ENGlobal Corporation Q4 2008 Earnings Call Transcript

Mar.16.09 | About: ENGlobal Corporation (ENG)

ENGlobal Corporation

Q4 2008 Earnings Call

March 16, 2009 11:00 am ET

Executives

Natalie S. Hairston – Vice President – Investor Relations, Chief Governance Officer & Corporate Secretary

William A. Coskey – Chairman of the Board, President & Chief Executive Officer

Robert W. Raiford – Chief Financial Officer & Treasurer

Analysts

Graham Mattison – Lazard Capital Markets

David Yuschak – Sanders Morris Harris

Tahira Afzal – KeyBanc Capital Markets

Operator

Greetings and welcome to the ENGlobal Corporation Fourth Quarter and Fiscal Year-End 2008 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Natalie Hairston, Vice President of Investor Relations and Chief Governance Officer for ENGlobal. Thank you, Ms. Hairston you may now begin.

Natalie S. Hairston

Thank you, Rob. Good morning everyone and thank you for joining us today. With me on the call are Bill Coskey, Chairman and Chief Executive Officer of ENGlobal and Bob Raiford, Chief Financial Officer and Treasurer. In a moment, I will turn the call over to Bill Coskey, who will highlight management’s perspective on our financial results for the year-ended December 31, 2008. Bob Raiford will then review other financial points of interest for the year and in particular those topics that relate to our balance sheet and cash flow.

Before we begin, I would like to remind everyone that some of the information discussed on this call will contain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations. Actual results may differ materially from those set forth in such statements. Additional information concerning factors that may cause actual results to differ is contained in the risk factor section of our previously filed Form 10-K and 10-Q. All of those filings are available on the Investor Relations page of ENGlobal’s website at englobal.com. Our filings with the SEC are also available on the SEC’s website at sec.gov.

As usual during Q&A please limit yourself to one question and then one follow-up if necessary. And now I’d like to introduce our Chairman and Chief Executive Officer, Mr. Coskey. Go ahead, Bill.

William A. Coskey

Thank you, Natalie, and good morning everyone. We are extremely pleased to announce that 2008 was a record year for ENGlobal both in terms of revenues and profitability. This morning we reported $494 million in annual revenues and recorded net income of $0.66 per diluted share for the full year. Both of these results were unprecedented in the company's history and especially given the fact that we almost reached the $500 million revenue mark. It's a significant point and also a very good time that our year-over-year earnings growth of 46% exceeded our revenue growth of 36%.

In addition as an important fact that 97% of our revenue for 2008 was the result of the internal or non-acquisition related activities. For our fourth quarter, $0.15 per diluted share represents our best fourth quarter ever and what is normally a seasonally down quarter and the $0.15 of earnings also represent a 200% increase when compared to the fourth quarter of 2007. I would like to acknowledge the management and employees of ENGlobal for achieving these results and commend them on their outstanding performance on behalf of our clients and stockholders.

Given the economic slowdown in the second half of the year, our company performed very well in 2008, it's impressive to me that all four of our operating groups participated in our positive results, as each of our segments grew their revenue and operating income to varying degrees. The fourth quarter of 2008 was driven in large part by a significant turnaround in our automation segment. As previously reported the automation group booked about $46 million in backlog during the fourth quarter of 2008, approximately $14 million of automation's fourth quarter revenue was attributed to recovery efforts that were specific to Hurricane Ike in September of 2008.

Also during 2008, our automation group completed the integration of ACE, Advanced Control Engineering. We are already beginning to see the benefits and opportunities that our new Mobile, Alabama office has to offer. We are proud to welcome ACE as a valuable part of our team and this is their first reporting quarter with ENGlobal. As you might know, ENGlobal like many other service providers in our industry is somewhat of a seasonal business. Our strongest financial performance normally occurs during the second and third quarters, while the first and fourth quarters are typically weaker. This seasonal trend can mainly be attributed to projects ramping down at year-end and then ramping up at the first of the year. Also we experienced reduced billable time around the holidays at year-end.

Our backlog increased 11% to about $326 million when compared to our backlog level at the end of 2007. Although, ENGlobal continues to win contracts and our backlog has increased slightly from this time last year. We are not immune to the current economic slowdown. My perception is that midstream pipeline spending has been impacted, but not to the extent that downstream spending has been.

For example, the oil and gas journal predicts that U.S. pipeline construction will be down around 7% for 2009 when compared with 2008. It is projected that over 20,000 miles of new pipeline will be constructed in the U.S. in 2009, which is still a high amount by historical standards. Certain refining and petrochemical clients currently seem to be taking a more aggressive approach to cutting their cost and capital spending.

The general trends for project delays and deferrals as opposed to outright project cancellations. I'm also saying that spending by our clients is very much a function of their size and balance sheet, with larger self-funded clients being able to sustain their levels of spending early this year, much more so than smaller operators that typically require financing. The greater amount of project activity and spending by our clients is going forward in the midstream and downstream sectors is likely to be a function of several factors such as higher commodity prices, higher refining and petrochem margins and availability of capital.

Today, I believe that conditions that support our business have already improved and are better than they were early this year, or late last year. Also several clients have informally told us they expect to increase their spending as the year progresses. We are fortunate not to have a majority of our work tied to large capital projects as this area seems to be the most impacted. For example, last week we issued a press release, wherein we summarized an internal analysis of our larger book projects in just one month that being January 2009 and the purpose was to assess the underlying drivers of recent new work.

Although, one month cannot be a leading indicator of what we will see ahead of us, current trends in the analysis showed that approximately 75% of anticipated 2009 revenue is likely to come from a variety of smaller sources such as what we call Run and Maintain projects, and these are small capital projects, alliance relationships and ongoing maintenance work. Another is Control System Upgrades, where we retrofit obsolete distributed control systems and analyze equipment and process plants. And the third is Recovery efforts, like the ones we did related to Hurricane Ike or other natural disasters. And the fourth is Regulatory Compliance and this is process safety management, pipeline integrity, environmental mandates and other governmental programs.

In summary, the results of our recent internal analysis were consistent with our segments over many years, regarding the mix of our business, which tends to a smaller and recurring work. Here are some current trends from each of our business units. For our Engineering Group, billable hours for work we do in our offices have been trending down since January and it's currently running around 20% less than levels seen through much of last year. The bright spot within our Engineering group is our in-plant staff, which has remained relatively stable over the last six months.

For our Construction group, our higher margin construction management division they are still running numbers that are roughly in line with what we did last year. However, the numbers for our Inspection Group has been trending down since the start of the fourth quarter of last year, some of which is seasonal. Our expectation is for a number of factors to trend up again through the rest of this year and into 2010 as pipeline construction projects get underway.

For our Automation Group, they're probably best positioned in terms of backlog that should carry them through much of the year. We are also in the process of relocating our control system fabrication shop into a larger better-equipped 80,000 square foot facility in Houston. This move is due to the increased amount of work we have booked to fabricate remote instrument enclosures and analyze our systems. It's important to note that major distributed control system manufacturers likes the ones we installed for our clients have already scheduled to phase out of heritage platform that have a large installed base in the process industry.

We believe that this one fact is going to create a significant amount of retrofit work in coming years given our clients need to migrate to newer DCF platforms and we expect to participate in this trend. For our Land group, they continue to generate steady revenue and profits and our considerable new opportunities to require right-of-way for electric power transmission projects. We've already had some success on landing projects in this fast growing area in addition to the work we already do on pipeline projects. Some of our biggest opportunities come from a new set of clients in the alternative energy sector. To that end we have already formed alliance partnerships with key alternative energy technology providers and project developers and these relationships have the near-term potential to create substantial work for our company.

If these particular projects are funded and awarded as we expect then ENGlobal will provide support for the design, construction, and operation of these facilities. Two particular areas where we have alliance partners are for the production of biodiesel and also various gasification technologies, such as gasification of refuse derived fuel. These multiple project plans are consistent with the administration's new energy policy, which provides significant support for all renewable and sustainable forms of energy.

So, to sum it all up today we reported very good financial results from last year and in particular our fourth quarter. While most of our operations are still performing roughly inline with the recent past, we have seen a downturn in billable hours for both our office engineering operations and our inspection group, where we are starting to see proposal and project activity that indicates the general environment for our business should improve as the year progresses. Thank you for your time this morning. I will now turn the call over to Bob.

Robert W. Raiford

Thanks Bill. Good morning everyone. A lot of specific details of results of 2008 and fourth quarter ended December 31 were disclosed in our press release this morning, but I would like to highlight some other selected items. Unless otherwise stated, the financial comparisons I will make compare fourth quarter 2008 results to those in fourth quarter 2007.

Operations produced approximately $7.4 million in net cash during the fourth quarter, compared to approximately $7.7 million produced in the same period in 2007. For the 12 months ended with our most recent quarter, operations provided approximately $8.3 million in net cash, compared to approximately $1.8 million used during the year in 2007. Given our sustained growth and the need for working capital to fund that growth, 2008 was the first year in the last five years that our business has produced cash from operations. Our non-cash items for 2008 totaled approximately $3.1 million and included $1.9 million in amortization of intangibles and $1.2 million in stock-based compensation. Both of these items were slightly higher in 2007.

Overall we had a decrease of approximately $400,000 in non-cash items year-over-year. Although, fourth quarter working capital was negatively impacted by increases in accounts receivable, cost in excess of billings and prepaid expenses, we experienced favorable impacts during the quarter as a result of an increase in accounts payable primarily related to significant pass-through procurement and subcontracted services recorded in fourth quarter and an increase in accrued compensation primarily related to the timing of our final biweekly payrolls for the year.

Total capital expenditure for 2008 totaled $1.9 million, compared to expenditures of $2.2 million in 2007. We do expect an increase in capital investment during 2009, as a result of office expansions, but we do not expect to exceed our current credit facilities annual limit of $3.25 million. Overall, our long-term commitments consisted primarily of a $22.5 million against our credit agreement with Comerica Bank and $1.1 million related to acquisition notes, decreased approximately 26% or approximately $8.2 million from $32.1 million at the end of the third quarter to $23.9 million as of the end of the year.

The decrease in our overall long-term commitments during the fourth quarter was primarily related to the decrease in our credit facility due to the timing of our final biweekly pay period. For the 12-month period of 2008, our overall long-term commitments net of current portion decreased approximately 18% or approximately $5.4 million from $29.3 million as of December 31, 2007. As a percentage of stockholders equity, our overall long-term debt at the end of 2008 decreased to 31%, compared to 53% at the end of 2007.

Total liquidity, which includes cash plus availability under our credit facility, was $28.1 million at the end of 2008, compared to $22 million at the end of 2007. The outstanding balance on our line of credit at the end of 2008 was $22.5 million remaining borrowings available of $27.1 million. Our outstanding letters of credit are less than 400,000 primarily to cover deductibles on our insurance policy. Our credit agreement with Comerica Bank provides a $50 million senior secured revolving credit facility that matures in August of 2010. The agreement is guaranteed by substantially all the company's subsidiaries is secured by substantially all of the company's assets and positions Comerica as a senior to other debt. But the company's option amounts borrowed under the credit facility bear interest at either prime or euro based rate plus an additional margin ranging from 1.25 to 1.75 basis points.

This additional margin is based on our most recent leverage ratio. Currently, we have 20 million of our facility on euro-based rate at a mix of one-month and three-months terms. Our average days sales outstanding was 64 days for the year just ended, compared to 61 days at the end of the third quarter of 2008. Our DSO was also 61 days at the end of 2007. The increase during the quarter of the year was primarily due to administrative delays in getting billings completed on hurricane related projects and clients extending payments beyond contractual terms. We do not expect our average days outstanding to materially change in the first quarter of 2009. We are seeing recent improving trends on our internal billing process, which has lowered our average unbilled receivables by 50%.

Our effective tax rate for the year ended December 31, 2008 was 39.2%, compared to a rate of 39.7% for the year ended December 31, 2007. We do not expect our tax rate for 2009 to materially change from the effective tax rate for the year just ended. Thank you for your time this morning, I will now turn the call back over to the operator.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Thank you. Our first question today is coming from the line of Graham Mattison of Lazard Capital Markets. Please go ahead with your question sir.

Graham Mattison – Lazard Capital Markets

Hi, good morning.

William A. Coskey

Good morning, Graham.

Robert W. Raiford

Good morning, Graham.

Graham Mattison – Lazard Capital Markets

I wanted to share with you about the margin outlook and what you're seeing in your different divisions, because we did see somewhat of a decline in that in particularly engineering. What's the decline in billable hours going forward, is this a new margin, is that 12%, I mean is that a sort of good run rate going forward or could we see that coming back up to more than a 16%-17% range seen in prior quarters?

William A. Coskey

I think the biggest impact on our gross profit margin for engineering in 2008 was a result of a higher level of low margins pass-through for procurement and when we take responsibility for subcontractors, I don't really think our job profits on our labor billing rates have changed materially, I think that fluctuates around due to the pass-throughs we do for our clients.

Graham Mattison – Lazard Capital Markets

And that was the case in the fourth quarter?

William A. Coskey

Yeah. That will be the case in the fourth quarter.

Graham Mattison – Lazard Capital Markets

Got it.

William A. Coskey

Primarily related to the hurricane recovery work we did.

Graham Mattison – Lazard Capital Markets

And the under procurement work on that, got you, okay. And then I will question on the CapEx, you mentioned the CapEx was going to be up a bit in 2009, can you give us an idea of how much you think you would be spending there, these will be up materially or…

Robert W. Raiford

Less than a million, probably in the $500,000 to a $1 million range.

Graham Mattison – Lazard Capital Markets

Okay. Very small. And then for SG&A costs in the quarter, those ticked up a bit, is that a, you always talk about the $7.5 million run rate going forward to sort of quarterly rate, will we see that coming down just given the some of the slowness in the overall engineering sector and some other parts of the business?

William A. Coskey

We should be taking some steps to reduce our SG&A, I think what you have to remember in the fourth quarter, we did some layer on in acquisition of ACE and that added some incremental SG&A on the comparative basis. But we still plan to be nominally in that $30 million SG&A area for the year.

Graham Mattison – Lazard Capital Markets

All right, great. Well I jump back in queue. Thank you very much.

William A. Coskey

Thank you, Graham.

Operator

Thank you. Our next question is coming from line of David Yuschak of Sanders Morris Harris. Please go ahead with your question.

David Yuschak – Sanders Morris Harris

Hi. Good mornings guys. On your engineering side does that suggest if you're having more pass-through volumes in that fourth quarter, you've got billable hours as far as new work or anything else you may be working that was down, and probably one the lowest in the quarter at all, could you give us a sense of what’s happening there?

William A. Coskey

For our engineering work.

David Yuschak – Sanders Morris Harris

Yeah.

William A. Coskey

I don’t really understand the question properly.

David Yuschak – Sanders Morris Harris

The revenue produced in the quarter is $59 million, which was lowest I think since the first quarter and I am just wondering you mentioned that margins were lower in the quarter because of pass-through, if you had more pass-through and does that mean your billable hours as a percentage of that total revenue were down relative to the total you produced in way of revenue in the quarter?

William A. Coskey

I think what I saw was the highest billable hours we had in our engineering group last year occurred probably in second and third quarters and had been probably trending down since late in the third quarter. So, yes we did see a reduced level of billing hours in our engineering group in the fourth quarter. And we will probably kind of come down another notch in the first quarter of this year.

David Yuschak – Sanders Morris Harris

Having reduced billables does that mean that you're also having some kind of impact on the gross margin because of that, because you're not being able to get to leverage of that higher margin business up?

William A. Coskey

I don’t know if it should impact our gross margin, it might impact our operating margin to the extentwe’re not fast enough to reduce our SG&A associated with that group.

David Yuschak – Sanders Morris Harris

I guess one of the problems a lot of E&C companies are having today is just continuing to hold on to the talent figuring when this slowdown starts to bottom out and comeback in as you guys look at it, what's your thought about billables and as you go through to the rest of the year?

William A. Coskey

Well, as you know for many, many years, we have done a pretty good job of keeping our utilization rate up, we have seen it trend down slightly below 90%, it's always been our utilization of billable resources is always about 90% plus or minus a few points. I think right now we were in 2008 above that 90% mark, now we are probably a point or two below that margin and that's kind of the band that we operate in.

David Yuschak – Sanders Morris Harris

Okay. Okay.

William A. Coskey

Done a pretty good job of keeping our utilization up during this time.

David Yuschak – Sanders Morris Harris

So, your thought is that as construction would end up being a lot longer, probably takes some look at staffing requirements there

William A. Coskey

Inspection.

David Yuschak – Sanders Morris Harris

You think billable rates can keep that capacity up to where its normally been?

William A. Coskey

As I've said in my comments we are actually fairly optimistic about some things that potentially happen for our business, but our employee count is driven by project needs.

David Yuschak – Sanders Morris Harris

Could you just give me some sense as to where that optimism is, I mean is it just basically because of a base of smaller projects?

William A. Coskey

Well it's a base of the smaller projects, we run and maintain the alliance relationships, it's some incremental opportunities related to alternative energy that have some potential I think it's just I mean saying like I said, saying today, what we are hearing from clients today it's a little more positive then what we heard in November, December, and January.

David Yuschak – Sanders Morris Harris

Okay.

William A. Coskey

So, the [purchase stream] seem to be loosing a little bit and people going back to work and so that's why I am optimistic.

David Yuschak – Sanders Morris Harris

Okay. And then one last thing on the construction, the gross margin can be variable from one quarter to next and was there anything in this fourth quarter that on the gross margin there that had an impact or is it just basically a mix scenario that created a gross margin, I think was your lowest gross margin into the year I guess?

William A. Coskey

Yeah it's very much governed by our mix of inspection personnel, which is low. And the fact that on the construction management side, we've really been making some investments, some business development investments to get in to position ourselves in the alternative energy sector and to make these alliances with technology partners and developers. So, that's probably a mix is my answer, but then also some investments we are making for the future.

David Yuschak – Sanders Morris Harris

So, the alternative energy thing is where you are, it's part of that that extra lower gross margin there is some cost you're putting in that resource?

William A. Coskey

That’s right that's…

David Yuschak – Sanders Morris Harris

Could you give some idea how much money we are talking about as far as these new initiatives?

William A. Coskey

Well on an annual, well I really don’t have that number to be honest.

David Yuschak – Sanders Morris Harris

Because it's an area where you have done, I mean you have worked in the past and just matter, do you think it's more a case now to just begin to ramp up some of that expertise?

William A. Coskey

It’s the case of getting positioned with certain technology companies and certain developers to be able to do the work once they get their funding in place. So, that's what we are awaiting right now funding for alternative energy projects. So, we have been spending money getting positioned.

David Yuschak – Sanders Morris Harris

Okay.

William A. Coskey

Throughout 2008.

David Yuschak – Sanders Morris Harris

That's all I've got for now. Thanks.

William A. Coskey

Thank you, Dave.

Operator

Thank you. Our next question will be coming from the line of Tahira Afzal. Please go ahead with your question.

Tahira Afzal – KeyBanc Capital Markets

Good morning everyone.

Robert W. Raiford

Good morning.

William A. Coskey

Good morning.

Tahira Afzal – KeyBanc Capital Markets

Just wanted to start off by asking you a question about your accounts receivable you said you will sell off some plants going down, some of the receivables stay back, is that for specific group, is it more on the midstream or downstream side or is it really more broad based?

William A. Coskey

I would say it's little more broad based, the issue I guess in the fourth quarter primarily related to the hurricane, there were issues on the client side because they were really more impacted or really, more interested in getting their operations backup and cleaning up the paperwork for contractual amendments in billings. I guess we are seeing also on the land and the pipeline groups, some of that administratively, it's – we have got some of it cleaned up in the first quarter of 2009, but overall the fourth quarter that were just kind of a slippage of our collections not really in light of our performance, but just administrative issues.

Tahira Afzal – KeyBanc Capital Markets

Got it, okay. And based on that backlog of $326 million, how much of that came from the inclusion of ACE?

Robert W. Raiford

Of the acquisition of ACE?

William A. Coskey

How much backlog came?

Tahira Afzal – KeyBanc Capital Markets

Yes.

William A. Coskey

My guess is maybe a pure business, which has an annual run rate revenue of about $10 million to $12 million, my guess is maybe $5 million or $7.5 million worth of backlog came to, maybe nine months worth of your operation.

Tahira Afzal – KeyBanc Capital Markets

Great. So, it's not a big amount, it was largely organic?

William A. Coskey

It's not a large amount.

Tahira Afzal – KeyBanc Capital Markets

And I thought it was pretty interesting because a lot of your peers are indicating that they are seeing things not becoming worse, but at best staying static, but it seems you are more optimistic, if there, this commentary is coming on both the downstream side and midstream side for example, [news] has indicated they see second half of the year being down versus the first half. Can you talk about how you might be different from some of your peers and of course the fact you're more engineering and maintenance might be one of the reasons, but we would love to get a little more color on what's going to get you a little more optimism?

William A. Coskey

I don’t think, first of all in the pipeline side I think we will start seeing pipeline projects start-up as the year progresses and between now and into 2010 as anticipated to be real banner year for the pipeline construction industry with a number of new projects. Large projects that are starting I believe that there have been some slight improvements to refining margins and petrochem margins, which would support their spending. We have seen several of our small-to-mid size clients receive financing I don’t talk to them about this, but we see reports in the financial press to where they are able to receive capital to do their business and that should allow them to spend money and so that - that's really the, our automation I would just point back to those same four factors on the type of work we do. The control systems upgrades and run and maintain work in the compliance work. Maybe in that regard we are a little bit different from some of our peers.

Tahira Afzal – KeyBanc Capital Markets

Got it okay. So, it seems like and I guess that makes sense, one of the main reasons you think some of that maintenance business comeback is because it's probably more tied to the credit market versus maybe some of the capital spend, which is more tied to demand, would that be the right way of looking at it?

William A. Coskey

Thank you.

Tahira Afzal – KeyBanc Capital Markets

Okay. Great. And then one just last question just wanted to go over to which project on the refinery side you are working on in the Middle East as far you can just go through and perhaps the name for some of the larger ones.

William A. Coskey

Did you say refinery? We are working on a few, our automation group is working on one specific petrochemical complex in Yanbu and other than that, I don’t know of any Middle Eastern projects we are working on other than that one.

Tahira Afzal – KeyBanc Capital Markets

Okay, great, that's the Yanbu. Okay, thank you very much. Great quarter guys.

William A. Coskey

Thank you.

Robert W. Raiford

Thanks.

Operator

Thank you. (Operator Instructions). Our next question is a follow-up from the line of David Yuschak. Please go ahead with your question sir.

David Yuschak – Sanders Morris Harris

Yeah. Just on your Automation Group guys, with your acquisition and the kind of volumes you put up here in the gross margins. Did the acquisition have a material impact on it, or was it things that you guys were doing going into the quarter, plus the acquisition that really have to boost the prospect there from a profitability point of view. I am just kind of wondering if there is, what kind of combination if, as you know the gross margin there was outstanding, compared to anything you have ever done, I just kind of wonder what kind of combination of things may have affected the acquisition?

William A. Coskey

I think the ACE acquisition have a definite impact, but I think the bigger impact came from this business we have landed probably late in the third quarter and during the fourth quarter, it was a bigger impact from the acquisition itself. But they’ve actually with the ACE acquisition they’ve actually helped us on the execution side of a lot of this work that was landed.

David Yuschak – Sanders Morris Harris

Okay. So, a lot of that work was just a quick burn work that helped to get the revenue up, but the execution spend helped a good deal in getting that kind of gross margin?

William A. Coskey

That’s right.

David Yuschak – Sanders Morris Harris

You guys are getting the business, they help to execute it, that was to wrap it up.

William A. Coskey

That’s right.

David Yuschak – Sanders Morris Harris

Okay. Thanks.

Operator

Thank you. Our next question is a follow-up also from the line of the Tahira Afzal. Please go ahead with your question.

Tahira Afzal – KeyBanc Capital Markets

Sorry, gentlemen. Just had a one more question, if you look at your different segments, which one in your opinion do you have the least visibility on in general?

William A. Coskey

I would say our engineering group right now especially in the office services, is where we have our least visibility.

Tahira Afzal – KeyBanc Capital Markets

Got it. And then it seems like that you make a little bit of opportunity in terms of on the transmission side would it been able to, is it possible to quantify that for you as you look at opportunities right now if you do see a federal let's say renewables mandate going across and that results in material energy, don't seem designated that could that present a material sizing benefit for you going forward or is it just a very small part of your business?

William A. Coskey

No, when it comes to electric power transmission everybody believe there is going to be this tremendous growth and I do too, I believe the low hanging fruit for us is with our right-of-way agents in our Land group, that’s kind of the way we kicked the door down to get there, but we are also getting positioned to do further services in electric power transmission, I am just really not prepared to talk about, I have some meetings throughout this week, we are looking again at partnering or maybe small acquisitions or maybe hiring some key individuals to help us get position more on the engineering and construction management side of that industry. And so, but yes, its something we have our eyes on it’s most of the work we would do today would come to our Land group, and it would be probably right now a small, but growing percent of their activity.

Tahira Afzal – KeyBanc Capital Markets

Got it. And do you think you have an advantage if you do decide to do some small acquisitions to get a little more aggressive in this space, given the business that you have on the Land group, does that provide you an edge in anyway?

William A. Coskey

Yeah. We see our Land group being our beachhead. Just like they gave us a beachhead in Denver to open an engineering office, we believe they can give us a beachhead as an entry to do engineering and construction management for power transmission projects and so yeah we are going to use that to our advantage.

Tahira Afzal – KeyBanc Capital Markets

Okay. Super, thanks a lot.

Operator

Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

Natalie S. Hairston

Thank you, Bob. Hello again everyone. I’ll be available to answer any follow up questions this afternoon or you can always e-mail me directly at ir@ENGlobal.com. Thank you for being on the call today and thank you as always for your continued support of ENGlobal.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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