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Executives

Michael L. Rose - Chairman and Chief Executive Officer

Howard C. Wadsworth - Chief Financial Officer

Joseph E. Milliron - President and Chief Operating Officer

Analysts

Matt Duncan - Stephens, Inc

Matt Tucker - Keybanc

Furmanite Corporation (FRM) Q4 2008 Earnings Call March 16, 2009 10:30 AM ET

Operator

Good morning and thank you for joining the call. Before I introduced Mr. Rose, allow me to explain the format of the call. For your convenience, we have set aside slide available on your website that will closely follow the speakers' presentation this morning. Following the presentation today, we will invite questions from analysts and fund managers. At that time, I will explain the procedure for indicating that you will wish to ask a question. (Operator Instructions)

On behalf of the company, we would like to say that certain statements that may be made in the call today may not be purely historical and, as such, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

There can be no assurance that any forward-looking statements made in this call will prove to be accurate and should not be regarded as representation that the objectives and plans of the company will be achieved. Any forward-looking statements made in this call are based on information presently available to management and the company assumes no obligation to update them.

Now, I would like to introduce Mr. Mike Rose, CEO of Furmanite Corporation. Mr. Rose, you may begin.

Michael L. Rose

Thank you, Mitchell. Good morning and welcome to our year-end conference call. I am here today with Mr. Joe Milliron, Furmanite's President and COO; and Mr. Howard Wadsworth, our CFO.

I would like to begin by telling you how excited and proud I am to serve tend to lead as the CEO of this great company. Unlike the present economic situation eliminated any honeymoon might have expected in my first 100 days, and I'm really was looking forward to that, but still be it. It is one of those challenges that we all have to face at some time in our careers, and I assure you this is not my first.

The excitement is in finding the solution to the challenge. And being realistic that an overnight fix, may not be the right answer and that combination can be difficult to times because you're hating to try and fix the problem as soon as possible.

I am honored and proud to follow the legacy of leadership that John Barnes established. On his watch, the company grew to be a global force. The balance sheet is clean and strong and our cash position is excellent. Thanks to John's leadership; we have all the tools we need to tier up Furmanite shift to the present storm through a Safe Harbor.

My plan is to continue to adhere to the strategic direction and goals we established over three years ago, while working hard with Joe to target our operational objectives, to ensure we continue to enhance our position around the world. Our strategic goals remain aggressive, and they drive us to be both prudent and optimistic in the current environment.

And while it would be unrealistic to expect double-digit operating margins in the short-term, this does not remain... this does remain one of our company's targets.

My plans for Furmanite is to recognize the company's core strengths; apply them effectively and develop them wisely. One of our core strengths is of course our excellent financial position.

We are not over levered and we have a strong cash position. In today's market, it's a highly desirable combination. Our strength is our consistent strategy of maximizing organic growth as opposed to volume growth through acquisition. We're going to stay with that. We believe that organic growth is the right way to grow in the current environment. It allows us to conserve cash while growing revenues.

Our strategic engine for organic growth is our robust service array. We intend to continue to advance our goal of providing every service in every location, as well as expanding our service offerings.

This goal is very important as it further develops another core strength of ours of longstanding customer relationships that we have maintained around the world for many years, Furmanite has been in operation.

Around the world, this starts yet another of our core strengths. We are a global company, and while the media speaks daily about the recession being global, we have found that the degree of the downturn is not the same in every part of the world, and is not the same in every industry.

Fundamentals of our global success of two other core strengths. Our reputation for quality, and our record for innovation.

These core strengths; financial stability, global footprint, our longstanding customer relationships, our quality and innovation give Furmanite a unique advantage in today's economic landscape.

The primary industry segments we serve are still providing us with opportunities and we see every indication that we'll continue.

While there are continuing opportunities and business, we also are seeing the slippage of jobs for one month or quarter to another, and in certain cases, or by cancellation of projects.

In particular, we are seeing construction projects are being slowed or cancelled. But, ladies and gentlemen, this is nothing new you have heard this before. On the other hand, we are finding a stimulus packages around the world relating to infrastructure do offer great targets for future Furmanite businesses.

It is principally our customers in steel, paper, pulp and chemical industries who are the hardest hit by the downturn at this point.

However, in my opinion, on positive note to consider, when talking about the chemical industry in particular and industry in general is that the reduction of crude prices that we have seen from the high of 140 a barrel to present day levels, has lowered the price of chemical feed stocks and that in turn, two time is lowering the cost of production of nylon, plastic and other products. So that pricing is becoming competitive again.

As we discussed in our third quarter conference call, we anticipated that the downturn would have an effect on our customers and on us. We were proactive in the fourth quarter in managing our G&A, and in targeting our 2009 goals to 2008 levels.

We continued to closely manage the G&A and operational expenses to see if any additional reductions are possible without jeopardizing our revenue growth.

Now, I'd like to speak specifically to our performance in the fourth quarter for the year, and then I'll ask Howard to take you through the numbers more closely.

Overall, we performed very well at 2008. Revenues worldwide increased by 11% to $321 million. Our pretax income increased by 39%, our net income due to currency effects increased 75% to 21.9 million. Even in the fourth quarter, when the economic downturn was in full swing, we gained 12% in revenues.

However, in the fourth quarter, we also experienced the effect of currency fluctuations, which reduced reported revenues by 8 million and reduced our reported operating income by 1.3 million, when compared with 2007. We still reported respectable OI for the fourth quarter; and without the currency effect, we would have been slightly ahead of prior year period.

Assuming that the currencies remained at current levels, we expect to experience similar effects on our 2009 results, when compared to prior year periods. It's all part of the economic landscape at this point in time. And we must deal with it. But currency effects are part and parcel of being a global enterprise. We focus our attention on building high-performance operating units around the world. However, we manage those units in their own currencies.

In summary, I want to emphasize that Furmanite is a well built ship. The ability to weather the economic storm and phosphor (ph). It may take some innovative navigation and a little longer time to get from where we are today to where we want to be. But I am confident in our capabilities and in our future.

Now what I'd like to do is, turn this over to Howard, as I promised you, he'll give you a closer look at the numbers. Howard, please.

Howard C. Wadsworth

Thank you, Mike. Good morning everyone. Before I get started on the numbers, I do want to go through one thing that Mike talked about the currencies, and this is really significant to us in the fourth quarter. And I want to talk briefly about three of the currencies that affected us the most. First one is the British pound.

At the end of 2007, the British pound was at $1.99. By the end of the third quarter of 2008, it had dropped 10% down to $1.82. By the end of the year, it dropped another 26%, down to $1.44. And as of last Friday, it was at $1.40, which was down another 3%; big impact on us.

The Euro; at the end of '07, was $1.47, by September the 30th as you fall into $1.44, it's down 2%; fell another 2% in the fourth quarter. And by the end of the year, it was $1.41, and as of Friday, it had fallen another 9%, down to $1.29.

The Australian dollar, was at $0.88 at the end of '07, down to $0.82 or 7% by September 30th, down another 19% to $0.69 by the end of the year and down another 5% to $0.66 last Friday. As you can see those are really numbers that will cause a lot of fluctuations in our financial statements.

Turning to the income statement; our revenues as Mike mentioned were up 12% for the quarter and 11% for the year. When you look at our operating cost and in lot of our revenues, look at our net revenue margin, which is revenues minus operating cost, the fourth quarter of '08 was a 34% amount and that compares to 38% in the fourth quarter of 2007.

In last year's call, someone asked about that 38% net revenue margin. And we talked about the fact that there was some cost credit adjustment of about 1.2 million at the end of some contracts that were closed at the end of 2007. And we told them that the 38% was an artificially high number because of that.

The operating cost if you adjust for that and for currency to be comparable, gives you about a 34.3% net revenue margin for the fourth quarter of '08, and 36.6% for the fourth quarter of '07. The difference is due to a mix obviously in the business.

If you look at DD&A, the fourth quarter and '07, excuse me, had a purchase price adjustment in both Australia and the UK of about $400,000 service little artificially high. The current run rate you're seeing of about 1.4 million that reflects our 2008 CapEx activity and this more were reflective of going forward.

SG&A, combined sales, marketing and G&A show increases for the quarter and for the year-to-date. If you look at the pieces separately, we actually load our G&A about 3% in both the quarter and year-to-date. And we intentionally increased our sales and marketing cost last year and Joe can talk about that a little bit later.

Interest and other income, half of the net change, which was though lower... lowering was due to currencies... the other half was due to lower interest rates on our cash investments.

Interest expense was down, that reflects the effect of paying down our debt. We paid down 7.5 million on our revolver and 2 million at the beginning of 2008 on sub-deals subordinated debentures we had. And during the year, we locked into lower interest rates on our revolver.

Income tax, when you got a complex global tax structure like we do, nothing is simple. I'm going to talk at real higher level about the changes in our overall effective tax rates. Now we'll be glad to have a separate call later with anyone who wants to get into more detail.

Both resulted in the difference between the 14% overall effective rate 2008 compared with the 32% overall effective rate in 2007 with a major shift in taxable income from foreign operations where we pay tax at 15 to 34%, if we don't have foreign NOLs to domestic operations where we have the NOLs.

I can tell you that if you look at the effective tax rate for only the foreign operations, as you'll see very close to a 31% rate for both 2007 and 2008. And the tax expense for the domestic operations consists of alternative minimum tax and state income taxes where we don't have state NOLs.

As the fourth quarter comparisons, the answer is about the same. But you have a dramatic drop in currencies during the quarter that cause tax adjustments that resulted in the reversal of taxes that we've provided in the first nine months of the year.

Again I will be glad to talk further after the call if anyone who'd like to get deeper into the numbers.

I would note that our U.S. NOLs, we still have almost $30 million at the end of 2008 and they don't begin to expire until 2022.

Next, I want to talk about the increases... the changes in the currency. Our reported revenues show the 12% increase in the quarter and 11% on the year. If you adjust those revenues to 2007 currencies, we really had a 23% gain in revenues and on the year it was still 11%.

If you look at the recorded operating income, it will just be down 20% for the fourth quarter. If you adjust it for currencies as Mike will talk about its 2% gain. On the year, it's 31%, and currency adjusted is 34%.

If you look at net income, it's up 50% reported, currency adjusted is up 70%. And on the year, it's up 75% reported and 77% on a currency adjusted basis.

Let's look at the balance sheet. First thing you see is cash is down about $800,000. We'll go through the statement of cash flow in little bit and talk about that. The trade receivables are up about $2.3 million. Worldwide DSO was down to 75 days and that's down from 83 days within the last year, and 80 days at the end of last quarter.

Michael L. Rose

Excuse me, Howard. May I just interrupt because you have made a statement about the cash? And since you had mentioned earlier about the currency effect, I just wanted to underline, in fact that the effective currency is really clear when you look at this balance sheet, and later at that cash flow statement, which we're going to talk about because without the currency effect, you're going to see that our cash would have increased by close to $1 million even after we spend or pay down $8 million in debt. Instead of cash and therefore we see the cash decreasing by 800,000. So it's very important we talk about that. Sorry for interrupting.

Howard C. Wadsworth

No problem. On receivables on the United States or DSOs were down to 71 days from 80 days at the end of last year and 73 days at the end of last quarter.

Europe was down to 75 days compared to 78 days at the end of last year and 76 days at the end of the last quarter.

Asia Pacific which is less than 10% of our year-end receivables, the DSOs are always higher due to customary payment terms and they're usually little higher than the U.S. and Europe.

We're still not satisfied with where we are, we want to bring them down more, that's money in the bank, we're working very hard to continue to bring the DSOs down.

If you look at rep and inventories, it shows to be up about $655,000. We had two things that affected that. One was a large heat exchanger project, and the other was our large valve project at the end of the year that causes increases.

If you look at PP&E, we put it in their just the net PP&E, which is down about $564,000. That's really not down, obviously, the currencies again affected. It's the currencies everywhere on their balance sheet that you look are really affecting what are these number show.

If you look at the current liabilities, they're down over the last year about $4.5 million, the half of that increase is due to the $2 million subordinated debentures that were in current debt last year, the rest again is currency.

The debt... as Mike said, we paid off $7.5 million on our revolver, and that shows the reflected decrease. The last thing on the balance sheet is to look at shareholders' equity.

Now, it only looks like it's up $13 million, net income was almost $22 million. The difference $11,245 is currency on the balance sheet differences between the two types.

CapEx, just look to... I mentioned it was $8 million in 2008, and that's the same as it was in 2007. We actually cut back a little bit on our CapEx towards the end of the year. I think we mentioned that in the call last quarter. And the overall number for 2009 is going to depend on the economy, and also the demands of our business.

Okay, let's turn to the statement of cash flows. And, I didn't mentioned this earlier, but the balance sheet... the condensed balance sheet and condensed statement cash flows are something that we attached our press release this time as first time we've done that. And we're going to continue to do that going forward. So, hopefully, that's giving you some more meaningful information on... to look at before the call.

If you look at working capital, on our working capital changes, on our cash flow statement. You can see that there way about half of that increase over last year's amount is due to the heat exchanger and valve projects that I've talked about earlier. And we did have some increases in working capital associated with the growth of our business in 2008.

The net cash provided by operating activities was about the same, and that's even after funding additional working capital we talked about.

The net cash after CapEx, and this is what we look at because that have what we have a value as to whether or not we paid down debt or what we do with our excess money, it was about $8.5 million. And we've paid down $8.1 million to debt.

Michael L. Rose

And let me interrupt, I'm sorry interrupt again. But I think this is a good time to talk about this. In terms of bad debt and what we did last year. We need to see how the year progresses. Currently, we are not pursuing an aggressive pay down in 2009 but have rather opted to conserve our cash. And I wanted to say that at this point.

Howard C. Wadsworth

And at the end of the day our cash is about the same as it was last year relative on our reported basis. But as Mike mentioned earlier, it's even greater if you do it on a currency adjusted basis.

Michael L. Rose

Thank you, Howard. Just one other thing since we one other items. Since we are talking about... I was just talking about debt and I was talking about the pay down policy. I am aware that our revolving credit facility expires early next year. We are watching the credit markets very closely in order to gain whatever advantages we can get with the current market. So I just want you to know that we are considering that and are going forward on that basis.

I'd like to thank to Howard for the presentation, I thought it was well done. And I got in more of the details and this is important.

Before I turn it over to Joe, I will just say that I am at this point in time, Joe was in Europe last week, and coming back he caught a cold. He hasn't been fit for a whole week but here he is, and so he's still coughing a little bit. So, give him a little slack, Joseph?

Joseph E. Milliron

Thank you, Mike. Good morning, ladies and gentlemen. Furmanite had a good year in 2008, not only financially but also operationally. Furmanite continued to grow our geographic footprint throughout the world. We continued to strengthen our most important asset that be in people. And we continued to expand our service operating. We continued to expand our relationship with our longstanding customers and to attract the new customers.

Now, I would like to share with you our operations broken down into three regions geographically. Two of these regions had a geographic expansion program in 2008, let's begin with the Americas.

In the Americas, we currently operate 37 locations serving more than 2860 customers throughout the United States, Canada, Central and South America.

In late 2008 Furmanite established Canada and take new operations with our office-based in Sarnia, Ontario.

Moving over to our second region, which is Europe, Scandinavia and Middle East and Africa, we have 28 offices serving more than 4081 customers in nine countries.

In 2008, we established the West Africa operation in Nigeria and we are on the final stages of establishing our new operation in Saudi Arabia.

Now moving into our third region in the world which is Asia Pacific, we had 16 locations serving more than 1230 customers in six countries. Overall, we are serving more than 8000 active customers and 81 permanent locations around the world.

Unless we go over to our most, our greatest asset and that being the people side of it. At the end of 2008, we employed 1945 employees, this includes 43 temporary employees. Our key additions of 2008 to our team were 39 sales position, this was a 35% increase of personnel and including expanding our sales leadership in the UK and Germany.

As Howard has stated earlier, this was a planned growth, so our sales and marketing cost did go off in 2008, and we have budgeted this growth into our 2009 budget. We've also placed 93 full-time technicians into the organization. We placed the President in the Americas. We upgraded our country managers in Germany and in Malaysia in 2008, and as a result of our two expansions in our geographic areas to put new country managers in West Africa and in Saudi Arabia.

Now let me speak with -- speak to your -- call services that provide a competitive advantage in the global market. We break our service offerings down into two segments, first be under pressure services, let me provide you a definition to under pressure services, I define this as on-scheduled emergency call on work on operating units. These services include leak sealing, hot tapping, line stocking, some positive repair, and other test.

In 2008, our under pressure service revenue was a $103.6 million versus 91.1 in 2007; after the increase of $12.5 million globally. We break that down into the three regions, the U.S was $48.7 million, they had an increase of 4.3 million, Europe was 43.9 million with an increase of 6.7 million, the Asia Pacific was 10.9 million with an increase of 1.5. I'd like to note these numbers I'm giving you are a numbers that are not adjusted per currency.

Now let's talk about these under pressure services where they provide at within our organization. In the leak sealing, we provide leak sealing and every one of our countries throughout the world in every operation. From positive repair, it is not provided currently in Germany, Netherlands and in our China, Hong Kong operation, we did rolled out this past year in the New Zealand. And that our hot taping line freezing is provided in every country, again, except with China and Hong Kong. This year, Belgium now does both services, we rolled out hot taping in Belgium in 2008, and we have rolled out the pipe freezing in France to 2008.

I'd also like to share with you to use these services. These services were used by refineries, power, petrochemical, offshore oil and gas, metal, pulp and paper. The other segment is turnaround services. So, let me also give you a definition for that. I define turnaround services as scheduled, planned outages on units offline including new construction. These services include valve repair, on-site machining, heat exchanger repair, bolting, fee trading, composite polymer and spark chips (ph).

In 2008, our turnaround service revenue was 174.4 million, compared to 2007 of 156.1 million. That's an increase of $18.3 million. So, looking at the U.S., the revenue was 74.7 million, we had an increase of 12.8 million.

In Europe it was 81.7 million revenue, an increase of 7 million, and in Asia Pacific, we had 17, just about $18 million that was actually a decrease of about 1.6 million. And 1.6 million is really related to a large project that we did in Malaysia last year on a hot tapping project that did not repeat itself again in 2008. And again, I would like to remind that following... the numbers that I provided you are also not adjusted for currency.

Now looking at these services, where they are provided in our operations throughout the world; on-site machining, like our leak sealing is provided in every one of our countries, both these are provided in every country with the exception of Germany and our China, Hong Kong operation, valve repair again is provided in every country. But, in this case, it will be France, Norway and Malaysia area. We do not have the valve repair taking place.

When we move into the heat exchanger, we provided that specifically in the United States, Germany and the Netherlands. And in Germany, we actually engineer, design engineer and build new heat exchangers for the refining industry there.

Heat trading, I spoken to you, in the past about we introduced that in U.S. back in 2006. Here in 2008, we rolled this service out very successfully in Norway, and we've also placed equipment and manpower in the U.K. and Australia, which we'll see benefit to that in 2009. And within the next 30 days, our equipment will arrive in Malaysia Singapore area for the heat trading business.

In the concrete polymer side, this service is provided in the United States and France and the Netherlands. This is amongst (ph) specifically is provided in Norway and UK.

The individual industries in USB services are the same with the under pressure service group, plus mining, marine pharmaceutical, food and beverage. As you can see from these two segments, we have opportunities to further rollout of our services in a number of our countries.

Okay, I shared with you, which customer uses our services. Now, I'd like to share with you our revenue as a percentage by industry. We finally make up 41% of our business, petrochemical makes up 24%, power which is non-nuclear is 10%, nuclear is 6%, offshore oil and gas is 8%, metals are 4%, marine is 2%, and mining also pay for food and beverage, pharmaceutical government together make up the other 5%.

Our core customers which make up 65% of our revenues are refining, offshore oil and gas, power both nuclear and non-nuclear. These customers provide essential services that remained very active for us and we believe they are likely to remain so in the future.

In the other area which we include petrochemical, metals, mining, copper paper including beverage, which we see it's making consumer-based products. We have seen the effect of the current economic environment, because of that deal the temporary closure plant schedules moving and cancellation of jobs all result in a slowing and reducing the business activity with these customers.

Michael L. Rose

Okay Joe, before you go on to opportunity that we had in 2008 plus which is near and dear to my heart, the opportunities have been going forward and you will show us how much the market is out there and how little we have out of it.

I just would like to summarize at this point where we are as far as results for the region for 2008 for the fourth quarter by combining the numbers that I'm going to discuss numbers that are both in adjusted for currency and for the allocation of overhead.

It so might give the picture of how the different regions have performed. As far as the U.S, is concerned with revenues for the fourth quarter it rolls to the year. The fourth quarter as you taken to its carnival the allocations and currency effect, and then U.S. there is none, but just the allocation effect. They grew by 25%. So that to me is very nice number.

The year-to-date, they grew at 15%. It's also I think very good number, especially with some of the things that we had in the third quarter concerning Howard's guidance (ph).

Europe, Europe taking away the currency effect that Howard talked about in detail, we had a 28% gain in the fourth quarter for Europe, at 42% -- $42 million versus $33 million. For the unit date they had a healthy 10% increase $144 versus 131.

The Far East was flat for the year as well as essentially flat for the fourth quarter. In operating income, the operating income now... now we have to remind you some of the comments that Howard made.

When we start looking at in comparing 2008 to 2007, 2007 you must remember that we had several intimates occur, first Howard was talking about some of the positive one-time adjustments that were made because some contracts that ended, and also Joe had mentioned especially in the Far East portion that we had a one-time effect concerning a large project in Malaysia that we did not have in 2008.

So, that's why you see some of these differences plus in both of Europe and in -- we had experienced some additional expenses that we did not experienced in 2007 with the rollout of Solomon 7 (ph) which we did not capitalize; such as travel and training.

So overall as you could see, the operating income for the U.S. it turned around really big time as you can see. Europe for the fourth quarter was down and so was impact because the something I talked about had mentioned, but for the year Europe was up 10% from 16 million... from 14.6 million or 16 million. And impact because of the additional -- and I forgot to mention as we also had additional costs in China because we have found out that when we opened China going through our penetration market, penetrations one of the things that we saw is not only an introduction of our services but there was a demand for our products, and in doing that we had to go back and spend additional funds in order to get the license to bring it to import into China our products that we manufacture.

With that said, I'd like to now go back and let Joe tell you about some of the highlights for 2008, but more importantly which is important to me and I think for all of us its the opportunity that around there, Joe?

Joseph E. Milliron

Okay. Let me touch on a couple key projects we did in 2008, and then we'll move over to the opportunities. One of the things I'd like to share with everyone is, we performed a number of SmartShims projects throughout the years. But we performed our very first subsea SmartShims project in the North Sea on a offshore platform this past year.

This is where our customer came to us and informed us probably had about 30 meters below the water level and we engineered, designed, manufactured and executed a SmartShims installation, and this was at a value about $600,000.

I'd also like to share with you, we talked about our cost services, our on-schedule projects. We had a situation In Wyoming between Christmas and New Year, where there is a emergency bolting job came up. And we had to worldwide 35 technicians between Christmas and New Year, to perform about $1 million project. And they had to work as very difficult times with temperatures dropping down to minus 35 degrees on that project.

And then... so, overall, those are a couple of examples of what we've done out there. While I'd like to announce with you about the opportunity, I have put together working with my management teams throughout the world. We've estimated what we see it as the market opportunities for each of our services globally, and we see as being about $2.5 billion.

That breaks down as an investment as a percentage of valve repair of 32%, concrete composites of 20%, on-site machinery of 13%, heat trading on 13%, hot tapping lines stocking at 10%, leak sealing 8%, bolting 3% and Trevitest 1%.

Furmanite has an advantage in the global marketplace because we are the only true global player with these services to offer. Let me provide you with a couple of examples of the opportunities that we are working on.

In the Americas, we are working on a national agreement for all services and major refinery. This is not only for project work, it's also for this type of call that we're speaking of.

And second one is in the other two regions, that being Asia Pacific and the Europe, Scandinavia, Middle East and Africa. We're currently working on several opportunities that will work more than $4 million each in the hot tapping and lines stocking service line.

Michael L. Rose

Joseph, thank you. As you can see, our focus is basically on our opportunity. So, our focus is not on rescissions, our focus is not on simulations packages except what we can get out of them. It's more on the opportunities side, and we will continue. That is basically our joining force. But, we've been talking a lot now for 45 minutes, I apologize for that. But, it's an exciting company and as I have said originally, we felt a lot going and we will continue to focus in our business and having expanded and grow.

But Mitchell, let's now open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line Matt Duncan. Please proceed.

Matt Duncan - Stephens, Inc

Good morning, guys.

Michael Rose

Good morning, Matt.

Howard Wadsworth

Good morning, Matt.

Matt Duncan - Stephens, Inc

I've got a couple of questions on the quarter and then a couple of sort of more outlook type questions. First on the quarter. Howard, just looking at the SG&A line, is there ... are there any sort unusually large expenses in this quarter? And, specifically, did you have a pension expense that would have been larger than normal. And those who've got the pension liability show up on the balance sheet, and then also bed debt expense was any larger than normal on the quarter?

Howard Wadsworth

Yeah, the answer is yes. With respect to bad debts, they were larger in the fourth quarter because of the economic environment. So, we did provide additional amounts to our allowance for bad debts. The pension expense, I don't think that the total net number changed that much in the expense side. There was a lot of move around on the balance sheet. But, as you're aware, there is... the defined benefit plan we have, it does move around on the balance sheet. But on the P&L side of it, I don't think that there was much change between the years. I do know that in the fourth quarter of last year, there was an adjustment in 2007 that did not take place in 2008.

Matt Duncan - Stephens, Inc

Okay and how on that bad debt expense, how much larger than normal was that this quarter, just trying to get a sense of how much sort of extra expense was in that line?

Howard Wadsworth

I think it's about $800,000. When you look at it based on what we've provided in the past and years past. So it was a pretty good chunk.

Matt Duncan - Stephens, Inc

That's very helpful, I appreciate that. And you guys have talked about this a little bit, but when you look at how the weak economy is impacting your business, I would assume its prior to Petrochem customers that you're being the most negligibly impacted by, given that they have had some plant closures. What geographies have been the most impacted, I know Joe you commented that the weak economy isn't necessarily, but the same level of weakness around the world, what geographies are weaker and what geographies are holding there better?

Michael Rose

Well, let me say this right now at its point in time. The U.S. is seeing and you've heard this from the other people, the U.S. is seeing some downturn, significant downturn. Europe at this point in time is holding its own. Now it's holding its own because not only we're talk about the Conintenantal Europe, but we're also talking about the Middle East and Africa, which is included in our European report.

Asia, we just came close to China. It's difficult to say but at this point in time we see opportunities in China, so the effect there is not as great. But in Australia in this a kind of primary example of why we need to push all our services out every occasion, Australia is basically situation where it wasn't a... I don't want to color one trick Tony, but it was close to within that. Most of its revenues were based on the bolting and outside machining, which is considered outside machining. And mining is a big (inaudible) in Australia and was affected pretty heavily. So, that's the recent to the comments that we made earlier about regions.

Matt Duncan - Stephens, Inc

Okay, that's very helpful. So then Mike if I look at your fully 4.5, 25% growth you experience in the U.S. in the fourth quarter. I want to assume its going to be difficult to put out that kind of growth number going forward. Did you have any thoughts about what type of revenue growth we can expect from you guys in the United States in 2009, is it rolling out more expenses or more services rather, in that offset some of what's happening in the economy?

Michael Rose

After answering the question the long-term, the answer was yes. On the short-term I would really can't give you at this point of any indication of the growth reduced. But what I will say to you that why I see long-term its because this economy you've got to do, you got to do a couple of things, the first thing you got to do is focus on the business that you had, you got to maintain the core customers that you have and at the same time you maintain the core customers you've got to introduce new services and trying your salesmen and your checks on these new services. That you can't do in 90 days or in 60 days, so that's why I say a little long term but frankly what we've seen so far if you want to look at, you wanted to look in the future what we see so far is that reaffirm this economy is reaffirming our approach which is organic growth, which is the idea of every service in every location, and it's the idea of we have only 10% to 12% at that market place and as Joe says we got 2.5 billion out there, we've got to go after it, so that's the best I can give you in that.

Matt Duncan - Stephens, Inc

A few more things and I'll jump back in queue. First on pricing, are you guys cutting pricing any at the request of your customers and are you seeing any of your competitors cutting pricing or maybe acting irrationally and then the last thing is if you could just give us some commentary on how the first quarter has shaped up so far since we're almost through the first quarter in this month,

Michael Rose

Okay, as far as cutting the price is concerned, yes we have seen some erosion in pricing, nothing substantial and the reason I say that is because a lot of disturbances we have, a lot of our competition did not have, remember we have 12 services out there. And as far as how the quarter is shaping up, all I can say to you Matt is that we are quiet aware that there is a recession out there.

Matt Duncan - Stephens, Inc

Okay. Thanks guys.

Howard Wadsworth

Welcome.

Operator

Your next question comes from the line of Matt Tucker of Keybanc. Please proceed.

Matt Tucker - Keybanc

Good morning, gentlemen.

Michael Rose

Good morning Matt.

Howard Wadsworth

Good morning.

Matt Tucker - Keybanc

Had a couple questions here, My first question is, really close to pretty strong top-line growth here in pretty difficult environment, I just wonder if you talk a little bit about in the fourth quarter; about what was driving that growth and what differences were versus the year ago quarter?

Michael Rose

To be honest -- let me give the answer this way. I believe that when you see the fourth quarter growth, we had a lot of growth in the first half of the fourth quarter, and that carried us through for that fourth quarter. We are seeing as far as growth is concerned; the recession or as far as the economic conditions are concerned we had mentioned in the third quarter which was I think in November that we did not see any of the recession affects and that is true. And so that I think gives you an idea and understanding of how -- what happened in the growth. As far as going forward is concerned as I had mentioned to the other math, we are certainly looking at the recession in U.S.

Matt Tucker - Keybanc

Okay, thanks. That is helpful. And then just one question on margin you reiterated that double digit is your target last year is that percent is closer to 9%. Now looking forward and we mention the year AT&T packing pressure should we expect something kind of in between that 7 to 9% or it is both -- I guess what's kind of also your timeline for expectations are getting through those type of digit?

Michael Rose

At this point we think with the market strong as much as it is, I find it difficult for me to project a timeline, keep in mind not only the recession but also keep in mind a $8 million currency effect in the fourth quarter which we said we will see in this year. Those are big numbers that we have to deal with.

Matt Tucker - Keybanc

Sure, fair enough. And then if you can touch again -- just briefly on the Asian market and you said I think you said that growth was flat there when taken the currency into account for the fourth quarter, maybe if you could just talk a little more about what you expect for 2009 over in Asia.

Michael Rose

Asia as far as Asia was concerned the way I see Asia is that we are going to have because it's going to take sometime for us, we are going to have to introduce as quickly as possible and which we're in process of doing now, with two more of our services that we had before Australia which is as far as revenues were concerned, Australia was a large portion in the revenues at the Asia-pacific region. We do see an enlargement of our activities in Malaysia and Singapore, they are healthy and they are not affected by this recession at all. And China because of the different laws and regulations that gets call at cultural effect, we've act really to this liking. And we had a very slow stock in China. But we do see them pickup in the China markets both from products, that's the reason why we went ahead and did what we did in a fourth quarter as well as some services. So you may see Asia-Pacific is affected by the rescission, but not as much as some of the other regions.

Matt Tucker - Keybanc

All right. Thanks, that's very helpful. My other questions were already asked and answered. So, I've got that and strong quarter guys.

Operator

Your next question comes from the line of Steve Forensi of Sidoti (ph).

Unidentified Analyst

Hi. Good morning.

Michael Rose

Good morning.

Unidentified Analyst

We're close enough now to start seeing our refiner's spring turnaround season. Can you sort of comment on how it looks this year versus as past years?

Joseph Milliron

Steve, this is Joe. Listen what we've seen in the turnaround season right now is in the refineries, and the power industry, they continue to remain pretty strong manner. I will tell you on the petrochemical side, we're not seeing the turnarounds that we've seen historically during that time period. So, again its kind of inline with what we've already shared with those two different segments out there.

Unidentified Analyst

Can you say that you'll be doing more of the lower margin maintenance work this year probably less under pressure work. Does that'll impact margins in 09?

Joseph Milliron

Well, we're looking under pressure. I don't really see that as a lower margin, that is why I do believe and we've seen a little bit this also. We've seen some additional weak selling plants to be built in the first quarter for some of our customers because on the locations we build those I've heard that we're very busy on going mixing plans.

Unidentified Analyst

Okay. Headcount obviously you've acknowledged the slowdown coming this year, any chances you're going to be reducing headcount to address this slowdown?

Joseph Milliron

Steve, we're always going to address the proper size in the organization. Just to say as we're going to business the pace, we're growing add, and we added the number of technicians where we added last year for top growing our management team. If there is a slowdown that we'll continue long-term, we'll address that that we're always going to be looking at talented people to bring in this organization.

Michael Rose

Steve just let me interrupt a little bit on that and just say that, you know it's a fine line Steve that question is you asked is really a touching the fine line. As we grow we're going to need people, so we're not going to -- the recession is here, but we're at 10% as I said as the market place is concerned so I'm looking for more projects that need more people. And so we're going to watch it, don't misunderstand me, I'm not going to go out there and say, okay lets hire this, lets hire these people 10,000 more people and go forward with that, no we're not saying that but what we are saying is we've got to look at the balance between the addition of people to foresee your growth versus letting people go and discontinue growth.

Unidentified Analyst

Okay, fair enough guys thanks.

Michael Rose

You're welcome.

Operator

You have a follow-up question from the line of Matt Duncan

Matt Duncan - Stephens, Inc

Hey guys, just back on the spring turnaround season for a minute we've heard sort of anecdotally from others in the industry that there have been some deferrals and maybe even downsizing of projects. Joe you mentioned that you haven't really see any delays you seeing any downsizing of projects that are scheduled for the spring at all?

Joseph Milliron

And Matt make sure you understand, we are seeing delays and we are seeing projects not coming back but this is more driven to the petrochemical side, to the fuel industry so that piece of the our segment or customers out there. In the refineries, we continue to see the projects going on out there. Are the projects as large as they were in the past, I'm not going to be able to answer that Matt they will have to re-perform these projects, because many projects we'll go into with a identified scope and that scope tends to creep on us to get larger.

If we go into these projects this spring and scopes that we go in with and they don't pre-upon us then I may tell you later on that we did see a shrinking in some of those turnarounds.

Matt Duncan - Stephens, Inc

Okay. And then Joe it indicates we're Petrochem you are seeing some deferrals that that how far out can the customer really defer a turn around project before they are going to have a safety problem at an operating plans?

Joseph Milliron

No, I'm not sure I'm qualified to give you that answer because each plan in jury wise (ph) and safety wise, they got certain regulatory things they must abide by and I don't know when they differ these things, how long they've operated that year end or how hard they've operated that unit, but there is no question they cannot continue to operate units without doing maintenance for the column and the case where they've had temporary shutdown of the plans, when those plans come back online even without a turnaround we would expect to give some opportunities the weak sealing opportunities out there.

Matt Duncan - Stephens, Inc

Okay. Howard moving onto the currency for a moment. You talked about the impact in '09 would be similar to what you saw in the fourth quarter. If I look at this sort of it, as '09 progress, I would assume that for the first and second quarters of the year, the impact would be similar in size about the time we get to the third and fourth quarters, we're starting to cut timeframes where currencies ... where the dollar already began to strengthened sort of in the second half of '08. So, the impact (ph) smaller in the second half of the year than in the first half, just for modeling purposes?

Howard Wadsworth

I think so, because the numbers that I talked about by our September 30th, you had already seen 10% drop in the pound, but you had another 26% in the fourth quarter. The Australian dollar was down 7 and 19% in the fourth quarter. The ERO was pretty flat. Although, we've seen more in the first quarter than what we saw in the fourth quarter. So, I think you're right on that. I think that's ... and again, it's a mix. So, you just don't know. But these are the major currencies that give us the numbers that we've got.

Michael Rose

You're right Howard. But, Matt, if you look at the currencies and the drop in the currency, the currency really took effect in the fourth quarter. We did have a little drop in the third, and you're right, it would mitigate some of the affects but it really did ... it's not going to mitigate as much as we mitigated in the fourth quarter, if the currency stay where they are today.

Matt Duncan - Stephens, Inc

And then Howard ... a long time, but just thinking about the Tax rate that we are to be using ... given what's happening with currency and thinking about the tax rate that we should be using in 2009. And when you think about your geographies and how they're performing.

14% obviously it seems a little bit low, but what sort of the realistic tax rate that we are to use from modeling purposes here.

Howard Wadsworth

Its going to depend on the mix of the business, Matt, and that what I was focusing on and I comments is the fact that, anything you take out of the foreign and could into the domestic, it has a dramatic impact, because you're putting ... or we've got no tax on banks that are going on virtually no tax, going into the domestic. And you still got that 15 to 34% depending on jurisdiction (ph) on the foreign side. Having said that and after this quarter, I mean, as we really just went through all of the stuff and the dramatic changes. And, really having said that and look that at all on go forward basis. But, certainly it's going to chance.

Matt Duncan - Stephens, Inc

Okay. And then a couple of more things here. First on SG&A expenses; as I look at sort of in '09, SG&A expenses, just to make sure I understand kind of those the pieces individually correctly. The selling and marketing expenses are going to continue to increase in '09, just more than anything that the full year of people you hired in 2008. And then from a G&A perspective you're going to try and keep those flat, maybe in the management is down a little bit. And then when on near currency onto that, it's obviously if you're getting the currency impact at the top-line from the international operations just seeing the same thing at the SG&A line, correct? So those dollar amount for reporting purposes would a bit lower.

Howard Wadsworth

That's correct. You are ahead at that right on.

Matt Duncan - Stephens, Inc

Guys, two more things. First of all how would you have the share count for the fourth quarter Andy?

Howard Wadsworth

The share count for the fourth quarter, that count, I don't have that much programming that, I'll call you with that.

Matt Duncan - Stephens, Inc

That's fair enough. And then lastly Mike you touched on the revolver. I believe the term on that is a January when that runs up?

Howard Wadsworth

That's correct Matt.

Matt Duncan - Stephens, Inc

Where are you guys in the process of looking at sort of renegotiating something in. And what is your expectations of what may happened with your revolver based on sort of what you know today of the credit markets?

Howard Wadsworth

Well it's difficult to say because credit markets change. And we see the changes as Mac, we're monitoring it. And Matt what we're seeing this is changes everyday, we're seeing everyday changes. And it's just it's always moving. So we're just going to continue monitor, we're going to continue to look at it. There is really no urgency here. We have till bend and as you well know, we've got a lot of cash. So we're going just continue to monitor and find out when the most appropriate time is for us to do something.

Michael Rose

And Matt you expect for the shareholder. We can't rush into the things and with the markets moving the way they are. I'm not going to take a shock at they're getting situation or getting rough in something that, it's going to cost the shareholders more than if I waited for a month or so. So it's timing and we're watching it very closely, I assure you of that.

Matt Duncan - Stephens, Inc

I think the plan is to build cash throughout the pay down debt for the time being?

Howard Wadsworth

That is correct.

Matt Duncan - Stephens, Inc

Thanks guys. I appreciate the answers.

Howard Wadsworth

You're welcome.

Operator

There are no further questions. I would now to turn the call back over to Mr. Mike Rose, CEO of Furmanite Corporation.

Michael Rose

Thank you Mitchell. Thank you, ladies and gentlemen for you're interest and participation in the call. In conclusion, I really want to again say that we are navigating through the current economic environment by closing managing of course while aggressively pursuing every opportunity for business, that's all what we've been saying.

We believe that our fundamental stability, financial strength, global customer base, our debt assets in a challenging economy just as they are in a stronger economy. We are confident in our ability to capitalize on the strength to provide continuing value to our customers and shareholders.

So, I really want to thank you for you're active participation. This was a great first meeting for me. And I look forward to these meetings in the future, no matter what happens. Have a good day.

Operator

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have an excellent day.

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Source: Furmanite Corporation Q4 2008 Earnings Call Transcript
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