Primoris Services Corporation (PRIM) Q3 2014 Earnings Report, Transcript and Summary

Greetings, and welcome to Primoris Reports 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. Thank you. You may begin.

Thank you, Rob. Hello, good morning, everyone, thanks for joining us today. Our speakers 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 in this morning's press release and those detailed in the Risk Factors section and other portions in our annual report on Form 10-K for the period ended December 31, 2013; our quarterly report on Form 10-Q, which we plan on filing later this week; and other filings with the SEC. 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.

Good morning, everyone. Thank you for joining us this morning. I know it's a busy morning. I appreciate you spending time with us. Though the recent decline in oil prices has made investors wary of the contracting community, I can tell you with confidence that the companies at Prim are performing well, indicated by this quarter's results. We're on schedule to approach 20 million man-hours this year, our highest number to-date. So there should be no doubt that our guys are out there working hard. As we have discussed in prior calls, we have re-segmented this quarter, and I will accommodate that in my desk discussion, but Pete will lead you through the details of those changes. In the resegment, James Heavy Civil continues their winning streak. We are performing well on the work we have in backlog and continue to win new work in both the public and private arenas. Steve Lewis, recently reassigned to as our Group President of Heavy Civil, has done a good job working his way into the management team. Pat Pluenneke, in South Texas, and Rodney James, which is responsible for the area everything north of there through Mississippi, are keeping busy. Between the 2 of them, they have helped increase James Heavy Civil revenue by nearly 30% over Q3 '13. James I&M group is focused on private civil work, led by Jonas Beatty, continues to perform well on its existing backlog. They wrapped up a large project for a fertilizer plant expansion this quarter, and his group is very close to signing their largest project ever by far. We look to this group as being great performer over the next several years with a very rich target environment, as the chemical energy businesses expand. Remember, projects, like many of the ones we are chasing, are levered to cheap natural gas and liquids prices and fairly independent of oil pricing. Cardinal Contractors continues to perform well in their challenging market environment. They're doing a solid job on our wastewater treatment plant for Seminole, Texas, along with numerous projects in Texas and Florida. Bill McDevitt has done an excellent and tireless job spearheading Cardinal through the past 11 years. He is retiring at the end of this month after a long and successful career, and I speak for everyone at Primoris when I say he will be missed. Moving to the West segment. Its composition is relatively unchanged. ARB Industrial is in negotiations on several large power jobs, one of which we hope to announce in fourth quarter. Our power plant built in Pasadena, California, is off to a good chart with demolition and site prep complete and foundation work commencing. We have been told that Edison's RFO for new gas power has made their selection of IPPs, and we are closely following that process. Winning several of these large power plants would be great news, but not much impact on our P&L until late 2015. For the next several quarters, Tim's group will have to make his contribution to the whole with smaller and more diverse projects, as he has done so over the past year. ARB Structures is back in the black. Their third quarter results are really a product of a lot of hard work for Mark Thurman's entire team. They're just finishing the successful San Diego project ahead of schedule and anticipating starting 2 new projects both in Southern California. Our underground utility customers in California were delayed in getting work out this year, so the early quarters were slower than normal for ARB Underground. The mix of work is different than past years, as the utilities are continuing to spend money on transmission under the PSEP programs, while distribution spending remains soft. Albeit a bit later than normal, MSA work in Southern California is off to a strong start, with roughly $90 million already awarded and under contract to us, a little less than half of which should hit 2014, the remainder in first quarter of 2015. The good news is that rather than see our usual slowdown in the fourth and first quarter, our client is now projecting substantial work through the winter. Weather, which I wouldn't think I'd be discussing this quarter, created tough results for Rockford. We took a large write-down on a West Virginia project this quarter, as between the incessant rain and the rugged country in which we're working, the guys struggled to hold budgets. While Rockford's revenue will be down significantly this year to last, we continue to expect increased profit for the year. Several large projects in the market have been post beyond -- postponed beyond 2015. But this is not hugely significant negative to the underground capital projects market. Rockford's prospective dance card is packed for the remainder of the year and next year looks to be one of the busiest for the industry ever. Jay Osborn's Q3C continues to be one of our best performers. They grew revenue by nearly 30% over the last year third quarter, while maintaining strong margins. We promoted Jason Osborn to VP of Distribution operations, and I'm very pleased to have him in that role. It looks as though Q3C will finish the year stronger than last. This quarter, we finalized our extrication from WesPac joint venture. We are pleased to see $5.25 million of our investment return but -- and be out of the consortium, free to pursue the opportunities with different team and structure. The Energy segment is doing well, as their 2 main groups, OnQuest and Primoris Energy Services, are very busy and continue to see tremendous opportunity. Earlier this week, we announced a new fire heater award for Randy's group, OnQuest. This is a nice win that underscores a long-standing relationship, in which is the 25th project for this refiner. The OnQuest backlog and project margin is increasing, predicated on their traditional heater business, directed by Rasik Patel, and their Micro LNG opportunities, which has been championed by Ed Rodriguez. The industrial component of our Energy group, a composite of FSSI, Saxon, the legacy James Industrial group, along with our new unit, Ram-Fab, continues to get [ph] more work and improve dramatically in their contribution to the bottom line. This group does not lack new opportunity with both the availability of larger projects and some margin expansion. Jim Henry, Group President, and Conrad Bourg, manager of the legacy James group, continue to impress us with their performance. Conrad's group is close to finishing their portion of a large fertilizer plant and currently in final negotiations on a portion of a very large build. The Saxon guys have really performed well, far different from last year. Their work has mostly been based on industrial gas side of the business. PES Sprint, our pipeline guy in the East, has delivered a good year-to-date performance in spite of their ongoing dispute with one of our large clients for a larger project. We strongly believe in our position for this project and will mount a rigorous effort to prevail. Robert Grimes, suffered from this distraction of this poorly performing project, has done a great job in growing revenue and margin. PES Sprint's new unit, run by Jason Surber in West Texas, is performing well. We're really very pleased to have Jason on board. On the M&A front, we have closed several smaller transactions this year, the most recent being piping fabrication shop, Ram-Fab. With the build-out in the Gulf and the strategically important fit within PES group, we are delighted with this acquisition and its prospects. We continue to look at M&A opportunities, both small to very large. Albeit, the groups we have acquired year-to-date, the ones -- and the ones we are efforting [ph] vary greatly in size. We view them as strategically important to the company we are building. We continue to look for good fits with the right kind of management to grow our business in an appropriate way. As a final note, I wish to say this year is an important year for our identity. We are beginning to rebrand as Primoris away from our legacy company names and logos. This is a tough process as so many of our people have spent years, loyal to their previous companies and their identities. We truly respect the loyalty and pride to our brands, but we need to build a new loyalty and pride to the Prim bran in the future. I have no doubt that our folks will respond as well to this challenge as they have done to much, much more difficult challenges in the past. Now I'd like to turn the call over to Pete for discussion of the financial data. Pete?

Thank you, Brian. We expect to file our Form 10-Q tomorrow. So I will give you some financial information beyond what was included in the press release that we issued this morning. We have resegmented our financial information this quarter to more closely reflect the way that Brian and David King manage the company. The West segment remains unchanged, but the former East and Engineering segments have been reconfigured into new East and Energy segments. The new East segment now houses our civil construction operations, the James Heavy Civil and James Infrastructure & Maintenance divisions, and Cardinal Contractors. The Energy segment includes operations focused largely in the Southeastern U.S. and Gulf Coast region, as well as our engineering subsidiary, OnQuest. The work of this segment is driven by the growing infrastructure needs of the Energy sector from pipelines to petrochemical facilities to Micro NLG plants. Any segment information that we discuss today in the information in our 10-Q has been reclassified to the new segments. Included in the traditional Form 8-K that we will file with the copy of our press release will be a table showing segment revenue and gross profit for each of the past 7 quarters. Resegmenting is a good way to improve sales of coffee and energy drinks for everyone involved. Now onto our results. For the quarter, we earned $0.53 per fully diluted share on revenue of $613 million compared to $0.42 per share on revenue of $551 million in the third quarter last year. The revenue growth came from $117 million increase in revenue in the Energy segment, largely thanks to the James Industrial and Sprint divisions, and an $18 million increase in the East, as James Heavy Civil division work picked up in both Texas and Mississippi. In the West, segment revenue declined by $73 million, mostly from a $65 million decrease at Rockford, which had a tough comparison against last year's big pipeline project. Revenue at the ARB Industrial division declined by $27 million, as they also had a tough comparison against last year's large power plant job. These revenue declines were somewhat offset by Q3C, which added $19 million to last year's third quarter revenue. The Q3C revenue for the first 9 months of this year already exceeds their total 2013 revenue. At 8.8% of our quarterly revenues, our largest customer was a West Coast gas utility and our second largest customer was a petrochemical company, which represented -- which accounted for approximately 8% of our quarterly revenues. For each of the past 4 quarters, our largest customer has been the customer of a different subsidiary, meaning that we are not dependent on any one customer. And our customer mix is constantly changing. Looking at our revenue by end market for the 12 months ended September 30. Underground capital projects accounted for 20% of total revenue; utility services accounted for 27% of revenue; our industrial work accounted for 27% also; Heavy Civil, 20%; and Engineering, 3%. The other category, which includes water and wastewater, parking structure and industrial turnaround services, accounted for 3%. For the quarter, our gross profit of $75 million was the same as our gross profit in the third quarter of 2013. With the increase in revenue, our gross profit margin as a percentage of revenue declined from 13.7% to 12.3%. For anyone who's been following us for a while, it should not be a surprise that the primary driver of the decline was a tough comparison created by the large power plant project located next to the beach in Southern California. And as Brian mentioned, we also recorded a loss provision for our Rockford project. There's another factor that has reduced our gross margin percentage for both the quarter and the 9 months to-date. As I mentioned in last quarter and as Brian mentioned earlier, we're in the process of resolving disputes with owners of 2 large construction projects, a cost reimbursable solar construction project in the West and an underground pipeline project in the Energy segment. We have recognized revenues up to cost, that is we have recognized no margin for these 2 projects, as we work toward their resolution. In the quarter, revenue and costs for the 2 projects were $40 million. And revenue and costs for the past 9 months have been approximately $200 million. We have completed the majority of the work on both projects. While we cannot predict the timing of the resolution, I can assure you that our executives devote significant time to them, and we do expect a positive result. For the quarter, our SG&A expense decreased by $300,000. Since last year's quarter included $3.3 million impairment charge, our expenses really did go up, but we have reduced our SG&A expenses, as a percentage of revenue, from 6.6% in the third quarter of 2013 to 5.9% in the last quarter. Our effective tax rate for the third quarter was 35.6%. We benefited from a settlement with the IRS, which reduced our effective tax rate by 1.3% for the quarter, and a 1.4% decrease from reducing and taking advantage of certain state tax opportunities. The IRS settlement is a onetime event, but the decrease from state taxes will continue. Going forward, we now expect our annual effective tax rate to be approximately 38.5%. We ended the quarter with $146.2 million in cash and cash equivalents and short-term investments, $235.7 million in total debt and $285.6 million in tangible net worth. Our accounts receivable increased to $388 million in the third quarter. This is due both to the revenue increase and the overdue nature of the receivables from the 2 projects I mentioned earlier. Excluding those receivables, we reduced our days sales outstanding during the quarter. During the third quarter, we also spent $50 million on CapEx. Year-to-date, our net CapEx is about $60 million, which includes around $10 million for the investment in the water treatment facility by our BWP subsidiary. At this point, we expect that we will end the year with approximately $70 million of total investment. For the first 9 months of 2014, our depreciation expense was $37.1 million and amortization of intangibles was $5.6 million. We increased our equipment secured debt by $24.3 million in the quarter, as we borrowed 5-year money at 2.09% and 7-year money at 2.75%. We made 3 small acquisitions during the quarter for a total of $8.2 million in cash. And we also bought back 100,000 shares of our stock for $2.8 million at an average price of $28.44 per share. As of September 30, we had slightly more than $20 million remaining on our share repurchase program which expires at the end of this year. With Brian's earlier comments, the focus should shift from our backlog amount at September 30, 2014, to the opportunities that we see available to us in the fourth quarter. But for the record, our total backlog at quarter end was $1.8 billion, which was a decrease of $39 million from June 30, 2014. The backlog is broken down by the new segments as follows: West segment, $557 million; segment, East segment, $1.02 billion; and Energy segment, $215 million. It's now time for me to turn the call over to the operator, and let Brian answer your questions. Thank you.

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

So first off, you obviously framed out the gain on sale on WesPac. But as is typical for you, you kind of understate when you have some headwinds. So could you maybe give us a little bit more color on the Rockford job? And maybe the -- scope out the impact to us?

Well, every quarter, Dan, we have jobs that go both ways. This one went the wrong way on us because it pretty much rained every day. When you've got 700 guys on the job and your man-day cost is $1,500 a man, you're talking close to $1 million a day. And you pay those guys whether -- because it's a union contract, you pay those guys whether they work or not. And so -- and on -- it was exacerbated by the fact that some of the toughest work I've done in the last 40 years. So every day it rained, we basically lose $1 million. Now we have profit on the job, obviously, but we hit a lot more rain than we anticipated. And I don't like using that excuse, but that was not a typical time of year where you get that kind of rain. So it's a -- it went from a profit that we had modestly stated because we're very conservative on our working process, went from a profit to about a $5 million loss at this point. The bigger headwind we've had the last 2 quarters, well, this last quarter has been BridgeTex. The job -- the Lord Valdemor jobs in the Southeast, and that continues to -- the client continues not to get right with us. And that's been a significant headwind. The other thing, we've been dealing with a couple of large industrial guys in the Southeast, in very, very large projects for us. And we were told to set crews aside in May. And it's November and we haven't yet started. So that's been a little bit of a disappointment. But if you remember, right, when we talked about this year in previous calls, I said, look, yes, we're going to lose the revenue in the West from NRG and the big power projects out there. But we're going to more than make up the revenue in the East. And we've done that. We've just -- the numbers are what the numbers are and we ended up where we did. As far as the WesPac issue, yes, it's a onetime gain. But as we value those projects over the prior 3 or 4 years, we took losses on those projects. And that's why this is a gain. And I don't remember anybody ever saying, geez, you beat your number well because if you had factored in the loss you took on WesPac, you really would've beat your number. So the numbers check out the way they shake out, and I'm proud of the quarter. The guys busted their ass, and we think we have some ways to mitigate the headwinds we've had. But it's going to be a while until those issues get resolved.

Understood. Appreciate the color. And obviously, we're pretty finicky as it relates to what we include and don't include. But looking forward to more positive things, your tone certainly on the Rockford business for '15 was pretty positive. One of your peers highlighted that they'd already started entering into kind of long-term frame-type agreements with some of the larger pipeline developers. Have you done anything similar to that? Or is your optimism on '15 based on bidding? Or based on things you're already pretty close to?

Well, it's based on bidding, it's based on promises, it's based on early negotiation with some of the same clients that your other -- our peer group was talking about. The Canadian work is getting committed to a little quicker, it seems like, than the U.S. work of comparable size. But it's -- the amount of work that's out there, it's a rising tide. It's going to lift all the boats. But we've got some pretty good promises that soak up most of our long line guys.

That's great. and then just my final one on the power plant side. We saw the same information you did about the Edison RFP, and it looks like a couple of those repowers that you've been kind of tracking for a while seemed pretty close. What's your confidence in terms of those going through in the next 12 to 18 months just given the not so much the demand but the permitting side as it relates to California which you know well?

You want to gauge my confidence of something that's going to happen in the political environment in California. Are you -- have you lost your mind? Yes, I'm optimistic that something has to be built or we're going to be back into brownouts. They can't do it all with solar and wind. And I think we're -- I think we're the guy to beat out there. As you know, you've spent a lot of energy on it, it's kind of us and Keywood [ph] and a few other outliers, but it's really our market. And this is exactly what Tim is good at, and he's been working them all hard. I think I'm intimated to you what a struggle it's been because every one of these owners has wanted numerous iterations on various engines to run these plants, and every one of them is a different cost and a different structure. So -- but if anybody win anything it's Tim Healy, he's just great at this. He hasn't lost his touch. So we're pretty optimistic. The problem is though, there's a lot of work to do on these things. They just now kind of went to their supersecret award, RFO award, which they made public, I think yesterday or the day before. And now they've got to order engines and everything else. So before we really start seeing sizable cost, which allows us to take profit, it's going to be mid-to-late '15. So it's not going to be a lot of help over the next couple of quarters. But I'm sure Tim will have more innings to grace [ph] over.

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

So, Pete, in the past you've given us sort of gross margin ranges that you would expect each segment to revert back to over time. With the new resegmentation, can you update us on that view?

Without giving guidance, right?

Of course.

I think that, obviously, the West isn't going to change. I think what you will see is an improvement in the new East, in some parts of it because the I&M work tends to be good. I think we're striving pretty well on Heavy Civil. But I don't think you're going to get it -- I don't think you're going to see the whole East at double-digit margins. I think the Energy has some very significant upside that will get us into the double-digit margins. So probably, I should limit my East comment and say, they'd be happy to be probably in the 5% to 9% with an occasional 10% quarter in there.

Okay. And then, Brian, just switching gears a little bit. There's been a fair amount of noise the last few days or weeks regarding Sasol's project, in particular, making their final investment decision. Fluor was awarded the engineering procurement and construction portion of the contract. Is there any update from -- for more specifically on this project?

Well, I think, Fluor announced theirs, what, a week, week and a half ago?

Yes.

And they're in charge of EPC, which means they would procure people's services like me. I wouldn't have expected Fluor to have back-to-back. They signed with us the next day. I've heard 1 or 2 purchase orders have been let to private companies. Yes, obviously, we're still talking to them. That's one of the bigger projects that we're pretty excited about. I hope to be able to conclude something fairly soon. But it's too early to discuss it. If they do give us the amount of work they're talking about, it's going to be significantly in excess of where you guys have pegged it.

Okay, great. And then one more for Pete. You talked about the $200 million of revenue that's been booked so far at 0 margin. Can you give us an idea for the margin contribution on each of those projects? And more -- I mean, without pinning it down specifically on the project, is it fair to say that they're consistent with the margins in the segments in which they're in?

The answer is yes. They both should be, certainly, in the 10% range.

Our next question is from Jason Wangler with Wunderlich Securities.

Obviously, you closed a couple of smaller acquisitions during the quarter. Just curious what you're seeing out there as far as with all this work kind of coming up. Are you still seeing a lot of opportunities on the acquisition side given you've got the good balance sheet to, maybe, pull the trigger on something?

Yes, we've actually got a kind of medium-sized one under term sheet, but we've got a lot of due diligence work to do. But it's a real mix bag. We've got guys that come are willing to sell at a reasonable price. But then halfway through the deal, their numbers fall apart. And then we've got guys that are just unreasonable in what they expect their business to be worth. The whole kind of peer group of ours suffered about a 15%, 20% degradation in value in the last quarter. And that isn't reflected through to some of the private guys yet. But we got 1.5 guys working it pretty hard and the half is me, I have a few other things I got to do. So we see a lot of opportunities. But really, we're pretty targeted on what we want to achieve. We got -- to go down into the Southeast, Jason and buy somebody down in Houston, you are going to overpay and then you are going to buy something into the market because the market is really warming up. So how much value you going to get out of them over the next 3 or 4 years while the market is hot. So that I've tried to avoid. Although things like Ram-Fab, they have the long-term aspects that are really good for the business, in general. So we're trying to go to other places, other locales, other markets and we're doing -- we're getting -- we're finding more and more opportunities because we're not focused where everybody else is. We're focused in areas that are going to be hot in 3 or 4 years. And like I've said before, that's my job not to tell you the obvious things but to find the unobvious things and make value out of them. What -- one of the other things we've done is we are in the process of shifting Saxon over. Saxon has a great resume for gas process -- industrial gas process. And we're shifting them over to their more traditional industry, which is power because we think power with -- setting aside the current coal plants and the demand for more gas power [ph] plants is going to be pretty exciting for the next 10 or 15 years. And so there's a lot of things -- a lot of changes I see in the market and opportunities that we can adjust to with the current tools that we have without having to add tools. And so we're doing a little bit of reconfiguring and readjustment to take advantage of those opportunities. I think we bought about maybe $30 million of revenues this year. We haven't got the full benefit of, yet our revenues are up, I don't know what percent over the last year, but significantly, well in line with how we want to grow the business. So I don't feel real pressed to buy something.

I appreciate it. That's helpful. And then, Pete, if I could, just you mentioned some share buybacks. Was just that in the third quarter? And is there any commentary as far as the last 30, 45 days of the fourth quarter, what you're looking at there?

The answer is yes. It was in third quarter. It was all in August. And I think we are looking obviously to see what the market does. We have some opportunities potentially. We certainly have enough money to put aside for it or authorized by the Board. What's going to drive that is what the price is, which is also part of what the Board has given us. So certainly if the opportunity is there, we would -- we'd prefer that it not be there. But if the opportunity is there, we will be more than happy to enter into the market.

Our next question is from Adam Thalhimer with BB&T Capital Markets. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Brian, I wanted to ask first on the bidding opportunities for Gulf Coast Industrial. You said you're on the cusp of your largest award ever. Is that not Sasol?

Yes and no. We got several, and there's several opportunities in Sasol. So -- I mean, the list of opportunities is, as long as your arm. But I can't really discuss it. We're under confidentiality and most of these owners are -- we had one owner that gave us a $70 million LNG plan who said, "I don't want you to announce it." Well, all the suppliers had announced it, but he didn't want us to announce it. So it's their money. We didn't announce it. And I'm pretty respectful over confidentiality agreements, so I really couldn't say. Adam R. Thalhimer - BB&T Capital Markets, Research Division: If you don't announce it, does it not go in the backlog?

We don't know yet. If the Lord Valdemor [ph] job is -- it depends on how it's structured. If it's structured strictly, reimbursable without limits and without a target price or something like that, then no, it doesn't go into backlog. And you guys have to be careful. I know you guys like to analyze the crap out of everything we give you. And I think you do a great job. But you have to look with the segmentation. Part of what we did with the segmentation was to try and give you more visibility to how we're going to perform. And we don't backlog a lot of stuff in the Energy group because so much of it's reimbursable. The large component of that work is reimbursable units, some of the highest margin. Yet, our lowest margin is in the Heavy Civil Group and it's got the largest backlog. So you really have to understand how the backlog segments try and get visibility into where our business is going to go. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Okay. And then last one for me. You said, as it relates to lower oil prices, we shouldn't be concerned about contractors like Primoris. And maybe you could just expand on that? Because the reality is that everybody is worried, so what are your thoughts?

Yes, if the price of oil is down, the refiners typically do pretty good because they're living on a spread. We work a lot for the refiners. If the price of oil is up, then we work for the shippers and the producers. If the price of gas is down, then we work for the producers and the processors. If the price of -- I'm sorry, if it's up, we work for the producers and the processors. If the price of gas is down, then we work for the consumers. The Sasol project you just mentioned -- hell, the lower natural gas goes and the lower the liquids price goes, the more they are going to be bullish about spending money. So we thrive on the deltas. We thrive on the difference between oil and gas. We thrive on prices going up and prices going down. But I think what everybody forgets in all this, do you know anybody that's going to go out -- Sasol's budget is a little under $9 billion, do you know anybody that's going to go out and spend $9 billion because for the last 2 months, the price of oil's been down? I mean, these guys are all looking at their projections for 10 or 15 or 20 years before they make these investments. And I know the price of oil is down, and it may remain down for a while. But I got to tell you, it's kind of not -- the Southeast can't afford to produce it this low. Their production costs are really low, but they got a lot of debt they got to pay for. And their structure won't allow them to sell oil this long forever. And something's going to happen here in the U.S. with the use of oil. And that's just part of our business. Dan Mannes, I like to slander him because he sometimes he says off the wall stuff, but he did a great job segmenting our business the other day. And they said, "Well, pipeline. It's going to go down because of this or that." Well, $0.5 billion of ours is integrity work. A couple hundred million of that is work for utilities that are on 3-year rent cases. Do think they care whether the price of oil is down? So of all the guys, and I don't mean to pick on the other guys because I think some of our peers are pretty great operators. But of all the guys, we probably have less exposure to oil than anybody. And then, I see the upside on the natural gas as being a real positive force. So the things I'm lying awake at night thinking about, it's not -- well, I'm not lying awake at night. But if I was, it wouldn't be the price of oil.

[Operator Instructions]. Our next question comes from the line of John Rogers with Davidson. John B. Rogers - D.A. Davidson & Co., Research Division: Maybe you could just spend a little more time in terms of your backlog, and I know we overanalyze this. But with the new segments, can you give us a sense of how that backlog by segment has grown over the course of this year?

We don't have the historical numbers here for the East or the Energy. So I'm just trying to understand how the bookings are coming in.

I can tell you that the Energy last year was a pittance. And this year, what have we done here today on Energy, Pete? $300 million?

And the ending backlog is $215 million.

Yes, that backlog has grown dramatically, obviously, because they hardly any at the beginning of the year. And again, so much of what they do, never hits backlog because it's reimbursable. Or it's a short job here or there that's a month long. John B. Rogers - D.A. Davidson & Co., Research Division: Okay. So with your -- I mean, if you've gotten -- generated $490 million in revenue year-to-date, I mean, that would suggest that the bookings there were $600 million plus. I just -- that's why I'm just trying to understand. And is that where growth -- I mean, how do you think about the booking opportunities, Brian? Especially near term because it sounds like, with some of these projects, the timing, I mean, the substantial growth is the back half of 2016, or am I just misreading that?

Oh, no. The Energy services group and the I&M group and the Heavy Civil, a lot of what they do is on the front end. For example, the work we've discussed with Sasol is they're basically filling in a 1400-acre swamp to build a facility over. And then the next piece they'd talked about, that's something I&M would do, which is part of Heavy Civil. And the second piece of business they'd have us do is the concrete structures and the underground piping. That's the second phase that they do. So the good news for us, on these bigger projects, our work's kind of on the front end. And so, I see their work really hitting first and second quarter, if not a little bit in fourth quarter. Although it's getting kind of late to talk about fourth quarter work, but typically, it's wait, wait, wait, wait and then go like hell because they got to get us done to get anybody else on the site. So I think we've got a good opportunity to see a lot of work in the first half. But on the others -- on the flip side, on the contract side, on the pipeline side and on the roads side, it's tougher to get work built in the first quarter because of weather. Although second quarter can be tougher than first because of the hurricane season.

And John, the answer is we did about 341 in additions to backlog for the Energy segment this year so far. John B. Rogers - D.A. Davidson & Co., Research Division: Sorry, for the year, okay.

Yes. For the year, which is what I hope you had asked. John B. Rogers - D.A. Davidson & Co., Research Division: Yes, okay. No, that helps. I just -- and I don't know whether you're going to be breaking all these segment out historically or not, but...

We're doing the best we can. John B. Rogers - D.A. Davidson & Co., Research Division: Okay, all right. And then if I could, Brian, just on the pipeline side of the business. Going back to the project in West Virginia that Rockford had problems with. And you cited the weather and I understand that events come up. But do you get the sense that pricing and risk that you're being asked to take on are not -- are excessive? I mean, is everybody's -- I mean, because I think everybody's looking at growth in that market, and it seems as if we're adding capacity to the industry awaiting that. And yet, the projects maybe have been a little bit slower to come out.

Well, the way they are -- and permitting is -- part of our issue on the project that we are having issues with in Texas is that they kicked us off on one of the sections with 5% of the permits. Now they didn't bother to disclose that. So we're a little bit miffed at that and you can't build the stuff without the permits. But you've got -- it's like I've explained before, John, as you got this slug of work coming through, now pipelining is easier to engineer but tougher to permit. So you've got this slug of work, and if we're short of people and the engineers were short of people 2 years ago, and so the quality of what you get in the deliverables in terms of permitting can be pretty difficult to work around. And pipelines, because they cover so much area and a lot of them are greenfield, they're going down new right-of-ways. They're really, really tough to get environmental permits, particularly when they cross several states and you're dealing with literally 100 agencies. So that's a big problem. And when these guys set out to launch this thing, the owners are short of people. I mean, some of these jobs, we go out there, and our 35-year-old cost engineer is the oldest guy there when you have him in a meeting with all the owners. So they -- some of them have struggled to get this stuff done. And then once it's there, you got to read these permits and apply them to the work because there's a lot of room in these things and how they're interpreted. And so that's a struggle. But I'm not disappointed in the pricing. I think it's escalated, it continues. For these owners, it's got to get a piece of this business to build on these pipelines because these costs have gotten so out of hand based on these permitting requirements, particularly the environmental stuff. Years back, we used to be 28% -- years back, we used to be 50% or 60% of the cost of a job. Today, we're in the 20s because of the environmental permitting and all the others -- the engineering and all the stuff they got to go through. So it's been a sea change for these guys, and they're all struggling with it and that -- those costs continue and those time constraints continue to change every year. So -- but you -- remember one thing, I think, our underground group is $1 billion, plus or minus. Rockford this year is $170 million or so. Sprint is, hopefully, it'll be a couple of hundred million, but their model is kind of half capital and half maintenance. And then, the ARB guys, they're doing mostly utility work. They have alliances with BP and stuff like that. But there's not a whole lot of greenfield pipelines being built in the West. So the largest component of our underground group is really not new construction of long line pipelines. It's maybe 25% in big years. John B. Rogers - D.A. Davidson & Co., Research Division: Okay. One more thing if I could -- in the last call, Pete and Brian, you had implied that margins were going to get better into the second half of the year. And they're slightly better in the third quarter. But given the project closeouts and what your schedule looks like, is that still true? Even with the problem projects you refer to?

Well, let's keep in mind, those problem projects generated about $200 million of revenue for us this year with no margin. John B. Rogers - D.A. Davidson & Co., Research Division: Right, I mean, that's my point, with no margin.

I'd like to say that I'm a whiz at these things, and I anticipate all that stuff. And we do. We constantly have these things. I used to pride myself on never having a litigation with a client ever and then I had my first one in the '90s and now I got a book full of them. It's just a change in culture. It used to be you took care of your client and they took care of you. And now, the world has just become a lot more transactional. But I think as our work mix continues to morph into more energy services, as the pipeline work comes on, that's -- there's 2 types of pipeline contractors: one that's had a big loss and one that's going to at some point or another. And so we built a business around, if we have a big loss, we've built the business around it's accommodated somewhere else with a gain. I mean, that's why we built this diverse platform we've built, so I would really hope that margins improve. But we're headed into weather also. So -- and we're not done in West Virginia. We think we -- I teach my guys if you're going to take an ass whipping, take it once, don't come back for a second helping. And these guys are pretty good at thinking what they find is worse case on these jobs. And when we have problems with them, we try and take them there on the whip. So I think there's room for margin expansion. And I think as the margin -- as the industry matures in the Southeast and the Energy business really comes on, there should be a lot of room for margin expansion but you're going to see escalating costs. If you don't think the welders out there don't know they're in short supply and they can get more money, you're mistaken. So that's why you're signing a lot of reimbursable contracts so when these costs escalate, you can pass them through. Now if you're on a reimbursable contract, you're probably not entitled to the same margin because you're not taking the same risk, even though that isn't the case with the Spaniards we have our in California. It was reimbursable, they just quit paying. So we took a lot of risk on a reimbursable job. But I think there's plenty of room for margin expansion. But a lot of it's going to come with this change in the preponderance of where the work is. Because as you guys all know, the Heavy Civil is the cheapest of our work. John B. Rogers - D.A. Davidson & Co., Research Division: But that's out beyond -- well out into 2015?

That's what? John B. Rogers - D.A. Davidson & Co., Research Division: That's in 2015 anyway that, that shift happened?

No, it's happening as we speak. Like I say, Energy Services was almost nonexistent when the business -- well that's not true. Conrad did -- we probably did $300 million last year in Energy Services and this year, $500 million, $600 million. So as they continue to grow, and we have plenty of room to grow them. We have the management, I think, we're seeing that as we speak.

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

I guess 2 questions. One is really on backlog. I know -- I think your point is taken that that's not the only driver. But would love to get a sense as we look over the next few quarters how you expect that to play out given all the puts and takes you see. And I know you've said you can't disclose much on some of these large, mega projects you're looking at. But just doing some math versus what you said last -- at the early parts of this year on Sasol, the scope of that project was just a crack at that point, $3 billion. They have IDed [ph] $9 billion as you pointed out, which includes the derivative. At that point you'd said around $100 million to $300 million potentially in terms of [indiscernible] potentially coming out of that. Are we -- when you say that [indiscernible] has the numbers wrong in terms of being low, are we potentially looking at $300 million to $800 million potentially from there? And given the localized content associated with some of these projects being done in Louisiana, are you seeing fairly good margins because of your positioning there?

It's not 8, but it's not 3. So the way these things typically work is they allocate so much money even though it's going to be more, and then they reallocate as the project develops. I'm not sure exactly why they do it that way but they know they've got to spend it. Our project, again, is tilling the hole full of dirt. They have to do that no matter what they build and what size it is, they've still got to fill this hole full of dirt. So that number really isn't going to change much based on their FIB -- FID. The concrete structures were part of our project -- or a portion of the contract -- they like to bring 2 or 3 contractors and kind of divvy the areas up. That's predicated on what they build and how -- and what kind of -- how much they build and what they build. So we think the number is significantly higher than the low end of the scale, but it's nowhere near the high end of the scale. I'm being as bleak I can because we are under confidentiality. And we still got a few things to settle before we would get to contract on it. I forgot what the second part of the question was. It was a margin question, wasn't it?

Well, no, it was -- I'll get to the margin bit, but it was really on the backlog progression. Given all the opportunities you do have and some of the MSA work with one of your unmentionable utilities out in the West Coast ramping up nicely now into the fourth quarter, are we looking at the volume of activity and bookings and MSA work ramping up sequentially into the fourth quarter even?

Yes. The -- particularly in the West, they got a really late start. Both the North and South part of the state, and now they're really under the gun because management is spending these spends down on them because this is, some of it's PUC mandated, some of it's rate case obligation. So it's -- and we typically done this. I mean, when you work for -- in the gas side of it, particularly, the first couple of quarters are engineering and budgeting and them trying to find out where they are in life. And then the third quarter really ramps up, and fourth quarter is, they've got to spend it. And it becomes a real slugfest to get it spent fourth quarter. I think this is -- there's this -- a lot of the stuff they're doing, when you're doing distribution work, the materials are all kind of there because the materials are kind of interchangeable and pretty generic. When you're doing integrity work, they got to have the right size, pipe, the right wall thickness pipe, the right steel strength pipe, they got to have the right-sized valves. So the procurement process is longer. And that's a lot of the work we're doing in the South and the North. And so they start these jobs, and I think they underestimate sometimes how long it's going to take to get the parts together to do them. And then they -- it really drags. So the type of work they do, whether it be utility -- whether it be integrity work or pipe work or service work, has a lot to do with how quickly they can go from budget to spend.

A lot of that work, Tahira, will be done fairly quickly, though, as far as you'll see a ramp-up but you may not see it in backlog. You'll see it flow through pretty quickly.

Got it. Okay. And I guess second question is -- as we look at the third quarter earnings power, cleaned [ph] roughly $0.53 or so. And that's despite some underutilization in several of your businesses and some project drags in terms of execution. As you look a year out from now and the quarterly run rate potential, could you talk a bit about where you see that going, directionally at least? It seems like you're already ahead of what the Street is building out on a quarterly run rate in your third quarter right now. So would love to get a sense of where you could see this going potentially if all these opportunities do play out?

Is that guidance?

I think 2015 is going to be a great year. That's about all the guidance you're going to have. And I think this lack of utilization you speak to, I think at the current run rate we have, I don't see too much lack of utilization. I see a lot of ability to expand. But most of our guys are pretty well used. And I think Rockford could do a lot more work. I think Energy Services is going to have to do a lot more work. But the ARB guys, the industrial guys are a little bit lack of utilization. But they -- as I said a year and a half ago, a year ago when everybody says, "Oh my gosh, what are you going to do when your Lord Valdemor power plant is finished?" I said, "Tim will find something to do." And he did, he picked up Pasadena, he picked up the solar work that we're going to get paid for eventually. I didn't bother to tell you, the solar work is -- it's got a federal government guarantee. It's got the Solyndra loan on it. So we're pretty certain that the credit is there. We just got to muscle through getting these guys to pay us. And so far to date, they haven't been very good guys. But Tim found that, and he's kept utilized. It's not like we got guys sitting around eating bonbons and watching Oprah. They're out working and we will continue to do that. That's why our overhead continues to fall in relation to revenues, is we don't have a lot of guys that are sitting around or having to carry because we don't have work. But the work -- the utility work that didn't get built this year, they will have to build next year. The pipeline work, I think everybody that's even close to the industry knows, it's going to be a blowout year next year. The energy work in the Southeast, everybody knows that's going to be a -- just absolute goat rope trying to get all that work done. And Q3C will continue its win streak. They've asked for another $15 million, $17 million worth of CapEx because they see that kind of requirement for additional growth next year. And so across the board, I see great opportunity, and we're there to fill it with the right tool. We're in the right place.

Our next question is from Mike Shlisky with Global Hunter Securities.

I wanted to ask about micro LNG. I kind of heard pretty substantially different forecast for that market going forward. It's all been growth, either it's good growth or amazing growth. I was kind of wondering if you could give us an update on how you're doing in that market, how it might look in 2015, both from the overall market perspective as well as from yours? And also kind of your thoughts on, are there other major competitors in this current market today that you should be concerned with? Or is it pretty much only Prim right now?

Well, I think some of it, Mike, is -- I hate to bore you with some of the detail, but some of it is the definition of micromini LNG. We've got guys that are trying to sell little packages that are like 50,000 gallons a day units. They're kind of fully fabricated. You plop them down and they make LNG. They don't have the scale to be economically effective. But you've got guys in that business. I don't know that they've sold any. I certainly haven't seen any be sold. And then you got the guys like the Jacobs and the Bechtels and their definition of the micro LNG is 1 million gallons. Well, and I don't -- and believe it or not, these markets are very distinct. Our sweet spot, we can do the 1 million, 2 million, 3 million gallon. Our sweet spot, though, is between that 50, 60 to about 1 million. And we're finishing the one -- in fact, I'm kind of disappointed because I can't make the open house we're having today out at the George West facility, but we're basically -- we're 80%, 85% done with that, ready to make gas here pretty quick. We've had some owner provided material issues. But we're doing well on that. They've kind of announced and they're taking orders on their next one up in West Texas. They want to build 3 more of them, one in the Bakken and one over in the Marcellus and the fifth to be determined. We're proposing on one down in Florida. We're building one down in Florida, the one that nobody could announce. And they've got a second one. And so -- and we got feelers out on a bunch more. We really feel we're going to be at the capacity. We're looking for engineering support right now that we can tack on, on an M&A basis to supplement our efforts there. But it's -- I won't say we're the only guy in the business. But I think of the guys that build them, we do the best. And we built the most current, we build the most state-of-the-art. And we're certainly the guy that gets the first call. And maybe that's because we build them through ARB, a lot of them, and ARB is first alphabetically. But we get a lot of calls that -- before anybody else does, and we give them budgets and then they're kind of half obligated to continue with us. But it -- I can't tell you other people aren't going to jump in. But we've got the secret recipe and it's working really well right now.

Okay, great. And my other question is just on the rebranding effort. Is there going to be any kind of large up-front cost or any large cost up to kind of take place to get that -- get everyone's truck colors changed and everything else as we go forward here? You don't have to comment just on culturally -- but what you guys kind of have to manage over the next few months as that -- as your company's brand kind of takes shape across the other kind of smaller segments.

Yes, it's kind of easier to change the names than it is the change actually their legal structure, some of them. But the biggest cost is the pain and suffering I get when a guy calls me and says, "Well I'm a 40 year ARB guy, what are you doing to me?" Well, I'm 40 years and 5 months. So it's more of a cultural issue. But the first thing we pointed out to the guys is they own Prim shares. They don't own James shares or ARB shares. And so most of them are -- we used to say out on the West Coast about ARB, we all bleed green. That was our color back then. And it's true and it's a struggle for the guys. But we've had a lot of meetings on it and they're all getting past it. But we're -- the only costs we really have are printing costs because we can DBA the licenses and everything else. Over the long haul, we'll have to get new license, which means guys taking tests and things like that. But I think we've got -- last count, we had something 20-something brands. We can't deal with that. We got to get to a common brand and the biggest issue we've had is the clients would call and say, "I don't know who to call." And it's an excuse to be confused, which a lot of people take advantage of, unfortunately. So it's more pain and suffering on some of the more loyal long-term employees, but the cost is de minimis.

It appears there are no further questions at this time. I'd like to turn the floor back over to management for closing remarks.

I want to thank all of you guys for taking time to visit with us today, and more importantly, I want to thank you for your interest in our company and your support of our company. Goodbye.

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