Matrix Service Co (MTRX) 2009 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Matrix Service Company first-quarter 2009 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, Ms. Truc Nguyen, Investor Relations for Matrix Service Company. Thank you, Ms. Nguyen, you may begin.

Thanks a lot, Doug. Good morning and welcome to Matrix Service Company conference call for the earnings results for the first quarter fiscal year 2009 ended August 31, 2008. I would now like to introduce you to your host -- excuse me.

I would 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 on 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 a non-GAAP financial measure. I encourage you to refer to the reconciliation of GAAP to non-GAAP financial results 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 value of companies considered to be in a business similar to ours. I will now turn the call over to Michael Bradley, President and CEO of Matrix Service company. Mike?

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

Before I turn the call over to Tom to discuss the financial details, I would like to cover the following topics. First is our overall business performance during the first quarter of fiscal 2009. Second is the acquisition of certain engineering and construction assets from CB&I. Third is Hurricane Ike and its impact on our Gulf Coast office and activities. Forth, is backlog. And fifth is the outlook for Matrix Service.

To begin with, I am very pleased to report that Matrix Service maintained the positive momentum of the fourth quarter of fiscal 2008 into fiscal 2009, executing our business plan exceptionally well and achieving record operating income and fully diluted earnings per share. Revenues increased by $25.4 million or 15.7% in the first quarter of fiscal 2009 to $186.7 million as compared to $161.3 million in the same quarter of fiscal 2008. Operating income was $14.6 million, up from $10.9 million last year.

On a consolidated basis we achieved a gross margin of 14.3% with Construction Services margins of 13.1% and repair and maintenance services margins of 16.2%. The net income for the first quarter of fiscal 2009 was $9.5 million or $0.36 per fully diluted share, up from net income of $6.3 million or $0.23 per fully diluted share in the same quarter of fiscal 2008.

As we expected, SG&A cost increased to $12.1 million in our first quarter as compared to $8 million in the first quarter of last year. We are executing our strategy to grow and diversify which requires that we add talent and infrastructure to our organization. We are pleased to say we have been successful, which enables us to expand our operations geographically, increase the scale and sophistication of project types, and continue our ability to evaluate acquisition opportunities that support our growth strategy going forward.

Regarding our CB&I acquisition, we recently announced an agreement to acquire certain engineering and construction resources from CB&I. This acquisition is for the technology used to design, engineer and the construction of single and full containment LNG storage tanks, LIN/LOX storage tanks, LPG storage tanks and thermal vacuum chambers. The acquisition includes construction tools and equipment along with 70 engineering and construction personnel who are located and will remain in the northeast region of the country.

In addition, backlog consisting of cost-plus contracts with a contract value up to $20 million for this specialized work was included in the transaction. We expect to close on this transaction in the second quarter of fiscal 2009 subject to approval from the Federal Trade Commission.

We view this as a great opportunity for Matrix Service to acquire technical capability and assets at very little risk with significant upside potential for the Company. This is a low-cost opportunity which enabled us to add engineering personnel and capabilities as well as additional construction crews that specialize in steel play structures, electrical instrumentation and process design.

This is all we can share on this potential acquisition at this point. We will provide more details as we get closer to closing.

Next I want to provide an update on our Gulf Coast operations relative to the recent hurricanes. Importantly all of our employees are safe, we experienced minimal damage to our Houston and Gulf Coast facilities, and we quickly resumed normal operations.

We are now focused on continuing our golf Coast growth strategy and with helping our customers in the regions get their facilities back to full operating capacity. We expect to pick up Repair and Maintenance work as a result of the hurricane damage but projects that were in process at the time of the hurricanes may be delayed, so we don't expect to see any significant impact to our fiscal 2009 results.

Now I would like to discuss our backlog. Our backlog represents a significant portion of the work that we have under contract. The backlog balance that we report is one measure of future revenue potential for our company, but there are significant factors that need to be considered relative to our business model.

First of all, we report only 12 months of estimated revenues on our multi-year maintenance contracts and backlog. Second, our backlog excludes emergency and callout work which can be significant in any given period. Third, the period of time between the award of work and the completion of a project primarily in our Repair and Maintenance services segment can be in short duration. This may cause the award and completion of the project to occur in the same quarter.

We were awarded approximately $178 million of new backlog during the quarter and our backlog was $459 million as of August 31, 2008. Our focus has been, and our results demonstrate our efforts, to improve the quality and profitability of our backlog while executing on our diversification and growth strategy.

We have expanded our sales and business development efforts and, as a result, our prospects for additional work are strong as we are currently tracking well over $1 billion of projects which has been growing and our opportunity list includes a broader range of markets, customers and project types. We see significant opportunities in our traditional AST and downstream petroleum markets as well as promising projects in other markets such as high-voltage substation, industrial gas, material handling, air quality control retrofits and other capital construction projects across the energy spectrum. In summary, we are very encouraged by the opportunities we are pursuing and expect our future backlog to grow.

Finally, I would like to discuss the outlook for Matrix Service. Our strategy is to continue to grow and diversify our business. As we stated before, we have three elements to our growth and diversification strategy. First is to improve the efficiency and operating performance of our existing business. In that regard we have been expanding our safety trading, adding significant talent to the organization, expanding our business development capabilities, standardizing processes estimating and project control tools and adding capabilities and efficiencies to our fabrication facility.

Second is to capture opportunities to grow organically by expanding geographically and leveraging our capabilities to expand into new industries, customers and providing an expanded portfolio of services. Relative to this our recent focus areas have been expanding operations in Western Canada and the Gulf Coast, acquiring and [N] stamp which is essential to positioning our company for the nuclear market, expanding turnaround services geographically and most recently in the Gulf Coast, evaluating opportunities to expand our business internationally, and expanding our high-voltage substation construction business throughout the Northeast corridor of the United States.

Finally, we continue to selectively look at accretive acquisition opportunities to expand our capabilities, core business and accelerate entry into areas defined by our strategic intent. As previously discussed, we recently announced the pending acquisition of certain engineering and construction assets from CB&I.

In summary, we are very proud of our overall business performance in the first quarter of fiscal 2009. Despite the current uncertainty in the financial markets, we have not experienced any significant direct or indirect impact on our business. Our balance sheet remains strong and we do not anticipate any modifications to our credit facility as a result of the unsettled credit markets. Further, we are not experiencing a slowdown in bid flow and we continue to pursue numerous opportunities.

We believe our industry is as well insulated as any, but, like everyone today, we continue to monitor the upheaval in the credit and capital markets. We continue to lay the groundwork to expand our geographic reach, our customer base and markets, and diversify our service and product offerings to achieve sustainable and profitable long-term growth and will continue to look for acquisition opportunities to advance our strategy.

Finally, as discussed previously, Matrix Service's Board has approved for us to continue to assess purchasing back shares on the open market when it is accretive to earnings. It is our strong belief that our current share price does not reflect the fundamental value and the long-term earnings prospect of our company. And now I'll turn it over to Tom who will go through the financial details.

Thanks, Mike, and good morning, everyone. The specific details of the first-quarter fiscal 2009 results have been disclosed on our press release this morning, so I would like to highlight certain items for the Company and each of our operating segments.

Total revenues for the first quarter were $186.7 million, up 15.7% compared to the first quarter of fiscal 2008. Net income for the first quarter of fiscal 2009 was $9.5 million or $0.36 per fully diluted share compared to $6.3 million or $0.23 per fully diluted share for the same period in fiscal 2008.

Looking at the segments, Construction Services revenues for the first quarter of fiscal 2009 were $114.8 million, an increase of $16 million or 16.2% compared to the same period a year earlier. The increase in Construction Services revenues is primarily due to the continued strong demand for our AST services which increased 41.5% to $55.9 million during this quarter compared to $39.5 million in the first quarter of 2008.

We also saw improvements in the electrical and instrumentation which increased by $9.3 million to $11.5 million during the quarter compared to $2.2 million during the first quarter of 2008. Our downstream petroleum revenue increased by 14.6% to $38.5 million compared to $33.6 million in the same quarter of 2008. These increases were partially offset by lower specialty revenues which decreased 14.6 -- $14.7 million due to the completion of the tanks on our Gulf Coast LNG project.

Looking at the repair and maintenance services segment, it likewise performed very well during this quarter as revenues were $71.9 million in the first quarter of fiscal 2009 versus $62.5 million during the same quarter of fiscal 2008. The improvement was primarily due to continued demand in the AST repair and maintenance which increased 15.4% to $47.9 million during the first quarter compared to $41.5 million in the same quarter of fiscal 2008 and also by higher demand for our downstream petroleum services which increased 21.1% to $21.2 million versus $17.5 million in the same period a year earlier.

SG&A expenses increased $4.1 million to $12.1 million in the first quarter of fiscal 2009 compared to $8 million in the same period last year due to the drivers that Mike previously discussed. For the first quarter of fiscal 2009 EBITDA increased to $17.7 million compared to $12.6 million for the same period last year.

Our cash balance was $18.8 million at August 31, 2008. The Company had no bank debt at the end of the first quarter fiscal 2009 and we do have $4.6 million of letters of credit outstanding. So basically we still have a little over $70 million of our five-year $75 million credit facility is outstanding at this time.

As we mentioned in the press release, we are maintaining our fiscal 2009 guidance at the $800 million to $850 million in consolidated revenues and our earnings at $1.35 per fully diluted share to $1.60 per fully diluted share. SG&A, we do expect that still to be in the 5.5% to 6% of revenues and capital expenditures we're still holding at $25 million. With that why don't we go ahead and open it up for questions?

(Operator Instructions). Rich Wesolowski, Sidoti & Co.

Thanks a lot. Good morning. Mike, I appreciate your comments earlier in your prepared remarks about how backlog is not a perfect indicator, but there nonetheless seems to be a disconnect between the bullish comments on newer prospects and what is now a pretty persistent slide in the backlog during the past year. Do you agree that a rebound in backlog is necessary for you guys to hit that long-standing 8% to 12% growth target -- not so much in FY '09 but in 2010 and beyond?

We expect our backlog to grow as we go forward, Rich, and that's part of our organic growth plan. I would tell you that -- a couple things. One, the group that we just recently moved off the LNG project are now operating out of our Houston office, and this is an area that we see some opportunities to significantly grow our business. They are up and running, and we are starting to see plenty of opportunities to develop in that group.

As I mentioned, we recently just added some -- what I would call specialty turnaround and maintenance capabilities in that area. So we are very excited about the opportunities that we see there. But the bottom line is the number of opportunities and prospects that we are looking at today are stronger than they were during our call during the last quarter.

Number two, they are prospects that cross a wider spectrum of the energy space that we are focused on. And three, we continue -- we have added significant resources to our business development efforts so that we can grow the backlog and the organic earnings per share growth for this company going forward.

No question about it, we do plan to build topline growth as we go forward. But I will tell you that, as I've said before, is towards the end of last year we cleaned up the LNG project, and we are looking at prospects that generate good profitability for this company. And we are excited about what we see going forward.

Thank you. That is very helpful. On the $1 billion prospect list, can you clarify what types of projects you include in there? Is it mostly tank work? Is it mostly construction versus maintenance and repair? Because I look at your midpoint of guidance at $825 million, and the $1 billion suddenly doesn't look like a humongous number.

I will tell you, first of all, it is well above $1 billion. Number two, is it includes repair and maintenance as well as capital construction. Number three is when you look at the AST business, I would say it is probably around 25% to 30% of those prospects.

The types of projects that we are looking at today include, as I mentioned, the E&I substation work which we see a lot of opportunity, simple cycle generation, material handling facilities, air quality control opportunities. So again, we are starting to broaden the markets and the types of projects that we are looking at.

We are able to do that because of the skill sets that we have continued to bring into this company. So I am very pleased and I am excited about what we see going forward. As I have talked about our plans to diversify our business, we are focused on that and we continue to see good progress.

Okay. Then finally, hopefully for just a little more detail on two of the aspects of the growth plan you outlined. First is the turnaround business in the Gulf Coast, and second the E&I business in the Northeast corridor. Can you go through how many men you've added, what type of management you've added, if you've gotten any business so far and perhaps when these could become meaningful contributors to the Company as a whole?

First of all, let's talk about our Gulf Coast -- we recently added some very good talent to that operation. These individuals have an extensive amount of experience and a very strong reputation in the Gulf Coast markets. We are bidding on, I would say, opportunities well north of $200 million in that area alone. It takes some time to build the turnaround business, but we're excited about what this team brings to us as we expect that business to grow.

So those are individuals we've got on the ground. And typically, like a lot of -- the construction business, the leadership brings crews with them and so that's what we're focused on in the Gulf Coast turnaround business.

In terms of E&I business, what I can tell you is I mentioned that we had brought in a gentleman late last year to head up our union business from Washington Group with extensive experience in power, electrical and instrumentation. He has brought in gentlemen that have extensive experience in that area as well as material handling and other power type projects.

And as you can see, our construction business in the E&I portion increased significantly over the comparable quarter, Q1 of 2008. As I stated a year ago, my goal was to change the strategy of our E&I business and that is something that we have been working on and we are starting to see some excellent success.

Perfect, thank you very much.

I forgot, one other gentleman brought in was the COO. This gentleman has 36 years of experience across power, E&I and really the whole energy spectrum. So I think we're excited about the talent base. It takes some time to build the process and the business development, but I like what we see and we're excited about it.

Thanks again.

Matt Duncan, Stephens.

Good morning, Mike and Tom, and congratulations on a very nice quarter. Got a few questions here. First of all, Mike, you touched on the impact of the hurricanes and essentially there might be a little bit of slippage in project work, which obviously would be made up in later quarters, but that you might pick up an increase in repair and maintenance work to sort of offset whatever slippage you could have in the project side. Would I be correct in saying that that emergency callout Repair and Maintenance work comes at a higher margin and therefore the same revenue level could potentially come with a higher earnings level because of that?

I think in general, Matt, the emergency work tends to be higher margin. But as I stated, right now we expect no significant impact one way or the other to our overall business.

All right. Looking at where the stock is sort of unexpectedly sitting right now given that you had a strong quarter, would it be safe to assume you guys would be interested in buying back stock at these levels?

As I stated in my closing remarks, we think our stock price is significantly undervalued. The Board has approved our ability to assess purchasing stock which we will continue to do. We also look at other sources or uses of funds in terms of acquisitions and so that's something that we'll continue to weigh. But I will tell you that we believe our stock is strongly undervalued right now.

Okay. And a few more things there. What are you hearing from your customers right now with regard to turnaround in the wake of Ike? Are there any turnarounds that were sort of on the drawing board that maybe got pushed back because of Ike taking so much capacity off-line? Or are you still expecting this November quarter to be a very strong turnaround quarter for you?

First of all, our traditional turnaround business did not include much of the Gulf Coast. So historically we have not done a lot of Gulf Coast turnarounds. So that really doesn't impact us in terms of the forecast that we put out. Second is that, as I mentioned in the questions earlier, we have recently added Gulf Coast turnaround capability. And that's a market that we look to penetrate and add to our business and we feel very good about the prospects there.

And lastly then I'll jump back in queue, a question on the acquisition of the CB&I assets and technology. Would we be safe in assuming that that acquisition was about a lot more than just LNG and LIN/LOX and that those engineers that you're adding in the future be engineering more than maybe what they are today?

What I can say is that the engineering talent that is included in the acquisition has extensive experience in cryogenics and LNG. Obviously when I talked about the engineering capabilities I mentioned capital or civil, electrical and mechanical and process. So I think the capabilities of that group definitely have a broad spectrum. But again, their focus recently has been on the cryogenic facilities associated with LNG, LPG, LIN/LOX, etc.

Thanks. Congrats again on a good quarter, guys.

Mike Harrison, First Analysis.

Good morning. Was wondering if you could give some additional -- some details on these additional investments that increases your SG&A cost this quarter. Maybe a rough breakdown of how those investments were divided between the two segments and maybe roughly what portion were related to personnel versus infrastructure type costs?

I can tell you that compared to the year ago quarter we have added somewhere in the range of 50 technical and professional staff to this organization which are very critical to our ability to grow this company and expand our capabilities. We have expanded offices to accommodate our growing staff and we have continued to invest in the systems, as I mentioned. We are investing in safety, in better estimating and project control systems to add, again, more sophistication to our business.

And then in terms of the magnitude of these investments, do you think you'll be maintaining this level throughout the year or should we see a decline or maybe even an increase as the year goes on?

I'll chime in on this one. As far as the guidance we've given that 5.5% to 6% of revenues and we do feel good that -- in answer to your question that that's kind of the level that we'll expect.

Okay, that's fair. Speaking of the guidance, in terms of the performance this quarter relative to your EPS guidance, I'm not sure how the $0.36 that you reported here compared to your expectations, but would it be reasonable to believe that you're more confident now that you can be aiming toward the $1.60 end of that guidance range now?

You know, this is the first quarter that we've got through. I guess we still feel like that as we've looked at this guidance and staying within that, we specifically decided to keep it at maintaining this at this time in the year, the fiscal year.

I can tell you that, as I've stated, we like what we see for the rest of the year. But we've made a little change in our approach to guidance this year compared to previous years as we typically gave gross margins and revenues and traditionally Matrix has updated that every quarter. We're sticking with our guidance and we like what we see going forward.

Okay. And maybe the last question. You ascribed the strong Construction Services gross margin as being related to better fixed cost absorption. Wondering how close you feel like you are to be sweet spot in terms of revenues compared to your current level of fixed costs.

Thinking about this one just for a moment here. Trying to make sure we don't step outside the guidance here also.

We're comfortable with our fixed cost structure as it relates to our ongoing business and what we expect, so we don't see any issues there.

So would you say that you don't need to add too many resources in order to continue on the kind of growth trajectory that you're anticipating in that segment?

What I will tell you is this, we stepped up our resources to support our growth. And as I've said in earlier calls, our G&A rate today is high, but we needed to get these people in place and infrastructure in place to facilitate our growth. So I think better before bigger, we're doing that and we've got the resources in place today to growth this company.

All right, thanks very much, gentlemen.

(Operator Instructions). Martin Malloy, Johnson Rice.

Congratulations on your quarter. You spoke a little bit about moving into doing more work in the substation area. Could you talk a little bit more about that? Are you going to be working directly for utility companies or as a subcontractor to other E&C companies and would this be new transmission distribution projects?

In terms of who we work for it's both, both owners as well as a subcontractor. And I would say that in terms of our subcontractors, we are teaming up with A&E firms and OEM partners as well in this area. This is a market that we see as being strong over the next several years driven primarily because of the congestion in the infrastructure in the Northeast and mid-Atlantic states. So we see plenty of opportunities. And this is a capability that we've added to this company and continue to focus on growing.

Are there other opportunities in the power generation area that you're looking to move into or that you see opportunities out there for acquisitions?

I would say, number one, we've seen both. We're looking at simple cycle gas turbines as one element. We've been involved in stack liners, material handling systems. We are in the process of getting our N stamp to be in a position to participate in the nuclear business. So there are several opportunities that we see relative to the power side of the business.

Thank you.

John Rogers, D.A. Davidson.

Two things, first of all, do you have -- and I apologize if I missed it -- backlog broken out between construction and Repair and Maintenance?

Yes, we do. It's $300 million on the Construction side and $159 million on the Repair and Maintenance segment?

And then secondly, you touched on the credit markets a little and the dislocations and how you weren't seeing any impact in your business. Do you get the sense that some of your smaller competitors are seeing any issues? What are you hearing back from your customers?

Right now we're not seeing much of anything at this point. We continue to get awarded projects and continue to proceed forward. We're seeing a lot of bid activity. So I would say that today we're not seeing or hearing much. But again, I mean, we all know that people in the credit markets or capital markets are just creating question marks across our general economy. But we're not seeing anything today and we haven't heard anything about some of our smaller competitors.

And no changes in the way that bid are being -- requests for bids are coming out or documentation or timing or anything that's changing there?

Not at this point, no.

Okay, great. Thank you.

Matt Duncan, Stephens.

Just a couple questions on acquisitions. You're sitting on $70 million borrowing capacity and clearly you have an appetite for acquisitions. So I'm wondering if maybe you can kind of flesh out your strategy there and sort of what are some of the more interesting targets for you in terms of end markets or technologies or just talk about how you rank the way you look at the acquisition landscape right now. What's most important to you with acquisitions?

Well, I think we start with the -- with our core capabilities and focus on potential acquisitions or tuck-in acquisitions that really strengthen that. And I think the CB&I acquisition is an excellent fit with that and so we're very pleased to be able to move forward on that one.

I think when you look at the kind of markets that we see as a good strategic fit for Matrix and fits in with how we want to expand our business, one is geography of our current business, looking for opportunities that can expand that. Two is to broaden our service chain, as an example in engineering. And three is in terms of the energy space we're very strong in downstream petroleum, we're building and would like to see more opportunities on the power, we don't have much exposure to natural gas and so we think natural gas has some opportunities as well, but really focusing on more of a company that can provide a total solution for our customers.

Okay. And then Mike, last one. You talk about international opportunity for you guys. How do you think about the international market and are there certain geographies internationally that are more interesting to you and what's your strategy for how you take Matrix across the ocean?

I would say our first strategy is to link up with some of our key clients and that we go with our key clients. We've had discussions with clients that are interested in teaming up with Matrix to do work internationally. Some of the opportunities we're looking at today include engineering and fabrication and then eventually we could get into construction opportunities. But we're not going to go hang up a sign somewhere in some country, but we have clients that are working with us today that have an interest and we have an interest and we're proceeding down that path.

Okay. And then one last thing here. I know in the past you guys have had a strategy of not announcing a contract unless it's 5% of guidance. Is that still kind of the way you're thinking?

Yes.

Should we be looking for you guys to make announcements, are you after projects that would cross over that threshold may be the better way to think about it?

Let me answer the second part. Yes, we are looking at projects in excess of that threshold. What I will tell you, Matt, is that we have -- our niche markets and the contract size that we focus on, particularly on some of the new areas that we are expanding into, they're going to be under the threshold type projects. One, these are projects that we feel we can execute very well and have the capabilities to deliver a good quality product and service to our customers. But there are projects that we look at today and are looking at that are in excess of that threshold and some of those include projects other than tanks.

(Operator Instructions). Tahira Afzal, KeyBanc.

Good morning, gentlemen. I just wanted to ask you about the prospect list that you pointed out before. You mentioned 25% to 30% of the prospects you're seeing are related to AST tanks. Could you touch on what are the clients over there that you're seeing? Are they the similar clients to what you've had in the past? And perhaps Tom, given your background on the MLP side as well, perhaps you both can highlight which clients, what you think in your areas in terms of what the clients are saying? Which areas do you think could come more under risk if there is a financial credit crisis that continues for several months?

Let me take this one step at a time here. First, in terms of the clients what I have said earlier, and I think it's important to mention, is there are many similar clients but there are many new clients, not only as prospects but clients that we are contracting business with.

Part of our strategy is to broaden our client base as well and that's a focus and we continue to do that. We want to build a portfolio of business that is less concentrated in any one particular customer. Now there may be project awards that occur from time to time that create a concentration, but our general focus right now is to spread that out and to spread the risk.

In terms of the MLP space, I can't comment specifically on any of our clients. I think again, what we are seeing is continued activity with the clients we've served in the past. But again, our focus -- and this doesn't have to do with credit markets or anything -- is just more along the lines broadening our customer base across a wider spectrum of energy type projects.

Okay. Going back to your buyback, would it be possible to get an idea of the size we're looking at right now. What is the flexibility in terms of expanding that if you really wanted to?

I'd say what we have authorized today is in the range of 600,000 shares.

Okay.

But again, Tahira, I want to say that buying back shares is one mechanism, but we also are looking at other investments as well. So we look at what's accretive, but obviously our share price is way undervalued and something we have to look at.

One last question and then I'll re-queue. If you're looking at your AST base and the work in Cushing, would it be fair to say that the work in Cushing seems largely done on the new tank construction side and the opportunities you essentially are saying there on the new tank construction side is more tied to import terminals, etc.? Or are there any other factors that you would like to highlight there?

Well, I would say when you look at our AST new construction revenues, in Q1 of fiscal '09 compared to Q1 of fiscal '08, the revenues are spread out across a broader cross-section of the country. So number two I don't think Cushing is done. I think the SIM Group bankruptcy has created a little bit of disruption in that particular area, but I sure don't see Cushing as being done. But we are seeing AST opportunities across a broader geography.

Thank you. I'll just re-queue.

Rich Wesolowski, Sidoti & Co.

Mike, compared with six to 12 months ago, is it any easier or more difficult to hire field labor or project managers?

I think it's been a challenging market all along. But again, like I said, we have been successful in adding the professional and technical talent to this organization that we needed to grow and the crews to go along with it. So it's a zero sum game in this space today, as you know. But when you look at our capabilities and talent, as I mentioned, we have been successful in bringing those into Matrix. I won't say it's an easy market, but we have been successful.

Okay. And your business, both in the backlog and in the profit shifting gradually towards Repair and Maintenance, looking out two to three years would you expect that segment to be a meaningfully higher share of profit than it is today?

Which segment, Repair and Maintenance?

Right.

We are looking -- we want to grow our Repair and Maintenance services as well as our Construction Services. It's a good business and it's a model that we want to maintain. I would say -- it's hard to say over the next three or five years, but today we're about 40% Repair And maintenance, 60% capital. And I would say that 30% to 40% range would be a good range to be in.

Okay. And then finally, your situation appears to be similar to other contractors in the brought downstream sector where the results, the commentary they're clearly bullish but the stocks have been creamed by a far greater extent than the broad market. I want to make sure there's something I'm missing here. Can you review maybe the under the radar items that you would normally review to see whether or not there's a broad change coming in the market demand for your services especially in the refinery space and the AST space?

I can tell you that we spend a lot of time talking with our clients about their forward plans to give us a comfort level and we've been doing a lot of that, not just recently but over the past year, so that we can get an indication of the outlook. We're still comfortable with that.

The other part of it is to broaden our services beyond downstream petroleum. It's going to take some time to do that, but we are making progress in that direction and we've brought in people in this organization that are familiar with that. So I mean, that's just part of our overall strategy. But we haven't seen any indications that cause us concern. So we're plowing forward.

Thanks again.

Ross Taylor, Chasseur Capital.

Gentlemen, could you give us a little bit more color on the prospects in the power area? It's a new space for you guys. It's geographically up here in the northeast large and I'm trying to get a better understanding of what the size of that business is, what the profitability of it is, what the competitive environment is?

The area that we are focusing on in particular right now is in the mid-Atlantic and Northeast part of the country. I talked about simple cycle turbines. I've talked about high voltage substation work. We have strong union presence in the mid-Atlantic and Northeast part of the country, we've got a lot of power experience now in that part of the country, so where we feel pretty good about the prospects. I've talked about material handling systems, we do stack liners and there's a lot of other Arab Quality Retrofits, so there's surely kind of a broad range of projects that we are now looking at that a year ago were not on our radar screen.

Trying to get an idea of the size of this market you're looking at and how long does it take you to penetrate, how long does it take it to become a meaningful portion of the business?

Well, I would say that in terms of size of the market, when you look at the T&D span forecast for this country, I don't know how many billions of dollars are out there but it's sizable. There's a lot of infrastructure that has to be upgraded and replaced, a lot of congestion. The mid-Atlantic and Northeast is a very, very strong year. In our market probably around $500 million per year just in our market for the types of activities that we are focused on. So we see it as a very significant market. We are continuing to work on growing that side of the business and we may look at acquisitions as well to help facilitate and accelerate our position in the power market.

Could you talk a bit about the competitive environment in this space? Who do you compete against? Are they national players, regional players?

I would sing in our market we traditionally compete with regional players. Project size can be in the $10 million to $25 million range, types of projects we're looking at, some smaller. And we are -- we have and we are teaming up with A&E firms on some larger projects. So again, this is just part of our strategy here to diversify our business and I would expect to see growth in this every year for the next several years.

And how much of the $1 billion plus when you're talking about new business prospects are from this area?

I'm going to reemphasize my term, well north of $1 billion. Well north of $1 billion. And I would say 25% to 30% or greater.

Okay. North of $2 billion?

Well north of $1 billion. You can take it as high as you want it.

Okay, thank you. And I would further some of the comments on the idea that with the stock trading down here I think this is the lowest you've traded at in years down around 13 -- haven't gotten $13, $14 level. We now understand the great opportunities you guys are seeing, but not the least of which is with the stock trading at probably under 10 times what you earn this year and it certainly warrants very strong review to not only exercise the buyback but likely increase the buyback as well. Good luck, gentlemen.

Thank you.

(Operator Instructions). Tahira Afzal, KeyBanc.

Gentlemen, just had one follow-up question. If you look back to the last cycle for E&C, I'd say that was 2000-2001, a little after that as well in a sense. How much visibility or how much time elapsed between the cycle, the market or the general economy turning and some of the prospects falling out? In other words, if you look at your visibility within that $1 billion plus pipeline, I'm just trying to get a sense of how much of that is something that we can rely on versus the visibility you typically have had in prior cycles?

I wasn't here in 2001, but I will tell you that in 2001 Matrix was primarily aboveground storage tanks.

Right.

And so number one, we are much broader in our capabilities both in tanks, Repair and Maintenance and Construction and across a broader spectrum of energy type projects. So I think that's a good thing that we're in.

Number two, when I look at this country and the issues that we face from an energy perspective, it tells me that a lot has to get done in the next several years to better position this country to wean itself off petroleum and increase its access to other forms of energy, natural gas, solar, wind and that all takes infrastructure across the spectrum whether it's electrical instrumentation, fabrication, engineering, capital construction.

When I look out over the next several years I continue to be very bullish on what has to be I think a very strong effort to build the energy infrastructure of this country. So I'm still bullish long-term and part of our plan is to position Matrix so that we can participate across a broader spectrum of energy so we're not tied to a single market like historically it's been a stronger -- we've been much more dependent on aboveground storage.

Do you expect or anticipate any transitionary issues as you transition into this diversification given that the market seems to be turning?

I'm sorry, any transition issues?

I mean, as you diversify and assuming let's say that some of your co-markets end up slowing down at some point. So if you do see the energy side, the more downstream side let's say slowing down to some extent, do you expect that the slowdown is something you've anticipated and built into your growth plans? Or do you think there could be a possible dislocation if the slowdown in your core markets or what one can consider your core markets like the AST tanks ends up being a little more magnified than what is expected right now?

Near term we don't see any slowdown. Obviously we know various parts of the industry cycles and that's part of what we're trying to accomplish with our strategy is to lessen our exposure across any single product line or industry and broaden that so that we can participate in the growth markets that are out there as other markets ebb and flow.

But I think that today part of what -- we've really built a strong team and a capability around our AST business and that capability, it's engineering, it's operations, it's the whole I think total solution, really these capabilities transition into other industries very well, whether it be industrial gas, power. So that's part of how we're trying to build this organization so that we can easily transition as other markets pick up.

Seems like -- would it be fair to say that we should expect your story to be one of market share gains in a sense then? And in essence, even if markets are slowing down to some extent, that you feel that you have enough leverage right now through your capabilities to gain market share?

I would look at it as yes, but I think there are markets that are growing and we want a piece of that pie.

Got it. Thank you. Thanks a lot.

There are no further questions in the queue. I'd like to hand it back over to Ms. Nguyen for closing comments.

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

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.