Kate A. Tholking - Primoris Services Corp. David L. King - Primoris Services Corp. Peter J. Moerbeek - Primoris Services Corp..

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

Greetings. And welcome to the Primoris Services Corporation Reports 2016 Third 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, Kate Tholking, Director of Investor Relations. Please begin..

Thank you, Barack. Good morning, everyone, and thank you for joining us today. Our speakers for today will be David King, President and Chief Executive Officer; and Pete Moerbeek, 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 regards 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 ending December 31, 2015, our quarterly report on Form 10-Q which we filed this morning, 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..

Thanks, Kate. Good morning, everyone, and thank you for taking time away from this exciting presidential election news coverage to join us today. We had a busy quarter, but I'm pleased with our third quarter results as they were generally in line with our expectation excluding our plans to divest our Texas Heavy Civil operations.

We had solid execution in the face of continuing pricing pressures and a challenging permitting environment.

We have continued our drive to strengthen our business development in sales operations and that is reflected in our record $2.7 billion backlog which includes our expected spreads in the Atlantic Coast Pipeline project recently awarded to Spring Ridge Constructors, LLC, a joint venture construction company including Rockford Corporation which is a Primoris Services company.

Clearly, concerned with our Texas Heavy Civil unit which we plan to divest and the dispute settlement on the pipeline job make our numbers a bit more challenging to digest this quarter, but I'll leave that to Pete to walk you through those details in a few moments. First, I'd like to focus on some of our achievements this quarter.

As we've indicated over several quarters, we felt positive we would prevail in our dispute to collect our funds on one of our completed pipeline projects. We have now successfully closed that collection dispute and those funds have been received.

We've also generated over $50 million in cash flow from operations this quarter, closing the quarter with over $148 million ending cash balance. We continue to drive to lower SG&A cost having reduced these costs year-to-date by $9.7 million.

We've added to our backlog this quarter, in all of our financial reporting segments continuing to grow our MSA backlog and increasing our backlog significantly in some of the historically higher margin performing areas.

We've invested about $38.6 million in CapEx this year-to-date equipping our workforce with the most efficient equipment tools and programs in the industry.

Our safety performance continues to outpace industry norms with our teams being recognized for several major achievement awards having achieved a zero-loss time incident rate year-to-date and a total recordable incident rate year-to-date of 0.63.

Now, I'd like to focus on our end markets and talk through the challenge and opportunities we are seeing there. I'll start with our utilities and distribution market which are covered by our ARB Underground in Q3C business units in our West segment.

This market is where we see the majority of our MSA work which is as close as we get to reoccurring revenue in our business. As expected, the ARB Underground group saw a big uptick in their utility work in the third quarter as work that was previously delayed, became available.

This is good margin work and have Scott Summers and his team deliver a strong third quarter. This higher volume should continue into the fourth quarter. Looking ahead to 2017, one of our utility customers is restructuring their pipelines safety program.

So, while we expect revenue with that customer will be down next year, we believe that we can feel that gap with other work we are pursuing with those existing and new customers. Outside of California, our utility work with Q3C continues to be a powerhouse with Jason Osborn (4:54) leading that team. Q3C's work hours were up.

They added two new customers to their network and expanded operations in Illinois and Missouri. They should continue in the fourth quarter until the winter weather leads to their annual winter shutdown.

Our total expected MSA revenue over the next four quarters, most of which follows in this end market, is expected to be $562 million, up $30 million from last quarter. Within the power market, we've had both union and open-shop capabilities. Our union power work is performed by ARB Industrial in our West segment, led by Tim Healy.

Revenue for this group continues to be lower than we'd like as the timing of their large energy power project remains uncertain. In late September, the appeals court agreed to hear the case and started the clock on a 90-day window for a decision.

After the appeals court makes a ruling, the protesters would still be able to appeal to the California State Supreme Court, so we don't expect an un-appealable decision before the second quarter of 2017. Until that time, ARB Industrial continues working under a limited notice to proceed on the project.

Tim's teams are also busy on a battery storage project, a co-generation unit in Wilmington and the Pasadena combined cycle plant which is nearing completion.

So, the delay in NRG project has not stopped Tim's team from pursuing other opportunities as they continue to track both new and repowering gas power plant developments and large renewable projects totaling over $650 million in opportunity.

As we look at power outside of California, we recently had a good win with our open-shop, Primoris Power, or the old Saxon Group, in our Energy segment. The 340-megawatt plant they are constructing on the East Coast is a chance for us to showcase our open-shop power capabilities.

This project will keep the group busy through 2017 as we continue pursuing other opportunities. Our pipeline market is poised to kick off a better year. Our union pipeline work is performed through our Rockford Group in the West segment. And as I'm sure you're all aware, their two large Florida jobs are up and running.

Both projects saw their pipe-gang crew start in the first half of October and pipe is being welded as we speak. We also picked up a smaller job near the New York-Pennsylvania border, which should be completed before year-end for Rockford.

Of course, the biggest news for this group is Dominion's announcement that the Spring Ridge Constructors has been selected as the contractor for the Atlantic Coast Pipeline project. Rockford is one of four joint venture partners in Spring Ridge and this is a huge win for Frank Welch and Josh Ramsey's teams.

The project is in scheduled start for over a year, so it won't affect our current earnings guidance, but it gives us good visibility through 2018, while we continue to track an additional $6 billion in other pipeline work for Rockford.

Frank and Josh are working diligently on opportunities we feel we can secure to cover the hole in work we may experience between the wind-down on the Florida projects and the release to be in work on the ACP project.

Our open-shop pipeline work is performed out of our Energy Services segment by Primoris Pipeline and Field Services Groups, our old Sprint Group. Low oil prices have continued to depress this business though 2016 is looking better than it looked last year.

They benefited this quarter from the Bridgetech settlement and are actively looking for new business to have a successful 2017. Patrick McRae's pipeline group has added more main pipeline work such as a $15 million North Carolina project they're currently working on.

Kevin Burnett's Field Services group is focusing on more long-term maintenance contracts and preferred contractor MSAs. Work in the oil and gas market is performed by our union group ARB Industrial and our open-shop group, Primoris Industrial.

In the West, ARB's industrial market continues to face challenges from the lingering slump in crude oil prices, which had resulted in project cancellations and delays in capital spending. Tim's ARB Industrial team is performing oilfield maintenance services under an MSA agreement since January of this year.

The work includes multiple properties located throughout Central California and is currently ramped up to approximately 150 craft employees. ARB Industrial also has recently executed a three-year MSA for four refineries in Northern, Central, and Southern California.

While we don't anticipate that these MSAs will generate sizable revenue on their own, we hope they will open up new opportunities for significantly more work in these facilities than we have enjoyed in the past years. This group is also pursuing work on a refinery integration project that could keep the team busy in 2017.

Gary Martin's Primoris Energy Services group targets the open-shop oil, gas, and chemical work with a particular focus on the Gulf Coast region. Our largest project in this market is currently the Sasol ethane cracker in Southern Louisiana where work is being performed by both Primoris Industrial and James I&M.

Jonas Beatty's I&M group is roughly 85% complete with their portion of the work and we expect them to have only a minimal presence on the site in 2017. The industrial work led by Conrad Bourg is roughly 60% complete and Conrad's team would be on the site at least through the majority of 2017.

This remains a great project for both Primoris and our customer. I'd also like to commend Conrad, Rusty DeBarge and the entire industrial team on outstanding safety performance at this job site, as they worked two 1 million man hours stretches without a recordable.

As we look beyond Sasol, the I&M group is closely tracking other opportunities valuing $200 million. And while the industrial group will be on the Sasol project a little longer, they have over $375 million of other opportunities coming down their pipeline.

The majority of work performed by Randy Kessler and our engineers on OnQuest falls into the oil, gas, and chemical market and the group signed more deal awards in the third quarter than they did in the entire first half of this year.

Refining capital projects have been slow to rebound from the depressed commodity prices, but we're starting to see signs of improvement and activity and their opportunity pipeline has nearly $0.5 billion of potential opportunities.

Most notably, we were given notice that a previously suspended award for four fired heaters at a Canadian plant will once again be moving forward. In the water and wastewater market, we're seeing new work coming down that pipeline also.

Don Patrick's Primoris water solutions group is seeing more ample bidding opportunities and have identified over $100 million of project opportunities available to us over the next 12 months. Scott Ahlstrom oversees our BW Primoris group.

This is our water development unit looking for ways to work with municipalities and corporations to solve their water needs. The last market I'd like to touch upon is our Heavy Civil market. First, I'd like to talk about the Heavy Civil work outside of Texas, which remains a strategic part of our Primoris business plan.

Mike Killgore and the James Heavy Civil group have a long successful history on projects in the Gulf Coast states of Louisiana, Mississippi, Arkansas and other strategic areas and are a profitable contributor to the Primoris' bottom line.

One of their largest projects is the I-49 design-build in Broussard, Louisiana, a $57 million project that we're roughly halfway through. They're also deep into a $46 million road project in Arkansas.

This group shares office space in Baton Rouge with our Primoris Industrial and James I&M divisions, and their equipment and workers are fungible between our projects. For these reasons, Primoris remains committed to this division. On the other hand, we took a long hard look at the Texas Heavy Civil unit this last quarter.

This was a region that James Heavy Civil entered in the 2010 timeframe. It's been no secret that Belton, Texas area jobs have struggled with timing, permitting, weather and staffing.

As we evaluate the group and its place within Primoris, we had to balance, on one hand, the large potential opportunity coming down the pipeline in Texas with Prop 7 money and, on the other hand, the recognition that this business did not mesh well with other Primoris business units and needed the right person to manage the unit.

We decided that the time was right to divest the unit and allow us to focus our effort on areas with margins more in line with our overall corporate margins. We believe this is the right decision for Primoris, our employees and our shareholders. We'll continue to bid and execute work until the unit is sold.

I also mentioned last quarter that we would continue to work hard at bringing down our SG&A costs, and I'm proud this quarter's SG&A is almost $3 million less than last year's. Our receivables continue to be well managed and our cash balance continues to go up.

Our balance sheet continued to be a source of strength as we pay dividends, investing equipment and look at acquisition opportunities. Combined all that with the backlog that set a record high and I feel pretty good about where Primoris is right now and where we're going.

On the acquisition front, we continue to look at utility and distribution entries in the new geographic markets and also looking at new market entries for power-related services. I want to conclude my remarks by saying how proud I am of our company and the employees.

The recent August flooding in Baton Rouge area was devastating to many residents and we personally had numerous Primoris' families affected. Through our fellow employees and company programs, we were able to physically and financially help these families at this difficult time in their lives. That's what being a responsible company is all about.

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

Pete?.

Thank you, David, and good morning, everyone. As you can tell from this morning's earnings release or from the 10-Q, it was a very noisy quarter. So that we can get to your questions, I will focus only on some of the key highlights. As David mentioned, we benefited from the settlement of one of our collection actions.

The benefit was not only very good as a cash receipt, but it also provided a positive impact to our earnings. Prior to the settlement, the project had been recorded at a 0% margin. So, the settlement allowed us to add about $27.5 million to revenue and after paying our attorneys about $26.7 million in profit during the quarter.

Excluding the benefit of the settlement, our total revenue for the quarter decreased by $75.6 million compared to the third quarter of last year.

OnQuest revenues decreased by $12 million as they completed a micro LNG project in the last year and the revenues at our Primoris pipeline division headquartered in Rosharon, Texas declined by $12 million as we performed less maintenance and smaller pipeline projects in a very difficult environment for our traditional midstream customers.

The bigger decrease in revenues, however, was at our Heavy Civil division where work for our three primary state Department of Transportation customers declined by $47.2 million compared to the third quarter of last year.

We were able to increase revenues by $13.5 million from our other Heavy Civil customers, but the net revenue decrease for the Heavy Civil division was almost $34 million for the quarter. The completion of two Mississippi projects reduced revenue by $19.7 million, with an $18.6 million reduction from TxDOT revenues.

That provides a segue to the significant challenge this quarter which relates to our TxDOT work. We announced last month that we initiated a process to divest the Texas Heavy Civil division business. This type of decision is not made lightly. So, let me give you some of our perspectives.

In the 2010 to 2011 time period, we were awarded five jobs along the I-35 highway between Austin and Waco, Texas. TxDOT was the customer for these jobs valued at approximately $700 million. At the time, our winning bids were within a very few percentage points of the second closest bidder.

These jobs have been plagued by both man-made and natural disasters, ranging from delays in getting full access to the right of way for the project, to manpower shortages, to execution issues, and to unprecedented rain events in the past two years. The result is that all five jobs are running anywhere from 12 months to 24 months behind schedule.

And for a contractor, delays represent increase in cost and increases to total estimated job cost. While we believe that some of the delays will result in future payment of claims by TxDOT, four jobs of the five jobs are now in a loss position.

As we review the business unit in the third quarter, we recognize that the passage of Prop 7 provided the Texas Heavy Civil market some very significant additional revenue opportunities.

But we concluded that a market that has few barriers to entry would not provide us with the ability to meaningfully price further risks than we have learned about so painfully on the I-35 highway jobs. We decided that this was a growth opportunity that could fit the profile for some companies, but not for Primoris.

We have engaged an investment banker to help us with the divesture of the Texas Heavy Civil business and the banker will publish a marketing book in the next few weeks and we plan to market the business during the weeks thereafter. While we have every intention of selling the business, this is not a fire sale.

If we cannot attain an acceptable price, we will continue to operate the business. The Texas Heavy Civil business revenues for the quarter were $48 million and $178 million for the year. Gross profit for the business was a loss of $32 million for the quarter and a loss of $40 million for the year.

At the end of the quarter, we based our total expected costs for the five I-35 highway jobs on our best estimate of the values that would be used by a perspective buyer.

These estimates, combined with the actual results for the third quarter resulted in a $37.3 million expense for the five jobs with an increase on our balance sheet loss provision and a reduction in revenue as our percentages of completion decreased because total expected cost increased. We believe that our expected job cost represent fair value.

However, we do not know how a prospective buyer may value the business. One further comment about our income statement. For the quarter, the effective tax rate for income attributable to Primoris was 47.5%. Resisting the temptation to make a political comment today, that rate is obviously much higher than normal.

The impact of the losses from our Texas Heavy Civil business unit reduced the forecasted pre-tax earnings for the year with our partially non-deductible per diem payments not expected to decrease significantly, we now anticipate a full-year effective tax rate of 43% for income attributable to Primoris.

The current quarter represents a catch-up for the lower rates booked in the first and second quarters of this year. Our quarter end cash balance of $149 million benefited from the $38 million received in the settlement. But even without the cash from the settlement, this would be the highest quarter end cash balance this year.

Our cash flow from operations for the year was $51 million. During the quarter, we invested approximately $10 million in capital expenditures and we expect to spend that amount or slightly less in the fourth quarter. Our total debt at quarter end was $268 million, a decrease of $7 million from the start of this year.

In the quarter, we added two new equipment secured loans totaling $30 million at an average interest rate of 1.93%. At quarter end, our total debt-to-equity ratio was 54.6%, and our tangible net worth was $335 million. Our backlog increased by $782 million for the quarter and $607 million for the past nine months.

As we noted in the Form 10-Q, we have included an estimate of $625 million for the Atlantic Coast Pipeline project in our backlog. This project has been awarded to Spring Ridge contractors, a joint venture which Rockford is a 25% partner. Spring Ridge is in the process of awarding specific spreads to each of its partners.

None of the Rockford works is expected to begin within the next 12-month period. Speaking of the next 12-month period, let me turn to guidance. We're raising it. We now expect that earnings attributable to Primoris for the next four quarter will be in the range of $0.95 to $1.15 for fully diluted share. Our current guidance has three caveats.

One, we have assumed no additional costs for the divestiture or operations of the Heavy Civil business along the I-35 corridor. We have assumed – two, we have assumed only minimal engineering work for the power plant project at Carlsbad; and three, we have assumed no settlement benefit from our other collection activities.

We are currently in litigation with the bonding companies and we expect a resolution next year. But it's early for us to estimate any results. Before turning the call back over to the operator, let me mention one other benefit of the collection settlement.

Our Board of Directors authorized us to purchase up to $5 million of our stock during the quarter. I can now turn the call over to Barack so that we can respond to your questions. Thank you..

Thank you. We will now be conducting a question-and-answer session. Our first question today comes from Lee Jagoda of CJS. Please go ahead..

Hi. Good morning..

Good morning, Lee..

Morning, Lee..

So, if I look at the Texas Heavy Civil write-down, is there a way to give us the project gross margin assumed in the remaining backlog of the Texas work?.

Well, for the projects that are in loss position, we obviously assume a 0% gross margin. I think for the rest of the work, you're probably looking in – as we do all our Heavy Civil works somewhere in the 5% to 6% to 7% work..

Okay.

And then assuming, given that it is part of your guidance because it's not a discontinued operation, if you take the Texas business out of your guidance, how much of a drag is it on the $0.95 to $1.15?.

It's not. We're assuming that it's pretty minimal impact, Lee..

Yeah. Lee, this is David. I might add a little color for you also. If you remember, gosh, going back several quarters now, we talked about that we were redirecting that unit to also start looking at more airport work and some other non-TxDOT-related work, and those particular kind of projects carry a little higher margin than the TxDOT work..

Okay. One more from me and I'll hop back in the queue. In your press release, you mentioned that there was a productivity issue at one of the projects in Texas, I would assume not related to the heavy highway piece.

Can you talk about the characteristics of that project and how much of that is left to be completed?.

We're at the end of the job..

Yeah. It's the (25:23)..

Oh, sorry. Sorry. Yes. Yes. Yeah. Sorry, now, I was looking at Pete to make sure which project you were asking about, Lee. Sorry about that. Yeah, that project is at the very end of it. It was one where we had hoped that we could get some turnaround in some of the productivity on the job.

I would say that the team was working off of some engineering drawings that could have been better, but we should have assumed that our productivity would maybe not have been as good as we were assuming it would have normally been on a job of that nature. And that project is really at its completion. It's pretty much out of the system..

Okay, great. Thanks..

The next question comes from Jason Wangler of Wunderlich. Please go ahead..

Hey. Good morning, guys. Just on the....

Good morning, Jason..

...on the win on Atlantic Coast, just curious as you look at that, it's obviously a year away or so, do you see a lot of spending on your end as far as capital or even from personnel standpoints as far as when you start to ramp up that job? Or is it mostly just going to be able to move your Florida folks up to the north further? Just curious on that..

Yeah. It will be moved – move the equipment and people north and forward. As you know, Jason, probably starting a year or two ago, we spent quite a bit of CapEx, if you remember more than our typical D&A on getting some new equipment and things for these big side booms and a lot of other equipment.

And so, we should not have to see any major capital purchases to be able to move forward on that project..

Okay, great. And then just on the share repurchase, just curious the board's or your thoughts on the size and the timing of it. Obviously, pretty quick turnaround. You only got a couple – basically two months to do it.

Just as you recoup that money and the balance sheet is in good shape, where do you see that maybe going? Is this just kind of a one-off or is there something more that you guys are looking at given what you're thinking is an opportunity in the stock right now?.

Well, the original intent was to maintain the share level consistent for the purchases of shares by management and the shares we issued to the Board of Directors, and that's roughly what the $5 million will get us.

I think we certainly have the ability and the board has certainly talked about the fact that we think that we can do better in the share price and that if the opportunity remains, that we would look at increasing both the length of time and the potential money that we would invest in share repurchases.

Our preference is still to spend our money on acquisitions, but we've certainly not had a great success with those over the last year or so. So, I think we're – the board is now looking at the possibility of using some of that cash to purchase shares..

Yeah..

Okay, great..

And, Jason, I'll add one more thing. Just Pete said, these employee stock purchases in our LTI plans, if we run true to course, we typically have almost 100%. It's like 99.5% of the employees that take advantage of buying the company stocks. So, as Pete said, we just want to go ahead and buy that stock up..

Great. That's helpful. I'll turn it back. Thank you..

The next question comes from Ryan Cassil of Seaport Global Securities. Please go ahead..

Good morning..

Good morning, Ryan..

Good morning, Ryan..

So, in your comments you mentioned the two southeast pipeline projects that have begun.

Could you talk about the cadence of those projects and where we stand today, any color there?.

Absolutely. Frank Welch, and Josh and myself and Tom McCormick went over there, I guess, about two weeks ago and took a helicopter ride over both spreads, over the Sable Trail spread and the Florida Southeast Connector spread.

We've got some great videoing of it, but we're right now currently ramped up to about somewhere in the 400 people to 450 people on each job, so roughly 900 people to 1,000 people between both of those projects working. We'll probably go up somewhere closer to the 1,100 people or 1,200 people. So, we've got a little bit more manpower to add into it.

The bulk of those right of ways have all been cleared. We've got pipe strung out. We've got pipe gangs going, welding going on.

As far as the burn-off on it, I think, we've always said we would probably burn mostly and I think, Pete, this is in our numbers, but confirm me right or wrong, I think we both mostly said those would burn through until about May or June timeframe of next year..

Correct..

Okay. Okay. Thanks a lot.

So, did that get started fairly kind of ramped through the third quarter and really get going at the end of the quarter or any color on that?.

We really only got about one month of effect out of it in the quarter. I think we've put in some notes or something somewhere about October is when we really got started on some of that work. There were some minor work that went on over there ahead of time, but nothing of any significance until basically that late September-October timeframe..

Yes. Thanks. And then for the Atlantic Coast Pipeline, it's probably a little early to talk about profitability because you're still divvying up those spreads. But can you talk about – I know there's some more difficult spreads there, change in elevation.

Any color on how that's being divvied up and how you guys feel about just the profitability of that project in general..

I'll just make this comment. It's a little too early for any of us in our consortium. And I think that's why our other consortium members have been careful to talk too much about it also, and I will follow suit on it. There are some difficult spreads or some other spreads.

It's not – I think the consortium, in general, is agreeing that we kind of all spread it accordingly equally. So, if I can leave it with that, I'll leave it with that..

Okay. And then last one from me. I think, correct me if I'm wrong, but I think you said $6 billion bid cable for other pipeline projects. Are there any that could be awarded here in the near term? And just any kind of color on the competitive environment? Any changes there would be great. Thanks..

Well, I think on the large diameter pipeline business, that market is getting somewhat tight because of the number of contractors that can do that kind of work and the backlog that obviously us and others are beginning to book.

The work that I was talking about and there are some large projects out there that the timing of them is still suspect as to whether or not they go sequentially at the same time as ACP or a little bit behind ACP or maybe even a little bit ahead of ACP.

There are still a lot of other opportunities out there, though, that we know that would fill in nicely between these Florida jobs and ACP. And obviously, they're not the $1 billion type projects nor that we want the $1 billion type projects to fill in between those two.

We want to be able to get some projects that we could book and burn in a six-month period of time, maybe in the lower range of that $200 million, $300 million or $400 million type work..

Okay.

But those have to be first quarter or fourth quarter, first quarter awards to really get those up and started in time to fill that gap?.

No. Typically, on these, you could – a lot of these we bid and book and literally start the next month on some of the smaller projects and things. So, they could be awarded to us as late as second quarter and still have those burning and booking in third quarter and fourth quarter..

Great. I'll turn it back. Thanks..

Thanks, Ryan..

The next question is from John Rogers of D.A. Davidson. Please go ahead..

Hi. Good morning..

Good morning, John..

Just a little bit of follow-up in terms of the way these pipeline projects roll in, especially in calendar 2017. So at this point, the Florida job should be, I would assume, remain pretty productive all through the winter. And then it's into the summer you'll see a dip.

Is that the hole that you were referring to or the...?.

Yeah. The hole I'm really referring to – you're absolutely correct, John, in your first part of your comment. One of the reasons we strategically went after those two projects was, we don't have to worry about winter in Florida too much.

So, yeah, those two projects will continue to burn through the fourth quarter, first quarter, and they will burn into the second quarter, but then, they'll begin to tail off at the end of the second quarter. So, the hole I'm talking about trying to fill is between that and when ACP starts, and ACP right now is not expected to start until 2018.

So, what I'm looking for those last two quarters of 2017. And there's plenty of opportunities out there that would fit quite nicely.

Without going into too many details, because I don't want to give up the particular projects that we're trying to go after, but there are some very worthwhile companies that are still doing quite well in that marketplace that – three or four of them that we're continuing to talk to about projects that are in that.

Some of those projects, as little as $50 million and some of them $300 million..

Okay. Thank you for that.

And then just in terms of the Energy segment, the dip in revenue that you saw in the quarter, ex the recovery, was some of the projects that you've been awarded recently been some of the power work on the East Coast? I don't know if you've gotten some of the additional micro LNG projects, but are we at a low point in that business?.

Well, that's a good question. I listened a lot in the marketplace and look also at whether or not we're at that low place. There's a lot of projects that got – didn't get stopped, they just got kind of put on hold for a moment from the perspective of waiting to see. I think a lot of it had to do with election.

I think a lot of it had to do with price of oil. So, we really didn't see them get stopped or canceled. We just saw them get postponed for a period of time. And now, we're beginning to see some of those release and I can mention a few of those because some of them are publicly announced jobs.

Obviously, you've seen Exxon and them talk about the big project, Exxon and SABIC that they're investing money down the Gulf Coast. You've obviously seen projects talked about from the perspective of UON petrochemical, some of those projects. So, we're still seeing those opportunities.

It's the timing of them that we were concerned about because right now, for us, on the industrial side, and I talk open-shop industrial, and then I can also talk the union side.

On the open side, on the industrial, Conrad's group is obviously still very involved in the ethane cracker in Louisiana, but were beginning to pick up, and maybe this goes to your question about are we seeing some recovery.

We're beginning to pick up some hydrogen-related facilities and some other projects that are support facilities that companies are beginning to invest in that will support some of these larger mega projects that we're going to see come up. So, we are seeing some of that.

Now, in the micro LNG side of the business, we proposed, we went through two feed (37:39) packages. I think I mentioned that one of the projects is still very much alive. We're still hopeful that we can get something out of it in 2017.

I don't think it's going to be awarded in 2016, but at least the customer is still telling us that there's some micro LNG opportunities for us in 2017. I think some of the larger LNG facilities that we do some subcontract work and things on, some of that is proceeding at a slower pace.

I don't know if that's added enough color to you or not, but I'm trying to give you as much detail as I can..

No. I appreciate that. It's the color I was looking for. And last question, if I could.

The Texas civil work, the $395 million in backlog, what was the rate that that is expected to burn off?.

Well, we know that the two that we still have the five jobs along that I-35 corridor and we're going to be booking those at 0% margin in effect, and off the top of my head, I want to say that's a little over $200 million. That will probably take two years to get totally done..

Okay. And....

(38:59).

Okay. Thanks.

And Pete, did you say what the revenue contribution from those operations were in the quarter?.

I think we did in the Q. And I apologize I don't have it right in front of me. But I'm pretty sure it's in the Q. Yeah. I want to say it's like (39:18) I don't want to get in trouble, I'm going to let you....

That's okay..

I know it's in the Q..

Okay. Thank you..

The next question is from Dan Mannes of Avondale. Please go ahead..

Hey. Good morning, everyone..

Good morning, Dan..

Morning, Dan..

I was wondering if you could maybe walk me through the guidance change, i.e., did you have anything in terms of positive margin in your previous guidance for Texas Heavy Civil and/or for Carlsbad? So when you walk us forward, did you have to pull anything out before you put some stuff in like Doswell?.

Yeah, there was a little bit for Texas Heavy Civil because we thought at the end of the second quarter that we were getting towards the bottom after we took some of the big write-downs. So, obviously, the $37.3 million was not in what we had anticipated for guidance.

I think that when we look at what we see happening over the next four quarters of guidance, we see that there are some positive contributions that we can get from things like the highway work. So, it's not a very big number.

And obviously, it's a percentage going forward as a percentage of revenues since you've got such a large piece that's going to be 0%. Your overall margin numbers are going to be pretty small but there's still some small positive contribution if we sold it tomorrow which would be wonderful. I don't think we would have a significant change in guidance..

And was there anything for Carlsbad in your previous guidance?.

We talked about some possibility that it could start some time towards the end of the year and I think we've left kind of that same sense. We're doing a little bit of that small limited notice to proceed work just to keep the project going.

But it's not – again, it's not something that you're going to see significant nor material impact on anything going forward..

I think where we had it, Dan, was roughly about June of this next year. And if you got a figure that the first six months on that project, you're not – you're really not burning much. So, you can kind of lay it in that way, if you want to, if that's a little color for you..

No. That's helpful. Because the other thing, my understanding is, once you get that non-appealable order out of the California Supreme Court, then you're probably going to have to go back and renegotiate your contract with the NRG just because you'll be pretty close to the previous in-service date..

Yeah. You've read it correctly..

And besides that, the non-appealable order will probably be appealed..

Okay..

It is California, Dan..

I understand. Real quick on ACP.

The $625 million, is that your best guess today? I assume you're leaving room, though, that depending on how the whole thing's split up, that could actually end up being a bigger number?.

That's a best guess we got right now. We don't want to – we didn't want to put too much and have to back out some nor did we want to put too little and have it not be representative of what – as far as what we're telling the market. I think that's a pretty good ballpark number, Dan..

Fair enough. The final question I have is just in terms of your capacity. You've normally talked about having two large spreads of capacity. And I'm assuming that's about a two large spread number at ACP over two years.

What does that do for you in terms of your willingness to bid on things in terms of the gap period? And two, does that pretty much lock you up for the vast majority of 2018 and 2019?.

Well, and – I'm sorry, hold on a second, Dan..

I was going to say we do have a third spread..

Yeah. Yeah. We do have a third spread. That's right where I was about to go, but I didn't know where Pete was looking at me at, but – for. Dan, we got more capabilities in there.

I've got to tell you, if anybody on this call wants to see something that's absolutely fantastic, you need to go look at that stuff in Florida and see how fast we've moved and how fast we are moving. I mean, I told Frank Welch and those guys, I said, yes, we got a lot more capabilities than we think we have on some of these.

And so, I'm really not worried about that ACP blocking us out, bidding on anything because there's some great opportunities out there that aren't as big as ACP obviously that we will be going after..

So if I go visit, can you show me a gopher tortoise?.

Would you believe it. I think I can to be honest with you. I got to tell you, that is some interesting things over there..

Sorry. Thanks for all the color, guys..

Thanks, Dan..

Our next question comes from Matt Tucker of KeyBanc Capital Markets. Please go ahead..

Hi. Good morning..

Good morning, Matt..

Just a couple questions on the Texas Heavy Civil divestiture. You mentioned that you won't sell if you don't think you're getting a fair price or something to that effect.

How long do you expect this to play out? Or how long are you going to give it? And do you intend to keep bidding for new projects while this process plays out?.

Yeah. Let me start with the last part of it, Matt. Yeah, we intend to keep bidding. Now, what we've done is, and again, part of this goes back to some of the things that we mentioned over the past few quarters. We're not just going after TxDOT work.

We started that Texas Heavy Civil group looking at airport, some other municipality works, things that obviously for us drive a higher margin and have a little bit more of a quick bang and burn for us. In other words, they're not huge mega projects, but they make more profitability for us. So, yeah, we are still bidding.

Now, will we continue to bid some TxDOT work? The answer is yes, because obviously, this unit is more valuable if we have some backlog in there.

But at the same point in time, what we've done is we put a lot tighter controls on what we're bidding, what kind of contingency we're carrying in those jobs, and what kind of margins we're carrying in those jobs and the size of those jobs and the burn-off period of those jobs. So, we've taken a little bit tighter control of that.

So, if we win that work and I think we will win some TxDOT work, we're going to be winning it at a little bit higher margin than what we had before with a little bit more of a conservative risk profile than what we took over those past projects and definitely to burn over a shorter period of time so that we don't have some of these issues related to labor effects.

As you know, we had labor effects before work shortages whenever the I-35 corridor work was going on. There's so much building going on in the major cities along that corridor that workforce was expensive and we had to do a lot of things to get workers, period. So, we are putting a lot more tighter controls around that. So, yes, we are bidding.

How long will it take to sell? I don't know. We've got a banking firm, as you know, hired to go try to sell it for us. I think we'll see some opportunity there. As far as I'm going to concern, we're going to continue to try to sell it and work through the issues and move forward and hope we do sell it quickly.

But if we don't, it's not a fire sale as Pete said..

Thank you. That was helpful. And then shifting gears a little bit, the utilization gap that you're potentially looking at in the second half of next year on the pipeline side, what does your guidance assume around that for the third quarter? Are you assuming that you are able to fill that or partially, if you could just comment on that..

Yeah. We certainly are assuming that they're not all going to stop work and go home and we just incur depreciation. So, we anticipate that they will receive some jobs that are not necessarily of the magnitude as the work that they're doing either now for the two Florida jobs or what we anticipate doing in 2018.

But we do anticipate that we will get some work and that they will be able to cover, for example, their overhead..

Got it. Thanks. And then on the Atlantic Coast Pipeline and the consortium there, I understand you're still in discussions, but hoping to get a better understanding of how that's going to work.

Are you essentially going to get assigned your spread or spreads and then you live and die based on your own performance? Or is it your understanding that you'll split everything equally with the consortium partners in terms of revenue and earnings? And so their performance could ultimately hurt or help you?.

Well, I'll share as much color on it as I want to right now, Matt, if I can. But let me comment this.

The four Consortium members that make up that joint venture or the joint venture partners, all four of us, and I'm throwing us in there too, great, great companies that think alike and very cooperative with each other and negotiate for the common good of the Spring Ridge Constructors, LLC.

So, each of us understand what the problems and the opportunities may be on that job quite well. And so, each of us are taking a very eyes open that how do we each handle the work and divvy the work up, divide the work up so that each has got good spreads and each has got some more the difficult spreads.

And then we've each had conversations about how we back each other up in case there are any issues with one of those spreads. That's the beauty of the four companies that's involved in that. I've got to tell you, I think great companies, all four of them together. And all four of them with this JV even make a stronger entity.

So, I'm really not anticipating any issues there..

Thanks. I appreciate the color. I'll leave it there..

There are no further questions at this time. I would now like to turn the floor back over to David King for closing comments..

Thank you, operator. Thanks for participating on our call today. And we appreciate all the questions and your ongoing interest in Primoris. This concludes our call..

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