Matrix Service Co (MTRX) 2008 Q4 法說會逐字稿

Greetings ladies and gentlemen and welcome to the Matrix Service Company fourth quarter and fiscal year 2008 earnings results. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Miss Truc Nguyen, Deputy Managing Director with Grayling Global. Thank you. You may began.

Thank you, Diego. I would now like to take a moment to read the following. Various remarks that the Company may make about future expectations, plans and prospects for Matrix Service Company constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various factors including those discussed in our Annual Report Form 10-K for our last fiscal year and in subsequent filings made by the Company with the SEC.

In addition, some of our comments today include non-GAAP financial measures. I encourage you to refer to the reconciliation of GAAP to non-GAAP financial measures that is posted on our website and included in our earnings release. Matrix Service has provided the necessary reconciliation in our press release to disclose a non-GAAP financial measure in this conference call.

EBITDA is provided as we believe the financial and investment communities utilize this measure to assess our performance and evaluate the market valuation -- the market value of companies considered to be in a business similar to ours. Gross margins excluding the LNG project and other special items have been identified on this call and in today's earnings release.

Management believes that operating results excluding this item are useful in evaluating operational trends for Matrix Service and its performance relative to our competitors. I will now turn the call over to Michael Bradley, President and CEO of Matrix Service Company.

Thanks, Truc, and good morning, everyone. We really appreciate all of you joining us this morning. On the conference call today we also have Tom Lon, our Chief Financial Officer.

Before I turn the call over to Tom to discuss the financial results, I would like to cover the following topics. First is the overall business performance for the fourth quarter of fiscal 2008 and for the full year. Second is our LNG project. Third is the SemGroup bankruptcy. Fourth is backlog, and finally, the outlook for Matrix Service.

First of all, we're very pleased to report that our overall business continued to perform extremely well during the fourth quarter of fiscal year 2008 producing net income of $8.9 million or $0.34 per fully diluted share. On a consolidated basis, margins widened to 12.3% from 6.6% reported in the same period a year ago.

Absent LNG, the comparable gross margins were 13.6% for fiscal year '08 and 13.4% for fiscal year '07. The Construction Services segment gross margins improved to 12.3% in the quarter while Repair and Maintenance Service gross margins were 12.5% which was lower than the margins recognized earlier in the year.

A change in the mix of work during the quarter, which we previously stated was likely to occur, was the primary contributing factor to a decline in gross margins for Repair and Maintenance Services. We do not expect this as an ongoing trend.

Matrix Service reported robust results for 2008 as a whole achieving record revenue, operating income and fully diluted earnings per share. Revenues increased 14.3% in fiscal 2008 to $731.3 million as compared to $639.8 million in 2007.

Consolidated gross margins excluding the LNG impacts rose to 14.5% in fiscal year '08 compared to 13% in fiscal year '07. Operating income was $34.6 million versus $33.1 million last year.

The higher revenue and operating income resulted in a fully diluted earnings per share of $0.80 compared to $0.74 a year earlier. Despite the challenges with the LNG project, the employees of Matrix Service delivered a record year with a very strong performance across the remainder of our business and we're very proud of their accomplishments.

Next I'd like to move on and provide an update on the LNG project. We're very pleased to report that Matrix Service is now more than 99% complete on the overall project. We successfully delivered the third and final tank on-time and are completing the final punch list items on this project.

Despite Hurricane Katrina and other challenges that this project represented, we're very proud of having completed each of the three tanks according to the original contract terms. This was an important accomplishment as it demonstrated to all of our clients the value of our word and what it means to live up to our core values.

We want our clients to be confident that they can rely on Matrix Service to deliver quality work in a timely and safe fashion. The very talented on-site staff which overcame the challenges of that difficult environment are now leading our growth and diversification initiatives in the Gulf Coast region.

Moving on, regarding SemGroup, LP, as you have likely heard, they filed for bankruptcy subsequent to the completion of our fiscal year 2008. At the time of the bankruptcy filing, we were working on a previously announced project for SemCrude, which also filed for bankruptcy, in which we were selected to construct tankage at their [termining] facility in Cushing, Oklahoma. In addition to the Cushing project, we're working on a smaller project in Platteville, Colorado.

At this time, we're continuing to work on these projects under interim arrangements which we expect to finalize once the debtor and possession financing is secure. At this point, we anticipate completing the projects, however we have minimized any financial risk should the projects be put on hold and do not expect a material impact under that scenario.

Fourth, I would like to discuss backlog. While backlog increased modestly in fiscal 2008 to $467 million, our focus as I have stated previously was to complete the LNG project in fiscal year '08 according to our contracted commitments and to be in a position by year-end to have replaced $75 million of LNG backlog which we had at the beginning of fiscal year '08 with higher quality, lower risk projects which we have now more than accomplished.

Our backlog represents most but not all of the work that we have under contract. We believe that backlog balance is one measure of future revenue potential for our Company but there are significant limitations that need to be considered.

First of all, we report only 12 months of estimated revenues on our multi-year maintenance contracts in backlog. Second, our backlog excludes call out type work.

Third, the period between the award of the work and the beginning of the project can be short in duration which causes many of our projects to be in backlog for a short period of time. And finally, the significant additions to our backlog typically occur on a onetime basis and are then worked off over a period of time.

Our prospects today are strong as is our bid flow. We're currently pursuing an addressable market in excess of $1 billion which includes Aboveground Storage Tanks, downstream petroleum, high-voltage substation, power and industrial gas. Many of these customers have a strategic alliance relationship with Matrix Service and many others represent repeat customers.

Finally, I would like to further elaborate on the outlook for Matrix Service. In the short-term, we continue to see strong demand in the markets and with the customers we serve in both the Construction Services and Repair and Maintenance Services segments of our business.

As I mentioned, bid flow was strong and our prospect list is now in excess of $1 billion. We have a strong balance sheet and an experienced staff to capitalize on the opportunities presented by this environment.

In the past year, we have increased our professional staff by approximately 15% and our craft level is up more than offsetting the drop-off in LNG as we have been redeploying personnel to other opportunities and projects. Our strategy is to continue to position the Company for sustained growth with the best talent in the industry.

We see continued strength in the Aboveground Storage Tank and downstream petroleum markets for our Construction Services. We also expect to see an increase in the repair and maintenance market in fiscal 2009.

As we expected, repair and maintenance revenues from downstream petroleum market were lower in fiscal 2008 due to less turnaround and maintenance demand in our core markets. We anticipate fiscal 2009 to be a strong turnaround year as we're starting to see key clients commit to substantial turnaround work.

We also expect to increase our electrical instrumentation revenues in fiscal 2009 consistent with the strong demand for high-voltage transmission and substation construction in the Northeast transmission corridors. To support this new growth initiative, Matrix has secured and continues to attract key personnel in all tiers of project execution and is becoming a provider of choice to many AE firms serving this market.

With the completion of the LNG project, our specialty revenues will be lower in fiscal year 2009. However, we have redeployed the professional staff to our Gulf Coast region to expand and diversify our specialty service offerings allowing Matrix Service to be one of a limited number of high-end companies to provide and demonstrate superior technology to the marketplace and other steel plate structures.

Additionally, we've recently added key personnel to expand our small cap and turnaround capabilities in the Gulf Coast. Matrix Service has and continues to expand its offices and warehousing in the region which offers sustainable market over the planning horizon.

We have also been planning and working on our long-term strategy to ensure the continued success of Matrix Service going forward. Our Company has grown significantly over the past couple of years and we're adding key talent and staff with significant and broad industry experience along with support systems to continue to grow this business and expand our capabilities.

We've also expanded our engineering and fabrication capabilities to facilitate our growth and support future service offerings. Of specific note, Matrix Service is well-positioned to deliver its steel plate engineering procurement fabrication and construction of the next generation of nuclear power plant structures.

To this end, Matrix Service is in the process of obtaining its end stamp. And we will continue to add to our talent base and system to support long-term sustainable growth as we believe the right people and processes are critical to achieving our long-term strategy.

As I mentioned, our long-term strategy includes diversifying our service offerings, our customer base and our geographic reach. For example, in fiscal 2008, we established an operating presence in Western Canada. We believe there are significant AST opportunities with key clients in this region for Matrix Service and we expect to capitalize on these opportunities in fiscal year 2009 and beyond.

I just mentioned we're expanding our presence in the Gulf Coast to capitalize on both Construction Services and Repair and Maintenance Services available in this market and additionally our focus on positioning for the power and power delivery markets in the Mid-Atlantic states. We also see significant opportunities in delivering traditional [competencies] to the international arena.

While Matrix Service is not presently pursuing services abroad, there is an increased interest for our engineered and fabricative components in other services. Matrix Service will explore these on a case-by-case basis to support our strategic clients which currently enjoy a global reach.

Finally, we view strategic acquisitions as an important element to facilitate growing our business platform going forward. We have and will continue to look for opportunities that fit with our strategy, strengths and our culture.

We take a disciplined approach toward acquisitions as the risk associated with acquisitions can be significant. We will continue to be patient as we evaluate our opportunities and focus on opportunities that accelerate our strategy and are accretive to earnings.

So in summary, we're very proud of our overall performance in the fourth quarter and fiscal year 2008 as a whole. Our financial results continue to demonstrate the Company's robust growth and potential. We're laying the groundwork now to expand our geographic reach and diversify our service (technical difficulty) offerings to achieve sustainable and profitable long-term growth. With that, I'll turn it over to Tom who will go through the financial details.

Thanks Mike. The specific details of the fourth-quarter and the full-year performance have been disclosed in our press release this morning. So I would like to highlight certain items for the Company and each of our operating segments.

Starting with total revenues for the fourth quarter, they were $194.1 million up 9% compared to the fourth quarter of fiscal 2007. Net income for the fourth quarter of fiscal '08 was $8.9 million or $0.34 per fully diluted share compared with $1.9 million or $0.08 per fully diluted share for the prior fiscal year.

Included in the current quarter results was a pretax charge of $750,000 related to a charge in cost estimates on our Gulf Coast LNG project. The impact on earnings per fully diluted share for this charge was approximately $0.02.

Included in prior year results were charges of $10.9 million related to LNG. Construction Services revenues for the fourth quarter of fiscal '08 were $121.3 million up 18% compared to the same period a year earlier due to the continued strong demand for our Aboveground Storage Tank services which were $12 million higher in the fourth quarter of '08.

Repair and Maintenance Services revenues were $72.8 million in the fourth quarter of fiscal '08 versus $75.2 million during the same quarter of fiscal '07. The decline was primarily due to lower demand for our downstream petroleum services which decreased $9 million partially offset by higher demand for our Aboveground Storage Tank Repair and Maintenance Services which increased $7 million.

SG&A expense increased $1.7 million to $9.8 million in the fourth quarter of fiscal '08 versus $8.1 million in the same period last year. The increase was primarily due to employee related expenses and facility costs as we added staff to meet the demands of current and expected future growth.

For fiscal year ended May 31, 2008 Matrix Service reported consolidated revenues of $731.3 million, an increase of 14% compared to the same period a year earlier primarily due to increased Aboveground Storage Tank services in both Construction Services and Repair and Maintenance Services segments. Net income for the fiscal year '08 was $21.4 million or $0.80 per fully diluted share compared to $19.2 million or $0.74 per fully diluted share in the prior year.

Included in the current year results were pretax charges of $20.8 million or $0.46 per fully diluted share related to the LNG construction project as well as additional pretax charges of $1.5 million related to contested receivables from a customer who filed bankruptcy in November 2007 and also some non-reoccurring employee benefit cost. For the three and 12 months ended May 31, 2008, consolidated gross margins were 13.6% and 14.5%, respectively, excluding the LNG project and other special items.

Revenues for the Construction Services segment for the fiscal year '08 was $455.9 million up 24.5% compared to the same period a year earlier. The $90 million revenue increase was primarily due to Aboveground Storage Tank services and downstream petroleum services which increased $42 million and $36 million, respectively.

Repair and maintenance revenue was $275 million in the fiscal year ended May 31, 2008, up $1.7 million over prior year. A $43 million increase in Aboveground Storage Tank revenues was partially offset by declines in downstream petroleum and Electrical and Instrumentation revenues which decreased $32 million and $9 million, respectively.

SG&A expenses increased by $7.8 million in the fiscal year ended May 31, '08, to $40.6 million compared to $32.8 million in the same period last year. The increase was primarily due to employee and facility related expenses incurred to meet the demands of current and expected future growth.

For the fourth quarter of fiscal '08, EBITDA increased to $16.4 million compared to $5.5 million for the same period last year. EBITDA for the fiscal year ended May 31, 2008, was $42.9 million compared to $39.9 million for the year earlier period.

The Company generated $45.6 million in cash from operations in fiscal '08. The cash-generated, fully-funded $18.3 million of capital expenditures and $12.8 million of market purchases of the Company's stock. Our cash balance was $22 million at May 31, 2008.

The Company had no bank debt at the end of fiscal 2008 and had $70.4 million of availability under our credit facility. We had utilized $4.6 million of the five-year $75 million revolving credit facility for outstanding letters of credit.

We're clearly pleased with the overall growth in our revenues and our abilities to continue to improve profitability. Based upon the activity we're seeing today, we anticipate our revenue growth trend to continue into fiscal '09.

So in summary, we are maintaining or reiterating our guidance for '09 of revenue of $800 million to $850 million and we expect the bottom line in the range of $1.35 to $1.60, both of those on a fully diluted per share basis. Our capital expenditure budget is $25 million and we are anticipating SG&A to be in the range of 5.5% to 6% of revenues. With that, that's all of our prepared remarks and we're ready to open it up for questions.

(OPERATOR INSTRUCTIONS) Matt Duncan, Stephens Inc.

First question I've got, let's just talk about this LNG project just hopefully one last time here. The project, Mike, you said is now 99% complete. Remind us how much revenue was left on that project for the first quarter and when -- will that job be completely finished by the end of this month?

The revenue was $1 million for -- was left after May 31. And we are -- again, we are completing the final punch list items and we expect to be completed by the end of this quarter.

Is there any chance that there could be another small charge here? Would you guys have tried to capture everything that was left in the $800,000 you took this quarter?

We don't expect any additional charges. We captured everything that we saw in the fourth quarter.

I appreciate the commentary that those sales will indeed be down in fiscal '09. I think that's probably what everybody was expecting. I'm just curious if you can talk to us about what types of projects you guys are considering in the specialty construction arena and kind of how much should we think about those sales being down if you care to comment on that?

Well, we're not going to give specific information on sales. But what I will tell you is that one of the comments that I made just a few minutes ago was spheres. That's a market that we've entered and we're currently executing projects for spheres.

We're also looking at stack liners for power and other power-related facilities and we continue to see a pretty strong demand for [lin] locks and industrial gas type facilities. So I think we are well-positioned to take the knowledge and expertise that we have gathered up from the people on the [towl] and the LNG project and really put it to work towards increasing our specialty type business. We're very excited about that.

Mike, would I be correct if it looks like if you backed out the LNG revenue from specialty, you did just under $5 million in other revenue and specialty this quarter, is that correct -- from things other than the LNG project?

Yes, I think that is pretty close there, Matt.

That probably a good run rate then to think about going forward and then you would build off of that? Is that probably the way we ought to think about this then?

Well I think that we continue to look at growing that business, absolutely.

Fair enough. We will move on then. Looking at the gross margin for a minute; understand it was a mix that had the repair and maintenance gross margins down. I'm curious if you can give us some thoughts on where you expect your gross margins to be going forward as you kind of look at what's in your backlog now that this LNG project is behind you. How should we think about gross margins going forward?

What the guidance that we gave for '09 did not include gross margins. And we decided to go forward with an earnings per share because we think that's a better measure of our business.

But also I think some of the ranges that we had given in the past were pretty wide. We continue to see strong prospects and opportunities. Gross margins still look very attractive. So we're not anticipating any major changes.

But then, Mike, if I looked at the gross margins you did this year without the LNG project, is there any reason to expect that the gross margins would be very different from that going forward?

I think on an annual basis we continued to see similar type opportunities that we saw in '08. So I think the margin range that we've been able to achieve is the margins that we would anticipate seeing going forward.

Fair enough.

(multiple speakers) Based on the outlook today.

Looking at the E&I segment, that had kind of a nice little uptick sequentially both on the Construction Services and Repair and Maintenance Services side. Did you guys kind of focus back on the E&I a little bit this quarter? What was behind that and kind of what do you expect? I know you didn't say that you expect that to be up in '09. What kind type of stuff are you looking at doing in Electrical and Instrumentation?

Well, I'll go back to earlier in our fiscal year of '08. And one of the things that I have stated is that we expected the revenues in '08 to be down from '07 in that we were looking at changing our strategy in the E&I business which we have been implementing.

As I have mentioned before, we brought in a new gentlemen to head up our MSICI, our union entity based out of Philadelphia. He came with a very strong high-voltage electrical background; also added a COO who also has a strong capability amongst other industry applications.

But the whole idea was to -- we saw an opportunity in the high-voltage market and transmission and power delivery markets just given I think some of the infrastructure needs that we're really developing in the Mid-Atlantic states which is where we focus our E&I business today. So our strategy has really been shifting away from what I would call more electrician and geared more towards the high-voltage substation power delivery systems. That's our focus.

I mentioned a little bit ago that we have continued to bring in more talent. Matt Petrizzo, who is President of MSICI, continues to bring in people. And so our focus is to really take advantage and develop the opportunity we see that's going to be very strong over the next several years.

A couple more things here and then I will jump back in queue. Mike, you did comment on the refinery turnaround business, the downstream repair and maintenance segment should grow in fiscal 2009. Are you guys already seeing that turnaround business start to come up here now that crack spreads have narrowed and the refiner margins are down a little bit? Is that kind of what is behind the uptick in turnaround business?

Well I think that given our markets, we expected '08 to be down because '07 was a heavy turnaround year. We are seeing strong bookings for '09 which we anticipated. We expect a strong year in the turnaround business in our core markets.

Secondly, as I mentioned, we have continued to add new talent. We brought in some new talent in the Gulf Coast region to focus on growing our turnaround and maintenance business in that particular area. So we see a strong market and as part of our strategy to diversify, we have brought in some talent to help us build the Gulf Coast region as well.

Okay. Did you guys buy any stock this quarter?

Not this quarter, no.

And then last thing here, acquisitions -- Mike, I appreciated the commentary you gave us on that. I'm wondering if you can maybe talk a little bit more about that and sort of address what types of acquisitions you would like to make. Are we looking at adding geography, new construction capabilities, new end markets? And then also, what multiples do you guys think about when you're looking at acquisitions?

All good questions. I think regarding the types of acquisitions; one, we're looking at expanding geographically. We are also looking for opportunities that add to our technical capabilities as well to expand some of the markets and types of markets that we serve. Our focus continues to be in the energy space at this point. We don't have any plans to deviate from that.

We have looked at several opportunities. Some fit, some don't. But I think in terms of value, we're looking for deals that are accretive to earnings immediately and also provide a good long-term strategic fit for us to expand our services. So we're not necessarily looking to jump out into something that is quite a bit different from the capabilities we have today. But our focus continues to be in the downstream petroleum, power, industrial gas and natural gas type markets.

Are you close enough to anything that we could expect to see you make an acquisition within fiscal 2009 or is it just too early to tell?

That is something that I really can't comment on but other than to say that we are active.

Rich Wesolowski, Sidoti & Co.

Thanks a lot, good morning. Did you guys remove any backlog for the SemGrouup contracts?

No, we did not.

How much, if you are at liberty to say, was in the May backlog?

$17 million was in the May backlog.

And you have worked off a portion of that since?

That's correct.

Are you current on all the work payment-wise?

Yes.

You mentioned the outlook for turnarounds in FY '09. I assume you're talking about as soon as the November quarter or the fall season. Considering the lead times on planning these projects, was much of the expected fall turnaround work already in the May backlog?

I don't have an exact answer there, Rich. What I will tell you is that a lot of the backlog -- some of the backlog for '09 was in our May backlog. But we're continuing to book work now for '09 and we see a very strong second quarter and third quarter is building. And the demand we see out for the fourth quarter and the types of work we're expecting also continues to look very strong. We will be adding backlog to turnaround work as we go forward.

Okay, that's helpful. You mentioned your policy of recording only the next 12 months of expected revenue on ongoing maintenance contracts in backlog. Do you have any idea of how much revenue you add every quarter related to these contracts simply because of the passage of time?

That's a tough question only because a lot of work that we take on particularly in the Repair and Maintenance Side is emergency or it's short-term. That is just the nature of our business in that particular segment.

So I mean, the trend has been we have continued to increase our services in that area and we're continuing to look at increasing that. I can't give you an exact revenue per quarter other than to say that I would (multiple speakers) backlog a lot of that work is emergency call out and short-term work which is part of the nature of our Repair and Maintenance business.

Okay, would it be fair -- you have been booking in F08 quarterly between $175 million and $200 million in new awards. Is it $25 million, $50 million, is it -- even a ballpark estimate would help. I'm trying to get an idea of how much work you need to actually book in new contracts per quarter in order to drive the backlog higher. If you don't have an estimate, we can get to it later, that's fine.

I don't have exact answer on that one, Rich, other than to say that again the Repair and Maintenance business is a very strong element of our business. We continue to see demand for our services. We haven't seen that decline.

The refinery service sector stocks appear to be trading with oil prices which seems odd to me. If oil goes to $80, do you think you'll get more or less business?

Well, from our -- we have been in that $80 market here not too long ago. And we continue to see the demand in the downstream petroleum industry very strong, particularly as it relates to refinery modifications and expansions for heavy crude. We haven't seen -- in our markets we haven't seen anything change over the past year relative to the price of crude.

The refinery -- again our turnaround business is focused in certain core markets. '07 was a heavy year. We expected '08 to be lighter year and we expect '09 to be a stronger year. It's the cycle that we're in in our core markets. But we haven't seen anything to indicate that anything has changed there.

Lastly, within the last year we have been talking about basically fully utilizing your labor force and now that you have replaced a lot of the LNG work, how much revenue can you potentially generate with your existing shop and labor force? And how has that number changed from a year ago if possible separating the volume from the price effect?

In terms of '09 we have given guidance to up to $850 million, so we know we can actually execute that with our labor. We continue to add to our staff. Today we're not opportunity limited.

So our focus is to continue to add people to increase the amount of revenue that we can generate on an organic basis. We continue to see our ability to grow our business organically into '10, '11 and going forward because of our ability to continue to attract people.

(OPERATOR INSTRUCTIONS) Martin Malloy, Johnson Rice.

Could you talk a little bit about what you're seeing in the power market as far as gas-fired power plant construction, if you have opportunities there?

You know, we have seen some opportunities come up. We are looking at some opportunities right now. It's going to be interesting to see how this market is developed over the next couple of years particularly with the restrictions on coal and a lot of the plants that have been planned but canceled.

So I would expect to see some gas-fired generation fill in the gaps over the next couple of years. As I mentioned, we also are big looking to position ourselves for longer-term nuclear. So we are looking at opportunities that include gas-fired generation.

And as far as new nuclear units, can you talk a little bit about the role you might play with the building of one of those?

Our focus is on the steel plate structures, the containment vessels. Again, that's where our core expertise is in terms of engineering fabrication and construction, would be in that particular area.

John Flanagin, First Analysis Securities.

Looking at Construction Services and specifically downstream petroleum, it appears to me that year-over-year growth has been seeing modest growth year-over-year in both the February and May quarters and I'm wondering if you are now seeing in your calendar any sort of change in that sub 5% growth rate?

For Construction Services?

Downstream petroleum Construction Services, yes.

I think for the year we have like 28% growth.

Yes, I'm just looking at the last couple of quarters year-over-year.

I don't think -- again, our business is -- on a quarterly basis is somewhat lumpy and what we're looking at is over the full year. So we're seeing growth beyond that 5% for sure.

On an annualized basis, do you expect growth to continue at the full fiscal year '08 runrate more or less?

Well, again, our guidance for '08 is revenues in the $800 million to $850 million range for '08, which is a -- particularly when you look at the LNG project and the time to be consumed on that. Our focus is on as I said number one, is going into the year we wanted to more than replace the LNG backlog with lower-risk projects, higher-margin opportunities which we have established going into '09. Then second is to continue to grow from that revenue base going forward.

So when you look at the amount of backlog that we had replaced as a result of the LNG project, it is more than 15% year-over-year. So, our focus is on improving our profitability on the projects that we execute while also building our topline growth. So again, I'm just trying to say we positioned '09 to get out of the LNG project and to replace that with higher-margin, lower-risk work which we have done.

Let me put it a different way -- and thank you for that. Are you seeing strong demand in downstream petroleum for Construction Services?

Yes, we are.

Thank you. And then related just on backlog, have you broken down between Construction Services and Repair and Maintenance where you were at the end of May?

Yes, we did.

Thank you, our next question comes from --

John, we want to answer your question here.

We can go ahead and answer that question though.

Backlog as of May 31 for Construction Services was $325,341,000 and for Repair and Maintenance Services $141,967,000.

Thank you, sir, would you like to go onto the next question? Tahira Afzal, KeyBanc.

Good morning, gentlemen, and many congratulations on an in-line quarter. I just remember from the last quarter you had mentioned that your prospects were in excess of $800 million. Now you seem to be much more confident around the $1 billion mark. What has changed since the last quarter?

I would say that we are seeing really strong bid flow in I think both downstream petroleum as well as the high-voltage market. We have been focusing on building that element of our business. Other power related services -- we're really seeing a broadening of the type of projects over the past three to six months.

Which again, that's part of our strategy is to further diversify our business. The Aboveground Storage Tank business outlook is still very strong and we're obviously very active in building that business with the addition of the Canadian office. So that focus is strong and the bid flow there is strong. But we're seeing and we are pursuing other opportunities, again, that we have the capability to execute in other markets.

And if you look at that $800 million number you gave last quarter in terms of your prospects, I know you haven't announced anything and I understand it might be because of customers, but what has your win rate been on that so far?

Our typical win rate has been in the 40% range, something like that.

And then just getting back to your new -- just looking at the bookings you saw in 2008, they were around the $750 million level. Given that you are now focused on growth, would we expect that number to go up? And in essence if you're looking at your actual prospects of bookings, would one assume it's above the $1 billion mark then?

In fiscal year 2008 we added or were awarded almost $740 million of backlog.

Right.

And obviously our expectation is to grow that in 2009 and beyond. So our expectation is to grow that number.

Fair enough; just wanted to get a little bit more to see how confident you were around that.

I would say our bid flow is very strong right now and as I said, our staff is 15% higher than it was a year ago.

Fair enough, that's helpful. The other question I had was in terms of your downstream business I know BP has come out and announced that on the Whiting refinery they're going to be doing a major retrofit upgrade project. I know BP in fiscal year '07 was a large client of yours. How should we be looking at some of the opportunities there and would those be also factored in your prospect list?

We don't comment specifically on customers but that's the type of work and the projects within -- those types of refinery expansions fit our niche very well.

Fair enough. Then if I'm looking at and viewing your commentary on nuclear creditations I would assume that is a fairly significant undertaking and I assume you have some interest from clients on that already versus you doing that on a speculative basis? Would that be correct?

That's correct. We see clients that have interest and so we're not just doing it on a speculative basis. But it is an investment that we think is worthwhile (multiple speakers)

And just a couple of more questions and then I'll hop back in the queue. If you look at downstream and you've commented that '09 is going to be a better year than '08, how would we compare '09 versus the momentum you saw in '07? Do you think we should view it as being sort of in the middle of the two years or should it be closer to fiscal year '07?

I would say the momentum coming into '09 is very similar to the momentum we had in '07.

Right, okay.

But I also want to reiterate that we are adding people to expand our geographic reach in that area as well.

Got it. I mean would that maybe have implications for the margins versus '07 then?

No, I think that -- again, we're not giving margin guidance for '09 other than to say we haven't seen any deterioration in the margins that we expect in '09.

Okay, great. And then one last question and that is to do with the SemCrude/SemGroup thing. How much in accounts receivable or receivables do have due that are on your balance sheet right now which are associated with both?

How I will answer that is that we have minimized our financial exposure on that project should it cease to go forward or be put on hold. So we're comfortable there's no material impact under that scenario. And we're continuing to work on an interim agreement at this point.

Thank you once again. I will hop back in the queue.

John Rogers, DA Davidson.

Just a little more clarification. In terms of the bid activity that you're looking at now and you talked about expanding geographically. Is that with existing clients or are these new clients?

Both. We continue to add new clients as well as focusing on our existing client relationships.

But limited primarily still to North America?

That's correct.

In terms of the revenue guidance that you gave us, can you give us a sense of what kind of materials and labor inflation you're assuming in there if any?

Well, I think there is some material and labor escalation as you would expect year-over-year just given the environment that we're in. But we're really focusing on again two things. One is real revenue growth and improving our bottom line earnings per share. So (multiple speakers) profitability is a big focus of ours.

And you don't have any significant materials risk, I assume, on any of this?

No, we do not. We're not taking material risks on contracts.

And again this is all from existing operations before any potential or possible acquisitions.

That's correct.

John Flanagan, First Analysis Securities.

A couple of quick modeling questions. First, looking at the increase in the cash balance and yet a fairly modest interest income, I'm wondering what we should be assuming going forward.

As far as interest income? Well, like I mentioned on the call, we do have that balance of $22 million at year-end. As you can appreciate that depending on what we ended doing throughout the year, that balance can obviously move around. So I'm not sure quite what guidance to give you on that as far as what to earn off -- what you would assume to earn off that.

As it stands right now, our CapEx is probably $25 million. So you can appreciate with the guidance we've given you we will generate quite a bit more cash flow than the $25 million and that's really all of our -- that's the primary cash needs that we would have throughout the year other than if we did an acquisition.

I'm just wondering -- interest income was only 25 on that balance?

I'm sorry?

It looked like interest income was very low but let's move on. SG&A, you're guiding that it could be a point higher than it was in the May quarter in terms of revenue?

Right.

What are you anticipating there? Why would that go up?

What we see right now is the additional infrastructure and the hires we've made to support the expected growth that we're looking out going forward. So as we look into '09 based upon our plan, that's where we've pulled those numbers.

Great, going forward --

Let me add one more thing that is an important point here. We're looking at new systems also to support our growth.

Thank you. Your guidance assumes what tax rate?

40%.

40%, okay. That's it for me. Thank you.

Thank you. There are no further questions at this time. I'll now turn the conference back over to Truc Nguyen.

Thank you very much for participating on this call. Have a great day.

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