Primoris Services Corp (PRIM) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to Primoris Services Corporation's 2008 full-year and fourth-quarter financial results conference call. At this time I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode.

I will now turn the conference over to Devin Sullivan, Senior Vice President of the Equity Group. Please go ahead, sir.

Thank you, Regina, and thank you, everyone. Good morning. Our speakers today will be Brian Pratt, Chairman, President, and Chief Executive Officer, and Peter Moerbeek, Executive Vice President and Chief Financial Officer.

Before we get started I would like to remind everyone that statements made during today's call may contain forward-looking statements including with regard to the Company's future performance. Words such as estimated believes, expects, projects, and future or similar expressions are intended to identify forward-looking statements.

Forward-looking statements inherently involve risks and uncertainties including without limitation those described in the press release issued yesterday and those detailed in the Risk Factors section and other portions of the registration statement, the amendment, and other filings with the SEC including the Company's Form 10-K, which will be filed on or about March 20, 2009. Primoris does not undertake any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise except as may be required under applicable securities laws.

I would now like to turn the call over to Brian Pratt. Please go ahead, Brian.

Thanks, Kevin. Good morning and thanks for joining us today. I would like to welcome you to Primoris' first ever quarterly conference call during which we will discuss results for the full year and the fourth quarter ended December 31, 2008, as well as comments on 2009. I will begin the call with some prepared remarks and then turn it over to Pete Moerbeek for a more in-depth discussion of the numbers. We will be very happy to spend some time answering questions after that.

We are pleased with our results in 2008, which included record revenues and profitability, a strong [inherent] financial position, and successful transition to a public-traded company. Revenues in 2008 were up 11% to $609.1 million and gross profit for the year rose by 18% to $70.4 million. Our profit before taxes increased by over 47% to $41.3 million. We also generated positive operating cash flow on our balance sheet at December 31, 2008, was very strong and cash investments of $88 million.

Because this is our first call some of you may not be familiar with our company, so I will take a brief second to give you an overview. We were founded in 1946 through a series of acquisitions and internal growth. Today we have become one of the largest specialty contractors in the United States, particularly in California and the West Coast. We also have a strategic presence in Florida, Texas, Latin America, and Canada.

The majority of our revenues are derived from companies in the power and energy sectors. We have long-standing relationships, many at the age of the Company, with most averaging over 20 years with companies such as Sempra, Duke Energy, Chevron, PG&E, Valero, Kinder Morgan, San Diego Gas & Electric, Southern California Gas among others. Our track record on projects has resulted with many of our clients being repeat customers. We estimate that approximately two-thirds of our business in 2008 was with repeat customers.

Through our Cardinal Contractors business we are one of the leading water and wastewater facility contractors in Florida. We are also one of the three major concrete parking structure contractors in Southern California. At any time we are working on approximately 500 active projects and in most years no one customer usually represents more than 10% or 15% of our consolidated revenues. It is interesting; from year to year it's typically a different customer who is our largest.

We remain focused in the private sector work, we believe, which is generally more profitable than public sector. Approximately 75% of our revenues for 2008 were generated through private sector projects.

We completed our merger with Rhapsody Acquisition Corp. in July of 2008 and began trading on the NASDAQ global market on Monday, August 4, 2008. I believe some of our listeners on this call were holders of Rhapsody stock and I thank you for continuing your investment in Primoris and appreciate the faith you have shown in our business and our people. I can assure you and all of our investors that we are focused on enhancing long-term value on your Primoris investment.

I will give you an overview of 2008 performance. Our results for the full year and fourth quarter reflected the diversity of our markets and the demand for our services. Consistent with our historical performance, approximately 70% of our revenues were generated from power and energy sectors involving work such as underground pipeline installation repair and replacement, electric transmission facilities and upgrades, and bulk storage and transmission facilities. Especially these in the power and energy related areas; we not only construct but we upgrade and maintain, rehabilitate with long-standing customers.

One of Primoris' advantages is we self perform the majority of our work. Using our own workforce allows us greater control of our scheduling and profitability. We have consistently pursued opportunities that optimize our profit and minimize our risk. This is evidence that even if lower revenues in Q4 of 2008 we generated higher gross operating and net profit margins.

Before I comment on 2009 I would like to turn the call over to Pete Moerbeek, our recently appointed Chief Financial Officer, who will discuss our results for both the full year and the quarter.

Thanks, Brian, and good morning, everyone. I plan to cover some highlights from our 2008 full-year and fourth-quarter results and then we will be happy to answer any questions you may have during the Q&A portion of the call.

At Primoris Services we report under two operating segments -- Construction Services, which is comprised of our ARB and Cardinal subsidiaries, and Engineering, which is comprised of our Onquest industrial furnace and heating business. Let me begin with our results for the full year of 2008 compared to 2007.

Revenues rose 11.2% to $609.1 million from $547.7 million. Revenues for the construction segment -- the Construction Services segment rose 9.7% to $516.1 million in 2008 compared to $470.4 million in 2007, primarily as a result of construction projects in the refinery industry as our customers increased their capacity and upgraded their infrastructure. Revenues for the Engineering segment rose by 20.2% to $92.9 million from $77.3 million in 2007, primarily as a result of an alliance agreement made with a client in November 2007.

Total gross profit increased to $70.4 million or 11.6% of revenues in 2008 from $59.5 million or 10.8% of revenue in 2007. Gross profit for the Construction Services segment rose to $65 million or 12.6% of segment revenues for the full year from $51.6 million or 11% of segment revenues for 2007. Gross profit for the Engineering segment for the full year was $5.5 million or 5.9% of segment revenues compared to $7.8 million and 10% of segment revenues in the prior year.

Our selling, general, and administrative expenses increased by approximately $2 million and as a percentage of total revenues were relatively stable for both years at 5.2% of revenues in 2008 and 5.4% of revenues the prior year.

Our operating income for 2008 rose 16.9% to $34.9 million or 5.7% of total revenues from $29.8 million or 5.4% of total revenues in 2007. Other income on a net basis for 2008 was $6.4 million compared to net other expense of $1.9 million in 2007. In 2008 we recognized primarily an increase in income from our Otay Mesa Power Partners joint venture, an energy plant construction project in California which is anticipated to be completed in 2009.

Income before provision of income taxes for 2008 increased 47.5% to $41.3 million from $28 million in 2007. Prior to the completion of the merger with Rhapsody on July 31, 2008, Primoris had been taxed as a Subchapter S corporation. After the merger, the Company is now taxed as a C-corporation and as a result there are changes in our -- significant changes in our income tax rate.

Net income for the full year of 2007 taxed at 11.7% -- after taxes at 11.7%, increased to $36.4 million or $1.29 per diluted share on approximately 28.2 million fully diluted, weighted average, common shares outstanding. Compared to net income of $27.1 million taxed at a 3% rate or $1.16 per diluted share on approximately 23.5 million weighted average, common shares outstanding in 2007.

Pro forma net income, which we believe is a better indicator of performance for comparison purposes, was $24.8 million or $0.88 per diluted share for the full year 2008 compared to pro forma net income of $16.8 million or $0.72 per diluted share in 2007. Pro forma net income reflects an adjustment for income taxes at the statutory rate of 39.8% and then takes into account that effective tax rate in comparing both 2008 and 2007.

Let me now comment on the results of our fourth quarter. Revenues for the fourth quarter were $150.5 million compared to $165.6 million in the fourth quarter of 2007. Our Construction Services revenue declined 49% to $132.6 million from $139.4 million in the fourth quarter of 2007. Engineering segment revenues declined by 31.7% to $17.9 million from $26.2 million in the fourth quarter of 2007.

Our Construction Services revenues declined as our oil refinery -- as we completed a project, a significant project in 2007 so it affected the comparison to 2008. And Engineering revenues declined as downstream customers were starting to see the impact of the change in the economy.

Despite lower revenues gross profit for the fourth quarter of 2008 rose 10.8% to $18.5 million from $16.7 million in the same period last year. Gross profit as a percentage of revenues increased to 12.3% from 10.1% in the fourth quarter of 2007. Our operating for the fourth quarter of 2008 was $8.3 million or 5.5% of total revenues compared to operating income of $9.1 million or 5.5% of revenues in the fourth quarter of 2007 reflecting the impact of the lower revenues.

Other income for the fourth quarter of 2008 was $2.2 million compared to $2.3 million in the fourth quarter of 2007. Pretax income for the fourth quarter of 2008 was $10.4 million, a 53.7% increase from pretax income of $6.8 million in the fourth quarter of 2007.

Our tax rate for the fourth quarter, reflecting our status as a C corporation, worked out to 25.3% compared to our tax rate of 2% in the fourth quarter of 2007 when we were taxed as an S corporation. Net income for the fourth quarter of 2008 increased 17.2% to $7.8 million or $0.23 per diluted share on approximately 33.3 million fully diluted weighted average common shares outstanding from net income of $6.7 million or $0.28 per diluted share on approximately 23.6 million weighted average common shares outstanding in the same period last year.

Pro forma net income, which included tax -- was at the statutory tax rate for the 2008 fourth quarter, increased to $6.3 million or $0.19 per diluted share for pro forma income of $4.1 million or $0.17 per diluted share in the fourth quarter of 2007.

As Brian noted earlier, we ended the year at a very strong financial position. Our balance sheet at 12/31/2008 reflected cash, cash equivalents, and short-term investments of approximately $88.1 million, working capital of $54.1 million, total debt of $34.8 million, and stockholders' equity of $55.4 million. During the year we spent $17.2 million net on the acquisition of property and plant. Of that we paid $10.1 million in cash and financed $7.1 million.

This spending was a result of periodic upgrading of our fleet as we work toward meeting new California emission standards. We do not expect quite this level of fleet spending during 2009.

We generated $12.8 million and $66.1 million in operating cash flow for the quarter and the full year ended December 31, 2008, respectively. Some of the significant reasons in addition to net income for our operating cash flow were a reduction of $22.5 million in receivables of $90.8 million for the entire year, primarily due to increased collections and somewhat lower billings at year-end. In addition, we have an increase in billings in excess of cost and estimated earnings of $18.5 million, which was offset partially by an increase in cost and estimated earnings in excess of billings by $9.9 million.

Accounts Payable decreased by $10.7 million, primarily due to the timing of invoices, and accrued expenses increased by $7.9 million, primarily due to increases in workers' compensation insurance and accrual for income taxes.

Let me now make a brief comment about backlog. We obviously understand that backlog is an important and useful metric for investors, such as those who invest in companies like Primoris. And although we consider backlog a very important metric, we also recognize that there are many different ways to calculate it. In our calculations our total backlog at December 31 was $374.7 million compared with December 31, 2007, backlog of $463.1 million.

If we look at the backlog that we had at the end of 2007, approximately 75% of that backlog was transferred into revenues and earnings this year. That backlog, in effect, produced a 57% of the revenue that we generated in 2008.

What that means is that the other 43% came from projects and contracts that never made backlog, either because of the way that we calculated, which is primarily fixed priced and fixed unit price contracts, or because the project was started and completed in a very short time. We expect that of our 375 -- $374.7 million backlog at December 31, 2008, approximately 81% will be recognized as revenue during 2009.

Finally, let me briefly comment about our capitalization and capital stock. The merger with Rhapsody provided for the previous Primoris shareholders, who are primarily the management, to receive up to an additional 5 million shares of common stock contingent on the achievement of certain financial targets for the full year that is 2008 and 2009. Primoris exceeded that target for the full year 2008 and an additional 2.5 million shares will be issued during the first quarter of 2009.

In addition, at the time of the transaction and the merger 450,000 underwriter shares were issued as an over allotment in conjunction with the listing. Each underwriter share consists of both a warrant and the opportunity to buy a share of our stock. And, finally, there are approximately 4.9 million warrants outstanding, down from 6.3 million following the recently completed Dutch auction tender offer.

So if we were to meet the financial targets for 2009 and all the remaining warrants were converted, our fully diluted share count would be approximately 40.8 million shares. Thank you very much and let me turn the call back over to Brian.

Thanks, Pete. Let me discuss a little bit about 2009 before we open to questions. We are currently anticipating a possible reduction of revenues in 2009 from levels of the past two years due to the challenging nationwide economic environment. We believe that opportunities remain in infrastructure backbone upgrades and expansion, as well as significant opportunities for growth in renewable energy.

In our Construction Services segment, we continue to participate in a large number of bids. We are noticing more bidders and more competitive bids so we look for that to impact that business.

In our Engineering segment we are seeing more smaller, revamped type opportunities, particularly in the mid-downstream portions of the oil industry. This actually tends to be an opportunity for us, because as a smaller engineering company this is really -- it plays into our sweet spot in terms of the market.

While overall markets are holding their own with some delays and postponements, but to date we have had no cancellation of backlog work. We believe we have continuing opportunities, but if the environment -- the economy continues to grow we think we will continue to grow. If this economic morass continues, obviously we are going to suffer like everybody else.

So how can Primoris succeed in a more difficult or more challenging time? We have the following assets we rely upon -- a reputation for quality that date 60 years; a blue-chip customer base that comprised of relationships, many as old as the company, but on average 20 years plus; a diverse service and product offering; the largest company-owned underground fleet on the western coast; a very strong balance sheet that allows us to be selective in the work we pursue; a strong backlog of project work; a significant portion of our work derived from cost-plus maintenance and alliance work; and very importantly a world-class management team and employee base.

One interesting area of our exposure to renewable energy is opportunities such as solar and biomass. We have had a historic exposure to the renewable industry and we see strong growth opportunities available to us in this market. We will certainly pursue renewables both organically and through potential acquisitions.

We have received a number of inquiries regarding the stimulus package from investors and shareholders and how it's going to impact our company. The effect of the government stimulus package is really hard to calculate based on the fact that most industry projections in the segments we are in are dated and we have no idea whether the impetus from the stimulus package will outweigh the degradation of the general economy and what that is doing to our customers.

In closing, I remain personally very optimistic about the opportunities of Primoris and its shareholders on a long-term basis. As Primoris' largest shareholder, I like even betting on the strong likelihood of our success. So thanks again for your participation today and I would like to open it up for questions.

(Operator Instructions) Lee Jagoda, CJS Securities.

Good morning and congratulations on a good quarter. Can you -- in looking at the impact on revenue from last year's Q4, the largest project you speak about what or how much revenue did that contribute to Q4 last year?

To the quarter?

Yes.

I am not sure. It was the culmination of a large refinery project that amounted to about $90 million of work. And as you know about refineries the bulk of that work concludes in the fourth and first quarter because refiners go down on the West Coast in their gasoline production. That is when they do their outage work. But I really couldn't tell you exactly how much that was.

But it was $90 million for all of 2007?

It was a $90 million project that spanned over about -- the bulk of it was spent over five quarters, which would be the start of '07 and the first quarter of '08.

Okay. Can you just speak in a little more detail about the one or two largest components of our backlog and the progress you are making on those projects?

Probably the largest component of the backlog is a hydrogen plant in the Chevron refinery in Richmond, California, for Praxair. We are in the mid-teens in terms of complete on the project. It's a very challenging project, although I think we are meeting expectations nicely on a job. It's for a client we have had a long relationship with.

So that is the largest portion of it. I am trying to think of what the second largest is at this point.

What is the total revenue contribution from that project?

Over the next -- I think we are scheduling to be done in June of '10 and we anticipate the total billings on that job will be in the neighborhood of $130 million to $140 million.

Got it. And is there another one in the backlog of that size?

No, we have a lot of proposals. I don't see a lot -- we had a significant number of proposals out for projects of that size, but that is the largest I think we have on the books right now.

Okay. And just one more question --

I take that back. I am sorry, but the Otay Mesa Power project is of that size but it's not in our backlog. That is a minority interest.

Sure. And then just one more question and I will hop back in queue. When you came public you had a strategy of looking to acquire companies that complemented your existing business. Can you speak a little to the pipeline and the acquisition environment?

Just as a follow-up, can you achieve your 2009 EBITDA earn out with the work you have in hand or will you need acquisitions to achieve it?

Acquisitions are tough in today's market. There is -- the private sector was slow to catch up with the new reality valuations based on what has happened in the financial industry. It's very tough to acquire companies when you are selling -- when your own stock, your own currency is trading at the value it is trading today. So that has made life more difficult.

The fact that we have been in the industry for 60 years and we are operated by guys that are truly contractors that gives us a lot of insight into opportunities through acquisition. We are currently looking at some, but I obviously couldn't tell you anything about them. But that remains part of our plan.

We are hoping to get a more strongly valued currency to use. In terms of the EBITDA, I can't give you any insight into that. We don't typically give guidance.

Okay. So it would be safe to say though that at these levels you would be likely to use your stock as currency?

Only in relativity could we use our stock. If we can find somebody that is willing to accept the fact that our stock is undervalued, we could use it as currency.

Okay, thank you.

(Operator Instructions) Tahira Afzal, KeyBanc.

Good morning, gentlemen. Number one, just wanted to ask you about your backlog margins. Would they be fairly in-line with what you saw in 2008?

Yes, I think that a significant portion of our backlog is in the Construction segment. So from that standpoint you are going to see the margins trending more towards those that we get on Construction than what we have beginning out of Engineering.

Got it, okay. And then if you look at the type of activity you are bidding on today, would you say the margin profile -- and obviously execution is always the ex-component. But if you are looking at the pricing, has that changed materially or would that be around the same level as well given that you are being more selective?

I would like to comment to your first question a little bit, Tahira. If you look at where our backlog is changing -- and we don't segment beyond the two -- but we are seeing -- and you understand kind of where our markets are -- you are seeing a degradation of some of the markets in the areas you would expect. For example, the parking structure business which is -- a lot of that is driven by the development, although we do most of our work for municipalities and institutions. That is still driven by development and naturally you would see that dropping off with the lack of financing and the lack of activities in that market segment.

Another one of the areas is in water and wastewater plants. You see a drop off there. So in essence the areas that are the toughest markets right now, the hardest hit, are also the areas that bring us the lower margins. So I would expect to see our margin on our backlog actually improve.

The same thing would apply to what we are bidding. We are aggressively bidding; we aggressively want to be in the renewable part of the businesses. We have been doing renewables for 40 years. I built my first biomass renewable plants about 35 years ago in Kern County so this is not an area where --. And I built my first windmill about 30 years ago in Tehachapi in Kern County so this is not an area that is strange to us. But we are optimistic about the kind of margins we can see in the work that we are bidding.

Some of the clients in the oil business, for example, are very, very tough right now. Of course you know their oil has gone from $140 to $40 so you would expect that.

But I mean given that it's going to be a challenging year for a lot of E&C companies, I guess you are just in line with everyone over there. And I assume people will be looking more out to 2010 at some point. So with that in mind, could you comment on your backlog prospects more on the renewable side?

I believe you have some preferably dominant peaker plant experience. Peaker plants is probably going to be, from what I understand, a big opportunity as the renewable cycle takes off. So would like to hear a bit about that and then any commentary you can provide in terms of your solar experience and your alliances as well.

Well, that will be a brief answer. Wow, where to start. We have a lot of peaker experience. We have built, I would guess, almost half of the peakers that were constructed in California in the last 10 years. We built our first power plant around 20 something years ago for Dow, for [Destech] and since then we have been a pretty powerful player in the market in California.

The sun does go down and we go home and we turn on our blenders and that is when the peak demand for electricity goes in California. So the traditional power guys, the Calpines and the IPPs and the utilities, they are mandated by the government in California to pursue renewables so you are seeing a lot of projects.

Now as you know there is a morass of regulatory issues in California and when you sort one out the other one bites you. And a lot of our clients are fighting their way through that along with the bottlenecks in the grid to get the power market where the renewables are being made isn't where the traditional power plants currently generate electricity.

But we see light in the tunnel on the grid; that has been a lot of our work. We have had four major debottlenecking projects we have done for the grid in the last couple of years. One just got available in Southern California which will open up San Diego and the south part of Orange County to the renewables out in the desert. That will be constructed next year and we are looking forward to that opportunity to maybe work on that project.

But we have built a lot of peakers. We are excited. What is going to have to happen is a lot of solar, a lot of wind is going to have to be constructed. The utilities are getting very aggressive about contracting for those resources and with that a lot of peakers are going to have to be constructed. And we are in line to do a lot of that work so we are really excited about the renewables and the traditional power.

We are seeing a lot of opportunities in 2010. People are still trying to line up contractors because with the uncertainties in pricing and financing market they want a contractor in tow way before they go to their lender and get something approved because they don't like price surprises. A lot of people are struggling to get the equity to build these projects and they want to have firm prices by the time they get there. So a lot of the work we are seeing, a lot of the opportunities, a lot of the RFPs we are responding to are 2010, 2011 work.

Got it. Would it be possible to try to size the market then in terms of peaker power plants and if not the size, perhaps how much peaker plant award, contract award can typically be for a company such as yours?

Well, we built one in 90 days and our client didn't like the price tag when he got it but he was sure glad to have it completed. A typical peaker plant since you are talking about a small aero-derivative engine and a small SCR to clean the air on the backend, for us if it's greenfield can be $20 million, $25 million. It depends on the whips and jingles that go with it. That is for typically 49.5 MW peaker.

So there is good value in that for us. Like I say, we built one in 90 days and on an average they take six to eight months if you can do them when you want to know instead of seven days a week, 24 hours a day.

When you talked about the amount you had built in the past in terms of market size and number of units, that would be around five or six you think?

That is a question, again, the five or six over -- what was the question, Tahira?

Just trying to understand how many -- when you said you build half of the ones in California so far. Would it be possible to get a number?

We built six alone for United Technologies and we have built five, excuse me, five for United Technologies and that was in a period of about eight months. And then we built numerous for a Calpine. I can't remember how many we built for Calpine.

Got it. So this could be a fairly large market from what I understand for you then?

Well, we are facing an energy -- a power shortage here again in California. Some of it is the grid, but some of it is a lack of capacity. But you have got -- how it's going to be met I am not really sure. Even the peakers struggle with this new cap and trade aspect so there is a lot of challenges out there. The good news is they are centered in California, so the solutions pretty well will come out of California.

Thank you very much, gentlemen.

Al Kaschalk, Wedbush Morgan.

Brian, I was wondering if maybe you could just give us a little of a broader picture here given the scenario on backlog and the tougher 2009 conditions. As you make a contract announcement how soon do those generally get started into the revenue flow? I know it may vary, but could you give us a sense on really the direction of how revenues may progress during 2009 on a quarter basis?

We have had a project we have been trying to start in Long Beach for about seven years now, because the [NMBs] have shut the project down. It's a parking structure. They range from the years to quarters on design builds like parking structures to days on contract extensions. One of the things we announced a couple of days ago or a couple of weeks ago was we have alliances with the major gas pipeline owners in California, all of them, to retrofit their pipelines to meet the new regulatory requirements.

Those are ongoing. We work on those every day and they will go out and extend that at the last minute or even a month or two after they needed to. As to be expected, a lot of these guys waited until the last minute to meet these requirements where they have to do an electronic survey of their entire systems and they have to be able to do this by 2012. So we see this as crescendoing work.

And, again, they are alliances so we don't backlog this work. But those will start -- probably started several weeks before we made the announcement because they just say well continue work until we can get the paperwork done.

But in general we are pretty quick, even a lump sum pipeline job for a major expansion or major rehabilitation it will start within weeks of when we make the announcement. For power work and some of the others that are larger CapEx projects, they can take longer too. So it's really all over the map.

If you kind of understand how the business works, you can kind of figure out how fast the work will light off once we get a contract announced. And many times we will work off preliminary notice to proceed until the contract can get executed. So, again, a lot of times we are already starting the work because we don't announce until we have two wet signatures on a piece of paper.

Sort of a follow-up to that, does that imply even though funding -- you have to have funding of the contract of the work before you commence, I assume. And have you seen any change in those characteristics during the first part of '09?

No, not really on contracts in hand or proposals been accepted. We haven't seen much degradation of that. We have seen some projects that by developers, particularly renewable, wind, and biomass, and things like that, that are hung up a bit on financing. But those are not things we had contracts in hand on.

It's a tough environment for guys like that out there in that business. The good news for us is that a lot, a lot of our work is for very, very well-capitalized entities like PG&E and Sempra that really don't rely on external financing to do new projects. And then a lot of them are people like Kinder Morgan that are just so big that they are well-financed. They bought pipe for their projects three years out in advance.

Really the issues we see that can delay lighting up a project on time or when we have anticipated sometimes out here revolve around environmental issues. They are truly just an entanglement, web of environmental issues out here and regulatory bodies. They don't all get along and you see a lot of those issues and they will slow down the start of a project.

Okay, that is helpful. Two housekeeping items. Could you just clarify -- if you talk about this and I missed it, I apologize -- Otay Mesa Power Plant Partners JV, that project is due to complete in 2009?

Correct, before the end of the year.

Are there other JVs that are out there or included or could be included in other income for 2009 going forward or is this just a one-off project?

I think right now we are looking at it as a one-off project. I don't know of any others that we have currently out there. It doesn't mean that we won't do any for the rest of the year.

Right. And then, finally, the foreign exchange exposure, which I think was a gain in the quarter if I am not mistaken, what does that relate to?

Our Canadian sub. We do work in Canada. The functional currency is US dollars but we periodically make payments in Canadian dollars.

Okay. Thanks very much, guys.

Daniel Moore, Aquamarine Capital.

Good morning. Two quick clarifications and then one question; one on backlog and translation. I just want to make sure I heard that right -- of the $463 million in backlog at December 31, 2007, 75% of that translated to revenue in '08, is that correct?

Correct.

And you expect 81% of the backlog at December 31, 2008, to translate into revenue in '09?

Yes, sir.

So the backlog is down 20% but the revenue actually generated from that, at least based on what we expect, is only maybe 13% or somewhere around there in terms of decline year-over-year?

I think you have done the math faster than I --

All right. And the second is CapEx, I missed the number for '08 and maybe some more clarity on what you expect for '09?

Okay. We ended up with net CapEx a little bit over $17 million in '08. That was very high compared to historical numbers. We tend to be around half of that the previous few years. And at this point, contingent on what happens from a regulatory standpoint, we anticipate trending back more towards where we have been historically.

Okay. And then lastly on gross margins, maybe just a little bit more clarity. I know that some of it is mix of business, but revenue declined year-over-year in the Q4. I believe it did in Q3 and yet you are able to continue to increase gross margin. Maybe give us a little bit more clarity on how that is and what type of expectations or how much would revenue have to decline for margins to decline materially as we look into '09?

The reason that the revenues -- my understanding of what I have seen is that the revenues declined but the margin went up, was due to this one large job that plumped up our revenues during those two quarters. Typically, our business is risk and reward so this was a large cost-reimbursable job for a major oil refiner here in California. Those guys don't like paying a lot of money to contractors in terms of profits so that is -- but basically your risk is relatively small.

So you had a lot of revenues for -- like we say in our business, a lot of dollars and very little sense. But that probably explains most of those differences. But, again, it's risk and reward. Where we have a larger labor component in the job, where you would see that is on a pipeline job or a large industrial job in a refinery or somewhere else. Unless it's cost reimbursable you have higher risk, because in our business when you have a cost overrun it typically relates back to having too many bodies on the job too long.

So when you bid work that doesn't have that large labor component where you have a large amount of materials or a large amount of subcontractors, you are probably going to make a lower return or a lower margin. So something like a parking structure where half of your costs are in resteel and concrete you are going to see a lower return so those margins are lower. Where you can do a lot of procurement where you are buying a lot of bulk material, a big engineering job where you are buying a bunch of steel, you are going to see lower margins in that because you have less risk.

So we see -- the work we are seeing, again, the work that has been impacted largely by the lack of financing in the business and the lack of activity is in the areas where we see lower margins any way. So we are not all that distressed over the fact that our margins are going down because we are very focused on that little number right at the bottom on the right.

Okay. Thank you very much.

Tahira Afzal, KeyBanc.

Gentlemen, forgot to ask you one question. If I look at your cash per share, net cash per share and that excludes restricted cash, it's around half the value of your stock right now. If I look at the cycles slowing down in your energy services space this year, how do I see that cash balance move over the year? Do you see working capital unwind? Does that help your stock or -- sorry, help cash balances or does it work the other way because of cash advances?

Let me answer half of that question. I am not sure what it will do to the stock unfortunately. That is a little bit beyond my control. We have been able to write our contracts in the way that we tend to collect more money at the start of a project than at the end. So if we were to see a dramatic shift, yes, you would see some impact on our cash and we would not be at the same levels we are at now.

In our cash forecasting, we are not seeing anything that is so significant that you would say, wow, there is a real problem here.

Got it, okay. So net cash of around $1.60 ex restricted cash kind of seems around the right level?

It was probably -- yes, maybe a little bit higher than where we would traditionally be, but that is the hard question.

I don't think there is a right level when you are getting 21% at the bank. But we are happy with our cash level, we think it's important that we have that kind of balance sheet in the industry we are written.

Great. Thanks a lot.

Lee Jagoda, CJS Securities.

Just looking at your SG&A in the quarter, it looks like it was significantly higher both as a percent of sales and dollars sequentially. Is there anything that is atypical in there that is not likely to recur in '09?

There are a couple of things in there. One, you are starting to see the impact of being a publicly-traded company. In spite of what some people have said, no, I was not hired so that does not include me.

And, secondly, you are looking at the impact of -- we are in the process of putting in a deferred compensation program or a long-term incentive program. And so we have actually started to build up some earnings for that or accruals for that, so it's kind of a combination of those. Then you are looking at in Q3 and Q4 both the impact of being a publicly-traded company and getting us geared up for being able to do Qs and Ks.

Great. So the public company expense and the deferred compensation plan would be recurring in '09, correct?

Parts of it, yes. We think that there were some initial startup costs associated with things. For example, we did a lot of work on SOX 404 that we think will actually start to decrease somewhat as we go along.

Okay. And then one more question in terms of just D&A and tax rates for '09, if you have it there?

We are struggling right now trying to figure out exactly what to do. If I had to guess, it's going to be -- I guess I should ask you what the tax rate is going to be from the federal government. But ignoring that, I think we are looking at -- it will be slightly less than statutory. But we are still wrestling with some of the deferred taxes and understanding those as we come out of being a sub S and getting to put those on our balance sheet.

And in terms of D&A?

I think that will probably stay pretty much the same level as we are now.

Okay. Thank you very much.

There are no further questions. I will now turn the conference back to management.

Management is not quite ready to have the conference turned back to them. Hang on a second.

Okay. I would like to thank everybody for participating and hope you got some information that was worth your time out of this call. We look forward -- we are going to be at the upcoming B. Riley conference in Vegas on Thursday this week. Hopefully, we can see some of you there; at least hear from some of you there. And I would like to thank you again for your time and your investment and your faith in us. Thank you very much.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.