Kate A. Tholking - Director-Investor Relations David L. King - President, Chief Executive Officer & Director Peter J. Moerbeek - Executive Vice President, Chief Financial Officer & Director.

Lee Jagoda - CJS Securities, Inc. Matt Tucker - KeyBanc Capital Markets, Inc. Jason A. Wangler - Wunderlich Securities, Inc. Daniel Mannes - Avondale Partners LLC John Bergstrom Rogers - D.A. Davidson & Co..

Greetings, and welcome to the Primoris Services Reports 2016 Second Quarter Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Kate Tholking.

Thank you, Ms. Tholking. You may begin..

Thank you, Tim. Good morning, everyone. Thank you for joining us today. Our speakers for today will be David King, President and Chief Executive Officer, and Pete Moerbeek, our Executive Vice President and Chief Financial Officer.

Before we begin, I'd like to remind everyone that statements made during today's call may contain certain forward-looking statements, including with regard to the company's future performance. Words such as estimated, believes, expects, projects, may, and future, or similar expressions are intended to identify forward-looking statements.

Forward-looking statements inherently involve risks and uncertainties, including without limitation those discussed in this morning's press release and those detailed in the Risk Factors section and other portions in our Annual Report on Form 10-K for the period ended December 31, 2015, and our Quarterly Report on the Form 10-Q for the period ended June 30, 2016, which we plan on filing this coming Monday, and other filings with the Securities and Exchange Commission.

Primoris does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. I'd now like to turn the call over to our CEO, David King..

Good morning, everyone. Thank you for joining us today. Our second quarter results year-over-year improved, but our second quarter net income results were not in-line with our expectations, primarily due to our highway work in Texas. I wish we had better news to share with you because we are disappointed with these results.

While there are some bright lights and positive movements, I'll start by discussing areas where we're facing challenges, and as I know you're all looking to understand what happened this quarter. In the East segment, our James Heavy Civil division, led by Mike Killgore, continued to struggle on the work in the Belton, Texas area.

These jobs were bidden and awarded several years ago, had some delays imposed by TxDOT, and have been challenging to execute due to weather, labor shortage and other factors. We had committed and expected to be able to complete these jobs for TxDOT by midyear.

We accelerated work on these projects in the second quarter with the hopes of finishing the projects and moving on, but we experienced the productivity issues that often accompany accelerated schedules, and the heavy Texas rains only amplified the challenges in the second quarter.

It is our expectation that these jobs will be completed in the third quarter, but as is the case with our management style, we decided to write-down these projects while we finalized our claims and change order recoveries. These write-downs of $12 million this quarter were by far the largest contributor to these results.

The East segment also faced the winding down of the James I&M work for the large petrochemical project in Lake Charles. While the industrial work on this project is still ongoing for the energy segment, the majority of the site work we reported in the East segment is complete. This has been a very good job for the East segment.

But our challenge now is to find opportunity to replace it. And we have some good ones in sight, but none have been booked yet. For our James Heavy Civil group, we currently have over $140 million of projects with award notifications but pending contract signatures. And we're tracking over $900 million of additional prospects.

On a positive note we recently attended TxDOT's briefing of their plans to spend $38.3 billion over the next 10 years. For the James I&M group, we have $55 million of notification pending contract signatures and tracking over $100 million of additional prospects for them.

We are expecting additional scope releases at the large petrochemical project in Lake Charles that will keep the I&M group onsite throughout the year. And after the end of the quarter, we have received a scope increase of about $46.6 million on that project for both I&M and James Industrial Services.

Obviously, none of these are included in our backlog. In our West segment, ARB Underground, led by Scott Summers, is running a little behind revenue expectations due to later than expected releases in some of their MSA programs. The available work during the second quarter was slower than planned.

And we have adjusted our MSA backlog expectations accordingly. The group went after some non-MSA awards during the second quarter, and we picked up about $22 million of new work in California, helping offset this shortfall. ARB Underground is currently tracking almost $500 million of prospects.

Our ARB Industrial group, led by Tim Healy, continues to run behind their revenue expectation, primarily due to the delay in the final notice to proceed for the NRG power project. As you know, the CPUC and the Sierra Club have an appeal underway. And until that is settled, the final notice to proceed date is uncertain.

Refinery and other industrial markets in the West continue to face challenges from the lingering slump in crude oil prices, resulting in delays in capital spending and the cancellation of some potential opportunities. Our work on the co-gen unit in Wilmington and the City of Pasadena combined cycle plant are proceeding well.

Our Rockford group, led by Frank Welch, continues to await full release on the two major pipeline projects in Florida that we have been awarded. We are mobilizing and currently on paid standby for one of these projects. And while we're doing this, we are busy executing other smaller opportunities as they arise.

Our York, Pennsylvania, project was a success and is just now wrapping up. We still see a lot of opportunity in the larger diameter gas pipeline business and are tracking over $2.3 billion of opportunities. Our Q3C group, led by Jason Osborn, had a successful quarter, meeting or beating all of their expectations.

While their primary client markets are steady on revenue generation, there is limited growth opportunity remaining with those clients in their current markets. Q3C was able to expand their customer base and obtain projects outside their current customers, as they continue to grow their revenue. This group continues to shine.

In the Energy segment, our Primoris Energy Services group, led by Gary Martin, is only slightly behind plan for the year, due to delayed starts on project awards. PES's James Industrial Group continues to add resources on the large petrochemical project in Lake Charles and is expecting an additional sizeable release of scope this next quarter.

PES's Primoris Pipeline and Maintenance groups have begun adding backlog and are only slightly behind plan for the year. We are beginning to bid MSA work for this group also. PES is currently pursuing over $600 million of new industrial prospects and $270 million worth of pipeline, facility and maintenance opportunities.

Our OnQuest group, led by Randy Kessler, has enjoyed solid margins, despite lower revenue generation, due to major capital spending deferrals by clients and are behind their revenue plan. Despite these headwinds, we have begun seeing opportunities for our heater services in overseas markets.

In summary, many of the large scale projects that were planned several years ago have been stalled. Our direct exposure to oil projects, particularly in the upstream oil, is and still remains very limited. But the fallout from the decline in the oil prices has bled into other markets, causing project delays for many of our customers.

While the timing of awards and start dates has certainly created headwinds in many of our ends markets, we remain optimistic about the opportunities available to us in the coming quarters and years. Each of our business units is winning new awards, some at improved margin ranges.

The midstream pipeline market, for example, is in a lull right now, as we wait for our two large awards to kick off. But once they do, we expect our Rockford group to be very busy as they've ever been and to remain busy for several years.

Even the smaller pipeline work, which traditionally falls to our Primoris Pipeline group, we are beginning to see bidding opportunities this year over year. We have three large projects in backlog totaling $575 million that we had hoped to start in second quarter.

One of these projects, the power plant in California, was originally scheduled to start in late 2015. But environmental challenges have it bogged down in the courts. The other two projects are large pipeline projects bringing natural gas for utility customers into Florida.

While we're not worried about the viability of these jobs, permitting has pushed back the start dates. At this point we're hoping for a late third quarter start, but we recognize that a fourth quarter start may be possible. And that's the challenge we faced as we considered our earnings guidance.

As the current environment has taught us, being awarded the job, having a signed contract, and the customer estimate of the start date is not necessarily enough reason to include project earnings in our forecast. We're taking a more cautious look at the projects where the start date may be in question.

I'll leave it up to Pete to give you a little more color on how we reached our new guidance range, but let me assure you that we'll continue to do everything in our ability to keep your trust in Primoris. With that in mind, let me tell you what we're doing and a few of the positive accomplishments that may have been overshadowed.

We're improving on our SG&A, a goal we first highlighted two quarters ago. Since then, we've cut about $7 million from SG&A. And we'll continue working hard to bring this number down. We're also focused on our receivables and in particular, the $50 million in receivables that currently are in litigation.

We remain confident in our ability to collect on those but like everything else, the timing still remains uncertain. One of the, I'm relating to a Texas pipeline project is scheduled for a September court day.

The other receivable from a solar project in California with a Spanish company is awaiting judgement from a court on when we can go directly to the bonding companies for payment as the Spanish company is now in bankruptcy. I'm also proud of our balance sheet as it remained strong throughout this past year with nearly $100 million of cash on hand.

We've not had to pass on any business opportunities because of the lack of cash and while we've been quiet on the acquisition front with only a minor acquisition this past quarter to increase our utilities and pipeline drilling capabilities, we continue to look for the right deal at the right price.

As we work through this challenging market, we've remained profitable. We continue to pay dividends to invest internally for growth.

I know we have our work cut out for us to continue our organic growth in the current market climates, but as I look at the men and women who work for us at Primoris and the diversity of our company, I know that we are all uniting in our dedication to profitably growing our company on our solid foundation.

I'll close with a brief comment on a tremendous safety achievement this quarter. We have reduced our injury rate by over 22% from last year and currently have a zero lost time incident rate and a total recordable incident rate of less than 0.64. Primoris is truly a leader in the safety performance.

With that, I'll turn it over to Pete Moerbeek for his comments.

Pete?.

Thank you, David, and good morning. We expect to file our Form 10-Q on Monday so I will give you some additional numbers to supplement our earnings release. Our revenue in the second quarter was $457 million, roughly $27 million less than last year's second quarter.

Revenue declined by $39 million at Rockford as the delays at the Florida projects did not allow us to offset the revenue from last year's large pipeline project. The total decline in the West was $18 million, or 7%.

In the East, the winding down of the site preparation work done by our Infrastructure and Maintenance group for a large Louisiana petrochemical project reduced revenue by $26 million and for the East segment, revenue declined by $27 million, or 18%.

As our work at the Louisiana petrochemical plant has shifted to industrial construction, the total Energy segment revenue increased by $18 million, or 21%. The quarter's reduction in revenues reduced our gross profit by $3 million while our overall gross profit margin in the quarter was 9.5%, compared to 9.6% in last year's second quarter.

After an unusually low gross profit margin of 8.3% in the first quarter of this year, for the second quarter the gross profit margin for the West increased from 12.7% for Q2 last year to 14.1% this year second quarter. For the quarter, the gross profit margin also increased for the Energy segment from 7.8% to 10.8%.

The outlier of this quarter was the East segment where an increase in expected total cost and a reduction in the realization of expected claim recovery reduced the margin by $12 million for two I-35 Heavy Civil Group jobs. That $12 million tax affected in our current rates, reduced this quarter's EPS by approximately $0.14.

Add to that the impact of the revenue reduction at the infrastructure under Maintenance group and the gross margin for this segment was reduced by $9 million from last year's second quarter and the segment's gross profit percentage was reduced to 0.3% versus last year's 5.9%.

I want to emphasize that the reduction in our recoverable claims estimate does not mean that we won't be submitting and negotiating hard to realize these claims. But based on our measured-mile performance standards and potential counter claims, we made the adjustment at this time.

On a positive note, that is if SG&A expenses ever can be considered on a positive note, we continued to reduce our SG&A expenses in the second quarter of 2016. We reduced expenses by $6 million, compared to the second quarter last year. And on a year-to-date basis we are $7.2 million, or 10% lower than last year.

Our provision for income taxes increased by $1 million in the quarter, compared to the second quarter of 2015. In the effective tax rate for net income attributable to Primoris increased to 40% from 39%. For the calendar year, we expect a tax rate of approximately 40.5% for income attributable to Primoris.

Overall net income attributable to Primoris was $5.1 million for an EPS of $0.10 compared to last year's $3.6 million, and EPS of $0.07. At quarter-end, our tangible net worth was $329 million, a 12.4% increase from a year ago. And our debt-to-equity ratio was 51.3%. Our cash balance at June 30 was $97 million, up $11 million from a year ago.

We had available capacity over $100 million on our bank line of credit. During the quarter, we invested $30 million in property, plant, and equipment.

Included in this total is $13.4 million asset purchase for the specialty directional drilling and tunneling equipment, which we believe will enhance the work we provide our utility clients and our pipeline construction groups.

We believe that our total investment in PP&E will be in the $20 million to $30 million dollar range for the remainder of the year. Operating cash flow for the quarter was a positive $41 million.

For the second quarter of 2016 that compares to a negative $19 million for the same quarter last year and a negative $36 million for the first quarter of 2016. We continued to do an excelled job of collecting receivables. At least not those in litigation.

Our backlog at quarter-end was $1.4 billion fixed backlog and $533 million in MSA backlog for a total backlog of $1.9 billion. Down almost $300 million from $2.2 billion last year. Our fixed backlog declined $184 million during the quarter.

David discussed the delays in project awards and our current opportunities that we believe will increase these numbers. As I mentioned last quarter, the West segment backlog should produce our best margins.

Our MSA backlog declined by $98 million, reflecting a pullback, we are seeing in some of our California utility customers and a reduction in our Texas based pipeline maintenance customer spending. Our MSA backlog number is an estimate. Our best approximate estimation for expected revenue over the next four quarters. Finally, let me get to guidance.

We are starting our ninth year as a public traded company. For most of the first 7 years, we did do a very good job of estimating our earnings. We decided that we would provide you with a rolling four quarter guidance. And then we begin to hit quarters where two customers decided not to pay for work performed. Oil prices began fluctuating wildly.

There's an apparent war on gas in California and we are in a period of unprecedented regulatory delays. None of these challenges reduced the potential of our diversified business model, nor our earnings capability over time, but they do create forecasting uncertainty.

So for this quarter, we are trying a slightly different approach, which is to give you some of our base assumption.

Assuming that the power plant project in California starts around the end of this year, assuming that the two big pipeline projects in Florida start sometime in the fourth quarter, assuming that our South Louisiana petrochemical project continues through the middle of next year, and assuming no resolution to the receivables litigation, we believe their earnings per share will be between $0.90 and $1.10.

With these assumptions, we expect that 2016 third quarter EPS to be less than last year's third quarter EPS. But for the fourth quarter of 2016 and the first two quarters of 2017, we expect that each quarter's EPS will improve over the prior year's quarter EPS.

To the degree that there are changes in our assumptions that I listed, our results obviously could vary from guidance. One final comment. David mentioned our receivable litigation for two jobs and the assumption in our guidance that there is no impact from this litigation.

I do want to comment that settlement of the receivables litigation for either job could result in a significant upside, both for our cash and earnings, as we have recorded revenue only equal to costs incurred for these two projects. Thank you. And I will now turn the call back to the operator for your questions..

Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Lee Jagoda of CJS Securities. Please proceed with your question..

Hi. Good morning..

Good morning, Lee..

So just starting with the TxDOT work.

Other than weather, were there any other big issues that impacted you in the shorter term? Or was this just more of a continuation of the issues that have occurred in previous quarters and you may have not written down enough before?.

No, Lee, it really was, I think you'd heard me talk before on some other earnings calls that we have had some pretty good meetings with TxDOT, a partnership meeting to try to expedite some of that work along I-35 because that work when it was originally led, as Pete said, five or six years ago, there was a lot of delays in that project, even before the project started.

Utilities that had to make moved in a lot of the work that TxDOT had to get done. But toward the end of the first – late last year and then obviously continuing in the first quarter, we all felt like we could accelerate that job, those two that we're mentioning, and have them finished by mid-year, the June-July timeframe.

TxDOT saw that as a good undertaking by us. And obviously, with our relationship with them, which is very solid and still very solid, and knowing that we got some in what we call claims, they're not legal issues. They're – obviously, we're referring to claims therein as change orders.

But we wanted to make sure that we finish those things in that June or July timeframe to be able to relieve some of that congestion on the I-35 highway system. We poured a lot of time and effort into it. Obviously you picked up there, the rain did affect us.

But when you're pouring a lot of extra effort and acceleration into those projects, you've got a lot of extra workers in there on those projects and a lot of different work fronts. So we actually had some productivity hits therein.

If we had not accelerated them and just continued them out over a three- or four-month period, we probably would not have seen some of that productivity hit. So we had labor hits, productivity hits, a little bit of the – we had adequate resources. That wasn't an issue. Now middle of last year, we had issues with having adequate resources.

But the real issue was just labor productivity and weather delay..

Okay. And then as I look at the East margins, if I adjust for the $12 million write-down, the gross margin of the East would have been about 9.7%. That seems on the higher side of things.

Are there any additional favorable offsets in that number as well?.

Well, if you remember in the East, and Pete can get into more color for you later on it too. But in the East we had the I&M work with Sasol. That was a quite bit of work that was going underway. We've also, as I mentioned on a few other earnings call, we really started having our Heavy Civil Group not only look at highway work.

We've actually picked up some airport work, which carries a little bit higher margin than the highway work would carry. So a combination therein of those factors I think helped drive that margin up..

Okay. And then I'll leave you with one just broader question.

If I look at the three segments of your business, looking out over the next 18 months – I know you've given guidance for the next 12 months – can you speak broadly about the trajectory of some of the end markets? And the drivers behind them?.

Yes. I mean I guess I can start with the one that we see as the biggest one for us is this gas pipeline market that I mentioned with our Rockford group. And we're also with our Primoris Pipeline group picking up some of that work.

There's tremendous upside opportunities there, as some more of those permits get approved and right-of-ways or routings get approved. So we continue to see that a very healthy and good market for us.

Our utilities and distribution markets, although you heard us mention about our ARB Underground in California maybe not moving as fast, you did hear me talk about Q3C burning through theirs. And we're obviously looking where we can add more capabilities there in another region. So we still see utilities and distribution. Yeah.

We've had this hiccup in the highway work on these two projects. But there's still a lot of drive in the State of Texas and even in Louisiana with some of the funding that they're going to do on programs. So we still see some good opportunities, upward growth in those two markets of Texas and Louisiana.

I would primarily say those are the three biggest areas that we're seeing. Industrial work for us in our PES group, we're beginning to see some new opportunities arrive, mostly around methanol projects, hydrogen and HyCO facilities, industrial gas facilities. We have seen the slowdown in the LNG side of the business.

But definitely continue to see the industrial side in that Gulf Coast, a steady market for us. On our ARB Industrial side out here in California, as I mentioned, if we can ever get this NRG project off, then we'll see some good revenue burn and profitability therein.

And I will say that Tim and them are tracking quite a number of prospects, again both in our union side and the industrial side and our Saxon side of the open-shop. So we are seeing some power projects out there that can show some upside for us..

Great. I will hop back in queue. Thank you..

Thanks, Lee..

Our next question comes from the line of Matt Tucker of KeyBanc Capital Markets. Please proceed with your question..

Hi. Good morning, gentlemen..

Good morning, Matt..

I guess first question on the guidance. I assume even with the pipelines delay that they're still started and completed within the next four quarters. And you've got the large petrochemical project still continuing through the next four quarters. It sounds like the power plant has moved out though.

So I guess aside from the power plant moving out, could you just talk about what else is driving the lower outlook versus the – versus last quarter?.

I think that we're not 100% certain. We agree with you on the pipeline project. So we're a little bit concerned that you've moved pipeline out of quarter. And then you may get past the June timeframe for finishing those two Florida projects. So that's part of – it's actually a significant portion of what we're looking at.

If they don't start till the end or close to the end of fourth quarter, you've got a pretty high probability they may stretch out further. So it's that. There are a couple of projects that we were looking at for our OnQuest group.

They were building some mini micro LNGs that we now think they're still in the pipeline, but they're going to get pushed out further. So I think if you add all of that together, that's the primary reason..

Got it. Thanks, Pete. And you'd know better than me on the pipe project so no argument there. Just looking at the energy segment; the backlog is just under $70 million. You've been running it over $100 million, run rate in revenue.

Is it fair to assume that the revenue drops off there fairly steeply going forward?.

No. Let me make a comment, and then Pete can even give you some numbers. I mentioned in my scripted notes that we were expecting, we had some projects already ready to sign. But we were expecting some fairly large expansion on some petrochemical work for the industrial group. Once that comes through, and to me, it's just a timing.

We've already been notified. It's just a matter of getting the paperwork through. You would see that backlog jump significantly in there, maybe another.

What, Pete?.

Well, if you remember on both our press release and on David's comments, we added $46.6 million to the backlog number that we have for the large petrochem project. That, we don't think is the final number. We think that number is going to increase somewhat dramatically more than that and will start to get you to a backlog number that makes sense.

It's just – we haven't been awarded that. And so didn't want to be in a position where we were putting something in the backlog. Some of it's come, and we're expecting to see more of that over the next month or two..

And, Matt, I'll make one other comment while we're talking. Again, I'm specifically talking about our open-shop industrial, the James Industrial Group. We're tracking and seeing a couple of different methanol projects. One specifically that we feel very, very good about.

Obviously, it's not awarded yet that would, in addition to the large petrochemical project we've mentioned, be another fairly substantial award for that group. We're also looking at some low density polyethylene de-bottlenecking projects.

And then one of the really key things we do, and I mentioned a little bit on these industrial gas organizations such as the Air Liquides and Air Products [and Chemicals] and Praxairs and things. As we do a lot of mechanical erection on some of the hydrogen units. And we're seeing some opportunities there again also..

Thanks, guys. That's very helpful color. And then switching gears to East construction and, in particular, to the Heavy Civil market. Overall in used construction your new awards run rate has really fallen off over the past several quarters versus the 2011, 2014 type timeframe. I imagine a significant portion of that is on the Heavy Civil side.

And some of your competitors have actually been talking about a fairly robust bidding activity, particularly in Texas.

So just curious kind of what – I guess what's been going on there with your bookings run rate? Have you been kind of de-emphasizing the Heavy Civil market? Has the win rate been going down? If you could just kind of comment on your bookings trends there..

Yeah. I think it was a conscientious decision, put it that way, Matt. As I mentioned earlier in the 2014, 2015 timeframe with a lot of that work going on down to the I-35, Austin was having such a building program going on as well as other cities in Texas, that it was hard to give some adequate labor resources.

So we actually tuned back a little bit because we had a tremendous backlog of work and good work for us. And so we actually tuned it back a little bit so that we didn't go after some additional work that we might not be able to handle. I think you'll see that begin to turn around as we work these other projects off..

Great. Thanks, guys. I'll jump back in the queue..

Our next question comes from the line of Jason Wangler of Wunderlich. Please proceed with your question..

Good morning. I was curious about the pipelines in Florida. I think from chatting in the past that there were some – you guys had to be ready when they called and I think vice versa as far as some penalties that they would pay.

Am I correct in that those work at the end of the year is when those would be enforced or is there a timing issue there where you guys have kind of a drop dead where you'd start getting paid?.

You're correct. The projects, if they canceled the projects, there were some fees. If they continued on and they would get to a point to where they had to put us on the paid standby. And if you remember in my comments indeed that's what's happening.

Although we're over there on one particular project, unloading pipe and things of that nature, we're just on kind of a paid standby. The other project has not got to that date of when they have to start doing something similar, but you're correct except they are doing exactly what they said. They put us on page standby.

There's a good thing and a bad thing about page standby. The good thing is you get paid. The bad thing is you're not making a lot of money and you don't have your equipment rolling and for our Rockford group, once we get our equipment rolling, that's really where we need to move is get our equipment moving.

We have a lot of revenue burn with those major equipment items and we obviously have the potential to make margin and so that's one of the reasons our guidance has changed and just waiting to see when we can get those kicked off..

Okay. But obviously, with them paying something at least there's probably an onus that they want to get going as fast as you guys do as well.

In California on the power plant project, is there something we should be watching specifically for to get that project kicked off? I know we've been waiting for the better part, almost of the year now, but is there a certain regulatory issue or vote or anything that we should be kind of watching that maybe unlocks that or is it just more kind of going through the process?.

It is unfortunately. The case is in the appellate court in California. It is a Sierra Club and a couple other agencies or groups suing the California Utility Commission.

So there is nothing that the owner of the plant, there is nothing that the end customers in San Diego, or there's nothing the construction company can do while the appellate court decides whether to even hear the case and then what it means. Most of us expect that they will reach some sort of decision sometime this year.

That's kind of, you know when I said our guidance is that we could start at the very end of the year, early next year. But until the court's rule, there is not – the Utility Commission cannot give the notice to proceed or the approval to proceed. So it is not up to anybody except what the courts decide to do out here..

Okay. Great. I'll turn it back. Thank you..

Thanks, Jason..

Our next question comes from the line of Dan Mannes of Avondale. Please proceed with your question..

Thanks. Hey, everybody..

Good morning, Dan..

A couple follow-ups here. SG&A, the $7 million decline year-over-year was a big step down on a first-half basis.

How much of that is reduction of variable comps that given performance, versus how much is actually a real net reduction in terms of cost?.

Well those of us that get incentive comp would argue with your word real but the numbers are roughly the same for both halves. So the answer to your question is minimal impact. As a metric I think we're $100,000 higher or $200,000 higher for the first six months this year on incentive comp than we were last year at this time.

So I don't want to say it's real or unreal SG&A, but we have really made a conscious effort both on the reducing places where we think we can from a people standpoint, as well as making some of the changes, trying to reduce the legal costs, and some of it is a little bit of – a million or so is due to the way that we make sure that our accounting – we're starting to charge the projects for legal costs rather than putting them in SG&A..

All right. You're right, Pete. It's not that it's real or unreal because obviously it hits you guys, but we're assuming you're ultimately going to earn that stuff again next year. So it'll come back, let's put it that way..

Yes. Let's hope so..

Got it. Moving on to a couple other quick topics.

As it relates to the energy power plant, I don't know if you can comment on this but given the length of time and the potential change in the market, at what point, as long as this is hung up, do you end up having to renegotiate or even rebid this thing? Because I mean you're now, what, plus a year past your original bid, or past the original award..

Yeah. Actually, Dan, we've been doing that as we've been going along..

Okay..

That's been an ongoing process with NRG and very open. They're a great customer with us. We've done work with them, doing this work and going to do a lot more work with them in the future. And so we've been going along with that. The real issue gets to be a point to where the end dates become difficult for the offtake agreements.

Anyway, it begins to get pressure more on NRG to say, okay now we've got to look at changing some agreements they have in place. But we've been going all along in discussions with them. So there won't really be a re-bid, renegotiation type thing on it..

Yeah. Dan, the biggest changes will be obviously their LDs and the specific date tied to LDs, and at the rate they're going we may be at the LD position before we start the project..

Okay. On the E segment, given the takedown in margins on Belton, the fact that it doesn't finish until the third quarter.

Should we assume there's going to be a chunk of really low margin revenue in the third quarter?.

Well we better hope not..

But the answer is, from an accounting standpoint, yes?.

Yes..

I won't say a chunk but – hopefully it will actually be positive – but you're going to see some revenue. It's not all that dramatic because we really are toward the end of the job that will be at zero percent margin because we've obviously provided for the loss..

Still burning revenue but no margin..

Right, right. And then as we look at the guide, I mean this is still again the biggest surprise for me.

So when I think through kind of this shift from $1.15, the $1.30 to now the $0.90 to $1.10, part of that is the fact that instead of four quarters of major pipeline work, you think there might be some reduced amount, I don't know maybe two or three quarters? You have maybe two quarters left of Carlsbad, and then I'm assuming also maybe a reduction in your view on the Energy – on the E segment as now the petrochem work is reduced.

Would those be the three big components and can you allocate among them? Or am I missing something particularly important?.

No, I am not going to allocate them. But what I will tell you, there is also a couple OnQuest mini micro LNG facilities that are in the pipeline that keep getting pushed out that have an impact on that.

The total change is somewhere in the $28 million to $30 million range and I think if you put the ones that you've mentioned and add some of those, that you're not very far from having gotten most of it..

Okay. And the last thing is, just on the Heavy Civil side. Over the past twelve months or so, we've seen a number of times where you've been the announced low bidder, for instance on TxDOT, and yet we haven't necessarily seen you guys PR-ing them as awards.

I think David may have mentioned this but how much – or I don't know if you can quantify how much sort of pending work is out there that you know you're the low bidder on that just for whatever reason hasn't been signed off.

Can you talk at all to maybe why that's been hung up there as long as it has?.

Yeah. I can give you a little bit of color on that Dan. I think I've even mentioned it in my notes. I think it's about $140 million worth roughly, contracts that we've been notified on. One of them we are a designated subcontractor to a prime contractor.

And the prime contractors, he has to go through to get his paperwork in order and get it all signed before we can get ours signed with them. That's one of the ones. The other one is just – I'm just telling you with some of this TxDOT, even though you're awarded, it may take you sometimes two months and three months to get that contract signed.

Because TxDOT, I will give them some accolades, we've been working with them hard as a lot of contractors has over these last four quarters or five quarters to say, look guys, you can't start these jobs and then automatically say, give us a six-month delay. So we've got to work better if we're going to get these things built on time.

So they're getting better, but they're still not expedient with getting some of those signed as quickly as possible..

But how much of that $140 million is TxDOT? Is that the majority of it? Or is it all across your portfolio?.

It's all across..

On the Heavy Civil..

On the Heavy Civil..

Okay. But it is $140 million specifically in Heavy Civil..

Yes..

Yes. Yes..

Got it. And then I'm sorry, the final question as it relates to the pipeline jobs, we've obviously heard various things over the last couple months in terms of where they stand on their local water permits. It sounded like your guidance was a late 3Q start. And I think that was what you said.

Can you confirm that, number one? And number two, can you talk about maybe any more recent dialogue you had and your confidence level on that, given what we've kind of been through the last couple months?.

Well I'll let Pete tell you where we've got it in the guidance at..

No, it is not in third quarter..

No, I said starting late Q3..

Not even – if they're even – no. We're looking at it sometime in fourth quarter..

Okay..

And as you know and what you're probably hearing out there in the public domain, because you can check anyway, the Army Corps of Engineers' permit and things like that, that's all okay, my understanding. But you still have to go through at least on one of them to get final FERC approval, which hopefully shouldn't be too bad or take too long.

But at this time, that's about the extent that we know. The other one – since the two that we've been awarded are somewhat tied together, one will flow pretty quick behind the other. That's why we've got them both kind of slated in that fourth quarter timeframe. If they come faster, then that helps us..

And Dan, we'd be happy to start earlier. We're ready..

Yeah..

We'd be happy to see you start earlier. Thanks again for all the commentary..

Thanks, Dan. Appreciate your questions..

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

Hi. Good morning..

Morning, John..

A couple of just follow-up things, one on Dan's question.

Low bids pending the $140 million of Heavy Civil jobs, are there other projects outside of Heavy Civil that you also have pending awards?.

Yeah. I think I mentioned in our I&M section..

Yeah..

We've got I think it's roughly $50 million or somewhere in $45 million, $50 million range that we're still trying to get the contract signed on. We've got it awarded to us. It's just a matter of dotting the Is and crossing the Ts and finalizing that. You've heard us talk about this large petrochemical project in Louisiana..

Right..

That contract already exists, it's just a matter of upping the value on that contract. And I think Pete said, we got about a little over $46 million. And we're expecting substantially more. But those are the three probably major areas that was just a timing that didn't happen in the second quarter that'll happen in the third quarter..

Okay. So that's an additional $240 million, $250 million worth of work out there..

Yeah, exactly. Until we've got a signed contract, we don't put it in backlog. But when I looked at our backlog number, and I know we're reporting somewhere right about $1.9 billion or something.

But then I realize that except for their side and our side expediting signing of the contract, therein lies another $200 million that probably could have gotten in the second quarter, if we could have got signatures signed. It just didn't. So I kind of see our backlog as actually remaining fairly steady if not even trickling up a tad bit.

But again it was the timing on them..

Okay. Thank you. And then in terms of the guidance. I appreciate your comments, but – and I appreciate the comments about the third quarter and subsequent quarters. How they're going to lay out. But it seems as if the – with the pipeline projects that were always, I thought, expected to start up sometime maybe in the third quarter.

But you've taken a substantial reduction in the third quarter expectation.

Is it – is there something else going on?.

Actually, John, the pipeline project – I'm sorry, John. The pipeline projects were supposed to start in second quarter..

But, yes. But, Pete, you were always – I mean at least I got the impression you were always pretty conservative about that. That they hope they did, but you didn't know for sure..

And then we hoped they started in third quarter..

Yeah..

And now in guidance we're putting fourth quarter..

Yeah.

Have there been any other reductions?.

I mean that is a very significant part of the total reduction, is just our uncomfort – we want to be in a position that if we give you numbers that they're numbers that are attainable and obviously some, the top end's going to be more of a stretch in the bottom end, but at the rate things have been changing and at the rate things get pushed out, we're a little bit concerned that, and ironically maybe this will help them move into the third quarter, but we've given guidance and each quarter it seems like we've had to talk about, well this got pushed out, and this got pushed out further and this is in the courts.

And we kind of wanted to get away from playing that game so we said, okay, and we had this discussion at the board yesterday, let's pick a number that we're reasonably comfortable and has some stretch in it, but that we believe is attainable, let's identifying those things where they are, and then if it happens faster we will be more than happy to reissue guidance three quarters from now – three months from now.

I would love it..

I know you're thrilled with offering guidance. The $900 million in potential projects for James that you highlighted, mentioned both civil and private sector work.

Can you give us a little more color on kind of what that market opportunity is?.

Yeah. We've got several things in it and the bulk of it is obviously highway work but we've also got some airport work, both in Texas airports as well as Louisiana airports. That's the same type of work force to build a highway as you do building airports.

And so we redirected to try to get that group going into a little bit higher margin than just highway work. I don't have that data right in my hand, John, but the bulk of that is highway work, but there's at least, and I'm going off the top of my head here, John, but there's probably at least $100 million of that that's airport related work..

Okay. And I mean you mentioned the methanol projects and I'm aware of other crackers that are being discussed as well.

Is that included in that $900 million of potential?.

Yes. There'll be some on the I&M side. There'll be some civil site work..

Okay..

Yes. Yes. So there will be some of that. Correct..

All right.

And David, is that prospects for 2017, at least in terms of award potential or is that further out?.

Some of it actually is on the ethane cracking things that you're mentioning, that would be more 2017. On the methanol, that's more within the next third and fourth quarter of this year..

Okay. Okay. Well good luck with that. And then lastly, last quarter you talked about acquisition prospects; a small one and then something tentatively a little larger that you were working on.

Can you give us any color or updates there?.

Sure. I think Pete mentioned to you, we did follow through and buy a small one called Pipe Jacking Limited (49:22) that does some directional drilling and work that'll fit in quite well with some of our utilities distribution pipeline oriented. We did follow through and buy that organization and we're integrating it now.

We had another one that was in the utilities and distribution area, in a different region, one that we're not actually covering now from a U&D standpoint. We felt we had a deal; it just didn't follow through. The more we got into negotiation with them – it just – they elected to drop out and we're sorry to see that go.

I think it would have been a good fit for us, but at the same point in time, we were choosing to drop out of it also because they wanted to change the deal. So – but we've got other opportunities on the list and I think as we've told you before, we look at these acquisitions for the right culture.

I'm not sure that group would have been the right culture with us toward the end of the discussions. But we look for the right price, the right fit, the right market, the right culture, and that one just didn't work. But it doesn't mean we don't have others on the list and in fact we do have others on the list.

We've got another one right now and I don't want to give you too much on it because it's not a major one but would get us into another area we actually discussed with the board this week..

Okay. Right. Thank you. Appreciate the color..

Our next question comes from the line of Matt Tucker from KeyBanc Capital Markets..

Hey, guys. Just a few follow-ups. On the pipeline side, I think you mentioned $2.3 billion in opportunities. Sounds like that's the end market you may be the most excited in.

Can you talk about the timing of some of these opportunities? Could some of these be awarded in the second half? And then have these delays to the Florida pipelines affected your ability at all to take on some of the opportunities that you were looking at earlier in the year or maybe for the first half of 2017?.

Yeah, Matt. Let me start with the last half of your question first. It definitely affected us going after some other work because when we took those two major projects, we committed to those customers and that's why they pay us standby time, that we would have the resources when they were ready to kick them off.

And so it definitely, we had some lost opportunity on some other bigger opportunities, or other opportunities. And so we took those forces that we could and went after some of the smaller projects. I mentioned to you that York, project that we finished. It was relatively small but we could get on it and get off of it.

We've got one that we're looking at currently that's in the Texas area. I'll just make that comment. I don't want to go too much deeper in the customer, that we would be able to get on and off rather quickly. And not affect any of the spreads that we've got on the other two opportunities. Now, to the first part of your question.

We're looking at – we're hopeful, but I will make this comment, every time I say this and we go with what the customer says relative to award dates, they seem to have been slipped off.

So I'm going to be very cautious in making this comment, but there's obviously a large project out there that has the potential of being awarded this year before the end of the year, another large pipeline project.

And then we've got, as I said in that $2.3 billion worth of opportunities for us, we've got projects in Virginia, West Virginia, Ohio, Arkansas, Texas, it's spread out quite a bit and that's why we feel pretty, we feel that's a robust market still for us..

Thanks, David. That was really helpful. Now I also wanted to ask about these micro-LNG projects. They seem to get pushed out.

Is that largely just due to the general market softness that we're seeing in LNG or are there more project-specific issues that are affecting those projects?.

Part of it's the general LNG softness but there are some specifics. If you remember those projects are really fit for three things. Either a fueling of railroads, or a fueling of barges and things of that nature, and then obviously just pure transportation side.

When the oil business went down there wasn't a lot of fracking going on any longer so some of the fueling of the fracking rigs and things, that was one side of it that came down.

The retrofitting on the barges and things with the LNG-burning engines and things are not accelerating as fast because obviously when the price of oil comes down you begin to look at different fuel costs and different economics on them.

The projects that we're actually looking at that Pete mentioned earlier, the two that were delayed, one of them is in a pure transportation market.

That one is just a matter of negotiations going on between our client and his client and then the other one we went through all the way through T's & C's and some de-scoping of a particular facility in Florida. That one in itself is just waiting for the client to say, yup, he's ready now to do it.

Anyway, I don't know if that's enough color for you but that's really where it's at. A little bit of the L&G dampening but more to do with the specifics around the projects..

That was very helpful color. And then this last question for me. With some of this MSA work you mentioned coming in lower than expected. I mean, it sounds like that's not work that you expect to be made up of in the second half.

Is that correct? Is there anymore color on, I guess, why that's coming lower than expected?.

You know, there's a couple parts Matt. One of them is in California. We have been doing a lot of work on the PSEP program for one of the large utilities out here. They are getting towards the end of their initial work and they've decided that what they want to do now is they want to get it in the future rates.

So it's not a matter of doing the work and going to the Commission to get the rates increase. They want to get the rates increased. So they're looking at maybe as much as a year of much lower work while they go through the process of getting it in rates. Again, as we've said before a lot of this work isn't going away, it's a timing issue.

So what you're looking at is, yes, some of the utilities have a three-year rate case in most cases and they've got to spend their money or spend a lot of it in the three-year period, but they have quite a bit of control over where within that period they do. So that's part of the reduction and a little bit apprehension.

And again I think you're seeing us trying to be a little bit cautious. The other is that we had MSAs with bunch of customers along the Gulf Coast and you know as the price of oil is stayed low, that's been an issue.

We're looking at these MSAs and saying, they're just not coming to the level these days of maintenance work that they were forecasting and planning themselves as they're trying to conserve cash..

Thanks, Pete. I'll leave it there..

Terrific..

There are no further questions in the Q&A portion of the conference. I would now like to turn the conference back over to David King for closing remarks..

Well, normally I'll make a quick closing but I just want to say one thing in closing. You know, I'm personally disappointed with our results this quarter. But I'm not disappointed with the efforts that we had with Primoris team.

You know, when I look at, and we've made these comments today, when I look at the backlog, you know except for the timing, I think our backlog is holding up. We're definitely holding up in our cash and balance sheet. We do have our SG&A under control and we're going to look at it even further, and I still think we've got adequate opportunities.

So with that being said, I still think we have a very optimistic outlook for the company. I do appreciate you joining us on the call today. We appreciate all your questions and thanks again for your interest..

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful rest of your day..