Primoris Services Corp (PRIM) 2012 Q4 法說會逐字稿

Greetings and welcome to the Primoris reports fourth-quarter and full-year financial results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kate Tholking. Thank you, Miss Tholking, you may begin.

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

Before we start, 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, expects, projects, may and future, or similar expressions, are intended to identify forward-looking statements.

Forward-looking statements inherently involve risks and uncertainties, including, without limitation, those discussed during this call and those detailed in the Risk Factors section and other portions of our Annual Report on Form 10-K for the period ended December 31, 2012, which we expect to file today, and other filings with the Securities 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.

Thanks, Kate, and good morning, everyone. I hope you're all pleased with the last quarter and the year we had in 2012. Our fourth-quarter revenue reached a record $481 million. This is a 29% increase over 2011's fourth quarter and drove us to a full-year record revenue in excess of $1.5 billion. We saw substantial improvement in all our core markets evidenced by topline growth in all.

Our projects span the United States. Our balanced mix of new awards continues to reinforce the fact that we can profitably compete in almost any market throughout the country. Our new backlog number as traditionally calculated of just a tad under $1.35 billion, is also indicative of our effectiveness and improving markets. Most of our work is weather sensitive and seasonal, therefore tends to taper off in the fourth quarter, making our 2012 fourth-quarter results even more impressive.

Those factors impact our revenue for the first quarter as well. Those factors impact our revenue for the first quarter as well. I repeated that intentionally, guys. We grew our earnings by 22% for the fourth quarter 2011 while maintaining a strong balance sheet. Our balance -- our cash balance rebounded to $158 million. We raised $50 million in senior secured notes with the ability to go back for an additional $25 million. We also increased our revolving credit facility by $40 million to $75 million.

As we continue to grow our underlying businesses, let me remind you that our balance sheet remains very important to us and we will not lose our focus on protecting it as we begin to trade the stresses of more lethargic markets for the stresses encountered in accelerating markets.

Looking at our operational segments for both the quarter and into fiscal year 2013, let me start with the West Construction Services segment. Revenue in the West grew by 13% mainly driven by underground pipeline work. Looking at Frank Welch's Rockford, we continue to work deep into the fourth quarter. Their bidding season started very early due to the anticipated surge in the projects the industry begins -- its early stages of another long-term buildout boom. Rockford's ATEX win, announced in early December, is emblematic of this increasing demand.

Our guys broke ground on the project in February. It's a cold month to be working in Ohio. Rockford is also currently working for Talisman and Williams in the Marcellus shale states. Frank's backlog has seen serious improvement in the last several months. It's good to see them continue to enjoy a rebound of work, post the winding up of the project that shall remain nameless. Rockford's bid activity continues to be as brisk as I've seen in quite a while.

Even though we didn't close the Q3C acquisition until almost December, Jay Osborn's guys contributed to the quarter results in a significant manner. We are glad to have them join us and we are seeing very good results already through combining our resources and efforts to win and execute work. We look for the Q3C to continue its aggressive and profitable growth pattern for the foreseeable future. This strategy has resulted in expanding our market for new work and operating bases into Missouri, Nebraska and Kansas, in just the last several months.

Our ARB Underground group continues to benefit from integrity spending on top of normal and new replacement outlays by PG&E and other California pipeline system owners. Scott's West Coast work remains strong for the quarter, as it has consistently done for decades. Around year-end, Scott's ARB group was asked to be one of the PG&E's alliance contractors for the integrity work for the next several years.

This is an acknowledgment of our strength and effectiveness in this market. This alliance, along with traditional basket of work available to us in the West, should more than accommodate our desires for this group in 2013. The West Coast industrial business wrapped up work on two other projects, including the first installation of the Siemens Flex Start turbine. That's the first installation in the US.

This technology, combined with various governmental mandates related to once-through cooling, the need for smoothing the intermittency of renewable generation, renewable generation construction, are all forces driving the California power generation market, and you'll see that for the next couple of years.

Tim Healy's group is still working to finish the second Flex Start installation in Los Angeles, pieces of a large solar -- thermal solar plant and several other smaller bits of new win projects. They are diligently in hot pursuit of additional renewable work; several more conventional power plants; some major compression work; multiple LNG projects, some in joint effort with OnQuest; several industrial gas opportunities outside their traditional geography of operation; and the usual crowd of cats and dogs for our traditional client base. I don't have much doubt that his group will continue its string of contributions for this year.

The Engineering segment saw a revenue decline of 9% but a gross profit increase to $3.5 million as we wound up and began closeout of the waste heat recovery units we provided for Chevron at the Australian Gorgon LNG facility. Backlog for the segment declined to $14.7 million as big projects, such as the Chevron Gorgon contract worked off. We are more than pleased with our prospects for this segment, as for the first time in more than half a decade we are seeing serious funding and project permit approvals in traditional downstream energy facilities that had gone dormant.

OnQuest is now participating and bidding jointly with their Primoris sister companies in providing a ammonia and methanol facilities for the Gulf Coast, as well as LNG renewable-type projects and we believe our ability to provide these facilities on a turnkey basis is favored by many in our client base. As backlog for this group is down at year-end, we are expected a serious rebound in that number in the first and second quarters, as some of these larger LNG and other turnkey projects begin to come to contract.

As Primoris Renewables continues to wait for the permitting outcome on the MSW to energy projects in Puerto Rico, they have been busy. Steve Lewis' group has been aggressively working in alliance with a private developer to build projects to alleviate localities suffering from the drought and water shortage in West Texas. We feel very confident we'll execute our first construction contract in this basket of projects over the next several weeks. I'm very excited about the opportunity to assist this part of the country in their needs and establish a significant new midterm revenue stream for our Company in the process.

In the East, James Construction Group had a great quarter, increasing revenue by 21% to $143 million, the best quarter in the Company's 90 year history. The $241 million Belton award announced in the fourth quarter was our fifth and largest award on I-35 to date. This 4-year project will break ground in the second quarter of this year and is scheduled for completion in mid-2017. Danny Hester and his group, several years back, anticipated and planned for a slower Louisiana market in 2013 and 2014.

They are to be commended for looking ahead outside the state and delivering a strong performance in the Texas market and the recent entry into the Mississippi market. James and infrastructure and mechanical and industrial businesses continue to benefit from increasing petrochemical and fertilizer facility work driven by low natural gas prices in the Gulf area.

Jonas Beatty's group will often join efforts with other groups like James Industrial and, more recently Saxon, to best approach the opportunities on the friend end of larger greenfield and brownfield projects that are beginning to soak our markets. James Industrial Group's market continues to improve both in Louisiana and Texas. This is a market we experienced a low-end at the end of '11 and have seen steady improvement since.

Over the next several years, Conrad's group should experience an incredible increase in demand for our services as the refining and chemical businesses along the Gulf are absolutely headed towards full throttle. Bill McDevitt's Cardinal Contractors has turned the corner with a fourth quarter revenue increase of 18% and over $31 million of new awards. The larger dollars in these new awards are in our own backyard, in Dallas.

Beyond our traditional markets of the rip-and-read public arena, they are working diligently with Primoris Renewables on the water treatment challenges that will be at the root of many of the solutions for the drought-stricken West Texans. One of the biggest contributors to the East segment was Primoris Energy Services, which is our subsidiary that holds Sprint, acquired in March, and Saxon, acquired in October.

Saxon contributed quarterly revenue of $8 million thanks to industrial projects in geographies as diverse as Ohio, Oklahoma and Mississippi. As they begin to utilize the stronger resources that Primoris provides with their traditional clients and markets, I haven't any doubt that Jeni's group will deliver the desired results. Her team has meshed well with the others and we are already seeing the benefits of synergies.

Sprint contributed a very significant $44 million in revenue for Q4, as in both the Eagle Ford and Houston area, work continued to be robust. Robert Grimes' work is melding well with the organization and I personally very much enjoy working with them. I look for Sprint to be a very positive factor in our results in 2013.

The East backlog increased to $970 million at year-end and I'd like to take note that two years ago the total Company backlog was $896 million. As I went through the segments, I gave flavor to various acquisitions from 2012 and their contributions for the year. We worked hard last year and I think we added great new pieces to our organization. All four deals were internally sourced and we paid fair prices for them. The integration process is proceeding smoothly.

To answer one question before it's asked, yes, we are continuing to look at various opportunities to acquire good companies in our industry. It is our nature and I think it's one of our strengths in growing that way. But if the opportunity does not present itself to grow acquisitively this year, we will see very, very strong growth organically, well in excess of what we need to satisfy our plan.

This year we see fantastic opportunity for organic growth and our focus is choosing the right job for the right client, and then busting our rears to achieve flawless execution. In sum, 2012, good; 2013, better. Now I'd like to take a moment to thank all of you listening to the call. Many of you have come to Dallas to meet with Pete and me, or given us your time as we travel around to meet investors.

We appreciate the interest you've shown in Primoris, and it seems to us that Wall Street is beginning to take note of the consistent, steady growth and profitability we strive to achieve. So, I'd like to thank you all again for taking notice of what thousands of stakeholder employees worked so hard to deliver. And more so, I'd like to thank them for breaking their backs to give us this. Now we leave the propaganda stage of the presentation and enter the factual, by Pete Moerbeek. Pete?

Thank you, Brian, and thank all of you for joining us today. As Kate mentioned, we plan to file our Form 10-K today, but I want to take just a few minutes to highlight -- very few minutes to highlight several areas. We ended the year on a strong note, with net income of $17 million or $0.33 per share, our best fourth quarter ever.

For the quarter, our revenues were $481 million, an increase of $108 million from last year's fourth quarter. Of that increase, about 40% was from organic growth and 60% from acquisitions. Our largest customer, a Northern California utility, represented almost $81 million, which was an increase of about $10 million over their 2011 fourth quarter revenue contribution.

For 2012, our revenues from the utility were $225 million, surpassing last year's $165 million. While we don't expect the revenue growth from this utility to continue at such a frantic pace, we do expect that we will continue to see revenues at elevated levels for some time, as the utility implements its extensive integrity plan.

For the quarter, the Louisiana Department of Transportation was our second largest customer at $36 million in revenues. Since the LA DOT budget is likely to remain soft in 2013, we are seeing the transition of our heavy civil highway work to the Belton, Texas area. In the quarter, TxDOT revenues were $28 million. As we have said over the past few quarters, the Texas work will have low gross margins during the startup phase, but as we progress, we expect the margins to return to more historical levels.

Our end market distribution for the year was approximately 42% of underground work; about 25% of industrial work; and our heavy civil work was about 21% of revenues, while engineering was 3%. The Other category was about 10% of our revenues and includes parking structures, water and wastewater and material sales. We remain a very seasonal company. In 2012, excluding the impact of the acquisitions, we achieved 20% of our revenues in the first quarter of the year, 23% in the second quarter of the year, with the last two quarters accounting for 57%. We expect that our business will remain seasonal in 2013.

I am not going to try to answer everyone's detailed questions about why a specific project or a specific Company gross margin changed this quarter compared to last quarter, last year, or even the last two weeks. As a construction company, using constant cost percentage of completion, we do have margin fluctuations as we estimate our anticipated cost to complete a project. Excluding the acquisition of Q3 Contracting, we worked on over 4000 different projects this year, which means a mix of projects, a mix of customers and a mix of overall job progress. All of which impact our gross margins.

In 2011, our gross margin decreased from 13.9% to 13.7% from the third to the fourth quarter. But last year we benefited from positive margin contributions, especially from the windup of the Ruby project and a large DOT project. This year we had a decrease but we benefited from neither. And the Belton start up costs lowered our overall margin.

The increase in SG&A for the quarter from $25.8 million to $26.7 million was largely due to the addition of $4.5 million from the acquisitions, offset somewhat by a $3.5 million settlement related to the Rockford acquisition. The favorable tax treatment of this settlement reduced our fourth quarter effective tax rate, and we anticipate a much more normal tax rate of approximately 38.5% going forward.

In November, we closed on the acquisition of Q3 Contracting. We paid a little over $48 million in cash at closing and our earnout provisions, which could add $10 million over the next two years. With the four 2012 acquisitions, we again are faced with establishing a fair value at the time of each acquisition. We have made estimates for intangible assets and the earnouts and we will be amortizing these estimates over the next few years.

In 2012, we recognized $2 million of contingent amortization for earnouts and $6.5 million for intangible amortization, totaling approximately $0.102 per share, if we use our normal tax rate. For 2013, we anticipate $9.4 million of total expenses or $0.112 per share. As predicted, our working capital improved during the fourth quarter. We had great collections and we continue to do so.

Of the $268 million in receivables at the end of the year, approximately $40 million represents retainage amounts. The remaining $228 million, we've collected more than 95% over the first two months of this calendar year, so we are very proud of our collection history. Our capital expenditures for the fourth quarter were $13.7 million. We anticipate higher CapEx going forward.

If we look at last year, we had $29.1 million in depreciation, $6.5 million in amortization, for a total of $35.6 million. Add to that the $9 million that we generated in proceeds from the sale of equipment and we ended up with about $44.5 million, against which we spent $37 million. We anticipate that we will be spending a lot closer to $45 million to $50 million this year.

At December 31, our total debt outstanding was $155.4 million, and our debt to equity ratio was 46.7. During the fourth quarter, we entered into $50 million senior secured note with the possibility of another $25 million. The rate on the note was 3.65%, fixed for a ten-year period. We also signed a credit agreement for a five-year, $75 million credit facility. We also paid our $3.1 million cash dividends in the fourth quarter, as we accelerated the dividend payments.

Backlog at December 31 was $1.3 billion, a 17% sequential increase and a 16% increase over last year. Both the East and the West segments saw double-digit increases in backlog. We do not traditionally include in our backlog any jobs unless we have a signed contract with known revenues, so MSAs and cost reimbursable and time and material projects are not included. During the fourth quarter, approximately 12.8% revenues were not derived from backlog. Looking forward, we anticipate that approximately 57% of our total backlog at year-end will be recognized during 2013.

We also recognize that backlog by itself is not as good an indicator for our Company as it is for others, so we are in the process of trying to find metrics that will assist you in looking at where our revenues will be. So, for this quarter or for this year, we want to announce that we believe we will generate between $350 million and $400 million this year of time and material MSA work, based on our estimates at this point. Please recognize that those are estimates and that those are not firm, signed contracts.

With that I'd like to turn it over to the operator so that we can get to your questions. Operator?

(Operator Instructions). Rich Wesolowski, Sidoti.

Thank you, good morning. Would you comment on how PG&E's move back to alliance work would affect your bargaining position in the margins for ARB Underground? If at all?

Yes. They switch every couple of years. I think it's to demonstrate prudence to the PUC, because most of their costs are directly in their rate case and they get reimbursed for them, long-term. We've worked for PG&E for 60 years; I haven't, but the Company has. So, we've been through I don't know how many different iterations of their delivery system, but, in general, we seem to get the same kind of margins either way.

We did -- there were five alliance contractors granted alliances by regions and I think we got the heart of the deal, which is the San Francisco Bay area. And it is certainly the heart of the integrity market. As you may not know, it's only probably about half of the revenues we generate from PG&E because they have other things that are not in the integrity piece of that program.

And that's copper service replacement, which is now going to Adelaide A and Adelaide B, and the part of their program is both integrity checking and mitigation, but it's also upgrade. So, don't read too much into the alliance part of it, although it certainly helps us maintain our base there to support the other work that we do for them.

But only about half of our work last year was integrity work. The rest was either capital work or service replacement. But I don't look for it impact our margins too greatly. Now what does happen is, since that work is in the streets of San Francisco and it's not out in the deserts where you use your larger equipment, our margins are a little less, in general. But they have been less for the last four or five years.

So, that does explain some of the changes in margins from quarter to quarter because we don't use our equipment -- we don't get any equipment utilization, so our margins will somewhat be lower on that work as we run our equipment center as a profit center.

I understand PG&E is on a different track as for us to work they have to complete relative to Sempra or the other California utilities, but I'm curious if you expect your sales to the non-PG&E group in ARB Underground to be higher in '13 and '14, as well as you see for PG&E?

Well, you've got core businesses there. I think we'll certainly get our share of the services and we're going to get our share of the integrity work. And then everything above that is project to project, so that's -- we have to bid and win that. I think with the amount of work going nationally, a lot of these contractors that received alliances -- some of them were actually new to the gas business. It was kind of surprising that they were awarded alliances.

Some of them won't be impacted by the overall market across the country, but some of them, like Quanta, will be. And so I think if they are distracted in other markets where they might be able to achieve better profits because they don't have the basic support system we do in California, I think our margins could increase. But it's -- who knows.

I think, in general, the California pipeline market is going to be a little more robust than it's been in, and it's been a great market. Sempra is entering a different phase of their integrity process; some of the other owners are entering phases. As the market heats up across the country for underground work, I think we should do better because we stay home and we take care of our clients and they recognize that, and it should allow us to be -- give us a little bit better pricing power.

Thanks. And, lastly, shifting to the East, I can appreciate the idea that your 2012 annual East margin would take a hit from I-35 being in year one, but for the quarter it was below at least what I was expecting. I was just hoping you would characterize the early execution on that group of TxDOT contracts. Thanks.

I think, as we've talked about on most calls, is we're pretty conservative on how we reflect the contingency portion on our work in process, and we are really in the big startup mode of a lot of new work. All that I-35 stuff is in the startup mode. Plus, we had a serious -- when we buy companies, we do a serious outlay and if it's possible to expense it, we do so. I know this isn't in the East, but to give you an example, we GPS all our trucks, so we make sure that the guys aren't using them to run to later store on Saturday morning. Or Friday night.

And just Q3 alone, we spent a couple hundred grand in January just putting GPS on their vehicles. So, some of it was the startup costs, some of that was Saxon, getting them integrated. But a lot of it is just the fact that these projects are in early stage in the east and we're going to be very conservative as to how we reflect where the margin is on them until we can calculatedly knock down the contingency part of the profit.

Appreciate it. Thanks again.

Lee Jagoda, CJS Securities.

Just a follow-up on the Belton question. Specifically, did you book a negative gross margin in Belton in the quarter?

No.

It was just very low?

It's low, but it's not negative.

Okay. And then, Brian, significant obviously means different things to different people. Is there any way you can put some numbers behind significant organic growth in 2013?

A gob? Let me be more precise. A whole lot? Remember, just in the fact that we didn't pick up Q3 until mid-November and Saxon until almost the same timing, just in seeing -- and we only got three quarters out of Sprint. We got them at the end of March. So, just if you add, we are counting -- if we have owned them for more than a week, it's organic. So we are counting them as organic. And just if you do the full year on them, you are talking pretty -- I'll let you do that, but we are talking pretty substantial growth.

Now Q3 has really been -- I am really impressed with what Jay is doing and Jason and Mike, and they are really being aggressive in reaching out and getting some of the work that some of these other guys well left behind to go chase greener pastures. And so when you look at -- and then, Sprint, the same thing. Last year before we bought them -- the year before we bought them they did $70 million. They did $44 million in the fourth quarter.

And really what it was, was taking some of our cost systems and some of our equipment credit and going out and buying some equipment, letting them achieve more growth through more capital projects, larger capital projects, particularly in the Eagle Ford and around Houston there for traditional clients. And it also helps increase the gross margin, because now we are owning that equipment and putting that money in our pocket instead of the equipment vendor.

So, I think if you just look at what we picked up, I think the organic growth is very substantial. And I see -- the only one that I see has any chance of shrinking organically, and I don't like to give guidance, is possibly industrial in the West. But I've got to tell you, if anybody can find work to do with good money in it, it's Tim Healy. He's very good at it. And he's got a great list of prospects there.

Okay, one more question and I'll hop back in the queue. Just given the droughts in Texas and your recent success winning awards related to water, can you talk about the broader market opportunity in Texas, as it relates to water?

Well, the state of Texas is getting ready to spend about $50 billion on water resource. They need to, because two things have happened, of course, as they've had a multiyear drought and then they have had a lot of growth. So they need to spend money on water resource just to keep up with the growth, and the drought is obviously exacerbated that.

We are working with a company that has been working that market for a number of years. We have been assisting them in that market, and they are tracking in excess of $2 billion that they think is opportunity for them. The first award for us is relatively small; it's a resource development, so we are going to drill some wells and haul the water for them into a water hub where they can distribute it.

The second job we are working hard on, we're finalizing pricing on right now, is brackish water, so you have to put a de-salter in or an RO facility in, and treat the water and then ship it to market. But these guys are very aggressive; they are well-connected financially; they have the financing in place. And so we are really optimistic that this could generate a long-term -- or a mid-term growth strategy for us in that area.

But if you spent any time down there, the drought is very pervasiveness. It starts in the south part of Texas and wraps around the west side of the state all the way up to the Panhandle. So, it's -- there's a lot of need there, and we very much intend on being part of the solution.

Thanks very much.

Richard Paget, Imperial Capital.

Good morning, everyone. Maybe just to help try and frame that organic growth expectation. If you look at your guidance for the MSA work, even at the low end, if you compare to what you did in 2012. I mean that's high-teen growth if you take the high-end; it gets closer to an excess of 30%. If you look at twelve-month backlog this year compared to last year, that's up close to 30%. Is that the frame to look at it in, or is that being a little overly aggressive?

I'm sorry, Richard, you lost me at the word guidance. Look --

Well, I was asking Pete, anyway.

(Laughter) We picked up a lot of MSA work with Q3 -- Q3C, sorry. They do a lot of MSA work, and it's a big guess and that's why we've been reticent to even discuss giving you guys any kind of insight into it, because it's -- I've signed MSAs and not done a dollar's worth of work under them. You take Q3, who's the vast majority of their income is -- or revenue is from MSA work, and a lot of what Sprint's revenue is, is MSA work. I'm going to guess around 30%, 35%.

Now, this -- I'm going to veer off your question, as I normally do, but I'd like to -- you guys to understand something. This is why we are successful, because we dig ourselves in with clients like a tick. Maybe not a tick, but something a little bit more nice. But that's why we are so competitive on the capital work. We don't have any sales costs; we don't have to fly salesmen around the country to introduce ourselves to the energy transfers and the enterprises of the world, because we are out there doing the work for them every day.

We are changing valves out, we're lowering lines, we're doing all the normal, day-to-day dirty stuff that most of our competitors don't want to dig in and do. They would rather not have those administrative costs and make that commitment to the clients. But I've got to tell you, it's an incredible sales tool. They are paying me to sell them because my trucks are going through their gate every day. And this is one reason we build the kind of base that we do.

It gives you recurring revenues, albeit they're probably not as high in gross margins as some of the capital work can be. But now you're working for friends and people you work with everyday, so if there is a large capital job or medium capital job, you can go out there -- you don't have to sell them on it because they know you're doing good work for them. They know you're taking care of them. And if there is an issue -- if there's a change order or change in condition or something like that, then you're dealing with friends. You're dealing with guys that are kind of symbiotic in how they relate to each other, so this is a huge advantage for us.

And that's one reason I like our model better than some of the others. But we are going to try, possibly next quarter, to be more mechanical in how we deliver you the backlog number. I hate to change the way we reflect our backlog and disconnect you guys, so we'll report both ways for a quarter or two, we haven't decided. But we've looked at the other companies and how they do it. There's some that are really aggressive, one who will remain nameless, they book five years of MSA possible revenue. We're not going to do that; we're going to do what's conservative. But since the amount of work we are doing under this kind of delivery system has increased proportionately, we feel we should try and give you guys more insight to what that will realize for us.

Sorry. I'm sure I didn't answer your question. (Multiple speakers).

Well, I can say you pointed that out. So, you mentioned you guys got some pretty strong revenue in spite of typical seasonality with weather. Was that fourth quarter historically less cold or snowy or less inclement? And then how is fourth quarter of 2012 trending with first quarter this year, in terms of seasonality?

Well, your utilities, they have to get their spend done. I know Sempra and PG&E try to spend within 0.5% of what they predict at the beginning of the year. That's really cutting a fine line. But what happens is they go out and they take care of new customers, if there are any -- in California, anyway -- and they do that the first half of the year. Then they take care of replacement kind of in the middle of the year. And then they get real aggressive at the end of the year making sure they hit their spend on the button.

Which we like, because we, in general, have more capacity than our competitors, so we can kind of see better margins and more of our kind of work in the last quarter, last half of the year. Then, of course, the first part of the year they reel back in and they start that process over again, and it's cold. I don't know if you've been to Little Canada, but they call it that for a reason.

So, guys like Q3, guys like Sempra, guys like PG&E, really slow down quite a bit, first quarter of the year. It's just endemic into the business itself. Your pipeline guys -- they don't even bid work for the year until first and first half of second quarter. So, you don't get a lot of work there. The nice thing about the highway work, it works straight through in terms of the way that work is budgeted, but there are just certain things you can't do when it's cold. You can't pave.

When it's raining every day, we drive our revenue based on our costs, so when it's raining every day you can't generate cost, you can't put work in place, which drives our revenue. So, first quarter, as you guys know -- and I said this and the stock took a whipping a while back -- but first quarter is always slower for us than the others, and you got to look at us like you look at the rest of the guys in our space. We are not that much different. If you're working our same geography, which is pretty much the Sunbelt, and then up through the Midwest with Q3.

All right. So there was no abnormal weather patterns in the fourth quarter that helped you achieve the revenue growth you did get?

Well, remember, we picked up Q3 and we picked up Saxon, so you got to roll them out of the equation if you are looking at purely year-to-year or quarter-to-quarter. At the same time, though, Sprint -- which we picked up in March -- they had a huge fourth quarter. And I think they are going to continue to perform well. We are getting the normal first quarter. And it's going to -- you can't just take fourth quarter and say, geez, they had a great year so we'll just take fourth quarter and add 10%; call it first quarter. It's not going to happen.

We're going to have our normal down dip in the first quarter. Little Canada, the work in Minneapolis or out -- around that Minneapolis office is just shut down. Period. PG&E has actually carried through a little bit better than I thought first quarter, so that's good. Sprint, traditionally in the past, has always lost money first quarter. The good news is, is I think they're going to actually do okay first quarter, because the amount of work that's out there that has to be done.

And these clients recognize us, so they're trying to spread their work out a little bit better, plus they've also got a few larger capital jobs. I think the heavy civil group will actually do pretty good first quarter, because these jobs are starting to ramp up. But, again, it depends on the rain. You can't pave in the rain -- you can't pave when it's raining and you can't pave black paving when it's cold. So, it just -- it's a mixed bag. But I think first quarter is rocking along pretty good. I'm not disappointed at all.

All right, thanks. I'll get back in queue.

(Operator Instructions). Tahira Afzal, KeyBanc Capital Markets.

Good morning, or I should say afternoon, gentlemen, and nice quarter.

Thank you.

First question I have is in regards to the pipeline space. Brian, you were [partner on] in your processes around Keystone. Could you first of all just comment on whether you think that will be -- what the outlook looks like now, based on similar market intelligence you have. And we've been reading for a lot of these long-haul pipelines, on track to start showing up here and there. So, you guys should, around this time, you should hopefully start to see some activity pickup. So, any update over there would be cool, as well.

Well, I'd like to address Keystone for a minute, because I keep getting -- and I think the project needs to be built. I think the State Department hit it right on the head. That dirty oil, which I don't believe is dirty, is going to get produced one way or the other. So to try and calculate in the pollution from making the oil in Canada into the process is really silly. Because if we don't take it, the Chinese will. And the Canadians will sell it to them.

I have some of you guys call me and say well, gosh, you didn't get part of Keystone? How would you like to have the contract on Keystone? Knowing you've got to commit two-thirds or three-quarters of your resources, but not knowing when. And then you got to bid this other work to try and make a little money the next couple of years, and you can't really bid it aggressively because you've got Keystone laying there in the background and you don't want to walk away from that contract or that client.

So, to be honest with you, I'm kind of glad we don't have it. We do have the opportunity to maybe do some of the work south of the Mason-Dixon on some pump station work and this and that, but what it does do is it does absorb capacity in the industry. And the big guys that are part of it -- Michels on the private side and the other guys -- that prevents them from getting in our hair on other work.

If you look at where we are and what we backlogged, we're backlogged to a run rate similar to the year we did the [lower Baltimore] construction projects. So, I'm pleased with where Frank is and we're just now at the cusp of the season for bidding. We are bidding more work than I really have ever seen come in the door. And I think, based on what's projected, this isn't quite as large a capital projection this year as the peak a couple years ago. But it's certainly large enough to take care of everybody in the industry.

And the one change that has been, it's gone from the really big pipe to intermediate size pipe. You're not laying 42 inch and 48 inch, your down laying 30 and 24 inch, and multiple lines, because you're dealing with more treated gas and things like that, and liquids, which is a change in equipment. And that's why we have reflected a lot larger CapEx this year than in traditional years, because if we had all the big stuff -- we continue to have that, and we're continuing to use it, but now we need the more intermediate stuff.

And we went from about 20 or so 572-size side booms, where we bought 35 of them in the last 18 months. So, I'm that strong a believer in where the market is going that we're spending a lot of money to get there ahead of it. And I think owning that stuff gives you a lot of capacity versus the guys that have to rent it when it gets in short supply.

That make sense. Are you seeing -- when I read through some of the market data, it seems to suggest there's a lot of repurposing of pipelines as well, maybe some conversions of now-redundant gas pipelines to flow through crude. Is that an opportunity set for contractors as well, like yourself?

Absolutely. If you really study the way pipe is installed, gas lines are very different than oil lines. When you put gas in a system based on the fact that it doesn't weigh very much, you have a system that you can run at the same pressure through the entire route. When you put oil in it, because of the weight of the oil in the low spots, you have to really have a much different system to use to get the capacity of the full size pipe.

You have compressor stations versus pump stations. Obviously, that's a change; you're pumping liquids instead of the gas. It's a huge opportunity, and particularly in light of the fact that some of these purchases of older systems haven't had the integrity work done to them. And these guys, what they are really buying is not so much -- in a lot of cases, not in all cases -- what they're really buying is they're buying a right-of-way and the right to own a pipeline, so they don't have to go through what Keystone has gone through.

They realized that in order to build a system like Keystone, it's a three or four or five year process. If they can go out and buy an existing pipeline, it doesn't matter what kind of shape it's in, they know they have the right to improve that. So, the process is much, much more simpler and much quicker. So, to me, it's kind of a -- and a lot of it will just get jerked out of the ground and replaced. Some of it they will try and scab together. But, remember, most of these guys are federally regulated; they file tariffs, and they file tariffs based on what their capital cost is. So, in a lot of cases, they really don't care that much unless it's competing with a different pipeline system. Their capital cost is -- it's a baked in profit for them.

So, it is a lot of opportunity. Sorry to give you such a long answer.

Actually, that's very helpful. If you were to build a new pipeline for let's say $100 million versus one that's been repurposed, is it the same cost? Or is it -- does it end up being a lighter scope?

Well, in some cases it's even more, because you -- depending on what they are doing with the old system. If it's currently under operation, you got to spend a lot of money protecting it. It just depends on how extravagant they go in upgrading it. But, in general, you want to see them build a new system instead of an old one. It's cleaner construction.

But we make our living doing tough jobs. If anything differentiates us in the marketplace, and this -- I'll send you -- will post some pictures on the website, of the job we did across the hills here in California. We literally had to fly every joint of pipe, every yard of concrete into this area and pour it on the side of this hill, and it went on and on and on for mile after mile.

That's our hallmark; that's where we make money on tough jobs. And that's why I think we are being more successful than some up in the Marcellus because that's tough work. The Eagle Ford is kind of vanilla, you run into some ranchers that have real special deer and things like that, that cost a lot of money if you kill them. But the work is kind of vanilla.

You don't have the high groundwater, you don't have real hard rock, it's pretty open country. The work in the Marcellus is just double tough. And with the weather and -- there is really no developed work force up there, it's really tough to get -- and as the work picks up in Houston, or in the ship channel and along the coast there, it's going to get even tougher, because that class of worker is going to stay home. Why would they want to go to Ohio when they can get the same kind of pay working there in the ship channel. But that is our hallmark; it's tough. And that's where we excel. And the tougher, the better we like it.

Got it, Brian. That's very helpful. I have another question but I'll hop back in the queue.

Dan Mannes, Avondale Partners.

Afternoon, guys. A quick follow-up, maybe on some of Tahira's questions. You're seeing a pretty robust bidding environment out there on the pipeline side. What I wanted to ask was your capacity. Clearly, you've committed a big chunk to ATEX, which will take at least a spread through most of the year. What you have available to bid, both on the union and non-union side, number one? And number two, how big can you scale up out of Sprint in terms of project sizing?

Well, some of it is dictated by the client. I don't think anybody's going to give Sprint a $200 million job. But it will take one spread on Ohio for ATEX. We have another spread and a half up there at Rockford, so we could do one more sizable; it depends on how much work we do for Williams. We've been putting packages together for Williams; last year I think we did $80 million, $90 million for them, cats and dogs.

It depends on what -- and they have a pretty aggressive plan again this year. So, it depends on what -- and I'm a big believer in never trade an old friend for a new one, so we are going to stay home with Williams, because they really provided us good work through kind of a swale in the market. So, a lot of it depends on them, but we could probably stand one more spread there. We've still got half a spread out in Wyoming; ARB's got a spread that is uncommitted that Rockford could use or they could use. And then Sprint's got two middle-diameter spreads.

They are good up to about 30 inch. When they get above that they get pretty equipment-sparse. But they can stand two spreads. They've got a lot of work down in the Eagle Ford right now and we're just finishing up the one there in the Houston area. But they've got a lot of opportunity, but you know the difference is, is the spread per Rockford is $100 million over six months or seven months, and a spread for Sprint is probably $25 million over three or four months, five months. So, a little bit cats and dogs.

Got it. That helps. And then real quick, and this may be a little off mark, but given what's going on with the sequester, are you seeing any of that flow through into your civil business? Or is that really just noise, given that most of the money is either coming from the state are already allocated?

Well, I went in and cut the janitor's pay right away. I just took the opportunity -- no, I'm just kidding. He's too good a guy; plus I think he knows where I live. We haven't seen anything remarkably change. I don't think we will. We do so little defense work, we are bidding some. They do fuel oil systems; we've been shortlisted on one up in Washington. I don't know whether that will -- obviously they're going to cut back on capital spend.

But we haven't predicated very much of our business plan towards that, so I think, quite honestly, it might even be a benefit, because there's no federal money obviously available. We can send it to Egypt, but we can't set it to Texas to fix the water shortage. But I think it will probably create more entrepreneurial solutions and opportunities in THE municipal and state markets that traditionally rely a little bit on federal money. So, I really -- to me it's a Washington problem, so far.

Great, thanks for the color.

Rich Wesolowski, Sidoti & Company.

Regarding the mainline bidding in 2013, would you say there was a greater risk in committing the bulk of your resources before the pricing gets good? Or rather in the prospect of not being able to procure the field hands if you wait around for a better bargaining position?

You fight that battle every year; I fought it for 40 years. Do you wait and get a good price on the last one and lose all the opportunity in between? Do you bid the first one and have it -- get it delayed until the last one's already did, then you don't even get to do the first one? Do you load up and take the chance to get some hands before the other guys do, since you know some craftspeople?

We are good at it. We've only done it for -- I've only done it for 38 years. So, we liked ATEX; they're a good customer; they don't -- they're not quick pay, but they certainly will pay you. They're not sketchy at all. We are there; we are in Ohio and Pennsylvania; it's our kind of work; our guys are there; we didn't have a huge move-on cost. We wanted to get most of the remnants out of Wyoming, so that was a great way to do it. Because we don't see any big jobs to write there, although Enbridge is out and bidding and you've got work up in that area.

But we liked it because it was -- first, we liked it because we could get the hands out. We liked it because it gave us a little bit of revenue in the first quarter. We've got to go up there and get rid of the bat trees, the trees where the bats like to nest before they come back from wherever bats go -- do you know where they go?

I don't. I'm a lowly analyst.

Okay, we'll get Dan Mannes to research that; he likes that kind of stuff. But we liked it for a lot of reasons. But, yes, it's always a risky fight. Quite honestly, in that business, I'd much rather pick clients than pick jobs. You've got good clients and you've got better clients, then you got clients that will remain nameless. So, I think we are picking the right kind of clients that going to treat us fairly, that have well engineered projects.

And that's what hurts more than anything now as you go out there. And engineering is stressed. I know the Gulf Interstates and the guys like that are as stressed as we are in trying to find people to do the work. So, that reflects itself in either poor engineering or good engineered process. And if get a poorly engineered project, even with a good client, you're going to struggle. And so I think we're pretty good at matching the two up and working for the right kind of guys on the right jobs. But, yes, you always fight the risk that maybe you're too early, too cheap or too late. And you don't get anything.

Shifting to the gathering line, is there an opportunity in 2013 to mimic the relationship you have with Williams in some of the Shale play?

Well, a lot of what -- well, I won't say that for a lot of it, but half of what Sprint is doing on their capital work is gathering. And we are down there working on some other; we did a job for Copano right before Kinder bought them, or announced they were buying them. And we're doing some more work for them; they are a good client, as is Kinder. So, we'll do a lot of that work, we'll do more and more of it.

Traditionally there is a real labor shortage up in the Northeast. So, a lot of that is done -- the unions have a better labor pool up there, although I see Willbros up there, I see some of the smaller private guys -- privately-owned guys out there. I think they struggle and they are even going to struggle even worse because as the work heats up in southeast, those guys are going to go home.

If you drove up there and went down there right away and looked at where their people came from, I would venture a guess that 95% of them came from Texas or Oklahoma or Louisiana. They're not going to stay and work up there when they can be home getting 60 hours or 80 hours a week in one of the plants. I'd see more and more gathering line workforce. It's going to be cats and dogs, though.

The Bakken is hard to get into, it's still sketchy up there until they develop a better shipping system for their oil. It is so deeply discounted that if they don't get one of these pipelines built soon, I think that work is going to struggle because there's so much other liquids being developed in the Eagle Ford and other places.

I think right now they're taking a $17 discount to the market, just because they don't have a good way to ship it out of there. So, we're focused in the right areas. We're in the -- I think we need to get a better presence, maybe in what I call the overthrust area, which is Colorado, Wyoming, places like that for flow line work. The smaller capital jobs are pretty much going to have to be attacked in an open shop model, though. So, we're going to have to develop that presence. And we can do that through Sprint or some other method.

Very last one. Did the two gas-fired projects completed during the quarter move the needle for the West probability?

No, I don't think so. You mean the last quarter?

Right.

Or, this quarter, I'm sorry?

The December quarter.

No, it didn't move it at all. We are still commercially dealing with one of the clients that might move it slightly. The other one we settled up with. We are excited about the prospects. El Segundo is going really well; NRG is a great client. They've struggled because they had kind of a screwy delivery system on the engineering side, but -- and this is the first. Siemens makes two of these quick start or Flex Start plants, they call them. One of them is a 30-minute start and the other one is a 10-minute start.

And the one we built in Northern California was a 30-minute start. It's the first one built in the US; the second one is this 10-minute start at El Segundo. And because of the water, the once-through law and everything else, it's really been kind of a one-off or unique project. Nobody's build this yet. And they have been very, very good to work with. It was some tough situations and the site that the thing is built on right, next to LAX on the water, I mean literally the guys can go out and surf at noon. Is the tightest site I think I've ever seen a plant like this built on. But I'm excited about the job finishing up and hopefully we'll see better results there than we've seen on the prior ones.

Best of luck in 2013.

Thank you very much.

Tahira Afzal, KeyBanc Capital Markets.

Hi, Brian. I'll try keep it brief. James Industrial, could you talk about the opportunity shaping up for James from ammonia, fertilizer, petrochem? You've clearly started to see some of that flow through, but could this be as big an opportunity for you guys as pipeline? In terms of growth?

Yes, I really do think -- when we looked at James four years ago when we started down the path, we really didn't have a big heavy civil presence. Didn't know we wanted one, and of course after we got to know Danny and [Rodney] and Pat Pluenneke, we liked it a lot. They are really delivering, they are consistent. But the industrial was one of the things, that and I&M maintenance group -- infrastructure and maintenance group, is -- really what we looked at is the real attraction.

Of course, about the time we bought them that business started slowing down. But they've got a great opportunity. We are focused there on our M&A activity; we are not not looking other places. We are not -- we're looking anywhere. We are not pressing it real hard; as you know, there's just me and another guy. We don't have a big staff to do that. But we think the opportunity is huge.

Now, the issue is going to be, is back to picking the right client and picking the right project. They are predicting anywhere between 125,000 and 150,000 craftsperson shortage just in the Houston area. So you go out and you bid a job, lump sum, or you bid it for a client or you bid it in an area where there's not a big presence of people, you've got real problems. And everybody thinks that Gulf is one big market; it really isn't. You've got some areas that are very parochial, some areas don't have any craftspeople that live in that area.

And, trust me, if they're working for you and they live 30 miles away and there's a job that comes up two miles from their house, they're gone that Friday when they get their check. I think it's a great opportunity. I think the problem you fight is everybody knows about it; a lot of people are moving that way; that's driving up multiples of acquisition candidates. There's going to be a labor shortage. There's going to be a management shortage. In order to alleviate the problems that occur when you run out of good, skilled labor is you hire really competent middle management. And that means people are going to try and hire your middle-management people away, and so you got to make sure we got those in place.

And then you don't want to be out there working on a 6% job when there's a 12% job available to you or a 15% job. So, you have to be cautious in how you pick your poison here, and I think we are very good at it. But you don't want to run out and tip your guys over by trying to take on too much work. So, you really have to hit a happy medium and I think we are set up to do that. We've got Cardinal Mechanical down in that area that has good skills, that can do pipe and things like that. We've got Saxon; they are a national contractor; they can go anywhere. They can bring some very highly-skilled people into certain markets. You've got James Industrial. We are working on a couple of smaller, little acquisitions down there. We're fairly far along on one. But I don't see us running out and buying a $500 million guy this next year.

Got it. Thank you very much, Brian.

Thank you. Mr. Pratt, I will now turn the floor back over to you for closing comments.

I'd like to thank everybody once again for their interest, and your investment if you are invested. And with that, we'll end the presentation. Thank you.

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