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Stantec Inc. (NYSE:STN)

Q1 2010 Earnings Call

May 13, 2010 3:00 pm ET

Executives

Robert J. Gomes - President & CEO

Daniel J. Lefaivre – Chief Financial Officer

Analysts

Sara O'Brien - RBC Capital Markets

Paul Lechem - CIBC World Markets

Mike Tupholme - TD Newcrest

Chris Blake - Stonecap Securities

Richard Stoneman - Dundee Securities

Ben Cherniavsky - Raymond James

Pierre Lacroix - Desjardins Securities

John Rogers - D. A. Davidson & Co.

Bert Powell - BMO Capital Markets

Operator

Welcome to Stantec Consulting’s first quarter 2010 earnings results conference call. (Operator Instructions) As a reminder, today’s conference is being recorded. It will be available for reply on the Investor section at Stantec.com. It is now my pleasure to introduce your host, Mr. Robert Gomes, President and CEO.

Robert J. Gomes

Thank you, Andrew. Good afternoon everyone, and welcome to our 2010 first quarter conference call. Joining me is Dan Lefaivre, our Chief Financial Officer. Dan will provide a brief summary of our results for the quarter and I will follow with an outline of our market outlook. We will then address individual questions.

Before we begin, I would like to make you aware of our Safe Harbor statement and to caution you that we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 in the United States and applicable securities legislation in Canada. By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties that give rise to the possibility that our estimates, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct, and that our actual results may differ materially from those discussed in these statements.

You will find more information about the assumptions and material factors that were applied or could cause actual results to differ materially from those we discuss in this conference call in the management’s discussion and analysis included in our 2009 financial review.

I would also like to advise you that this conference call is being broadcast live over the internet and will be archived for future reference at Stantec.com under the Investors section. Therefore, we ask any members of the media who are joining us today in a listen-only mode and who wish to quote anyone other than Dan or me to please request permission to do so from the individual concerned.

This morning we released the results of Stantec’s operations for the first quarter of 2010. I am pleased to report that we began the year on a positive note with growth in gross revenue on a sequential basis. We continue to manage our business effectively in a difficult economy and after nearly a year of having to reduce our staff levels, we added to our employee numbers during the first quarter. Dan will now provide a review of our first quarter financial results.

Daniel J. Lefaivre

Thank you Bob and good afternoon everyone. As Bob just indicated, in the first quarter of 2010 we achieved revenue growth on a sequential basis from the end of 2009. The gross revenue for the first quarter was $371.6 million, down $33.2 million from $404.8 million in Q1 ’09. However, $30.4 million of this decrease was as the result of the change in foreign exchange.

Our gross revenue in the first quarter of 2010 was up 8.4% from Q4 ’09. Our net revenue for the first quarter of 2010 was $296.8 million, down $46.4 million from the $343.3 million in Q1 ’09. The strengthening of the Canadian dollar made up $24.7 million of this decrease from Q1 ’09. Net revenue was also up 8% from the fourth quarter 2009 however.

Our gross margin as a percentage of net revenue was 55.5% in the fourth quarter of 2010 compared to 56.4% in Q1 ’09 and continued to fall within our range of 54.5% to 56.5%. Our gross margin percentages decreased slightly in all practice areas except urban land. These decreases were mainly due to the mix of projects and progress during the quarter and also due to the pursuit of P3 projects.

In the P3 pursuit phase, we carry our work at a slightly lower margin which we make up for through our success in obtaining the project. Our administrative and marketing expenses decreased to 42.2% during the first quarter of 2010 from 43.1% in Q1 ’09, mainly due to achieving increased efficiencies.

We also carried out fewer integration activities during the first quarter of 2010 than in Q1 ’09 when we completed the system integration for the Secor acquisition and began the process of integrating staff in the [Dig Clifford] acquisition.

During the quarter we reorganized our corporate tax structure. Our income tax expense increased by $6.2 million resulting in an effective tax rate of 51.1%. Since we immediately recognized the entire tax impact of this reorganization in the first quarter, we expect a lower effective tax rate in each of the three quarters remaining in the year. We believe that by the end of 2010 our effective tax rate will be within our targeted range of 32.5% to 34.5%. This one time non-cash event is part of our long term strategy to make our corporate tax structure more efficient.

Without this one time tax impact our net income for the first quarter was $19.9 million compared to 20.7 million in the first quarter of 2009 and our diluted earnings per share was $0.43 compared to $0.45. With the tax impact, reported net income was $13.7 million for the first quarter of 2010 and reported diluted earnings per share was $0.30.

Overall we are pleased with our first quarter results. Our performance in the quarter was consistent on a sequential basis with our performance in Q4 ’09 and we continue to manage our operations effectively.

Robert J. Gomes

Thank you, Dan. Earlier this week we announced the filing of a shelf prospectus in Canada and the United States. This prospectus allows us to issue up to $300 million in common shares from time to time over a 25 month period. We believe that this shelf prospectus is a good complement to our existing debt facilities and will give us the opportunity to tailor our financing strategy to meet future needs.

Although the shelf prospectus is a new tool for Stantec, it is a tool that is commonly used by other companies of similar size.

I would now like to highlight some of our new project awards. Our project activity during the first quarter showcased both our diversity and our growing ability to work with national and international clients on long term projects. For example, we secured a 5 year multiple award task order contract to provide full architecture and engineering services for various projects with the US Army Corp of Engineers, Los Angeles district. The task orders will include design build, maintenance, repair, and construction projects.

We are also increasing our activity in the area of combined sewer overflow reduction. For example, we are providing support services for the municipal flow monitoring project in Tacoma, Washington. In addition to incorporating the city’s existing flow monitoring network into our management software, we are providing technical support and training and assisting with flow monitoring site selection.

CSO reduction is a growing focus for many communities across North America. The Oil and Gas and Mining sectors are showing some signs of recovery in 2010. During the first quarter we were awarded a contract to provide the engineering, procurement, and construction management services for transporting oil product to the Kearl oil sands project in Northern Alberta for inter pipeline fund.

In the Mining sector, we are providing engineering design and related services for developing the shaft and hoisting systems for VHP built ins, Jansen [inaudible] mine project in Saskatchewan.

In the Transportation area, noteworthy awards include a 3 year contract to revise structural engineering services for transportation projects across Vermont to the Vermont Agency of Transportation in an assignment to design emergency crossover signaling for the Dallas area rapid transit system.

In Urban Land, we were chosen to be the prime consultant for its Street Scape project at the University of South Carolina in Columbia, which will involve designing storm water management, bicycle lanes, street lighting, and other amenities. In addition, land development activity continues to build in Canada where work has begun on the first to the new master planned community in North East Edmonton.

The Big Lake neighborhood will be the first community to use a Bioswales storm water system in cold climate condition. As usual I’ve highlighted only a small sample of the projects we’re working on completing many projects for many clients mitigates risk for our company. As always, we’d like to thank our clients for their continued trust in our services.

Now I’d like to comment briefly about the potential market conditions for our services going forward. As we mentioned in our news release this morning, increased activity during the first quarter enabled us to increase our staff levels to approximately $9,400 from $9,300 at the end of 2009.

Our backlog also stabilized after increasing $5.5 million in the first quarter of 2010 compared to the fourth quarter of 2009. It was then offset by a $15.5 million reduction due to the impact of foreign exchange. We believe that we can continue to improve our backlog level by managing our business effectively and focusing on our top clients through our account management program.

Looking at our individual practice areas we expect the following for the rest of 2010. We believe that we will see continued monitored moderate growth in our buildings practice areas in the second quarter of 2010. Our strategy for the rest of this year is to continue to focus on our key capability areas; higher education and healthcare. And to use our success in the Canadian healthcare market to strengthen our position in the United States.

We expect the outlook for our environment practice to be stable in the second quarter of 2010 with moderate growth expected in the second half of the year. Because of our expansion in this area in 2009 we’re now one of the top ten global environmental service providers and we anticipate that this will continue to lead to larger long-term projects with national and international scope in 2010.

We believe that our industrial practice area will remain stable for the second quarter of 2010 and may grow modestly in the second half of the year depending on the speed of the economic recovery in the United States.

With the recent increase in commodity prices we also expect to see activity continue in the mining and resource sectors. We are well positioned to take advantage of future opportunities in the industrial market because of our geographic diversity, expertise and good client relationships.

We believe that our transportation practice area will remain stable for the rest of 2010 and we anticipate that our rail and transit groups in particular will be more active during the year, although short-term extensions to the US Federal Transportation Legislation may also help maintain our transportation activity levels. Lower tax revenues, state and provincial deficits and the lack of long-term US legislation may cause delays in many planned transportation projects.

Based on the forecast of minor recovery in the residential sectors in the United States and Canada we believe that our urban land practice will also be stable in 2010. Over the year we expect to continue to diversify our client base in this area and to use and build our reputation of the public sector.

To sum up we believe that our overall outlook for 2010 is stable with moderate growth beginning in the second half of the year. At this time we are still experiencing the impacts of increased competition, margin compressions and project delays.

However, we continue to see signs that the North American economy is slowly recovering. Looking ahead we believe that our diversity, client mix and flexibility will help us continue to adapt our business to be as improving economic conditions.

This concludes our comments for today. Dan and I are now available to answer any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Sara O'Brien - RBC Capital Markets.

Sara O’Brien – RBC Capital Markets

First question on backlog. Just book to bill is still less than one times and I guess in terms of number of months of backlog it’s still less than eight months and just wondered if there’s anything that’s concerning to you on that front because I know on the last call you commented that once you book into backlog it’s going to take say maybe three to six months before it translates into a go on the project. So, how do you look at your backlog in a relative to the comments that were made in Q4 at the time when it was growing?

Robert J. Gomes

Well actually once the numbers are actually in our backlog it doesn’t take long for us to actually start producing that into revenue. It takes a long time from a project award to get into backlog because the way that we actually insert backlog is we only, we wait for not only a notice to proceed but once we get a notice to proceed on a signed contract we’re actually just opening a portion of that contract into backlog.

So, once the number is actually entered into backlog and the task set up work starts pretty quickly and that turns into revenue obviously right away. So, where the delay is from project award contract signing notice to proceed that sometimes can take three to six months, but from the time it actually gets into backlog then that’s pretty immediate.

Sara O’Brien – RBC Capital Markets

So is the pipeline of these awards until signing I mean is that looking very strong and that’s why you’re optimistic that the back half of the year is going to look pretty good and you’re going to see some good pickup? Like how much of I guess your guidance is already seen in what’s behind the scenes that’s not in backlog at this point?

Robert J. Gomes

Certainly we’re waiting on a lot of those project awards. We’re waiting on notices to proceed. So, we do have an increasing amount of opportunities that we have been awarded and logically that was in transferring into a project award and notice to proceed and then backlog.

What we’re finding is it just seems to be taking longer than normal and I think that just everybody getting comfortable with how quickly the economy is recovering and getting their confidence back. But certainly our pipeline of opportunities, RFPs and project awards are growing.

Sara O’Brien – RBC Capital Markets

Okay great. And if I can just sneak in one; shelf prospectus. A lot of clients why the shelf prospectus now like why do it before sort of an announced target is under way? Is there any kind of reasoning that you can give in terms of why you’ve filed at this point?

Robert J. Gomes

No we just feel that a shelf prospectus just gives us flexibility for our financing opportunities. It is not an indication that there’s anything there and it just allows us to provide a good compliment to our existing revolving credit facility. It provides us an opportunity of tailoring our financial strategy, financing strategy specific to a future need. So, it’s not meant to reflect the fact that there’s anything imminent happening. It just really is something that provides us more flexibility for the future.

Daniel J. Lefaivre

If I may add to that just briefly Sara, the intent of the shelf was just to as Bob indicated provide flexibility, but it also gives us a capacity in the future should we need it. Remember this is something that is out there for 25 months.

Operator

The next question comes from Paul Lechem - CIBC World Markets.

Paul Lechem – CIBC World Markets

My questions are on the tax item on the quarter here and just trying to understand two parts. If it is meant to get your structure more tax efficient over time shouldn’t your tax rate trend below what you’ve been suggesting up until now, number one. And then number two also just try to understand the trending through the year. You’re saying by the end of this year you hope to get back to the 32.5% to steady 34.5% level. Does that mean that tax the tax rate should be higher through Q2 and Q3?

Daniel J. Lefaivre

No the trend through to the end of the year Paul is that we are expecting it to be in that 30% range so overall for the year our overall target is in that 32% to 34% range. So, just because it’s higher in the first quarter that’s what leads to the overall higher tax rate on an annualized basis. Then we expect it to drop down again in 2011.

Paul Lechem – CIBC World Markets

So, going forward from 2011 you expect the tax rate to be in a 30% range versus your current guidance?

Daniel J. Lefaivre

That’s correct.

Paul Lechem – CIBC World Markets

Okay. And that’s a good number, 30%?

[Daniel J. Lefaivre??]

I think that’s a pretty good number. That’s based on inactive rates today. You never know what the inactive rates may change to though.

Operator

The next question comes from Mike Tupholme - TD Newcrest.

Mike Tupholme – TD Newcrest

I just wanted to ask you a question about the outlook. Generally it seems pretty consistent with what you presented in your fourth quarter call. Is it fair to say that you’re still looking for year-over-year internal growth in the 2% to 3% range?

Robert J. Gomes

Yes correct. At the end of the year we still projected the 2% to 3% above 2009.

Mike Tupholme – TD Newcrest

Okay and then in terms of the segmented outlook that you ran through to sort of a follow on as related as it relates to outlook, you ran through the various segments. Just to be clear when you’re talking about modest growth in certain cases are you talking about sequential growth or are you talking about year-over-year growth in that case?

Robert J. Gomes

Actually both. We are looking for year-over-year growth in the various practice areas that we referenced. For example in environmental, we are looking for overall growth of 2% to 3%, buildings would be in the 2% to 3% as well. Urban land is probably flat. Transportation would probably be in the order of 1% to 2%. Industrial will also be probably between 2% to 3%.

Overall we are still consistent with what we said last year. Our outlook really hasn’t changed from Q4 to the end of Q1 now. We are still looking for 2010 to be a good year in the second half and relatively flat in the first half.

Operator

Your next question comes from Chris Blake – Stonecap Securities

Chris Blake – Stonecap Securities

A couple questions, more specifically with the divisions. First off, just on the staffing levels, I was wondering if you could provide some commentary with respect to that I know you have 100 employees in Q1. How is that trending so far in Q2?

Robert J. Gomes

We haven’t really seen anything in Q2 yet. I don’t see any reason why you wouldn’t see that trend continuing, but we don’t have any information on Q2 yet or even the fourth quarter. We saw that through the first quarter. It was increasing every period. We like that trend.

Usually Q2 is a very strong quarter for us because that’s when a lot of our seasonal work starts up again. So April, May is when we start hiring people back for a lot of the fieldwork. So you typically will see a significant increase in staffing; mainly summer staffing in April and May. We are anticipating that the staffing levels will continue to increase in Q2.

Chris Blake – Stonecap Securities

Switching over to the industrial side, I noticed that your gross margins came in at 300 basis points lower year-over-year. Can that be attributed to the higher-margin project work maybe from last year’s period or is there something else there?

Robert J. Gomes

This was specific to the industrial practice area and the gross margins or just the overall gross margins?

Chris Blake – Stonecap Securities

No, just on the industrial side. The second part of that question actually, if I may. A lot of the construction names on conference calls recently have indicated that the designs firms are seeing a lot of activity in the oil sands related space. I just wanted to see if in your experience that marked increase in activity, if you are seeing that?

Robert J. Gomes

I will answer the second one first and then go back to the first one. So the second one in regards to increases in the oil sands, we are not a huge player in the oil sands. We are more of a support. We provide infrastructure design and support. We are seeing some increase in that area, but we haven’t seen marked increase.

I wouldn’t say that it is surprisingly busier in the first quarter than we anticipated. We anticipate that to increase further in Q2 and Q3. The oil sands is in an area that is one of those areas I refer to that seem to be recovering slower than one would indicate. I think a lot of those clients are a little suspicious and cautious.

With regards to gross margin for industrial group, that gross margin is within our range for the industrial group. It is really a mix of the type of projects. I would have to say in the first quarter, we certainly have some larger mining projects that we did get awarded. The larger mining projects are usually a slightly lower margin because they are big contracts. For instance the [BHB Lung] was over $40 million. So those tend to drive the margin down to the lowest level, but that 50 points is not a surprising one for the industrial group.

Chris Blake – Stonecap Securities

Lastly switching gears over to the environmental side, with the United Environmental Protection Agency’s budget up 30% year-over-year, I noticed it appears in the U.S. it doesn’t appear in their calls. A lot of that funding has yet to come out, primarily for administrative reasons. I was wondering is that maybe one of the reasons? I know you saw a couple of key projects in your environmental area, a couple of big wins.

I was wondering if that is the reason why you are seeing such significant growth in that area or if you have picked up a number of contracts in that area.

Robert J. Gomes

No, not really. Most of our contracts in the environmental area are for private companies and that is just part of the remediation program. If there are any funding changes or work coming out of the U.S. government, we do not do a lot of work for the federal government. That is one of the areas certainly going forward, but currently we don’t’ do a lot of environmental work for the U.S. Federal government.

Operator

Your next question comes from Richard Stoneman – Dundee Securities

Richard Stoneman – Dundee Securities

Bob, the Urban Land Group. Revenues were up 10% sequentially. They fell sequentially in the four quarters of 2009. Do you expect that they will sequentially recover in 2010 to come back with a flat year-over-year revenue number?

Robert J. Gomes

Yes. That is exactly what we are indicating. It’s been a good news story for our Urban Land Group in this first quarter. It is that we do see some small growth. We have certainly seeing growth both in the private and public sector of the Urban Land Group. We do anticipate that that sequential growth quarter-over-quarter will get us to a point of being flat by the end of the year.

Operator

Your next question comes from Ben Cherniavsky – Raymond James

Ben Cherniavsky – Raymond James

Just a quick question and just some handholding on the numbers because I always find your depreciation moves around more than intuitively it should. I understand your amortization of intangibles, but the depreciation of capital assets. What should we expect that number to be quarterly or on an annual basis? I am just looking at how in the first quarter, this year for example, it was up quite a bit from where it was in the fourth, but down from where it was in the first of last year.

Daniel J. Lefaivre

I think there are a couple of things that you need to consider. The depreciation includes the amortization of software now, which is a change in the accounting from last year. We expect though that the amortization of tangibles will be in the $16 million to $17 million-dollar range.

The depreciation, really if you look at it on a percentage of revenue basis, it is really following revenue. As we contracted last year, we didn’t have to buy as much assets or depreciation is down a little bit on a year-over-year basis. We are still maintaining a normal level of capital expenditures there. Where there is a need, we aren’t pulling back.

Ben Cherniavsky – Raymond James

I mean so should we not expect as much fluctuation going forward then?

Daniel J. Lefaivre

I think as a percentage of revenue, you are going to see it to remain fairly consistent.

Ben Cherniavsky – Raymond James

Maybe if you can just elaborate on what exactly and how that relates to a percentage of revenue. What does that represent that you are depreciating? Is it on a per hourly basis or something like that? I often tend to think of depreciation and capital assets as a fairly fixed expense.

Daniel J. Lefaivre

It is, but then again we haven’t had to acquire as many assets in the last year due to the retraction. So our depreciation year-over-year may be a little lower.

Ben Cherniavsky – Raymond James

What would your assets be? Would they be like software and computers for people?

Daniel J. Lefaivre

Yes. Computers, desks, engineering equipment and so on, but assets have depreciated on the basis of the useful life of those assets.

Ben Cherniavsky – Raymond James

So is there a direct relationship between that? Like as you laid people off you got rid of their computers, desks, and things like that and then expense went down.

Robert J. Gomes

That’s part of the rationalization and the clean up that we went through last year. Again you have some surplus assets that maybe you don’t have to replace as soon.

Operator

Your next question comes from Pierre Lacroix – Desjardins Securities

Pierre Lacroix – Desjardins Securities

Just coming back on the shelf, you filed for common shares, but are you also considering the alternative products such as convertible ventures given the cost of capital and so forth? Can you expand a little bit on that?

Robert J. Gomes

We look at our cost to capital. We look at our capital structure and we take a fairly conservative view. Our intent is to remain and use leverage wherever possible and obviously the cheapest cost to capital. We only issue equity if it’s agreeable to our shareholders, but yes we look at all alternatives around our capital and capital structure, whether its convertible to ventures or private placement or other forms of financing.

Pierre Lacroix – Desjardins Securities

A couple of small questions here, just to come back on the tax rate. I just want to be sure I understand. The run rate in the second, third, and the fourth quarter should be lower than the 30% if you want to get to the 32 to 34 range right?

Robert J. Gomes

Well we are expecting that it will still be in the 30% range, but you have increased revenues in the second and third quarter. Our income is the anticipation. Q1 and Q4 are usually a little bit lower and then you have a bit of an increase in the second and third quarter.

Pierre Lacroix – Desjardins Securities

The 2% is going to grow. Is this inclusive of the current C-pak or is it exclusive?

Robert J. Gomes

It is in native dollars, so the 2% to 3% organic growth would be in native dollars.

Pierre Lacroix – Desjardins Securities

In absolute dollar? Okay, perfect.

Daniel J. Lefaivre

It is pretty difficult to predict the impact of foreign exchange.

Pierre Lacroix – Desjardins Securities

Yes, I agree. Finally, on the bank line, I don’t know if you mentioned it in your comments, but what is the amount available at the end of the quarter?

Daniel J. Lefaivre

About $116 million I think at this point in time.

Operator

The next question comes from John Rogers - D. A. Davidson & Co.

John Rogers - D. A. Davidson & Co.

This quarter you weren’t as active on the acquisition side. I mean some small transactions. Maybe you can just talk about what the market opportunities look like? I mean are you seeing fewer deals? Are you just being more conservative?

Daniel J. Lefaivre

No, we are seeing lots of opportunities. I just think we reported last quarter that there is a bit of evaluation gap due to the fact that a lot of firms had retraction in 2009 that makes it difficult to forecast what they are going to be doing going forward. So some of that just takes a little bit longer. There is more discussion that is probably necessary. At this point in time, our pipeline of opportunities for acquisitions is quite full. We see ourselves continuing looking at opportunities. The fact that we haven’t done any major ones, I wouldn’t reflect that upon our investment in time and energy looking for them. There are certainly a lot of instructions occurring.

Operator

Your next question comes from Sara O'Brien - RBC Capital Markets

Sara O'Brien - RBC Capital Markets

Just on the gross margin. You talk about competitive pressure and doing some larger project work, also the P3 bidding. How does that go into the rest of the year in terms of your outlook for EBITDA margins? Can you maintain them at the previous year’s level? Are we going to see a bit of pressure throughout the year based on these factors?

Daniel J. Lefaivre

We give that range of 54 and a half to 56 and a half for gross margin. We still feel that we are going to fall within that range at the end of the year. That will fluctuate from quarter to quarter. There is a lot of bidding for example that goes on in Q4 and Q1 on P3s but then you get them awarded and you start working on the project. When you get the success then you normalize the gross margin. We see the little fluctuations that are occurring from time-to-time will not take us outside of our range.

Sara O'Brien - RBC Capital Markets

Then can you comment on which P3 projects in particular would be material to you? I mean we have a list of the ones that you are bidding on, but which ones are most material to you that are kind of a real win for you?

Robert J. Gomes

There are a lot of them up there Sara. I guess we can comment on the ones that we’ve won. So South Frazier Perimeter Road I think has been disclosed that the name of the concession there is Frazier Transportation Group and Stantec is the lead designer on that project. That is a 40 km roadway project in British Columbia. I think we announced [Cameach] last period, which was a major project.

We have others that we are working on and are close to being awarded or have been awarded that haven’t publicly provided, so we don’t like to speak to those. Certainly Frazier is a big job for us. We are quite happy with that. We are the preferred component just the contract negotiations still have to be closed. That might still take 6 weeks to a couple of months to actually get our backlog.

Sara O'Brien - RBC Capital Markets

It will be material to your backlog?

Robert J. Gomes

It will be significant to the transportation group.

Operator

The next question comes from Burt Powell from BMO Capital Markets

Burt Powell – BMO Capital Markets

In your MD&A, you talk about investing more time in business development and marketing initiatives and I’m just wondering if that was something that was started towards the end of the quarter and is likely to ramp through the year or is this something that you’ve been doing throughout the quarter and I guess where I’m going with the question is, in terms of the admin and marketing expense, are you signaling that is likely to move up because of increased initiatives in this area>

Robert J. Gomes

No, I think it’s going to be stable now throughout the year. I don’t see it ramping up and continuing to increase. It was higher than it was in Q4 because yes, we’re spending more time within our range of what we predicted for 41% to 43% and we’re within that range. We don’t see it going above the 43% at any time through the year.

Burt Powell – BMO Capital Markets

No, but would it be closer to the 43% than the 42% that you’ve been more recently experiencing?

Robert J. Gomes

At this point I don’t see it increasing up to the 43%. It really is dependent upon how many opportunities we’ve got to bid, how big those proposals are, and it’s difficult to anticipate. At this point in time, I don’t see it ramping up another percentage in the next quarter or anything. We’re busy but we’re also getting busy in billable work too. We see it staying within the range and it would be that mid range.

Operator

There are no further questions at this time. Please continue.

Robert J. Gomes

If there’s no more questions I’d like to thank you all for joining us today and I look forward to speaking with you again in the near future. Thank you very much.

Operator

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line and have a great day.

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