Primoris Services Corporation
Q1 2013 Earnings Call Transcript

Published: 7 May 2013

[Operator:]

Greetings, and welcome to the Primoris First 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. Ms. Tholking, you may begin.

[Kate Tholking:]

Thank you, Rhea. Good morning, everyone, and thank you for joining us today. Our speakers for today will be Brian Pratt, Chairman, President and Chief Executive Officer of Primoris Services Corporation; and Peter Moerbeek, our 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 our morning's -- this morning's press release and our quarterly report on Form 10-Q for the period ended March 31, 2013, 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 SEC. Primoris does not undertake to -- 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. With that, I'd now like to turn the call over to our CEO, Brian Pratt.

[Brian Pratt:]

Thanks, Kate, and thanks for everyone for phoning in. Hopefully, you've had a chance to read through our release filed earlier this morning. We're proud of our first quarter results. Our revenue of $410 million is a 41% increase over the previous year, and the best first quarter revenue in the company's history. Our legacy businesses continued to perform well while the acquisitions we made in '12 contributed to our success. Our operating margins, while some of the best in the industry, were not as high as we like. This shouldn't be a surprise to anyone. As I've stated time and time again, that we operate in a seasonal industry, and our first quarter will always be softer than the rest of the year. Our backlog remains strong at $1.2 billion as calculated without the impact of MSA work, and we announced over $715 million in new awards during the quarter. For clarity in my portion of this presentation, I'll be using an old method of calculation as it relates to backlog. Pete will address the changes in his remarks. Our balance sheet remains healthy with equity at $344 million, tangible net worth at $175 million and cash balances of 40 -- $142 million. Our cash balance is noteworthy, given that over the past 12 months, we've paid over $81 million in cash for acquisitions. Also, during the first quarter, we increased our spending on capital equipment to $20 million compared to last year's $5 million. We also paid down over $46 million in accounts payable. So all things considered, I'm quite pleased with our cash flow and how we put it to work. Let's talk about our segments starting in the West. Revenue for the first quarter was $207 million, a 31% increase over last year. Backlog at quarter end was $286 million. ARB Structures finally turned the corner and their revenue was up over $4 million compared to last year. Mark Thurman and his team deserve a lot of credit as they waited through a pretty tough environment in the last several years. ARB Underground had a solid first quarter in what is one of our most weather-sensitive markets. Remember a lot of Scott's work is for utilities, and this workload typically bottoms out in the first quarter. This is due to our clients' cold-weather needs for their systems and annual planning. Also, underground work, whether for utilities or other traditional customers, is tougher to perform this time of the year, which, of course, suppresses margins. Scott secured the San Francisco Bay region in an alliance agreement with PG&E for their PSEP program. Our estimate for the initial value of this agreement is $300 million over 3 years. This is only a portion of the work available to us with this client. There's also to be additional ongoing construction, maintenance, repair and replacement work that we've historically performed for PG&E for decades. At ARB Industrial, Tim Healy's group is very busy beginning closeout process of the NRG power facility at El Segundo. They're working diligently to find a new home for this project team by pursuing several opportunities available to them in traditional and solar power plant construction. We will be announcing a significant award for solar power work in the next day or 2. Now let me remind you that power is not all that Tim's group does. This group performs a wide variety of industrial projects, including compressor stations, all forms of petrochem and refinery installations and crude storage and terminal facilities. As I've stated before, I never lost much sleep worrying about Tim's ability to win work. Q3 had a typical upper Midwest winter. Suffice it to say, it's not practical to put pipe in the ground when you have to find it through a foot of snow in 6-degree-below weather while your customers' need their systems available to deliver gas for heating. Jay Osborn's group suffered through pretty tough weather right up to this conference call. His clients remain committed to their spend this year, however. I don't have much doubt that he will hit his numbers over the next 3 quarters. Rockford encountered almost as challenging work conditions in the East. They worked full bore through the quarter regardless of the weather. Their quarter revenue of $52 million was actually better than their fourth quarter posting last year, something pretty unusual for the pipeline industry. Our clients needed pipe installed, and we did it for them. Needless to say, it had an impact on our margins, but the relationship benefits are well worth it. This tough early work has also positioned us well for gearing up on our ATEX project. I want to thank Mickey and Dickey Langston for the incredible effort these guys and their crews have put into building tough work in a very, very nasty weather environment. With this good start from the Rockford guys, I expect a great year from them. Randy's Engineering segment has begun to pick up. Their quarter revenue of $12 million was in line with our expectations. His group is excited about opportunities in front of them, including their prospect of working more closely with other Primoris subsidiaries. They continue to bid joint with our industrial teams on ammonia and methanol facilities and new construction upgrades, along with other projects along the east -- along the Gulf Coast. These groups are also working together on opportunities to design and build many LNG facilities, a market we are aggressively pursuing. Some of you have heard me say that petrochem and refinery in LNG markets are incredibly dynamic, and I'm excited about all the related groups' opportunities in these markets, especially with OnQuest's ability to be a catalyst for us. In the East segment, we had a solid quarter with revenue growing 56% to $190 million. Backlog at quarter end was $922 million. A large contributor to revenue was Sprint, headed by Robert Grimes. I'm sorry to repeat myself, but first quarter has always been tough for Sprint and almost always been a loser. This one wasn't a huge change, but I'm proud of our Sprint team's efforts and results in keeping Sprint in the black. This in spite of trying to close out a couple of large capital jobs through a fairly wet winter. The year of 2013 for this group are shaping up nicely with a $42 million start. I don't have much doubt they'll be a substantial contribution to the company in the balance of the year. The turn we began to see last quarter for Cardinal Contractors continued in the first quarter as they delivered solid revenue of over $11 million. Bill has 2 jobs in progress in our backyard here in Dallas, and he has been working closely with Steve Lewis on a basket of projects to help bring water to areas of West Texas that have been suffering from a long drought. I'm very confident Cardinal will continue its resurgence and be a strong participant this year. Danny Hester's James Construction Group's Heavy Civil division had a significantly more impacted and, therefore, softer quarter than we have -- we would've liked. This will change rather quickly as Pat Pluenneke, his guys are rapidly gearing up on our I-35 work in South Texas. Texas Heavy has achieved a solid backlog. Now it's a matter of translating it into revenue. As Louisiana continues to be a softer market, Rodney James' Heavy team has reached into neighboring Mississippi and was awarded a $93 million contract for work on I-55 outside Jackson. You'll see this project added to Q2 backlog. This is a 3-year job, and it's a good one for us as we look to hold our own in a tough market. The James Industrial and Maintenance Group, run by Jonas Beatty, continues to perform very well. Conrad's Industrial group is emblematic of the boom we're seeing in the Gulf energy business. His group revenue tripled over last year's first quarter. They also announced over $31 million of new work in Louisiana, and I believe we'll continue to see robust growth in this business brought about by very strong winds at our clients' backs. Given our belief in the booming Gulf Coast industrial market, it should come as no surprise we purchased Force Specialty, a small, high-end turnaround company. FSSI is based in Houston. We acquired them in March for a total of $4.2 million, $2.7 million of which was cash paid at closing and the remaining $1.5 million will be spread over 3-earnout periods. FSSI is focused on high-end services for turnarounds, fast-tracked small capital construction projects and maintenance. Their clients are refineries, chemical plants and midstream oil and gas facilities. We're happy to welcome Toby White and his team to Primoris. Rounding up the East segment is another industrial name, our recently acquired Saxon Group. Jeni and her team are making great strides and their improving margins reflect it. It moved from 0% gross margin in Q4 of '12 to 9.3% in Q1 of '13 on revenue of $8 million. Facilities such as the Air Liquide air separation unit we are currently building Mississippi is typical of Jeni's -- of the projects Jeni's people perform. They, too, will share in the refining and petrochem boom coming our way. As you can see, generally, our companies did well in spite of first quarter seasonality. I couldn't be more proud of the hard work. To possibly preempt one of your questions, we're still very active in the acquisition field. But quite honestly, with significant opportunities for organic growth on our markets, we are much more focused on best utilizing our current resources to win and execute contracts for our clients. Now I will turn the call over to Pete and hopes he can make some sense of all of this for you. Pete?

[Peter J. Moerbeek:]

Thank you, Brian, and thank you, everyone for joining us on today's call. Later today, we plan on filing our Form 10-Q, which should explain in greater detail the numbers and information that I'm about to give you. I'm going to comment briefly on 3 main areas

[Operator:]

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

[Lee Jagoda:]

Can you just quantify the MSA work you completed in Q1?

[Peter J. Moerbeek:]

Yes, I'm going to give you an approximate number. It's going to be about $75 million, I believe, when we finished.

[Lee Jagoda:]

Okay. And then just switching gears a little bit, Brian, can you update as on the total capacity that you have in terms of spreads related to Rockford and what's currently being used out in the field? And then as a follow-up, update us on the Flanagan Project and sort of the expected timeline for a potential reward.

[Brian Pratt:]

Rockford's got -- between Rockford and ARB, we have about 2 spreads remaining, one large and one midsized. So we can go up to about 30 inch on the midsized and up to 42 inch on the large. So we're in pretty good shape. Flanagan bids are in, kind of a quiet period. There's conversations being had, but I -- that's all I can share with you right now, Lee. I have -- the award, I would assume some of it's pretty tight scheduling timeframe, and those are tough spreads. Those -- that piece down through Oklahoma's about as hard as rock as you're going to in the United States. So they need to get going pretty soon or the weather is going to be a factor on the back end of the schedule. So I would assume that they'll be making some decisions and further shortlisting relatively soon. But I can't speak to the class timing.

[Lee Jagoda:]

Okay. One more question and I'll hop back in the queue. Pete, do you have the revenue related to the Blythe JV in the quarter? And how should we think about the seasonality of that business?

[Peter J. Moerbeek:]

Hang on a second and I will answer your question. I don't see that -- it's in there. I'm not sure that that's terribly seasonal business. Blythe revenue, $36 million.

[Lee Jagoda:]

And that's expected to continue for the foreseeable future in '13, or how should we...

[Brian Pratt:]

There's 2 seasons in Blythe. There's cold and hot. It rains out there on millennium basis. So there isn't as much seasonality as you might think, although your productivity goes down a little bit in the cold weather. There's more work out there to be had, and we're pursuing it. So I can't tell you what the prospects are right this second as how much of it we'll win.

[Operator:]

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

[Tahira Afzal:]

So the first question is you've got a lot of puts and takes as you go through in the first quarter. But that's probably the most upbeat commentary from you that I've heard, I think, in your press release. So could you talk directly about the rest of the year? How you see that ramping up, given you're making all these capital investments in terms of the qualitatively, at least, on the revenue profile, and perhaps how we should expect margins to recover during the year?

[Brian Pratt:]

Well, this is probably the latest in the day conference call we've had here, so the caffeine has had a chance to kick in at this point. So I would assume that explains the upbeat-ness of my comments. But I think revenues are going to grow solidly through the year. Almost -- when we bought Q3 and Sprint, that really -- and Silva, that really exacerbated our seasonality. You don't put down blacktop in the winter. You can't finish pipeline jobs in the winter when it's raining, and you can't install gas mains in the services in the Midwest, like I say, when the ground's frozen. So the overhead goes on and the volume does. And I think there's -- by way of example, I think Q3's volume was about 10% or maybe, at most, 12% or 13% of what we anticipate for the full year of them, their volume for the first quarter. So I think the volumes are going to increase handily. The same thing goes for the Heavy Civil work with Danny. I mean, you can have the backlog, and you can work some of it off in your free cash and in areas like that, but you can't do dirt work when it's muddy, you can't lay paving or concrete down when it's muddy. And when it's raining in the mornings, you can't get the workers out. So not only that, but we enter -- we're entering into the killing season for the work, and we're going to have a lot more quick-hit bids and -- builds than we did in the first quarter. So I look for volumes to go up almost across-the-board because of weather. And I look, for the net, the margins to increase handily also because of the weather. And as we get into these jobs, as you know, these kind of seasonal jobs that are less than 1 year in duration, we start looking at the contingencies quicker, and we take the contingencies in at the end of the job. So I'm really, really excited about where we're going this year.

[Tahira Afzal:]

Got it, okay. And as a follow-up, first of all, I'd just like to congratulate Jeni and Saxon team. I mean, they've done, obviously, a very good job in the general -- in a difficult market. And my second question is you've got an interesting mix of businesses, in terms of fabrication and pipeline capabilities, that you can divert towards the petrochem cycle, and we are seeing that becoming more evident. So could you talk a bit about the bidding levels you're seeing right now, Brian? And what you think the focuses would be if -- versus your current capacity?

[Brian Pratt:]

Well, first off, I'd like to acknowledge that all you women kind of stick together. So I'll let Jeni know that you have kind of a now moment with her. But bidding is exceptional. It's hard to ferret it out. I get to look at just a summary of every job we bid every Tuesday nights. And I'm staying up later and later, not because it takes longer to read it, but I just have -- it takes me a while to calm down after all the excitement reading my weekly report. But they range from the very large jobs, some of the feed jobs we're doing at OnQuest, just to the quick hit day-to-day jobs at the utility base. There seems to be a lot of pent-up demand on all the pipeline owners and earning a lot of money now, so they're willing to work the pent-up demand off. The only thing that probably isn't very, very active now is the heavy highway. But keeping in mind that 2 years ago, 3.5 years ago, when we bought James, they did almost nothing in Texas, and today, that's their larger of their 2 groups. The letting -- a couple of weeks ago in Texas, the TxDOT will let their jobs in bursts. The letting was $0.5 billion, which is more than the entire state budget for Louisiana for LDOT work, just one month's letting. So we're getting to see a lot more. A lot of it is areas that we're kind of full. A lot of it in areas that we think we have a lot more capacity. So it's a very positive thing. I'd have a hard time kind of typifying it beyond that.

[Operator:]

Our next question comes from the line of Rich Wesolowski with Sidoti & Company.

[Richard Wesolowski:]

ARB Industrial sales looked like they were down a little bit, and profit looked like it was up a little bit. And I'm wondering if you booked any favorable adjustments for El Segundo or either the 2 jobs that were recently completed.

[Brian Pratt:]

We look at every job every month, and we do a cost to complete in our current estimates. I think there was a little bit of a tick-up in El Segundo. But we look at it every month, and we do it -- and we very diligently, every quarter, obviously, because that's a pretty significant accounting process. But -- we've -- I think we have ticked it up a little bit.

[Peter J. Moerbeek:]

I think there was more of an adjustment from the 2 power plants. The other 2 than there was from El Segundo.

[Richard Wesolowski:]

Okay. Would you comment on whether your batch of textile work on I-35 is broadly ahead of schedule, behind or about on track?

[Brian Pratt:]

Yes. I'd say it's kind of -- we're on schedule. We -- I was down there a couple of weeks ago and talking to the guys and reviewing it, and I think we're kind of right on schedule. This stuff is -- it's slow to start. We just now started the last -- the work through Belton, the last big award. It just takes a lot of planning and things like that, but I'm -- we're kind of right on schedule, which is to be expected by those guys. On this kind of work, you really have to manage your schedule carefully because all this stuff ties together between these sections we've been awarded. So -- and the Belton is going to be -- the piece through Belton, the last big piece, is going to be kind of challenging because you've got overhead through the town there and you've got to tie all those streets over and all the access and egress from on and off, and it's going to be a challenging piece of work. But we're just now getting that started. So -- but I wouldn't say that we're behind or ahead.

[Richard Wesolowski:]

Q3's historicals, they show 18%, 20% gross margin for annual numbers. Does that typically include a breakeven-type March quarter?

[Brian Pratt:]

Yes. They -- getting into the numbers this quarter, we went back to look at historics. And you -- we've added some accounting burden with the...

[Peter J. Moerbeek:]

Sarbanes.

[Brian Pratt:]

Well, not Sarbanes. I'm talking about the additional amortization of the purchase price. But in general, they're right on track. The problem you have is that they have to keep some of their better people. And if there's no work to do, then they hang around, and you've got to pay them. You just can't send them to the house. So -- but they were pretty much on track where they were last year as was Sprint, higher volume, but they actually lost money first quarter of last year.

[Richard Wesolowski:]

And lastly, on FSSI, a small company. I'm wondering if you bought it for the labor or for a service that you could offer with James Industrial.

[Brian Pratt:]

We bought it for the opportunity. It was a small company, I think, largely because it wasn't well supported by their owners in terms of providing the capital necessary. And when you ramp up from 0 to 500 guys that are working 7 days, 12 hours a day, that takes a lot of capital. You got a lot of checks that have to go out on Friday. And I think they had the ability to get much larger. Toby's a guy that's been around a long time, started out of Timec. He worked for JV. He worked for a lot of guys out in that area, and he's been doing this a long time. He's very talented, and I think he's got a great relationship with the clients. So I think it won't be very small for very long. But it was a combination of a lot of things. We're trying to aggregate a pretty good group down there, which there's challenges to that because you got to assimilate everybody and then you got different cultures and stuff, and you don't want to over-assimilate because you don't want to damage cultures and you don't want to contaminate cultures. Toby's guys make a huge amount of money because they're working all hours they can work. Those probably aren't the same guys you're going to use on your larger capital jobs because you're not going to attract them without paying a lot of hours, which is kind of contrary to what you want to do on a fixed some -- fixed amount job. So -- but we've got a plan there, and I think we're executing it pretty well. And I'm really happy to have Toby's guys on board.

[Operator:]

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

[Adam R. Thalhimer:]

The I-35 work, when does that margin drag start to ease up?

[Brian Pratt:]

Gosh, I don't know. I'm going to go back and get my laptop and calculate that one. I thought you're here to ask those kinds of questions typically. There's really 5 jobs that relate to I-35?

[Peter J. Moerbeek:]

Yes.

[Brian Pratt:]

I have to analyze each job. We start these things slowly. They don't -- these things are battleships. They don't have a whole lot of cost at the start. So -- and then they crescendo pretty slowly and then they run pretty hard for a couple or 3 years and then they kind of taper off at the end. So there's no big spike in them like you see in the pipeline jobs where they jump up in the first 45 days, and you're maxing out on your people and your cash. So I really couldn't address that, Adam. I wish I could. I don't know, Pete, you got anymore to add to that?

[Peter J. Moerbeek:]

No, I think we will -- we're counting on, as the project goes along, getting a lot closer to the margins that they have traditionally, which is a little bit higher than what we're running out. But we've got pretty hefty contingencies on the front end, and unfortunately, these are 3- to 4-year projects.

[Brian Pratt:]

And remember, the heavy highway is about $250 million. So a minor -- what you call a margin drag, which I look at as nice steady income, really doesn't have a huge impact to the overall numbers, so.

[Adam R. Thalhimer:]

Got it, okay. And then with regards to the solar award, I don't know how much you can tell me about that. But is that -- what's the technology?

[Brian Pratt:]

I don't want to pick -- confuse my poisons here. We -- it would be -- it's thermal.

[Adam R. Thalhimer:]

That's good. Seems like we've been waiting a long for that.

[Brian Pratt:]

Well, actually, the stuff we're already doing out there with the joint venture is thermal. We're assembling the mirrors, and we're doing the -- a lot of the work, really, into the field. But yes, there's that kind of work out there. I read an article the other day that all -- the new electrons being generated in California this year are going to come from renewables. Remember, the NRG plant we're building is the big one. When we finish that, they shut the other one down. So they have a little bit of capacity, but not much. But it's coming. There's going to be more and more of it, and this intermittency is going to be a real problem. And you got more this once-through issue out there. So there's going to be work. It's not going to be $300 million, $400 million or $500 million jobs. We don't write those bonds and guarantee the financing and the performance for those things. So we're going to get bits and pieces, but there's plenty of stuff out there.

[Peter J. Moerbeek:]

And if I may, speaking of solar, when I look at the number of the Blythe joint venture in the first quarter, it was $16 million, not $35 million.

[Adam R. Thalhimer:]

Okay. And then -- I mean, lastly, I just wanted to ask on the pipeline side, obviously, Flanagan's out there. That's the biggest one. But when -- Brian, when do you think -- and not just for you guys, but for everybody in the industry. When are we going to start to see a lot of awards? Because it does seem like there's a lot of ones that are kind of pending. Is it next quarter or 2 quarters away? Are they kind of more 2014 jobs? How do you think that plays out?

[Brian Pratt:]

We're not seeing a lot yet. It dribbles into '14. Flanagan, it obviously does. We've got some alliance agreements with the guys, the midstream guys, up in the Marcellus who are talking about '14, '15 work with them. We're not seeing a dearth of awards. I mean, we need one more big job to really be pretty happy. I don't need to have every equipment spread working, because we'll use bits and pieces of it at other places, and we'll even rent it to the guys that do get it. Those items are pretty indestructible. So we're really pleased with the awards out there. Now the spread guys, the kind of midsized jobs, say between $5 million and $35 million or $40 million, those jobs are -- they'll begin to come out about now and they'll run hard through around July. And then by that time, they start running out of construction season. So that can pick up substantially, but we're starting to see a lot of that. I've been traveling around a lot, the Bakken to West Texas to the Marcellus. And they are shutting in well after well after well, because they're just awash in oil. They just can't ship the oil. So I think you're going to see a lot of the midstream guys on the not -- on the non-huge projects, like the Plains All American guys and some of the others. They're going to be building a lot of pipeline systems, where Sprint and Rockford actually both compete on that stuff. And I think that opportunity from all the wells I'm seeing shut and all the disgruntled producers I'm talking to, I think that opportunity is going to be huge. I can't tell you which owner, which developer, which system. But it's not only empirical, but it's a gut feeling this thing's really going to take off in the next couple of years. But we get one more this year. We're fat and happy. We haven't even start -- I mean, we've just barely started ATEX 2 weeks ago.

[Operator:]

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

[John B. Rogers:]

A couple of just follow-ups, I guess, for Pete. What was depreciation and the amortization in the quarter?

[Peter J. Moerbeek:]

$11.3 million.

[John B. Rogers:]

$11.3 million? And sorry, how much was depreciation? How much was amortization? Just so I can match up the $4.6 million to the rest of the year?

[Peter J. Moerbeek:]

Goodness, you're going to make me think. On depreciation, $9.5 million; amortization, $1.8 million.

[John B. Rogers:]

Right. And then, Brian, in terms of the PG&E work, the $300 million in MSA there, I noticed one of the other pipeline contractors announced a similar contract. Is that -- have you been sharing that work previously, or is it -- or is that something different?

[Brian Pratt:]

Well, PG&E changes their delivery method every couple of years. I think it's to demonstrate prudency to the CPUC. But a couple of years ago was -- a lot of it was done under alliance program, where we got a portion of it. It was split among 4 contractors. And then last year -- the last 2 years, they decided to bid each discrete piece of work as a bid item, and that was among maybe a dozen contractors. Only 3 or 4 it were really effective. And then they went back to an alliance system, particularly in regards to PSEP. And they awarded, I believe, 4 contractors. But you still have a lot of that other work out there for -- the PSEP work is only a small -- I wouldn't say a small portion. It's a significant fraction of the work available. So it changes every year. But in general, we've been doing our share as long as I can remember.

[John B. Rogers:]

But I was under the impression that, I mean, you were doing more than your share, I mean, in a lot of ways. And I guess, I'm just -- I mean, is that still possible that you can do more than what they kind of -- the $300 million that they talked about over 3 years?

[Brian Pratt:]

Well, my perspective on our fair share has always been a bit piggish, John. So you can just call it what you want. But I think we'll continue to do our fair share, which -- since we've been there taking care of PG&E for 4 [ph] years. And to the good and the bad and the tough seasons and the years where there was absolutely no work to do and through a couple of years of bankruptcy, which they owed us money that we struggled through and we continue to work for them, I would think our fair share is larger than the guy that rolls up in a pickup from Topeka. So -- or more -- well, more well said from Houston. So the other thing is when you look at the various regions that the work is awarded to, I think we got the better region in the fact that it's -- we got the Bay Area, which, by far and away, is their largest component of facility and the most aged component of their facility. And I don't have to have a bunch of windshield time for my crews, driving 150 miles from one little service to the next because I got Northern California, which is all the way from Nevada up to Yreka. So -- and that gives you a base to compete better on the other work, because you've got workforce, you've got yards, you got equipment there, you've got relationships with agencies that makes you more competitive on the other work that comes around.

[John B. Rogers:]

Okay. And then just following up on your comments relative to the turnaround work in the kit refineries and chemical plants along the Gulf Coast. When should we start to see a lot of that work coming out to bid? Is it this -- is it now, or is it later this year?

[Brian Pratt:]

Well, we're dealing with probably some of the most sophisticated construction consumers in the world when you do work down in Houston. And these guys get it that they all can't turn their plants around the same week, because there just isn't enough workforce. So basically you have the refinery guys that drive the boat, because they have certain calendar mandates that -- where they're not making as much gasoline in the winter as they do in the summer. So they try and focus their outage work and their turnaround work on the winter. And then you get into the chemical guys and the petrochem guys later in the year. So some of it goes year-round. Then you have the work, that's when they take the plant down. Then you do some work prior to the outage to make sure they're ready for the outage, because they want to do everything they can ahead of time. So basically, you're making spools up, you're basically helping them do the preliminary work, the pre-outage work or the pre-turnaround work with your people. So it's lumpy. That's why you can't just have a steady diet of one business line. I think that's why one reason these guys were for sale, because it's tough living through those cycles. But the heat of the turnaround business is in the winter, and then the chemical guys go into the later months.

[John B. Rogers:]

Okay. So it sounds like -- I mean, this is more something where we should see backlog building through this year and then the work fourth quarter and into 2014, or is it -- do you expect things to start this year?

[Brian Pratt:]

Well, a lot of Toby's work is cost plus, and you don't know what -- how much work it is until you enter into it sometimes. Some of it you know in advance about how many man-hours we're going to spend, and part of winning the work is helping the client estimate just how much work is there and how they're going to attack it. So a lot of his work will not -- you will not see a lot of that in backlog, and a lot of it you'll see minutely in backlog and then burn off fairly quickly. So I wouldn't look for a big boom in backlog in that area.

[John B. Rogers:]

Okay. But revenue? Hopefully, late...

[Brian Pratt:]

I think Toby is a good guy. His plan shows us south of $100 million, but not much in 3 years, and I think we can get there. One more thing, John, you were talking about -- this might not be as much as we have in prior years for PG&E. Last year, we bid everything. I mean, yes, we got a little bit of cost-plus work that they couldn't engineer in time for that client. Last year, the PSEP work which we got with this MSA was between $80 million and $90 million for us, out of the total of $225 million. Does that help you?

[John B. Rogers:]

Yes, that does.

[Operator:]

Our next question comes from the line of Dan Mannes with Avondale Partners.

[Daniel J. Mannes:]

So real quick follow-up on the downstream. I certainly heard your enthusiasm, Brian. I guess I just got a 2-part question. I apologize in advance for that. But one, how much of that is driven by enthusiasm over the refinery upgrade cycle versus petrochem? And then secondly, given the number of entities that you have that are pursuing this work, how do you look at it holistically and how do you -- what can you do in order to maybe consolidate some of those resources, so you can go after maybe some bigger opportunities going forward?

[Brian Pratt:]

The excitement's kind of across-the-board. When you look at, for example, the plan I mentioned of Saxon's that they're building for Air Liquide, that relates to a -- it's an air separation unit. You use those in refineries, you use them in chemical processing, you use them everywhere. And we've got good relationships with the Air Liquides and Lindes and the Air Products of the world, which is very specialized construction. So I wouldn't say that I'm excited about anything less than others. I think that's one thing that's kind of kept my interest in the business over the last 40 years is it's kind of recreational for me because there's all these various moving parts that I like to try and understand. Of course, the bad news is there's always something halfway broken, so I never get any sleep at night. But I'm excited pretty much across-the-board. It's kind of hard to get excited about some of the things that we do that are mundane, like going out and changing valve out for a client on a pipeline system. But that same guy is the guy that will hire you to go build a new capital project for you, and that's pretty exciting for me. I like building stuff and making a change, making a difference in the world. So I'm excited across-the-board, obviously in some areas more than the others. Each one of these areas has a different degree of risk. The pipeline work, you spent a lot of money in a hurry, and you can be out a lot of money to clients that sometimes they're stuff engineered better, sometimes it's engineered worst. And when you're out that kind of money, you've got a lot of risk. When you're spending $100 million in 4 or 5 months, you've got a lot of risk. Whereas the -- and they're not as -- not that they're not safety sensitive, but they're not as safety sensitive as, say, the refinery guys where if one of your guys turns the wrong valve, the refinery blows up. And so you've got different types of risk in each kind of work, which causes me pause when I start getting excited about things. But the pipeline business is booming. I like it because that's where I grew up. I mean, that's the business I've been in for 40 years. The refinery business, the petrochem business is exciting for all of these guys. And that -- for guys that have struggled for the last 3 or 4 years, to have them be excited when they drive in the office -- into the office and come to the door in the morning is pretty rewarding, particularly if you've been next to these guys as closely as I have over the years. We're doing more and more. We're going to restructure the company in the next 2 to 3 months to better take advantage and better kind of assimilate all these skills together to go after those markets, particularly in the Gulf area. And I -- and we're going to -- we're working on -- I think we'll have an announcement in the next 45 -- 30 to 45 days on what we're going to do and who's going to lead it and those kinds of things. But we're -- I've done this before. I -- we built this thing from a very small entity to what it is today. It's just another part of the excitement for me to be able to take and re-meld this company into something that's more effective, so.

[Daniel J. Mannes:]

Yes. And one quick follow-up. You noted in the first quarter, I guess, a little bit on James and also, certainly, on Q3, that it was -- both seasonality and weather was a bit of an issue. Much of it was expected. Not to be too cute here, but can you talk a little bit about the second quarter where probably some of your guys are still buried under snow in early May? Is that a bit of an issue in terms of start-up, or do you expect the workloads to maintain and just maybe ramp a little bit faster once they get started?

[Brian Pratt:]

Yes. I'd like to start with a footnote first, if I could, then I'll get to your question. But weather is one thing that we think we're pretty good at managing. When we bid a lump sum job, a big pipeline job, if you take a reaming on a bad job and you bid it and you've got a fixed price and you've got a fixed scheduled when you're going to build that, that's something you can try and obviate. I mean, that's something you should know when you bid something. Seasonality is entirely different. We knew when we bought Q3, we knew when we bought Sprint, we knew you when we bought Silva, that -- we knew when we set up offices with Q3 in Missouri and Kansas, we knew first quarter was going to be in the crapper. We knew it was going to be bad. So we bought that. We -- that's why I cautioned you guys last call about what the earnings would be like first quarter. I'm really pleased as to where we are because I got to tell you guys, it looked worse than this there for a little while. Now Q3 hasn't had a lick out of Little Canada. They named it that for a reason. And it's just freaking cold up there, and the weather just -- what, we got 70-degree weather 2 weeks ago then it snowed again. So yes, we're taking a bit of a ripping there, but I can tell you, Jay's going to do his projected income, which is well above what they did last year. He's going to do that hell or high water because these clients are going to hit their spend, and they're going to spend that money. The challenge isn't going to be the work and getting that work. The challenge is going to be making sure we don't hurt anybody and making sure we do it effectively, because a lot of Jay's work is unit price. And if anybody can do it, it's him. He's used to that butt-ugly cycle that they get up there where they get 8 months of work out of the year. And like I said, if anybody can do it, Osborn can. He's my guy.

[Operator:]

Our next question is a follow-up from the line of Tahira Afzal of KeyBanc Capital Markets.

[Tahira Afzal:]

Guys, just a quick follow-up. We've seen a very large pair of yours -- in the same area as yours, recently win a large construction project, highway project down in Texas. Are you seeing any of the bigger guys trying to come and take market share? And then you guys opened up the Pandora's box by mentioning Sprint pipeline. They announced earnings, released their CapEx this morning. Part of the CapEx raise has to do with gasses. Is the gasses the type of project you'd be bidding on.

[Brian Pratt:]

That was a lot to cover, Tahira. Let me take a shot. There's always danger of people trying to enter into your market. All politics is local though, and a lot of that work is divvied up and bid to guys that they depend on. Some of these midstream guys only have 3 or 4 bidders. That's a club you want to be part of, but you're angry that's it's there if you're not in the club. So I think we're going to continue to see that. I think you'll continue to see guys buying market share. There's plenty to go around right now. And our rule is that if they want to buy market share, let them have one, and then they won't be back because they're going to pay a price for it. Most of these markets we've been in, the Sprint guys, the ARB guys, the James guys, they've been in these markets for 60 or 70 years. We've got the people, we got the relationships, we've got the institutional relationships, we've got the support of all these people, we've got the local politics, we've got the equipment. Come at us guys. If you want a part of our business, come our way. You won't like what your results are, because I guarantee you, we pay the price to get here. Anybody who wants a share of our business, they're going to pay a price to get it. So that doesn't worry me too much at all. I don't -- I'm not sure what your comment about Sprint was. But part of their issue was they were undercapitalized and they are under-equipped, and that was part of the loss they suffered last -- well, not a loss, but the degrading profit in the first quarter. As we're out there through the winter, and we didn't own our own side beams and our own bulldozers and our own loaders and we were paying rent on these stuff, and we couldn't work it because it was monthly. So we decided we'd buy more of this stuff to put them in a more competitive posture and to make sure we didn't repeat this next winter. We also made a huge investment in Q3. Jay has wanted to reach out into these other locales, and we did. We reached out in a small way in the last couple of quarters, and he did very well in the work there based on what he could figure out in terms of resources and clients and how to manage it. And because of that, we were pretty bullish with Q3. So we invested quite a bit in new equipment for him. In fact, that was probably the largest component of our investment other that the pipeline equipment.

[Operator:]

Our next question is a follow-up from the line of Rich Wesolowski with Sidoti & Company.

[Richard Wesolowski:]

On the Investor Day, we heard about another potential PG&E alliance regarding the replacement of their adelaide pipeline network. And I'm wondering how large that opportunity is, and how likely it is that we'd probably get a piece of it.

[Brian Pratt:]

Last question, I guess. Kate's giving me the roll -- you're not.

[Kate Tholking:]

I'm not.

[Brian Pratt:]

Okay. It's still in the process, and I really don't want to comment on it -- because -- too much on it because it is -- it's -- I'm assuming that the cost to replace an adelaide A or an adelaide B service is about what a copper service was. So I would assume it's about twice what the copper service opportunity was. How big that is, Rich, we don't know how many alliance partners they're going to pick. We don't know what areas they're going to be in. The copper services are pretty focused in -- right in the Bay Area. I don't know where the A and B is. So I really can't address it. It's a big opportunity. It's tough work though because this stuff can be 5 miles apart or right next door. And so when you've got a lot of windshield time, getting from one service to another, it's pretty tough to gauge it and figure out what the costs are. But we had a great run with copper services. They admit that it was one of the better -- best of pieces of businesses they've done over the last 5 years in aligning with us to do that. But whether we get any of it, I wouldn't even handicap it right now.

[Richard Wesolowski:]

Okay. And then secondly, if I take the difference between the $1.7 billion adjusted backlog and the $1.2 billion reported, it implies just shy of $500 million in forward 12-month MSA. Last quarter, the guidance was $350 million to $400 million. So I'm guessing that the difference is PG&E and whatever awards you received since then that were not included in that forward guidance. Is that correct?

[Brian Pratt:]

Well, be careful, because when we announced the MSA for PG&E on the PSEP, that was a 3-year program. And for purposes of what we're trying to give you transparency on for the backlog, we're only using one-year projected revenues for MSA work. So you need to make sure you ask us for a definition on that when we give you those. Forget that I miss the mark.

[Peter J. Moerbeek:]

And the other half of it is, yes, as went through our system, we found that we had some more MSA work in James' industrial, did some MSA work in a couple other places. So it's a little bit higher than where we thought we were 3 months ago.

[Brian Pratt:]

One other thing I think is important on this MSA topic to understand, we're -- we just -- we're going to build $50 million, $60 million to Westlake Chemical. We don't have an MSA, where the net was cost-plus work. MSA is a licensed -- is the hunting license, and they can call us to give us work or not, okay. So we have to use historicals, we have to use conversations with them on their budgets and everything else. We'll do a lot of work that will be cost-plus that won't be an MSA category because it's a discrete piece of business. Okay? With that, I'd like to thank you, all, for your continued interest in Primoris. I would really like to especially thank the Primoris family for their backbreaking efforts throughout a long, wet winter of hard work. It's a true honor to work with the all. Goodbye.

[Operator:]

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