Primoris Services Corp (PRIM) 2013 Q1 法說會逐字稿

Greetings, and welcome to the Primoris first-quarter financial results conference call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.

(Operator Instructions)

As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Kate Tholking, Director of Investor Relations. Thank you. Ms. Tholking, you may begin.

Thank you, Roya. 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, 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 companies future performance. Words such 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 in our morning's -- this morning's press release, and our Quarterly Report on Form 10-Q for the period ended March 31, 2013. Those detailed in the Risk Factors section and other portions of our Annual Report on Form 10K for the period ended December 31, 2012, and other filings with the SEC. Primoris does not undertake to any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as maybe required under applicable securities laws.

With that, I'd now like to turn the call over to our CEO, Brian Pratt.

Thanks, Kate, and thanks everyone for phoning in. Hopefully you've had a chance to read through our release filed earlier this morning. We're proud of our first-quarter results. Our revenue of $410 million is a 41% increase over the previous year, and the best first-quarter revenue in the Company's history. Our legacy businesses continued to perform well while the acquisitions we made in 2012 contributed to our success. Our operating margins, while some of the best in the industry, were not as high as we like. This shouldn't be a surprise to anyone as I've stated time and time again that we operate in a seasonal industry, and our first quarter will always be softer than the rest of the year.

Our backlog remains strong at $1.2 billion, as calculated without the impact of MSA work, and we announced over $715 million in new awards during the quarter. For clarity, in my portion of this presentation I'll be using our old method of calculations as it relates to backlog. Pete will address the changes in his remarks.

Our balance sheet remains healthy, with equity at $344 million, tangible net worth at $175 million, and cash balances of $142 million. Our cash balance is noteworthy, given that over the past 12 months we've paid over $81 million in cash for acquisitions. Also during the first quarter we increased our spending on capital equipment to $20 million, compared to last year's $5 million. We also paid down over $46 million in accounts payable. So all things considered I'm quite pleased with our cash flow, and how we've put it to work.

Let's talk about our segments, starting in the West. Revenue for the first quarter was $207 million, a 31% increase over last year. Backlog at quarter-end was $286 million. ARB structures finally turned the corner, and the revenue was up over $4 million compared to last year. Mark Thurman and his team deserve a lot of credit, as they've waded through a pretty tough environment in the last several years. ARB Underground had a solid first quarter in what is one of our most weather-sensitive markets. Remember, a lot of Scott's work is for utilities, and this work load typically bottoms out in the first quarter. This is due to our clients' cold weather needs for their systems and annual planning.

Also underground work, whether for utilities or other traditional customers, is tougher to perform this time of year which of course suppresses margins. Scott secured the San Francisco Bay region and an alliance agreement with PG& E for their PSIP program. Our estimate for the initial value of this agreement is $300 million over three years. This is only a portion of the work available to us with this client. There's also to be additional ongoing construction maintenance, repair, and replacement work that we've historically performed for PG& E for decades.

At ARB Industrial, Tim Heeley's group is very busy beginning close out process at the NRG power facility at El Segundo. They are working diligently to find a new home for this project team by pursuing several opportunities available to them in traditional and solar power plant construction. We will be announcing a significant award for solar power work in the next day or two.

Let me remind you that power is not all that Tim's group does. His group performs a wide variety of industrial projects, including compressor stations, all forms of petro-chem and refinery installations, and crude storage and terminal facilities. As I've stated before, I've never lost much sleep worrying about Tim's ability to win work.

Q3 had a typical Upper Midwest winter. Suffice it to say it's not practical to put pipe in the ground when you have to find it through a foot of snow in six-degree-below weather while your customers need their systems available to deliver gas for heating.

Jay Osborne's group suffered through pretty tough weather right up to this conference call. His clients remain committed to their spend this year, however. I don't have much doubt that he will hit his numbers over the next three quarters.

Rockford encountered almost as challenging work conditions in the East. They worked full-bore through the quarter regardless of the weather. Their quarter revenue of $52 million was actually better than their fourth-quarter posting last year, something pretty unusual for the pipeline industry. Our clients needed pipe installed and we did it for them. Needless to say they had an impact on our margins, but the relationship benefits are well worth it. This tough early work has also positioned us well for gearing up on our ATEX project. I want to thank Mickey and Dicky Langston for the incredible effort these guys and their crews put into building tough work in a very, very nasty weather environment. With this good start from the Rockford guys I expect a great year from them.

Randy's engineering segment has begun to pick up. Their quarter revenue of $12 million was in line with our expectations. His group is excited about opportunities in front of them, including their prospect of working more closely with other Primoris subsidiaries. They continue to bid joint with our industrial teams on ammonia and methanol facilities and new construction upgrades, along with other projects along the Gulf Coast. These groups were also working together on opportunities to design, build mini LNG facilities, a market we are aggressively pursuing.

Some of you heard me say that petro-chem and refinery and LNG markets are incredibly dynamic, and I'm excited about all the related groups' opportunities in these markets especially with On Quest's ability to be a catalyst for us.

In the East segment, we had a solid quarter, with revenue growing 56% to $190 million. Backlog at quarter-end was $922 million. A large contributor revenue was Sprint, headed by Robert Grimes. I'm sorry to repeat myself, but first quarter has always been tough for Sprint, and almost always been a loser. This one wasn't a huge change, but I'm proud of our Sprint team's efforts and results in keeping Sprint in the black. This, in spite of trying to close out a couple of large capital jobs to a fairly wet winter. The year of 2013 for this group is shaping up nicely with a $42 million start. I don't have much doubt there will be a substantial contribution to the Company in the balance of the year.

The turn we began to see list quarter for Cardinal Contractors continued in the first quarter, as they delivered solid revenue of over $11 million. Bill has two jobs in progress in our backyard here in Dallas, and he has been working closely with Steve Lewis on a basket of projects to help bring water to areas of West Texas that have been suffering from a long drought. I'm very confident Cardinal will continue its resurgence and be a strong participant this year.

Danny Hester's James Construction group's heavy civil division had a significantly more impacted, and therefore softer quarter than we would have liked. This will change rather quickly as Pat [Kliniky's] guys are rapidly gearing up on our I-35 work in South Texas. Texas Heavy has achieved a solid backlog, now it's a matter of translating it into revenue.

As Louisiana continues to be a softer market, Rodney James' Heavy team has reached into neighboring Mississippi, and was awarded a $93 million contract for work on I-55 outside Jackson. You'll see this project added to Q2 backlog. This is a three year job and it's a good one for us as we look to hold our own in a tough market.

The James Industrial and Maintenance group, run by Jonas Beatty, continues to perform very well. Conrad's Industrial group is emblematic of the boom we're seeing in the energy business. His group revenue tripled over last years first quarter. They also announced over $31 million in new work in Louisiana, and I believe we'll continue to see robust growth in his business brought about by very strong winds at our client's backs.

Given our belief in a booming Gulf Coast industrial market, it should come as no surprise we purchased Force Specialty -- a small, high-end turnaround company, FSSI is based in Houston, and we acquired them in March for a total of $4.2 million, $2.7 of which was cash paid at closing, and the remaining $1.5 will be spread over three earn-out periods. FSSI is focused on high-end services for turnarounds; fast-track, small-capital construction projects; and maintenance. Their clients own refineries, chemical plants, and midstream oil and gas facilities. We are happy to welcome Tobey White and his team to Primoris.

Rounding out the East segment is another industrial name, our recently acquired Saxon Group. Jenny and her team are making great strides and their improving margins reflect it. They moved from 0% gross margin in Q4 of 2012, to 9.3% in Q1 of 2013 on revenue of $8 million. Facilities such as the [Earl Lakey] separation unit we are currently building in Mississippi is typical of Jenny's -- the projects Jenny's people perform. They, too, will share in the refining and petro-chem boom coming our way.

As you can see, generally our Companies did well in spite of first-quarter seasonality. I couldn't be more proud of their hard work. To possibly preempt one of your questions, we're still very active in the acquisition field, but quite honestly, with significant opportunities for organic growth in our markets, we are much more focused on best utilizing our current resources to win and execute contracts for our clients.

Now I'll turn the call over to Pete in hopes he can make some sense of all of this for you. Pete?

Thank you, Brian, and thank you everyone for joining us on today's call. Later today, we plan on filing our Form 10-Q, which should explain in greater detail the numbers and information that I'm about to give you. I want to comment briefly on three main areas -- our balance sheet, our earnings, and our backlog.

First, the balance sheet. We have increased our tangible net worth by around $20 million in the past 12 months, and have done so while completing five acquisitions. One of those, as Brian mentioned, was Force Specialty Services, which we acquired in the first quarter.

In the quarter we've also made significant investment in construction equipment, with spend of around $18 million net of proceeds from sales. At this time we're still targeting a total investment in capital expenditures of around $50 million for 2013. Since our depreciation and amortization for the quarter was $11.3 million, this is one year that we expect equipment purchases will exceed our anticipated D & A expense.

We are making these investments because we believe in the opportunities that we have, and in a similar vein, we announced today that our Board of Directors had increased the quarterly dividend by 16.7%.

We will fund our investments and our working capital needs primarily by continuing to manage our working capital. At the end of the quarter, as Brian noted, we had $141.5 million in cash and cash equivalents, and our total debt was $165.5 million, with an average interest rate of 2.95%. We also had approximately $100 million of availability on our credit line in our shelf senior debt agreement.

Our Accounts Receivable declined by $18.2 million, reflecting the lower revenues compared to fourth quarter of last year, but our collection efforts remain strong. By the end of April, we've collected around 80% of our March 31 non-retention receivables.

At March 31, 2013 the balance sheet included a $26.4 million liability for earn-out payments. In April we paid $10.9 million for the last Rockford earn-out payment, and the first of hopefully two Sprint payments. For the remainder of the year we expect to expense $1.2 million as part of the fair value of calculation for the earn-outs, and then to record an additional $ 1million in the fourth quarter when Sprint, Saxon, and FSSI achieve their earn out levels. Another balance sheet item associated with acquisitions is intangible assets. At the end of the quarter, our intangible asset balance was $51 million, and we expect to recognize amortization expense of $4.6 million for the remaining nine months of the year.

As we look to our Income Statement, our earnings for the quarter were $0.19 per share, compared to last years $0.20 per share. For several years we have cautioned that our business is seasonal, and we proved ourselves half right this quarter. Revenues increased significantly to $410 million compared to last years $292 million, but our first-quarter operating margins declined to 4.3%, from 5.9% a year ago.

Our largest customer for the quarter was in Northern California gas and Electric utility which represented 8.5%, or $34.8 million, of total revenue. In last year's first quarter, the revenues from the same customer were $34.2 million. This year, our second largest customer was a large gas pipeline company for which Rockford worked primarily in the Pennsylvania area. Their revenues of $30.1 million were 7.3% of our total. That $30.1 million exceeded the total revenues for Rockford for the first two quarters of 2012.

In our highway work, Louisiana Department of Transportation revenue was $24.7 million for the quarter, and Tex Dot revenue surpassed that at $27.7 million, reflecting the ramp-up of the I-35 projects in the Belton area. Our trailing 12 month revenues were $1.66 billion. Of this total, underground work for utilities and oil and gas companies accounted for 35%, and 10% was for underground work to midstream customers. Our industrial Markets accounted for 25% of total revenues, divided evenly between power work and other industrial work such as refinery and chemical facilities. Our heavy civil work was 19% and our engineering was 3%. The remaining 8% of revenues included parking structure, water and wastewater facilities, mine maintenance, and the sale of aggregates.

The reduction in our operating margin is primarily attributable to the decline in gross profit as a percentage of revenues, which declined 11.2% in the first quarter of 2013, from 12.9% in the first quarter 2012. Actual gross profit increased by $8.5 million, or 22.6%, for the three months ended March 31, 2013, compared to the same period in 2012. But the acquisitions of Sprint, Saxon, Q3C and FSSI increase in gross profit by $2.8 million or 7%, and the profit increase from organic revenue was $5.7 million.

Our seasonality can be illustrated by the gross profit for Q3C in the West construction services segment, where $15.5 million of revenues produced in almost breakeven gross profit, and in the East construction service segment, where Sprint $42 million of revenues produced $2.9 million of gross profit, or 6.9% gross profit margin, which is much lower than the margin percentage that we experienced in 2012 and will see again later this year. For both companies, the weather limits work opportunities, and results in underutilization of equipment.

To complete highlights from our Income Statement, selling, general and administrative expenses increased in the first quarter of 2013 by $8.3 million, compared to the first quarter of 2012. Most of that increase, or $5.9 million, represents SG&A expenses at the acquired companies. On a sequential basis, SG&A expenses increased by $1.9 million from the fourth quarter of 2012, with $1.4 million of that amount being the increase occurring at the acquired companies.

Lastly, the effective tax rate for net income attributable to Primoris was 38.85% for the quarter, compared to 38.5% in the first quarter of 2012. At this time we expect our effective tax rate for the remainder of the year to be at the current quarter's level.

Now on to backlog. As we told you on the last call, our Sprint and Q3C acquisitions have increased the percentage of our revenues coming from master service agreements, or MSAs. Historically we have not included MSAs in our backlog calculation, as the MSAs did not include a known revenue amount. However, as the purpose of backlog is to give you some visibility into our future revenues, and work from MSAs is now a larger part of those future revenues, it is appropriate to include an estimate of MSA revenue in our backlog calculations. We looked at several of our peers to determine if there were a common approach, and, surprisingly, we found that everyone does things slightly differently. We've decided that we will include an estimate for MSA revenue for the next quarter-- for the next four quarter period -- in our backlog. So under the new calculation backlog at March 31, 2013 was $1.71 billion.

The segment breakdown is as follows -- $1.032 million -- or billion, excuse me, in the East, $661 million in the West, and $16 million in engineering. Over the next four quarters we expect to recognize as revenue approximately 55% of the East revised backlog, approximately 98% of the West revised backlog, and approximately 90% of the engineering backlog. Let me remind you that backlog should not be considered a comprehensive indicator of future revenues, and revenues from time and equipment, time and materials and cost reimbursable plus C contracts are still not included in our estimated backlog amount. Furthermore, MSA revenue amounts are estimates, as there is no contractual obligation for any minimum amount, and, as always, backlog does not guarantee work as customers do have the ability to cancel contracts, both before and after we start.

Two quick transition items. First, our backlog at March 31, 2013 does not include the $93 million highway job in Mississippi. Contrary to what we said on our Press Release in early April, we did not receive a final signed contract until the first week of April. That contract will give us a good start to additions in the second quarter.

Secondly, I know that with our changing our backlog approach, we will be asked to provide comparable historical information, either during the quarter, or in the 10-Q at the end of the quarter, we will provide you a trail so that we can show you the complete impact of the changes.

With that, I'll turn the call back over to the Operator for your questions.

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

Thank you. Our first question comes from the line of Lee Jagoda with CJS Securities. Please proceed with your question.

Hi. Good morning.

Hi, Lee.

Good morning, Lee.

Pete, can you quantify the MSA work you completed in Q1?

Yes, I'm going to give you an approximate number. It's going to be about $75 million, I believe, when we finish.

Okay, and then just switching gears a little bit. Brian, can you update us on the total capacity that you have in terms of spreads related to Rockford, and what's currently being used out in the field? And then as a follow-up, update us on the Flannigan project and the expected timeline for a potential award.

Rockford's got -- between Rockford and ARB, we have about two spreads remaining, one large and one mid-sized, so we can go up through about 30-inch on the mid-size and up through 42-inch on the large. So we're in pretty good shape. Flanagan bids are in a quiet period. There's conversations being had, but that's all I can share with you right now, Lee. I have the award -- I would assume some of it's pretty tight scheduling time frame, and those are tough spreads. Those that piece down through Oklahoma is about as hard a rock as you'll encounter in the United States, so they need to get going pretty soon or the weather is going to be a factor on the back end of the schedule. So I would assume they will be making some decisions and further short-listing relatively soon, but I can't speak to the timing.

Okay, one more question and I'll hop back in the queue. Pete, do you have the revenue related to the life JV in the quarter, and how should we think about the seasonality of that business?

Hang on a second and I will answer your question. I'm not sure that that's a terribly seasonal business -- life revenue, $36 million.

And that's expected to continue for the foreseeable future in 2013? How should we think about that?

There's two seasons in Blythe. There's cold and hot. It rains out there on a millennium basis, so there isn't as much seasonality as you might think, although your productivity goes down a little bit in the cold weather. There's more work out there to be had and we're pursuing it, so I can't tell you what the prospects are right this second as to how much of it we'll win.

Okay, thanks very much.

Thank you. Our next question comes from the line of Tahira Afzal with KeyBanc Capital Markets. Please proceed with your question.

Good morning, gentlemen.

Hi, Tahira.

The first question is you know, you've got a lot of puts and takes as you go through in the first quarter, but that's probably the most upbeat commentary from you that I've heard in your press release. So could you talk directionally about the rest of the year, how you see that ramping up, given you're making all of these capital investments, in terms of the qualitative BFEs on the revenue profile, and perhaps how we should expect margins to recover during the year?

Well this is probably the latest in the day conference call we've had, Tahira, so the caffeine has had a chance to kick in at this point. So I would assume that explains the up-beatness of my comments. But I think revenues are going to grow solidly through the year. Almost --when we bought Q3 and Sprint, that really exacerbate -- and Silva, that really exacerbated our seasonality. You don't put down blacktop in the winter. You can't finish pipeline jobs in the winter when it's raining, and you can't install gas mains and services in the Midwest, like I say, when the ground's frozen, so the overhead goes on and the volume doesn't. I think as by way of example, I think Q3's volume was about 10%, or maybe at most 12% or 13% of what we anticipate for the full year of them, their volume for the first quarter, so I think the volumes are going to increase handily.

The same thing goes for the heavy civil work with Danny. You can have the backlog and you can work some of it off in your pre-casting in areas like that. But you can't do dirt work when it's muddy, you can't lay paving or concrete down when it's muddy, and when it's raining in the mornings you can't get the workers out. So not only that, but we are entering into the killing season for the work, and we're going to have a lot more quick-hit bids and builds than we did in the first quarter. So I look for volumes to go up almost across the board because of weather, and I look for the net -- the margins to increase handily also because of the weather. And as we get into these jobs, as you know, these seasonal jobs that are less than one year in duration, we start looking at the contingencies quicker, and we take the contingencies in at the end of the job. So I'm really, really excited about where we're going this year.

Got it, okay, and as a follow-up, first of all, I'd just like to congratulate Jenny and Saxon team. They've done obviously a very good job in the turnaround in a difficult market. And my second question is, you've got an interesting mix of businesses in terms of fabrication and pipeline capabilities that you can lever towards the petro-chem cycle and we are seeing that becoming more evident. So could you talk a bit about the bidding levels you're seeing right now, Brian, and what you think the scope of this could be if -- work with your current capacity.

Well first off, I'd like to acknowledge that all you women stick together so I'll let Jenny know that you had a Nell moment with her. But bidding is exceptional. It's hard to ferret it out. I get to look at just a summary of every job we bid every Tuesday night, and I'm staying up later and later not because it takes longer to read it, but it takes me awhile to calm down after all of the excitement reading my weekly report. But they range from the very large jobs, some of the feed jobs we're doing at OnQuest, just as a quick hit day-to-day jobs at the utility base. There seems to be a lot of pent-up demand on all the pipeline owners, and they are earning a lot of money now so they are willing to work the pent-up demand off.

The only thing that probably isn't very, very active now is the heavy highway. But keeping in mind that two years ago, three and a half years ago, when we bought James, they did almost nothing in Texas, and today, that's their larger of their two groups. The letting a couple weeks ago in Texas, the TxDOT will let their jobs in bursts. The letting was $0.5 billion, which is more than the entire state budget for Louisiana for LDOT work, just one month's letting, so you know we're getting to see a lot more. A lot of it is areas that were full. A lot of it in areas that we think we have a lot more capacity, so it's a very positive thing. I'd have a hard time kind of typifying it beyond that.

Got it. Thanks a lot and I'll jump back in the queue.

Women of the world unite.

Thank you. Our next question comes from the line of Rich Wesolowski with Sidoti & Company. Please proceed with your question.

Thank you, good morning.

Hi, Rich.

ARB industrial sales look like they were down a little bit, and profit looked like it was up a little bit, and I'm wondering if you booked any favorable adjustments for El Segundo, or either of the two jobs that were recently completed?

We look at every job, every month and we do a cost to complete and our current estimates. I think there was a little bit of a tick up in El Segundo, but we look at it every month, and do a -- we very diligently every quarter, obviously, because that's a pretty significant accounting process, but I think we had ticked it up a little bit.

I think there was more of an adjustment from the two power plants, the other two, than there was from El Segundo.

Okay, would you comment on whether your batch of TxDOT work on I-35 is broadly ahead of schedule, behind, or about on track?

Yes. It's kind of -- we're on schedule. I was down there a couple weeks ago, talking to the guys and reviewing it, and I think we're right on schedule. This stuff is slow to start. We now started the last work through Belton, the last big award. It takes a lot of planning and things like that, but we're right on schedule, which is to be expected by those guys. On this kind of work you really have to manage your schedule carefully because all this stuff ties together, between these sections we've been awarded. And the Belton is going to be, the piece through Belton, the last big piece, is going to be challenging because you've got overhead through the town there and you've got to tie all those streets over, and all of the access and egress from on and off. And it's going to be a challenging piece of work, but we're just now getting that started. But I wouldn't say that we're behind or ahead.

Q3's historicals show 18%-20% gross margin for annual numbers. Does that typically include a breakeven type March quarter?

Yes, getting into the numbers this quarter, we went back and looked at historics, and we've added some accounting burden with the additional amortization of the purchase price, but in general they're right on track. The problem you have is that they have to keep some of their better people, and if there's no work to do then they hang around. And you've got to pay them. You just can't send them to the house. But they were pretty much on track where they were last year, as was Sprint. Higher volume but they actually lost money first quarter of last year.

Lastly on FSSI, a small company -- I'm wondering if you bought it for the labor, or for a service that you could offer with James Industrial?

We bought it for the opportunity. It was a small company, I think, largely because it wasn't well supported by their owners in terms of providing the capital necessary. And you know, when you ramp up from 0 to 500 guys that are working seven days, 12 hours a day, that takes a lot of capital. You've got a lot of checks that have to go out on Friday, and I think they had the ability to get much larger. Tobey is a guy that's been around a long time. He started out at Timec, he worked for JV, worked for a lot of the guys down in that area. And been doing this a long time. He's very talented, and I think he has a great relationship with the clients. So I think it won't be very small for very long. But it was a combination of a lot of things.

We're trying to aggregate a pretty good group down there which -- there's challenges to that because you've got to assimilate everybody. You've got different cultures and stuff, and you don't want to over-assimilate, because you don't want to damage cultures and you don't want to contaminate cultures. Tobey's guys make a huge amount of money, because they are working all the hours they work. Those probably aren't the same guys you're going to use on your larger capital jobs, because you're not going to attract them without paying a lot of hours, which is contrary to what you want to do on a fixed-amount job. But we've got it planned there, and I think we're executing it pretty well, and I'm really happy to have Tobey's guys on board.

Appreciate your time. Best of luck with the rest of the year, thanks.

Thanks Rich.

Thank you.

(Operator Instructions)

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

Good morning guys, great quarter.

Thanks, Adam.

The I-35 work, when does that margin drag start to ease up?

Gosh, I don't know. I'm going to have to go back and get on my laptop and calculate that one. I thought Tahira asked those kinds of questions typically. There's -- what do we have, five jobs that relate to I-35? I have to analyze each job. We start these things slowly, they don't, these things are battleships. They don't have a whole lost of cost at the start, so -- and then they crescendo pretty slowly, and then they run pretty hard for a couple, three years, and then they taper off at the end. So there's no big spike in them like you see in the pipeline jobs, where they jump up in the first 45 days and you're maxing out on your people and your cash. So I really couldn't address that, Adam. I wish I could. I don't know, Pete you got anymore to add to that?

No. I think we're counting, on as the project goes along, getting a lot closer to the margins that they have traditionally, which is a little bit higher than what we're running now. But we've got pretty hefty contingencies on the front end, and unfortunately these are three to four year projects.

Okay, and on the --

Remember the heavy highway is about $250 million, so a minor -- what you call margin drag, which I look at as nice steady income, really doesn't have a huge impact to the overall numbers.

Got it, okay. And then with regards to the solar award, I don't know how much you can say about that, but what's the technology?

I don't want to confuse my poisons here. It would be -- it's thermal.

Well that's good. Seems like we've been waiting a long time for that.

Well actually the stuff we're already doing out there with the joint venture is thermal. We're assembling the mirrors, and we're doing a lot of the work related to the field. But yes, there's that kind of work out there. I read an article the other day that all of the new electrons being generated in California this year are going to come from renewables. Remember the NRG plant we're building -- when we finished that they shut the other one down, so they're adding a little bit of capacity but not much. But it's coming. There's going to be more and more of it, and this intermittency is going to be a real problem, and you have more of this once-through issue out there. So there's going to be work. It's not going to be $300 million, $400 million, $500 million jobs. We don't write those bonds and guarantee the financing and the performance for those things, so we're going to get bits and pieces. But there's plenty of stuff out there.

If I may, speaking of solar, when I look at the number of the Blythe joint venture in the first quarter was 16, not 35.

Okay, and then, I mean lastly, I wanted to ask about, on the pipeline side, obviously Flanagan is out there. That's the biggest one. But Brian, when do you think -- and not just for you guys, but for everybody -- when will we start to see a lot of awards? Because it does seem like there's a lot of ones that are pending. Is it next quarter, two quarters away, are they more 2014 jobs? How do you think that plays out?

We're not seeing a lot yet that dribbles into '14. Flanagan obviously does. We've got some alliance agreements with the guys, the midstream guys up in the Marcellus. We're talking about '14, '15 work with them. We're not seeing a dearth of awards. We need one more big job to really be pretty happy. I don't need to have every equipment spread working, because we'll use bits and pieces of it other places, and we'll even rent it to the guys that do get it. Those side bins are pretty indestructible. So we're really pleased with the awards out there. Now the spread guys, the kind of mid-size jobs, say, between $5 million and $35 million or $40 million, those jobs -- they'll begin to come out about now, and they will run hard through around July, and by that time they start running out of construction season. So that can pick up substantially, but we're starting to see a lot of that.

I've been traveling around a lot, the Bakken to West Texas to the Marcellus, and they are shutting in well after well after well, because they are awash in oil. They can't ship the oil, so I think you're going to see a lot of the midstream guys on the not-huge projects like the Plains All-American and some of the others, they are going to be building a lot of pipeline systems where Sprint and Rockford actually both compete on that stuff. And I think that opportunity from all of the wells I'm seeing shut in, all the disgruntled producers I'm talking to -- I think that opportunity is going to be huge. I can't tell you which owner, which developer, which system, but it's not only empirical, but it's a gut feeling this thing's really going to take off in the next couple years. But if we get one more this year, we're fat and happy. We haven't even started -- we just barely started ATEX two weeks ago.

Okay that's good color, thank you.

Thank you. Our next question comes from the line of John Rogers with D.A. Davidson. Please proceed with your question.

Hi, good morning.

Good morning John.

Hi John.

Couple of follow-up, I guess for Pete. What was depreciation and amortization in the quarter?

$11.3 million.

$11.3 million? And how much was depreciation, how much was amortization, so I can match it up to the $4.6 million you said for the rest of the year.

Oh, goodness. You're going to make me think. Hang on. Depreciation $9.5 million, amortization $1.8 million.

Right. And then, Brian, in terms of the PG& E work, the $300 million in MSA there, I noticed one of the other pipeline contractors announced a similar contract. Is that -- have you been sharing that work previously, or is that something different?

Well PG&E changes their delivery method every couple of years. I think it's to demonstrate prudency it to the CPUC, but a couple years ago, a lot of it was done under alliance program where we got a portion of it. It was split among four contractors, and then last year, the last two years, they decided to bid each discrete piece of work as a bid item. And that was among maybe a dozen contractors, only three or four that were really effective. And then they went back to an alliance system, particularly in regards to PSIP, and they awarded, I believe, four contractors. But you still have a lot of that other work out there for -- the PSIP work is only a small portion -- I won't say it's a small portion, it's a significant fraction of the work available. So it changes every year, but in general we've been doing our share as long as I can remember.

I was under the impression that you were doing more than your share, in a lot of ways, and I guess I'm just -- is that still possible that you can do more than what they -- the $300 million that they've talked about over three years.

Well my perspective on our fair share has always been a bit piggish, John, so you can call it what you want, but I think we'll continue to do our fair share, which since we've been there taking care of PG&E for 40 years, and through the good and bad, and the tough seasons, and the years where there was absolutely no work to do, and through a couple years of bankruptcy, which they owed us money we struggled through, and we continue to work for them -- I would think our fair share is larger than the guy that rolls up in a pick-up from Topeka. So, or more -- more well said, from Houston.

So, the other thing is, is when you look at the various regions that the work is awarded to, I think we got the better region, in the fact that we got the Bay Area, which by far and away is their largest component of facility, and the most aged component of their facility, and I don't have to have a bunch of windshield time for my crews driving 150 miles from one little service to the next, because I've got Northern California, which is all the way from Novato up to Yreka. And that gives you a base to compete better on the other work, because you've got work force, you've got yards, you've got equipment there, you've got relationships with agencies that makes you more competitive on the other work that comes around.

Okay and then following up on your comments relative to the turnaround work, and the refineries and chemical plants along the Gulf Coast, when should we start to see a lot of that work coming out to bid? Is it now, is it later this year?

Well, we're dealing with probably some of the most sophisticated construction consumers in the world when you do work down in Houston, and these guys get it that they all can't turn their plants around the same week, because there just isn't enough workforce. So basically you have the refinery guys that drive the boat, because they have certain calendar mandates that -- where they aren't making as much gasoline in the winter as they do in the summer. So they try and focus their outage work and their turnaround work on the winter.

And then you get into the chemical guys, and the petro-chem guys, later in the year. So some of it goes year-round, and then you have the work -- that's when they take the plant down. Then you do some work prior to the outage, to make sure they are ready for the outage, because they want to do everything they can ahead of time. So basically you're making spools up, you're helping them do the preliminary work, the pre-outage work, or the pre-turnaround work, with your people. So it's lumpy. That's why you can't have a steady diet of one business line. I think that's one reason why -- one reason these guys were for sale, because it's tough living through those cycles. But the heat of the turnaround business is in the winter, and then the chemical guys go into the later months.

Okay so it sounds like this is more something where we should see backlog building through this year, and then work fourth quarter into 2014, or do you expect a big surge this year?

Well, a lot of Tobey's work is cost-plus, and you don't know how much work it is until you enter into it some time. Some of it you know in advance of about how many man hours they are going to spend, and part of winning the work is helping the client estimate just how much work is there, and how they are going to attack it. So a lot of his work will not -- you will not see a lot of that in backlog. And a lot of it, you'll see minutely in backlog, and it'll burn off fairly quickly, so I wouldn't look for a big boom in backlog in that area.

But revenue, hopefully, later?

I think Tobey's a good guy. His plan shows us south of $100 million, but not much in three years, and I think we can get there.

I appreciate the color. Thank you.

One more thing, John. You were talking about, this might not be as much as we have in prior years for PG&E. Last year we bid everything. I mean, yes, we got a little bit of cost-plus work that they couldn't engineer in time for that client. Last year the PSIP work, which we got with this MSA, was between $80 million and $90 million for us, out of a total of $225 million.

Okay, thank you.

Does that help you?

Yes, that does. Thank you.

Thank you. Our next question comes from the line of Dan Mannes with Avondale partners. Please proceed with your question.

Thanks, and good afternoon.

Hi, Mannes.

I've heard it pronounced far worse. So, real quick follow-up on the downstream. I certainly heard your enthusiasm, Brian. I guess I got a two part question, apologize in advance for that, but one -- how much of that is driven by enthusiasm over the refinery upgrade cycle, versus petro-chem? And then secondly, given the number of entities that you have that are pursuing this work, how do you look at it holistically, and how do you -- what can you do in order to consolidate some of those resources so you can go after some bigger opportunities going forward?

The excitement is across-the-board. When you look at, for example, the plan I mentioned, of Saxons, that they are building for Erlich Head, that relates to -- it's an air separation unit. You use those in refineries, you use them in chemical processing, you use them everywhere, and we've got good relationships with the Erlich Heads and the Lindys and the Air Products of the world, which -- it's very specialized construction. So I wouldn't say I'm excited about anything less than others. That's one thing that's kept the interest in the business over the last 40 years, is it's recreational for me, because there's all these various moving parts that I like to try and understand. Of course the bad news is there's always something half-way broken, so I never get any sleep at night. But I'm excited pretty much across-the-board.

It's hard to get excited about some of the things that we do that are mundane, like going out and changing a valve out for a client on a pipeline system, but that same guy is a guy that will hire you to go build a new capital project for you, and that's pretty exciting for me. I like building stuff, and making a change, making a difference in the world, so I'm excited across-the-board. Obviously in some areas more than the others. Each one of these areas has a different degree of risk. The pipeline work -- you spend a lot of money in a hurry, and you can be out a lot of money to clients that sometimes their stuff's engineered better, sometimes it's engineered worse. And when you're out that kind of money you've got a lot of risk. When you're spending $100 million in four or five months, you've got a lot of risk, whereas -- and they're not, not that they are not safety-sensitive, but they are not as safety-sensitive as say, the refinery guys, where if one of your guys turns the wrong valve the refinery blows up. And so you've got different types of risks in each kind of work, which causes me pause when I start getting excited about things. But the pipeline business is booming. I like it because that's where I grew up. That's a business I've been in for 40 years.

The refinery business, the petro-chem business, is exciting for all of these guys, and for guys that have struggled for the last three or four years, to have them be excited when they drive in the office, and -- into the office, and come through the door in the morning, is pretty rewarding, particularly if you've been next to these guys as closely as I have over the years. We're doing more and more. We're going to restructure the Company in the next two to three months to better take advantage and better assimilate all these skills together to go after those markets, particularly in the Gulf area, and we're going to -- we're working on that. I think we'll have an announcement in the next 45 -- 30 to 45 days on what we're going to do, and whose going to lead it, and those kinds of things, but I've done this before. We've built this thing from a very small entity to what it is today. It's just another part of the excitement for me to be able to take and remeld this Company into something that's more effective.

One quick follow-up. You noted in the first quarter -- I guess a little bit on James and also on certainly Q3 that both seasonality and weather was a bit of an issue. Much of it was expected. You know, not to be too cute here but can you talk a little bit about the second quarter where probably some of your guys are still buried under snow in early May. Is that an issue in terms of the start up, or do you expect the work loads to maintain, and maybe ramp a little bit faster once they get started?

Yes, I'd like to start with a footnote first, if I could, and I'll get to your question, but weather is one thing that we think we're pretty good at managing. And when we bid a lump-sum job, a big pipeline job, if you take a reaming on a bad job, and you bid it and you've got a fixed price and you've got a fixed schedule when you're going to build that, that's something you can try and obviate. I mean, that's something you should know when you bid something. Seasonality is entirely different. We knew when we bought Q3, we knew when we bought Sprint, we knew when we bought Silva, that -- we knew when we set up offices with Q3 in Missouri and Kansas, we knew first quarter was going to be in the crapper. We knew it was going to be bad, so we bought that and that's why I cautioned you guys last call about what the earnings would be like first quarter. I'm really pleased as to where we are, because I've got to tell you guys, it looked worse than this, there for a little while.

Now Q3 hasn't hit a lick out of Little Canada. They named it that for a reason, and it's just freaking cold up there. And the weather just, we got 70-degree weather two weeks ago, and then it snowed again. So, yes, we're taking a bit of a ripping there but I've got to tell you, Jay's going to do his projected income, which is well above what they did last year. He's going to do that hell or high water, because these clients are going to hit their spend. And they're going to spend that money. The challenge isn't going to be the work, and getting that work. The challenge is going to be making sure we don't hurt anybody, and making sure we do it effectively, because a lot of Jay's work is unit price. And if anybody can do it, it's him. He's used to that butt-ugly cycle that they get up there where they get eight months of work out of the year. And like I say, if anybody can do it, Osborne can. He's my guy.

Sounds great, thanks.

Thank you. Our next question is a follow-up from the line of Tahira Afzal with KeyBanc Capital Markets. Please proceed with your question.

Just a quick follow-up. You know, we've seen a very large pair of yours, in the same area of yours, recently win a large construction project down in Texas. Are you seeing any of the bigger guys trying to come and take market share? And then you guys opened up the Pandora's box by mentioning the clean pipeline. They announced earnings re the CapEx this morning, part of the CapEx has to do with gasses, is gasses the type of project to be bidding on, and thanks?

That was a lot garbled, Tahira. Let me take a shot. There's always danger of people trying to enter into your market. You know, all politics is local though, and a lot of that work is divied up and bid to guys that they depend on. Some of these midstream guys only have three or four bidders. That's a club you want to be part of, but you're angry that it's there if you aren't in the club, so you know, I think we're going to continue to see that. I think you'll continue to see guys buying market share. There's plenty to go around right now, and you know our rule is that if they want to buy market share let them have one, and they won't be back, because they are going to pay a price for it. Most of these markets we've been in -- the Sprint guys, the ARB guys, the James guys, have been in these markets for 60 or 70 years. We've got the people, we've got the relationships, we've got the institutional relationships, we've got the support of all these people, we've got the local politics, we've got the equipment -- come at us, guys if you want a part of our business, come our way. You won't like what your results are, because I guarantee you we paid a price to get here. Anybody that wants a share of our business is going to pay a price to get it, so that doesn't worry me too much at all.

I'm not sure what your comment about Sprint was, but part of their issue was is they were under-capitalized, and they were under-equipped, and that was part of the loss they suffered -- well not a loss, but the degrading profit in the first quarter, is we're out there through the winter, and we didn't own our own side bins and our own bulldozers and our own loaders, and we were paying rent on this stuff, and we couldn't work it because it was monthly. So we decided we would buy more of this stuff to put them in a more competitive posture to make sure we didn't repeat this next winter. We also made a huge investment in Q3. Jay has wanted to reach out into these other locales, and we did. We reached out in a small way in the last couple of quarters, and he did very well on the work there, based on what he could figure out in terms of resources, and clients, and how to manage it. And because of that we were pretty bullish with Q3, so we invested quite a bit in new equipment for him. In fact, that was probably the largest component of our investment, other than the pipeline equipment.

Got it. Thank you very much.

You bet, Tahira.

Thank you. Our next question is a follow-up from the line of Rich Wesolowski with Sidoti & Company. Please proceed with your questions.

I appreciate it, thanks. On the Investor Day, we heard about another potential PG&E alliance regarding replacement of their adelaide pipeline network, and I'm wondering how large that opportunity is, and how likely it is that Prim will get a piece of it.

Last question -- I guess, Kate is giving me the -- oh, you're not. It's still in the process, and I really don't want to comment because too much on it because it is. I'm assuming that the cost to replace an adelaide A or an adelaide B service is about what a copper service was, so I'd assume it's about twice what the copper service opportunity was. How big that is, Rich, we don't know how many alliance partners they're going to pick, we don't know what areas they're going to be in. The copper services were pretty focused right in the Bay Area. I don't know where the A and B is, so I really can't address it. It's a big opportunity. It's tough work, though, because that stuff can be five miles apart, or right next door. And so when you've got a lot of windshield time getting from one service to another, it's pretty tough to gauge it and figure out what the costs are. But you know, we had a great run with copper services, they admit it was one of the better pieces of businesses they've done over the last five years in aligning with us to do that. But whether we get any of it, I wouldn't even handicap it right now.

Okay. And then, secondly -- if I take the difference between the $1.7 billion adjusted backlog and the $1.2 billion reported, it implies just shy of $500 million in forward 12 month MSA. Last quarter the guidance was $350 million to $400 million, so I'm guessing the difference is PG&E, and whatever awards you receive since then that were not included in that forward guidance; is that correct?

Well, be careful, because when we announced the MSA for PG&E on the PSIP, that was a three-year program, and for purposes of what we're trying to give you transparency on for the backlog, we're only using one year projected revenues for MSA work. So you need to make sure you ask us for definition on that when we give you those. That would miss the mark.

And the other half of it is, yes, as we went through our system, we found we had more MSA work, and James Industrial did some MSA work, and a couple other places, so it's a little bit higher than where we thought we were three months ago.

Perfect, thanks again.

One other thing -- I think it's important on this MSA topic to understand -- you know, we are going to bill $50 million, $60 million to West Lake Chemical. We don't have an MSA with them. That was cost-plus work. MSA is a license, is a hunting license. And they can call us to give us work or not, okay? So we have to use historicals. We have to use conversations with them on their budgets and everything else. We'll do a lot of work that will be cost-plus that won't be in the MSA category because it's a discrete piece of business, okay?

Understood, thanks again.

Thanks, pal. With that, I'd like to thank you all for your continued interest in Primoris. I would really like to especially thank the Primoris family for their back-breaking efforts throughout a long, wet winter of hard work. It's a true honor to work with you all. Goodbye.

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