Matrix Service Co (MTRX) 2009 Q4 法說會逐字稿

Greetings and welcome to the Matrix Service Company Fourth Quarter and FY End 2009 Results Conference Call. (Operator Instructions.) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Truc Nguyen, Investor Relations, Matrix Service Company. Ma'am, you may now begin.

Thanks, Kathleen. 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 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 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 would now like to turn the call over to Michael Bradley, President and CEO of Matrix Service Company. Mike?

Thanks, Truc, and good morning, everyone. Tom Long, our CFO, is with me on the call this morning and we appreciate all of you joining us to discuss our recently completed fiscal 2009 and to look forward to fiscal 2010. Before I turn the call over to Tom to discuss the financial results, I would like to cover the following topics. First is our overall performance for fiscal year 2009; second is the SM Electric acquisition and integration update; third is the market trends and outlook; and then, finally, our backlog.

To begin, we are pleased to report our fiscal 2009 results. Matrix achieved record earnings and outstanding safety performance while making significant advances in our diversification strategy. During a tough economic environment, we produced fully diluted earnings per share of $1.16 in fiscal 2009, which is a 45% increase over fiscal year 2008. Our fourth quarter results were solid at $0.26 per fully diluted share, and benefited from an increase in turnaround activity and excellent project execution from the Matrix team across all of our businesses. As I indicated during our last call, markets remained challenged during this quarter and we continue to see clients slow or defer spending plans along with increasing competition. However, we are seeing some signs of improvement which I will discuss later.

In addition to project execution and safety, we attribute our fiscal 2009 success to the continued advancement of our long term strategy. I would like to highlight a few key points that demonstrate the execution of our strategy in fiscal 2009 to strengthen, grow, and diversify our company. First, we continued to strengthen our financial position and liquidity. We increased our cash position to almost $35 million while funding two strategic acquisitions during the year and we remain debt free. Our financial strength puts us in a position to focus on quality projects, which is particularly important in today's competitive marketplace where companies like Matrix are being asked to assume more contract risk.

We plan to be selective in our pursuits and avoid projects with terms and conditions that would prevent significant risks to Matrix Service and our shareholders. Our strong financial position allows us to pursue other strategic opportunities, both domestically and internationally. As you know, we completed the acquisition of certain engineering and construction assets in December 2008 and later acquired SM Electric in February of 2009. Our expanded engineering and construction capabilities advances our diversification efforts and steel plate structures, including LNG, LPG, thermal vacuum chambers, nuclear, and solar, as well as adding more capabilities in process and electrical engineering.

We are on track to receive our N stamp this fall to provide engineering, fabrication, and construction of nuclear containment vessels. The SM Electric acquisition accelerates the growth of our electrical and instrumentation business. We will continue to seek other strategic opportunities in fiscal 2010 that complement our long-term strategy. We were also successful with our organic growth and diversification efforts with expansion in the Gulf Coast and western Canada, two key target markets for us. During fiscal 2009, we developed the talent and infrastructure in both areas to successfully bid and execute a broader range of projects. We expect to see significant growth in both areas over the next few years.

While it's important to stay focused on the long term, we are very aware of the current environment and will take the steps needed to maintain our strong financial position. We continue to actively manage our overall cost structure, including construction overhead and SG&A costs. Our focus is on balancing our cost structure with the current market conditions and a need to maintain adequate resources to address the opportunities that we see developing. While we are implementing further cost reductions, we also believe this is an opportunity to selectively pick up key talent, build market share, and strengthen our intermediate and long term position. Again, our focus is on maintaining the right balance of cost and resources, but we do have plans in place to quickly adjust the changing market and competitive conditions.

In April, we celebrated the 25th anniversary of Matrix Service Company. Matrix started out with just four employees in a garage office. Today, we have approximately 3,000 employees in 17 offices across the U.S. and Canada. We are proud of our 25-year history and the achievement of such an important milestone. I would like to take this opportunity to thank our employees, including the many that have been with the company since its early days, and those that have joined us in recent years. Our employees are the reason Matrix Service delivered a year of record earnings in this tough environment while achieving excellent safety performance. Again, our balance sheet and liquidity are strong. Through organic growth and diversification, the development and addition of key talent, and the completion of two acquisitions, Matrix Service advanced our long term strategy in fiscal 2009. While the economic outlook remains uncertain and challenging, we believe we are well positioned for the long term and I'll speak more to our outlook shortly.

As I mentioned earlier, we completed the acquisition of SM Electric on February 5, 2009. Since that transaction closed, we have focused our efforts on a successful integration. We expected that SM's rich history, strong brand, and highly skilled workforce would be in a position to significantly increase our electrical and instrumentation capabilities in the northeast and mid-Atlantic states and we have not been disappointed. To date, the integration of SM is proceeding according to plan and we are pleased that the two company cultures have come together exceptionally well. We are excited about the future of our electrical instrumentation business and are positioned to capitalize on numerous opportunities associated with updating and expanding the high voltage electrical infrastructure in the U.S., especially in the mid-Atlantic and northeast regions. We still expect to see significant opportunities in the electrical instrumentation market over the next few years.

Looking at the market, while the economic downturn impacted our business in the second half of fiscal 2009, we are seeing some indications that the market may be improving. More importantly, we are beginning to see signs that our core markets could be recovering later this calendar year. Our job funnel, which remains very robust, includes a broader array of projects as a result of our emphasis on business development, the addition of key talent, and recent acquisitions. The size of the job funnel and the increase in bid flow activity is also a result of our geographic expansions in the Gulf Coast and western Canada. We are also looking at opportunities of greater scale, which is reflective of the expanding capabilities that we have built. These projects include both repair and maintenance and construction opportunities, above ground storage tanks, electrical and instrumentation, specialty, and turnaround markets. We are also pursuing opportunities outside of the U.S. in Canada in our core businesses. As we pursue these domestic and international opportunities, we will remain focused on managing our risk while delivering quality project execution and value to our customers.

During the last half of fiscal 2009, we began seeing an increasing number of competitors bidding on projects as spending slowed, which is putting pressure on margins. There has also been a shift in risk allocation, including more demand in terms and conditions and an increasing number of lump sum projects. As a result, we will continue to maintain our disciplined approach to project selection, contract risk management, and project execution. We remain focused on preserving the integrity and quality of our long term business strategy, but acknowledge that continued economic pressures could make it difficult to maintain the level of profitability achieved in recent quarters.

The economic downturn that began in calendar 2008 also impacted our backlog as customers deferred capital spending plans, altered maintenance spending programs, and cancelled previously approved projects. For the fiscal year, we experienced project cancellations of approximately $50 million, including $14 million in the fourth quarter. As I stated previously, our customers continue to assess the economic environment and the resulting impact on their businesses, which has resulted in a more cautious tone and uncertain outlook. In spite of these conditions we have maintained a solid backlog to the end of the fiscal year while staying disciplined in our bidding and contracting strategy.

While we remain somewhat cautious about the near term outlook for the business, we believe our investments in business development, strength in engineering and construction capabilities, geographic expansion, and key talent has put the company in a stronger position as we move into fiscal 2010 and beyond. We believe that our conservative fiscal management and our focus on safety and quality, combined with our expanding capabilities, positions the company to achieve our intermediate and long term growth and diversification strategies as market conditions improve.

I will now turn the call over to Tom Long to discuss the financial results.

Thanks, Mike. We issued a press release this morning, which disclosed the specific details of the results of the fourth quarter and full year of fiscal 2009, so I will discuss a few of the highlights. But first, I want to discuss the change in our fiscal year that we also announced in our press release this morning. We are changing our fiscal year end to June 30, effective immediately. The company's current May 31 fiscal year end is difficult as the preparation of our quarterly and annual reports coincides with various holidays. The cost of this change will be minimal and benefit our employees.

In November, we will report the operating results for the month ended June 30, 2009, so that will be a one-month period, as well as the first quarter ended September 30, 2009. In the fourth quarter we earned $0.26 per fully diluted share on $180 million of revenue. Our construction services segment revenues declined to $100 million in the quarter, as compared to 121 million in the same quarter last year. This was primarily in the downstream petroleum, above ground storage tank, and specialty markets, which experienced fewer releases of large projects during fiscal 2009. This was partially offset by the electrical and instrumentation market, which increased as a result of the SME acquisition that Mike mentioned.

Our repair and maintenance services segment revenues increased to $79 million in the fourth quarter, compared to 73 million in the prior year. The increase was primarily due to the robust turnaround activity in the downstream petroleum market.

Operating results - we benefited from gross margins of 13.8% in our construction services segment and 12% in our repair and maintenance segment. Consolidated gross margins were 13%. Although the level of work in the fourth quarter did not allow us to fully cover our construction overhead costs, our effective project execution allowed us to achieve solid gross margins in a tough economic environment. In the third quarter we reduced quarterly SG&A expense by $1 million, primarily in the areas of personnel and administrative costs. In the fourth quarter, our SG&A costs remained relatively flat compared to the third quarter, excluding the impact of the recent acquisitions. As we move into fiscal 2010, our focus on maintaining a competitive cost structure will not change, as Mike discussed earlier.

For the year, we achieved consolidated revenues of $690 million and generated record operating income and fully diluted earnings per share of $47 million and $1.16, respectively. These operating results generated cash from operations of $39 million during the year, which enabled us to grow our cash balance from 22 million at the beginning of the year to $35 million. We did this while funding $15 million for two acquisitions and $10 million for capital expenditures. We did not draw on our $75 million senior credit facility during fiscal 2009 and have only utilized $7 million in capacity for letters of credit to support our business. We also continue to have the bonding capacity necessary to support our business. Our strong balance sheet and financial flexibility should allow us to capitalize on future business opportunities.

And with that, I'll turn it back over to Mike for some additional comments.

Thanks, Tom. In summary, we are proud of delivering record earnings per share during fiscal 2009 in an extremely tough economic environment. We believe the company is well positioned to manage through the current economic environment and to capitalize on opportunities as the market improves. Our sales and project capabilities enable us to expand the scale and reach of the opportunities in energy and industrial infrastructure markets, which is supported by the increasing number and diversity of prospects in our bid flow today.

We have a strong cash position, no debt, quality backlog, and a strong team that continue to execute well in a tough environment. We believe that revitalization of our nation's energy infrastructure, a greater emphasis on renewable energy and other infrastructure projects, will drive our nation's long term energy policies, which present our business with significant opportunities going forward. The uncertainty of the economic recovery and the timing of awards, coupled with the seasonality of our business, will likely produce uneven quarterly results during fiscal 2010. Based on market conditions we are seeing, our plans assume a challenging environment in calendar year 2009 with some improvement starting late this year and into 2010. As a result, we expect to achieve earnings in the range of $0.80 to $1.10 per fully diluted share. Capital expenditures are expected to be approximately $12 million.

With that, I would like to open up the call for any questions.

Thank you, gentlemen. (Operator Instructions.) Our first question is coming from Martin Malloy of Johnson Rice and Company. Your line is live.

Good morning.

Good morning.

Hey, Marty.

When you talk about seeing some potential improvement late this year in your core markets, can you give us some examples of what you're seeing out there that gives you confidence?

Yes. I think there's a couple of things we're seeing. One is, just looking at our bid flow activity today compared to even three months ago is we're seeing improvement there. We're getting indications that projects, again, that had been deferred are getting back in front of management teams with the likelihood of going forward. We still see quite a few opportunities in the E&I market developing. So I think we're just seeing a little different tone that what we saw, say, even 60 to 90 days ago. So I think we are expecting to see some signs of improvement later this year. I think some segments will continue to be challenging and other segments I think we're starting to see some good opportunities develop. So it's a mixed bag geographically, but all in all, we're seeing some encouraging signs and that includes our AST market as well.

Okay. And with the international opportunities, can you talk a little bit about the potential timing and type of opportunities that you're seeing there?

Yes. The types of opportunities that we're looking at, Marty, are really focused on the core AST business. The areas that we're looking at are primarily in Central South America, and the Caribbean right now. Some opportunities are--we're actively bidding and some we're developing. I would say we're being pretty cautious about these opportunities. But again, as I've mentioned before, we've got some talent. We've added a lot of good talent in this organization in the past year, which have experience in these particular areas. So we're starting to look at opportunities that fit our risk profile.

Thank you.

Thank you. Our next question is coming from Mike Harrison of First Analysis.

Hi. Good morning.

Hey, Mike.

Good morning.

I was wondering if you could talk about was going on in the repair and maintenance from a gross margin perspective for you to have revenues up year over year, but margin lower year over year. And do you believe that's a temporary impact related to the market weakness, or should we reduce our margin assumptions going forward related to [other shifts] that's going on in your business?

Well, I think as we've noted, we expected to see some margin pressures in our business just given the current environment and competition. So we did expect to see some margin decline in this business in the quarter. And as I stated earlier, we would expect to see some pressure on margins going forward. So what we saw did not surprise us. It's what we expected. I think the key thing for us, as I mentioned, is we're trying to maintain a good balance of cost structure and resources. And Tom mentioned we did not fully recover our overhead costs in the quarter. That was expected. So right now I would expect to see margins continue to be challenged. I think that our focus right now is we're being very selective in the kind of work we go after.

And then, a question. With respect to the migration of contractors to more lump sum type of activity, obviously, that involves you guys taking on more risks in a lot of cases. But in some cases it can result in greater rewards as well, if you do execute well. Can you just talk about the--I guess the risk and reward tradeoff of that migration? And is that--does that help explain some of the improved gross margin in the construction business that you showed this quarter?

I think that your assessment in terms of risk and reward is correct. We have always maintained or we've had a lump sum mix of about one-third. That mix is going to go up a bit we expect going forward given this environment. There's a lot of projects that we're very comfortable bidding lump sum and would prefer to bid lump sum. So again, what we do is we take a look at what our capabilities and the risks that we see. I think one of the challenges that we all have right now, Mark--or Mike, is that it's not just lump sum contracts. It's terms and conditions that we're seeing that essentially put all the risk on a contractor. So we've got to balance the type of contracts, terms and conditions, along with lump sum. So that's a bit of a challenge in this market as well.

So again, we're being very selective in the type of projects we look at and we're avoiding contracts with terms and conditions that we think put significant risk to our company and our shareholders. So it's a balancing act right now.

Got it. Thank you very much.

Thank you. Our next question is coming from Rich Wesolowski of Sidoti and Company.

Good morning, Mike and Tom. How's it going?

Good, Rich.

Pretty good.

Yourself?

Is it accurate to say the company will sacrifice backlog growth in order to hold the bid margin steady, so long as the market remains more competitive than it has been in the past?

Our--I think that's a fair statement, Rich. Our--the important thing for us right now is to focus on profitability of our projects. I would tell you that building backlog is not a problem right now. We could build backlog--we could've built backlog in the quarter. The challenges, as I stated, are what we're seeing in terms and conditions that we think are putting way too much risk on the company. So we're maneuvering through this and we're being selective on projects, but again, we're balancing the profitability for the long term as well. So I think, as we stated, I don't want to build a strong backlog and be talking a year from now about why we're not making any money on it. So to answer your question, that's a fair assessment and that's how we're focusing on things.

Okay. And given that that is the case, will we see more reduction in your overhead expenses, if perhaps you're not bidding as much work as you could? We saw the SG&A number come up this quarter for the first time in several quarters.

Well, I think, as Tom stated, we have continued to reduce costs. I think SG&A is one element that we're reducing, but also our construction overhead is another cost that you don't see. It's built into our margins, so we're working on both elements of our cost structure as we go forward.

The thing that I think is--as I stated, again, that I want to emphasize is that when you look at the bid funnel and the opportunities that we see developing, we want to make sure that we've got the right resources in place to respond. And that's just the balancing act we're maintaining right now. So SG&A is one element that we're working on and we continue to look at ways to reduce those costs. On the other hand, we see some pretty interesting opportunities coming up and we're trying to stay positioned for the intermediate long term right now.

Okay. And then, finally, can you maybe paraphrase your recent discussions with customers and with potential customers in western Canada, specifically what they need to see before initiating the projects that you're targeting? And perhaps maybe if that criteria is any different from what you're hearing from clients, refineries in the U.S. to storage tank operators in the U.S.?

I think clearly that--I think the recovery in the oil sands is going to be important to clients to move forward with projects. I think from our discussions people--our clients and companies still have--maintaining a long term view of crude oil and the importance of crude oil. So I think it's a matter of recovering in the oil sands and crude oil prices will help. We are looking at some other projects that are not dependent on that as well. So I think the big upside becomes when the recovery occurs in the oil sands, but that is not necessarily the only project that we're looking at today.

Excellent. Thanks, again.

Thank you. Our next question is coming from Matt Duncan of Stephens, Incorporated.

Good morning, Mike and Tom.

Hey, Matt.

Good morning.

The first thing I've got, guys, is you gave earnings guidance, but you did not mention revenue guidance. And I'm just curious if you have any thoughts on what your revenues may look like in fiscal 2010. And also, on this margin thing, you get a 13% margin in the quarter, which is down from the first half of the year. Are you saying you expect margins at the gross line to deteriorate from this 13% range or just down from the 14 to 15 you had seen six months ago?

Sure, Matt. We--as far as the revenue, we don't see that being materially different from the levels that we just came in with fiscal 2009 from that standpoint. So that's where you can kind of use for your revenue line. As far as the margin, I think as far as the margin, Matt, goes, I stated in my opening remarks I think we recognize there could be continued pressure on margins over the near term. And that's built into our plans.

Offsetting that, you guys are cutting some SG&A expense, so weakness on the gross margin line could be offset a little bit by SG&A cost cuts. Is that a fair way to look at it?

I think SG&A, and again, how we manage our construction overhead costs as well.

That's helpful. And then, last thing, Mike, on acquisitions, you guys have 35 million in cash. I would assume that targets are a little bit more willing to talk about acquisitions based off of more realistic expectations now that business is off. What sort of stuff are you guys looking at? And in terms of size, are you willing to use any debt with these cheap debt prices to make acquisitions, or is your preference to do it out of cash?

Well, in terms of the acquisition opportunities, definitely seeing I think multiple expectations come down. We've looked at several opportunities in the past few months. I think the challenge that we're facing now is looking at companies and looking at backlog and what kind of backlog are you buying. That's an important factor in due diligence that's critical as well. I think all in all multiples have come down and they're definitely I think more reasonable than they were. The other thing that we're seeing in some opportunities is just a lack of access to capital and liquidity. Good companies, but they can't access liquidity and bonds capacity and that's been a challenge on their business. So those are some opportunities that we like as well.

I would tell you that we're not interested in taking on debt to do an acquisition right now. I think we're focused on liquidity and maintaining a good cash balance. So we're not really interested in taking on debt to do an acquisition, Matt.

I'll get back in queue.

(Operator Instructions.) Our next question is coming from Tahira Afzal of Keybanc Capital.

Good morning, gentlemen.

Good morning, Tahira.

[Just to start], in terms of your guidance range, could you elaborate on the wideness of the guidance range and when you try to model out and come up with this guidance range whether the variation is coming more from your revenue assumptions or from your margin assumptions?

Well, I think given the current environment we're in it's a fairly wide range. But I think just given the uncertainty right now, I think it's reasonable. The other piece of it is your second question is we've got some uncertainty about margins. We continue to execute well, but there's still uncertainty about margin pressure. There is also some uncertainty about projects that we feel have a very high probability of going forward, but could get deferred or delayed. So it's a combination of those factors, Tahira. I think that from a revenue standpoint right now, as Tom mentioned, we don't see any material difference occurring in revenues for the year. So we're comfortable with the range that we gave.

All right. Okay. And then, if I look at the downstream repair and maintenance revenues, obviously exceptionally strong. As I look back, I don't see that strength for a while. Are you--did you just see a very strong sort of turnaround season this quarter or have you also been seeing some market share gains?

Yes. We had a good turnaround quarter, which we expected back in--when we talked during our third quarter earnings call. And so, that happened as expected. As I'll say, our turnaround business is lumpy. It goes through different cycles. I think the--what we've seen--what we saw earlier in the year is turnaround and maintenance getting deferred. I think there's still deferrals happening in that area. It's interesting enough, we saw some turnarounds that got deferred way out come back. So it's kind of a mixed bag right now, but I think that we did have a good quarter. And repair and maintenance is an area that we continue to focus on building our market share.

When you look at that revenue guidance, would you say that you assume that you can repeat a quarter like that or you're taking a more cautious approach?

Well, I'd say in general we're taking a cautious approach to the entire fiscal year. I think that we benefited from SM in the quarter. SM has a repair and maintenance business as well. We want to continue to build and expand the E&I repair and maintenance business. So we're really focused on all elements, but I think in general we're taking a fairly cautious tone.

Got it.

For the next 12 months.

And then, in your construction revenues, obviously, the big jump up in E&I is related to the acquisition. What kind of run rate should we assume on a quarterly basis and (inaudible) is that a good run rate for the segment?

Well, Tahira, I'll say it again. I think that it's important that, again, our business is lumpy. All elements of our business is lumpy and the E&I is no different. You're going to see spend rates go up in certain quarters, down in certain quarter, depending on whether--obviously, summer is a fairly heavy run rate for the utilities and so there tends to be less construction work going on. And then comes fall and winter - that can flip.

All right. Okay. And I've just got a couple of questions and then I'll hop back in the queue. As I look at your nuclear opportunities, and as you talked about them earlier on, is there some incremental (inaudible) on the (inaudible) over there?

I think that we continue to have discussions, but right now I don't see anything immediate. I think we've seen projects get pushed out, so there's nothing really in our plans for 2010 other than we continue to be prepared and have our N stamp and capabilities in-house. So I would say that those are probably pushed out a few years.

Oh, so they're pushed out a few years?

Yes.

Okay. And then, in terms of your AST projects, if I was to look at, for example, projects like the 300 or 400, could you kind of give us some color on the size of projects such as those and the timeline over there?

Well, I'm not going to comment on any particular project, but I will say that in our bid flow today we have some fairly sizeable AST projects that we're looking at. So large dollars, large order of magnitude projects.

All right. Okay. And I mean--.

--50 to 100 and up. But I'm not going to comment on any particular project. But I would say that we've got some pretty nice projects that we're working on right now.

Last question and it has to do with, I noticed that you mentioned solar.

Yes.

I would love for you to touch on that, and then I'll hop back. Thank you.

Yes. What we're looking at in solar, Tahira, is the molten solar energy storage piece. It's--they're steel plate structures. They're--instead of cryogenic, they're high temperature specialized steel plate structures, which with the addition of the construction and engineering assets we picked up, plus some exciting talent in Matrix, we have the capability to design, engineer, and construct. I think solar is--has some potential going forward, but like all renewables, I think financing is still an issue. But we do have opportunities in-house that we're looking at and doing preliminary work on. So it's not a dream. It's something that we're working on. I think the question is when and where will these facilities actually get built.

All right. Okay. Thank you very much.

Thank you. Our next question is coming from David Yuschak of SMH Capital.

Good morning, guys.

Good morning, David.

Just a couple quick ones here. As far as your guidance, would it be fair to say that the--it's going to be more backend loaded between the--between $0.80 and $1.10 and the variability would be more on the construction services relative to any kind of variability that you may have out of maintenance?

Well, again, I'll say that our quarters are expected to be lumpy. And we stated that we expect calendar year 2009 to be challenging with some opportunities starting to emerge. So I'd say we see better opportunities in the back half than we do on the front half. On the other hand, we are bidding opportunities that could move forward that could change that. But right now, I'd say that we're still viewing 2009--calendar 2009 as a bit of a challenging year or second half of this year.

Okay. And then, as far as the terms and conditions, I'm just kind of curious there. As you look at what's been happening in terms and conditions now versus leading up to the--this kind of strong commodity environment we had a year ago, what in particular are the owners asking of you in the way of terms and conditions? Is it just because of the uncertainty of the input costs here or what other things--what things are they kind of suggesting they need from you that you may find it more difficult to deliver on?

Well, I think it's definitely a buyer's market right now, David, in terms of our business. And we're--we see terms and conditions that are requesting unlimited LDs, consequential damages unlimited. I mean, it's various conditions like that that we just can't accept. Obviously, for reasons that I think you would understand, it's--that puts the company at risk. So I think, again, it's a balance and we're working with clients that are focused on the quality and the value proposition. But we also recognize that cost is very important and we're being very, very competitive. But I think very importantly about Matrix is we (inaudible) project on time and on budget for our clients, because that's what they're going to remember long term.

Okay. That's all I've got for now, so I'll get back in the queue. Thanks.

Thanks.

Thank you. The next question is coming from Matt Duncan of Stephens, Incorporated.

Hey, guys. Just a follow-up. Tom, on the change in year end, I'm just thinking about how that may impact your seasonality. Typically, your quarters have been 2Q and 4Q strong, and then 1Q and 3Q have been a bit weaker. With the month of December moving from the third quarter into the second quarter and then the spring turnaround season now being divided up a bit more between the third and fourth quarters, do you think that may mute the seasonality just in the underlying business a little bit, understanding obviously there's still going to be some lumpiness in when you guys perform some work?

We really don't see any material difference, Matt, in how the timing will work on those quarters. It may have some small impact, but I wouldn't say that it would be anything that's of any materiality right now.

Okay. And then, the other thing is I don't know if you can back out what SM Electric and CBI revenues were for this quarter. And then, also, how much of your backlog is attributable to those two, just so we can kind of get a sense for what organic changes were year over year?

Yes, Matt. And we didn't break those out. And really don't have plans on doing that. What I would say is that--and maybe this will help--is that we gave the guidance at the time of the acquisition on the SM Electric specifically of $70 million in revenue on a 12-month basis. And I can say that we still feel good--still feel very good about that, as Mike has mentioned. But also as Mike has mentioned is that some of it can be lumpy. All of our various markets can be a little bit lumpy, but we still--from everything we've seen as we've gone through the integration is that we still feel good about the $70 million.

Okay, that's helpful. And then, last thing here, Mike, when you talk about international opportunities, and it sounds like you're looking at mostly ASTs, have you signed a contract to do anything outside of the U.S. or Canada yet?

No, we have not signed any contracts.

You are actively pursuing that work?

We are actively pursuing, yes.

Okay, thank you.

Thank you. Our next question is coming from Mike Harrison of First Analysis.

A couple more questions for you. I was wondering if we could get some more details on the project that was cancelled during the quarter and the reasons for that cancellation. And also, how much of an impact the cancellation had on your margins in terms of uncovered overhead and any costs that Matrix was left on the hook for.

There were multiple projects. They weren't all that large, Mike. And there was no cost impact to us. So--.

--Your margin in the construction business would have been higher though, if not for the cancellation. Is that correct?

Not necessarily, no, because some of that might have been work that we would perform in later quarters. So--.

--Okay. And then, on the repair and maintenance side, the AST piece of that business, revenues there were the lowest they've been in a couple years. I was wondering if that's just related to the market weakness overall and maybe some customers looking for a band-aid type of lower cost fixes, or is there a more strategic shift going on with respect to where you're focusing your resources right now?

Well, first of all, we have not changed any of our focus--our strategic focus. The AST business and new construction and repair and maintenance business continues to be a core part of our business and we have not changed any strategy relating to that. I think it's mainly just a market that has softened. We saw that happening last year. I mean, it was--we saw projects on the drawing board really start to drop off in calendar year 2008 as the economy struggled and oil prices. So I think a lot of stuff just got put on hold and deferred. We are starting to see some signs of some of those projects coming back. So we--no change in strategy. It's the market and we still have a great talent base ready to respond, and that's a business that we think will always do well for Matrix.

All right. Thanks very much.

(Operator Instructions.) Our next question is coming from Tahira Afzal of Keybanc Capital.

Hi, gentlemen. Just one last question. In regards to solar, it seems--are you looking more than on the non-[CB] side? And if not--and if you are looking, is it preliminary right now? Have you sort of earmarked a couple of (inaudible) that you can potentially be discussing your opportunities with?

Well, in terms of solar, on the large scale molten solar projects, we are discussing opportunities on that one. That's really focused on the steel plate structure side of the business. On the PV side, Tahira, we've seen some interesting things happen in the northeast. SM has experience in photovoltaics. We've seen a lot of opportunities. I think it's--that could be stimulus driven opportunities. So we're seeing that as well.

All right. Okay. And the large scale opportunities, is there kind of a size or is it too early to speak of that right now?

It's too early to speak on that. Generally, they are of pretty decent scale. So--.

Thank you.

(Operator Instructions.) I'm showing no further questions at this time. Gentlemen, do you have any closing remarks?

Yes. Again, I want to thank everybody for joining us on the call today. And in closing, I'd like to reiterate our current focus as we look into fiscal 2010. And again, we will maintain our strong focus on executing our work in a safe manner. I think the other thing is to maintain our strong financial position, liquidity, and financial flexibility, which we think is very important in this particular environment. We're going to continue to focus on our high quality project execution and quality. Again, I think this market has some--poses some interesting opportunities, but it also has some challenges in terms of the type of contracts and opportunities that we have to be very selective on. And then, finally, we are still focused on the long term growth strategy of this company and we'll continue to look at opportunities to further advance that strategy in our fiscal year 2010.

We look forward to talking to you in the future. And thanks, again, and have a great day.

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