Orion Group Holdings Inc (ORN) 2008 Q4 法說會逐字稿

Good day everyone and welcome to the Orion Marine Group Inc.'s fourth quarter 2008 earnings conference call. Today's call is being recorded. For opening remarks and introductions, I would like to now turn the call over to Mr. Chris DeAlmeida. Please go ahead, sir.

Good morning and welcome to the Orion Marine Group fourth-quarter and full-year 2008 earnings conference call. Joining me today are Mike Pearson, Orion Marine Group's President and Chief Executive Officer; Mark Stauffer, our Executive Vice President and Chief Financial Officer; and Cabrell Acree, our Vice President and General Counsel. Regarding the format of the call, we have allocated about 20 minutes for prepared remarks, in which Mike and Mark will highlight our results for the year and outlook for 2009, and then we will open up the call for questions.

During the course of this conference call, we may make projections and other forward-looking statements regarding, among other things, our end markets, revenues, gross profit, gross margin, EBITDA, backlog, projects and negotiation and pending award as well as our estimates and assumptions regarding our future growth, EBITDA, gross margins, administrative expenses and capital expenditures.

These statements are predictions that are subject to risks and uncertainties that may cause actual results to differ materially. Moreover, past performance is not necessarily an indicator of future results. By providing this information, we undertake no obligation to update or revise any projections or forward-looking statements whether as a result of new developments or otherwise.

Also, please note that the EBITDA and EBITDA margin may be deemed non-GAAP financial measures under the rules of the Securities and Exchange Commission, including Regulation G. Please refer to the reconciliation accompanying this earnings call available on our website at www.OrionMarineGroup.com for comments on the use of non-GAAP financial measures, as well as applicable reconciliation to the most comparable GAAP measures.

Also, please refer to our earnings release issued this morning March 5, 2009 and our quarterly and annual filings with the SEC which are available on our website for additional discussions of risk factors that could cause actual results to differ materially from our current expectations. With that, I will turn the call over to Mike Pearson, President and CEO. Mike?

Thank you Chris. Good morning and thanks for joining us. Although we were faced with several challenges during the year, we are very pleased with our 2008 results and I believe we are well positioned for the future.

We ended the year with a strong fourth quarter and as a result of solid project execution, our revenues for the full year for 2008 increased $51.4 million or 24% as compared to 2007. That exceeded our revised revenue growth goal of 21 to 23%. Our full-year EBITDA was $41.3 million and that resulted in an EBITDA margin of 15.8% and that is at the upper end of our revised full-year goal range of 14 to 16%.

Now, before we talk about our outlook for the year ahead, I wanted to just take a moment to review 2008. And as I look back over the year, we had many successes and many challenges.

We remained focused on growing the business to meet market demands by reinvesting in our core assets and we expanded our geographic footprint. During the year, we opened a base in Norfolk, Virginia and laid the groundwork for a base in Charleston, South Carolina. And we also acquired substantially all the assets and the business of a Florida-based subaquius services.

In 2008, we continued to see good overall demand for our turnkey construction services. As port expansion continued, the cruise industry added new destinations. Bridge construction remained a focal point and hurricane restoration and repair activity increased.

While projects involving dredging services in the Western Gulf Coast started the year slower than expected, the volume of bid opportunities from the Army Corps of Engineers increased during the fourth quarter. We also experienced some challenging situations during the year and as previously mentioned, we had two projects involving dredging services that incurred significant production problems in the first half. Additionally, an active hurricane season resulted in all of our jobs in several states being shut down at various times during the third quarter.

However, we worked hard to overcome these challenges to deliver the solid results that we reported here today. As a final word on 2008, I want to thank the management team and all of our employees for a job well done during the year. Through their dedication and perseverance, we met difficult challenges head on and positioned the Company for the future.

Now turning over to our end markets and outlook for the remainder of 2009, as stated before, continued port expansion and the need for US infrastructure improvements, coastal wetland restoration projects and expansion in the cruise industry should continue to provide us with good bid opportunities. Additionally, we have been performing some repair and replacement projects to marine facilities as well as projects involving dredging services as a result of the active 2008 hurricane season and we do expect additional bid opportunities for this type of work to continue.

However, we remain in uncertain economic times, and therefore we have to be continually vigilant about the state of our end markets. As we have previously stated, it is not unreasonable to think that some of our end markets could see some deterioration or bidding delays as a result of the uncertainty in the economy. However, the other end markets may outperform due to increased spending on infrastructure projects as well as hurricane protection and restoration projects.

Now, while we have not seen any significant pullback or delays to date, we will remain vigilant as the economy continues to be under pressure and some of our end markets may be impacted. However, we still believe the impacts of the economic downturn may be mitigated by the need to rehabilitate America's crumbling infrastructure and provide needed improvements for the future.

Looking across our major growth drivers in more detail, we believe the Gulf Coast and the Southeast Atlantic ports will continue with expansion plans despite some decrease in global shipping traffic. As we stated last quarter, we continue to see port infrastructure projects developing in our market areas.

In fact, we recently announced an award for a port improvement project in Homer, Louisiana and we are currently looking at other port expansion projects in our market areas. We believe funding for these projects will remain intact for most of the planned port expansions.

Port funding generally comes from the local port authorities, which in many cases have their own revenue stream. Additionally, bridge rehabilitation and replacement continues to be a focal point, despite the economic pressures and we are currently working on three major bridge replacement projects as well as other smaller but important bridge projects.

We continue to see additional bridge opportunities and believe these projects will be a priority of states with funding that is coming in from the annual spending of the current safety loop program and potentially through the recently passed stimulus package. With regard to the Army Corps of Engineers, we believe we will continue to see increased opportunities.

The Corps is now well positioned with significant funding levels as a result of their normal budget funds plus additional supplemental emergency hurricane related funding and also additional funding from the stimulus package. This elevated funding level has already resulted in increased bidding activity from the Corps during the fourth quarter of 2008 and we expect this increased activity to continue throughout 2009.

Another important end market driver is the substantial amount of work related to hurricane protection, restoration and shoreline stabilization. Through funding from the federal government, the Army Corps of Engineers and some state monies, we believe there is adequate funding for these projects and believe these projects are a priority in various levels of government.

Finally, I want to touch on the cruise industry. Despite a reported drop in cruise bookings, there remains several large ships under construction or being delivered that are expected to come online over the next couple of years.

The current marine facilities that will dock some of these large ships are inadequate and require substantial upgrades. We believe we will continue to see either mooring upgrades to existing facilities or new cruise ship pier construction opportunities as a result.

Notwithstanding what I just said, we fully realize the cruise industry is in a difficult time. However, we have not received any indication to date that the projects we're currently working on will either be delayed or canceled. That said, we will keep a watchful eye on this end market. But at this point, we continue to be excited about the prospects in the cruise sector.

So to sum it up, we continue to see strength in most of our end markets and good prospects both near-term and long-term and we remain cautiously optimistic about the year ahead. Finally, before I turn the call over to Mark Stauffer, I want to talk about the recently enacted stimulus package.

We are positioned to potentially benefit from the stimulus package. Most directly, the Army Corps of Engineers has been allocated approximately $4.6 billion of additional funds which approximately $2 billion is additional funding for operation and maintenance projects.

And these additional funds should help support a high level of spending in the markets that we currently serve, which should lead to additional bid opportunities. Additionally, there is $27.5 billion that has been set aside for transportation for highway improvements, of which a portion should be for bridges over water.

Unfortunately, at this point, we don't know exactly how much will be spent on bridges over water in our market but the heightened focus on bridge restoration and replacement leads us to believe that there are some potential new opportunities in our market areas. And on top of this, the current safety loop program will be up for renewal later this year. We believe there will be a continued emphasis on bridge construction with the new legislation.

While we do not know all of the details at this point, there also may be additional opportunities from the stimulus package in the form of flood prevention projects, funding for Coast Guard construction, including repairing and removing bridges hazardous to marine navigation, and other grants for investments and improvements to small domestic shipyards and restoration and modernization of defense facilities in the United States and also for the Mississippi River Tributary construction. As far as timing is concerned, we believe most of these opportunities will be in the 2010 to 2011 timeframe with some potential benefit in 2009. As such, the stimulus package is not included in our $1.4 billion market database of opportunities that we currently track for this year.

So in closing, I just want to reiterate that we are pleased with our overall results for 2008, given some of the difficulties we face. As we look ahead, we see good opportunities for growth and opportunities to continue our expansion plans.

Still, we want to grow the business profitably, so we're going to be prudent in our bidding and execution and vigilant in monitoring economic developments which are difficult to predict with regard to any positive or negative impacts on our business. With that, I will turn the call over to Mark Stauffer, our CFO, to discuss financial results in more detail. Mark?

Thanks, Mike, and again thanks for joining us. Net income for the full year 2008 was $14.5 million or $0.66 per diluted share, which compares with $16.6 million or $0.83 per diluted share in the prior-year period. After adjusting full-year 2007 net income per share to the full-year 2008 share count, full-year 2007 net income would have been $0.76 per diluted share compared with full-year 2008 diluted earnings per share of $0.66.

Net income for the full-year 2008 was impacted by an active hurricane season, the pace of projects involving dredging services in the first half of the year and a couple of projects with production issues early in the year. Full-year 2008 contract revenues increased 24% year-over-year to $261.8 million, of which 50% was generated from federal, state and local government agencies and 50% from private industry.

This compares to 57% from federal, state and local government agencies and 43% from private industry for the full year 2007. I would like to remind investors that there can be fluctuations in quarter-to-quarter results due to the timing and mix of projects. For this reason, we suggest investors focus on the long-term and annual results rather than quarter-to-quarter fluctuations.

Now, looking at the goals for 2009, as of December 31, 2008 we had a backlog of work under contract of $159.4 million which we expect will be liquidated during 2009. In addition, we recently announced a large port project award in Homer, Louisiana which will add approximately $20.5 million to our 2009 backlog.

Including this project, we have about $180 million of backlog that is expected to be liquidated in 2009. On top of our current backlog, we are continuing to track $1.4 billion of bid opportunities for 2009 which excludes the recently enacted stimulus package.

Given the current backlog of bid opportunities, we expect first-quarter 2009 revenues will grow 28 to 32% year-over-year. Additionally, we have set our first quarter EBITDA margin goal at 14 to 16%.

For full-year 2009 we remain comfortable with our previously stated full-year 2009 year-over-year revenue growth goal of 12 to 16% and our full-year 2009 EBITDA margin goal of 14 to 18%. We expect full-year 2009 CapEx to be in the range of 16 to $18 million.

The planned increase in CapEx from 2008 is a result of anticipated equipment needs to meet additional large projects we see forthcoming. However, we will monitor the markets and adjust our CapEx program to meet actual market demands.

As a reminder, achievement of these goals could be impacted by the uncertain economic outlook and as a further reminder, we cannot guarantee that revenue projected in our backlog will be realized or if realized, will result in earnings.

Turning to the balance sheet, we believe it is important to have a strong, stable balance sheet in this uncertain economic environment. We have maintained a strong balance sheet with good free cash flow generation, low leverage and a solid cash position for many years.

For the year, net cash flow from operating activities was $26.5 million which is an increase of $16.4 million as compared to 2007. We believe a good positive cash flow from operations is one of the foundations in our Company that is viewed favorably by our bonding company and is a safeguard during volatile times like these. As a result, continued free cash flow from operations at this time, we do not anticipate the need to utilize our revolving line of credit.

Additionally, we once again ended the year with a solid cash position. As of December 31, 2008 we had cash on hand and availability under our revolving line of credit of approximately $33.5 million. In addition, we had another $15 million of liquidity available to the Company at the discretion of our lenders.

Finally, our debt position remains low. As of the end of the year, our leverage was less than one times EBITDA which we believe is conservative and well below our comfort level of 2.5 to 3 times EBITDA.

To sum up, we maintained our solid position during the quarter. Our strong balance sheet should help us in this current economic crisis. As Mike mentioned, with our backlog and our visibility for good market opportunities, we are comfortable with our financial position.

With that, I will turn the call back to Chris to begin the Q&A portion of the call.

Thank you Mark and Mike. We would now like to open up the call for questions. (inaudible) will you please review the procedures for placing a question?

(Operator Instructions) Fred Buonocore, CJS Securities.

Excellent quarter. Just on gross margins, which have been somewhat of a moving target this year, just to clarify, margins were down year-over-year, you mentioned in the press release, due to higher material costs. Is that kind of indicative of a higher mix of construction business in Q4 this year versus say last year when you had more I think dredging projects at work which are higher margin?

Yes, that is a good indication of that. As we have kind of said before, it really depends on the mix and timing of projects and that is going to drive that margin. It can fluctuate from period to period.

Got it. So the pretty decent sequential improvement that you had, that would be mix related?

Yes.

Got it. Also, in the release, you talked about SG&A. You had an increase there related to bad debt reserves and property taxes. On the increase in bad debt reserves, is this related to some identified receivables that you are concerned with? If you could just gave us some color about the magnitude of both of those items, that would be great.

With respect to the bad debt reserves, as we talked about in the past, we look at that on a project-by-project basis. During the quarter we increased the reserve by about $750,000 and it's related to two projects. One specifically is a developer project. The project is complete but there is a pending dispute as well as there is some questionable liquidity with this developer.

The second is a refinery project in which the customer is in bankruptcy. So, it is related to those two accounts. As a reminder, we did about 410 projects last year and we have got two accounts that we have had this issue with.

And if we look at our reserve ratio to receivables, it is only up about 0.5 points year-over-year. So I don't think this is a trend that we see necessarily developing, but it is related to two accounts.

Got it. And then the property taxes?

Well property tax, we have SSL in the mix this year and just the way rates are moving around and some other issues resulted in it being higher than previous period.

Got it. Just one last one. Can you give us a sense for how much Q4 revenue was benefited say from the hurricanes in Q3? I know you had some work pushed out there. And also along the same lines, how bookings and backlog in Q4 may have benefited from orders being pushed out from Q3? Just trying to get a sense of how the quarter benefited from the Q3 hurricanes. Thank you.

I don't think it was that much for the hurricane restoration work. We carried out some smaller projects initially. But I think what we are seeing now is the fallout of the hurricane remediation is really going to be done this year.

Separate from that, we did see an increase in core activity, some of which was or most of which was unrelated to the hurricane activity.

Go it. But hadn't last quarter, didn't you -- I think you quantified around $6 million in work under contracts that got pushed out of Q3 because of hurricanes? Is that right?

Correct.

Was all of that -- did all of that impact this quarter or is it kind of get stretched out into several quarters?

It did. As we talked about, that would be pushed out into future periods, some of which burned off in Q4, but some of it just given the nature of where we were in those projects and the duration of those project, bled over past Q4.

So we will still see some of that into Q1, in other words?

Correct.

Got it. Thank you.

David Yuschak, CMH Capital.

Good morning. You speak positively about the Army Corps of Engineers and all the activity. So it sounds like a lot of their spend this year is going to be kind of in your wheelhouse, so to speak.

One of the things that we are kind of hearing too from sources is that the Army is really kind of strapped with resource allocation themselves as far as getting a lot of this work done. How do you read that as maybe slowing things down versus all of the activity that they know they need to get scheduled?

Well, the Corps has a lot of projects that have been on the shelf for some time. They just haven't had the funds to bring them to the forefront. So I believe with the existing staff, we're going to see quite a bit of bid activity, just with projects that have been postponed for quite some time.

But, we have had several meetings with the Corps in different districts and they intend to add manpower. I know that they are taking steps now to increase their support manning and they will not only bringing back retirees, but looking at consulting and engineering assistance that's available that will help them ramp up. So we feel confident that they are taking the right steps to get ready to process this work.

So, knowing that there is a big backlog out there, you are feeling comfortable that they are doing the things necessary to implement them sooner than later then?

Yes. There have been several industry meetings with the dredging industry, the Corps and the port authorities jointly to talk about how to process this volume of work. It has got a lot of focus right now.

One other question and I will get back in queue. As you look at the mix of business this year, you know, you have seen a pretty pronounced shift to the commercial side of the equation here relative to government.

Do you expect that because of all of this activity, you may be seeing another shift back the other way? Maybe not to the extremes it had been, but maybe half way to where it had been a few years ago?

Well it certainly could. We did only did I think about 11% of actual federal work this year in 2008. So that is certainly going to increase.

I think it really depends again on the projects that we choose to go after, given the opportunities we see in front of us and those that we are successful on. But it certainly is a reasonable thought that you have that we could certainly see the government sector piece pick up in 2009. But again, it is going to depend on what we go after and what we are successful in getting.

Now, do you think it might be more from a government mix, more towards like a port authority versus maybe the DOTs of the world or what are your thoughts there?

You know, again, it's going to depend because we thing, as Mike said during his prepared remarks, there is a lot of bridge opportunities that we are looking at. We will have to see what comes out of this stimulates by way of bridges over water. Again, with the Corps working this restoration work, it's just going to depend on what we get and what we go after.

I will get back in queue. Thanks.

Trey Grooms, Stephens Inc.

Quick questions. First off, Mike, you touched on it just a little bit earlier from a previous question. But the emergency funding for storm hit areas, you said the hurricanes really didn't impact the quarter too much. Can you give us a sense for how you see those funds kind of rolling out in 2009?

I think it will be disbursed in the second quarter. We expect to see increased bidding activity come out of the Corps here probably by the end of this month. I think April is going to be an active month for letting bids.

And we have met with the Galveston district here just recently and we know Galveston has a tremendous amount of projects planned to liquidate over the next two years. I think there is essentially over $1 billion just for that one district over a two-year period. So we are pretty excited about that. That is right in our backyard.

Okay, that is helpful. Also, you touched on the couple of jobs from last year, the dredge jobs that caused some disruption. And, can you talk a little bit about what kind of steps you guys are -- have taken to minimize the potential of that occurring again?

All right. Well, we have certainly taken a good look at our bidding procedures and tightened it up on trash removal. It is an area that we've subsequently been successful in qualifying with most of our clients. And if we can't qualify it, we have to make an allowance for it.

But, that certainly was a setback for us in the second quarter that I think the trash that we encountered in the subsequent half of the year, we performed very well on in terms of getting reimbursed for it. I feel like we have addressed that adequately and restructured accordingly.

Okay, perfect. And then on the port expansion, as far as people getting ready for the Panama Canal expansion, they're is your wheelhouse in the Gulf. Do you have any sense of -- I know we have identified billions of dollars worth of expansions that have been announced but do you have any feel for kind of the timing on when these people might start pulling the trigger on some of this stuff? Also, is kind of the economy the way we sit now, are you seeing people kind of put the brakes on that?

Well it depends on the port location. We know that some ports in the second half are going to come out with projects to expand container terminals, expand [core truce] terminals and I think the bigger ports are moving forward.

The one thing that is happening right now in the industry, the shipping industry, is even that the Baltic freight rates have taken a big dive, it's really been a catalyst for the shipping lines to build bigger mega container ships. And that is going to put pressure on smaller ships.

And all of that just leads me to believe that the importance of being ready once the Panama Canal is widened in 2014 is huge for these ports in the Gulf Coast and Southeast Atlantic. From what we can see, those plans are still intact and we are comfortable that there is going to be plenty to bid on there.

You think as only as the second half of '09, you could start seeing activity there?

I do.

Okay. Just a couple of questions for Mark, real quick. D&A for '09, I'm sorry if I missed it, but have you -- could you give us a thought on what you're looking for there?

Well, as we talked about in the past, keep in mind that the amortization related to the acquisition in 2008 falls off in the third quarter this year. So, that will kind of [ramp] down. If you kind of think about that, that is about 300,000 or $400,000 a month or so for the first eight months and then that will fall off.

Okay. And then the other question, a previous caller asked about SG&A and the detail you gave was helpful. But, so now with what you have talked about with bad debt and the other things going on -- that went on in the fourth quarter, what is a good run rate that you see for SG&A in 2009? I understand we have to keep in mind the subaquius amortization rolling off there as well.

I think if you sort of take a look at Q4 '08 and sort back out those items we talked about, the 750 or so, you are probably at a fairly decent run rate.

Okay, great. That is helpful. Thank you.

Jack Kasprzak, BB&T Capital Markets.

Is the $1 billion of projects coming out of Galveston potentially over the next two years in that $1.4 billion bid tracking number?

Actually, no. We have the base scope, the base budget of the Corps. But until we get a definitive list of projects, we don't put that in our database. We just know that they have got about I think over $600 million just in stimulus funding that has been directed their way and about $180 million of supplemental funding.

So, we have had an industry meeting that we participated in where they gave a list of projects. They aren't qualified by dollar value, but I can just tell you that it's an expensive list of work to be carried out. So that is going to span over two years, 2009 to 2010. We're pretty excited to see that.

Also, as we move forward, just to kind of think about that, that is probably going to become muddy. In other words, as that stuff flows into our database, it's going to sort of become indistinguishable from really what is really sort of coming from stimulus and supplemental funding and versus what is sort of the norm. As we move forward, that water is going to get a little more muddy.

I was going to ask if there were a list of projects from the Corps.

Yes, there are. There is a specific list that they circulated and I am not sure when these [tender] packages will be coming out. It will be starting probably in April, but the information should be available shortly.

Each district around the United States, the Corps commanders have all got their identified lists that were submitted to come up with the stimulus program. So, eventually that is going to come out. We're waiting for a copy of it. I think we will probably see it before the end of the month.

Okay. With regard to the DOT side, my understanding is that the states have to put to work half of their stimulus money within 120 days, which is obviously -- and the clock has already started ticking, so obviously they're under the gun. Similar to the Corps, they have got probably a list, a backlog of projects that are ready to go.

So, are you guys -- what are you guys seeing, if anything, on the DOT side, I guess particularly maybe with TxDOT[sj1] as a good historic customer? Anything there in the immediate future?

We have not seen anything yet ourselves. I think they will be coming out with some packages here for the rest of the year.

They -- obviously, Texas is going to be a big recipient of about $2.2 billion. I saw today that that they announced some rail work. What would you call it?

(multiple speakers) train rail work that has just been awarded about $1.4 billion. But it is probably going to be next month before this comes out. But we think both Texas and Florida are going to be two big recipients. Texas about $2.2 billion and Florida is expecting about I think $1.4 billion.

I think we should start saying some clarity on that pretty shortly because I think -- I know Texas, Louisiana and Florida I think are expecting pretty healthy April lettings, which means the packages should be coming out shortly.

I'd tell you, Jack, the thing interests me about this is there is $27.5 billion out there and we just took the the eight states that we're currently covering, and about one-fourth of the money is allocated in the markets in those eight states. So that is a good indicator.

The thing we can't tell you that is always hard to extract out is how much of that is going to be over water. But I think Florida is teed up for $1.4 billion and for the last two years, we've been very busy doing bridge work in Florida. I just think that is going to continue.

Given that it seems like a lot of positive dynamics on the macro front with regard to your markets and potential opportunities, and then when I look at the guidance -- first-quarter guidance for sales and EBITDA margins are better than the full-year guidance in terms of growth and overall hedge, how should we frame that out?

Is it just a situation where it is fairly early in the year? Maybe you don't win any work, so who knows as you get later in the year what the back half looks like? Why is the first quarter so much better than the full-year guidance?

There's a couple of points there, Jack. One is keep in mind that first quarter '08, we did not have SSL. We had them -- they sort of came in at the tail end of the quarter there and didn't really provide much in the way of impact to Q1 '08. So that's part of the reason why for Q1 '09, it is sort of outsized when compared to the full year.

The second part is exactly of your question for the full year. You know, I think there a lot of positives out there that we talked about today. We want to be careful to balance that against the caution of the overall economy and we could, as we said, we could see some of our end markets pull back. So accordingly, we think it is prudent to remain cautiously optimistic.

Okay, great. Thanks a lot.

Alex Rygiel, FBR Capital Markets.

Congratulations, great quarter. You mentioned that $1 billion in Galveston over the next two years. What do you thing the value was of projects that they let over the past two years?

I will have to get back to you. I don't really know the exact answer on that. But it is a big uptick from what they have had from funding.

As it relates to the opportunities in New Orleans to rebuild some of the levees down there, I have seen some press that has suggested that the cost of that construction has increased significantly. And it sounds like politicians are willing to reallocate budgeted dollars from levees forecasted in other areas down into New Orleans. So therefore, it sounds like the opportunity in New Orleans actually increased for you. Could you comment on that as well as the timing?

There's more packages coming out to bid on. We have been actively bidding portions of the contract that was awarded to the [Shell Group]. To date, we have not received any awards on that aspect of the program, but we are continuing to bid.

There will be more packages coming out for finishing up the hurricane protection system around the city. That is going to carry on through 2011. So there's a lot more to come and on top of this, you have got the Louisiana Coastal Protection and Restoration Authority that they just came out with their 2010 draft annual plan for what they call the ecosystem restoration and hurricane protection. And they have got $1.2 billion in funding currently available to be spent over a three-year period.

That will involve things like building wetlands, using dredge material, barrier reefs and construction and so forth. There just seems to be a lot in the mill. If some funds get diverted from one project into New Orleans, I just simply see that as prioritizing the funding that is available. That is just a tremendous program that Louisiana has in place and that is why we went and planted our flag over there and started establishing an office to pursue that work.

Lastly, Mark, could you comment on what you think the tax rate is going to be in 2009?

37% should be a good rate to use.

Perfect, thank you very much, gentlemen.

John Rogers, D.A. Davidson.

Congratulations on the quarter and year. Can you give us a sense of the breakdown of backlog between private sector, state and local and federal?

We generally do not break that down. But I think it is fair to say that the current backlog we have is probably pretty indicative of what we just announced in terms of results.

In going forward though, I assume based on your comments that the private sector will grow in line with the rest of the business given the cruise ship opportunities? I just wanted to think about that in terms of risk as we look out into '09, '10.

Sure. As we have talked about in the past, we look at all of the opportunities that are out there in front of us at any one point in time. So in some regard, it depends on the projects that we go after at any one point in time and those that we are successful in getting.

I think it is fair to say that as we look at the market opportunities in front of us, it is fair to say that the government sector side of things will probably be providing greater opportunities as we go forward, at least in the near-term. But there are some things out there that from the private sector side as we talked about this morning with the cruise terminals, that might alter what the actual results are just because of being successful at getting certain things over other things.

I think, John, the important thing there is we are not focused on necessarily a sector where we get the work. We are focused on the job itself, the project, (multiple speakers) that goes with that. So we don't really care which sector it comes from.

Right and just as a reminder, what we look for at any one point in time is what provides us the best opportunity given the choices we have in front of us to help achieve our goals.

Okay. And then in terms of additional acquisition opportunities in '09, what are you seeing out in the market there? Not specifics, but just in terms of pricing, are there bonding pressures on some of the smaller companies? Or do you see more organic expansion opportunities in the new geographies or --?

Well, we have certainly seen a lot more bidders show up on the smaller projects. And I understand that the government, part of this stimulus package is to offer SBA bonding limits that can be increased from what they currently have as far as guarantees.

That may help them pursue projects. But I think that there are opportunities out there on the M&A side. We have just kind of chosen for the time being to stay focused on building up our balance sheet and seeing how the year is going to pan out.

I think we are a lot more comfortable today than we were three months ago on how the year is shaping up. But I can tell you that there are a number of companies that are feeling some pressure now, that certainly in the commercial side of the business, as you well know, with the home-building companies under pressure and commercial building under pressure, it is putting a strain on some companies.

And there are potential opportunities out there. We will just have to see how the year pan out. But I think the oil and gas sectors in the Gulf offshore is feeling great difficulty with decreased drilling. But that doesn't really affect us. So I think it will be an interesting year to watch some of these small companies and see how they fare.

Thank you very much.

You bet.

David Yuschak, SMH Capital.

Just a couple of follow-ups. Your mix of business in the fourth quarter compared to your guidance in the first quarter, any changes or shifts in there at all?

In terms of the mix in terms in terms of end customers?

Right, yes. As far as --

No, I think it is kind of fair to say that the backlog is pretty indicative of what we just announced the mix is.

So from an operating point of view, we should -- unless there is some issues -- could look something like the [same] depending on the level of revenue you [produced] and you gave us that kind of guideline too so --. The other thing I was going to ask you about too is as far as your CapEx spending is concerned, how much would you look at as far as new initiatives versus maintenance?

Roughly, it is in line with historical, that roughly about half is new, half is maintenance. This year it might be a little more weighted towards new.

As we said in the prepared remarks, we have got a plan in place that anticipates equipment needs for some of the larger projects that we see coming. Of course, we will keep in tune with the marketplace and what's going on in terms of adjusting that or not as the year goes forward. So I would say slightly more weighted towards new acquisitions versus maintenance for '09.

What would you need in the way of something that would potentially boost the spending for CapEx (multiple speakers) need to be out there?

Yes, if there was a given project that required just additional lifting capacity or additional floating equipment in order to accomplish the project, some things like that would require additional equipment.

I'm just thinking with bidding activity that is out there, isn't it possible that -- is there some sense as to how you would manage those assets to fully maximize the potential versus maybe needing to do and boost more spending to take advantage of if in fact some of this stuff does actually develop as everybody seems to think that is out there, that can happen?

I think we have got some underutilization that we can take advantage of and leverage with the existing fleet and workforce. I mean we are not fully utilized and have not been last year at any of the years before. So, simply by having a greater base of work to capture, I think will improve our utilization as the year (multiple speakers)

So the utilization, where it is at now, you're comfortable with the kind of work that can be out there that you don't feel like at this point in time, even if things would really develop nicely, that you need to add materially to those resources is kind of what you are saying?

Well, we have made plans to increase our fleet this year with some additional lift in capacity and investment in our existing equipment upgrades and so forth.

But again, I think at the end of the day, it is going to depend on what is the mix of projects that we are successful in and a successful bidder on. And it is just the nature of potential work that we see out there that may require over and above utilizing available capacity. We have basically just baked that into our plan. But as we said, we will monitor that as the year goes on and as the projects -- as we bid on the projects and adjust accordingly if necessary.

I think a good example is we are bidding on bridges, for example, that some don't require anything different than our existing fleet. Others require that we get bigger barges, bigger cranes and if we get the work, we will have to buy that equipment.

It just depends on what we are successful on. Likewise, some of the work in hurricane protection and so forth requires heavier lifting equipment than we have. But if we don't get that job and get something smaller that we can handle within our existing lift capacity, than we won't need to spend the money. So it's all project specific.

And then one last question as far as just on kind of the back of the envelope here, it would look like free cash for this year should about equal your net income then, whatever that might be given what you've got in the way of D&A plus CapEx and working capital. Is that fair to say?

Well, I think depending on how you calculate it again, I think your math is probably correct. But again, it is going to depend on how you define the variables (multiple speakers)

Yes. But we are pretty close to around that number though. And as far as your debt structure, what is your sense as to that free cash and growth initiative versus taking a look at what you might want to do for your debt at this point?

Well, the debt's amortizing. As Mike said just a minute ago, you know, this might be a year where we might see some opportunities. I think we're going to be -- see how the year develops and see whether or not there are any opportunities that develop that might require us to utilize some leverage. I think we are in pretty good shape there in terms of having availability to use some leverage. If not, we will be generating cash that can pay down debt.

But at this point, you are more likely to probably hoard cash than anything else if (multiple speakers) acquisition.

I think for the first half of the year, it's prudent to build your balance sheet up and strengthen it. Let's get through this year. No one can predict when the recession's going to take a turn upwards and recover and we would just like to get a little bit farther down the road.

Great, thanks a lot.

(Operator Instructions) Fred Buonocore, CJS Securities.

Yes. Mike, you had mentioned a little bit ago about some opportunities or kind of softness with offshore oil and gas. Just can you give us a sense for how -- what level of exposure you have to oil and gas in general? And is this kind of one of the areas in the private sector that you are expecting to continue to soften?

Well, you need to understand -- we don't participate in the deepwater offshore market of the oil and gas sector. We are more related to the terminals that are in ship channels and ports that we work on.

In spite of what is happening with drilling activity going down in the Gulf of Mexico, we are still importing about 70% of our oil in this country. So ships are still coming back and forth, bringing in oil products to the ports and that is not going to change.

And having said that, where we have seen some pressure is in the chemical side on the refinery side. They've been under a lot of pressure there. We have seen some reduced activity with those guys not expanding refineries or chemicals or plastics type facilities.

But it hadn't been a material event. It is just something we monitor and we watch. When I see the oil and gas services sector for offshore under pressure, it just means that we need to be cognizant of that and make sure that it is not going to impact our business with any encroachment by other companies or what have you.

Presumably your guidance bakes in some kind of softening in the work that you do for these chemical companies and refineries?

Yes, I guess I would say a couple of comments. One is that I think overall, even though we are not in the offshore stuff, we do have a certain amount of our business that is related to the refinery side, if you will. The dock, the port infrastructure side really or the pipeline side in the shallow water is really where we touch it.

We are still seeing maintenance work. We are still seeing some bid opportunities for some construction work in certain segments of that business. So, I guess but to your larger point is (multiple speakers)

We factored that into the $1.4 billion market (multiple speakers)

Exactly. With respect to the goals for 2009, as we said earlier, we do see a lot of bid opportunities out there in the [hole]. Again, the $1.4 billion, some of that is in the segment we are talking about. But I don't think it is -- there is abnormal exposure there from what we have seen historically. And I guess the other point is we've sort of baked all of that into the goals that we have established, the good and the bad out there.

Got it. And then on the cruise ship side, can you give us a sense for where you are with respect to the completion on the ship pier in Haiti? Are there other specific cruise ship related opportunities that you expect to be bidding on in the next couple quarters?

Yes. Things are progressing well in Haiti and that project is on schedule and we are pleased with where we are at. There are other opportunities coming up with more cruise piers to be constructed both in the Caribbean basin and domestic as well.

(inaudible) we have time for about one more question.

Steve Pedian, SAP Capital Management.

All of my questions have been asked and answered already. So congratulations on a good quarter and good luck this year.

Thank you.

Thank you.

At this time, I would like to turn the call back over to you, Mr. DeAlmeida.

All right. Well, on behalf of Mike and Mark, we would like to thank you for taking the time to talk with us this morning. We look forward to speaking to you in the future. Also, if you have any follow-up questions, please feel free to give me a call. Thanks and have a great day.

Thank you, ladies and gentlemen. Once again, that does conclude today's conference. We thank you for your participation and have a wonderful day.

[sj1]TxDOT is the Texas Dept of Trans