Primoris Services Corp (PRIM) 2014 Q2 法說會逐字稿

Greetings and welcome to the Primoris Services Corporation second-quarter 2014 financial results conference call. (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. You may begin.

Thank you, Christine. Hello, 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 Pete Moerbeek, our Executive Vice President and Chief Financial Officer.

Before we start, I'd like to remind everyone that statements made during today's call may contain certain forward-looking statements including with regard to the Company's future performance. Words such as estimated, believes, expects, projects, may, and future or similar expressions are intended to identify forward-looking statements. Forward-looking statements inherently involve risks and uncertainties including without limitation those discussed in this morning's press release and those detailed in the risk factors section and other portions in our annual report on Form 10-K for the period ended December 31, 2013, our quarterly report on Form 10-Q which we plan on filing later today, and other filings with the SEC, 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 law.

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

Good morning, everyone, and thank you for joining us today. I am pleased that Primoris delivered strong second-quarter results in spite of project delays we experienced along with the rest of the industry.

We grew revenue by $70 million over last year's second-quarter to $515 million. This gave us a trailing 12 month revenue of over $2 billion. We maintained a steady backlog while growing our tangible net worth to $262 million. And the tailwinds driving our business, not the least of which abundant shale gas and its significance in the energy and petrochemical industries, continues to provide us with opportunities for growth over the next several years.

Our revenue growth in the quarter came mostly from our East subsidiaries. This shouldn't surprise anyone as we've been talking about over time the potential expansion in the Gulf. We ended the quarter with $162 million of cash and equivalents and nearly $290 million of overall liquidity.

Our balance sheet gives us the strength to continue investing in our current operations and also pursue avenues of growth. During the quarter we purchased nearly $19 million of new equipment. In early June, we purchased the assets of Vadnais Corporation, a California-based general contractor specializing in micro-tunneling for $7.5 million.

Late last week we closed another acquisition, Surber Roustabout LLC. This acquisition is smaller at about $4 million but will give us an increased presence in the upstream oil and gas plays of West Texas, an area in which we are very bullish.

I'm really glad Jason Surber will continue to manage the operations and is joining the team. I think he has great potential to add value to our shareholders over the long-term.

We are also in advanced negotiations with several more acquisition candidates hoping to close a couple of more by year-end.

Our total backlog on June 30 was $1.8 billion, slightly up from last year's second quarter. I believe it shows an abundance of opportunity in our market that even with the delays I mentioned in awarding projects we've added nearly $400 million of new contracts to our fixed-price backlog. Since the quarter ended, we already announced another $174 million of new awards.

These wins span almost all of our end markets. I'd like to remind you again that a greater portion of our work is being done under cost reimbursable contracts and a significant portion of that revenue never passes through backlog.

By way of illustration, in the second quarter of this year 23% of our revenue was from projects not included in the fixed backlog compared to just 18% in Q2 of 2013. One more note I would like to add that I'm very pleased with the tenor of our backlog.

Before I move to more details on our results with the various segments, I would like to touch on some recent management changes. Several months ago we slid Mike Kilgore over into corporate development role and brought David King into the family as COO. These types of changes can be challenging and only succeed if everyone keeps their eyes focused on the prize which in this case is PRIM's success. This has been the case in these changes, and I want to say I'm very pleased and proud I am of both of these individuals and their efforts and results. Thank you to both of you.

Now to our operating segments. Starting in the East. The heavy civil managed by Steve Lewis replaced Danny Hester as Group President recently ramped up their burn off in Texas and Mississippi, resulting in a 20% revenue uptick over last year's second-quarter. They continue to win new work and currently have 124 projects underway.

I am pleased with the prospects of this group that there's not only continues to be significant opportunity in their traditional highway market but also in a heavy civil marine market. This is an increasing market for constructing and updating marine facilities to service the growing energy market in the Gulf. James has a strong resume in this type of work including dock and wharf construction and piling, placement, and repair. Even the more traditional highway market has becoming a bit more exciting as we are seeing more design build opportunities.

This delivery mechanism can provide better operating opportunity for us as it allows us to be more innovative in our bid process while at the same time eliminating some of our lesser equipped competitors.

The James I&M division also grew revenue at substantial scope growth increased on one of their larger projects. Not only have they seen major uptick in capital work, but their legacy maintenance works continues, evidenced by their negotiation in April of the three-year extension of one of their more substantial mine maintenance contracts.

Margins were a bit less than we hoped. Jonas Beatty's biggest challenge in the coming quarters is going to be managing his group's growth as the petrochemical expansion along the Gulf is presenting him with larger and larger opportunities. Jonas is one of our great young managers, and I don't have any doubt that he is up to the challenge.

Cardinal is another group with strong growth opportunity. Bill McDevitt's market is becoming contractor capacity constrained -- say that fast three times. As a market tightens we've seen pricing improve significantly. Bill's group is also working closely with [Pat Riley] at BW Primoris and we hope to be making some announcements for wins for this group in the coming months.

Looking at Primoris East's Primoris Energy Service, Jim Henry's group is leaning into an abundance of opportunity. PES doubled its revenue compared to last year's second-quarter. They've aggressively grown manpower and currently have roughly 3000 craft in the field. Demand in this market is great enough that clients first question is often whether we have enough people to do the work or not.

This little doubt that the work along the Gulf is poised to accelerate. The PES division with large driver group's growth for revenue. I want to thank [Bubba Grimes] for his team for doing an exceptional job at Sprint so far this year. His top-line growth has been spectacular and he has done a great job of managing it. His margins have been a little lower than we like mostly due to one very large project we should finish in the next several months. As the job closes out, we're hoping to see substantial margin improvement.

Cardinal Mechanical has relocated into the Sprint yard just south of Houston and Don Patrick has expanded significantly his collaboration with Grimes' group. This should begin to pay dividends almost immediately.

The PES Saxon division has solid revenue growth in the quarter and, much more importantly, profitable revenue growth. A thanks goes to Jim Henry at PES and Jim Short who's been running Saxon for the past year. We are continuing to see strong demand for their services in the industrial gas industry while positioning ourselves to be substantial players in the future power generation market in the Southeast.

New federal regulations would imply that about 45 gigawatts of coal generating capacity may need to be retired over the next decade. It is anticipated that natural gas-fired plants will replace much of that capacity. Saxon will be a significant player in this market as much of their growth is expected to take place in their competitive geography.

PES James Industrial more than tripled their revenue Q to Q as we have seen the Gulf industrial work pick up pace. Like James I&M, Conrad's team has seen significant expansion in scope on a project with the major client, and they now have over 1300 craft at that site. Pricing continues to improve however there doing more T&M work than in the past, which can produce slightly low margin -- lower risk, lower margin.

But overall, margins are increasing and we expect revenues to grow as well. James Industrial continue to work closely with our engineering group as they've made significant progress on the construction of the small LNG plant near San Antonio. James Industrial is also partnering with OnQuest on another similar plant in the engineering stage in the third and feed. The mini-LNG market is becoming very active and OnQuest has seen their work increase for process plant construction in addition to their legacy fired heater business. Both James Industrial and OnQuest should continue their strong quarter -- their strong growth over the next several years based on the opportunity available to them.

In the West, ARB industrial had another solid quarter. Margins were a bit less than we hoped as similar to Sprint we're finishing the large project and closeout is not complete. The outlook for large construction -- large generation projects continues to be remarkable as southern California utilities are looking for 1000 to 1200 megawatts of new gas generated capacity by 2016. ARB Industrial is working closely with several IPPs in support of the response to meet the capacity need.

While we wait for these projects ARB Industrial is keeping busy on several other jobs, most notably a crude oil unloading station in central California, a combined cycle plant in Pasadena, and multiple other cats and dogs. After several quarters of operating at a loss, I'm pleased to say that ARB Structures is back in the black. I'm sure Mark Thurman is happier than I.

They've started four new projects this year and they're hiring staff to meet the steadily returning demand. ARB Underground continues to be busy serving several large utilities in California doing work under two PSEP alliance agreements as well as gas and electric distribution under various MSAs.

In the north, utilities are dealing with budgets and rate case issues. In the south, they're involved with new phases of their programs and both of the challenges of permitting in California. These issues lead to lumpiness, unpredictability, and opportunities. These are also issues we've successfully dealt with for over 60 years. Scott's guys will deliver.

Rockford, another of Scott's groups, has seen a decline in revenue compared to last year but more importantly their profit is increased. I guess Josh and Frank like the kudos they got last quarter for their strong margin and decided they'd like some more. Their margin was solid.

While Rockford's capital projects were slow to be awarded this year, we recently announced $80 million of new work, and I feel confident Rockford is going to be a strong contributor for the second half. The outlook for long-haul pipeline in 2015 and 2016 continues to appear to be exceptional.

I'll finish with Q3C, Jay Osborn's guys continue to deliver extraordinary results, growing revenue with impressive margins. The Denver office led by [Jason Osborn] continues to perform exceptionally. And [Mike Russell] on the Midwest team, with winter behind him, is really starting to do well.

Q3C's revenue in the first six months of this year was nearly as much as their entire year in 2012. And even their higher revenue level they been able to maintain great margins. The Q3 guys are still a little -- pretty new to our group but now that we have gotten past the fact that some of them talk a little funny, we're learning to love them.

Leaving the segments before I hand it over to Pete, I want to address our stock performance during the quarter. I'm a shareholder just like you and just like you, I've been frustrated with the downdrift of our stock price. There are also hundreds of employees stakeholders that own stock and I can tell you there frustrated as well. The entire E&C spaces been punished this year, but we seem to have been hit a little harder than others.

I gave up quite a while ago trying to figure out what the stock price -- how it would rise or fall on any given day; however, I can say this. Primoris continues to be a great company especially with all the employee stakeholders trying every day to make it better and better. We know our company, our markets, our clients, and our competition. We also know we will succeed in creating substantial greater value for ourselves and the rest of our shareholders together.

I personally would like to thank all of our stakeholders, both employees and investors for their confidence, commitment, and effort.

Now to the green visor part, Pete?

Thank you, Brian. As Kate said earlier, we anticipate filing our Form 10-Q later today, so I will focus on a few of the financial highlights of the quarter. In the second quarter of 2014, we earned $0.31 per fully diluted share on revenue of $515 million compared with $0.30 per share on revenue of $445 million in the second quarter a year ago and $0.21 per share on revenues of $470 million in the first quarter of this year.

Unlike in some of our previous quarters, the revenue increase was obtained primarily in the East segment for which revenues increased by almost $103 million compared to the second quarter of 2013 and $55 million sequentially. Revenues for the West segment declined by $34 million compared to the 2013 second quarter by around $10 million sequentially.

For the quarter, we derived 8.9% of our revenues from TxDOT and 8.8% from a Sprint underground pipeline project in Texas. Our overall gross margin increased by $1.7 million from the second quarter of 2013 and increased by $11.4 million sequentially.

Compared to the second quarter of 2013, gross margin as a percentage of revenues declined by 1.5% to 11.9%, but that 11.9% represents 130 basis point improvement from the first quarter of 2014. Some of the reduction in the companywide gross margin percentage from 2013 to 2014 is a result of the significant increase in revenue in the East segment for which the gross margin percentage tends to be lower than the West segment.

In addition, our gross margin percentage for the quarter and for the first six months of the year were adversely affected by two projects. During the quarter we recognized no margin for approximately $65 million of cost on these projects. One of which is in our West segment and one in our East segment. For year to date, that amount is approximately $161 million. We fully expect that we will get to a positive resolution for these projects, but at this time the timing or magnitude of that resolution is uncertain.

As a percentage of revenue, our SG&A expenses declined from 7.1% in the second quarter of 2013 to 6.5% second-quarter of this year. Sequentially SG&A expenses increased by 20 basis points reflecting slightly higher levels of compensation-related expenses.

Our effective tax rate for net income attributable to Primoris increased to 39.75% for the first six months of 2014 compared to 39% in the first six months of 2013. The increase is primarily from the variability of state tax rates and the partial non-deductibility of per diem expenses. At this time we expect that the rate for the remainder of 2014 will be at or slightly below the 39.75% level.

As Brian mentioned, at the end of the quarter we had hundred $162 million in cash, cash equivalents and short-term investments. In addition, we had $70 million of available capacity on our credit line. As we hope that you noticed, our press announcement included a reference to a 14% increase in quarterly dividends.

We spent $22 million on CapEx in the quarter. For the year our CapEx purchases less sale proceeds are $36 million, which is $8 million more than the depreciation and amortization for the same period. For the full year, we still expect net CapEx at a level of $55 million to $65 million.

Our total debt was $220 million at the end of the quarter. Of that amount, $75 million is long-term debt with a weighted average interest rate of 3.72%; $141 million was note secured specifically by equipment with a weighted average interest of 2.23%; and $4 million with capitalized leases. Our total debt to equity was at 52%.

We currently have two earnout liabilities on our balance sheet. One for Q3 contracting and one for Vadnais which we purchased during the second quarter. The earnout balance was $5.4 million at the end of the quarter and if both companies attain their targets for 2014 as we anticipate, we would pay $5.9 million in the first quarter 2015. So, we would have to expend an additional $500,000 in the remainder of this year.

For the first six months of the year, our total amortization of intangible assets was $3.7 million. With the addition of Vadnais that number would be $3.8 million in the second half of 2014.

Operating cash flow was $19 million for the second quarter of 2014, an improvement of $23 million over the second quarter of 2013 and a sequential improvement of $40 million. We used $6.4 million of cash to purchase the assets of Vadnais in the quarter.

Total backlog at June 30 was $1.83 billion virtually the same as at March 31, 2014. Backlog consisted of $1.35 billion of fixed backlog and $480 million estimated MSA backlog for the next fourth quarters. The total segment backlog is $1.2 billion in the East, $584 million in the West, and $80 million in engineering.

At the end of last quarter's call, I said that we would expect to resegment in the next quarter. I have to reiterate that statement. We expect to resegment in the next quarter. As Brian and David King, our COO, consider our growth opportunities both organically and through acquisition, we want to establish reportable segments that best align with how we manage our business.

With that, let me turn the call over to the operator for your questions. Thank you.

(Operator Instructions) Lee Jagoda, CJS.

Can you dive a little deeper into the $65 million of costs and try to split that East and West?

Lee, at this point we want to be a little careful and not go too far because we're still in negotiations. Order of magnitude for the whole year it's around 50-50 between the East and the West.

If there were all these costs set at basically no margin in the West in Q2, your margin was still exceptionally good. What are the positive offsets in that number?

I think we had really strong margins at Q3C. They were terrific. Rockford did well. And even margin wise, Scott did well percentage wise.

And you had the turnaround of the companies of FSSI, which we've eliminated. We didn't have any costs there, but Saxon really did exceptionally well. Jim Short has done a great job turning the corner on that one.

Okay, and then Brian, on the PG&E side, where do you think we stand on the next phase of replacement work related to be [Atalay] A and the Atalay B? And does that have to ramp prior to Q3 to be able to do it just given the heating season California?

Well, you know PG&E has constantly gone in for rate adjustments and for money to get funded the rates for reimbursement and they keep expecting one thing and utility commission gives them a little different. So there kind of moving money between buckets.

The [Aldo] project is going to happen, it has to happen. Right now, I just heard a couple days ago they're shifting some of that money over to do other things that the utility commission has found to be more important. And those other things are more steel pipeline which you know we get a lot of that work to, if not the preponderance of it. So all in all, if they have a normal spend, we will get our normal share plus.

Whether they get any Aldo done this year, I'm not sure but you know that's probably a decade-long project if they try and replace as much -- at the same rate they did to copper. So we're not -- we're counting on it at some point. We shifted those guys over.

The guys that do that work can also do what they call the Rule 20 work, which is taking overhead and putting it underground. And some of the steelwork, too, because PG&E systems have been a bit of a complex menagerie of different -- every thing is blended together on their system.

So, we're keeping the management guys busy. We think we're going to see our normal crush. Usually what happens these guys underspend through three quarters and then the fourth quarter is a mad rush to get to their budget numbers.

Okay, and just can you just remind us on the ability -- your ability to ramp workers ahead of demand quickly in California?

Well, that was what I was going to point out. It's important for us -- we serve a need for clients. If they didn't have this lumpiness and these searches and this ebbing tide, they wouldn't need us. They would do it with their own crews or they would find a lot cheaper guys. But we have a tremendous capacity in the fact that we have so much equipment and so many people we draw on and such great management that's dedicated to them in that market that we really do well when the crush hits. And the rest of the time we do kind of okay. Well, we actually do good, but in the third and fourth quarter when the crush hits, we do excellent.

And that's what makes the opportunity for us. And then we think that we'll see that with both Sempra and PG&E and Edison. We're -- the three utilities here -- have all the same project problems, one of which is permitting. California is just a tough environment to get permits in and even the utilities have to get permits and it's a changing environment. So that causes a lot of lumpiness, and a lot of shifts because these utilities are going to spend their money and if there hung on permits in one area and they can get permits in another guess what they shift over.

Now the good news for us is we service almost all of the areas except for overhead, and there isn't a lot of spend to be done on that that we see in that market that we can get to. So, we think we're in great shape no matter which way the money flows.

Okay great, thank you very much.

Tahira Afzal, KeyBanc Capital Markets.

Thank you and good quarter given the macro lumpiness.

It's a wild, wild West out there, Tahira.

I guess if you look at your bookings, not as bad as I think as you start to see even going forward. It seems, Brian, you're still pretty positive. So as we look for your earlier guidance and put that into perspective, where you talked about East segment margins ramping up, some of your existing backlog starts to play out. But at the same time you've seen some delays on some of your industrial fabrication work. How do we look at the margin trajectory into the second half of the year now with your earlier indications, Brian?

Well, I don't view the backlog as any bad news. You have to remember that a very large portion of our backlog consists of heavy civil and heavy highway work and that is in general at a lower kind of margin level than the other work. Now, we've seen a considerable shift in the backlog where the other work is increased in the composite and the heavy civil has decreased.

Now the heavy civil guys they've got plenty of work, they are doing well, they're booking what they what to book. But as I mentioned in my presentation, if I got that page read (laughter) the tenor of our backlog I'm very happy with. And that would tell you that I'm really happy with the margins that are built into our backlog. And I think it's going to continue to improve.

So I'm not unhappy at all with our backlog. You know the number is kind of the same as last quarter, but I like the mix a lot better. And as I said also, we continue to do more and more of this reimbursable work, and it's at a higher-margin than what some of the backlog is on the heavy civil side.

Where we need backlog, we have it. Rockford, Q3, in the East, you know for Primoris Energy Services -- a lot of that is in backlog; it's reimbursable. In the West, at PG&E, Scott is going to do that work. We know they're going to spend that money this year. We haven't figured out where yet, but you know what, we're everywhere so we're pretty sure they're going to spend a lot of it with us.

And we're starting to see good backlog build in like the water and wastewater, and stuff like that. So don't read -- talk to Pete or analyze this, but look carefully or have Pete give you the tenor of where that is, and I think that will give you a lot more optimistic picture as to what our margin should look like downstream.

Got it. Let me put Pete on the spot then. Pete, if you look at where you folks were at the end of second quarter last year, it's kind of flattish on the backlog side. And as you said, you're entering the second half of the year with probably a higher amount of volumes coming out from [as paid] work.

So is there -- are there some nuances around you potentially delivering a $50 million run rate for the second half of the year for operating income like you did in the second half of last year? Are there some nuances we need to take into consideration, both positive and negative?

Well I think if you remember last year, we had a very large project that Tim finished that was one of the best projects we've had in our history and it clearly helped our margins in the West. I think what you will see this year is much stronger margins in the East than we saw last year and clearly depending on when we get resolution in some of these issues that I mentioned that could have obviously significant impact.

But I would anticipate that you are not going to see the big dropoff that people were worried about because I think we are seeing some real good positive things happening on the East and that is made a really good contribution. And the work that Q3 is doing is really helped to keep the backlog -- to keep the margins, excuse me, up on the West side. I think we're comfortable we should be able to do something pretty well in the second half of the year.

Awesome. Thank you very much, folks.

Jason Wangler, Wunderlich Securities.

Brian, you talked about in the past a lot of the delays and things being on the engineering side. A lot of awards and obviously you guys have started seeing quite a few things kind of trickling out so far this quarter. Are you still seeing kind of those delays being from the engineering side or are we starting to get to a point where the customers are starting obviously to look to you guys to actually putting boots on the ground?

Well it's upstream of us are the delays. Some of its engineering; some of it will be procurement, but a lot of it's permitting. You know, you take the Sasol project for example. It's still waiting for quality -- air-quality permits and wetland permits and everything else. And these are --a lot of these are federally dictated permits at least -- not the standards that the actual permitting itself. And you know there's a lethargy at the federal level to give these permits out. And it's really starting to impact some of these larger projects.

So, I read an article on Sasol just a couple weeks ago. They are talking about how they still waiting for their air-quality and their wetlands permits. That's a big project, a lot of jobs. It's unfortunate. It's -- and I don't know if it's hung up there or they anticipated to be in this long, but we have some work pending with them, we hope to be able to finalize the contractor in the next couple of weeks.

We were supposed to have started in January and February and now we're talking August or September if it goes then. So that's a lot of business for that part of the world. That total project with the cracker and the GTL you're talking $15 billion, $16 billion worth of infusion into the economy.

And that's typical, a lot of these guys are just struggling getting permits.

Sure, that's helpful. Obviously the small acquisition -- the two that you talked about and looking forward, too. Is there certain end markets are really focused on or even geographic regions within that? Or is it more just trying to expand in the kind of where you're at and finding things that you could expand because obviously the balance sheet is ready and ripe for being able to find something if it's the right price?

At the risk of some of my guys getting mad at us, we're kind of like a cancer. We just grow. We look for soft spots as Jay Osborn would say. A lot of it is opportunistic. We wanted a larger presence in West Texas. Jason Surber is a great kid. Not a kid, he's 30-something. Good guy, he's going to be a long-term just a great find for us. He's very active.

In the south part of West Texas, Jason, you follow this industry pretty well. So it's down in the new Cline fields and down toward Wolfcamp, that's kind of his home base. And that's where I see a lot of drilling activity over the next five, six, and seven years.

And so we wanted to be there and we kind of rolled that into Sprint, and so Sprint is there doing midstream work. Jason is there doing upstream work. Roustabout work, wellheads, flow lines, stuff like that, well pads. So that was a little bit of strategy with the -- obviously finding the guy was the art because it's hard to find anybody out in West Texas. The towns are so far between.

The deal with Vadnais was again just an incremental increase in our capacity. If you going to do underground work, you need to be able to drill or tunnel or whatever. And we've been doing it for 60 years and we thought Paul had a great operation. We've known him for 30-something years. And the ability to tunnel is becoming as important as the ability to drill, especially tunneling is cleaner than drilling in the aspect that you don't have the waste, the liquids to deal with -- the drilling mud.

We're looking at things that lean into our skills and to our current markets. Fabrication facilities, little niches that -- our goal is we're going head-to-head with Fluor or Jacobs, people like that. They are actually some of our better customers. It's serving them better and observing the Sasols of the world and people like that better.

And there's still a lot of room to grow and there is still guys out there that really want to be aligned with the bigger company, and we add a lot of value to the smaller guys that just need a little bit of weight and [umph] right now to -- want to see the transcriber get that word in, umph, U-M-P-H -- to these guys so they can go into the markets that they're capable of growing into.

And then we're looking at new areas, I mean these are small ones. I think we paid around $4 million for Surber and there's some earnouts. Don't mistake that for us not looking at bigger ones. But some of the bigger ones are even transformative, but those are long shots. We work them and if there's chemistry and it really looks like the home run, we'll pursue them.

But you know we've got Mike Kilgore over there now and Chris Wolohan and they are looking at acquisitions. That's what they get paid to do. And their hammer is looking for nails, so they're going to find some nails.

I appreciate the color. Thank you.

John Rogers, DA Davidson.

A couple of things. I guess, Brian, first of all in terms of the big project opportunities and you mentioned a couple of names there. And you talked about the delays in permitting, but how long do you wait for these and when you start accepting other work? In other words, are we going to see an improvement in bookings near-term or do you think that's more out -- we have to wait until 2015 now? Particularly in the East, sorry.

You know, John, our business -- it drives you guys crazy because it's kind of complex and it's got all these moving parts. For me it keeps me excited because there's just constantly something going on that I can learn and relate to.

The business is very segmented, like the pipeline business, for example. We've actually been awarded some work next year; we are not under contract yet, but it's not huge job. It's $50 million, $60 million in general they don't book a lot of work ahead, two or three years ahead. The highway guys do. So, I know you guys living and breath and then die backlog. I don't as much. I look at the tenor of it; I look at what's in it. I look at what's immediately available; I look at our hit rates in those industries because the pipeline guys historically they're going to burn up 95% of the backlog they booked that year.

And a lot of the work we do on the utility side, we bid it today, burn it over the next quarter, and you don't ever see it in backlog. It is gone before you get it. So, are we going to see a lot of bigger bookings? Probably not massive because if you look at the composite of our backlog, a lot of it is heavy civil and they've got -- I don't know $900 million of backlog. That's for a $250 million $300 million outfit, that's three years worth of backlog. That's pretty good.

Are we going to go out and probably add another billion dollars to that? Well, we could. There's some bigger jobs for the Corps and some design build jobs that we could, but is that really good news for the EPS? It's good news but it's not going to really push us to a huge number because it's just a little skinnier work than some of the other groups.

And so the bigger work were talking about, we just had all the guys together last week, and it was really great because I'd never seen as many guys excited about their prospects as these guys. But a lot of the work we're going to look at in the East, the Sasols, the [C&F's] -- they are $200 million, $300 million, $400 million, $500 million, $600 million jobs that will never see backlog because it's cost plus. And that really is where we're going to see a lot of the growth and that work really has pretty good margins.

Now historically, they been lower than they are going to be, but we've got a tight labor market and even tighter management market. So backlog isn't the key to us really being successful at this point. It's picking the right jobs with higher margins and picking the right clients. The CF job started off as like a $90 million job, it's going to be closer to a couple hundred million dollars we think. And that never saw backlog.

Okay well then -- not on backlog but when do you expect some of these projects to kick off? How long do you wait for them?

I don't know, what do you do while you're waiting? It's a problem because I'll tell you when we started talking to one of these big projects and the owner, we committed a pretty good team. It's delayed for about eight months. Now, we've found other stuff for those guys to do and the owners -- they are great guys. They came to us and said let me help you by keeping some of your guys busy. Well, you've got four or five really key guys that should be managing 600 or 700 craft, and we're getting paid for them on cost plus. You really don't get much bang for your buck.

I think knowing our business, if we'd just gotten into this a year or two ago, it would be a problem. Knowing our business, every once in while you going to ride a loser. But most of the time if you're good and you know your business and you follow the processes, you'll pick the right guys as clients. And fortunately for us and fortunately for them, it's kind of our market to pick clients. So I think we picked the right clients.

And Primoris Energy Services with James and Sprint, those companies existed three years ago, but about I would guess that at peak they had about 1,000 employees. Today there running 3,000 employees in aggregate. So, we're already seeing the boom. We've seen a fall off a little bit on the industrial in the West. PG&E hasn't been out of the chute very strongly this year, but when all of that -- when that engine starts hitting all of those cylinders, it's going to get very exciting.

Now that to me could be -- we're going to see a prelude to it this third and fourth quarter, but it's really going to hit hard starting probably first or second quarter of next year.

Okay, and I know you're going to resegment so this may be moot later, but if you see that growth, do we see margins in the East ever rival the West? Or is it just because of the scale of the projects and the materials involved that it will be in the high single-digit range?

Well, if Pete ever gets it resegmented --

Next quarter (laughter).

Yes, the East will end up being just heavy civil so those margins are -- they will improve, I think that business is beginning to become short of capacity even with some really dysfunctional budgeting. Congress just can't get their act together. I think in general we will see a strong increase in the East on the energy side and I think they will rival the West.

Those have been drug down, we bought Force, that didn't work out very well. Saxon was a loser for us last year. We have now pretty much merged Force into Saxon and Saxon is doing exceptionally well. They're doing a great job. So a lot of the drag has gone away and we're sailing pretty good. So I do see -- I think you'll see comparable margins in the East if you don't count heavy civil.

That kind of business that the Granites and the Sterlings of the world are in, just don't have that great a gross margins. And you know that, John, you follow that business really closely.

Okay, thank you. Appreciate the help.

You bet.

Dan Mannes, Avondale.

A couple of follow-up questions. So first as it relates to the industrial side, you obviously made the point that it's not really a backlog driven story but in the past you have certainly PR'ed these awards. We haven't seen a lot of major awards whether they're backlogged or not. Just in confirmation of your answers to some previous questions, you still expect the startup of that stuff later this year or early next year? Or do you see that the delays pushing it even farther beyond that?

We're in the middle of it right now. We haven't made a couple of announcements of significant jobs because the client has asked us not to. That's hard for us because we know it's important to get that information to you and to our shareholders. And it helps our guys, it buoys them up when they see these announcements. But we respect a client's confidentiality. And a couple of these are fairly good size and they're significant in the nature of the contracts.

So, I think we're going to have a great second half. Every one of these contracts, I've said this probably 50 times of these calls, every one of these contracts has a cancellation for convenience. We build half of a hydrogen plant, actually two-thirds of hydrogen plant for Praxair in the Chevron refinery in Richmond, and then they canceled us because all of a sudden Chevron's permits were no good.

So just because we have a one day doesn't mean we have it the next day. That's the nature of all of these jobs. But the pipeline business continues to be very strong in the East and in the West. The utility business for Jay is exceptionally strong and he's finding a lot of soft spots. This guy is a hell of a hand. He's rarely done right by us with him and his team.

Tim's got power work coming on like you wouldn't believe in 2015 and 2016. How fast it gets started, I don't know. We've got a couple of announcements there were open to make because are getting pretty close. But you've got a bureaucratic morass you've got to work these projects through in California and out of respect for clients who have asked us not to announce, we haven't announced those.

So, I'm not sure whether there are parts we need to talk about, but the energy services, I mean Louisiana was the largest industrial employer for construction services in the United States last year, like almost $5 billion. We are just scratching the surface. They're talking about a total spend of $50 billion to $60 billion just in Louisiana and that's what we know about.

And as people become more and more in belief of this long-term, cheap natural gas due to shale, they are going to be a lot more willing to spend a lot of money exploiting that and I think that's going to lead to even more opportunities. So I've got to tell you, we are going to run out of people before we run out of opportunities very soon.

On a similar note, I'm sure you guys noticed Sempra went to FID on the Cameron project. Whether or not you work on that, do you think maybe that project moving forward, does that help maybe break the logjam or each one of these pretty individualized in terms of the decision-making?

Well, we're hoping to do some work on that. We get -- we were eligible to win pieces and parts of mostly all of them unless one of the big guys wants -- decides they want to self-perform. And only God knows why they'd want to do that in a tight labor market, but the more that's out there it's kind of a good news-bad news thing. The more that's out there, the tighter labor gets. It's harder to find people, but your margins go up because you become more constrained capacity wise.

So we would like to get the first ones. That's been a little bit disappointing because you want the first ones. I call it pissing on the hydrant. So you get on the site and stake out your territory before the other contractors get in and start crowding you.

But anything to do with dirt, or civil, or now piping with PES, or mechanical. We've got great guys and I think we're getting get more than our share. And there's going to be a gob of it.

Okay. And then lastly on the pipeline side, obviously you had actually a pretty substantial amount of work at Rockford last year on large projects. You obviously commented margins have been better this year on even on lower revenue. When you look at maybe the completion of CUA and where you are now in terms of backlog, how do you view utilization for the next six, nine months versus maybe where you were last year?

Well you know your summer is always your busier season, so if you are looking, you sitting here in September and you've got no work well you better check to see if you've got the right estimator or the right client list. You know Frank has got -- he just picked up some work we announced for MarkWest in Virginia -- it is tough work. I mean West Virginia, straight up and straight down where these guys are working -- it's smaller pipe but is tough work. And they are talking to us about some more work and we've got the Williams work.

I'm pretty pleased with where we are. He really has got enough to keep his capacity going. Unlike some of the other rumors that have gone around, I like the midstream margins right now. I can't complain. If you look at Frank's, that's just indicative of just better margins, not worse margins. So, I don't have any fear of any soft spots in the rest of Frank's schedule for the rest of the year.

And on an average basis that's about as good as it gets in the pipeline business. If you can feel like you are full to the end of the year at this point in time, you are in good shape. Because this work, like you know, you get a little bit of work on an annual basis that carries over in the winter, but most guys can't work in winter most places. So your work is focused on three quarters. There's so much work coming next year -- big work -- that if we can get through this year and continue with these kind of margins and launch us into next year with the big work hitting we are going to be in great shape.

Sounds good. Thanks, Brian.

And then Sprint's done very well. You know, we've got one tough job and the job had some permit issues and some logistics issues and we are fighting our way through it. As you guys all know, we are pretty conservative on how we reflect those jobs, and so we are hoping to see on close out some upside there. But it's a tough client, and it's a tough job, and they've got a tough schedule. But our guys are doing a great job, and we are prepared to a very pointed close-out with these guys to get them to the place where they treat us right.

Makes sense to me.

Mike Shlisky, Global Hunter.

I wanted to just touch on the seasonality here in the back half of the year. Over the last couple of years it's been different between Q3 and Q4. Based on what you know today -- [I want you] to think things are going to kind of happen. Is it safe to say that Q3 will be better than Q4 from maybe from an earnings standpoint?

You know a lot of it depends on this -- whether we have the kind of normal year-end crush with some of the utilities. And as you peel these big jobs off -- we are very conservative -- I know you are kind of new to following us and I appreciate your picking us up. We run these jobs fairly conservative through the work in process until we are fairly confident we are going to get paid, we are going to get paid the right amount. We don't have any immediate warranty issues or we've got some cost that just didn't seem to get captured. So it depends on how the big jobs close out.

We've got a couple of big jobs that were done in California that was a troubled job. We did a great job. Our client just doesn't seem to want to pay us. So, we've been very conservative. We did over $100 million of work for this client and we haven't booked a dollar's worth of profit. When that closes out -- trust me, I've gotten to be very, very good at collecting money. It's not a skill that I am particularly proud of, but good at it. And when we are done we are going to get our profit on this job.

Now will that come in third-quarter? Fourth quarter? First quarter? I don't know. I guarantee you it will come in, and that can swing a quarter pretty aggressively. So in general we think our third quarter is pretty typical with the fourth -- they are kind of twins. But they can vary by a nickel or so.

Okay. Great. And then just going back to this past quarter, in East segment, I was wondering if you were surprised at all by how some of the contracts progressed. Or did everything kind of come in as you had planned at the start of the quarter as far as what you are able to put into your top line?

I didn't get the whole question. Pete, did you hear?

I think it came pretty much the way we expected. We mentioned that we have one good-sized project on which we are not recognizing any margin, but I think we are quite pleased with the fact that our heavy civil guys are doing much better than they did the last few quarters and obviously the James Industrial guys -- part of PES -- have done a great job and are continuing with their project. So, I'd say overall it was at least as good as we had expected. Margins were quite as good as it could've been because of the conservatism we used on the one job. But this is the first quarter in a while that the East has really been in a position where they helped carry [all of us].

Got it. Thanks so much.

Adam Thalhimer, BB&T.

The big multiyear contract that you got with the Southern California utility, has that ramped up yet?

What happened is they gave these various regions to a bunch of contractors -- I guess there was four of them, if I remember right. We got the plum -- we got the LA basin. They are still engineering and trying to get their processes together, but it is just now beginning to ramp up. The good news is that they are going to spend more quicker in our area than they anticipated, I guess because his easier to permit than some of the outlying areas. They don't have too many endangered species on Sepulveda Boulevard. So, we are looking for that to be quite impactful over the next three, four quarters.

About $1.6 million in revenues -- quarter to -- from 2013 Q2 to 2014 Q2.

I wouldn't consider that ramping up.

Not yet.

No. But I know that we had a meeting with them and they weren't sure whether we could manage all the work they were going to throw our way -- of course they typically underestimate our capacity. But they seem to think that the dam is about ready to break. And we are actually gearing up on some of it as we speak. But a lot of it -- the way we attack this work is we get with them, they show us the design, we help them evolve the design for constructibility and value engineering. And then we agree to a target price and then we go in and if we beat the target price, we share in that. If we don't meet the target price, then we share in that burden. So it takes a little while once they cut the loose out -- cut the work loose. It takes a little while to get ramped up and we are in that kind of constructibility, value engineering stage with a lot of this work.

Got it. Okay. And then on California Power, what's the nature of that work, Brian? Is it repower, is it new build? Is it renewables? Peakers? What are you seeing out there?

A little bit of everything. You know that's part of the problem is Onofre is going to be gone. They've got this once-through issue of they've got some older plants that are inefficient. They've actually still got some plants burning some pretty dirty fuel. And so the DWR and the CEC -- they've got three agencies that are involved on a lead basis so you can imagine how many other agencies are involved. And they all have to agree on where it is because they want it near where it's needed, what type it is. And then if it's renewable and it's intermittent, then they have to have redundancy. It's just a morass. I wouldn't want to be the poor guy at the state trying to figure it out, nor the developers trying to play into it.

They came out with some preferred sites based on where they needed the power -- because you know you lose a significant amount of power wielding it through the grid, or pushing it through the grid. And they also if there is a grid outage, they want to make sure there is enough redundancy in that area to satisfy the need. So, we are working with several of the utilities direct, for their direct instruction and ownership and then we are working with the IPP guys. And we are working kind of across the board. And a lot of it is this new technology, like the energy used to Siemens -- 30-minute start. Some of it is pure peaker and some of it is a peaker with a little blend of a [Herzig] on the end to make it a little bit more efficient.

And then they're still obviously the renewable thrust moving forward. There will be another iteration of that here pretty soon. And it is going to eventually go distributed. There will be more smaller non-utility scale distribution, and we haven't decided whether that is a business we want to play in yet.

Got it. Any movement on water demand, Brian?

Well, do you mean in California or for us?

I was thinking more of that Florida to Texas corridor.

Yes, we are working it pretty hard. We are about halfway constructed on the Seminole project and we are buying their water and cleaning it up and selling it back to them. We are working several other small deals like that, and then some bigger deals. Part of the real problem is that a lot of the big water use, particularly in West Texas is used by the coal power plants. Well, those poor guys -- they don't know if they are even going to be in existence in four or five years, but they need water; they are desperate for it because coal plants take a lot of water, but they can't sign long-term agreements, and there is just no water available to them so is really got them in a bind. And then of course it takes those big base loads to be able to build a system or supply system that will service some of the munis that it are located near those big base loads.

So a lot of it is chicken and egg, but the need is still there and we are working it hard. And we think we are going to see some pretty good stuff break loose in the next couple of quarters. But is one of those things -- it's like ketchup, you keep shaking the bottle and nothing happens, then it all comes out at once.

Great. Okay. Thanks, guys.

(Operator Instructions)

Lee Jagoda, CJS Securities.

I just had one quick follow-up.

You again?

Me, again. If I look at the $65 million of revenue at zero margin adjusted out of your total -- adjusted margin for the quarter is around 13.6%, is that a good way to think about a base margin to then grow off of in the back half?

Sorry, Lee, I am not going to give guidance. But it's not a bad way to look at it.

Thanks very much.

I think to augment Pete's answer a little bit without giving guidance, I think we've been talking for the last four or five quarters about margins drifting up. And if they are going to go up just based on work mix, not just better contracts because the heavy civil was a lower margin, some of the wastewater is lower -- it's becoming a smaller component of our revenues. So, I think we should see some margin expansion.

Great. Very helpful. Thank you.

Mr. Pratt, it appears we have no further questions at this time. I would now like to turn the floor back to you for closing comments.

I will conclude by thanking you all for your time and interest in our Company and your investment, if you have some. Goodbye.

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