Orion Group Holdings, Inc. (ORN) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Orion Marine Group Incorporated Earnings Conference Call. My name is Bree, and I will be your operator for today. [Operator Instructions] I would like to now turn the conference over to your host for today, Mr. Chris DeAlmeida, Vice President Finance & Accounting. Please proceed, sir.

Good morning, and welcome to the Orion Marine Group Third Quarter 2012 Earnings Conference Call. Joining me today are Mike Pearson, Orion Marine Group’s President and Chief Executive Officer; and Mark Stauffer, our Executive Vice President and Chief Financial Officer. Regarding the format of the call, we have allocated about 15 minutes for prepared remarks in which Mike and Mark will highlight our results for the quarter and our update and outlook for 2012 and 2013. We will then open up the call for sell-side analyst questions for the remainder of the time. We would ask that you limit your questions to one question and one follow-up before getting back in the queue. During the course of this conference call, we may make projections or other forward-looking statements regarding among other things, our end markets, revenues, gross profits, gross margin, EBITDA, EBITDA margin, backlog, projects and negotiation of pending awards as well as our estimates and assumptions regarding our future growth, EBITDA, EBITDA margins, gross margins, administrative expenses and capital expenditures. These statements are predictions that are subject to risks and uncertainties, including those described in our 10-K for 2011 that may cause actual results to differ from those statements. Moreover, past performance is not necessarily an indicator of future results. By providing this information, we undertake no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Also, please note that EBITDA and EBITDA margin are non-GAAP financial measures under the rules of the Securities Exchange Commission, including Regulation G. Please refer to the reconciliation accompanying this earnings call available on our website at www.orionmarinegroup.com for comments on the use of non-GAAP financial measures, as well as applicable reconciliations to the most comparable GAAP measures. Also, please refer to our earnings release issued this morning, November 1, 2012 and our quarterly and annual filings with the SEC, which are available on our website for additional discussions of risk factors that could cause actual results to differ materially from our current expectations. With that, I will turn the call over to Mike Pearson, President & CEO. Mike?

Thank you, Chris, and thanks for joining us this morning. Before I begin, I would like to take a moment to thank our nearly 1,200 co-workers for all that they do. It’s because of their hard work and dedication that we were able to achieve positive gross margin and positive EBITDA for the quarter. There is no doubt our people remain our most valuable asset. We have a good team and it’s because of their efforts that we continue to move in the right direction. Also, we’d like to extend our sympathy and concern for all of our investors, coworkers and friends who have been affected by the hurricane Sandy devastation that occurred earlier this week. Devastation from hurricanes is something Orion is all too familiar with and our thoughts are with you as you move through the recovery state. Now turning to our results and market outlook, the plan that we laid out last year is working, and our results continue to show improvement as we move through 2012. The improvement in our results for the third quarter included a sequential increase in revenue, positive gross margins, positive EBITDA and improving bottom-line results. Large projects booked at the beginning of 2012 have begun to materially contribute to our improved performance as we drive a larger volume of work to offset lower job margins. As we’ve said before, we believe we can achieve positive bottom line results with the current job margin levels by increasing our volume of work. As we’ve shown through the results this year, we are headed in the right direction. Still the ultimate timing of our return to profitability will be influenced by the timing and type of work and its impact on our overall fleet utilization. We’re working hard to return to profitability as soon as possible. To do this, we’ve continued our strategy of maintaining a high level of backlog and bidding affectively and focusing on opportunities which best suit our specialized marine assets. During the quarter, we achieved a solid 20% win rate adding approximately $100 million of new orders to our backlog, and this has led to our highest backlog level in two years. During the quarter we continued to see steady bid margin albeit at lower levels than we saw a couple of years ago, and we continue to see limited irrational bidding. As we look beyond this year, we continue to see solid long-term end market drivers and we remain positive about our future. Clearly we still have some challenges to overcome, though we believe we made the necessary changes to control our costs and move our results in the right direction. Now let’s look at some specifics about our markets. We’re continuing to monitor pricing conditions after the two-year transportation bill was recently signed into law. As we’ve said before, this piece of legislation could provide a return to more normal bid margins on projects involving marine construction services as non-traditional contractors would return to their normal markets. Also, it’s been reported that BP and the federal government are progressing toward a settlement on the 2010 oil spill. Reaching the settlement between the two parties is the first step in executing the RESTORE Act which dedicates about 80% of the fines collected from BP towards coastal restoration in five Gulf Coast states, and we’re optimistic that this is going to lead to increased opportunities for us in the Gulf Coast markets. We’re also encouraged by the continued strong demand in the private sector. During the quarter we were successful in winning several private jobs, including an approximately $10 million bulkhead construction contract which we announced in August. One of the strongest headwinds that we face today is the fact that our dredge utilization continues to be affected by inconsistent Corps lettings. As we mentioned before, this is an issue that we’ve dealt with now for several quarters. As you’re all aware, the Corps has funding under a continuing resolution through March 2013. While the length of this continuing resolution is more palatable than the series of short-term resolutions that we saw last year, it still doesn’t provide the clarity of the full year of their budget. Therefore we remain in uncertain times surrounding the pace of Corps lettings as we enter into the new fiscal year. Still we’ve continued to believe there is a building pent-up demands for the projects that involve dredging services and ongoing demand from marine construction projects. And this was before anyone heard of Hurricane Sandy. As we’ve said before, getting our large dredges back to historic utilization levels is the quickest way for us to return to higher profit margins. According to the most recent data from the U.S. Census Bureau, the United States continues to see increases in exports and imports. The first eight months of 2012 saw exports increase about 5.6% and imports increase about 4.3% as compared to the same period a year ago. In addition to domestic levels of waterborne commerce increasing, tonnage levels transiting through the Panama Canal have also set a new record. Nearly 332 million Panama Canal tons transited through the locks during the Canal’s fiscal 2012 which ended on September 30. This breaks the previous record that was set in 2007 of nearly 313 million tons. The increase in the level of exports and imports highlights the need for continued investment in the maintenance and expansion of our vital marine infrastructure. The importance of our nation's ports and waterways was recently highlighted in a report by the American Society of Civil Engineers, of which I am a member, and the report predicted that ports and waterways will require approximately $30 billion in investment by 2020 -- $30 billion in investment by 2020 to accommodate the anticipated growth in trade and waterborne traffic. Today we’re tracking $6.5 billion worth of bid opportunities over the next few years and of this, 11% are federal projects, 28% are state, 19% are local and 42% is in the private sector. This higher level of activity in our tracking database gives us optimism about the overall market demand. However close attention must be paid to our pricing and funding to see how these opportunities ultimately play out. As we announced this morning in our earnings release, yesterday we acquired substantially all the assets and the ongoing projects of West Construction Company, which is located in Anchorage, Alaska, for $9 million. The acquisition of the assets and the backlog of West Construction is another exciting development in the continued growth of Orion. These assets are going to allow us to further expand our capabilities in the Alaska and Pacific Northwest markets as well as provides us with the opportunity to expand our international presence. We believe this acquisition positions us to take advantage of significant long-term bid opportunities in both the private and public markets throughout the Alaska region. This acquisition will add to our backlog and market tracking database. We’re excited to have the West Construction team as part of the Orion Marine Group and we share a similar philosophy in project management. We have similar capabilities in meeting the challenges of working in remote operations. In closing, our confidence in the long-term strength of our business remains strong and the plan that we put in place has us moving in the right direction. We remain focused on returning to profitability while protecting the intrinsic value of the company and returning value to our shareholders. While we face some challenges as we wrap up 2012 and move into 2013, we believe Orion Marine Group has a strong and bright future. We’re working hard to maintain our backlog, maintain a very strong balance sheet, increase our margins, explore complementary but diversified service offerings. And with that, I will turn the call over to Mark Stauffer to discuss our financial results in more details. Mark?

Thanks Mike and thank you for joining us. For the third quarter 2012, we reported a net loss of $1.6 million or $0.06 per diluted share which compares with a net loss of $6.2 million or $0.23 per diluted share in the prior year period. Third quarter contract revenues increased 38.1% year-over-year to $75.4 million, of which 48% was generated from federal state and local government agencies and 52% from the private sector, which compares to 85% from federal state and local government agencies and 15% from the private sector in the prior year period. During the third quarter we bid on approximately $500 million worth of opportunities and were successful on approximately $100 million. The 20% win rate achieved during the third quarter is a result of the continued success of our bidding strategy to secure a greater volume of work to offset the impact of lower job margins. This success level resulted in a book-to-bill ratio of 1.3 times for the third quarter. While our book-to-bill ratio can fluctuate from quarter to quarter depending on several factors, it is important that we maintain a book-to-bill above 1x, which indicates we are maintaining backlog as we execute on work. As of September 30, 2012 we had a backlog of work under contract of $217.1 million, of which 25% is for federal government projects, 18% is for state projects, 16% is for local projects and 41% is in the private sector. Subsequent to the end of the third quarter, we have been successful in continuing to obtain additional awards for new work. Backlog as of September 30, 2012 is at its highest reported level in two years. As we look at the next 12 to 18 months, we are pleased with the backlog we've begun to build for 2013 and beyond. However, bid margins remain lower than we experienced several years ago. Still as Mike mentioned, we believe we can return to profitability at today’s job margin levels through an increase in the level of work we execute. If you look at our results this year, our plan is working and we are headed in the right direction. It is important to note that in certain selective cases, bid margins are beginning to show signs of improvement which should be beneficial to late 2013 and beyond if we see this trend continue. However we’re not completely out of the woods just yet. On projects involving dredging services, we are monitoring Corps lettings in our operating regions closely for signs of improvement through a steadier pace of lettings in the course of fiscal year 2013. Turning to the balance sheet, during the third quarter we built cash as a result of income tax refunds and positive free cash flow for the quarter. Additionally we paid down the outstanding balance on our revolver of $2.1 million. As a reminder, we still have $10.5 million outstanding on our term loan. Our ending cash balances as of September 30, 2012 was $50.2 million. Overall we’re pleased with our balance sheet and remain focused on maintaining a strong balance sheet. We continue to see signs of improvement in our marketplace and remain pleased with the amount of bid opportunities we see in front of us. We still face uncertainty as to the pace of Corps lettings as we enter fiscal year 2013 and the potential impact on the utilization of our dredging assets. Still we continue to believe the obstacles and challenges we are currently facing are not insurmountable. The plan we’ve put in place to manage through this downturn and position ourselves to take advantage of a return to more normal market conditions is working and we remain excited about the future bid prospects and long-term strength of our end markets. There are positive long-term momentum drivers occurring that give us optimism about the future. We believe our specialized fleet, workforce and support facilities position us to be a leader in the marketplace. The maintenance and improvement of our waterways infrastructure is far too important to the health of our economy to be neglected. We believe that pent-demand for our services exists in all of our operating regions and we are well-positioned to take advantage of this. With that, I will turn the call back to Chris to begin the Q&A portion of the call.

Thank you, Mark and Mike. We’d now like to open up the call for questions. Bree, would you please review the procedures for placing a question.

[Operator Instructions] Your first question comes from the line of Rich Wesolowski with Sidoti.

So now that the Corps fiscal ’12 is over, presumably all the projects with last year’s money have been let. I am wondering if you’ve done some dissection of that and did the Corps use all their money? And if so, does the utilization of Orion’s fleet reflect missing jobs that were up your alley or money that was allocated to your geographies but not suited to your equipment, or maybe money that went to other areas of the country?

I think it’s a mix of all of the above. We had a pretty good third quarter picking up some projects that were awarded to us. Here in the last month we weren’t quite as successful. The results are public but I think the Corps has been struggling with trying to prioritize, and they’ve got some upper Mississippi River issues with no funding and traffic running aground. And how that’s going to be addressed, we’re about to find out. They’re trying to put together some packages up there but funding on that is not clear to me. But I think it’s just been very choppy lettings which has led to some choppy pricing as quite frankly. And it’s just a very uncertain situation with just a six-month look ahead and we’ve only got what –- five months left.

Right. Secondly, Mike, you mentioned that the company can make money in today’s environment of construction pricing and Army Corps dredge activity. That said, there has to be some general limit out there as to how far this improvement for Orion can stretch in the absence of some end market improvement in either construction or dredging or both. Do you have any general thoughts as to what that limit is?

Well, first of all, I just want to say we tried very hard to get our cost containment program down as quickly as we could, not knowing how long this difficult period was going to last. And I am sure after the elections we’ll get some more clarity as to what Congress is going to do on funding waterways programs and that may take some part of next year to get sorted out. So we decided that if we had to stick with these kind of margins for the time being and short term, let’s do that and get our costs down. And I think it’s really more a factor of -- if we get our utilization up on our dredging fleet, we will kick in to a profitable run rate. That’s really the -- the most important issue for us.

And Rich, I would just follow up on that. We are pleased with the uptick in the private sector opportunities. I think as we talked about in our remarks, we’ve seen a pretty significant increase in year-over-year percentage of revenue in the private sector versus where we were a year ago. So to your point, we -- on projects that involve primarily construction services, there does seem to be an adequate volume of work out there. Our utilization as we talked about earlier in the year is these projects that we announced in the first half of the year are getting kicked in. I mean, we’re starting to see those results come through. And the other thing I would say too is that as Mike said, with the Corps lettings that’s been a little bit choppy for our dredges and the work that our dredges go after. And as Mike said as well that’s led to choppy pricing as well in that regard. But we do have private sector opportunities that we've got some of the dredging assets working on. So that takes up some of the slack there. And as we move into next year, we still feel confident that we’re headed in the right direction. We’ve got -- utilization of the construction assets has definitely increased. Again we’ll just have to see how the Corps piece fits into it all but definitely think it’s moving in the right direction.

Your next question comes from the line of Jon Tanwanteng with CJS Securities.

So it’s nice to hear that there is some improvement in the bid margins in construction. What’s really driving that, are opportunities popping up more than capacity or land-based guys finally starting to pull away? And do you expect that improvement to continue or be sustainable?

Well, I don’t know that it will improve in the short term but it is beginning to show signs of improving. We’re kind of setting ourselves up to continue with more of the same as far as uncertainty with Corps funding. But what we've been able to do is fill some of the void with private sector work, both marine construction and dredging, and we’re pleased with the amount of activity in the private sector. It’s been very good. Most of our divisions are very well utilized on the marine construction side. It's just the underutilization of our dredging fleet that’s been hampering our profitable run rate.

And Jon, I would just say as far as type of work in the private sector along the Gulf Coast, we’ve seen a lot of activity in the oil and gas sector throughout the region in terms of terminal activity, storage activity, pipeline work. There’s a lot of pipeline work that we’ve been seeing bid opportunities on.

Coal export.

Just again a lot of that’s been driving that, and we’re optimistic about the bid opportunities we see going forward. Clearly we’ll have to see how GDP growth goes in the next couple of years but we’re kind of seeing a lot of activity sort of across-the-board in terms of marine construction opportunities. But as we talked about in the remarks, and I think we mentioned this last call, pricing has not deteriorated any further, it’s stabilized. We’re seeing a minimal amount that I would call it kind of the normal amount of irrational bidding. So that -- those are very positive things and in some of the market areas, in selected and certain cases we’re seeing improved pricing, but it's not across-the-board just yet. And we’ll just have to keep monitoring that to -- as we do on a daily, weekly basis to see where that takes us to in 2013.

And then any impact from the storm on the East Coast or actually with Isaac in the past quarter? Are you guys exposed to any of that or are there any new opportunities for reconstruction as it occurs?

Well, we did have some dredging assets up Chesapeake Bay area, James River and which was not damaged, thank goodness and we hope to get back to work there work pretty quick but other than that, no substantial damage. We did shut down our operations on the East Coast in the Florida area on up to Norfolk just as a precaution. And we’re back to work in most of those locations now. So it’s just short term defensive postures what we went through. But we got a lot of experience with dealing with hurricane damage, and what we expect is that all the focus right now is on trying to get these cities back with power, transportation, service -- basic services so people aren’t standing in line trying to get fuel and water. And that will probably go on for another week here. But construction work, remediation work unless it’s emergency, it takes time for that to materialize but we’ve got our feelers out. We’ve let people know that we are here to help if anybody needs our services and we’ll see how things materialize. But long term there is going to be a lot of remediation work to be done up and down the coast. And we'll just watch that and see how it develops.

Definitely we think in any event it will -- long term again as Mike said it takes a little while to get stuff situated in terms of recovery but it should definitely utilize industry capacity as we move through the next several months and into 2013.

And then finally, just on the Alaska acquisition, any color on that? Are their margins similar to yours? What’s their revenue run rate? I am not sure if I missed that or not.

Yes, very much similar. In fact, one of the things we liked about West Construction is how similar they were to our management philosophies, our project management styles and not big risk takers. And we’ve been looking for ways to expand our footprint in the region, particularly in the Anchorage area, and they’ve just got such a long tradition of carrying out projects up there successfully. And we think that will help us to expand our capabilities in the Pacific Northwest up to Alaska. And I like the idea that they have been doing some international work and that gives us a platform to start looking at how we could build that in the future. And that’s something we will be assessing and determining how we want to go in that direction. But as you know, I’ve got a lot of years of my career, about 18 years of my 43-year career has been spent overseas. So it’s a market we've chosen to ignore since I have been on board in seven years and I think it's time that we use this platform to begin to study that to see how we can build an international growth model. But it’s still in the development stage at this point.

And Jon, as far as run rate, they’ve historically done kind of in the $20 million to $30 million annual revenue range and we think probably for next year we would suspect they will be at the lower end of that range.

Your next question comes from the line of John Rogers, D.A. Davidson.

First, I guess, following up on West, what’s the backlog, Mark?

Approximately about $10 million give or take -- probably little bit more than $10 million that we’ll pick up.

And Mike, when you referenced the international market for that, is that Canada or elsewhere in the Pacific?

Well, it would be -- they’ve done projects and executed project in the Middle East and I think we would look at the Middle East, Pacific realm and they have a company in Australia. And it’s just something that I think -- it’s time for us to begin that process of looking at -- eventually where we’re going to be headed this way. This opportunity presented itself and so we will go ahead and nurture it and see where it takes us.

And John, just to clarify, the backlog that we picked up is all domestic and the run rate that I just talked about it in an answer to the last question from Jon is domestic. So we certainly as Mike said -- the international is in, we kind of look at that as a development opportunity and that would just provide upside potential for us.

John, I will tell you this. The Middle East entity is based -- will be based in Dubai. That’s a city I lived in 10 years. I know it very well, it’s a very stable part of that area. It is a big shipping center, big oil and gas construction and we will just assess that and see where it takes us. We’re also excited about the potential long-term up in Alaska with the oil and gas sector. Shell has started working up on the north slope, punching their first few wells this week and there could be an upsurge of activity in that sector and we want to be -- everything up there is waterborne supported, either air or water borne. So we want to be a part of it.

But the equipment -- is there any equipment overseas or is it just offices and -

Yes, John, the overseas work, we would anticipate being mostly project management and done with local labor, local equipment.

Or we take otherwise vital resources here and redeploy them.

And then the other question is in terms of the market, you referenced a couple of things on what was going on there. But right now the work that you’re bidding, are the margins higher than what you are burning out of backlog?

Overall, no. In selective cases, yes we are seeing some jobs that specifically we can get a little bit better margins on. But as an overall case, no, it’s not getting better. It’s not deteriorating either, but it’s not -- we’re not seeing a broad pickup yet.

And when I look at the bid market information that you’ve given us, it looks like it’s down from where we were a year ago. But I don’t know when you talk about the bid market, is that just public work or does that include the private work?

It does. And John, another thing too is that like in the private sector, a lot of private-sector opportunities we do, particularly in the Gulf Coast, never really hits backlog and it’s booked and burned, it’s revenue type stuff. But I think again the bidding activity fluctuates from period to period in terms of timing of bids and when things -- whether things are bid in the third quarter or fourth quarter, is there any slippage, whatever. But it’s -- certainly with the federal government, they’re kind of cycling fiscal year but in the private sector, it kind of runs on a little bit different track. I think we’re very pleased with the level of activity and we bid on more work in the third quarter than we did the second quarter.

And keep in mind, John, our overall tracking database has grown. A year ago it was about $6 billion, today it’s over $6.5 billion.

And then in terms of the CapEx if you exclude the purchases, are we looking at -- is it looking fairly stable at this point now?

Yes, I mean with no change from what we talked about last, we think for 2012 kind of low to mid-teens and that’s kind of about right. Last year we were right about $15 million of -- we expect to be right around that for 2012.

And that looks -- I mean, I know you haven’t given forecast yet but that looks sort of a sustainable run rate over the 2013 until the market recovers?

Yes, barring some change in ’13 that would warrant something particularly project related, if we picked up a project that required something. But I think your assessment is accurate.

I am sorry, and I know Mark, you said this, and I missed it, all the numbers when you went through them. The revenue by customer, could you give us that once again?

Yes, for the quarter 48% was government sector, and 52% was private sector. And that compared -- last year through Q3 was 85% government sector and 15% private sector.

Your next question comes from the line of Jack Kasprzak, BB&T.

Your incremental margins in the quarter were very good, 60% or so on a 40% sales gain year over year. Is that something that at this level of sales, quarterly sales we should continue to see? I mean is that the kind of leverage that would be fairly typical, now that we’ve kind of pushed up to a higher level of quarterly sales?

Well, certainly with the activity we have going on right now, I mean a lot of that is driven by a pickup in utilization, particularly with the construction at the barges and cranes and things of that nature. But again it will depend on the mix and type of work that we’re executing on in any particular quarter. But certainly this is kind of the trend we want to be moving toward and as we said our goal is to -- in this pricing environment until it improves, I mean we’ll just drive the volume, try to get the utilization of control costs and keep moving in the right direction here. Certainly we’re pleased with the quarter. We’ve still got work to do and again I think as Chris mentioned a minute ago, we’re looking for the opportunities to improve bid margins, and in some cases we’re kind of seeing that. Again I don’t think it’s a broad trend just yet but it’s certainly encouraging and it feels like I think as we talked about before, we sort of -- it hasn’t deteriorated, it stabilized and it looks like we’re seeing signs of possible improvement as we look into 2013 and beyond.

I mean your comment about select bid margins improving -- bid margins improving on select project. That’s -- correct me if I am wrong, that’s new for at least the past few quarters. I mean does it feel like something that could build in coming quarters? I realize it’s early and we want to be cautious. But things seem to be pointing in a lot better direction here with backlog building and 40% sales growth. The trajectory seems pretty positive.

Yes, I think we’re pretty pleased that we have a number of clients that have been coming to us particularly in the private sector and we've been able to build on that. And we’ve got turnkey capability that helps our situation when we get opportunities that have those larger turnkey jobs. And that’s beginning to gain momentum and so I think what we’re trying to convey though is that we’re posturing ourselves for continued margin pressure. And we’re just demonstrating that we get our utilization up, we can still have a profitable bottom line if we reach that higher utilization than what we’re having now.

Yes and Jack, also some of the things, we are picking up some opportunities in the Corrib. And as you know historically the remote opportunities, the remote projects like that tend to have better pricing just in general no matter what markets you’re in. So we're seeing some activity there. So that’s when we say, select a project. We’re starting to see a little bit of that activity. So to your point about a trend and things of that, that’s obviously something that we’re going to be closely looking for and as we continue to bid work throughout the remainder of 2012 but as we get into ‘13 as well, we’ll be looking to test that where we can. Again I think it’s too soon to call it a broad trend but we’re encouraged. And I would say we’re certainly -

Where we can, we are making it happen.

And from where we sat 12 months ago I’d say we’re more optimistic than we were then. So I think it’s incrementally been getting better and I think as you see from our results, our results have improved as we’ve gone through the year. So again, we think we’re headed in the right direction but we still have some challenges that, again, we’ll overcome.

Your next question comes from the line of Alex Rygiel, FBR Capital Markets.

This is actually Min Cho for Alex. Just couple of quick questions left here. Can you provide any kind of additional commentary on utilization rates in the quarter? Obviously your construction equipment rates have improved, sounds like dredging might have improved a little bit on a year-over-year basis with some increase on the private sector. But any numbers you can put around that or just kind of more year-over-year commentary?

I think really just the commentary we’ve given and how you laid it out, I think is fairly accurate. But specifically we don’t provide that for competitive reasons.

Also in your press release you mentioned that you are apparent low bidder on $45 million worth of work. Is there any dredging kind of in those low bids and can you describe -- are those a couple of large projects or just a lot of smaller projects? Any details?

It’s a mix across the board. There is a couple of dredging projects involved with that. But as far as size, it truly is a mix across the board. I think there was a couple little bit larger ones in there, and there are some smaller ones as well.

And then just given your current visibility, do you anticipate bidding on more or less in the $500 million that you bid on this quarter and any reason to believe that your win rate would change?

That’s a tough one. I can’t really -

Yes, it all depends how it comes out. As far as the win rate, certainly as we’ve said that’s our objective and I think we’ve definitely seen our win rate for 2012 has been much better than it was in ’10 and early ’11. So we’re going to continue to strive for that type of win rate which is more in line with our historical win rate. But as far as the volume, that just depends on so many things that it’s hard to gauge that.

And then just finally, I am not sure if I missed this. But the $6.5 billion in tracking projects that you have right now. Does that include the West Construction acquisition?

No, there’s not anything in there for that.

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

Your working capital has been a $20 million source of cash through the first nine months. Is that truing [ph] up something that had lagged previously or should we on the other hand expect that to swing back the other way in the next couple of quarters?

Well, part of that has to do with income tax refunds but certainly I do think the last couple quarters we've had cash generation from operations. And so I think -- but part of that is sort of I don’t know if I’d call it true. But it is an impact on income tax.

Secondly, I was wondering over what time period the company will look to renegotiate its credit agreement?

That will be ongoing over the next several months. As you know that matures in mid-2013. So we’ll be working on that and of course we've been -- have a very good relationship with our banks. And so that will be an ongoing discussion over the next few months here.

There are no further questions at this time.

All right. Well, with that we would like to thank you for joining us this morning. And we look forward to speaking with you in the future. Also, if you have any more follow-up questions, please feel free to give Drew or myself a call. Thanks and have a great day.

Ladies and gentlemen, that concludes today’s conference. You may now disconnect and have a great day.