Matrix Service Co (MTRX) 2009 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Matrix Service Company's second-quarter 2009 earnings results.

At this time, all participants are in a listen-only mode. A brief 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.

Thank you Melissa.

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 on Form 10-K or 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 reference to the reconciliation of GAAP to non-GAAP financial measure that is posted on our Web site 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 community utilizes this measure to assess our performance and evaluate the market value of companies considered to be in the same business as 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. Tom Long, our Chief Financial Officer, is with me on the call this morning. We appreciate all of the joining us to discuss our recently completed second quarter of fiscal 2009. In addition to our core results, we have two other significant events that I would like to discuss as well.

Before I turn the call over to Tom to discuss our financial results, I would like to cover the following. The first is the overall business performance during the second quarter of fiscal 2009. The second is our outlook for the second half of fiscal 2009. Third is the longer-term outlook for Matrix Service. Fourth is the CBI acquisition and the new award we announce today as well.

To begin with, I'm pleased to report that Matrix continued its solid operating performance in the second quarter of fiscal 2009. Revenues in the quarter were $176.9 million as compared to $194.7 million in the same quarter of fiscal 2008.

Despite the lower revenues resulting from the changing economic conditions, our employees delivered both record net income and record fully diluted EPS in the quarter. Net income for the second quarter of fiscal 2009 was $10.1 million as compared to $0.2 million in the second quarter of last year and $9.5 million in the first quarter of this year. Fully diluted EPS was $0.38 in the second quarter of this year versus a fully diluted EPS of $0.01 in the second quarter of last year and $0.36 in the first quarter of this year.

The year-ago quarter included a $16 million charge from our previously completed LNG project.

Our team of employees executed extremely well, achieving a consolidated gross margin of 14.9% for the quarter. We are extremely proud of the efforts that they are putting into this business and continue to improve our overall performance.

While we are very pleased with the first half of our fiscal year, toward the end of the calendar year, we began to experience some stronger head winds to our business as the economy and specifically credit markets continued to falter. Some projects that we were anticipating were delayed and pushed into calendar 2009. Additionally, some of our clients began to hold back on their capital and maintenance plans as they fully assess the impact of the economic turmoil on their particular business.

The majority of the impact to Matrix Service is in the AST and terminal business where we have seen some delays and/or reduced scopes on projects that we had expected to begin work on in late second quarter or early third quarter. As a result, we now expect to achieve an EPS around the little range of our initial guidance of $1.35, which is still an increase from fiscal year 2008. However, with lower material costs and delays anticipated, we expect revenues will be 10% to 15% lower from our initial guidance.

While it is difficult to predict the next 12 months, what we see on our plate today however is encouraging. Despite a softening in our core AST and terminal business in delays, we essentially maintained our backlog. Additionally, we were recently awarded a $38 million power project and have now closed on the CBI acquisition, both of which are not included in our November 30 backlog numbers. I will comment more on these later.

Also, our [business flow] prospects remain very strong and in excess of $2 billion across a broader geography and a more diversified market. We have some significant projects that still look very promising and continue to develop. We also continue to see strong growth opportunities in the high-voltage and related E&I infrastructure market.

The talent and capabilities we have in our organization have positioned Matrix Service to expand our universe of prospects, including some low-risk international opportunities currently in our pipeline. The power project we announced is one example of how we have positioned our business going forward.

While the AST market softened in the latter part of calendar '08, we still see a good pipeline of potential AST projects planned for calendar 2009 at this time. We expect Repair and Maintenance to remain solid for the strong fourth quarter in the turnaround business.

As evidenced by our strong gross profit levels, we've continued to see improvement over the past several quarters, excluding the LNG project. Improving execution as well as improving the tools we utilize is having a positive impact, which has been one of our focus areas and our employees continue to achieve outstanding project execution across all markets.

Regarding our liquidity and cost structure, we have a strong -- a very strong financial position with no debt. We do plan to reduce our capital spending this fiscal year to around $13 million from the previously stated $25 million. This will not impact our business strategy but will further strengthen our financial position and allow us to be opportunistic in this current environment.

We recognize that our SG&A has increased as we have made investments to improve our performance and to add to our talent base. The employees we have in this company have positioned us extremely well as a leading energy service provider with much broader capabilities. However, we have already taken steps to reduce our cost structure and are prepared for further cost controls if necessary.

But I do want to reiterate our bid flow remains strong, which is positive for the long-term. We have some very interesting near-term prospects that we continue to develop.

Finally, we closed on the CBI acquisition in December. This acquisition expands Matrix Service's engineering and construction resources used to design, engineer, and strike single and full-containment LNG storage tanks, (inaudible) storage tanks, LPG storage tanks and thermal vacuum chambers.

We would like to welcome the highly trained professionals who are now a part of Matrix Service. In addition to these new employees, the Company acquired tools, equipment and backlog of up to $20 million which are expected to be completed over the next 24 months.

Also included in the transaction is a perpetual license to use CB&I's technology necessary to design, engineer and construct cryogenic vessels and thermal vacuum chambers. This acquisition will strengthen our offerings in key markets for highly specialized engineering and construction services. While the technology, personnel, assets and backlog acquired will bolster our position in these specialized markets, they will also be utilized to enhance the capabilities in our remaining business lines and enable us to continue to provide exceptional service to our customer base.

Additionally, today, we announced the award of a $38 million contract with PSEG Fossil LLC, a subsidiary of PSE&G Power, for the steel play construction of a selected catalytic reactor project at its Hudson generating station in Jersey City, New Jersey. We expect work on this project to begin this month and plan for the project to be completed by October 2010.

We are very pleased to be selected by PSE&G as the prime contractor for this important SCR installation. This project supports our strategy to expand our capabilities and diversify our markets.

In summary, we are very proud of delivering record EPS during the first half of this fiscal year with an expectation to achieve record earnings for the full fiscal year. Our sales and project capabilities have positioned us to expand our reach of opportunities in the energy and industrial infrastructure and service market which is supported by the expanded number and diversity of prospects that we see in our bid flow today. We're sitting with cash and no debt and we continue to believe that revitalization of our nation's energy infrastructure, a greater emphasis on renewable energy and other infrastructure projects will be a key component of the new administration and plays well with how we have positioned our business for the long-term.

I will now turn the call over to Tom, who will go through the financial details of our operating results and provide an update of our 2009 earnings guidance.

Thanks, Mike. The specific details of the results of the second quarter and first six months of fiscal 2009 were disclosed in our press release this morning, so I will highlight a few items.

Total revenues for the second quarter decreased to $176.9 million from the $194.7 million recorded in the second quarter of fiscal 2008. Looking at that on a segment basis, construction service revenues did decline to $100.1 million from $116.2 million in the same period a year earlier. This was the result of lower revenues from the aboveground storage tank and specialty markets, partially offset by higher downstream petroleum and Electrical and Instrumentation revenues.

As Mike mentioned earlier, gross margins have improved to 12.7% due to the strong execution.

Revenues for the Repair and Maintenance segment was $76.8 million versus $78.5 million a year earlier. The change was due to lower downstream petroleum revenues largely offset by higher Aboveground Storage Tank revenues.

Gross margins in the second quarter of fiscal 2009 improved to 17.7% as compared to 16.7% earned in the second quarter of last year, once again very strong operating results there.

Consolidated SG&A expenses remained flat for the quarter at $11.8 million. This is in comparison to the second quarter of fiscal 2008.

EBITDA increased to $17.2 million. Net income, as Mike mentioned, increased to a record $10.1 million or $0.38 per fully diluted share. As to the six-month results ended November 30, 2008, consolidated revenues increased to $363.6 million from the $356.1 million recorded in the year-earlier period. EBITDA for the six-month period increased to $35 million from $14.1 million in the same period last year. Net income increased to $19.6 million or $0.74 per fully diluted share compared to $6.5 million or $0.24 per fully diluted share produced in the comparable period last year.

I have one last point moving onto our liquidity. As Mike mentioned, our cash balance at November 30 was $13.5 million. Once again, we have no bank debt at the end of the quarter and have $70.4 million of available capacity under our $75 million revolving credit facility that matures in 2012. So, as you can see, we are maintaining a very strong financial flexibility in order to continue to execute our long-term growth strategy here.

With that, why don't we go ahead and open it up for questions.

(Operator Instructions). Matt Duncan, Stephens Inc.

The first question I have got, Mike, I just maybe looking for a little bit more discussion around the AST business. That business obviously was down on the construction side this quarter. I'm curious if maybe you can give us a little bit of insight into some of the projects that were delayed out of calendar '08 and into calendar 2009. If I look at sort of a quarterly revenue run rate for that business on the construction side, is there is sort of a new base that you put in this quarter or could we maybe see further deterioration of that revenue stream?

Let me talk about the AST revenue market in general, Matt. The fourth quarter obviously was a typical period for the financial markets and credit markets. Essentially, what we began to see is that some projects that we had expected to be awarded were put on hold and essentially deferred into calendar 2009.

What we see today in the bid flow for AST is still very positive. What we think has really happened here is there was just a deferral as we got through the end of the year and companies reevaluated their capital spending plans. So, I think that we view it right now as a period that will recover.

To the extent it is hard to predict right now. Again, I think a lot of it depends on what happens in the economy going forward, but there are some very interesting story projects still on the books and being planned. So I would not necessarily take this as a new level.

I think what we saw is the deferral and generally, we would have expected material revenues to show up first. Because of the deferrals, those material revenues did not show up.

Again, as we have stated before, the revenues in our AST business have always been lumpy. One, you get awarded projects and you'll see a bump up in revenues because of material purchases and then you may see a quarter where there are no material purchases. So, it has always been relatively lumpy.

I appreciate the commentary there. Looking at the downstream Repair and Maintenance business a little bit, I was surprised that those revenues were flat sequentially in what is typically a seasonally strong quarter with the fall turnaround season. Maybe if you could talk above the impact of the hurricanes on the fall turnaround season and if there is something else in addition to that that influenced those revenues to be flat sequentially, if you could talk about that, that would be great.

I would say that, first of all, in terms of the revenues that we projected in our budget for 2009, we were pretty close to being in line with where we expected on the turnaround business in the second quarter. Hurricanes really did not impact us on the turnaround business per se, given that our current turnaround activity and our customers are really located in other parts of the country. I've talked about our addition of turnaround capabilities in the Gulf Coast and that continues to proceed forward, but in terms of the hurricanes as it relates to Matrix, it really did not have an adverse impact.

What I will say, though, is that we did see some small turnaround projects particularly towards the end of the calendar year get deferred into '09, not a large number but we did see some deferrals during the latter part of calendar year 2009.

The last question here and I will jump back in queue. Mike, if you could talk about sort of what the makeup is of the $2 billion of projects, kind of the bid flow that you're looking at, maybe talk about what type of projects are those? Are those projects that have already received financing and might be a little bit more likely to go forward?

Yes. In terms of the bid flow, Matt, in terms of where we were say 60 days ago or 90 days ago, our bid flow has really stayed strong and we have not seen any material reduction at all. Projects that we had on the books 60 or 90 days ago as prospects, some have been cancelled but they have been replaced by other projects.

I would say that our mix of projects include obviously AST. We are seeing high-voltage power opportunities that are now on our prospect list. We are seeing some alternative energy projects, downstream petroleum. We're seeing a much broader cross-section of projects. We are really encouraged about what we see going forward over the long term in the high-voltage and E&I infrastructure business. That is an area that I have talked about that we focused on rebuilding and we are starting to see some nice progress in that particular area.

We also have some international opportunities in our pipeline right now that we have not had in the past. These are what I would call lower-risk opportunities that fit extremely well with our risk profile and capabilities.

Okay. Thanks, guys.

Rich Wesolowski, Sidoti & Co.

Could you discuss how much your current backlog is in fixed price or other riskier type jobs and to what extent you would permit that share to increase as owners I would say inevitably gain more bargaining leverage than they have had in the recent past?

You know, our mix today still remains around one-third, one-third, one-third of lump sum, cost plus and time and material. We really have not seen a significant change in that mix as it relates to our backlog and current backlog. We've -- there are -- we are very comfortable performing lump sum projects in certain areas, obviously in the AST business. So we are very comfortable with the risk profile of what we see in our backlog right now.

I think that we have seen some indications of companies pushing more towards lump sum versus cost plus and time and material. However, some of those opportunities fit right in our sweet spot and so we're not concerned at all about that.

The riskier projects are still within our risk profile of that kind of mix. So I would say, at this point, we are not concerned about what we are seeing in terms of contracting. Our smaller projects -- I think there are definitely more competitors out there today than there have been. I think that is just a reflection of the slowdown in the market. I think our strategy has been and continues to be to focus on areas where we have a competitive advantage, we have specialized skills and talents and that strategy is not changing.

So you would not put some kind of an arbitrary cap on where your lump sum percent should go. It's rather just where the market takes it?

Well and where we are comfortable. We're not going to take on a high-risk project where we lack skills and take it on a lump sum. We are not just buying jobs to get out there and do work. We're going to focus on maintaining our risk profile and projects that we feel comfortable with lump sum, we will continue to move forward with those.

There has been a pretty wide disparity in your construction margins, if you look over the period of the last five years. Is it too simplistic to say that management is either aiming to hold the line on the bid margin at the expense of volume if the bidding activity gets tight over the next year or so, or conversely, (inaudible) keep your people busy by aggressively bidding new work and keeping the backlog up?

I think, at this point, Rich, the projects we have in our pipeline and the projects we are focusing on continue to fit the kind of margin profile that we have been targeting. One, in addition, we have been spending a lot of training and investing and improving the skills and the tools we use on project estimating and project controls to continue to improve our ability to execute all types of projects successfully.

We are not at a point where, today, that we see a need to go ahead and lower margins to get work. I'm not going to say that environment would not exist in the feature. I think there are areas and some projects where that is happening and we are not focused on trying to take on high-risk projects that could end up biting us in the next 6 to 12 months. We've been there, done that and we're being very cautious in that respect.

Okay, that is good. Lastly, the Ford oil curve has swung dramatically to where the storage capacity is a lot more valuable than even in mid 2008. Has this had any affect at all on your midstream customers' plans, the AST market, or would you think the time lag in actually getting new tanks up, say, that they let the opportunity pass?

I think there are several phenomenons centered around the storage, particularly as I saw it going into the end of calendar year '09. I think one is just financing, in credit markets, these -- traders and storage players just could not get the financing. Second is it takes 12 to 18 months for a decent sized storage project to be completed and so there's always a lag and kind of a wait-and-see attitude.

But again, what we see in terms of what is developing and our bid flow right now in the AST business is still encouraging. So, I think some of the financing issues have been resolved with some companies and there are companies that have cash and have approved budgets to go forward with storage. So, I think there was just this -- we got caught in this lag period here that we just cannot recover, given our fiscal year is ending here in five months.

(Operator Instructions). Mike Harrison, First Analysis.

Hi, good morning. I just wanted to follow up a little bit more on the downstream portion of Repair and Maintenance. I don't think you really fully answered the question on this is normally a seasonally strong quarter for that part of the business. Why is it then that we saw revenues flat from your fiscal Q1 into this quarter? You kind of suggested that there were some deferrals and minimal hurricane impact, but yet revenues were down 29%. Can you give us some more detail there?

Well, I think, as I stated, first of all, our turnaround cycles we operate, we do not operate in the Gulf Coast today although we are beginning to operate. The Gulf Coast did not have an impact on us, okay, so the hurricanes did not impact us. The fourth quarter is typically our strongest quarter in the turnaround business. What we have projected for Q2 this year in our budget is pretty well where we landed on that. Last year's second quarter -- I'd have to go back and look -- there could have been some emergency turnaround work that picked up but nothing surprised us in our Q2 as it relates to that, other than there were some deferrals of turnarounds that we had planned in the second quarter.

Okay. Maybe a question on this -- on the projects that you're tracking. Last quarter, you had talked about well over $1 billion in projects that you're looking at and now you're talking about $2 billion. Can you maybe discuss what is giving you more comfort or confidence in terms of talking about a bigger number now given the economic environment that we are seeing?

I think we're confident on a bigger number because we have improved our skills set in the types of projects we can pursue and we have also added sales capabilities to expand our reach of prospects and geography. A year ago, there were projects that we would not bid that are on our plate today. Particularly, I comment on the recent award that we received today from PSE&G.

We are seeing the quite a bit of high-voltage in E&I activity, a lot more than we had seen. Part of that is because of the talent and resources that we have added that are allowing us to bid on larger-sized projects as well as a greater number of projects.

In the Gulf Coast area, a year ago, we had a very small office in the Gulf Coast and essentially most of the specialty capital construction people were tied up on LNG. They are now located in the Gulf Coast and we have seen a significant increase just in that region in bid flow and project opportunities. So that is what we are seeing and why we are comfortable in this market.

What I will say is we are very cost conscience and have taken steps already to reduce our SG&A costs. But we are not cutting back on our sales and project development efforts because, one, as we see opportunities and we see some interesting prospects and we feel very good about what the potential is, so we're not turning back there at all. In fact, we are expanding that area and continuing to add to our prospect list. So, I think, if I compare to year ago, there are projects on our board right now that we would not have even thought about pursuing a year ago.

If I can just sneak in one more, I was curious if you could give some commentary on what you are seeing in terms of M&A opportunities right now?

There still seems to be some activity out there. I think obviously, with the current financial markets and debt financing, it has really slowed that industry down quite a bit. But what we are focusing on is we have seen some interesting opportunities for smaller companies that fit very well with expanding our geography or capabilities. We continue to look at some of those opportunities as of today. I think there's some very good opportunities out there.

(Operator Instructions). Martin Malloy, Johnson Rice.

Good morning. Could you talk a little bit more about the people and assets that you acquired from CB&I and when we might start to see an impact as far as new awards as a result?

Well, in terms of the people that we acquired, we acquired engineering professionals and construction professionals along with the technology to support that business. The current projects that we assumed as part of this are really what the employees we brought over are dedicated on at this point in time. So I think they are fully employed at this point with the projects that we have assumed from CB&I.

We are in the process now of integrating our engineering capabilities with their engineering capabilities. I think the combination of that is going to open up some doors for us to pursue additional opportunities that we were not capable of in the past. So, we have already started in working on our integration and where we can further add to these types of projects we pursue and expand the services for our customers. We are excited about what we see with this group going forward. I think right now we are focused on getting the projects completed, the engineering work and continuing to execute on the backlog that we have now assumed from CB&I.

In you're prepared remarks, you mentioned alternative energy. Could you talk a little bit more about the types of projects that you're doing there, the magnitude and maybe the timing of some awards there?

Yes. I've stated before that we are currently doing some feed work on a molten solar energy storage project that has the potential to go forward. We are looking at some wind, both E&I as well as wind tower erection. Others solar -- we're looking at geothermal opportunities and landfill energy, which are projects we have completed in the past. So we see an opportunity, particularly with this administration, with more emphasis, and these are projects that we have the capabilities in that we are continuing to explore. But we do have, again, Mike, the molten solar energy storage project in our feed process right now. I think some of the capabilities of the CB&I personnel coming in -- they have worked on some of these projects in the past. So again, we are excited and positioning ourselves to be a player in the alternative energy market as well.

Tahira Afzal, KeyBanc Capital Markets.

Good morning, gentlemen. I had a couple of questions. Number one, the margins that you had, the gross margins, were pretty phenomenal. I was wondering how much of this margin, the good margins that you are seeing, how much of that is because of pricing that you had in your backlog? Was it efficiency gains as you focus back on your core businesses with the completion of the LNG project?

I think the general improvement in our gross margins, in particular if you look at it over the past several quarters and you take out the LNG project, we continue to see improvement in our gross margins. A lot of that is our focus on improving the execution, the skill set, the project controls, the project management of our projects to better predict our performance as we go forward. So, I think there has been a strong effort on just improving the execution and the tools we have to execute in our business.

As it relates to the existing projects, I think that, again, we have seen some outstanding execution from our team. The contract mix I think we have right now allows us to continue to generate good margins on our business. As to what happens over the next 12 months and what we see in the market, it is hard to predict. But again, what we are seeing across this company is less margin fade on our jobs and higher performance on our execution in general. That is what we've really been focusing on -- improving the quality of our execution.

Specifically, if I look at your Repairs and Maintenance segment, your revenues, if I look at it year-on-year, were roughly the same, yet your margins went up by around 100 basis points. Say that is pricing of whatever was already in your backlog or would you say -- if you had to name either pricing our execution -- and I guess I'm putting you in a hot spot -- would you say it is more pricing or execution?

I think, again, some of our Repair and Maintenance work can be emergency work, which during certain quarters can create better margins. But I also think that part of it is due to the better execution and the outstanding efforts that all of our employees have put forth on better estimating and executing on their projects. I think it is a combination of both.

Ross Taylor, Chasseur Capital Management.

Thank you. Most of my questions have been answered, but I would like to do a little but more digging into this contract you announced today. Do you expect that contract to add to the profitability this fiscal year?

Oh yes. The project is just getting kicked off here in January but it will start to generate profits for fiscal '09 and obviously the project runs through October of 2010.

Is that business more profitable than your core business?

I'd say it is within our margin comfort level, so I think it is right there with our core business as well. Obviously, we have to execute but we feel good about it.

What risks are there entailed in that contract as you look at it?

Well, I think with any risk or with any contract there are some risks. I think we have a structure in place with this particular project that we're comfortable with and can manage the risk that we foresee could happen again within the parameters that give us a lot of comfort. So there is not any particular unique risk with this project other than I think obviously safety is always a high priority of ours; it is the number one priority when you are working on elevated equipment. But that is an effort that we put our best people on. I don't see any unique risks on this project other than what you might typically find. So, I think we're comfortable with how we have structured the contract and how we have managed our risks.

Matt Duncan, Stephens.

Hey guys. Just a couple of quick follow-ups -- first of all, talk a little bit about how visibility has changed from maybe a year ago until today. What is your visibility like into some projects that may be coming down the pipe from your customers right now?

Well, our visibility a year ago at this time was pretty good. Our visibility back in August and September was pretty good. We had, just to give you an example, we had a very significant project that was in the contracting phase that we had planned on that got canceled at the very last minute late in the year. I don't think we had any forecasts or idea that was going to happen, and I think it was just primarily a result of companies' credit and just a fear factor in what was the market going to do. So we had pretty good visibility just a few months ago.

I think what we see today, Matt, is given the bid flow that we have and the projects we are focusing on, that we have got a pretty good comfort level that a lot of these projects are going to go forward. I think what is still somewhat unknown is timing. Whether or not they pushback a few months or two or three months, whatever it is, that is the piece that is not known. But the projects that we are pursuing right now I think have a high profitability of being funded or they are funded and I think it is more a matter of when the timing of these awards occur.

Okay. Other question I have got is with regard to steel prices. Maybe, Tom, this one is more for you. You have lowered your revenue guidance by roughly 10% to 15%. I am curious how much of that lower guidance is due to these slower steel prices.

That is obviously a very good question. We had been looking into that a bit. I will tell you that just due to the assumptions that you have to make in various contract types, etc., that is not a number that we really are comfortable with to throw out at this time. But it is clearly one that has impacted it, there is no doubt, on the downside but to quantify it, we've probably don't have a number that I can give at this time.

Matt, this is Mike. I think, in general, we have seen steel prices come down over 40% from where they were back in June or so. I think the other impact, other than steel prices though, is that some of the AST work that we had expected to be let before the end of calendar year '09 has been delayed. Those material revenues that we had assumed are getting pushed out. That is another reason the revenue forecast was lower, that we're not going to see the material revenues in the timeframe that we had expected.

Okay, thanks for the color.

Rich Wesolowski, Sidoti & Co.

Could you guys specify which of the SG&A costs are not going to reoccur? What types?

As far as just some of the initiatives we are taking?

Well, the press release had stated some of the SG&A costs that you incurred in the first half will not continue.

As far as onetime type cost?

Right.

Looking at this from a fairly high level, you could try to take to things like some consulting costs, some things we were looking at and it is just overall travel. It is probably a lot more of smaller-type things is the way I would best frame that up, that clearly we can cut back on that we are centered around some various initiatives and things we would look at. You know one thing I want to make sure I do bring up is, for example, we've talked about many a time is the new ERP project. Clearly, we were looking at that, that I would call kind of onetime costs around that selection and looking into that project. Those are the kinds of things that we would consider onetime costs.

Secondly, the tax rate was a good deal lower than we had modeled in the typical high 30s range. Anything there?

Yes, that had to do with some state valuations that we were looking at that we originally didn't think we could probably get some benefit from but due to some pretty strong performance in certain sectors or regions, we will be able to get that. So, once again, that is more of a onetime. I would stay with where you're modeling. I would stay with the effect of tax rate of 38%.

Thanks again.

(Operator Instructions). Tahira Afzal, KeyBanc Capital Markets.

Hi, gentlemen, once again. I just wanted to find out, on the capital spending side, the cuts you have made, would those be along the lines for additional facilities for the Storage Tank business. I recall that was one of the initiatives you had. If you could just try to specify and (inaudible) which areas you're cutting back on and whether the reasons whether you're cutting back is because you feel you (inaudible) to diversify away from some of the softer business. You have gotten grown (inaudible) some of the diversified targets organically and whether this means you will be going in whatever you are cutting on the CapEx side you plan to plow into acquisitions?

I think we are obviously -- there was some expansion capital that we had planned to spend that we're going to defer at this point. It doesn't impact our strategy but given this environment and where we're focusing on our attention on right now, we felt it was more prudent to defer that. Our maintenance capital spending we have been very prudent on that as well. So I think in general those are the categories that we are reducing our spending on in fiscal year 2009.

I think additionally is that we do see some small acquisition opportunities. We are not in a mode that we want to take on debt, and so we want to maintain a very strong financial position and cash position that would allow us to be opportunistic.

I got it. If you are looking at -- when I review your initiatives and what you are doing going forward, my experience is that with the specialty contract focusing on a few areas sometimes makes more sense than scattering one's initiatives. What are the one or two key areas that we should be looking for that would show that you are gaining market share in line with your investments?

I think the Gulf Coast market in general is one. Again, it is just an expansion of what we are doing in other parts of the country, whether it be turnarounds, specialty vessels, tank work. Again, it is an area that we have not put a lot of attention on in the past and we saw an opportunity, particularly with the people that we brought over from the LNG project. That's one area that we would expect to continue to see opportunities to grow our business.

How are you tracking to see that all of these initiatives that you are taking are gaining traction? What do you look at internally? Are there any milestones that you set internally?

We set milestones. We look at backlog in the particular areas. Obviously, we look at the investment and return on these particular areas. I think the Northeast is another area that we see a lot of opportunity. That is an area we're focused on as well. We do regularly review and have benchmarks on our progress in these particular areas. I think the fact that you have seen our backlog really stay relatively flat -- and again the power project and the CBI is not in our backlog -- combined with the softening of the AST market, is demonstrating that we are making progress in terms of diversifying and achieving some of the results that we have wanted to achieved in these other areas. I think that, without the slippage in some of this AST business in the latter part of the year, it is a pretty nice story.

Would that mean that, Mike, we should be looking for sort of clip, a quarterly bookings clip of $170 million, $180 million outside of [outside] projects as we have been seeing over the last several quarters?

I think that would -- I'm not going to commit to an average clip. Obviously, we want to continue to grow our backlog and that is what we're focused on doing -- not at any price but there are opportunities that fit our niche and we're focused on growing our backlog and capturing those types of opportunities.

The last question, Mike -- this $34 million project, for modeling purposes, is this going to specialize or where would we place in terms of your different categories?

Yes, that would go into construction for the segment and go into specialized, exactly right.

Thank you very much gentlemen.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Ms. Nguyen for closing comments.

Thank you all for participating on this call. We look forward to the next call when we can update you further. Good-bye.