Primoris Services Corp (PRIM) 2014 Q4 法說會逐字稿

Greetings and welcome to Primoris Services Corporation reports fourth-quarter and full-year financial results. At this time all participants are in a listen-only mode.

(Operator Instructions)

As a reminder, this conference is being recorded.

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

Thank you, Manny. Hello, everyone. Thank you for joining us today.

Our speakers for today's call will be Brian Pratt, Chairman, President, and Chief Executive Officer of Primoris Services Corporation, and Peter Moerbeek, Executive Vice President and Chief Financial Officer.

Before we start, I'd like to remind everyone that statements made during today's call may contain certain forward-looking statements including with regards 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.

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. Forward-looking statements inherently involve risks and uncertainties, including without limitation those discussed in this morning's press release and those detailed in the risks factors section and other portions in our annual report on form 10-K for the period ended December 31, 2013, as updated through the quarterly port on form 10-Q for the period ended September 30, 2014 and other filings with the Securities and Exchange Commission.

As we announced in this morning's press release, starting in the fourth quarter of 2014 and through to today, the company's management, independent outside counsel, and the audit committee of the board of directors have spent considerable time and resources reviewing and analyzing various issues relating to the methods used by the Company's subsidiaries to recognize revenues and estimate contingencies for ongoing projects. The review is not yet completed, but based on the results to date, the Company does not anticipate any adjustments to its previously reported financial results.

The Company is unable to determine at this time whether the results of the review will indicate that its internal controls over financial reporting were operating effectively or the impact of the review on the Company's annual report on the internal control over financial reporting included in the form 10-K. As permitted by the securities and exchange commission rules, the company is extending the filing date of its annual report on form 10-K for the year ended December 31, 2014 until March 17, 2015.

We will unfortunately not be able to provide any more information on this issue today. I'd now like to turn the call over to our CEO, Brian Pratt.

Good morning, everyone. Thank you for joining us today.

I expect you've all read this morning's press release, and that accounts for some of the new callers who have dialed in today. I'll get into the details in a minute, and Pete will give you the numbers, but let me start by saying I am very disappointed with our fourth-quarter results.

Everyone here at Prim is likewise disappointed. There are no mysteries as to why we failed to perform up to our expectations. And believe me, we're taking the appropriate steps to make sure we live up to our expectations in the future.

But don't make the mistake for a moment of thinking we are not, fundamentally, the great Company you all are confident enough in to invest. The year we because public in 2008, our fourth-quarter revenue was $151 million. The most recent quarter it was $486 million. Over the same period, we've entered into new markets, expanded our geographic reach, successfully acquired companies, and now have, by my perspective, a good quality backlog in excess of $2 billion.

I'm incredibly proud of what we've accomplished and yet, obviously, very disappointed in the most recent quarter. There were highlights in the quarter, and I'll get to them. But I suspect many of you are anxious to find and understand the areas where I feel our results were not as we hoped.

So I'm going to start with the five areas where we experienced some unexpected performance issues. First, I want to discuss ARB underground work. While our revenues were basically flat compared to the fourth quarter of 2013, the work released by our customers was lower margin work. We also absorbed some training costs associated with the new camera inspection work, which is fundamentally a new kind of work for us we will be performing for one of the utilities in California.

Along with other work, Scott's group has two sizable PSEP alliance agreements with California utilities. We currently are performing 15 projects with a combined value of over $100 million under these PSEP alliances. We anticipate that work under the alliances will pick up significantly in the second quarter and will yield margin more in line with their historic levels.

Next, let's discuss Rockford. They had several large jobs in FY13 that were not in place in 2014, so their fourth-quarter revenue was down compared to 2013. One of the jobs we won was problematic for us in both the third and fourth quarter.

This was a tough job in the hills of West Virginia. And due to weather and other issues, it generated sizable losses for us in the Q. We may have some recovery of that loss recognized to date on this job through negotiations with the client, but it's too early in the process to assess.

I understand people are worried about the decline of energy prices over the past six months and the effect it will have on the pipeline construction business. The reality is that there's a wide range of breakeven costs for North American Shale. And at current prices many producers are still profitable.

In addition, long-haul transportation by pipeline offers $6 to $7 of barrel cost advantage over rail, so short-to-midterm demand for pipelines hasn't seen much of a retraction, if any. What the downward price change for crude and liquids has done is turn the complexion of some of our clients to one that could be characterized as balance sheet protected or extremely miserly resolving cost overruns, perhaps even downright inequitable in their dealings.

We are anticipating this in our pricing and contract negotiations, and, even so, we have announced over $140 million of new awards this year for Rockford, all of which will be billed in 2015. Frank's team is still chasing over $3 billion of projects slated to start 2015, 2016, and 2017, which are currently short-listed on several. In fact, Rockford is in pursuit of more work right now than anyone else in Primoris.

PES Sprint recognized additional revenue in the fourth quarter on a major pipeline project we discussed on previous calls. Due to the ongoing litigation, we recognize a revenue with zero profit, pulling down Sprint's overall margin in the quarter. I couldn't begin to speculate when this matter will be resolved.

We're currently in discovery, and I am confident the facts will support us in the case and this matter will be favorably resolved. Unfortunately, litigation management is a skill I've had to acquire over more recent years, but I do believe if you're going to do something, do it well.

In the meantime Sprint's other customers are just releasing larger bid packages for 2015 work. The scope of Sprint's bid packages mostly consist of small-to-medium diameter natural gas and liquids gathering work across Texas in multiple shale plays. Also, as usual for this time of year, we are seeing maintenance work pick up, which is one of Robert Grimes' strongest lines.

James heavy civil had two negative impacts to their margins in the quarter. First, we reserved more on the NTTA lawsuit, which was finally resolved. This settlement was not terribly material to our overall results, but certainly impacted the heavy civil margins.

Nonetheless, we're glad to reach resolution on the liability for work completed by James construction more than five years before we purchase them. In the Belton, Texas region we are about one third completed on the roughly $720 million of mostly TxDOT work in the area.

Given the delays by TxDOT in obtaining rights-of-way and their effect on our efficiency, we took write-downs in December on several jobs. This was done in accordance with the conservative nature of our profit recognition policies and was the second negative impact to heavy civil. We've made some management changes in James heavy civil group to better manage the work that is process challenged by late incomplete releases and to better ensure our success in the future.

We restructured the group moving Mike Killgore, one of our main operation stalwarts into the role of president and Group Manager. Also, I'm very pleased to announce we've promote of Rodney James to Vice President of Operations for all heavy civil. Rodney has been with James over 18 years and is extremely competent in this kind of work.

It's really exciting to see Rod grow as he continues to take more and more responsibility. The last year that we didn't perform up to our expectations in the fourth quarter was a result of not getting the contribution we'd hoped for from the Sasol project. The later anticipated start of the project and the failure to achieve the revenue we'd hoped for from some of our recent acquisitions contributed to less than acceptable results.

Everything with the Sasol project is proceeding well. However, we had anticipated a much earlier start, setting aside one of our strongest management teams for the project well over a year before the project was funded, finalized our negotiations, and received our notice to proceed. There was some concern expressed in the market once Sasol announced its plan to shelve the GTL facility. But in doing so, they renewed their commitment for construction of the new ethane cracker.

Our work at their Lake Charles site is not dependent on the GTL project. We currently have around 150 employees on site, and that number will ramp up quickly. We anticipate our ultimate revenue on this project to be well in excess of the amount previously announced. We also made several small acquisitions throughout the year. And while none of them were hugely significant detractors from our performance, they didn't contribute nearly as much as we'd planned.

There is nothing to point to with these guys, just slow revenue ramp-up and some due to project start delays. Their integration into the Prim organization has gone well. As their work begins to accelerate, I have no doubt they will be solid contributors to the bottom line.

These are the five areas where our results probably differ most from what we'd expected for the quarter and the year. But they don't paint the whole picture for what's going on in the quarter. ARB industrial performed as we expected in the quarter with revenue and profit down compared to Q4 of 2013, which benefited from the El Segundo project.

As we had previously anticipated and expressed, Tim's group will most likely have a light revenue for 2015 that we're pleased to say that his backlog at work should grow substantially. His guys are close to finalizing a contract for a large gas-fired power plant in California with a value of over a couple hundred million dollars. This EPC contract will be a joint venture with a large, very competent engineering firm, and we expect construction to kick off late in the fourth quarter.

ARB industrial is also bidding on several large power plants and industrial facilities, such as gas storage and compressor station projects. In aggregate, his group is in pursuit of over $2 billion of work that we traditionally have high win and execution success rates. Their current workload is producing good results, albeit, a little lower revenue than we'd like.

ARB structures has turned the corner. Not only did they see a strong revenue growth in the fourth quarter starting the new year with a bang, they won three projects for the combined 3,600 parking spaces on 18 parking levels. After several rough years, Mark Thurman and his team are ready and seem to be headed for some good years.

Jay Osborn and the Q3C team continued to be an outstanding contributor for Primoris. Jay has taken our don't-trade-an-old-friend-for-new-one mantra to heart and continues to grow his business with his existing customers, including a large distribution contract he's in talks to extend for another three years. We purchased quite a lot of equipment for Jay over the last year, and he keeps putting it to good use.

OnQuest and OnQuest Canada have been busy, and the micro-mini LNG market continues to grow. OnQuest San Dimas office has doubled in size since 2013, and they are adding space. Our LNG facility constructed at George West, Texas for Stabilis is now operational and making LNG.

Randy Kessler's group also began the construction phase of a Florida power plant this month for a different customer. Sorry, Florida LNG plant. There are four other LNG facilities in Randy's group in the very near-term that he's under pursuit and numerous opportunities in the little distant future.

We've see no significant degradation from a year ago in the demand for these types of facilities. OnQuest is also keeping busy with their more traditional heater and reforming markets.

PES Saxon is finally performing at a level we anticipated when we acquired them in 2012. Not only did they see a jump in revenue for the quarter, but, more importantly, it was significantly profitable revenue. They just recently executed contract for a compressor station project for Williams in Pennsylvania for which they'll start mobilizing shortly. And their prospect list is as strong as it's ever been.

Without a doubt the highlight of the quarter is Conrad Bourg's JIC team. It was a long slog to get the Sasol project signed and finally kicked off a lot later than planned. Conrad's team still increased revenue by over $13 million in the quarter. The vast majority of this revenue came from other projects' earned gross margin in mid-teens.

We continue to see impressive opportunity for Conrad's group for the near future and mid-term. In January we announced $18 million of new work for Kinder Morgan consisting of work at their barge dock, export terminal, and rail terminals.

Work along the Gulf Coast continues to be very robust, and I think it's safe to say JIC, along with all the other groups Jim Henry manages, are going to be very busy over the next several years. Jim has done a great job of melding these groups into a very strong business unit.

Switching to M&A, we are more active today on this front than we've been in some time, as pricing of our targets has recently become more rational. We received a fair bit of criticism over the past several years for not being more aggressive in acquiring new business units. I am proud we maintained our discipline and didn't act on opportunities that would be viewed as overpriced today.

This discipline has resulted in a balance sheet and a management team ready to take it advantage of purchase and expansion opportunities both in our traditional and new markets. Our efforts have recently manifested in the purchase of Aevenia from Otter Tail. Aevenia is an overhead electrical construction company, while somewhat small, provides us new skill sets, some new geography, and some new clients, which we can cross sell other services.

Chris Wolohan did a great job of maneuvering us through the fairly arduous negotiation and documentation process in the acquisition. We are constantly looking for companies that are a strategic fit for Primoris, either expanding our geographic range or broadening the scope of services we can offer our clients.

The right chemistry with a strong management team that wants to be part of the Primoris family is a must. We continue to comb the industry for opportunities of Aevenia size and larger. Also, we have and will continue to invest internally in equipment and facility for our guys. This not only keeps us very competitive, but demonstrates to our stakeholders our continued commitment and confidence in our legacy businesses.

In sum, the year didn't end at all as we'd liked. However, that said, it hasn't diminished the quality of our Company or the opportunity available to us this year or next, or for that matter any other year in the future.

The factors driving our business remain strong.

Some being inexpensive nat gas and nat gas liquids as feed stock for the petrochem industry; lack of adequate pipeline transportation infrastructure connecting shale place to processing plants; and an ever-increasing environmental regulation requiring mitigation replacement of facilities across all industries. But the most important driving factor is that our Company is full of the most dedicated, talented, and well-respected professionals in their fields.

Pound for pound, we can out punch anyone in our space. These are facts one disappointing quarter won't change.

Now, on to my human shield, Pete.

Thank you, Brian.

For Primoris this past quarter was very noisy with many moving parts and less-than-great results. At $0.17 per fully diluted share on $488 million in revenues, we showed a 61% decline in quarterly earnings compared to the 2013 quarter on a 9% decline in revenues.

Brian has mentioned the margin reductions at ARB underground and James heavy civil, the revenue and margin reductions at ARB industrial and Rockford, and the settlement of the NTTA lawsuit. Separately, each of these would not have caused our shortfall. But add them together, and our overall gross margin for the fourth quarter was 10.2%, compared to 13.9% in the fourth-quarter 2013.

I'm going to expand briefly on the North Texas Toll Road Authority lawsuit. We were one of the parties sued in February 2012 for work that was done by James construction in 1999, some 10 years before James was acquired by Primoris. The suit alleged that one retaining wall had shifted, and that at least six more walls could potentially shift.

While we believe that Primoris had many adequate defenses, we also concluded that, due to minimal insurance coverage, the NTTA's planned jury trial, which would request damages far greater than what could be realized through a settlement, and the continued direct costs and impact on senior management, an economically mediated solution was the best alternative. After completing almost 18 months of mediation, the parties agreed to a settlement in February 2015. The Primoris portion of the settlement is accrued at a total of $9 million, of which $3 million was accrued in 2014, with $2.5 million in the fourth quarter.

Below the gross-margin line, our expenses in 2014 fourth quarter were remarkably similar to those in 2013. Selling, general, and administrative expenses for the quarter were $33 million, a slight decrease from the previous year's quarters.

But the 9.4% decrease in revenues resulted in increasing the percentage of SG&A expenses to revenues from 6.3% in 2013 to 6.8% in 2014. For the full year 2014, our revenues increased by $142 million to $2.86 billion. But impacted solely by the fourth-quarter results, our fully-diluted earnings per share declined by 9.6% from $1.35 in 2013 to $1.22 in 2014.

For the full year, our largest customer was TxDOT with revenue of $183 million, or 8.8% of total revenue. From an end-market perspective, underground capital projects accounted for 17% of total revenues, utility services 28%, industrial 27%, heavy civil 22%, engineering 3%, and the other category 3%. For the year, we invested $88 million in capital expenditures.

Depreciation for the year was $51 million, amortization was $7.5 million, and we received $6 million in proceeds from asset sales. Included in our investment amount was approximately $13 million for construction of a water treatment facility in Seminole, Texas where we will begin to see the benefits from a long-term take-or-pay contract with the city in 2015.

In addition, we invested almost $8 million for construction of operating facilities for our new headquarters for James Construction in Baton Rouge and for Primoris' energy services in the Fort Worth area. The amortization expense was associated with intangibles from prior acquisitions. We estimate that amortization of these current intangibles will be approximately $6.4 million in 2015.

We did not make any acquisitions in the fourth-quarter 2014, but for the full year we spent approximately $14.5 million for the acquisition of Vadnais, Surber, Ram-Fab, and Williams. Our balance sheet, currently, has a total liability of $6.9 million for the contingent earn-outs from our acquisitions, with $5 million of that total to recognize Q3C meeting its highest 2014 operating performance targets.

For the year, the effective tax rate for net income attributable to Primoris was 37.96% compared to 39.19% in 2013. The primary reasons for the decline in the effective tax rate were a reduction in the state effective tax rates and the benefit recognized from the conclusion of the IRS audit of our 2011 and 2012 Federal income tax returns.

For 2015 we anticipate that our combined tax rate would be approximately 38.75%, reflecting the impact of increased work in Louisiana, which has a fairly high state tax rate. At December 31, 2014, Primoris had $245 million of total debt with $168 million of commercial equipment notes, $75 million of senior-secured notes, and $2.3 million of capital lease commitments.

The weighted average interest rate on total debt outstanding at December 31, 2014 was 3% compared to 3.3% the previous year. The weighted average costs of our equipment debt was 2.26%. Our total debt-to-equity ratio was 54% compared to 56.5% at December 31, 2013.

It is the strength of our balance sheet that allows us to weather a quarter like the one we just experienced. We ended the year with $170 million in cash and short-term investments. And our cash balance and access to capital allowed us to continue to invest in the Company.

We need a strong balance sheet to deal with collection issues. For the past three quarters, we've mentioned that there have been two jobs that adversely impacted our margins, our overall earnings, and our cash. For the year, we recorded $202 million, or 9.7% of total revenue, with no margin.

One of these jobs was for a cost-reimbursable contract for which the client chose not to pay at the completion of the job. The other job was a target-price job for which the client chose not to pay for items we believe are clearly identified in the contract. We believe that the impact to our 2014 earnings was greater than $0.20 per fully diluted share of these two jobs.

In addition, at December 31, 2014, our receivable balance for these two contracts, both completed in 2014, was in excess of $63 million. Our reported cash from operations for 2014 was $36 million. We remain resolute in collecting our money.

At the start of 2015, we increased our bank facility from $75 million to $125 million. We added two banks to the facility. The primary purpose of the facility is to provide capacity for the issuing of letters of credit if needed for large construction projects.

Ending on a positive note, at December 31, 2014, fixed backlog was $1.548 billion, and MSA backlog was $445 million. Taken together, they give us a total backlog of $2 billion at December 31, 2014, with $633 million for the West segment, slightly over $1 billion for the East segment, and $346 million for the energy segment. During 2015, we expect we will recognize as revenue approximately 100% of the West total backlog, approximately 40% of the East total backlog, and approximately 95% of the energy total backlog.

Thank you, and it is time for your questions.

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

(Operator Instructions)

Our first question is from Lee Jagoda of CJS Securities; please, go ahead.

Hi, good morning.

Good morning, Lee.

So, Brian, as you look at your end-market breakdown, roughly 80% of the expected 2015 revenue comes from state municipal, utility, natural gas, downstream, and petrochem, as well as power. Can you briefly comment on each of these markets and the potential growth opportunities for 2015 and 2016?

Well, that will take the rest of the call. The utility business kind of rocks along as it has. I think we're making more and more inroads, and the Aevenia acquisition is going to help us quite a bit because they're up in one of the areas we're not in.

It's kind of the no-man's land of the flyover country. But there's some great opportunity up there for Q3 and them. And we think that, along with the work in California as they finally get their PSEP programs going, is going to be pretty exciting.

PG&E finally says they're going to start their build out on their [audle] replacement, which we've been waiting for. We've got a lot of administrative help built around the promise of starting this, which they promised last year, and it didn't get started. But it appears this year it's going to be a good promise because we're already starting to see some of that work.

The Gulf is really still popping down there. This Sasol project, which none of the, on our earlier announcement, none of that was predicated on the GTL. It was all predicated on the new ethane cracker. That, we think, is going to be an exciting market for the next couple of years.

Sasol will go on for every bit of two years if not three. And we anticipate -- we announced the first purchase order of $290 million. Our work is substantially more than that, that we're going to perform. But Sasol wanted to keep the purchase orders under $300 million, and then they'll renew it as the time comes.

So that, along with a lot of other work, is going to continue to be really exciting. The LNG business hasn't fallen off a bit. Now, I would expect that some of the LNG plants built for fracking and for fuel and the oil fields will probably be slowed, if not stopped.

But the regulatory impetus in the ports is still driving a lot of mini micros in the ports, and we're kind of the guys to beat. We've been there longer, and we've got the best reputation for delivery on these things. So we think that business is going to be pretty great.

The pipeline business, these things take four or five years to permit and buy pipe for. And a lot of the bigger pipelines, they have take-or-pays from credit worthy shippers, the Exxons of the world, people like that. So we're fairly certain that the pipeline business is just going to be popping for the next couple of years.

After that, visibility gets pretty murky, but I've got to tell you that's -- if you can see two years ahead in the pipeline, you're clairvoyant. So I just think, across the board, the markets are with us.

Power, the West Coast is finally bringing these plants out. They kind of stumble all over themselves because they've got so many regulatory groups that are involved in the permitting that power, they just take longer. But Tim is down to the short strokes on the one plant that I discussed, and then there are several others following behind.

But we need about seven or eight of these to just meet the demand growth. We're still retiring plants out there, and you've got environmental reasons for that with [once-through] as you guys know. So power on the West Coast is going to be everything we thought.

I think it'll probably get started late in the year this year, which makes it pretty tough for Tim. But a lot of this stuff is EPC. A lot of it's going to be in engineering for the first couple quarters. We've reached out and started bidding and pursuing more work with Saxon, which is really their resume in the East.

And we're out there trying to sell water to all these power plants in West Texas, and they're stuck in the middle because they need the water desperately because these are big coal plants most of them. They don't have enough cooling water. Basically, they're trying to cool the plants with mud.

But they know that if the EPA keeps going the direction they're going, their life is fairly short-term. So they're not going to make major capital investments in coal plants. So we see that as a great opportunity to sell some gas-fired, so we're out there beating the bushes fairly hard.

And we see lots of potential opportunities there to expand our power business into the Southeast. So I'm pretty bullish on our markets, Lee. We just need to manage ourselves better.

All right, and then just one quick follow-up related to margins. You took five or six different write-offs during the quarter and detailed them pretty well. Do expect any additional margin headwind in Q1, or in 2015 for that matter, based on any of the things you've already disclosed?

We're pretty aggressive when we see a problem to try to and find the bottom. We didn't do that well in the third quarter on that job in West Virginia. But if it rains in the morning for that crew, we 're out a [$2 million], $3 million for one day of rain.

So it's pretty hard to see ahead on jobs like that and project where you're going to end up. So the crystal ball broke on that one. Otherwise, we'd have probably recognized a bigger loss in third quarter. It wouldn't have changed our years numbers, obviously.

But on this big pipeline work you never can tell because you pay those guys five or six hours, whether they work or not, as a minimum. And if it rains in the hills of West Virginia, you can't work for couple of days because the right-of-way gets so sloppy, you're going to get somebody hurt if you go out there and try and work. So we don't anticipate any more.

Like I say, we're pretty aggressive in trying to find the bottom. Our mantra around here is only bring me bad news once. So I don't anticipate it, but I'm not perfect. Obviously, based on this quarter's numbers you can tell.

Okay, very good. I will hop back in the queue. Thank you.

Okay, thanks, Lee.

Thank you. The next question is from Tahira Afzal of KeyBanc; please, go ahead.

Hey, folks.

Hey, Tahira.

My first question is, Brian, your prepared commentary, you said fourth quarter is not really reflective of the earnings power you really see in your business model. Barring weather, even taking weather on a normalized basis into consideration, what do you see as your quarterly earnings power run rate, given your end markets remain intact?

You seem to be trying to address some of these issues. Is it supportive of the consensus estimates out there? Or should we be thinking about some cushion, at least on the margins side, going forward?

We don't give guidance, Tahira. I appreciate the effort to try, but we just don't give guidance. We remain very bullish on our prospects over the next three, or four, five years.

I think I kind of refer to this as the perfect storm of nickels and dimes. We had a whole lot of crap hitting the fourth quarter that was pretty ugly. But it was all little small items, but you've got to deal with all of them. You've got to recognize all of them.

The guys, like I said in my last comment, they're the best at what they do. And nobody can touch us in terms of our ability to make money and execute projects well.

So I'm very bullish on this next year and the following year based on what I see in the pipeline business, which is a major component in the Southeast in the ship channel with the industrial work that's going on and the utility business, which are three pretty mainstays for us. So I'm very optimistic. But I can't give you guidance. You know that.

Got it. Let me try it another way then, Brian.

I wouldn't expect less, Tahira.

You've clearly had a good book to build in the fourth quarter. You're ending the year with a backlog that's kind of similar to what it was in 2014. As you look at 2015, I would assume at least you should see a flat revenue line.

But given there's a lot of stuff in your backlog, as you said, that probably moves more slowly in 2014. Should we at least directionally expect revenues to be up? And maybe from there on, I can try to model it out on my own.

Well, heavy civil has finally peaked, but they peaked on the work in mid-to-late year, so that work should be kind of above the normal last year's run rate. Pipeline work, I think Frank, he's got the one job, which is $137 million, and he's got short-listed on several more. Some of them are for 2016 starts, but several of them are for this year's starts.

So I would hope pipeline would exceed, the long haul stuff that Rockford does, would exceed last year's run rate. We think, we're planning on spending another $16 million or $17 million on equipment for Q3, so that would indicate that we see growth for them. We don't spend that kind of money if the top line is going to be flat; we don't need to.

We think the work on the West Coast, Tim's going to remain, the industrial side is going to remain pretty flat. Hopefully they'll have a little higher margin in the work based on the work we did for the solar guys that didn't pay. That's certainly knocks the hell out of your margin line.

But I think PG&E will be up substantially because of their thrust to replace the audle-A and audle-B services. And I think in Southern California, the utility down there we worked for had a fairly difficult time getting off the ground on their PSEP program, so we expect that to be expanding.

And then you add the small pieces here and there. And I think, in general, I see a fairly significant growth for the year. But that's as close as you're going to get with me to any guidance.

That is good enough. Thank you, folks. I'll jump back in the queue.

Okay, thanks, Tahira, and thanks for following us all these years.

Thank you. The next question is from Jason Wangler of Wunderlich; please, go ahead.

Hey, good morning, Brian.

Hey, Jason. Another guy in your industry you follow that didn't perform well? [Huh]?

It's par for the course, so you're all right. (laughter) Under that [ilk], I was just curious. You mentioned the long haul stuff, which I think, obviously, makes a lot of sense, just the timing and the permitting and everything. So that stuff, I think, at least for now at least should be unaffected.

But as you go down to the shorter-term stuff, whether it's gathering lines and more closer to the well head, are you seeing much difference there? Even as you get into 2015 right now? Or are you still seeing a lot of work that needs to be done?

It's pretty early to tell. Some of these guys have spent all the money, and, pun intended, it's work in the pipeline. And we just see the end of it. We don't see the start of it as much as -- well, it's not as overt to us. So we're still seeing quite a bit of stuff come through on the upstream end of it.

But some of that may be guys that have already drilled up prospects and have been waiting to get in the queue to ship it. If it's drilled, they're going to ship it. But a lot of it is environmental and mitigation and growth, all these pipelines.

A lot of what Robert does is short projects, relocations and stuff like that around subdivisions that are getting built. But if you're looking for us to be kind of a canary for you on the upstream side, we really can't do it. But we still see a good amount of volume of workforce out there.

I don't see it being much more competitive than it was in prior years because, to be honest with you, anybody that would get into the business with the uncertainty right now is not playing with a full deck. But I want to make something really clear. On the long-haul pipelines, you don't go out and build $1.5 billion or $2 billion pipeline based on the fact that somebody might drill a well.

That production is there. It's committed to. Those guys were building them because they have take-or-pays. And their through-putters are going to pay whether they put an oil or liquids in it or gas in it at all. So those are pretty sure bets, and we see a couple, three years of blow and go for that kind of work.

We have clients that are asking us, as we speak, to put up letters of credit to make sure we're going to be there for them in 2016 because they think the long-haul business is going to be that busy. Some of those are utility -based clients that are trying to get nat gas, cheaper nat gas, into places that it doesn't currently serve in the capacity they need. But we're seeing a lot of push in that business, and I see a lot of solid work for the next couple, three years.

No, that's helpful. I think you're right. I see that there's still a lot of catch-up to be played, at least certainly this year -- (multiple speakers)

And we just can't see it from our end of the pipeline. I know that drilling has slowed down. I watch guys like Matador, which is a great company, and people like that, and they're drilling fewer wells and trying to find ways to do it cheaper. So, ultimately, the upstream work will slow down. It's just a matter of when.

Right. And then, Pete, if I could ask you, obviously, the different issues as far as the cash generation from the operation side. Do you see -- obviously, hard to tell -- but as we look into this year, do you see that flipping back and having a pretty solid year as far as generating more cash than you would think on a steady state? Just given that 2014 was kind of a tougher year with a bunch of different issues, or how do you see that playing out?

Yes, certainly, and I was trying to say that if we had collected the [$63 million], we would've had a great cash flow from operations from 2014. We fully anticipate getting back to the $85 million to $100 million range where we were a couple years ago. We're not counting, because it's so totally unknown, on whether we're going to get any money out of the two contracts with whom we're fighting.

So for us, when we look at it, there is no reason that we can't get back to the sort of numbers that we were. Having said that, also it will depend a little bit -- and it's not cash flow from operations -- but, obviously, overall cash will depend a little bit on what we do on the acquisition front. But there's no reason we cannot get back to the $85 million to $100 million range that we were in the last couple years.

That's helpful. Thank you. I'll turn it back.

Thank you. The next question is from Adam Thalhimer of BB&T Capital Markets; please, go ahead.

Hey, good morning, guys.

Hey, Adam.

The Rockford and the Sprint jobs, are those done now?

Yes, the one Sprint job, which I hope the client is listening. They owe us. They have not filed any counter suit, so they're kind of running out of time on that. But we've billed for the retention, which they have illegally held.

And in Texas, that draws penalties of 1.5% per month plus legal costs. So if your listing, guys, you need to pay that. But yes, the Sprint job is done, everything, I mean complete. We've completed the entire punch list.

The only thing remaining on the MarkWest job in West Virginia is the final cleanup. The pipeline is operational, tested, and tied in. I don't know if they're actually operating on it or not. But because of weather and the sloppiness in the hills, you really can't do the final cleanup. So that's all that's remaining is the restoration and cleanup.

Okay, and then on the Belton jobs, do they have the rights-of-way now? I'm just wondering how quickly the East margins can come back?

Well, you have two choices with these guys. They typically don't procure their rights-of-way until they get their numbers and their bids are in. And they know you're going to be within budget, then they go out and procure the rights-of-way. And it's problematic because when you're trying to get utilities to move pipelines and stuff, they kind of live in their own world, and they're not in a hurry to move their pipelines.

And so what you end up doing, you have two choices. You can wait and fight them and build ill will with them by waiting until every piece of right of way is cleared. Or you can go with what's called an LMTP, limited notice to proceed. And if you go with the LMTP, you end up with a hodge podge, hop around kind of job, which makes it a lot tougher to manage and complete, rather than going from one end to the other.

So it was a mixed bag for us. Some of it we found okay to kind of take the LMTPs, and some of them we didn't. So I hope that answered your question. And in this case it had impacted us.

Now, we think we're going to recover a lot of that, if not more than that on claims with the state. But there's uncertainty with that. And we try and view things in a conservative way, so we're not recognizing aggressive numbers on claims.

Okay. And the Sasol job, how should we think about that? Because you've given some revenue numbers and you've given us a timeframe, is it even recognition over that timeframe per quarter? Or how should we think about that?

It's going to ramp up quick. Once they finally announced, they pulled out all the stops. Our contract is for the relocation of some of the conflicting structures on the site. There's a canal and a water conveyance system and some other stuff that has to be moved off the site. And then it's to bring in the dirt.

I believe the number is 18 million yards of dirt, which has to be moved from offsite. So the numbers get pretty large, and they go pretty quickly. It's pretty hard to get two dirt guys on the same site, so we had the dirt kind of by ourselves.

And then, that's what James heavy civil, with Jonas Beatty's group -- he's a great kid. And then there's another slug of work about the same size that Conrad has at JIC for the concrete structures that go on the dirt. That's a similar size to what Jonas has with the dirt.

And then, they had placed the pile-driving contract with a third-party, a private company and apparently they couldn't come to contract terms, so we've actually taken on some of the pile business. Originally, when we estimated the job, we thought there was about a little less than $600 million worth of work there. That being said, I'm not sure what the work will truly come to in the end.

They've added scope from what I see. But the concrete structures are kind of nebulous. I can't get my hands around what the structures will run. And I think the schedule is 2.5 years, so if that helps everybody model it, I hope it does.

Okay, and then, Brian, last quarter you talked about you were kind of looking at one job the size of Sasol and one smaller on the Gulf Coast. And you remained bullish about the prospects there. So can you give us an update on the specific opportunities you're looking at on the Gulf Coast?

No, I really can't. I get a report every Tuesday night with everything we're looking at, and I don't even print it anymore. We'd have to kill half the trees in Minnesota. So I know everybody seems to be a little skeptical about it, but we're not seeing any slowdown at all.

What we're seeing is a lot of issues. We've got one client, he came out with some hand sketches. It looks like he did them on the hood of his pickup, and it was for some structures.

And then, we finally got the engineered drawings, they were entirely different, so the prices we gave the guy, they weren't even in the same universe going in. And then, we're seeing these guys, particularly some of the foreign entities that kind of operate that way worldwide, we're seeing a lot of these guys be rather stingy on dealing with some of these cost overruns.

So we've decided to be pretty selective on who we work with and get more aggressive on our contract terms. A lot of these guys are guys we've worked for 20, 30 years, so it's hard to get too aggressive with them. But it just seems like I'm spending a lot more time trying to collect money than I'd hoped for.

And I've warned you guys about this, saying that's going to be our challenge is managing expectations and collecting these bills. I just didn't think it would be this bad. And I think part of one of the other reasons is there's just a whole lot of uncertainty over the price of the crude and nat gas, which causes a lot of these guys to be hesitant because even the petrochem guys are being tarred with the same brush.

Okay. Thanks for the color.

You bet.

Thank you. The next question is from Mike Shlisky of Global Hunter Securities; please, go ahead.

Good morning.

Hey, Mike.

Real quick, I want to ask about some of the training you had mentioned you had in the quarter at ARB. Is that over with at this point? And either way, could some of your folks see some inefficiencies here at the very outset as they just got these kind of skills?

Are they still developing their life skills in that area? And is there going to be a possible first-quarter margin impact there?

Well, our normal first-quarter margin impact is gross margin not -- it relates to revenue. There just isn't enough revenues normally. The utility, as you know, by the time they wipe the sleep out of their eyes from Christmas and the holidays, they're just kind of slow starting up.

This is a fairly large contract to [TBs]. When we put these gas services in for customers like PG&E and So Cal gas, we typically drill them in with a big drill, fundamentally. It's wheel mounted or its mounted on a little bobcat or something. And that drill is really powerful.

And it has a tendency to drill through about anything that it runs up against. And that's not good when you drill through a sewer line or something like that. So in essence, what we do is we go in and camera the hole before we insert the service to make sure that we haven't drilled through something we're not supposed to.

That can be very problematic. And over the years, we've drilled in hundreds of thousands of these services, as has PG&E and their crews and So Cal gas's crews. So we think it's a great market. It's just something that nobody's done before in terms on a consistent basis on the West Coast.

So our first contract is in Northern California, and we're pretty excited about it because this is something that's going to go on for a long time because they're going to continue to drill these services in. For example, PG&E has 250,000 of these audle-As and audle-B services they have to drill in. And I assume the vast majority of them will be drilled.

So I think we've got a couple-year contract with a one-year extension. This is something that we think is going to go on. And so we geared up to do it right, and we had some initial costs. I think we will be going pretty hard by the end of the quarter.

But I'm not sure we're seeing a whole lot of revenues first part of the quarter because this is a new facet for PG&E also. And because of that, they don't have the people or the program to support us, I think, as quickly as they might like. So we may struggle a little bit with coordination with them.

Okay, great. Then I wanted just to change real quickly to the acquisition here. And I know in your comment that you had prepared, you had mentioned folks have been critical over the years as you were not looking to pay too much money for some of these deals. And now you've done one that looks like a pretty good EBITDA [multiple here] around 4 times.

So I don't want to be critical that you're paying too little. But my question is, is there anything we should know about as far as, are there any issues with their 2015 growth outlook? Is there any issue with their balance sheet? Is there a large backlog there, or a small backlog there?

I just want to make sure that when you're paying 4 times, that it's for a decent company that hasn't really changed from your prior targets. Always a good operating company there.

Yes, the only one we've been opportunistic in trying to catch a falling knife was Saxon, and we've paid for that. But now we've got, in my opinion, a great little business unit. We like Aevenia. We like the guys a lot.

They're down to earth. They're our kinds of guys. They're focused on cost control and understanding where their costs are. They've a good market area. Their office is about 5 miles from our Q3C's office in Little Canada. So it's not a lot of windshield time for me to go up there and see them both.

Aevenia, it was part of Otter Tail. I think they're -- like a lot of utilities, they get into our business because we make it look so easy I guess. But I think they just want to exit that business. So I think, we found them; we didn't chase them through a process.

Processes drive the price up because you get private equity involved and maybe 10 or 12 strategics. We just typically don't participate in those, it drives the investment bankers crazy. That's why we pay a lower multiple. Plus, we want guys that aren't looking to toss us the keys.

And when you pay multiples like some of our compatriots have of 9 and 10 times to be in the Gulf, you get a lot of key tossers. Guys in their seventies, or guys who haven't build a lot of depth into their companies. So we looked at this. It was absentee managed; it was managed well.

The guys are very much profit motivated. They're very much motivated to grow, and they fit our group, I think, exceptionally well. And those are pre-criteria for us. So we think the multiple that we're seeing -- we're in the market at what, a seven on forward today?

I don't know what we are today; that's a tough calculation. But I'm not even going to do that until I've taken some Xanax. But when you look at our multiple, we just can't go out and pay an eight or nine. It makes absolutely no sense.

And I think it'd be a gross injustice to our shareholders to do that. So we're seeing more reasonable evaluations now, and pretty excited about it because we kept our pattern dry. I'm not going to name three guys that paid the 9 to 10 times for companies in our space, but how are they feeling about those now?

Got it. Makes sense. I'll leave it there. Thank you so much.

Thanks, Mike.

Thank you. The next question is from Dan Mannes of Avondale; please, go ahead.

Thanks. Good morning, everyone.

Hey, Dan.

A couple quick follow-ups, first, on the fourth quarter. Can you just help me out a little bit more on Rockford? You, obviously, knew what you're bidding pipeline looked like. There wasn't a lot of long-haul work.

Were you surprised? Was there an absence of smaller work to do? Or maybe you just weren't positioned where you wanted to be? I guess I was little bit surprised by the step down there, and I was hoping you could help me out a little bit.

Well, a lot of the work we've been doing in the Marcellus has been kind of quick-hit gathering-line stuff. And we see some more of that this year. We actually see some augmentation of that like this compressor station for Williams up there.

But I see it smaller, and as it gets smaller, it gets more competitive. So thank God, I think we're going to be busy on the bigger work. But that started winding down.

There's been a whole lot of uncertainty in our markets with the price of oil and nat gas liquids. Nat gas has bounced around on the bottom, so that's kind of miscellaneous. We haven't seen those big changes. With that uncertainty, we've seen a lot of guys just kind of pull back and say, well, let's wait and see what happens.

I think now that it's somewhat stabilized -- although, you still have guys predicting oil is going to be at $30. We're seeing guys develop a little bit more confidence in their projects, but there just wasn't a lot of smaller quick-hit projects like there was in previous years for Williams.

Got it.

And I'll be honest with you, this little job we did in the hills in West Virginia, it was a bear. It took a lot of really talented guys. When you're hanging off the hills with winch cats and everything else, you can't send the everyday Joe's up there to do that kind of work.

So we were pretty occupied with it. And it's a shame that we committed some of our best assets to a nasty job, but it would've been a lot worse had we not. And we might've gotten somebody hurt.

And the last couple years Q4 has been pretty good. But historically, winter hasn't been the best time for long-haul work. But here you are.

In January you booked a big job in Texas. Do we see maybe a little bit of a different seasonality this year than we've seen in the past, given kind of a weaker Q4 and maybe a better positioning for Q1?

Boy, that's a tough question. I think a lot of it, you've got so much noise in the oil markets. And a lot of what we've been installing has been oil. Although, what we're looking to install this year, next year, and the following year has been more gas and gas liquids.

But I think there's just so much noise with the precipitous drop of oil, that it just -- I don't know how you can sort that out and kind of analyze third and fourth quarter. I think just a lot of people pulled back. Like I said, I hear, I go on these earnings calls of our clients, and all I hear is a lot of talk about balance sheet preservation and things like that.

So I just see the big work there. It's funded; the pipe is bought. Although, there is a bunch of pipe on the market right now. People are changing their minds about whether they want to install it.

But there is so much work out there that's funded, that's contracted for throughput. I just see it as a bullish time for the next couple years.

Understood on the long-haul side. Another quick question as a relates to Aevenia. How levered are they, if at all, to oil field electrification? Is that one of the concerns on the business that things get a little slower in the Bakken?

They've got some work up there, but the vast majority of their work is utility-based. So if they're not drilling new sites and overhead lines into well pads and stuff, it's going to slow down in that area. We actually view that as a positive because we want to be there.

This is a great footprint or entry point for us into that area. But the majority of their work was in other places besides the Bakken, or the Williston as far as that goes, Southwest of there. We see some really good opportunities with our other offices to move them into other places and pursue that kind of work when it begins to rebuild again.

But I am not worried about any kind of precipitous drop in their revenues. I think those guys, Mike and those guys, will handle it well up there.

Okay. And then the last thing is, on the energy segment, we were pleasantly surprised by the margin pick up. And I know you were disappointed that you didn't start up on Sasol as much as you wanted.

But were the margins there -- was that a function of the fact that maybe you weren't on Sasol yet? Or are those the realistic margins given how tight things are down in that area?

Well, probably 90%, and I'm guessing, but I make some pretty good guesses because I study these numbers pretty hard, but 90% or 95% of the work we perform down there was reimbursable. And to be honest with you, Sasol, since the first portion of it's heavy dirt, it's a little different skill set.

So those people weren't off making us a bunch of money on this other work while we're waiting for it. Because to be honest with you, as I said in my remarks, the team has been set aside for a year. How you get this work is you prequalify your team, and if it's reimbursable and the client is willing to give you work that isn't lump sum, you'd better give them a good team.

So we set aside this team, and they had to be remain available because you can't put them on a job that is going to conflict with the start of this project. And God bless Sasol, they struggled with some environmental stuff, and they struggled with the GTL decision. But every month, it was a, well, next month, next month, next month.

And so in essence, we had that team set aside, so, no, they weren't much help on other work. But I think those margins should continue.

The problem we have down there is you get done with these jobs and the client is holding a bunch of your money because you're spending it fast. And it's going out the door every Friday because you're writing payroll checks for most of your costs. And they want to claw back.

And everyone of them, they go to these seminars. I don't know who puts them on. They're probably the same guys that put on seminars for us on collecting. But they put these seminars on, on how you can chisel money out of a contractor after the job is done, and you're still holding his money.

So a lot of them come back to take another bite. And to be honest with you, Dan, that's why we just have to be so conservative in the way we reflect profit on these jobs until the bitter end, until that retention is received and the last payment is received because I'm guessing 25% or 30% of these guys have come back and asked for discounts.

Got it. Great, thanks for the color, Brian.

You bet, Dan.

Thank you. The next question is from John Rogers of D.A. Davidson; please, go ahead.

Hi, good morning.

Hey, John.

I just want to follow-up on a couple of things. First of all, in terms of the revenue that you talked about burning in 2015. It's about a $1.4 billion or so. Do you know, what was that level at the beginning of 2014?

Boy, you're trying to make me think hard. Clarify it, John. What level are we discussing?

You gave us some numbers on what portion of your backlog you expect to burn in 2015 of your current backlog. And I just want to understand the visibility you have into 2015? (multiple speakers)

Oh, how we relate to that years? If we made the same comment in the start of 2014, what it would have been?

Yes.

Hang on, we've got people pounding computers trying to check. You've got another question while we're researching here?

Yes, because, Brian, I'm just trying to understand a little bit about -- I mean, I appreciate your comments about the pipeline business and the market activity. But I also expect that if we don't book that work fairly quickly over the next couple of months, it's all into 2016.

No, to be honest with you John, most of these big pipeline guys, you kill what you eat. They'll bid it, and we did [100] and -- gosh, I don't know how much it was for BridgeTex -- but we earned a lot of that off in 2013, and then a lot of it off in 2014. But we bid this job for Enterprise in December or January, and started it in January.

So they go pretty quick. Because these guys are ready. They've spent a bunch of money on engineering rights-of-way and pipe and negotiating throughputs. And they want to get flow in the pipe.

So normally, we don't have too much backlog in this time of year. If we don't have it in the next couple of months now, we're going to struggle in the later quarters of this year. But we're bidding a ton of work that has to be built this year.

Okay.

It's about $1.3 billion, John.

$1.3 billion? Thanks, Peter. And then, the other thing is, just in terms of the receivables that you're trying to collect, the $63 million.

What's the next steps in that process? I mean, is this going to stretch out for years? Or are there any specific hurdles that might move that collection forward?

Well, it's a mixed bag. We match our contracts with our clients and our venue. Part of our challenge is all this work is governed by [fling] laws in counties and state laws, so you have 50 different jurisdictions you've got to concern yourself with, plus the international clients.

Now with the solar guy in California, we chose to do international ICC arbitration there because we have a guarantee from the parent company in Spain. So that can be as long a process as litigation and a bit more cumbersome because, typically, you're dealing with arbitrators, a couple of them from -- that aren't US citizens.

So that can take a couple years if they want to be hardheaded. The project in Texas we're in litigation on, it's a matter of who can extract the most pain. Now typically, these guys will hold all your money and they beat guys up trying to hold their monies.

And that doesn't hurt us. I mean, yes, we'd like to have it, but if they want to give us 1.5% a month penalty under Texas law in lieu of paying us the $17 million or $18 million they owe us, I'm all for it because we're not getting anywhere near that in our checking or savings account. But that can take a couple years.

Most of these guys -- in 42 years, I've litigated dozens of these things. And I've been to trial once. So it's a matter of preparing these guys and have them understand how weak their cases are.

And in both of these two bigger cases, we have some smaller ones too, I think we're in pretty good shape. The one piece of good news that we got just recently on the work in California is that we received a bond -- we liened the project, and we received a lien-release bond from Abengoa for 150% of our lien. So now we have a US company on the hook we can sue also for collection.

And that gives us a lot more financial security that once we win, there's money there. So it's a long process. It could settle tomorrow. I mean, if they wanted to call, I don't sue guys without going all the way up the ladder.

And I made two calls to the guy that runs BridgeTex, and they remain unreturned. And David King made four calls to the guys at BridgeTex, and they remain unreturned. So if they want to start talking to us, we can get it resolved.

Otherwise, we're going to extract three pounds of flesh. Because I do not appreciate the way that clients like this have dealt with us over the years.

All right. Well, good luck with that. And then, one other thing, Brian, is with the acquisition that you announced this morning, takes you into a little bit different market, I would guess, in terms of the electrical work.

But you've talked in the past about the next opportunities, and I would assume pipeline assets are pretty expensive at this point. What are the options out there now, especially if pricing is coming down?

The options?

Yes. I mean that fit with Primoris obviously?

I read the attendance on these calls pretty religiously, and you've got guys that sign in as ABZTY. But all I see are a lot of competitors on this calls, and they read our transcripts I'm sure, so I'm not going to tell them which direction we're going. But we see plenty of opportunity for good-sized acquisitions.

And they're outside of what we consider the energy business, but they're somewhat energy-related because that's what we understand. And we're seeing a lot bigger companies come available at reasonable pricing. We see a lot of guys in the $100 million to $200 million run rate where the owners are little older, and they don't want to wait for the next time when multiples are back to 9 to 10.

They want to do something now because they don't know when that's going to occur. And we beat the ground pretty hard. And once you've bought a company or two, and you make these announcements, and people understand.

And they see how well you assimilate them and how well the employees like being part of Primoris and their managers, we get a lot of calls, hey, would you consider me? Or have you thought about this guy or that guy? So we don't have to look in the normal places.

We don't go to businessesforsale.com to find these things. And I think that's one of our -- and [money] is supposed to be in here today to see me, so maybe [DC's] got something to look at, who knows.

Okay. Thanks a lot. I appreciate the help.

Okay John.

Thank you. The next question is from Tahira Afzal of KeyBanc; please, go ahead.

Yes, Brian, I guess last question from me. You know you've seen two months of the first quarter go through. I understand this is seasonally a weak quarter for you, but given all the moving parts that impacted you in the fourth quarter, could you help us put the two months in comparison on a sequential basis?

I'm sorry, Tahira, you broke up. (laughter) I'm just kidding. I can't give you any guidance, Tahira. I wish I could, but I just can't. So you guys will just have to do your magic and figured it out.

Okay, thanks a lot.

Sorry.

Thank you, and that is all the time we have for questions. I would like to turn the floor back over to Mr. Pratt for any closing remarks.

To our employees, I wish to thank you all for your hard work in 2014. You are truly awesome. To the rest of our stakeholders, I'd like to thank you for your continued interest, support, and patience in Primoris. Goodbye.

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