Matrix Service Co (MTRX) 2015 Q2 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 second quarter, ended December 31. 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 reminder, today's conference call is being recorded. I would now like to turn the conference over to Kevin Cavanah, Vice President and CFO of Matrix Service Company. Sir, you may begin.

Good morning and thank you. I would like to now 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 fiscal year ended June 30, 2014, 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 will now turn the call over to John Hewitt, President and CEO of Matrix Service Company.

Thank you, Kevin, and good morning, everyone. We have had a practice of starting our earnings calls with the discussion on safety. And our journey to zero incidents has many ups and downs. But nothing is more important to us than the safety and well-being of our employees. Unfortunately, during the month of January we sever the loss of an employee to a jobsite incident. While the investigation of the root cause of this incident is ongoing, this tragedy serves to further strengthen our resolve, expectations and leadership as we move forward on this journey. Our thoughts and prayers go out to his family -- to this employee's family and friends.

While this tragedy is at the forefront of our minds as we continue our relentless focus on safety, it is also important to recognize positive achievements our employees are making across the company. Collectively, through the first six months of this year our reportable incident rate is 0.59, improved from 0.85 at the end of fiscal 2014. We also received several important safety awards including a significant milestone at the BP Cherry Point Refinery in Washington state, where our team surpassed 5 million hours without a lost time injury and 1.1 million hours without an OSHA reportable. Our site manager, Frank Capristo, was also chosen by DP Cherry Point Refinery from over 2000 contractors as their 2014 contractor safety person of the year for his commitment to safety and to ensuring a safe work environment for all personnel at the refinery. This is the second consecutive year this award has been given to us every employee, with Alec Brooks, site Foreman, having received it in 2013.

Additionally, the National Maintenance Agreements Policy Committee also recognized Matrix with eight separate with eight separate ZISA for a injury safety award commendations for a combined 1.1 million work hours without injury. ZISA is the union construction industry's premier safety recognition, honoring efforts of owner, clients, contractors and union workers to achieve what we know is possible, zero injuries on the jobsite. In spite of the tragedy we talked about earlier, given our overall safety performance and culture, we expect our clients to continue their trust in Matrix's ability to provide safe work environment on our project sites. I'd like to thank all Matrix employees for their dedication to a zero-incident mindset and fostering safe environments at work and at home.

Before I discuss our segments in a little more detail I want to pick up where we left off on our last call, specifically as it relates to the market and regulatory environment. In the second quarter we reached out to over 30 of our largest customers to discuss commodity prices and the impact low oil prices have on their business and capital spending plans. Across the board our customers have indicated that material impacts to their long-term strategies are unlikely. In upstream, which represents a small portion of our consolidated revenue, our upstream customers will delay some project. But other approved or planned project will continue.

In the midstream space, which we generally equate to our storage solutions segment, our customers noted that logistic issues continue to persist. Solving these issues is key to closing the cost app Specifically, our key midstream clients such as TransCanada and Enbridge have a long-term view on their capital infrastructure investments and are more concerned with the resolution of regulatory issues than short-term market pressure.

Regarding natural gas and gas liquids, also part of our storage solutions segment, our clients see their NGL projects is critical infrastructure elements. These projects remain viable in the current price atmosphere and from a long-term perspective. Domestic LNG projects may be delayed as existing global contracts are typically indexed to crude prices. However, we continue to see several viable project opportunities throughout North America.

Downstream, turnarounds, maintenance and repair as well as environmental and regulatory projects will continue for our refinery and pitcher chemical customers. Historically low natural gas prices and other feedstocks create better opportunity in our electrical infrastructure and industrial segments. New power generation projects continue to move forward as well as power delivery project critical to updating the North American electrical grid.

In our discussions one of the consistent points our clients shared with us is that permitting and federal regulations are of much greater concern to them than the fluctuation of oil and gas prices. In summary, as we discussed in our last call, our clients generally take a longer-term view to making project decisions. Long-term pricing over multiple years is what will determine any significant impact to our business.

Moving on into our segments, for our electrical infrastructure segment the quarter was negatively impacted eye charge on an acquired EPC joint venture project for which Matrix is providing construction services. The charges primarily the result of engineering and client-supplied equipment issues which created a significant amount of rework and schedule compression in order for us to meet our delivery obligations by the end of this fiscal year. Exclusive of this project issue, the segment continues to perform well and our view of the significant opportunities ahead remains unchanged.

On that note, following completion of the second quarter we were awarded the construction work on a new 900-megawatt combined cycle power generation station for TransCanada Energy. The facility, to be constructed in Napanee, Ontario, builds on a long history of constructing these type of facilities in North America and would be the second major guess I fired power generation project with TransCanada for Matrix North America construction in the past five years. We look forward to working with TransCanada Energy on this important project to support Ontario's electricity demand.

Performance and our oil, gas and chemicals segment remains robust as strong proposal in bidding activity translated into solid revenue growth both quarter over quarter and versus the prior year. Strong bookings have also lifted backlog for this segment to an all-time high of $148 million. While backlog is not necessarily a perfect indicator for the strength of this segment, it does demonstrate the demand for our services in the current market environment.

In the storage solutions segment backlog of 447 million, while up 27% year-over-year, is down from an all-time high set last quarter. In the current oil price environment we continue to see significant opportunities for new storage tanks and terminals throughout our service territory. The contango oil market may be creating additional storage opportunities in many of the traditional storage geographies such as Cushing, Oklahoma.

In our tank maintenance and repair business, opportunities have been strong and we believe that growth in this business line will continue. Matrix PDM engineering is creating cryogenic EPC opportunities in LNG and NGL projects. This is starting to create backlog enhancement and visibility for future project awards. Overall, we remain very bullish on the direction of our storage solutions segment and 4C long-term growth.

Lastly, performance in our industrial segment was solid this quarter due to strong project execution including positive project closeouts. This helped lift gross margins to 13.2% for the quarter, and all-time high for the segment. This segment is currently made up by three key markets which I would like to address individually. First, we are continuing to successfully execute our fertilizer work with Orascom in Southeast Iowa. Due to our high-quality execution on this project, we have received a number of additional awards with this client, nearly doubling our initial contract value. As we complete the work at this facility we're actively bidding additional fertilizer plant-related projects. This market is maturing and, while the number of potential project is diminishing, those that are left provide better opportunities for our business.

In the mining and minerals sector, low copper prices are reducing the capital spending of our clients. However, Matrix's market focus is principally on small-cap and maintenance work, which we are continuing to find and win and execute.

Finally, the iron and steel sector has reduced very strong results the first six months of this fiscal year and we believe the strength will continue. The strong US economy with cheap feedstocks, low energy prices and import price protection is creating capital project and maintenance opportunities for our business. As always, in all of our segments we continue to look for acquisition opportunities that bring added bench strength, market penetration or a unique specialty component to complement our existing services.

In closing, we are disappointed in the negative impact of the quarter and full year that the previously mentioned project has had on the business and financial results. However, the performance in the balance of the business is on track with our expectations and we remain excited about our position in the marketplace. I will now turn the call back to Kevin to discuss details of our financial performance. Kevin?

Thanks, John. So let's start with the second-quarter results. The revenue for the quarter were $342.9 million, which is up $31.9 million or 10.3% from the revenue of $311 million earned in the second quarter of fiscal 2014. Consolidated gross profit was $16 million as the company recognized a loss of $22.9 million on that acquired power generation joint venture project. Consolidated gross profit for the three months ended December 31, 2013 was $34.2 million. Consolidated gross profit percentage was 11.4% without the project loss as compared to 11% in the second quarter of last year.

As we discussed last quarter, we did not fully utilize our overhead cost structure as a result of lower revenue. Our revenue volume increase in the second quarter has resulted in improved utilization. As the volumes continue to increase through the last half of the year, we expect to fully utilize the construction overhead cost structure.

SG&A expenses were $19.6 million in the three months ended December 31, 2014 as compared to $19.3 million in the same period last year. SG&A expense as a percentage of revenue decreased 5.7% in the quarter as compared to 6.2% for the three months ended December 31, 2013.

Our effective tax rate in the quarter was 26% as a result of the retroactive tax legislation that was approved in December. This legislation extended certain tax items included in the R&D tax credit through December 31, 2014. Because the legislation did not cover calendar 2015, we expect our effective tax rate to return to approximately 38% for the remainder of the year. In order to calculate our true effective tax rate, the net income or loss attributable to the noncontrolling interests should be excluded from income before income taxes best.

Our share of that acquired EPC joint venture project produce net income for the second quarter of fiscal 2015, to $3.3 million, and reduced fully diluted earnings per share by $0.29 to $0.12 per share. In the same period a year earlier, the company earned $10.3 million or $0.38 per fully diluted share.

Moving on to the segment results, revenue for the electrical infrastructure segment increased $21.3 million to $58.5 million in the three months ended December 31, 2014, compared to $37.2 million last year. The increased revenue volume in the three months ended December 31, 2014 was due to the inclusion of a full quarter of Matrix NAC activity and favorable volumes in our legacy transmission and distribution business. Excluding the project charge electrical infrastructure gross margins were 11.9% in the quarter as compared to gross margins of 10.4% in the same period of last year.

The projects will be completed in fiscal 2015 with all future revenues associated with this project recognized with zero profit. Accordingly, gross margins in this segment will be negatively impacted for the remainder of fiscal 2015.

Revenue for the oil, gas and chemicals segment increased to $75.5 million in the three months ended December 31, 2014, compared to $62.1 million in the same period last year. The increase of $13.4 million or 21.6% was primarily due to higher levels of maintenance project. Gross margins increased to 9.7% in fiscal 2015 from 10.8% in the three months ended December 31, Project execution remain strong in the second quarter of fiscal 2015, although the under-recovery of construction overhead cost structure continues to negatively impact margins in the by over 200 basis points. We expect higher margins for the remainder of fiscal 2015 as work volumes increase on higher turnaround work, leading to a more efficient utilization of construction overhead cost.

Revenues for the storage solutions segment decreased to two $129.8 million in the three months ended December 31, 2014, as compared to $180.6 million in the same period a year earlier. As a reminder, the prior year included a significant crude oil storage terminal balance of land projects valued at nearly $115 million, the majority of which flowed through our books in the second and third quarters. We currently do not have a similar project in our storage solutions project portfolio. The revenue attributable to above-ground storage sync work is consistent with prior year volumes, as were our gross margins, which were 11% in both periods. Project execution improved in the quarter; however, under-recovery of construction overhead cost structure negatively impacted margins in this segment by over 100 basis points.

We are continuing to focus on process improvements and infrastructure enhancements to further progress as we are making to -- excuse me, enhancements are continuing and -- excuse me. As we make our enhancements in our infrastructure, we expect to fully utilize our construction overhead cost structure in the future. Revenue for the industrial segment increased to $79.1 million -- For the industrial segment increased to $79.1 million in the three months ended December 31, 2014, compared to $31.1 million in the same period a year earlier. The increase of $48 million was primarily due to the inclusion of a full quarter of Matrix NAC activity. Gross margins were 13.2% in the three months ended December 31, 2014, compared to 12.3% in the same period a year earlier.

Fiscal 2015 gross margins were positively impacted by a favorable settlement with the customer.

Now I will briefly discuss the six-month results. Revenues for the six months ended December 31, 2014 were $664.6 million compared to $537.2 million in the same period a year earlier, an increase of $127.4 million or 23.7%. On a segment basis revenue increased in the industrial segment by $104.7 million to $158.5 million; the electrical infrastructure revenue increased $44.1 million to $114.2 million; the oil, gas and chemical revenues were relatively flat with an increase of $4.2 million to $128.8 million. These results were partially offset by a decrease in the storage solutions segment of $25.6 million, to $263.1 million. We expect to see the revenue volume for electrical infrastructure; oil, gas and chemicals; and storage solutions to continue to increase for the remainder of the year, while the industrial segment will decrease without the award of additional projects.

Consolidated gross profit was $44.3 million in the six months ended December 31, 2014, compared to $59.6 million in the six months ended December 31, 2013. Fiscal 2015 gross margins were reduced by 4.4% to 6.7% as a result of the $26.2 million charge on that acquired EPC joint venture power generation project discussed earlier. Fiscal 1214 gross margins were 11.1%.

Consolidated SG&A expenses were $39.5 million in the six months ended December 31, 2014, compared to $34 million in the same period a year earlier. The increase of $5.5 million or 16.2% is primarily attributable to inclusion of Matrix NAC expenses. SG&A expense as a percentage of revenue was 5.9% in the six months ended December 31, 2014, compared to 6.3% last year. Our share of that acquired EPC joint venture project charge reduced net income for the six months ended December 31, 2014 by $9 million to $9.2 million and reduced fully diluted earnings per share by $0.33 to $0.34. In the same period a year earlier the company or $16.9 million or $0.63 per fully diluted share.

As John mentioned earlier, last night we announced the award for the construction of a 900-megawatt combined cycle power generation station which will increase our electrical infrastructure backlog and consolidated backlog by over $450 million, which chance to our second-quarter closing backlog of $839 million. This award, recorded in January, creates a record high in backlog for Matrix. As we have stated previously, the timing of the wards can significantly alter backlog at the end of the period, and it's important to view longer-term backlog trends.

In the second quarter we experienced a decline in our consolidated backlog from $985 million to $839 million. The largest decline was in our storage solutions segment, which decreased from $538 million to $447 million. However, we continue to see long-term growth opportunity in this segment, as exhibited in our backlog growth over the last few years. For example, backlogs stood at $240 million at December 31, 2011 for the storage solutions segment. Since then it has increased each year, reaching $337 million at December 31, 2012. It stood at $353 million at December 31, 2013 and now stands at $447 million at December 31, 2014.

That represents an increase of 86% over the last three years and an increase of almost 27% over the last year. While the decline in oil prices is a cause for concern, our prospects for storage remain strong and we expect continued long-term growth in this segment.

Moving on to our financial position, at December 31, 2014 we have $68.6 million of cash and availability under our credit facility of $145.9 million, which provides us total liquidity of $214.5 million. We expect our business volume's to increase throughout the remainder of the year, which will require some infusion of working capital. In addition, we continue to pursue strategic. Acquisitions. Our balance sheet and liquidity position allow us to pursue these opportunities as well as other business needs.

We are maintaining our fiscal 2015 revenue guidance of between $1.425 billion and $1.525 billion. But as a result of the project charge we are lowering guidance for earnings per fully diluted share to between $1.10 and $1.25.

With that I'm going to turn the call back over to John.

Thanks, Kevin. So we've completed our per share remarks. And before we open the call up to general questions, we wanted to deal specifically with three key topics that we know that each of you will have questions on. So were going to try something a little different here today. Those three key topics are the acquired joint venture project which has created the project charge. We want to talk a little bit about the new award with TransCanada Nappanee Generating Station. And then we would like to talk specifically about concerns over storage solutions segment in the impacts from oil markets. So each of those three topics myself and Kevin will want to give you guys little deeper dive by each topic. So after we do that deeper dive on the topic, then we are going to want to open up for questions on that topic alone.

We'd appreciated, if you have questions, please get in the queue. If you don't have questions, drop out. And then we will address the next question, the next topic, and do the same thing for those questions. Once we have completed the discussion on these three key topics then we will reopen the queue, the call, for just general questions that you may have on those topics. What our goal here is to make sure -- because we understand that these three issues are probably some of the bigger topics in each of your lines, and we want to make sure that we have clarity between management and our analysts on each of these topics.

So if I can, I would like to first open with some remarks on the acquired joint venture project. So I can't and won't get into a lot of details on our partners or the clients and those types of things. Obviously, it's not fair to them or not fair as the project is continuing to go on. But definitely, this project, as we stated in our press release was an acquired joint venture EPC project as part of the Kvaerner acquisition. It's an approximately 309-megawatt combined cycle gas fired power station in a one-on-one mode and there is really no unique technology associated with this. there is -- it's not anything that is foreign to our team. And that team is our combined team with the [K net] and Matrix, our legacy Matrix Union business and inclusive of our executive team here at Matrix Service Company. Between just -- in our union side of our business there are approximately 40 related combined cycle and other power-related projects that they have brought that experience to bear. So during the acquisition we certainly did our diligence thoroughly of the whole organization and all the projects that we were bringing with acquisition including this one, which will be no different. We review the estimate, we did site visits, we reviewed the schedule, we analyze to our joint venture partners were going to be and the client.

So we were, at that time, fairly comfortable with the project. It was only -- the project at the time of the diligence was approximately 17% complete, the construction being less than that and the other portions of the project being more. But on average it was only 17% complete. Frankly, without that the estimate was -- while it was aggressive, was -- but doable, but that the other members of the joint venture, the owner, because they were riding some key pieces of equipment, they all had to do their jobs as we know we would do ours.

So in an EPC arrangement, in this case for this project, which is EPC -- for those who didn't know, don't know that, that's engineering, procurement and construction -- Matrix is providing the construction services. And between our partners and our client are providing engineering and procurement services. So when pieces of those engineering and procurement write-down, as they have on this project, it makes the construction piece of the job that much more difficult.

So anyway, so there was a full diligence on the project. We appreciated the risk associated with that as well as the rest of the organization. And the acquisition of the company took into account those associated risks and benefits, obviously, that we saw in this acquisition.

So again, this is understood as a lump sum projects. We are today approximately 89% complete. We are beginning the commissioning and start up of the project. We got a commercial completion date, and obligation to the owner by the end of our fiscal year of 2015. And sometimes when you get into the commissioning and turnover of these projects is when some of them issues related to the technical aspects of the job begin to raise their head and create complexities for the contractor to pull all the pieces together.

So that's where we are related to this project. I think Kevin has a couple comments here on the joint venture accounting and then we will open at this specific issue for any questions. Kevin?

Thanks, John. Yes, I just want to quickly review the accounting just so we are clear on how this impacts our income statement. This is, as John mentioned, joint venture. We have a 65% controlling interest in the joint venture. And as a result we consolidate 100% of the joint venture in our financial statements, so 100% of the revenue of the joint venture, 100% of the costs are hitting up in revenues and cost of revenues.

The portion of the loss that longs to our partners is then deducted out down in minority interests or noncontrolling interests to get to our true earnings. So everybody needs to keep that in mind is we're doing our financial statements. So when we talked about the fact that we had a quarterly project loss of $22.9 million, our portion of that loss were 65% is $14.9 million. And when we've talked about the your-to-date joined enter loss of $26.2 million, our share of the losses $17 million.

And then when you look at a couple of other line items like operating income for pretax income or loss, so right now if you just look at the financial statements it looks like we've had a loss in the quarter. To get our true operating income or our true pretax income you need to add back that noncontrolling interest. For the quarter that's a little over $8 million that needs to be added back to those lines.

So I just wanted to point that out. You have to do a similar type add back when you are looking at trying to calculate our effective tax rate. So, just wanted to make sure everybody understood how we are accounting for this project.

So with that, let's open it up.

Right, yes, so we would like to open it up for questions specifically on this joint venture project charge and then we will -- and from that, then we will move on to a couple statements on the Napanee project award.

(Operator Instructions) Mike Shlisky, Global Hunter Securities.

I just have one or two really quick ones on this. First off, is there any legal recourse you have on this charge from either the folks that you bought this business from or from the customer or from the JV partner? Or is this pretty much that as this is the charge after the break?

So I will say that as it relates to the acquisition there is no legal recourse. So we understood the risks going in and I think we priced the acquisition according to the risk profile of what we saw in the acquisition.

Frankly, a lot of the things that we have found in the acquisition have probably been more positive than what we anticipated. And frankly, this singular project, while obviously it's very material, is the one thing that did not go the way we had anticipated.

But overall, everything else with the acquisition -- what we're finding, the integration with our business, the potential to open up more opportunities for other segments of our Company, the things we wanted to do and anticipated to grow our business -- those things are all coming to pass as we integrate the Company. As it relates to the project and joint venture itself, I think at this time it would not be fair for me to comment on what commercial track that that project or we are going to take going forward.

Okay. I think my other question on this is basically, when you took the charge were you forced to or did you actually voluntarily go back and check on all the other projects that you might have acquired here, to see if any of those functions have to be changed, either past results or your expectations on what might come out of these projects in the future?

All the other projects that we took on as part of the acquisition have already been completed. And a number of them, frankly, were better -- turned out better than what we thought. So no, so this is the only project that's crossing over that is still in progress from the acquisition.

Okay, super. Thank you very much.

Tahira Afzal of KeyBanc.

So I guess you know the first question is, how much revenue do you still have left from this project that you are burning over the next -- through the end of the fiscal year?

I think that's approximately -- it's $45 million-$50 million.

Got it, okay. And are you folks on the hook for liquidity damages if you do not deliver this project by the end of your fiscal year?

Yes, well, I would say -- and so we are being a little coy on the actual -- our completion date obligations. Those obligations are within the fiscal year. And we are taking steps on the project within the joint venture to do the best job we can to assure ourselves we don't get into liquidated damages. We feel fairly pretty strong the in our contractual position that we have excused delays in the project.

So it will be a discussion at the end. We've tried to account for the likelihood of having to pay liquidated damages in our outcome of the project. That's probably the best I can tell you right now.

Got it. John, it seems like some of that is included in the charge you've taken?

Well, certainly in the outcome in the forecast of the job, we've forecasted what we -- of the current known situation on the job. We have included contingency in that forecast to cover those potential elements and others.

And so we've -- this obviously has gotten attention throughout our entire organization up through including my level looking at where we think the project is going. And we've done our best job to date on where we think -- how it will come out in the end, including the complicated commercial arrangements between all the parties.

Okay, thanks.

Matt Duncan of Stephens.

So, my recollection is we took a charge on this project last quarter, too. I'm just curious when it became clear that things were much worse off than maybe we thought then. And how confident are you that this charge we are taking here is going to cover the completion of the job?

So, without getting into detailed timelines here, as we moved into, through this, our second quarter of the job we were closing out more systems, starting to create more turnover packages, doing more line testing. And as that moved on through the quarter, we started to see more issues coming up of a technical nature. So, I think it's probably important to understand, too, that the charge we are taking is not a charge that occurred over the last couple months. This is a forecasted outcome.

And so, as we look out into the future, based on the technical issues that we've been incurring and seeing over the last three months has put us into a position where we think it's going to change the final outcome of the project. So, I would say that some of these charges haven't happened yet, but we anticipate that they will, based on what we know today.

Okay. And I understand you probably have to be a little careful with how you answer this question. But to hear you talk, it sounds like the mistakes here were probably more on the engineering side than they were in the construction side, if we're talking about technical issues with the job, maybe that it wasn't engineered correctly.

I don't know if there's any way to get into where the mistake was really made. Was it in the bid? Was it in the execution of the project? But really the reason I'm asking this, John, as I think we all want to get some comfort that, given that you just won another very large contract to build a similar type facility, just bigger, that the mistakes weren't really made on the Matrix side here.

Okay. So you are right. The beginning of your question is right. I don't want to answer the question. So I can just give you a general comment, is that every project has got its issues on it. And even the projects that we do very, very well on and improve our margin were not perfect. Right? So, I would say the preponderance of the issues here that are driving our problems on the project are not necessarily of our making.

Okay. And then last thing, Kevin, just on the accounting side, I'm assuming since you've taken a charge and you are now basically going to record this project that revenue equals cost the rest of the way, the minority interest line should be zero for the balance of the year if you've estimated the cost to complete correctly.

That's correct. If we hit it on the nose, our estimate, it would be zero in minority interest the next couple of quarters.

Okay, thanks, guys.

Matt, on your final question related to the Napanee, we are going to deal with that in the next round of questions.

Fair enough, yes.

Robert Connors at Stifel.

I was just wondering, if I add back the charge in the project, you did about 11.7% gross margin in the EI segment. But I'm trying to just figure out what is it revenue in the quarter on that project to get to really the core margin when we are looking into back half 2015 and, more important, 2016.

So if you look at the way that this -- the way this impacts our financial statements, when you record a loss it's really primarily a reduction in revenues. So the amount of revenue in the quarter related to the joint venture was relatively small. It was only around $12 million. So, we had $46 million-$47 million of work in our standard or all the rest of the electrical business that wasn't related to this project. Does that help?

Yes, that helps a lot. So basically the revenue ramp is going to pick up from about $12 million in this quarter two like $27 million or $25 million in the final two, roughly?

Yes. So really, if we had not recorded a loss in the quarter, if we had stayed on our forecasted cost, our revenues would have been probably around $20 million higher in the quarter. But, because you had to record that loss, it reduces the amount of revenue earned.

Okay. And then, could you say like 100% of the guidance cut is related to this project? Or is there a safety buffer built in there if something else happens during commissioning?

I think you could say the majority of the decrease in the EPS guidance is definitely related to this project. The year-to-date charge is, I think, $0.33, the impact is. So that's definitely the impact that has taken that guidance down to the $1.10 to $1.25.

Okay. And then just one more -- would you say the customer, this client, is one of your sort of, quote, 30 strategic clients that you are going to talk with every day?

I'd say this client is someone we would like to maintain friendship relationship with and that we think that they, over time, over the next 10 years, have got a fairly active capital spending program to increase their power-generating assets.

So they are not -- in our view they are not a one-off, they are not someone that we don't care about. So we're going to do our best to resolve our issues and working to maintain that relationship.

Okay, thank you.

Mike Harrison of First Analysis.

Just a quick one on this -- is the roughly $23 million charge -- is it all-cash charge or is there some non-cash element to it as well?

Yes, I consider it an all-cash charge.

Okay, thanks.

All right. Thanks, everybody. So we're going to move on to the next topic. That topic is going to be the -- talk about the recent project awards. If there something that comes up -- when you get back in the queue for those questions, if there's something that comes up related to the project with the charge, certainly we will re-answer that question.

So, as we put an announcement out, we won the construction. So this is an important difference between the project we just talked about. So we are the contractor, we are the construction contractor for a 900-megawatt combined cycle gas-fired power plant in Ontario.

The nuances here are -- is that we are doing the construction only. The engineering and all of the engineered procurement is being provided by the owner or the owner's contractors. So we have what we think is a very strong market base contract and commercial arrangement with our client. The inability on its side of its engineer and/or its procurement organization to provide the parts and pieces of the technical information that we need to construct the plant is 100% their responsibility and the contract reflects that.

Two is, which is a good standpoint, even beyond that the fact that the engineering is by others -- and I will tell you that engineering is by a reputable company -- that the engineering is nearly 100% complete. So when you go into a project like this, generally, and like the project we just talked about where the charge was, the engineering is not 100% complete. It may be 5% or 10% complete. So there is a tense amount of coordination and logistics have to go on between the engineer and the constructor to build a plant and the sequence and to receive the engineering and all the parts in a sequence that supports that construction.

So this is a much better situation for Matrix in this case. So, we are able to actually, in the middle of this month, mobilize on this site and immediately begin construction work as opposed to waiting for documents to be able to do our job. So I think that's very, very important and a strong difference between these two jobs.

Two is is that the Matrix North America construction team five years ago, under an EPC joint venture arrangement, successfully constructed a very similar project for TransCanada Energy of what was called the Halton Hills Energy Center. And that was in Ontario, basically on the flipside of Toronto, where this is.

So that job went very well, the client was very happy. And I think that went a long way in, from a client's standpoint, of being comfortable with Matrix to be able to provide the construction services for the Napa Napanee Generating Station. So again, it's construction only. We've got a very good contract that backs up that responsibility.

And the last thing, and I think someone asked Kevin this question yesterday, the project was competitively bid. There were two bidders, of which Matrix was one of them. So this is not -- this project is not under our alliance arrangement with TransCanada on the storage side. This is with a separate TransCanada organization. But the management team that is in TransCanada Energy Company that, for which this contract [is when], which was awarded, are -- it's a management team that we know very well. And at a point at the top of the TransCanada organization all roads lead eventually to the same guy. And so we know that guy.

So, we are very comfortable with this project. We are very comfortable with the schedule. We're very comfortable with the pricing structure. The pricing structure was vetted throughout our organization, including up to myself and our COO. Both of us, on top of the 40 related projects that the MNAC management team has constructed, both our COO and myself have been involved in at least that many individually, collectively, on combined cycle generating stations. So the full organization is involved.

And the other thing I would mention is that part of our strategic plan was to bring in large capital projects as part of our portfolio. We are a portfolio approach company on our strategy. We wanted to add larger capital projects into our portfolio. It is not our intention in six months to announce to you that we have another power-generating project in another part of the country.

So it's our intention to execute these in a successful fashion. And as they begin to roll off, then we will add another one.

So, that's my comments on the Napanee Generating Station. And so at this time, I'd like to open up for questions on Napanee or, if you have a question specific to -- that ties in between this and the project we just talked about.

But before I open it up to the queue, Kevin has one other comment. Go ahead, Kevin.

Yes. So this is a great example -- we've talked about this on a number of calls -- on the timing of project awards and how it can impact our period-end backlog. This project was awarded in the middle of January. We had actually expected it to be awarded earlier in December.

So, it's one that fell into the next quarter. So, as we've looked at backlog, we try to look at it as a what's the trend in backlog and where is it going. We try not to get too tied up in just one period's impact upward or downward because the trend is more important than that short-term activity.

All right, one other comment on the backlog -- Kevin said that -- before I open it up for questions is that I think this is a great example here on the extremes. But it relates to a lot of our other segments, too, is that -- so we've added $450 million of backlog into our electric infrastructure. I just told you we're not going to add another one maybe for two years, 18 months to two years.

So that backlog -- obviously, you guys can do the math and divide three years into $450 million and you can see a big chunk of that is going to roll off year over year.

Well, we're not going to replace that, that rapidly. So we will be adding other electrical infrastructure projects and substations and transmission and distribution that aren't going to add up, probably, to the amount that's going to roll off for this Napa Napanee Generating Station. So, it's going to look as though the backlog is decreasing.

But that's not really a fair representation of the strength in that segment. So you've got to keep that in mind as we in any one of our segments add larger chunks of backlog into the segment and how it rolls off.

So with that. I'll open the call to questions on topic two and one.

(Operator Instructions) Martin Malloy of Johnson Rice.

Kevin, could you talk to be a little bit more about the project management people that you've got in place to handle a project like this, their experience with this? And is this a totally fixed price contract or are there some hybrid components of it that maybe you could tell us about?

So this is John. I can't -- it's not -- what should I say? It's not fair, we are not authorized by our client to talk about the commercial arrangement. Okay?

So all I can tell you, it's not part of our alliance arrangement with TransCanada. All right? So the commercial arrangement with TransCanada is market for this kind of is market for this kind of work and we're comfortable with that arrangement.

As it relates to the management team, we've taken our legacy union business, we've taken the converter business. We have merged together or are in the process of integrating those two businesses. The combination of those two management teams provides us the bench strength and depth we need at a variety of levels within the organization and within the project organization to staff that project. We have an operating unit up in Canada and Ontario which is probably a couple-hour drive from where this project is.

So we are comfortable with the management organization that we are going to staff the project with and that management organization has -- not going to say the number of projects related to this, but have got experience under their belt sufficient to build this project.

And again, I would say from an oversight view, our COO has got a long legacy background with the power-generating projects of a variety of types, all over North America. And so he's bringing his extensive background to bear on this project and, frankly, on any project that we do, but this one specifically.

Okay, and then last question -- is this a primarily union workforce that's going to be working on the project? And are your relationships with the unions -- is that a competitive advantage in terms of winning this?

So, yes, this is an all-union project. We will be recruiting union tradesmen throughout Ontario, probably even an opportunity to bring some union tradesmen potentially out of the US. We feel pretty good about where we are from our union relationship. We would put it at, for all of North America, we would put it at the top of the market against any of our competitors.

We've got extremely strong union relationships. We've got strong union relationships on a national level.

And that we, as I said, we've got ongoing work that we do in Ontario. We've got opportunities for additional work. So we can present a future to our tradesmen for not only work associated with this project, but with infrastructure work that we are anticipating that we are going to be doing for TransCanada all across the eastern part of Canada related to their Energy East development.

And so, from a union level, we think that we've got a very high level position, comfort level and relationship with the trade unions all across North America.

Thank you.

Tahira Afzal of KeyBanc.

So I guess my first question is, when we've talked about large power plant projects in the past, John, it seems that they are an opportunity to address underutilization. And so, if you look at your average margins in the segment outside of this work and, obviously, the problem project, there's potential for margin expansion.

So, could you comment on the trajectory, given it's a long-term project, how you are going to be thinking, how you are going to be building any contingencies and how we should really think about how this project's margins really compare to your mix in general on the electric infrastructure side?

So I would say the margins associated with this project fit our range that we have been talking about. So our expectations for the outcome, the estimate, the gross margins that are on this project are within or at least at the upper end of the ranges that we've talked about for the electrical infrastructure business.

Certainly, a project of this size will require a lot of construction overhead support to bring it through to completion, through the lifecycle of the job. So that will have -- obviously have a potential at least to absorb a lot of our overhead structure.

Kevin, do you want to add anything?

Yes. When you think about contingency, obviously we would have built in contingency and an estimate on this type of project. And just in general, on our approach on contingency is we will save that and not start -- if we think we're going to be under, we are not going to start recognizing any benefits from costs coming under and not utilize contingency till later on in the job because the risk is higher that you will need that contingency later on.

So, no. If we estimated every line perfectly on this project you would expect to see the margin on it increase toward the tail end.

At it, okay. And the second question -- when you are putting the bid of this together, can you give me an indication of whether the bid team included any of the folks from the problem project?

I'm sorry, to hear a -- the [de-estimating] team? Or does the --

Yes, the estimating team.

Yes. So the estimating on these projects -- it's a centralized estimating pool. Those individuals are involved with that estimating pool on the combined organization. So we have these two organizations now that are combined. So that combined organization is involved with that estimating.

And so, past performance on similar projects, the project that I mentioned to you from five years ago that we executed successfully with TransCanada would have been one of the data points that we would use to pull that estimate together, that because of the size of the project that estimate ran up through different levels of the organization, through the senior management in the MNAC organization, through our COO to myself included, to bring our experience to bear on the construction of these types of projects. And of course, this project has to be approved by our Board of Directors.

So there was a tremendous amount of oversight and introspection that went into this project as it was finally awarded.

Got it. Thank you, John.

Matt Duncan of Stephens.

So, are you at liberty to say how large this contract is? It sounds like it's somewhere between two and three years. How long does it take to complete?

It's going to be in the 31-month range.

Yes, and we've disclosed -- it will be in our 10-Q, but it's in excess of $450 million.

US dollars?

US dollars.

Okay. And Kevin, that raises an interesting question. So is this contract going to be paid in US dollars or are we exposed to currency movements?

It will be paid in Canadian dollars. And so, yes, we've got FX exposure that we will be managing. And so that's been the significant topic of conversation with our management team and with the Board as we've gone through this.

Okay. And then, obviously, the tax rate is a lot lower up in Canada, so I assume that with it in domiciled there it will be taxed in Canada, not here?

We've also had some tax credits that we want to utilize in Canada. So we are -- as part of our strategy on getting the most out of this project, we're going to try to utilize tax credits to the extent we can. And then, you're right, we want to take advantage of the lower tax rate up in Canada.

And Matt, we are going to be -- as we've said in the past, we are closely aligned with TransCanada Pipelines on their Energy East project, plus work with some of our other midstream clients that we know is going to continue up there. So we expect, not just on this specific project we're talking about but on the significant amount of this midstream infrastructure of next four or five years is going to be going on up there. So we're going to have a lot of use for Canadian dollars over the next five years in Canada.

Yes. And I guess, Kevin, on the tax side, is this going to lower the core -- you said you are going to be at 38% the rest of this year. But as we look outside this year, I would assume that the mix is shifting towards Canada, where the federal tax rate is much lower. Is this going to lower the corporate tax rate, just to help us think through the cash contribution from this job?

It won't immediately because, like I said, we will be utilizing some tax credits here in the US from some previous startups in Canada. But in the future, I would expect that, yes, as we continue to grow in Canada that that should help us decrease our overall effective tax rate. We are not ready at this point to say, okay, it's going to go down to a combined 37% or 36%. But hopefully, if we do this right and it all works out like we expect, we will be able to announce that at some point during the future.

Okay, thanks. That's all from me on this topic. Thanks, guys.

Michael Shlisky of Global Hunter Securities.

My first question -- that last question was actually my main question. One quick follow-up on that -- when you first bid the project, the dollar was at X. And now, when it's awarded, you said in mid-January, it was probably, I would assume, somewhere a bit cheaper.

So I just wanted to see is the profit that you expect from these contracts today any different than when you -- in dollars, is it any different than when you first heard of or begin to bid on the contract?

No. And if you look at the timeline -- I'm not going to go into details about the timeline. But we updated our project forecast on this thing, our estimate on it, up through close to the data was actually awarded in January. So, and the other thing is we do have growth plans in Canada. We've got a lot of opportunities with our customers. And the majority of the -- while this is paid in Canadian dollars, the majority of that outflows are also in Canadian dollars.

We have an actual very small piece of the overall contract that's got US content to it, subject to what we do with the profits off the job. But the actual cost of the job is a very small portion which we have -- we -- as part of the estimate, as Kevin said was updated as part of the estimate is that we included an estimate of what we thought the currency was going. So we are pretty comfortable where we are with that.

Okay, great, thanks.

Robert Connors of Stifel.

Just being around this industry for about 10 years, I tend to find that some of the biggest risks when you are talking project executions tends to be when projects are being executed in a new region and under a fixed-price basis, and that labor is always the biggest risk and, in particular, labor productivity. Some I'm just trying to get a sense of how well you guys are protected against future labor productivity fluctuations on this particular project.

Well, so we estimated end of the project, the labor productivity that we were expecting. We used a benchmark against other projects, similar projects and similar projects in the region. And as I said, we used one of those benchmarks, the similar project that we had built five years ago for TransCanada. We include in our estimates attraction pay. And to go with that, we have an understanding of what the escalation of those union agreements are going to be.

And so for me, I would tell you that our biggest risk is -- on these types of projects is the delivery of the engineering and the engineered equipment in a timely fashion, in a sequence that supports the construction. So any of these projects, for me, that we have had -- that you have stress on is usually around the piping [in the bull] to make it work and the piping in the bull to make it work associated with the high-energy piping.

So, as soon as that -- and that's probably some of the more difficult parts on these projects to engineer -- as soon as you have late engineering, and late deliverables on the engineered hangers or other elements of that piece of the work, it starts to drive up the labor of the -- the actual productivity and the piping in the bull to make it work. So I just think that we are in a very good situation here because of the completeness of the engineering, the type of the contract, and who's responsible for the engineering, that that specific risk has been minimized.

Okay. Thanks for the detail.

Okay. So the last topic, then we will open it up for questions and we will open it up for questions, too, if you guys have some other things that you want to talk about. we are ready to do that. So last topic, storage -- so I know you guys have some concerns around the reduction of the backlog at our storage solutions segments. So I want to talk a little, give some color around that.

So the first thing I think is important to make sure everybody appreciates is that our storage solutions segment is just not about oil storage facilities. Okay?

So, first of all, our storage solutions segment includes the maintenance and repair on oil storage tanks but, frankly, a variety of storage tanks, whether they are oil or whether they are refined products or whether they are in a cryogenic-related service. That, for us, our maintenance and repair work is actually up. So we are busier today and where we see it going into the future than we have been in the last couple of years.

And we think some of that is driven by this contango market that we -- potentially we have going on in oil storage, where people are looking at their current storage facilities and they want to bring their tax up to code. Or they want to make some improvements in them so they can take advantage of this lower oil and arbitrage some of the oil.

Two is that that storage solutions segment contains new tank work. So we would continue to say that we are the premier contractor in new tank, above-ground, flat-bottom oil storage tanks and refined products. Now, the positive thing there is that -- so, that business continues to be strong. It continues to see a strong bid flow.

But also, with the integration and the combination of Kvaerner and our legacy union business and our reemphasis and focus on our union elements of our storage business -- which, frankly, over the last three years has been fairly flat and has been very one-client-focused.

Over the past four months we have enhanced that management team. We have increased the focus related to union execution and storage facilities. And so, we are expecting to get a bigger part of the union piece of storage elements out into the future. So in essence, that is not only in the US but also up into Canada, as we've talked about, as it relates to the Energy East project.

LNG -- so a part of the storage solution is LNG work. So we are already providing fee work for a variety of LNG-related facilities, not only the export of LNG but also LNG as transportation fuels. And so, I think we've read a lot about the LNG market potentially softening.

But I think that from a US perspective or a North American perspective that the LNG export terminals still have some pretty good financial legs.

And we have in-house at least two LNG export facilities that are in late stages of their permitting that [are creating] opportunities for us. Now, we have to bid and win the work, so it's not going to be handed to us. But they are just another example of the opportunities there.

Also in this segment is the natural gas liquids. So, propane terminals, for instance -- we're looking at a variety of those types of terminals and storage opportunities as well. And again, our Matrix PDM engineering brand, which brings together the cryogenic capabilities from seed through EPC contract, creates a tremendous amount of opportunities for our business.

And lastly, we've talked a lot over the last 18 months to two years about how we have been leveraging our core capabilities and brand name in storage to provide more terminal solutions. And so those terminal solutions -- we are getting more opportunities there. We have several of those in different sizes currently in our backlog. Many of them are in our proposal crosshairs.

And again, this mix of work that I've talked to you guys about creates a different sort of rolloff of backlog that you have seen in the past from our business. So how our backlog used to roll off five years ago, when we were principally an above-ground flat-bottom storage tank to what we are offering today changes that picture.

The other thing I would like to say is that we've talked to you before about the timing of awards. So without getting into numbers, we had -- so, we hit a record high backlog at the end of Q1. But, some of the contribution of that were awards that happened in Q1 that we expected to happen in Q2.

So, while the backlog might have been down quarter over quarter, the gap in that decrease may not have been quite as big. So again, the timings of awards create a different perspective, I think, for everybody on that backlog.

So, the other positive thing, from a storage perspective, is that we are nearly 100% booked for the balance of this year in storage. And going into next year, already within this quarter we expect to be 50% booked, and with many significant opportunities on the horizon that we are going to be bidding and hopefully being awarded this year.

So we feel very, very comfortable where we are in our storage solution business with all the different aspects that I talked to you about, and that -- so for the balance of 2015, it's about execution. About 2016, it's about not only execution but in bidding and winning work, which are things that we do every day. So we are very comfortable with where we are in the storage solutions segment, about the impact that the market has on our forward opportunities.

And unless Kevin has something to add -- Kevin's got something to add here, then we will open up for questions and any final questions on anything else. Go ahead, Kevin.

So I mentioned the long-term trend of storage solutions backlog in my prepared comments. And you know, it increased each of the last three years. It's up 86% over the last three years.

If you looked at it on a quarter-by-quarter basis over the last 12 quarters, it has decreased in five of the 12 quarters and increased in seven of the 12. And as result, the net of all that is the 86% increase. So that's why we -- it's another example of why we say looking at the long-term trend is probably the best way to review backlog. So with that let's open it up to questions.

Yes, either for questions on this topic or anything else anybody has to ask.

(Operator Instructions) Michael Shlisky of Global Hunter Securities.

So, on the storage [business here], so you said that you are 100% booked, you feel, for 2015. I know I've asked this question in the past. But, are your market applications, then, for 2015 close to the best that we can expect here? Or do you see opportunities in 2016? Do you think the projects get a little bit more profitable, assuming you are again fully booked there?

I'll let Kevin comment on the exact numbers. But I think we are pretty happy with where we are performing in the quarter and what we see going forward with our storage solutions segment. I think, frankly, some of the opportunities we see out into the future that we will be booking are fairly large opportunities. And so obviously, again, we've got to bid them and win them.

But our expectations is that the gross margins in that segment are going to continue to -- are going to continue at the current rate if not improve slightly.

Yes, so if you look at the backlog, I think it's as good a backlog today as it was six months ago. If you recall, in the prepared comments this quarter and last quarter in that segment we've had a little bit of under-recovery on some lower volumes. We do expect the volumes for storage to improve, to increase here in the third and the fourth quarter. So I think we will have a recovery of our overhead cost structure. And that should result in moving that gross margin up from the 11% we earn this quarter.

So, I think it will move it closer to the middle point of our range there. So, I think we can see a little bit better margins with a little bit more volume.

Okay. I have other questions but they are more general in nature. Is this the time for those or should I wait?

Yes, bring it on.

Okay, sure. I wanted to touch back on the currency issue more broadly because you do have some work up in Canada. Was there any effect on your backlogs due to currency fluctuations over the prior year, based on the Canadian dollar (multiple speakers) overall?

No, I don't think there's been -- I'm sorry. Did you have something else to add?

Yes, overall, not just for one segment (multiple speakers) broad.

I don't think it's had a significant impact on us over the past year, because of the nature of the work being done up there, plus our Canadian work has been about 10% of our revenue.

So, maybe we would have recognized $5 million-$10 million more revenue over that time. But then with that translation, our costs on those projects are also a little lower. So I don't think it's had a significant impact on -- I don't think it's had a material impact on operating income there.

So at this point it's not significant, but it is a topic that we are spending some more time on, making sure we address going forward, just because it's going to get more significant.

Okay, thanks. Another question here is on the M&A environment. With the lower price of oil, do you find assets being a little bit cheaper here that you are looking to acquire? Are you finding some assets that may not even have been available in the past are then, perhaps, a little bit more available today?

Yes. I'd say -- well, our M&A strategy is not changing. We are still -- if we find a larger opportunity, we would certainly look at that, if some of them made strategic sense. A lot of the things we're focused on are smaller bolt-on companies.

I don't know whether the oil price environment -- for what we are looking at, whether the oil price environment is having a big impact on what we think we are going to pay. It may be having an [action and] impact on people's decision-making on whether they are going to bring their business to market or not, whether they are -- they are either concerned that the business looks as good as it's going to look for the next couple of years or that they got themselves into a situation where they may be too leveraged up because of the price of oil, that they are worried about their futures -- Which, we haven't seen any of that. That's speculation on my part.

So we have continued to have probably three to five M&A opportunities that we are considering today that we are looking at. And like I said, I always tell you guys we are churning M&A opportunities every month.

So it's -- for us, I think it's, because of the size of what we are doing and the kind of businesses we are looking at, I don't know that it's going to drive a cheaper price.

Okay. Okay, great. Thank you very much, guys.

Matt Duncan of Stephens.

So, let's start with the storage topic. John, and maybe this is more for Kevin, when you say the storage is 100% for the rest of the year, what does that translate to in quarterly revenues?

So I said nearly booked.

That was just one small [worry] about [the topic].

Nearly, nearly.

So, I think that we are going to come close to returning to levels we've seen in prior years or last year. I think it could go up 10% to 15% from the volumes we are at now.

Okay, all right, that helps. And then, more directly, just on oil storage, what are you guys hearing from the big customers there? Obviously, TransCanada and Enbridge are probably the two biggest. And I know that you've had really good bookings with both of them over the past couple of quarters.

Are any of those projects at risk? And when you talk to them about things that might be coming your way in the future, are they showing any concern that might cause them to push some stuff to the right until they get a better feel for where oil is headed? Or are they full steam ahead?

No. They have been pretty clear that they've got a capital development plan over the next three to five years and they are continuing down that path.

So I'll give you some quotes. I'll give you some quotes from -- I don't want to tell you who said it, but in one of our midstream clients that we do business with, he said, hey, the CEO -- I called him specifically to ask that question.

He says to me, John, I'll tell you the same thing I tell my Board. I don't care what the price of oil is for the next 12 months, I care what the price of oil is going to be for the next 15 years because, when we make our capital decisions, that's what we're looking at.

And then I've had other guys say that they are getting pushed harder by their clients because they are toll in oil, that -- when oil was $100 a barrel it was okay to spend $15 a barrel to ship oil by rail. Now that it's $50 a barrel, they want to pay $5 and ship it by pipeline. So they are actually getting more pressure to get their pipelines in place, which includes, ultimately, terminals than they are getting in less.

And for TransCanada specifically, their biggest issue is not the price of oil. It's regulatory issues in Washington and in Canada.

So, if they get approval of the Energy East project tomorrow, they would start work the day after. It is not -- right now, for what's going on and what they are telling us, it's not impacting their plans.

Okay. So then, going on and just thinking through the bookings number from the quarter then, again, you had a really high level of bookings the last two quarters. And maybe this is just a function of timing.

What can you tell us about the bid and quote activity that you are seeing there, relative to what it was six months ago? Is it about the same? Is this really just a timing issue or are you concerned there's something else that might explain the low level of bookings in the quarter?

No, I would say it's all timing, how things are rolling off of our clients' plans. But we are not seeing -- I would say that either the number of proposals or the size of the proposals really hasn't significantly changed. It's same old, same old; it's just the timing thing.

I would say that, and in light of all these comments about oil -- so I don't want you guys to walk away saying, well, the management team at Matrix is just totally devoid of the potential risk here. So we are watching this on a weekly basis.

I read all the same stuff you do. We are talking to our clients on a continual basis to make sure we've got the right litmus test on what's going on with oil and how it's going to affect our business.

But our best litmus test is what our clients tell us, our key clients. And our key clients are -- I've shared with you some of the things that they've said. So don't walk away from this call thinking that we are just like willy-nilly plowing ahead, creating SG&A, everything is Bland and bunnies.

Sure, yes.

From what we see today, what our clients are telling us, we are comfortable with -- to be able to tell you guys that we see continued, a lot of strength, long-term, in our storage business.

Okay, two more things. And let's take this oil conversation over to the oil, gas and chemicals segment. Is it maybe helping there? You clearly had a healthy fall turnaround season. The bookings there have in very good the last couple of quarters. So I must assume that the spring is going to be pretty strong, too. And it sounds like, from Kevin's margin comments, the revenue dollars are going up from where they've been if you are going to better recover the construction cost there.

Are you seeing customers on the refinery side do more maintenance now that they are not making as much money, with oil down, the spreads are a little tighter? Are they getting caught up on maintenance they've deferred?

So, I mean, we are -- I think it's probably a two-part question. One is that, again, our refinery clients are -- I've basically said that the turnaround is maintenance activities, some small-cap stuff, environmental and regulatory required projects are going to continue. The large-cap stuff, the things they may do for expansion reasons may be delayed.

But for the kind of services that we provide into the refinery space, we are not -- over the next 12 to 18 months, we are not anticipating any change in the amount of opportunities for us. So, I think one of the big things for us is that we -- and we've talked about this before -- we are continuing to do a better job of building our brand with our refinery clients and their comfort with us in our ability to deliver on a variety of different services.

Two is that we are doing a much better job of bundling our services. And we haven't talked a lot about that recently, but we are bundling our PAD management, we are bundling our industrial cleaning services without mechanical trades. And that's really starting to gain a lot of traction with our clients. And so, that's opening up more opportunities for us to continue to build our market share.

And so, I guess my question to you is I think, to be safe, the market is fairly flat, consistent current for us we see over the next 12 to 18 months. We are just doing a better job of holding our brand and our market share.

Okay, that's very helpful. And the last thing, just a housekeeping item -- Kevin, do you have how much the revenue contribution was from Kvaerner in the quarter?

Yes. So, as we talked earlier about the acquisition, we are integrating the businesses like we've done with other businesses in the past, it's getting more and more difficult for us to break out the revenue from this acquired company because we are blending these businesses together. And I think it's truly a sharing of resources, opportunities. So it's a difficult question to answer.

I can give you in general terms, I can tell you that we had very little revenue in the second quarter of last year related to the acquisition because it was done in the middle of December when we had a little over $5 million of revenue. And so, how much of our revenue in this year is related to purely the acquisition? I can't give you an exact number. I think it's $50 million-$60 million. But that's -- it's a guess.

And it's a number that's going to get more and more difficult for us to provide as we move forward, because of the way we are managing and integrating these businesses.

We're cutting overheads there. We're pulling the management teams together. As I said earlier in the call, we are enhancing the storage piece of that business by adding overhead and adding the additional management teams that we expect to be able to generate more revenues and more profits with. So, this blending is going on and it's going to continue, I would say, through the balance of this fiscal year till we get to a point by the time we get to the end of this fiscal year where we are going to truly have one fully integrated, from a people standpoint, organization.

And so, we really want you guys to start thinking about that as one company.

That is the way we think about it. We've got portions of our legacy business that are managed by management that came with the acquisition so -- and vice versa. So it's a question we really won't be able to answer in the future.

That's all I needed. Thanks, guys.

Robert Connors of Stifel.

One thing that's not really talked about is, I think we could see a potential pushback from the clients regarding rebidding and reappraisal work because, on the craft labor side, I would expect to see construction craft labor rates come down in this environment. So, are you starting to see that, where clients are pushing back and want lower prices for projects because the price of labor is coming down? Or is it still too early?

I think it depends on the client. So you take some of our oil, gas, and chemical clients that have a heavy upstream piece of their business -- there's a little bit of that. Our clients that are in a purely -- in the midstream or downstream -- we're not seeing that. I think probably, from a -- as they start to pull back on some of the upstream spending, which, again, represents about 1% of our business, as they start to pull back I think the thing we are going to see probably more of is some of those contractors that generally are upstream people are going to try and drop down into our midstream and downstream space and potentially increase the amount of competition there for us on a short-term basis.

But -- could that have some kind of a minute impact on our margins, potentially, where we could -- when we go to bid a job? There are -- I think our clients are pretty intuitive. They understand the quality of services that their normal group of competitors bring and that you get a guy drops down from the upstream space into the midstream space, he's not going to think he's an expert in tanks and terminals. I think the majority of our clients see through that.

So probably, from a good thing, I think maybe this environment may create less pressure on wages and labor availability. But that just may -- potentially is going to take a pause in the inevitable. There's still a significant amount of large cap projects out there that clients are talking about, the development of a lot of these big petrochemical plants on the Gulf Coast, some of these LNG facilities are still going to go forward. And that's going to continue to put more pressure on labor.

Okay. And then one of the stories behind Matrix is the ability to capture that balance of plant work as some of the larger contractors got busy in other end markets. So I'm just trying to gauge if there is risk with seeing some of these larger contractors gravitate back to the down and midstream end markets, considering that as of right now it's one of the only shining lights of growth in the oil patch.

So there's always that risk. But I would say that the big EPC firms -- if they feel a need, because of work volumes, to drop down in to bid terminal projects, that they are going to have a difficult time being competitive to beat us. And so, they can do that and maybe that can happen.

But they're tooled for larger projects as opposed to us. When I say larger, they are tooled to $500 million projects and up. And it's potentially difficult for them to drop down into a $50 million-$100 million terminal project and be as competitive.

And just for clarification on the oil and gas, chemical segment, can you give us some numbers around like first half, what man hours were versus what you are expecting in the back half?

So I think that -- we really don't disclose man hours but I'll just give you a general sense of what we expect on revenue volumes to do. We had a nice increase this quarter in the oil, gas, chemical segment. I think it will go up further, maybe another 10% per quarter, into the third and the fourth.

Okay. So 10% sequentially each quarter?

Well, I think third and fourth are usually -- are now about equal quarters. So I think they will be up 10% from where they are right now, from the quarter we just reported.

Okay, got it. Thank you.

Mike Harrison of First Analysis.

Maybe just a couple more here -- in the E&I business, have you guys seen any winter storm-related work during (technical difficulty)? I know that the power outages didn't materialize with the blizzard out East like they expected. Did you still pick up some work that might be positive year on year?

So it wasn't enough that it made it to my desk. But we did have some people out in -- we did have some people out in, during those winter storms, doing storm restoration.

And in terms of the industrial segment, can you talk about how some of the lower margin iron and steel projects are unfolding there? Have you done anything to improve the margin on that work or have we seen any lower mix of those? Or was it purely the good completions that drove the gross margin higher in that segment?

So it's -- I'll let Kevin comment, too. But I think that we -- as we integrate the businesses we're going to find ways to drive some costs down. But I think a lot of it has to do with volumes and close out of some of the smaller cap projects and turnarounds that are coming to bear that, really, the iron and steel piece in the fertilizer piece of our industrial segment is really the two parts that have been driving up those margins. And we are a little flat in our metals and mining business, mostly because of the price of copper, although we are busy but it's just not the same volume as we experienced the year before.

But as we talked before, the iron and steel business is a mix of low margin maintenance work and then mixed in with turnarounds and small-cap stuff where you have an opportunity to drive the margins up. And their utilization of construction overhead is usually pretty good.

Yes, John, so for the quarter, the majority of the project closeout improvements was in the steel sector. So they've done a good job of executing there and finding ways to improve the margins earning.

All right, that's useful. Thank you.

Martin Malloy of Johnson Rice.

I just have two quick questions. Are you seeing some storage tank opportunities in the Cushing area because of the contango? I know you all have had -- traditionally had a pretty high win rate there.

Yes, we are seeing some -- a couple projects there that we've bid or are bidding, some expansion for some of our existing clients. So, a lot of it is we are off for -- I don't know, pick a timeframe -- 12 months. Nobody was talking about storage in Cushing.

Now we have some clients who are saying, hey, we may be coming to you pretty soon with some -- adding some storage capability. So I think it wouldn't be unreasonable to assume that that opportunity may exist.

Okay. And then within the industrial segment, on the steel side there's -- I know at least one sizable OCTG steel plant that shut down. Is that a risk at all that -- is that potentially going to be significant enough that it would put any of your revenues at risk?

Now, the plans that -- so our key clients there are the integrated guys. And that's US Steel and Arcelor Mittal. And we work in the majority of their facilities, but we are working in the majority of their larger integrated facilities.

So, for instance, US Steel announced some closures of a couple plants. We do little -- we did -- do or did little or no work in those facilities. And so that was not a big concern to us. Our guys that are managing the iron and steel sector, frankly, have -- in spite of what you read in the paper, are expecting the next 12 months actually to be pretty good year in our iron and steel sector. There's -- got a lot of projects lined up. Our clients are talking to them about some efficiency improvements, some turnarounds, some larger maintenance projects.

So, we are pretty comfortable, in spite of what you see out there and read in the paper, for the steel environment that we are going to be in a pretty good place there.

Okay, thank you.

I'm showing no further questions at this time.

Okay. Thank you, everybody, for the call today. We appreciate you taking the time and having the patience with us to go through those three topics, which we know were important to everybody to have a strong dialogue on. And we wish everybody the best for the next three months till we talk to you. And please be safe while you are at work and at home. Thank you very much.

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