Matrix Service Co (MTRX) 2013 Q4 法說會逐字稿

> Operator Good day, ladies and gentlemen. Welcome to the Matrix Service Company conference call to discuss results for the fourth quarter and fiscal year ended June 30, 2013. 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 conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Kevin Cavanah, Vice President and Chief Financial Officer. Please go ahead

Thank you. I would now like to take a moment to read the following. Various remarks that the Company may make about the 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 our fiscal year ended June 30, 2013 and in 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 would now turn the call over to John Hewitt, President and CEO of Matrix Service Company.

Thank you, Kevin and good morning, everyone. As we announced in our Press Release yesterday, Matrix Service Company achieved record performance in many aspects of our business in fiscal 2013. During the year, the Company achieved a total recordable incident rate or TRIR of 0.61, the best annual safety performance in our history. Many of our operating units and jobsites completed the year injury free. This level of performance is best in class and is a testament to the effort, teamwork and personal commitment of all of our employees. While we are very proud of this performance, we owe it to our employees, their families and our customers to do even better.

Safety is a core value of Matrix Service Company, and we truly believe that an injury free workplace is attainable. At fiscal 2013, we focused our employees on culture, personal commitment and expectations with one-on-one employee meetings, enhanced safety programs, technology and resources. We believe a safety culture built on corporate commitment and individual accountability is making a difference in our business and further differentiates us from our competition. In fiscal 2013, the Company also achieved record project bookings of over $1 billion and record revenue of $893 million. There are many factors contributing to these record results which are noteworthy.

First of all, our Storage Solutions segment continues to see strong demand for aboveground storage tanks, terminal projects and balance of plant work in North America. Revenues in the segment increased to $393 million, with the backlog at year end of $320 million, both of which are records for the Company. While the revenue and backlog growth in Storage Solutions segment exceeded our estimates in fiscal 2013, margins were below our expectations due in large part to a loss on a project in Western Canada that we discussed on previous calls. We also mentioned that we expected to see improved margins in the segment, which we realized in the fourth quarter as gross margins increased to 11.3%.

Considerable growth opportunities are emerging across North America, as the oil and gas infrastructure is being reconfigured to handle growing production and shifting sources of supply and demand. Many of our midstream and downstream clients are investing considerable amounts of capital to expand or upgrade processing, transportation and storage terminal assets, which is driving our growth. As a leader in the Storage Solutions market, Matrix Service Company is well positioned to capitalize on these trends. This is clearly evident by our Press Release this morning, announcing our exclusive alliance with TransCanada for tanks and storage terminals across North America. We are proud of our relationship with TransCanada, and we look forward to this partnership as we complete the extensive buildouts and expansion of their pipeline network.

The Oil, Gas and Chemical segment significantly contributed to our work results in fiscal 2013. Revenues in the segment increased 33% year over year with gross margins improving from 9.8% to 12% in the year. The success in the segment is due primarily to outstanding results of our turnaround groups as they continue to expand our service territory and client relationships and branch strength. The expansion of our Industrial cleaning group due to the successful midyear acquisition of Pelichem as well as critical investments in people and equipment added to the success of this segment.

Our Electrical Infrastructure segment had a very strong year with record revenues of $171 million, and gross margins of 12.7%. In fiscal 2013, our leadership team was successful in expanding our high-voltage transmission and distribution services. In addition, the results in this segment include a sizable contribution from storm restoration work to repair damage caused by Hurricane Sandy in our core service territory. We have invested heavily over the past three years to expand the scale of our storm response team, and during Hurricane Sandy, we deployed nearly 300 tradesmen throughout the impacted area. As we seek to expand geographically and strengthen our capacity, acquisitions will be a critical factor in this growth strategy. However, we continue to make organic investments such as the recently opened office in Nevada, targeted to capture high-voltage electrical opportunities in the Southwest. ]

Finally, fiscal 2013 was a building year for the Industrial segment, completing a strong year with revenues increasing 172% year over year. Our Mining and Minerals operations in the Mountain West states continue to gain traction as customers appreciate our capabilities and become aware of our reputation for safe and high-quality work. We are pleased to report that this segment is achieving our performance expectations and is positioned for improved profitability in the next fiscal year.

In closing, the strong growth over the past two years represents an average annual growth rate of 19.3%, achieved principally on an organic basis. Our ability to continue this high rate of growth without significant acquisitions will challenge the capacity of the organization, highlighting the importance of Risk Management practices, process improvements and organizational development initiatives. While growth of the Business is a key part of our strategy, we will not grow in a manner that compromises our ability to deliver high-quality projects safely to our customers. Based on the favorable conditions of our end markets, our near record backlog, strong client relationships and robust bidding activity, we are expecting continued controlled growth in fiscal 2014. Please keep in mind that our fiscal 2014 guidance does not contemplate any acquisitions; however, acquisitions will continue to be a focus area for the Company, and upon execution of future acquisitions, we will modify guidance appropriately. With this in mind, our guidance for fiscal 2014 is revenue between $980 million and $1.04 billion, and earnings of $1 to $1.15 per fully diluted share.

Lastly, I would like to announce the appointment of Jim W. Mogg to the Matrix Service Company Board of Directors effective August 27. Mr. Mogg is an experienced executive and board member. In his 35 plus year career at DCP Midstream Partners, Duke Energy, Tesco and Pan Energy, Jim held numerous positions in the upstream and midstream oil and natural gas industries. We are pleased Jim has joined the board and believe his vast experience will be very beneficial to Matrix in the future. I'll now turn the call over to Kevin, to discuss details of our financial performance. Kevin?

Thanks, John. I will start with the fourth-quarter results. We generated record quarterly revenue of $235.6 million, as compared to the previous record set in the third quarter of this year of $226 million. Fourth-quarter revenues were also 27.4% higher than the $184.9 million of revenue reported in the fourth quarter of fiscal 2012. The increase in revenue was due to growth in the Electrical Infrastructure, Oil Gas and Chemical and Industrial segments. Consolidated gross profit was $27 million in the three months ended June 30, 2013 versus $18.7 million in the three months ended June 30, 2012 as a result of the increased business volume and higher gross margins. Our consolidated gross margins were 11.5% in the current quarter, as compared to 10.1% in the fourth quarter last year.

SG&A expenses were $15.4 million or 6.5% of revenue in the three months ended June 30, 2013 compared to $12.2 million or 6.6% of revenue in the same period last year. Operating income for the fourth quarter of fiscal 2013 was $11.6 million, an increase of 80.8% over operating income in the fourth quarter of fiscal 2012. Operating income improved due to the 27.4% revenue growth and the increase in gross margins. Our effective tax rate was 34.7% for the current quarter, as compared to 71.6% in the fourth quarter last year.

The rate for the current year fourth quarter was positively impacted by a change in the estimate of certain tax deductions. The prior year fourth quarter rate was negatively impacted by deductibility limitations applying to certain items that had previously been fully deducted. Based upon the current environment, we expect the effective tax rate on future earnings will be 38%. This quarter, we produced net income of $7.4 million, or fully diluted earnings per share of $0.28 as compared to net income of $1.8 million and fully diluted earnings per share of $0.07 in the fourth quarter of the prior year.

Moving on to the results by segment, the Electrical Infrastructure segment revenues increased from $31.8 million in the fourth quarter of fiscal 2012 to $46.1 million in the fourth quarter of fiscal 2013. The 45% revenue increase was primarily due to increased high-voltage transmission and distribution work in the Northeast US. Our gross margins were strong at 11.8% in the quarter as compared to 12.9% in the same period last year. Our Oil Gas and Chemical segment revenues increased 21.6% to $66.5 million in the fourth quarter, compared to $54.7 million in the fourth 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 and a change in the mix of work, gross margins improved to 13.5% as compared to 10.6% in the fourth quarter of fiscal 2012.

The Storage Solutions segment generated fourth quarter fiscal 2013 revenue of $96.5 million as compared to fourth-quarter revenues of $96.1 million in fiscal 2012. Gross margins in the quarter were 11.3%, as compared to gross margins of 9.7% in the fourth quarter of fiscal 2012. Revenues for the Industrial segment totaled $26.5 million in the three months ended June 30, 2013 compared to $2.2 million in the same period a year earlier. The fiscal 2013 revenue increase was largely attributable to our operations in Mining and Minerals and the commencement of work on a large fertilizer facility. As a result of increased volume of business, gross margins in the current quarter improved to 6.4% as compared to a negative 23.7% in the same period last year. This segment is gaining momentum, and we expect our gross margins to continue to improve as the growth in operations in the segment stabilize.

Moving on to full-year results, consolidated revenues were $892.6 million, an increase of almost 21% from consolidated revenues of $739 million in the prior fiscal year. The increase in consolidated revenues was a result organic growth in all four operating segments. Consolidated gross profit increased from $79.6 million in fiscal 2012 to $94.7 million in fiscal 2013. The $15.1 million or 19% increase was due to higher volume of revenues. Consolidated gross margins were 10.6% in fiscal 2013 compared to 10.8% a year earlier.

We discussed a couple of charges on prior calls that negatively impacted fiscal 2013 gross margins by 0.7%. Consolidated SG&A expenses were $58 million for the year ended June 30, 2013 compared to $48 million in fiscal 2012. The increase is primarily related to the growth in our business and planned strategic investments. Net income for 2013 was $24 million, or $0.91 per fully diluted share as compared to net income of $17.2 million or $0.65 per fully diluted share in fiscal 2012.

I will briefly discuss our full-year performance for each of our segments, starting with the Electrical Infrastructure segment. Revenues increased 26.7% to $171.2 million, and we earned gross margins of 12.7%, which were up slightly from the prior year gross margins of 12.3%. We generated 33% growth in our Oil, Gas and Chemical segment, revenues of $273.8 million generated gross margins of 12%, which was a significant improvement over the prior year gross margins of 9.8%. As John mentioned previously, our segment backlog for Storage Solutions increased 35.1% to $319.7 million in fiscal 2013. While backlog increased significantly, our Storage Solutions revenue saw a moderate increase of 4%. Gross margins were only 9.5% as we experienced a large project loss earlier in fiscal 2013 along with a $1 million legal charge.

Finally, our Industrial segment revenues increased from $20 million in 2012 to $54.3 million in fiscal 2013 as our start-up Mining and Minerals business gained momentum throughout fiscal 2013. Our profitability improved as our volume picked up and we now expect both trends to continue in fiscal 2013. While we expect annual gross margins of 11% to 13% for each of our segments, but gross margins for the Industrial segment will be 8% to 10% in fiscal 2014 as the segment achieves scale. During fiscal 2013, we increased our backlog 26% from $497.5 million to $626.7 million. The increase was primarily the result of project awards in our Storage Solutions and Industrial segments. Consistent with the improvement of many of our markets, our annual project awards totaled over $1 billion for the first time in the Company's history.

As we discussed in prior calls, quarter-to-quarter backlog growth can be impacted by the timing of project awards, so while we are pleased with annual backlog growth, in the fourth quarter backlog declined due to the timing of project awards. Even though this halted our string of nine successive quarterly increases to backlog, we believe the growth trend remains intact. We ended the fiscal year with a very strong balance sheet with no debt and available liquidity exceeding $175 million inclusive of $63 million of cash. We intend to leverage the strong balance sheet as we take advantage of market opportunities to grow the Business organically and through acquisitions. This completes our prepared remarks, so we will open the call up for questions.

(Operator Instructions)

Mike Harrison, First Analysis.

Was wondering -- just had a few questions on the TransCanada alliance that you announced today. Can you quantify or provide any kind of a ballpark range for the revenue opportunity around that alliance? And, maybe, can you talk a little bit -- if you don't want to get too specific there, can you maybe talk qualitatively about how the revenues might ramp over the five-year horizon of that alliance? Should they be pretty level across five years, or should we expect them to be more choppy?

So, we're obviously restricted on what we can talk there about the details. TransCanada and many of their pipeline projects are competing against other midstream providers, and so while we may have some knowledge of some of their intended projects, certainly we need to keep those close to the vest. But I guess what the best way for me to guide you would be just to go to their website. TransCanada is a public Company as is we, they make investor presentations on their intended capital spend for not only increases to their existing pipeline network, but new pipeline networks. The scope of our alliance provides that we will be providing new tank work and in some cases complete terminal work for them along all of those different pipeline networks both in Canada and in the US, and so that hopefully will be able to give you a picture for the breadth of the alliance. As it relates to the slope of the curve for the program and the revenue, I would say probably the heavier buildout time would be in -- during the five to seven year period, we're probably in year three and four as it would start ramping up. We are already working for TransCanada on a project in Cushing, we're working for them on a project down in Houston, and we're also working for them at a project up in Hardisty Canada right now and are looking at others. So I think there will be kind of a fairly even ramp up over the next couple of years where we'd get into a peak in a three to five year timeframe.

And it sounds like a very nice win for you in terms of the exclusivity. What's in it for TransCanada? I guess I would think that they would benefit from having competitive bids for these packages, so maybe can you talk about how these projects are going to be priced, or is there going to be any competitive bidding, and then are those contracts going to be primarily fixed-price? Will they be cost plus? How should we think about that?

We have a commercial range over TransCanada for the execution of these projects, that's been agreed between our two organizations. That commercial range will be applied across -- in a similar fashion across all of our projects. There will be some nuances, depending on the location or the Partnership that they may have. Some of their pipeline assets are wholly-owned, some of them are in Partnerships with other midstream providers, and so in those cases, there may be different commercial arrangements that will apply. So, I can't get into you with the specifics of what that arrangement is, but the why I think was very clear to TransCanada and to us.

We are the top tier provider in this industry. Our quality and safety cultures are very, very aligned. TransCanada understands like many of the rest of the industry that there is extensive capital buildout program that is underway in North America to transport these new oil resources to market, and I think TransCanada saw the value of locking up the best to assure that they've got the resources they need to build their network. So, I'll tell you that this relationship with TransCanada does not preclude us from working with other midstream clients. It certainly does not consume all the resources that are available in our organization, so we will continue to service our clients that we serviced for many years but, that I think the relationship between TransCanada and Matrix has -- will strengthen their ability to put in high-quality, safe projects and will help us with our ability to continue to provide those kind of services and to grow our business.

Great, and then last one for me is on the Industrial segment. Can you share any details on the backlog within that segment? Are there really just a handful of large projects that are driving the strength this quarter? Or, it sounds like based on your commentary that you're seeing more of a nice ramp in terms of a number of projects and feel pretty confident that you're going to see sustainably strong revenues in that business?

So, I'll give you the [$50,000] view, and Kevin can chime in with any details. So, it's a mix. We have some larger -- really one large project in there, but we have a mix of smaller projects. Our guys that are specifically out of our Tucson operation that are working with mining clients in that area have done a very good job of transforming their business from small, maintenance type projects to larger capital projects. There's everything in there from projects of $40,000 to $50,000 to $20 million. So there is an mix, I would say in that backlog of a variety of different clients and sizes of projects.

And I would just add that it was really the mining side of the Business that really drove the awards in the fourth quarter.

All right, thanks very much.

Matt Duncan, Stephens.

Congrats on a good quarter. Just following up quickly on the TransCanada discussion, just looking at the slide in their presentation on projects they've got going, I'm assuming the one -- the job you referred to in Hardisty is the Keystone terminal up there?

Yes.

Are there other projects you guys are already working on that would be tied to Keystone XL, or is that to calm I guess waiting on approval from the government for that job to get going?

Well, that's the northern leg is what is -- we're waiting on the government to make a decision. The southern leg which is the leg essentially from Cushing into Houston, we are already working there, so we're already building --working on a terminal in Cushing for TransCanada. We are working on a terminal in Houston and doing some planning on another one in the Texas market for them. So, and then up in Canada where we've got two projects right now for them in the Hardisty area, and of course we're looking at providing some pricing and schedules on others

Okay, so John, as I look at this slide, it looks like they're spending about $13 billion on stuff with expected in-service dates between now and 2015 and a similar number 2016 through 2018, so it sounds like their spending is pretty flat. Why would that alliance agreement sort of peak for you in those middle years rather than being a little more steady through time? Is it just the timing of when the exact things you guys are doing come into play?

Right, so I'm sure some of the spend for them is probably up front cost, permitting, land acquisition, and so if you would look at the planned execution of the projects that we're involved with and where those overlap, there is more projects overlapping in sort of the middle, so the back half of the alliance

Got it, that's helpful. Looking at your guidance for FY '14 I don't think any of us were really surprised by the strength in the revenue guide. You obviously had a very good backlog build going. I'm a little more surprised by where the EPS guidance is, and I want to try to get a feel for how much you tried to layer some conservatism into that. If I simply take your revenue guidance and apply the operating margin to it that you had in the fourth quarter, you would do about $1.10 to $1.20. So kind of bracketing the high end of the range that you given, is there any reason why your operating margin should come down? Was there anything unusual about the fourth quarter, or are you guys really just trying to be conservative in case something comes up that you may not be seeing yet?

I think the fourth quarter did have some very good performance in the Oil, Gas & Chemical segment. It had I think 13.5% gross margins. That definitely exceeds what we'd normally expect. I think the margins we saw in Electrical and Storage was probably fairly in line with our expectations going forward, so I don't know about -- that could be a little bit of the difference you're seeing.

I guess on the flip side though, Kevin, on higher revenue number, would you not expect to get some SG&A leverage? I know you guys are being careful, John eluded to making sure you keep up with the growth just in terms of the organization to make sure you maintain your safety record and things of that nature. But should we not expect to see a little bit of SG&A leverage going forward?

I think there will be a little bit. How quickly that happens, I'm not sure. I think when we look at fiscal '14, we should see a little bit of leverage in SG&A, but I don't think it's going to be realistic. You're not going to say go down to 6% of revenue or anything like that

Okay. And last thing me, John, you referenced M&A as something that honestly is not in the guidance, but you're still actively looking to do. I know you've been trying to find something for a while now, and especially on the E&I side, and nothing has closed yet. Are you guys finding prices there are a little too high for what you're looking for? What do you think has been the governor on you guys being able to get M&A done, and what's the outlook looking like there for the next year?

I think the opportunities are still strong that we are still sifting opportunities in all of the strategic focus areas. But we continue to be cautious and conservative on what we're going to pay and the risk that we may or may not accept in an acquisition. And so I would say in general, we continually have two to three prospects in house that we're in some state of Management meetings, discussions, analysis, and that's ongoing. So we didn't want to mislead anybody because we've been down the road now a couple of times on a couple larger acquisitions that we were just the bridesmaid, not the bride, and we did not -- so we do want to set any expectations for everybody that we're going to lock in some big acquisitions in 2014. I mean certainly that's our intention, we're continuing to look at key expansion areas for us both in geography and depth of resources and end markets. I'm hopeful that in this fiscal year we'll have some positive announcements for you guys. But at this point, that road to get to a deal is so twisting that even up to the last minute, anything can happen.

Sure, so John, most of the things you guys look at, are they auction processes or these things you are finding on your own? Or is there anything you're doing maybe to change your own process to try to get something across the finish line?

Well, I tell you that we are -- and auction process is moving down to the bottom of our list. So, those are very difficult for our Company to win those. We're really looking for value, we're looking for the right cultural fit, and we're not willing to pay over market price for something we don't think that's good for our business. So, in an auction, [geo] has a tendency to get you into that, so we're looking more for -- in general, we're looking for more of our opportunities where there is a smaller list of prospective buyers or that we can negotiate a deal.

All right, sounds good, thanks for the insights. Congrats again on the good quarter.

Rich Wesolowski, Sidoti & Company.

Thanks, good morning. Seems like a long time since Matrix reported last, good to talk to you again.

Seems like just yesterday for us.

Would you discuss where your business has become more or less competitive in recent quarters? Is there anything that sticks out?

No, I don't think -- I think that we've in some cases, for instance our heavy turnaround group, think we have improved the strength of our brand considerably and the confidence of our clients, so heavy turnaround business and our mining operations, our relationship with new clients and our storage business, so whether that makes us more or less competitive, but I think it's provides us more opportunities to win work.

With regard to the fiscal '13 sales in the New Orleans Gas division, how much of that would you guess is from one-time type turnaround projects or recovery facilities in the Northeast or something of that sort, and are you expecting that division to grow in '14?

One of the benefits in the turnaround business is, which we had some positive growth in '13 was especially in the heavy turnaround business that we're really growing in, is that when we open up the SECs or the [cad-crackers], there's always -- not always, but there's usually scope growth because of unseen work. And lot of times we get into a facility and get into some of those pieces of equipment we'll find additional work. So it's not unusual for us to go in with a contract of X and it turn into X plus Y and provide some -- what could be perceived maybe as some one-time growth opportunities. But right now we're in a lot of different refineries now doing turnarounds, so I think the opportunity for us always exists for our guys. And as far as the East Coast, yes we had in '13, we did have a start up turnaround in a refinery on the East Coast that was coming back online which provided some boost to the Oil and Gas segment, but we're continuing to grow other pieces of our business too, and we're still in a refinery doing some small cap and repair and maintenance work. So, I'm not sure there was anything in there that was significantly a one timer.

Good to hear. With regard to the Industrial margins, I was hoping you would discuss the performance on the OCI contract so far and maybe how much of that is still in front of you?

I'm not frankly sure what the percent complete is there, we're just finishing -- we finished a piling on I think the major tanks, we're doing pile caps, so far our performance there has been very good. Our safety performance has been excellent, OSHA has been to the site because it is a very large project in Iowa. OSHA has visited the site several times. We have gotten some very, very strong commendations from OSHA on our safety performance and our organization of the site, and as of today, we're pretty pleased with the progress of the project.

It is still fairly early on the project, I think we're 15% to 20% complete as of June 30. And I think the margins on that project have been, as we expected.

When is that scheduled to be completed?

That was I believe toward the end of '14.

The end of fiscal '14.

Fiscal '14 yes.

Last two, have any other firms, midstream Oil and Gas companies approached you for a deal of the type that you just announced this morning with TransCanada?

Not exactly, but we do -- we've got some pretty strong relationships with a couple of the other midstream guys, so we do lots of repeat business with, even some of it's in a competitive basis, but we -- our relationships are pretty strong, so nothing as formalized as this agreement, but we still do a lot of repeat business for some of the other big midstream guys both in Canada and in the states.

And on the M&A, I had interpreted your previous comments to suggest that expanding the E&I division outside of the Northeast and beefing up the Industrial service were the one and two priorities of that effort, is that still the case?

There's really three priorities. All of them have the geographic vent across them, and all of them it's important to us to grow and strengthen our geographic location, so that would cover all three. But it's E&I, it is the Industrial cleaning and it is capital projects. And so projects and across again all three is increasing bench strength, capabilities within the overall employee base and services we provide.

Great, I appreciate it, best of luck in '14.

Tahira Afzal, KeyBanc.

Thank you, good morning, gentlemen and congrats, great quarter. I guess my first question is, in regards to really the fabrication capacity and label capacity you have available now on the storage solution side, can you talk about if you look over the next two to three years with that particular capacity, what's the likely growth rate you can sustain on the topline?

Fabrication capacity right now and what we see into the near-term is we're able to handle what we believe our growth rate will be in storage. We certainly have an eye out to -- we'll keep a clear look on that that if we think we need to add additional fabrication capacity, we'll do that either through additional investments in our shop to improve the efficiency or to the throughput, I should say and/or the addition of fabrication capacity outside of Cushing, perhaps in Canada. So, it's something we're keeping an eye on right now. We feel pretty comfortable over the next 18 months that we've got the capacity we need to handle what we're seeing in the short term.

So our growth in storage this last year was 4% on revenue, but we mentioned the backlog increased significantly more than that. I think as we go forward, I think storage is moving back up, maybe one of our leading growth segments --

Right.

Versus being the lower growth one

Got it, okay. That's good to know. And, I guess on that question, clearly the TransCanada win is a big win for you. It presents notable opportunities in Canada. John you talked in the past about the US LNG opportunities being limited for you because the work is already done and that make sense. But as we look out to Canada, is that a potential opportunity for you in the longer term,? I know some of those projects are not really going to go into construction until I think 2016, but would you be able to look forward, and would you be interested in handling both your Keystone type projects and the LNG ones?

As we said in the past, we will continue to be opportunistic about large LNG type projects where there's tank and terminal opportunities there, or whether it's in LNG or ethane or propane or peach shaving type operation, so all those cryogenic storage opportunities and terminals that go with them, each of those will be opportunistic events for us. We're tracking some of those, some of those might be too big for us based on the capital expenditures and what the clients are comfortable to give to us. So yes, the opportunity is out there. We are not, as an organization, counting on a significant amount of large LNG projects in our short-term future, but we do stay close to the market, we do stay close to certain clients that are planning LNG export projects and as well as some of the big EPC companies that in many cases will become the contractor of choice on a lot of those larger projects. So, we have our ear to the rail, and we're paying attention there and we'll find the right opportunities to fit our risk profile.

Got it, thank you. And a follow-up to that, John did highlight larger LNG, do you see any opportunity on the micro LNG side in the US? And could you talk a bit about your capacity and resources in terms of labor pricing?

So, there is probably more opportunity for us on the smaller side, on the smaller cryogenic applications, LNG bunkering, propane, import/export, the ethane import/export, so there's probably more opportunity for us there. We certainly have the engineering capacity and the fabrication capacity to handle those projects as well as the construction capacity on the tanks and on the terminals. The other thing to add to kind of back up a little bit and add a little bit on the storage tank piece is that we are getting more demand not only just for the engineering fabrication and construction of the tanks, but also for that terminally which we have the balance of plant associated with the terminals. So some of the growth in our Storage Solutions segment will come not just out of the tank piece, but will come out of providing the overall balance of plant work associated with those terminals

Great, and final question in regards to that, John and Kevin, could you talk a bit about the [RC], bulk of RCs to the extent that you can quantify them today versus maybe a year back, and that's it for me thanks.

RC, you're talking about our [bid follow]?

Yes, please.

So we're continuing to see very strong bid follow really on all of our segments, and so we're not seeing anything change there. Like we said in the past, a lot of that is the timing, clients' capital expenditure plans and when they want to spend their money, so from quarter to quarter, things can move up and move down and move side to side. But we're on a macro basis, I would say we're not seen any decrease in amount of opportunities really across any of our segments

Martin Malloy, Johnson Rice.

My questions have been answered, thank you.

(Operator Instructions)

Tristan Richardson, DA Davidson.

Just a question John. I know you talked about work for TransCanada ramping up in period beyond fiscal '14. But I'm sure there's some work that comes in this year, and is any work associated with that alliance included in your current guidance?

Yes. So we are already, as I said, we're completing that project right now at Cushing that was pre-alliance, and we are starting up projects in Houston -- not Houston per se, but in the Gulf Coast of Texas and in the Hardisty area right now. So there are projects that are in our backlog that are in our plans for 2014 that are either ongoing or are starting up.

Got you. Okay. And then, because this alliance -- because of the exclusivity and you've talked about pricing a little bit -- being a little bit different because of the larger agreement, I mean those that have any margin implication overall for the segment given that the work associated with this customer is now essentially no longer necessarily like competitive bid on each individual job and/or repeat business? I mean, is the pricing different that it would have a margin implication longer-term?

The best way for me to answer that is that we, to get to where we are today with TransCanada, we competitively bid jobs, so we've said -- I would say we set a standard at that point with them on the pricing for work. We are working with them in an open book fashion, and so we are -- they are not -- in our mind, they are not overpaying, and we are not providing our services for free. So, we are working at a market -- what we believe will be a market rate and a range of the market rate with TransCanada, and between the benefit of this alliance is the two of us working together to find common technology, common engineering standards, common quality measurement standards, alignment in our safety values that working together in an open and transparent fashion, we're going to find ways to drive cost out of the projects for them. So, it isn't as much about the percentage markup that we have on them for TransCanada, it's our ability to deliver projects with the big piece of the cost, which is cost of construction and engineering and the design of the fabrication that we're going to find ways working together that we're going to hold their cost down and deliver the project in a more timely fashion then maybe what they're used to on a competitive price basis. That's really what the alliance is about.

That make sense. Thank you. And then, on the oil and gas side, you talked about and mean obviously the benefits of Pelichem, which sounds like a pretty high margin business as well as some opportunities on the turnaround side. I'm curious did you see any major market share taking opportunities during fiscal '13, and was about a factor in the growth in the margins in 2013?

We're working in parts of the country in refineries that we either had worked before or with new clients or with existing clients where we had worked in that specific plant before. I think our clients are getting more comfortable with us and our services and the skills we're providing. They're providing opportunities for us to do more work in their plants, not just what we originally were contracted to do. So I think that we are -- we're gaining ground, we're gaining market share in specifically in our turnaround business, and that's really a testament to the quality of work and the attention to detail and the client relationships that our guys in our Oil Gas & Chemical segment are providing.

That's great, thank you. And just on the Industrial margins, Kevin you talked about 8% to 10% in '14. As that segment continues to ramp, I'm curious sort of when do you see that at vertical mass? Then I guess what you expect for margins longer-term as that segment moves out of sort of a ramping phase?

So I think we're getting close to being of a scale that we should be able to consistently deliver the 8% to 10% margins. I think that's when you look at fourth-quarter, the margins look a little bit lower than what they actually were, we took a small impairment on a trade name that went away in connection with our branding. So, that was a bit like $300,000 that hit in that Industrial segment, so that took the margins down a little bit, and I -- so we feel pretty confident about that 8% to 10% this next year. Then moving forward from there, the 11% to 13% we've talked about with the other segments, we expect something similar for the Industrial segment.

That's helpful, okay, great, and then one last one and I will let you guys go, but, I'm curious you talked about electrical opportunities in the Southwest with your new ops in Nevada, curious sort of what does the market look like down there? I mean could you talk about maybe just what you're seeing in the pipeline and the types of projects, the size --

We're down there. As we stated in the past, our high-voltage business is going to be in the near-term is going to be done on a union platform. The major utilities that service that market in Southern California, Nevada, area, a lot of that work is performed on a union platform. They have not been happy with the level of service that they have been getting from the contractors they've used. We've had numerous meetings with them, and the combination of the two that attracted us to the region where we think that our guys provided a high-quality safe services on-time, on budget is an attractive differentiator for us with the level of performance that those clients have been receiving over the past few years. And so we're approved bidders with some of the public utilities down there now, we're starting to see some good flow, I can't comment to you on the size or types or quantity of those -- not because I don't want to tell you, just personally don't know. But, I know we are getting bid flow out of there, and we expect to win some projects in there in this fiscal year.

That's great, well thank you guys very much, I appreciate it.

And I'm not showing any further questions at this time. I'd like to turn the call back over to John Hewitt, President and Chief Executive Officer for closing remarks

Thanks, everybody for the call today, we appreciate your engagement and good questions. Appreciate you for following Matrix throughout the year. And so we hope to see many of you in our future conferences or roadshows and encourage everybody to be safe out there. Thank you.

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a good day.