AZZ Inc (AZZ) 2015 Q1 法說會逐字稿

Good morning and welcome to the AZZ first-quarter fiscal year 2015 financial results conference call. (Operator Instructions). Please note this event is being recorded. I would now like to turn the call over to Joe Dorame of Lytham Partners. Please go ahead, sir.

Thank you, Laura. Good morning and thank you for joining us today to review the financial results of AZZ incorporated for the first quarter of fiscal-year 2015 ended May 31, 2014.

As Laura indicated, my name is Joe Dorame. I'm with Lytham Partners and we are the Investor Relations consulting firm for AZZ incorporated.

With us on the call representing the company are Mr. Tom Ferguson, Chief Executive Officer, and Mr. Paul Fehlman, Chief Financial Officer.

At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the press release, you can retrieve it from the company's website it at AZZ.com or numerous financial websites.

Before we begin with prepared remarks, I would like to remind everyone certain statements made by the management team of AZZ during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed from time to time in documents filed by AZZ with the United States Securities and Exchange Commission, including the annual report on Form 10-K for the fiscal year ended February 28, 2014.

Those risks and uncertainties include, but are not limited to, changes in customer demand and response to products and services offered by the company, including demand by the electrical power generation markets, electrical transmission and distribution markets, the industrial markets, and the hot dip galvanizing markets; prime material costs, including zinc and natural gas, which are used in the hot dip galvanizing process; changes in the economic conditions in the various markets the Company serves, foreign and domestic; customer requested delays of shipments; acquisition opportunities; currency exchange rates; adequate financing; and availability of experienced management employees to implement the Company�s growth strategies.

The Company can give no assurance that such forward-looking statements will prove to be correct. These statements are based on information as of the date hereof, and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

With that said, let me turn the call over to Mr. Tom Ferguson, Chief Executive Officer of AZZ. Tom?

Thanks, Joe. Good morning to all of you on today's call. We thank you for your interest in AZZ.

Financial results for the quarter were as anticipated, with revenue hitting record levels of $216.1 million on the strength of a full quarterly contribution from WSI, as compared to just two months in last year's comparable quarter.

Quoting activity in our energy segment has increased at most businesses and supports our continued confidence that the latter half of this fiscal year will be good within our energy segment. Our industrial platform gained momentum, particularly in the petrochemical and refining markets, and our electrical platform faced mixed markets, but saw growth in enclosures and switchgear.

Our nuclear platform continued to face market headwinds. Although we saw an uptick in the number of outages, they were of shorter duration and smaller scopes than expected, due to budget constraints and continued uncertainty in the industry.

Activity in the galvanizing services segment is approaching more historical operating levels after experiencing severe winter conditions. We are also expanding the focus of our galvanizing services segment to include other metal finishing technologies that we expect will create new growth opportunities and also enhance our industry position as the leading corrosion protection solutions provider in North America.

I would like to make a couple of statements regarding the executive management change from this past Wednesday. I felt like it was time to make a change in the senior leadership of our energy segment and these decisions are always difficult, but I'm very excited about the opportunity to step back into an operationally-focused role for the remainder of the year because I strongly believe I can drive the key strategic initiatives, international expansion, and operational performance quickly and effectively.

I would like to clearly emphasize that my decision to make a change in the senior leadership team was not driven by the outlook for results in FY2015, but rather I have a clear vision for the approach and the speed of execution we need, and I believe that the Company is better served by having me directly drive those initiatives for the short term.

The current platform leaders are good executives with extensive industry experience, and I have a great deal of confidence that they can execute the growth initiatives they are undertaking. Given the additions we have made to the corporate team and the CFO and COO roles and my extensive experience and expertise with these businesses and markets, I am confident I can balance my time and energy leading the energy segment, while still being able to fulfill my Chief Executive Officer duties and remain accessible to our investors.

We have completed our strategic assessment of our business and determined where we want to grow AZZ's business over the next several years. We have strengthened our corporate, financial, and legal capabilities and also brought in two seasoned general managers for NLI and our Rig-A-Lite lighting business and are already seeing improvements.

For the first quarter, the energy segment recorded revenues of $130.5 million and operating income of $13.8 million and an operating margin of 10.6%. The segment ended the quarter with a backlog of $309 million, which includes all products and services offerings. The margins were impacted by poor project execution on a couple of large orders and lower sales in our nuclear platform.

AZZ energy revenues were up by $34 million, compared to the first quarter of fiscal 2014, which is an increase of 35% year over year. The Aquilex SRO acquisition, which was rebranded as WSI, contributed $73 million of revenue for the quarter. Excluding the Aquilex SRO acquisition, year-over-year revenue was up by $2.6 million.

Operating income for the first quarter was $13.8 million, compared to $13 million for the prior year, an increase of 5.9% year over year. The contribution from the Aquilex SRO acquisition was $6.8 million for the quarter.

We are seeing strength in the North American oil and gas and petrochemical markets. Inquiries are up for our products in the pipeline and petrochemical markets. Domestic power generation continues to be weak, especially the nuclear market. The nuclear industry continues to withhold spending due to the effects of low natural gas prices and anticipated spending requirements for Fukushima-related updates. Further, the North American transmission and distribution market outlook remains shaky for the year.

Internationally, our service offering is benefiting from our sales efforts in Brazil and Europe. The power generation market in the Middle East continues to be strong and the nuclear market in China is showing signs of recovery. We anticipate a record gear for the energy segment, based on a strong backlog and inquiry levels for the first quarter.

For galvanizing for the first quarter, our galvanizing services segment recorded revenues of $85.6 million and an operating income of $22 million, yielding an operating margin of 25.7%.

Revenue for this segment was affected by the continued softness in the electric utility market, primarily related to solar projects, but on a positive note, revenue was up sequentially 10.4% over the prior quarter, with operating income up 17.4%.

Year over year, revenue was down 1.3% and operating income was up 2.3%. That included some nonrecurring adjustments that Paul will be discussing shortly, offset by some incremental overhead costs.

Demand in the petrochemical markets continues to grow. Sales are up year over year, offsetting the seasonally weaker bridge and highway market and the previously mentioned soft electrical utility market. Improvements in our agricultural-related sector remain solid, along with the OEM and construction markets. We anticipate a strong finish to FY2015 based on a strong petrochemical sector and anticipated improvements in the electrical utility and bridge and highway markets.

With that, let me now turn the call over to Paul Fehlman for a more detailed review of our financial results. Paul?

Thanks, Tom. For the first quarter of fiscal 2015, we're reporting record revenues of $216.1 million and an EPS of $0.58, as compared to a $183.2 million in revenues and EPS of $0.57 in the same quarter last year.

Bookings were $200.2 million this quarter, compared to $181.7 million in the first quarter of FY2014. Revenues were up 18%, primarily on the extra month of results for Aquilex SRO, which was acquired one month into the first fiscal quarter of 2014. Our backlog at the end of the first quarter grew to $309 million, reflecting a book-to-bill ratio of 0.93 for the quarter, and does include all of the WSI acquired backlog and we've made the adjustment for the first quarter of last year to show all of WSI at that time.

Gross margins for the quarter finished at 25.6%, while SG&A fell to 12.7% of sales, driving a 12.9% operating margin for the first quarter of FY2015, down 20 basis points compared to the first quarter of fiscal 2014.

Now it should be noted that we've disclosed one nonrecurring item during the quarter on the table attached to the press release from this morning, namely the benefit of $2.4 million related to the settlement of insurance for business interruption from the fire at our Juliet facility. The settlement was included in gross profit within our galvanizing services segment and drove $0.06 of earnings during the quarter, making our adjusted EPS $0.52 per share, as disclosed in the table.

The table also lists the nonrecurring items from the first quarter of FY2014, which included losses related to the fire at the Joliet facility, but also affected gross profit in the galvanizing services segment, as well as expenses related to acquisitions that drove higher SG&A costs and general corporate expense, and, finally, gains from the settlement of a lawsuit, which are shown on the face of our financials in other income net, which was below the operating income line as part of the galvanizing services segment.

When netted together, earnings per share for the first quarter of FY2014 without these nonrecurring items would have been $0.56, compared to the $0.57 per share reported in that period.

Our cash flow from the operations for the quarter was $12.1 million, down around $28 million versus the first quarter of fiscal 2014. The year-over-year comparison on that cash measure was tough, mainly due to the high amount of working capital acquired during the first quarter of fiscal 2014 in the Aquilex SRO deal, but flushed from the balance sheet during that same quarter.

Based upon the evaluation of information currently available to management, we continue to anticipate our fiscal-year 2015 revenues to be in the range of $850 million to $900 million and for earnings to be within the range of $2.40 per share to $2.80 per diluted share.

We continue to be optimistic about our future as we position the Company to provide a sustainable platform of expanded products and services offerings, both domestic and international. With that, I'll turn it back to Tom for concluding remarks. Tom?

Thanks, Paul. We envision ourselves to be the innovative solutions leader in protecting metal and electrical systems used throughout the world's infrastructure. We believe we are well positioned to continue to expand on this vision as we proceed through 2015 and confident in our ability to grow our businesses profitably. The completion of another successful quarter, the financial strength of the Company, and a great team of employees with capable leadership is reflected in the confirmation of our guidance.

As we look ahead, we will continue to focus on aggressively expanding our businesses, both domestically and internationally. We hope to have some M&A announcements in the second quarter that will provide solid evidence as to our commitment to broadening our galvanizing services portfolio, market expansion, and improving the focus within our energy segment.

We will continue to leverage our expertise and our internal spirit of innovation to enhance our position as the solutions leader in protecting metal and electrical systems that drive infrastructure. We have the people, the capital, and the reputation to deliver the necessary solutions to meet our customers' needs and expectations.

I am appreciative of the efforts of all of our employees and their continued commitment to operational excellence and to the success of AZZ. I am encouraged that we have a solid portfolio of products and innovative technologies to successfully compete and attract larger market share.

Going forward, we will continue to leverage our sales teams across our energy segment businesses in North America, aggressively expand our business internationally, streamline our platforms, and grow our galvanizing business, both organically and with targeted acquisitions. We reiterate our commitment to continue to grow this business and to do it in a manner that is both fiscally responsible and drives value for our shareholders. We are excited about the opportunities in the remainder of FY2015 and beyond.

Thank you for your participation today. And now, I would like to open it up for any questions.

(Operator Instructions). John Franzreb, Sidoti & Company.

I guess my first question is, could you talk a little bit about the changes and methodology you made to the backlog? You restated last year's first quarter, but why wasn't the WSI backlog included in the fourth-quarter results and how does that bleed off differently than what your previously reported backlog was?

So, right, actually in the fourth quarter and in the 10-K, we did lay out the addition of WSI and the effect that it had at the end of the year and explained during, I think, the call last quarter that originally there was a belief when the business was acquired that it was very short term in nature.

What we've found through time was is that there is a lot more project work going on in there, and we chose to do what we feel was a more proper show of the backlog of the entire Company. And so, we put the WSI in there. It had been called out in prior quarters as not being there and we just think it's a better presentation to put it all in.

Paul, does that backlog have a duration of less than a year or greater than a year?

It's a mix, as many things are. There are a few things that go out greater than a year, but most of it is (technical difficulty)

Okay. Tom, you mentioned that in the galvanizing business, you are looking to expand into other metals. Could you just elaborate a little bit on that? And would that change the margin profile of galvanizing?

One, I don't want to talk about some of the things we are working on just yet because we are in the middle of some opportunities. What I will state is that the kinds of businesses we're looking at are within the margin profile that you have come to expect for galvanizing and we don't want to change that.

Okay, great. So I guess this is coming via M&A and it's not a greenfield kind of an operation?

Yes. I mean, we are looking at M&A. We are also looking at some greenfields and we'd rather not signal where those are at just yet.

Okay. That's fine. One last question and I'll get back into queue. You mentioned the headwinds on the nuclear side. Could you talk about the outages expectations? You mentioned shorter durations. Could you provide color on your expectations for outages this year versus a year ago? And you said the revenue was light. Could you just kind of talk about the revenue expectations in nuclear for the second half of the year, when we have the second half of the outage season?

Yes. I think what we saw -- and we had been saying it last year -- was there was the expectation of more planned outages in US nuclear for this year, and for the most part, those outages occurred and it was 36 or 38.

So the number was there, greater than last year, but they were relatively short in duration, and because of that, they didn't get into broad scopes that would normally involve our WSI nuclear business. It had less impact on our NLI business because those are components that can be staged and available.

As we look forward, the outage -- the fallout each season, the inquiries are kind of normalized. As we look forward, there's a smaller number planned. It's too early to call whether those scopes are going to be bigger or not, so we remain somewhat hopeful that they will be, but we are not going to be surprised if they are not.

Okay. Thank you for taking my questions. I'll get back into queue.

Okay.

Schon Williams, BB&T Capital Markets.

I wonder if, maybe just to turn back to galvanizing, could you just maybe give a little bit more color on the year-over-year deterioration in the margin profile there? I know in the release you cited mix and maybe some overhead costs, but I just -- I want to get a sense of, kind of stripping out the effect around Joliet, what type of core margin should we be expecting from this business? Should we be expecting mid to high 20s range or is this the new normal in terms of the margin profile?

No, it's not the new normal. We expect the margins to rebound.

Just a lot of the fabricators coming out of the extreme winter were a little slower to ramp up than I guess what we would normally have expected or hoped, so part of it is volume. And then, part of it are these cost issues, some of which we've got initiatives to better manage and improve, some of which are things like the depreciation expense for Joliet that's now back in our numbers.

But we'll also now have -- even though the facility's -- we officially had its re-grand opening last month, so we anticipate those volumes to normalize for Joliet at that depreciation expense.

So no, not the new normal. We expect this business -- the normal to be what it's been historically.

Okay. That's helpful. And then, switching gears a little bit on the NLI and WSI side, it sounds like you have some new management, at least within NLI. You talked about opportunities on the international side. Can you just give us a little bit of an update on just what are you guys doing on a day-to-day basis? Where are the opportunities on the international side? What is it we should be looking for for milestones in the next kind of six to 12 months of action that you guys have taken to grow that business? Can you just help us get a sense of what you're doing maybe behind the scenes that are not necessarily visible to investors?

Sure. I think the GM we brought in was a really seasoned nuclear general manager, out of that heavy equipment type of background, with a good, solid background in project management in nuclear requirements.

I was just out there, took a plant visit last week, and I can tell you just visibly the place looks better. You feel -- call it a little pep in their step among the folks. It shows better. They are getting better organized -- not a knock on the former GM, but I think we just needed to make the change to move it forward to position it for a higher standard of performance, and to drive that project management and to expand the opportunities that they're looking at.

So obviously, there's 100 or so nuclear plants in the US. We've got to go after and find other OEMs to work with so that we can manufacture their equipment for them or certify it. We have to quickly improve our capabilities there for seismic testing and things like that. We've got capability, but we've got to update that.

None of these things are super capital intensive, nor do they take very long. But we wanted to get the new GM in place to establish his vision for where they need to go. He's done that very quickly. We had a review; we approved him moving forward in several things. And also, they are expanding their base beyond just nuclear electrical generating plants to other Department of Energy opportunities, which expands their base, and then we are looking at the international and we've done some good work already there. I obviously don't want to name who our reps are, but we have already made progress internationally.

All right. That's helpful. And then, maybe just touching on the subject in terms of capital expenditures, can you just talk about what your budget is for the year for CapEx? Obviously with Joliet fully behind you, what are your expectations for the year?

We are still sticking into the range that we gave was [350] for the year.

Okay. Thanks, guys.

Brent Thielman, D.A. Davidson.

WSI, as we think about kind of that fall turnaround season hitting in fiscal Q3, is what we saw in Q1 kind of a reasonable revenue base that we should be thinking about, based on kind of what you are seeing today?

No. That should improve. While the nuclear side is less certain for us, as I just mentioned, the sales force buildout in North America for refining is good, and also the international sales buildout has occurred. We see lots of opportunities in Brazil that we are already participating in. So our quoting activity for that WSI business is up on all fronts, except kind of stagnant on nuclear.

Okay. That's helpful. And then on the same question, I guess, is in regard to [our] margins. You are kind of 9.5% this quarter at WSI. What is the potential for that business to get to the higher end of the range that's kind of been talked about, that 12% level, this year? Or do you think that is more likely beyond this fiscal year?

I think we are certainly heading in that direction, by the end of the fiscal year possibly to achieve it. I think there's a lot of things -- you tend to see higher margins internationally and we are starting to see more of the international business coming through, Brazil and some of the European operation.

So we are certainly heading in that direction. And I think we are targeting getting it into double digits and we'll have some amortization dropping off and some other things. But for the most part, that driving operational excellence and then getting the volume in the higher-margin international business is what's important to us, and that's our focus. Hoping to get there, to 12%, by the end of the year, but if not, as we go into the next year.

Okay. And then, you made some comments on the T&D side of things between energy and galvanizing. I think on the one hand, you sort of said things looked a little shaky in North America for this year, but on the other -- I guess in galvanizing, you thought things might get a little better. Can you just kind of help me understand what you are thinking on the utility side for this year? I guess more specifically, T&D?

What we are hoping gets better on the electrical utility side for galvanizing is the solar, the gas-fired turbine plants that could be combined cycle plants, things like that. We're hoping that some of that starts to open back up again.

Not so much on the transmission side, anyways; maybe a little on distribution. So I think like a lot of folks, we are not seeing the transmission poles the way we may have historically. And I don't know that that's going to change. That's why we refer to it as shaky. But that's not necessarily needed for us to achieve our outlook.

Okay. And I guess one more on that end, and this may be early to ask, but I saw Myers Structures was acquired this morning by Trinity. I think in at least the past, it was a reasonably sized customer for the galvanizing business. Given Trinity has some galvanizing operations, is there any way you could help us understand how large that customer is for you and what level of risk there may be?

Well, they are a good-sized -- T&B was a good-sized customer and we see this as a positive. Trinity is a good company. They are a good customer. They do have some galvanizing, but we see this as a good thing. I guess I will leave it at that.

Okay. Fair enough. Thanks, guys.

(Operator Instructions). Noelle Dilts, Stifel.

So Tom, it sounds like you have this very strong vision for where you are looking at the E&I business going over the next few years. I think you touched on a couple of those things. You touched a bit on NLI and talked a little bit about Brazil, but I was hoping you could go just a little bit further into that vision and where you are really hoping to -- how you really hoping to grow over the next few years.

Well, I think -- I come out of a background, whether it's operation, sales, or strategic direction, it kind of all fits on my resume, so to speak.

But I guess I just have to reiterate I believe in a very strong customer-focused sales organization on the energy side, both domestically as well as internationally, forming up with those right international partners -- and we are in discussions with quite a few, most of which I know quite well from my history. Getting that sales and service capability established internationally so that we are not as dependent on the economic cycle just within the US. That's really where a lot of the focus is going.

When it comes to the -- so on the energy side, I think we've got a very good set of service solutions. I don't think we've done as well marketing those as we could have, and part of that is just building out a very strong sales organization to make sure we've got those relationships and that we're able to demonstrate our value add.

And then, I'm very committed to a very high level of service for our customers. We want to be reliable, on time. We want to have the highest quality level we possibly can. And then, we want to drive our technology so that we can deploy our solutions faster, more reliably, more consistently on a global basis. So globalization is a big part of it, but also driving that operational platform and sales relationships and customer satisfaction domestically as well.

Okay. Great. A quick question on galvanizing, just as you look out here, again a bit more of a strategy question, but would you think you are still kind of sticking towards this slight preference toward Canada in terms of acquisitions or do you also see, just in terms of geographic expansion, any opportunities in the US?

You know, we see opportunities in the US. As I've referred to it in the past, Tim Pendley's got a map and wherever there is white space, we want to look.

If there is a potential acquisition, we want to talk to them and see if we can do a deal. If there is nobody we do a deal with in the area, then we want to look at a greenfield. And obviously greenfields take a little longer, but as we did in Arizona, they can be highly successful and we've got a very good track record for that.

So, I'm just into the white space. Western Canada, northwest, north, anywhere where we can find a spot to fill out, for the right -- ensure that we've got the right customer base and commitments to generate the returns that we expect and that we are committed to.

Great. Thank you.

Jon Braatz, Kansas City Capital.

Good morning, guys. Tom, you had mentioned in your commentary that there were a couple projects that had some execution issues, if I understood that correctly. What can you tell us about that and how significant were they?

You know, they were -- I don't want to give a specific margin number on a couple of jobs. These were jobs that had been talked about last year that we were delayed at NLI. And I think the expectation was they were going to go out at reasonable margins.

The jobs went out, they didn't have a lot of margin, and WSI was kind of the same thing. So these were -- whether it was -- I'll hone in on project management. I think that's an area where we have -- and we are bringing in the resources to significantly -- this was a problem we had when I took over pump division at Flowserve. We've got to build out that ability to project manage because we've got good engineering capabilities. We've got good sales capabilities on our nuclear platform. So it comes right down to project management and execution.

And I think as we've dug into it, there's just opportunity to improve our execution, which will make perhaps your customers, and the bottom line is it will significantly increase margins more consistently on projects because we do some quite well, but we've got to shore up that process. I think the GM we brought in and the executive we've put over the nuclear platform, that's their task right now and they can get that done pretty quickly.

Paul, let me just jump in on one thing on that, too. Just to be clear, we saw a couple of projects there in the nuclear platform that that was the performance. The numbers were in the first quarter. They are done. We don't see other ones in the future like that at this time.

That was what I was going to ask you, Paul.

There you go.

Okay. Tom, you talked about maybe some M&A activity. When you look at your balance sheet now, you are about 1 to 1 debt to equity. How far are you willing to stretch the balance sheet? How far do you think the bankers would allow you to stretch the balance sheet? Any thoughts on that at the moment?

You know, I think we are looking at some acquisitions. We're also looking at a divestiture. So I mean as we look at this, we don't look to change that debt to equity a whole lot.

But also, we are not talking huge deals. If we were going to talk big deals, we would probably -- we'd signal that. We're talking about the kind of things we can tuck in, maintain our stride, and handle with our existing cash flows. So, that's -- just to be clear.

Okay. You don't want to make any comments about what you characterized as a divestiture?

No, not at this time. I think all these things are ongoing negotiations that we've got NDAs on. We don't want to violate our commitments.

I understand. And lastly, is Joliet back to --

Jon, let me say one thing. We are not talking major. These are not major things.

Okay. One last question. Is Joliet back to full capacity?

It's fully open. It's at about 75% capacity.

Okay.

There is still a little room to fill that up, which is why I'm confident we will get that depreciation covered.

Okay. Thank you much.

William Tichy, Beddow Capital.

So I had my question answered, so that's good.

Thank you. Okay, we like that.

(Operator Instructions). John Franzreb, Sidoti & Company.

Tom, on your international growth strategy, could you just remind us how much of revenue is outside of North America and what you envision the optimal target that should be going forward?

Well, I guess there's a couple of different -- because we do export and we are 75/25, roughly. I don't have a specific target in mind because I think each one of these I want to look at is a particular region. Like Brazil, we look at that as we want to go into Latin America because we see that's an ongoing market -- set of markets that fits our product portfolio and our service portfolio.

But then, each one of them we are going to look at as a specific case of what's -- strategically, do we want to go there? Can we generate the return and make these things accretive? So we've got a couple layers of criteria. But I see it becoming 30%, 35% of our business over time, and I'll leave that over time kind of general.

That's fine. Now that 25% you just referenced, does that include Canada or no?

It does.

It does. Okay. That's it, I guess. I'll take the rest of my questions off-line. Thank you very much, guys.

Noelle Dilts, Stifel.

Thanks, again. And I was just hoping you guys could go into what you are seeing in petrochem in a bit more depth, and also where you're -- kind of how you are thinking about that market over the next few years. On the E&I side, I guess I was curious if the increase in switchgear and in closure sales that you mentioned is kind of tied to some of the facilities. And then, just kind of if you can even give us the growth rate you are seeing in galvanizing related to petrochem, that would be great.

Trying to figure out where to start on that, Noelle. Petrochem, that has been -- the enclosures and switchgear have benefited from the petrochem pipeline buildout as well. So, oil and gas, if you want to use that as a better umbrella. So we've seen those opportunities. I don't have at my fingertips what the percent of their growth has been from that. Galvanizing is definitely double digit, probably mid double-digit growth coming out of petrochem year over year in galvanizing.

Okay. And then, I think there's just been -- in talking to other folks exposed to this market, it just sounds like there's different expectations for how long this cycle is going to be. What are your thoughts? Do you think this is kind of a 2014 through 2016 type of opportunity? Or just how are you thinking about it?

We are looking at -- definitely call it two to five years. We feel fairly good about it. And also, we are driving initiatives to do some different things and offer some additional services. So, we don't want to be totally dependent on just the market growth.

Yes. Okay. Thanks.

Bill Baldwin, Baldwin Anthony Securities.

Tom and Paul, could you offer some color as to what you think the overall kind of blended operating margin for your energy systems business should eventually look like? What that should look like down the road?

We did put out some numbers in our guidance on the energy side at the beginning of the year and we are [solving] for those.

So that is already out there, is it, Paul?

It's already out there, Bill. We can get that for you.

I was just looking beyond this year, if you're looking -- as you look out in growing that business.

We are still looking at -- we're looking at low double digits. We've been saying the 12 on WSI.

Right, I know that. The old legacy E&I business used to have margins a little bit -- in high double digits.

That's the reason for the consternation here is that we've -- although we have gone through our planning cycle, we haven't announced publicly where we think we are going with this. And it has a lot to do with the different mix in the businesses.

Exactly, exactly. I know it's a blended type situation that makes it difficult (multiple speakers). But I thought I would ask the blended question rather than just the individual components. Maybe it's a little early to be talking about that right now.

It's a little early to go beyond this year (multiple speakers)

Okay, okay. We will just leave it, then, with your current guidance and --

We will answer your question next time.

Okay. Thank you, guys. Thank you.

Thanks, Bill.

This concludes our question-and-answer session. I would like to turn the conference back over to Tom Ferguson for any closing remarks.

Thank you for participating in today's call. We look forward to talking with you again at the conclusion of this current quarter, and hopefully all of you have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.