Primoris Services Corporation (PRIM) Q2 2012 Earnings Report, Transcript and Summary

Greetings. And welcome to the Primoris Services Corporation 2012 Second Quarter Financial Results Call. [Operator Instructions] A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kate Tholking, Director of Investor Relations. Thank you, Ms. Tholking. You may now begin.

Thank you, Kevin. Good morning, everyone, and thank you for joining us today. Our speakers for today will be Brian Pratt, Chairman, President and Chief Executive Officer of Primoris Services Corporation; and Peter Moerbeek, Executive Vice President and Chief Financial Officer. Before we get started, I’d like to remind everyone that statements made during today’s call may contain certain forward-looking statements, including with regard to the company’s future performance, words such as, estimated, believes, expected, projects, may, and future, or similar expressions are intended to identify forward-looking statements. Forward-looking statements inherently involve risks and uncertainties including without limitation those discussed during this call and those detailed in the Risk Factor section, and other portions of our quarterly report on Form 10-K for the period ended June 30, 2012, which is anticipated to be filed later today, 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. And now, I’d like to turn the call over to Brian Pratt. Brian, please go ahead.

Thanks, Kate. I hope you guys have noticed a different voice on the opening this morning, Devin Sullivan and the equity group have provided IR services for us prior to this. Kate is newly onboard. I would like to take the opportunity to thank Devin and the equity group for 4 years of excellence and professionalism and efforts. I hope by now you’ve all had a chance to do a cursory review of our results for second quarter. Primoris saw solid revenue growth in most of our key groups driven by ARB Industrial, ARB Underground and James. Excluding the impact of the Ruby pipeline project we grew total revenues by 28% in the second quarter of 2012, compared to second quarter of ‘11. Our backlog remains over $1 billion and last month we announced new awards totaling over $370 million. We grew operating margin to 6.1% in the second quarter this year, compared to the 5.9% in the second quarter ‘11, also in the first quarter of ‘12. Our net income in the second quarter grew by 11.9% from the first quarter of ‘12. We have maintained our strong balance sheet with over $119 million in unrestricted cash after paying almost $14 million for the acquisition of Silva in May and buying 89,600 shares under our new share repurchase program. Looking closer at our operating segments, let me begin with the West segment, revenue, sans Ruby increased by $60 million, driven by significant increases in both ARB Industrial and Underground. Tim Healy’s Industrial group continues to work on 3 large merchant power plants, 2 of which are in the closeout stage and should be completed in the next quarter or 2. The third plant, a repower at El Segundo, California is on schedule will be completed in early 2013. The Industrial Group is also building a smaller peaker plant, which should be finished in the fourth quarter of this year. We are currently in the bidding process for opportunities that we hope will allow us to use these teams rolling out each of these power projects, as well as projects that extend as far out as 2018. However, there may be a small gap between jobs, which as I mentioned before, is much preferable to starting new project without a ready team for a successful launch. Of course, we are working diligently to make the gap remains as slight as possible. Our 50/50 solar joint venture continues to gain momentum. During the quarter we announced new work totaling $38 million, bring our JV awards to date to over $70 million. As the client is bidding in his project in pieces we hope to see additional awards over the next several quarters. With California’s ultimate renewable requirements standing at 30% by 2020 and the state currently achieving only 16%, we see solar, as well as other renewables as markets that will continue to grow over the next several years. One other item I’d like to highlight is California’s once-through rule, if you’re not familiar with this subject, the rule prohibits generators from using coastal water to cool power plants, while returning the water directly to it source, instead the owners will have to build alternative cooling facilities, this will provide a significant market for which we are well-positioned based on our client relationships, geographic position and skill sets. ARB Underground saw the beginning of our seasonal ramp-up this quarter, we announced a $102 million renewal awards in July, a credit to Scott Summers and his entire team, including Greg Dahl who has been extremely effective in the pursuit and execution of the utility work. The pipeline integrity market in California and other states remains strong, and we expected to continue so for quite some time. Additionally, Underground Group saw awards in oil and gas pipeline, underground gas and electric distribution, water resource related pipeline, construction, rehabilitation projects. Construction Group continues to hold its own in the face of the weak macroeconomic environment. There are signs that market is improving as we are currently working on two small projects in Southern California. Mark Thurman has had the unenviable job of waiting for California construction market to turn. I want to thank Mark for his continued effort and patience in a fairly frustrating market. As to Rockford, their mid long-term prospects look as good if not better than we reported last quarter, not only are we currently finding reasonable availability of small to mid-sized opportunities, we continue to track significant large projects in North America, some of them comparable to Ruby in size. Many of these large projects will involve multiple contractors, or contractor consortiums as some of these projects are too large for any single contractor to complete, as such we will not win every project we bid, we feel confident we will win our fair share, maybe a little more. Many of these large to mega projects will be bid over the next year but you’ll probably not see significant impact to our revenue and profitability until mid to late ‘13, maybe a little after. In the meantime, our guys are busy in Wyoming and Pennsylvania on shale related projects, markets in which Rockford is very competitive. These are the markets we anticipated in modeling and purchasing Rockford. By this yearend we experience -- we expect Frank and Josh’s guys to generate revenue of roughly $40 million from our work in the Powder River Basin of Wyoming and as much as $90 million from our work in the Marcellus. Looking to the East segment, the James Construction Group continues to earn profits in Louisiana from projects awarded in past years with a few new awards this year. The Louisiana DOTD accounted for 11% of Friend’s –revenues in the second quarter. While bidding opportunity at Louisiana had slowed recently and this has been more than offset by increased opportunity in Texas. This slowing of LDOT spending appears to be short to mid-term issue with highway construction expenditures anticipated increase to more reasonable levels in the next several years. Danny Hester and the team at James anticipated this near-term highs has the foresight to read the market correctly and position us to be in the right place at the right time to bid the right projects, moving a considerable amount of our assets into the Taxes market on good work. Of the nearly $119 million in new awards recently announced for James over $69 billion -- $69 million is for heavy civil work in Texas. TxDOT is increasing its budget very significantly next year. We have not yet seen the direct impact of the passage of the 2-year highway bill, given the strong state funding in Texas for heavy civil work, having long-term funding is obvious benefit to the entire industry. The James I&M Group, Jonas Beatty has taken the range nicely from retiring manager Tommy Lasseigne has continued this Group’s healthy performance. Other new work for the quarter included $30 million awards to James Industrial Group managed by Conrad Board for the construction of new chemical facility in Louisiana. We look for continued growth of opportunities in the refinery and chemical segments. Our clients in these markets are impacted by low natural gas prices, increase spreads, regulatory impetus or just plain new and deferred capital projects. In the Water and Wastewater market, Bill McDevitt, Cardinal Contractors continues to pick up smaller projects, most recently $10 million in new work in Florida. While we were a long way from the peak of this business in ‘08 and ‘09 when the business was doing $40 million to $50 million a year, it’s encouraging to see small but consistence signs of market improvement. Sprint Pipeline had a strong quarter, contributing $13 million in revenue. They are on their way to exceeding their 2011 target -- 2012 targets well in excess of last year’s $70 million in revenue. Robert Grimes and his teams had secured $34 million of new work commitments since being acquired by Primoris in March. Among other projects we are recently awarded a $14 million pipeline project near Houston, Texas. We are very pleased with the working relationship we are developing with this new group. All of us are excited about the opportunities for this business. Engineering revenues increased by $3 million in the quarter. The segment continues to be small but highly profitable portion of our business. We are confident that Randy Kessler will continue to improve OnQuest performance going forward. We see potential opportunities for them both in their traditional and developing markets. I’ll leave it to Pete to talk about the balance sheet in detail, but before I do, I’d like to say, that we remain financially strong as ever. We enjoy an excellent cash position, more than needed to support our current operations, our planned, organic and acquisitive growth, while sustaining our dividend policy. We have a low debt to equity ratio and more than adequate bonding capacity. I’m proud of our financial condition and performance, but more so I’m proud of the people I work with. They are truly remarkable and I say to them thanks for another great quarter. Now, I’d like to turn the call over to Pete, our Chief Financial Officer to discuss our 10-Q filing. Pete?

Thank you, Brian, and thanks to each of you for taking time for joining us on the call. We anticipate filing our second quarter Form 10-Q, including what seems like 100s of pages of XBRL today, and that will hopefully provide more detail information than we can on this call. At the highlight level, we earn $0.23 per share, compared to $0.28 in the second quarter of last year. Comparing the 2 quarters, our revenues declined by about $15 million but that comparison includes $19 million for completed Ruby project. Without that project our revenues increased by $75 million. In the quarter our gross margin percentage increased by 120 basis points resulting in operating income that was within $300,000 of last year. So from an operating earnings perspective, we can say that for the quarter Ruby is now history and in fact, the primary reason for the earnings per share decrease is that the St. Bernard Levee Partners joint venture contributed $4.4 million to earnings last year and almost nothing this year. Tax affected that represents a $0.05 difference. As Brian mentioned, we have received strong contributions from both ARB Groups and James Construction Group. In the East segment, revenues increase sequentially from first quarter of this year by $34 million, primarily from a $14 million increase in heavy civil, $10 million increase are in our Industrial and Mine Maintenance Work and the increase from Sprint. Our gross margin for the segment increased from 9.4% to 11.1%, reflecting the higher level of revenues and the addition of Sprint. As Brian also mentioned, there will be an increase in the James Highway & Bridge work in Texas as we start work along the I-35 corridor in Belton, Texas. To illustrate this in the quarter our revenues from LA DOTD were $44 million, while our TxDOT revenues were only $24 million. However, at the end of the quarter, our LA DOTD backlog was $144 million and our TxDOT backlog stood at $450 million. In the West segment, our ARB Underground revenues increased by $11 million on a sequential basis as we start to move away from our first quarter season low. One of the primary contributors to the overall growth was our pipeline integrity work for large Northern California gas utility. In the quarter revenues were $40 million and year-to-date they are $73 million. At this time last year, year-to-date integrity revenues for this customer were $41 million, so we are ahead of last year’s run rate. For the quarter revenues for our large diameter pipeline group at Rockford were $11 million, but based on their awards we still anticipate that they will exceed $100 million in revenues and attain their earn-out for 2012. One final note about revenues, for the first 6 months of this year, our overall Underground work, primarily pipeline construction and pipeline integrity was 34% of revenues. Our Industrial work primarily power plant, refinery and chemical plant work was 24% of revenues. Our heavy civil work was 27% of revenues. Our project Engineering represented 4% of revenues and our other work including Parking Structure and Water and Wastewater facility construction was 11%. These percentages will change throughout the rest of the year, as we see the back loaded impact of our Underground work. During the quarter, we closed on a small acquisition, Silva, for just under $14 million in cash. There is no earn-out provision for the Silva acquisition, but we do still have 3 earn-outs remaining on the balance sheet from the acquisition of Sprint and Rockford. For the Sprint acquisition, we will recognize another expense amount each quarter this quarter for approximately $200,000 with an additional charge to SG&A of $200,000 in the fourth quarter if the earn-out goals are met. In 2013, we’ll recognize approximately $100,000 each quarter and $600,000 in Q4, if their earn-out goal is met. For the remaining Rockford earn-out, we will recognize approximately $185,000 other expense each quarter this year with a $345,000 SG&A charge in Q4, if they achieve their earnings target. The provision for income taxes for the quarter was $7.4 million for an effective tax rate of 38.5%, compared to $9.2 million for an effective tax rate of 39.0% in the prior year quarter. For the year, we now expect that our effective tax rate will be around that 38.5% number. During the quarter, our expenditures from fixed assets were $8.3 million and we still anticipate that our 2012 levels of capital expenditures will be in the $30 million range. We sold several older side booms and similar equipment in auction for proceeds of around $3 million and a gain on sale of $1.5 million. Finally, we recorded depreciation and amortization for the quarter of $8.5 million. At June 30, 2012, our total outstanding debt was approximately $87 million and we had a debt-to-equity ratio of 29%. Of that debt, about $74 million represents notes secured by our equipment. After some refinancing during the quarter, our average rate for these notes is now 2.9%. Our debt also includes about $8 million of capitalized leases and their implied interest rate is in the 3% range. So far this year, we’ve spent $35 million cash for acquisitions of Sprint and Silva, and we continue to look for other economically viable candidates. We paid out $3 million in dividends and repurchased stock for approximately $1 million. Our Board of Directors authorized repurchase plan is up to $20 million before the end of the year. To date, we have purchased 89,200 shares at an average price of $11.17. Finally, as you look at our backlog, please remember that it is our policy to not book a job in the backlog unless we know the contractual revenue amounts. That means we do not include cost reimbursable projects or anticipated MSA revenues in our backlog. So that in comparing us to other companies, our backlog may not be as comprehensive an indicator. During the second quarter approximately 19% of our revenues were 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 a job. For the quarter, our backlog overall decreased by 3% or $36 million, with most of this increase in our East segment, reflecting primarily the lower level of bidding activity in Louisiana. With that, I would like to now turn the call over to the operator so that you can get to your questions. Thank you very much.

[Operator Instructions] Our first question is coming from Lee Jagoda from CJS Securities.

So, obviously, the recent project announcements, especially in the East are providing some significant uplift for backlog, at least in the balance of 2012. Brian, can you talk a little bit about how your backlog and the pipeline of projects are shaping up in the East segment into next year?

Heavy civil is great. We’re pretty much in the thick of it. We’ve got fairly strong booking. I think our backlog there, I’m guessing is it $600 to $700 million. So we are fairly strongly backlog. We are not dazzled by the margins we are getting, but we certainly like them. We are not buying cheap work. The I&M Group is not a big backlog. They are proceeding really well. I mean Jonas is a great job, taking over for a guy who ran it forever. They are not big backlogers but they are certainly winning their share of plus. Industrial Group is doing better. They went through a kind of a rough patch. I think everybody did in the last couple years, at least based on the numbers I’ve seen. They are booking a lot of reimbursable work, so it’s not big backlog work. The $30 million that we -- I talked about in my opening remarks was cost reimbursable, so that you won’t see that hit the backlog. But I’m really pleased with their opportunity and we are looking to augment that through tuck-ins and things like that. Sprint Pipeline doing exceptionally well. They’ve got a big capital job for them, which is $14 million bucks. It’s not a big job. But the guys have really taken the bit in their mouth and they are just doing a great job. I can’t tell you how proud I’m of the Sprint guys. So it’s really shaping up quite nicely. I think I touched on all of them, didn’t I, Pete?

Yes.

Yes. I’m sorry. Water and Wastewater continues to be kind of the dregs, although our bidding activity and our backlog is picking up there. So, I’m somewhat optimistic that we’ll see a turnaround there this year, although I think it’s not going to be a sharp one.

And Pete, given the large announcements post the quarter, is there any way you can provide us with the backlog number as of July 31?

Then, I’d have to tell you what revenues were in July. Let me see if we can figure out a way to do that that makes sense. But we burned-off backlog already during the month, so that’s way we are pretty much stuck with the quarter end numbers.

Okay. And then one more question and I’ll hop back in the queue. Regarding the pipeline integrity work, what are the trends you are seeing in Q3 thus far regarding the seasonal ramp up and how should we think about seasonality in Q4?

You’ve got 2 kind of countervailing pressures that will happen in 4. You got the need to put the systems back into service. So there is a need to shut it off, but the utility also has a need to spend their money. All the utilities, not the -- we do integrity for both utilities and for private owners like BP and Shell and people like that. They are under the same requirements. But the utility guys, they’ll have to put their pipelines back into service. So they’ll -- but at the same time, they will try to spend their money within a half percent of budget. So there is lot of pressure there, so they do a lot of jumping around and reconfiguring, and pulling this job and putting that job. But it should ramp up. You’ll see the peak of it, probably late third quarter and then it will go into fourth quarter. You’ll see some other work that doesn’t require that pipelines be taken out of service. But they went from spending nothing three years ago to having to spend $2.2 billion over the 3 years PG&E did. They are the ones that are struggling right now and that’s a Herculean task to try and put the organization in place and mechanisms in place to spend that kind of money effectively. And they are doing a pretty good job. But they are still kind of struggling a little bit because of the nature of the task. But it should peak third quarter, strong into fourth quarter and then first quarter it usually dies out, with the exception of, like the copper services. And they’ve got an Edle A [ph] and Edle B [ph] issue, which is kind of like copper, different material but the same kind of issue that they are just ramping up on it. That will go kind of year around. So you will see that going to first quarter. Now the oil guys and their integrity work, they will lean into the fourth quarter, because that’s basically when the refineries are cutting back, gasoline production and they don’t need their feed lines as much. So you will see a kind of a ramp up for the oil guys into fourth quarter.

Our next question is coming from John Rogers from D.A. Davidson.

Couple of things. First of all, relative to Ruby, you noted the $66 million in the second quarter and $114 million in the first quarter last year. What was the third quarter of ‘11? I’m just trying to get a feel for the seasonality then we’ll see into the third quarter in the West.

Hang on. I mean, you are going to see a very significant increase in third quarter because we also had it last year, but assume, I can eventually get it.

John, why don’t you let us come back? Unless you have a follow-on…

Oh. Yes. No. I -- okay. That would be great. And then…

Let me give it out, $65 million to $70 million order of magnitude.

Right. And then the, can you give us the backlog by segment? It’s on the press release the expected burn-offs at the end of the year, but I didn’t see by segment?

Yes. We were hoping to get the Q out, we didn’t quite make it. Let me give you backlog at, for East Construction, $717 million, West Construction $350 million, Engineering $19 million, total $1,086 million.

Okay. Great. And then, Brian, in terms of your stock sales plans, there or expectations if you can share?

I had a, I’m going to wax on here for a little bit. I had one of the institutions call me and kind of rip me a little bit, saying, I’m buying your stock you are selling, what are you doing. My response is don’t you read the journal? I wake up every morning and what happens Greece impacts my network which I don’t watch every morning. That’s really not that important to me. But I look at the financial uncertainties that exist in the markets. The uncertainty over tax rates, the uncertainty over dividend issues that go with it, the uncertainty of the whole world economy and how that can impact me. I feel there is only one institution I have any faith left in and that’s Primoris. I don’t have faith in the Supreme Court. I don’t have faith in Congress. I don’t have faith in the President. So when I decided to pick and take a few chip off the table, when I could afford to on a tax rate basis. So that’s what I have done. Whether I’m going to do so more, I haven’t really decided, John, but, I think, I sold 607,000 shares out of 16 million. If that causes doubt in people when I limit -- I liquidate 5% of my holdings or whatever that is, god bless them. It’s immaterial in the scheme of things.

Okay. Well, I appreciate the color. And I guess just lastly, in terms of the pipeline, the large diameter cycle that you referred to, you said we might not see any benefit or significant impact from that until the second half of 2013. Are you talking about awards or actual work at that point?

Well, do you think, I’m going to bet, predicate anything on the Obama administration granting a permit for any large project?

Okay.

Based on Keystone?

Yes.

I just don’t know, I have a feeling Keystone will probably get approved and get built after the election when he can pay back his construction union guys. But, yes, most of the really big projects we are looking at have fairly early significant environmental lead time. A lot of them revolve around kind of the evolving natural gas market, the LNG market. You can buy methane for $3, make it liquid for $0.30, put it on a boat, ship it to Asia and sell it for $12, $13. And obviously you have a lot of really large projects, a couple in Canada, several in the U.S. that are way -- they are just large and permit heavy. And the Canadian guys will, they will do theirs quicker than ours. So, I’m more anticipating a lot of what we are tracking is probably going to light up about ‘13. Now, these jobs going to ramp up slowly because you got to remember, they’ve got to go by pipe. They’ve got to do a lot of things engineering stuff before they get to us. So that’s really the very large projects. But back to my comment, we bought Rockford not for that market. ARB traditionally had been in that market until a couple of years ago, we choose to stay home and take care of our long-term relationships instead of chasing big work all over the country and that’s now paying benefits in the integrity market. All the guys that did that now want to knock on PG&E doors and Sempra’s doors. Well, guess what? We were there taking care of them. So, but we bought Rockford for the exact market we are in. Now, it’s made us more seasonal and I think that’s what some of the guys missed last quarter, was that the first quarter is always like, for the whole legacy Primoris Group, but you had Rockford and Sprint, and you’ve exacerbated that seasonality. So, but -- so I’m more predicating our business on these big projects, we just think there is real upside to them a couple of years out.

Okay. Sorry, If I could, to fall onto that. The margin profile for this work, is -- I mean should we look at the Ruby pipeline as an indicator or as the small diameter work when you talked about how much we are doing in Marcellus and Eagle Ford, and the other basins? But the -- I mean, is that the sort of margin profile we should be thinking about?

Well, there is a couple of tranches in margin. You get a lot of it -- what we call absorption margin. When you own a number of tractors that we do and you have enough, you establish your kind of base costs, the way we do, you pick up a lot of additional margin with utilization. Now, when you’ve got a Ruby pipeline and you are taking tractors and you are utilizing them, 3 years, 12 months out of the year and basically we use rental rates that are exterior rental rates less than a little bit of a discount for internal costing. When you start absorbing those tractors, you start receiving the benefit of internal rental rates on those tractors. You’ve got a greatly appreciated margin and a lot of the benefits you get on this big job versus the little jobs where you work for a month and then the tractors will stay parked for a month or two, and then you move them and you work on them for another job. So you’ve got a lot of benefits into this kind of a long methodical battleship of a project you build when you get to Ruby’s or somebody like that. The margins in general are kind of the same. We are trying to achieve kind of that sweet spot and which I’m not going to get into but the margins on Ruby aren’t that dissimilar to the margins we make on other pipeline work. In fact in many cases the smaller jobs because of the difficulty and managing them and doing them mobilizing to them and demobilizing, they actually bring higher margins in than some of the others.

Okay. I just have one follow-up. The accident out in Richmond, is that an opportunity for you?

Say that again?

The fire at the refinery where you’d done some work years before?

Well, we don’t have any exposure. We are not currently…

No, no, I don’t know…

I don’t know. That’s the sad part about of our business as we profit from somebody else’s injury. It depends on where the fire was centered. If it’s in the heater area, some of those places, I doubt will have much impact from it.

Our next question is coming from Rich Wesolowski from Sidoti & Company.

With regard to ARB underground and the pipeline integrity, I’m curious how this year is playing out differently with regard to the type of work you’re performing, contracting structures, labor availability, the competition, the whole 9-yards, maybe just elaborate a little bit on that market?

Well, we have a term we call goat rope. You ever been to a goat rope at the rodeo? I’m not a big rodeo guy. We are in Dallas now. So I guess I’ll be a rodeo guy, but goat ropes are quite entertaining because the goats aren’t as predictable as the steers. It’s a tough market. I think the scariest thing is as you go up there and you go from 300 people in the winter to 1,100, 1,200 people perhaps in the summer and you get to find those people from some place. We are pretty fortunate because we have such a large labor base and a large data base of good labor that we can muster that and do that. I think the thing that kind of frightens you personally as CEO, you are personally responsible for some of their actions. That’s probably the risk to us is hiring this unknown labor although we manage it better than our competition because where we are and our total capacity. The other guys they are basically hiring from scratch. We call our guys back from the previous year. We bring them from Southern California. We bring them from Wyoming. We bring them from everywhere. It’s a real struggle. As to the structure, every contractor that works for PG&E has an MSA in general and unless it’s a one-off bid. And the MSA’s just basically allow you to bid the work or perform the work under various delivery mechanisms. One of them is hard bid, one of them is cost plus, one of them is unit price, one is shared savings, negotiated. I mean there is a multitude of way to deliver their system to them. We do a little of all. Some of the services around unit price which is, kind of, lump sum, while you add up all the units and multiply it by the price and you get to a number. Some of its cost plus and we are biding a lot. I think the number is right now. We are doing about 1/3 of their work based on this MSA thing. You can -- and that’s why we don’t backlog MSA instantly because you can have an MSA and never do a dime’s worth of work. And I see some of our peer groups out there backlog and 5 years with the revenues and I got to tell you, I think its hokum. Just because I have had MSA not done a dollar worth of work under them, and so that’s why we don’t backlog them. Did I get to where you wanted to go?

Absolutely, you have in the west 2 gas power plant projects being completed in 2012. I’m curious how those have performed. Is there opportunity for margin upside through year end relative to what you have been booking? And as that labor expected to eventually be placed another gas-fired workers for sub-mills in the industry sector.

In a word, maybe. I don’t mean to be flip. I do mean to be flippant. But not -- they are performing okay. The first job was the one we took the hit on last year and that’s kind of winding up. We have responsibility for commissioning on that which is more fraught with risk. Considering that Siemens serial number 001 of their quick starter, black start technology. So I think we are doing a little bit of struggling with that because one of these has never been started before. So and that’s in our contract. It’s going okay. I can’t say we are going to see some huge upside. It’s too early to begin to take contingency. The one down in El Centro was proceeding well. We had a -- we are assisting commissioning there. The turbine burped and we have a builder risk policy that we fought through for little bit there. And we are able to determine that if there is a loss, it isn’t picked up by Siemens. It will be picked up by the insurance company, in our opinion. So I think there might be some upside there but it’s still little early to tell and this commissionings, you have to get them commissioned. You still have pick up work that’s why say it’s all going drip into the fourth quarter before we do complete close outs. But they went okay, I mean, one we had the problem with we took a pretty good loss on it one quarter. And now I think we are recovering, I think we might even see upside but it’s early. As far as the labor would go, those are union hall guys. We are bidding everything from compressor stations to power plants to big peakers to refinery work; most of those guys will find a home with us. It may not be right away but they are doing okay. I know you’re worried about the unemployment rate and stuff. So trying to help out with the current administration and I’ll do all I can.

Together those 2 projects being completed in ‘12 by my math $30 million in sales a quarter, is that about right?

Beats me. Pete’s got his notes all scrunched up over there. So I don’t know if he knows.

A bigger -- broader question on the same lines, you have the underground work increasing in the second half and you have these projects presumably falling off, do you expect you are west revenue to measure up to what it was last year in the second half?

I’m going to determine the maker’s gift.

I have a looked at it that way, Rich. I can’t look at the whole thing. I think we’re looking at a great year. I’m very confident of where our numbers are going to land but I can’t pursue that closely. I think Pete probably could give a little study obviously.

Okay. Just -- lastly comment for clarification, Pete, don’t expect to have all the numbers on your fingertips but your 3Q, 10Q states in 3Q, ‘11 Ruby sales contribution of $48 million.

Our next question is coming from Rich Paget from Imperial Capital.

And Brian I thought all the stock sales was for the wedding?

If that’s the case then I may have sold a little bit next more quarter. Okay, the smores were 15 bucks a piece man and Scott Summers had three of them well, he ate two and one who, kind of, ran down in front of his vest. He was enjoying himself.

So I know you mentioned a highway bill and Texas was already kind of rolling ahead. So they are not necessarily a big incremental impact there but what about Louisiana and is there anything that the restore act and I know it’s for coastal restoration but anything that you guys might be able to participate in that money coming into that market?

Yes. We are selling joined into that economy over there. I mean James just a household name around there. It has been around for 80 years. If he’s got any size of economic activity, we are going to be involved. So even the industrial work when you build, the Marathon Garyville refinery that James built right before we bought, James participated in right we bought them. They laid up to 5 million yards of dirt up there to do that refinery expansion. Everything you’re do in that state is wet, where it takes a lot of silver work to get it built and they are very good at it. So I’m not concerned about backdrilling where the LDOT backings going to be, it’s short-term. I understand they are getting a lot of money from offshore in the next couple of years with the new -- kind of new arrangement they made with the feds and they gentles that committed a lot of that to highway work. So it’s got to be short-term. Rodney James the guys that runs it over, he is just first grade. He will find something to make his money on and do well buy us. So I’m not gravely concerned over it at all.

And then James winning some chemical works and you’ve heard a lot of your big competitors talking about a lot of feed work in that space given where natural gas is. Where do you think you guys will participate in that business if you are going to into the decent cycle in North America over the next several years?

Everywhere, everything from the Christmas tree out -- we will take it, we will treat it, we will ship it, we’ll process it, compress it, deliver it. And then we will do the work in the chemical plant to make it into something else. So we are going to compete across the board that’s a main, main focus of where we are going with our business.

Okay. So then is there anything you bidding on right now for this is something we should start looking at 2013 and beyond?

Wow, yes. We are bidding on just a gop stuff. I mean a lot of the pipeline fitters to, I think, we’ve looked at your submitted proposals on got how many LNG plants, small LNG plants that’s going to be a hot market, I think, for a couple of years to NGL plants. This deal we signed with Z-Bec, it’s got a needle technology that helps us at NGLs and you got a deal with the NGL whether you’re just shipping the gas or you’re making it liquid. And then the gas distribution, of course, with the integrity work, I mean, I know you more focused on chemicals and refinery but we are going to be involved at every step of the way from the gas coming off the well head to going out the other side of plant. Who knows we may get involved in making little sacks to put the product in.

And then any updates on the waste energy projects in Puerto Rico?

Yes. You can thank the Sierra Club. It’s been delayed. They have a litigation. Now, why the Sierra Club would be angry over us, making energy with people’s refuse. It’s hard to believe but it’s been delayed due to litigation. So I think we are probably looking at next year before we get a good start.

Okay. And then finally I know you mentioned the ARB JV with the solar project shouldn’t really start having an impact until next year. But with the non-consolidated line I mean should that just be kind of de-minimis the next couple of quarters and then we will see that ramp going into 2013?

Yes. I didn’t say it wouldn’t have an impact till next year. I know may be I said it wrong. It’s ramping up. We look for more additional awards as the year goes. They are struggling. They’ve had some environmental issues. I mean it is in California and they have had some supply issues. They have to deliver basically the torque to but the mirror is attached too. Our first contract is the assembly of 28,000 odd mirrors, which basically gather the heat and that’s been a struggle and of course if you can’t install the mirrors, you can’t pipe them up. You can’t do a lot of things. So I think that’s -- I had a conversation with Tim on it a couple days ago. I think that’s beginning to clear itself out but it’s been to a slow start. And the client’s been great about it. I mean they are doing the best they can but they are building an industry while they build this plant. This is a relatively new technology the last mirror plant built in the state. Well there was one built in Florida but that was in Florida and it was much smaller. So they are struggling a bit with their supply chain but it’s coming. And I think this is really the kind of plant that we are excited about because I think I told you we do all the work in this plants for everything from the moving the dirt to form the foundation to hanging the mirrors to piping them up to power block even into the fire protection. So there is a lot more upside for us. And our partner’s been great. They are good guys. They are a private company so I won’t mention them but they are good guys. And so we’re doing well on the job. And Rich, we will account for that as regular revenues because we are the accounting partner for the JV. So you won’t see it in other income it will flow through and they may be aligned divvying up income to the minority partner.

Our next question is coming from Tahira Afzal from KeyBanc.

The first question is more macro. You’ve had CBI, just announced that they want to acquire Shaw Group. On the call, they indicated that one of the drivers was really securing key assets and I assume that largely fabrication as well, related to petrochem and power plant cycles coming up in the U.S. You talked about the cycles. Would love to see if you can provide any color on Primoris’ key assets in the same area that we have any common overlap. And what it really does there about your underlying -- the value of your underlying assets and really any bottlenecks coming up there.

Tahira, you always ask 3-hour answered questions.

But you stuck me at the bottom of the list this time.

I have no say as to the order of the calls but we need to get you in earlier because we would take the whole call up. If CBI bought Shaw for their fabrication capacity, man, did they overpay. Shaw is one of the best power fabricators in the world and they’ve got the big vending machines and stuff like that. I’m not sure if power is really CBI’s niche but I don’t want to comment too much on them. It was kind of amazed knowing that the 2 organizations but I’m not sure whether your angle is if we’re going to be acquired or whether a resource issue. Resources are going to get tight. They are going to get very tight particularly in the gulf. I mean, they are talking about, here we are with eight something percent on employment. They are talking about needing to import foreign labor to get the work done in the gulf because the skill sets aren’t available. Part of it’s because the wages in the construction business are just too low to attract people to the business, wages in the conditions. But they are going to get short and I think what’s going to happen is prices are going to ramp up. I think we’ve talked about this before as they ramp up. Some of the guys won’t get their prices ramped up fast enough and they are going to get hurt. And the art in being in this business is managing the cycles and we manage a lot of cycles and we were comfortable. We can ramp up our cost effectively enough to handle the increased cost of labor. The shortage of equipment in supplies and the effect of all of this on productivity because your costs will go up, your productivity will go down. It will be inflationary to the industry. But we are comfortable. We can manage it. I think we are in great stead in a lot of these areas. I think people like working for our company. We attract a lot of people for the same money or less because of the environment we provide. We got great expertise. It’s young. I won’t say it’s young, it’s middle age. It’s not as old as me. So we’re excited about where we’re going to be. We do a lot of fabrication it’s the market where we’re going to get more involved with. Fabrication is going to get short. It’s even going to be more demand when you consider labor shortage which means people are going to want to pre-fabricate stuff for their projects in shops because the field labor is going to be expensive and scarce. So fabricators are going to get here. But I got to tell you there is a lot of tin down in that Houston area that’s sitting vacant because there hasn’t been enough fabrication around to fill anywhere near the capacity that’s out there. So and it takes the same labor to fabricate stuff, the same welders as it does to weld it up in the field. The only difference is the sharp environment gives you more productivity and particularly because it shelters you from the weather.

Got it. Okay. And I guess, so a quick follow-up to that and then I’ll let you guys go and I’ll bother Pete later on about margins here instead. That I really follow-up to this -- Fluor, KBR, a couple of the larger guys have shown some interest in self-performing. You guys have typically subcontracted to some of the larger guys. So I guess my question is, is there enough capacity in competitors for them to buyout and replace. Is this going to be competition for you or is this going to be -- can you be part of that. Is fabrication tight enough where they will have to start looking at companies such as yourself as a target as well.

Well, the big guys go back and forth every couple of years on whether they want to take construction risk or not which doesn’t lead to very effective management. I mean, you’ve got a bunch of guys that -- basically go out and manage these knuckle-draggers to get the work done. And they are great guys but you got guys that are very good at it like us. I mean, we make our living managing people. These big guys make their livings managing contractors. There are 2 different skill sets. And they will go back and forth. I’m sure they love to jump into its reimbursable work which lot will be but if its hard dollar work which a lot of the clients want to do then the big guys are going to be reluctant to jump in there and take those risks because they like transferring that to the little guys like us. And in big can lead to clumsy and so it’s tougher for them to manage. We compete with guys they would buy every day. So does it scare me that somebody different would own one of these mom and pop guys or one of these middle market companies we compete with, no. It wouldn’t scare me at all because we’re competing effectively now. This is what we do. This is the crux of our business is managing people better than the next guy. And sure, we’ll get a call or 2 over the next year but we’re pretty happy with where we’re going as a company. And we think we’ve got good direction and good plan and we’re going to provide great value to our shareholders. So we’re heading down the path to building a great business not looking for a sugar daddy.

Our next question is coming from Adam Thalhimer from BB&T Capital Markets.

Brian, how would you characterize the bidding environment today, broadly speaking versus 6 months ago.

Wild, wild west. Based on which industry you look at, which market you look at, which geographical location you look at, it’s everything from the same to just vastly different. We’re seeing a lot of contractors fall by the wayside. If they are not following by the wayside, their bonding companies following them by the wayside. We’re seeing a lot of guys, kind of, drop out of the markets they’ve been very aggressive in. We are seeing a shift in -- we always a new cast of characters from time to time. We’re seeing new cast of characters coming in and trying new markets. We look to buy a company. We looked at them, they were up in Ohio and I met with him. And I said what do you see. They have similar work like James. And I said where do you see the growth in your market and they said well, Texas and Louisiana. We continue to see guys and that’s what the highway build should help do is may be help some of these guys stay home. If there is adequate work for them at home and take some of the pressure off of harder markets where we are. But it’s a -- I think margins are improving a bit across the board which in some markets that’s from 0% to 1% gross margin. But we’re seeing guys more in tune with the risk. They are looking at pretty good vascular work coming down the road. There remains a lot of uncertainty as to what the heck we’re going to look at after November in terms of -- we’re going to be building windmills or oil pipelines. And there is a tremendous amount of uncertainty that just, we’re turning out a lot of bids that never get responded to because the clients are just kind of probing around, don’t know what the heck you’re going to do depending on who comes into the White House. But in general, I’m more optimistic now than I was last quarter in terms of what we’re seeing in terms of work availability.

Our next question is a follow up from Rich Wesolowski from Sidoti & Company.

One quick one.

Sure.

Sprint seem to have an odd contribution in the second quarter at least from my eyes. The annualized revenue would be considerably below the $70 million book last year but the implied EBITDA margin was way above last year’s bogey. Was there anything unusual in your eyes in Sprint’s initial quarter?

We’re good. We do less for more and more for less. I don’t know whatever is good to that. They struggled last year, that’s one reason I think they were available to be purchase reasonably and they were great guys. They had really bad job and they paid for that and we were able to work out a deal with them with a couple of meaty earn-outs that allowed them to move their business onto what I think is a better place without paying a big sacrifice for taking a big sacrifice for one bad year. Their work is seasonal. I think we’re doing a lot to help Robert understand his cost better. And if you can’t understand and you can’t reduce them, we have an extremely efficient insurance program which lowered the cost of insurance for him. We’ve got some other programs that we’ll use on tools and manpower utilization. I think it really been helpful for him but again he is very seasonal and that’s the nature of that business. He is probably less so than Rockford. I mean Rockford didn’t do bupkis first half of the year, second half, that’s prince doing maintenance work and emergency work and stuff like that. So that will be a little heavier into the winter. What we need to do is a find a turnaround company that does outages of refineries and power plants. They do work all winter along and then we can balance our revenues for you guys. So you can figure this out but we don’t have any hot ones in the fire on that.

Certainly, don’t do it for us.

Okay. All right.

[Operator Instruction] it appears there are no further questions. I’m going to turn the floor back over to management for closing comments.

Thank you very much for participating in the call. I want to thank you for your interest and support of Primoris. Good bye.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.