Matrix Service Co (MTRX) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Matrix Service Company conference call to discuss results for the third quarter ended March 31, 2013. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time.

(Operator Instructions)

I would now like to turn the call over to Kevin Cavanah, Vice President and CFO of Matrix Service Company. Please go ahead, sir.

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 10-K for the fiscal year ended June 30, 2012, and the subsequent filings made by the Company with the SEC. To the extent the Company utilizes non-GAAP measures, reconciliations will be provided in various press releases, and on the Company's website.

I will now turn the call over to John Hewitt, President and CEO of Matrix Service Company.

Thank you, Kevin, and welcome everyone to our third-quarter fiscal year 2013 update communication.

For the nine months ended March 31, 2013, Matrix Service Company had a total recordable incident rate, or TRIR of 0.61. While compared to the United States construction industry at large, this is nearly 10 times better than the average, we will not be satisfied until we achieve a consistent zero incident performance. Major focus areas for the year have been a direct dialogue with all our employees by our Vice President HSE and myself related to a 24/7 safety culture, individual accountability, and every person's ability to make a difference in our business safety success. In addition, we are improving our lessons learned processes by training all of our HSE professionals and many operating managers through an industry-recognized program called TapRooT Incident Investigation. As noted in previous quarters, we feel our safety performance is a major differentiator in the markets we serve, and represents one of the primary reasons why customers choose Matrix Service Company over our competitors.

Last quarter, we spent some time discussing the charge we took on a storage solutions project in Western Canada. We are scheduled to complete this project in the next 30 days, as planned, and the project is materially in line with the previous forecasted financial outcome. In our storage solutions segment, we continue to see strong demand for above-ground storage tanks, terminal projects, and balance of planned opportunities throughout North America. While the demand continues to be very strong in Western Canada, all of North America is exhibiting considerable opportunities for growth. Much of this growth is created by the energy production in our new shale oil and gas plays, as well as the Canadian oil Sands development. Midstream and downstream companies are expected to invest considerable amount of capital to take advantage of these domestic North American oil and gas developments, by installing new and upgrading existing pipelines, terminals, and associated storage. In addition, the new business markets and economic realities of a cheap domestic gas supply is still in our opportunity funnel, with a variety of cryogenic and non- cryogenic project opportunities.

While the growth in storage solutions continue to exceed estimates included in our strategic planning process, operating results this year have been below our expectations. The Western Canada project I noted previously was obviously a major contributor to this, but we are also experiencing lower-than-expected margins on repair and maintenance work. Finally, while our bookings have been very strong in this segment, the actual start date of many projects have slipped, as our clients finalize their project spending plans, permitting, and technical requirements. Despite this, segment backlog has grown 37.1% from June 30, 2012, with $284.6 million of new work booked year-to-date. With the project charge in Western Canada behind us, we expect operating performance in this segment to improve, as the start of new projects accelerates with the planned increased capital spending of our North American clients.

The industrial segment completed a strong quarter, with new awards of $69.5 million, backlog as of March 31 2013 was $88.2 million, up nearly 5 times from June 30, 2012. Our mining and minerals operations in the Mountain West states continue to gain traction, as customers are responding favorably to our combined service offerings, and appreciate our entering into the market. In the third quarter, we were awarded a significant new project for the engineering, fabrication, and construction of Phase I of the storage liquefaction and load-out portion of the new fertilizer plant in Iowa. This award represents a major milestone in our strategic plan, as it demonstrates the breadth of our engineering, fabrication, construction, and project management capabilities to execute a major capital project. This project is ultimately driven by the availability of cheap abundant natural gas in North America. I'm happy to report that the segment produced a profit in the third quarter, which is ahead of our expectations.

Along with the positive operating results and the growth of backlog, we believe the industrial segment is positioned to achieve our expectations for the fiscal year. The operating performance in our other segments, electrical infrastructure, and oil, gas, and chemical have been above expectations. While the backlog has ben essentially flat in the quarter, both segments are gaining more market momentum and brand recognition. Finally, we feel very good about the spending patterns of our clients in these sectors, and believe both represent significant growth opportunities in the business of the next several years.

On the acquisition front, the integration of our Pelichem industrial cleaning services business has gone very smoothly, and through the third quarter, its performance has exceeded our expectations. I want to thank both our new and existing employees involved with making this transition to Matrix successful. On top of the core performance success of the business, we are already sitting great opportunities to leverage our other turnaround, maintenance, and construction services, across these new clients and geographies. We continue to look for similar industrial cleaning opportunities throughout North America, to build on the strategic expansion concept. In addition, we remain focused on other acquisitions that expand our electrical businesses into new geographies, as well as strengthening our core construction, maintenance, and repair service offerings across our segments.

I will now turn the call back to Kevin to discuss the details of our financial performance. Kevin?

Thanks, John.

I will start with the third-quarter results. We generated record revenues of $226 million in the quarter, as compared to $183.9 million in the third quarter last year. And the 22.9% increase in revenues was due to growth in all four of our segments, with the oil and gas and chemical and industrial segments contributing the most significant growth. Consolidated gross profit was $23.1 million in the three months ended March 31, 2013, versus $19.8 million in the three months ended March 31, 2012. Our consolidated gross margins were 10.2% in the current quarter, as compared to 10.8% in the third quarter last year. Fiscal 2013 third-quarter gross margins were negatively impacted by the settlement of a contract dispute, related to a storage solutions project performed years ago. While we had reserved for the exposure, the ultimate resolution exceeded our previous expectations, and resulted in a charge of $1 million. In addition, the quarter was impacted by the recognition of $5.2 million of revenue at 0% margin for the work performed on the Canadian tank project John discussed earlier.

SG&A expenses were $14.7 million or 6.5% of revenue in the three months ended March 31, 2013, and compared to $12.4 million or 6.7% of revenue in the same period last year. The increase is consistent with our plan, which included investments in strategic growth areas and related support functions. These investments include expanded operations with new locations in several states, employee recruitment and development, acquisition-related costs, as well as marketing and system development costs. Our effective tax rate was 21.2% for the current quarter, as compared to 32.5% in the third quarter last year. The tax rate was positively impacted by the benefit of retroactive tax legislation passed in the third quarter, extending certain tax benefits, including credits available for research and development activities. Based upon the current environment, we now expect our effective tax rate on future earnings to be 38%, as compared to our previous expectations of 39%. This quarter, we produced net income of $6.5 million, and fully diluted earnings-per-share of $0.25, as compared to net income of $4.9 million and fully diluted earnings-per-share of $0.19 in the third quarter of the prior year.

Moving to the segment results, the electrical infrastructure segment, revenues increased from $37.6 million in the third quarter of fiscal 2012 to $41.7 million in the third quarter of fiscal 2013. The 10.9% revenue increase was primarily due to increased high voltage transmission and distribution work in the northeastern United States. Gross margins were in line with our expectations at 12% in the quarter, as compared to 12.8% in the same period last year. Our oil, gas, and chemical segment revenues increased 32.4% to $73.6 million in the third quarter. Compared to $55.6 million in the third quarter last year, due to a higher volume of turnaround work, the acquisition of Pelichem, and expansion of our core client base. As a result of the increased volume of work, gross margins improved to 10.9%, as compared to 9% in the third quarter of fiscal 2012.

The storage solutions segment generated third-quarter fiscal 2013 revenue of $94.8 million, as compared to third-quarter revenues of $87.6 million in fiscal 2012. The 8.2% increase was primarily due to continued growth of our operations in Western Canada. Gross margins in the quarter were 9.3%.These were reduced by 160 basis points as a result of the $5.2 million of quarterly revenue we recognized at zero profit on the Canadian tank project, and the $1 million charge related to the contract settlement, both of which we've discussed previously. Last year, our gross margins from the third quarter were 11.4%.

Revenues for the industrial segment totaled $15.9 million in the three months ended March 31, 2013, compared to $3.1 million in the same period a year earlier. Fiscal 2013 revenue growth was largely attributable to our expanded mining and minerals operations. As a result of the increased volume of business, gross margins in the current quarter improved to 8.1%, as compared to a negative 1.7% in the same period last year. Our mining and minerals business continues to gain momentum, and we were recently awarded a significant contract in the fertilizer business. We expect this segment to maintain profitable results as we go through the fourth quarter and into next year.

Moving on to our nine-month results, consolidated revenues were $657 million, an increase of 18.5% from consolidated revenues of $554.2 million in the prior fiscal year. The increase in consolidated revenues was a result of increases in all four operating segments, with the most significant increase in the oil, gas, and chemical segment. Consolidated gross profit increased from $61 million in the nine months ended March 31, 2012 to $67.7 million in the nine months ended March 31, 2013. The increase of $6.7 million or 11% was due to higher revenues, partially offset by lower gross margins, which decreased to 10.3% in fiscal 2013, compared to 11% a year earlier. The margin decrease was primarily the result of the Canadian project, and the legal charge previously discussed.

Consolidated SG&A expenses were $42.6 million in the nine months ended March 31, 2013, compared to $35.7 million in the same period a year earlier. The increase was primarily related to our planned strategic investments and a bad debt charge of $700, 000. Net income for the nine months of fiscal 2013 was $16.6 million or $0.63 per fully diluted share. Excluding the $3.1 million pre-tax charge in the second quarter on the storage solutions project in Western Canada, adjusted net income was $18.7 million, or fully diluted earnings per share was $0.71 for the nine months. We earned net income of $50.4 million or $0.58 per fully diluted share the prior year.

During the third quarter, our cash balance increased over $50 million, and available liquidity of March 31, 2013 increased to over $160 million. An increase in cash and liquidity was due to improved working capital management. Lastly, we are updating our fiscal 2013 guidance. We expect revenue of $860 million to $890 million, and fully-diluted earnings-per-share of $0.87 to $0.94. That concludes our prepared remarks.

So, we'll now open the call for questions.

(Operator Instructions)

Tahira Afzal, KeyBanc.

Nice quarter. Thank you for being the only glimmer of light in an otherwise distressed day of earnings for us.

We are here for you.

Things seem to be looking good, I know you're still having some difficulty in Canada, but could you comment a bit on your outlook? You have had, if I was to count, close to around two years of quarterly book to bills over 1 time. And I'm just wondering is this the momentum you see continuing into next year? And then we keep hearing about craft labor issues from a lot of your peers. Are you still catching up with what is happening, or are you also planning in terms of labor, et cetera, for what you see as year or two out from now?

So, I think there was three or four questions in there so I will try to answer all of them, with maybe two answers. As it relates to the continued growth in our backlog, based on the opportunity funnel we are seeing in all of our segments, we think it is possible that we will be continuing to build on our backlog, but it certainly would not be unusual from a quarter to quarter basis for our backlog to be flat, depending on the timing of the inquiries and the awards by our clients. But the markets that we are in, storage, electrical, oil gas and chemical, and industrial all appear to, and feel very strong to us. And right now based on the current economic conditions, we think that will continue. As I said, certainly, from quarter to quarter there could be some flatness would occur based on the timing of awards and how individual work starts and ends in those quarters.

With respect to labor availability, we are currently seeing some pressure in some of our markets. Western Canada would be one of those. [Blind men] on the East Coast would be another. Both of those areas, we feel some pressure on labor. Some of that is pressure that we put on ourselves to make sure that we are bringing only the top talent into our organization, but the projects that we are chasing and are going to be awarded are the projects that we think we can be successful and we can still deliver the highest quality of outcome for our clients. So, I would say that in some of our markets, we are starting to get into a position where we can be a little more choosy on the projects that we are going to chase, and the ones that fit into our execution timing the best. Hopefully that, Tahira, that answers your question.

Yes, it does, it was very helpful. And my follow-up question is, you always give us an idea about your gross margins for the year on a segment-wide basis and it seems you are tracking really well in all the segments, except you have storage solution. So any update to your segment guidance? And that's all for me.

Tahira, when you look at each of the segments, we are tracking in line with our expectations. Definitely so for the electrical infrastructure segment and the oil, gas and chemical segment. The storage segment, we've -- as we continue to work off -- or finish the project up in Western Canada, we are recognizing that at a 0% margin and we did have the charge related to the contract dispute on the old project. If we would have excluded those, we would have been in line with the lower end of that 11% to 12.5% range of gross margins we've given for storage solutions in the past. And I think on the positive side also, the industrial segment, we turned profitable earlier than we thought, and we are happy with the direct margins we are seeing in some of those projects in that segment. And we haven't given guidance on that segment yet on what the margins are, but we said they would be in line with the other segments.

Right, absolutely. Thank you ever so much.

Mike Harrison, First Analysis.

Can you talk a little bit about how much of an impact weather might have had in the third quarter? Obviously, last year we had unusually warm weather. We are based in Chicago, and we had an unusually snowy first quarter here. Did that have an impact anywhere, and if so, just thinking about weather, what segments would be most susceptible to weather-related delays or negative impacts.

So there wasn't anything in the quarter of any substantive impact to our operations. The areas for us that would have potentially both positive and a negative impact for weather would be our directional infrastructure work on the East Coast and our Western Canada operations with heavy snowfall and cold weather conditions in the wintertime, can have some impact on our -- the productivity of our ability to start projects.

Okay, and then you mentioned some projects being pushed out a little bit. How significant have those delays been? Are they moving forward, now, and anecdotally, what are you hearing from customers that is behind the delays?

I think it is just -- I don't think it's anything unusual. I think it is the normal starts and stops of some of our clients. We booked the work with them and they may have either permitting or planning or how they are flowing their capital into their projects, or they may be, as we sit physically in our storage business, where we are doing the engineering and fabrication, there are some changes, perhaps, on different elements of those projects, that maybe creates a delay from one month to another. But I would say they are nothing that would be exceptionally unusual.

And then just wanted to understand the contribution from Pelichem. How much contribution did that have to revenues in the quarter, and was that all in the oil, gas and chemical segment?

Yes, so, when we talked about the Pelichem acquisition, we told you it was going to essentially double the size of our industrial cleaning business, which has been previously $8 million to $10 million of annual revenue. And I would say that the Pelichem acquisition, we are particularly pleased with it, and the volume has definitely met our expectations. So, and all of that -- all the revenue for Pelichem is sitting in oil gas and chemical.

Okay and did Pelichem contribute to the backlog growth that you saw?

Not significantly, I mean they are like our rest of our industrial cleaning business. Their backlog is in and out in the quarter for the most part. So, a lot of that does not have -- a lot of that work does not have a very long shelf life.

And you have to remember the projects that are in the industrial cleaning business, they are small projects, they are -- could be $10,000. $15,000, occasionally you might get something for $250,000, but they are basically in and out of the quarter.

Yes, so the backlog for our industrial cleaning, whether it is Pelichem or legacy businesses, is really minimal at any given point in time.

Okay and then just one last one on the storage solutions business. I was wondering if you could comment on the margin performance in tankage projects outside of Cushing, if it is improving, is that a result of better execution and leverage on investments you've made? Is it an increasing number of multi-tank projects, less competition, or maybe all of the above?

So, if we set the -- we've made some commentary in the past about Western Canada and the project that was -- that we talked about. So if you look at our US operations in our new tank business, I would say that we are -- our guys are successfully expanding outside of Cushing. Most of their work is outside of Cushing, and the margins there, the gross margins on those projects are meeting our expectations, and are in the range of our historical norms that we would expect.

All right, thanks very much.

Rich Wesolowski, Sidoti & Company.

Kevin, would you mind quickly repeating the figures around the two items that sapped the tank margin, the legal charge and the amount of sales for the Western Canadian project that was written down?

Sure, so we will start with the contract dispute settlement. We had previously reserved that, and then that case really matured this last quarter, and as a result, we determine the best approach for us was to settle it. And we ultimately settled it for $1 million more than what we had reserved. So we recorded that entire charge, the entire $1 million increase for the reserve in the third quarter. And then on the Canadian project, we had about $5.2 million of revenue flow through in the quarter, that is at 0% margin. So the combination of those two things had at about a 160 basis point impact on our gross margin percentage.

Okay.

So I believe that was at 9.3% with everything in it, so you can do the math to what it was without those things.

Okay. Did the Company write down any tank projects aside from -- it sounds like you didn't write down Western Canada at all. Did you write down any tank projects this quarter?

We really did not have any significant margin fades in the quarter.

Okay. And you alluded to softness in the maintenance and repair type margin. Would you mind elaborating on that?

Yes, I think it might be a little bit of a trend in the industry. I think we are finding some -- a little bit of tougher competition in some of the regions. I think our clients, some of their focus is more on new build then repair and maintenance, and so I think it is just a combination of a variety of market forces that have been hurting the margins in that repair and maintenance section of our business. It is something we are paying attention to and recognize it, and we are going to be looking on a go-forward basis on what our strategic steps are going to be.

So putting all of that together, it sounds like with regard to the 11% and 12.5% target margin range for tanks, that nothing would need to improve or change in the market, the big conditions, et cetera. in order for you to achieve that in fiscal 2014, it is just a matter of clearing out the headache?

Yes.

Okay. Are you now toward the end of the process of finding new subs and suppliers and labor in the areas outside of the Cushing that you branched into?

Yes, yes, for the most part our groups here in the US are operating very well, and some of the stronger markets that we're seeing outside of Cushing, down in Texas and up into the Bakkens and out into Michigan and Wisconsin and Illinois and some of those places that we are operating, so we are feeling very comfortable with how we are operating today.

Last one, in the middle of the last decade, Matrix would log SG&A numbers at a little more than 5% of sales, and I'm wondering if there's something different in the Company today as you constructed a wider entity that would prevent you from getting to a similar range, if the revenue growth cooperated over the next few years?

So, Rich, back when we were at that low 5% range, first of all that was before the implementation of -- FAS-123 which was stock -based compensation. That had probably a 0.5 percentage point impact to SG&A margins. And then we've talked about investments we're making to improve a number of areas for our company, and to set ourselves up for the growth that we are seeing right now and in the future. I think over time we would expect to see that 6.5% margin come down, I'm not sure how quickly that is going to happen, but we've talked about seeing our operating income margins improve 100/150 basis points and so I think as we've talked about this five-year period, where we put our strategic plan now for, we expect to see those margins start to improve, and as that occurs, that SG&A percentage is going to be a piece of that. We're still in the budgeting phase for fiscal 2014, so I don't have a number to tell you what the model for 2014 on SG&A percentage, but I would expect our fourth-quarter SG&A dollar amount to be similar to what it was in third quarter.

Excellent, thanks a lot. I appreciate your time.

Matt Duncan, Stephens Inc.

First question I've got, Kevin, on the Canadian tank job, how much revenue is left on that job to flow through here in the fourth quarter?

Well, so, we are going to complete that project here within 30 days. It will be something less probably less than the $5 million we recognized in the third quarter. I don't know if it's probably $3 million or $4 million. I don't have an exact number but that is a guess.

Okay. John, in the oil gas and chemical segment, you guys had very good road there again this quarter despite a tough comp from last year. You talked a little bit about in your prepared comments about sort of what is going on there. As you look forward, can you talk about what your expectations are for growth in that business? It seems to be one of your fastest growing right now. I know the outlook for turnaround activity in the spring and fall still seems to be pretty good, and maybe if you could talk about whether or not you're seeing many small capital construction projects come back, and what the bidding activity is like there?

Yes, our guys are talking that the next couple of years in refining is going to be very strong on turnarounds. So both in the simple light turnarounds we do with heat exchanger changes as well as the heavy turnaround business which our guys have done an excellent job of gaining market share there. So we continue to see the ability for us to gain ground and market share and take advantage of what we believe to be over the next couple of years, some pretty heavy spending by our refinery clients and turnarounds.

On the capital side, currently while we are seeing some small cap work, a lot of the refiners don't have big large capital project spending, which while we don't do large cap projects in the refineries, we do get some of the fall-out on those projects. So, but we do think that will start to -- that's going to start to turnaround over the time horizon, and we think over the next several years that the refinery companies, the downstream companies will be spending significant capital dollars as they continue to upgrade and improve facilities to be able to take a variety of new types of oil they are getting.

Okay. In the industrial segment, you obviously had a pretty meaningful win there this quarter, but you also had a pretty hefty jump in revenues. Was there any of that $60 million win that was recorded in revenues in the March quarter?

Very little, if anything.

Okay. So what type of work then was driving the nice increase that you saw there? You were up almost $9 million there from the December quarter. Obviously, that's a building business, though.

Right, so we continue to have some minimal work in our material handing business and some engineering and pre-project work. A majority of that, it was driven in our mining and minerals business, both out of our Tucson office where they've had -- they are continuing to gain ground on their projects, but they had a nice project for one of our major clients out there to install a ball mill, and then in our Salt Lake business, we had a fairly major project going with a client there. That generated probably a majority of that revenue growth in the quarter.

Okay. And then what is the timeframe on that fertilizer facility? How long is that work going to take to complete?

A couple of years.

One of the things, Matt, on the industrial segment. So that project John mentioned, the large mining project, that is pretty much completed here in the fourth quarter. So, when you are thinking about -- we still think positive things for the fourth quarter for our industrial segment, but I don't know that we'll see the revenue this high in the fourth quarter as we did in the third.

Okay, that is helpful, Kevin. Thank you. Last thing for me on the M&A pipeline, just any update you can give us on what your priorities are there, and what you are seeing out the marketplace?

Our priorities continue to be the industrial cleaning business. We would like to do at least one of those a year for the next couple of years. And the Pelichem acquisition, we thought has been very to date, very successful and we are very happy with how that has come together and so we will continue look at those. We will continue looking at avenues to expand the footprint of our electrical business, and so we are fairly active there looking at acquisition opportunities. And then just in general, at our ability to improve and increase our bench strength and capabilities and construction maintenance and turnaround work, those are all -- those are part of the larger-size acquisition opportunities, but those are our three main focus areas.

Okay. Thanks.

Martin Malloy, Johnson Rice.

Could you talk about if there are any further opportunities on this greenfield nitrogen fertilizer complex in Iowa for you to win? And there are a number of ammonia projects around the country that are being proposed. Could you talk about opportunities for some of those other projects?

Yes, so we, on the Iowa project specifically, we have been closest to the client on the storage liquefaction send out of the project. We have been working with them for quite some time. The Phase I of that was the storage tanks, which had a long time line on them, but they were a critical path of that piece of the plant. This part of the plan I'm talking about is a small section a $1 billion project. So, we continue to feel comfortable with the opportunities for us related to the load-out liquefaction and storage piece of the project, which you could say is sort of a black box to the main project. And depending on our availability of resources and the quality of the packages, and the commercial conditions there, there may be some opportunities for us, as well, on the balance of the project.

Two, the second part of your question is that we, in our storage group we are seeing opportunities for other ammonia and fertilizer type storage projects, and so we have some of those -- those projects didn't have us, now that we are looking at proposals on.

Okay. And then I believe that there is growing interest in export terminals for some of the NGLs, like propane and ethane. Can you all play a role there, and if so, what would those potential project sizes be?

It would be hard for me to quote on the project sizes. I would say you are thinking in the projects as small as $15 million to $20 million and as large as $60 million to $80 million. Yes those opportunities are out there. We are actively looking at some now, and so we would see that some of those projects moving into, will hopefully get into our portfolio and our backlog over the coming year.

Okay. Thank you.

(Operator Instructions)

Tristan Richardson, D.A. Davidson & Co.

Just a question, you had mentioned in the oil and gas segment, a larger customer base. I was curious, are you getting work from new customers or are these different facilities within your existing customer base that you hadn't worked at before? I'm just curious about that.

Yes. So, we are getting more work from existing customers in different plants, and we are picking up some -- occasional new customer, new client. So our guys have done a great job of building up our brand and our reputation in that space, and to the extent where we are getting -- we are working in new plants for existing customers, we are getting more work, and being able to bring more of our suite of services into existing clients, and then we are occasionally catching the new client as well. So it's really sort of all of the above.

Okay. And is it more a function of taking share from smaller regional competitors, or are you going head-to-head against people your size and larger?

Yes, I think we are gaining some ground against some of our competition in some markets and some regions of the country. And, because of the quality of the work we are providing, I think our clients, in some cases, are giving us an opportunity to take on some work that we haven't in the past for them.

Okay. Great. And then, just real quick, Kevin, just an update on CapEx, how that is looking for the year?

Yes, so I think that when we look at this thing, our CapEx has been running at around $5 million a quarter. I would expect something similar in the fourth quarter. So we will probably be $22 million or so for the year, $23 million.

Sure, okay. Great. Thank you very much.

Rich Wesolowski, Sidoti & Company.

It looks more and more like LNG export terminals are going to be approved. I was hoping you would review the Company's engineering and craft capability with regard to the large cryogenic storage, specifically how it has improved since the Sabine Pass project was completed by the prior management? Thanks.

Well certainly within our organization, we have the skill sets to re-engineer fabricate and construct large LNG storage facilities, at least as it relates to the metals portion. And I think that over time, since the Sabine Pass job, I think our organization has done a good job of pulling together the resources, and to be able to provide a more integrated projects service offering, and that we feel very comfortable today in our ability to successfully execute those types of storage facilities. Whether they will be a significant amount of the large storage tank opportunities for us to take a part of, still remains a bit of a question, but I think that certainly on the larger facilities, we have an integrated model to be successful.

Are the large cryogenic tank projects inherently much riskier than your typical large tank job, and would you suspect the margins are commensurate?

Well, it's a larger project, it's a little more intricate, the type of metals used in those projects is different. Some of the welding criteria is different. Depending on the locations of where they are, could potentially be a little more remote than some of the other areas. But my expectation would be that the margins in those kind of projects would be at or above the margins, on average, the margins we see in our normal above-ground storage tank business.

Great, thanks, again.

At this time I am showing no further questions. I would now like to turn the call back over to John Hewitt for closing remarks.

I want to thank everybody for joining us on this quarter's update call, and I wish everybody a safe and happy fourth quarter. We will talk to you in about three months. Thank you.

Thanks.

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.