Sterling Infrastructure Inc (STRL) 2010 Q2 法說會逐字稿

Good day, everyone, and welcome to the Sterling Construction Company second quarter 2010 conference call. At this time, I would like to inform you that this conference call is being recorded, and that all participants are currently in a listen-only mode.

I will turn now the conference over to Mr. Jim Allen, Chief Financial Officer. Please go ahead, sir.

Thank you, Brandi. Good morning, ladies and gentlemen. This is Jim Allen. I am Sterling's Chief Financial Officer, and I would like to welcome you to this Sterling Construction Company's conference call to discuss our results for the three and six months ended June 30, 2010, which we released this morning. I'm 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 may include 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 risk and uncertainties, including overall economic and market conditions, competitors, customers and suppliers' actions, weather conditions, other risks identified in our filings with the Securities and Exchange Commission, which 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 belief, and we do not undertake to publicly update them.

Turning to the financial results, I am pleased to review our results of operations for the second quarter, and the first six months of 2010 with you. Revenues were down 2.9%, or $3.5 million, to $116.9 million for the second quarter of 2010 from the 2009 second quarter, and down 5.7% or $12.2 million to $203 million for the first half of 2010 as compared to 2009. As was the case through much of 2009, and thus this far this year, the bidding climate and competition in our markets remains challenging, as we have worked off backlog without fully replacing it.

The decrease in revenue reflects the weakness in our Texas and Nevada markets, partially offset by the inclusion of revenues from our Utah operations, which were acquired in December 2009. The lower revenues in Texas and Nevada in the first half of 2010 were due primarily to our reduction of approximately 24% of our workforce since the end of the first half of 2009, in response to the decrease in backlog, and to wetter weather in the first quarter of 2010 as compared to 2009.

The decrease in our Texas and Nevada revenues was partially offset by the revenues of our Utah operations, which we acquired in December 2009. The 31% decline in our gross profit in the first half of 2010 to $21 million from $30.4 million in the first half of 2009, and the decline in our gross margin from 14.1% in the first half of 2009 to 10.3% in the first half of 2010, were due to the reduction in our workforce which resulted in less production, differences in the mix and the state of completion and profitability contracts during the 2010 period versus 2009, and approximately $2.3 million in unabsorbed equipment overhead in the first half of 2009 as a result of reduced backlog. All these items were offset by the gross profit -- and margin -- partially offset by the gross profit and margin earned by our Utah operations, again acquired December 2009.

The decrease of 53% in our operating income in the first half of 2010 was greater than the gross profit decrease of 31%, primarily because of higher general and administrative expenses, which increased $3.7 million in the first half of 2010. Such increase was approximately the amount of the G&A of our Utah operation.

Net income and net income per share attributable to Sterling common stock holders were $6.2 million and $0.38 per weighted average diluted share for the first half of 2010 as compared to $14.9 million and $1.08 per share in the comparable 2009 period. And was $4.7 million and $0.28 per share in the second quarter of 2010, as compared to $9.3 million and $0.68 per share in the second quarter of 2009.

The decrease in net income attributable to Sterling common stockholders was the result of the matters we have already discussed, reduction of workforce, differences in the mix of our contracts, unabsorbed overhead offset by the income of our Utah operations, as well as the increase in non-controlling owner's interest in net income. As to net income per weighted average diluted share attributable to Sterling common stockholders, the decrease was the result of all of the matters we've discussed and a higher number of weighted average diluted shares attributable to the sale of 2.76 million shares in December 2009.

I will now turn the discussion of our results over to Joe Harper, our COO.

Thanks, Jim, and good morning, everyone. From an operational standpoint, we had an excellent quarter in all of our markets. The weather cooperated for once and productivity exceeded expectations in all of our operating divisions. As a result, most contracts have seen an improvement in estimated gross profit. Pat will discuss the condition of our markets in a minute, but we've continued to struggle to replace backlog. At this time, we have good visibility for revenue recognition through the end of the year, and under current policy we expect unabsorbed fixed costs for the full year to be less than $5 million on a consolidated basis.

As many of you are aware, we own the majority of the equipment required to build our projects. With backlog and the number of contracts under construction reducing this year, we have a sizable underutilized equipment costs. The debate is whether to sell excess equipment, even though used equipment prices are depressed, or to continue to incur the negative effect on our financials and run the risk of repurchasing equipment at higher levels when our markets return to normal. We've made good headway in equipment management, sending several pieces from Texas to our western operations, but we'll continue to monitor and weigh the pros and cons of this policy as we update our market outlook.

Capital expenditures through June 30 were below our budget. We now expect the second-half expenditures to be slightly above first-half spend as we increase our commitment to the I-15 CORE project. We are continuing our efforts on the M&A front, and expect to see favorable deals from a pricing perspective. However, until such time as visibility for highway funding improves, I would not expect a new acquisition. Our balance sheet remains solid and will continue to strengthen as we run cash positive through the end of the year and into 2011.

Our current primary focus is maintaining discipline in our pricing strategies, continuing to achieve good execution on our existing contracts, and assuring that we maintain a very strong balance sheet. We believe that adherence to this strategy will pay big dividends once our markets return to some semblance of normalcy.

Pat?

Thanks, Joe. And good morning, everyone. As Joe mentioned, operationally we are performing very well, with volumes down and after realizing $1 million in the second quarter in under-absorption, we recognized gross margins of 10.9%. While we added only $58 million in new wins in the second quarter versus $116.9 million in revenue, we already have added $65 million in July, and have over $200 million worth of projects in Texas to bid the remainder of August. And the July bids were slightly higher than what we have been bidding previously, with slightly higher margins.

We also are expecting an authorization to proceed on the local -- on the actual construction of the Construction Manager at Risk project in San Antonio that we reported to you in April of last year. Bidding in Nevada remains challenging, but RHB, our Nevada subsidiary, was short-listed as a part of a joint venture with our Utah subsidiary on a design build project estimated at $60 million in Reno, and are expecting more bid work to be bid in Hawaii as an extension to the Saddle Road project that we are now working on. That project, by the way, continues to perform better than expected, and should be completed mid-2011.

We are in the process of integrating our Utah operation into the Sterling family, and are excited about the joint venture on the $1 billion I-15 CORE project, which has now been sufficiently designed. They are getting into full swing on the actual construction. They have a number of opportunities on design build proposals on projects in excess of $50 million yet this year, and are hopeful they will be successful.

In Texas, the general economy continues to improve. After 16 months of job losses, the state's economy has experienced its second month of positive annual job growth, and Dallas and Houston were ranked number one and number two in growth in the entire nation, as measured by the number of residents added in 2009. On the bid front, we are seeing fewer bidders in quantity and evidence of more rational bidding, hence the pick-up of $65 million in new awards in July.

We also have been short-listed as a JV partner on a $300 million design build project for the Central Texas Regional Mobility Authority for a project just outside of Austin. And are discussing a similar arrangement on a $450 million project here in Houston that is expected to bid early next year. Finally, we see a number of opportunities to bid work with a corps of engineers on MATOC, IDIQ projects, which are Multiple Award Task Order Contracts, indefinite quantity, indefinite delivery. So we continue to expand our horizons and add credibility to our resume to be able to compete on larger projects, both individually and as a JV partner.

Now, if there are any questions, we'd be happy to take them.

(Operator instructions) Our first question comes from the line of Kathryn Thompson with Thompson Research Group.

Hi, thank you for taking my questions today. First focusing on your water infrastructure work, which has traditionally been good, high-margin business for Sterling. In the last quarter, you'd indicated that the bidding -- there were fewer bidders for these types of projects, but in your press release today you indicated that competition has intensified or is still very high. Has something happened since the last quarter? Has the competition intensified as the economy slowed down a little bit? If you could give some clarity on your water projects and bidding. That would be helpful. Thank you.

Thanks, Kathryn. I wouldn't say that it's intensified. It has remained strong. The number of water projects which we've had to bid on have been less this year, but we did pick up one here several months ago. So, while our markets are still challenging, especially here in Houston, the water projects and the large diameter projects, both water and sanitary, continue to be, you know, bright spots. We're bidding a $30 million plus or minus 96-inch transmission line for sewage in San Antonio here at the end of the week.

So, it hasn't necessarily gotten more aggressive, it is just more the same?

Yes. I would say that's true.

Okay.

Kathryn, this is Joe. The only thing that I'd add to that is that we are seeing positive signs over in San Antonio where there has been probably a larger -- larger opportunities and more of them than we've seen for quite a while.

Okay. Earlier in your prepared comments you said that you cut your workforce I believe you said by 24% since the start of '09. How much have you reduced your workforce over the quarter at least -- or at least for the first six months of this year?

We -- the last quarter, the reductions have not really been that great. The bulk of the reductions came between September of 2009 and the end of the first quarter of 2010.

Okay. So no new reductions?

No additional significant reductions. However, the reductions that we have made have obviously continued to limit -- we didn't have the backlog but had we -- you know, that you don't pro -- when you don't have people you're not producing the same amount as you did before.

And what's the -- how much have you reduced your equipment? I know there has been a lot of discussion on the equipment.

We've not had great reductions in equipment yet, but, Joe -- I think that Joe is following this a little bit closer than I am and can better respond to it.

Yes. We have not -- we have not reduced our fleet size at all. We called CapEx down. I believe we've got three or four pieces out of over a thousand that we have -- we've sort of mothballed but we're struggling with that -- with that issue, Kathryn. So far, we are absorbing the extra costs and continuing to be optimistic about our markets, and keeping the fleet the way it was.

So what --

I would add, Joe, that our fleet is a fairly young fleet and, you know, we've got some good pieces of equipment we've idled and if -- you know, as Joe says there's a debate. Because we think that when things normalize, we're going to be using every piece of that equipment and if we sell it, we've got to go buy it and probably going to be at higher prices.

Yes. No, that definitely makes sense. I guess, one thing that would be helpful for me is if I could better understand the thought processes. What would prompt the decision to reduce the fleet? So, if you can just help us understand what the decision-making process would be over at Sterling and if, in several months you decide to reduce the fleet, what does that look like?

Well, reducing the fleet would mean that we'd be selling pieces into the current used equipment market, which is down considerably from, say, a year ago. It is down more from even six months ago. And the rationale behind that is that we reduce our current costs, enhance financial reporting, et cetera in the -- currently and in the foreseeable future until the market does turn. I have some on our management team who would prefer that we do that, mostly to enhance currently reported financial results. Most of us are of the opinion that that's shortsighted and that we need to retain our discipline and, you know, ride through this period of -- of a -- an unfavorable market.

Okay. And you indicated your bidding environment has improved somewhat in TxDOT? I know that July TxDOT lettings were over $600 million, you all got, our calculation, about $16. Has there been any improvement in the overall bidding as we go into August?

Yes, Kathryn. It was higher than $16. I think it was $28, just going from memory. So, we picked up a couple of jobs in that letting, plus we've picked up some city jobs, both here in Houston and in Austin.

So that --

Pardon?

That (multiple speakers) would include TxDOT plus their city?

No. There was $28 at the letting, Kathryn. It was one job for $16 and another for about $12.

Okay, okay.

So, I mean, July, we were pleased with July.

Okay.

We'll see what happens here this week with the August letting and see if that continues. But it appears that, you know, there is some less competitors and those competitors that we believe have gotten into the market and now are starting to realize either the losses or the lack of profitability that they obtained are getting more reasonable.

Another comment on the July letting, Kathryn, is it called attention and we then went back and looked at the last few months before July. But we're starting to see an expansion of spreads from low bidder to second and from second bidder to third. The June and July lettings both we saw spreads expand to an average of something close to 5%, in some cases above 5%. You know, which is an indication to us that the majority of the contractors bidding the projects are realizing their costs and trying to make some money. It's a good sign.

Okay. My final question for today, any update on basic material pricing such as cement and aggregates?

Well, they are staying relatively the same. I think -- certainly they are different on every job and so, it's a little difficult for us to track because it depends a large part on transportation. But I haven't seen any significant increases, except steel seems to be increasing a little bit.

Okay. Thank you very much.

Thank you.

Our next question comes from the line of Tahira Afzal with KeyBanc.

Good morning, gentlemen.

Good morning.

Good morning.

How are you doing?

We're doing fine, thank you.

First question is in regards to, you know, if I was to look at the second quarter versus your internal expectations, how did it play out?

Pardon me? Can you repeat that?

If I look at the second quarter in terms of your internal expectations, were there areas that performed better and ones that probably came in softer? Would love to get a sense.

You know, I'm pleased with operations across all of the operating divisions. In all cases, we have exceeded estimated profitability city-by-city, location-by-location, across all of the operations. And so, no, there was no outstanding and no falling back, at least this quarter.

Got it. Okay. And then if you look at the second half of the year, it seems that the under-absorption, you know, that you've indicated is kind of similar to the first half, given first half was $2.3 million. You are expecting something less than $5. Would it be reasonable to assume that you see roughly $1 million in under-absorption again for every quarter of the year and hence, you know, if you look at utilization rates for the second half of the year, would they be fairly similar to the second quarter?

I think I'm comfortable saying that, yes, is the answer for the year. On a quarterly basis, it can vary quite a bit. I mean July was terribly wet here in Texas. Second-worst July they've had since they started keeping records, but over the course of a six-month period I think we'll make that up.

Got it, okay. And then last question just to follow up on that, assuming second half utilization on average is similar to the second quarter margins in the backlog would you say, you know, slightly lighter. Should we assume that margins for the second half on average are going to be sort of inline to slightly below the second quarter, assuming good execution holds out?

I -- my, oh, my. I would say we have some projects starting up in the second half of the year that are going to be slightly lower margins than most of what we've built in the first six months.

Got it, okay. Thank you very much. I'll just hop back in the queue.

Your next question comes from the line of Rich Wesolowski with Sidoti.

Thanks, good morning.

Good morning, Rich.

You cite the competitive pressure, at least stressed the competitive pressure, in Texas and Nevada. But the backlog for March to June, Utah actually contributed most of that decline. Do you feel better about the margins and the hit rate on new bids in Utah, or is that market just as competitive as the other two?

Well, looking at what they will be proposing on in the next six months, Rich, they've got some good opportunities there. There's three projects north of $50 million that are either single or in a JV for them, and there's reason to be optimistic about those. And they're smaller sized contracts there. They have some competitive advantages on some of the work that they build and, you know, I think that I they are going to continue to replace there.

Okay. Have you recognized much revenue from I-15?

Do you remember, Jim?

Yes. I know how much we've recognized.

Not how much, though --

It is still in the very early stages, obviously. This is a $1 billion contract. You know, it's -- we just really got the contract in December. And so, you're looking at 10% or something like that completion so far.

Is it that high?

Yes.

Okay. Does your profit recognition on that, the I-15, follow the typical percentage of completion from day one or is there some threshold of completion necessary to pass in order for that job to contribute profit?

No. We follow the policy of recognizing profit on the job, profit on -- from -- on the job from day one. And so, it is on the normal percentage of completion method of accounting.

Okay. I read that Texas sold about a $1.5 billion of Proposition 14 bonds. Do you have a good idea of what projects will be funded by that money? Are those already listed?

You know, Texas lists so many things. They have a list out there of projects that are going to be done. I don't remember that the Proposition 14 ones are specifically identified. I think Proposition 12 projects are specifically identified. But the 14 is just -- I think is going in generally to all projects.

Okay. Are the tollway authorities active in bidding right now?

Yes. They're still staying active, Rich. We proposed on one -- or didn't propose but we attempted to get short-listed on one $90 million project for the NTTA, that we were unsuccessful for. And they bid this as a design build because of environmental issues, and then are prepared to bid the next projects on a typical bid-build method.

So, yes, we're still seeing activity in and around the Dallas area. The Harris County and Houston area, they're still working on putting a proposal together on the Grand Parkway. They're talking about a PPP on it. But before they do that, they're talking about two or three sections over in the Northwest being bid as the regular bid-build method, and then they'll incorporate those after award into the PPP.

You know, Pat, often times we don't -- we pay particular attention to ones we're bidding on but not necessarily the ones we don't bid on. I saw where there was just a groundbreaking this past week for the $35 million toll road in Brownsville. But we normally don't go down to Brownsville. But there's activity around the state.

That's right, Joe.

That we don't focus on because we decide not to bid on it.

All right. Lastly, Pat, you just mentioned a design build. Where are you in the effort to build up your estimators and project managers with design build experience in Texas? Are those already in G&A or are there more to come?

I would say they are mostly in G&A. We've added one -- added one senior estimator that we now have onboard that worked for Balfore Beatty previously, and is well able to handle the larger projects. And we'll probably have him working on the design bid proposal for the central Texas project. So, I think we're likely in good shape.

That doesn't mean if somebody comes along that's extremely talented that we might not add them.

Yes, Rich, from my perspective I think we're still looking pretty strong for project manager with design build experience. You know, so much of the ability to get short-listed on those projects in the proposal stage is the resumes of the people who you can devote to the project. I think we still have some work to do there.

All right.

Yes. We are short one because we sent one of our project managers out to work on the CORE project in Utah to gain that experience that you are talking about.

And recognize that the CORE project in Utah is both design build and JV.

Right. It just sounds like a bigger and bigger slice of your opportunity as we go through these calls quarter by quarter. Thanks a lot, I appreciate it.

Yes.

You are welcome.

Our next question comes from the line of Avi Fisher with BMO Capital Markets.

Hi, good morning, thanks for taking my questions.

Hi, Avi.

Good morning.

It looked like there was a big receivable on the I-15 project, or receivable from the JV and I wonder if -- what the timing of the cash -- if that is accurate and what the timing of the cash flows is from the JV? If that differs from the CORE business?

I think that you are getting that out of the foot note on JV's and there are other things in there too. We still have one JV from -- that was there when we acquired the company that has a warranty period where they don't get -- there's not a payment of the retainage, and so that's in there. And then, yes, there is a receivable from the -- on the I-15 CORE project and -- plus there are our share of the profits too, that's in there. And so there's more than one thing. The big -- the receivable on I-15 is not huge. And we expect it to be collected very shortly.

Okay. So it is just a timing function?

We're going to have that on that job. Remember that's a big job and there's more -- we're not the only player there. And so it -- Fluor is the manager and they will, you know, they bill the customer and they distribute the funds to the various venturers.

Got you. I think you mentioned there's $65 million in low bids post quarter. How much of that was in the RLW and how much of that is in the core business?

Not as -- when you see how much of that is the CORE business, do you mean similar to the CORE or the CORE itself?

I guess the -- anything not RLW, I guess.

Oh, the basic business?

Yes.

I think it was all in the basic business. Or certainly there's a significant amount.

The majority of it was in Texas if that's what the question is.

Yes, yes it is.

Okay. There's some -- some though in Utah, I don't remember the project, or Nevada.

Yes.

And, I mean, can you disclose what the revenue recognition -- what revenue contribution was from RLW in the quarter?

No.

No.

Got you. You mentioned --

But, you can see it was -- it did offset the decline.

Right.

Partially offset the decline. You can see that.

Got you. All right. I appreciate your time. Thanks very much.

Our next question comes from the line of John Rogers with DA Davidson.

Hi, good morning.

Good morning.

Good morning, John.

Hello, John.

A couple of things, first of all the -- just on the non-operating income, the gains on security sales, are you looking at more of that throughout the rest of the year?

Shoot, if I had a crystal ball, John, I would have retired before now. I mean, we can hope so-- but, no, I certainly wouldn't plan on it.

Okay. But, it is not a program to, I don't know, to shift investments around or -- or raise cash or anything?

We're not going into the banking business.

No.

Okay, okay. And then given the decline in the market do you have any goodwill impairment test that you have to take especially as it relates to the Nevada business?

We did -- you know, we're ones -- we're a company that has one segment, heavy civil construction, and we look at our goodwill overall. And we do have to do testing. We do that in the last quarter of the year and, you know, when you do that testing there's various things you consider. And, you know, I don't know that any of those things give us an indication of impairment at this point.

Okay. Okay. That's fair enough. And then -- sorry, were you going to say something else, Jim?

No. I was just going to say I have not gone out and tested it recently.

Okay, okay. And then in terms of the larger projects that you mentioned that you were short-listed on, I think, Pat, you referenced a $300 million job and a $450 million job in Houston, are these joint-ventures that you are looking at --

Yes. They would both be joint ventures. I mean typically anything over $225 or $250, single we'd likely joint venture.

Okay. And for the army corps, what kind of work are you looking at for them?

You know, they don't specify so we're in a joint venture with a number of companies. You know, so it could be anything from marine work to heavy civil to, you know, to different types of base work. So, we just have to wait until they come out with an individual proposal and then, it's in a given district and then we look at it and see if it fits any one of the partners.

Okay, okay. And when will you hear on that?

Oh, while we're prequalified.

Yes.

To do it right now, we've bid on one project, so far, a couple, three weeks ago. And we haven't heard on that. We submitted to one -- wanted to bid on another project Friday, and obviously that's in the early proposal state.

Okay. And then lastly are you seeing any opportunities in the bonding market for -- coming in to do work?

For doing work for a contractor that has failed?

Yes.

We have not seen that as yet. We had a meeting with Travelers, our bonding company, last week and from their perspective they were pleasantly surprised that the market's maintained itself. I think we're more likely to see, you know, the contraction of different, you know, contractors that -- contractors and their ability to bid. And their ability to, you know, to respond quickly when the market turns. And then, you know, Travelers and, you know, I am still expecting that there will be some failures.

Okay, great. Thanks, guys.

You're welcome.

Our next question comes from the line of Todd Vencil with Davenport and Company.

Hey, guys, good morning.

Good morning, Todd.

Going back to the unabsorbed fixed costs on the equipment, that is -- so just to make sure I understand what you are saying, that is a debt to non-cash expense, correct?

That's correct.

And so it only affects your GAAP reported EPS and it probably actually reduces the amount of tax you pay?

It does.

And so are there any -- is there any other negative to having that on there, other than it reduces GAAP EPS and therefore, may influence the stock price?

There's some cash costs to maintain it. I mean you can't just park it and ignore it. And so, it may mean an extra mechanic or two across the whole company to --

And you insure it, and you also have property taxes on it.

Okay.

So, to that extent there's cash costs in there but the biggest chunk of it is depreciation.

Fair enough. And I realize we're getting down to nits but if you were to think about which is bigger, the cost to maintain it and insure it, then park it, or -- and pay tax on it or the savings on your taxes from having a -- an expense on the income statement?

You know, I --

I would have to do the math. (laughs)

(laughing) Yes, I haven't done that math, Todd.

Is it pretty close to a wash though on a cash basis?

Beg your pardon?

Pretty close to a wash on a cash basis?

I think that it can actually generate cash.

I don't know. I'm not going to answer it either way. (laughing)

Fair enough.

Never thought about it [like that]. I've always thought about it in terms of opportunity.

Yes.

When the situation does turn, by golly, we've got some good equipment.

Sure. I was just trying to find an --

We'd be out there the next day to start that great big job and others will have to go try to find some equipment.

Got it. I was just trying to find an argument for actually selling it but you are not helping me very much, Jim.

(laughs) You know, I've known a lot of contractors who've made their money on equipment. One joint-venture I worked on very early in my auditing career, was with a pretty darn big joint venture building a dam across the Rio Grande. The joint venture, the only money they made was on the salvaging of their equipment at the end of the job. So --

(laughs) Let's not do it that way, okay?

(laughing) We're not intending to.

On the I-15 job, you gave some -- you know, you said about 10% of the revenues run through. You know, are the margins -- can you give us an idea of what the margins on that look like, gross margin?

Well, we, you know, Fluor is the manager on that and so, we don't have a lot of input to what the estimated profits are. We are reporting based on what Fluor puts out to us.

Right.

It is pretty conservative numbers in our opinion.

If I were to just think about that though, what you are reporting in terms of profit relative to the revenue, you're reporting on that, is it fair to say that it is pretty well above sort of the average for the quarter?

No. It is below.

Okay. All right. And then I guess, last question from me, you mentioned that you're expecting to see some good prices on M&A deals out there, but you don't expect to do anything until visibility improves. You know, any color on what you guys would be looking for when the market turns? I mean, I know you've given general -- you know, general things in the past but has anything changed? Are you looking specifically at any either geographic area or capability?

Not really, Todd. We haven't changed our profile for what we're looking for at all. I mean, so -- the geography that we have continuously talked about would remain the same. I would be a little negative right now on Florida and California, maybe a little more focused on New Mexico, Arizona, Colorado. But certainly remaining in the South, preferably a specialty contractor where we've got the opportunity to lay in the rest of the types of work that we build in the organization.

Yes. Really no changes in philosophy, Todd.

That's great. Thanks a lot, guys.

Our next question comes from the line of Richard Rossi with Wunderlich Securities.

Rich.

Good morning, everybody. Just a couple of things at this point, one again on that I-15 job. The majority of that job for you should be in 2011. Is that correct?

No.

Well --

Well, I mean, we're going to be closer to 2011 and '12.

Yes. 2011 and '12 might look very similar to each another.

Oh, okay. So, there's more of an equal opportunity in both of those years in terms of percentage of total?

I think so.

Okay, all right. I had a feel that it was -- is it on schedule to be done in 2012?

It is.

Yes.

Okay.

Yes. We just drilled it last week.

All right. And on these joint-venture jobs that you were talking about having the possibility, what is your piece of that joint -- of those joint-ventures? Does it vary between them?

It varies. The one on the central Texas, we're just under 50%.

Okay. And how about the other one?

The other one we're still in the process of negotiating.

Okay, all right. And, well, I guess you actually have answered all of my other questions although one thing, you did mention the Hawaiian job and the opportunity for more work there. I just wanted to remind you that that would make a great analysts' trip out there to see that.

(laughing) I've been still trying to get out there, Rich.

You could invite us all. We could all go.

Can analysts do that under their code of ethics?

(laughing) Sure it's a professional job. All right, that's about it, guys. Thanks very much.

Thank you.

(Operator instructions). Our next question comes from the line of Jack Kasprzak with BB&T Capital Markets.

Hi, everybody, actually this is Paul Betz for Jack. You mentioned weather and productivity was good in the quarter. Does that mean like this $116 million in revenue, is that kind of your peak revenue on your existing workforce or would you have you to -- could you expand with what you've got without hiring new people?

No. I don't think so, Paul. The --

Jack.

No, it is Paul.

Jack is vacationing or something.

Oh.

The mix of the projects, I'm just thinking across, in particular up in our Dallas operation. We spent most of the first two quarters on structures and dirt moving and an awful lot of the next six months is going to be putting concrete down. It's a pretty dramatic difference in revenue recognition as the costs spike up with that heavy material costs.

Okay, thank you for that. And you mentioned that Texas lettings in August, was that $200 million?

That's $200 million that we're going to be bidding on.

That's --

The lettings are much larger than that.

The August letting is this week, Paul.

Right. Because before it was -- I guess, in total it's $800 million?

No, it's not that big. I had read the total --

I think it's under five.

Certainly under five, I think it's under four. I just looked at the things that we're bidding.

Okay.

No? They are shaking their heads, it may not be under four, I'm not sure.

I do not think that it is under four. I think you've got to take a look at it. At one time it was showing up as $800 million, I do not have the current list of it.

Yes. But that was before they moved roughly 200 into July.

August lettings are a good let -- it is a good sized letting in the aggregate, but we're only bidding on $200 million. Remember we don't typically bid on any of the big maintenance type projects that may be included in it. And then, you know, there's areas of the state we won't go to. And we don't do -- we don't bid on a lot of asphalt construction either.

Okay.

There's always going to be a big chunk we don't bid on.

Right. And lastly your tax rate, is 27% pretty good going forward, a good assumption?

It will --

Your JVs.

It varies due to the proportion of the revenue -- the profit generated by the various legal entities, ones which are -- have minority non-controlling interests. It -- they -- those earnings are not taxed to us. They are taxed to those non-controlling interests. And due to where you put that on the income statement, you come up with this 27%. If you were to push that up above the income tax line at -- as a deduction, then the rate is more I think 33%, 35%, somewhere in there percent.

Yes. Okay. Thank you very much.

Our next question comes from the line of Rick D'Auteuil with Columbia Management.

Hi. Good morning.

Good morning. How are you, sir?

Good. So the -- on the idle equipment issue, could you -- were you able to deploy any of that, or expect to deploy any of that in the Utah project? I know that you are moving equipment around a bit. Is that fair to --

We actually have moved some to Utah. Or are in the process of doing it.

We've recently moved some more out to Hawaii too.

Did you had hear that?

Yes, I did, I did. So, even with that you still have quite a bit of idle equipment?

Yes.

Okay. How about as it relates to some of the new work that you've landed here? Is there the ability to pick up the utilization on that?

It's all timing, schedules.

Yes. Those recent low bids will have some impact this year. The vast majority will be 2011 work. But that was anticipated in our expectations for this year.

Okay. And then I -- I'm a little confused. So, you know, what happened specific to, you said July you saw a pickup, less competitive bidding, maybe less competitors, most of that sounded like Texas. So, did -- have there been a couple of bottom feeders that have fallen out of the mix? Or I guess what is going on in the dynamics of the bidding process to all of a sudden see a little improvement?

Well, when we looked back, it was the July letting that sort of attracted my attention to it. When we looked back at the past several months, we've seen, not consistent on every project by any means, Rick, but we've seen a trend where the spreads from low bidder to second bidder and from low bidder to third bidder have been expanding. You know, when everyone is bunched together and at very, very low margins, that is what we have been looking at pretty consistently for quite a while. What we're seeing in the last couple of months is a widening of the spread where the first bidder leaves 5% or 6% on the table. That's a sizable spread. And then we're seeing another jump of similar size, 5% to 6% going from second to third.

That means that the majority of our competitors either have booked enough work and they're trying to expand margins or, well, they realize that some of the work they booked last year that is -- is -- they're not making any money on it. So, to me it's a very positive sign, and it's a matrix that we didn't track until pretty recently here. We all paid attention but we didn't track it. We're tracking it very close now.

Do you think there is a chance that -- so I -- you know, I appreciate that response, but you think there's a chance that some of the non-traditional bidders that have come in because of weak commercial and residential construction are falling by the wayside or they're just filled up with some of the lowball stuff they collected last year?

We haven't seen them go away.

Okay.

But, you know, they may be just trying to keep a core part of their business going and they're okay with that right now. I don't know. We -- that's conjecture.

Okay. I'm just -- you know, the reason I ask, is this a one-month phenomenon or all the -- you know, maybe there is an improving trend here.

We hope it is an improving trend but until we see what happens in August, I would be hesitant to predict a change in trend.

We'll know more at the end of the week, Rick.

All right, thank you very much.

Our next question comes from the line of Rich Wesolowski of Sidoti.

Thanks again. I just had one more. You listed your labor force down by some 25% during last year and discussed the competitive pressure is still very difficult. If we go through a number of additional quarters where competition is tight and the backlog fell, would you broadly expect to reduce the head count in order to match the market? Or rather, bid the work at margins necessary to keep the people you have busy, given that those are presumably your more valuable employees?

We don't think that that will be necessary and hopefully it won't. And from the trends that we're seeing, you know, we're reasonably positive. So, if that happens we'll have to cross that bridge when it comes to us but I don't believe it will.

Recognize that a large, large percentage of our people are in the field are -- but they are not foremen or superintendents. Those foremen or superintendents are the ones who are really going to try to keep a good core of and if there were -- if things were to be more adverse, then we would have to make more cuts. And, yes, there would be people we'd want to keep but it is hard to give a linear, or if that is the right word, a connection between the two.

Right.

Rich, those are always hard choices. We have not had to face them for a long, long time. But --

It doesn't sound like you are approaching the point at which you have to get work just to get work.

No, not at all.

Not yet.

Okay, thank you.

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

We want to thank each of you for joining us today for this conference call. And if you have -- individually you have any questions, please do not hesitate to call us. We look forward to the next conference call and hope that you have a good time in between.

Thank you.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day.