Matrix Service Co (MTRX) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Matrix Service Company conference call to discuss the results for the fourth quarter and full year ended June 30, 2012. At this time all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder this call may be recorded. I would now like to introduce your host for today's conference, Kevin Cavanah, Vice President and Chief Financial Officer. Sir, you may begin.

Thank you. I would now like to take a moment to read the following. Various remarks that the Company may make about future expectations, plans and prospects for Matrix Service Company constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various factors, including those discussed in our annual report on form 10K for our fiscal year ended June 30, 2012 and in subsequent filings made by the Company with the SEC. I will now turn the call over to John Hewitt, President and CEO of Matrix Service Company.

Thank you, Kevin, and good morning, everyone. We appreciate you joining us on the call this morning. Before we discuss our fourth quarter and fiscal year results, as well as guidance for fiscal 2013, I want to provide an update on our strategic plan activities and highlight key strategic accomplishments at Matrix Service Company in the past year. Matrix Service Company finished our fiscal year with a consolidated OSHA recordable incident rate of 0.65 and with our major SME group working 270 days without an OSHA recordable incident. We've a long way to go on our journey to a zero incident rate, but our teams are making great progress. Our ability to continuously improve on these results, essential to our core values and the critical expectations of our clients.

On August 9 we introduced a new brand identity, logo and tagline to better reflect our expanded capabilities and to complement our strategic growth plans. We have transitioned from multiple brands to a master brand architecture that represents the Company's full range of service capabilities and our strong industry experience. This is a culmination of many months of hard work from a broad team within the Company and I would encourage you to visit our new corporate website at www.MatrixServiceCompany.com to see our new look and for more information.

This year we restructured some of our operations away from a regional focus to one that is more market-driven, which is complementary and supportive of our strategy in the new operating segments. These operating segments, infrastructure, oil gas and chemical, storage solutions, and industrial, provide greater internal focus and external transparency into our business and help us better tell the Matrix Service Company's story. We continue to move forward on an important ERP infrastructure investment. This multi-year program will improve and upgrade our systems and processes across the organization. When complete, we expect to have a more efficient and consistent business process environment that supports our long-term growth plans.

This fiscal year we opened three new office locations, Baton Rouge, Louisiana in support of our industrial cleaning business, as well as Tucson, Arizona and Salt Lake City, Utah to support our mining and minerals focus, as well as fulfilling some of our geographic expansion objectives. In the second half of the fiscal year we filled to key open positions on the senior management team with the addition of Jack Frost, Vice President of Health, Safety and Environmental, and Alan Updike, Vice President of Capital Construction. These individuals will provide critical leadership and experience to support our growth strategy.

In addition, to provide more focus on the acquisition side of our strategy, Jason Turner, our Vice President and Treasurer, has taken on a role of corporate development. And finally, Jim Collins was promoted to Vice President of Electrical Infrastructure to apply more focus on the development and expansion of our high-voltage electrical services, including transmission and distribution.

Speaking of which, our electrical infrastructure segment continues to provide solid margins and consistent work in the northeastern region of the United States and we are gaining a strong reputation in storm damage repair work across North America. While new power generation projects are progressing slowly, the substation market continues to provide a steady flow of opportunities. We're investing heavily in our electrical infrastructure segment and are actually looking for acquisition opportunities in the high-voltage electrical space. Additionally, we are pleased to announce one of our recent awards from Matrix SME with PSEG to upgrade four substations as part of a north-central reliability project in New Jersey. Work on this project, with a contract value of approximately $40 million, will begin immediately with the scheduled in-service date of June 2014. Overall, this segment's backlog has increased 49% compared to fiscal 2011.

The oil, gas and chemical operating segment continues to see record work volumes, with fiscal 2012 revenue growth of 43.5% over fiscal 2011. Our refinery turnaround and maintenance activity in this segment continues to see robust growth, with fiscal 2012 being a record year for the Company in terms of number of turnarounds performed, as well as man-hours worked. In the fourth quarter alone we had over 1600 personnel in the field working at over 17 locations. We continue to see a large number of turnaround opportunities across the US, including the North Slope of Alaska, the Gulf Coast and Mid-Continent states. Certainly, the recent sale of refineries on the East Coast has resulted in new work opportunities associated with restarting and expanding these facilities, including a major turnaround.

This segment also includes our industrial cleaning business where we continue to actively develop acquisition targets. In addition, we are expanding our service offering geographically and developing cross selling opportunities with existing customers. As I mentioned earlier, we have opened a new office in Baton Rouge, Louisiana, which will support the broader industrial cleaning effort Company wide with cross selling and business development activities. Additionally, the new office will function as a center of excellence from which other offices can draw resources and technical expertise to support their broader industrial cleaning business. Segment backlog has increased 27.9% compared to fiscal 2011.

The storage solutions segment represented a 51.2% of consolidated revenue for the year. We were recently awarded a large tank package in Cushing, Oklahoma that would support the southern leg of the Keystone XL pipeline. While we remain the dominant storage provider in Cushing, we continue to develop-- successfully develop and bid and win new opportunities across the US and Canada. Storage solutions backlog outside of Cushing now represents 86% of this segment's backlog. And western Canada remains a high growth area for the Company with backlog growing 68% year-over-year as of June 30, 2012.

Lastly, we continue to be pleased with the progress to date in our industrial operating segment, a key growth area for the Company. Our mining and mineral's footprint continues to grow with the addition of the new office locations in Salt Lake City, Utah and Tucson, Arizona, as mentioned previously. While this business is still considered a startup within Matrix Service Company, the team is successfully building an opportunity funnel, as well as bidding and winning work from top global mining companies operating in the western and Rocky Mountain states. Bid activity related to our material handling business remains solid, as it's expected to improve as the mining and minerals efforts gain additional traction.

Matrix Service Company has booked an excess of $830 million of new work this fiscal 2012. Backlog has increased in six consecutive quarters and is at its highest level in the Company's history. This trend has continued into the early part of fiscal 2013. Our consolidated backlog increased to $497.5 million as of June 30, 2012 compared to $454.9 million at the end of the third quarter and $405.1 million as of June 30, 2011. The Company continues to see a strong bid pipeline and new opportunities are opening up in connection with our strategic objectives. I will now turn the call back to Kevin to discuss the details of our financial performance. Kevin?

Thanks, John. Our fourth quarter revenues were $184.9 million compared to $163.6 million in the same period of last year, an increase of 13%. Net income for the fourth quarter of fiscal 2012 was $1.8 million or $0.07 per fully diluted share. Fourth quarter earnings included an income tax charge of $3.1 million or $0.12 per fully diluted share. The income tax charge was a result of our determination that deduction limitations applied to per diem payments that had been previously fully deductive. Of the charge, $2.1 million applied to prior fiscal years and $1 million to fiscal 2012, of which $0.2 million related to fourth quarter activity. Fourth quarter earnings also -- were also reduced by $0.03 per fully diluted share for activity related to our strategic investments. These specific investments are primarily mining and minerals, industrial cleaning, corporate development and the branding initiative. In the same period a year earlier the Company earned $5.7 million or $0.21 per fully diluted share.

Consolidated gross profit was $18.7 million in the fourth quarter of fiscal 2012 compared to $20.9 million in the same period a year earlier. The decreasing gross profit was due to lower gross margins, which decreased from 12.8% in the fourth quarter of fiscal 2011 to 10.1% in the fourth quarter of fiscal 2012, largely offset by the impact of higher revenues.

Selling, general and administrative expenses were $12.2 million or 6.6% of revenue in the fourth quarter of fiscal 2012 compared to $11.4 million or 7% of revenue in the same period of fiscal 2011. SG&A included approximately $1 million of strategic investments during the fourth quarter of this year. In line with our previous revenue guidance of $725 million to $750 million, fiscal year 2012 revenues were $739 million compared to $627.1 million in fiscal 2011, an increase of $111.9 million or 17.8%.

Net income for fiscal 2012 was $17.2 million or $0.65 per fully diluted share. Fiscal 2012 earnings included the income tax charge previously discussed, a $3.1 million or $0.12 per fully diluted share. Fiscal 2012 earnings were also reduced by $0.07 per fully diluted share for activity related to our strategic investments, including $0.03 per share in the fourth quarter. These specific investments are primarily mining and minerals, industrial cleaning, corporate development and branding. Earnings per share, excluding the tax charge noted above, was at the lower end of our previous guidance of $0.77 to $0.85.

Consolidated gross profit was $79.6 million in fiscal 2012 compared to $74.9 million in fiscal 2011. The increase in gross profit was due to the impact of higher revenues partially offset by the effect of lower gross margins, which decreased from 11.9% in fiscal 2011 to 10.8% in fiscal 2012. The decline in gross margins relates to the impact of the geographic expansion of our aboveground storage business and our investments in startup operations, including mining and minerals. Fiscal 2012 selling, general and administrative expenses were $48 million or 6.5% of revenues compared to $44 million or 6.9% of revenue in fiscal 2011. SG&A included approximately $2.5 million of strategic investments in fiscal 2012.

The electrical infrastructure segment contributed 18.3% of our consolidated revenues in fiscal 2012. The revenues decreased from $151.1 million in fiscal 2011 to $135.1 million in fiscal 2012. The decrease was primarily due to the completion of a cogeneration project in the prior year and unfavorable conditions in our East Coast operations related to a decline in spending by electric utilities due to warm winter weather, the impact of low natural gas prices, as well as timing delays of various project start dates and contract awards. Despite the decline in revenues, gross margins remain strong at 12.3% in fiscal 2012 as compared to 12.1% in fiscal 2011. These margins are consistent with our normal expectations of 11% to 13% for the electrical infrastructure segment.

The oil, gas and chemicals segment accounted for 27.8% of consolidated revenues and increased 43.5% to $205.8 million in fiscal 2012 compared to $143.4 million in fiscal 2011. The increase was due to a significantly higher volume of turnaround work, as the Company expanded its geographic reach in the North Slope of Alaska, the Gulf Coast and the Mid-Continent states. Gross margins were 9.8% in fiscal 2012 compared to 9.5% in fiscal 2011. Our margin expectations for this segment are 9% to 11%, depending on the level of time and material maintenance and turnaround work and the growth of our industrial cleaning services.

The storage solution segment represented 51.2% of consolidated revenue in fiscal 2012. As a result of growth in Canada, as well as geographic expansion within the US, revenues for the storage solution segment increased 26.6% to $378.2 million in fiscal 2012 compared to $298.7 million in fiscal 2011. Gross margins decreased from 13% in fiscal 2011 to 11.2% in fiscal 2012. The lower margins in fiscal 2012 were primarily due to geographic expansion and isolated margin phase. Our expected range of gross margins for storage solutions is 11% to 12.5%. Primarily as a result of growth of our storage solutions business, Canadian revenues increased to 8.5% of consolidated revenue as compared to 4.8% in fiscal 2011. And revenue from Canada is expected to top 10% in fiscal 2013, as the growth in Canada is expected to continue at a rate faster than domestic growth.

Revenue for industrial -- for the industrial segment decreased from $33.9 million in fiscal 2011 to $20 million in fiscal 2012. The decrease was largely due to the timing of revenues on a single project in fiscal 2011. Gross margins decreased from 12.2% in fiscal 2011 to 2.4% in the current year. Gross margins in fiscal 2012 were negatively impacted by startup cost incurred during the year. At June 30, 2012 our cash balance was $39.7 million as compared to $59.4 million at the beginning of fiscal 2012. The decrease in cash during the year was a result of investments in working capital required to fund the Company's 17.8% revenue growth. In addition, the Company invested $13.5 million in property, plant and equipment and utilized $8.1 million to repurchase 886,500 shares of stock. The cash balance along with availability under the senior credit facility gives the Company liquidity of $146.5 million as of the end of fiscal 2012.

We believe our strong financial position will allow us to capitalize on growth opportunities as we move into fiscal 2013. The Company expects that fiscal 2013 revenues will be between $800 million $850 million. Earnings are expected to be between $0.83 and $0.98 per fully diluted share. The quarterly development of these earnings is forecasted to follow historical trends. Fiscal 2013 includes strategic investments related to branding and information system improvements, as well as continued investments in startup operations. These investments are included in the guidance provided and we remain committed to the value they are creating for the business.

While the Company continues to pursue acquisitions, revenues, cost and earnings from acquisitions are not included in the guidance provided. And as a result of the recent change in the Company's tax position, we currently anticipate an effective tax rate of approximately 40%. That concludes our prepared remarks. And we would now like to open up the call for questions.

(Operator Instructions)

Matt Tucker, KeyBanc Capital.

First question, if you could just provide a little more color around the FY '13 EPS guidance and really what the kind of key factors or sensitivities are that could drive earnings toward the upper or lower end of the range?

When we looked at fiscal '13 it's really in line with what our strategic plan was. We had talked about we want to achieve overall growth of 12% to 15% on the top-line. This revenue guidance is -- really represents 8% to 15% of organic growth. Obviously if we do acquisitions we could exceed what we previously talked about as the range we would try to achieve. The EPS guidance is similar, it's in line with what we had talked about as far as the growth exceeding the top-line growth. If we achieve the upper end of the guidance we would be over 25% growth in EPS.

As we've developed that earnings guidance, we've looked at each one of our business segments and opportunities that each one of those presents. We've considered the backlog and feel good with the trends we are seeing in the growth in really all of those businesses. And we are assuming that as we look at the startup operations that hopefully some of those will start turning a profit at some time during the year. So, we feel like it's pretty even handed guidance based upon all the factors.

And then with respect to the storage solutions margins, you mentioned that the kind of geographic expansion of that business has had a negative impact on margins. Could you provide a little more color on kind of why that's the case? And is that something that we should expect to continue? Or do you think as the geographic expansion kind of progresses that the margins will kind of trend back up to a little bit more normalized levels?

This is John. I would expect that the margins to stabilize upwards. They may not achieve historical margins when we were a primary contractor in Cushing. So, a couple things have happened. As we moved outside, obviously, the further we get away, the creates some more challenges logistically for us to service markets that are further from our home base. And two, is, is that in the past couple of years some of the size of the tanks and tank packages have created opportunities for smaller contractors to compete. And so for some extent and in some cases that has provided some more pressure on our margins. But, overall, I would expect within the-- over the next couple years for our margins and in that market to stabilize up into the range that Kevin had mentioned in his remarks.

One more and I will jump back in the queue. If you could just talk a little bit more about kind of what you are thinking and looking at on the M&A side. Are you seeing any attractive opportunities right now? What kind of end markets are you most focused on and would you consider kind of adding some leverage for the right type of opportunity?

So, right now we are focused on really three things. We're focused on industrial cleaning and different sort of small businesses in regional areas that we want to get coverage that we can use (inaudible - technical difficulties), either leverage are current client base or to open up new client opportunities. We are focused on electrical infrastructure business where that would help us move us westward off the East Coast into the sort of Ohio Valley and Midwest states and up into Ontario. And then we are looking at sort of small-cap construction businesses that, again, provide us some additional geographic reach. So, those are kind of our focus areas. I will tell you that through the course of this year we have sifted through some 75 to 100 targets, have had detailed conversations with probably 10% of those and have had active conversations with two or three. So, we are being, I would say, fairly cautious about the targets and the candidates and their individual financial conditions.

Some of the candidates we have looked at we thought were too pricey for the return we would get and so we are continuing to head down that path. We, as we said in our remarks, we provided some additional focus there by creating a corporate development position, where we have a senior-level person in our Company focused on achieving those acquisitions. Today we are not looking at taking on a considerable amount of leverage for the type of acquisitions that we have been looking at. That is not to say that sometime in the future we wouldn't find the right opportunity where that might make sense, but as of today that is not part of our plan.

Thank you.

Matt Duncan, Stephens.

I want to dig into the gross margin just a tad bit more on the storage solutions side. John, is there any more color you can give us on sort of what the ramp may look like? Is it probably going to start out maybe in FY '13 closer to the bottom end of the range that Kevin gave up 11% to 12.5%. Then I guess as you gain scale in Canada that is what would move it back up to the 12.5%, so it might take a couple of years to get there? Is that the right way to think about that?

Well, assuming we don't -- Kevin mentioned we had a couple of margin fades on our -- in some of our projects that had some impact on the -- on that 11.2% for the year. And that I would expect the, as you call, a ramp-up to be -- let's say -- I wouldn't say it would be at a fast rate to the 12.5%. So, I think as we start to execute more projects in Canada, as we continue to book more work outside of Cushing that it would be our anticipation that we would be in the middle to the high end of that range by the end of this fiscal year.

Kevin, on the tax rate in the quarter you called out the $3.1 million in sort of excess income tax expenses in the quarter, but if I back that out I get kind of a 22.4% tax rate and it sounds like 40% may be a more normalized rate. So, if I tax this quarter at 40% I would've gotten kind of a $0.14 number. Is that really the right way to think about the ongoing business and what it sort of reported in the quarter?

Yes. I think that if just on our normal tax rate, this quarter would have been around $0.15. So, your math is pretty good there. One thing that has really contributed to the tax rate in that fourth quarter is we've talked about Canada a lot, we've talk about the growth in Canada and that growth and that turn into a profitable business has allowed us to reverse some allowances on some operating loss carrybacks. And we've done that in the fourth quarter and it's really is a result of the good growth and the good performance of Canada.

Looking at the backlog in the oil, gas and chemical segment, that was up pretty nicely in the quarter. It sounds like the growth from electrical instrumentation was probably the largely the one big project, but were there any large projects that helped grow that backlog at oil, gas and chemical or is that more just an accumulation of wins?

It is more of an accumulation of wins. I think John mentioned that we picked up some work in some of the refineries out east that contributed to the growth there, but we've really seen a pickup lately in that segment. We've talked about, the last two quarters about the strong turnaround activity. But, we are seeing some smaller capital projects also.

I wouldn't say that it was anyone big project, it was a series of small projects that we've been very successful in winning and building brand awareness, with not only our existing clients, but some new ones as well.

And I know you guys don't bifurcate the business by construction or repair and maintenance anymore, but is there anyway to think about which of those two might be driving that backlog growth more or is it a healthy mix of both?

I believe it's a mix of both. Some of those -- the work we are doing in some of the refinery, some of the turnaround work that we've booked is obviously the maintenance side. But, there is also some capital projects in there.

And then looking at the revenue guidance, I know in the highlights in the press release you guys said that it was in keeping with that 12% to 15% growth target. I think the math for the revenue guide is actually 8% to 15%. So, can you help us think through the delta between the 8% and then actually getting into the range you guys are targeting of 12% to 15%? Are there certain things that need to break your way to get to the high end of the range? Or sort of help us think through that a little bit?

So, I think if you look at the revenue guidance, that 8% to 15% growth, that's all organic. And so we feel pretty good about that range. The top end is possible from organic growth by itself. The 12% to 15% we talked about with our strategic plan is overall growth. If we are able to execute on acquisitions and that contribute to the year, we can potentially exceed the 15%.

The last thing and I will hop back in queue. John, I know you've laid out a little bit of the growth plan for the industrial segment, but I am hoping maybe you can give us a little bit more detail about how you guys expect that segment to unfold. What is a reasonable revenue level for us to think about there for FY '13 and sort of what type of growth are you expecting out of that business?

Well, we are expecting for 2013 that that business by the end of the year to be operating on a, certainly on a breakeven basis. And that the mining and metals business combined with the material handling portion of the business, we would hope that we would be in a position by the end of the year where that is a business in the, say in the $40 million to $60 million revenue range. Right now what we are seeing, I would say the activity in our Tucson market has been very good, our acceptance by those clients has been strong. We are probably slightly ahead of that curve of how we thought we would ramp up there. The Salt Lake City operation I would say is sort of an on curve. Right now we've got a very strong bidding activity there. A lot of the projects that the Salt Lake City group is looking at I would say are bigger or some of those are bigger capital projects.

And then the material handling piece of our business, we do have one project, as you guys are aware of, that we reported, I think, last quarter booked. And we've got several opportunities that we are currently in sort of the short strokes with to close on those contracts. So, overall, we feel pretty good about where we are and that we think that by the end of this fiscal year we'll be pretty much on track and on plan.

But, John, you're saying the run rate for revenues by the end of the year would be $40 million to $60 million or do you expect it to do $40 million to $60 million in FY '13?

We expect it to do $40 million to $60 million in fiscal '13.

Thanks.

Mike Harrison, First Analysis.

I apologize for piling on on the storage solutions gross margin issue, but I was just hoping that maybe you could help us understand what are the biggest factors driving the margin weakness that you saw in the quarter? Is it a competition in pricing issue? Is it fabrication related costs that you are encountering in serving those markets from Oklahoma? Is it a shortage of skilled labor and, so, you are seeing higher labor costs? Is it just kind of sales and marketing overhead that you are not able to yet leverage across enough projects? What -- how would you separate those factors and kind of how would you expect those factors to evolve over time?

I would say if you're talking about the fourth quarter, so, if you compare in a sort of a clean environment the overall consolidated margins for the storage solutions business compare to previous years they are a little bit lower. And then you come on the fourth quarter you combine a couple of margins fades we had on two or three projects to drive that one quarter down into the 9.8% range. And from a mathematics lowered the overall consolidated margin for the year. So, I wouldn't take the fourth quarter as indication of margins to come for the business. I would say that that was sort of a unique experience and if we continue to execute well and continue to book work at the margin rates that we would expect for our entire footprint that those consolidated margins, as we talked about and as Kevin mentioned, would be in the higher end of that range.

And on those two or three projects where you saw lower margins than you had expected, were those fixed costs contracts? And I guess help me understand what happened on those?

We are not getting into details of what issues we had on those contracts, but, yes, they were fixed costs contracts and each one has got its own individual story of what created the margin fade there and all of those are not systemic issues within the projects. They were unique to each project. And the construction business those kind of thing happen. Unfortunately, for us two or three of them happened in the fourth quarter.

And then you referred to about $1 million worth of growth investments in the quarter and kind of gave us four buckets for those (inaudible). Can you help us maybe disaggregate kind of how that $1 million split out among those four buckets? And maybe how it was -- if we wanted to think about allocating it to the four different segments?

I'll let John talk here in a second, but most of those dollars related to either to the industrial segment or to corporate that's allocated pretty much evenly throughout the Company. The stuff like branding is something that is benefiting the entire Company and we would've allocated that evenly.

Yes. So, it is not one specific thing, it is a combination of a couple different things. Kevin mentioned the mining and metals, there's cost associated with that, the branding rollout, some amount in our ERP implementation is included in there, some costs on corporate development that we spent. So, some of these are -- we would consider in some cases could be one-time charges and some of them are one-time charges as may be, for instance, ERP that will kind of be recurring until we get our system totally up and running. But the majority of these things are costs that we consciously made the decision to spend, they weren't surprises, and that we decided they are for the best interest of the Company. These are things we needed to do and get started on.

And I guess in terms of the $1 million pretax run rate or $0.03 of EPS, however you want to think about it, what kind of an investment spending rate is implicit in your guidance? Do we continue with that $0.03 a quarter for the rest of the year? How does that trend?

If we think back to the last call we talked about, I think there was around $800,000 incurred in the third quarter. I think in the fourth quarter it is probably going to be -- the first quarter of next year it will be a little bit higher, it will be similar to the fourth quarter and then it should ramp down through the rest of the year. Overall, it may be a similar amount to what we invested in fiscal '12.

Looking at the June quarter in the electrical infrastructure business, how did the top-line compare to your expectations? And during the quarter did you see any issues related to the unusual heat that at least we saw here in the Midwest that might have caused your customers to delay some projects?

Certainly. We are, in really in all of our businesses, but certainly in that business we are subject to our clients timing of the award and the start of projects. And as we had discussed in our third quarter call that the heat, the low gas prices, the shutdown of the refineries, so there was a lot of electrical infrastructure type work there. In the third and fourth quarter that impacted that business on the top-line. Since then we have booked a considerable amount of electrical related infrastructure work and that pipeline continues to be very strong moving into the first part of this fiscal year.

And just in terms of the PSEG win that you guys announced today, how much of that $40 million is going into the 12-month backlog? And I assume that was not in the backlog as of June 30, correct?

When we looked at backlog at June 30, we knew we were getting awarded that contract. We actually had the award. We've just finalized the -- been finalizing the contract and the press release since then. So, it is in the backlog. That being said, I think John mentioned in his call, we've seen the backlog growth trend continue into the first quarter of this year. As you look at that individual contract, it is a rather long contract, it goes into fiscal 2014. So, it's probably about 50% of it into fiscal '13. A rough guess.

The last question I had is just in terms of the prospects for international expansion and you've talked about it in the past that you continue to work there, but I was just curious do you guys see the mining and metals area as being maybe easier to expand internationally than your construction business, be it tankage or oil and gas or electrical?

Well, we're just -- a couple thoughts there. One is assuming Canada is not international that right now we are primarily focused on North America and we do not have in our current short-term strategy to pursue any sort of international opportunities. Not to say that if a client specifically asked us for -- to come to a project for them in, I would say, a friendly international environment, there is something we certainly would consider, but we are not actively pursuing any international work.

So, then you backup and you look at our business, we're a construction services provider primarily. Our strengths are related to the control management, delivery of labor, qualified labor to projects, managing that labor. So, as a construction contractor only, it becomes difficult to go internationally where you may not have as good a feel on the labor. So, you have to be able to bring a skill set, a technology, a management skill set to an international project that you are able to sell and get value for and team with local contractors. So that would be a rough sort of view of what that model would look like and so if you are going international for us, we would want to be selling one of the things that we are known the best for that we do the best and that would probably be around our storage business. So, if we were going to go international today that was probably where we would start.

Thanks very much.

Martin Malloy, Johnson Rice.

On the storage solutions business could you talk a little bit about where you are seeing strength in order flow outside of Cushing and is it -- are you starting to see a pickup in storage solution demand along the Gulf Coast from fractionation, chemical, petrochemical plants that have been announced or is that still down the road a bit?

Within a level of accuracy I would say the strength is in a lot of different pockets around the US. So, there is not like one area that's looking like it's becoming the new Cushing. So, we are doing work down in Texas and the Gulf Coast, looking at opportunities. We've got recent awards and projects up in Wisconsin and Illinois. We've got recent award or projects up in western Canada. We're doing work up in the Bakkens in Oklahoma and in Cushing. So, there isn't any one area that's probably, that you could say, wow, that could be another Cushing. Probably Western Canada maybe will get the closest to that. With the work in the Hardesty area where the new XL pipeline, once it gets approved, will be sort of beginning. But, I would say it's a pretty broad geographic range of where our opportunities are.

And then is there any commentary you can offer in terms of the refinery turnaround season, how it is shaping up this fall and maybe next spring in the geographic areas that are important to you?

Well, we mentioned, I think, on our last call some of our clients that we did turnarounds for and had a strong turnaround season, as we noted this past fiscal year, they'll probably be a little off for us, but we are seeing some very strong turnaround work for us up on the Slope in Alaska. We've been able to open up some new client opportunities in sort of the Mid-Continent refiners up in Salt Lake City, up into Kansas into portions of Oklahoma and Texas. So, right now our expectation is that we would see a -- may not be the same -- maybe not be the same kind of year we had in 2013, but we expect our refinery turnaround to be fairly strong again in 2013.

Thank you.

Thank you.

Another thing I would add to that I think is we've seen some -- in the East Coast refiners we've seen those, that work settle down a little bit. There's refineries have been bought and getting ready to get started up. We have done and are completing some turnaround work in one of those local refineries and we would expect some capital, small capital projects and maintenance work in those refineries on the East Coast to strengthen through the course of this year.

Tristan Richardson, DA Davidson.

Morning, guys most of my questions have been answered, but I was just curious could you talk a little bit about CapEx? Where you finished '12 and what you guys are thinking about for 2013 and just sort of the differences there, some of the initiatives?

So, we did $13.5 million in fiscal '12. I think as we look at fiscal '13 and we are looking at growing in these new areas that will require some capital investment. So, right now we are looking at probably $20 million to $25 million of capital spending in fiscal '13 and it's in the areas that you would probably suspect. It's going to be in areas such as continuing to grow Western Canada, It is going to be some of the startups we've talked about with industrial cleaning and mining and minerals and probably some more spending in the electrical business.

Great. Well, that is all I had. Thank you guys very much.

Thank you.

Matt Tucker, KeyBanc capital.

So, wonder if you could comment just a little more on the overall SG&A outlook. You've talked about some of the strategic costs kind of tapering off a little bit as the year progresses, at the same time the guidance implies the business is growing, so, what is kind of the net effect on SG&A trend this year?

I think last year was a pretty good year for SG&A. 50% of the growth in SG&A last year was specific investments. I think we'll have a similar level this year on those types of investments. But outside of that I think that we would expect that our SG&A would, on an overall basis, decrease at a rate slower than revenue as we leverage our cost structure. That being said, there are going to be times when we need to invest in making sure that we've got the right talent in the organization, especially as we grow, and that we have got the right tools in our employees hands and were spending the right amount on the development of systems. So, we've talked about ERP, that's very important to us. We want to make sure that we are building our systems and processes with the end in mind. We wanted an infrastructure that's going to support the $1.5 billion Company we are going to be in five years.

And you mentioned that the storage backlog in Canada grew pretty nicely in FY '12. Could you tell us what the current percentage of storage backlog is in Canada? And/or as you look at your kind of bidding pipeline on the storage side, what percentage is in Canada?

Well, that's not a number we disclosed, but Canada was 8.5% of revenues in fiscal '12. We said that it's going to increase above 10% of revenues and so it's not hit the $100 million level yet, but it could in the near future of overall annual revenues. So, backlog's up probably 50%, 60% of that number.

And then you mentioned a large storage award in Cushing related to Keystone. Was that included in the fourth quarter backlog?

Yes.

And then the final question from me, could you talk about the outlook for LNG storage opportunities? Are there any kind of imminent ones that you are looking at and if so could you give us kind of a ballpark sense of the size of those opportunities?

So, opportunities we are looking at now in the related to LNG is more around some process improvements and some repair and maintenance work. Don't have any immediate near-term sort of LNG storage tank opportunities in our radar. We've honestly have had discussions with some clients for the work on the Gulf Coast, but there is nothing right now in our short-term plan that we would be booking a large LNG project.

Thanks. That's all I have.

Thank you. At this time I am not showing any further questions. I would like to turn the call back to John Hewitt for any further remarks.

I want to thank everybody for their participation today. And that we look forward to talking with you in the future.

Ladies and gentlemen, thank you the participating in today's conference. This concludes today's program, you may all disconnect. Everyone have a great day.