Primoris Services Corporation (PRIM) Q1 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the Primoris First Quarter 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Devin Sullivan of The Equity Group. Thank you. Mr. Sullivan, you may begin.

Thank you, Luis. Good morning, everyone, and thank you for joining us today. Our speakers today 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 get started, I would 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. Forward-looking statements inherently involve risks and uncertainties, including without limitation, those described in the press release issued this morning and those detailed in the Risk Factors sections and other portions of Primoris' quarterly report on Form 10-K for the period ended March 31, 2012 also filed this morning and other filings with the Securities and Exchange Commission. Primoris does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. I'd now like to turn the call over to Brian Pratt. Brian, please go ahead.

Thanks, Devin, and good morning to everyone. By now, I hope you have all had a chance to review the results for first quarter of 2012. Primoris delivered a solid quarter but for the first time, we did not meet or exceed our analysts' expectations. As we review the past quarter and talk about future quarters, I want to remind all of you that if we do not give revenue or earnings guidance. I'll start with the Rockford Ruby expectations. We financially closed out the Ruby job this quarter based on final negotiations with our client. In doing so, we swept the bulk of our remaining reserves into income when the final resolution was executed. As I have repeated over in the past 1.5 years, Ruby is a bit of an aberration and the last year's earnings were higher than what could be used in estimation of the next. At the end of Ruby, we'll look back and we can lay claim to an acquisition that has performed better than we expected. But potentially, the $83 million purchase price for Rockford was based on getting $34 million of mostly cash equivalent assets, and the Ruby Project with -- along with other Rockford work over the last 18 months, yielded $48 million in after-tax profits. In sum, we traded $83 million for $82 million plus a great business. I'm not sure how you describe that multiples of EBITDA, but I do know it's pretty good. I'd like to thank Frank and the guys at Rockford for making it happen. However, the Rockford Ruby Project has created somewhat distorted expectations of earnings projections for this year in spite of my quarterly warnings against such extrapolations. Also, in adding Rockford's markets to our legacy businesses, we have added seasonality to our workload. This is the same seasonality that presented itself in the Q1 results for 3 other public companies with large capital pipeline operations. They all reported losses in this segment. Our business, based in this industry, posted a small profit prior to the recognition of contingency reserves on the Rockford close -- on the Ruby close. I continue to view Rockford acquisition as a great success for Prim, how could I not? But the heavier weighting towards more seasonal large cap pipeline business will bring more Q-to-Q volatility in our numbers in the future, at least, until other parts of our business grow to [indiscernible] higher concentration. The good news for this seasonal market is that work prospects are good for the remainder of the year, and the better news is that '13 and '14 are shaping up to be possible banner years. We are currently tracking almost 4,000 miles of pipeline construction possibilities for these 2 years. Some of these projects won't get built, some will be delayed, but even if a reasonable fraction of these jobs coming to market will make for a very, very significant opportunities for our mainline guys. So you can see not only is the market seasonal but cyclical. An additional reason for not meeting up some of the industry's expectations is a 3-set after-tax claim we posted on the California Project. This project has incurred very difficult, and we feel unreasonable environmental mitigation interpretation by our client, with which we strongly disagreed. We are in a contractual resolution process with this client and have, as is consistent with our recognition policies, attended to represent worst case as to the outcome of this project and the resolution process. There are several other small negative influence on our results for the first quarter, but I don't think they're worth mentioning. To the positive, our ability to operate as a group specialized construction infrastructure companies committed to diverse end markets served us well this quarter as we are confident they will in the future especially as it relates to business development. We announced this morning our East and West Construction segments secured a total of $264 million of new business. This new work was spread across all segments of our service offerings and most of it should be completed during 2012. Our backlog at March 31, 2012 was $1.12 billion. We generated cash for -- from operations of $39 million and our Q-end cash position was $135 million, or $2.61 per share. We continue to operate with a low debt-to-equity ratio, reflecting our belief that health and stability of the financial condition is critical -- and is of critical importance to our success. Specific to our operations, I'll begin with our West Construction segment where revenues declined by $62 million due to substantial completion of the Ruby Pipeline Project. However, offsetting this decline were increased revenues driven by greater activity in both our California-based industrial and underground markets, which contributed $57 million of higher revenues for the first quarter of '11 -- sorry, '12. Scott Summers' underground business continued to perform well under previously announced contracts and MSAs for performance of natural gas distribution and pipeline integrity work in California, where we are dominant player in the market. As we look into 2012, we see no abatement in pipeline maintenance activities by California owners, a large portion of which is driven by regulation. In that regard, Scott and his team recently secured approximately $51 million of new work authorizations for gas service, retrofit and pipeline integrity work from 3 major California owners, none of which is accounted in our backlog. Our ARB underground group also recently won a $10 million contract for 9 miles of natural gas pipeline in Eastern California and a $7 million of other construction -- other pipeline-related construction. ARB's industrial group under the leadership of Tim Healy recently began work on a $17 million work contract to construct a 50-megawatt figure in Oxnard, California. In addition, Tim's group is part of a joint venture, who was awarded approximately $35 million of new work associated with a major solar thermal power project in California and over $9 million of new work in various power and industrial facilities in California. Mark Thurman's structures group continues to slug it out in a very tough California civil market. We do see small signs of improvement, but they are small signs. ARB Structures was recently awarded 2 contracts totaling approximately $8 million for new construction at Cal State San Marcos and a parking garage expansion in La Jolla, California. I remain confidence in -- confident in Mark's leadership of this group and his long-term prospects. Along with this, we announced earlier today, Rockford's award of contracts valued at approximately $48 million for work in Wyoming and Pennsylvania, a further endorsement of our strategy with Rockford. Sprint Pipeline Services, our new subsidiary, secured $10 million of new work. Their awards included $6 million of projects from a chemical facility near Freeport, Texas and $4 million of midstream oil and gas companies for various projects -- various pipeline-related projects. All of this work is scheduled to be completed in 2012. Robert Grimes, Sprint's President; and Jon Johnson, our VP of Business Development, along with their team, had pushed through conversions to new management systems, new structures of all kinds of new requirements, which they have adjusted remarkably well and have managed to keep their eyes on the prize. I'm proud of all of them. On the renewables side, our Primoris Renewables Subsidiary, along with ARB's Industrial group, is looking forward to commencement of construction of 2 waste-to-energy facilities in Puerto Rico, previously valued at $40 million. I'd say, previously, as the owner-developer synergy has asked us to take the larger role in these projects by performing the entire engineering procurement and construction packages of these facilities, bringing their value to an excess of $110 million combined. These projects are not yet represented in backlog. Backlog in the West settled at $330 million at March 31, 2012, up about $3 million from December 31 2011. In the East Construction segment, backlog at March 31, 2012 was $769 million, down about $45 million from 2011 year-end. At James Construction Group, we commenced work on a $120 million project for TxDOT along the with the I-35 corridor in the McLennan County, Texas. With James' completion and therefore, the virtual elimination of performance risk on several large projects near the end of last year and the massive amount of new work we commenced, margins are predictably off a bit in the East. Traditionally, recognized margins grow through a project's life as it matures and performance risk is reduced. James has also awarded new contract totaling approximately $76 million. This include $48 million of work in Louisiana for new bridge projects and the completion of the I-10 lighting project in Baton Rouge. In Texas, James was awarded $10 million for highway construction projects near Temple and $1.5 million for a waterline project in the Houston area. James Industrial Group was awarded $3.5 million of civil construction on 2 industrial facilities in South Louisiana. The Cardinal Mechanical division was awarded $2.5 million project for the city of Houston. James Infrastructure and Maintenance Group, now headed by Jonas Beatty, was awarded over $10.5 million for various mining support and site-work development projects in Louisiana, Florida and Texas. Roughly 85% of these group's new works shall be completed in 2012. Jonas was recently promoted to Division Manager of James I&M group upon the retirement of long-time Manager, Tommy Lasseigne. Tommy will be missed, but we have high expectations for Jonas. Bill McDevitt and Cardinal Contractors commenced work on a previously announced $10 million design-build wastewater improvement project for Palm Beach, Florida. This is slated to be complete by mid-'13. In addition, as announced this morning, Cardinal Contractors was successful in securing approximately $9 million of new work in Florida consisting of water and wastewater work. All of these projects should be completed by the end of 2012. Cardinal's recent successes are in -- their first in a while and we're hoping this marks a turning point in what has been a really tough market. Engineering revenues rose modestly to $11.7 million. Gross profit for the quarter declined to $1.8 million from $2.8 million in last year's first quarter due to higher margin project closeouts in 2011. Backlog for this group as of March 31, 2012 was $23.5 million, down by about $1.8 million from year-end. With respect to opportunities, for OnQuest, the heater business, one of our mainstays, remains sluggish. However, we are experiencing good opportunities in waste-to-energy projects and a real surge in owners looking to build small-scale LNG facilities. Both of these markets are good business lines for our engineering group. In viewing our company's overall prospects for the year and beyond, I'm very optimistic. Our basic geographies in markets and energy infrastructure and utilities continue to be robust. We have achieved 1/3 of our acquisition goal for the year and are closing in on 2 additional targets I mentioned before albeit smaller ones. Our people are the very best at what they do. They remain absolutely focused on the issues of our clients, the quality of our work, the well being of the public, our clients and our people, understanding and reducing our costs and of course, increasing shareholder value. We have the right strategy and all the right tools. We remain absolutely focused and driven. Before turning it over to Pete, I'd like to announce that our board has authorized a share repurchase plan of approximately $12 million -- up to $12 million over the balance of the year -- I'm sorry, $20 million. Pete is looking at me cross-eyed. We believe this speaks well to our shared confidence of Primoris management and our board. It is also a byproduct of prudent fiscal management, which has contributed to building a financial statement that allows us to create other ways to enhance shareholder value. Finally, I want to, again, thank the stakeholder employees at Primoris Services Group of Companies. Your efforts continue to bring rewards to yourselves and our shareholders. You make me very proud to be part of our company. Now, I'd like to turn the call over to Pete Moerbeek, our Chief Financial Officer. Pete?

Thank you, Brian, and thanks to each of you for taking time for joining us on the call. Filing of our Form 10-Q this morning was a benefit to all of us as I can definitely reduce the length of time that I need to discuss any of the items that you can already read about easily. I do want to focus briefly on several areas and provide color on some of the numbers. My first comments are on revenues. In the earnings release, we said that the revenues for our California underground business increased by $41.8 million in the first quarter of 2012 compared to the first quarter of 2011. Of that increase, $26.2 million was from increased work for 2 of the California gas utilities, which included $17 million for our large Northern California customer. The increase demonstrates that the gas utilities remained focus on underground integrity work. However, on a sequential basis, that is comparing Q1 of 2012 to Q4 of 2011, revenues for our largest West Coast gas utility customer decreased by $34.8 million. This is consistent with previous years as even in a relatively mild winter, utilities need to provide gas to their customers and pipeline integrity, copper services and pipeline replacement opportunities are deferred to future quarters. In the West, we also announced that the ARB Industrial Group revenues increased by $15.1 million. That increase was primarily the result of our continuing work in the 3 California power plants that we have mentioned on earlier calls. And then my final revenues comment, I want to note that in the first quarter, the East JCG Heavy Civil group Louisiana Department of Transportation revenues decreased by $9.9 million. However, this was largely offset by TxDOT revenue increase of $7.5 million as we are beginning the work on substantial I-35 projects that we announced last year. During the quarter, we closed the acquisition of Sprint Pipeline Services. That transaction added approximately $13 million of goodwill and intangible assets. The intangible asset piece of about $3.6 million will be amortized over the next 10 years. For the first quarter, we recognized $1.7 million of total intangible amortization, and we will recognize a total of $5.6 million for 2012. Between the acquisitions of Sprint and Rockford, we now have 3 separate earn-out calculations, 2 for 2012 and 1 for 2013. For Sprint, we will recognize in other expense amount each quarter this year of approximately $200,000 with an additional charge to SG&A of $200,000 in Q4 if the earn-out goal is met. In 2013, we will recognize approximately $100,000 each quarter and a $600,000 one-time charge in Q4 if the earn-out goals are met. For the remaining Rockford earn-out fees, we will recognize approximately $185,000 as an other expense each quarter this year with a $345,000 SG&A charge if they achieve their earnings targets in the fourth quarter. Our provision for income taxes for the first quarter of 2012 was $6.6 million for an effective rate of 38.5% compared to $7.9 million for an effective rate of 39% in the prior-year quarter. At this point, we estimate that our effective tax rate for the entire year will be approximately 39%. For the quarter, our expenditures for fixed assets were a net of $1.3 million. However, we still anticipate that our 2012 level of capital expenditures will be similar to 2011 or slightly more than $30 million. During the quarter, we paid out the remaining subordinated notes for the James Construction acquisition. At March 31, 2012, our total outstanding debt was approximately $78 million, and we had a debt-to-equity ratio of 27.2%. Even after the Sprint acquisition, our tangible network remained at the same $152 million that was at the end of 2011. Finally, as you look at our backlog, please remember that it's our policy to not look at a job in the backlog unless we know the contractual revenue amounts. This means we do not include cost reimbursable projects or anticipated MSA revenues in our backlog amount. It also means that for Primoris, the amount of our backlog is not as comprehensive of an indicator as it may be for other companies since the significant portion of our revenues, almost 21% for the first quarter of 2012, is not derived from backlog. And as always, I'll remind you that customers have the ability to cancel contracts sometimes even after we have started the job. With these luckily brief remarks, I'd like to now turn the call over to the operator so that we can get to your questions. Thank you. Operator?

[Operator Instructions] Our first question comes from the line of Rich Wesolowski from Sidoti & Company.

If I take out Ruby, the West margin was below what you've been reporting of late -- Brian alluded to the underground project that caused you $2 million but I'm also wondering about the progression of the 2 gas pipeline projects slated to be completed by summer, were either of those a drag on the quarter?

No.

Could you comment broadly on the performance of those and whether there will be any noise, positive or negative, in the June or September quarters?

They're progressing pretty well, Rich. But the one that causes me, I won't say I'm concerned, but the only moving part I see in, one, is we have to participate in the startup and startup of these plants, particularly this new iteration of the quick start of the block start plants. It is a bit of an unknown for us, and that we have to participate in that and how well the owner recognizes change of scope and things can make a difference. But they're progressing relatively well and, I think, over the next 6 months -- so these things, they complete in a flurry in the startup but then, they slow down, but as we progress, I think you might see the margins tick up on those a little bit. They're going well.

Do this morning's announcements of the project awards in Wyoming and Pennsylvania suggest that you've cycled through the lost liter, gathering line projects in those areas?

Well, the one project for the owner up in Wyoming, we did a project for them last year and this is the extension of that project. So, boy, I hope so if we didn't learn from the first one, we need to get out of the business. But I think it's reasonably priced. We don't have the move on obviously that we have in the first job and that was plus or minus $1 million. So it does make a big difference. I'm pretty optimistic about that one. Since we went to the Marcellus area, we've been picking up dribs and drabs from various owners and the one of the owners has recognized that, that's probably not the best way to do the work because we can't really plan. We jump over here and do a couple of miles and we go across the state, do a couple of miles. So he's a -- we've come together with him and kind of put together an execution plan, which allows us to kind of logically plan to step out and attack it the way it should be. So most of that work is reimbursable. So there wouldn't be lost liters in that, I would hope so. But -- so I'm optimistic those are going to be good jobs.

And then lastly, as the pipeline integrity revenue increases in '12 and '13, are the underground margins expected to be above, below or roughly in line with the West margins ex Ruby that we've seen of late?

Traditionally, those are pretty decent margins because we get some ancillary revenues through equipment utilization and things like that. The owners are constantly going to new iterations to how they want to deliver the work, so it's cost plus 1 year and it's shared savings the next year then its rip and read the following year and then it's negotiated the next year. So I couldn't speak to what delivery systems is going to be the flavor of the day with these guys over the next 2 years. But in general, that business has a little bit higher margin than some of the other because of utilizations and things like that. Now when you shift into a new area and you gear up the way we have last year, these crews are very intense user of tools, and they're very specialized tools and they're very expensive tools. A 3-man crew can cost you in the neighborhood of $300,000 to $400,000 just to tool it, forget the equipment that goes with it, I'm talking about hand tools. And so a lot of that is spent so we expect to see some margin improvement on the fact we don't have to re-spend that money. The work is going to be somewhat consistent in what we're doing this year and next against last year. I think -- it's a long answer, but the short answer is the margin should be a little bit better I would think than the average blended margin.

Our next question comes from the line of Lee Jagoda of CJS Securities.

If I look at to your JV line, it looks like you have about $1 million of revenue from profit -- excuse me, from St. Bernard and then $100,000 from WesPac. What's the status of the work in each of those JVs? And what's the outlook look like for 2012?

Well, the WesPac is a project development group so I don't think you're going to see any direct margins as it relates to WesPac. Hopefully, we'll see some work in '12 on some of the projects they're pursuing, a couple of them are going pretty well. The St. Bernard Levee job, that's pretty much complete. I think we will recognize everything there pretty much. The new JV we have, which will be somewhat below the line will be with on this thermal solar work we have in California. We've got about -- I think we announced $35 million in that group and we hope we get quite a bit more. The owner is -- they're fighting environmental stuff like they all are out there and archaeological issues now, but they got a lot more packages to come and they fit our skill sets really well. So I'm optimistic we'll see some more business out of that.

Hence, do we expect any benefit from that in Q2?

Some. They're struggling a bit, and we're going around and around with a lot of undeliverables because our first contract was for the assembly of the mirrors, which is something I really wanted. We spent a lot of energy. We spent -- these big mirrors, you have to assemble them on-site because they're so big. You got to haul all the pieces and then assemble them, and we spent a lot of energy. We went to Spain and did some time studies on how they assemble them there. They're almost identical to the ones that they built in Spain for their solar projects. And -- but they have had a difficult time with manufacturing some of the parts and want to manufacture here domestically. So it's been slow starting out, but the things got to get built. They've committed. They really -- they're over their skis on these things. So I'm optimistic we'll see some revenues -- some serious revenues by year-end. I'm not sure about Q2.

And then just switching gears a little bit to the Sprint's acquisition. If I look at the East segment, where I believe it will go into, how do margins in Sprint compare to the East segment because it sounds like it's more of the work you would normally do in the West?

It's significantly more cost reimbursable. There's a lot more trouble with it. They do smaller capital projects. They're not nearly the size with the ones we do in the West, although we're going to bootstrap up and give them into a bigger -- into the big boy market eventually. But their margin should be a little bit higher than what you see in the West. They have little higher overhead. When you're dealing with day-to-day wants of clients, you have to really cater to them and you have to be available to them. And through the winters, you'll see some -- a little bit of an ordinate overhead cost because once you get your people operator qualified, you have to make sure you keep them. You can't afford to lose them because it's very expensive to get them all queued. So they actually exacerbate a little bit on the lumpiness, but their margins are good. It's kind of recurring, cash flow is a little lower because the clients like to take a little longer to pay us, but it's a great mix. It's dealing with the same clients we dealt for the past 60 years and these guys are really good at it and they've really built a great reputation and we're pretty excited about using this as a platform to get more.

And, Brian, just one more question, I'll hop back in the queue. Can you just remind us again of the seasonal pattern that the PG&E work would normally take?

Yes, the PG&E has to -- they have to put their system back into service as soon as the cold weather hits. And it's -- they can't afford to take a risk and say well, geez, you know the forecaster says it's going to be a warm December. So traditionally, they kind of get -- have to get their system back into service, Halloween-ish, Thanksgiving-ish, some place in there and usually, they get pretty aggressive on the work around April, May when it warms back up. Now, it warmed up earlier this year, but again, I can't see a utility going to the ratepayers and say, Jesus, we didn't have heat for you this year because we didn't think it was going to be this cold. So that's their big system. We've done a lot of the copper service work for them in Q1 and headed into Q2. Those copper services, you can lay one next to the one that's existing and just cut it over and the client's only out of service enough where you got to light their pilots. So it's pretty easy to do. That work kind of carries through the winter. But now, you're starting to see the start of the real work now. This year, they've got a new set of guides in there that they brought in and they're kind of feeling their way along on how they want us to deliver the work, whether it be shared savings or reimbursable or what. So I think that may slow the process down a little bit. But from the numbers I've seen on the headcounts, we're headed into it pretty deep here in the next 30 days, 60 days. Hang on, Pete. Go ahead.

Lee, the 50-50 joint venture that we have gets accounted for not below the line, it's part of revenues and then earnings, so you won't see the benefits from that project and other income that's included in revenues and normal income.

And that's the thermal?

Yes.

Yes.

Our next question comes from the line of Tahira Afzal of KeyBanc Capital Markets.

Wasn't that bad if you take the $0.02 out -- I guess I was surprised by the amount of seasonality on your top line. So I guess I can start by asking -- as you know, as you've mentioned in the fourth quarter, which didn't have any Ruby in it into the first quarter, what would you say were the prime differences on the top line?

Well, I don't like making excuses, Tahira. There was a degree of weather. Your heavy highway stuff, it's not like 1 day of rain push you out of business for 1 day when you got rain on that kind of work and you're moving dirt, which is typical of what you do the first part of a job, you're really down for a week or so. And when you're not generating cost, you're not generating revenues so the Heavy Highway side was slow. I think the pipeline business, we -- PG&E started up early. The power work -- we have really pretty good work in the weather in the West. I think on the main pipeline work for Rockford, we had these smaller projects that the client rolled together. Some of that, we couldn't do because of weather and the Teamsters, they were still out on strike. I think we reached a resolution that deferred everybody, I think, first quarter. But that's basically it. I'm not too disappointed with the top line. Yes, I wish it was more but in general, we're going to see more volatility when you got -- when you're in the businesses we're in, and I've known how much we've missed your top line estimate. I'm trying not to read those things. We had $34 million decrease in just 1 customer.

And along those lines, clearly, I guess the PG&E seasonality is something I hadn't taken into account. And If I look at your work it starts from $94 million to around $60 million in the first quarter. Now, I'll just base it on your commentary, it seems -- as the PG&E works ramps up, and I assume it's still going to be treated more like work and work but you're going to see that bounce right back up?

I think we've seen it. I didn't bring the chart with me, but I think we've seen a pretty good bounce in March and into April. I think it's -- yes, they have to spend the money. I think we're still their best choice and I think they recognize that. They're trying to bring other people in, of course, because they don't like to be dependent on 1 contractor. But I'm very confident we're going to see a pretty good selection of work for halfway into this quarter and the third and fourth.

And then I know you gave some numbers of backlog balance for the rest of the year. You expect around $640 million in backlog. But for the rest of the year, does that include Sprint?

Sprint is not a big backlogger. I think we announced $16 million in total but I'm not sure how much of that went into backlog. I'd have to defer to Pete. But most of their work is quick burn and it's cost reimbursable. So traditional to what we've done, we don't backlog reimbursable work unless it's defined and most of this stuff isn't going to be defined. My guess is they do about either 2/3 or 3/4 of the work is reimbursable out of their $60 million or $70 million run rate. So on a year-over-year, you're going to see maybe $15 million of contract work, which will hit backlog but it would burn up so fast. It'd only be there for a month or 2. You probably wouldn't see it on a Q-to-Q basis.

And so, Brian, as I look at 2012 on the top line, you started a bit slow this year and has pronounced seasonality, do you plan to catch up during the year then? Do we see a flattish top line year-on-year or is that looking tough right now?

I'm kind of sitting here wondering if you're asking me for guidance.

But I add up everything you just said, it means I can get fairly close to your -- what you did in 2011?

I think you need to really look at more of a model on '10 than '11. But because Ruby was just such overpowering numbers, it did have a tendency to in some quarters because of the way we had to deal with the charges and the performance risks. It did kind of lower our gross margin from quarter-to-quarter, but it certainly blew our volume up tremendously. So I couldn't speak to '11 maybe if you ask me again this next quarter, I could speak to it better, but -- I certainly can by the end of the year.

And I guess last question and I'll hop back into the queue, then if I take the $2 million out [indiscernible] the margins year-on-year that were up around 80 basis points. So -- as we go into the following questions in quarters, and I know someone has asked this already, which quarter do we see margins peak in and could you potentially, without Ruby, see margins doing a fair bit better?

Third quarter is usually our barn-burner when it comes to revenues and margins but by the time you get there, a lot of your contracts or you're different to them so you can start looking at your performance risk and things like that plus that's also our peak volume traditionally. Although sometimes it does slot into fourth quarter, but third quarter is usually our beast of a quarter.

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

I wanted to ask first about the buyback. Just, Brian, maybe if you could comment on strategically why you thought that was a good idea and then maybe give us some parameters for how we should think about how aggressive you're going to be with buying back the shares?

Well, I think we have the same vision as anybody starts buying their shares back. We think that our financial statement remains strong. The cash that we have on the books at the end of Q1 was -- after writing the check for Sprint, which I forgot -- how much was...

19, $19 million.

That was after a $19 million check went out the door. So we continue to earn a lot of cash. We studied higher dividends but quite frankly until the guys we have in Washington gives some kind of coherent tax policy, I'm not sure bigger dividends or any better solution, maybe just more of a tax problem. So we've got kind of a great financial statement. We're not really looking at large acquisitions right now. Some of those small ones are going to use a little cash and that's our intent in these smaller acquisitions is to use more cash. Obviously less currency if we're going to be buying it back. But we just see a market that continues to undervalue our shares. We've got one of our peers that earns $0.17 this first quarter and his stock price went up and he's sitting at a $0.17, $0.18 stock price. I look at that and I say, what are we missing? Because apparently you guys are smarter than us that's why you're getting the big money in New York. So I'm saying along -- if we think they are better guys, maybe we ought to be taking some of them of the Street. But I couldn't begin to go to how aggressive we're going to be earning else. The board has given us fairly definitive definitions or definitive criteria as to what to look for and obviously I got my share of that. So...

And then you mentioned on the pipeline side 4,000 miles kind of new pipeline is somewhere in the planning phase. Can you give us any sense for how that compares to maybe the over the past year or 2 in terms of pipeline opportunities?

Well, that's mainline pipeline. I didn't say that very well. So there's 3 or 4 different kinds of pipe guys. There is the roustabout guys that are screwing together flow lines, there's welding flow lines in the oilfields, gathering line guys that sell to the mid-stream owners and then there's the mainline guys that do transmission work. And that's strictly -- I won't say strictly, but that's more or less transmission work. That's big capital projects. And those are -- that's pretty much the north half of North America. And there is just a lot of large capital projects out there that some of them are competing that's why they're not going to get built some of them are going to be difficult getting permitted. But it really goes back to the fact that the hydrocarbons are not where they traditionally have been and the markets are changing. A lot of them relate to cheap methane prices here in the U.S. and expensive methane prices in Europe and Asia. And so you're going to see more LNG facilities to be built, not small ones, like I talked about with OnQuest. The large ones with -- like the stuff that the Kinder Morgans and the energy transports are going to build shell people like that and those need big pipelines because they aren't where you, traditionally, the gases that were traditionally produced. And with that, that's just a small part of the -- that's a big part of the opportunity but that's a small piece of the picture because to get the methane, to go to natural gas, they're going to have to strip liquids and there are going to be a lot of liquids opportunities in the business also and liquids pipelines. So it's not just the Keystones, it's the TransCanada and another projects. There's just a globe of work out there. Now, in terms of relativity, I can't tell you what got built this year but I know my guys couldn't be more excited about '13 and '14 based on the amount of work that's going to be available. And you look the number spreads I couldn't relate that to spreads but in essence, you're probably -- on Ruby, for example, we did 100-something miles. We had 2 spreads on it. So when you start looking -- and that was 2 spreads over 2 years. So when you start looking at 4,000 miles over 2 years, you get to 2,000 miles, cut in 1/2 to 1,000 miles at 50 miles per spread, you're soaking up most of the spreads in the United States that aren't busy laying the intermediate lines. So that puts a capacity constraint on our industry, which means prices should go up.

Some of your public peers are on record, similar commentary, right? I mean, 2013, 2014 could be as good or better than 2007, 2008. That's -- you're more -- you see it on the same way?

Yes, I think actually '12 looks pretty good, at least, for us. We seem to be in the right places and we've got about -- with this, we probably got $50 million for Frank's guys and I think we're going to end up with quite a bit more of that. We've got a couple of hot ones out there right now. I've got to figure out a way to get back to that $1 million between the 83 and the 82 that we paid for Rockford so I'm working hard to get that $1 million back.

Last thing I wanted to ask about the outlook for California business in terms of industrial projects and then -- do you seen any other power plant projects out there that might bring opportunities for you in 2013?

Yes, we've got proposals out on a couple and we're so I think that there's 2 more that go out in the next couple of weeks and I won't share the client names with you but -- and those are a mixture of large 100-megawatt-plus peakers or merchant plants. And with this new kind of block starter quick start technologies. And then we're going to see more and more as I've said on previous calls as they build the solar which they're struggling with their solar. They just can't seem to get out of their own way environmentally. But as they build more solar, they're going to need more peakers. And so the large peakers are going to be, I think, pretty good market. They're a little bit easier to build, particularly the recips. So it means more competition. But alphabetically, ARB is kind of the first guy they call so we're going to get at least the first call on a lot of these. So...

Our next question comes from the line of John Rogers with D.A. Davidson.

A couple of things. Just so I'm clear, back to Ruby for a second, in the second quarter last -- well, back up, the $48 million that you referred to, Brian, in terms of the total contribution from Ruby, if we back out sort of the release of the contingencies, it's well over $40 million last year, is that the right way to think about it?

No. Ruby -- well Rockford, Frank's guys at Rockford since the purchase, they've earned $48 million after tax. So if you tax-effect that, that's what they earned through this quarter on Ruby and then the additional work we got -- that net-nets out a little bit of loss we took on the job, which one was it? Denver? Yes, so that's the net number. For just the mainline guys, that does not include the ACP guys, Alaska Continental or the integrated guys into our office here in Northern California.

But it's still -- I mean, that's the big tough comparison. I just want to make sure I sized that right for -- that you reported in 2011?

Yes. Well, when did we take possession?

Actually, we did it last.

I mean, you started up in what? December 10?

Yes, that's from -- November 10.

So there's a little bit left? There's a little bit in '10.

And then in terms of just the pipeline work this year in 2012, one comment I got the other day from somebody is that they said they were a little bit concerned about the pacing as we get in later through the year. If we really do run into a storage problem. Have you heard that at all or is that something customers are coming back to you with?

I'm getting a disconnect, John. When you refer to storage...

I'm sorry, storage for gas, in other words storage capacity we have in the U.S. to store all the gas being produced maybe filled. If it's filled then they will stop or slow production of gas and that might affect some of the smaller pipeline work. Have you heard that?

Well, yes. [indiscernible] you're already seeing it now. You're seeing -- if you pull up the used rig tool application on your iPad you can look at every well being drilled in the United -- in the lower -- actually, in the all 48 -- all 50 states [indiscernible] Obama there. If you look at it, for example, the Eagle Ford formation, you'll see that all the work is pretty much stopped in the north part of the formation and its concentrated in the middle in the south. For the north part, you have dry gas, in the middle you have wet gas, in the south you have oil. So you are already seeing that, it's transferring the business from the north part to the south. Now, if that goes on long enough and you start seeing the price of gas so depressed that people don't want the methane for any costs, then people are going to start shutting wells in, which means less gas pipeline but also means less liquids pipelines. so it could have a fairly significant impact. At some point, and you have people like up in the Bakken that are just flaring gas. They're taking -- they're dropping the liquids out, which have a lot higher value and then they're flaring the methane and the states have come in and said no, no, no, you're done flaring. You guys -- they curtailed that they've capped the amount of gas you could flare, which obviously is going to end up curtailing the amount of pipe and the amount of facility that's built up there. it's not a good thing. That's why the market export stuff is so important to us. But as already been stored now you've got guys, particularly in the dry gas areas that are just shutting wells in because for $2.08, a thousand they're just not going to sell their gas. So the wells are drilled they're just going to shut it in until -- but a lot of them don't have a choice. Guys like Chesapeake, if they start shutting in wells then, they start losing their royalty payments -- royalty contracts require them to produce the gas. So they are even producing at a loss on some of these wells. So it's -- but most of the stuff we're looking at is large capital. It's not predicated on. Again, you're talking about distinct markets. It's not predicated on a gas well or gas prices in a certain area. This stuff is major stuff that serves the Marcellus not just part of the Marcellus or stuff that it serves goes over to Kitimat in Canada not some little flow line coming off a series of 5 wells. And incidentally, these projects we're talking about -- a large portion of these projects in the 4,000 miles we talked about are 5 and 6 years in the permitting process. So these things are like battleships. Once you get them headed to a certain direction, they got a lot of momentum. And the price of gas is going to sustain below $2 then you do have problems in a lot of places. But that -- these guys opportunity if they can buy gas and make it liquid and put it over at the port for $3 and then you sell it in Malaysia for $16, my God, what an opportunity. So the price of gas is actually going to help some of these projects get built.

And then most of your comments on your operations were answered. But I was a little surprised on the comment about some weakness in the petrochemical sector for the East Construction Services?

Yes, that -- and they've had some issues along with coast and we have not yet gotten in with some of the people and gotten some of the new construction that we'd hoped can of been going down for the last 18 months or so.

Well that market has just been extraordinarily competitive, particularly when you haven't seen a lot of large capital work in the refineries. But we think we're seeing a turnaround it now. We've got a couple of wines and water on for and also the very good projects for the Industrial Group. And we think with the ability to cross-sell the guys at Sprint, more active in the oilfields and in the refrigeration NGL business and those things, we think cross-selling that is going to bring great additional opportunities to us.

And lastly, Brian, any general comments on pricing? I mean, you talked about, I mean, not only you but some of the other contractors seen with the weakness in the first quarter. And I'm just wondering what -- if there's any sense of reaction in the industry where people are going to get more aggressive on pricing or they feel like the market's coming to them and they'll wait ...

I had the Rockford guys in here last week for a series of meetings and all the guys were lamenting about how some of the other guys got some of the work and I said well you are the smart guys because they're all losing money. If you head into '13 and you've booked some cheap portfolio, you have screwed up. But we're seeing some ability to call back on some pricing. It's all obviously very competitive. You get guys that have never been in the Integrity business before. They're trying to get the Integrity business and the clients don't know that they can't do the work or their don't know that the first job they do is going to be a disaster with some of the regulatory bodies. But sometimes you have to let them make that mistake. But in general, we're not seeing -- we're seeing I think firming of pricing in the Florida water and wastewater business. In the petrochem business, we're seeing an improvement in pricing. In the pipeline business, we're starting to see a little prices are going to move in the right direction. Integrity business, it's a lot of little micro markets other than the big utilities. And we are out there serving guys that we've been in business with for 60 years. We're giving fair prices. We always have. We're not going to go gauge in when the opportunity presents itself that's why we're still there because some of the guys are gone. So we are very cognizant of relationships when we price work. But I don't have too many complaints -- I haven't had in the last couple of quarters on pricing. I think the markets turning on a couple of the smaller markets. But in general, the Heavy Highway business, our pricing has been good because we're not bidding work without some kind of competitive advantage, which we've talked about. Some of the areas the guys struggled, but they're kind of running around trying to get commodity. We don't have a rock fit if we don't have right ready mix plants or asphalt plant in a market. We're just not just going to chase that work. We spent a lot of time developing the market over in the Austin area. We're spending a lot of time and I don't want to go there yet we you later next conference call a lot of time developing the next market we're going to go to and we've made -- that's where we're focused on some of our [indiscernible] activity and we're going to develop a similar set of skills, if not identical, to the ones that we have in Belton to go to the next civil market. And because of that, I think we're going to get better price. Now are they going to be where I like them? Well, no, I'm not really harder than result. So they'll never going to be where I want them but I'm not unhappy with our pricing program.

And, Pete, on the earn-outs and you went through these and I just apologize I missed some -- Sprint, $200,000 a quarter and with $200,000 more in the fourth quarter, potentially?

Yes, the $200,000 is below the line as another expense and the $200,000 as an SG&A adjustment based on what our estimate was their likelihood of obtaining it was -- is.

And it's 485 below the line for Rockford and 345 in the quarter, fourth quarter in the hit numbers?

Correct.

Our next question comes from the line of William Bramer [ph] with Mackin [ph].

I was hoping to go into your pipeline integrity and inspection division there. I'm trying to get a sense on what your capacity is there and can you give us an idea of what's the length of a project, I guess it depends upon the miles, et cetera, but how quick of a turn is that business for you and then finally, where do you see that business over the next few years?

We don't do a lot of inspection. If asked, we will. But a lot of the industry advice is that you either do the inspection or the repair. You don't ever want to have a roof inspection guide due to repair because they always find more problems than you actually have. And the clients recognize that. So in general, what we do is we prepare for the inspection, in other words we'll reconfigure the piping system where it can take a smart tool and then when the smart tool -- hire, and there's some really good guys that will come in and do the smart tool work for you once the pipeline is reconfigured. Then they'll run the tool and then we'll go in there, do what they call the dig outs. Everything in construction is what it sounds like. So we dig up the pipeline and we repair it. That's really where we focus. We really have not made any effort to get into the actual inspection part. Now, how long these projects can take us is kind of how long is piece a of string. Some of these projects are 3 to 4 years in the making because in the example of the PG&E, their system is so complex that their system in San Francisco, they actually transmit or transport, store and distribute gas in the same set of pipes. So their system is extremely complex whereas if you're talking about a major owner like a Kinder Morgan that has a pipeline that runs 800 or 900 miles, it's all the same diameter, it's all the same, pretty much the same wall thickness, not always, but similar wall thickness. And it's long runs and there's not a lot of work to prepare it because a lot of these guys build the system in the last 20 years. They're already prepared to run there, they're already configured to run these smart tools. So they can be 3, 4, 5 years sometimes in the making. And in general, what we've done with the owners on the West Coast is we've had alliances with them and we actually help them do value engineering on how to attack the work once they get into the position to want to upgrade it and then do the inspection. We think if you look at PG&E and our main clients to-date are in the West are the utilities and pipeline owners in the Western United States. In the East, or what your market is not nearly as mature as the West because the West has had much earlier and stronger regulatory impetus to do this. The East is just beginning to develop their plans and their issues and they have a lot older and a lot bigger system. And so that part of the Sprint acquisition was to focus a lot more on the integrity. Now, there is -- I hate to give you long answer but I think it's really important. Their integrity is not under the same stringent standards that the West is under. California has extremely stringent standards because they have some pretty catastrophic accidents. In the East, they haven't but they come under the stress of regulatory oversight because of the issues in California. So they're going to have to cut in automatic shutoff valves and do a lot of other work that we're doing in conjunction with a more massive program in California. PG&E has 5 or 6 years left at least with a fairly significant spend. Sempra has got a year or 2 years left. But they keep tightening their criteria to what has to be removed and cut out of the pipe and it's steel on the ground and they rust, so it continues to degrade. Some of the oil companies have got a couple of years left in their program. So California is kind of going to do well over the next couple of years but the real growth in the market is going to be on the East. If you look at the map of the pipelines from the Southeast up to the Northeast, there's a tremendous pipeline system with a tremendous amount of LDCs off that pipeline system that need integrity work done too. So It's -- I couldn't begin to put a value on it but it's going to be huge.

[Operator Instructions] Our next question comes from the line of Tahira Afzal with KeyBanc Capital Markets.

Brian, just a quick follow-up. You've talked a bit about LNG. There seem to be several export facilities that are being proposed. Are you suggesting you guys might be sort of bidding on portions of that? And I know you've gotten heat exchange projects that you won in the past and on Australian LNG, is there a potential for you to do those closer to home as well?

Yes, on LNG, we waste so there's a natural opportunity therefore for OnQuest. Most and there will be bits and pieces of this big ones because I mean, when you're talking about an $8 billion facility, Tahira, we're not going to be playing that lead although we do have very good relationships with the guys that are and we'll pick up packages from them, particularly when you're down in the wet part of the country where the James guys really excel developing pad stability of these things on the court the Marathon Garyville refinery, which is down in that wet country. There were 5 million yards in dirt that went into that pad to build the refinery on and this LNG terminals are going to be down in the weather wet because these big ships coming in they got to have fairly deep ports. There's a tremendous market in smaller LNG plants, which is what I was kind of addressing as much with OnQuest. And we built one of the better ones. I mean, if you talk to the Clean Energy guys, you'll find out that they absolutely love the plant because it's almost automatic being run with 1 guy they flip the switch it's making liquids, they flip the switch, they stop. There's going to be more and more of this stuff for a couple of different uses. One of them is just to strip liquids. If you got to take the liquids out of gas and you got to do something with the methane when you're done, one of the cheapest way to do it is just to make it cold the liquids automatically drop out and you can sell the methane in liquid form and you've gotten the liquids for free because you can get your money back on the methane. So that's a big part of it. The pipeline's going to do the LNG is a big part of it. The support facilities for the LNG is a big part it. There's also the packages. Every study I've seen with the amount of LNG work and refinery work that's behind the curve on development, we're going to have a tremendous labor shortage in the Gulf in the next 3, 4 or 5 years and it's largely due to LNG and refineries. But also the chemical business, when you have cheap methane, the chemical guys make a ton of money. And so that's their basic feedstocks and I think they're going to have a rather rapacious spending habit over the next 4 or 5 years in a prison capacity changes and things like that. And energy upgrades because some of the facilities in the process and that gets more expensive. So you messed that up with a power work that has to be built I think the guys know how to strike an ark or know how the core foundation level are going to be in pretty high demand.

Do you think, do you have are pretty good idea for the fabrication, welding capacity in the U.S. Is that where we see the bottleneck as all of these different infrastructure initiatives start to ramp up at the same time?

It's certainly going to be a bottleneck with the skill set that goes into making a well on exotic metals which are a lot either cold or hot processes. The pipe that goes into those processes is somewhat exotic. The higher strength pipe you get on the pipeline work. So I do think that the welding skills are going to be more and more in demand, particularly when you get into the more exotic materials. But I think in general across-the-board, this work is not like building a shopping center. It's pretty technically challenging, particularly the LNG and the power and the refinery work from the aspect of not only they can make the well but can the work safely because these guys demand very, very safe work environment that really kind of sorts of the guys that shouldn't be doing the work.

There are no further questions at this time. I'd like to hand the floor back over to management for closing comments.

Again, I'd like to thank all of you for the interest you've had in our company and the time you've spent with us on the call. Goodbye.

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