Matrix Service Co (MTRX) 2017 Q1 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 first quarter ended September 30. (Operator Instructions) I would like to introduce your host for today's conference, Kevin Cavanah, Chief Financial Officer. 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 most recent annual report on Form 10-K and the subsequent filings made by the Company with the SEC. To the extent the Company utilizes non-GAAP measures, reconciliations will be provided in various press releases and on the Company's website.

I will now turn the call over to John Hewitt.

Thank you, Kevin. Good morning, everyone, and thank you for joining us. As always, I'd like to start by talking about safety. Each fiscal year, Matrix Service Company celebrates safety performance by presenting our Company's own safety excellence awards to two operating units that exemplify our behavior-based safety culture.

This year, our highest award, the Board of Directors' Safety Award, has been presented to the turnaround group within Matrix Service led by Glenn Skiles. Inherent in this group's work is the management of a continuous rotation of people, projects and clients. Their work, which is highly complex, typically occurs within confined spaces and often requires a completion of tasks while units are still in operation. Because of their mindset and attitude towards safety excellence, their results have been outstanding and have set them apart as a positive Matrix ambassador with many clients.

Among their many accomplishments was zero recordable incidents in fiscal 2016. This group is well-respected by the industry and clients, as evidenced by multiple meritorious safety awards.

Our second highest award, the CEO Safety Award, has been presented to an industrial operating unit for Matrix North American construction in Canada operating under the leadership of Brian Woodhouse. Under Brian's leadership, this team has made safety second nature in extreme working conditions. Their work takes place in integrated steel mills, which are among the harshest of environments. Among other accomplishments, this team also received zero recordable incidents for fiscal 2016.

On behalf of Matrix Service Company, I want to personally congratulate both teams for their exceptional performance.

Before we move on, I have one more thought about safety I want to share. We're coming into the winter holiday season, a joyous time of year but also a time where it's easy to get distracted. In fact, from a safety perspective it is a time when we often see a rise in fires, trips and falls, and even poisoning from carbon monoxide. While this time of year is filled with festivities, family and friends, if we don't put safety behavior and safety awareness on high alert, it can also become a time of great tragedy and loss. Please keep safety at the forefront of all you do, and let's make this a safe and happy holiday season.

Let's get started. First, I want to highlight our licensing agreement our subsidiary, Matrix PDM Engineering, signed this past October with GTT North American Inc., a subsidiary of Gaztransport & Technigaz, to offer membrane tank technology for LNG and NGL storage. This agreement strengthens our industry-leading storage solutions offerings and uniquely positions our engineering and construction subsidiary to offer our LNG and NGL customers a full spectrum of solutions to meet their project needs for cryogenic and other low-temperature storage.

Matrix PDM is the first company based in the United States to be licensed by GTT after revisions to various standards were made to allow for the use of membrane tanks for cryogenic and refrigerated storage in North America. Used for decades on LNG carriers and various land-based applications in other countries around the world, we believe this technology can benefit owner-operators who seek faster speed to market or have projects located in areas of higher seismic activity.

Turning now to first-quarter results, we achieved solid revenue and earnings per share, led by very strong occupational performance in our storage solutions segment. These results are in line with our expectations and certainly help emphasize the value of our diversified portfolio, which has helped us weather the uncertainty in the markets over the last few years.

While Kevin will talk specifically to the numbers, before he does, I'd like to spend time talking about the project pipeline and market outlook.

We're beginning to see conscious optimism from our customers in both our storage solutions and oil gas and chemical segments with increased proposal activity, FEED studies and planning activity. In storage solutions, our current proposal activity is nearly $2.9 billion, which includes $1.8 billion in outstanding bids. Many of these projects are expected to begin or be awarded in the second half of fiscal 2017 and into fiscal 2018. These opportunities include tank and terminal work for crude oil, refined products, natural gas and natural gas liquids across North America, the Caribbean and select parts of Latin America.

Specifically, while there has been an increase in the very low cost of natural gas, this feedstock remains the preferred economic and environmental choice. As such, we are being asked to bid an increasing number of projects: ethylene, ethane, propane, butane and ammonia.

In the liquefied natural gas LNG sector, the timing for the next wave of large-scale LNG export facilities would suggest calendar year 2017 words in order to meet the expected demand curve in 2021. Additionally, the need for smaller-scale LNG bunkering and storage facilities for LNG fueling and other applications continues to grow and is a niche market for Matrix.

Representative of this niche is the announcement we've just released related to Matrix Service being awarded the engineering, procurement, fabrication and construction of a 2-million-gallon LNG tank for Jax LNG bunker facility, a new LNG liquefaction and storage facility located at Dames Point near the port of Jacksonville. This award will be included in the second-quarter backlog.

As one of very few qualified contractors with expertise in engineering, fabricating and construction cryogenic tanks and terminals, we are uniquely positioned to provide full or partial EPC services to our customers in the small- to mid-scale LNG sector, where we have a competitive advantage over the larger EPC firms. This competitive advantage extends to markets beyond the US and Canada, where we see an increase in bidding opportunities as a result of privatization of the energy sector in Mexico and the conversion of diesel in the oil fuel power generation natural gas throughout the Caribbean and Latin America. In preparation for this, we have established partnership relationships with strong local resources throughout these regions.

In the oil gas and chemical segment, most customers continue to minimize discretionary spending in the near term, as represented by first-quarter results. While we expect customers to continue to be cautious regarding project scope in the back half of the fiscal year, based on our deep relationship with our customers, we see increased optimism and momentum as we move into fiscal 2018 and beyond.

At the same time, as refiners work to meet air quality standards set forth in EPA's Clean Air Act, and given our reputation of excellence in this segment, we are bidding and winning major projects. Representative of this type of work is the recently announced project awarded to our subsidiary Matrix North America Construction by KBR to deconstruct and reconstruct an ultra-low-sulfur gasoline unit at Monroe Energy refinery in Trainer, Pennsylvania.

Overall, our current proposal activity in this segment is nearly $1.5 billion, including $500 million in outstanding bids. Matrix is a well-respected, well-established contractor. In many cases, we have employees embedded at customer locations, with those customers requesting our assistance in planning of future work. As you know, the work in this the segment is inevitable, with only the timing in question. It is argued that the backlog of pending repair and maintenance and upgrading work is growing.

Our electrical infrastructure segment continues to experience a strong contracting environment in both delivery and generation. The market needs have not changed from those discussed on prior calls. In power generation, the cost for needed facilities are estimated in excess of $100 billion through 2025. And in power delivery, more than $900 billion is expected to be spent by utilities in the US and Canada over the next two decades.

Other opportunities in this segment reach beyond the larger projects today, the day-to-day requests for T&D work required to keep the power on. These customer requests encompass unanticipated storm work as well as day-to-day demands that may or may not be material on an individual project level. But from a volume perspective, are not only indicative of the industry's trust in our people but also results and work that contributes to a significant part of this segment's bottom line. While we enjoy long-standing relationships with major utilities across the Northeast, we are also actively exploring acquisition opportunities to expand the footprint to other geographic markets.

As predicted, our industrial segment continues to struggle, with spending in the ferrous and nonferrous markets at historical lows. We anticipate much of the maintenance and repair and capital spending to remain at low levels through our fiscal 2017.

We continue to take a cautious outlook to manage our costs appropriately. Having said that, while the road back may be slow, there's a long-standing contractor of choice to the integrated iron and steel industry. And with a proven reputation for excellence and mining and minerals, we feel good about securing the work when the global economic growth improves and results in a stronger demand for this industry's products.

On a brighter side, also accounted for any industrial segment is work on specific fertilizer projects. As discussed in our last call, developers continue to position themselves to take advantage of the low cost of natural gas to bring production back to the US. Having completed work on the Orascom fertilizer facility in Iowa, our first quarter also saw the announcement of a project award for a 20,000-ton ammonia tank for our new Greenfield fertilizer facility in Nebraska. Other opportunities remain and, we believe, will come to fruition as developers secure financing and off-take agreements.

Additionally, as a recognized leader in specialty vessels such as vacuum changers used for satellite testing, we are seeing an uptick in FEED work creating the potential for future EPC opportunities. Current proposal activity for our industrial segment is approximately $500 million, with outstanding bids of $130 million. In general, while the near-term outlook for the industrial segment is neutral, we remain positive about the long-term opportunities in this segment.

As I turn the call over to Kevin to discuss our first-quarter results, I'd like to leave you with this thought. While there's no question that these last couple of years have created a challenging business environment, significantly impacted by low commodity prices and restrained global economic growth, there is renewed optimism on the horizon. And based on our view of the markets and the project pipeline, we are confident not only our guidance for the current year but continued growth into the future. Kevin?

Thank you. As John indicated, we are pleased with our first-quarter results, which were in line with our expectations and provide a good start for fiscal 2017. Consolidated (technical difficulty) revenue for the quarter was up 7% to $342 million, compared to $319 million for the same period last year. The year-over-year increase was driven by work on energy transfers that go to access pipeline terminals and TransCanada's Napanee generating station, which continue to underpin the storage solutions and electrical infrastructure segments. Consolidated gross profit was $32.3 million, compared to $34.6 million in the prior-year quarter. Consolidated gross margins were 9.4% and 10.8% for the same periods, respectively.

The decline in gross profit and margins was primarily the result of under-absorption issues in our oil, gas and chemical and industrial segments in the quarter, as well as unsettled change orders in the electrical segment which are being recognize at zero margin.

Consolidated SG&A expenses decreased to $18 million for the quarter, compared to $19.5 million in the same period last year. This change is primarily due to a reduction in the IT costs charged to the administrative portion of the business. In addition to this reduction, the Company contained SG&A spending with no significant variances in the quarter when compared to last year.

I think it's important to note that while Matrix continued to do an excellent job controlling SG&A expenses as we have grown the business, management has also made it a priority during this downturn to look through the cycle and work hard to maintain our talents, resources and capacity. Doing so positions us for the inevitable rebound at some of our key end-markets, and protects revenue and margin opportunities as the critical infrastructure work we perform returns. Our ability to do so in large part is the result of our diversification and financial strength.

Our effective tax rate in the quarter was 34%, which was comparable to the tax rate in the same period last year but somewhat better than our projected rate for the year. The tax rate in the quarter was positively impacted by the tax associated with the adoption of a new stock compensation accounting standard.

For the quarter, Matrix reported $0.35 per fully diluted share, which compared to $0.37 per fully diluted share for the same period a year ago. We ended the quarter with backlog of approximately $787 million, down from $869 million at the end of last quarter. Project awards in the quarter totaled approximately $260 million.

Consistent with our comments on our last call, we feel good about our current backlog level. Our oil, gas and chemical business received a significant project award in the backlog this quarter, and we are optimistic about what we are seeing in our storage solutions proposal activity. Awards in power delivery sector of our electrical infrastructure business continue to meet our expectations, and we are pleased with our positioning for future capital projects in power generation.

Moving on to our segment results, quarterly revenue for storage solutions was up 38% to $199.5 million. The increase is primarily associated with ongoing work at Dakota Access. Gross margins were 13.3% for the quarter, compared to 14% for the same period a year ago. Excellent project execution across the segment benefited both periods as we achieved strong margins above our long-term projected range of 11% to 13%.

In our electrical infrastructure segment, revenue for the quarter was up over 34% to $88 million. The increase here was primarily associated with the Napanee generating station project. Gross margins were 6% in the quarter, down from 7.2% for the same period a year ago and below our long-term expected range of 11% to 13%. The current-year margin was impacted by a combination of lower-margin work in our high-voltage distribution business and, while improved, the under-recovery of overhead costs. In addition, margins were affected by the unsettled change orders mentioned earlier.

Revenue for the oil, gas and chemicals segment was $32.5 million in the quarter, down from $68.3 million in the prior-year quarter. Gross margins were breakeven for this quarter versus 8.3% in the same period last year. Margins were lower in the quarter due to under-recovery of construction overhead costs as a result of the decline in work performed due to continued project deferrals, scope reductions and postponement of maintenance.

As John mentioned earlier, we expect to see continued pressure on planned turnarounds for the balance of the fiscal year. However, early indications for turnaround activity and other capital work for fiscal 2018 and beyond are encouraging. As a reminder, our long-term expected gross margin range for this segment is 10% to 12% and is based upon a normal level of turnaround activity and capital work.

Moving on to the industrial segment, revenue for this group was $21.8 million in the quarter, down from $41.2 million in the prior-year quarter. As we indicated last quarter, after we experienced a modest sequential uptick in revenue for this segment, headwinds persist due to the weak outlook in this segment's end-markets.

Gross margins were 2.6%, compared to 9.6% for the same period last year. Prior-year gross margins were positively impacted by mix and strong project execution, while current-year margins suffered from under-absorption issues related to the reduced volume of work coming from our customers in the iron and steel and mining and minerals markets.

Revenues and margins in the current quarter were also impacted by the substantial completion of our work on a large fertilizer project. The outlook for the industrial segment remains difficult in the near-term, and we continue to adjust the cost structure accordingly.

Turning to the balance sheet, we ended the quarter with cash of $36 million and total liquidity of $173.2 million. Total liquidity at June 30, 2016 was $230.8 million.

As we have indicated on past calls, there are times when the business will require us to fund working capital. And during this quarter, that's exactly what we did. We took advantage of our balance sheet strength to fund ongoing working capital needs on major projects. We expect this capital to flow back in the other direction over the next one to two quarters, once again boosting our cash balance and further strengthening our already robust financial position -- if this financial strength and liquidity allow us to execute on our strategic plans, fund working capital and certain capital expenditures, pursue strategic acquisitions and take advantage of opportunistic share purchases.

Even with this financial strength, we have been prudent with our capital expenditures and have held spending to less than 1% of gross revenue in the quarter. We're off to a good start to the fiscal year and are maintaining our fiscal 2017 guidance of revenue between $1.3 billion to $1.45 billion and earnings of $1.10 to $1.40 per fully diluted share.

I will now turn the call back to John for closing remarks.

Thank you, Kevin. Before we open the call for questions, as you consider Matrix as an investment opportunity, there are a few things I want you to remember.

First, while there are a lot of contractors out there who may perform the same type of work as we do, companies choose Matrix because of our service, our culture, our performance, all of which are defined by our people.

Next, as an organization, our people have worked hard to strategically diversify our business across energy, power and industrial markets. Doing so creates greater long-term value and it helps protect the value when challenging market conditions occur.

And lastly, because of our diversification and the strength of our foundation we've built, we are well-positioned to take advantage of the massive infrastructure investments that we've made across the markets we serve. As we do, our financial and organizational positioning also allows us to continue our strategic growth initiatives.

I'd again like to congratulate our two safety excellence award winners as well as all of our employees for the dedication and commitment to our core values and delivering exceptional service to our customers.

Finally, Matrix Service Company and its subsidiaries were just recently certified as a great workplace by the organization Great Place to Work. This is the organization that Fortune relies on for its 100 Best Companies to Work For and other best workplace rankings. We are extremely proud of this achievement and the differentiation this creates for us in talent, recruitment and retention. I want to personally congratulate all of our employees on this significant achievement.

And with that, I'll open the call up for questions.

(Operator Instructions) Matt Duncan, Stephens, Inc.

This is Will on the call for Matt. Backlog trended down again this quarter, and your key storage segment is at the lowest backlog level you have had in quite a while. When do you think total backlog will bottom and start moving back up? You had positive commentary on the outlook. And can you talk a little bit more about the North American storage demand outlook (inaudible).

You've got, like, six questions in there I think, Will.

Yes, I know.

We'll try and -- we'll answer three of them.

I think in conversations earlier in the year we talked about our view was our backlog was going to start to balance out towards the end of this calendar year and perhaps into the first quarter of the next calendar year. Based on what we are seeing in the markets, the size of the projects that we are looking at and specifically in storage, we think that that bottoming is going to happen sometime over the next three to six months. So it's just going to be whether the timing of the awards and some of the projects that we have outstanding in clients' hands right now, that they're going to get their board approvals to continue.

So there's a lot of work being contemplated out there. A lot of what we're looking at, working with our clients, we feel good about them getting permitted. We feel good about them reaching financial close. So it's just going to be about the timing of those awards and our ability to win those.

So I think just based on the -- you said what's the storage demand out there. It may not be as robust as it was three or four years ago, but it's still pretty strong environment. And we're, as you can see with the numbers that we mentioned in my prepared notes -- significant amount of bidding activity for us out there on not just individual tanks but on really on full turnkey terminal kind of opportunities.

Where we are seeing a lot of demand right now is in the small to mid-scale LNG and NGL type facilities both for storage and for terminals, both to be used in export and in transportation fuels.

Our engineering groups are very, very full right now. We are doing FEED work studies. Our construction teams are busy bidding work. We have a lot of projects out there in clients' hands now waiting for a decision. So we don't see that market cooling down at all in near-term. We've been working with several LNG export customers as again, as we said in our prepared remarks, if you think about a 2021, 2022 demand curve increase, which I would say the market generally believed is going to happen with a global supply glut of LNG, it's going to go the other way. You've got four or maybe five years of pricing, permitting, scope development FEED work to get one of those big facilities put in place. And so we're pretty active with a variety of clients right now and some partners on the storage demand for those export terminals.

That's really helpful.

Will -- if you look at it a little further, Will, Oil and gas and chemicals this quarter, bolstered by an award that we previously announced, had an extremely good award quarter. But it would've been positive even without that large award. So that's a good sign for oil, gas and chemical.

The electrical infrastructure segment had a pretty good book to bill, too. It was over 0.8. And considering we are working off the Napanee project, that's good.

And then with the $1.8 billion of bids outstanding on storage -- and John just went into those -- you've got some positive indicators there. So I realize the consolidated is down, but there's -- yes, I think you need to look into it by segment to really evaluate it.

That's very helpful. And are you still expecting substantial completion on Dakota Access by the end of 2016 and Napanee by mid-2018?

On Dakota Access, our substantial completion from a contractual standpoint is not until mid-2018. But mechanical completion, which is really like the core construction (inaudible) for us is before the end of the year. So (inaudible) -- and there's the nuance there. There's going to be -- there was always a plan to be some landscaping, painting, some miscellaneous items that were going to drag on to the first half of 2017. But the -- to use the word non-contractually, substantially most of the majority of our work there will be done by the end of this calendar year.

And on Napanee, again, our mechanical completion date is in late calendar 2017, early 2018.

Okay. And what caused the unsettled change orders, and how big of an impact on the electrical gross margin was it? Is that any (inaudible) -- I mean, on any other project updates with Napanee would be great, too.

There's been some commercial changes and some issues that we just haven't got settled yet. Kevin can comment on the accounting standard there and the impact on the margins. But it isn't something we really want to get in a lot of detail with. We are in active discussions with our clients related to that -- related to those issues. And that conversation is positive, but it is not wrapped up yet. So since it does, we'll have a better -- we'll be able to give you a better answer.

Will, these unapproved change orders, they fall under accounting guidance that says that if you've got unapproved items like that, you cannot recognize any margin on any costs incurred related to those items until you've got a signed change order or amendment to your agreement. So it kind of ties our hands on that.

So, progress is continuing on the projects, and we think we're going to get a resolution on this. But for the quarter, we had to follow GAAP on the accounting for the project.

And as far as the specific amounts, since we are in active discussions with our client, we're not going to get into numbers on that change order. That would be detrimental to our discussions, I think.

Okay, I'll hop back in queue. Thank you, guys.

John Roberts, D.A. Davidson.

Good morning. It's John Rogers. A couple of things. First of all, just in terms of the oil, gas and chemicals business, the improvement in bookings that you've already seen there, is that enough -- I mean, do you have enough visibility that you can get that segment back to profitability this year?

Yes, I think so. I think we're going to see improvement in that throughout the next couple of quarters. And I think we've got very good -- good news, bad news. We've got very good visibility, I think, with our key refinery clients. And so that visibility is afforded us by a lot of the planning and upfront work that we do with our clients in preparation for their turnaround work and their maintenance activity. Work at our BP Cherry Point facility is anticipated to be very strong through the balance of this year.

There is actually, including some capital projects that we are working on -- working with BP on have not been awarded yet. And start dates are moving around a little bit. But you know, a lot of the other refiners are still holding back or delaying some of their turnarounds or minimizing the amount of work that they are going to undertake in the next turnaround season.

So we -- our visibility into the back half of our year would tell us that we may -- can expect a little bit more of the same that we saw in the turnaround season here this fall. There's work that keeps getting pushed out and pushed out, and so we are actively engaged on a lot of planning out into our fiscal -- it would be our fiscal 2018 and 2019 and beyond. There's a lot of work that's getting built up.

And so I think our visibility is pretty good, and I think we've got an understanding where it is. We do have some capital work, some opportunities in various pieces of that business, that I think the turnaround part is still be a little bit of rough ride here.

Just to further expand, I would not expect the revenue volume to be as low as it was in the first quarter. I think, as John said, we're going to see it improve as we go throughout the year. And I think our comments related to fiscal 2018 are -- where we see spending getting closer to back to normal from the decline we've had the last two years.

Okay. John, you mentioned the bid activity in the storage market was $1.8 billion of bids outstanding. How does that compare to a year ago, just put it into some perspective?

I would say it's stronger than a year ago. (multiple speakers) What we're seeing is more higher level of activity and EPC-related projects for tanks and terminals, both in crude and in all these specialty vessels and NGLs and small-scale LNG type facilities.

So I would say overall, it's stronger probably in the tank market itself. Individual tanks is probably where there's probably most of the softness. But in a lot of these bigger facilities where people are looking at more export opportunities for a variety of liquid products or trying to tie into -- get prepared for some of the new pipeline activity, we're seeing quite a bit of activity there.

Okay. And then just finally in terms of the -- your power plant project, I appreciate your comments and realize you don't want to get into too much specifics. But I guess I just want to understand, how much risk is there that a substantial portion of that revenue could be recognized at breakeven this year and on the work you to come before you get it resolved with the customer?

We are having positive discussions with them on some of these outstanding issues. We're not trying to jump across the Grand Canyon here. It's not -- we're not hugely apart. And so, we're -- we feel positive that we're going to come to a resolution and be able to move on.

Okay. And are there other projects out there for you? Taking the last caller, you talked about potentially doing it as a subcontractor on work and pursuing opportunities. And I just wanted to get a sense of where that market is.

Yes, absolutely. We had one project that we had bid in the Northeast that we felt pretty good about on the centerline equipment, erection to piping. We were not awarded that, but there's other pieces of that project where we feel as though we've got a very good position on. And so we are anticipating some news on that within the next quarter or two. And there are other projects in the Northeast area that we are actively either bidding or working with other EPC contractors for pieces of that plant and that installation.

I mean, again, we're -- a lot of activity there. We're trying to pick the right ones that we think either we have got the best chance of winning and to be successful on, or who the right client is and who the right potential partners are. So it's -- we're pretty happy with our positioning there and certainly would expect to add more work in that arena here over the fiscal year.

Okay. Thank you.

Matt Tucker, KeyBanc Capital Markets.

I wanted to just follow up on the change order issue. I'm just trying to understand -- if the change orders are ultimately not approved, would there be a negative impact to margins in the future? And, conversely, if they are approved, would that enhance the margins in the future?

Whenever you've got unapproved change orders, some of them will be for work performed that started. Some is for work that's not started. And it could be an elective addition to a project. And if the change order is not performed or that change order is not approved, then that work never gets done. It doesn't have any impact to the margin on the projects.

Now for these, where we've got change orders for projects for work that's being performed now --. So what you do is, from an accounting standpoint, you recognize revenue to the extent of costs incurred, assuming you think that's what you are going to collect. And so you're going to collect at least that amount.

So our expectation would be that we would at least collect the claim amount or the change order amount. If for some reason it doesn't get approved, then we would have to pursue other avenues to get collection on those monies.

Got it. Thanks, Kevin. That was helpful. And then at storage solutions, you commented on -- it sounds like some of the activity, the increase in activity there is being largely driven by petrochemical and LNG opportunities.

I am curious, why do you think the activity is picking up now? Is this related to some of those large projects that are already under construction? Or are these kind of unrelated and kind of new capital projects? If you could just comment a little bit more on that.

I think there's probably a bunch of different drivers. You've got a cheap natural gas continued. Even though the price has gone up a little bit, I think that's still a driver for some folks. I think people are trying to find where to put their capital dollars and where they can get the best return.

Again, you've got some strong pipeline activity that's in the planning stages. We are looking at projects that are on the Gulf Coast to increase the size of storage facilities for exporting of crude and refined products. Significant amount of activity, as I said, in the small to mid-scale LNG and NGL type of projects.

So I think it's just sort of the economics of where people are seeing their best chance then to get a return.

Thanks. Understood. And then on the JAX LNG award, any sense you can give us for the size of that contract? And was that included in the first-quarter backlog or will that be booked in the second quarter?

It was not included in the first-quarter backlog. And you noticed our press release obviously didn't have any numbers in it, and that's per our clients' wishes. So we don't have authority from them to talk about that.

Fair enough. And then finally on the oil and gas and chemical outlook, the turnaround activity, one of your competitors indicated they saw a pretty sharp uptick in September and October. I'm curious if you experienced that as well. And then as you look out to calendar 2017 -- and it sounds like you're feeling like things should be getting better. I guess how confident are you that work doesn't continue to get deferred? Or do we kind of have to just wait and see this point?

A couple of thoughts there. One is you've got to be careful, I think, when different contractors are telling you different things about how busy they are. Because, in many cases, each of us have our own sort of strong relationships with different clients and in different plants and geographies. So while you may have -- you might have a Shell on the Gulf Coast be planning some strong maintenance activity, and their preferred contractor might be contractor X as opposed to contractor Y, it could appear that that contractor -- when contractor X talks about a strong turnaround environment, that he's talking about the industry at large. So I think you've got to be -- you really need to look at all of what -- take a polling of all the contractors out there and what they're saying in that industry.

Two is that, again, we have -- in many of the clients we do business with, we have people in those facilities that are helping them with planning for the next turnaround and maintenance cycles. That gives us some visibility out into the future. And while we think for us, the second half of the year will be a touch stronger than the first half of the year, that the real big workload is coming in our fiscal 2018 and 2019. That's where we're really seeing the point of where the economics get better and that the clients are just not going to be able to push out some of this maintenance for any longer.

Thanks. Very helpful. I'll jump back in the queue.

Dan Mannes, Avondale.

A couple of quick follow-ups here. First on the Napanee job, can you talk about how you are tracking versus original plan? Are you kind of on target as it relates to the time of completion or any major deviation there?

There's been some -- it wouldn't be appropriate for us for us to talk about that. We've had some changes in the project that has affected the schedule. But I don't want to make statements in a public environment about where that end date is specifically, given where our client is also a public company and they've got certain things that they -- commitments they have in their power markets up in Canada.

Right now, the project continues to be on track for them to meet their commitments.

Got it. That's helpful. And then as it relates to new projects on the power-gen side, I know last quarter I think you said by year-end. It sounds like just given the one closer project you didn't look like you locked down, is year-end still reasonable? Or maybe you just need a little bit more time to lock up the next project?

I think we're still somewhere -- in the next two quarters is when we would expect some additional power-gen awards. I wouldn't expect that there's going to be a full project. It will be a piece of either the electrical scope of work, the centerline erection, mechanical work, that type of thing. I don't expect any kind of a full project where we're the EPC contractor on in the next two quarters.

Understood.

That's not really where our head is at anyways.

So with that in mind, the one that you would hope to get and you didn't, was it because of the firm you were partnering with, did they not win? Or was it a situation where they chose to go with a different kind of subcontractor, or is the project (multiple speakers) ago?

This was a direct bid to owner. The person that they contracted with provided them a proposal that they apparently felt was more compelling.

Understood. Just one or two more quick ones. As it relates to some of the news we've seen just more timely today with some of the earthquakes in Cushing, I know it's premature, but does that change perhaps any opportunity set that you may have as it relates to build-out, reinforcement, maintenance repair, anything that could provide for you?

It's always possible. We have consistently -- since this has started, this kind of uptick in seismic activity in the Cushing region over the past 18 months. We have provided our expertise to our clients in the community on the tanks and the facilities that we've constructed out there, where we see the risks based on the seismic loadings. And so we'll continue to do that, continue to provide that support.

We don't want to be considered somebody who's going to prey on the unfortunate (inaudible) some kind of natural disaster. But certainly I think if the seismic activity continues at the rate it's been happening, it may cause some clients to go back and look at their facilities and do some different things with hardening.

But, again, right now all we are doing is we're providing support in our engineering expertise to the community and to the clients that we work with out there. And it's up to them to make those decisions.

Got it. That makes sense. And I'm not trying to make you sound like a complete opportunist, but you do obviously have a lot of experience in that area.

Right.

And I just want to close out just on the cash and on the buyback, you have certainly seen some quarter-to-quarter working capital swings that seemed a larger than normal. I don't know if you can talk at all about it, if there's something disproportionate about this one, number one.

And then number two, if that did or didn't have any impact on maybe buyback activity, because we didn't see any repurchases this quarter.

No, I think we've talked about that we could see swings in working capital of $50 million in a couple-of-month period. And that's exactly what happened this quarter. And when we -- we watch our working capital investment pretty close to make sure that the quality of that investment isn't deteriorating. So we don't see any deterioration. It's just a matter of cash flows and the timing of those.

And that's one thing we do to keep -- one reason why we keep such a strong liquidity position. And, yes, it did factor in. We didn't elect to do any stock buybacks this quarter because -- one of the reasons was because the investment was so high this quarter.

Does any of that relate to the unapproved change order or is that a pretty minor piece of it?

It's a piece of it, but it's not all of it. You have got to remember you saw the highest revenues and storage driven by the Dakota Access job. And so there was -- we've got our crews that are subcontractors were working nearly six days a week. In some cases, two shifts. So there's a lot of money flowing through that project.

And it just takes them -- you know, month-to-month takes some big working capital draws to keep that ship moving and for us to meet our end-dates and commitments with our clients. And to keep our subcontractors paid in-between those payments. So it's just been a big draw, but it's nothing out of the ordinary.

As Kevin said, from time to time those kind of things happen. And this quarter is one of those times.

And the biggest usage of working capital during the quarter was actually storage solutions, which had an excellent quarter from a volume perspective and a gross margin perspective.

Sounds good. Thanks for all the color, guys

(Operator Instructions) Matt Duncan, Stephens, Inc.

A lot of moving parts with the business right now as we have gone through here. You helped by outlining your longer-term, more normalized gross margin expectations by segment. But as we look from a fiscal 2017 standpoint, can you help us get more dialed in on the revenue guidance and how that shapes up by segment, and how you think the more near-term gross margins look in each of those segments versus what your longer-term, more normalized levels are?

I think if you look at this -- the storage revenues in the first quarter were exceptional, almost $200 million. I think you're going to see those start to trend down a little bit. And you're going to see oil gas and chemicals trend up, and you're going to see the electrical trend up a little bit.

We're still just like we were a quarter ago; we're still being really conservative on our forecasts for the industrial segment. And we've maintained our guidance on revenue as well as EPS. So that kind of gives you an idea of total size from a quarter to quarter -- we don't give quarterly guidance, but I don't see huge fluctuations on a quarterly basis on a consolidated level.

Do you think that industrial segment can crack the $100 million threshold this year?

There's a couple of projects out there that we are actively pursuing, and so I think the potential is there depending on the timing of those awards.

Okay. Last thing for me. You touched on acquisitions in your commentary, but just a quick update on the pipeline and the services you're focusing on adding and you are complementing with your existing portfolio would be great.

Yes, two things continue to be the same. One is we want to be able to expand our electrical footprint both on a high-voltage T&D substation standpoint as well as industrial electrical services. So that's a focus area for us.

And then two is to provide more engineering capability. And what I mean that is not on a -- not to sell engineering services but to get ourselves in a position like we are now in cryogenics to provide more FEED study work, more process work that helps us create EPC and EPC on projects. So that's also a key area for us to try and add some more of those technical skill sets.

We also mentioned on the call that we are seeing more draw into the Caribbean and potential we think there's going to be in Mexico as it privatizes Latin America. So our ability to have a little more skill sets and relationships and to support those markets as they continue to get stronger will also be important.

Great. Thank you guys so much. Have a good one.

(Operator Instructions) At this time, I'm showing no further questions in the queue.

Okay. Thanks, everybody, for your attention on the call. We appreciate it. And we will talk to you the end of the second quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day.