Primoris Services Corporation
Q4 2013 Earnings Call Transcript

Published: 1 Mar 2014

[Operator:]

Greetings, and welcome to the Primoris Services Corporation Fourth Quarter and Full Year Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce Ms. Kate Tholking. Thank you. You may begin.

[Kate Tholking:]

Thank you, Danielle. Good morning, everyone, and thank you for joining us today. Our speakers for today will be Brian Pratt, Chairman, President and Chief Executive Officer of Primoris Services Corporation; and Pete Moerbeek, Executive Vice President and Chief Financial Officer. Before we start, I'd like to remind everyone that statements made during today's call may contain certain forward-looking statements including with regard to the company's future performance. Words such as estimated, believes, expects, projects, may, or 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 detailed in the Risk Factors section and other portions of our Annual Report on Form 10-K for the period ended December 31, 2013, which we plan to file next Monday, 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.

[Brian Pratt:]

Thanks, Kate. Good morning, and thank you all for joining us today. We are pleased to share with you our fourth quarter and full year results. Starting with the numbers. Revenues in quarter four were $538 million, which is a 12% increase over 2012's results. This was reasonable top-line growth nearly all organic and we are pleased with this number. However, more important numbers are earnings. Our Q4 profits were $23 million, a record for us. Even with a few unusual items in the mix, which Pete will laboriously explain later, we earned an impressive $0.44 per share in the quarter and $1.35 per share for the full year. We did this while maintaining what I believe one of the strongest balance sheets in the industry. Our year-end cash balance, including short-term investments, was a record $215 million, and our tangible net worth was a record $235 million. Five-and-a-half years ago when we became public, our tangible net worth was right at about $45 million. While you might not fully appreciate the importance of this metric, when tough times come around in our industry, and sooner or later they will, tangible net worth is one of the most important metrics our clients, our banks, and our bonding companies look to. I am very proud of our balance sheet as pound for pound we confront with the best in our industry. To share a little more detail I will start in the east. Cardinal Mechanical, Sprint, Saxon, Force, and James Industrial were part of the east segment through the fourth quarter. Going forward, they will form a new segment, Primoris Energy Services headed by Jim Henry. Cardinal Contractors had a solid fourth quarter with revenues up $2.5 million and improved margins. Government agencies in Florida have initiated spending plans at a level not seen since 2007, resulting in a bid calendar for Bill's team and it is quite encouraging. After a tough first half, revenue at Sprint returned to more normal levels in the fourth quarter with a higher concentration of maintenance work and that drove margins higher. This type of ongoing cost plus negotiated work accounts for roughly 30% to 50% as Sprint's revenues. While it does not have a visibility of a larger pipeline projects, it is more consistent work and it softens the down cycles. The rest of Sprint's revenues come from large capital projects. In the fourth quarter, they struggled a bit in this market due to the delayed permit in our large project we have under contract. The majority of these permits were recently obtained and the project should result in significant revenue increase for spent in the first half of '14. Both Saxon and Force were a drag on 2012 financial results due to poor projects execution. We made changes. Both groups are now structured and managed more effectively to work with James Industrial for meaningful opportunities ahead. A lot of recent projects awards have been reimbursable and we are confident we're turning a corner with both of these business units. We were too long in turning these groups around. We only have ourselves to blame; we were not aggressive enough in the nature and timing of the changes that were needed. We will not lack in management aggressiveness here again. Danny Hester's Heavy Civil guys performed well in a tough year of transition for them. I am very proud of a hard fought contribution. We finally received all the notice to proceeds on the I-35 belt work. So Pat's crews in Texas are very busy. And we continue to see a crescendo in our revenue here throughout the year. Rodney's Louisiana market continues to be slow and the LDOT work accounted for less than 2% of fourth quarter's revenues for our guys there picked up some sizeable designed bill awards in Mississippi. These projects are similar in scope and execution and are very profitable and award winning LA1 project. Another Danny's Groups, James INA and is continue to run smoothly under leadership of Jonas Beatty, who transitioned into his current role a couple of years ago. They are growing revenue, maintaining margins and working in concert with the other groups to win larger pieces of petrochem projects available in our market. Conrads Bjorg and the James Industrial Group continue to pursue and execute work well along with Gulf Coast. I am pleased with the size and complexity of the projects available to us. Conrads Group is a very good at what they do and the clients recognize it. Our James Industrial Groups fields will continue to be much in demand over the next several years in their marketplace. By flanging the skill sets and resources of Force and Saxon (inaudible) James, we are bringing powerful change within the industry to help our clients achieve their desired results. Randy Kessler in the engineering segment had a solid quarter. While, the revenue is down slightly compared to 2012, they ended the year with over $62 million in backlog. This is a four fold increase of where they stood a year ago. The largest contributor to this increase is a contracted constructed mini LNG facility located near San Antonio, Texas. On this project, OnQuest is partnering with James Industrial to provide our client a complete EPC package. Jose de Caldas at OnQuest, his estimator group, is in hot pursuit to numerous other mini and micro LNG projects located across the United States along with a growing number of good prospects in a more traditional hire heater market. Roger Noonan's (inaudible) Group continues to do well in the in the four other markets he serves. We will be able to tell on continue generous contribution from Rogers Group. As you heard me say previously, the smaller LNG flat market has the potential to be really transformative for engineering business over the next several years. In the west segment, our California based ARB structure had another year, as the southern California market continues to stumble along in the doldrums. We are watching the market carefully and if we can see better climate in the near future or a structured services we will make further adjustments in our cost structure. Recently, we have been encouraged by an increase in biding activity for clients that buy value instead of price. We would like to see if this is improving trend or just an aberration. ARB Industrial had a stellar year, highlighted by a standing completion of our El Segundo project. Our VP of Pre-construction (inaudible) and his team had been busy proposing on multiple higher projects with numerous sites and technologies for each potential project. Many of these proposals are EPC contracts. This means that the timeline from proposal through award and construction commencement is lengthier than just your construction services package. However, the benefits are larger awards and hopefully an opportunity to work closer with our clients to achieve better project execution. While we wait for these projects to come to fruition, Tim's workforce has been busy on a range of other industrial projects in California, most notably several large solar projects where we have over 700 craft persons working on site. With nearly $55 million in awards; I continue awards in the fourth quarter, I continue to have no doubt Tim in 2014 will continue the legacy of strong contribution. Scott Summers, ARB Underground Group also turned in a stellar view. Although, fourth quarter revenue came up a bit lighter than we expected, the year-over-year quarterly decline was mainly on the gas distribution side where we completed a significant multi-year gas distribution replacement program for a major client early in 2013. This client is gearing up for another long-term for replacement program. We anticipate hat we will get out fair share of this larger program. Gas transmission work for our California clients, which includes their integrity spend continues to be strong throughout the year and we anticipate it will be no different 2014. Rockford, another one of Scott's group had its busiest fourth quarter and full year in their history with a $110 million of revenues for the quarter and a full year revenue with $365 million. It has two and a half times what they build in 2012 and its $31 million more than their 2011 revenue, where we built the Lord Baltimore project. I'm extremely proud of Frank Welch, Rockford's President and his guys for their hard work. Obviously, these guys having a busy fourth quarter which has challenges namely weather and the fourth quarter was no exception. Rockford performed well and as the midstream client market continues to prove, we expect Rockford's margins will follow suit. Last, but certainly not least there is another underground group Jay Osborn's Q3C team, which performed in outstanding fashion. Their 2014 revenues were $168 million far and excess of what we expected; of course now the bar has been raised. While the winter has basically shut down most of Mike Russell's work in the upper Midwest, Jay Osborn's crews in Denver have been busy. To help Q3 grow, we need a stifle investment in new equipment in 2013. With these kinds of results we're ready to do it again. At the end of the year, we made two small investments. One with the purchase of (inaudible) a small development company we have been working with for several years, but they have projects to alleviate effects of the prolonged drought in the south east. In the process, we've retained the company's founder of Rainmaker Norm Bangle. Norman and Pat Reilly, the President of the renamed BW Primoris Organization will be focused on water opportunities and associated construction projects in Texas and other parts of the drought stricken southeast. With the acquisition, we continue to sue projects ranging in the size from less than $10 million to potentially hundreds of millions of dollars. We also purchased some pipeline and gas distribution construction assets from the small company in Mid-Atlantic region. We retain a very season cohesive group of management. They will run a newly formed business unit for us renamed Primoris Pipeline. This new unit geographic expansion will allow us to better serve our utility in midstream customers as we seek to capitalize on a substantial and sustained market opportunities in this region. 2013 in summary was quiet year for Primoris. Record earnings have continued strengthening the balance sheet with significant increase and already sizable construction fleet and paramount strengthening our most important asset, our people. All of these will allow us to continue to deliver these kinds of impressive results and I strongly believe, we are headed for an excellent '14 and '15. The east industrial group is entering boom times. The west industrial group could have experienced a short term year, a year and a half hiatus gas-fired power market that will be busy with different types work performing several large solar projects among other types of industrial projects. This will be followed by a cycle with more than abounded traditional power work. The pipeline and underground business concurrently more than half of our revenues will continue as prolific market conditions. Our heavy civil guys unequaled in their industry we will find their stride in Texas this year and grab second gear in Louisiana. And (inaudible) out engineering is set to shine. Now, I would like to refer to Pete for the green visor part of the call.

[Peter Moerbeek:]

Thank you, Brian. We will not file our Form 10K until Monday, which means I will have to clearly annunciate on the number that follow. Primoris fourth quarter revenues were $538 million and net income attributable to Primoris was $22.5 million or $0.44 per share. Our net income increased by 32% compared to the 2012 fourth quarter and for the full year, we saw 23% increase in net income. The $0.44 was a quarterly record and was a sequential increase of $0.02. We achieved these results even with several one-time items that cumulatively reduced our earnings in the quarter. Unusual expenses included charges of $1.7 million related to the management change at FSSI for a collectability reserve for a prepayment associated with a five-year employment contract and the write down of an intangible asset. We also recorded $1.4 million charge for a combination of the increased probability that Q3C will obtain its 2014 earn out target and an adjustment to the fair market carrying value of an investment Q3C made in a small company. Finally, we recorded an impairment charge of $4.9 million for our Westpac Energy investment, which has now reduced the carrying value of the investment to zero at the end of the year. The sum of these expenses is $8 million of which $2.3 million with an SG&A expense and $5.7 million are charged to other income. Partially offsetting the impact of these expenses was the benefit of $6.5 million as we determined that Sprint, Saxon and FSSI did not and would not meet their earn out targets and the contingent consideration were credited to other income. To help understand our revenues, our two largest customers in the fourth quarter were both Rockford gas utility customers together accounting for 17% of total fourth quarter revenue. And our third largest customer was TxDOT at $36 million for the quarter, an increased of $8 million from the prior year fourth quarter. Unfortunately, our Louisiana market remains challenged as our Louisiana DOT revenues decreased by $28 million from Q4 last year to this year. Our traditional large northern California public utility continued as one of our larger customers with total 2013 revenues by $154 million, however, that is a $70 million reduction from last year with $43 million of that reduction occurring in the fourth quarter. As Brian mentioned, decline is between distribution system replacement program and we do not expect that the reduced revenues are a new normal. It is encouraging that with our end-market diversity we can attain revenue and profitability gain even when we generate less revenue from some of our traditional customers. Our full year end-market breakdown is as follows. Underground capital project accounted for 23% of 2013 revenues compared to 14% of our 2012 revenues. Underground work was 29% of 2013 revenues compared to 28% in 2012. industrial work was 22% of revenues in both years while heavy civil percentage of revenue decline from 23% in 2012 to 16% in 2013. Our margins in the fourth quarter and for the full year were outstanding. fourth quarter gross margin was 13.9%, an increase of 250 basis points over 2012. the large California power plant that is now substantially completed contributed significantly to this margin expansion and we expect that margins in 2014 will return to more normalized level that we anticipate higher levels than those we achieved in 2012. as we try to make very clear the nature of our industry dictate that our margin do not progress in the smooth and orderly manner. As some projects begin and others end, we will have lumpiness, but the overall trend we are seeing in our end markets supports our view of improving overall margins. SG&A expenses in the fourth quarter were $34 million, $7.4 million increase over 2012's fourth quarter. As a percentage of revenues, SG&A expenses for the quarter increased from 5.6% to 5.9% after adjusting for the one time charges. 2013 was a year of significant investment in new equipment for Primoris, and in the fourth quarter we spent an additional $18 million on CapEx bringing the full year total to $90 million. In 2014 we anticipate returning to a more normalized level of CapEx and spending of $55 million to $65 million which is closer to our expected depreciation and amortization expenses of just over $50 million. Our balance sheet has never been stronger and at year-end we had working capital of $230 million and stockholders' equity of $398 million. Since they're inevitable, let me mention debt and taxes. Our year-end total debt and capital leases were $225 million for a debt to equity ratio of 56.5%. our 2013 weighted average interest rate was 3.3% which we expect to drop to around 2.85% for 2014. with our cash and available credit line capacity we can strike quickly for the right acquisition opportunity. Our full year tax rate was 39.19% and we expect that rate to remain similar for 2014. As we look to continue our growth, total backlog at December 21, 2013 was a record $1.94 billion. This includes $1.48 billion of backlog using our historic calculation of what we are now calling fixed backlog plus and additional $460 million of four quarter estimated MSA revenue or MSA backlog. The MSA backlog estimate declined by $15 million from the previous quarter reflecting the potential lower spending level by our large utility customers. Let me remind you that this is an estimate. MSAs are not a guarantee of revenue. Even with a slight decline in MSA backlog total backlog increased sequentially by $20 million. We expect that during 2014 we will recognize this revenue approximately 50% of the east construction services segment backlog, approximately 98% of the west construction services segment backlog and approximately 93% of the engineering segment backlog. Please remember that some reimbursable contracts are not included in our backlog or in these burn off estimate. And as always, please remember that our revenues are very seasonal. With that, I will now turn the call back over to the operator so Brian can start answering your question. Thank you.

[Operator:]

Thank you. (Operator Instructions). Our first question from Lee Jagoda of CJS Securities. Please proceed with your question.

[Lee Jagoda:]

So Brian, could you go into a little more detail and describe some of the issues that may have caused Sprint's action and Force to not achieve their earn out in '13? Could you quantify the shortfall versus internal expectation? And then as a follow up, whether the issues have been resolved as we moved forward into '14?

[Brian Pratt:]

Okay, that will take the rest of the call. So to hear a longer answer but basically these two companies were not doing particularly well when we bought them. And we acquired a lot of smaller assets last year. we just never turned them around aggressively and we thought we give the current management kind of a try based on our obligation on the earn out. And without trying to change them too much so we can allow them to achieve that part of the purchase price. But we were just slow in making the changes we needed to make and we needed to make senior level changes to really turn the companies around, which we've changed both senior level execs. Ultimately, our goal was to always kind of meld all these companies together. 2014 will make a lot of difference to the market but we're going try and meld our operations together, you will be able to see that to try and lever some of the attributes and advantages that we have plus kind of our overheads but also we're going to rebrand and put everything more under the Primoris umbrella. But we'd always intended to kind of mush these groups down in Houston but you have to be careful when you do that with earn outs and your purchase contract. That's one of the things I don't like about to announce. You can't really jungle these companies up to what you should to achieve optimum efficiency. So we've now done that. they're now cross-selling; they're now using common estimating software. We've always used common contracting and insurances and everything else but we think we put most of them all in one building down there so Jim Hendrick can get his hands around everybody's neck on any given day. So, I think -- and we've made substantive changes in the way we bid work. They got caught in a pretty tough environment. We're seeing a transition from hard dollar work to reimbursable work, and that's needed in the industry because the amount of work that's available and the poor productivity you're going to get in the lesser of employee you're going to get to do this work with the labor shortage down there. And they had some hard dollar work they were trying to finish while the market went to reimbursable. On one of the jobs we had the one piece of hard dollar work for one of industrial gas guys. They gave the rest of the job reimbursable to two other contractors and they just hired all our people and they were paying more, and we had the cheaper pricing. Guess where all the good left and went to the other jobs. So anecdotally kind of what happened to both companies. But we're confident we got our hands around. Jim is really focused on it and we're going to have a lot better cohesiveness and a lot better efficiently run group, so.

[Pete Moerbeek:]

Lee, neither of them contributed positively to our earnings in 2013.

[Brian Pratt:]

Yes, they're both on losses for the year.

[Lee Jagoda:]

Okay, that's very helpful. And then Pete, can you just quantify the close out amount related to NRG in Q4?

[Pete Moerbeek:]

I'm not sure that we really want to release that, Lee. I think obviously you can tell by the margin that we had a very positive Q4 although NRG is not the only thing that impacted that. there were a couple of other things that we finished or we had settlements on but I think it probably doesn’t make sense to get that specific.

[Lee Jagoda:]

Okay. and then one bookkeeping type question --

[Brian Pratt:]

No, no, no, I already said you're really allowed to ask one question when you chime in, so.

[Pete Moerbeek:]

Go ahead, Lee, what you got?

[Lee Jagoda:]

Will you be providing any kind of segment restatement prior to Q1 so we can get a better feel for the seasonality and the margin mix within --

[Pete Moerbeek:]

Since we're already two-thirds of the way through Q1 I'm not sure. Yes, we will do our best to either hopefully do it on an 8-K or clearly show you when we do file the Q and have the next call to show you the migration. Its probably sounds more from a financial standpoint than it should be because really what we're doing is pulling apart the east segment into a couple of different pieces.

[Operator:]

Our next question comes from Tahira Afzal with KeyBanc. Please proceed with your question.

[Tahira Afzal:]

First question is you had a fabulous 2013, you're entering 2014 where it starts sourcing up 10% year-over-year. is that and the profitability returning to some of your most challenged business going to be really sufficient to really drive your margins up this year? and I guess what I'm trying to see is as we look at 2014 and we look at growth and all these end masses that are really working well, how we should be looking at our numbers?

[Brian Pratt:]

We're still not going to give guidance. Every year we have a project and you guys -- and its your job to really get into the weeds. Listen, I like that, it really helps up. Believe it or not I like getting good hard questions from you guys, not all on the call but as much and all the time when our presentations and we are in town there. But every year we get this question. Well, what you cannot do without El Segundo or what you cannot do without PG&E, what you cannot do without Ruby or what you cannot do without LA1 or what you cannot do without the Long Beach parking structure? And every year we seem to find another place to make a lot of money and to find growth. I think that is why people should invest in our stock. I have learned a lot. I am sitting here watching the prices go up and down this morning after earnings release and I have learned that beating your earnings by 10% is not as good as having your stuff in bold print and then leading with your safety statistics. I am looking at our peer groups that are doing well today obviously. So we just lead with basically good news and it was all organic. The one time the one caller goes, well, geez, you have been too dependent on acquisitions, what you can do if you cannot find an acquisition? Hey, we did all that. I am not big on buying troubled companies. We have been approached, as you know Tahira, by several other larger public companies that need help. And my philosophy has always been hey, I can make enough of my own problems, I do not what to fix somebody else's. I do not like necessarily and do turnarounds. We bought two of these companies this year because they are in the market section for a long term power and some of the industrial gas stuff that they do and Force to be more involved in the refinery turnaround business and they were both turnarounds. And it is not my favorite thing, I will do, I might have had to turn this thing around once or twice in the four years I have been here. But we are always going to be able to find the right market. Now we are depended on whether we are depended on all kind of stuff that everybody else is. And those issues were exacerbated in the first quarter. If you are getting a project delay, chances are it is going to be first quarter because everybody is still sleepy from Christmas. But every year we found some unique project or some unique client, whether be PG&E or somebody else that has taken care of our earnings needs and our growth needs, and I do not have much doubt that we are going to be able to continue to do that. And we are going to continue to find small little niches like, this guy up in North Carolina or this -- we got a couple, kind in the pipeline to get us in this new kind of wrinkles in the markets and the geographies we want to be in to continue that growth and to continue to improve those margins. So I think there is still margin improvement to be done. I do not think your west is going to improve much based on couple of very, very good jobs. But the east really was a drag for us this year, they did okay. They are capable and they will do much, much better in the next couple of years. They got the ability to be rock stars out there. Danny and Conrad and Jim Henry and those guys, Bill McDermott, they can be absolute rock stars and I have no doubt. Not every song you turn out is a hit. So some years they have hits and some years they have busts, but I have no doubt these guys are going to give me some hit songs over the next couple of years.

[Tahira Afzal:]

That is actually helpful. And I have had my own bumps this earnings quarter, so I totally understand. I guess the second question I had is, Brian, around a year and three months ago exactly when I looked at my notes, you were one of the first people who talk about 2015 and '16 being very, very good years potentially for the pipeline industry and you have seen all your bears follow and come sort of grasp upon to that timeline. Can you talk about what you are seeing out there on the pipeline side for those years now? And how important would Keystone be in terms of the timing of the that tightening starting?

[Brian Pratt:]

Right now, you have got clients to have their favorite contractors. And our clients have a lot of wind at their back. You have got regions that have different contractors like we have talked about. If you are going to work a large -- on most projects, smaller intermediate projects, below the Mason-Dixon line, you are not able to go down there, can you? You're going to have to open shop. On the summers, like California is really going to struggle if you are trying to do an open shop. So everybody has kind of pocketed, either with a client or with a region. Keystone is a little bit outside of that realm. Then we have clients of course that are just absolute whores. They will buy their services whoever will hand them to them. And then, they are hard to work for too because they are bottom dollar buyers. I think we just had senior management guys here in the last couple week and we're having a big meeting in Dallas next week. Everybody is pretty optimistic. The work has gotten smaller, although there is some big big projects coming outside of Keystone. There is going to be projects build to get oil out of the Bakken whether it be Keystone or somebody else. The rail guys have struggled, they have about five accidents, five significant accidents in last couple years. You are talking about -- sometime some low cal double-digit deltas between what it cost to ship or rail or pipeline. And obviously, it would appear that the rail guys are no safer, are they? And so I think pipelines are going to get built with the exception of maybe California. It makes sense to have a new crude line out there. They have already got plenty of gas capability. Although they are talking about further expansion in their gas system, because as they have build more of these gas fired power plants, they are going to need more gas, but I think the next couple of years are going to be pretty good. You are going to see a lot of open shop work and as the price of gas has gone up you're going to see more collection lines laid, more gathering lines, more gas processing done. So everybody ask me what's the price of gas going to do to you? Well, it doesn't matter when you are related to a coal plant. They are not going to build it. The current guys we got are going to allow it. It doesn't matter when you're in the Lakes areas that are committed to gas consumption, and we just simply shift gears and go from the consumers out to the producers. It won't matter with the utilities every couple of year they get to bake those new gas prices into their rates. So we are kind of like those plants. We will take money from anybody and I hate to refer to ourselves as prostitutes, but we kind of are. So I think the next couple of years are going to be good. It's going to be -- you got to be nimble and you got to have your right client or seeing to have good money and want to spend it with us. So we are pretty pleased with what our prospects were. I don't view Keystone as anything that well long shot I'm just not sure it's going to get bill. But if it does its just not a huge impact one way or the other, because with the guys that we work for our clients that we really like working for the guys that are committed to build on Keystone are typically guys that would compete with our clients.

[Tahira Afzal:]

Got it. Okay. And I will follow the Arnie law and get back in queue.

[Brian Pratt:]

Thank you.

[Operator:]

Our next question is from Jason Wangler of Wunderlich Securities. Please proceed.

[Jason Wangler:]

Good morning. Just curious you talked about the small water business and obviously you guys have talked a lot about the issues that were coming through Texas and other areas. Can you just kind of talk about what you are seeing there from a whether its bidding or even the prospect of is it coming from the state or the municipalities or you are seeing it from the companies or it's a kind of a conglomeration, just kind of some color on what you see on the water side?

[Brian Pratt:]

Well Norm Bangle, I've met him years ago when he was a cell tower guy. He was a cell tower developer and he lives into (inaudible) New Broncos down outside of San Antonio and he has been taken class out West Texas for about three or four years. And that the users range from the oil drillers, the production guys, the E&P guys to the municipals. The stage has actually raised money here to assist in development. They've been very helpful with us. They are actually sponsoring one of our larger projects and that they have been very helpful both (inaudible) Stan Perry, there is little power thing going on there because this is Perry's last term. But and (inaudible) is a good guy two I mean, both of them have been real helpful. We don't really want any state money. We've got an agreement with the bank that is pretty favorable. We've got the first project, which is I don't know $8 million, $9 million that basically takes water from the City of Semiole and which has got too much arsenic getting under the new EPA standards and too much chloride, and we're basically taking their water, cleaning it up and sell it back to them. There is numerous, numerous, numerous of those kinds of projects. And then you have got the other projects where they just don't have enough water and there a little bit sweet water out there, but most of it has got lot of dissolved solids and nasty stuff in it. So some of the projects will involve hundreds of miles of large diameter pipeline for conveyance with large membrane plants to treat the dissolved solids. You can't drink anything above 100 or 150 just kind of distasteful in terms of total dissolved solids parts per million in water. Some of this stuff coming out of the ground is 6,000 to 7,000 and at that level you can't blend it too effectively. You really have to treat it and most these municipals are they are not really set up to build these mega projects. So you have to aggregate, you got to applying ways to help them finance it and you got to really lead them through the process of getting something built. They are not strong on administration and engineering staffs and everything else, because they are small. So that's a big opportunity. Now, that the oil guys they need frac water desperately and they have got lot of produced waters. So there is kind of an opportunity there to take their produced water clean it up and give it back to them for frac water. And so you got to produce water plus then you do water. One of the producers out there is talking about 30,000 new wells. Well, each well has million barrels of water. There just isn't the water available to them out there. The good news is they could use the more brackish water; they are not as sensitive on the quality of their water. So Norm has been working hard with the municipals, with the producers. We have got some water rights, we own part of with our bank. There are some other water rights we are pursuing out there. And having the rights, if you have got those, it doesn't matter who has the pipeline; they are going to take your water from you. So we are very pretty optimistic on it. It's something we hired Pat Reilly he worked for South West Water, worked actually with Pete for a number of years when Pete was COO over there. And Pat is just a first class guy and we blanched him up with Norman, we think we got a great rainmaker and a great guy that can facilitate. So we are pretty excited about it.

[Jason Wangler:]

I appreciate the color. Thank you.

[Brian Pratt:]

You bet.

[Operator:]

Our next question comes from Adam Thalhimer with BB&T Capital Markets. Please proceed.

[Adam Thalhimer:]

Hey, good morning guys.

[Brian Pratt:]

Hey, Adam.

[Adam Thalhimer:]

So did you said -- I think I heard you correctly, you said you think margins in '14 will be better than '12. Is that a consolidated margin or you -- segment-by-segment?

[Brian Pratt:]

No, it is consolidated.

[Adam Thalhimer:]

And then, on the east segment, when do you think you might start to release some of the I-35 work in the profit?

[Brian Pratt:]

Well, we take profit on it every month, but not a lot. We are pretty conservative as the things unfold as various benchmarks and risk levels, we always -- everybody likes good through prices at the end not bad one. So we are pretty conservative about how we release contingency and how the permits are issued. You got -- I just went through this, whether they are auditor. It is not as simple as saying we are 10% done let us take 10% of the profit. Every month we do it kind of cursory review and every quarter we really drill down hard and we say, okay, what is it really going to cost to complete the stuff and it changes every quarter. And I do not like back end profit out. That is why we do not have some of the big guys with surprises, some of our peers do. We do not like taking a job that is 90% complete and go oops. We are too aggressive on knocking down the contingency. So we are taking it every month. But the last job they award is a four year job. So it is going to be three and a half more years before we see the close out on that. But these jobs are continued, and as the contingency requirement goes down we should -- unless there is problem on the job or an unforeseen issue, we should be able to continue to release bigger and bigger junction contingency. So as we hit our stride, I think Danny told me his peak revenue on the I-35 work is third quarter was not as peak its get to that level and it runs hard for a couple of years. But when we get to run a full bore, as we get into that we will start seeing improved margins because of the contingency will go down.

[Adam Thalhimer:]

Okay. And then, I think somebody already asked this question, but in terms of kind of quantify El Segundo Q4, I mean, you said -- you gave a directional, I mean you said most of the gross profit increase in west was El Segundo. Is it sort of $20 million out of the $22 or?

[Brian Pratt:]

Correct.

[Pete Moerbeek:]

No plus.

[Adam Thalhimer:]

I mean, I assume we can put in the case. That is not huge difference.

[Pete Moerbeek:]

No, we are not going to give the specific details on the case.

[Adam Thalhimer:]

Okay. And then, Brian, what are your thoughts on that, right because you say that there have -- I totally agree with you that there have been other projects like Ruby where you do get big profits at the end. But I mean El Segundo seems to be pretty large relative to those. And then, what are your thoughts on -- I mean may be some of these pipelines out that started up late? But I mean, where could some of that extra profit come from in '14?

[Brian Pratt:]

Well, when we brought Q3C in the end of '12, when they were at $93 million run rate. We spent $22 million or $23 million on additional equipment for them. There is a request for them by Denis for I think 17 for this year. So they went from 93 to 168. And I think in their Jay is very profitable. He runs a greater organization, they are very lean. It is kind or recurring kind of work. We have got several other clients that have actually terminated some of their contractors and asked us to become a lot bigger players in some of our better markets. So you add another comparable amount on revenues there with a kind of gross margin Jay makes that makes up a good portion of El Segundo. We got a lot of good solar work. We stayed out the solar business out in California for a number of years because of the crappy terms that the clients were operating on. And you do not guess what, the idiots that took -- I'm sorry, I should not say this. Some of our peer groups that took that wok did not do very well. So, we are now finishing all the work that they are doing and we are getting it name our terms. So I think some of that will replace El Segundo. I will tell you a story and I am sorry wax on these things but I would like to have a little color. Most of you guys do not this, but my dad ran ARB before I got out of school. And he left -- he had some illness and some other stuff, and he sold the business to another guy. And I bought back from the other guys eight, nine years later. I never worked for my dad. But I was having dinner with him one night and I said -- he said what kind of years you have and I said oh it is a good year. He said oh, it is great. He says that dad, if wasn’t for that couple of jobs we had and he started giggling one and I said what are you giggling about he said, you know, son, I said that every year of my life I said that. It was not for one or two jobs that we had but every year we had them. So do not buy us if you do not like El Segundo, do not buy shares for that. If you think we are capable of adding the Long Beach, a Ruby, a PG&E -- two years ago it was all about -- I'm sorry, there is all about PG&E. Well now, PG&E drops off $50 million and you guys enquired about it. And I am more than -- like I said, I enjoy the detailed questions. But you know what, I will find another El Segundo, I will find another PG&E and that is what you guys pay me to do. And I am good at it. I will tell you what my guys are better at. And Tim Healy, we did not do any power of work until about 10 years ago yeah, 11 years ago we did not do any power work. And we built a great company. And if there is no power work going forward, guess what we will being doing refinery work or solar work or packaging work or something else, but I'm just not going to get too worried about whether in first quarter or the price of gas or El Segundo. We got a great company. We are going to make a lot of money and across the board just next year. You look at the amount of work that's coming up in the south east in the ship channel up through Louisiana, Lake Charles. That work a couple of years ago, if you can get a 6% gross margin you are cutting yours crapping in cold cotton, okay. Today, the margins are doubled and they should be because the risk is more and the clients tougher and the work is tougher and there is no help to do it, and the projects are bigger and there is no capacity out there on our business. So you look at those volumes and you will say, okay, if you are doing six and you are going to be on the double digits what does that do to you. Well, not only are we are going to see a improved margin there. We are going to see a lot more revenues there over the next couple of years. So I haven't sat down and said, geez, where am I going to get every dollar a revenue and what kind of margin that is going to roll into, but I have no doubt you guys will be proud of us when we are sitting on this call next year.

[Adam Thalhimer:]

And what I mean, I understand your policy and I would totally agree with you about the end markets. I mean, what are your thoughts (inaudible) $1.60 this year? I mean, does that you are roughly comfortable with that number?

[Brian Pratt:]

I don't guidance. Like I just said, I'm very proud the where -- I think you will be proud of us this time next year.

[Adam Thalhimer:]

Okay. Thanks, Brian.

[Brian Pratt:]

You bet.

[Operator:]

Our next question is from Daniel Mannes from Avondale. Please proceed with your question.

[Daniel Mannes:]

Good morning everyone. I'm not sure how am I going to follow that up. Pretty fired up today, Brian.

[Brian Pratt:]

Well, I'm sitting here looking at our price and look at these other guys and I was pretty proud of our numbers but, like I said I guess, we should've left -- lend with our safety statistics, so.

[Daniel Mannes:]

I'm sure they are all looking it up up on you though from your performance over the last 12 months. So you got to take everything with you got to look at it over a period of time, but --

[Brian Pratt:]

Dan, you know me pretty well. I'm pretty thick skinned.

[Daniel Mannes:]

Yeah, I know. So Highland, maybe some other potential growth opportunities that we haven't talked about. Some of your peer have talked a lot about the market in the south of Mexico on the pipeline side. Obviously, you have a lot capabilities on pipeline. And as I look back at your history, (inaudible) you've done some work there in the past. I guess I would ask is that a market you are excited about and how do you think about it given your experience in that market and maybe even some stuff those there as well.

[Brian Pratt:]

Well, one of the guys that you cover that and tell us all the opportunity down there came to us a couple of weeks when asked to join our consortium ,but we were active down there. The biggest problem we have in Mexico as you do in most of Latin America, I mean people don't realize, because we have been in public about five and a half years, but we have been doing international work since I was the first guy to drill the crossing under Taichung Harbor in Taiwan. That was 1991. So we've been international for long. We drill holes and put pipe in India for Gas Authority, we've rebuilt the Clark to the -- Subic Bay to Clark pipeline for us Oscar Wyatt. We have been all over the world with what we do except your Europe, I'm not wild about going to Europe. Mexico is not a bad place to work. The problem out there is there is really no legal system. And the joke in Mexico is a good judge is a judge that stays bribed. It's a tough place to work. So if we find the right client in which case this is a blend of a Mexican client and a U.S. client. You get under the right laws which are U.S. laws or international arbitration which is my second bigger choice. You get onto the right conditions and with the right kinds of cash flow and those things, then it's okay to go down there, but you get into litigation down there and Mexican law with a Mexican adversary you will be down there in litigation for 15 or 20 years. I leave this thing and retired here in 20 years. I don't want to have one of those kinds of things hanging over somebody else's head. So we are very cautious about what we do down there; we have great deal of capacity to work down there. We built 300 something clicks of 16-inch propane system down there years ago, we build 180 clicks of 30-inch gas line for Kinder down there. Oh gosh that was 12, 13 years ago. But I go to tell you there is good work down there but you the only reason you go down there is if you can't make a bunch of money up here without all those problems. And right now there is just plain opportunity in the U.S. So we are looking at it and given the right opportunity if it's somebody like Cempra that is a good client. Our relationship with them it's 60 years long. We will take a look at that work down there. But in general, if we got the opportunity and the margins aren’t any better. It's tough to take gringos down there to work, because they don't want you to import them. They will put it in jail unlike up here we kind of write them a ticket or just ignore them, but if they are working up here without a permit, down there they throw your guys in jail. So it's hard to talent down in there. We have got a good amount of Mexican talent. We have done a lot of stuff down there. Those are couple of power houses for CFE. It's just the opportunity is here and you don't have to screw around with people that want to tempt you to violate the FCPA which we won't do. Sorry for the long answer.

[Daniel Mannes:]

No, that's great, and I mean, when you combine that also to what's going on in Canada it does sound like maybe it is more of a North American market. So when you think about the capacity opportunity particularly around the pipeline side just, it also rolls together pretty nicely over the next couple of years.

[Brian Pratt:]

Well, when I looked at the numbers for '12 and we import 3.6 million barrels of oil a day. That's what we import of which about one in a quarter from Canada, and that is for '12. And I would guess that our domestic productions at 400,000, 500,000 barrels a day at this point. If these assholes would get off our backs and let us build the system and drill the wells, there is no doubt -- Keystone, how much of that would be replaced by Keystone? At the peak of the well that blew out in the Gulf of Mexico with the peak leaking, the peak amount of leak it was 600,000, 700,000 barrels a day. People are just silly if they think we got to energy to independent within a couple of years then they will just take the handcuffs off and let us go out and do it. That's without replacing crude with LNG and the trucks and everything else that is available to us. The opportunity is here. All the Europeans are trying to get into the U.S. because they see the opportunity. And the action is here, it is not a -- it is in Canada, the Tarzans, its a water full resource and we are out there. Well, we've had an office in Calvary for 10 years. It's just that our guys are so busy here that this is no reason to go up there. Obviously, we are chasing the work from (inaudible) Murray over to (inaudible), hell, everybody is, and it is going to take out everybody. God did not intend for people to put a pipeline across the Canadian Rockies in an union environment. It is going to be incredibly expensive to build a pipeline across there, but it will get build because they need to do it because gas in Japan is 17, 18 bucks and gas here is 6, it needs to go there.

[Dan Mannes:]

Can you indulge me with one ore quick one?

[Brian Pratt:]

Yeah, sure.

[Dan Mannes:]

Thank you.

[Brian Pratt:]

You've been an hour up man.

[Dan Mannes:]

Yes. I'm almost done. So real quick. You did talk a little bit -- and it would not be called as weather did not come up. You did talk a little bit about may be some challenges in the fourth quarter. I am wondering, as you look in the first quarter and this is really primarily the pipeline but your other business as well, how should we think about it especially in the context of prior years? You have generally been giving kind of cautionary term about the first quarter broadly. Just, what did you hear your thoughts there as we think about it?

[Brian Pratt:]

Well, contractors by nature if you are good at it you are scrimmaging in the winter and you're euphoric in the summer, and I am always a scrimmage. In fact, I am sitting here in California watching it rain, which is good news down here because they're in a -- we're pretty serious drought. It's rain, it is customers that are right wiping the sleep out of their eye from the holidays, it's permit is a drag because the agencies aren’t particularly motivated, its utilities that are trying to fix their annual budget, try to re-engineer themselves along with their work and its a lot of things they did for first quarter. We were hoping that we would have Force and people like that would help us do more refinery work over the next couple years to obviate some of the downside in first quarter. But I'm not -- we got hurt in fourth quarter and recognize that on our financials with the rain and we have had some rain. But in general, the sewage job does not have a lot of problems. We got some sunshine, we have been working hard there. The bridge decks job really has not been too weather impact because really did not started (inaudible) until later, they did not have permits as they promises they did. And that has been having to work around poorly planned permitting more than anything else. And you can start here, you can start there, so you end of jumping around and five points down as you know you are suppose to go from A to B, not skip all around, so that has had a different study issues, we are dealing with the client on that. And I am sure at the end of the day everybody is going to take their responsibility. PGE has actually stayed pretty strong, stronger than been normal, they usually fall off a cliff about the second week of January but they're staying pretty strong and we think that is going to grow. They have got some bigger capital jobs they got to put out. The industrial work we are doing -- and Louisiana, when it gets wet down there, it is pretty tough to put dirt down and pour concrete, well pipe. So that has had a little bit of an impact. But we just do not know yet where we are going to be and if we did we wouldn't say.

[Dan Mannes:]

All right. Thanks Brian.

[Brian Pratt:]

All right. Dan. Thank you.

[Operator:]

Our next question comes from Rick D'Auteuil with Columbia Management. Please proceed with your question.

[Rick D'Auteuil:]

Good morning. Good job.

[Brian Pratt:]

Hey Rick.

[Rick D'Auteuil:]

Dan, kind of beat me to the punch on the Mexico question. So I guess Part B of the question is, if some of the competitors are pursuing work down there and you do not see it is desirable, I would think that does nothing but tighten the market and improve the margin picture in that business. Do you -- is that consistent with your thoughts?

[Brian Pratt:]

Well you got to go out and give them the one project, we are kind of in the throws on. You got to go up and give them a budget estimate on a billion dollar project and they give you about two weeks. And then they short listed out and they go through this kind of Heebie Jeebies dance thing and end up two or three contractors and they are all of enough size and enough scale. Those are all going to be joint ventures of two to four contractors, the bigger job that you look at down there. And it just takes a long time. And some times you get good prices but sometimes you do not. It is not as -- it is bad as the U.S.'s legal system is, it heads above anything in Latin America. And that goes from if you have a litigation or you have to resolve a legal issue then that also goes to permitting and rights of ways and things like that. Here when you a pipeline owner goes out and pursues a project, there is a pretty firm set of loss state and how he procures it right of way. And typically they are all common career, so they had the right of condemnation. So but they choose they try not to do that just all the owners are, but there is always the trust there. In Mexico, condemnation can take five, six, seven times longer than it can here. It just isn't a well oiled legal machine with a lot of hard tough rules with precedents. So it's just a whole different can of worm. You're dealing with a Mexican labor and the social security department down there is extremely egregious in the way they prosecute things. You come in after the job, you have done everything right and they will say by the way you didn't pay enough of your fringe benefits which is $20 million. It has got more risk. So you should get more reward, but in the end of the day after doing in the work in Latin America, I mean, we had offices in Ecuador, in Colombia, Santiago, Argentina, Mexico, I'm missing one -- for 15 years, and at the end of the day I looked at and I said well I have made the same amount of money, I have burned up my people on airplanes, I have taken all kinds and it isn't a currency risk, because in the big jobs down there it's kind of a dollar thing, in fact you typically make money on currency because you will get paid in dollars, your costs are in pesos. But you just bring your people up for no more profit than here and you fly them around on airplanes that aren't air worthy once you get down there you can't fly on a U.S. airline, between countries. It's just not something you do out of choice. And then you have all the Europeans that come in and compete with you. They have got settled those guys corrupt nuns, I mean maybe just we can't, we wouldn't be inclined to do it if we could, but you just can't compete with that some venues.

[Rick D'Auteuil:]

Okay. Thank you.

[Brian Pratt:]

You bet, Rick.

[Operator:]

Our next question comes from (inaudible). Please proceed with your question.

[Unidentified Analyst:]

Good morning everybody.

[Brian Pratt:]

Hey, (inaudible).

[Unidentified Analyst:]

I dived in a little late, a lot going on. So at first of all, I want to make sure I'm still on Primoris quarterly call.

[Brian Pratt:]

No, you are on (inaudible).

[Unidentified Analyst:]

And I have a question and I will stick pretty close to my knitting. On the engineering side, you guys had a nice backlog move. Is there and I want to kind of combine the comments on good outlook for petrochemical infrastructure. Would you have some visibility there? Can you talk a little bit more what's going on with those guys, and then kind of how that would translate later for the business, if it does? A matter of fact it did.

[Brian Pratt:]

Well, we -- James, their history has been the bottom end of the plant, so when they build the big plant first thing you got to do is these plants are all in Louisiana and the wet parts of Texas. So the first things you have to do is you're going to stabilize the site, build a path to build the plant on. And James, both Conrad (inaudible) an end group that works with Danny are very good at that. One of the projects we are looking at is 8 million yards of dirt and I'm one of the dirt guy, so I'm kind of looking at the thing well, you know this is a $6 to $8 a yard. Well, you got to bring it from miles away. So it's more like $25, $30 a yard. So the numbers are big and they start early. What we do James is very good at the dirt and the concrete to go on to these plants where Force and Saxon and parts of James they are very good at the piping along with their cardinal. So we are going to see a lot of these guys just do the pipe side, and they will be late into the party, will be at the front of the party, which has two good attributes. First off, you get in before everybody else, so you start to seeing revenues earlier and, secondly, you are getting paying and client's figured out he is running out of money. So typically you get paid some of the guys later they're fighting the client's budget. We will participate in that other work, but there is a huge amount of petrochemical stuff, I mean they were talked in $50 billion to $60 billion just in Lake Charles area.

[Unidentified Analyst:]

Well my question was more specific, Brian -- I'm sorry maybe I have missed it, but I was thinking more of the On-Quest guys, the backlog that you have there. What's showing up there?

[Brian Pratt:]

I'm sorry. Well, that's fire heaters, Rogers got the fire heater the guy out of Calgary, he does a great job. He sells mostly international which is good margins. OnQuest margins out in the call asked earlier about margins, they do exceptionally well. They get great margins and that's where some of this make ups going to be for El Segundo, but mostly of their's -- the good margin they have with these small mini and micro LNGs. And they are fabulous. We have got a deal with Stabilus, we announced earlier and that's up to five plants and if that works up they are going to build more. The big one that kind of stuck up on us that we are working really hard right now is that all the ships now when they come into the national waters of the US after meeting the EPA standards and for air pollution well they are all either fuel oil or diesel driven. They will meet the new standards. So they are -- and the only reasonable thing they can do is LNG, they can't put compressed gas in there, and they are not going to run it all on diesel, because it's dirty so they do a blend. They run up to about 70% LNG and 30% diesel. The engines won't work as well if you don't get at least the 30%, but they can meet the new standards with that. So we are seeing a huge influx of proposals just to meet the needs in the ports and there is no big LNG places to get these. So they are going to make the LNG and the ports and distribute it to the various places with barges and we think that's going to be a great market. But at $40 million or $50 million apiece how many of those do you need?

[Unidentified Analyst:]

But that's what judging the backlog, it's already there?

[Brian Pratt:]

Yes, well, you got to remember, lot of the stuff there is a couple of different manufactures in the equipment for this stuff, we have alliances with both. Chart is just a great, great company. And so we have to get in the queue and have to get the parts. Some of the clients are actually going directly to him in ordering the parts ahead of this, just to get in that in line to get the stuff build. Because this is not something they are doing for fun, this is something -- it is regulatory mandate. And so they are all design built, and we are very good at this. Our guys are just very -- they are the best in this. They pluck a switch and make LNG. Everybody else's process takes a while you got to cook the thing up, and when you have that and you can make LNG on a moment's notice instead of having it rule the planet you need less storage and storage is very expensive and you plans are more responsive to what you need it. So our guys are great. We think it is going to be a huge market for us. In fact, we are looking desperately for more capacity because we think we got enough that we really need to grow our end, our ability to perform work faster than what we can do internally.

[Unknown Analyst:]

Okay. And no, you did not have that a lot of projects themselves in backlog?

[Brian Pratt:]

No. Right now, and what we got is, we got one and a half projects spoken for. We got up to five with Stabilus which is in one of those is not -- one of those is in there, the other four aren't. And then we got several projects where basically what we do is, we do the feed on it and we do some preliminary engineering, we put some hard dollars on it, then they convert the project to an EPC after they are comfortable with the number. And we are very confident because these guys know our numbers, we built enough of them, we can give them a pretty good number to start with, they are not going to waste engineering money and they are not build it if we come into it with that number.

[Unknown Analyst:]

All right. Thank you for the time, for a great quarter.

[Brian Pratt:]

Hey, thanks (inaudible).

[Operator:]

Our next question comes from Lee Jagoda of CJS Securities.

[Arnie Ursaner:]

Hi, it is actually Lee's associate Arnie Ursaner. I had six or eight questions that I was going to try to ask.

[Brian Pratt:]

Well you back in the queue by five for that. We're running out of time.

[Arnie Ursaner:]

But I just had one I thought I would ask you. A lot of companies we deal with announce share buybacks. How did your board come up with the $23 million level?

[Brian Pratt:]

Well, we thought we would approve $23,238,540, then we thought it was kind of silly. We think there are plenty of shares on the street and so, we have been issuing a few shares here and there. We have got a great management bonus plan where the guys get shares at a little bit of discount but then they are locked up for a couple years, they cannot leave without forfeiting them. And so we just think they we will use some of it in order to facilitate that because we do not really want to issue much. And then, we just think based on what we see in the acquisition market that we just think that were pretty good price right now. Our shares are at a very good price. And if somebody thinks they worth less then we will buy it.

[Arnie Ursaner:]

Congratulations on good results. Thanks.

[Brian Pratt:]

Hey, thanks, Arnie.

[Operator:]

Thank you. Our last question comes from John Rogers of Davidson. Please proceed with your question.

[John Rogers:]

Hi, good morning. Brian, I know you have touched some of this a little bit. But especially on the bottom work that you referred to with James, what do you see in terms of proposal activity or aligning with I guess the larger EPCM companies out in the 2015, 2016, '17? Is the market slipping at all in your mind?

[Brian Pratt:]

Well, when you look at the water work coming through the pipeline --

[John Rogers:]

Yes. I mean there is a -- sorry, I'm interrupting you. Yes, there is lot of excitement, not so much from you but others about the way the work and talk about 60,000 craft labors, people needed in the Gulf Coast, and more recently it seems those numbers have come down and everybody is talking about an extended cycle. So I am trying to get your sense, what you are seeing there and is that better for (inaudible) and how do you participate in that?

[Brian Pratt:]

Well, where I was going with this a lot of work that is working its right down to the guys that are bigger fool than ourselves to build it, has to get through the engineering side first. And if there is a -- and now, it is more like a -- they originally estimated 200,000 crafts person shortage, which I think it will be that acute whether it is an extended cycle or not because a lot of the people left the industry, they just do not -- being a construction guy as "not glamorous" as it was 34 years ago. But it is having to work us quite to the engineering groups and the permitting groups. And you got rather unfriendly federal regulators, most of the state regulators are pretty friendly. But with -- you are going to get for engineering, it is going to take longer. And then the permitting process is going to take longer or not, not probably as much because of regulatory -- not because you are trying to be difficult to permit but they're inundated with permit request. So it is going to slip, they always do. We then -- several very large projects get delayed and then I'm under the confidentiality, so I can tell you which ones. They are not cancelled, they are delayed, and some makes a well as price of gas, I doubt it. Most these guys do not buy, they do not build billion-dollar plans because the price of gas blips up for a quarter. I think we are going to have cheap gas for a long time. But I do see the same thing. But that is pretty good actually because there is enough to go around for every contractor out there and if it is an extended cycle, it will be -- usually these cycles, it takes a year, year and a half to get when you actually making a money you should make. So as you are cleaning up the old work you had to clean out, your cleaning up your people, you getting rid of some of the crap you got to get rid of, just starting to get your head up and looking out of head. And then, you are trying to adjust your prices to reflect the marketplace. And you -- it did takes a while to do that and your cost go up. If you think the contractor is only going to make money in this thing, the guys that you work for you are going to make money, your church broker is going to make money, the guys selling you welding rod are going to make more money and so your cost go up and you got to make sure you capture those in that. It takes about a year, year and a half. So if the cycle last four or five years -- and originally, it was talked about peak heat in '15 and I think it is going to be more like a '16, '17 peek with a slower start. So I think what you're hearing is probably right, John.

[John Rogers:]

Okay. Thank you and congratulations.

[Operator:]

Thank you. I would now like to turn the conference back over to Brian Pratt for closing comments.

[Brian Pratt:]

Closing today's call I'd like to thank all our stakeholders that believe in us, the men and women driving the nails, welding the pipe, to the investors that have believed in our ability to crate value for them. Pete, I truly am gratified to be able to work for you. Thank you for the privilege. Goodbye.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.