Primoris Services Corp (PRIM) 2012 Q2 法說會逐字稿

Greetings, and welcome to the Primoris Services Corporation 2012 second-quarter 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, Kate Tholking, Director of Investor Relations. Thank you, Ms. Tholking, you may now begin.

Thank you, Kevin. Good morning, everyone, and thank you for joining us today. Our speakers for today will be Brian Pratt, Chairman, President and Chief Executive Officer of Primoris Services Corporation; and Peter Moerbeek, 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 regard to the Company's future performance. Words such as estimated, believes, expected, projects, may, and future, or similar expressions, are intended to identify forward-looking statements. Forward-looking statements inherently involve risks and uncertainties, including, without limitations, those discussed during this call and those detailed in the Risk Factors section and other portions of our quarterly report on Form 10-K for the period ended June 30, 2012, which is anticipated to be filed later today, 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, Kate. I hope you guys have noticed a different voice on the opening this morning. Devin Sullivan and the Equity Group have provided IR services for us prior to this. Kate is newly on-board. I would like to take the opportunity to thank Devin and the Equity Group for four years of excellence and professionalism and efforts.

I hope by now you all had a chance to do a cursory review of our results for second quarter. Primoris saw solid revenue growth in most of our key groups, driven by ARB Industrial, ARB Underground, and James. Excluding the impact of the Ruby pipeline project, we grew total revenues by 28% in the second quarter of 2012 compared to second quarter of 2011. Our backlog remains over $1 billion. And last month we announced new awards totaling over $370 million.

We grew our operating margin to 6.1% in the second quarter this year, compared to 5.9% in the second quarter of 2011, also in the first quarter of 2012. Our net income in the second quarter grew by 11.9% from the first quarter of 2012. We have maintained our strong balance sheet, with over $119 million in unrestricted cash, after paying almost $14 million for the acquisition of Silva in May, and buying 89,600 shares under our new share repurchase program.

Looking closer at our operating segments, let me begin with the West segment. Revenue, sans Ruby, increased by $60 million, driven by significant increases in both ARB Industrial and Underground. Tim Healy's Industrial Group continues to work on three large merchant power plants, two of which are in the closeout stage and should be completed in the next quarter or two. The third plant, a re-power at El Segundo, California, is on schedule to be completed in early 2013.

The investor group is also building a smaller peaker plant which should be finished in the fourth quarter of this year. We are currently in the bidding process for opportunities that we hope will allow us to use these teams rolling off each of these power projects, as well as projects that extend as far out as 2018. However, there may be a small gap between jobs, which, as I mentioned before, is much preferable to starting a new project without a ready team for a successful launch.

Of course, we are working diligently to make sure that gap remains as slight as possible. Our 50-50 solar joint venture continues to gain momentum. During the quarter, we announced new work totaling $38 million, bringing our JV awards to date to over $70 million. As the client is bidding this project in pieces, we hope to see additional awards over the next several quarters.

With California's ultimate renewable requirements standing at 30% by 2020, and the state currently achieving only 16%; we see solar, as well as other renewables, as markets that will continue to grow over the next several years.

One other item I'd like to highlight his California's once-through rule. If you're not familiar with the subject, the rule prohibits generated from using coastal water to cool power plants while returning the water directly to its source. Instead, the owners will have to build alternative cooling facilities. This will provide a significant market for which we are well-positioned; based on our client relationships, geographic position, and skill sets.

ARB Underground saw the beginning of our seasonal ramp-up this quarter. We announced $102 million in new awards in July. A credit to Scott Summers and his entire team, including Greg Dahl, who has been extremely effective in the pursuit and execution of utility work.

The pipeline integrity market in California and other states remains strong, and we expect it to continue so for quite some time. Additionally, the Underground Group saw awards in oil and gas pipeline, underground gas and electric distribution, water-resource-related pipeline construction, and rehabilitation projects.

The Structures group continues to hold its own in the face of a weak macroeconomic environment. There are signs the market is improving, as we are currently working on two small projects in Southern California. Mark Thurman has had the unenviable job of waiting for California's structure market to turn. I want to thank Mark for his continued effort and patience in a fairly frustrating market.

As to Rockford, their mid- and long-term prospects look as good, if not better, than when we reported last quarter. Not only are we currently finding reasonable availability of small- to mid-sized opportunities, we continue to track significant large projects in North America, some of them comparable to Ruby in size. Many of these large projects will involve multiple contractors or contractor consortiums, as some of these projects are too large for any single contractor to complete. As such, we will not win every project we bid. We feel confident we will win our fair share, and maybe a little more.

Many of these large to mega projects will be bid over the next year, but you will probably not see significant impact to our revenue and profitability until mid- to late-2013, maybe a little after. In the meantime, our guys are busy in Wyoming and Pennsylvania on Shell-related projects, markets in which Rockford is very competitive. These are the markets we anticipated in modeling and purchasing Rockford.

Like this year in, we expect Frank and Josh's guys to generate revenue of roughly $40 million from our work in the Powder River Basin in Wyoming, and as much as $90 million from our work in the Marcellus.

Looking to the East segment -- the James Construction Group continues to earn profits in the Louisiana from projects awarded in past years, with a few new awards this year. The Louisiana DOTD accounted for 11% of [friends] revenues in the second quarter. While bidding opportunity in Louisiana has slowed recently, this has been more than offset by increased opportunity in Texas. This slowing of LDOT spending appears to be a short- to mid-term issue, with highway construction expenditures' anticipated increase to more reasonable levels in the next several years.

Danny Hester and the team at James anticipated this near-term hiatus, had the foresight to read the markets correctly, and positioned us to be in the right place at the right time to do the right projects, moving a considerable amount of our assets into the Texas market on good work. Of the nearly $119 million in new awards recently announced for James, over $69 million is for heavy civil work in Texas. TXDOT is increasing its budget very significantly next year.

We have not yet seen the direct impact of the passage of the two-year highway bill, given the strong state funding in Texas for heavy civil work. However, long-term fundings is of obvious benefit to the entire industry. The James I&M Group's Jonas Beatty has taken the reins nicely from retiring manager Tommy Lasseigne, and has continued this group's healthy performance.

Other new work for the quarter included in a $30 million award to James Industrial group, managed by Conrad [Board], for the construction of a new chemical facility in Louisiana. We look for continued growth of opportunities in the refinery and chemical segments. Our clients in these markets are impacted by low natural gas prices, increasing spreads, regulatory impetus, or just plain new and deferred capital projects.

In the water and wastewater markets, Bill McDevitt's Cardinal Contractors continues to pick up smaller projects, most recently $10 million in new work in Florida. While we are a long way from the peak of this business in 2008 and 2009, when the business was doing $40 million to $50 million a year, it's encouraging to see small but consistent signs of market improvement.

Sprint Pipeline had a strong quarter, contributing $13 million in revenue. They are on their way to exceeding their 2011 target -- 2012 targets, well in excess of last year's $70 million in revenue. Robert Grimes and his teams have secured $34 million of new work commitments since being acquired by Primoris in March. Among other projects, we were recently awarded a $14 million pipeline project near Houston, Texas. We are very pleased with the working relationship we are developing with his new group. And all of us are excited about the opportunities for this business.

Engineering revenues increased by $3 million in the quarter. The segment continues to be a small but highly profitable portion of our business. We are confident Randy Kessler we continue to improve OnQuest performance going forward. We see potential opportunities for them, both in their traditionals and developing markets.

I'll leave it to Pete to talk about the balance sheet in detail. But before I do, I would like to say that we remain financially strong as ever. We enjoy an excellent cash position, more than needed to support our current operations; our planned, organic, and acquisitive growth; while sustaining our dividend policy. We have a low debt to equity ratio, and more than adequate done bonding capacity. I'm proud of our financial condition and performance. But, more so, I'm proud of the people I work with. They are truly remarkable. And I say to them, thanks for another great quarter.

Now I'd like to turn the call over to Pete, our Chief Financial Officer, to discuss our 10-Q filing. Pete?

Thank you, Brian, and thanks to each of you for taking time for joining us on the call. We anticipate filing our second-quarter Form 10-Q, including what seems like hundreds of pages of XBRL, today, and that will hopefully provide more detailed information than we can on this call.

At the highlight level, we earned $0.23 per share compared to $0.28 in the second quarter of last year. Comparing the two quarters, our revenues declined by about $15 million, but that comparison includes $90 million for the completed Ruby project. Without that project, our revenues increased by $75 million.

In the quarter, our gross margin percentage increased by 120 basis points, resulting in operating income that was within $300,000 of last year. So, from an operating earnings perspective, we can say that, for the quarter, Ruby is now history. And, in fact, the primary reason for the earnings-per-share decrease is that the St. Bernard's levee joint venture contributed $4.4 million to earnings last year, and almost nothing this year. Tax effected, that represents a $0.05 difference.

As Brian mentioned, we received strong contributions from both ARB groups and the James Construction Group. In the East segment, revenues increased sequentially from the first quarter of this year by $34 million, primarily from a $14 million increase in heavy civil; a $10 million increase in our industrial and mine maintenance work; and the increase from Sprint.

Our gross margin for this segment increased from 9.4% to 11.1%, reflecting the higher level of revenues and the addition of Sprint. As Brian also mentioned, there will be an increase in the James highway and bridge work in Texas, as we start work along the I-35 corridor in Belton, Texas. To illustrate this, in the corridor, our revenues from LA DOTD were $44 million, while our TXDOT revenues were only $24 million. However, at the end of the quarter, our LA DOTD backlog was $144 million and our TXDOT backlog stood at $450 million.

In the West segment, our ARB Underground revenues increased by $11 million on a sequential basis, as we start to move away from our first-quarter seasonal low. One of the primary contributors to the overall growth was our pipeline integrity work for a large northern California gas utility. In the quarter, revenues were $40 million; and year to date they are $73 million. At this time last year, year-to-date integrity revenues for this customer were $41 million, so we are ahead of last year's run rate.

For the quarter, revenues for our large diameter pipeline group at Rockford were $11 million. But based on their awards, we still anticipate that they will exceed $100 million in revenues and attain their earnout for 2012.

One final note about revenues. For the first six months of this year, our overall underground work, primarily pipeline construction and pipeline integrity, was 34% of revenues. Our industrial work -- primarily power plant, refinery and chemical plant work -- was 24% of revenues. Our heavy civil work was 27% of revenues. Our project engineer represented 4% of revenues. And our other work, including [parker] structure and water and wastewater facility construction, was 11%. These percentages will change throughout the rest of the year, as we see the backloaded impact of our underground work.

During the quarter, we closed on a small acquisition, Silva, for just under $14 million in cash. There is no earnout provision for the Silva acquisition. but we do still have three earnouts remaining on the balance sheet from the acquisition of Sprint and Rockford. For the Sprint acquisition, 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 the fourth quarter, if the earnout goals are met. In 2013, we will recognize approximately $100,000 each quarter; and $600,000 in Q4, if their earnout goal is met.

For the remaining Rockford earnout, we will recognize approximately $185,000 Other Expense each quarter this year, with a $345,000 SG&A charge in Q4, if they achieve their earnings target.

The provision for income taxes for the quarter was $7.4 million, for an effective tax rate of 38.5%, compared to $9.2 million, for an effective tax rate of 39.0% in the prior-year quarter. For the year, we now expect that our effective tax rate will be around that 38.5% number.

During the quarter, our expenditures for fixed assets were $8.3 million, and we still anticipate that our 2012 level of capital expenditures will be in the $30 million range. We sold several older side booms and similar equipment at auction, for proceeds of around $3 million, and a gain on sale of $1.5 million. Finally, we recorded depreciation and amortization for the quarter of $8.5 million.

At June 30, 2012, our total outstanding debt was approximately $87 million, and we had a debt to equity ratio of 29%. Of that debt, about $74 million represents notes secured by our equipment. After some refinancing during the quarter, our average rate for these notes is now 2.9%. Our debt also includes about $8 million of capitalized leases, and their implied interest rate is in the 3% range.

So far this year, we've spent $35 million cash for our acquisitions of Sprint and Silva. And we continue to look for other economically viable candidates. We paid out $3 million in dividends, and repurchased stock for approximately $1 million. Our Board of Directors-authorized repurchase plan is for up to $20 million before the end of the year. To date, we have purchased 89,200 shares, at an average price of $11.17.

Finally, as you look at our backlog, please remember that it is our policy to not book a job in the backlog unless we know the contractual revenue amounts. That means we do not include cost-reimbursable projects or anticipated MSA revenues in our backlog; so that in comparing us to other companies, our backlog may not be as comprehensive an indicator. During the second quarter, approximately 19% of our revenues were not derived from backlog. And, as always, I'll remind you that customers have the ability to cancel a contract sometimes even after we have started the job.

For the quarter, our backlog overall decreased by 3% or $36 million, with most of this increase in our East segment, reflecting primarily the lower level of bidding activity in Louisiana.

With that, I'd like to now turn the call over to the operator so that you can get your questions. Thank you very much.

Thank you. (Operator Instructions). Lee Jagoda, CJS Securities.

Hi, good morning and good quarter.

Hey, Lee. Thank you.

So obviously, the recent project announcements, especially in the East, are providing some significant uplift for backlog, at least in the balance of 2012. Brian, can you talk a little bit about how your backlog and the pipeline of projects are shaping up, in the East segment, into next year?

Heavy civil is great. We're pretty much in the thick of it. We've got a fairly strong booking. I think our backlog there, I'm guessing, is at $600 million to $700 million, so we're fairly strongly backlogged. We are not dazzled by the margins we're getting, but we certainly like them. We're not buying cheap work. The I&M group is not a big backlogger; they're proceeding really well. I mean, Jonas is doing a great job taking over for a guy that ran it forever. They are not big backloggers, but they are certainly winning their share, plus.

The Industrial Group is doing better. They went through kind of a rough patch. I think everybody did the last couple of years, at least based on the numbers I've seen. They are booking a lot of reimbursable work, so it's not big backlog work. The $30 million that I talked about in my opening remarks was a cost reimbursable, so that you won't see that hit the backlog. I'm really pleased with their opportunity, and we're looking to augment that through tuck-ins and things like that.

The Sprint Pipeline is doing exceptionally well; they've got a big capital job, for them, which is $14 million. It's not a big job, but the guys have really taken the bit in their mouth, and they're just doing a great job. I can't tell you how proud I am of the Sprint guys.

So it's really shaping up quite nicely. I think I touched on all of them, didn't I, Pete? Yes. Oh, yes, I'm sorry. Water and wastewater continues to be kind of the dregs, although our bidding activity and our backlog is picking up there. So I'm somewhat optimistic that we'll see a turnaround there this year, although I think it's not going to be a sharp one.

And Pete, given the large announcements post the quarter, is there any way you can provide us with a backlog number as of July 31?

Then I'd have to tell you what revenues were in July. Let me see if we can figure out a way to do that that makes sense. But we burn off backlog already during the month, so that's why we're pretty much stuck with the quarter-end numbers.

Okay. And then, one more question and I'll hop back in the queue. Regarding the pipeline integrity work, what are the trends you're seeing in Q3 thus far regarding the seasonal ramp up? And how should we think about seasonality in Q4?

You've got two countervailing pressures that will happen in Q4. You've got the need to put the systems back into service, so there is a need to shut it off. But the utility also has a need to spend their money. All the utilities, not the -- we do integrity for both utilities and for private owners like BP and Shell and people like that. They are under the same requirements. But the utility guys, they'll have to put their pipeline back into service, so they will -- at the same time, though, they try to spend their money within 0.5% of budget, so there's a lot of pressure there. So they do a lot of jumping around and reconfiguring, and pulling this job and putting that job.

But it should ramp up; you'll see the peak of it, probably, late-third-quarter, and then it will go into fourth quarter. You'll see some other work that doesn't require the pipelines to be taken out of service. But they went from spending nothing three years ago to having to spend $2.2 billion over the three years, PG&E did. They are the ones that are struggling right now. And that's just a Herculean task, to try and put the organization in place, and mechanisms in place, to spend that kind of money effectively. And they're doing a pretty good job, but they are still struggling a little bit because of the nature of the task.

But it should peak third quarter; strong into fourth quarter; and then, first quarter, it usually dies out, with the exception of, like, the copper services. And then they've got [Adelaide] A and Adelaide B issue, which is kind of like copper; different material, but the same kind of issue, that they are just ramping up on. That will go kind of year-round, so you'll see that go into first quarter.

Now the oil guys, on their integrity work, they'll lean into the fourth quarter. Because that's basically when to refineries are cutting back gasoline production, and they don't need their feed lines as much. So you will see kind of a ramp-up of the oil guys into fourth quarter.

Great, thank you. And we look forward to seeing you at our conference next week.

Had to get your advertising in there, huh, Lee?

Absolutely.

All right. We'll see you then.

John Rogers, D.A. Davidson.

Hi. Good morning. Couple of things. First of all, relative to Ruby, you'd noted the $66 million in the second quarter, and the $114 million in the first quarter of last year. What was the third quarter of 2011? I'm just trying to get a feel for the seasonality that we'll see into the third quarter in the West.

Hang on. I mean, you're going to see a very significant increase in third quarter, because we also had it last year. But assuming I can eventually get to --

Why don't you let us come back, unless you have a follow-on, why don't you -- (multiple speakers).

Okay, that would be great. And then --

$65 million to $70 million.

$65 million to $70 million? Okay, thanks.

Order of magnitude.

Right. And then the -- can you give us the backlog by segment? It's on the press release, the expected burn off through the end of the year, but I didn't see backlog by segment.

No. We were hoping to get the Q out, and we didn't quite make it. Let me give you backlog at -- for East Construction, $717 million; West Construction, $350 million; engineering, $19 million; total, $1.086 billion.

Okay, great. And then, Brian, in terms of your stock sales plans there, or expectations, if you can share?

I'm going to wax on here for a little bit. I had one of the institutions call me and kind of rip me little bit and say, I'm buying your stock, you're selling it, what are you doing? And my response is, don't you read the Journal? I wake up every morning, and what happens in Greece impacts my net worth, which I don't watch every morning. It's really not that important to me. But I look at the financial uncertainty that exists in the markets, the uncertainty over tax rates, the uncertainty over the dividend issues that go with it, the uncertainty of the whole world economy and how that can impact me.

I feel there's only one institution I had any faith left in, and that's Primoris. I don't have faith in the Supreme Court. I don't have faith in Congress. I don't have faith in the President. So, you know what? I decided to take a few chips off the table when I could afford to, on a tax rate basis. So that's what I've done. Whether I'm going to do some more, I haven't really decided, John. But I think I sold 600-something thousand shares out of 16 million. If that causes doubt in people, when I liquidate 5% of my holdings or whatever that is, God bless them. It's immaterial in the scheme of things.

Okay. Well, I appreciate the color. And I guess just lastly, in terms of the pipeline, the large diameter cycle that you referred to, you said we might not see any benefit or a significant impact from that until the second half of 2013. Are you talking about awards, or actual work at that point?

Well, do you think -- I'm going to bet -- predicate anything on the Obama administration granting the permit for any large project?

Okay.

Based on Keystone? I just don't know. I have a feeling Keystone will probably get a approved and get built after the election, when he can pay back his construction union guys. But, yes, most of the really big projects we are looking at have fairly significant environmental lead time. A lot of them revolve around the evolving natural gas market, the LNG market.

You can buy methane for $3.00, make a liquid for $0.30, put it on a boat, ship it to Asia, and sell it for $12, $13. So, if you have a lot of really large projects, a couple in Canada, several in the US, that are -- they're just large and permit-heavy. And the Canadian guys, they'll do theirs quicker than ours. So we're anticipating -- a lot of what we're tracking is probably going to light up about 2013. Now these jobs kind of ramp up slowly. Because you've got to remember, they've got to go out and buy pipe; they've got to do a lot of things, engineering stuff, before they get to us. So that's really the very large projects.

But back to my comment, we bought Rockford not for that market. ARB, traditionally, had been in that market and sell a couple of years ago, and we chose to stay home and take care of our long-term relationships instead of chasing big work all over the country. And that's now paying benefits in the integrity market. All the guys that did that now want to knock on PG&E's doors and Sempra's doors. Well, guess what? We were there taking care of them.

But we bought Rockford for the exact market we're in. Now, it's made us more seasonal. And I think that's what some of the guys missed last quarter, was that the first quarter is always light for the legacy Primoris group. But you add Rockford and Sprint, and you've exacerbated that seasonality. So we're not predicating our business on these big projects. We just think there's real upside to them a couple years out.

Okay. Sorry, if I could -- the follow-on to that, then, is -- the margin profile for this work; should we look at the Ruby pipeline as an indicator? Or is the smaller diameter work -- I mean you talked about how much you were doing in Marcellus and Eagle Ford and -- I forget where the other basin -- I mean, is that the sort of margin profile we should be thinking about?

Well, there's a couple tranches of margin. You get a lot of what we call adsorption margin. When you own the number of the tractors that we do, and you have -- you establish our kind of base cost the way we do, you pick up a lot of additional margin with utilization. Now, when you've got a Ruby pipeline and you're taking tractors and you are utilizing them three years, 12 months out of the year; and, basically, we use rental rates that are exterior rental rates, less a little bit of a discount for internal costing. When you start absorbing those tractors, you start receiving the benefit of internal rental rates on those tractors, you've got a greatly appreciated margin.

And a lot of the benefits you get on these bigger jobs versus the little jobs -- where you'll work for a month, and then the tractors will stay parked for a month or two. And then they move them, and you work them on another job. So you've got a lot of benefits into this kind of long, methodical, battleship of a project you build when you get to the Ruby's or somebody like that. The margins, in general, are kind of the same. We're trying to achieve that sweet spot -- and which I'm not going to get into -- but the margins on Ruby aren't that dissimilar to the margins we make on other pipeline work.

Okay.

In fact, in many cases, the smaller jobs, because of the difficulty in managing them and doing them, mobilizing to them and demobilizing, they actually bring higher margins than some of the others.

Okay. I'm sorry, one other follow-up. The accident out in Richmond, is that an opportunity for you?

Say that again?

The fire at the refinery where you had done some work years before.

Well, we don't have any exposure, we're not currently --

No, no.

I don't know. The sad part about our business is we profit from somebody else's injury. It depends on where the fire was centered; if it's in the heater area, some of those places. I doubt we'll have much impact from it.

Okay. Thanks a lot. I'm going to get back in queue.

Rich Wesolowski, Sidoti & Company.

Thanks, good morning. With regard to ARB Underground and the pipeline integrity, I'm curious how this year is playing out differently with regard to the type of work you're performing, contracting structures, labor availability, the competition, the whole nine yards. Maybe just to elaborate a little bit on that market.

Well, we have term we call goat rope. You ever been to a goat rope at the rodeo? I'm not a big rodeo guy.

You know? I haven't.

We are in Dallas now, so I guess I'll be a rodeo guy. Goat ropes are quite entertaining, because the goats aren't as predictable as the steers. It's a tough market. I think the scariest thing is, is you go up there and you go from a 300 people in the winter to 1100, 1200 people, perhaps, in the summer. And you've got to find those people from someplace. We're pretty fortunate, because we have such a large labor base and a large database of good labor, that we can muster that and do that. I think the thing that kind of frightens you personally as a CEO, you're personally responsible for some of their actions.

That's probably the risk to us, is hiring this unknown labor, although we manage it better than our competition because of where we are and our total capacity. The other guys, they are basically hiring from scratch. We call our guys back from the previous year; we bring them up from Southern California; we bring them from Wyoming; we bring them from everywhere. It's a real struggle.

As to the structure, every contractor that works for PG&E has an MSA in general, unless it's a one-off bid. And the MSAs just basically allow you to bid the work or perform the work under various delivery mechanisms. One of them is hard bid; one of them is cost plus; one of them is unit price; one is shared savings; negotiated. I mean, there's a multitude of ways to deliver to their system to them. We do a little of all. Some of the services are on unit price, which is kind of lump-sum, while you add up all the units and multiply it by the price, and you get to a number. Some of it is cost plus.

And we're bidding a lot. I think the number is -- right now, we're doing about one-third of their work, based on this MSA thing. And that's why we don't backlog MSA instantly, because you can have an MSA and never do a dime's worth of work. And I see some of our peer groups out there backlogging five years worth of revenues. And I got to tell you, I think it's hokum. Just because I've had MSAs and not done a dollar's worth of work under them. And so that's why we don't backlog them.

Okay, thanks for that.

Did I get to where you wanted to go?

Absolutely. You have, in the West, two gas-fired plant projects being completed in 2012. I'm curious how those have performed. Is there opportunity for margin upside through year-end, relative to what you've been booking? And is that labor expected to eventually be placed on other gas-fired work, or something else in the industrial sector? Inc.

In a word, maybe. I don't mean to be flip. I do mean to be flippant. But no, they are performing okay. The first job was the one we took the hit on last year. And that's kind of winding up. We have responsibility for commissioning on that, which is more fraught with risk, considering that Siemens serial number 001 of their quick-start or black-start technology. So I think we're doing a little bit of struggling with that, because one of these has never been started before. And that's in our contract.

It's going okay. I can't say we're going to see some huge upside. It's too early to begin to take contingency. The one down in El Centro is proceeding well. We are assisting commissioning there. The turbine burped, but we have a builders' risk policy that we fought through for a little bit there, and were able to determine if there is a loss, it isn't picked up by Siemens, it will be picked up by the insurance company in our opinion. So I think there might be some upside there. But it's still a little early to tell. And these commissioning this, after you get them commissioned, you still have pickup work. That's why I say it's probably going to drift into the fourth quarter before we do complete closeouts.

But they went okay. The one we had the problem with, we took a pretty good loss on in one quarter. And now, I think, we are recovering. And I think we might even see some upside. But it's early.

As far as where the labor would go, those are union hall guys. We're bidding everything from compressor stations to power plants to big peakers to refinery work. Most of those guys will find a home with us. It may not be right away, but they're doing okay. I know you're worried about the unemployment rate and stuff. So, just trying to help out the current administration; I'm doing all I can.

Together, those two projects being completed in 2012 are, by my math, $30 million in sales a quarter. Is that about right?

Beats me. Pete's got his nose all scrunched up over there. So I don't know if he knows.

How about this -- just a broader question on those same lines. You have the underground work increasing in the second half, and you have these projects presumably falling off. Do you expect your West revenue to measure up to what it was last year in the second half?

Bound and determined to make us give --

Yes, I haven't looked at it that way, Rich. I kind of look at the whole thing. I think we're looking at a great year. I'm very confident of where our numbers are going to land. But I can't parse it that closely. I think Pete probably could, given a little study, obviously.

Okay, just lastly, a comment for clarification, Pete. No one expects you to have all the numbers at your fingertips. But your 3Q 10-Q states a 3Q 2011 Ruby sales contribution of $48 million. Thanks.

Sorry. Thank you.

Rich Paget, Imperial Capital.

Good morning, everyone.

Hey, Rich. I'm sorry, who are you working for?

Imperial.

Oh yeah, those guys. Okay, all right.

Brian, I thought all of the stock sales was for the wedding.

(laughter) If that's the case, I may have to sell a little bit more next quarter. The s'mores were $15 a piece, man, and Scott Summers had three of them. Well, he ate two, and one of them kind of ran down the front of his vest. He was enjoying himself.

So I know you've mentioned the highway bill in Texas was already rolling ahead, so they're not necessarily a big incremental impact there, but what about Louisiana? And is there anything that the Restore Act -- and I know it's for coastal restoration -- but anything that you guys might be able to participate, in that money coming into the market?

Yes, you know, we're so entwined into that economy over there. James is just a household name around there, been around for 80 years. If it's got any size of economic activity, we're going to be involved. So even the industrial work -- when you build a -- the Marathon Garyville refinery that James built right before we bought -- James participated in right before we bought them -- they laid up 5 million yards of dirt up there to do that refinery expansion. Everything you do in that state is wet. It takes a lot of civil work to get it built. And they're very good at it.

So I'm not concerned about back-filling where the LDOT vacuum is going to be. It's short-term; I understand they're getting a lot of money from offshore in the next couple of years, with a new arrangement they made the Feds. And they -- [gentles] that committed a lot of that to highway work, so it's kind of short-term. Rodney James, the guy that runs it over there, he's just first-rate. He'll find something to make us money on, and do well by us. So I'm not greatly concerned over it at all.

And then, with James winning some chemicals work, and you've heard a lot of your big competitors talking about a lot of feed work in that space, given where natural gas is. Where do you think you guys will participate in that business, if we're going into a decent cycle in North America over the next several years?

Everywhere. Everything from the Christmas tree out. We'll take it. We'll treat it. We'll ship it. We'll process it, compress it, deliver it. And then, we'll do the work in the chemical plant to make it into something else. So we're going to compete across the board. That's a main, main focus of where we're going with our business.

Okay. So, then, is there anything you're bidding on right now? Or this is something we should start looking at in 2013 and beyond?

Wow. Yes, we're bidding on just a gob of stuff. A lot of the pipeline feeders to -- I think we've looked at their submitted proposals on -- God, I don't know how many LNG plants, small LNG plants. That's going to be a hot market, I think, for a couple of years, to NGL plants. This deal we signed with [Z-Beck] has got a neat little technology that helps with NGLs. And you've got to deal with the NGLs whether you are just shipping the gas, or you're making it liquid. And then, the gas distribution, of course, with the integrity work. I mean, I know you are more focused on chemicals and refinery. But we're going to be involved at every step of the way, from the gas coming off the well head to going out the other side of the plant. Who knows, we may get involved in making little sacks to put the product in.

And then, any updates on the waste energy projects in Puerto Rico?

Yes. Yes, you can thank the Sierra Club. It's been delayed. They have a litigation now. Now why the Sierra Club would be angry over us making energy with peoples refuse is hard to believe. But it's been delayed, due to litigation. I think we're probably looking at next year before we get a good start.

Okay. And then, finally, I know you mentioned the ARB JV with the solar projects shouldn't really start having an impact until next year. But with the nonconsolidated line, should that just be kind of de minimis the next couple of quarters, and then we'll see that ramp going into 2013?

Yes, I didn't say it wouldn't have an impact until next year. And I don't know how you -- maybe I said it wrong. It's ramping up. We look for more additional awards as the year goes. They are struggling. They've had some environmental issues; I mean it is in California. And they've had some supply issues. They have to deliver, basically, the torque tube with the mirrors attached to -- our first contract is the assembly of 28,000-odd mirrors, which basically gather the heat. And that's been a struggle. And, of course, if you can't install the mirrors you can't pipe them up; you can't do a lot of things.

So, I think that's -- I had a conversation with Tim on it a couple of days ago. I think that's beginning to clear itself up. But it's been to a slow start. And the client has been great about it. They're doing the best they can. But they're building an industry while they build this plant. This is a relatively new technology. The last mirror plant built in the states -- well, there was one built in Florida, but that was in Florida, and it was much smaller. They are struggling a bit with their supply chain, but it's coming.

And I think this is really the kind of plant that we're excited about, because, I think I told you, we do all the work in these plants -- everything from the moving the dirt, to pouring the foundations, to hanging the mirrors, to piping them up to the power block; even to the fire protection. So there's a lot more upside for us. And our partner has been great. They're good guys. They're a private company, so I won't mention them, but they're good guys. So we are doing well on the job.

And, Rich, we will account for that as regular revenues because we are the accounting partner for the JV, so you won't see it in Other Income. It will flow through, and then there will be a line divvying up income to the minority partner.

Okay, got you. Thanks. That's all I got.

Tahira Afzal, KeyBanc.

Good morning, gentlemen, and congratulations on a better quarter.

Thank you.

The first question is more macro. You've had CBI just announce that they want to acquire Shaw Group. And on their call, they indicated that one of the drivers was really securing key assets. And I assumed that largely fabrication as well, related to petrochem and power plants cycles coming up in the US. You've talked about the cycles; would love to see if you can provide any color on Primoris's key assets in the same area. If you have any common overlap, and what that really does say about your underlaying -- and the value of your underlying assets and, really, any bottlenecks coming up there.

Tahira, you always ask three-hour answered questions.

That's why you stuck me at the bottom of the list this time.

I have no say as to the order of the calls. But we need to get you in earlier, because we could take the whole call up. If CBI bought Shaw for their fabrication capacity, man, did they overpay. Shaw is one of the best power fabricators in the world. And they've got the big vending machines and stuff like that. I'm not sure power is really CBI's niche. But I don't want to comment too much on them. I was kind of amazed, knowing the two organizations.

I'm not sure whether your angle is if we're going to be acquired, or whether we are a resource issue. Resources are going to get tight. They're going to get very tight, particularly in the Gulf. They're talking about, here we are with 8-something percent unemployment and they're talking about have to import foreign labor to get the work done in the Gulf, because the skill sets aren't available. A part of it is because the wages in the construction business are just too low to attract people to the business; the wages and conditions.

But they're going to get short. And I think what's going to happen is prices are going to ramp up. I think we've talked about this before. As they ramp up, some of the guys won't get their prices ramped up fast enough, and they're going to get hurt. And the art, and being in this business, is managing the cycles. And we've managed a lot of cycles. And we're comfortable we can ramp up our cost effectively enough to handle the increased cost of labor; the shortage of equipment and supplies; and the effect of all of this on productivity. Because your costs will go up, your productivity will go down. It will be inflationary to the industry.

But we're comfortable we can manage it. I think we're in great stead in a lot of these areas. I think people like working for our Company. We attract a lot of people for the same money or less, because of the environment we provide. We've got great expertise; it's young -- well, I say it's young, it's middle-aged -- it's not as old as me. We're excited about where we are going to be.

We do a lot of fabrication. It's a market we are going to get more involved with. Fabrication is going to get short. It's even going to be more in demand when you consider labor shortage, which means people are going to want pre-fabricate stuff for their projects and shops, because the field labor is going to be expensive and scarce. So fabricators are going to get dear. But I got to tell you, there is a lot of tin down in that Houston area that is sitting vacant because there hasn't been enough fabrication around to fill anywhere near the capacity that's out there. And it takes the same labor to fabricate stuff, the same welders, as it does to weld it up in the field. The only difference is, the shop environment gives you more productivity; and, particularly, because it shelters you from the weather.

Got it. Okay. And a quick follow-up to that, and then I'll let you guys go, and I'll bother Pete [about] gross margins here instead. But really a follow-up to this -- Fluor, KBR, a couple of the larger guys have shown some interest in self-performing. You guys have typically subcontracted to some of the larger guys. So I guess my question is, is there enough capacity and competitors for them to buy out and replace -- is this going to be competition for you? Or is this going to be -- can you be part of that -- is fabrication tight enough to where they will have to start looking at companies such as yourself as a target as well?

Well, the big guys go back and forth every couple of years on whether they want to take construction risk or not, which doesn't lead to very effective management. I mean, you've got a bunch of guys that basically go out and manage these knuckle-draggers to get their work done. And they are great guys, but you've got guys that are very good at, like us. We make our living managing people. These big guys make their livings managing contractors. They are two different skill sets.

And they'll go back and forth. And I'm sure they'd love to jump into this reimbursable work -- which a lot of it will be -- but if it's hard dollar work, which a lot of the clients want to do, then the big guys are going to be reluctant to jump in there and take those risks, because they like transferring back to the little guys like us. And big can lead to clumsy, so it's tougher for them to manage. We compete with the guys they would buy every day. So does it scare me that somebody different would own of these mom-and-pop guys or one of these middle-market companies we compete with? No. It wouldn't scare me at all, because we're competing effectively with them now.

This is what we do. This is the crux of our business, is managing people better than the next guy. I'm sure we'll get a call or two over the next year, but we're pretty happy with where we are going as a Company. And we think we've got good direction, a good plan. And we're going to provide great value to our shareholders. So we're heading down the path of building a great business, not looking for a sugar daddy.

Okay, fair enough. Thank you very much, and good quarter again.

Thanks, Tahira.

Adam Thalhimer, BB&T Capital Markets.

Thanks a lot. Hey, Brian, how would you characterize the bidding environment today, broadly speaking, versus six months ago?

Wild, Wild West. Based on which industry you look at, which market you look at, which geographical location you look at, it's everything from the same to just a vastly different. We're seeing a lot of contractors fall by the wayside. If they are not the falling by the wayside, their bonding companies is following them by the wayside. We're seeing a lot of guys drop out of markets they've been very aggressive in. We are seeing a shift in -- you always have a new cast of characters from time to time. We're seeing a new cast of characters come in and try new markets. We looked to buy a company. We looked at them, and they were up in Ohio. And I met with them, and I said, well where do you see -- they do heavy civil work like James -- and I said, well, where do you see the growth in your market? And they said, well, Texas and Louisiana.

We continue to see guys -- and that's what the highway bill should help do, is maybe help some of these guys stay home if there's adequate work for them at home, and take some of the pressure off the hotter markets where we are. I think margins are improving a bit across the board, which in some markets that's from 0 to 1% gross margin. But we're seeing guys more in tune with their risks. They're looking at pretty good basket of work coming down the road. There remains a lot of uncertainty as to what the heck we're going to look at after November, in terms of what kind of -- are we going to be building windmills or oil pipelines?

And there's a tremendous amount of uncertainty that just -- we're turning out a lot of bids that never get responded to because the clients are just probing around to figure out what the heck they are going to do, depending on who comes into the White House. But, in general, I'm more optimistic now than I was last quarter, in terms of what we're seeing of work availability.

Perfect, thanks a lot.

Rich Wesolowski, Sidoti & Company.

Thanks again, one quick one. Sprint seemed to have a odd contribution in the second quarter, at least for my eyes. The annualized revenue would be considerably below the $70 million book last year. But the implied EBITDA margin was way above last year's bogey. Was there anything unusual, in your eyes, in Sprint's initial quarter?

We are good. We do less for more, or more for less. I don't know, whatever is good. No, they struggled last year. That's one reason I think they were available to be purchased reasonably. They are great guys; they had a really bad job and they paid for that, and we will were able to work out a deal with them with a couple of meaty earnouts that allowed them to move their business on to what I think is a better place, without paying a big sacrifice for it -- taking a big sacrifice for one bad year.

Their work is seasonal. I think we're doing a lot to help Robert understand his costs better. If you can't understand them, then you can't reduce them. We have an extremely efficient reinsurance program, which lowered the cost of insurance for them. We've got some other programs that we use on tools and manpower utilization that I think have really been helpful for him. But again, he's very seasonal, and that's the nature of that business.

He's probably less so than Rockford. I mean, Rockford didn't do bupkis the first half of the year, it was all second half. But Sprint's doing maintenance work and emergency work and stuff like that, so they will be a little heavier into the winter. What we need to do is find a turnaround company that does outages at refineries and power plants. They work all winter long; then we can balance our revenues for you guys, so you can figure us out. But we don't have any hot ones in the fire on that.

Certainly don't do it for us.

Okay. All right.

Thank you again.

(Operator Instructions). It appears there are no further questions. I'm going to turn the floor back over to management for closing comments.

Thank you very much for participating in the call. I want to thank you for your interest and support of Primoris. Goodbye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.