Sterling Infrastructure Inc (STRL) 2009 Q4 法說會逐字稿

Good day, everyone. Welcome to the Sterling Construction fourth-quarter 2009 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 Mr. Jim Allen. Please go ahead, Mr. Allen.

Thank you, Rachel. Good morning, ladies and gentlemen. I am Jim Allen. I am Sterling's Chief Financial Officer and I would like to welcome to you this Sterling Construction Company conference call to discuss the results for the fourth quarter and the year ended December 31, 2009, which we released this morning. I am joined today by Pat Manning, our Chairman and Chief Executive Officer, and Joseph P. Harper, Sr. our President and Chief Operating Officer.

First, I must remind you that this call includes certain statements that fall within the definition of forward-looking statements under the Private Securities Litigation Reform Act of 1995. Any such statements are subject to risks and uncertainties, including overall economic and market conditions, competitors, customers and suppliers' actions and weather conditions and other risks identified in our filings with the Securities and Exchange Commission.

All of these things could cause actual results to differ materially from those anticipated. Accordingly, any such statements should be considered in light of these risks. Predictions that we may make at any time may not continue to reflect management's beliefs and we do not undertake to publicly update them.

Now, turning to the financial results. I am pleased to review the results of operations for 2009 with you. While revenues were down 5.8% to $391 million for fiscal year 2009, from fiscal 2008, net income and weighed average diluted net income per share attributable to Sterling common stockholders were up 31.2% for 2009 and 29. -- were up 31.2% and 29.5%. The decrease in revenues for the year was due to the Company winning fewer contracts as a result of increased competition in our markets, and more days of rain in Texas during the fourth quarter of 2009. Partially offset -- being -- offsetting these reasons for the decrease were revenues of $10.2 million of our Utah operations, which we acquired on December 3, 2009. These same reasons had a more severe impact on revenues for the fourth quarter from a percentage standpoint and that -- those revenues decreased 34.3% to $71.7 million.

Gross profit was $54.4 million for fiscal 2009 or up 29.5% from the comparable 2008 period. The increase in gross profit for fiscal 2009 over 2008 was due primarily to better execution of contracts in progress, differences in the mix and stage of completion and profitability of contracts in progress at December 31, 2009, compared to December 31, 2008. And one month gross profit of our Utah operations of $2.1 million. Gross profit for the fourth quarter of 2009 was $7.4 million or -- down 22.9% from the fourth quarter of 2008 because of lower fourth quarter 2009 revenues and the adverse weather in Texas and, again, offset by our Utah operations gross profit for the month of December. The gross profit margin of 13.9% for fiscal 2009 is not expected to be indicative of gross margin the Company will achieve in 2010.

Our general and administrative expenses net of other income as a percent of revenues was 3.8% in fiscal 2009, compared to 3.3% in 2008. Part of the increase was attributed to G&A expenses of our Utah operations; however, G&A expenses do not vary directly with the volume of work performed on contracts.

Operating income was up 33.2% to $37.5 million for fiscal 2009 but down 81% to $1.1 million in the fourth quarter of 2009 from the comparable 2008 period. Both of these operating income amounts were reduced by two unusual items -- namely $1.2 million of direct costs in the fourth quarter related to the acquisition of our Utah operations and a $1 million loss -- provision for loss on a lawsuit. The direct costs must be expensed since January 1, 2009, where as previously, they would have been capitalized as part of the acquisition cost.

Non-controlling interests and earnings of subsidiaries increased $1.8 million in fiscal 2009, from $1 million in 2008 as a result of increased earnings of our Nevada operations and the addition of our Utah operations. The operations in both of these states have non-controlling interest ownerships by the executives who manage those operations.

Net income attributable to the Company's common stockholders was up 31.2% to $23.7 million in 2009 and down 79% to $800,000 for the fourth quarter of 2009 for the reasons we've just discussed. Net income per diluted share attributable to the Company's common stockholders was set at $1.71 in fiscal 2009, versus $1.32 in fiscal 2008 and $0.03 in the fourth quarter versus $0.28 in the fourth quarter of 2008. There were approximately 13.9 million shares outstanding for fiscal year 2009 and 39.7 million weighed average diluted shares outstanding in 2008 respectively.

Various factors have adversely affected the level of transportation and water infrastructure capital expenditures in our markets, reducing bidding opportunities to replace backlog and increasing competition for new projects. Assuming that these factors continue to affect infrastructure capital expenditures in our markets in the near-term, and taking it into account the amount of backlog we had as of December 31, 2009, and the lower anticipated margins bid on some projects the Company has recently been awarded and expects to start in 2010, we currently anticipate the Company's net income and diluted earnings per common share of stock attributable to Sterling common stockholders for 2010 will be substantially below the results we achieved for 2009.

Working capital was $114 million at December the 31st, 2009, up $19 million from 2008. This is after reducing long-term debt by $15 million over the same period acquiring the RLW, our Utah operations. Stockholders' equity was $231 million, which was up $72 million over year-end 2008, due to net income and the $47 million we received from a common stock offering in December 2009, used to replenish a portion of the cash used to purchase RLW. Both working capital and stockholders' equity are important quantitative measurements used by our surety in setting our bonding capacity. Additional financial and business information may be found in our 2009 Form 10-K, which we filed this morning with the Securities and Exchange Commission.

I would now like to turn the call over to Joe Harper to talk about the operating results in more detail.

Thanks, Jim, good morning, everyone. While this was a record year for Sterling, which shows our capabilities, the fourth-quarter revenue production was very disappointing, falling substantially below our expectations.

Primary reasons for the lower than anticipated results were poor weather conditions in our Texas markets, delays on some projects and a conscious decision to reduce overtime on projects where scheduled contract completion time allowed. Weather in Texas has been negatively impacted since October by another El Nino. Temperatures across our home state have been substantially below normal since fall, with snow and unusual freezing conditions causing disruptions to our construction schedules. Rainfall in Houston was more than 60% above historical averages, with similar results across the state. As discussed in some calls in the past, abnormal frequent rainfall makes it difficult to meet production schedules and budgets. A large part of our poor results in this quarter was a direct result of that weather.

The competitive landscape remains very challenging. We expect that the number of competitors on municipal projects will begin to subside as first, our housing markets in Texas stabilize and begin their return to normal and, second, some of the smaller and more aggressive contractors run into financial difficulties. Both of those are beginning to happen. The most important impact to our highway markets will come from the return of clarity for future federal highway funding. Hopeful that we will see some action in Washington soon, possibly as early as later this week.

Finally, I can't pass up the opportunity to talk about the acquisition of 80% of Ralph L. Wadsworth Construction. This was not an easy deal to close. In fact, the entire process took about 18 months from first meeting in Salt Lake to the final documents. We know it was more than worth the effort. With this transaction, we expanded our geographic reach into Utah and several surrounding states, increased the breadth of services we can provide to owners in all of our markets, dramatically improved the likelihood of success in capitalizing on our strengths to penetrate the design build market, we gained experience in several other procurement processes. But most importantly, we enhanced Sterling's management team with the addition of an experienced, dedicated, intelligent and innovative group of managers who have proven over time their ability to build quality projects for their clients while bringing outstanding results to the bottom line. We're proud to welcome them to our team and look forward with high expectations to working with them.

I will now turn this over to Pat Manning.

Thanks, Joe. As with the acquisition of RLW that we're so excited about, our goal is to maximize profitability.

We do this by broadening our geographical footprint primarily through acquisitions but also by penetrating new markets. We did the latter successfully in Hawaii. We focused the acquisitions on profitable companies in good markets with strong management teams and divergent skill sets. We maximized profitability by managing our balance sheet, especially working capital and our bonding and banking relations. We also do this through venturing into new methods of procurement such as design and build, construction management, joint ventures and others. And in all cases, we do these things well. But, right now, the marketplace in which we operate is filled with uncertainties. The SAFETEA-LU Bill expired at the end of September 2009 and is only being extended on a month-to-month basis at 70% of the previous year and then only with much debate. The $8 billion shortfall for 2009, which typically is funded at the end of each fiscal year, this year resulted in a recision. The recession further has resulted in the municipalities continuing to be very watchful of the money they spend on infrastructure.

There is a feeling of uncertainty in the marketplace amongst contractors causing many of them to bid unrealistic and unsustainable numbers. The competition is extreme. Until the new federal highway bill gets passed, and until the economy picks up, there will be pressure on margins and profitability and we have chosen not to bid at a loss in order to get the backlog.

But as seen this week, Congress may pass a one-year extension restoring the funding to 100% and also restoring the recision and certain interest charges. This would go a long way in stabilizing the marketplace. We're continuing to pick up smaller projects in various markets across the country and the market dynamics will change. Until then, we're maintaining our discipline and exploring every potential. When the market does turn, and the competition is reduced, we will be ready to continue our profitable growth profile, having in place the management and the assets to be successful. As Jim mentioned, our gross profit for last year was $54.4 million, representing a 13.9% gross margin and the acquisition accounting for only $2.1 million of that amount. And that was an extremely low volume in the fourth quarter due to weather and the lack of new backlog. G&A remains under 4% and net income for the year was up 31.2% with after tax earnings per share of $1.71. So when the markets return, the pieces are in place.

Now we would be happy to answer any questions.

(Operator Instructions) Our first question comes from Richard Wesolowski with Sidoti & Company. Please state your question.

Morning, how are you guys?

Good.

Fine.

Would you mind giving us the share or the dollar amount of RLW's backlog that will be completed in 2010 or at least expected to be completed in 2010?

Rich, we do not give out the backlog that will be of individual operations that will be completed. I think the number for the whole Company is -- I think we have $79 million that will be completed after 2010.

Perfect, no, that's fine. Thanks a lot. Plus the I-15 core job, Jim?

I'm sorry. Say your question again, Jim?

He said plus the I-15 core.

Yes. That's correct.

Okay. The 8-K released at the deal details Wadsworth margins well out of the range of what we're used to seeing for infrastructure contractors. Can you comment on why they're so high and what you expect from their existing backlog?

Typically the design build jobs are more profitable than any of the other work. The construction manager -- GC contracts come in at a close second. And, our traditional design, bid, bill is lower than those two. With RLW having more of the design build and the contract management, they did have better gross profits. Plus, 2009 was a very good year.

They had some very good contracts. And there is more risks associated with the design build and the construction management GC so they should earn more profit. I think as time goes along and more and more contractors do that you will see some easing of the profit margins on those type work. But they are good, that is good work. And one of the reasons we wanted them is that we acquire that expertise and can do it in other places.

Okay, so based on that contracting method, you would expect Wadsworth margins to be better than what we see historically for Sterling, but perhaps not up at the high level we saw in the 8-K?

Right.

That is right.

And then lastly, the 10-K out today confirms you've been more aggressive in your bid margins, but specifies you haven't bid at loss margins, so how low is acceptable? Have you have gone 6%? 8% gross margins? What is the bottom would you suspect?

I don't think we can, for competitive reasons, necessarily comment on that, Rich. We're doing everything we can to maintain reasonable levels of profit and to get them back where you have seen them historically. I think that will happen. I think we're seeing some signs of it. We only had four bidders on an $8 million project that we picked up this month -- only four bidders on a $60 million project we were second on. But I saw that once before in October and it didn't turn out. We're anxiously awaiting the future months floodings.

One of these times it will stick. Thanks.

Your next question comes from Kathryn Thompson with Thompson Research Group. Please state your question.

Hi, thank you very much. According to your public filings, RLW operating earnings for the first 11 months were roughly that of Sterling. And, when the acquisition was announced, you indicated Sterling -- that this would be -- RLW would be immediately accretive to Sterling. Given your projection for 2010 to be substantially below 2009, what are we missing?

Thanks to the market conditions in Texas and the work that we have been able to pick up, our backlog continues to reduce and the margins we have picked up are projects that continue to fall. So, we're not at all sure how much we will pick up the remainder of the year or how quickly we can get it started. So I think that is what you're seeing. Utah will certainly be additive.

And at the time of the acquisition, what has changed since when the acquisition was announced versus today? But there clearly seems to be something fairly significant progressed over that time period.

Kathryn I think Pat's answer is right on point. And if you look at if footnote number, I think it's 12 or 13 -- acquisitions to the 10-K, you will see the pro forma results of operations as if RLW had been part of our organization since January 1, 2008, and -- .

I saw that this morning.

That's clearly accretive in that situation.

Yes.

And that is with the additional stuff. So, it's just that, different parts of Texas and Nevada -- Texas, Nevada have been hit first perhaps. Utah has not been hit as hard or at least not as early. And I read an article this morning in Engineering News Record, which was talking about the Utah economy. We have been fortunate in Utah that we picked up two or three nice-sized jobs during that period of time but we were fortunate. Now they see what we have been seeing here.

So just to clarify, it looks like RLW won't have any significant contribution in 2010. Is that a fair statement?

No, I don't think that is a fair statement. I think RLW will have a significant contribution. You look at their backlog and you know they have to have a significant contribution.

Kathryn, this is Joe Harper. We have been talking at least through three quarters now about the difficulty of our markets in pre-RLW conditions. And, I think what you're missing, if anything, is the disruption that's causing in the operating income line.

Great. One thing that you talked about in your prepared comments, which is something we have been tracking, is seeing the strain on competitors. And this resulting in fewer companies bidding or at least being more reasonable in the bidding process. Could you expand a little bit more on that specific trend? And also, are bonding companies coming in and pressing, essentially limiting the ability of some of your competitors to bid for certain projects?

You want to take that, Joe?

Yes. In our municipal markets, most of our competitors are relatively small contractors, revenues, $10 million to $20 million each. We have clearly seen that several of our competitors in that marketplace are coming under financial stress. There's been fewer bidders, as Pat mentioned, which is indicative. It is not because they're too busy but because there are bonding restrictions.

We got word from one of our suppliers that they had filed on four different contractors bonds. It doesn't mean the end is there, but it does mean that we're seeing signs of the financial stress. On the highway side, most of our competitors are pretty substantial guys and until we get clarity on the funding side, I don't think that market will turn.

Most of the bonding pressure has been for your smaller contracts, for your Municipal projects.

That's correct.

Okay. Could you just give any additional update about letting trends as we enter into the spring, directions up or down, and also, has the composition changed in terms of what you project to be your overall margins on those particular projects? In other words, color on the current market and bidding trends.

If it seems like, it has a potential of starting to move in the right direction, like I mentioned there was only four bids on the $60 million, we were second and jumped up significantly to third. So we're seeing less bidders and we're seeing the spreads a little wider. That is potentially a good sign. I think more than that, they need to pass the federal highway bill because the mentality, I believe, of the contractors is that of the uncertainty that I mentioned. And they just not willing to raise their prices as they move along and as the -- not necessarily -- potentially the red ink starts showing up in their own statement. I think this will move them to getting better margins also.

For highway lighting schedules, the April announcements have been pretty disappointing, but the state can't get any clarity out of Washington. I think that is what is causing it. We had expectations of -- in excess of $400 million coming in April and we haven't seen anything more than two, I don't believe. Through the end of August, if the state were to let what they planned on letting at the beginning of the fiscal year, we should be seeing highway lettings between $400 million and $600 million through August.

Okay. All right, that is helpful. Could you please clarify the litigation that was noted in the -- it was not as much language in the 10-K. I wanted to see if there was anything else behind that we should be aware of.

It's an ongoing case, Kathryn. I have to be a little careful. It's a dispute with a subcontractor. We believe we're in the right. Our attorney is attempting to negotiate out right now. If that doesn't work, we'll be appealing.

Okay. And two final housekeeping-type trends. First, if you gave an update on basic material prices for aggregate and cement. Also, projection for CapEx and D&A for 2010.

The aggregates seem to be rising somewhat as those cement -- steel was up probably, let's see, a little less than 6% was the last monthly letting for rebar so we're seeing -- I would say the trends are rising prices there.

The other question, I think, you had Kathryn was regarding G&A.

Yes, CapEx (multiple speakers).

CapEx, we intend to keep it under control. We always have it under control but we continue to stress not buying anything unless we absolutely have to. We do have two shop facilities that will probably start or be completed this year. That will be done. We always have some maintenance -- replacement because -- to just maintain the fleet. Otherwise, we will continue to keep it down until we see a turn which would justify spending more money.

So basically flat CapEx?

It might be up some but as we said in the 10-K we expect it to be about the same as 2009 except for additions to the -- what we might need to do in Utah just because they're coming in and they got a whole lot of backlog and then the shop facilities.

Right and then for depreciation amortization?

You should see them stay fairly close to where they are now -- it may go up a little bit, but stay fairly close to where it is now for 2009.

Okay. Great. Thank you so much.

You're welcome.

The next question comes from Jack Kasprzak with BB&T Capital Markets. Please state your question.

Thanks. Good morning.

Good morning.

The detail you guys gave on the fourth quarter implies RLW had about a 20% gross margin for that one month in the fourth quarter. That it was included in your results. And the RLW backlog at the end of the year was $303 million. If they maintain a 20% gross margin, that is about $60 million of gross profit, maybe it doesn't all come in 2010. You guys had $54 million of gross profit in 2009. RLW alone could, perhaps, get you slightly above your gross profit from 2009 to 2010 if the base business even has a modest margin. I'm having trouble understanding why earnings will be down substantially. It just doesn't seem to pencil out. Down for sure, but I guess I'm hung up on the substantial comment when you include RLW.

I think the significant issue you're missing is I believe, we bought RLW at a run rate of about $150 million revenue. So it will be less than half of that amount of money you suggested with the $300 million. And then we said they had an exceptional year last year and while margins would be better than we typically see on a bid build, I don't believe that they will be near that 20% record they had.

So the $647 million total Company backlog you had at the beginning of the year -- end of last year, the beginning of this year -- would you think the revenue recognition of that would be below historical average, the conversion rate in 2010?

Well, much of the $647 million came from RLW and they certainly can't work that off in a year, and aren't geared up to do that type of business. So, and what the problem we had was the margins -- not the margins -- but the backlog in Texas and Nevada has fallen substantially.

Jack, again, a similar comment with Kathryn. We have been fighting a difficult market now for very close to a year. Most of the backlog booked during that period of time have below historical average gross margins.

I guess -- you guys probably, you really probably already answered this but I will ask it anyway. If you go the other way and back out RLW for Q4, your base business had about an 8.6% or so gross margin. Which, is lower than you have been reporting and what you have been saying, that the market's been competitive, but is 8.6% getting pretty close to the low or we are just still too uncertain to know?

There is several contracts in backlog that would be below that. We have been bidding below that the last six months or so, I would say. Our markets are very, very tough right now.

Okay, great. Thanks very much.

The only -- one thing I might add, Jack, is that because the markets are in such disarray and without knowing whether any new funding bill will be passed, we're not anticipating picking up a tremendous amount of backlog this year and certainly working it off -- which gives you the lower feel that you're getting. That could change. We could start picking up and announcing jobs over $20 million. The uncertainty is too great to predict that.

Jack, the other impact on 2010 that we didn't talk about yet is that with lower volumes in Texas in particular, the absorption of the fixed costs generated by fleet ownership has a pretty substantial impact on the margin line.

The one thing I was wondering, you had such bad weather in the fourth quarter and you, again, stripping out RLW, the gross margins in the mid-8% range with the bad weather -- probably had an effect on absorption. Again, not knowing what you're bidding on the go-forward projects, seems like the fourth quarter had a lot of negative effects in it and that is why I asked the question about where -- is that at or near the low?

I got it.

Okay. Thanks anyway, bye.

The next question comes from the Richard Rossi with Wunderlich Securities. Please state your question.

Good morning, everybody.

Good morning.

A couple of things. Let's get back on this backlog burn. You have the I-15. When does that start?

I would say probably, they're working on the design right now, the build would start May or June, but it will be rather light in the beginning and then ramp up.

So, will have a relatively small impact on 2010 revenues?

That's correct.

Okay, so, if you take that out of RLW you still would have $160 million left of their backlog and some of that is going to fall into 2011, anyway. Could you give us a sense of how much of that remaining backlog might be a 2/11 event?

Not a whole lot of it, Rich. I don't have anything in front of me to give me hard numbers, but it might be between $10 million and $20 million.

Okay, all right. I think that gives us a better sense on that side. And I just wanted to clarify a couple of things. I missed your comment about G&A when you were talking about the fourth quarter. It was up substantially sequentially. Some of that might be RLW but what else was in there? And looking out in 2011-- 2010 -- what is your G&A looking like in terms of a run rate?

I think the G&A is going to be comparable to what we -- it may be a few tenths of a percentage point higher than what we had for the average for 2009, but it's still going be comparable. The fourth quarter, I didn't go back and look at the fourth quarter of last year. But as I remember, the fourth quarter is always somewhat higher than the rest of the year.

Yes, you always have those year-end adjustments and bonuses, I would presume, et cetera.

And then you add on top of that with RLW coming in and so, that just drove it up from 3.3% to 3.8%. And with revenues being down some, even a part of that increase is strictly due to the revenues and not to the G&A.

Okay. What should I be using for a tax rate? Around 34%?

Rich, my 40 years of experience says always use statutory rate. If you get something better than that, great. You can't go wrong by using a statutory rate.

Okay. You're talking about being a little disappointed so far in what you're looking out in April, at least in Texas for what they're putting out to bid. Have they given you any indication of what May and June may look like or is it too early to really pick up much on that?

Too early to tell. I had indicated April was going to be a big month for us and now it's cut way back. Again with what they get from the Federal Government, what is happening is -- I perceive that they feel like it's just too early to press on with their plan.

Is it too late for more projects to come up for bid in April? For them to put them out for bid or is it too late for them to do that?

I think there is one more notice -- they typically have three to five notices and I think there is a potential of one more notice coming out.

All right. And the other thing is from a -- business is slowing down further for obvious reasons. I'm presuming you're making adjustments in your manpower. Are you cutting into the core on the manpower level at this point? Is the situation that serious that you've got to take that step?

No, I don't believe we're cutting into the core yet and don't have plans to do that. Certainly, we have cut back. San Antonio is a bit of a bright spot right now and seems to be recovering quicker than the rest of the state but there are no plans to go to the core.

All right.

Rich?

Yes.

I would like to step back for a moment, if I can, on the tax rate. 35% is what I use but that is of the number that after the deduction of the minority interest. And because that minority interest is taxed to those individuals and not us.

Got you.

Okay? So if you're looking at a tax rate that is before that -- if you're looking at our pretax number and pre-minority interest number, then it's going to wind up being less than 35% on that.

Got you. Okay. And I guess that is about it for now. Thanks very much.

Thank you.

Your next question comes from John Rogers with D.A. Davidson. Please state your question.

On the backlog --.

Mr. Rodgers, please state your question.

Can you hear me?

Yes, we can.

Hi, this is [Tristan Richardson] in for John Rogers.

Okay.

Thanks for taking the question. On the backlog, you noted that you have $79 million currently in negotiations for pricing or pending a [lower dependent] bidder, et cetera. I am curious. Just generally speaking where is that work?

It's Texas, Utah.

Okay.

To clarify that, those are contracts where we were rev low bid. We have no indication that we won't be awarded the job and, historically, we're about 99.8% that those contracts are ours. We have got disclosure requirements is why that is in there.

All right. Right. And then do you guys have a number for subsequent to the end of the year apparent low bids in your markets in the current quarter?

No, that is really our issue. Our problem is not knowing how quickly this market will return and what we might book over the last three quarters.

Thank you guys very much.

Okay. Thank you.

Your next question comes from Tahira Afzal with KeyBanc.

Good morning, gentlemen.

Good morning.

Let's us welcome you to our conference call. Keybanc has picked us up -- picked coverage up on us and we're very proud to have you aboard.

Thank you very much. I'm very excited to be covering Sterling at last. Just a couple of questions. Number one, the weather issues in the fourth quarter, would it be possible to try to quantify how much revenue that might have deferred -- would it be $10 million to $20 million? Is it a small amount?

We really can't do that. For instance, a tenth of an inch of rain each day can cause more problems than Hurricane Ike or one of those. And it depends on where it occurs, when it occurs. We know that the last quarter was much more -- much wetter than any other quarter in 2009. And I think I looked back a few couple of years and it was still pretty wet quarters. But the exact effect we can't do. We got 60 jobs and it's just hard to tell how much each job was affected by the weather.

Got it. Okay. And would it be reasonable to assume, if I look in Texas, fourth quarter I saw some icy patches around the Dallas area and all. Should I assume most of the back end loaded profiles are Texas work?

I guess I didn't understand --.

I didn't hear the question either.

I'm sorry, there was a bit of icy weather again in the first quarter in Texas.

Oh, yes. Okay. I think we said some place that adverse weather had continued into the first quarter of this year and presumably it will have an effect upon the quarter, unless March -- unless you get a string of sunshine in another month.

We hope so that you will do.

We hope so, too.

And in terms of non-traditional competitors, in the past you have talked about maybe perhaps some out-of-state competitors and commercial competitors coming into your state in Texas. Are you still seeing those or with the bad weather have some of those people left?

Joe?

Well, we haven't seen very many out-of-state competitors coming in. The biggest impact has been the contractors who typically have either worked vertical construction or worked in development work. And they are still there.

Got it, okay and then if you look at the jobs bill potentially getting passed and some extension coming out, even if it's a one-year extension, do you think some of the -- just going from your prior history, would you see the lettings perhaps picking up base if you see a bill passing even if it's a small extension?

I don't think a small extension would help us. I think the one-year extension that they are talking about and the fact that they going to replace some of the monies they took out and go back to 100% funding should help dramatically. Not only Texas but all across the country.

And it seems that you're not really building that into your scenario analysis right now to begin to have it there.

No, based on the last year, we're not building anything in that the federal government's going to do. We're waiting to see.

Fair enough, I don't blame you. The last question is on acquisitions -- the Utah acquisition has been good and if you look at the long-term trends in Utah, they seem to be very compelling. Which other states would you look at -- in the past you have mentioned some of your adjacent states. Could you talk about some of the other strategic options, where you might look to pick up, opportunistically?

I think we're going to keep moving or, stay in that southwestern region. It looks like it has the most likelihood of responding quickly to the economy picking back up. Remember, we talked about -- unless an extraordinary deal comes along -- that these things take 18 to 24 months to get finalized from the time we start looking and we have already started that process over again. I wouldn't look for anything major this year, certainly.

Got it, okay. One last question is on capital spending. I know some of your peers on the construction side have deferred some of the less needed items and you indicated perhaps you were doing the same. Would this include levelers, et cetera? Is there anything that -- are these purchases things you can quickly ramp up on to improve productivity if you see the market coming back?

There is equipment readily available right now, so anything we might need wouldn't be a problem getting. At this point we only anticipate getting new things this year for the I-15 core project and we may have some of that equipment available here in Texas. I don't believe there would be a problem in getting anything new that we wanted and generally, we're vertically integrated enough that we're in good shape there.

Remember that over the last two to three years, we spent a substantial amount of money on capital equipment and in anticipation of a backlog, which -- and revenues of greater than what we had for [2005]. So, consequently, we'll have the equipment for growth.

That's right.

Great. I have got a couple more questions but I will jump back in the queue. Thank you very much.

Thank you.

(Operator Instructions) Your next question comes from Richard Wesolowski with Sidoti and Company.

Thank you again. If you look at the revenue listings in the 10-K for 2009, they were either flat to up on a dollar basis in every municipal category that you named and they up in the Nevada DOT but the Texas DOT was cut in half. In prior calls, you stated that the municipal bidding conditions are -- or were -- as bad or worse than those that we track for Texas DOT. So what explains the revenue disparity? Are you more aggressive with the smaller stuff or is that just the Tex DOT contracts maybe take a little longer to get out of backlog?

Think we're more aggressive with the smaller contracts because they left much less time. While we put some assets to work, we don't lack in future years at smaller margins when we believe those will increase.

I'll tell you one other thing too Pat -- in this whole industry, when you try to get statistics, there are so many definitions. But highway typically, we -- the state or toll road whereas municipal includes water line systems but it also includes streets. For instance, I know there is one nice side street, road as you may want to call it, that is for a County. You can have some twitch like that which may make it a little bit -- comparisons difficult.

Okay. On the municipal work out west, you seem to be a little more keen on going after some of that in Salt Lake and Reno and Vegas. Have you made any in-roads there or have you made any bids and maybe go through why some of that work was not pursued by RLW or RHP in the past?

Joe?

We continue to bid those markets, Rich, but in Nevada in particular, the competition is extremely high. Very large numbers of bidders, municipal -- and there has been low volumes available. I am still optimistic on a long-term basis. We're still hopeful that water project comes out in the next couple of years but that market has been extremely difficult.

Okay, just like Texas.

RLW is just too new. In the past, they did -- they historically would not have participated in what we would call our municipal side of our business. I think there will be good opportunities there for us going down the road.

Okay. And then lastly, a little bit more big picture. Can you detail the process of replicating Wadsworth's design build and CM/GC contracting to your operations in Texas and Nevada, what exactly you would do to replicate that?

One of the issues that we have had to try to overcome in design build is our lack of experience there and our lack of employees who have substantial design build on their resume. Those are critical elements to be awarded a project where it's not a low-bid environment. The owners are looking for experience and we, in the past have not had it. In the future, we will have it.

Okay, are you adding any such employees with experience in Texas and Nevada or do you have to wait until bidding conditions in your general business improve?

We have picked up a couple of projects. But, we believe the employees who do have that experience at RLW are transportable for us. So that is we expect that our experience and resumes for both of our other subsidiaries should be able to play off of the experience gained over the past several years at RLW.

Excellent. Thanks.

Your next question comes from the Todd Vensil with Davenport & Company. Please state your question.

Hi guys, good morning.

Good morning.

Just a couple of quick ones. Clearly the weather slowed things down and you talked about the fact that you cut into some overtime where the contracts allow you to extend the time there. Did the weather cause to you run into any slowdowns that are going to impact profitability or that have impacted profitability in terms of time to complete?

Yes. As the weather causes lack of productivity, we have to absorb the fixed cost components plus the overheads on the job -- the superintendent, the project engineers, project managers in some cases get absorbed and they're now part of the margin line that impacts the profitability on that project until it's completed.

Fair enough. I guess I was wondering more explicitly are you running afoul of any contract terms that are going to cause like a financial penalty or anything like that?

I'm not aware of anything significant.

Okay. And then on RLW, I just want to check my math. If I just back into -- looking at the backlog and the revenue you guys provided, it looks like maybe you won another $15 million or so of projects post acquisition, not including I-15. Is that about the right number?

That is pretty close.

And you guys, again, provided great detail at the time you closed the deal on what the Company has done. Am I hearing you right that you feel like your Utah market has been performing better maybe in the last year or so than Texas and Nevada, but that that's now starting to catch up with it and is slowing down to meet the pace of the other markets?

That is my feel certainly from the article I read in the Engineering News Record this morning. But the article also pointed out they were slower going into the downturn and might be faster coming out. I wish we were that way in Texas too. We were certainly slower going into it but whether we will be fast or not, we don't know yet. But having said that, Texas is still a very good place in our market.

Got it. That is all I had left. Thank you, guys.

Thank you.

Your next question comes from Tahira Afzal with Keybanc.

Gentlemen, a quick follow-up and it is more housekeeping. Is there any amortization related to backlog with the RLW acquisition running through your numbers for 2010 and onwards?

Our allocation of the purchase price, as you may have read, is preliminary and we have not completed the review for how -- what intangibles there might be. And when we have, we will disclose that and if there should be any adjustments, you will know about that, too.

Got it, okay. The last question is really to do with the design build market. Could you elaborate on, strategically, how you plan to implement that and maybe perhaps roll that over to some of the other regions that you have?

I think we mentioned the biggest thing we were lacking was the previous experience in the design build arena. Now having a subsidiary that has that and being able to point project managers from that subsidiary who would oversee a given project or potentially doing a project -- say we are looking at one in Nevada and doing a joint venture between RHP and RLW. There are a number of ways we can approach it. We're also in the process of hiring to some extent people that can help us here. We hired a project estimator from one of our larger competitors whose has bid projects in excess of $300 million. Every piece helps to go on the resume.

And let me also say Utah has been on the forefront of a number of things such as design build, CMGC, accelerated bridge construction. And, while we have had some success down here already, that still is an education process to have that as acceptable down in Texas or as in Nevada as it is in Utah. I think having the people who can do it, we can sell it and we can get that and we will be hopefully some of the first. But we're still -- just adding the people by itself, will not get it, we're going to have to sell it as well.

And that is very helpful. Thank you.

Your next question comes from Kathryn Thompson with Thompson Research Group.

To follow-up a question. Given the environment of the present bidding that you guys talked about to some extent, why do you think material prices are increasing in the current market?

That is a good question. They certainly got tremendously lower after the last couple of years and they might be in the same shape as some of the contractors whereby, they're producing red ink and whatever the case, they may want to raise their prices. I talked to one of our suppliers who we're using more in our estimates for ready-mix concrete instead of making our own, because we can't compete with them making our own. And I asked them what the deal was. He said they're losing $10 a yard. I think the same with the contractors at some point, they just have to increase their prices and -- .

Okay. Also, we know three significant projects in North Texas totaling about $7 billion that have come to fruition over the next three to four years. Are you participating in those projects?

We'll participate in almost everything we can and that is why I still believe our long-term outlook is fine. We just got to go through this problem that we're in and it's taking us longer for the market to return than any of us ever thought. But on the long range, yes, we will -- we have increased our activity in joint ventures. I would say anything individually that bids over $250 million, we will be looking for a joint venture partner and anything under, we'll certainly be looking at bidding, including design build.

Okay. Thank you so much.

You're welcome.

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

We want to thank each of you today for joining us and if you have any questions, please do not hesitate to call us. We look forward to visiting with you on the road or at a conference between now and our next conference call. Then we look forward to visiting you then. Thank you for joining us.

Thanks, everyone.

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