Q3 2008 Insituform Technologies, Inc. Earnings Conference Call - Final.(Broadcast transcript)

OPERATOR: Good day and welcome everyone to the Insituform Technologies Third Quarter 2008 earnings Conference Call. Any financial or statistical information presented during this call including any non-GAAP measures, the most directly comparable GAAP measures, and reconciliation to GAAP results will be available on our website, Insituform.Com.

During this Conference Call we'll make forward-looking statements which are inherently subject to risks and uncertainties. Our results could differ materially from those currently anticipated due to a number of factors described in our SEC filings and throughout this Conference Call. We do not assume the duty to update forward-looking statements. Please use caution and do not rely on such statements. As a reminder todays call is being recorded. Now I'll turn the conference over to Insituform's President and CEO, Joe Burgess.

JOE BURGESS, PRESIDENT AND CEO, INSITUFORM TECHNOLOGIES: Thank you very much. Good morning and thank you for participating on Insituform's Conference Call on our Third Quarter 2008 results.

Joining me on the todays call are David Martin, Vice President and Chief Financial Officer and David Morris, Senior Vice President, General Counsel and Chief Administrative Officer, and Daniel Cowen, Vice President of the Asia Pacific rehabilitation team. I plan to spend most of this call today addressing your questions but I'll make a few brief remarks on the third quarter performance, the status of our operational improvements, and our strategic direction.

Before I get into those specific topics, you will note that with yesterdays Earnings Release we began providing new and expanded disclosure of our business segments. I believe that this is a very important step as we endeavor to become a more transparent Company about the strategic direction we are taking. These disclosures provide much clearer insight into our financial results and the distinct business lines and the geographies that we serve around the world. We do plan ongoing back to previous quarters and recasting the segments to reflect this improved disclosure. We will file these changes with the SEC next week.

I am pleased to report the significant improvement in profitability again this quarter compared to last year and sequentially from the first and second quarter of this year. Four of our five business segments delivered more in operating profit than last year, only Europe declined and I plan on discussing that in detail later on.

Much of our improved results in the third quarter were driven by North American sewer rehabilitation, our gross margin percent in North America was over 22.5% in the third quarter, up significantly from a year ago when gross margins were at only 17%. Gross profit dollars in the third quarter improved by over 32% from the same period last year and were up 2% from last quarter. This improvement can be attributed to the hard work from our field management and our crews, our execution against bid margins as shown marked improvement year-over-year due to a strong focus on eliminating quality errors, increasing productivity, reducing fixed cost and improving logistics of moving tubed to installation. In addition we've been able to improve profitability through efficiency gains and manufacturing.

In terms of productivity and cost let me share a few positive trends. For the nine months ending in September, crew productivity as measured by feet installed per crew per week -- per crew is up over 6% from the same period last year. At the same time we've trimmed our labor costs per installed foot by 5.5% and our equipment costs have come down by more than 1.4% despite a 40% increase in the cost of fuel. We have continued to trim our administrative support costs in North America as well.

Our backlog in North America did come down this quarter by 3.7% from last quarter. While we do continue to see a mostly flat market in most of the United States, our 12- 8 month visibility into the market appears to continue to be steady and not dramatically declining. While we have seen a small decrease in this quarters backlog , it is up from one year ago by 8.4% and the margins we see in our backlog have improved by several margin points since the third quarter of last year, a very positive trend.

Also included in the results for North American rehab are third party tube sales through our subsidiary MTC. This is a very strong success story worth mentioning. Year-to-date we've increased sales by 134% to approximately 7.5 million from 3.2 million last year. By the end of the year our third party tube sales will approach $11 million. We have even larger expectations for this business in 2009.

Our energy and mining segment, formerly Pipeliner, grew both revenues and operating profits by 31% from last year while margins are down somewhat, this is substantially attributable to the mix of projects and geographic Markets. Our Chilean Operations have grown nicely this year but margins typically are lower there. What is not shown in our financial reports is our return on invested capital. This business is and has been delivering return on invested capital of more than 50%. As …