Matrix Service Co (MTRX) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Matrix Service Company conference call to discuss the results for the first quarter ended September 30. (Operator Instructions) I would like to [introduce to the] conference call Mr. Kevin Cavanah, Vice President and CFO. You may begin.

Thank you. I would now like to take a moment to read the following: various remarks that the Company may make about future expectations, plans, and prospects for Matrix Service Company constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various factors, including those discussed in our annual report on Form 10-K for our fiscal year ended June 30, 2015, 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, SEC filings, and on the Company's website.

I will now turn the call over to John.

Thank you, Kevin. Good morning, everyone. Kevin will walk you through the numbers in a minute and I will follow up with some commentary on our end markets, but I want to start the call today talking about safety. Our total recordable incident rate, or TRIR, was 0.79 for the first quarter of fiscal 2016. We ended our last earnings call with a question about safety and why it is such a core topic at Matrix.

Of the six core values at Matrix, our number one focus has and will always be our commitment to safety. We make safety a critical element of how we conduct ourselves throughout the day, both at work and at home, in the field, and in our corporate and regional offices. It is part of our culture, and is also a major differentiator with our clients.

Safety is a core value for them, too, and they expect their vendors to perform at an exceptionally high level. So this morning and on future calls, rather than present a specific safety moment, I thought it would be beneficial for us to spend some time talking about why safety is so important, why it's a differentiator, and what we are doing to achieve zero incidents.

Today I would like to talk about the lagging indicators the industry uses to measure safety. By lagging indicator, I mean a measure that identifies safety performance after an incident has happened. You may hear some contractors report a safety rating -- LTIR -- which stands for lost time incident rate.

LTIR tracks injuries severe enough to keep an employee from returning to his or her work. One of the key safety performance measures Matrix uses is total recordable incident rate, or TRIR.

To those who may not be familiar with these terms, the acronyms used, LTIR and TRIR, sound alike, but the fact is that lost time incident rate is just one part of the total recordable calculation. And so to report only lost time incidents tells only part of the story. Total recordable incident rate measures every incident, regardless of severity. Let me define that for you.

There are four types of recordable incidents that together with the other three makeup TRIR: a medical-only recordable, which is an injury that requires treatment and must be delivered by a medical professional, but where the individual can return to his or her normal duties following treatment. Two: a restricted workday recordable is an injury that requires treatment by a medical professional and, while the individual can return to work, he or she is restricted from performing his or her normal duties following treatment.

Three: a lost time incident recordable is an injury that requires treatment by a medical professional and the injury is severe enough so as not to allow the individual to return to his or her next scheduled shift. And finally is a fatality.

In theory, a worksite that could have zero lost time incidents but have multiple other recordables, and even a fatality, none of which would impact their LTIR. Lost time alone does not provide an accurate representation of safety performance.

Only a total recordable incident rate provides a true and complete measure of a contractor's commitment to safety. The higher our Company's total recordable incident rate, the more likely you are to have a serious safety incident.

That's why Matrix focuses on TRIR and that's why we are committed to achieving zero incidents. It's that commitment to safety our customers expect and that's why it's a differentiator. Our goal is to not just prevent lost time incidents, it is to achieve zero incidents period.

With that, I would like to turn the call over to Kevin to discuss the first-quarter financial results.

Thank you, John. Our first-quarter results provide us with a good start to fiscal 2016. Revenue was $319 million and resulted from increases in the electrical infrastructure, storage solutions, and oil and gas and chemical segments, offset by an expected reduction in the industrial segment. Solid project execution resulted in gross margins increasing from 8.8% in the first quarter last year to 10.8% this quarter.

SG&A declined from $19.8 million to $19.5 million, which represented 6.1% of revenue. As a result, operating margins improved to 4.7% for the quarter compared to 2.7% in the same quarter last year. The quarterly effective tax rate was 34%, which is lower than our expected tax rate of 37% due to a one-time foreign tax item. Bottom line, we produced $0.37 of EPS for the quarter, up from $0.22 in the same quarter last year.

We ended the quarter with $1.28 billion of backlog, down from $1.42 billion at June 30, 2015. The makeup of our backlog has changed and with the addition of larger construction projects. And based on the timing of these project awards, it is important to view backlog over a period of time rather than looking at sequential quarter-to-quarter trends. Backlog of $1.28 billion at September 30, 2015, represents a 30% increase over the past 12 months.

Moving on to our segments. Quarterly revenues for the storage solution segment were up year over year to $144 million as compared -- as we continue to execute on larger balance of plant opportunities along with our traditional storage business.

Gross margins in our storage segment were 14% as a result of strong project execution and over-recovery of construction overhead costs. Our quarterly margins exceeded the high end of our fiscal 2006 (sic) expectations of 11% to 13%. Backlog of $594 million is at 10% from the same quarter last fiscal year.

In our electrical infrastructure segment, revenue of $66 million was 18% higher than the same period last year as a result of volume increases in both power generation and power delivery. Gross margins of 7.2% for the segment were tempered by recognition of revenue on work performed at zero margin on the acquired joint venture power project discussed on previous calls as well as under-recovery of construction overhead costs as a result of a lower volume of work during the summer months. As we move to the back half of the year, we expect our margins in this segment to improve and return to our 11% to 13% range. Backlog was up 211% to $467 million at quarter end as compared to $150 million a year ago.

Revenue of $68 million for the oil, gas, and chemical segment was up 28% over the same period last year, but below our expectations for the quarter. The increases were largely due to small construction work on a gas processing facility.

That said, we expect moderate turnaround activity for the balance of the year, with the fourth quarter being the strongest. Good margins for the quarter -- or gross margins for the quarter were 8.3% as a result of under-recovery of construction overhead costs during the slow summer months. We expect our gross margins will improve and return to our expected range of 10% to 12% as we move through the rest of the year.

Results for the industrial segment were mixed. Revenue of $41 million is down from $79 million in the same period last year as a result of slowdown in work in the iron and steel industry. The mix of work in this industrial segment combined with strong project execution produced gross margins of 9.6% for the quarter, which exceeded the range discussed on our last call.

Backlog of $95 million at quarter end is down from $151 million in the same quarter last fiscal year, primarily due to the slowdown in the iron and steel industry and the runoff of work related to the fertilizer projects we have discussed on previous calls.

I will close my comments talking about liquidity and guidance. As of September 30, 2015, our liquidity stood at $194 million, including $69 million of cash. This represents a 20% -- or $20 million increase or 11.2% over the last quarter. The constraint on our line of credit continues to improve and we expect it to be eliminated over the next 2 quarters. With that noted, our liquidity of $194 million is sufficient to achieve our business objectives.

Regarding guidance, we are maintaining our fiscal 2016 guidance of revenue between $1.4 billion and $1.6 billion and earnings per share from $1.45 to $1.75. The combination of the expected ramp-up in the electrical infrastructure segment throughout the year, the commencement of field work on Energy Transfers' Dakota Access project in early calendar 2016, and the current turnaround calendar will result in the back half of the year being stronger than the first half. Therefore, we expect the second quarter to be similar to the quarter we just completed.

With that, I'll turn the call back to John.

Thank you, Kevin. Discussing our segments more specifically, storage solutions continues to see a steady flow of bid opportunities and are tracking an increasing number of potential projects currently over $5.5 billion. These projects are expected to be awarded over the next 18 months.

They include crude tanks; specialty vessels, such as LNG and gas liquids; related balance of plant work; and maintenance repair on existing storage assets. Additionally, we are seeing more opportunities for storage terminals related to the expansion of existing chemical facilities as well as construction of greenfield projects.

We are working closely with several customers on planning their major terminal projects, in most cases offering an EPC solution for the tankage and balance of plant work. We are also working on several LNG opportunities.

While some of these projects are large-scale LNG export facilities, other small- to midsized LNG projects continue to be announced. We believe we are a front runner for the tank and cryogenic work associated with many of these projects, both large and small.

Regarding ongoing projects, work related to Energy Transfers' Dakota Access Pipeline is moving forward. This project is for the EPC and all six crude oil terminals and is part of one of the largest pipeline systems in the Bakken. Our engineering group is working closely with the customer on final design elements. Additionally, our mobilization team has been on the ground in Williston, North Dakota, setting up our project management office ahead of the field construction start in early calendar 2016.

Moving on to electrical infrastructure and our power generation business, construction on the Nappanee generating station is also on plan, site preparation work is complete, and major foundations are in progress. And a significant amount of the fabrication and engineered materials are arriving at the site. As we progress on Nappanee, we're also pursuing approximately $4.4 billion of other power generation opportunities with the intention of adding additional backlog later in the fiscal year.

Regarding our power delivery business, our fiscal first quarter is typically the slowest period in the year, as utilities are running at summer peak. But that said, our bid flow continues to suggest a robust environment ahead for substation and distribution work, supportive of our expectations in this area for fiscal 2016.

We are also actively pursuing acquisition opportunities in the space to add geographic diversity to our footprint and allow us to bring our expertise into new markets. In the oil, gas, and chemical segment, the market for turnaround service appears uncertain for fiscal 2016 and 2017 because fully integrated oil companies are reducing spending where possible to offset reduced cash flow from their production businesses.

Nonintegrated refineries continue to enjoy increased margins and where possible are postponing turnaround work to maintain high utilization. As a result, we expect a moderate turnaround season for Matrix with the potential for incremental scope growth caused by deferred maintenance due to high refinery utilization rates over the past year.

Moving on, we discussed on our last call the challenges we expect in the industrial segment for fiscal 2016, particularly as it relates to our steel and mining and minerals businesses. As Kevin noted earlier, margins for this segment topped the high end of our expectations, attributed to solid project execution.

Our steel customers continue to suffer from a strong dollar position and an aggressive supply from China. Our mining and minerals customers are also reevaluating capital spending in mine maintenance plans in the face of slowing global demand.

As I shared on our last call, we expect our mining and minerals customers to look internationally for most of their CapEx cuts, choosing to focus on their most efficient and cost-effective production facilities in North America and prioritizing any CapEx plans. Until the market conditions improve in mining, metals, and minerals, we expect performance in this segment to be on the lower end of margin guidance previously provided. On a positive note, we've continued to actively track several fertilizer projects in the US and believe we are well positioned to win new project work in this space.

Following up on Kevin's earlier comments related to backlog, I want to reiterate the importance of looking at the overall trend in that quarter-to-quarter movement. Given our track record of quality work performed in a safe and efficient manner, we have developed an excellent reputation as a premier engineering and construction company.

Indicative of our growth and ongoing development as a top-tier contractor, and as I mentioned earlier, we have an excess of $10 billion in opportunities in our bid funnel, including large projects that can result in significant increases to backlog over the next 18 months. We are very selective about which of these projects we take on and when. It is both a critical strategic and risk management decision process. And as such, this measured approach may cause fluctuations in backlog as large projects are won and executed.

When we had visited with you previously, we advise you to look at our backlog trends on a yearly basis. Keep in mind that nearly 50% of our annual revenue comes from recurring maintenance and small capital project opportunities and over 75% of our total revenue comes from repeat clients.

This diversity in our project portfolio of maintenance, large and small cap projects, [proves] the underlying strength of our operations. All these elements are critical to our success.

So we continue to execute on our strategy, diversify our business, strengthen our balance sheet, and make significant investments internally to take our people, processes, and systems to the next level. As I close, I want to thank our employees in all segments of our business for a great job they've done in the quarter. So stay tuned, as we have an exciting road ahead of us.

Now I'd like to open the call for questions.

(Operator Instructions) John Franzreb, Sidoti & Company.

Good morning, guys. Good quarter. It seems like you are trying to convey that we should look past the sequential weakness in the backlog and that the opportunity pipeline suggests you will finish in 2016 with a solid backlog at year end. Could you just walk us through some of the puts and takes, especially given some of the meaningful drop we're seeing in the industrial segment why you're so confident?

Well, I think the fact that we gave you some of the headline numbers of the potential opportunities in the backlog that we think that the strength of the -- thanks to those opportunities, the likelihood of those projects moving forward, it was going to create a lot of backlog upside potential for us in electrical infrastructure and storage solutions minimally that the -- any potential downside in the industrial would be overtaken by the upside potential from a backlog perspective in those other two segments.

The other thing to appreciate is that -- so the headline numbers we're giving you on the backlog opportunities isn't everything that we're looking at. So those are the projects that we are focused on, that we are working on -- relationships with our clients that we may be in a bidding or have already proposed stage.

So that isn't a list of projects that may include -- that have a 10% chance of going forward. That's a list of projects that we think we have a good opportunity of winning or can be successful at and that our clients are going actually put in the ground.

Fine, great. It also sound like you were less optimistic about the refinery turnaround season in this coming spring than you were a quarter ago. Am I misreading that or is that the case?

No, I think we just -- we are confident of our position in the refinery space. We think that we're going to have a good turnaround season. We think there's some upside potential due to the [default] of maintenance because of crack spreads. So -- but we're just hesitant on how refiners may react here over the next three quarters of what we expect to be the planned turnarounds versus what they may actually do.

If you remember last year, between the strikes and weather issues and again good crack spreads, there was a lot of movement with refinery timing. So we're I think just being a little cautious and pragmatic on the timing of the refinery starts and the size of the turnarounds.

Okay. And one last question: in the oil, gas, and chemical -- the first-quarter margin -- gross margin at 8% below your target, you kind of called out absorption as part of the issue. Last quarter, you mentioned there's some pricing also going on there.

I guess two parts. How much of the quarterly results were impacted by pricing? And can you just talk about how you would expect the cadence of that gross margin to progress as the year goes forward?

So I don't think pricing is really playing into the margin significantly. I think it's primarily the volume of work in that segment. When we get up to where we are having a strong turnaround quarter, you are going to see those margins will recover. So as we go through the year, especially when we get to the fourth quarter, I think you'll see those margins return to what we would normally expect.

Okay, perfect. Thank you for taking my questions.

Matt Duncan, Stephens, Inc.

We've talked about some of the bad stuff; let's talk about some of the good stuff now. The storage --

I didn't know we talked about any bad stuff.

The storage solutions business seems to be doing really, really well. You are clearly executing well to get to a 14% gross margin. Is there the potential that you can keep that up or would that be unreasonable to assume?

So I think there's opportunities in quarters for that to happen, depending on closeouts -- timing of closeout of projects, any projects we might have, incentives related to that. So I think what you are seeing there is a -- kind of hitting it out of the park kind of number. But I think right now, we are pretty confident in the guidance range that we've given you guys for the margins in that segment for us to be bouncing on the top end of that range.

And John --

We've talked about storage in that we believe we are the leading contractor in North America and we definitely have the resume for it. I think this quarter, our operations did a great job of executing across the board. We didn't have any problem projects that would have deteriorated an otherwise good quarter and that's -- so the combination of the entire business produced a very strong operating margin.

Okay, fair enough. So John, on just sort of the cadence of backlog here, you are clearly working off two large wins in Nappanee and the Dakota Access terminal work. But I would think that those two segments where those wins are are probably your strongest end markets at this point. So understanding that this is going to come in fits and starts, if I'm hearing you correctly, should we still expect backlog growth over time in those two segments?

Yes, that would be our -- we would expect backlog growth opportunity in those two segments to be the highest.

Okay. Do you need additional large wins in either of those segments to get to the revenue guidance for the year? Or can you get there on what you've got and more typical smaller size wins?

We probably need the smaller wins than we do bigger wins to get into the guidance range for this year. Obviously, another large -- so you got to look at the perspective of the timing of that. We are bidding work; the larger projects take longer time to propose and negotiate and win. The potential impact in the year, from where we're at today, is going to be smaller just because of the timing of getting some of that in.

So is going to be almost -- it is going to be a little bit more about building backlog than it is about having a major material impact on the year. That's not to say that we have some near-term opportunities that may provide some small amount of revenue in the back half of this year, and we certainly -- hope that we are successful on winning some of those nearer-term opportunities.

And that's not inconsistent with what it usually is. When we go into a year, if we're 60% booked, we're feeling pretty good. So the fact that we say we've got to win some smaller projects, that's normal.

Yes. I assumed as much. I just wanted to make sure we weren't counting on really big wins to kind of get us there. And then last thing, Kevin, the comment about 2Q versus 1Q, is that both from a sales and profitability perspective that you would expect them to be fairly similar? Or should we expect the sales to step up a little bit (technical difficulty) keeps the profitability the same?

So I guess this is what I'll say. We don't give quarterly guidance, but we felt like it was important this time to talk about the trend of revenues and earnings for the year. Because if you look at Dakota Access, you look at the Nappanee project, and you look at the turnaround calendar, it leads itself to the back part of the year being very strong.

The second quarter is going to be a good quarter, but it's not going to -- we're not going to knock it out of the park based upon the backlog we have right now.

Okay. So revenue probably does grow sequentially, just we need to assume that it's the big revenue quarters are in the back half?

Yes. I mean, normally, the first quarter -- this summer quarter is usually our lightest quarter from a revenue perspective because of the summer months impacting turnaround activity and impacting the power delivery side of the electrical segment. So it's -- there should be some growth, but it's not going to be -- we're not going to go up to the amount we're going to hit in the fourth quarter.

Understood. All right, thanks, guys.

Tahira Afzal, KeyBanc.

Hi, good morning. This is [Sunil] on for Tahira here today. I have a couple questions. First one: if you could please provide an update on your LNG opportunities, given the changing macro environment?

So we have -- we're not in the habit of talking about the individual projects that we are involved with. Some of them may be on an exclusive basis and we consider that sort of a competitive thing.

But there's specifically a couple projects in the Gulf Coast area, and a couple projects in other areas of the country that we are in some stage of proposing and bidding. So -- and we're -- we try to stay focused on the ones that we think have got the best economics for the client. The ones that have a -- they are best positioned to get their permits approved from both a timing perspective and likelihood of it going forward.

And so we are -- we could bid on a whole lot of them, but again, we stay pretty focused on the ones that we think that have the most likelihood of happening and the ones that we have a best opportunity to be successful.

Okay, got that. That's helpful. And second question: some of your oilier midstream companies, such as Plains, have become more cautious on their midstream CapEx. I was just wondering how relevant is that for your outlook?

So probably the best way for me to answer that is yesterday, one of our key clients, Enbridge, announced that they are going to spend $5 billion in midstream asset upgrades on the Gulf Coast. So I would say we don't -- wouldn't agree with the statement that our midstream clients are being conservative or backing down on their CapEx spend. It's really more of a permitting issue in timing than they are not continuing to put infrastructure in place.

All right, got that. Since we touched upon Enbridge and considering they are one of your key customer, with 10% plus top-line contribution, can you provide us more color on the same, like the announcement and what are your expectations around that?

Well, I think we have to get with them, find out what role and opportunity we have to plan in that -- those projects. What the timing of the rollout of those projects is going to be. They're going to be spread along the Gulf Coast from Texas into Louisiana.

And so we certainly would have the expectation and minimally from a tank perspective that we would play a important role in that capital spending. And in addition to that, we do -- besides tank work for Enbridge, we do do balanced plant work and terminal work. And it would be our expectation that we would have an opportunity to provide services along those lines as well.

That's helpful. Thanks for taking my questions. I will jump back into queue.

Robert Connors, Stifel.

I actually -- you guys beat me to the punch a little bit just regarding the Enbridge announcement. I was just wondering if you could remind us about the partnership agreement. Is there any differences in partnership based on geographies, whether it be like you are doing work for them in Canada versus you are doing work for them in US in the Gulf Coast? Because I know that can be applicable for other E&Cs.

Nothing materially.

I don't think we're going to get into specifics about contracts with our customers.

Okay. Yes, I guess I was just asking more around the partnership arrangement. I guess over a year ago, you began a restructuring effort to streamline the operations with the goal of getting that SG&A level down to about 5.5% of revenues. You improved that SG&A line year over year, so it looks like it's going the right way. And can you remind us on just your targets and where you are at in that entire restructuring program?

I will let Kevin give you response to that. So I think restructuring might be a little strong. That implies that something was broken.

Okay.

So I would say we're more focused on making sure as we grow the business that we are being prudent with how we spend our overhead dollars. I will let Kevin comment on that number.

Yes. So our -- if you look at last year, we had a good trend, especially in the fourth quarter. We got our SG&A percentage down. With this first quarter, it's a little bit higher as a percentage of revenue, but the dollars are definitely down.

So we're looking to try to get that SG&A to 5.5% probably. If we can truly leverage it more -- I don't think it's long term we would be below 5%, but we would definitely like to get it consistently below 5.5%.

Okay, great. Thanks for taking my question.

Martin Malloy, Johnson Rice.

Good morning. Congratulations on quarter. On the industrial segment, just kind of curious if you see the run rate in the first quarter as kind of being indicative of the bottom of the cycle here and should it go much lower. And then maybe also talk -- I'm surprised by how well your margins have held up here in the segment and you expect them to hold up. Maybe talk about how you are achieving that.

Yes, so we did around $41 million of revenue in the quarter for industrial, and I think that's a -- that's kind of a floor at least for the next couple of quarters. Most of that decline, as we mentioned, was in iron and steel, and a lot of that is our -- that's some lower margin work. The work we're doing in the fertilizers is good margin work.

And so the weighting of the revenues that are in there has allowed us to produce a gross margin that's above our expectation that we gave you guys last call. So that -- we should still have decent margins here this next quarter as the fertilizer project continues.

But as we get into the last part of the year, unless something changes -- we win another the fertilizer project -- we can keep the margins up there. But we don't, or we don't see a recovery in iron and steel, then you are going to see those margins go down to what we talked about previously.

Okay. And I think last couple quarters on the calls, you've talked about doing some early feed work for some customers on proposed fertilizer plants. Can you talk about maybe the likelihood for those projects going forward? The timing of those projects with how you see them rolling out?

I think we have about five projects that we are actively engaged in in some stage of the bidding process. We -- I think there was one that we actually have a bit in place and then having some preliminary discussions about that.

So I think our expectations and our hopes would be that sometime within this fiscal year, we're going to add at least one of those project opportunities into our backlog. So they are still out there. They've been moving around a little bit based on permitting and some other things, but the ones that we are tracking appear to be moving ahead.

And the scope of work that you would do with these, would be roughly similar to the Orascom project? Is that what you're looking to do?

Yes, it would be roughly similar to those projects. It would probably start in the -- with a storage award and then move into other elements of the storage footprints, whether that's in balance of plant work, some refrigeration, send out, truck unloading, those type of elements.

The other thing I would say is that as our work has progressed at Orascom is we -- when we first started down that path, we told you guys that it started as a storage award and we were fairly confident that we would be able to pick up other elements, other work. And that frankly is continuing. It has continued, and -- so there are other pieces of the plant, as they move that to completion, that we've been picking up some small reimbursable awards on that project as well. And we would certainly hope that that would continue through the course of the year.

Great. Thank you.

(Operator Instructions) John Rogers, DA Davidson.

First question: just in terms of the large projects, the Dakota Access and the Nappanee generating station -- John, you mentioned that you are essentially preparing to ramp up construction activity into the second half.

And I'm just curious about -- and I know you don't want to talk about specific projects -- but the margin recognition profile of these projects, are there substantial or significant holdbacks initially in the projects and potential for margin ramp through there? And is that decidedly different than the margins you're seeing right now?

Well, for both those projects, which are under a lump sum [prospecting] structure, the opportunity for us to improve the as-did margins is really a performance issue. Whether that's both hitting the budget or minimizing cost against the budget or doing better on our schedules.

So the opportunity to raise the margins there will be on performance. And generally for us, that's going to be in the back end of those jobs, where we are far enough along that we can recognize that we are saving money against our budgets, that any contingency elements that we have included in those projects are able to drop to the bottom line. We in general don't make those kind of decisions until we are at the back end of the percent complete on those projects.

Okay. But in -- as you ramp up activity and I assume revenue on these projects in the -- I guess towards the back half of this fiscal year, is it dilutive to your margins?

No, it's not --

Additionally, I just want --. Okay.

No, it's not. When we start a project, we've got an anticipated most likely outcome. We're not being -- we're not recognizing those things at a real low margin just to hold back. We will have a good estimate on the project, like John said, and hopefully we can outperform.

Okay, I just -- thank you. I just wanted to see how those would flow into the financing.

That expectation is -- of outcome of the total job is [80%]. And -- so from the very first dollar that we recognize on the project, we will recognize 80% of margin. And so from the first dollar to the last dollar. And as we get to the back end of the job, as we said before, is the -- as we are performing against our budgets, as we think that the contingency levels that are included in those projects are more than adequate but come with a risk to get to the end, and we may start moving some of those -- some of that contingency to the bottom line.

And we are continually re-forecasting those jobs as the execution is going. And so we are continually reevaluating where that job stands, what's the most likely outcome, and -- so it's something that's kind of a dynamic process as we go through a job.

And the ramp-up on those projects, so Nappanee, for instance, has been mostly dirt work and concrete work, has been a fairly minimal amount of trades and some subcontractors. We have been procuring materials.

So expectation for that to ramp up in the back half of this year is that we are going to be starting to put multi-trade disciplines on the jobsite between erecting steel, physical erection, starting to put in place some of the centerline equipment. So all those things will bring more tradesmen and more cost onto the jobsite, which is going to continue to drive up our revenues.

Okay. And was there a significant backlog impact from the weaker Canadian dollar in the quarter?

It had some impact on it, but it wasn't significant. It was more the -- the decline in backlog was just for the timing of awards.

Okay. And then lastly, John, you mentioned the BP or the Enbridge news on the spending plans. Have you started to talk to customers about oil export terminals or storage facilities?

So I'd say anecdotally, there are several of our key clients that I think their perception is is that's going to happen. And I think the Enbridge announcement yesterday, which was -- yes, they were pretty open today. We're trying to get themselves prepared to handle the potential outflow of crude oil in the global oil market. I think it's important thinking on their part.

And so I know some of our other key midstream clients are having those same discussions internally. In general, they don't think the infrastructure is in place along the Gulf Coast to handle a lifting of the ban on the export of crude. That there was going to be a fair amount of infrastructure that's going to have to be put in place to deal with that surge in oil export.

Okay. Great. Thank you very much.

Tahira Afzal, KeyBanc.

Hi. This is Sunil here again. Just a quick follow-up. On the power side, can you talk about any incremental opportunities and where are you in terms of capacity to take on more work here?

So on the power generation? Are you speaking power generation?

Yes. Even substation and upgrades, transmission, yes.

Okay. So we talked power generation. That, again, as we said, is a matter of timing and risk profile. So the projects that we are interested in and the geographic locations we're interested and the ones that we think we can be the most successful on.

So that timing of award -- the timing of award is important to us to put it in the right place as we roll off specific elements of the backlog, say associated with Nappanee, as we move management teams around, as we have other people available. So we are more trying to place the right job at the right time than just try to throw projects in the backlog.

But we think there's a lot -- a significant amount of opportunities out there that fit that profile for us. And so there's always the risk of timing moving from between one quarter to another. And that certainly is something that we appreciate that could happen. So -- but that's kind of the elements of how we're going to put a generating project into our backlog.

On the distribution side, we've got a very, very strong market position in our core areas, where we provide those services on the East Coast. So we are getting more than our fair share of those opportunities. The opportunities are very strong.

As we said in the opening remarks that we think that we are very confident that our expectations for this year in that piece of our business will be met based on what we're seeing in the bid funnel and what we are -- currently have in progress.

And to add onto that, we continue to see that there is a long-term opportunity overall in the high-voltage work throughout the US, both for substations, which it is important to remember that today, we are principally a substation, repair maintenance, and newbuild contractor. While we do transmission and distribution, that's a smaller percentage of our overall electrical infrastructure on the delivery side.

So we are working strategically both from an organic standpoint and from an M&A standpoint of moving our brand into the Midwest and into portions of Eastern Canada, where we continue to grow that business.

Thank you. Yes, that's helpful.

Robert Connors, Stifel.

I just wanted to follow up on just the cash flow. It's been negative here for the past two quarters. And I would think that as you ramp up on these large projects in the back half, it may be a little bit more of a cash drain working down some advanced billings. So I guess what is your outlook on cash flow for the year and if you can -- am I seeing this incorrectly or just -- what am I not seeing here?

So when we look at cash, your assumptions are correct. Usually when we are getting these large projects, we will have in there advanced payments to cover the start-up cost. And we try to keep a positive cash flow curve on those projects throughout the life of the projects.

I think right now, this last quarter, you know, our networking capital went up as a percentage of revenue. I think that's more timing of when billings and collections occur than anything else. When we analyze our balance sheet, we don't see a significant -- any deterioration in the quality of receivables or in the overall makeup of the rest of the current assets and liabilities. It's more related to the timing of payments on AP and when the cash actually comes in on the start-up of those projects.

The other thing I think I would just mention, too --

It just sounds like the big backlog stuff that came in at the end of last year, there's a little bit of a difference when you receive the down payments.

One thing to remind -- I'd caution you to remember on, too, is the Energy Transfer project was awarded in the spring -- early summer. We were basically working through some contract terms and conditions for awhile. Now we're into engineering. So the heavy spending on that project is only just now starting.

And so that's -- I don't want to get into a lot of details on our contract, but as it relates to the payment terms and those kind of conditions, that they will follow the spending. And so the spending patterns on that job are only just now starting to ramp up.

Okay, great. Thanks for the clarity.

And I'm not showing any further questions at this time. I would like to turn the call back over to management for closing remarks.

Thanks for everybody participating in the call today and we look forward to seeing you next quarter. Please be safe in the time period.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.