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Primoris Services Corporation (NASDAQ:PRIM)

April 04, 2013 11:00 am ET

Executives

Brian Pratt - Chairman, Chief Executive Officer, President and Chairman of Nominating & Corporate Governance Committee

Michael D. Killgore - Executive Vice President, Director of Construction Services and Director

Timothy R. Healy - Co-President of Industrial - Arb, Inc

Scott E. Summers - Co-President of Underground - Arb, Inc

Frank O. Welch - Former President

Jeni Bogdan - President

Peter J. Moerbeek - Chief Financial Officer, Executive Vice President and Director

Operator

Brian's going to kick it off and Mike is going to be our emcee today. Brian ?

Brian Pratt

I'd like to thank everybody for showing up today. Sorry, I missed dinner last night. You New York guys that are still -- I thought jetlag went the other way. But for you, I can check it. Wake up, Matt. Thanks for meeting us for our first annual Analyst Day. Glad everybody could make it. For years, I guess, 4 or 5 years now, I've known a lot of you guys. I've just met some of you recently but I've been bragging about our guys a lot and how strong they are and how dedicated and honest and their skill sets. And so today's for you to get to learn more about them, not just Primoris. You can join us at the site, I think that's going to be a lot of fun.

But for the meeting today, we have mostly the construction side. I don't think we have engineering represented today. But this is your chance to really appreciate a little bit more our depth and the people, the guys and guy-ettes, that work for the company. You can't -- I've been in the business for 4 years and I've been telling you this and I hope you figure this out today. The people we have are just heads above the rest of the industry. These are guys that understand the minutia and their jobs all the way up through vision and scope and strategy and where they want to take the business in the next 20 years. I've never had a bigger privilege in my life, other than my wife and my kids, being associated with these guys. It's a fabulous team and I hope you can appreciate them to the extent that I do for this meeting today. So with that, I'll hand it over to Mike Kilgore.

Michael D. Killgore

I just want to thank you, Brian, and welcome you here today. It's not often that the construction guys get a chance to present to you guys, so I want to introduce you to those people. We'll start off with Frank Welch here. Frank is the President of Rockford Corporation. He's going to speak in a little while. We got Scott Summers, who's the President of ARB Underground. I think most of you met these guys last night. Pete is not a construction guy so we're going to skip over that and go around. We got Tim Healey, who's President of ARB Industrial. And Jeni Bogdan, who's President of Saxon Construction.

I want to start off with just a quick safety moment, this is an operations meeting, so we'll have a quick safety moment. Just logistically, the restrooms are just right outside the door. The stairs are right over here where you came up. And I guess, from a safety topic, all of you got one of these, and this is an important safety consideration for us right now. We got a safety meeting for the Rockford Group up in Pennsylvania a couple of weeks ago, and cellphones are becoming more and more of a safety issue for all of us on the roads. I know my wife has been on me constantly about trying to take calls or look at texts while I'm driving and it creates a hazard. And not only that, but plaintiff attorneys, that's one of the first things they subpoena these days, are cell phone records, to see if they can tie that back in, any kind of access back in to liability. So something we all need to be cognizant of and be careful with.

We are going to get started to introduce these people to you. Construction is a tough business and these guys and ladies make it look easy and it's not that easy. And I know you guys cover other companies and seen other companies and it takes a lot for a construction project to be done and finished on budget, on time and with quality construction. And it has to start off with good engineering. It has to go to good execution on the construction side. And those things aren't always that easy to pull off. Like I say, the people here make it look easy. So we're going to start off with -- I guess, the first one up is Mr. Tim Healy.

I do have to tell you this, we're going to go out to the job this afternoon and look at the power plant. Not many opportunities do you have a job to do it on the beach in Southern California. Looking over the jogging trail and the surfers out in the ocean. Frank would love that. When I was in Pennsylvania today, it was snowing and cold and rainy and mud, it's not quite the same as what you're going to see this afternoon. So you get the pick of the litter here. But Tim?

Timothy R. Healy

Good morning, again. We have to really abbreviate the Q&A today because you guys grilled us last night, so I think we got that covered, Brian. Mike, you want to talk about that at all?

Michael D. Killgore

Just to give you guys a brief overview of what the organization looks like, we worked certainly in the West Construction and the East Construction. And the West is geographical, as well as medium [ph] activity primarily as you go, and components of All Day Electric, ARB Industrial, ARB Structures, ARB Underground; 2, 3 contracts in the Rockford Corporation. And in the East, we got Cardinal, James Construction Group, Saxon Construction and Sprint Pipeline. And we're not going to try to hit every company today, we're only going to focus on the ones that we have represented here to talk about. So that will be covering ARB Industrial, ARB Underground, Rockford, James and Saxon. So that just gives you an idea of how we're set up and how we're organized here. So when you see East and West segments be the components of -- associated now with the people who are involved.

Timothy R. Healy

As Mike mentioned, we'll be touring the El Segundo power plant this afternoon. I'm going to have to bug out, I apologize. I've got a flight I got to catch but our site team will take you through it. They're introducing gas to the plant today. Some of you guys understand the criticality of that and the fact that we're right on the cusp of either later today or tomorrow for starting the first unit. So we're in a real critical juncture and milestone. It might be a little tough to get -- it's already difficult to get around that site in any case, and especially with a group of this size. But bear with us and we'll do the best we can to -- this is actually a photo of the site. Scariest thing is, we had ironworkers standing literally 20 feet from beachgoers, rigging 200-ton modules in place. Power plant, bike path, sand, ironworkers. We got past that, nobody got hurt. No -- we've had a really extraordinary job. There's a saga there. I think we'll save some of that for tomorrow. But we had a lot of challenges on the front end with owner delays, access to the site that got stopped, about a 4 months late start. There's some other engineering delays along the way and we're going to make their COD and we're running hard to do that. Still got about 300 people on site.

Just to back up. I joined Brian in ARB in '89 through an acquisition of a Combustion Engineering subsidiary that I was working for, joined Brian Scott, been with ARB in various capacities, Division Manager, Vice President, Senior Vice President, now Group President.

Second ago into too much company history, I think Brian -- I think you've heard this before but ARB was established in '46. We're headquartered in Lake Forest. We have 6 offices, Scott? 6 offices throughout the state, kind of up and down the coast and some other yards, but total offices, permanent offices. But again Lake Forest is our headquarters, about an hour north -- south of here, sorry.

Our -- just a brief overview of our capabilities. Again, power generation, most of that being gas turbine combined -- simple combined cycle. It's probably represented 50-plus percent of our business in the last decade. We're moving into and doing work, as you guys are probably aware, for next year at a Genesis site on a solar CSP thermal plant, with 250 megawatts of concentrated solar. There's another handful of projects we're in current pursuit, so that's kind of a hot market right now. There's still at least a half a dozen CSP projects we believe will get built, even though a lot of the money, as you guys know, is flying at PV.

Again, the oil, natural gas compression product movement, LNG facilities, we do a lot of liquid terminal work for the likes of Kinder Morgan and Shell and others. Refinery, petrochem, we've got a pretty significant resume of wastewater work. Obviously, that's mostly public works, municipality work and it's a market we've been in, we've got a resume for. It hasn't been near and dear to us in the last 2 or 3 years because it's been -- been a lot of guys coming out of the other sectors, knocking the bottom out of that market, so it hasn't been terribly attractive. Fair amount of desal work that's coming. It's an emerging market in California. The site had finally got funding and award of the Carlsbad plant. There's another project in Huntington Beach that we're sort of in pursuit of, early pursuit of. Mining, manufacturing -- mining is primarily U.S. Borax, Rio Tinto. We've done work on that facility for an hour now for 30 years. Process plants, Central plant we've got a fabrication facility in Bakersfield and we have SME schools, vessels, kids and [indiscernible].

That's just a quick overview of the Genesis project I mentioned, we're about 50%, 55% complete. We're building out the entire solar field, which is 22,000 solar arrays similar to what you see here with HTF piping, heat transfer fluid piping. All you're doing is, you guys know, I think, is superheating the heat transfer medium terminal and that's used to heat exchanger flash, and sustain in producing steam for steam turbine, power generation. Again, that COD is scheduled July of '14. Most of this work for us will be complete by year end. We'll probably have a little bit trickle over in the first quarter.

This is a crude terminal for Kinder Morgan, indicative of the type of work we do on an ongoing basis for Kinder. This was a 6-tank expansion, all the piping, manifolding, electrical, civil. I guess we skipped the slide on -- I'll talk just briefly about El Segundo. The projects for NRG, it's a 560-megawatt combined cycle where the turnkey constructor were not EPC. Siemens provided the power out and equipment. It's their flagship Flex 10 technology, first of its kind on the planet. They can go from a hot restart to full load in 10 minutes, that's what they're advertising. So we're going to see how that goes here in the next few months. We're not on the hook for any of that -- for the process. We're clearly in the construction role and we've worked 1 million-plus man hours. Again, we're on track for on-time and on-budget completion and we were awarded NRG's Contractor of the Year award last year and it's been a good -- been a great project for us.

Some of the challenges that we talk about every day, we got an aging workforce, which is not news to anybody. We've got the baby boomer retirement phenomenon that we're trying to get ahead of with rigorous recruitment. Trying to bring kids into the trade in this day and age is a little tougher than it was a generation ago. But we're working in partnership with our labor partners in incentivizing guys to get into the trade. The regulatory environment, I don't think I need to talk too much about this one either. But you guys all know about the landmark legislation that Schwarzenegger signed, I think, in '07, AB 32, greenhouse gas initiative that set us on a path for more scrutiny and tougher sequel process and all the permitting of all the -- any emitter which includes power, petrochem and pretty much everything we do.

So it's been a challenge. We've had projects like fracs a few years ago that were suspended because of licenses or permits that were pulled after construction had begun. That was a big hydrogen reformer. We've had other projects that have been delayed. It's just kind of part of the process now. You have to kind of factor in 6 months to a year of more than what you think it's going to take for fee licensing and this whole sequel process.

Safety and environmental, obviously, safety is, as far as we're concerned, is a key component to any -- to sustainability of any company that is going to be a leader in the industry and we view it as a core value and the challenges, as our workforce fluctuates up and down trying to get that culture infused into the workforce is an ebb and flow. And we're working hard on that. Again, managing growth, we're looking at work in different geographies, necessitates kind of looking at your whole execution strategy from the standpoint of our typical California approach itself, heavy self-perform. I think you guys know that. We self-perform pretty much everything we do. Looking at some of these other areas, we're chasing work in the mountain west and we're pursuing some projects in Hawaii and Alaska and so subcontracting becomes a key work issue for us and we're trying to explore -- undertaking a more serious embedding of subs and partnering and/or buying contractors that can effectuate the growth that we're expecting.

Opportunities. The EPA in 2011 passed a rule through California state water authority necessitating -- there's 19 facilities that are using one-through cooling for the cooling. They either need to be retrofitted or retired and repowered, which is what you're going to see effectively today at NRG, as the case in point of project that was -- or plant that was purchased circa 1960s utility boiler, 350-megawatt plant. So obviously they're replacing it with best available technology, that's rapid response, but also getting off the ocean cooling.

There's going to be a lot of work, both in retrofitting, they got to go to a closed drilling system or, again, repower. We see a lot of opportunity in LNG, gas storage, compression. We've got a couple of projects right now that are pending in this segment. As long as gas stays in the $4, $5 range and $14 in Asia, obviously it's going to necessitate the building of export facilities. But in the interim, we see a lot of conversion of fleet that are going to drive a smaller LNG plant. Similar to the plants we built a couple of years ago for fleet energy. Retrofitting of aging facilities, again, we do a lot of FCR and seal retrofitting of existing power plants.

Talk a little bit about solar. Again, it's driven by the most aggressive RPSs in the country. California, I think, now is targeting 33% by 2020 and if you look at the aggregate of PG&E, Sempra and Edison, I think they're hovering somewhere around 19.8% or just around 20% currently or through '12. So there's a ways to go there. Talk a little bit about the emerging desal market, we're looking at a couple of projects right now and there's a fair amount of pent-up demand. We're not giddy about it but the fair amount of refinery revamp. We've done work and do work for all the majors in the West Coast, BP, Valero, Tesoro and they've all got work. In fact, we're pursuing some work right now for a couple of those guys.

Scott, I don't know if -- you want to do Q&A as we go. Okay.

Scott E. Summers

Actually, anybody can interrupt you.

Timothy R. Healy

Yes, anytime. Sorry I didn't...

Question-and-Answer Session

Unknown Attendee

You mentioned there were 19 power plants, I think, that you need to [indiscernible]. Is there any way to quantify the market opportunity, whether on a per-megawatt basis, cost as much as the changes?

Timothy R. Healy

I'll take it one more step. CPUC just issued a decision to -- for 1,800 megawatts of repower work in the LA southern -- greater LA corridor, another 300 megawatts up in Ventura County and then SPG&E, and there's another 300-megawatts in San Diego County. So there's 2,600 megawatts over probably 5 years. Now again, I'm not going to tell you any of that work is on the cusp of breaking. We've got a lot of other work that we're pursuing right now. But in terms of the major repower push, we're going to see that in the next few years. And historically, we've gotten our share, along with a couple of competitors and I expect that we'll be -- to put that into dollars, that's going to be in construction dollars. It's going to be somewhere around $1.5 billion. And I'm talking about just construction, not EPC. In some of this work we may pursue EPC. In fact, we've been talking to OEMs and engineering partners on some of it already preliminarily.

Unknown Attendee

Can you talk a little bit more about smaller LNG plants? I'm used to thinking in terms of things like engineer's [ph] project desks [indiscernible] smaller.

Timothy R. Healy

Well, I think the facility we built for clean energy and Boone Pickens, the company he founded, is indicative of what we see -- I think that was 150,000 gallons a day. Again a cryo-plant converting El Paso gas to liquids and then they'll haul on that field from that side, which was Moran [ph] to primarily the port of LA and port of Long Beach, displacing their diesel fleet. So I think -- and then there's a project that we are in pursuit right now, the DPC [ph], that hopefully in the next quarter or so we'll be able to announce. But there's some projects out there of that ilk that we think we're going to see a lot more of and it would -- I think it's a great market for us.

Unknown Attendee

Talk about the dollars involved.

Timothy R. Healy

Well, the project I just described that we built was -- we didn't -- it was EPC but E-small-PC because we didn't provide all the procurement. In fact, the client procured the guts, which is like all the cryo equipment, and that was a $60 million project or thereabouts. I think total capital for those guys -- for the owner was in the 80s, 80 to mid-80s, in that area. And again, I think that's the size project that we are going to be targeting, those. And again, we've got a lot of inquiries. Brian, you may be -- we're looking at it on several fronts. [indiscernible] is out chasing opportunities. We're talking to some of our existing clients and we saw a lot of opportunity. Again, I'm talking about, here, about fleet conversion, not export facilities, which would be substantially larger, obviously.

Unknown Attendee

Some of the major opportunities you're thinking about, they have a very [indiscernible] utilities to get the necessary rate to link forward on these, or is that still a step [indiscernible]?

Timothy R. Healy

That's still a step ahead that they're going to have to deal with. I mean the minefield includes that, includes the sequel process we talked about, and the permitting process in California, as you know, as you guys I think are aware, is extraordinarily arduous, more so than probably most areas of the country, could be any.

Unknown Attendee

You talk about California but [indiscernible].

Timothy R. Healy

What do we lead with? Power, existing but primarily clients that we work for in many cases, IPPs. Because the IPP -- let's face it, the demand in California is pretty flat and all the work we're going to be seeing is going to be repower stuff. It's going to be retirement of old and replacing with new. That's not true everywhere and there's -- Colorado, for example, has an ambitious conversion program for getting out of coal and they're going to be converting to gas. And we're going to see that in other states as well, and that's an area we can reach to. We've got enough of our guys that some that are actually from Colorado that have local contacts in local labor. It's not -- as I mentioned earlier, one of the challenges is looking at how it is we transition into these other geographies in terms of less self-performing some cases and more subcontracting. But power, to answer your question, power is the lead and the LNG as well.

Unknown Attendee

And when would you start to [indiscernible]? Is that a 3-year, 5-year, 1-year process?

Timothy R. Healy

We're looking at, and have been for the last 2 years, selectively -- and again, it's been client-based and bucket-based power primarily. There's adequate work here in California. We're going to focus here first, but I would say in the next 3 to 5 years, we're going to have a pretty significant footprint in the western states. We've done work in all of the western states but not some of these larger projects.

Unknown Attendee

[indiscernible]

Timothy R. Healy

It's kind of a mixed bag. In the EPC realm, we'll compete with -- we'll team with guys like Platton Beach [ph] and Burns & Mac and others but we'll compete with the Keywoods and the Bechtels, in some cases. When we step down to the next level and we work as construction, either GC or even subcontractor, then there's a variety of smaller, California-based couple of Amcor companies. And then there's always the guys who want to come in from the upper Midwest, and the East Coast and try to be the bigger idiot in the California market. We've seen that over the last decade. There's always 1 or 2 guys who seem to want to try California. And yes, there's a whole gamut of that kind of characters. But Keywood's a big competitor.

Unknown Attendee

Rate?

Timothy R. Healy

Our win rate over the last 5 years on projects we've really been focused on in power has been pretty extraordinary. We've had some setbacks recently. I think I mentioned to some of the guys that the project we've been in pursuit. It's been talked about, so it's worth mentioning. Scattergood, we learned 2 days ago, via BP and Scattergood, we learned 2 days ago that DWP is negotiating with Keywood. But as I said to some of the guys last night, that's actually a big relief because that project that we bid in October of last year versus the project that exists today, risk profile has changed substantially and that's because they've lost 6 months on the Permian [ph] with this air permit process, and their back end can't move. They're stuck on -- one's through cooling deadline and they've got an air permit that expires in 12 of '15 and so they're -- it's going to be a tough project, tough client. Tough project going in and now it's -- the risk profile changed by virtue of what I just mentioned. But the answer, hit rate. We've been 1 out of 3, probably as an average in the last 3 or 4 years. That's conservative.

Unknown Executive

Some of Tim's advantage, he has a very strong self-perform capability you mentioned. But he also has very good relationships with his crafts [indiscernible] that gives him an advantage over some of the incoming contractors in other areas.

Timothy R. Healy

Yes, the difference maker for us, and it's the same with Scott, we've got 2,000-plus crafts in California that are the best and brightest and guys that have been with us for most of their careers. Some of them are second, some of them are even third-generation. And there's a loyalty there that's immeasurable in terms of value and you don't get that everywhere. It's a struggle. Guys come in and try to get this market that don't have that labor following are destined for trouble.

Brian Pratt

The win rate's a little deceiving, too, because we don't read the yellow pages, we don't have an advantage with a client or the workforce or with the right team than we're typically not good at. If we have to bet against 7 right bidders, it's just not something we do but they're legitimate bidders. We've run a lot of guys that pick up plans with every bidders but under NRG job, Tim [indiscernible]

Timothy R. Healy

They had 2 other bids. They selected us and then we spent about 6 months negotiating, but that's really...

Brian Pratt

A minute idiot can win 1 out of 3.

Timothy R. Healy

Typically, as Brian said, typical bid list is 3, 4 bidders, which has not been many guys that can step into size and risk and labor risk primarily. Again, we're looking at it on 2 fronts, both EPC and then just as a constructor. Obviously, we're comfortable doing both. Obviously, EPC carries a different set of risks. You've got to have solid partners and we've developed those relationships over the last few years and feel like we can compete with anybody.

Unknown Attendee

Just back on the energy side, the markets for coal to gas conversion, that stuff, obviously, it's going to be outside of California.

Timothy R. Healy

Right.

Unknown Attendee

How are you going to [indiscernible] outside of your geographical footprint?

Timothy R. Healy

Well, one of the projects we pursued for the past year was for Excel in Denver, indicative of that market because that's exactly what they're doing there with replacing coal with gas as I mentioned. On that case, we had a joint venture structure with an engineer and we had 2 local subcontractors that we negotiated payment agreements with upfront so they were on the team and they were early on the team and there was a civil guy and actually a piping guy. We're going to do all the structure and equipment, mechanical reaction. We had a very competitive proposal. We were second, we didn't win but I think we learned some things. And I think that's the lessons learned from that process and that model will be lessons we'll carry forward to the next. From what I can tell you, we've got it refined and it's all figured out but it's a process and we're in it.

Unknown Attendee

[indiscernible] partnerships, that model will work, you said? As a result of what you've learned [indiscernible]

Timothy R. Healy

I think it will work. I think it's a function of timing and capacity and others and all those variables. I think that we've got to continue to work to refine that process but we were very competitive, [indiscernible] as what we were told by the owner. So on the case, we were distant second or somewhere in the pack, we were right there to the end.

Brian Pratt

I think [indiscernible]. The other guys don't have the labor force, there's 2 things that make us kind of really incredible in the business, it's our management team, it's our labor. Nobody has the labor force to build power plants in these kind of far off places because it doesn't exist. So we're on an equal playing field in terms of the labor forming a team with a subcontracting group. It's the management team we ran that I think is more important in some respects. California, we've got 2 big advantages, we've got a great management team plus we have a great labor force. And when you go to Denver or some place like that, we still have this great management team because they're mobile but everybody likes the labor force so it's kind of levels of [indiscernible]. But I think one of the things I want you guys to understand is we didn't build the power plant, we build on small ones...

Timothy R. Healy

Late '80s.

Brian Pratt

Late '80s. We made a living doing refinery work, other kind of industrial work. I mean, we built, I think, the first biomass power plant in the state of California in late '70s or early '80s. And we seem to get a little pigeonholed, you guys view us in terms of [indiscernible], in terms of power, these guys has skill sets that translate into anything. I mean, we build [indiscernible] plants. We build all kinds of stuff but [indiscernible] is just the flavor of the day. We've lot of the new more available to us but you've got compressions coming.

Timothy R. Healy

Everything we talked about on that first slide.

Brian Pratt

We've got even non-traditional powers. We've got LNG. These guys have learned. A lot of guys will travel all around the world and do their specialty. We [indiscernible] while some of us in Jenny's group kind of does that. Tim's group on the other hand, they kind of stay home and fill whatever is available on that market and in some respects, is a success, and has been the last man standing but again, as you reach into these other areas, these beach guys, the energy guys, the pipeline guys, all the guys that we've developed this huge relationship with, they have the respect for our team. Well, a lot of that team in spite of the delivery system, whether it's through direct hires, subcontract. That team is more important to them because that's the face, that's the guys when they do gas and do assist them out here, that's the face you're trusting that the system is going to take the gas and not -- this is critical, you guys are [indiscernible], it's a very critical time, this is one. We talked about some turbine work up in [indiscernible] actually, that was [indiscernible] somebody else [indiscernible]

Timothy R. Healy

IID and Siemens.

Brian Pratt

IID has interpreted [indiscernible] and as you know, we have [indiscernible] it wasn't our issue, it was a Siemens issue that this is a very critical time and we can really screw this plant up if we're not careful, that's one reason we hold back contingency on a job like this. I'll tell you what, I described these guys as the guys if I add [indiscernible] it will get them -- pull me out of a well. So if you guys are in this room, these are the guys that -- the guys that made this company, it's their culture. It is not his culture.

Unknown Attendee

Can you talk about labor and how [indiscernible] important for you guys. And you have 2,000 roughly around California. But have you seen the other markets around the country tighten? Is there a fear that some of your [indiscernible] taken away and how do you kind of [indiscernible] that risk.

Timothy R. Healy

It's really the other way around. Guys love to come from other parts of the country to work in California because of the weather, year-round construction season, the wages. We're in a great labor -- from a labor-attraction perspective, we're in the best place to be in the country.

Unknown Attendee

And as you move into the Mountain West, those the same scenario is seen or does it get more difficult?

Timothy R. Healy

Well, I think it gets more difficult. In any labor markets you move into. But as Brian just said, I don't think there's an unequal playing field there. There's not a lot of major contractors that have 1,000-plus man workforce in those regions, there's just not. And so I think we're in as good a position as most anyone. And anyone who can take on these jobs is traveling in from Midwest, upper Midwest, East Coast, so there's nobody that's necessarily resident call that home in terms of [indiscernible]. Anything else? Scott?

Scott E. Summers

You missed some acronyms.

Brian Pratt

OTC, LNG, [indiscernible], OEM, [indiscernible], EQA, ICT. Well, I guess you marked acronyms where go at?

Timothy R. Healy

Well, I thought I'd actually said the words.

Scott E. Summers

Okay. I guess, I'm going to have to go fast because Tim took all my time. I'll skip the company history since you guys have already heard it. My name's Scott Summers. I've been working for Brian for, it'll be 30 years here in June. I don't know if it was fortunate or unfortunate but I went to work for Brian right out of college and we were doing, what, $13 million in 1983, and...

Brian Pratt

$12 million.

Scott E. Summers

$12 million in 1983. It's been a great ride, it's been a lot of fun. They helped grow the company, I opened up the offices up in Northern California in the mid-'80s and came back after the oilfield acquisition and participated in the macro acquisition and several acquisitions thereafter. But I run the underground group for ARB and majority of what we do is gas and electric transmission and distribution. Obviously, transformation is high-pressure stuff and distribution is the house lines. Pipeline construction, maintenance and retrofit for all the oil companies. We've got alliances with PG&E, Chevron, Kinder Morgan, and SoCal Gas right now, and BP. We do horizontal directional drilling. We've got our own rigs. We've got -- our big rig is 1 million pounds down to some smaller rigs that are 100,000 pounds. We do a lot of wastewater storm sewer, we're doing a big grassroots sewer system for a County [indiscernible] over in Las Osos [ph] right now, which is about a $30 million job. And then we win the market, it hits every 10 years or so and there's fiber-optic work, we do a lot of the last mile, which is the -- again, the residential world congested stuff.

Unknown Executive

Would you like to [indiscernible]

Scott E. Summers

Not know. It kind of comes and goes. A couple of current projects. I think, you guys all saw the announcement. We were awarded 1 of the alliance contracts for PG&E's PSEP program. It's a shared savings where we go out and we take a defined scope and we put together a target price and then if a scope changes, the target price goes up or down, and then we share whatever the savings is underneath the target price at the end of the job. It's a 3-year contract with 2 1-year options if PG&E's happy with the work that you're doing. We've always been -- well, I shouldn't say always. In the last decade, we've been PG&E's largest pipeline contractor. We're one of the top 5 vendors as far as money spent in the last couple of years. Their estimate for the revenues between $80 million and $120 million per year. Last year, they said they're going to do 50 and we did 100. So it's anybody's guess depending on what you find once you're getting started in one of these rehab projects. And PG&E's got the largest pipeline infrastructure of any utility in the country. They've got something like 38,000 miles of transmission mains and 160,000 miles of distribution.

Another project that we're currently right in the middle of is the [indiscernible] bridge replacement project, it's for [indiscernible] and Occidental. They're widening the bridge, you can see in the background and so all of the pipelines that are near have got to be relocated. This is really our sweet spot. We like the heavily congested, difficult -- whether it's in the -- and this is in the Port of LA, which is Port Long Beach, which is right next the Port of LA, but runs from the Port of LA to Port Long Beach but it's very congested. There's a lot of traffic, there's groundwater, there's quicksand and all kinds of issues that have got to be dealt with and this is really our sweet spot in these really tough kind of jobs that take a lot of focus and some really good people and some great equipment.

Unknown Attendee

Back on the PG&E, you said last year under that program, they thought you could do 50 and you did 100. I think, as a company as a whole, like 200 for PG&E. So what else are you doing for PG&E doesn't -- why doesn't affect [indiscernible]

Scott E. Summers

Well, the PSEP program, and that acronym is Pipeline Safety Enhancement Plan, which is just the upgrade, the retrofit and upgrade of their existing systems. They also have what they call their baseload program, which is work that they've had schedule, that they've already gotten CPC money to build this outside of the program, plus it's electric transmission, electric distribution and gas distribution. We have 2 offices in Northern California, one's in San Francisco, which is our distribution office, and then we have Pittsburgh, which is our transmission office. In the distribution, we did 125 of the 200 just on distribution work, electric gas distribution and transmission, which isn't part of the PSEP.

Unknown Attendee

[indiscernible] why would you -- is there any cap on the margins?

Scott E. Summers

Well, no. Were' allowed 12% markup, overhead markup on the project but then as far as what the underrun is, it's 1/2. And so if we save another 20% on the project, and of course, the driver there is to try to encourage the contractors to use value engineering and figure out another way or a better way to increase productivity and lower cost. And so we've had shared savings projects under the alliance where we've actually saved 30%. Any other questions on PG&E?

Scott E. Summers

The challenges, like Tim said, is the labor availability and scale. One of the great things, the great opportunities we have is the fact that we're spread up and down the state and so we take our labor from Southern California to Northern California or Northern California to Southern California, depending on where the work is. But the biggest problem we have is that whenever a new competitor comes in the state, they always -- first thing they do is they target our labor and start with the supervision and try to hire our people, which drives the price up because the only way they could get them to leave is offer them a whole lot more money. And we don't have problem with people leaving because most of our guys that have worked for us, we gave away 20-year rings about 3 months ago, and we gave 120 of them away, 3 months ago, 20-year rings. And so we've got a lot of history and a lot of generations that fathers and sons that have been working with us for a long, long, time. And most of our guys, unlike Frank, they're not nomadic. They like having weekends off, they like coaching their kids' soccer teams and that's what they're used to. They're not like Frank's guys, they want to go work 6 months a year and then take 6 months off. And so they like working 7 days a week for as long as they can and then when wintertime hits, they take it off. Like Tim said, California, our construction season is pretty much 12 months a year although first quarter, there's always a dip but that has more to do with budgets being approved and money being allocated and people getting off of vacation at the end of the year that they didn't -- they had to take or they would lose it.

Like Tim said, permits are a big issue for us because as everybody knows, all municipalities are broke and so they're trying to get the utilities and the oil companies to repave all their streets to build new parks, to extract whatever they can out of them, hold them the permit against, put a gun to their head until they get what they want. So all that does is drag everything out a lot longer that it needs to be done.

Training and regulations, environmental safety and operator qualification. Most of this stuff is stuff that the government's mandating the owners and the owners are pushing down to the contractors and because they don't want to deal with it. Operator qualification, if you guys don't know about it, is that every person that works for you, that's working around a live pipeline, whether it's oil or gas or even telephone has got to have a card where he has specifically been trained for the task he is performing. So even if all he's doing is digging a pothole or taking up some paving, he's got to have a certification card that certifies him that he's been trained on that specific task. And then of course, we have to keep a record of all that because if anybody comes out, whether it's offshore or any of the agencies come out, we've got to show proof that, that guy has been trained for that specific task. It all started, like I said, with the operators because of some of the errors in the plants where the operations people have made mistakes and they found out that they weren't specifically trained to do what that they were doing that's why they opened the wrong valve or closed the wrong valve and caused the accident.

So we're having to continually go through another course, every owner-operator has got a different training clearinghouse that they want to use. So not only do you have to train them on that specific task, but they have to have a card from IS Net world, and CCR, I mean, there's 6 or 8 different clearinghouses that you have to report to. So it's a big challenge keeping everything updated and making sure that in case you get an inspection or an audit, that you've got everybody at least notified and with the right cards.

Unknown Attendee

Talk a little bit about prevalence and the advantages of the PLA? Which plans [indiscernible]

Scott E. Summers

Yes, I mean, California, I don't know what the percentages are but all the sheriffs, all the bus drivers, all the hotels -- I mean, everybody, there's a lot of union workers in California. And one of the things that in order to get the permits done, that the owners have done is they've got the unions on their side to help support them. And the way they get them on their side is they agree to or negotiate a PLA, which is a Project Labor Agreement, which sets out the specific wages that will be paid whether it's building in trades or prevailing rate or a local union agreement. And so there's -- and Tim's working, and my work, if there's a major project in California, it's going to be done in union. And 90% of the time, it's going to be done with PLA.

Unknown Attendee

Just a quick question. Going back to the PSEP, when did you guys start doing PSEP [indiscernible]? Obviously, you guys have shared profit, that's upside, it's great. [indiscernible] PG&E and just talk about the competitive environment. Well, you guys are doing a lot of business over the [indiscernible] contract [indiscernible] a lot of issues. What's it look like? What do you think has been [indiscernible] change the environment from their side to contractors and things like that?

Scott E. Summers

They go back a little bit further. In 2002 is when the CPUC and the fire marshal passed, I don't know, an incentive bill, I think it was 183 or something like that, which required all the transmission companies, the high-pressure transmission companies to either hydro-test or run a smart pig every 2 years. And then there was a third option, which you could do over-the-top kind of desktop maintenance, which PG&E chose. Southern California Gas on the other hand, they started a program, which was their retrofit program, to basically make their entire transmission system pegable and they started in 2002, and we actually started doing the work in 2005. And so for the last 7 years, we've been doing nothing but cutting out the short radio spends, cutting out the teeth that aren't barred, the non full opening valves, the wrinkled bends, anything you can do, put launchers and receivers so you can put a peg through it. PG&E did not. And so then they had the San Bruno accident in -- was it 2010? And so then what happened was that, now, all the federal regulators got involved and they said, "Show us your test records that you've actually hydro-tested this pipeline at some point." Well, PG&E had maybe 15% of the records. And so what we've been doing under the PSEP program is that we've been going and backfilling a lot of what they didn't have to build and make sure that we have all the records. And so what we started with PG&E was it cost plus and then they said, "Well, we're not getting our bang for our bucks, now we're going to rip and read." And then, they said, "Well, that's too much work because we've got too much time in engineering." And so basically what they did is they looked at the SoCal Gas model, which we've been working for 7 years under the shared savings target price philosophy and said, "Well, that must work pretty good." So this is the first year. And so we've actually got our first job the other day that we're just getting started on and so we'll know more next year but a lot of the PG&E top management has been changed out, a lot of guys that have come in are very pro-alliance, very pro communication, trust, all the keywords to make an alliance go.

Brian Pratt

The insurance saving thing with Scott's. [indiscernible] we did one year, that was PG&E [indiscernible]. Well, that was really great. It really caused the clients to look at how they impact our cost. It's prior to that, they're just doing their job and they're going to write a check and that's all they care about. Well, now, when that comes out of their pockets, too, now they're starting to realize that some of the decisions they make are pretty gossip then. So they've really been -- not only this has been different projects are done under that delivery system but it could actually allow them some visibility, they're actually trying to make changes at other projects [indiscernible]. But I got to tell you, PG&E is the -- nobody have any records [indiscernible] Sempra has had the same issues and just nobody kept records back then for them and so they're -- what they are struggling with, of course, is the same thing all the utilities struggle with, it's the lack of recordkeeping. But also, they're struggling with [indiscernible] they just don't have the staff to do it. [indiscernible] that nothing on construction will last 20 years, they've got to spend $1 billion a year.

Scott E. Summers

And like -- what their analogy is we're trying to build the airplane while we're flying it.

Brian Pratt

Probably [indiscernible] is trying to [indiscernible] outside.

Scott E. Summers

Any other questions on the challenges?

Scott E. Summers

The opportunities. This PSEP, like a lot of things, is going to start in California and then it's going to go east. And I think there's a lot of -- you'll see a lot of big engineering companies, URS, Jacobs, [indiscernible], they're all jumping on the PSEP bandwagon and they're going to be selling it to all the other pipeline operators across the country. And then, of course, having the experience we've gone through, 1 or 2, we think, is going to be a huge advantage because rather than reinvent the wheel, you'll just take the one that works and making it better.

Another opportunity is that we -- recent acquisition was Q3 and they're headquartered in St. Paul, Minnesota, but they've got offices in Denver, De Moines, Omaha, and a lot of the same clients that they're working for, it allows us to take our skill sets, which is basically urban construction. And what Q3 does is that's urban construction with 80 distribution but we do more of the transmission side. So we think there's a tremendous opportunity to latch on some of their clients and -- I'm pausing because Kate told me to pause. Another one is we've got the largest trained workforce and equipment fleet on the West Coast.

Like I said, we have the opportunity. We're not a Southern California contractor, we're not a Northern California contractor, we're a California contractor. And so we get to move people back and forth, and we're probably, now, as far as we do underground construction, we're probably the largest contractor in California by a factor of between 10 and 20, but take it to our next competitor. It used to be Frank but then we bought him. Anybody got any other questions?

Unknown Attendee

I don't know if [indiscernible] but did you [indiscernible] electric work [indiscernible] distribution, what are they doing?

Scott E. Summers

Yes, transmission and distribution.

Unknown Attendee

Why do you do it or do you want to do it all underground?

Scott E. Summers

It's all underground. We don't do any high-line. And so horizontal directional drilling, or now, especially in California, any of the new developments, all the electrics got to be underground, they don't let you run anything overhead anymore. And when they're going through an upgrading or updating their existing infrastructure, there was a heat issue with the high-voltage cables underground but now they've got that -- the technology has come so far.

Unknown Attendee

And are you certified to work on powered lines?

Scott E. Summers

No. We've -- it's live and -- sure. Yes. We have a -- one of our companies, All Day Electric, is a signatory of the IBEW, and because of some overlap between jurisdictions, that's why we'll sub it to one of our sister companies rather than self-perform it.

Unknown Attendee

It would seem like somewhat odd that above groundwork on electric. You don't want to go there because margins are different? Or you currently don't...

Scott E. Summers

Well between Tim and I, on the industrial side, we'll do substation work, or they'll do all the civil work on the substation then we'll do the underground part of it, and then we'll sub out the bigger electrical.

Unknown Attendee

If you could just -- maybe a hit on that technical [indiscernible] method, kind of the cross-selling and what Q3 has, or is doing in terms of, kind of, the propane to natural gas switch, whether that is going to provide them an opportunity to open the transmission [indiscernible] work or...

Scott E. Summers

Well what -- where we think the opportunity is, is more on the transmission side, and Q3 is doing -- a big part of their market is, like you said, the conversion of propane to natural gas, the price of propane is going up, the price of natural gas is coming down and a lot of the big utilities like Mid-America XL, they're seeing -- where before, it was cost-prohibitive to run these main lines out to these rural areas and hook up 2,000 or 3,000 homes, well now it makes a lot of sense. And so there's a lot of work for that, but at the same time, you've got to have the capacity and the transmission means to run everything out. And what Q3 does is they do the distribution, the low-pressure stuff, and they really don't do the high-pressure stuff and that's where -- and that's always been -- they've never bid it before because it wasn't in their skill set, and so it was just work that they let go to other contractors. Where we think that, with their relationships with the larger utilities, that we can go in, and whether we do it as ARB or whether we do it as Q3, we just augment their supervision and equipment with our equipment, it really doesn't matter.

Unknown Attendee

Is there any way to size that opportunity within -- [indiscernible] within their customer base?

Scott E. Summers

I think you'll probably, after this year is over, you'll probably get a pretty good idea of what it is. I don't know if I can put a number on it, but it's going to be pretty big.

Unknown Attendee

PSEP is the level of visibility outside has been the diversity [indiscernible]. Do you mind going through the sales mix, within the year or 2, for non-PSEP PG&E and also the -- all of the market resource [ph].

Scott E. Summers

Sure. Right now in PSEP, it reached as far as this whole pipeline integrity issue that's out there on the table. I mean it really affects everybody because now everybody is asking the question to all of the operators whether it's an oil company, whether it's a gas company, how safe is your pipeline? And so we're doing a tremendous amount of work for Chevron, for BP, and all of it has to do with upgrading their existing systems to make sure that there is no surprises. And so while PSEP is a big chunk of what we do, it probably -- on the underground side, it may be 20% of our total volume, and I'd say we're very careful, although PG&E is a big client and we do a lot of work for them, we're not going to ignore the rest of our client base, and if you want to talk about a hit rate, if it's a major project in California and we want it, we get it. And we probably -- anything we want, if we don't get 1 out of 2, then I'm disappointed.

Unknown Attendee

It's not on PG&E specifically?

Scott E. Summers

No. I'm talking about -- oh...

Unknown Attendee

[indiscernible] and PG&E's work.

Unknown Executive

At first, yes, but then after that PG&E utility. [indiscernible]

Scott E. Summers

We just finished the copper service replacement program. Which copper used to be the metal of choice for the -- to run the distribution lines to the houses, and then they figured out that in certain types of soil, it corrodes too quick and then it leaks and so -- about 20 years ago, copper was outlawed. PG&E, we replaced 70,000 services in the last 5 years and then of course as soon as they went from copper, they went to Adalet A, which was the first polyethylene-based plastic distribution pipe. Well then they figured out that after about 5 years, Adalet A gets real brittle and it breaks easy. So now all the utilities have got to go through and replace all the Adalet A with HDPE or Adalet B. And right now we're negotiating with PG&E on another alliance to do their Adalet A replacement, which, right now, they're saying they've got close to 160,000 services that need to be replaced. And so we think that's -- PG&E's goal is to have their whole system upgraded by 2020, but that's a pretty aggressive goal.

Unknown Attendee

Last one. Your prospects with customers, say, Sempra or anyone else, [indiscernible] are they affected by -- if they choose an outside program manager, who would they choose, Primoris?

Scott E. Summers

Of course, everybody is going to have a favorite, and if they bring in an outside -- and all of them are bringing in outside program managers, but the bottom line is that you got to be a low-cost producer and you've got to meet schedule and you've got to have -- California, now, everything has got to be -- all the equipment has got to be Tier 3 or better, especially if you're going to work in the port of LA or Monterey County or Saint Louis County or -- there's a lot of counties that will not accept anything other than Tier 3 or Tier 4 equipment. For a construction company, especially one outside of California, who doesn't even know what Tier 3 is, that's a huge expense. And so a lot of our competitors, when they bid this work, they've got to rent everything, they can't even use their own equipment because they won't allow them inside the state.

Unknown Attendee

That's the DBE spend. That whole program.

Scott E. Summers

Yes. And that's -- with all the utilities, anything that's part of the CPUC is -- they have a goal of 35% DBE spend, which is a diverse business enterprise, which is a woman-owned disabled vet minority enterprise, and so there's -- when you've taken a job that we do, 35% of it we've got to sub-contract to another entity, you've got to have -- we've got the largest book of DBE -- we have a whole separate [indiscernible] too, we have a manager in Northern California, a set manager in Southern California that manages our DBE program. And we've got strategic alliances with a lot -- all of our DBE vendors to make sure that they work for us and only as we give them preferential payment terms. We've cosigned some of their contracts and guaranteed their performance, and a lot of stuff that they couldn't do because they're too small. And when you're talking about 35% of 225 million just for PG&E last year, that's a big number. And for somebody else to come in and have to create that model and manage it, it's a big deal.

Unknown Attendee

Got it. Sounds like you've got more work out there that you're seeing in -- all at one time, [indiscernible] that's pretty good? Is that still what you're seeing?

Scott E. Summers

The last few years have been pretty great. There's as much work as we want. In fact, at some point last year, we had to turn work down.

Unknown Attendee

And that's -- your outlook, it really -- it was really good particularly for a stat like PG&E.

Scott E. Summers

Because I've been doing this 30 years and this is the best in the last 30 years that I've seen, and I think Frank agrees with me that the best visibility we've seen out for the next 3 to 5 years of good amount of work that's out there and needs to be done, and, I mean, we're -- like Brian said, we became public for a lot of reasons, but one of them was to grow and we're going to try and grow. Anybody else? Okay. Frankie, you guys are all going to be entertained.

Frank O. Welch

I hope I got the sound adjusted right and everything. I'm with Rockford, Primoris bought us in late 2010. We're primarily a pipeline contractor. We'll do a little other stuff once in a while but mainly like to build pipelines and we'll go anywhere in the United States to do it. Nobody -- you want to go to Casper, Wyoming next year, that's fine. You want to go to Florida next year, that's fine. It really don't cut coming to California, but they'll do it if something has happened out here. Rockford was founded by a guy named Lemmie Rockford, in Oregon about 1967. I came on board in 1999, and that's when we started growing pretty good, and we started out working primarily for Northwest Natural in Oregon and, pretty soon, that kind of dried-up. We had to go to Arizona and New Mexico, and now we've been working in Florida and Pennsylvania -- I mean, Pennsylvania and Ohio and, kind of, all over. We do everything involved with building of cross-country pipeline.

Some of these pictures that you've seen is of the Ruby Pipeline, which was a really big deal. Wonderful, made a lot of money. That's ancient history. We don't even want to talk about it. Right now, we're getting ready to start up on enterprises, ATEx project, there's, I think, 3 spreads, maybe 4 spreads, there's a 2 a or 1 a or something, anyway we have 117 miles of 20-inch there, about $100 million project. We're just now starting that. We have an operation in Pennsylvania, a place called Montrose, Pennsylvania, we're working for Williams. They pretty well promised us about $15 million a quarter, I don't know, I think we did about twice that last quarter so it's going pretty good for us. Tough work in the winter and -- anybody wants to come visit? We're 2 hours from Manhattan. Some of our challenges is -- you guys are analysts, you all talk to Quanah and you talk to MasTec, and I don't want to tell any secrets or anything, but that's part of my problem, that there's -- competing with those guys, maintaining our labor force, maintaining our staff. But as do our competitors, we have a pretty loyal staff and workforce, and it's mainly just coming up with the labor and getting the big projects and manning them and I'm glad to be part of Primoris. They bought me $900,000 worth of pickups last week, $900,000 worth of low boards next week, but we're doing that judiciously. I mean we sell little old stuff once in a while and everything. I mean it's not like we're trying to just Cadillac everything. I mean we realize that's money, that's -- you need to sleep. We've bid a lot of major projects, clients are hot for their schedules. In case you haven't noticed, gas is over $4 now, is that right? They're in a hurry. And safety and environmental things are always a big problem and we work really hard on that. We have safety conferences, all that kind of stuff.

Unknown Executive

Frank, what would you guess -- you've been in the business a little longer than me, what would you guess the amount of money per dollar on a job you spend on environmental today versus 40 years ago?

Frank O. Welch

Oh, 40 years ago? I loved it back then. I can remember, it was in 1991 before I ever heard of a silk fence. What in the hell is that? So now, we probably spend maybe 10%, 12% on environmental stuff and then if you kind of stretch that thinking, we use a big wood thing called a mat, and they're 4 by 8, and they're about this thick, so when you're in the mud, you use those mats to put your equipment on to get by. Back in the old days, we had 2, 3 truckloads of those. Now, we buy them by the thousands. And that is an environmental deal. And everybody knows it, everybody puts it in their bids, we comply with it.

Unknown Executive

How much mats are you going to spend in the near-term?

Frank O. Welch

We spent about $4 million already, we got another $2 million that we bought on another job that we're going to send down there and...

Unknown Executive

I've got to think that what I'm getting at is for the little guys, when you -- what's the spread of equipment costs on the ATEx job? If you had to go out and buy that equipment today, what would you spend if you bought it?

Frank O. Welch

I don't know, $35 million, if you bought it used, which what I'd probably do.

Unknown Executive

[indiscernible] for the little guys to get into it, it's pretty significant.

Frank O. Welch

That's true.

Unknown Executive

That's why you're saying that the competition on the bigger work particularly is [indiscernible] and the guys that [indiscernible].

Frank O. Welch

That's true. And the industry has changed a lot, I mean 2005 or '06, in my mind, was sort of the low point, nobody had ever heard of the stock market, nobody had ever heard of a lot of things that, now, are just common place in -- a pipeline company, a contractor, to my knowledge, had never been sold. Rockford was kind of one of the first ones and then Price got sold, merged with Gregory & Cook. And here comes Precision, MasTec, Compco and here we go.

Unknown Attendee

Right. Maybe just talk about -- you've seen a lot of cycles, lot of your -- Quanahs and MasTecs, just talking about the pricing environment. You talked about your customers wanting to get things done obviously, but you guys -- so it's a little bit of an oligopoly for these large projects. Talk about pricing. How is pricing? Is there a risk on the contractors than there've been before?

Frank O. Welch

Well since about 2007, we've had a rash of 42-inch projects, they're giant $100 million jobs. And so even if you're Quanah, when you bid something that big, you need to be paying attention. So -- and that's what I've always kind of liked. I felt like that I could bid pretty good and I always was able to count on my hands and it's almost a subconscious thing -- when I say hands, I mean workers, foremen, superintendents and stuff like that. And that's how you kind of get work. Now, does that affect margins and things like that? Hey, who knows. I mean -- it's -- you bid the job, you go out there and do them, it's better when there's more of them, so you go and make a little more money that way if you don't mess up. But there's a lot of people who have done good. I mean, we're in a boom that's just unprecedented.

Brian Pratt

I think -- I know kind of where you're going with your question. We've never been big macro guys. It's just like the [indiscernible], we talked about how we build whatever's available to us to build in California. It's not a power plant, compressor station or a managed land. Frank has got the same way, I know they keep competing with this j*** for 30 years. And it's been done. I used to say, he's a pain in the a**, at least, now he's our pain in the a**. But we came from a market that we just made money every year. Now I know the Price guys, I know the Precision guys, [indiscernible] used to worked for us. We do joint -- Frank was with Price, that's where I met him. We don't chase the big markets. We try and make money every year. Now 1 year it's 110 miles of pipe for ATEx, 20-inch or 36-inch for Enbridge, the next year it's 2 miles. When we met Frank competing on the Kinder Morgan work out here, and it was 10, 15, 20-mile sections of 20-inch pipe, we try to make money every year. Now when the big markets are here, yes, we'll take advantage of those big markets, and we'll try and get more margin if we can, but you can't -- we found that we don't make a living every 4, 5 years like some of these guys do. Some of these guys -- we looked at a couple that we mentioned before, before we bought Rockford. And literally, I told one of them, they ought to be deemed a hobby because they can't make money in 1 out of 5 years. I think that's -- IRS calls that a hobby, because they chase big projects. That's why Frank, to his credit, went out and started to do all this work up in the Marcellus, for Williams, nobody else wanted it. The little guys, the little local guys -- but he was smart enough to go and say, "I'm going to make money this year." So he went out there, he took -- I mean we were -- one job we got was what, 4,000 feet of pipe? You think the guys out of Houston are going to drive a 30 sidebooms up to Pennsylvania to lay less than 1 mile of pipe? Well we will. And it's a different -- it's a whole different philosophy, we're going to make money every year if it's possible. And we aren't waiting for the big a** jobs to come along to do that for us, just -- we're just a different philosophy.

Frank O. Welch

And work begets work. I mean if you get up there and you get one job, something else comes along.

Unknown Attendee

Great. Can you put that slide? You mentioned a 20-inch pipe mobile equipment there. Is the pricing fairly different between those 2 pipe diagrams?

Frank O. Welch

Oh man, it's a lot different. And the 42-inch, these big tractors, they used to cost $600,000 which is too much, I don't know, $850,000 now, something like that. So -- and only the big tractors will pick that pipe up. Now this job we have for ATEx, the pipe is 20 inches, it's only about this big around, we can use smaller tractors. The price of the job, on a per-foot basis, is much less. And I'd work on a 42-inch job everyday if I could, but that's just not reality, I mean they kind of went away for about 1 year or 2 there. Everybody is doing smaller work. Now they're kind of coming back, there's Flanagan, all these jobs, they're big-pipe jobs.

Unknown Attendee

So what percent of your fleet can do the high-end stuff, and maybe is that one of the reasons these guys are not bidding on the lower-end stuff because they think it's very expensive, and try to wait for bigger opportunities?

Frank O. Welch

Yes. To some degree, that's not too smart a strategy. I mean you need to get what you can get. Don't pass up a job because you think you're going to get the next one, because there's 5 other guys thinking the same thing. So you never know how the chips are going to fall sometimes.

Scott E. Summers

I think a lot of it goes back to what Brian said, a lot of our competition, they have superintendents that, that's all that they want to do, the big jobs, they don't want to do -- and the reason that they don't want to do it is because they start off with a supervision or field office supervision of 25 people. And whether it's 1 mile or 100 miles, that's what they got to have, that's their following. And so when you start pricing in the work, they're never going to be competitive. So a lot of guys who's going to bid a job like that for a superintendent were Frank's guys. They started small, so they know how to get small when they need to.

Brian Pratt

Just imagine what it was like when you guys started in the business -- started your business. I mean, how many secretaries did you need to get your car washed? You do that on a Saturday yourself. We just grew up differently, we grew up living with what market will give us, some of these guys that have followed jobs on the Stockton Island, places like that, they got to have a staff that's second to none. And the differences in how you deal your hands, you're going to hire a welder to go probably out of Oklahoma to go all the way to Pennsylvania to do 2 days worth of work. Now who's going to do that? Our guys will do it, knowing that we're going to have work on to follow that, follow that, follow that. It's a whole different -- the companies just built philosophically different from the ground up.

Unknown Attendee

Is there a big difference in value between gas pipeline with [ph] the pipelines for you?

Frank O. Welch

No difference whatsoever. I mean if you look at that pipe, you can't tell whether gas is going in it or oil is going in it. That happens to be a gas line. Flanagan we're bidding on looks just like it, they're going to put oil in it. So to a contractor, we really don't care. It's 98% the same.

Unknown Executive

They're engineered differently, and they're tested differently?

Unknown Executive

Yes. All that, I mean -- but...

Unknown Executive

The way they function is -- oil has weight so when you test an oil line, you have to break -- you can test the whole thing because that's the way it's going to operate. When you test a gas line with water, then you have to compensate for that weight on the test. So an oil line -- a 100 miles of oil line, how many breaks would you have oil to test, Frank?

Frank O. Welch

6, not much.

Unknown Attendee

How many gas breaks would you have?

Frank O. Welch

Probably 6. I don't know, I'm sorry. Right. They function differently and there's a lot of stuff in the engineering of it. I don't want to downplay that but just from the way we bid them and stuff, they're very closely the same.

Unknown Attendee

[indiscernible]

Frank O. Welch

I don't too much, but this lady right here does. And that's -- I'm supposed to just talk about Rockford but just for a second, this man right here is the Harold Janine of the pipeline in...

Unknown Executive

Who?

Frank O. Welch

Harold Janine. Look him up. ITT. He put together lots of companies, made lots of money and we're meshing together in a business that's booming, man.

Unknown Attendee

So in the last 6 months, gas has been back up, just the customer -- your customer, have you seen more bid wanteds come out? And bids wanted are now -- bids wanted are -- we want to get this pipeline [indiscernible].

Frank O. Welch

Now the bid wanteds, they've kind of always been there. But the jobs you're on -- call us in the middle of the night when you get that son of a gun finished and that kind of stuff. That's been going on for 2, 3 months. Now it's hey, for God's sake, don't tell nobody you're finished. We're sick of working every weekend and all that bringing these lines on service. I mean it's the Williamses and people like that in Pennsylvania, they're working people like dogs. I mean we work a lot, and their own people, starting these lines up and you see it in around PG&E too.

Brian Pratt

And then like Frank is saying, normally, in the first quarter when it's snowing and the weather is bad, the operators like Williams, they take 2 or 3 months off, unless the weather gets better. So there's a lot more expensive construction during the winter. And -- but these guys are damned with torpedoes and, like Frank said, the guy who runs that out there for us, Mickey Langston, he was in Dallas a couple of months ago and he said, "I had 7 days off last year, all of them Sundays."

Frank O. Welch

Correct. That's -- we've got about 3 or 4 really key people that I would like to mention: Mickey Langston; Dickey Langston, his brother, both top of the line superintendents; Josh Ramsey as Vice President. He's stationed in Dallas. He helped me bid all this work and stuff, manage the work. We've got good people now. I'm sure Price, they got good people too.

Unknown Attendee

[indiscernible] how do you scale it up or down if there is such thing? And then[indiscernible], what's the opportunity there and [indiscernible], is there an opportunity that you get to try and there's nothing there?

Frank O. Welch

We've bid some work there. We didn't get it. North Dakota is a smaller dime of the work and they have a -- it's more of a distribution type contractor and non-union contractor type work. I mean, there's not just as much full-blown like Pennsylvania union work.

Unknown Executive

I think judging by Frank's accent, he didn't grew up out West. Frank's worked everywhere.

Frank O. Welch

In the United States.

Unknown Executive

Even Alaska, weren't you?

Frank O. Welch

Yes, that's how I started out.

Unknown Attendee

And then you grew up at South Texas and what's the name of that town?

Frank O. Welch

Odem, Texas.

Unknown Attendee

Where?

Frank O. Welch

Odem, Texas.

Unknown Attendee

How do you spell that?

Frank O. Welch

O-D-E-M.

Unknown Executive

Don't kid yourself, we focus in certain areas, but Frank has been -- he's been more east and south than he has west.

Frank O. Welch

And a typical pipeliner is from Texas, Arkansas, Louisiana.

Unknown Executive

The smart ones are out west.

Frank O. Welch

Fringes are Mississippi and like that, and they pretty much have had to go everywhere all their lives and they're used to it. The opportunities, there's just lots of work and when there's lots of work, we're going to get our share and we try to get the best work when we can, but we got competitors trying to get the best work too, but there's a lot of it out there and we're trying to establish like stronghold. We've got one in Pennsylvania. It's hard to find a yard and a warehouse complex and stuff, there's just no land for that in Pennsylvania. So the guy that's got the yard is -- it's easy for him to come to you and say, "Hey, will you come over here and build this little line?" rather than call somebody and he's got to fool around for 2 months finding a place. So, and I'm hearing like Ohio is going to be the next booming area, stuff like that.

Unknown Attendee

[indiscernible] Several oil pipelines [indiscernible] for 3, 6, 9 months, [indiscernible] backlog depending on the warehouse [indiscernible]?

Frank O. Welch

That's -- in general, for the industry, that's what you're going to hear. I mean, you've got these big jobs are coming up for bid, people are going to get them. It'll be a few months before they start, but there'll be serious backlog for 3 or 4 contractors on the plant again, then there's going to be extensions to that. And there's other pretty big jobs that are going to follow that. So it's going to be a...

Unknown Attendee

How fast is [indiscernible]. It's a year job.

Frank O. Welch

It's about to start. There's 4 spreads. 3 spreads start in August. They want them finished in April. You're going to have to hurry. Then the last spread starts in October. They want that finished in April, too. They need to get their head right. That's probably not going to happen.

Unknown Attendee

So how much -- what did you do last year, Frank, the revenue last year?

Frank O. Welch

About $143 million the worst in 5 years or something.

Unknown Attendee

And got $110 million, and then there are $100 million plus or minus in ATEX?

Frank O. Welch

Yes. $100 million in ATEX. We did...

Unknown Attendee

[indiscernible]. So you're already seeing it in the backlog?

Frank O. Welch

First quarter was about twice what it was last year, something like that.

Unknown Executive

There's a lot stuff. I mean, Frank's got a meeting next week in Florida with Florida Gas on their project, and it's not going to start until 2016. And they bid it last year.

Frank O. Welch

They'll take it easy on that. Don't expect me to come back crawling that we got the job. It'll get bid 3 or 4 more times. I know that. But I'll try my best to get it, but I don't have much hope for that. I didn't really want to talk about that one. But it's a serious project and there's more to it that will get built in, what, 2017 or something like that.

Unknown Executive

Yes, I mean, all I'm saying is that it's 2013, but my company is already a bit more -- it's not going to start for 3 years, just so they can get some contractor capacity.

Frank O. Welch

And start locking in prices early in the game.

Unknown Executive

And we're not comfortable in bidding in 2013 and 2015, as what Frank says. I mean, that's kind of a suburb.

Unknown Attendee

This is John [indiscernible]. Are you guys at the point now that different companies within the Primoris family, they'll bid in line in the Marcellus [indiscernible] and you're bidding it as a package, are you bidding it one loss and it just happened and you guys are bidding on the same thing?

Unknown Executive

It's a lot of it. We're -- it's not so much on the pipeline because those guys are pretty much prepackaged. You very seldom see a client come, "I want you to build a turnkey package from the wellhead to the home or to the refinery." We're doing a lot more of it. Jeni is working with OnQuest. Jeni is working with -- or I'm sorry, Saxon is working with OnQuest or Saxon's working with James Industrial because of skill sets and different things that they do. But I think that's working really well. We don't struggle with that coordination. But a lot of your clients will put out the street packages that did as well, and a lot of your clients are going to bid those jobs along the Mason-Dixon line, mostly. Frank will see one down here every now and then, and that's where Sprint comes in. Sprint can do from [indiscernible] stations, but Jeni and Saxons are better at it. We get a request to look at a compressor station at Sprint, and Jeni can get involved, so we do that real well, we had a...

Frank O. Welch

That's coming, that's going to be a big deal.

Unknown Executive

Tuesday night, we get a -- everybody in the company gets a couple of reports, one of it tells us what we haven't collected, what we haven't billed. There's one that -- the most [indiscernible] for me is that every bid that we do, every bid that's in-house, every prospect that's in-house is on this report, everybody gets a copy of that and that gives everybody a chance to say, "Hey, let me help you with that," or "Hey, watch out for this guy," or "Hey, that's a good guy, let's get invested [ph] on that one." And it's really -- we're doing it aggressively to try and meld people together to give the clients better choices and apply the right skills where they belong. But it isn't a -- we don't see it at all as an issue, it’s a real opportunity, and everybody is excited about it.

Unknown Attendee

Just a general question. Brian talked a lot about when Primoris acquires a company, there's a lot of advantages that come along with acquiring or being acquired by Primoris. Now I pose the same question to you as I would Jeni, what's changed today versus when you were [indiscernible]?

Frank O. Welch

There's a lot of things they do better. I'm sure, Scott thought they'd never hear me say that. But here's an example of something. As a smaller company, we did all of that big giant work for Ruby and stuff. We were so busy that we didn't have time to negotiate good contracts on our leased equipment, rental purchases and stuff like that. I'd just kick myself in the butt. I'd probably let $5 million go by. Now, they got guys that specialize in that type of stuff. If I need a backhoe or something, it's how long you're going to need it for, okay, we'll get a deal on it. We're at the end of 2 years or whatever you own it, stuff like that. And they have a lot of other programs and stuff.

Unknown Attendee

[indiscernible]

Frank O. Welch

Well, it doesn't seem to be an issue, but we have to bond from time to time, it's -- bonding is not real prevalent in the pipeline business, but it's good to have bonding capacity especially on something like Flanagan, that's $100 million plus, you better know who your bonding man is.

Unknown Executive

Financial capacity is Steve's job, there's a couple of sections on Flanagan that could be $200 million each or more. And when you've got to build that in 10 months and the client is not going to send you a quick $50 million to work off of, so you got to do some work, and you got to file it, you got to bill for it and you got to wait for it. And all these clients are real quick paying. Most of your terms are net-10, aren't they Frank? But that's a joke.

Frank O. Welch

They were for a little while. But boy, it's back to the real deal now. I mean, you got to call them 50 times to get it in 30 to 40 days.

Unknown Attendee

Run the math you're out a lot of zeros there in a hurry, which is very dimetric. And now also, it's your exposure because if you have an issue on a job or -- one thing we haven't talked about is this constraint in this labor, which is problematic. People -- these guys are going to be in demand and they aren't idiots. These guys are a workforce, the welders and the foremen and the superintendents. They know that, okay? And there's going to be a labor shortage. And you're going to have to pay some of them more money. Well, the problem has occurred already on the engineering side. There's been a labor shortage and a capacity constraint in engineering side, that has to [indiscernible] for this stuff. Well, that means that engineering has got more expensive and more importantly, it means that it's -- the quality of it is gone downhill. I think what I enjoy most about, Tim and Frank and Scott and Jeni and Mike and the key managers, they got this figured out. They got it figured out where you match the right job, you've got good engineering with the right client who treats you okay, which just did not work for some of these guys and they see that reflected either in a no bid or in a price that we do. We're pretty good at picking the client and the engineering and the job and what's available. And as times get tougher, engineering gets in short supply, and people get in short supply, client's going to be a lot more important. It's picking the right job and right engineer for the right client.

Frank O. Welch

I got a little thing you could think about. Somebody asked me last night how many spreads have worked, something like that, somewhere in the neighborhood of 36, 38, something like that. Each spread probably has 20 to 30 foremen. Think about how many NFL football teams are there. They've got 45 people or something. You got to be able to get along with your key foremen and stuff. I mean, you got to pay the hell out of them. They got to like you or something because they are in demand.

Brian Pratt

Someone make as much as the NFL guys do.

Frank O. Welch

Not hardly, but it's the same deal. All right. I'm done.

Brian Pratt

Let's take about a 15 to 20 minute break and

[indiscernible].

[Break]

Michael D. Killgore

Okay. We like to welcome everybody back from the break. As Kate said, I'm going to cover James for Danny Hester. And then we're going to -- Danny is going to cover Saxon and then Pete is going to come on, and then we'll try to stop this by 11:15. So, I didn't introduce myself early, I thought I could do it now, but my name is but my name is Mike Killgore. I'm the Executive Vice President and Director of Construction for Primoris. Prior to that, I was the CEO of James Construction Group. The company, James, was actually established in Louisiana in 1927. I started with James in 1976 when I was a sophomore at engineering school and -- so I've got 37 years of service in with the combined companies at this point.

James joined Primoris in 2009. Currently, Danny Hester is the President of James. Danny has worked with me for a number of years. Danny's past experience has been with companies like Zachry and MK Construction. And when he came on to James in, I believe, 2001, and he's the President now. James has 3 separate groups, 3 separate divisions. One is the Heavy Civil division, which I've gotten some questions about over the last few days. That division is primarily public sector work we get related to road and bridge construction, concrete paving, airports, runways and marine facilities. The other 2 groups are both more industrial focused or private sector focused. One is called Infrastructure and Maintenance, but that group is primarily earthwork and site development-related activities. They do landfill construction; jeep stack maintenance, which is a maintenance item associated with the fertilizer industry; site remediation; mining support services; geotechnical; and then they do the earthwork and site development, that's a lot of that for the big new industrial facilities. They'll go in and do all the site preparation, the site earthwork. The industrial group basically takes it from the ground up for the concrete foundations, the underground piping, the structural steel erection process, piping mill and plant support services.

Current project -- I'm going to back real quick. This project on the cover slide here is the LA 1 project, which was in South Louisiana. This is one of the bigger projects that James completed in the last few years. This is about $140 million project, and the interesting thing about this project is it's, as you can see across marshland and it had to be all constructed from the top down, which means you couldn't access the project from the ground or the water. You had to build it all from the top-down and work your way out from one end all the way to the other. So it's a very complicated process, but it turned out to be a very good project for James.

Well, the current projects, and I know most of you are aware of the work that James has acquired along the I-35 quarter and the Temple, Belton, Texas area, where we've gotten several projects, 5 awards totaling 19 miles. The total revenue is going to be approximately $663 million on those projects. And the James backlog right now, I think, is sitting at around $863 million or $865 million, something like that. Got some questions last night with regard to Heavy Civil and what we saw in the market. Heavy Civil is not quite as glamorous maybe as the pipeline and some of the energy sectors, but it's been a steady revenue source for James over the years. The cash flow is good and the backlog is good. So these projects stand out for several years and give you an opportunity in some cases to improve your original margin.

On the industrial project right now, one of the biggest we've got going is the Chlor-Alkali Unit for Westlake Chemical Company or Westlake Vinyls company. This is in Geismar, Louisiana, just south of Baton Rouge. This is -- the actual revenue is probably going to be closer to $75 million when the job is complete. This is a reimbursable contract that James executed with Westlake Vinyls, and it's for the complete turnkey construction of the plant. That's not EPC, as Tim would say, but this is a pure construction related project where a lot of materials are being provided by the owners, so most of that $55 million to $75 million is going to be labor and our equipment.

Challenges, we've all -- everybody has talked about the labor issue. The labor issue is going to be even more acute on the Gulf Coast area because of the amount of work that's announced in that area over the next few years. And safety is always a challenge working in the private industrial sector with the refineries and the private industrial clients, where they have very high standards and there's -- and have high expectations for your performance. So we've been working on -- we'll be working on those, too.

This gives you an idea of the opportunities that are coming up. Attracting over $46 billion in industrial projects that have been announced over the last couple of years to come forth in between South Texas -- Southeast Texas, Houston area down to Port Arthur and then over to New Orleans. And that industrial sector is really a tremendous amount of work that's coming up. James has some pretty strong opportunities in that right now, with a couple of large projects. We're not ready to announce anything yet, but we -- those projects are moving forward through them. And owners, I guess, probably in about the 2004, 2005, time frame when there was a lot of refinery expansion along the Gulf Coast, labor got really tight and owners became more interested at that time in securing resources and capable resources to do their work than they were necessarily about pricing. And at that time, James was involved in the Marathon refinery expansion, which was an overall $3.5 billion project. But the Chlor, we were subcontracted to Chlor. Chlor preselected contractors probably 6 to 9 months in advance of the work and to commit to them, and then it basically didn't work on a reimbursable basis. And we anticipate a lot more of that going forward. We've had a lot of contacts between James, Saxon and ARB now in the industrial side. I think these 3 companies combined have more industrial gas plant experience from probably any other company in the country, and that would be for air separation units, for hydrogen units, for oxygen and nitrogen units. And usually, when there's a big industrial expansion, there's one of these plants that's going to be built associated with that because they build in support of these other facilities. And all 3 of these companies have the capability to build those plants from the ground up. They do the site work, although in Saxon's case, they would generally sub the site work, where James would self perform that. But ARB, James have -- in fact, have the capability to build those complete plants. And those -- the construction opportunity on those is usually in the -- somewhere to $20 million to $100 million range, which is a nice spot for our groups and for our project size and for clients, such as Air Products, Linde, Praxair, Air Liquide, those type of guys, who we're marketing to those services.

Brian Pratt

Mike, how does that $46 billion number compare to a couple of years ago in this...?

Michael D. Killgore

Well, it's significant. I mean, 2 years ago, we've come out of kind of a low period for industrial. So there was a Primoris expansion cycle that occurred back in 2005, 2006 range, '07 range. Some of those projects -- and I think some of that's going to happen this time, too. All of those projects were and they were originally announced and were going to happen at the same time and there were severe labor shortages forecast. But as they got into it, some of the projects started lagging out and then we intentionally pushed out to avoid some of that. And -- but then after that expansion, there was a pretty good dip in the market for the industrial side. So it's been slow, but it is really ramping up quickly.

Brian Pratt

Yes. If you go back and look at the numbers, the apex of the petrochem spend was about 2008 -- 2007, 2008. And that was largely based on the crack spread. That was the refinery group, okay? The gas wasn't as plentiful, wasn't achieved in relation. And so what's happened is, it fell off the cliff, like everything did back then when the financial crisis hit. So for the last 5 years, there has been no real refinery work. Now you're seeing this crack spread, which is as good as I've ever seen it on top of this cheap gas along with 5 years of deferred maintenance. Nobody did any maintenance for 5 years. So the pressure on our industry has just got to be huge unless we go back through another financial crisis of some kind. [Indiscernible] is available, it's cheap, people want to spend it, to revert maintenance. Both [indiscernible] are going to run hard on a higher expansion, which is as good as I've ever seen in the refinery business. That was just based on oil. It was as good as I've seen. So now you've got another one because every bit of that is less deferred maintenance plus gas. And so the industrial gas side, which plays off the gas or chemical side and the refining side, it is going to be an exploding problem. We have a little turnaround company down there, and they've asked for labor request and availability. Now this is maintenance, not new construction. They've asked for availability of crews in 15 and 16 for maintenance work. So you can imagine the pressure on the industry.

Michael D. Killgore

And Brian, if I have had contacts from some of the major engineering, well, the EPC company has wanted to come talk to us, so they can go back and tell their clients that they've sat with Primoris and some of the other major players and that's how they're going to secure resources to build their facility. I'm -- we also talk to Linde, Air Products. Several of these companies now are talking about already committing work to us out in the future. So this is going to be significant. You can't say this chart is kind of interesting. It's broken down by power, terminals, transmission, but the refining and the chemicals curve is where -- this is where the projects are going to be.

Unknown Attendee

And that $46 billion is starting this year or what's the plan?

Michael D. Killgore

Well that's our plan -- I think that 2013 is a little aggressive. It's going to really start picking up at the end of this year, but I think a lot of it is going to be pushed off into 2014 and probably beyond.

Brian Pratt

[indiscernible] engineering bottlenecks. We got a lot of clients. Multitudes of clients reach out to us and ask us if we could develop engineering, which is just [indiscernible] because you just hire the guys from the other guys so the capacity isn't going to grow overnight. The only good news is that they're just slowing down. Their refinery business is slowing down, so some of the guys we're outsourcing over there for that local business, [indiscernible] capacities of the investment.

Michael D. Killgore

That didn't have the, I guess, the opportunities. Yes, this -- well, yes, these are opportunities for that. But it's going to be good, and it's going to be -- the challenges are going to be manpower and we are going to see some substantial labor increases, we believe, just like we did in the 2005, 2006 range. During that time, we saw wage rates increase probably 20% in a fairly short time, and they leveled off. They dropped off a little bit through the slower time for the last few years, but, I mean, we're -- I'm pretty sure we're going to see a pretty major uptick in that again. And they got some of these areas that are already starting to build man camps. And the last time around, it was so bad around the Southeast Texas and Louisiana coast, they were talking about bringing in crude ships to house people and bringing in Puerto Ricans and setting up man camps, and some of that talk is starting to reappear again now. So I mean, it's going to be -- if all of these projects are blowing the way that they've -- that they are currently anticipating, it's going to be pretty interesting over the next couple of years. And even if the projects start at the end of 2013, they want -- their manpower won't ramp up. Some of these are very large projects, so the manpower won't ramp up until the end of 2014 going into '15 probably.

Brian Pratt

You've got -- these things are just now getting funded. It's astonishing to me you guys maybe don't -- you see the changes, okay? But there are so many changes inside of the changes. Ethane, for example. A few years ago, ethane sold for 2x, 2.5x. 3x what methane was worth, okay? So ethane is a component that you see in a lot of the natural gas, particularly in the Marcellus and wet gas areas. Well, today, because there is so much ethane and we're not using it to make polyethylene, the price of ethane is at parity or below what methane is. Now here's a fuel. Here's a hydrocarbon. You never would have dreamed of burning it because it's just too valuable for the plastic you could make. But now that's cheaper than the methane that you burned. But how long is that going to be that way? So there's always a little micro change inside this cheap gas, expensive oil scenario that has just totally got the industry turned on its head. And the variations of that -- our clients are just scrambling, trying to figure out what it's going to be in 2 or 3 years. I mean, we're talking to clients today about -- because ethane, you don't need a license to export where you do methane. So we're talking to our clients today about exporting ethane to burden power plants that you never would have dreamed of 3 years ago. Now in 3 years, if this petrochem base is available and they start using that stuff, then ethane is likely to double what methane is. So who knows how the stuff is all going to move around? And our clients, unfortunately, have to deal with this and then the engineering and the biomass specialty equipment. If you want to do one of these upgrades to a big refinery, you're going to buy a vessel probably in Korea. Well, that's got to get engineered, procured. That's all special material that has to be made, bought, consumed and welded in Korea then shipped here. Well, that's a 2-year lead time. So these boom is going to go on for awhile. That's kind of the good news. Well, I'm going to talk about how we chase the first end of that. Well, what happens is, is as these things hit, your costs escalate. And you got to get these in Korea. They don't risk your boom. You got -- your engineering gets screwed up. That gets -- has to be priced in. Your labor starts accelerating. I mean, these guys here are coming, too. They're going to start asking for more money tomorrow, and your costs go up. Now that's exacerbated by the fact that down there, we have to accommodate Obamacare, which we don't have to in the west because they have -- we do pretty much union work at the west. Well down there, Obamacare is going to be a significant impact to everybody's costs, okay? So you got this escalating cost curve. And our challenge is to stay ahead of it, and make sure that we price our work and our client accepts those prices. Or we, at least, apothecate our contracts on possible changes and accommodate that with our client. So that's going to be the challenge. But what happens, typically, is you don't make a whole lot of money in the first year of a boom like this. It's the second and third year that sustains where you make or break money because you're up and running fast and you're there. You're anticipating these issues. And by the fourth or fifth year, all the competitions there and the price will start reflecting them. Our challenge is to get ahead of it this year. I think we've been through enough booms. I think we're pretty good at it. So that's what we're focused on. It's where our costs are going because as a company, we're truly, truly dedicated to understanding what our costs are.

Michael D. Killgore

I'm going to introduce Jeni but, I mean, we acquired Saxon in the end of September last year, and part of that is because we did feel like there was a growth market here for the industrial sector and that Saxon could help us with it. Saxon recruits normally, and a lot of their manpower comes from a little different area than where James, historically, recruits. James is more of historically the Gulf -- tight Gulf coast. Jeni's group is more of the Southeast, and it's spread out across the country and they've got -- their guys are more travelers kind of like we were talking about Frank, how their guys are more travelers. Jeni's group is more of a traveling group than James'. Because James' is more focused. They would just as soon stay home around the Gulf Coast area as long as there's work there and there's money to be made. So we think that's a big opportunity, as well as adding to some of the other capabilities. And one of the things that Tim ran into with some of his partners out here in the power was that they were looking for a platform for some power work in the Southeast. And with Saxton's background in the power plants and their expertise within the power block, we think that would give us an expanded platform for potential power work in the Southeast, too, although it's not as much power work as maybe we'd like to see right now, we still think there are some opportunities coming up and they will give us a platform for that. So with that, I'll turn it over to Jeni.

Jeni Bogdan

I'm Jeni Bogdon. I'm the President of Saxon Construction, formally the Saxon Group. My background is, [indiscernible] experience with [indiscernible] the Saxon Group, in 1991, right out of college. Prior to that, I came from a construction family. My father owned a construction business and my grandfather. So I kind of grew up in construction, traveled around this job site my whole life. So it's a natural fit to go into construction. Graduated from Georgia Tech as undergraduate and a graduate degree from Georgia Tech, and was trying to recruit a couple of the guys last night at the graduate school. We'll be happy. Again, we did onetime work at the end of September. It's been a fantastic fit to our company. Our company was a little smaller than some of the other groups that have spoken here today. We did a lot of the same things that they do, so it's kind of nice going last. So they've really spoken about a lot of the things that our group does. The main difference in our company is that we do work all over the country. When I worked for my father, I was a project manager for a project for Air Products and chemicals. At that time, they were looking at doing a project called, for the Department of Energy, the supercollider project. And they came to me and said, if we had a woman-owned business, we think it would help us to be more competitive in the market. So we're really, really fortunate in how our company got started. It's like I started the company and that had footwork right away. So what that did is it allowed us to start in the cryogenic industry, going around all of the country doing $0.5 million, $1 million projects, bring our products. And we were able to expand our base, expand our markets to different works. Again, we do a lot of this, a lot of the same work as James. What we're seeing is a -- the big -- well, we typically have done a lot of power work in the last 7 or 8 years, but that market has slowed down somewhat for new generations, but we do see a lot of the repower work that Tim was talking about. Additionally, what we really think is going to be something good for us is a lot of plans changing because of the lower price of the natural gas. One other thing, why we're a little bit different than some of the other groups is we do have our own electrical group. So we're able to come into our different clients and do the mechanical and electrical. We do typically sub out the installation of the project. A project that we're doing right now is about a $10 million project for Air Liquide. Okay. This is a project that we're doing at -- in Kemper County, Mississippi. It’s a gasification project. A huge opportunity for us. We're doing just a small part of a large project, but this is the first of its kind. Tim? And we're actually looking at a couple more of these projects. The good with -- about this plan is it supplies nitrogen used in the -- to generate electricity. Am I still having problems with it, Kate? Sorry, I don't remember where I was with that. Are there any questions on this slide?

Brian Pratt

Talk about your relationship with the gas guys?

Jeni Bogdan

Right now, we're doing this project with Air Liquide. And they were looking at a number of other projects with them similar to this. But something that's really exciting is we just signed a joint venture with Linde. I don't know if -- they have 4 different groups. We're working with the North American engineering group, and we just booked $76 million worth of work for a joint venture, which Saxton will be self performing about $42 million of that. So -- and this work is being done in Arkansas and in Texas. They've also got a lot more work that they're looking out for us to do under this joint venture agreement. And again, as Michael is saying, they're trying to form alliances with good construction companies so that they have -- they have the people to do the work that's coming up in the future.

We have a lot of the same challenges that the other groups have. One thing that has just been fantastic for us with -- since the acquisition of Primoris is, it's been really good for our labor force. We're still going to have a challenge finding a lot of people, but we have a good following across the country through my father and through our business. Over the last 22 years, we have a good following all over the place. A lot of good superintendents and a lot of good foremen, which are really, really hard to get. One of the challenges we had prior to the acquisition is because of our size, we weren't able to offer some of the benefits that we're now able to offer, the -- our people with Primoris, the 401(k), the good health insurance programs. And so that's really -- that's something our group has been really excited about, and I think that'll help us be able to retain those and make it harder for the other companies to try to take away our people. We -- our business model is powered by people doing quality work safely, and our safety is extremely important. Over the last 5 years, we've been the national safety winner for associated builders and contractors, 3 out of 4. I mean, I apologize, 4 out of the last 8 years because you can only win it every other year. They don't allow you to win it. So we think that they feel like we would have been able to win those safety awards every year, but we have a great safety Director, Mr. Kenny Warren. He stood in a very good training and made our people very accountable for it. So again, the people want to work with us. They know we're going to take care of them, so our people are very, very important and we never lose focus of them. So this, again, with -- the recruiting with Primoris is really going to help us in being able to maintain our labor force.

Brian Pratt

So you started offering -- or you haven't offered insurance to your [indiscernible]?

Jeni Bogdan

That's right. We, at one point, we did have insurance. But it was just -- for a company our size, it was so expensive. It just wasn't worth it.

Brian Pratt

So when you started offering it, particularly, when you're under a couple of hundred employees and stuff. But will you start offering insurance under our program this year?

Jeni Bogdan

That's right.

Brian Pratt

And how many people are signing up for the insurance?

Jeni Bogdan

In steel, it's never as high a percentage as I would like for it to be. But it's about -- part of that 30% of the people, which is higher than when we've had offered it historically in the past.

Brian Pratt

[indiscernible] not yet in time. Next year, they'll start being on time for not having insurance.

Unknown Executive

Yes, we'll have everybody.

Brian Pratt

So that's going to -- we're going to have the impact of insurance of 70% of your workforce.

Jeni Bogdan

Yes.

Brian Pratt

Yes. And that's pretty typical for the open shop environment in the Southeast. It's about 2/3 of the workers based on what I prudently understand cost down insurance.

Unknown Attendee

And it won't have much of a choice next year [indiscernible].

Brian Pratt

So it's really a cost escalation across the board through the engine.

Jeni Bogdan

It is.

Unknown Attendee

Which is -- did it get priced in?

Jeni Bogdan

And our clients have been pretty receptive to that when we've put in our clarifications that we're just unsure of how the Obamacare is going to affect our pricing. So it just clarified that out in our proposals, and they've been very receptive to that so far. So, I guess nobody knows what it is. So...

Unknown Attendee

How much work does Linde in the North America contribute?

Jeni Bogdan

They've got a tremendous amount of work. Michael -- we met with them when we were in Texas.

Michael D. Killgore

I was trying to remember the exact figures but I mean, there's [indiscernible] they're looking at billions of dollars of work [indiscernible]...

Jeni Bogdan

Billions.

Michael D. Killgore

And actually secure the bidding against some of the other air products, some of the other guys on some of these facilities so this is not much hope that also [indiscernible] working on in Oklahoma, which [indiscernible] where we're doing an escalation up here [indiscernible].

Unknown Attendee

How would you typify what you are seeing in the market available to us today and over the years that you've been in the business?

Jeni Bogdan

That was -- it's phenomenal. The opportunities that we have right now is phenomenal. We've had a huge growth in 2008, that was a huge year for us then we saw a dip down because we were doing so much work in the power market -- in the power segment because a lot of the projects that we were slated to do were actually pulled back and the projects weren't done. So we went through a little bit of a slower stage but the growth that we're seeing now for the next 2 or 3 years is, I think, the potential is much greater even than 6 or 7 years ago.

Unknown Attendee

And what were you doing in [indiscernible]?

Jeni Bogdan

$80 million. Our biggest year on our own was $80 million. Yes, sir?

Unknown Attendee

Contracting the project monitoring and the supervising, did you expect today or [indiscernible] of Primoris versus a specific [indiscernible]?

Jeni Bogdan

Is there any difference in the way...

Unknown Attendee

How do you identify a project that's probably [indiscernible] of the nature?

Jeni Bogdan

They have brought with them very good project control systems and a different way of helping us monitor that. So, say, yes, I would say that, that has been a big help. That seems like a...

Brian Pratt

[indiscernible] talk to them, they were already on the same [indiscernible] that didn't have to do a systems conversion of the dollar amount. But we've expanded the use of that system and that has been beautiful, attracting more cost reporting. There were lots of reports that and have said [indiscernible] mining, develop to that within [indiscernible] those part [indiscernible] of those tools.

Unknown Attendee

When was last time you made contact with senior management?

Jeni Bogdan

Yesterday. I don't know.

Unknown Attendee

I got a couple of mics on me but [indiscernible].

Jeni Bogdan

Yes, sir?

Unknown Attendee

Kate, you used the word, kind of, a broad-based company. And the question is, everyone has mentioned labor as a challenge and now we're talking about how your scale as a bigger company and I don't think it could mean other ways of [indiscernible] company [indiscernible] and the helping where you [indiscernible]. Is there some way that you can partner with trade schools or do something like bringing more people in. I would think the union's probably helpful, somewhat prohibitive, if there's partnership programs on the West Coast, but kind of how do you, now, that you're getting scale, how do you use that as an advantage of getting people labor of trade?

Brian Pratt

The Gulf Coast, the ABC, which Devin mentioned, Associated Builders and Contractors, which James then was acting members of. They've got a very strong program that we participate in but they do the training on-site, their training facility there in Baton Rouge. I think they've got like 1,000 people that are -- that have been employed and have been training there now. And they also got programs working with the high schools to go in and try to recruit people in, but it's kind of a slow process.

Michael D. Killgore

It's a mix based on the company and how we operate it, it's different for every region. For example, California. California is a bit of a confined space. So in California, when the business excels, it really knocks our open shop competitors in the dirt. Now the bigger project you don't see a lot of open shop guys but basically, we're paying more money, they're going to come our way. We have benefits, they're going to come our way. People, one of their questions is what happens if the work picks up somewhere else? Is it going to suck our worker out of California? Well, I think, a union plumber in the Bay Area makes $102, I don't think he going to go to Texas for $45, which is a good wage down there. I mean...

Unknown Executive

[indiscernible]

Brian Pratt

Yes. So, and through the trade, they have some rules and stuff and your bigger problem is not the welder and laborer and the skid sitter, the bigger problem is the middle management. Those -- and that, there's a source of everything good and everything bad that exists in a company. If your safety is bad, it's because of them. If it's good, it's because of them. If your productivity is good or bad, it's because of them. If you can get the people, they bring the people with them. If you got a guy that provides a great work environment that's going to keep you busy year round, that's going to give you the higher price jobs, like Frank, they're going to go to work for Frank's guy. And those are the guys that are so important to seeing us through these peaks and valleys in the industry and I think we have some of the best in the business because we do work year round. Jeni stacks these little projects together and she stacks them where she can work year round. John, because of the whole utility work in California, he pretty much works year round. Frank was smart enough to go up to the Marcellus and capture that little [indiscernible] Williams and then they're doing the work they shouldn't do in the middle of winter, based on the weather that we're getting but they got to get that gas to market. So having that year-round job, you think they're going to quit us for a couple of bucks to go to the guy that's going to give them a 6-month job somewhere else? Now, some of the boomers will. But that -- year round, that magnet that draw those guys is pretty key to our success, but it's different across the board. We support trade schools. [indiscernible] Scott's got a school, right? What? 10 miles from here in Carson where we're teaching welders how to weld every Saturday and we take the best of the craft and we take the best laborers, the hardest working guys, they came to work for us off the ditch bank and we say, "You want to learn how to weld?" which [indiscernible] absolutely, so they come in on their own times and we cut the [indiscernible] for them, and they weld them up. And they learn in realtime how to weld. And the unions, they indiscernible] but they don't want to run those guys and adopt them into the union program as well. Scott?

Scott E. Summers

They've actually begun to embrace it because they know they've got a shortage, too. It's astonishing to me that we dug you 2 welders out and over $200,000 come off them and we're still sitting in the [indiscernible] with an 8% unemployment rate. It’s just amazing to me, but I think we're probably more suited than anybody to manage it because of the way we run our business, too. When we slow down, and stocks slows down or James slows down, in the winter, we take all of these foremen and superintendents and we juggle all of them up together on 1 job, that will have one job. Now, a lot of people don't have that 1 job, so they have to lay them all off. But we have the guys that learn -- they're now superintendents, you're going to see some of them today over on the site. I mean, we got a nice interaction, fourth-generation on that site. We got the dads, the sons, and the grandsons and the great grandsons on our working force and they came out of the craft. So they came from either welders or pipe fitters or the iron workers. And so, when 2 things get slow, they work for their brother or their uncle or whoever, and they go back to the craft they came out of and they work all the way through the winter and when thing's getting good, I mean, that's how we keep our productivity up. Most companies don't have that advantage. Most companies can't keep that string of year-round work like we do. That's 1 reason we like James Highwood business. Some of those are 4-year jobs, 4.5-years jobs. That's a great bench to draw from for the other work, that steady employment particularly during the winters. But it's a unique challenge for every company. But in all, everything fills on the back of the foreman. Everything -- the foreman and superintendent is certainly the key to this business.

Jeni Bogdan

Anything else?

Brian Pratt

Yes. [indiscernible]

Jeni Bogdan

Opportunity. We talked a little bit about the compressor stations with the compliments that the work that Frank's group's doing. That's something that we saw coming, the growth of that. I guess, a couple of years ago, we went out and as the Saxon Group got MSA, Master Service Agreement, with all of the large producers we have with Chesapeake, Williams, MarkWest, so we're able -- they can call us, if they have some of these compressor station work that they need done, they can call us. We have rates already established and we can mobilize but as Frank was saying, the engineering is lagged behind. They need things done right away. So we found that's going to -- that we really feel like that's a big area of growth for us. We're working right now in Pennsylvania, in Ohio and in Oklahoma, doing this type of work. And as Brian talked about, with the price of natural gas so inexpensive right now, we really feel like there's going to be a lot of plant expansion. It's going to trickle over into a lot of the other type of work that we can do. So we're really excited about the opportunities that are coming up and in the next 24 months.

Now, anything -- anything else? Thank you. Here you go, Pete. I think I broke the microphone for you.

Peter J. Moerbeek

Thank you, all, for being here for the first ever and probably the best ever Analyst Day that we've had. One of the things that I want to hope as a take away for all of you is that we are a company that's a little bit different than some of the others. We focus on long-term, we focus on profitability and we focus on cash flow. So the other thing to remember is that while we have talked about tremendous number of opportunities, those opportunities in many ways are a function of what our clients, and what the owners are doing. So you can ask us when we're going to get some of these contracts and we'd love to be able to get them all tomorrow, we'd love to be able to get them all next week but it is very much a function of what's going on in the general economy, and it's a function of what's happening sometimes within that client, whether they can get the funding, whether they can get the approvals. So it's not easy for us, which means hopefully, not easy for you to predict precisely when we're going to get a contract and then sometimes when we get a contract, the notice to proceed can be anywhere from 3 months away to a year away. And that, obviously, getting the contract is wonderful and that makes our backlog look good but doesn't do a whole lot for our revenues and our profitability. So when you look at us as a company and you're trying to model us, some of the biggest challenges are trying to understand where we're going to generate revenues and when's that contract going to turn to profitability. I wish we could give you an easy answer. It will be a lot easier for us, easier for our board and easier for you but a lot of it is totally out of our control. It depends on when our clients decide to give the awards. So when you look at our numbers, when you look at where we're going, please remember that this is not a linear business. We believe that one of the things that makes us different is that we focus on profitability for the long-term. And that we're focusing on a brand set -- a very elegant one this morning was, we're looking on making money on projects. We're not looking to go after the biggest project to make the biggest flash, to get the biggest headline, we're looking on how do we make sure that we continue to make money. It's a little bit like doing an acquisition, a lot of people get very excited and have a great closing dinner but I like to say, we have to show up the next day and after the closing dinner, you still got to figure out how to make money and how to run the business. So we look at us, ourselves, as operators, that are in this for the long-term. Certainly if you think about the way the company became public as a private company, that's our goal, to continue to generate cash flow. There aren't a whole lot of companies that the CEO calls up operating guys and says, "Hey, how come these receivables' way up, and what are you doing about that?" So that's kind of a the moral of the story. That's what we do, that's the way we're kind of genetically engineered. I think Scott, when you heard him say, PG&E has going to have a lot of work between now and 2020 and we're going to get our fair share. Are we going to get 100%? No. Are we going to get 0%? No. I can't tell you exactly what percentage it's going to be but it's going to be a big number. Frank is going to go out and get a lot of jobs. Are they predictable as they're going to be a specific project? We don't know. We're going to win projects, we're going to lose projects but as a company, if you look at what's in our DNA, and look at what's in our history, our goal is to continue to grow and to do so not only on the top line but to put as much on the EPS, on the cash flow line.

So with that, I can answer any questions and I'm standing between you and touring a really great place.

Unknown Attendee

How do your receivable collections look, say, versus 12/31 versus where we are right now. Can you talk about that?

Peter J. Moerbeek

Well, I can tell you that of the amount of receivables that we had at year-end, which was collectible at $270 million, we're under $6 million right now. So in our 90 days, we've collected all of about $6 million. And there's some people here that are well aware of that $6 million. And my guess is it will be collected in the next few weeks. So, yes, we manage cash, very focused on cash and you can see that, if you look at us, we want to be a company that you can track the cash and not have to go through EBITDA, adjusted EBITDA, readjusted EBITDA or any of those sort of things.

Yes, sir?

Unknown Attendee

Can you talk about the seasonality of this business?

Peter J. Moerbeek

Thank you. Because Kate was going to throw something at me if I didn't say that. Please remember that we are very seasonal, we're at Scott's age, you've heard other people say it. Traditionally, we've only done about 20% per, quarter with magnitude of revenues, 21% in the first quarter. Frank said that he is seeing a little bit better but for Frank to say it's twice the revenues in the first quarter, 2 times 1 is up to 2, I think. It's going to be seasonal. It will always be seasonal in the business and so yes, you're going to see some -- please don't look for the phenomenally great first quarter. We're in a business that our clients, if you walked outside last night or this morning, you know there's a chill in the air and our clients need their systems to provide gas, warmth and heat to the people in California who think this is bitterly cold. Any other questions? John?

Unknown Attendee

[indiscernible] and what's your thinking out there and what's the market look like.

Brian Pratt

Well, it's like putting the [indiscernible] on the edge of a [indiscernible]. And I think that this natural gas in the market, if you could look at what's visible in terms of cash flow and you see how the behavior, how old the receivables are and those things, so we start with a pretty aggressive front end. I mean, poor Frank, if you look at terms of payment on contract jobs, you look at how structured [indiscernible] the cash flow on those jobs, the ones that are worth doing that for Frank's [indiscernible] day 1, just based on the nature of the client and the way the contracts are written. Tim's job, we'll actually do a 22-month cash flow among these things and then we write contracts that basically are written around the cash flow. And then the first comment that Tim said, probably a dozen times when he goes to the first meeting with a client, he said, "We are your contractor not your bank" So the meat of the company are the guys who inform us and the guys they go out and build the stuff. We look at ourselves as facilitators. They build the stuff, we don't do squat. We get them the work, we get them the bonding, we get them the cash flow and all the things but they'll build the work. They build these plans that we sell and without them, we're nothing. But the blood of the company is cash and we understand that probably better than anybody and we built everything around [indiscernible]. Everything we do is built around cash flow. Acquisitions, we needed [indiscernible] and then we're [indiscernible]. Jeni, I forgot whether there's smaller [indiscernible] than that or she can obviously get back to her $70 million or not. It will a not be big but it will be good-sized. Every one of those takes resources and stresses the company across-the-board, your safety department. We do -- we don't walk in and flip things over at day 1. We like to go into a company and say, "How do you do this?" Understand how they do it, particularly their bidding processes, so we don't disconnect them from how they view their costs. Now, I may be incorrect in how they view your costs and complete, but they don't disconnect them. So we kind of go in slowly and kind of make the changes as we go, other than software and the 13 sacrosanct issues that we have in the contract execution, cash flow, lien notices, stuff like that. But it takes a lot of stress. So in looking at it this year, we've got some of their work to do on the ones we bought. We just closed just a couple of weeks ago, it wasn't a big deal, but it's a small turn-around company. It's very small, so we didn't even announce it. And that's an asset purchase. That's going to take a lot of work because not only is it transitioning kind of a company that needs help in learning better ways to operate but it's also, we think, going to be a rapid grower. But we set out 7 years ago to be -- 5 years ago, 2 years prior to that, we looked at being public and we said, "Okay. How much growth do we have to have to be a successful public company?" And we're way ahead of track. But we knew we had to grow at 15%, 16%, 17%, bottom line. I don't focus on top line -- sorry, bottom line and we're way ahead of track but quite honestly, this year and next year, we'll get that and we'll see that growth rate organically. I know that Linde [ph] and I have our difference in opinion on what organic means but we don't need to buy a dozen companies to see that kind of growth. All -- just the companies we bought last year, we'll add a couple of hundred million dollars if they just do what they're performed to do, and we think we're going to see a dramatic growth inside of that because we just didn't get much of the benefit revenue-wise last year because we closed the 2 bigger ones late -- well, one of the bigger ones really late in the year. We're going to look opportunistically. We've got a strategy that focuses on energy in the Southeast, not that we're not looking in the over thrust area up in the Bakken and places like that. We're not looking at anything large. There were some stupid deals done in the last 6 months, that have really thrown all the multiples out of whack. The valuations out of whack. You got private companies that are selling for twice the multiples of a public company. Things like that, they just don't make a lot of sense and so we got to let for some of that to settle out. You've got this feeding frenzy going on down the Gulf which is where we're focused, we're not going to go under and pay a 7x or 8x multiple. Not for a big company, we might a smaller one that tucks in nicely but I've got to tell you, the amount of opportunity we see with the people that we have and the structures that exist is overwhelming. And for me, I'm looking at trying to satisfy that internally in the next couple of years. But we have an M&A guy, and I'm sure he'll stumble across the deals. So our challenge quite frankly, and honestly, I appreciate you asking the question, is really, this Gulf states that everybody can see that, I mean, that's just really plain -- the opportunity there, and everything else. Our challenge, really, honestly is what do we need to do in 3 or 4 years out because we've been ready for this. We didn't buy Rockford because Ruby was in deep. We bought it because we saw this longer term opportunity. We didn't buy Jeni because she had a problem job and there was this opportunity, so we really see some huge upside in the business that they're in, they're my strength. We bought Sprint, they did $70 million the year before we bought them. We own them for 9 months and they did far more than that. $90 million something. And we think they'll do more above this year. So our challenge quite honestly is to figure out what the next opportunity is beyond this. We'll continue to prosecute this opportunity but where is it next. It's not going to be solar, I have to think, there's some real cool opportunities out there that aren't on the radar screen yet. And I want to be there before our competition takes it.

Unknown Attendee

Jean Klein. [ph] On the acquisition, it's big enough [indiscernible] cash for the next few years. What about just CapEx? Sort of [indiscernible] price.

Brian Pratt

Our CapEx estimate for this year is in excess of our DNA, probably by about 30%, 40%, maybe 50%, largely because of the question and that was a pretty but good question that was asked about the difference between large pipe and small pipe. Trying to set-up -- he's got all the big tractors a guy would ever want. You want almost all, pipeline guys that's probably measured the size of their appendages, how many site wounds they own. So we have to make this transition to smaller diameter and you got this Tier 3 issue, Tier 4 issue in California. Q3, we think is going to -- just absolutely have a great year because of some of the [indiscernible] that they sell and some of the additional resources we offer. The amazing thing is you can take these guys like Linde, like Jay, Linde's company and they get so bogged down in all of the morass of regulation and stuff that the government throws at them. When you take some of it off their back and you give them the opportunity to go out and really do what they love doing which is building stuff, getting and building stuff, it's astonishing what they can do without having to do with banks and bonding and OSHA and [indiscernible] stuff, all the regulations, all the taxes, all the financing, all the government crap, Obamacare, and everything else, it's astonishing what -- that's why they got into the business world because they love that part of it. And you're freeing them from [indiscernible], I'm pretty excited, and they will turnover more and more opportunities given the chance. So I think CapEx is probably going to be 50% over last year. Whether it will continue at that rate I, guess, probably for another year or so. And how long this thing seems to last and how much work Frank gets. He's a big [indiscernible]. He's huge.

Unknown Attendee

Like how much do you need in terms of just working capital in that business [indiscernible].

Brian Pratt

Less than what we have. Frank can take and I don't mean to pick on Frank but he is [indiscernible]. And Frank can use $50 million, $60 million, $70 million on 1 spread. Now, we could 3, 4 spreads, I don't care what other guys say, we can run with the big boys. We are the big boys. So when you take 3 or 4 spreads, if you're going simultaneously, you can be out a couple of hundred million dollars cash. So you have to be careful and you have to write a good contract but we've got, as of yesterday, and I get that report daily, is cash flow, we're sitting at about $170 million something, in the bank. We've got a $70 million credit line that we've written about $3.8 million of letters of credit against as of yesterday. And then we've got [indiscernible] $25 million on our term facility. Well, we've done a great job in negotiating this 10-year loan with [indiscernible] and so we've got plenty of room. And the CapEx, as we said, we can finance 100% of that. Our credit if you were to buy almost all new stuff, the manufacturers and the lenders will lend 7-year money on new equipment at 100% advanced rate, at 2.2%.

Peter J. Moerbeek

2.1%.

Brian Pratt

2.2%. So I don't see us being capital constrained. We have about $1.7 billion, $1.750 billion in bonding line. We're in it a little under $1 billion. We may need to reduce the bonding line a little bit but that's not going to be a problem. I'm having dinner with the guys next week so their [indiscernible] but I don't see that constrained. So I think the balance sheet's in great shape, which means [indiscernible] Pete's done a great job engineering the balance sheet that will support what we want to do with this company and I think we're in great shape to see that. We have to buy another $0.5 billion worth of revenues or something. Yes, but we don't need it. Now, if we find it, we'll figure out a way to structure it. We can obviously borrow a lot more money on our balance sheet than what we borrowed.

Unknown Attendee

Do you see stock -- with Brian, in a few years, stock as an offensive weapon and what percent of your foremen got stock awards or how do you -- do you want to talk about labor shortages, can you lock them in with stock?

Brian Pratt

Yes, we've actually got a pretty broad reaching program where they get their bonuses over 2 years. It's -- we call it long-term incentive plan and if they leave at the end of the year or the middle of the year, they lose it the next year and then with that, they can buy shares with a portion of the bonus at a discount to the market in the last 30 days of the year. This is -- this has a price for that and it's been -- how many people did we have [indiscernible]?

Peter J. Moerbeek

About 200 or so. 250.

Brian Pratt

Yes. It's by invitation. It's optional. We've only had 1 guy opt out. He's already taken a job somewhere else.

Peter J. Moerbeek

Yes, and then he came back.

Brian Pratt

Yes. But it's pretty attractive because quite honestly, between the discount thing and I'm one of those plants since last year they got the stock at $100 [indiscernible] that's pretty good for 22 and change today. And we've had an exceptional amount, not just this year because there was this huge price differential but even last year when there wasn't. We've had an exceptional participation. So, well, I've got to tell you, if somebody wants to throw a bunch of money at these guys and they want to go, they'll leave. That's why we kept the branding, we kept -- it's not the only reason but a lot of the reason. I think Jeni's got guys that are tax accountants, and I got fourth generation [indiscernible]. Same thing with James or [indiscernible] James [indiscernible] and we're trying to -- how to develop this loyalty to both the Primoris and the James brand without breaking the James loyalty, that's going to keep them more than throwing money at them. And quite honestly, the guys would leave for a few bucks, okay? Those aren't the guys or your core guys, anyway. The guys are here because you made a living for them and their daddy and their granddaddy and then their kids are counting on going to work here, those are the guys that will make you the money. Those are the guys that are the backbone of the company. Those are the guys that are here because of loyalty and that what's make a great company. And the fact that they're working year round, actually. Other companies can't offer that kind of environment. We actually pay higher than the prevailing wage at James. Also, you got to pay a minimum wage for high wage worker, we pay more than that for them. Our insurance program is more than meets the minimum required from Obamacare on the open shop side, with the exception of Jeni who didn't have insurance. We just have a lot of people who didn't participate. So they get great benefits, too. The fact that we spend the kind of money that we spend on equipment. A lot of people don't want to go out on a job and drive a tractor that's 40 years old. Frank never had to. When we were first looking at Rockford, his newest tractor was 10 years older than our oldest tractor. Remember that?

Frank O. Welch

The first time.

Brian Pratt

The first time, yes, and then we looked at Rockford. Would have been cheaper then, wouldn't it? So [indiscernible].

Frank O. Welch

I'll tell you a quick funny story. I remember when we first got started at Rockford, we went out and bought these old 583Cs, I mean, they're old, that's a tractor. It's like a 1946 so I'm a little worried that we're going to have trouble getting somebody to drive that. We got a couple of boom operators in and then I saddled up beside one of them and said, "I know the tractor there is a little old, kind of -- it's just getting started. He said, "That's okay, I drove it last year at [indiscernible]."

Brian Pratt

And [indiscernible] of old stuff. I just think that we got the kind of environment that attracts great people but I know a lot of other companies will tell you that. We've got the results to prove it. I mean, we've seen this 15%, 16%, 17% growth rate since Scott went to work for the company at $12 million. And it's been consistent. It's been consistent top line and bottom line. And that's our goal is to keep it consistent going forward.

Unknown Attendee

[indiscernible] what are you seeing in terms of the [indiscernible] a little bit [indiscernible]

Peter J. Moerbeek

You bet. Right around 2/3 of our job are some sort of fixed priced right now, primarily fixed price. Obviously, because of the highway jobs, which are all pretty much all fixed price. I think what you will see and we've talked about it is that there will be an impact on unusual costs like Obamacare when you do your bidding. I think that for the larger jobs -- for Frank's larger jobs, you're going to see those be fixed price because nobody's willing to take that much risk. One of the things that I've said in our year-end call was that excluding Q3, which we had just bought, we have 4,300 jobs that we worked on all of Primoris. So you take the $1.5 billion of revenues and let the 4,300 jobs you see that while there are some large ones, there's a whole lot of small ones that make that up, so we're -- our focus is to make sure we'd look at our risk and understand it and not put all our eggs in -- at one proverbial basket. I think what we will see over time is on the larger jobs, if you're taking it as some sort of cost reimbursable jobs, yes, you will get some benefits of the contractual benefits. You'll get paid faster. There will be some other terms that are much more in your advantage but I'm not sure that you're going to see the significant increase in margin but the margins are not going to go all of a sudden double what they are now just because there's a shortage. I think what will happen is the cost may go up. But if you're on a cost reimbursable plus some sort of fee mechanism, you're not going to see that dramatic change in the margin itself. And yes, on the jobs that we're bidding for private companies, again, we're trying to figure out to hedge as much of the risk as we can so that we're not left holding that risk. If you're on a 2 year project, if you want to make sure that you either buy the materials upfront or you have a pricing mechanism to make sure that you minimize your risk. So for us, if you think that the pricing will get better but I'm not sure that you're going to see this dramatic margin improvement that some people -- I had people ask me and say, "Well, your margins are going to go from where they are now, 1.5x to 2x as much, aren't they? And the answer is, "I'd love it but I'm not counting on it."

Brian Pratt

I think one thing you'll see that you're seeing with the other pipeline guys is that, they'll see margin driven because their season has been longer, so they won't have all the months of downtime that they normally have whether [indiscernible] or guaranteed hands and things like that...

Unknown Attendee

[indiscernible]

Brian Pratt

But they'll be able to get their equipment utilization up and everything else which is probably our biggest opportunity in the [indiscernible]. For margin improvement, it's just equipment utilization because when there's a profit center, when the big stuff is working or even the mid-size stuff's working, it's pretty profitable for us. Particularly that 1947 583c, but that's worked and we're making a lot of money. We put an engine in it to get it to work though.

Peter J. Moerbeek

Almost haven't depreciated.

Unknown Executive

No, we sold that a long time ago.

Brian Pratt

I think that's -- I think that's a bit of a differentiator, too. We don't have -- I think because we watched it carefully, we're more conservative in how we book it and we [indiscernible] it differently. We don't typically have these big jobs and have these big turnarounds like some of the big brand names that you're seeing out there. We watch them closer, there's fewer of them, like Pete said, there's 40...

Peter J. Moerbeek

300.

Brian Pratt

4,300 jobs. Well, there's probably at any given time about 30 jobs that are really, really more of significance, that need to be watched. And the guys just do an amazing job watching it, we carry a strong contingency at the jobs, until the risk part of it is kind of done, which means we don't have a bunch of profit if there is a problem in the job and we don't have to backout a whole bunch of profit. We just don't have wild swings that you see companies are [indiscernible] having them and I think there is something that we're pretty good at making sure it doesn't occur.

Peter J. Moerbeek

And with that, Kate says it’s time for us to leave. So thank you, all, for being here and thanks to Kate for doing a great job and let's get ready to go tour our wonderful facility.

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