Primoris Services Corp (PRIM) 2014 Q1 法說會逐字稿

Greetings, and welcome to the Primoris Services Corporation report of its first quarter financial results. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Kate Tholking, Director of Investor Relations. Thank you, Ms. Tholking. You may begin.

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

Before we 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, believed, 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 in this morning's press release; those detailed in the risk factor section and other portions in our annual report on Form 10-K for the period ending December 31, 2013; our quarterly report for the Form 10-Q, which was filed this morning; and other filings with the Securities and Exchange Commission.

Primoris does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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

Good morning, everyone, and thanks for joining us. While we undeniably were impacted by the same difficult weather conditions as nearly everyone else, it is a great tribute to our men and women in the field that we were able to enjoy the kind of quarter we -- or better said, they -- produced.

We had a sizable exposure to the weather this winter and really had a very difficult January and early February, but when the weather finally allowed, our people went out and performed brilliantly to make up for this unusually tough start. I cannot begin to express how proud I am of them.

Now, on to specifics. We grew our first-quarter revenue by 15%, to $470 million, over last year's first quarter. This is effectively all organic growth, as our only acquisition in 2013, FSS, was so small, it really was more of a start-up than a true acquisition and contributed very little to top or bottom lines.

It's worth noting that our 12-month trailing revenue is now just over $2 billion, a new milestone for Primoris. It was only three years ago that we passed the $1 billion revenue mark.

It shouldn't come as a surprise that we saw some gross margin decline in the quarter due to challenges presented by unusually tough weather and some permitting and engineering issues experienced by our clients, but I'm quite pleased that our overall operating margins remained steady when compared to last year's first quarter.

Our balance sheet remains solid with $167 million in cash and equivalents. With our cash on hand and available credit facilities, we have nearly $300 million of available liquidity. This should provide us ample flexibility to not only support us in the upcoming boom in the Gulf region, but also facilitate growth through either acquisitions or continued investment in our own Company's assets. As I have previously stated, we do not need to make acquisitions this year in order to show solid growth, but we do have a naturally inquisitive nature and are always out looking.

Our backlog at quarter end was $1.8 billion, marginally down from 2013's year-end $1.9 billion. Given the lumpy nature of new awards, I'm not too concerned with this slight decline. As I've stated before, we are anticipating a larger portion of work we perform with Primoris Energy Services, Rockford and ARB will be delivered under a cost-reimbursable method. A significant amount of the revenue ultimately recognized under this method never passes through backlog. This change, along with a very tough Q-to-Q comparison, should be considered in your thought process.

We continue to anticipate a strong year based on our current backlog, reimbursable contracts currently being negotiated, MSA work and new wins, as we are just now entering into our real hunting season. By way of example, we performed $77 million of work under MSAs in our first quarter, historically a very slow quarter for this kind of work.

Looking at our segments, let's start with the East. This group saw the largest impact from the weather. Heavy Civil in Belton, Texas, suffered 24 days with below-freezing temperatures in January and February, when the average days below freezing in that region is virtually zero.

When it's that cold, there's a lot of work, such as concrete placement, that is much more expensive to do or simply can't be done at all. Danny Hester and the JCG Heavy Civil group performed hard -- worked hard to mitigate the impact of the cold weather and are finally enjoying the kind of weather that allows contractors like us to make money.

The JCG I&M division continues to perform well under the leadership of Jonas Beatty. As work in the Gulf picks up, their prospect list continues to expand. The division has consistently delivered strong results, and I expect another solid year from them. As has been the case across the Gulf, the anticipated massive slug of work headed our way is slowly moving its way through the engineering and permitting process. We hope to see a tremendous upswing in Jonas' work when it is finally released.

Weather slowed down Cardinal Contractors a bit, although they managed to almost keep even with last year's results. Their prospects continue to improve in both Florida and Texas markets. I'd like to congratulate [Don Malaney], who is now leading the Florida group for Cardinal. Don is a long-time Cardinal team member, and we're excited to have him lead the team in Florida.

The James Industrial division, a part of Jim Henry's Primoris Energy Services umbrella, suffered from much of the same cold weather that affected the Heavy Civil division. We are seeing a very, very significant amount of opportunity in these markets, and I don't doubt Conrad will be successful in capturing more than his share of work available.

We are currently in advanced discussions with clients on several large projects, but because of their size and complexities, these projects are coming to fruition a little slower than we would like.

The PES Saxon division, led by Jim Short, grew revenues while executing on cost-reimbursable jobs. While their margins were flat compared to last year's first quarter, we feel much more comfortable with the risk profile and believe we will see solid contribution from them this year.

Sprint, also a division of PES, had a good quarter in spite of several headwinds. While Robert Grimes' group provides both maintenance and capital services, their growth this quarter was largely from capital projects, specifically one project, a pipeline project in Texas. In addition to the weather in the region, permitting and engineering delays slowed the project and further impacted margins.

Even with all these impacts, our team still managed to improve over last year's results. There remains a significant amount of work to complete on the project and negotiate appropriate compensation for these difficulties with the client. Overall, we are very confident we can rely on Robert's group to contribute greatly to our results this year.

The engineering group had another good quarter. Randy Kessler's team is wrapping up the engineering portion of LNG project in South Texas, and we should be breaking ground on construction this month. The project is progressing well. We are in the hunt for several more opportunities with this client and others.

In addition, OnQuest has completed phase one feed studies for several new projects and is under consideration to provide complete EPC services to these clients. We remain very confident about our prospects in this market. In addition to LNG, OnQuest continues to perform work in their traditional [fire heater], BMS and reformer markets throughout the world.

The West segment was a bit of a mixed bag this quarter. Tim Healy's ARB Industrial division had strong revenue growth thanks to several large solar projects. While future large gas-fired power projects are still in various stages of the proposal process, we were named apparent low bidder on a smaller combined cycle plant for the City of Pasadena. Our contract value for this plant is around $55 million.

We are currently moving through the city's contract process and hope to be able to announce an executed document in the next several weeks. This is a solid win for Tim, and this power job along with continuing solar and oil-and-gas work should provide us with a solid base for good contribution by this group in 2014. His pre-construction team, headed by Wayne Truchan, remains exhaustingly busy on numerous opportunities for the balance of this year through 2018.

The ARB Underground division had a slow first quarter, as a replacement program for one of their Northern California utility customers continued to be delayed. While we have been selected as one of the alliance partners for this program, the start date continues to slide. We do continue to anticipate that this new program -- we continue to anticipate this new replacement program while on the meantime perform work for the client on his integrity and capital work.

Scott's ARB group was just recently been awarded additional work in Southern California for a large utility company, which is beginning to get underway on the next phase of their PSEP program.

ARB Underground is off to their normal slow start this year. That being said, I don't have much doubt that they will perform well, as in the past, in turning in robust second, third and fourth quarters.

Josh and Frank at Rockford heard one of the analysts impugn their margins last year and went out this quarter and did everything they could to redeem themselves, closing the quarter with a 20% gross margin. They wrapped up several projects, Seaway in Texas, as well as smaller jobs in West Virginia, and even with the winter challenges, closed them strongly. Thanks to Mickey and Dixie Langston for their job well done.

I continue to mention as larger projects reach completion, we release contingencies and recognize change orders as they are approved. As we do so, we should see margin improvement.

Looking to the rest of the year, Rockford is proposing on a significant number of sizable projects for clients with which we have longstanding relationships. We feel it's shaping up to be another solid year for them.

I'll wrap up with Q3C. While the work in Minnesota, Wisconsin and Iowa was suspended, as usual, for the quarter, the Denver office continued to build upon relationships with our clients there. Jason Osborn and his Colorado team delivered outstanding results in a quarter where they historically have been lucky to break even. Building great client relationships is very much a part of who we are, and the Q3C group continues to be greatly in tune with our culture. Jason continues to do a great job.

I point this out because I'm sure Mike Russell is listening. Mike is Q3C's manager in the East. Mike, Jason has started the year with a big lead. You better get after it, pal.

The first quarter is, for almost everyone in our business, a tough -- is a bit of a roll of the dice. This first quarter seemed a bit more challenging than usual, but as in years past, our team proved themselves up to the tasks. While all these divisions and subsidiaries are combined, Primoris produced strong results. The Primoris team and I remain very excited about opportunities for the rest of the year, and we continue to exploit the diversity of the Company's markets with an engineering construction team second to none.

Before I turn the call over to Pete for a more detailed presentation of our financial results, I want to add that I am pleased with the arrival of David King as our Chief Operating Officer. I expect that David's experience and leadership will prove a huge value to Primoris and its stakeholders in the future. Pete?

Thank you, Brian. From a financial viewpoint, this was a relatively straightforward quarter. As Kate said earlier, we filed our Form 10-Q this morning, so it'll be a very short time before we find out who's first in the question queue.

In first quarter 2014, we earned $0.21 per share on revenue of $470 million, compared to $0.19 per share and revenue of $410 million in the first quarter a year ago. The increase in revenue was spread across our subsidiaries and operating divisions, with the largest increases coming from ARB Industrial, Q3 Contracting and the James Construction Group Heavy Civil division.

For the quarter, we derived 12.7% of our revenues from a large solar project in the West, and our second-largest customer was Texas DOT with 9.3% of total revenue. Gross margin as a percentage of revenue declined to 10.6% in the quarter, compared to 11.2% in the previous year's first quarter.

We know that normal winter weather creates operating challenges in the first quarter, but this quarter's weather was more extreme than usual. Fortunately, we did well enough overall that I do not need to explain the word polar vortex, but I do want to echo Brian's earlier comments -- our operations people did a great job in March.

As a percentage of revenue, our SG&A expenses declined from 6.9% in the first quarter of 2013 to 6.3% in the first quarter of this year. At the operating income level, we achieved the same margin of 4.3% of revenue in the first quarter of both 2013 and 2014.

Our effective tax rate for net income attributable to Primoris increased to 39.6% for the quarter, compared to 38.8% in the first quarter of 2013. The increase is primarily from the variability in state tax rates. At this time, we expect that the rate for the remainder of 2014 will be at the 39.6% level.

Moving to our balance sheet, we continue to grow our tangible net worth, now at $247 million. And during the quarter, we spent $15 million on capEX, which is right at the total of depreciation amortization plus proceeds from equivalent sales for the quarter. For the full year, we expect net capEX at a level of $55 million to $65 million.

Our total debt was $213 million at the end of the quarter. Of that amount, $75 million is long-term debt with a weighted average interest of 3.72%, $133 million was notes secured specifically by equipment with a weighted average interest rate of 2.26%, and $5 million was capitalized leases. Total debt-to-equity was 52%.

We currently have one earn-out liability remaining on our balance sheet for Q3 Contracting. The balance was $4.3 million at the end of the quarter. If Q3 Contracting attains its targets for 2014, we'll pay $5 million in the first quarter of 2015, so we would have to expense an additional $700,000 this year.

Total backlog on March 31, 2014, was $1.85 billion, consisting of $1.35 billion of fixed backlog and $496 million of estimated MSA backlog for the next four quarters. The total segment backlog is $1.3 billion in the East, $543 million in the West and $54 million in engineering.

For the past few quarters, we've been hinting that we were considering resegmenting our financial results. In this quarter, we can do more than hint. We do expect to resegment -- next quarter.

As most of you are aware, GAAP requires that we segment our results in a way that our operating executives look at and manage the business. Since our new COO did not start until the very end of the first quarter, it made sense for him to at least have a cup of coffee with his Operations Management Team before making decisions on reporting segments.

Well, hopefully Brian's had a chance to take a breath, because it's now time for your questions.

Thank you. (Operator Instructions). Our first question comes from the line of Tahira Afzal with KeyBanc. Please proceed with your question.

So I guess my first question is you had some sort of headwinds in the sense that the weather slow started some projects. It seems you also had some reactive bookings that have happened, maybe perhaps out of the first quarter some contingency releases that could happen, some projects that were a little slow to start off last year and seem to have started off now.

So just stepping back and summing everything up, Brian, can you give us a sort of high-level idea of how we should be modeling out this year from a revenue and margin perspective given you do have some large completions that happened last year?

Well, great question, Tahira. I wish I -- I guess I do have plenty of time, because Pete only had a page and a half of the mundane stuff to talk about. I think the year is shaping up pretty well. John Rogers asked at the last quarter earnings call about delays in projects. I think that's our biggest concern. The stuff in the Southeast continues to drag a little bit, although we did get some pretty good news on one of the larger projects just last night, that they're back on track for a quick start.

The good news is for us in the Southeast, most of what we do is Heavy Civil, and a lot of that's dirt, and that's kind of the first thing they have to do to get these projects out of the ground, because most of the places these projects are built are pretty unstable sites until we stabilize them.

I think the pipeline group has got -- they've got to go out and win some work, but they have to do that every year. It's not like we usually start this time of year with $400 million or $500 million of backlog.

I think the utilities in the West, the one in the north continues to struggle because they're constantly in reorganization. They're good guys, but they struggle getting the work turned out. That's why Scott had kind of a weaker first quarter. But we did just recently pick up part of the -- a bigger part of the piece of that program for Southern California, and that's sizable revenue. So I think Scott is going to hit his normal -- forgive me, but assholes and elbows kind of year-end.

I think in general, I'm really optimistic on where we are. I think it's just a matter of if the clients can get the work through engineering and permitting fast enough across the board to get us where we want to go. The biggest challenge I think we're going to have is keeping our better people, because when times get good like this, a lot of your competitors look to hire from places like us because we do have such great people.

And then the shortage of craft people I think is going to be very acute by year-end, but I -- it's going to be a great year, I don't have much doubt.

I know a lot of you have Tim pegged for a soft year this year, but he had a great first quarter and he's stacking up pretty well, and he's going to have bigger jobs that finish out through the year with contingency releases and stuff like that from now on, so I'm really happy with where he is. And that was one of our concerns last year, so I'm really pleased.

Brian, just a quick follow up. It seems, even from the 10-Q -- as I've gone through, there seems to be some industrial work that has started to ramp up, and it seems you talked a little more about the volume of projects out there on the industrial side from what I can tell, so can you -- I don't know if you can name the projects, but can you talk about those LNG opportunities that you see in front of yourselves, how many there are in a number specifically, if possible? And same goes for the petro-chem type of work.

Well, there's a -- I've been touting the micro, mini LNG opportunities for years, and you guys -- not you, Tahira, but some of your compatriots kind of poo-pooed it, so now that it's upon us, I'm not going to tout it anymore. I'm going to let our competitors figure out where we're going to get to work on their own.

But there is a tremendous opportunity in the shipping business, any of the heavy industrial users, the heavy transportation industrial users between the boats and the trains and then the fracking business and everything else, and its' going to be all we can say grace over to be able to get it executed over the next three or four years.

I think our biggest challenge there again is going to be just manning up and staying ahead of the process, because it's finally upon us and we've got guys that were, two years ago, kicking tires on projects and are now pulling the trigger -- I mixed my metaphor there. So I think there's a lot of opportunity there. It's kind of we're one of the few guys in the business; it's kind of ours to lose. But I think Randy's done a great job of picking the right clients and picking the right kinds of projects where our skill sets and our supply stream are well matched for the market.

In the general industrial side, again, we do the front end of these projects, unlike some of the guys who focus more on piping or equipment, and so we're going to probably see some of it before they do. And this stuff is running through engineering so fast, and the engineering is going to be a real problem because they're out of capacity.

And we're seeing already the quality of engineering degrade -- not that these aren't good engineers trying to do a good job. It's just overwhelming the amount of work they have to do. And because of that, we're going to see a lot more reimbursable type contracts, because we can't begin to put prices on the work that's out ahead of us.

And the same thing applies to the pipeline side. We're looking at work in Canada and other places that -- one job, they're talking about 30 spreads, and that -- as you know, that's a lot of capacity. And Canada particularly is in a labor shortage with all the work going on already in the tar sands, and the unions have gone back and forth and tried to -- between the US and the Canadian brotherhood, they've tried to alleviate some of that problem with transfer rules and stuff like that, but it's going to be extremely acute, the labor shortage, across the board.

So I don't know what else to tell you. It's just a matter of when it's going to be upon us. It could be the third quarter, it could be closer to the end of the year, but it's going to be absolutely astonishing, the amount of work that needs to be done.

Thanks a lot, Brian.

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

If I look at Rockford in 2013 versus 2012, it had a pretty large revenue increase, but minimal gross profit improvement, and now, in Q1, revenue was slightly down, but gross profit was up $2.2 million. If I look at the year-over-year comparisons for the balance of the year at Rockford, how should we think about revenue and profitability improvement?

My mandate to Frank was make as much as you can. I'm just kidding you, Lee. I told you guys -- and you guys, please don't go back and replay my calls, because they're difficult for me to talk on anyway, but any time you see a ramp up like this, the first year is tough. The first shoot out of the gate is tough, because you've got crappy clients, you've got stupid competitors that are buying cheap work. It takes them a while to get it into their head that they can get a little bit more for their services. Labor realizes it's coming, so they start growling about more money and being more difficult to work with.

So traditionally, the first year is a tough year in a boom, and I think we're back into almost that mode right now, so it's no surprise to me that the margins have increased.

In any regard, I think the first quarter might be a bit of an aberration because of the closeouts, but we're going to have closeouts every quarter and Frank will continue to do well with his work. So I think last year, the margins were kind of too low -- lower than they should have been. This year, they're going to be kind of where they should be, and next year they should be exemplary.

Okay. And then just switching gears a little bit to the East, where are we in the ramp process for the Heavy Civil work in Texas? And when do you think we'll hit that run rate of a normal margin percentage on that work?

You guys like to lump everything together and put a big number on it. We manage each project individually, and some of them -- the little ones and the big ones, and we look at each one and they roll up to an average number. I think some of the projects we're still in the 15%, 20% completion area; some of them, we're getting towards 50%.

A lot of what we struggle with on the Heavy Civil side in the East is delays, and they're typically owner-caused delays because most of these owners, TxDOT and L-DOT, they don't do a lot of advanced work on these projects until the project's awarded and the money's budgeted and they're sure it's within budget. Then they award it, and then they go out and they tell the utilities to move their lines and to get out of our way, and they do some of the heavy lifting that a lot of the private clients will do in advance of that.

So we always end up with these delays, and one of the challenges is how do you deal with that in your numbers, because your overhead goes on. You have the prospect of having to fight them over liquidated damages. Even though it's not your fault, they still want to negotiate it as if it was. So as these projects stretch, they get into the 50%, 60% area, we can start taking more contingency -- or releasing more contingencies and things like that.

I think we're at a low spot in terms of what we'll recognize. I think our current amount of unrecognized backlog is close to $1 billion just in Heavy Civil, and that traditionally is a little lower margin because of the nature of the market than other areas. But I would look for margins to increase across the board in the East.

Don't forget, we had a couple of pretty good drags in the energy services -- the new energy services segment last year with Saxon and FSS, who gave us losses last year, so if we can just get them into the black or break even, we're going to see pretty good margin expansion.

Great. Thank you very much.

Our next question is from the line of Adam Thalhimer with BB&T. Please go ahead with your question.

Hey, can I press you a little bit more on the East Margins, Brian? I mean, does improvement mean double digits?

We're seeing a huge expansion in the private side of the East market. Whether that will outweigh the lower margins in Heavy Civil in the East, I'm not sure. I don't really segment it that way. You guys like to slice and dice this. I'm a lower-right-hand number guy. I care about earnings per share, and everything else is kind of how you get there. I don't think you'll ever see double digits across the board in that area.

And it's also more, a little bit, obfuscated for me, because we're going to resegment. I don't think I can give you a good answer there, Adam. I think we'll see some -- between the East jobs kind of maturing, particularly in the Texas market, and the heavier amount of work in the private side with the petro-chem and the refinery stuff coming on, I think you'll see very significant margin expansion, but I can't typify it into double digits.

Okay. The Pasadena power project, can you expand a little bit on that in terms --

Yes, three times in the past.

When does that start, and what else are seeing to bid in power?

That starts almost immediately. They have to go through kind of a process, and most cities do this. That's why we haven't announced it. We are apparent low bidder, and they've started the contract process.

Typically, they go through and they make sure you've met your DBE requirements and you're responsive, and then they have to finalize their little power purchase agreement or their CEC filing, so -- but I'd look for it to start right away. It's got a small component of design build, but that's kind of design-on-the-fly kind of stuff. They own the engines. They're going to hit the ground running.

A lot of the power work we're seeing is smaller stuff that kind of goes immediately, but as we've talked, the massive stuff -- it starts into 2015. We're still hard at work at that stuff, and those are anywhere from $190 million-up kind of projects. They're -- Wayne's just being worn out on that stuff between a couple of key developers in the West.

And then we're looking at quite a bit of solar stuff here and there, and solar -- Tim's making a steady diet of that right now. It's a little more difficult market because of the types of clients you have there; some of them are cash poor and difficult guys to work with. But Tim's got a steady diet of it going right now, so we're bidding some more of that.

And then we're bidding some less than conventional type things, so it's a mixed bag, but I think Tim's -- like I've said all along, he's going to find enough work to keep his guys busy and contribute well until the bigger stuff kicks in in late 2014, early 2015.

Okay. And then, I mean, Brian, just lastly, I was kind of hoping you can expand on your comments in terms of this being the first year of a kind of big cycle. Help us understand, as you get into the second year, 2015 -- what should we be seeing? Is it multiple or big industrial jobs where you're doing the Heavy Civil work for a big ramp on the pipe side? What does year two of your big cycle look like?

Well, the -- year two will be much like the fourth quarter, I think, even a bit more exacerbated. I think as we stretch (inaudible), you're going to see major labor shortages. It's going to be all kinds of problems for us, but I don't think it'll flow through to the bottom line. It's high-quality problems; I'd much rather try and keep our people when times are busy than when times are slow.

But I couldn't begin to tell you what the second year is going to look like. We hired Jim and Henry down in the Southeast, because traditionally the guys we had were very good at the Heavy Civil side and Jim and some of the team we put together is very good at the piping and the equipment side. So as this thing stretches into the second and third year of this boom, I think we're going to see the work shift from our more traditional kind of Heavy Civil to more of the mechanical side, and I think we're going to grow into that.

But we're also very focused on recurring side of revenues, and so we're looking real hard at trying to pick up more maintenance work and ongoing stuff. And we're not boom chasers; we like to get into a market, and we dig in like a tick and we survive the ups and downs of a market. So we're looking to take advantage of this, but we're also looking to do it in a way where we retain our better customers, we pick up some good customers, and then we're the last man standing when this boom goes away in a couple of years.

Okay. Thanks, guys.

Our next question is from the line of John Rogers, D.A. Davidson. Please proceed with the question.

I guess two things -- first of all, on a little bit of a shorter-term basis, a lot of the other contractors have talked about impact in the second quarter from a rough spring breakup. Are your guys at Rockford concerned about that in terms of slowing production?

Based on what, John?

I guess the heavy frost cold weather in the Northern regions. I mean, it's just a slow start up in the spring. (Multiple speakers)...impact your Southern business.

No, not really. We're pretty much off the end of Seaway. We just had some cold days and some windy days and wet, and that really hurts productivity. Most of the work we do, like with Q3C and Rockford, works in West Virginia, so you're not worried about permafrost and things like that. As long as the temperature gets up above anywhere between 0 and 10 degrees, the distribution work can move forward. When you get below that temperature, the pipe won't fuse and you end up with inconsistent fusions, which really -- and then you get people slipping and sliding all over the world out there, which is kind of dangerous.

But Q3C is ramping up pretty good right now, and when you look at their business plan, which is well ahead of last year -- they did 168 last year, and they did 93 the year before, and they're in that kind of growth pattern this year. They really have to go like hell after having not done any work through April.

Though I've got to tell you, Mike Russell, the guy that runs the east side of Q3C, he's a monster when it comes to getting the work done. He will perform well for us, and Jason will continue on the clip he's got in Denver, so we really aren't going to be impacted with -- if you have borrowed -- I would never say this, but if you borrow revenues or profits from second quarter and you've got to pay the piper now, yes, you might have a tougher second quarter, but we don't do that, so I think we're in pretty good stead.

Okay. And then my other question, Brian, is just relative to acquisitions. I mean, as you noted, it's been a little quieter for you and you can't help yourself in terms of always looking at opportunities out there. What's the market look like ahead of, presumably, a much better environment? Are multiples going up? Is that what's been slower, or you just can't find anything that you particularly like or you're better off growing it yourself?

Well, I wouldn't want you to refer to me as a pathological acquirer, but we have a guy, that's what he does, he looks, and we've been -- on the bigger side, yes, I mean, the multiples have gotten to the point where I just couldn't justify them. Now, in the last month and a half or so, the public multiples have come down, or at least the prices have. I don't know if that's because of lack of performance or perception of what a multiple should be.

For us, it is a question of can we grow it or should we buy it, and when the margins have gone up like they have, it's tougher to pay those kinds of margins. When we're selling for 7, 7.5 times EBITDA and the public -- the private market, these guys want to get paid at 8.5 or 9 -- I can't do that, with all conscience, with our money.

So we've looked at smaller deals, and then we've looked -- we did virtually a start-up up in North Carolina. We're going to look at more of those. You guys in the public side, that doesn't help us with you because that gets earnings immediately and we're an acquisition. We can go out, and it's all good news because you buy something that's good and then they immediately contribute towards earnings, whereas a startup takes time.

But we've always approached this with a long view, and so we are looking more at startups and smaller acquisitions that we would look at as startups into markets that we would like to be in. We've got a lot of running room on new markets, and they're not in your traditional places where everybody's been looking lately, like in the Southeast, because everybody knows that the refineries and the petro-chem guys are going to be crazy the next couple of years.

So we're trying to -- I said this on the last call, my job is to find the next boom, and I take that pretty seriously, so we're looking in areas that the other guys aren't, and those aren't getting the kinds of multiples that the markets that are getting all the attention are. But we're not out of things. We've got a lot of smaller ones we're looking at and several bigger ones.

But it's a mixed bag, and a lot of guys in the private side think they're worth a higher multiple than the guys on the public side.

Okay. Thank you. I appreciate it.

(Operator Instructions). The next question is from Jason Wangler of Wunderlich. Please go ahead with your question.

Most of mine have been answered. I'm just curious if there was any more color just on how at least you're thinking early on about the breakdown of the segments. Is it going to be based on the business, or is it going to continue to be geographical, or just anything on that side?

I'm laughing because Brian said -- it's yours, Pete. I think we may go through a couple stages. Initially, what we've been talking about is taking some of the energy people and putting them together with maybe the engineering, and eventually I think we will end up at the point where we get to industrial end industries, but that may be a couple stages along for us.

So I think where we will end up is we may still have an East segment, a West segment, and then we'll have an engineering and energy segment or something like that.

Okay. And then, Brian, maybe if I could, on your side, just with the utilities now that we're getting into kind of the middle of the year -- are you starting to see them start to deploy their capital and getting now back to a more steady work rate for your guys?

Yes, it's always this way. They always -- and they do so in a good spirit, but they always promise, oh, yes, we're going to work you all the way through the winter. But these guys all have -- the ones we work for, most of them have three-year rate cases, and they have to spend their capital money or they don't get their rates, and so they try and spend capEX within 0.5% of what they budget. So anything they don't spend in the first quarter, it comes back with a vengeance in the later quarters.

We did pick up a couple regions in Southern California just recently. That's a lot of money, and that has to be spent by mid-year 2016, so that's going to be a lot of help. And I think the replacement program up in the north is really going to get into gear soon, and that really bodes well for us because we have more capacity and more ability to man up and down than any of our competitors -- probably all of our competitors combined in those two areas.

So this fluctuation in workforce really, really plays into our hand better because, like I said, we have the ability to manage that better than anybody else.

I appreciate it. Thank you.

Our next question comes from the line of Dan Mannes, Avondale Partners. Please go ahead with your question.

So real quick, on a follow up to the last question. When you look at the replacement cycle both in Northern and Southern California, where do you think we are given that San Bruno happened I guess, what four years ago now and (inaudible) has been at this for a couple years? How much longer does this go? How much more room is there from a cycle standpoint?

Kate's got a slide on that, on the work that the Northern California guys committed to and what's left, and I'm going from memory, but I think they probably accomplished something like 15% to 20% of what they had to accomplish. And these guys like to measure things and like to feel they've accomplished things, so when you talk to a lot of these guys, they do the easy first so they can claim they've replaced X many percentage of the amount of pipe that needs to be replaced.

Kate just showed it to me. It's -- I don't know, you boil it out for me. I'll give it to Dan. It's too complicated for me to figure out. And that -- a lot of people make the mistake of measuring us based on the PSEP programs, and that's maybe 30%, 40% of the work we do for these guys. The rest of it is replacement and new capital and things like the copper services that we did for PG&E over a five-year program. Now, that was 60,000 services. That was, I think, $40 million, $50 million a year in the peak years.

And the (inaudible) A and the (inaudible) B services are 250,000 services that we're looking down the barrel of, and that's going to -- I don't know how long they're going to do that, but that is separate from the PSEP program, so it's kind of -- at this point, it's kind of like one of those cokes you buy at Chili's, the bottomless, so I'm not too worried about it.

Kate just handed this to me. They've done 150 -- (inaudible) done 127 miles out of -- what does this say?

Miles of replacement.

Speak up, girl.

One-hundred twenty-seven miles of replaced pipes. They've only checked 657 miles. They've verified that out of a total system that includes 6700 miles.

Got it. And then the follow up there is now that it looks like Southern Cal is pretty close to a regulatory verdict and they're starting to hand out the work, how meaningful is the SoCal work when you compare it to what you're doing in NorCal -- meaning, how incremental is it and how much larger could it be?

Well, SoCal is broken -- they broke the work into five regions. We got two of the five. They're talking about roughly $325 million for their contracts over the next 2.5 years. We got the heart of the project, which was the L.A. Basin, and then we got what they call North Coastal, which is the work up through San Luis. They estimate that at about 60% of that $325 million.

And we signed that alliance contract with them last week. That's why we haven't -- at the end of last week. That's why we haven't announced it yet. So I don't know how -- you can annualize that however you want. And then the next phase, phase two, starts in 2016.

Now, I don't know how to measure the north and the south, but I think SoCal is a ways ahead of the north, a long ways ahead, so when you look at the amount of money that's being spent in the south, then it helps you gauge how long of legs the work in the north has.

Got it. And then one last, somewhat separate topic, on Q3C. It looks like you're expanding that business regionally. I'm seeing you in some markets you haven't been before. Can you talk about the strategy there and kind of how you're moving into the new markets and how big a footprint Q3C could ultimately have?

Jay Osborn's kind of got this business plan that reminds me of the life of Attila the Hun -- he's going to go anywhere where there's a soft spot and a few hard places. So we're looking at expansion. He's shown and his guys have shown a remarkable ability to do well in these newer markets, and moving his people around, and I think they're going to continue to show us that. He's done a great job kind of nurturing these clients, and we'll go wherever the existing clients are and wherever our existing skill sets will take us.

Now, I've got to tell you it's a long ways to the next market out in that part of the world because everything is so far apart, but he's got a lot of room to run this year. And he -- I can't really talk too much about 2015 because he hasn't given me -- Wednesday night, I get the plan, so we'll -- ask me again next quarter.

Sounds great. Thanks a lot.

Thank you. At this time, I'll turn the floor back to Management for further closing comments.

I'd like to compliment the James Industrial. They reached a real milestone in their safety record, and they worked a million hours with no reportable injuries, and there's only -- you can count the number of companies on two hands that have been able to do that in our business over the years. And Conrad's group has just done an amazing job of really managing their safety in a market, as we've talked about, where you have to hire a lot of new people, and I really want to compliment Conrad and Jim Henry for their accomplishment there.

Also, as usual, I'd like to thank everyone for their interest and support of Primoris, and I'd especially like to thank the men and women that made the first quarter one that you can be very proud of. Goodbye.

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