Primoris Services Corporation (PRIM) Q2 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the Primoris Reports Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kate Tholking, Director of Investor Relations. Ms. Tholking, you may begin.

Thank you, Stacy. 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 Pete Moerbeek, Executive Vice President and Chief Financial Officer. Before we start, I'd like to remind everyone that statements made during today's call may contain certain forward-looking statements, including with regard to the company's future performance. Words such as estimated, believes, expects, projects, may and future or similar expressions are intended to identify forward-looking statements. Forward-looking statements inherently involve risks and uncertainties, including, without limitation, those discussed during this call and in this morning's press release, in our quarterly report on Form 10-Q for the period ended June 30, 2013, which we filed this morning, those detailed in the Risk Factors section and other portions of our annual report on Form 10-K for the period ended December 31, 2012, and other filings with the Securities and Exchange Commission. Primoris does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. I'd now like to turn the call over to our CEO, Brian Pratt.

Thank you, Kate, and thanks, all of you, for joining us today, just a week after we mark our fifth anniversary as a public company. Primoris demonstrated a solid performance in the second quarter of our year. Our total revenue of $445 million, an increase of 32% over last year. We earned a gross margin of 13.4% for the quarter and saw backlog grow by nearly $100 million from last quarter. Our -- at quarter end, our backlog stands at an all-time high of $1.8 billion. This growth was distributed across our reporting segments, with the company beginning to fire on all cylinders. We saw revenue growth in our pipeline subsidiary, driven by not just seasonal ramp-up but growth in our end markets and better penetration of our submarkets. Our industrial subsidiaries demonstrated strong margin expansion, which helped us grow our company gross profit by more than 35% over last year. Our Heavy Civil division had another good quarter of new work capture, again making the largest contribution to our overall backlog growth. This broad expansion really demonstrates the benefits of how we built our business, as our different end markets make us a balanced company, stronger than the sum of its parts. We ended the quarter with $117 million in cash and equivalents. Although this is a slightly lower balance than you've seen in past quarters, it is a product of our additional workload and the fact that we have made larger proportional investment in our equipment fleet from prior years. This investment reflects our bullishness in our end markets. In the East segment, Cardinal Contractors continued to build on the momentum of the last several quarters. Bill McDevitt, having firmly established our presence in Texas, has seen his margins return to more traditional levels. His growth continues to see plentiful opportunity in both our traditional water and wastewater markets, along with a very significant opportunity in projects we are pursuing to help alleviate the drought-stricken municipalities and industries of West Texas. Sprint revenue more than tripled last year's second quarter revenue. Traditional lower margins of the first half of the year due to weather, competition and client budgeting are beginning to give way to the higher margins of the second half. Robert's team is busy from the Panhandle, down to the Eagle Ford. We're winning a mix of both new capital projects and MSA work. I have no doubt they will be strong contributors in the second half. Saxon saw sequential revenue growth in the second quarter, but we suffered from poor execution, which produced lower-than-acceptable margins. We're actively working to address this, and I think we'll see better results in the near term. Our first quarter acquisition, FSSI, had a strong second quarter. While this business unit was just purchased because of its size, we view it more as a startup. It will be several quarters before we see earnings benefit here, which, due to the seasonal nature of their markets, will be heavily weighted towards the fourth and first quarters. We are very confident Toby's group will be a significant long-term contributor to Primoris. James Industrial, under Conrad Bourg, had a strong quarter and has an even stronger near- and intermediate-term outlook. In the first 2 quarters of the year, they enjoyed a significant revenue increase, with commensurate margin results, mostly influenced by very demanding civil and mechanical projects, working day and night shifts to meet a very tough schedule. As all of you know, Louisiana and Texas or the refining and petrochem industries are at the cusp of a dramatic boom, and we are working with traditional and new clients to meet the huge demand we're anticipating for our services. For the first time since circa 2008, we're experiencing clients seeking firm commitments for our services 2 and 3 years into the future. Danny Hester's Heavy Civil group continues the startup, ramp-up mode for the bulk of their I-35 Belton projects. These large highway jobs can be delayed in start due to work area clearances, among other issues. When these issues are resolved and we receive our notice to proceed and then these projects will start to ramp up relatively slowly. That being said, we remain pleased with the way the jobs are shaping up. In the meantime, we continue to book new Heavy Civil job awards, most significantly in Texas and Mississippi, which have more than offset continued weakness in the Louisiana market. Backlog on our Heavy Civil work now stands at over $1 billion, an all-time high. I should note that we're pleased with the overall composition and gross margin of the work at our backlog. I also remain very optimistic about the opportunity for our Heavy Civil group will share, related to the efforts to serve the energy process industries in the Gulf. Jonas Beatty's I&M group will either work directly with our clients or team with other of our groups to perform civil works needed for the construction of our clients' facilities. Our Engineering segment continues to benefit from capture and execution of smaller projects. Randy Kessler, while willing -- while winning enough solar work to maintain a reasonable backlog, continues to explore ways to join efforts with our industrial subsidiaries to offer more complete EPC packages to our clients. We are confident we will see substantial results from this collaboration in the near future. We are also very confident OnQuest will win more its share in the surge of work we're looking at around the Gulf of Mexico. In the West, ARB Industrial is nearing completion of its successful power project for NRG at El Segundo. Tim's margins continue to be very good, and during the quarter, he announced over $80 million of new awards for his group. Most of his work is related to solar projects, which, in general, are smaller jobs that the larger -- that we will look at until the larger process and power jobs come along that we prefer. However, we continue to pursue these smaller opportunities. There appears to be a very, very significant pipeline of the larger projects in various stages of permitting and contracting maturity. The larger scale, at least for us, West Coast power market, continues to look exceptionally robust from late '14 on, but remains a bit laggard in the near term. This market will be even more attractive than we had previously discussed, as the state will need to replace generating capacity loss from the shuttering of the San Onofre nuclear power generating station. Work for Scott's ARB Underground group in Northern California has been a little lighter than expected. Several of our clients were slow to get started this year. We continue to expect a strong full year from our utility clients, both with PSEP, capital and ongoing maintenance work. The low -- the slow start will mean just a more frantic finish to the year. PSEP work in Southern California has slowed in '13, as we anticipated. It is expected to expand significantly in '14 and even more so in '15. The balance of our underground clients' capital and maintenance workload for the same area looks to be close to what we consider a normal year. Jay Osborn's Q3C had a solid second quarter after the challenging weather of the first quarter put a damper on our margins. As I've stated before, Q3C is based in Little Canada and Minnesota, no explanation required. The balance of the year for Q3 looks very promising as Jason Osborn in Denver and Mike Russell [ph] in Little Canada scrambles to jam a year's worth of work into 7 or 8 months. This is a company that joined us at the end of last year, and I'm very pleased to have them part of the team. Also in the West segment, Rockford has been doing a lot of smaller pipelines for Williams in the Marcellus, and we've built a strong working relationship with them. Nurturing this partnership assisted us in winning a larger, 50-mile project for them in early June. As you know, we put a lot of emphasis on client relations, and success in winning and executing projects like this is, in a good part, depending on this relations. Rockford has been working on several other builds in Pennsylvania, West Virginia and of course, the ATEX pipeline in Ohio. As you may have noticed, well, at least one analyst did, it rained. And it rained a lot in Ohio second quarter. However, our work is going fine considering the weather and is only a little bit behind schedule, as some of the work simply just can't be performed in the rain. I do want to take this opportunity to personally thank Mickey and Dickey Langston and their crews for working through some pretty tough conditions and still getting the job done. You and your guys make us proud. Frank Welch and Josh Ramsey are still busy cranking out bids for the work to be built for the remainder of the year. We are pleased with the year they are having and their near- and intermediate-term prospects. Overall, for Q2, some of our guys saw revenue growth, some saw improved margins and others grew their backlog. Some went 2 for 3, others 3 for 3, but all the groups have very promising outlooks. Now I'd like to turn the call over to Pete so he can share more details with you about our numbers. Pete?

Thanks, Brian, and thanks to all of you for joining us on the call today. We filed our form 10-Q this morning. So while I will touch on some key items regarding our financial statements and backlog, I will leave it to you to read the Q for the finer details. We ended the second quarter with a tangible net worth of over $190 million, a $38 million increase over the past 18 months. This is more impressive when considering that during those 18 months, we acquired 5 companies: Sprint, Silva, Saxon, Q3C and FSSI, which added $52 million to our goodwill and intangible assets. We have structured these acquisitions with potential earn-out payments. And in the second quarter of 2013, we expensed $382,000 for contingent consideration, and for the remainder of 2013, we expect to expense an additional $1.8 million. During the second quarter, we also recorded $1.9 million for amortization of intangible assets, and we expect to record additional intangible amortization of $3.7 million during the rest of 2013. While it's nice not to have to do the accounting for an acquisition for the first time in the past 6 quarters, I can assure you that we remain very active and in the market for continuing growth through acquisitions. In the quarter, we did continue to make investments in our growth, only they are characterized as capital expenditures. Since the start of this year, we have increased our gross property and equipment by investment of $52.2 million, reduced by dispositions of $5.6 million. The resulting net of $46.6 million is nearly twice our combined depreciation and amortization of $23.6 million for the 6-month period. While we have continued purchasing sidebooms and other equipment for our large capital underground business, the most significant investment has been $22.3 million at Q3C, primarily for construction equipment. The additional equipment has allowed Q3C to grow its business to where even with the slow weather-related start to the second quarter, Q3C's quarterly revenues of $40.7 million are more than 40% of what their revenues were for all of 2012. Most of the CapEx additions will be depreciated over an average of 4.5 to 5 years. We believe that there is greater value in owning equipment rather than renting it, especially when there is sufficient end market demand to keep it working. We do expect that with the front half loading of capital expenditures, we will spend closer to our depreciation and amortization in the second half of 2013. Our cash balance at quarter end was $113.8 million. We had $174.4 million in total debt, and our blended interest rate of the debt was 2.7%. In late July, we drew down the remaining $25 million from our senior secured note shelf agreement at a fixed rate of 3.85%. If we were to need additional cash, we have almost $70 million of borrowing capacity remaining under our current line of credit, and there is the ability to add an incremental $50 million to that line, if we choose. Turning to highlights from the income statement. We earned $0.30 per share in the second quarter compared to $0.23 per share in the second quarter of 2012. Revenue in the quarter grew 32% to $455 million, and gross profit margin expanded from 13.0% to 13.4%. The second quarter historically marks the start of a reversal from winter seasonal effects in our business, and this quarter was no different. What was different was not just the regular seasonal upswing, but the strong year-over-year growth of both Rockford and ARB Industrial. Rockford benefited from an upswing in activity level throughout Pennsylvania, Ohio and West Virginia, while ARB Industrial saw margins boosted by the approaching completion of a major power plant. This type of margin boost at the tail end of a project is a reflection of our -- of the conservative nature of our accounting. For most projects, construction risks remain until the end of the work. One such area of risk is liquidated damages. While we may be hopeful that we are ahead of schedule, it is only toward the end of a project that we'd reduce any contingencies associated with LDs. Our largest customer in the quarter was a large gas pipeline company, which represented 8.2% of our revenues or $36.5 million. We did not have a material contribution of revenue from the same customer in the 2012 second quarter. Northern California utility represented 7.6% of our second quarter revenue or $33.8 million compared to the second quarter of 2012, when the same customer generated $40.8 million in revenue. The customer has been ramping up with its new alliance partners, and we do not expect a decline in annual revenue. The past few quarters, I've given you our estimated end market breakdown in the quarterly call. That information is now available at the start of the MD&A section of the Q. SG&A in the quarter increased by $8.2 million, with around $4.2 million from the acquired companies and the remaining $4 million primarily from increased compensation and compensation-related expenses. At 6.3% for the quarter, our operating margin is 200 basis points better than the first quarter of this year and 20 basis points better than the second quarter of 2012. The effective tax rate for income attributable to Primoris was 39.0% for the first 6 months of 2013, a 0.5% increase over first half of 2012, with the increase primarily from the variability of estimated non-deductible per diem expenses. We anticipate that the effective tax rate for the rest of 2013 will be at 39% for income attributable to Primoris. Finally, we are continuing to improve our backlog calculation and presentation method. As I said last quarter, it seems that there are as many different approaches to backlog as there are companies in our industry. When we analyzed our revenues since the start of 2012, we found that MSA revenues have been between 24% and 29% of quarterly revenues. While MSAs do not guarantee the level of work, excluding more than a quarter of anticipated revenues doesn't make a lot of sense. Using the old calculation for backlog, that is firm, signed contract with specifically identified revenues, brought us to a backlog level of almost $1.4 billion at the end of the quarter. Adding a net number of approximately $420 million of 4 quarters estimated MSA revenue brings us to our $1.8 billion backlog that we announced. By segment, backlog is as follows: $1,091 million backlog in the East segment; $690 million in the West; and $22 million in Engineering. We expect to recognize these revenues over the next 4 quarters: 50% of the East backlog, 98% of the West backlog and 100% of the Engineering segment backlog. Please remember that even under the new calculation, certain contracts, such as time and equipment, time and materials and cost reimbursable plus fee contracts, are not included in our backlog number. With that, I'll hand the call over to the operator for your questions.

[Operator Instructions] Our first question comes from Lee Jagoda with CJS Securities.

So on that note, what was the revenue for Belton in Q2? And how should we expect it to trend in the next couple of quarters?

Well, I think we announced that our TxDOT revenues were up, and that is not just Belton. That's all the rest of it. So TxDOT revenue sequentially went from $26 million to $35 million, and I think we'll see some continued trending up over that -- of that over the rest of the year.

And what's the seasonality in there?

You're still going to have some impact of weather in the fourth -- end of the fourth quarter and start of the first. But because it’s Texas it's not going to have quite the same seasonality as you do in Little Canada, Minnesota.

Okay. And then, looking at the margins in the West, can you discuss if there were any meaningful contingencies, either positively or negatively, that impacted the margin in Q2?

The answer to that is yes. As we said in the Q, we had -- we started -- we are starting to see the benefit of the large projects that many of you got to see in El Segundo. We, at the end of the quarter, were still working on the projects. We'll work on the projects probably through the rest of this year. But for example, LDs is one thing that we no longer have to worry about. So yes, you saw some improvement in margin related to the end of that very large project.

Okay. And then one more, and I'll hop back in queue. Brian, can you talk a little bit more about the potential opportunities for James Industrial in terms of the project pipeline and potential timing -- the timing of potential awards? And then maybe talk a little bit more about the development agreement in West Texas for water.

Okay. The James Industrial guys are at the cusp of being ready to announce a couple of fairly large projects. One is very prominent, one isn't as prominent. How quickly that comes -- I'm not talking in the hundreds of millions of dollars kind of category-- how quickly that comes is kind of dependent on engineering. Engineering is the first bottleneck we have to get past and then procurement. The good news on the projects that we got -- we think we have [indiscernible] easier way to execute on, it's civil and concrete. So procurement isn't a big a problem as it would be for an installation of equipment or piping or something like that with exotics. We think we'll start to see some real benefit of this stuff fourth quarter, although Conrad is plenty busy right now. But we think we're going to be in a full dead run by first quarter of next year. And this is just stuff there in Louisiana. There's a -- we hired a new guy down in Texas, and Jim's [ph] came on Board. He's really going to run that group and I look for the Houston work to really improve under Mr. Henry's [ph] direction. He's a long-time guy, has a long history down there. We're really happy to have him onboard. So I think you'll see, pretty much, we'll be in full swing on most of these projects by first quarter next year. As far as of the work in West Texas, it's really not ready to disclose yet, Lee. We're working with a guy that's really been quite successful in getting in the doors and getting some preliminary agreements executed. But it's really too early to discuss the details on that yet. But it could be very, very significant for us in -- over about a 3- or 4-year period.

Our next question comes from Adam Thalhimer with BB&T Capital Markets. Adam R. Thalhimer - BB&T Capital Markets, Research Division: I wanted to ask some questions about margins for the back half of the year. Back half of 2012, gross margins averaged about 12%. I mean, do you feel like you can kind of keep margins kind of flattish year-over-year in the back half?

Well, we're hoping they improve. I won't mention his name, but you got kind of a Goldilocks there among you analysts that we just have to. It's either too cold or too hot or too hard or too soft. We're pretty conservative on how we recognize margins. And when you had the ever-living crap beat out of you by the weather for a quarter or 2, you're naturally conservative to begin with on how you reflect what you think you might earn, particularly on the pipeline work up in the Northeast. We think there's some real upside in those jobs, but like I say, after 4 or 5 months of rain every other day, we're pretty reticent to start taking that to the bottom line. We -- that's just our nature anyway, so you can imagine what it's like after the whipping we've been taking up there. I think the guys have done a remarkable job of controlling our costs and dealing with the issues and staying relatively on schedule, a tiny bit behind. But every job we have for Rockford is literally within a 2-mile -- or 2-hour driving radius. So when we get weather, we get weather. But I would hope that the margins would improve significantly through the year. They typically do for us. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Okay. And then is there any El Segundo -- you said you're working on a job -- you'll be working on a job in Q3 and Q4. Can you release additional profit as we move through the year?

Well, we're getting back some pretty good -- we're getting by some pretty good milestones. I mean, we got a -- basically, a power plant has been accepted. It's making electrons. The utility is accepted the condition of the power plant. That was a pretty significant milestone. We just got by that about a week ago. In fact, that reminds me I'm supposed to write some nice emails to the guys because they really did a fabulous job on that plant. So hopefully, there'll be some more milestones that can release risk and release -- well, we can release some contingency in the margin. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Okay. And then, Brian, what are your thoughts, kind of broadly speaking, on pipeline cycle? I know there were some fear that rails was going to cause some pipeline to be postponed or canceled? And I mean, where do you feel like we are in the cycle, so to speak?

Well, the work has gotten smaller. A couple of years ago, it was all real big-diameter pipe, and you really had a lot of big gas lines. Now the work is more centered on the liquids and the extracts from the West side of the gas stream, so the pipe is smaller. They're still as long. There's always going to be need for rail, particularly into small markets like California. They basically -- their crude production is dropping dramatically. And we were working on projects, a couple of years ago, one for Plains and one for a group that we're kind of involved with, for a terminal for tankers to bring in more from overseas. Well we're producing so much in this country and we're awash in that product, in that oil and the ethane and the propane and the byproducts of the gas, that's there's no need for imported oil to the West Coast, particularly with the Bakken because it's light and sweet and they need that on the West Coast to blend with the local California production. So there'll always be a need for rail there because there's just never going to be enough need -- I say never. Currently, I don't see enough need for a big pipeline in there. Apparently, the owners didn't see that near the -- the refiners didn't see that need either because Kinder Morgan couldn't fulfill their open season on their pipeline proposed to go out there. But I don't look at rail as a meaningful threat to the pipeline business. Pipeline is still drastically lower in cost than shipping by rail. And you look at the amount of time that, that crude is on railcars versus a pipeline and after it gets to a terminal someplace, then it's got to go through a pipeline to get to a refinery or some other use. I just don't see, ultimately, where rail is a huge threat. It never has been, other than the original days before they built pipelines out of wood. But it'll always be a factor, and we participate in a lot of that. A lot of -- some of the work we're doing right now, we're doing a little work for Kinder on a rail terminal down in Houston. So we do a lot of work on the rail side of it, too. But I think pipelines are going to -- I think the business is just -- we bought 30 sidebooms -- 36 side booms over the last 12 months for smaller-diameter pipe. There are -- 572 sidebooms are about $450,000 apiece. I wouldn't have made that investment had I not really been bullish on where the industry is going to go. It's not going to be -- there's still going to be the 1,000 mile pipeline projects, but a lot of what we're seeing is the flow lines and the intermediate projects. But -- and it might have been -- almost every producing area in this country in the last 2 months and in every area from the Bakken to West Texas to the Eagle Ford, there's one common thing, the producers are awash in oil and gas. And they can't get it to market. You go to Cushing. Cushing is up to their eyebrows in oil. They can't get it to the market, and the market isn't there to absorb it. So a lot of this is going to be predicated on the big industrial and petrochem build in the Gulf and then the shorter pipeline runs like out of West Texas into the Gulf to get that crude to market. We have got to build some refineries and some chemical plants to use this stuff. It's a high-quality problem, but we've got to get this stuff built. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Well, it seems like that's happening, and I -- you have a good presence on the Gulf with James. And so really, Parsons got selected to work on a huge chemical facility in southwest Louisiana. And you guys worked for Worley on the El Segundo job. So I mean, it seems like you have the relationships and the work is coming.

Well, it certainly is. It's going to -- we're trading one set of problems for another. I mean, the problems you have when you don't have work are difficult problems. The problems you have when you do have work are different. But they're a lot more fun to deal with, of course, but they are different kinds of problems. So we're looking forward to dealing with different problems at this point. But the challenge is going to be picking the right client, picking the right project, getting the margin that this stuff deserves. And because we are going to -- our industry is going to be in short supply and I think it's going to reflect in higher margins and more demanding clients and tougher schedules and working people that don't know how to work safe that don't have your culture. And so it's very exciting but I can't tell you how much work it's going to be -- hard work it's going to be for our managers. They've done it before. I've been through 4 or 5 of these cycles, and our guys are up for it.

Our next question comes from John Rogers with D.A. Davidson. John B. Rogers - D.A. Davidson & Co., Research Division: A couple of things. First of all, Brian, you were talking about the pipeline market. But in terms of your schedule of work right now in projects, does it line up pretty well? I mean, have you got gaps? Or is it pretty smooth now out into '14 with all the different operations?

You mean on just the pipeline side? John B. Rogers - D.A. Davidson & Co., Research Division: Well, yes, let's start on the pipeline. But if there's others, I'd love to hear about it.

Well, the PSEP work and the safety work out in California is going to be strong and continue to build. One of the utilities out there is kind of shifting gears. They hired a program manager. They're getting their feet on the ground. But '14, I understand, is going to be frantic for them. They really ought to go to a big spend. That's in Southern California. Northern California, they're still ramping up, still feeling their way along. They have had a massive change in management there. I mean, everybody there has only been there a year or 2 at most. So California looks to continue to be strong. You've got competition out there, obviously. One of them is actually listening in on the call today. You've got -- Q3 is going to be, I think as*****s and elbows for the next 3 or 4 years. They've got huge build-outs their clients want to participate in, and I think they're going to be very, very busy. And Jay and his guys are very confident. I really, really am proud to have them part of the team. They did about $100 million plus or minus last year. They're on a run rate to meet 50% greater than that this year. And I think they can continue to grow. Sprint is down in the Southeast. I think they're in the heart of it. We -- they are not typically real big capital project guys. They have those abilities, but they're doing small change-outs and small relocations, stuff like that. We're kind of mustering them up to do the bigger capital jobs, trying to do that organically instead of buying somebody. But I think their volume will continue to grow. I mean, Robert's -- that guy's a journeyman, he knows what he's doing and he will get us to where we want to go down there. So that kind of leaves Rockford and did I forget anybody, Pete? And Rockford is large capital work. And every year in that business, historically, at the end of the year, you got no backlog. I think we're doing a little better than that. We've got clients like Williams that are going to continue their builds and I think we're going to be able to continue to be one of their favored contractors because of the way we've been able to execute and save them money up there. And then we've got new friends like Enterprise, that have got -- they've got big builds coming and I think they're pretty pleased with us, the fact we've been able to motor through this muddy winter, wet winter we've had and still kind of reasonably stay within a coin throw of finishing on time. So I look for pipeline . Do we have backlog that's continuous through '15 or '16? Never had that, that far out. But Rockford's up to their Ruby run rate this year. Q3 is an adder, but they're just doing a fabulous job although, they go pretty dark in the first quarter and a half or so of the year. California's going to pump had so I'm pretty pleased where the whole business is. And then we haven't talked about the amount of pipe work that's maybe available out in West Texas to us. If we can -- if the stars are all align on these projects out there. John B. Rogers - D.A. Davidson & Co., Research Division: Okay. And then you mentioned very briefly, I think, in your opening remarks, Saxon was underperformed in the quarter. What was the issue there or was it -- or done this year then?

Yes, no, they underperformed. They have some work, a tough client. When you build these projects, typically, the stuff comes in, in the way the client represents it. And instead of one piece, the equipment all came in, in 1,000 pieces and we had to assemble it and typically, you try and get a client to acknowledge this and do what he's supposed to do. Some of them will do that, some of them won't. Your choice is to be kind of crappy about it and dig your heels in and say, no, we're stopping. or to work with the guy, work through it and then try and resolve it as we go. Traditionally, we've been pretty conservative in this. We dig our heels pretty hard, trying to sell this stuff as we go. They didn't do that. And so now, we're having to fight that battle. But the way we book this stuff and the way we recognize these profits, we're conservative in doing that. So I'm not going to recognize something I'm not relatively positive we're going to be able to achieve. John B. Rogers - D.A. Davidson & Co., Research Division: Okay. And these were for what types of projects?

These were -- this one is gas related. John B. Rogers - D.A. Davidson & Co., Research Division: Okay, okay. And then lastly...

They're good guys. They struggle a little bit. They're smaller. They don't have a strongest systems. They're still getting to know our guys. They still don't know our legal staff and this may be one we pull the attorneys out on, who knows? It's not a big issue. It's under a couple of million bucks, so it's barely material. But obviously, it's more material for them than it is for Primoris and.. John B. Rogers - D.A. Davidson & Co., Research Division: Okay but there's no lingering issues here, then? I mean,...

Not really. I mean obviously, if you pull the attorneys out, you have extended -- bought some things that those things -- those guys aren't cheap anymore. Well, they never were, I guess, but... John B. Rogers - D.A. Davidson & Co., Research Division: Okay. And then, lastly, in terms of acquisitions, Pete mentioned you're active in the market. Where do you see opportunities or needs for capacity skill sets to add and are there prospects available to you?

Yes, we've got a couple of pages of prospects. Whether there are good or not, we're kind of ferreting through that. We're looking at either -- as I'd said on a previous call, I'm not trying to get into the -- I'm not trying to buy a big engineering or turnaround company in the Gulf because that market's pretty well-known and that's been reflected in the cost of buying somebody down. These prices have gotten -- EME bought a company down there. In my opinion, they paid a lot of money. So did Zachary, a private company. Both the companies were kind of in the same market. And then Incheon bought a company out in California, a guy we see every now and then. They're more in the refinery turnaround stuff, which we don't do a lot of. But those multiples are really high and they're higher than those public companies that were buying them. So when you can buy your stock back, which I'm not inclined to do, but when you could buy your stock back for cheaper than you can buy a company on a multiple basis, I'm not sure you're doing the right thing unless you see a huge upside. So we're looking at the next step. We're not going to go buy. So now, we will look at somebody to augment the markets we're in. But I'm more inclined to look at where the next market's going to be. And that's not easily found. But the Petrochem market, hell, everybody knows that's there. So prices are higher. It's pretty picked over. You've got companies, like Repcon that EME bought. I got a kick out of one of the questions a guy asked me. He says, why are they for sale now? And I thought, my God, they've been for sale for 5 years and they couldn't sell it for a number of years. Well, now it sells because it's a hot market. But we're looking at places where we get a new footprint. We're still not that active in the Bakken. We've done a lot of work in the Williston so I've spent some time up there, which is an amazing, amazing story. You've got kids that were driving fence posts in the ground 5 years ago and now are multimillionaires. It's truly the American dream but it's a tough place to get into because everybody's making so much money that everybody thinks they're made of gold. So we're looking at new footprints. We looking at new opportunities. We're looking at some technology stuff, engineering companies that actually have great processing patents and know-how, things a little bit different for us.

Our next question comes from Dan Mannes with Avondale Partners.

A couple of follow-up questions here. First, you talked -- you've been talking about the downstream market, and just maybe a follow-up to some prior questions. We're obviously seeing the EPC is getting led of some of these big projects. Can you just talk about your process in terms of getting involved with sort of the big EPC providers? Do you generally tend have to bid to them, do you partner upfront? Sort of how does that play out and how does that play into your expected timing on your go forwards?

Well, it's cats and dogs, a lot of it. The lot of the clients, since we do their smaller capital work, want to see us get included in the bigger projects. So we have the clients require us to be part of their projects. It's one way we get squeezed into a deal. Another way is, as you know, one of our engineering partners had a very successful project in the Southeast. And it was well-publicized, how successful it was, and they want to replicate that. We were part of that original project on our refinery expansion. And then you have a general shortage of manpower. So a lot of the big engineering firms have been actually asking us to travel around with them and assure their clients that if they award the work to them, that we'll provide the resources to do the risk work. These big EPC guys like to transfer risk to us little guys. And of course, we like that too because we get to -- with more risk comes more profit. But you have that and then you have just -- a lot of what we do is around the bigger projects. So you take a refinery build or a refinery expansion or chemical plant expansion, it will need industrial gas. So we have alliances with Linde and their products and people in Matheson, people like that, and we will build the facilities around these big plants. And you'll say, well, how big is that? That could be $100 million, $200 million on one of these air separation units or something like that. And quite honestly, we like those markets better because we're not competing with our engineering partners and it's a little less competitive because it takes a longer resume, a better resume to build an air separation unit because of the exotic material that goes into it than it does at a carbon steel refinery plant or something like that

Got it. 2 more quick ones. First, you mentioned the shutdown of San Onofre and the potential opportunity on the ARB Industrial side. 2 follow-ups there. One is, have you seen any inclination yet from CPUC to start proving some of those kind of legacy PPAs? And then, two, do you see opportunities maybe in some other parts of your business, whether it's underground gas or maybe even underground transmission, to help with that replacement?

Well, I'm going to do 2 then 1. You're not going to see a lot of greenfield gas-fired power plants in California. Most of what you're going to see is repowers. You can't -- I don't have enough lifetime left in me to try and work somebody through a permit on a greenfield basis to build a plant there. And then your second question, we moved from California because I couldn't figure out what all those guys were going to do. I mean, the PUC is a difficult group to try and extrapolate from their past actions, where they're going to go. They're hell bent for leather to get your electrons from renewables, but they're just too intermittent. You've got that and you've got the one true law. I mean, we're active. Our guys are working their a***s off right now, generating proposals for big plants that are yet to be permitted. And so, I mean, we literally can't bid any more work than we're bidding right now in California. The unfortunate thing is some of it is the solar stuff, which is really good. I mean, it's good work other than the fact that our clients are a little bit screwed up and they're trying to deliver parts from Turkey and Spain and everywhere else and you can't get them when you need them. It's really pretty good work. The margins were okay for us but our guys couldn't bid any more work than they currently are because of the amount of work that's going to get built in '14 and beyond. Song San Onofree, it's 2,000 megawatts. That's 5 plants the size of El Segundo, 6 plants the size of El Segundo. That's a huge opportunity. That's just that opportunity as that replacement but you've got all these technologies now and the owners, they want us to price it all before they pick technology, whether it will be Siemens or GE or Mitsubishi. And there's just a lot of work. We're in the middle of it. We're one of the favored guys out there, if not the favored guy. And I have no doubt, Tim is going to win at least his share, at least his share of this power work that's coming down the pipe. But he's got a lot of other opportunities beyond that, which I don't want to get into because some of it is confidential.

Okay. And then one last quick one, just a follow-up on the pipe business because it wouldn't be a call unless we talk about pipe. If you look out to '14, I know obviously, you're a little bit more open then, just given the nature of contracting. But we've seen a lot of award activities, especially some longer-term award activity. How do you view sort of industry capacity playing out for '14 and do you like the potential for pricing better next year than maybe what you were able to pull this year?

Yes, I really do, for probably different reasons than you might expect. We bought 36 of these 572 sidebooms. Caterpillar sold 300 of them. So the average guy, if you talk to anybody, I know you know who the guys are and you say, okay, what's your capacity? And they'll say well I can stand so many spreads. Well, if you look at that, if it takes on average, say, 50 sidebooms to muster a spread, that's 6 spreads. Well, that's great. 6 more spreads out of maybe 40 to 50, well, you would think that would be a lot more competition and price suppressing. But as I've said on many of these calls, you can own all the equipment in the world but if you don't have the right guys to run the work and drive the tractors, you're in trouble and you're not going to get your share. And we have those guys. I mean, our Rockford guys, our ARB guys, our Q3 guys, our Sprint guys are the very best and we have a lot of internal capacity and we can be very aggressive and very competitive with those guys although a lot of the work seems to be going the reimbursable route. So I'm really bullish on where we are now. Will we do twice what we're going to do this year? No. I mean, we're running about as hard as we can run. But I look for some real margin expansion and maybe a little less rain next year.

Our next question comes from Rich Wesolowski with Sidoti & Company. Richard Wesolowski - Sidoti & Company, LLC: The release lists Sprint's revenue but I'm wondering if you have the company's profit relative to last year.

I don't think we usually we get into that level of detail, Rich. They... Richard Wesolowski - Sidoti & Company, LLC: I I asked only because its on there for a few of the subsidiaries. But if you don't have it, you don't have it.

I can dig while you're talking. I think...

Is it relative to last year? Richard Wesolowski - Sidoti & Company, LLC: Yes, in any event.

I'd say it's probably on par with last year.

The second quarter is right at the same level, gross margin. Richard Wesolowski - Sidoti & Company, LLC: Okay. Gross margin or profit, Pete?

Gross margin. Richard Wesolowski - Sidoti & Company, LLC: Great. Brian, you had mentioned a difficulty in getting the NTPs for some of your Belton projects and I'm wondering if that affects your ability later on to beat the bid margin out in '14 and '15?

No, not really. Not unless you've got your whole team up and running and you're waiting for your notice to proceed. Some of it is our doing. I mean, a lot of times, the clients will want to release you a portion of the job and of course, that's great if they're willing to not start the clock. Because all these jobs have, by law, have liquidated damages with the time-related liquidated damages. So the last thing you want to do is have them start the clock when you only got a partial release and then have them delay in the release of the rest of the job and so you start looking to liquidated damages down the road. So we're pretty careful before we allow them to give us a partial notice to proceed. Most of this work that we're doing in the Belton area, the bigger job we're doing, it's got discrete pockets of work because it's largely structures. I mean, we're doing an elevated structure over the whole town of Belton and then the ramps related to that. So you could actually do quite a bit of work on a partial release. But the liquidated damages on a $250 million job were substantial. So it hurts you a little on the front end, possibly, if you got a crew standing around and waiting to get started. But we don't typically gear those things up until we're a lot closer than we have been on some of these jobs. Richard Wesolowski - Sidoti & Company, LLC: Would you mind flushing out the municipal water infrastructure opportunity in Texas over the next couple of years?

Yes, I don't know, Pete keeps writing little messages and handing them to me. I'm not supposed to get into the details on that but it's very well publicized, the issues out there. And it's kind of a bifurcated solution because of the industrial users, the big processors need water for their processes and their workers need water to flush their toilets in their houses, so it's pretty symbiotic because if you don't have a job, you don't need to flush your toilet because you won't be living there. So the guy we're working with is well-financed. He's a very successful developer. He was in a different industry of development in another utility kind of industry. And have got a lot of confidence so we spend a lot of time with them and we have an agreement with the guy that if he gets it, we get it. And so every dollar of this build is our build and we're -- he's got part commitments from a couple of municipalities and industries and he's got soft commitments from a bunch more. And I just -- that's about as far as I want to take it. But it's a lot of pipe, a lot of -- a significant number of reverse osmosis plants because a lot of that water is pretty brackish out in that part of the state and some well field development. Richard Wesolowski - Sidoti & Company, LLC: Over to the West, if I could. You spoke about the Southern California utility having recently hired an engineering firm and having to hustle their integrity work in 2014. I was under the impression that your big customer was behind the curve and that the other utilities have already completed a lot of what the regulators are demanding. Is that not the case?

Well, the regulators are demanding a couple of things. In the Northern California area, they're demanding a whole different set of criteria than the Southern California area because of the incidences they've had up there. Their demands now are for some water testing, some hydro testing, a replacement of hundreds of miles of pipe. And then this process where they go through where they can run these smart tools. I mean Dan, you know about this and some of the other guys don't. The second step is to put a program in place that ensures that this system will maintain its integrity. Now in Southern California and in some of the oil guys in Northern California, because this just isn't utilities, this is anybody that puts a product through their pipe that has public safety issue here, so it's oil and gas guys. Most of those guys are entering Phase 2 and Phase 2 will be where they run these smart tools and then they begin this kind of scheduled program, this PSEP, to ensure the long term integrity of these systems. So basically, utilities don't get behind the curve again as they had in the past, at least that the PDUCs perception, not mine. Sempra and some of the other guys are kind of entering Phase 2 and I think -- and I'm speculating at this point, and forgive me, but I think most of these utilities don't want to build a whole company to effectuate the PSEP program. They'd rather hire a program manager, a Jacobs or somebody like that, to come in, set the program up, run it for a number of years and then just hand it over to utility so they're not reinventing the wheel. And that's kind of were Sempra and some of the other guys are. So Phase 2 for them starts, they're kind of getting to a little bit this year. I think they're going to be a lot more aggressive next year and following year, based on what they've published in their rate case.

Our next question comes from Tahira Afzal with KeyBanc Capital Markets.

Most of my questions have been answered, in fact, many more than the ones I've thought of. So I guess I'll ask you something very basic. You've grown this quarter 15% organically. It seems you are more positive underneath the outlook for some of the pipeline integrity work in California and you have more visibility on the industrial side, where I know you have a lot of service capacity. So is this a rate potentially, that you feel you can now really sort of support organically as we go into 2014 or are you going to continue to make some acquisitions to really see a growth like this going forward?

We're on our fifth year as a public -- or the sixth year as a public company. We committed internally to satisfy the needs of the public shareholders, which means we've committed to internally do the pain and suffering it takes to grow the business in the high-teens. We're way ahead of the curve, that's the good news. The bad news is as we get ahead of the curve, you guys draw a new curve. And so we got to go even faster. We're going to continue to be organic growth. I think we've got 2 really fabulous years of organic growth. So I don't see a huge need but I hate to be acquiring companies out of need, incidentally. But I don't see a huge need to satisfy our growth the next couple of years through acquisition, which is a nice problem. It's a nice place to be because we can be pretty selective, we can -- we've got some cash, we've got some long-term financing we used to generate it. We've managed to do these acquisitions by maintaining our balance sheet. I think we have a very strong balance sheet for our weight class. And I think we'll continue to look at acquisitions. Again, I think we may kind of launch into a new direction with something, that's kind of where we're bent. Although, we look into a lot of little tuck-in guys. There's a need for a lot more capacity in the Gulf of Mexico, around the Gulf of Mexico and I think we're looking at things that are synergistic to our current operations. We've got a little turnaround guy there. We think Toby's going to be a good prospect in the future growth. He needs a fairly sophisticated shop to support him because a lot of what he does, what Jim Henry's going to do with the groups out of-- James and Don Patrick and those guys, they need -- they deal with exotics and they deal with difficult to work with materials. And that's much more suitable to do that in a shop than to try and do it in the field. So that's one area we're kind of looking. Chris and I are still looking at acquisitions, it's probably a third in my time, other than the third I spent preparing for this call, obviously. But I see no reason we shouldn't. I'm not at all pleased with some of the assimilation we've done with the groups that we have this last year. Assimilating a smaller company is almost as hard as assimilating a bigger company and we're working hard to kind of remedy that, and we'll get there. We've done this enough and we've got really, really good people that it will eventually get figured the way we want to figure it out. But we're going to look at anything that kind of fits our current business plan and anything that kind of takes us to the next step. And we're excited about what we see although the multiples have expanded greatly. So it's a tougher, tougher decision to look at buying somebody.

So for that, actually, it seems much more positive than I thought, to be honest. And I'll just squeeze in a last question for me, which is more something along the lines of what you've talked about earlier. You guys have been very good at identifying trends to a great degree before they happen. One of the ones you've talked about in the past, Brian, is in regard to Micro LNG. Incidentally, we saw a technique to get such an award, the $35 million award for Micro LNG in China. But could you talk a bit about that? Is enough opportunity here? Are you seeing anything here in the U.S. yet that could materialize?

Yes, but it's a tiny bit early. I think I'm hoping to have announcement there in the next 30 days or so. I was in the -- I spent a couple of days in the Bakken a couple of weeks ago, and I've never seen so many flares in my life. I mean, one of the statistics that I read while I was up there, that they're flaring $100 million of gas a month at today's prices. And to be doing that and generating the CO2 that goes along with that is just a travesty. There's so much opportunity and clean energy saw this years ago, of course. Whether they can capture a large portion of that mark or not, who knows? There's a lot of different technologies out there to exploit, stranded gas and flared gas and this and that. But what it's going to take is it then takes some commitment on the user's parts to fund the trucks that will use LNG. You've also got an opportunity. What would eventually will compete with LNG is the gas to liquids business. The technologies isn't there yet, but I think it's maybe right behind it, 3 or 4 years behind it. That's actually some of the areas that we're looking acquisitively to kind of get ahead of the market is, to see where the opportunities are on micro-LNG because that's kind of -- even though it's kind of an old business, I mean, making this stuff cold to get it liquid is not new technology. Although there are some pretty cool technologies out there that can reduce the cost in doing it. But then the gas to liquids part of it is the next step, in my opinion and I'm pretty excited about where that technology will take the country. I think one of the things that I've noticed over the years that I firmly believe is that I think methane is going to be cheap for a long time, and it'd be a shame if we didn't exploit that somehow.

Our next question comes from Jason Wangler with Wunderlich Securities.

Just kind of maybe almost dovetailing on that question. You were talking about the Williston and other areas we're having so much oil and gas, almost effectively stranded. Obviously, it takes some time to permit and build the pipelines and everything but what is the -- I guess, what do you see as the major, I guess, slowdowns right now or are we just going through a very long process? Is it permitting or is it just the procurement of everything or where are you seeing the kind of ramp as we go out these next few years where there should be a lot of demand?

Well, I look at this -- it's mostly anecdotal for me. There's a lot of smarter guys than me out there that hypothecate based on these facts. But what I'm seeing is a rig count that's dropping. I'm seeing guys that -- if you make liquid -- if you make natural gas and it's wet, you're going to get ethane, you're going to get propane, you're going to get a lot of constituents. Well, if you don't have a market for that, what do you do ? And so it's a whole series of new issues that have come about, and it's really kind of surprised the industry because it's only come about in the last 3 or 4 years. And so if you're producing gas up in the Marcellus and you don't have a fractionation plant up there to strip the liquids or even if you do, what are you going to do with the liquids? Because if you make ethane, which is now cheaper than methane still, what do you do with that if you can't make it into poly? So you've got a whole misallocation or something. I don't know how you'd refer to it but it's a huge dynamics that are changing in the market. And we're structurally not able to kind of accommodate it with the way we process crude and gas. And so that's why you have $50 billion plus of projects in Louisiana that need to get built and probably twice that in Texas. If it was just making gasoline out of oil, we can say, well, we're going to use domestic oil instead of foreign oil, that's kind of easy but then, you have to do all the build out to take it from the mid-continent to the refineries, instead of off of a boat. And that's kind of what we're gone through the last couple of years. But this gas, the natural gas market and that industry is really topsy-turvy right now. And since we don't have an energy policy in this country, that exacerbates it. So you've got everybody else, everybody in the world in the business trying to find their own solutions to this opportunity.

Sure. So I guess maybe the way to look at it is -- and you guys being set up pretty well for it, is it's not just going to be simply global oil pipeline here, build gas line here, it's also of the changing streams and what we have coming out of them and really getting your arms and, I guess, hands around where to go with that stuff, where you can take it to in order to actually make a return or even get it processed. So it's a kind of a twofold situation. We need not only the old stuff, but we need something new as well.

Yes, we do. Who would have ever thought that ethane would be cheaper than methane. I mean, I remember one guy when I was going to school. He said, we're going to look back at the last 60 years and say, shame on us for burning ethane instead of making it into plastics and doing the things that have higher value. And so I think we're there but you've got actually people, be prior to Obama lifting kind of a moratorium on natural gas exportation or LNG exportation. They were looking at exporting ethane and burning ethane because it was cheaper than methane and there wasn't a limitation on exporting it. That's just a damn shame because of the value it has in the chemical industry. And I think this all came about in the last 3 years and these things are not -- these are capital expenditures. I mean, Sasso [ph] their projects, I think $7 billion or $8 billion. You don't make that decision lightly, you don't finance it easily and you don't build it quickly. And so when you got that much changing as quickly as it's changed, it's really changed a lot of people's decision processes. And it's -- I have to thank God I don't have to decide on this stuff, I just have to build it.

Thank you. I will turn the floor call back over to Brian Pratt for closing comments.

Well, in closing, I'd like to spend a little bit on how we opened the call. We just ended our 67th year as a company, my 39th year as an employee, my 30th year as CEO and our fifth year as a public company. And incidentally, my third month as an expecting grandfather. Our 5 years as a public company has been, to say the least, interesting. Each year has been filled with a lot of hard work and effort for all of us but no more work than the previous 34 years. The hard work has been worthwhile because of the quality of the people with which we have the privilege of working and the confidence our shareholders have placed in us. I'd like to sincerely thank both of you. Goodbye.

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