ENGlobal Corp (ENG) 2007 Q3 法說會逐字稿

Greetings and welcome to the ENGlobal Corporation Third Quarter 2007 Earnings Conference Call.

(OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Natalie Hairston, Investor Relations Officer and Chief Governance Officer for ENGlobal Corporation. Thank you, you may begin.

Thank you, operator. Good morning, everyone, and thank you for joining us today. With me on the call are Bill Coskey, Chairman and CEO of ENGlobal Corporation, and Bob Raiford, CFO and Treasurer.

In a moment I will turn the call over to Bill Coskey who will highlight managements' perspective on our financial results for the quarter ended September 30, 2007. Bob Raiford will then review other financial points of interest for the quarter and, in particular, those topics that relate to our balance sheet and cash flow.

Before we began, I would like to remind everyone that some of the information discussed on this call will contain forward-looking statements that involve risks and uncertainty. These statements are based on current expectations. Actual results may differ materially from those set forth in such statements.

Additional information concerning factors that may cause actual results to differ is contained in the risk factor section of previously filed Form 10-K and 10-Q. All of those filings are available on the Investor Relations page of ENGlobal's website at ENGlobal.com. Our filings with the SEC are also available on the SEC's website at SEC.gov.

In addition, non-GAAP measures may be referenced during this conference call. EBITDA is provided for informational purposes only and is not a measure of financial performance under GAAP. Management believes that EBITDA is often a useful supplementary measure of the Company's operating performance, as it provides investors with an indication of cash available for distribution prior to debt service, capital expenditures, cash income taxes, minority interests and changes in working capital.

EBITDA is frequently used as one of the basis for comparing businesses in our industry. However, our measure of EBITDA may not be comparable to that of other companies. EBITDA does not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities, or any other measure for determining operating performance or liquidity as calculated in accordance with GAAP.

After our opening remarks, we will have a question-and-answer session. In order to give as many callers as possible the chance to ask a question, please limit yourself to one question and then one follow-up, if necessary.

And now, I would like to introduce our Chairman and Chief Executive Officer, Mr. Coskey. Go ahead, Bill.

Thank you, Natalie. Good morning.

Once again, I would like to thank ENGlobal's management team for the positive third quarter results that were announced this morning. As by most measures, comparisons with our recent historical financials are very good.

Our earnings per basic share came in at $0.15 for the three-months just ended, which compares to a loss of $0.06 per basic share for the third quarter of 2006. In terms of year-to-date results, ENGlobal has posted earnings of $0.41 per basic share, compared to $0.08 for the same period in 2006.

It is also important to point out that the financials reported this morning represent several quarterly records, with the most notable of these being revenue and operating income. However, net income also set a record by a small amount.

I hope to use my time this morning to provide managements' perspectives regarding the financial announcement today, and will refer mainly to sequential comparisons covering the first three quarters of this year.

But, first, I would like to quickly reiterate some points from our last conference call. ENGlobal continues to benefit from an upward trend and cost plus billable work in our Engineering segment, which is being seen by most of our operations.

The most active areas we are seeing continue to come from projects related to refining, pipelines, alternative energy, and automation. And we are now beginning to see an increase in petrochemical-related work, as well.

ENGlobal's earnings per basic share have trended this year from $0.12 for the first quarter to $0.15 for both the second and third. While we made the same earnings in the two most recent quarters, how we got there was totally different. And I would offer the following as a summarized version.

Number one, in the third quarter just reported, our business generated a little over $2 million in additional gross profit when compared to the second quarter which, to me, is a good sign about the strength of our market.

Number two, however, we didn't have the one-time gain from the sale of a building as we did in the second quarter, which amounted to about $500,000 that was recorded as other income in the second quarter.

In the third quarter, we did have additional expenses related to stock compensation, reserves for bad debt and bonus accruals that were all recorded as SG&A and counted for an additional SG&A expense of approximately $1.4 million over the previous second quarter.

The Company had $64,000 less interest expense in the third quarter and a slightly higher effective tax. But, when you take it all together, the two most recent quarters produced about the same results.

Another common measure of financial performance in our industry is EBITDA, or earnings before interest, taxes, depreciation and amortization, which is a non-GAAP metric. Using this measure, which I believe gives a somewhat better picture of our operations, ENGlobal's performance has been trending steadily higher over the year, from $6.6 million in the first quarter, to $7.8 million in the second quarter, to $9.2 million in today's report. So, by this EBITDA measure, our third quarter was better than the second.

One metric we track in order to capture our level of workload is an average of biweekly billed hours. By this measure of workflow, over the first three quarters of this year, biweekly billable hours had increased from 174,000 to 189,000 to 201,000. Our Company's utilization of its personnel resources also remain strong at approximately 91% for the third quarter of 2007, up from roughly 90% earlier in the year.

In terms of our top-line, ENGlobal continues to be a growing company, sequentially growing from $82 million to $90 million to $97 million over the first three quarters of this year. 100% of our revenue growth in this latest quarter can be attributed to non-acquisition-related activities.

Our consolidated gross profit margin for the third quarter reached 16.9%, up from 15.9% in the prior second quarter, or an increase of 1 percentage point. The reasons for this increase include a better mix of higher profit work, higher negotiated billing rate structures, and an incremental improvement in our utilization.

SG&A expenses, as a percent of revenue, over the course of this year have ranged from 9.5% in the first quarter to 8.2% in the second quarter to 8.9% in the third. However, as stated in the second quarter conference call, ENGlobal's philosophy is to manage our ongoing overhead expense, exclusive of any acquisitions, in absolute dollar terms as opposed to managing overhead as a percentage of revenue.

In the third quarter of this year, we had SG&A expenses of $8.6 million, which was over our target baseline level of $7.5 million per quarter, and which compared to $7.3 million in the preceding quarter. I would refer to the previous discussion as covering most all of this sequential increase.

But, to reiterate, our third quarter of 2007 had an additional $1.4 million of SG&A expenses related to stock compensation, reserves for bad debt, and additional bonus plan accruals under our key manager incentive plan. Of these, we expect approximately $800,000 of bad debt expense to be nonrecurring.

I'm proud to report that, as a result of our improved gross profit margins, exceeding a higher level of fixed overhead, the Company has been able to make additional progress on our goal of increasing operating margins. As most of you know, the Company stated a goal to reach operating margins in the high single digits by the end of 2008, and we've began on this path when our operating margins were in the 4% range.

So far, this year, ENGlobal's operating profit margins have positively trended from 6.8% in the first quarter to 7.7% in the second quarter to an operating margin of 8.0% in this latest report.

As a brief update on the two fixed-price contracts from late last year, we have successfully negotiated a resolution with our client on the smaller of the two projects and are hopeful to be able to say the same thing about the larger project within the next few months.

Without going into the specifics of the settlement, for commercial reasons, we believe the settlement was fair to both parties and was basically in line with our expectations. We do not expect any further charges or cash impact from either of these projects in the future.

As mentioned in the press release, ENGlobal Engineering terminated its contract with the Louisiana Ethanol Plant subsequent to the end of the third quarter due to failure to receive payment on its invoices in a timely manner. This project began in the fourth quarter of last year, and the Company's scope of work was to be primarily responsible for engineering and construction while our client procured and paid for most of the major equipment.

First of all, I believe this project is viable and it will be completed, given a number of advantages it has in the marketplace. But, just as important to ENGlobal, I am proud of the work we have done to protect our interest. Let me assure you that I believe the Company will receive all amounts owed, even in a liquidation situation, given the value of underlying collateral.

Therefore, on our financials, approximately $9.1 million of accounts receivable debt of reserves has been converted into a note receivable, basically giving our client more time to obtain equity-based financing in lieu of debt financing. I believe the most likely scenario is that the owners will find an equity partner in the very near term to assist them in completing the facility, and ENGlobal has been assisting them in this effort.

As to future prospects, I'm excited about ENGlobal and the way we have positioned the Company, as we provide a wide variety of services for small to mid-sized energy-related projects, those usually being under $200 million in total installed costs.

One thing we're going to begin focusing on is doing a better job of selling our entire list of capabilities to clients throughout our Company. In this effort, we will begin branding and marketing our sales as one word, ENGlobal, instead of the many different operating subsidiary names that we represent to our clients today.

But, for the most part, our game plan hasn't changed. We continue to see substantial opportunities, together with improved profitability. And therefore, we remain optimistic about our prospects for the balance of 2007 and beyond.

Thank you for your time this morning. I will now turn the call over to Bob Raiford, our CFO. Bob?

Thanks, Bill. Good morning, everyone.

The Company's effective tax rate for the third quarter was 43.6% compared to a 40.7% during the third quarter of 2006. The increase is primarily due to a higher level of estimated state taxes for the jurisdictions we operate in, plus the estimated impact related to the new gross margin tax in the State of Texas. Our estimated effective tax rate for 2007, annualizing the impact of federal and state taxes, should average approximately 41.2%.

Due primarily to what have been an increase in trade receivables related to the ethanol project Bill spoke of earlier, operating activity used approximately $5 million in cash during the third quarter. This compares to approximately $4.8 million in cash used in operating activities during the comparable third quarter of 2006.

For the nine-month period ended September 30, 2007, operating activities have used approximately $9.4 million in cash, compared to $5.8 million for the comparable period in 2006.

We invested approximately $800,000 in capital assets during the third quarter, bringing our total capital expenditures for the first nine months of 2007 to $1.8 million, compared to a prior year quarterly investment of approximately $1.2 million and total capital expenditures of $2.8 million for the first nine-month period in 2006. The Company does not expect a material change in the level of capital investments during the remainder of the year.

We continue to focus on our internal processes to lower our average days of sales outstanding. Earlier this year, we reached an all-time high of 71 days. The last quarter, our average days of sales outstanding was 66 days.

During our last conference call, we noted that one of the primary reasons for the increase was related to the conversion of one of last year's acquisitions for the Company's standard billing system. I can report that the conversion is now complete. Their billings are current. And we are seeing positive trends in their days of sales outstanding.

At the end of the third quarter, four of our nine operating units had DOS levels equaled to or less than 53 days. Again, we are not where we expect or need to be, but it is a trend in the right direction.

The outstanding balance on our line of credit as of September 30, 2007, was $35.7 million, with the remaining borrowings available of $14.3 million. As of yesterday, November 6th, the outstanding balance on our line of credit was $26.3 million, with remaining borrowings available of $23.7 million.

Thank you for your time this morning. I will now turn the call over to the operator.

Thank you. (OPERATOR INSTRUCTIONS.) Rich Wesolowski, Sidoti & Company. Please state your question.

Thanks, good morning.

Good morning, Rich.

Bill, can you talk about your gross margin in relation to your revenue mix? I'm surprised that you did 17% gross margin despite a pretty dramatic shift toward a little bit lower margin field inspection and even a pickup in the procurement revenue. Is that sustainable gross margin if you continue on with this revenue mix?

I believe it is. They type of field service revenue you're talking about is really in our Construction Management Group, which has margins that are really not unlike our Engineering Services Group. And so, really, the low margin piece in the field services will be our inspectors, primarily pipeline inspectors are lower margin.

But, we have another group that does construction management work and asset management, and they plan turnarounds and process plants. And this is the higher margin piece. It is not unlike the kind of margins we see in the Engineering segment and in the Engineering Services Group. And that's where the growth came from.

So, if you look at the $120 million in the field services and inspection so far this year, how much of that is due to the construction management versus inspection, maybe even just on a ballpark basis?

That would be tough to say. But, I mean, thus far this year, our pipeline inspection group has probably been a $30 to $35 million business, in balance with the other activities.

Okay, that's helpful.

Can you discuss Motiva's announcements of the expansion of the Port Author Refinery, review how many people you have on that site and what they're doing, prospects for an expanded there, that sort of stuff?

I believe we have about 130 people working on that job, working under a consortium that was formed by Bechtel and Jacobs to be the program manager for that project.

As soon as that project was announced that it was going ahead, we received a pretty considerable release order to give us work out for probably a year or so. And of course, we're always looking for additional scopes of work, stuff that kind of falls off the plate, so to speak.

Um-hmm.

And I really can't quantify that. But, what we know is we think we have over 100 people busy for at least a year, if not longer on that project.

Do you have your headcount at the quarter-end and the turnover rates that we usually get?

Haven't recalculated a turnover rate. I don't think it'd be any different than the roughly 20% we've been talking about earlier. We were 2,509 strong -- 2,508, I'm told, at the end of the third quarter, I think which is an increase of 35 people or over the previous quarter.

And now that you guys have exited those poorly performing contracts, you put up three quarters in a row where the earnings are good. Why would -- I could understand the field turnover because of the market conditions, but why would the office turnover continue to run in the 10% range, which is a pretty high number?

I guess I don't understand your question. Why would the turnover in our office staff--?

--Well, it doesn't seem to me that that would be as much affected by the stringent market conditions that you see out in the field. If you guys are continuing to do well and going in the right direction, why would the office turnover still be at 10%, which is a higher number than I'm used to hearing from other companies?

I guess that's just what we're experiencing in our various markets due to competitive pressures, competition in the various places we operate, like Tulsa, and Beaumont, and Houston. For personnel, we see the job market for people to utilize to be about as active as it ever has been, even today. So--.

--Okay. But, I mean, is that higher than you've seen throughout your Company's history, or is that right about in line?

I would say it's higher than we've seen in our Company's history. Yes, it is. I think we used to experience much less turnover than that. I don't have a number to quote you, but I'd say it's probably half of that---.

--Okay--.

--Just, I believe, in the past type of thing.

The situation with the ethanol customer, is it the owner not paying the prime contract, or is it the contractor not paying you?

Well, in that case, we were serving as a general contractor, responsible for -- the client was responsible for procuring most of the equipment, and so we did E&C. We did engineering, and we were responsible for the construction activity. A lot of that was subcontracted through us. And so, the problem was the owner not paying us.

Is the owner in financial trouble, or is he balking on this ethanol project now that the prices have come down?

Well, I'd say the owner ran out of financing. The owner was working under a bridge line of financing, and hired a major bank to try to get debt raised, and wasn't given the significant changes in the credit markets and given the lower margins in the ethanol market. And they were unable to secure debt financing.

What is going on is now is that they're talking to equity people coming in there wanting to buy equity in the plant that will bring the financing with them. And that's I'm confident the plant will get built and really just due to -- I didn't go into a lot of detail about the advantages of the plant.

But, given its location along the Gulf Coast and it can load barges, a lot of the expense with ethanol is the transportation cost.

Um-hmm.

But, most ethanol has to be transported by trucks and by railcar. And so, this plant would be able to ship on barges up and down the Gulf Coast, which is a big advantage.

Plus, what we were doing is really reactivating a 20-year old plant, recommissioning, and so the total in fall cost was going to be much lower than a brand new plant. But, it has a lot of strategic advantages, and that's why I believe it's going to get built.

Okay. Bob Raiford, you wrote in the press release that you have a $9 million long-term notice associated with that. How much have you reserved apart from that?

$1.2 million. That's the net, Rich.

Okay. So, all in all, you've done a little over $10 million worth of work for this customer that you got to be paid for.

Yes.

And you think you're going to get about $9.

No, we took -- the $1.2 million reserve was different than what we had reserved in the project for the second quarter for 2007.

Right, I'm just saying through the life of the project.

And ask me your question again, then?

My question is how much work have you done in total, not just in 3Q, but in total for this job that you've yet to be paid for, regardless of whether or not you think you will get paid?

$10.4 million is what we pulled out of accounts receivables.

Great. And can you just maybe be a little more specific on any progress you've made in improving the invoice acceptance by customers and the turnaround in cash to yourselves outside of this one project?

Well, I think we've made tremendous strides in that area. We've really taken two approaches.

One, we call our unbilled process, which is getting our invoices out the door. We have some internal reporting on unbilled reports, making operations, project managers and officers of what hadn't been billed. We've almost eliminated all of our past due unbilled items. So, we are getting our bills out the door more timely.

I guess we've got a full-blown effort going throughout the Company on the collections effort. We've reduced -- I think we looked at it, in the six weeks, we've reduced over 90's by $1.7 million. So, we're seeing a positive trend in that respect.

And how did you manage to reduce the debt by so much since the quarter's end? That seemed like a big change.

Well, I think it's through the collection efforts, and the ups and downs of timings of, I guess, our biweekly payrolls.

Right.

If you look at quarter-end, a payroll will hit on the last day of the month, so you can then fund payrolls. So, it'll fluctuate a little bit.

Okay, thank you very much.

Thank you, Rich.

Thank you. Craig Bell, SMH Capital. Please state your question.

Good morning. I just had a follow-up on this receivable that you converted over to the note payable. Assuming that when you did that -- because there's some confusion in the press release here -- I guess that was done as of September 30th, is that correct?

Yes.

Okay. And so, then, that receivable then came out. So, the DSOs that you reported, the 66 days, is going to be exclusive of that, correct?

That's correct.

Okay, just trying to get a handle on that.

And then, you talked about the gross margin and how that benefited from the mix. I mean, are you also seeing any significant pricing changes to go along with the mix? I mean, are your billing rates significantly higher, or is it--?

--That's kind of--.

--Sort of moderately higher--?

--An ongoing process. I don't think you're ever going to see a step change in that. It's just something you do as a course of business, is trying it negotiate higher rates on an ongoing basis.

And so, I guess, the answer to your question is, yes, we do that in the course of business. Whenever one of our master service agreements expires, we attempt to raise our billing rate.

Okay. And then, you said you added about 35 employees in the quarter, and you got a really high utilization rate. Does that sort of imply, also, that you're generating overtime, as well? Is that feeding in through revenue and gross margin there, as well?

I don't think overtime would impact our utilization because I think the overtime goes into both the denominator and numerator, if I remember my math in that calculation.

But, the answer to your question is yes, I think we are generating overtime. And so, in effect, we're getting more revenue per employee.

Okay.

And maybe that's part of the reason for our increase in revenue is an overtime component.

Okay. And then, you have this one ethanol plant that ran into problems. Do you foresee any other broader risks to other construction out there, such as the ethanol plants that financing may be a problem that might impact you either with current projects that you're on or potential new business?

I'm not aware of any other problems. We don't have any other ethanol business on our books. We are working on biodiesel, and solar, and coals, and liquids, and utilization of [Pepco] for various purposes. But, these are different processes.

I think what hurt ethanol as much as the credit markets was a decrease in the margins that ethanol was enjoying. My personal belief is that those margins are going to go back up. And I think they've already started back up.

Okay, great. Thank you.

You're welcome.

Debra Fiakas, Crystal Equity Research. Please state your question.

Thank you. I'd like to go back to the discussion of your utilization rates. Can you give us an idea of what your target or what you consider to be optimal utilization of your personnel?

I think we're about there. I don't think there's much -- considering the fact that we include overhead people in the number we quote of 91%, what that really means is that our billable staff is operating at a much higher utilization than the number we quote. I don't think there's much incremental to be gained from here--.

--Okay. So, when you--?

--In terms of utilization--.

--Win new business, then, at this level of utilization, you are then pressed if you win a significant new piece of business to go out into the marketplace and find the appropriate personnel.

That's correct. And we can either do those projects through overtime or recruiting efforts. They're a combination of the two.

Okay. And also, I wondered if there's any metric that you might be able to give us, to give us an idea of what kind of bidding activity is out there in your pipeline right now?

I don't have a metric for that. I could probably develop one for future calls as to the number of proposals outstanding. But, all I can say is it's very good. It's as good as it has been three months ago. I mean, it continues to be at a very high level, I'll say that.

Okay.

We don't see any letup in sight.

So, just conceptually, it sounds like the bidding activity is maybe sequentially higher and also maybe -- and definitely higher than over the prior year period.

Yes, that is true.

Okay. And then, just one more, if I could just slip in one more question about just the nature of your pipeline. Are you seeing any kind of trend in terms of the size of projects that you're able to bid on?

I know you mentioned in your opening comments several industries that you feel are growing with particular vigor. So, is your business pipeline changing in character, or is it pretty much what we had been looking at, say, over the last several quarters a year or two?

I think it's pretty much what we've been looking at. And we intentionally target mainly North American projects. We target small to mid-sized projects.

We feel like the real differentiator for us is the wide range of capabilities. We don't feel like there's many competitors out there that can offer our clients what we can offer on small to mid-sized projects. And I just generally say that's under $200 million total in fall cost.

So, just a wide variety of services, from scoping, to engineering, to process development, to inspection, to construction management, foreign land and right-of-way. What we've been doing is filling in the pieces through these 10 smaller acquisitions over the last five years, and we have a well-rounded suite of services that we can offer.

Okay, all right. And you also mentioned a rebranding effort, and just I'm listening to your response and thinking about your earlier comments regarding rebranding.

Is this just a subtle change in terms of collateral material or how your people introduce themselves, or do you have some sort of significant campaign going forward to try to elevate the recognition of the ENGlobal name?

I think it will turn into a significant campaign. I think the difference is, right now, that we really sell and market ourselves as four or five or eight different companies. We have a lot of different brands out there and a lot of different groups selling.

And so, what I would like to do is just use one name. Just like GE is GE, I would like ENGlobal to be ENGlobal. And yes, we're going to have a number of groups under ENGlobal but, to the world, we're going to be that one word and not ENGlobal Engineering, Inc., and not ENGlobal Automation, Inc., ENGlobal Construction Resources, Inc., because that gets to be kind of cumbersome. And people kind of start to see it as a lot of different companies that don't work well together at times.

All right, very good. Thank you.

Thank you, Debra.

Richard Nelson, [J.G. O'Donnell Securities]. Please state your question.

Well, good morning. Most of my questions have been answered. I do have a couple of quick ones.

One, Sarbanes-Oxley, you mentioned the expense in your news release. Could you quantify that at this point, and is this the sort of expense that we can expect going forward or might there be some relief there?

And then, I have another question. But, I'll let you go with that first.

Richard, I think we probably incur a little bit more in the fourth quarter as we, I guess, complete our testing, and have a little bit of carryover into the first quarter of 2008--.

--But--.

--To complete the process--.

--To what extent -- what's the amount of the expense would you estimate?

I think in the third quarter, we probably saw $100,000 or less.

Okay. So, it's not really that--.

--But, we expect that to grow in the fourth. We expect the bulk of our stock-related activities to be in the fourth quarter this year and in the first quarter of next year.

Oh, okay, okay.

And I think we've said before that we might extend $400,000 or $500,000 on our SOX compliance efforts this year.

Okay. And that probably won't change going forward on an annual basis?

Well, it'll be reduced in future years. I think the big bulk of it will come this year, and we've been advised of it in subsequent years.

Yes, mainly as a testing mode as opposed to--.

--Yes, yes--.

--Program preparation.

Okay, okay. And finally, on the promissory note that you're getting for the $10.4 million in account receivables that you've converted, what kind of rate of return are you getting on that, or is it a backended kind of payment once you're clients are able to pay?

We're getting a 10% rate.

Okay, very good. That's all I have. Thank you.

Thank you.

Thanks, Richard.

J.D. Paggett, The Boston Company. Please state your question.

Yes, hi, nice results.

Thank you.

A couple of quick ones in the Construction Management business, what's driving the strength there?

Well, we acquired a small company called Watco Management Services late last year, I believe it was in October. And it was a group of 5, at most 10 people, and they specialize in construction management. They specialize in planning turnarounds at process plants, asset management.

And so, this group has really just taken off since they came to be ENGlobal. I don't really have a count of how many people they have, but it's about 80 people or so. They've grown. I mean, since late last year to late this year, they've grown from 5 or 10 people to 80 people.

And I think it's clients' willingness to give them bigger opportunities, having joined with a bigger -- having more resources behind them. And I guess just the management of construction is what's really driving those results--.

--And what--?

--With a small acquisition we did.

It sounds like a great acquisition for you.

I guess, from an industry perspective, what's driving customers' demand to be increasingly looking at turnarounds right now? Is that a seasonal thing or--?

--I don't think I'm qualified to speak on turnaround activity. I wish I could, J.D., but I'm just not up on that marketplace as to what's driving turnaround.

The other thing I should mention, we have a pipeline of special groups that's part of our construction group that we call out, and they're up to about close to 500 people now. I think this time last year they were probably more in the 250 or 300 personnel.

And this is being driven by activity in the pipeline marketplace, just construction. There was 70% more construction related to pipelines this year than last year. So, they're enjoying placing more inspectors out in the field as a result of that.

Was that the WR acquisition?

No, that was Cleveland Inspection acquisition we did in 2004.

Okay.

And when we acquired them, they had maybe 120 people on staff. Today, they have close to 500.

Wasn't WR -- but, that was right-of-way, wasn't it?

Yes.

Yes, [TRC] was right-of-way in June of 2006, we acquired them, and they've done very well and are growing their business. Probably have 250 right-of-way agents out in the field all across the country--.

--Okay--.

--Mostly for pipeline. But, now, we're seeing more electric utility opportunities for transmission lines.

So, they work in conjunction with the pipeline inspection people?

The same people can do either function, yes--.

--Okay--.

--Either pipe, right-of-way or--.

--Okay--.

--Electric power line.

And I think you said that the pipeline specialty business was maybe $30, $35 million in revenue. Was that for this year or for the nine months year-to-date?

Oh, that was for the nine months.

Okay.

I hate to quote a number, but I think that's about a nine month. That's a very rough number.

Right, okay.

And the other question had to do with Motiva and the commissioning of that project. Does that potentially mean an incremental step up in work for you guys from the run rates we've seen historically, or that just gives you visibility to kind of sustain what you've done there for a while?

I think it's the latter. I think it gives us visibility. We always have the opportunity to increase our scope as a project goes along, but we can't quantify that. We've been working on Motiva for maybe a year--.

--Yes--.

--A year-and-a-half, something like that, during the development phase. And so, it just gives us visibility now the project's approved.

When you say ability to potentially increase the scope, what's that mean? Does mean bid on--?

--That means that there'll be various activities during this project, and that could be a sign to ENGlobal as part of our work, that either Bechtel or Jacobs wouldn't have the resources to do and it would be sent down to us to do.

Okay, great. Nice job, thank you.

Thanks, too, J.D.

Megan Bissell, ERC Partners. Please state your question.

Good morning, guys.

Good morning, Megan.

Good morning, Megan.

I wanted to -- I got on a little bit late, so I'm sorry if you've already answered this.

But, I wanted to talk about the decline in the detail design revenue and what drove that. Is that the impact of the ethanol plant on the third quarter? What's happening there?

Actually, what we're going to do is we're going to do some research and address that in our Q which will be filed on Friday. I mean, we noticed the same trend.

I could give you an answer like, well, it's of mix or something like that, but I think we need to give the public a better answer. And we just need to do some research in order to do that. So--.

--Okay. But, your initial reaction is that it's a mix issue?

Yes, that's my initial reaction.

Okay.

But, we're going to further detail that.

Okay. I guess, at that point then, what would be -- usually, your fourth quarter in detail design is down a little bit.

If you think it's a mix issue in the third quarter, do you think that's rectified, then, in the fourth quarter, or do you think you actually see revenue down from this level in the fourth quarter?

Well, I tell you, that's somewhat forward-looking and I don't think we're prepared to speak to that, unfortunately.

I guess what you could do is look to our man-hour trends over the years, and we usually see a slight dip in the fourth quarter of man-hours. So, that's about the only thing I could point you to there is just our historical seasonality in the fourth quarter.

Okay. I guess, actually, I'll try my stab at more forward-looking. The field services, the $47 million, it definitely came in above where I was looking. Is that, to you, seem to be a sustainable level, or was there something in there that was a little bit more one-time in nature that you don't think will be repeated?

Well, a lot of it depends on the construction activity we were doing on the ethanol plant in Louisiana. That was -- a lot of that -- well, all of the construction activity was thrown into that.

Okay. So, the construction from ethanol, that was in the field services division?

It was, yes.

Oh, okay.

And I guess, in the Q, we could also quantify how much of that came from the ethanol, so you could get on reading on how much is ongoing.

Okay.

But, again, my expectation is the ethanol project gets going again in the near-term.

Okay. All right, great. Thanks so much, guys.

Thank you, Megan.

(OPERATOR INSTRUCTIONS.) Rich Wesolowski, Sidoti & Company. Please go ahead with your question.

Hi, I forgot that I pressed the button. But, my question was just a follow-up from the last one. How much revenue have you recognized from that ethanol project this year?

I'd say -- yes, we can put it in the Q.

Is there a ballpark estimate?

I'd say $20 million.

Yes, I was going to say $15.

Right.

I'd say $15 to $20 million.

$15 to $20. Great, thank you.

J.D. Paggett, The Boston Company. Please state your question.

Yes, you partially answered it with that last response. But, $15 to $20 million in total revenue for this year, and I guess you'd been paid for all of that, except for the $10 million?

That's right. They were actually our best end clients, if you want to know the truth. They (inaudible) best end client, and then ran out of bridge financing.

Okay. And all that shows up in the field services and inspection, not the detail design or P&C, huh?

Well, we had responsibility for engineering, and that would show up into the detail engineering part. But, the balance of it, the bigger part of it would come into the construction side, field service.

Okay. So, it's in the field service, not the procurement and construction part?

Right.

That's right.

Okay. And what was the potential total value of that contract over whatever timeframe?

Maybe $6 million of engineering value and $30 million of construction value, subcontracted value.

So, when you -- field service and inspection, though, that wouldn't be subcontract work. Wouldn't that be work you do by yourselves?

What I'm talking about is the construction to the extent of getting the construction performed at the site. We would self-perform some of that, and we'd subcontract some of that--.

--Okay--.

--For the pipe installation.

So, I think it was $30, $35 million effort on the construction. The customer bought most of the equipment themselves and paid for it. And--.

--So, the potential revenue to you, that would have also fallen in field service and inspection going forward. I don't understand what you're saying. There's $6 million in detail design work potentially over the life of the project and--.

--Um-hmm--.

--$30 million of construction, but you would have done that subcontract, right?

Not all. We would have self-performed some of that (inaudible)--.

--Okay. But, you've taken a chunk of the revenue from it in the field service business, which sounds like you would have your capabilities to self-perform that, or no?

Most of the early work was done self-performed.

Most of the early work was self-performed, yes.

Like (inaudible), right.

Yes.

Just some electrical work.

Okay. So, the bulk of the revenue that you would have self-performed on it, you've pretty much done already. The next stage would have been subcontract construction work going forward.

No, not necessarily. The project right now we estimate is about 40% complete, and we would have gone on the same path we were going on to get the 40%, self-performing some of the work and subcontracting some of the activities out, and performing engineering in our office. And so--.

--Okay--.

--That's kind of the way the project is going to be executed.

So, if it was $15, does that represent 40% of the potential revenue value to you?

$15 million?

You said $15 to $20 that you've taken so far revenue from it, and if we're 40% complete, is that fair, that kind of number?

There's a lot of different measures to how you measure percent complete on a project. So, I don't think that's fair. We expect that, over the course of the project, to get revenue between $35 and $40 million, both in engineering and construction-related activities.

Okay, thank you.

There's some effort going on about the client. They're also furnishing equipment that's going into the facility, too.

Okay. But, that--.

--Our effort and their effort make it about a 40% completion.

Okay. But, $35 to $40 million potential revenue for you.

Yes.

Okay, thank you.

There are no further questions in the queue. I'd like to turn the call back over to Natalie Hairston for closing comments.

Thank you, operator. Hello again, everyone. I'll be able to answer any follow-up questions this afternoon, or you can always e-mail me directly at IR@ENGlobal.com.

Thank you for being on the call today, and thank you, as always, for your continued support of ENGlobal.

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