. So you can see, not only is the market seasonal, but cyclical.

An additional reason for not meeting some of the industry's expectations is a $0.03 after-tax swing we posted on a California project. This project has incurred very difficult, and we feel unreasonable, environmental mitigation interpretation by our client, with which we strongly disagree. We are in the contractual resolution process with this client and have, as is consist with our recognition policies, attempted to represent worst case as to the outcome of this project and the resolution process. There are several other small negative influence on our results for the first quarter but I don't think they're worth mentioning. To the positive, our ability to operate as a group of specialized construction infrastructure companies, committed to diverse end markets, served us well this quarter, as we are confident they will in the future. Especially as it relates to business development.

We announced this morning our East and West Construction segments secured a total of $264 million of new business. This new work was spread across all segments of our service offerings. And most of it should be completed during 2012. Our backlog at March 31, 2012, was $1.12 billion. We generated cash from operations of $39 million. And our Q end cash position was $135 million, or $2.61 per share. We continue to operate with a low debt-to-equity ratio, reflecting our belief that the health and stability of the financial condition is of critical importance to our success.

Specific to our operations, I will begin with the West Construction segment, where revenues declined by $62 million due to substantial completion of the Ruby pipeline project. However, offsetting this decline were increased revenues driven by greater activity in both our California-based industrial and underground markets, which contributed $57 million of higher revenues for the first quarter of '11, sorry '12. Scott Summers' underground business continued to perform well under previously announced contracts and MSA's for performance of natural gas distribution and pipeline integrity work in California where we are dominant player in the market. As we look into 2012 we see no abatement in pipeline maintenance activities by California owners. A large portion of which is driven by regulation. In that regard, Scott and his team recently secured approximately $51 million of new work authorizations for gas service, retrofit and pipeline integrity work from three major California owners, none of which is counted in our backlog.

Our ARB underground group also recently won a $10 million contract for nine miles of natural gas pipeline in eastern California. And $7 million of other pipeline-related construction. ARB's Industrial Group, under the leadership of Tim Healy, recently began work on a $17 million contract to construct a 50-megawatt peaker in Oxnard, California. In addition, Tim's group, as part of a joint venture team, was awarded approximately $35 million of new work associated with a major solar thermal power project in California. And over $9 million of new work in various power and industrial facilities in California. Mark Thurman's Structures group continues to slug it out in a very tough California civil market. We do see small signs of improvement, but they are small signs. ARB Structures was recently awarded two contracts totaling approximately $8 million for new construction at Cal State San Marcos and a parking garage expansion in La Jolla, California. I remain confident in Mark's leadership of this group and its long-term prospects.

Along with this, we announced earlier today's Rockford award of contracts valued at approximately $48 million for work in Wyoming and Pennsylvania. A further endorsement of our strategy with Rockford. Sprint Pipeline Services, our new subsidiary, secured $10 million of new work. Their awards include $6 million of projects from a chemical facility near Freeport, Texas. And $4 million of midstream oil and gas companies for various pipeline-related projects. All this work is scheduled to be completed in 2012. Robert Grimes, Sprint's President, and Jon Johnson, our VP of Business Development, along with their team, have pushed through conversions to new management systems, new structures of all kinds of new requirements, which they have adjusted remarkably well. And have managed to keep their eyes on the prize. I'm proud of all of them.

On the renewable side, our Primoris Renewable subsidiary, along with ARB's Industrial Group, is looking forward to commencement of construction of two waste-to-energy facilities in Puerto Rico, previously valued at $40 million. I say previously, as the owner-developer, Synergy, has asked us to take a larger role in these projects by performing the entire engineering, procurement and construction packages of these facilities. Bringing their value to in excess of $110 million combined. These projects are not yet represented in backlog. Backlog in the West settled at $330 million at March 31, 2012, up about $3 million from December 31 of '11.

In the East Construction segment, backlog at March 31, 2012, was $769 million, down about $45 million from 2011 year end. At James Construction Group we commenced work on a $120 million project for TXDOT along the I-35 corridor in McClennan County, Texas. With James' completion, and therefore the virtual elimination of performance risk on several large projects near the end of last year, and the massive amount of new work we commenced, margins are predictably off a bit in the East. Traditionally, recognized margins grow through a project's life as it matures and performance risk is reduced. James was also awarded a new contract totaling approximately $76 million. These include $48 million of work in Louisiana for new bridge projects and the completion of the I-10 widening project in Baton Rouge. In Texas James was awarded $10 million for highway construction projects near Temple. And $1.5 million for a water line project in the Houston area.

James Industrial Group was awarded $3.5 million of civil construction on 2 industrial facilities in south Louisiana. The Cardinal Mechanical Division was awarded a $2.5 million project for the city of Houston. James Infrastructure Maintenance Group, now headed by Jonas Beatty, was awarded over $10.5 million for various mining support and site work development projects in Louisiana, Florida, and Texas. Roughly 85% of this group's new work should be completed in 2012. Jonas was recently promoted to Division Manager of James I&M Group upon the retirement of long-time manager Tommy Lasseigne. Tommy will be missed but we have high expectations for Jonas.

Bill McDevitt and Cardinal Contractors commenced work on the previously-announced $10 million design/build wastewater improvement project for Palm Beach, Florida. This is slated to be complete by mid '13. In addition, as announced this morning, Cardinal Contractors was successful in securing approximately $9 million of new work in Florida consisting of water and wastewater work. All of these projects should be completed by the end of 2012. Cardinal's recent successes are the first in awhile and we're hoping this marks a turning point in what has been a really tough market. Engineering revenues rose modestly to $11.7 million. Gross profit for the quarter declined to $1.8 million from $2.8 million in last year's first quarter, due to higher-margin project close-outs in 2011. Backlog for this group as of March 31, 2012 was $23.5 million, down by about $1.8 million from year end.

With respect to opportunities for OnQuest, the heater business, one of our mainstays, remains sluggish. However, we are experiencing good opportunities in waste-to-energy projects and a real surge in owners looking to build small-scale LNG facilities. Both of these markets are good business lines for our engineering group.

In viewing our Company's overall prospects for the year and beyond, I'm very optimistic. Our basic geographies and markets in energy, infrastructure and utilities continue to be robust. We have achieved one-third of our acquisition goal for the year, and are closing in on two additional target I mentioned before, albeit smaller ones. Our people are the very best at what they do. They remain emphatically focused on the interest of our clients, the quality of our work, the well-being of the public, our clients, and our people, understanding and reducing our costs. And, of course, increasing shareholder value. We have the right strategy and all the right tools. We remain absolutely focused and driven.

Before turning over to Pete I would like to announce that our board has authorized a share repurchase plan of up to $12 million over the balance of the year. I'm sorry $20 million. Pete's looking at me cross-eyed. We believe this speaks well to our shared confidence in Primoris management and our board. It is also a byproduct of prudent fiscal management, which has contributed to building a financial statement that allows us to create other ways to enhance shareholder value. Finally, I want to again thank the stakeholder employees at Primoris Services group of companies. Your efforts continue to bring rewards to yourselves and our shareholders. You make me very proud to be part of our Company.

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

Thank you, Brian. And thanks to each of you for taking time for joining us on the call. The filing of our Form 10-Q this morning was a benefit to all of us, as I can definitely reduce the length of time that I need to discuss any of the items that you can already read about easily. I do want to focus briefly on several areas and provide color on some of the numbers.

My first comments are on revenues. In the earnings release, we said that the revenues for our California underground business increased by $41.8 million in the first quarter of 2012 compared to the first quarter of 2011. Of that increase, $26.2 million was from increased work for two of the California gas utilities, which included $17 million for a large northern California customer. The increase demonstrates that the gas utilities remain focused on underground integrity work. However, on a sequential basis, that is, comparing Q1 of 2012 to Q4 of 2011, revenues for our largest West Coast gas utility customer decreased by $34.8 million. This is consistent with previous years, as even in a relatively mild winter, utilities need to provide gas to their customers. And pipeline integrity, copper services and pipeline replacement opportunities are deferred to future quarters.

In the West, we also announced that the ARB Industrial Group revenues increased by $15.1 million. That increase was primarily the result of our continuing work on the 3 California power plants that we have mentioned on earlier calls. And in my final revenues comment, I want to note that in the first quarter, the East JCG Heavy Civil Group, Louisiana Department of Transportation revenues decreased by $9.9 million. However this was largely offset by TXDOT revenue increase of $7.5 million, as we are beginning the work on a substantial I-35 project that we announced last year.

During the quarter we closed the acquisition of Sprint Pipeline Services. That transaction added approximately $13 million of goodwill and intangible assets. The intangible asset piece of about $3.6 million will be amortized over the next 10 years. For the first quarter we recognized $1.7 million of total intangible amortization. And we will recognize a total of $5.6 million for 2012. Between the acquisitions of Sprint and Rockford we now have three separate earn-out calculations. Two for 2012 and one for 2013. For Sprint, we will recognize an other expense amount each quarter this year of approximately $200,000, with an additional charge to SG&A of $200,000 in Q4 if the earn-out goal is met. In 2013 we will recognize approximately $100,000 each quarter and a $600,000 one-time charge in Q4 if the earn-out goals are met. For the remaining Rockford earn-out piece, we will recognize approximately $185,000 as an other expense each quarter this year, with a $345,000 SG&A charge if they achieve their earnings target in the fourth quarter.

Our provision for income taxes for the first quarter of 2012 was $6.6 million, for an effective rate of 38.5%. Compared to $7.9 million for an effective rate of 39% in the prior year quarter. At this point we estimate that our effective tax rate for the entire year will be approximately 39%. For the quarter our expenditures for fixed assets were a net of $1.3 million. However, we still anticipate that our 2012 level of capital expenditures will be similar to 2011 or slightly more than $30 million. During the quarter we paid off the remaining subordinate notes for the James Construction acquisition. At March 31, 2012 our total outstanding debt was approximately $78 million. And we had a debt-to-equity ratio of 27.2%. Even after the Sprint acquisition our tangible net worth remained at the same $152 million that it was at the end of 2011.

Finally, as you look at our backlog, please remember that it is our policy to not book a job into backlog unless we know the contractual revenue amount. This means we do not include cost-reimbursable projects or anticipated MSA revenues in our backlog amounts. It also means that for Primoris the amount of our backlog is not as comprehensive an indicator as it may be for other companies. Since a significant portion of our revenues, almost 21% for the first quarter of 2012, is not derived from backlog. And as always, I will remind that you that customers have the ability to cancel contracts, sometimes even after we have started the job.

With these luckily brief remarks, I would like to now turn the call over to the Operator so we can get to your questions. Thank you. Operator?

(Operator Instructions) Rich Wesolowski, Sidoti & Company.

If I take out Ruby, the West margin was below what you have been reporting of late. Brian alluded to the underground project that cost you $2 million. But I'm also wondering about the progression of the two gas-fired plant projects slated to be completed by summer. Were either of those a drag on the quarter?

No.

Could you comment broadly on the performance of those and whether there will be any noise, positive or negative, in the June or September quarters?

They're progressing pretty well, Rich. The one that causes me -- I won't say I'm concerned, but the only moving part I see in one is we have to participate in a start-up. Start-up of these plants, particularly this newer iteration of the quick start, or the black start plants, is a bit of an unknown for us. We have to participate in that. How well the owner recognizes change of scope and things can make a difference. But they're progressing relatively well. I think over the next six months -- these things, they complete in a flurry, into start-up, then they slow down. But as we progress, I think you might see the margins tick up on those a little bit. They're going well.

Do this morning's announcements of the project awards in Wyoming and Pennsylvania suggest that you have cycled through the loss leader gathering line projects in those areas?

The one project for the owner up in Wyoming, we did a project for him last year, and this is the extension of that project. So I hope so. If we didn't learn from the first one, we need to get out of the business. But I think it's reasonably priced. We don't have the move on, obviously, that we had in the first job, and that was plus or minus $1 million. So it does make a big difference. I'm pretty optimistic about that one. Since we went to the Marcellus area, we've been picking up dribs and drabs from various owners. One of the owners has recognized that it's probably not the best way to do the work, because we can't really plan.

We jump over here and do a couple miles, then we go across the state and do a couple miles. We've come together with him and put together an execution plan which allows us to logically plan this stuff out and attack it the way it should be. Most of that work is reimbursable so there wouldn't be any loss leaders in that, I would hope so. So I'm optimistic those are going to be good jobs.

Thank you. Then lastly, as the pipeline integrity revenue increases in '12 and '13, are the underground margins expected to be above, below, or roughly in line with the West margins, ex-Ruby that we've seen of late?

Traditionally, those are pretty decent margins, because we get some ancillary revenues through equipment utilization and things like that. The owners are constantly going through new iterations of how they want to deliver the work. So it's cost-plus one year, and it's shared savings the next year, then it's rip-and-read the following year, then it's negotiated the next year. So I couldn't speak to what delivery system is going to be the flavor of the day with these guys over the next two years. But in general, that business is a little bit higher margin than some of the other because of utilizations and things like that.

Now, when you shift into a new area, and you gear up the way we had last year, these crews are a very intense user of tools. They're very specialized tools, and they're very expensive tools. A three-man crew can cost you in the neighborhood of $300,000 to $400,000 just to tool it. Forget the equipment that goes with it. I'm talking about hand tools. So a lot of that is spent, so we expect to see some margin improvement on the fact we don't have to re-spend that money. The work is going to be somewhat consistent in what we're doing this year and next against last year. It's a long answer, but the short answer is, the margin should be a little bit better, I would think, than the average blended margin.

That's what I thought. Thank you.

Lee Jagoda of CJS Securities.

If I look at your JV line, it looks like you had about $1 million of revenue from -- or profit, excuse me, from St. Bernard, and then $100,000 from WesPac. What's the status of the work in each of those JVs? And what's the outlook look like for 2012?

The WesPac is a project development group so I don't think you are going to see any direct margins as it relates to WesPac. Hopefully we'll see some work in '12 on some of the projects they're pursuing. A couple of them are going pretty well. The St. Bernard's levee job, that's pretty much complete. We've recognized everything there, haven't we?

Pretty much, yes.

The new JV we have, which will be somewhat below the line, will be on this thermal solar work we have in California. We've got about -- I think we announced $35 million in that group, and we hope we get quite a bit more. The owner, they're fighting environmental stuff, like they all are out there, and archeological issues now. But they've got a lot more packages to come, and they fit our skill sets really well. So, I'm optimistic we will see some more business out of that.

Do we expect any benefit from that in Q2?

Some. They're struggling a bit. We're going around and around with them on deliverables, because our first contract was for the assembly of the mirrors, which is something I really wanted. We spent a lot of energy. These big mirrors, you have to assemble them on site because they're so big. You have to haul the pieces in and then assemble them. We spent a lot of energy. We went to Spain and did some time studies on how they assembled them there. They're almost identical to the ones that they built in Spain for their solar projects.

But they've had a difficult time with manufacturing some of the parts. They want to manufacture here domestically. So it's been slow starting out. But the thing has got to get built. They've committed. They're over their skis on this thing. So I'm optimistic we will see some revenues, some serious revenues by year end. I'm not sure about Q2.

Then just switching gears a little bit to the Sprint acquisition. If I look at the East segment where I believe it will go into, how do margins in Sprint compare to the East segment? Because it sounds like it's more of the work you would normally do in the West.

It's significantly more cost reimbursable. There's a lot more travel with it. They do smaller capital projects. They're not nearly the size of the ones we do in the West, although we're going to bootstrap up and get them into the big boy market eventually. But their margins should be a little bit higher than what you see in the West. They have a little higher overhead. When you're dealing with day-to-day wants of clients, you have to really cater to them, and you have to be available to them.

Through the winter you see a little bit of inordinate overhead costs because, once you get your people operator-qualified, you have to make sure you keep them. You can't afford to lose them, because it's very expensive to get them OQ'd. They actually exacerbate a little bit of the lumpiness. But their margins are good. It's recurring. Cash flow is a little worse because clients like to take a little longer to pay us. But it's a great mix. It's dealing with the same clients we've dealt with for the past 60 years. These guys are really good at it and they've really built a great reputation. We're pretty excited about using it as a platform to get more.

Great. Brian, just one more question and I'll hop back in the queue. Can you just remind us again of the seasonal pattern that the PG&E work would normally take?

Yes. PG&E, they have to put their system back into service as soon as the cold weather hits. They can't afford to take a risk and say -- well, gee, the forecaster says it's going to be a warm December. So traditionally they have to get their system back into service Halloweenish, Thanksgivingish, someplace in there. Usually they get pretty aggressive on the work around April, May, when it warms back up.

It warmed up earlier this year, but again, I can't see a utility going to their ratepayers and say -- gee, we didn't have heat for you this year because we didn't think it was going to get this cold. That's their big system. We've done a lot of copper service work for them in Q1 and headed into Q2. Those copper services, you can lay one next to the one that's existing and just cut it over. The client is only out of service enough where you have to relight their pilots. So it's pretty easy to do. That work carries through the winter.

Now you are starting to see the start of the real work. This year, they've got a new set of guys in there that they've brought in, and they're feeling their way along on how they want us to deliver the work, whether it be shared savings or reimbursable or what. So I think that may slow the process down a little bit. But from the numbers I've seen on the headcounts, we're headed into it pretty deep here in the next 30 days, 60 days. Peter, go ahead.

Lee, the 50/50 joint venture that we have gets accounted for not below the line. It's part of revenues, and then earnings, so you won't see the benefits from that project in other income. It's included in revenues and normal income.

And that's the thermal?

Yes.

Okay. Perfect.

Tahira Afzal of Keybanc Capital Markets.

Feels strange not to congratulate you on a good quarter.

(Laughter) It was an okay quarter.

We're not all that happy about it, either.

It wasn't that bad if you take the $0.02 out. I was surprised by the amount of seasonality on your top line. I can start by asking, as you mentioned, the fourth quarter, which didn't have any Ruby in it, into the first quarter. What would you say were the prime differences on the top line?

You know, I don't like making excuses, Tahira. There was a degree of weather. Your heavy highway stuff. It's not like one day of rain puts you out of business for one day. When you get rain on that kind of work, and you're moving dirt, which is typical of what you do the first part of a job, you're really down for a week or so. When you're not generating costs, you're not generating revenue. So the heavy highway side was slow.

I think the pipeline business, PG&E started up early. The power work, we had really pretty good weather in the West. I think on the main pipeline work for Rockford, we had these smaller projects that the client rolled together. Some of that we couldn't do because of weather and the Teamsters. They were still out on strike. I think we reached resolution. That deferred everybody, I think, first quarter. But that's basically it. I'm not too disappointed with the top line. I wished it was more, but in general, we're going to see more volatility when you're in the businesses we're in. I don't know how much we missed your top-line estimate. I try not to read those things.

Tahira, we had $34 million decrease in just one customer.

Right. Okay. Along those lines, clearly the PG&A seasonality is something I hadn't taken into account. If I look at your walk-in work it fell from $94 million to around $60 million in the first quarter. Now, just based on your commentary, it seems as the PG&E work ramps up, and I assume it is still going to be treated more like walk-in work, that you are going to see that bounce right back up.

I think we've seen it. I didn't bring the chart with me but I think we've seen a pretty good bounce in March and into April. Yes, they have to spend the money. I think we're still their best choice, and I think they recognize that. They're trying to bring other people in, of course, because they don't like to be dependent on one contractor. But I'm very confident we're going to see a pretty good blip in the work for halfway into this quarter into third and fourth.

Got it. Okay. Then I know you gave some numbers of backlog burn for the rest of the year. You expect around $640 million in backlog burn for the rest of the year. Does that include Sprint?

Sprint is not a big backlogger. I think we announced $16 million -- $16 million total, but I'm not sure how much of that went into backlog. I would have to defer to Pete. Most of their work is quick burn and it's cost reimbursable. So, traditional to what we've done, we don't backlog reimbursable work unless it is defined. Most of this stuff isn't going to be defined. My guess is they do about either two-thirds or three-quarters of the work is reimbursable out of their $60 million or $70 million run rate. So in a year you are going to see maybe $15 million of contract work which would hit backlog. But it would burn off so fast it would only be there for a month are two. You probably wouldn't see it on a Q-to-Q basis.

Brian, as I look at 2012 on the top line, you started a bit low this year, and there's pronounced seasonality. Do you play catch-up during the year then? Do we see a flattish top line year-on-year, or is that looking tough right now?

I'm sitting here wondering if you're asking me for guidance.

Everything you just said, it means I can get fairly close to what you did in 2011.

I think you need to really look at more of a model on '10 than '11, because Ruby was just such overpowering numbers. It did have a tendency, in some quarters, because of the way we had to deal with the charges and the performance risks, it did lower our gross margin from quarter-to-quarter. But it certainly blew our volume up tremendously. So I couldn't speak to '11. Maybe if you ask me again next quarter I could speak to it better. I certainly can by the end of the year.

Got it. Last question and I'll hop back into the queue. If I take the $2 million out, it seems your margins year-on-year were up around 80 basis points. So as we go into the following quarters -- and I know someone has asked this already, which quarter do we see margins peak in? Could you potentially, without Ruby, see margins do better?

Third quarter is usually our barn burner when it comes to revenues and margins. By the time you get there a lot of your contracts, you're deep into them so you can start looking at your performance risk and things like that. Plus, that's also our peak volume traditionally. Although sometimes it does slop into fourth quarter. But third quarter is usually our beast of a quarter.

Got it, okay. Thank you very much. I'll jump back into queue.

Adam Thalhimer with BB&T Capital Markets.

I wanted to ask first about the buyback. Brian, maybe if you could comment on strategically why you thought that was a good idea. Then maybe give us some parameters for how we should think about how aggressive you are going to be with buying back the shares.

I think we have the same vision as anybody does who starts buying their shares back. We think that our financial statement remains strong. The cash that we have on the books at the end of Q1 was, after writing the check for Sprint -- which I forget, how much was that?

$19 million.

That was after a $19 million check went out the door. So we continue to generate a lot of cash. We've studied higher dividends, but quite frankly, until the guys we have in Washington get some kind of coherent tax policy, I'm not sure bigger dividends are anybody's solution. Maybe just more of a tax problem. So we've got a great financial statement. We're not really looking at large acquisitions right now. Some of the small ones are going to use a little cash. And that's our intent in these smaller acquisitions, is use more cash. Obviously less currency if we are going to be buying it back.

But we just see a market that continues to undervalue our shares. We've got one of our peers that earned $0.17 this first quarter, and his stock price went up, and he's sitting at a $17, $18 stock price. I look at that and I say -- what are we missing? Because apparently you guys are smarter than us. That's why you're getting the big money in New York. So I'm saying -- well, if we think there's better value there, maybe we ought to be taking some of it off the street. But I couldn't begin to go to how aggressive we're going to be or anything else. The Board has given us fairly definitive definitions -- or definitive criteria as to what to look for. Obviously I'm not going to share that.

Okay, fair enough. Then you mentioned on the pipeline side 4,000 miles of new pipeline is somewhere in the planning phase. Can you give us any sense for how that compares to maybe the market we've but in over the past year or two, in terms of pipeline opportunities?

That's main line pipeline. I didn't say that very well. There's three or four different kinds of pipe guys. There's the roustabout guys that are screwing together flow lines, or welding together flow lines in the oilfields. There's gathering line guys that sell to the midstream owners. And then there's the main line guys that do transmission work. And that's strictly -- I won't say strictly, but that's more or less transmission work. That's big capital projects. That's pretty much the north half of North America. There's just a lot of large capital projects out there. Some of them are competing. That's why they're not going to get built. Some of them are going to be difficult getting permitted.

But it really goes back to the fact that the hydrocarbons are not where they traditionally have been. The markets are changing. A lot of them relate to cheap methane prices here in the US and expensive methane prices in Europe and Asia. So you're going to see more LNG facilities be built. Not small ones, like I talked about with OnQuest. But the large ones, like the stuff that the Kinder Morgans and the Energy Transfers are going to build. Shell, people like that. Those need big pipelines because the gas isn't where it's traditionally produced. And with that -- that's just a small part.

That's a big part of the opportunity, but that's a small piece of the picture, because to get the methane to go to natural gas, they're going to have to strip liquids. And there are going to be a lot of liquids opportunities in the business also, and liquids pipelines. So it's not just the Keystones. It's the TransCanadas and other projects. There's just a gob of work out there. Now, in terms of relativity, I can't tell you what got built this year, but I know my guys couldn't be more excited about '13 and '14 based on the amount of work that's going to be available.

You look at the number of spreads, and I couldn't relate that to spreads, but in essence -- on Ruby, for example, we did 100-something miles and we had two spreads on it. And that was two spreads over two years. So when you start looking at 4,000 miles over two years, you get to 2,000 miles. Cut in half to 1,000 miles, at 50 miles per spread, you are soaking up most of the spreads in the United States that aren't busy laying the intermediate lines. So that puts a capacity constraint on our industry which means prices should go up.

Some of your public peers are on record, similar commentary, right? 2013, 2014 could be as good or better than 2007, 2008. You're more or less feeling the same way?

Yes. I think actually '12 looks pretty good, at least for us. We seem to be in the right places. We've got about, with this, we've probably got $50 million for Frank's guys. I think we're going to end up with quite a bit more of that. We've got a couple of hot ones out there right now. I've got to figure out a way to get back that $1 million between the $83 million and the $82 million that we paid for Rockford. So I'm working hard to get that $1 million back.

Lastly, I wanted to ask about the outlook for the California business in terms of industrial projects. Then do you see any other power plant projects out there that might be opportunities for you in 2013?

Yes, we've got proposals out on a couple. I think there's two more that go out in the next couple of weeks. I won't share the client names with you. Those are a mixture of large 100-megawatt-plus peakers or merchant plants. And with these new black start or quick start technologies. Then we're going to see more and more.

As I've said on previous calls, as they build this solar -- which they're struggling with their solar. They just can't seem to get out of their own way environmentally. But as they build more solar they are going to need more peakers. So the large peakers are going to be, I think, a pretty good market. They're a little bit easier to build, particularly the recips. It means more competition. But alphabetically, ARB is the first guy they call so we're going to get at least the first call on a lot of these.

Thanks very much, Brian.

John Rogers with D.A. Davidson.

A couple things. Just so I'm clear, back to Ruby for a second. In the second quarter last -- well, let me back up. The $48 million that you referred to, Brian, in terms of total contribution from Ruby. If we back out the release of the contingencies, it's a little over $40 million last year. Is that the right way to think about it?

No. Ruby -- well, Rockford, Frank's guys at Rockford, since the purchase, have earned $48 million after tax. So, if you tax-effect that, that's what they've earned through this quarter on Ruby, and then the additional work we got. That nets out, the little bit of loss we took on the job. Which one was it -- Danbury?

Yes.

So that's a net number. For just the main line guys. That doesn't include the ACP guys -- Alaska Continental or the Integrated guys into our office there in Northern California.

Okay. But that's the big tough comparison? I just want to make sure I size that right, that you reported in 2011.

Yes.

Well -- when did we take possession?

You started up in, what, December of '10?

November of '10.

Okay. So there's a little bit left. There's a little bit in '10.

Yes.

Okay. Then in terms of just the pipeline work this year, in 2012. One comment I got the other day from somebody, they said they were a little bit concerned about the pacing as we get in later to the year If we really do run into a storage problem. Have you heard that at all, or is that something customers are coming back to you with?

I'm getting a disconnect, John. When you refer to storage --

Sorry, storage for gas. In other words, the storage capacity that we have in the US to store all the gas that's being produced may be filled. If it's filled, then they will stop or slow production of gas. That might affect some of the smaller pipeline work. Have you heard that?

Yes, you are already seeing it now. If you pull up the Hughes rig tool application on your iPad, you can look at every well being drilled in actually all 50 states. If you look at it, for example, the Eagle Ford formation. You'll see that all the work is pretty much stopped in the north part of the formation, and it's concentrated in the middle and the south. The north part, you have dry gas. In the middle you have west gas. In the south you have oil. So you're already seeing that. It's transferring the business from the north part to the south.

If that goes on long enough, and you start seeing the price of gas so depressed that people don't want the methane for any cost, then people are going to start shutting wells in. Which means less gas pipeline but it also means less liquids pipelines. So it could have a fairly significant impact. At some point, and you have people like up in the Bakken, that are just flaring gas. They're dropping the liquids out, which have a lot higher value, and then they're flaring the methane. And the states have come in and said -- no, we're done flaring. They've curtailed -- they haven't curtailed it, but they've capped the amount of gas you can flare. Which obviously is going to end up curtailing the amount of pipe and the amount of facility that's built up there. It's not a good thing.

That's why the market to export this stuff is so important to us. But it's already being stored now. You've got guys, particularly in the dry gas areas, that are just shutting wells in, because for $2.08 a thousand, they're just not going to sell their gas. So even if the well is drilled, they're just going to shut it in. But a lot of them don't have a choice. Guys like Chesapeake, if they start shutting in wells, their royalty contracts require them to produce the gas. So they're even producing at a loss, some of these wells. But most of the stuff we're looking at is large capital. It's not predicated on -- again, you're talking about distinct markets. It's not predicated on a gas well or a gas price in a certain area. This stuff is major. It's stuff that serves the Marcellus, not just part of the Marcellus. Or stuff that goes over Kitimat in Canada, not some little flow line coming off a series of five wells.

Incidentally, these projects we're talking about, a large portion of these projects in the 4,000 miles we talk about are five and six years in the permitting process. So, these things are like battleships. Once you get them headed in a certain direction, they've got a lot of momentum. The price on gas, if it's going to sustain below $2, then you do have problems in a lot of places. But that's these guys' opportunity. If they can buy gas and make it liquid and put it over at the port for $3, and they can sell it in Malaysia for $16 -- what an opportunity. So the price of gas is actually going to help some of these projects get built.

Okay. Then most of your comments on your operations were answered. But I was a little surprised on the comment about some weakness in the petrochemical sector for the East Construction Services.

Yes. They've had some issues along the coast. We have not yet gotten in with some of the people and gotten some of the new construction that we had hoped. It's been going down for the last 18 months or so.

That market's just been extraordinarily competitive, particularly when you haven't seen a lot of large capital work in the refineries. But we think we're seeing a turn on it now. We've got a couple of lines in the water on some very good project for the Industrial Group. We think, with the ability to cross-sell the guys at Sprint -- who are more active in the oilfields and in the refrigeration NGL business and those things, we think cross-selling is going to bring great additional opportunities to us.

Okay. Lastly, Brian, any general comments on pricing? You talked about what not only you but some of the other contractors have seen with the weakness in the first quarter. I'm just wondering if there's any sense of reaction in the industry. Are people going to get more aggressive on pricing or do they feel like the market is coming to them and they will wait?

I had the Rockford guys in here last week for a series of meetings, and the guys were lamenting about how some of the other guys got some of the work. I said -- well, you're the smart guys, because they're all losing money. If you head into '13 and you've booked some cheap work, boy, you've screwed up. But we're seeing some ability to claw back on some pricing. It's all, obviously, very competitive. You've got guys who have never been in the integrity business before that are trying to get in the integrity business. The clients don't know that they can't do the work, or they don't know that the first job they do is going to be a disaster with some of the regulatory bodies. But sometimes you have to let them make that mistake.

But in general, we're not seeing -- we're seeing, I think, firming of pricing in the Florida water and wastewater business. In the petrochem business we're seeing an improvement in pricing. In the pipeline business we're starting to see a little hint that prices are going to move in the right direction. Integrity business, it's a lot of little micro markets other than the big utilities. We're out there serving guys that we've been in business with for 60 years. We're giving them fair prices. We always have. We're not going to go gouge them when the opportunity presents itself. That's why we're still there and some of the other guys are gone. We are very cognizant of our relationships when we price work.

But I don't have too many complaints -- I haven't had the last couple quarters on pricing. But I think the market is turning in a couple of the smaller markets. But in general, the heavy highway business, our pricing has been good, because we're not bidding work without some kind of competitive advantage, which we've talked about. Some of the other guys struggle, but they're running around, trying to be a commodity. If we don't have a rock pit or if we don't have the right ready-mix plant or asphalt plant in a market, we're just not going to chase that work. We spent a lot of time developing the market over in the Austin area.

We're spending a lot of time -- and I don't want to go there yet, we'll hear about it on the next conference call -- a lot of time developing the next market we're going to go to. That's where we focused on some of our acquisitive activity. We're going develop a similar set of skills, if not identical, to the ones that we have in Belton to go to the next civil market. And because of that, I think we're going to get better prices. Now, are they going to be where I'd like them? No, I'm a greedy hearted little soul. So they're never going to be where I want them but I'm not unhappy with our pricing paradigm.

Okay. Pete, on the earn-outs, and you went through these, and I apologize if I missed. On Sprint, $200,000 a quarter, with $200,000 more in the fourth quarter potentially?

Yes. The $200,000 is below the line as another expense, and the $200,000 is an SG&A adjustment based on what our estimate was, their likelihood of obtaining it is.

Okay. It's $485,000 below the line for Rockford and $345 million in the fourth quarter in the hit numbers.

Correct.

Got it. Thank you very much.

William Bremer, Maxim.

I was hoping to go into your pipeline integrity and inspection division there. Trying to get a sense of what your capacity is there. Can you give us an idea of what's the length of a project? I guess it depends upon the miles, et cetera, but how quick of a turn is that business for you? And then, finally, where do you see that business over the next few years?

We don't do a lot of inspection. If asked, we will. But a lot of the industry bisects -- you can either do the inspection or the repair. You don't ever want to have a roof inspection guy do the repair because they will always find more problems than you actually have. And the clients recognize that. So in general what we do is we prepare for the inspection. In other words, we'll reconfigure the piping system where it can take a smart tool, and then when the smart tool -- they'll hire -- and there's some really good guys that will come in and do the smart tool work for you once the pipeline is reconfigured. Then they will run the tool and then we'll go in there and do what they call the dig-ups. Everything in construction is what it sounds like. So we dig up the pipeline and we repair it. That's really where we focus. We really have not made any effort to get into the actual inspection part.

Now, how long these projects can take is kind of how long is a piece of string. Some of these projects are three or four years in the making, because, in the example of PG&E. Their system is so complex that their system in San Francisco, they actually transport, store and distribute gas in the same set of pipes. So their system is extremely complex. Whereas, if you're talking about a major observer, like a Kinder Morgan that has a pipeline that runs 800 or 900 miles, it's all the same diameter, it's all pretty much the same wall thickness. Not always, but similar wall thicknesses. And it's long runs.

There's not a lot of work to prepare it, because a lot of these guys, if they built the system in the last 20 years, they're already prepared to run, they're already configured to run these smart tools. So they can be three, four, five years sometimes in the making. In general, what we've done with the owners on the West Coast is we've had alliances with them where we actually helped them do value engineering on, how to attack the work once they get into position to want to upgrade it and then do the inspection.

Our main clients to date in the West are the utilities and pipeline owners in the western United States. In the East, what your market is, it's not nearly as mature as the West because the West has had much earlier and stronger regulatory impetus to do this. The East is just beginning to develop their plans, and their issues. They have a lot older and a lot bigger systems. So part of the Sprint acquisition was to focus a lot more on integrity. I hate to give you a long answer but I think it's really important. Their integrity is not under the same stringent standards that the West is under.

California has extremely stringent standards because they've had some pretty catastrophic accidents. In the East, they haven't. But they've come under the stress of regulatory oversight because of the issues in California. So they're going to have to cut in automatic shut-off valves and do a lot of other work that we're doing in conjunction with a more massive program in California. PG&E has five or six years left, at least, with a fairly significant spend. Sempra's got a year, two years left. But they keep tightening their criteria as to what has to be removed and cut out of the pipe. It's steel in the ground and it rusts so it continues to degrade.

Some of the oil companies have got a couple years left in their program. So California is going to do well over the next couple years. But the real growth in the market is going to be in the East. If you look at a map of the pipelines, from the southeast up to the northeast, there's a tremendous pipeline system. With a tremendous amount of LDCs off that pipeline system that need integrity work done, too. I couldn't begin to put a value on it, but it's going to be huge.

Thank you, Brian. I appreciate the time and the color.

(Operator Instructions) Tahira Afzal with Keybanc Capital Markets.

Brian, just a quick follow-up. You've talked a bit about LNG. There seemed to be several export facilities that are being proposed. Are you suggesting you guys might be bidding on portions of that? I know you've gotten heat exchanger projects that you have won in the past and on Australian LNG. Is there a potential for you to do those closer to home, as well? Thanks.

Where you have LNG, you have waste heat so there's a natural opportunity there for OnQuest. There will be bits and pieces of these big ones. When you are talking about an $8 billion facility, Tahira, we're not going to be playing in that league. Although we do have good relationships with the guys that are. We will pick up packages from them, particularly when you are down in the wet part of the country where the James guys really excel at developing pads to build these things on.

The Marathon Garyville refinery which is down in that wet country, there were 5 million yards of dirt that went into that pad to build the refinery on. These LNG terminals are going to be down in the wetter wet because these big ships coming in have got to have fairly deep ports. There's a tremendous market in smaller LNG plants which is what I was addressing as much with OnQuest. We built one of the better ones. If you talk to the clean energy guys, you will find out that they absolutely love the plant because it's almost automatic. They can run with it one guy. They flip a switch, they're making liquids. They flip a switch, they stop. There's going to be more and more of this stuff for a couple of different uses.

One of them is just to strip liquids. If you've got to take the liquids out of gas, and you've got do something with the methane when you're done, one of the cleanest ways to do is just to make it cold. The liquids automatically drop out, then you can sell the methane in a liquid form. You've gotten the liquids for free because you should get your money back on the methane. So that's a big part of it. The pipelines going to the LNG is a big part of it. The support facilities for the LNG is a big part of it. But also the packages.

Every study I've seen with the amount of LNG work and refinery work that's behind the curve in development, we're going to have a tremendous labor shortage in the Gulf in the next three, four, five years. It's largely due to LNG and refineries. But also the chemical business. When you have cheap methane, the chemical guys make a ton of money, because that's their basic feedstock. So I think they're going to have a rather rapacious spending habit over the next four or five years on upgrades and capacity changes and things like that. Energy upgrades, because they have to use some electricity in the process and that's getting more expensive. So you match that up with the power work that has to be built, I think the guys that know how to strike an arc or know how to pour a foundation level are going to be in pretty high demand.

Do you think, because you have a pretty good idea of all the fabrication, welding capacity in the US, is that where we see the first bottleneck? All of these different infrastructure initiatives start to ramp up at the same time?

It's certainly going to be a bottleneck. The skillset that goes into making a weld on exotic metals, which a lot are either cold or hot processes, the pipe that goes into those processes is somewhat exotic. The higher strength pipe you get on the pipeline work. So I do think the welding skills are going to be more and more in demand, particularly when you get into the more exotic materials. But I think in general across the board. This work is not like building a shopping center. It's pretty technically challenging, particularly the LNG and the power and the refinery work. From the aspect of not only can they make a weld, but can they work safely, because these guys demand very safe work environment. That really sorts out the guys that shouldn't be doing the work.

Got it. Thank you very much.

There are no further questions at this time. I would like to hand the floor back over to Management for closing comments.

Again, I would like to thank all of you for the interest you've had in our Company and the time you've spent with us on the call. Good-bye.

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