Primoris Services Corporation (PRIM) Q3 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the Primoris Services Corporation Third 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 for Primoris. Thank you. You may begin.

Thank you, Christine. 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 September 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 for joining us today as we discuss our 2013 third quarter results. Primoris delivered another solid quarter as we reached new highs in revenue, earnings and backlog. Revenue grew 28% over last year's third quarter to a record $551 million. Net income grew 25% to $0.42, including onetime adjustments. It wasn't that long ago that we would have considered $0.42 a good number for the entire second half. Then we continued to grow our backlog, which reached a record total of $1.9 billion. On the old calculation, which excludes estimated MSA revenue, our quarter end backlog stood at $1.4 billion, even under that basis, a new high for Primoris. It is fair to say that these strong results originate from the way we structured Primoris, targeting specialized end markets with energy focus. Our diversification has lessened our reliance on one market, product or geography. We're all aware that the construction industry is cyclical, but we have designed our company to balance those cycles as best possible. This quarter returns continued to highlight the results of our efforts. Several of our larger operations had down quarters and several up, but we still report record results. We ended the quarter with $177 million in cash and short-term investments. Because of our bullishness towards our current end markets, we continue to invest in our equipment fleet, spending almost $20 million on additional equipment during the quarter. Even with a very robust investment in equipment increased workload, our balance sheet remains powerful enough to allow us to consider good-sized potential acquisitions. We don't have a need to announce at this moment, but I can assure you that we're looking at serious and significant opportunities. The M&A market remains very dynamic and sellers and prices are all over the map. However, we remain diligent and disciplined in requiring the potential acquisitions fit our culture and our definition of fair valuation. In the East segment, Cardinal Contractors is bidding and executing in their traditional markets of Texas and Florida, as when we're continuing our pursuit with our partners to have ways to alleviate the drought in West Texas. At Saxon, we struggled a bit with their assimilation. I have to say I'm a bit disappointed with the lack of success we've had in working the restructuring and fuse the organization with stronger culture to achieve sustainable profitability. We are very confident that Saxon will ultimately prove to be every bit as valuable as we envisioned when we purchased them that have a ways to go in realizing that value. We remain convinced that Saxon team members, like Jim Short, will be a long-term contributor to our goals. Jim has done an outstanding job of nurturing our relationship with some of their biggest clients that I have no doubt will play an important role in unlocking the long-term value we see in that organization. At the FSSI, Toby has been building his team in anticipation of a strong 2014. However, overhead and startup expenses are creating a bit of a drag on our current earnings. Please understand that the refinery and petrochemical business that FSSI is engaged in is anything but summer business, and we believe the opportunity for 2014 and beyond warrants our investment here. Sprint had a solid third quarter and margins nearly doubled from the second quarter, when we finished a couple of larger jobs that drug out due to both foreseeable and unforeseeable circumstances. Both the recent announcement of Kinder Morgan and the BridgeTex awards were big wins for Sprint. I want to thank Jim Kaserman [ph], who leads Robert's estimating efforts, and his team for a terrific job. Both jobs are now underway, albeit with a little later start than we'd hoped and without a complete release of all work. We remain very optimistic, but not only to grow the spread's capability, but also the opportunities available to them in the intermediate, the -- I'm sorry the immediate mid- and long-term nature. James Heavy Civil Division continued growing in the Texas market and duking it out in the smaller markets in Louisiana and Mississippi. Our TxDOT work is gradually ramping up, and we are starting to earn against work put in place on 4 of our 5 I-35 awards. We are having ongoing conversations with the department on cost impacts associated with their delay and notice to proceed, but expect that our construction efforts will be in full swing by early 2014. James Infrastructure & Maintenance division continues to deliver solid and steady results. You might have heard that Mosaic recently announced the acquisition of CF's phosphate business. Jonas Beatty's I&M team is an alliance partner with Mosaic, so this could provide more opportunity for us in Florida in the coming years. Jonas continues to impress us with his group performance. James Industrial division will be doing the bulk of the work on several large project awards. They have already 200 men on site in one of the projects and will ramp up over 700 men in the recently announced project in early 2014. You can imagine almost anything built in Louisiana requires a serious amount of civil construction due to the wet and unstable soil conditions in that part of the world. Conrad's team is as busy as they've ever been proposing on projects throughout Texas, Mississippi and Louisiana. For several quarters, we've been talking about the coming boom in the petrochem and refining industry, and I'm pleased to say it's beginning to strongly manifest itself in the marketplace. We hope to announce several more large projects for his group in the near future along with more OnQuest-teamed LNG awards. Our Engineering segment, OnQuest, is seeing growth in margin expansion in both its domestic and international markets. OnQuest Canada is accessing greater opportunities for its fired heater products in international markets of Asia and the Middle East. On the domestic side, Randy Kessler's team has recently announced the project win for an EPC of a new mini-LNG plant for Stabilis. This project is a 100,000-gallon-per-day facility located in Eagle Ford production area. OnQuest's ability to perform engineering and procurement, and then partner with the Primoris construction subsidiary, in this case, James Construction, gives us the unique edge in the bidding process. As I've stated probably frequently enough and you're all sick of me saying it, mini- and micro-LNG facilities make powerful economic sense, allowing operators to run their equipment on their own product or otherwise more efficiently or effectively monetize the stranded or undervalued asset creating fuel at a fraction of the cost of the diesel that they are offsetting. We do think that they're beginning to see that our markets finally recognized this and OnQuest has several more prospects in their sites. In the West, ARB Industrial finished a very successful project for NRG at El Segundo. As we anticipated, the solar -- solid margins from El Segundo more than offset any drop in revenue. Our team executed exceptionally well to deliver this challenging project to a client on time. It deserves mention that this project was nominated and received the 2013 Power Project of the Year Award from Power Engineering. Congratulations, guys. Currently, Tim's Industrial Group continues to bid with an executed range of smaller projects and projects outside of the West Coast. I'm confident that his group will continue to make strong contributions to the bottom line between now and what we see as an extremely robust California conventional power market in 2015, '16, '17 and '18. As we've told you, regulatory changes renewable power standards, improving technology and the more recent shuttering in the San Onofre plant are driving a surge in demand for California power plants starting in late '14 and '15. ARB Underground was slightly down from where they were last year as their largest client and major utilities struggled to work out the door as they adjust to a new Construction Services procurement system. We think our work in this market will experience a bit of a slower 2014, but begin stronger in '15. Rockford was as busy as it's ever been for third quarter in crews working nonstop in Pennsylvania, West Virginia and Ohio. The ATEX project in Ohio is nearing completion. We didn't do as well as we'd hope on that project, but I have to -- as I've said last quarter, I'm very proud of the guys for slugging through a tough job in tough conditions. Both weather and some challenging technical and permit initiatives slowed us down. However, we completed the project maintaining and strengthening our relationship with a good client. This same client, for whom we have just beginning work on a spread of the Seaway Pipeline here in Texas. Our newest addition in the West segment, Q3C, had an outstanding quarter. We knew after a long winter and a lethargic spring that we would really have to hump up to get all the work done this year. And we did. Jay had a monster quarter in Q3C, has a lot of work left to do before the year is finished. His group has not disappointed us in any way, except for the fact a couple of them have funny accents. Primoris' results are not a product of some group's working harder than others, but rather simply a function of a good company executing well in an industry, which experiences ebbs and flows in our markets and the inherent challenges of the construction business. Our success is evidence of wisdom, character and the effort of men and women on our team. I'm extremely proud of the work that we do. The Primoris team is the best our industry has to offer, and it shows in every aspect of our business. We, in sum, we had a great quarter, which obviously benefited from the near completion of the El Segundo facility. Nearly every quarter, there is a job or 2 that significantly influences our results. In previous quarters, there's been the Long Beach parking structure, Ruby, IID, LA1 and now in El Segundo. We expect the same in quarters to come. Now Pete can take you dryly over the numbers and bore you to death or put you to sleep.

Thank you, Brian, and thank you, all, for joining us this morning. Since we filed our Form 10-Q earlier this morning, I will quickly highlight some key items starting with the balance sheet. At the end of the quarter, our cash balance, including short-term investments, was $177.2 million, and our tangible net worth was $210.9 million, a 29% increase from the beginning of the year. We had $215.6 million in total debt at a blended rate of 2.8%, which includes the remaining $25 million Senior Secured Note that we drew down in late July and 2 new equipment notes in the third quarter for a total of $29.6 million. We spent some of that money purchasing construction equipment. During the quarter, we invested approximately $19.5 million on capital expenditures, and we received proceeds of $4.9 million from the sale of assets. The net investment of $14.6 million is not too far in excess of the quarter's depreciation and amortization expenses of $13 million. For the year, our $71 million total far exceeds depreciation and amortization, as we have invested to meet the growing demand in several of our end markets, including Q3C. As Brian said earlier, we are actively pursuing acquisitions, but we remain committed to a disciplined approach to acquisitions. Should the right target come along, our current balance sheet and line of credit provide ammunition. During the quarter, we spent $874,000 for contingent earnout liabilities for the recent acquisitions. Included in this amount is a onetime charge of $0.5 million to recognize the expected attainment by Q3C of their 2013 target. At this point, we expect to spend some additional $260,000 in the fourth quarter for the contingent earnout liabilities. Given the seasonality of our business, the third quarter is usually very strong, and this year was no exception. We earned a record $0.42 earnings per share and revenue grew 28% to a record $551 million. Revenue for the trailing 12 months is now approaching $1.9 billion. Gross profit for the quarter increased from 13% of revenues in the third quarter of last year to 13.7% and was better by 30 basis points than the 13.4% gross margin of the second quarter this year. It is no surprise that the ARB Industrial division was a powerful contributor to the margins of the third quarter, as the successful near completion of the challenging NRG power plant project added significantly to our gross margin. Typical of our approach to finalizing large projects, we are conservative in our accounting, and we intend to have lower margins at the front end of a project when project construction risks are highest and remain difficult to quantify. Over the life of the project, as projects' risks are diminished or eliminated and as the project approaches or reaches completion, we tend to enjoy higher gross margins. Q3C was another large contributor in the increased profit margin as they nearly tripled their gross margin contribution from the previous quarter. Those positive margin contributions were somewhat offset by more challenging quarters for the ARB Underground division, Rockford and the JCG Heavy Civil division. Underground's largest utility customer represents 8.8% of our total revenues for the quarter. By that $48.4 million, this was a 30% reduction from the third quarter of 2012. On a year-to-date basis, revenues from the customer are $117.1 million. And though we are currently running hard, it's not likely that we will reach last year's total revenue's number of $225 million. The reduced revenue level has reduced the contribution to Underground's margin. Our largest customer for the quarter was a large pipeline company, from which Rockford recorded revenues of $53.4 million or 9.7% of our total quarterly revenues. As Brian mentioned, these revenues did not translate to the bottom line as well as we had hoped, as Rockford recorded a mid-single digit gross margin percentage for the quarter. The project is now completed and should not have a significant impact on the fourth quarter. And at the JCG Heavy Civil division, continuing the clients and the work for Louisiana DOT exceeded the pickup for work for TxDOT, which meant that the Heavy Civil margins were lower compared to last year, both in dollar and margin percent. Included in the lower margin amount is an accrual of $2.5 million for a potential cost related to a project completed prior to our 2009 acquisition of James. Without that accrual, the Heavy Civil margins would have approximated those of the previous 2 quarters this year. Our SG&A expenses for the quarter increased $4.9 million sequentially from the second quarter of 2013. Most of that increase results from 2 charges: there was the $0.5 million we recorded to recognize the likely attainment of Q3C's 2013 earnout target; and from a noncash $3.3 million impairment charge for the WesPac investment, as a result of a change in the ownership structure of the investment. Without those 2 charges, SG&A expense increased by $1.1 million while revenues increased by $106 million. For the third quarter, on income attributable to Primoris, our effective tax rate was 39.2% and we expect that the full year effective tax rate for income attributable to Primoris would be approximately 39.1%. Our third quarter earnings of $0.42 per share were a record. Without the nonoperational noncash charges, which total approximately $6 million on a pretax basis, we would have set an even greater record. I'll end my discussion with our backlog. Beginning with the June 2013 quarter, we changed our methodology for calculating backlog by adding 4 quarters of estimated MSA revenue to the amount we calculate for known identifiable revenues. Using either method, our backlog at the end of the quarter was a record. Under the historical calculation, backlog stood at just over $1.4 billion and our estimate for the next 4 quarters of MSA revenues is approximately $475 million, which brings our total backlog to $1.9 billion. By segment, that breaks down as follows: $1.193 billion for the East segment, $694 million in the West and $36 million in Engineering. Over the next 4 quarters, we expect to recognize as revenues approximately 63% of the East backlog, 99% of the West backlog and 91% of the Engineering backlog. Please remember that certain contracts, such as time and equipment, and time and material, and cost of reimbursable plus fee contracts, are not included in backlog. With that, I will now hand the call over to the operator for your questions.

[Operator Instructions] Our first question comes from the line of Dan Mannes with Avondale.

So a couple of quick follow-ups, first, on the East segment. Obviously, margins were held down by a couple of things, and it sounds like you're kind of in the transition from Louisiana to Texas. You're still early in the ramp on the industrial and the lawsuit. But the number obviously was probably a bit lower than most expected. How should we think through the ramp over the next, I guess, 6, 12, 18 months? As you start seeing that transition play out and hopefully moving from higher-margin work? How long is it going to take to maybe see that flow through?

Well you're going to have your normal kind of winter, where between not being able to put work in place because of weather and clients holding back on engineering and awards because of that time of year and budgeting, but I would look for the mix to change substantially. I mean, not only are the jobs going to be immature in Texas, although they're still pretty fresh, but you've got a greater preponderance of the energy work coming, which has higher margins. So I'd look for the margins to continue to improve in the East. And due to the mix and kind of the nature of the work, we're pretty pleased. We struggled this year a little bit with these big jobs that were delayed. They would have been quite helpful third and fourth quarter normally, but there were permit issues on both jobs. And so they're going to be pushed into the winter, which makes for a little tougher work. We'll get compensated for that, but at the same time, it will also kind of help alleviate that normal first quarter roughness.

When you mentioned the delays, are you talking about civil work? Or are you also talking about maybe BridgeTex a little bit?

Well both the Kinder job and the BridgeTex jobs that Robert had were -- had delayed starts, and we're still only partially released on both of them, so -- which can lead to issues down the road if they don't get timely releases. We're working around kind of what's available to us right now. And then you've got some later awards on the Texas work. The last big I-35 job, they can't just seem to get all the rights of way cleared and all the utility relocations done ahead of us, and they've asked us for -- if we take a partial notice to proceed, and we're just not willing to do that and start the clock. And then you've got some delays. As I've said before, as this big slug in energy work hits us, it's -- that big bulge of work has worked its way through the engineering companies, and they're overloaded. So not only is the work getting delayed coming in and out of the engineering companies, but the quality may not be everything we've desired because of the -- they're just overloaded, they're overworked. And they're outsourcing a lot of it. There's some stuff you can offload to India and China, but you can't offload it all. So that's delayed some of the start also, but it looks like when it breaks, it's going to be a tidal wave.

Sounds good. And then real quick on El Segundo, is this pretty much all the contingency in the third quarter? Or there might even be some more that could drag into the next quarter?

We're still negotiating changes and things with them, so we've taken what we're comfortable with. As you know, we're very, very conservative on what we recognize. That's why you get these closeouts that are helpful from -- at the end of the job. We do that on all of the large jobs. We're very conservative on what we recognize. We're very conservative on what we recognize on these onetime expenses that we realized this quarter. That's the nature of how we run our company for 40 years. And that's the way we're going to run it for the next 10, anyway, as long as I'm around, until Kate's running the business.

And just my final question before I jump off. On ARB, obviously, it was a little softer in the quarter, and it sounds like you're saying '14's a little slower. How much of that is there sort of their systems versus maybe them getting a little bit less, even less helpful treatment from the regulators and that may be causing some uncertainty there in terms of their spend pattern?

I'm sure that's a portion of it, but not all our work comes from that one utility that's struggling with the regulators. The utilities in the South are pushing back their next phase of the integrity business because they're finding it a little more difficult to implement than they'd hoped, and they've hired program managers to do all this stuff. And so they're starting to get -- they're struggling kind of getting up to speed. They changed their -- as you know, they changed their delivery system or their procurement system from a rip and read or a bid system to an alliance system. They've struggled with a couple of their alliance partners. We think they're going to drop possibly 1 or 2 out. We don't know for sure. But we think there'll actually be more work available to us. And we think there'll be more continuity in how it's put out, because the new guys have kind of -- and they're good guys. They're working hard. I'm talking about on the client side. But it's an overwhelming task to get to the kind of capital spend they want to spend. We actually think they'll get a better handle on it next year, which will be quite helpful for us. So I'd say it might slow down a little bit. I think that what -- I don't want to be misunderstood. The growth might slow down, but I don't see a dip in the revenue curve.

Our next question comes from Lee Jagoda with CJS Securities.

So the opportunity for the Gulf for James in 2014 and beyond has been pretty well telegraphed and appears to be taking shape. So can you switch gears a little bit and talk about the longer-term opportunity that exists with regards to power in California and maybe the expected timing for when some of the work should begin to get awarded?

You got a couple of hours? We meet -- we have a new guy down here, a guy named Jim Henry, that we hired to bring all this energy business kind of together and get everybody to work together. Ultimately, we're going to re-segment that. We've been -- auditors have threatened to shoot us if we did it before year end. So we've kind of pulled back, and we're going to do it at year end. And Jim runs that segment. He's a great guy. He's been in the industry forever. Jim's -- I think he's in -- or late '50s, worked at some of the bigger engineering, construction guys down there. And every time we meet, Jim and I talk about sustainability, and for us, that's really important. We're not trying to get a presence -- build a presence down there to hit this boom. We're trying to build a business that's going to go on for generations. That's kind of been the way we run this company to get to this point. We're not going to change. So we're very cognizant of what we can do. We're very cognizant of staying true to our old friends. Some of the reasons that -- I want to digress for a second -- sorry, for waxing, but I think you guys will appreciate this. One of the reasons that we do as well with the utilities on the West Coast is all of the other pipeline guys went and chased all the big prospects. They chased Rockies Express, they chased Keystone, they've chased all these but jobs. You know what? Scott's guy is Greg Dahl. He stayed home. He took care of our normal clients. This is a big thing for us. They've been our client for 60 years. They're going to be our client for 60 more years. And it's just a different philosophy that we have. We stay home. We take care of the guys that take care of us. We live by a mantra that says "never trade an old friend for a new one". This is what we're trying to build in the Gulf. So we're not going to go to $1 billion next year. We're going to take care of the guys that have taken care of us, our normal clients. Believe me, there's way more work than we could do just for them. And we're going to do it in a way where we don't disappoint them in our results, where we don't run them off the edge on their budgets, we don't get them in trouble safety-wise. And we're going to do this because we take a long-term view. So are we going to see great growth down there? Absolutely. Is it going to be as explosive as some of the other guys? And you got to be careful how to use that term in the petrochem business. No, it's probably not, but it's going to be good, sustainable growth because we're going after relationships and taking care of people when the other guys are off chasing the sky -- the pie in the sky. We're going to be taking care of old friends and making a few new ones. That's what we're building. But I look for that to be long term and sustainable. That's why we bought and built FSSI. They do outage work. They do turnaround work. That's the kind of work that the clients appreciate. When their plant's down, they just want it back up so they can make product, whether it be chemicals or electrons. And we're good at that. And that ingratiates ourselves -- our clients to us in a way that leads to long-term relationships. That's what we're trying to build. Now the power business on the left coast, it's going to be magnificent for a couple years, but it's going to be a bit long in starting. They're a bit decision-constrained out there. They have a tough time making decisions because they got all these balls in the air between solar and renewable, other renewables and conventional with the shuttering of San Onofre and the once-through and the normal replacement cycle of power plants, we think the market's probably 15,000, 20,000 megawatts. That's a big market for us. We're back to the California energy crisis kind of requirement. How that gets built? Who knows. There are some great technologies out. Siemens has got this quick start. You've got to tour it and see it. We think that's a great solution. GE has good engines, too. You've got 2 or 3 main IPP guys out there, AES and NRG, and we have good relations with those. So we think we're going to get more than our share and -- but it's -- I think some -- you'll see maybe some of it in '14. But more than likely, the real bulge is going to start '15, '16. One other thing. Don't forget that they're just now starting this process, believe it or not. And many of the IPP guy, Independent Power Producers they were working with, haven't ordered their engines yet, and that's an 18-month cycle to get those engines ordered. And there was a lot of work you could do before they show up. But after they order the engines, they're all different. They're going to have to do the engineering as they order them. So it's going to take a little while to get fired up and going.

Okay. And one more, hopefully, brief question. Other companies in the industry are citing the beginning of a trend towards significantly higher labor rates associated with the shortage of skilled workers. Are you seeing a similar trend? And can you talk about what's being done on the bidding side and the conversations you have with your customers to allow you to try to maintain margins in this difficult environment?

Well, we've got what we call the 4 Cs. You've probably seen it. But one of the big things is -- what I think is important in the business is picking the right job for the right customer. And you say, what does that have to do with labor? Well, if you're competing in a tough labor market and you've got a job way out in the middle of God knows where, that's 100 miles from the guys' homes, that's going to be a tough job to man. Whereas you got a power plant that's 10 minutes from his house in Riverside, that's an easier one. Now we're strong enough in all these markets that we can kind of pick which job we want to be the most competitive on. And so I think picking the right job where you can get the best of the people is very important, picking the right client and the education process. It's amazing -- I don't mean to say this is, we're better, but it's amazing how many of our peers I've talked to that haven't done anything to accommodate the Affordable Care Act. Now we've been effort-ing this thing for a long time, and we've got guys -- I mean, we just met with some of the larger highway guys here in Texas and kind of to sum it up in one word, their response was, "Huh?" They didn't have a clue how to deal with the Affordable Care Act, and this is a significant cost because a lot of the -- particularly on the open shop side of the business, because a lot of those guys opt out of health insurance. Well, now, they're not going to have any choice. And we have to pay our participation in that. So we've been very diligent with our customers to get them to understand what those costs are going to be. And it's going to be tough because if you're looking at an impact in productivity in the Gulf, which is where most of these is going to occur, and you've got increasing costs related to statutories like ObamaCare, getting on top of that and making the customer understand it isn't going to be easy. These jobs are not going to get built within the budgets that these guys have budgeted. I'm talking about the clients. And they recognize that and they know that. And that's why they're reaching out to guys like us early before jobs are even engineered or permitted and asking us to commit resources to those jobs. But it's going to be a problem across-the-board for the industry. And it's going to start in the Gulf, and it's going to propagate all the way through the rest of the United States. Because the Houston, Louisiana, Oklahoma area is the bench for the rest of the country in terms of energy construction, except for the very far reaches in the Northeast and in the West Coast. Those are isolated, and they're mostly union. So they're a little different labor market. It's going to be a huge impact. And if you hear anybody saying it isn't, they're smoking something.

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

It's actually Saagar on for Tahira. So a lot of those petrochem industrial questions have been asked, so I'm going to try to focus on a different area. First, Cardinal Contractors. You didn't mention the West Texas drought. Cardinal, related to the waterfront, where do you see this business going in 2014? What are the gives and takes that could really lead to significant upside for Cardinal?

Well, the amount of money being budgeted to deal with the drought is just astonishing. And the State of Texas is very much a state that encourages private enterprise solutions to difficult issues like this. So we're looking -- and a lot of the solutions, particularly on the industrial water use side, which are -- the huge industrial water use requirement out there. Based on the processing businesses and the oil production business, that's soon to be the second largest oilfield in the world, and the oil guys are very aggressive in dealing with the resources they need to be able to do that. And a lot of that is frac water, and they're handling the produced water on the other end. Now you have some good water sources out there, but the water sources are brackish water or a lot of dissolved solids in the water. So the services needed to use that water and others -- there's fresh water out there, too, or sweetwater, you need to lift it, you need to treat it and you need to convey it. And of course, we don't do the lifting, but we know guys who can drill wells. That's the smallest capital component you need. But we certainly know how to treat it, and we certainly know how to convey it. So -- anyhow, the state is talking upwards to $50 billion of possible capital expenditure in that part of the world to alleviate the drought over the next 10 to 15 years, and that doesn't include the entrepreneurial solutions out there. So we're working with a partnership with 2 pretty strong guys that are trying to provide entrepreneurial solutions to certain users out there, both the producers and the processors, the chemical guys and the oil processing guys, and I'm very optimistic that we're going to get a sizable return on our effort out there. It's a tough place to work. But as you talk about a manpower shortage, unbelievably short of people out there. It's worse there than in the Bakken.

Is there a way for us to gauge how big that business can get in 2014, 2015 and on, or could you give us...

Yes. If you could wait for us to make an announcement or 2, then you'll be able to gauge it pretty quickly. I wish I'm -- Pete just shudders when I say this, but I'm pretty confident we're going to be able to announce something here in this quarter. But yes, it's going to be a -- I think it's going to be -- and it's all accretive to us, of course, because it's -- with the numbers we're talking about, Pete refers to it as better than an acquisition, and it's quick. Most of these guys, as you know, the drought is getting more and more acute, particularly for the oil producers. They just want to frac and get oil out. And they're good customers, they understand the game, they play well. Expediency is much more important than squeezing every dollar out of a deal. So we're really excited about a couple specific opportunities we're working hard on.

All right, great. And then my next question really is related to Q3C. As you had mentioned, the release and on the calls, you've seen phenomenal growth year-over-year. Can you just go into details on why or how Q3C has been growing so fast? What additional opportunities are for that business?

Well, I think the reason they're growing so fast is they're just really, really good at what they do. Up in that part of the world, you don't get to work in the winter. So you got to be pretty damned good in the summer to get all the stuff built. We bought them. And they're great guys, other than the fact that up in that part of the world, they're almost Canadian. But they're great guys. They work very hard, they've got a great niche, better reputation, they take care of their clients. We -- they had a good plan. We helped them exploit that plan. Much as what we've done with Sprint. And a lot of that plan had growth. We spent -- what? How much did we spend on equipment for them this year? $23 million in expanding their equipment base to do this. And I think they've found that we're reasonable guys to work with, too, because they seem to be playing well with others. So they fit well, their culture is good, they're very focused on cost, they're very focused on cash and they're very focused on taking care of the guys that take care of them, their clients and their people, so great cultural fit. We added some capital, we added some motivation, we've added some geography for them, we've turned over some other offices to them that they're working alongside some of the other guys. And I think they're going to continue to grow. I think they'll grow next year.

And then final question for me. You mentioned a senior executive that you guys hired for your energy business. If I remember correctly, that individual also has a pretty strong background in the wind business. Should we expect any inroads for you guys into wind, or is that not going to happen at least in the near term?

No, no wind for us. The -- I quit my first windmill in about 35 years ago in Tehachapi, California. That is not the direction we're going. Now that's not to say we won't be there someday. But no, we're not planning on adding any wind. Our plate, in terms of what we see available for us to grow on, is very full. Short of an acquisition, we've got all we need. You got a little bit of a struggle in California. But I got to tell you, Tim Healy has worked with us since 1989. Anybody that would doubt his ability to bring work in the door and execute it well just doesn't know Tim Healy, and there's work out there. We like the power work, though I've got to -- I'll tell you, we didn't have any power to chew on for about 15 years and that guy did a spectacular job dragging stuff to the ground, killing it and eating it. And that's the business we're in. He will get us where we need to go. But no, wind is not in our future at this point.

Our next question comes from the line of Adam Thalhimer with BB&T. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Brian, the 10% organic revenue growth in the quarter, with all the awards that are coming in the door, do you think that accelerates in 2014?

I don't see how it can not, based on the work that I see out there and the fact that those awards weren't made up of large highway jobs, which burn off slow. So if we're going to maintain our current run rate and grow, then yes, the new awards have to increase dramatically.

And remember, by next year, it's, call it, considered one company. It's no longer the acquisitive part or an acquisition. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Okay. And then, Pete, I mean, or Brian I guess, how do you feel about Q4 top line specifically? Usually, there's a sequential acceleration in Q4. I just -- it's hard with a couple of projects going off, a couple of new projects coming on. I mean, do you see revenue up in Q4 sequentially? Sorry, I know you don't give guidance. I hate to ask such a specific question, but it's some of the moving pieces.

I don't know about this all revenue increasing for -- you have -- we have a joke around here. If somebody ask what happens in December, and everybody responds, "Nothing." December is tough because everybody's got sugarplums in their head, and they're trying to get their vacations in there. I see Sprint's work dramatically increasing with the start of BridgeTex. I see Rockford's work continuing on. There'll be late year-end work to get things done, plus we're just ramping up on Seaway. I think we're getting ready to start pipe or we just started pipe out there. You'll have the normal crush at year end with the utilities, I would guess. They want to make sure they get their spend done. But on the flip side, you have -- what you have, the James Industrial works gathering steam. I talked about a project we should be at 700 guys in first quarter where we're at 200 today. The Heavy Civil is gearing up. On the flip side, you see Q3 work as the winter sets in. You might get a hard freeze or something or like that. Well, that would dramatically slow them down in Little Canada, which is aptly named. So it's kind of a mixed bag. But I see some -- Tim's work in the west. He's got some good solar work. It's kind of a good news/bad news thing. It's a tough client, but it's good work. He's going to continue to ramp that up. So I see top line holding their own or maybe coming up a little bit, if I had to make a guess. But I don't give guidance. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Understood. And then the pipeline jobs that are coming in, are those in the West segment or the East segment, or it's a mix?

Well, the BridgeTex work and the Kinder Morgan work, they're in the East because they're Sprint. Rockford is based in Hillsboro, Oregon is in the West, but their work is either in the Marcellus -- or is Marcellus-related or it's in the south. The Seaway job is right here, just right south side of Dallas. But they still report to Hillsboro, so technically they're in the West. And then Scott's got a lot of cats and dogs as does Q3 across the whole country. But if you look at the differential in crude -- we had a big argument yesterday, all these -- the local Texas guys are arguing about why Texas crude was so lightly priced compared to Brent and Bakken crude was even less than that. And really, it's this transportation bottleneck we've been talking about for years. So you're going to see more and more work built in Texas, Louisiana, Oklahoma, Mississippi, places like that, to get this crude and the products to market. They're talking about a propane line down from the Marcellus. We're just the package to bid the job, for Williams is out, which is another line for the Marcellus down to Texas, so that job, in the East or in the Southeast. If Rockford gets it, it's in the West. If Sprint gets it, it's in the East. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Okay. And the last one for me Brian. When do you -- the industrial jobs coming on kind have a higher margin. And when do you think you might get back to double-digit margins in the East Construction?

Well, about right before we segment it, and the East becomes mostly heavy highway. And the Industrial group falls into the energy segment, which is a real popular thing with some of the guys in the East. I couldn't begin to tell you that, Adam. I -- it depends on how fast these jobs ramp up. I mean, we've got guys that want to give us hundreds of millions of dollars worth of work that don't have permits, don't have engineerings, don't have scopes of work, all they just know is they need to spend some money and they need to do it fast and they need to tie their resources up now. When that starts, I'm not sure God actually knows. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Well, that's a good position for a contractor to be in.

Yes, but it's going to be like catch-up, I'm afraid. It's all going to come at once, and it's going to be a scramble, so. Adam R. Thalhimer - BB&T Capital Markets, Research Division: And that's 2014, right?

We're seeing it now. Like I say, we're hoping to make another big job announcement, but we can't forget our hands around how big it is, but we know it's large. They keep changing their mind on exactly what they're going to build. But yes, we're starting to see a ramp up now. And I don't doubt anybody's going to throw out a bunch of work in December, because they're going to wait till January for everything to work out. So -- but I'm telling you, these engineers are stressed right now. They cannot get the work through their businesses.

[Operator Instructions] Our next question comes from the line of Matthew Dodson with JWest.

You guys mentioned how robust the pipeline is and how you're going to start to see these projects ramping up in 2014. Can you help us understand though, the projects that you are quoting on, are you able to push price on those projects to get better gross margins?

Are you talking about the pipeline work or the energy work, in general, Matt? What are you talking about?

Just actually overall in the East Coast business that you're quoting on, just the overall business you're quoting on?

Well, the pipeline work, we're confident we've loaded in good margins, as I've explained. It was maybe in one of your first calls. And in the previous calls, as these businesses ramp up, on the hard dollar side, it's pretty hard to -- it's real hard to stay ahead of your cost curve, because your cost curve ramps up, too, your prices and your costs both. That's what happened last year. I think we're ramped up now cost-wise. We've got some of our costs figured out. We've got great people kind of assembled on the pipeline work, which -- so we think our margins will actually rebound quite significantly this year. On the Industrial side, most of the work we're doing is reimbursable. I'd say the vast majority of the work we're doing and quoting is reimbursable, and we're able to see some market expansion there. It's tough to do because the clients all know our productivity is not going to be the greatest, and we have this labor shortage. But they also know we're in demand, and so we're able to get our margins up. I'm pretty pleased with what, in some cases, they're almost double what they're worth 2 years ago, on reimbursable work. But James Industrial, I think what they did is -- what are they going to do this year, Peter, what are they -- what do you think they'll do this year or last year?

Kind of $150 million to $200 million.

James Industrial?

Yes. Are we talking margin, I'm sorry?

No gross.

Gross.

This last year. '13, they'll do $80 million?

Slightly better than that.

Yes. James Industrial'll do maybe $80 million. Next year, we're hoping to double that, at least, '14, hoping to. And we're. -- on that -- on the $80 million we did this year or $90 million, I think if we saw mid to little higher than that margins, we'd be pretty lucky. We're quoting work with margins in the double digits now. And most of that is reimbursable.

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

Well, thank you very much for your continued interest in our company. Goodbye.